-----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, Ml85JI/CCcnoUF8dQVzQJ/2+Ft6y4wMQqrq9EpzDZZ9uU98UiIynCx8BXTsmoD23 lV2HzpPt+NBHP/ny3o8DLA== 0000890566-98-001440.txt : 19980817 0000890566-98-001440.hdr.sgml : 19980817 ACCESSION NUMBER: 0000890566-98-001440 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA FE ENERGY RESOURCES INC CENTRAL INDEX KEY: 0000086772 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 362722169 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07667 FILM NUMBER: 98687464 BUSINESS ADDRESS: STREET 1: 1616 S.VOSS RD. STREET 2: STE. 1000 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 713-507-5000 MAIL ADDRESS: STREET 1: 1616 S VOSS ROAD STE 1000 CITY: HOUSTON STATE: TX ZIP: 77057 FORMER COMPANY: FORMER CONFORMED NAME: SANTA FE NATURAL RESOURCES INC DATE OF NAME CHANGE: 19900111 10-Q 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 JUNE 30, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-7667 SANTA FE ENERGY RESOURCES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-2722169 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1616 SOUTH VOSS, SUITE 1000, HOUSTON, TEXAS 77057 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 507-5000 NONE (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) 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 OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: CLASS OUTSTANDING AS OF JULY 31, 1998 COMMON STOCK, $.01 PAR VALUE 102,670,659 ============================================================================== TABLE OF CONTENTS PAGE PART I FINANCIAL INFORMATION (UNAUDITED) Item 1. Consolidated Financial Statements Consolidated Statement of Operations for the Three and Six Months ended June 30, 1998 and 1997 3 Consolidated Balance Sheet at June 30, 1998 and December 31, 1997 4 Consolidated Statement of Cash Flows for the Three and Six Months ended June 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURE 18 2 SANTA FE ENERGY RESOURCES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- ------------------------- 1998 1997(1) 1998 1997(1) -------- -------- ------- -------- Revenues: Sales of crude oil and liquids produced .......................... $ 45.7 $ 109.1 $ 85.5 $ 236.4 Sales of natural gas produced .................................... 31.9 30.5 60.7 67.2 Sales of crude oil purchased ..................................... -- 10.3 -- 19.9 Other ............................................................ 0.2 (0.1) 0.4 0.2 ------- ------- ------- ------- Total revenues ................................................ 77.8 149.8 146.6 323.7 ------- ------- ------- ------- Costs and expenses: Production and operating ......................................... 26.2 49.4 51.5 101.6 Cost of crude oil purchased ...................................... -- 10.7 -- 21.4 Exploration, including dry hole costs ............................ 7.3 10.1 19.5 19.4 Depletion, depreciation and amortization ......................... 33.4 35.5 61.5 69.1 General and administrative ....................................... 4.6 10.1 9.0 17.2 Taxes (other than income) ........................................ 4.3 6.6 8.4 14.1 Loss (gain) on disposition of assets ............................. 1.2 0.2 1.2 (2.1) ------- ------- ------- ------- Total costs and expenses ...................................... 77.0 122.6 151.1 240.7 ------- ------- ------- ------- Income (loss) from operations ........................................ 0.8 27.2 (4.5) 83.0 Interest income .................................................. 1.0 0.9 3.2 1.8 Interest expense ................................................. (5.3) (7.8) (9.1) (15.5) Interest capitalized ............................................. 1.9 1.9 3.6 3.5 Other income (expense) ........................................... (0.1) (0.2) (0.1) (0.3) ------- ------- ------- ------- Income (loss) before income taxes and minority interest .............. (1.7) 22.0 (6.9) 72.5 Current income taxes ........................................... 2.8 (0.6) 5.4 (5.1) Deferred income taxes .......................................... (0.7) (7.3) 1.6 (22.7) ------- ------- ------- ------- Income before minority interest ...................................... 0.4 14.1 0.1 44.7 Minority interest in Monterey Resources, Inc. .................... -- (1.6) -- (4.3) ------- ------- ------- ------- Net income ........................................................... 0.4 12.5 0.1 40.4 Preferred dividend requirement ................................... -- (1.2) -- (3.6) Convertible preferred premium .................................... -- (8.5) -- (8.5) ------- ------- ------- ------- Earnings attributable to common shares ............................... $ 0.4 $ 2.8 $ 0.1 $ 28.3 ======= ======= ======= ======= Basic and diluted earnings attributable to common shares per share .......................................... $ -- $ 0.03 $ -- $ 0.30 ======= ======= ======= ======= Weighted average number of shares outstanding Basic ............................................................ 102.9 97.0 102.8 94.1 ======= ======= ======= ======= Diluted .......................................................... 105.6 98.1 105.6 95.1 ======= ======= ======= =======
(1)Includes results of Monterey Resources, Inc. See accompanying notes. 3 SANTA FE ENERGY RESOURCES, INC. CONSOLIDATED BALANCE SHEET (IN MILLIONS, EXCEPT AS NOTED)
JUNE 30, DECEMBER 31, 1998 1997 ---------- --------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents .......................................... $ 13.8 $ 5.6 Accounts receivable ................................................ 69.2 70.9 Inventories ........................................................ 20.2 14.5 Other current assets ............................................... 27.9 21.8 -------- -------- 131.1 112.8 -------- -------- Properties and equipment, at cost: Oil and gas (successful efforts method of accounting) .............. 1,856.3 1,682.4 Other .............................................................. 17.5 16.8 -------- -------- 1,873.8 1,699.2 Accumulated depletion, depreciation, amortization and impairment ... (1,099.9) (1,049.5) -------- -------- 773.9 649.7 -------- -------- Other assets ........................................................... 13.2 26.4 -------- -------- $ 918.2 $ 788.9 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ................................................... $ 83.3 $ 106.7 Income taxes payable ............................................... 0.1 6.5 Interest payable ................................................... 2.4 1.4 Other current liabilities .......................................... 15.5 19.4 -------- -------- 101.3 134.0 -------- -------- Long-term debt ......................................................... 287.6 121.7 Deferred revenues ...................................................... 3.7 3.7 Other long-term obligations ............................................ 36.6 36.3 Deferred income taxes .................................................. 37.3 38.5 Commitments and contingencies (See Note 5) ............................. -- -- Shareholders' equity: Preferred stock, $0.01 par value, 38.1 million shares authorized, none issued ....................................................... -- -- Common stock, $0.01 par value, 200.0 million shares authorized, 102.9 million shares issued and outstanding (103.0 million in 1997) 1.0 1.0 Paid-in capital .................................................... 728.2 728.2 Accumulated deficit ................................................ (273.5) (273.2) Treasury stock, at cost, 0.2 million shares (0.1 million in 1997) .. (1.5) (0.6) Unamortized restricted stock awards ................................ (2.5) (0.7) -------- -------- 451.7 454.7 -------- -------- $ 918.2 $ 788.9 ======== ========
See accompanying notes. 4 SANTA FE ENERGY RESOURCES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 1998 1997(1) 1998 1997(1) -------- ------ ------- ------- Operating activities: Net income .......................................................... $ 0.4 $ 12.5 $ 0.1 $ 40.4 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization ......................... 33.4 35.5 61.5 69.1 Deferred income taxes ............................................ 0.7 7.3 (1.6) 22.7 Loss (gain) on disposition of assets ............................. 1.2 0.2 1.2 (2.1) Exploratory dry hole costs ....................................... 3.6 3.2 7.2 8.3 Minority interest in Monterey Resources, Inc. .................... -- 1.6 -- 4.3 Other ............................................................ 1.0 1.4 1.9 2.4 Changes in operating assets and liabilities: ........................ -- Decrease (increase) in accounts receivable ....................... 6.6 17.0 4.6 9.7 Decrease (increase) in inventories ............................... (0.8) (2.1) (3.8) (1.9) Increase (decrease) in accounts payable .......................... 2.1 (7.6) (10.2) (1.3) Increase (decrease) in interest payable .......................... (2.0) 1.9 1.0 -- Increase (decrease) in income taxes payable ...................... (4.3) (8.4) (6.4) (4.5) Net change in other assets and liabilities ....................... 6.7 (9.4) 7.6 29.3 -------- ------ ------- ------- Net cash provided by operating activities ............................... 48.6 53.1 63.1 176.4 -------- ------ ------- ------- Investing activities: Capital expenditures, including exploratory dry hole costs .......... (59.4) (57.6) (118.1) (117.7) Acquisition of producing properties ................................. (88.2) (3.2) (100.0) (34.7) Net proceeds from disposition of assets ............................. 0.3 0.3 1.8 2.9 -------- ------ ------- ------- Net cash used in investing activities ................................... (147.3) (60.5) (216.3) (149.5) -------- ------ ------- ------- Financing activities: Net change in long-term lines of credit ............................. 108.8 10.0 165.9 6.0 Issuance of Santa Fe Energy Resources, Inc. common stock ............ -- 0.5 -- 1.6 Treasury stock reissued ............................................. 1.1 -- 1.5 -- Treasury stock purchased ............................................ (1.1) -- (6.0) -- Cash dividends paid ................................................. -- (4.8) -- (7.2) -------- ------ ------- ------- Net cash provided by financing activities ............................... 108.8 5.7 161.4 0.4 -------- ------ ------- ------- Net increase (decrease) in cash ......................................... 10.1 (1.7) 8.2 27.3 Cash and cash equivalents at beginning of period ........................ 3.7 43.6 5.6 14.6 -------- ------ ------- ------- Cash and cash equivalents at end of period .............................. $ 13.8 $ 41.9 $ 13.8 $ 41.9 ======== ====== ======= ======= Supplemental disclosure of cash flow information: Interest paid ....................................................... $ 7.1 $ 5.9 $ 7.8 $ 15.3 Income taxes paid ................................................... $ 1.5 $ 8.6 $ 3.3 $ 9.4
(1)Includes results of Monterey Resources, Inc. See accompanying notes. 5 SANTA FE ENERGY RESOURCES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. ACCOUNTING POLICIES The consolidated financial statements at June 30, 1998 and for the three and six months then ended are unaudited and reflect all adjustments (consisting of only normal and recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The results for the three and six months ended June 30, 1998 are not necessarily indicative of the results which may be expected for any other interim period or for the year ending December 31, 1998. On July 25, 1997 the Company distributed pro rata to its common shareholders all of the 82.8% of Monterey Resources, Inc. ("Monterey") common stock that it owned by means of a tax-free distribution (the "Spin Off"). Consequently, the financial results of Monterey are included for the entire period ended June 30, 1997 and excluded for the entire period ended June 30, 1998. See Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a comparison of financial results excluding Monterey. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). Both Statements are effective for fiscal years beginning after December 15, 1997. Neither Statement affects the Company's reported consolidated net income. Currently the Company has no comprehensive income other than net income. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). The Statement is effective for fiscal years beginning after December 15, 1997. The Statement has no effect on the Company's reported consolidated net income. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The Statement is effective for fiscal years beginning after June 15, 1999. The Company intends to implement the provisions of the Statement beginning with the first quarter of 2000. The Company believes that its current hedging activity qualifies as a hedge of a forecasted transaction under the new Statement, and therefore adoption will not result in any change to reported net income. The Statement will, however, result in unrealized hedging gains and losses being charged to other comprehensive income after adoption. 6 NOTE 2. EARNINGS PER SHARE The following tables set forth the components of the Company's basic and diluted earnings per share calculations based on the computation requirements of SFAS 128.
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997 ----------------------------------- ------------------------------------ PER-SHARE PER-SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT -------- -------------- -------- -------------- -------- ------------ (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net Income .................................. $ 0.4 $ 12.5 Less: Preferred dividends ................... -- (9.7) ------ ------ Basic and diluted Earnings Per Share Earnings attributable to common shares ...... $ 0.4 102.9 $ - $ 2.8 97.0 $ 0.03 ====== ======== ====== ==========
The Company had 2.3 million and 0.9 million common shares which would be issued upon the exercise of stock options which although dilutive in nature, did not change earnings per share in the three months ended June 30, 1998 and 1997, respectively. In addition, there were 0.4 million and 0.2 million common shares which would be issued upon vesting of Phantom Units in the three months ended June 30, 1998 and 1997, respectively, which although dilutive in nature did not change earnings per share. There were 2.4 million and 0.4 million stock options outstanding in the three months ended June 30, 1998 and 1997, respectively, which were not included in the computation of diluted earnings per share because the exercise price of these options was greater than the average market price of the common shares. In the second quarter of 1997 the Company converted all of its outstanding convertible preferred stock into common shares.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997 -------------------------------- ------------------------------------ PER-SHARE PER-SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT -------- -------------- -------- -------------- -------- ------------ (in millions, except per share amounts) Net Income .................................. $ 0.1 $ 40.4 Less: Preferred dividends ................... -- (12.1) ------ ------ Basic and diluted Earnings Per Share Earnings attributable to common shares ...... $ 0.1 102.8 $ - $ 28.3 94.1 $ 0.30 ====== ======== ====== ==========
For the six months ended June 30, 1998 and 1997, the Company had 2.4 million and 0.9 million common shares which would be issued upon the exercise of stock options, respectively, which although dilutive in nature, did not change earnings per share. In addition, there were 0.4 million and 0.1 million common shares which would be issued upon vesting of Phantom Units in the six months ended June 30, 1998 and 1997, respectively, which although dilutive in nature did not change earnings per share. There were 2.4 million and 0.4 million stock options outstanding in the six months ended June 30, 1998 and 1997, respectively, which were not included in the computation of diluted earnings per share because the exercise price of these options was greater than the average market price of the common shares. In the second quarter of 1997 the Company converted all of its outstanding convertible preferred stock into common shares. Note 3. Treasury Stock The Company's Board of Directors has authorized the Company to buy back up to $50 million of its common stock to meet the requirements of outstanding stock options and to satisfy the stock requirements of employee benefit plans. During the three and six months ended June 30, 1998, the Company purchased 0.1 million and 0.6 million common shares for approximately $1.1 million and $6.0 million, respectively. 7 Note 4. Cash Flows The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash. The following balances represent noncash adjustments to the Company's Consolidated Balance Sheet as of June 30, 1998, related to the acquisition of an additional interest in the Tuban Production Sharing Contract on the island of Java in Indonesia from Total S. A. TOTAL S. A. ACQUISITION ----------- (IN MILLIONS) Accounts receivable $ 2.9 Inventories 1.9 Other current assets 3.4 Accounts payable 3.4 Other long-term obligations 0.1 Deferred income taxes 0.4 Note 5. Commitments and Contingencies OIL AND GAS HEDGING. From time to time the Company hedges a portion of its oil and gas sales to provide a certain minimum level of cash flow from its sales of oil and gas. While the hedges are generally intended to reduce the Company's exposure to declines in market price, the Company's gain from increases in market price may be limited. The Company uses various financial instruments whereby monthly settlements are based on differences between the prices specified in the instruments and the settlement prices of certain futures contracts quoted on the New York Mercantile Exchange ("NYMEX") or certain other indices. Generally, in instances where the applicable settlement price is less than the price specified in the contract, the Company receives a settlement based on the difference; in instances where the applicable settlement price is higher than the specified price, the Company pays an amount based on the difference. The instruments utilized by the Company differ from futures contracts in that there is no contractual obligation which requires or allows for the future delivery of a product. Gains or losses on hedging activities are recognized in oil and gas revenues in the period in which the hedged production is sold. Crude oil sales hedges resulted in an increase in revenues of $0.9 million during the second quarter of 1998 and $1.1 million during the first six months of 1998, compared with $1.4 million during the second quarter of 1997 and $1.7 million during the first six months of 1997. The Company had no open natural gas sales hedges in 1997 or 1998. At June 30, 1998, the Company had open crude oil sales hedges on 8,000 barrels per day for the period July through September 1998. The instruments used have a floor of $16.00 per barrel and ceilings ranging from $17.75 to $18.00 per barrel. Under the terms of the instruments, if the aggregate average of the applicable daily settlement prices is below the floor, the Company will receive a settlement based on the difference, and if the aggregate average of the applicable daily settlement prices is above the ceiling, the Company will be required to pay an amount based on the difference. Based on the July 1998 settlement price of the applicable NYMEX futures contract, the Company would recognize a $1.4 million gain with respect to such hedges at July 31, 1998. The actual gains or losses realized by the Company from these hedges may vary significantly due to the volatility of future markets. ENVIRONMENTAL MATTERS. The Company's oil and gas operations are subject to stringent environmental regulation by government authorities. Such regulation has increased the costs of planning, designing, drilling, installing, operating and abandoning oil and gas wells and associated facilities. The Company has expended significant financial and managerial resources to comply with such regulations. Although the Company believes its operations and facilities are in general compliance with applicable environmental regulations, the risk of 8 substantial costs and liabilities are inherent to oil and gas operations. It is possible that other developments, such as increasingly strict environmental laws, regulations and enforcement policies or claims for damages to property, employees, other persons and the environment resulting from the Company's operations, could result in significant costs and liabilities in the future. As it has in the past, the Company intends to fund the future costs of environmental compliance from operating cash flows. There are other claims and actions pending against the Company. In the opinion of management, the amounts, if any, which may be awarded in connection with any of these claims and actions could be significant to the results of operations of any period but would not be material to the Company's consolidated financial position. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations As described in Note 1 of the Notes to the Consolidated Financial Statements, the Company completed the Spin Off of Monterey on July 25, 1997. As a result of this transaction, management believes the 1997 consolidated results are not representative of the Company's on-going operations. Consequently, in order to provide more relevant information, the following discussions focus on the results of the Company, excluding Monterey. RESULTS OF OPERATIONS The following unaudited financial and operating schedules for the three and six months ended June 30, 1997 were derived from the historical financial statements of the Company and set forth the results of the Company, excluding Monterey Resources, Inc. Income taxes for this period were computed on a separate company basis as if the Company had filed returns excluding Monterey and its predecessor operations.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 1998 1997 1998 1997 -------- -------- -------- -------- (in millions, except per share data) Revenues: Sales of crude oil and liquids ................................ $ 45.7 $ 45.2 $ 85.5 $ 97.9 Sales of natural gas .......................................... 31.9 30.2 60.7 66.5 Other ......................................................... 0.2 (0.3) 0.4 (0.2) ------- ------- ------- ------- Total revenues ............................................. 77.8 75.1 146.6 164.2 ------- ------- ------- ------- Costs and expenses: Production and operating ...................................... 26.2 19.8 51.5 40.9 Exploration, including dry hole costs ......................... 7.3 9.6 19.5 18.6 Depletion, depreciation and amortization ...................... 33.4 25.8 61.5 50.1 General and administrative .................................... 4.6 6.3 9.0 10.7 Taxes (other than income) ..................................... 4.3 3.2 8.4 8.1 Loss (gain) on disposition of assets .......................... 1.2 0.2 1.2 (2.1) ------- ------- ------- ------- Total costs and expenses ................................... 77.0 64.9 151.1 126.3 ------- ------- ------- ------- Income (loss) from operations ..................................... 0.8 10.2 (4.5) 37.9 Interest income ............................................... 1.0 0.6 3.2 1.0 Interest expense .............................................. (5.3) (2.9) (9.1) (5.9) Interest capitalized .......................................... 1.9 1.5 3.6 2.8 Other income (expense) ........................................ (0.1) (0.2) (0.1) (0.3) ------- ------- ------- ------- Income (loss) before income taxes ................................. (1.7) 9.2 (6.9) 35.5 Current income taxes ........................................ 2.8 4.6 5.4 8.6 Deferred income taxes ....................................... (0.7) (8.2) 1.6 (21.5) ------- ------- ------- ------- Net income ........................................................ 0.4 5.6 0.1 22.6 Preferred dividend requirement ................................ -- (1.2) -- (3.6) Convertible preferred premium ................................. -- (8.5) -- (8.5) ------- ------- ------- ------- Earnings (loss) attributable to common shares ..................... $ 0.4 $ (4.1) $ 0.1 $ 10.5 ======= ======= ======= ======= Basic and diluted earnings (loss) attributable to common shares per share ....................................... $ -- $ (0.04) $ -- $ 0.11 ======= ======= ======= ======= Weighted average number of shares outstanding Basic ......................................................... 102.9 97.0 102.8 94.1 ======= ======= ======= ======= Diluted ....................................................... 105.6 98.1 105.6 95.1 ======= ======= ======= =======
10
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- -------------------------- 1998 1997 1998 1997 --------- -------- -------- -------- PRODUCTION Crude oil and liquids (MBbls/day) Domestic ............................................. 21.5 20.9 21.5 20.8 Argentina ............................................ 5.5 4.3 5.5 4.4 Indonesia ............................................ 13.0 3.6 10.0 3.7 Gabon ................................................ 1.9 -- 1.4 -- ------- ------- ------- ------- Total ................................................ 41.9 28.8 38.4 28.9 Natural Gas (MMcf/day) Domestic ............................................. 156.8 156.5 154.1 152.5 Argentina ............................................ 26.0 22.7 25.7 20.7 Indonesia ............................................ 0.4 0.3 0.3 0.4 ------- ------- ------- ------- Total ................................................ 183.2 179.5 180.1 173.6 AVERAGE PRICES Crude oil and liquids ($/Bbl) Actual (unhedged) .................................... $ 11.90 $ 17.05 $ 12.32 $ 18.77 Realized (hedged) .................................... 12.12 17.59 12.48 19.10 Natural gas ($/Mcf) .................................... $ 1.99 $ 1.91 $ 1.96 $ 2.21 Costs and Expenses (In dollars per BOE) Production and operating (a) ........................... $ 3.97 $ 3.70 $ 4.15 $ 3.90 Exploration, including dry hole costs .................. 1.11 1.80 1.58 1.78 Depletion, depreciation and amortization ............... 5.06 4.83 4.96 4.79 General and administrative ............................. 0.70 0.96(e) 0.73 0.91(e) Taxes, other than income (b) ........................... 0.65 0.62 0.68 0.78 Interest expense, net (c) .............................. 0.47(d) 0.19 0.39(d) 0.21
- ---------- a) Excludes related production, severance and ad valorem taxes. b) Includes related production, severance and ad valorem taxes. c) Reflects interest expense less amounts capitalized and interest income. d) Excludes effect of $0.7 million ($0.04 per BOE) for the three months ended June 30, 1998 and $2.6 million ($0.05 per BOE) for the six months ended June 30, 1998, of interest income on an anticipated income tax refund. e) Excludes effect of $1.1 million ($0.21 and $0.11 per BOE for the three and six months ended June 30, 1997, respectively) in general and administrative costs related to the Spin Off of Monterey GENERAL As an independent oil and gas producer, the Company's results of operations are dependent upon the difference between the prices received for oil and gas and the costs of finding and producing such resources. Crude oil prices are subject to significant changes in response to fluctuations in the domestic and world supply and demand and other market conditions as well as the world political situation as it affects OPEC, the Middle East and other producing countries. For the twelve months ended June 30, 1998 the actual average crude oil and liquids sales price (unhedged) received by the Company ranged from a high of $17.15 per barrel in the fourth quarter of 1997 to a low of $11.90 per barrel in the second quarter of 1998. The Company's average crude oil and liquids sales price (unhedged) received in July 1998 was $11.60 per barrel. Based on operating results for the 11 first six months of 1998, the Company estimates that on an annualized basis a $1.00 per barrel increase or decrease in its average crude oil sales price would result in a corresponding $8.7 million change in net income and a $10.1 million change in cash flow from operating activities. The price of domestic natural gas fluctuates due to weather conditions, the level of natural gas in storage, the relative balance between supply and demand and other economic factors. With regard to the Company's Argentina operations, the Company sells its natural gas production under long-term contracts at prices ranging from $1.15 to $1.35 per MMbtu. The actual average sales price received by the Company for the twelve months ended June 30, 1998 for its natural gas ranged from a high of $2.54 per Mcf in the fourth quarter of 1997 to a low of $1.92 per Mcf in the first quarter of 1998. Based on operating results for the first six months of 1998, the Company estimates that on an annualized basis a $0.10 per Mcf increase or decrease in its average natural gas sales price would result in a corresponding $3.9 million change in net income and a $4.8 million change in cash flow from operating activities. The foregoing estimates do not give effect to changes in any other factors, such as the effect of the Company's oil hedging program, its debt levels and related interest expense or the level of capital expenditures, that might result from a change in crude oil and natural gas prices. THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997 The Company reported earnings to common shares for the three months ended June 30, 1998 of $0.4 million, or break-even results per share, compared with a loss to common shares of $4.1 million, or $0.04 per share, for the same period in 1997 on a pro forma basis excluding Monterey. OIL AND GAS REVENUES. Revenues from crude oil and natural gas operations increased to $77.8 million for the three months ended June 30, 1998 compared with $75.1 million for the same period in 1997, due to increased production, which more than offset the effect of lower oil prices. The Company's crude oil and liquids production increased 45% in the second quarter of 1998 to 41.9 MBbls per day from 28.8 MBbls per day for the same period in 1997. The increase in oil production was driven primarily by new production from the Mudi, N. Geragai and Makmur fields in Indonesia and the Tchatamba field in Gabon, augmented by the acquisition of an additional working interest in the Tuban Production Sharing Contract in Indonesia and the purchase of an interest in the Tupungato field in Argentina. Natural gas production increased in the second quarter of 1998 to 183.2 MMcf per day from 179.5 MMcf per day for the same period in 1997. Production from new wells in the Permian Basin, Gulf of Mexico and Argentina more than offset normal production declines and the loss of production from property sales in the Gulf. The Company's realized crude oil prices for the three months ended June 30, 1998 averaged $12.12 per barrel, including a $0.22 per barrel hedging benefit, a decrease of 31% from the average realized oil price of $17.59 per barrel, including a $0.54 per barrel hedging benefit, for the same period in 1997. Realized natural gas prices for the three months ended June 30, 1998 averaged $1.99 per Mcf, compared with an average of $1.91 per Mcf for the same period in 1997. COSTS AND EXPENSES. Production and operating expense and depletion, depreciation and amortization expense increased $6.4 million and $7.6 million, respectively, for the three months ended June 30, 1998 compared with the same period in 1997, due to increased crude oil and natural gas production, as noted above. Exploration expense for the three months ended June 30, 1998 decreased to $7.3 million from $9.6 million for the same period in 1997, due primarily to lower seismic costs. General and administrative expense for the three months ended June 30, 1997 included $1.1 million of costs associated with the Spin Off. Excluding these spin related costs, general and administrative expense decreased by $0.26 on a unit of production basis to $0.70 per BOE in the second quarter 1998 due to higher production levels and a slight decrease in general and administrative costs. The loss on disposition of assets for the three months ended June 30, 1998 includes a $1.2 million loss on the sale of certain offshore properties in the Gulf of Mexico. Interest income for the three months ended June 30, 1998 included a $0.7 million benefit related to an anticipated income tax refund. Interest expense for the second quarter of 1998 increased by $2.4 million compared with the same period in 1997, reflecting an increase in borrowings. Income taxes for the three months ended June 30, 1998 included a $1.7 million benefit due to the resolution of prior year tax matters. The decrease in the Company's preferred dividend requirement in the second quarter of 1998 is due to the May 1997 purchase and conversion of all of the Company's outstanding preferred stock. SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997 The Company reported earnings to common shares for the six months ended June 30, 1998 of $0.1 million, or break-even results per share, compared with earnings to common shares of $10.5 million, or $0.11 per share, for the same period in 1997 on a pro forma basis excluding Monterey. OIL AND GAS REVENUES. Revenues from crude oil and natural gas operations decreased to $146.6 million for the six months ended June 30, 1998 compared with $164.2 million for the same period in 1997, due to lower 12 realized prices, partially offset by increased production. The Company's crude oil and liquids production increased by approximately 33% in the first six months of 1998 to 38.4 MBbls per day from 28.9 MBbls per day for the same period in 1997, due to new production from the Mudi, N. Geragai and Makmur fields in Indonesia and the Tchatamba field in Gabon, augmented by the acquisition of an additional working interest in the Tuban Production Sharing Contract in Indonesia and the purchase of an interest in the Tupungato field in Argentina. Natural gas production increased in the first six months of 1998 to 180.1 MMcf per day compared with 173.6 MMcf per day for the same period in 1997. Normal production declines and the loss of production from property sales in the Gulf of Mexico were more than offset by production from new wells in the Permian Basin, Gulf of Mexico and Argentina. The Company's realized crude oil prices for the six months ended June 30, 1998 averaged $12.48 per barrel, including a $0.16 per barrel hedging benefit, compared with the average realized oil price of $19.10 per barrel, including a $0.33 per barrel hedging benefit, for the same period in 1997. Realized natural gas prices for the six months ended June 30, 1998 averaged $1.96 per Mcf, compared with an average of $2.21 per Mcf for the same period in 1997. COSTS AND EXPENSES. Production and operating expense and depletion, depreciation and amortization expense increased $10.6 million and $11.4 million, respectively, for the six months ended June 30, 1998 compared with the same period in 1997, due to increased crude oil and natural gas production, as noted above. General and administrative expense for the six months ended June 30, 1997 included $1.1 million of costs associated with the Spin Off. Excluding these spin related costs, general and administrative expense decreased by $0.18 on a unit of production basis to $0.73 per BOE in the first six months of 1998 due to increased production levels and a slight decrease in general and administrative costs. The loss on disposition of assets for the six months ended June 30, 1998 included a $1.2 million loss on certain offshore properties in the Gulf of Mexico. The gain on dispositions of assets in the first six months of 1997 included a $2.4 million gain from the sale of properties in Eddy County, New Mexico. Interest income for the six months ended June 30, 1998 included a $2.6 million benefit related to an anticipated income tax refund. Interest expense for the first six months of 1998 increased by $3.2 million compared with the same period in 1997, reflecting an increase in borrowings between the comparative periods. Income taxes for the six months ended June 30, 1998 included a $2.4 million benefit related to the previously discussed income tax refund and a $1.7 million benefit due to the resolution of prior year tax matters. The decrease in the Company's preferred dividend requirement in the first six months of 1998 is due to the May 1997 purchase and conversion of all of the Company's outstanding preferred stock. The decrease in other assets from $26.4 million at December 31, 1997 to $13.2 million at June 30, 1998 reflects a $16.0 million decrease in escrowed funds related to producing property acquisitions completed by the Company in the first six months of 1998. Accounts payable decreased $23.4 million at June 30, 1998 to $83.3 million, primarily due to decreased activity and the timing of payments. LIQUIDITY AND CAPITAL RESOURCES CAPITAL EXPENDITURES. The Company's primary needs for cash are for exploration, development and acquisitions of oil and gas properties. The Company spent $218.0 million for capital expenditures in the six months ended June 30, 1998, including $100.0 million for acquisitions, and expects to spend approximately $294.0 million in 1998. In addition to the expected capital expenditures, the Board of Directors has authorized the Company to buy back up to $50 million of its common stock to meet the requirements of outstanding stock options and to satisfy the stock requirements of employee benefit plans, and during the six months ended June 30, 1998 the Company spent $6.0 million to purchase 0.6 million shares of its common stock. Because the actual amounts expended in the future for capital expenditures and to purchase stock will be influenced by numerous factors, including many beyond the Company's control, no assurances can be given as to the amount that will actually be expended during the year. CAPITAL RESOURCES. The Company's capital resources for the six months ended June 30, 1998 consisted of cash flow from operating activities of $63.1 million, proceeds from property sales of $1.8 million and $165.9 million in borrowings under its bank credit facilities. Effective May 15, 1998, the Company amended its revolving 13 credit agreement (the "Credit Agreement") which matures May 15, 2003. The agreement permits the Company to obtain revolving credit loans and issue letters of credit with the maximum aggregate amounts outstanding limited to $250 million and $30.0 million, respectively. Borrowings under the agreement are unsecured and interest rates are tied to the agent bank's prime rate or eurodollar offering rate, at the Company's option. At June 30, 1998, the Company had $185.0 million in borrowings outstanding under the Credit Agreement, which was classified as long-term debt on the balance sheet. The Company had one letter of credit outstanding under the Credit Agreement at June 30, 1998 for $1.7 million and one letter of credit outside the Credit Agreement for $1.8 million. The Credit Agreement and the indenture for the Debentures include covenants that restrict the Company's ability to take certain actions, including the ability to incur additional indebtedness and to pay dividends or repurchase capital stock. Under the most restrictive of these covenants, at June 30, 1998 the Company could incur up to $410.7 million of additional indebtedness and pay dividends of or repurchase up to an incremental $44.9 million of its capital stock. In addition to the Credit Agreement the Company also has three short-term uncommitted lines of credit totalling $60.0 million which are used to meet short-term cash needs. As of June 30, 1998, the Credit Agreement limits the amounts borrowed under the uncommitted lines of credit, together with all other unsecured debt, to $50.0 million. Interest rates on borrowings under these lines of credit are typically lower than rates paid under the Credit Agreement. At June 30, 1998, the Company had $3.0 million in borrowings outstanding under these facilities, which was classified as long-term debt on the balance sheet. The Company has historically funded its operations and capital spending programs with cash flow from operations and borrowings under bank credit facilities. The Company believes that cash flow from operations, the borrowing availability under the Credit Agreement and from other capital markets will be sufficient to meet its anticipated capital requirements for 1998. INDONESIA. In the last quarter of 1997 and in 1998 many Asian countries experienced significant devaluation in their currencies, which has resulted in disruptions and uncertainties in financial markets. During the same period world commodity prices have fallen, including the price of crude oil, in part due to uncertainties about the strength of some Asian economies. The Company's Asian producing operations are located in Indonesia which has suffered substantial devaluation of its currency and some civil unrest. The effect of this currency devaluation has been to reduce certain operating and administrative costs incurred by the Company in its Indonesian operations, thus reducing the number of cost recovery barrels it retains in reimbursement of such expenses, and to reduce the value of certain receivables and payables which are denominated in the local currency, the rupiah. In addition, the Company has experienced delays in collecting some receivables. As of August 10, 1998 the Company's accounts receivable included $5.2 million of past due receivables (net to the Company's interest) from the Indonesian state oil agency. The Company has experienced disruptions in the delivery of some services and goods which has led to delays in certain operations and associated production. The Company sells its Indonesian production for U.S. dollars generally outside of Indonesia. The Company currently sells its production from the Jabung Block to the Indonesian state oil agency for U.S. dollars. For the six months ended June 30, 1998, the Jabung Block produced 2.2 MBbls per day net to the Company. The Company is currently in the process of applying for a license to export crude oil from these fields. The Company's Indonesian operations generated $5.4 million of income from operations and $13.1 million in cash flow from operating activities for the six months ended June 30, 1998. While the financial uncertainties in Asia and civil unrest in Indonesia have not had a significant effect on the Company's operations in Indonesia to date, the Company cannot predict with any certainty the future effects of these disruptions, if any, on its income from Indonesian operations and future development activity in Indonesia. OTHER. The Company has initiated a project to ensure that all of its computer software systems are year 2000 compliant. This project is expected to be completed prior to mid-1999, and the Company estimates that the cost of the project will be less than $1.0 million. The Company is also reviewing year 2000 compliance by certain purchasers 14 in order to determine any exposure to the Company for year 2000 issues. The Company does not anticipate that there will be any significant exposure. CONSOLIDATED RESULTS, INCLUDING MONTEREY THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997 On a consolidated basis the Company reported total revenues of $77.8 million, total costs and expenses of $77.0 million and earnings to common shares of $0.4 million or break-even results per share for the three months ended June 30, 1998 compared with total revenues of $149.8 million, total costs and expenses of $122.6 million and earnings to common shares of $2.8 million or $0.03 per share for the same period in 1997. Such 1997 results reflect the consolidation of Monterey Resources for the entire period. OIL AND GAS REVENUES. Total revenues from crude oil and natural gas produced decreased to $77.6 million in the three months ended June 30, 1998 from $139.6 million for the same period in 1997. The decrease is due to the contribution of Monterey for the full period in 1997 combined with lower realized prices in the second quarter of 1998. Crude oil prices realized for the three months ended June 30, 1998 averaged $12.12 per barrel, including a $0.22 per barrel hedging benefit, compared with the same period in 1997 when the average realized oil price was $15.37 per barrel, including a $0.20 per barrel hedging benefit. Natural gas prices realized for the three months ended June 30, 1998 averaged $1.99 per Mcf, compared with an average of $1.89 per Mcf in the 1997 period. COSTS AND EXPENSES. Total costs and expenses decreased to $77.0 million in the second quarter of 1998 from $122.6 million in 1997. The decrease is due to the Spin Off of Monterey ($57.7 million), as discussed above, partially offset by increases in production and operating expense and depletion, depreciation and amortization expense of $6.4 million and $7.6 million, respectively, due to increased crude oil and natural gas production in the second quarter of 1998 from properties not conveyed to Monterey. Interest income for the three months ended June 30, 1998 included a $0.7 million benefit related to an anticipated income tax refund. Interest expense decreased by $2.5 million due to the elimination of Monterey's debt for which interest expense was included for the entire 1997 period, which was partially offset by increased borrowings in the second quarter of 1998. Income taxes for the three months ended June 30, 1998 included a $1.7 million benefit due to the resolution of prior year tax matters. The decrease in the Company's preferred dividend requirement in the second quarter of 1998 is due to the 1997 purchase and conversion of all of the Company's outstanding preferred stock. SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997 On a consolidated basis the Company reported total revenues of $146.6 million, total costs and expenses of $151.1 million and earnings to common shares of $0.1 million or break-even results per share for the six months ended June 30, 1998 compared with total revenues of $323.7 million, total costs and expenses of $240.7 million and earnings to common shares of $28.3 million or $0.30 per share for the same period in 1997. Such 1997 results reflect the consolidation of Monterey Resources for the entire period. OIL AND GAS REVENUES. Total revenues from crude oil and natural gas produced decreased to $146.2 million in the six months ended June 30, 1998 from $303.6 million for the same period in 1997. The decrease is due to the contribution of Monterey for the full period in 1997 combined with lower realized prices in the first six months of 1998. Crude oil prices realized for the six months ended June 30, 1998 averaged $12.48 per barrel, including a $0.16 per barrel hedging benefit, compared with the same period in 1997 when the average realized oil price was $16.70 per barrel, including a $0.12 per barrel hedging benefit. Natural gas prices realized for the six months ended June 30, 1998 averaged $1.96 per Mcf, compared with an average of $2.19 per Mcf in the 1997 period. 15 COSTS AND EXPENSES. Total costs and expenses decreased to $151.1 million in the first six months of 1998 from $240.7 million in 1997. The decrease is due to the Spin Off of Monterey ($114.4 million), as discussed above, partially offset by increases in production and operating expense and depletion, depreciation and amortization expense of $10.6 million and $11.4 million, respectively, due to increased crude oil and natural gas production in the first six months of 1998 from properties not conveyed to Monterey. Interest income for the six months ended June 30, 1998 included a $2.6 million benefit related to an anticipated income tax refund. Interest expense decreased by $6.4 million due to the elimination of Monterey's debt for which interest expense was included for the entire 1997 period, which was partially offset by increased borrowings in the first six months of 1998. Income taxes for the six months ended June 30, 1998 included a $2.4 million benefit related to the previously discussed income tax refund and a $1.7 million benefit due to the resolution of prior year tax matters. The decrease in the Company's preferred dividend requirement in the first six months of 1998 is due to the 1997 purchase and conversion of all of the Company's outstanding preferred stock. FORWARD-LOOKING STATEMENTS In its discussion and analysis of financial condition and results of operations and elsewhere herein, 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," "anticipates," "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 that 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, hedging results, the need to develop and replace its reserves, the substantial capital expenditures required to fund its operations, exploration and development risks, environmental risks, uncertainties about estimates of reserves, competition, government regulation and political and litigation risks, 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. 16 PART II. OTHER INFORMATION ITEMS 1, 2, 3 & 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders, held May 11, 1998, the following individuals were elected to the Board of Directors: Melvyn N. Klein - Term expires at annual meeting of stockholders in 2001 James L. Payne - Term expires at annual meeting of stockholders in 2001 The following members of the Board of Directors had terms which continued after the meeting: Allan V. Martini - Term expires at annual meeting of stockholders in 1999 Reuben F. Richards - Term expires at annual meeting of stockholders in 1999 Kathryn D. Wriston - Term expires at annual meeting of stockholders in 1999 Marc J. Shapiro - Term expires at annual meeting of stockholders in 2000 William E. Greehey - Term expires at annual meeting of stockholders in 2000 The following proposals were approved at the Company's Annual meeting: Affirmative Negative Votes Votes Votes Withheld ----- ----- -------- 1. Election of two directors to the Board of Directors: Melvyn N. Klein 69,604,533 - 15,366,920 James L. Payne 83,676,828 - 1,294,625 2. Consider and ratify the 84,665,576 186,949 118,928 appointment of Price Waterhouse LLP as the independent accountants of the Company for the fiscal year ending December 31, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION ------ ----------- *10(a) Amended and Restated Credit Agreement dated as of May 15, 1998 among Santa Fe Energy Resources, Inc., the banks signatory thereto, and Chase Bank of Texas, N.A., as Administrative Agent and ABN AMRO Bank, N.V., Bank of America National Trust and Savings Association, NationsBank, N.A. and Wells Fargo Bank (Texas), N.A. as Co-Agents. _________ * Filed herewith (b) Reports on Form 8-K None 17 SIGNATURE Pursuant to the requirements Section 13 or 15 (d) of the Securities Exchange Act 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of August, 1998. SANTA FE ENERGY RESOURCES, INC. (Registrant) Date: August 14, 1998 /s/ Janet F. Clark Janet F. Clark, Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Duly Authorized Officer) 18 EX-10.A 2 EXHIBIT 10-A AGREEMENT AND SECOND AMENDMENT TO CREDIT AGREEMENT (May 15, 1998) THIS AGREEMENT AND SECOND AMENDMENT TO CREDIT AGREEMENT (this "AGREEMENT"), dated as of May 15, 1998, is made and entered into by and among SANTA FE ENERGY RESOURCES, INC. (the "COMPANY"), a Delaware corporation; the financial institutions listed on the signature pages hereto (collectively, the "BANKS"); and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, acting in its capacity as agent for the Banks (in such capacity, the "AGENT"). The Company, the Banks and the Agent are herein sometimes called the "PARTIES". RECITALS: 1. The Company, The Chase Manhattan Bank ("CHASE") as agent, and certain of the Parties entered into a Credit Agreement dated as of November 13, 1996 and entered into an Agreement and First Amendment to Credit Agreement dated as of December 19, 1996. Such Credit Agreement, as so amended, is herein called the "CREDIT AGREEMENT". Chase has resigned as agent in accordance with SECTION 11.8 of the Credit Agreement. 2. The Parties desire to adopt the Credit Agreement as their own agreement and to amend the Credit Agreement in certain respects to extend the maturity date, to provide for additional financial institutions to become Banks, to enlarge the Commitments of the Banks, to permit additional Total Debt and Guaranties, to appoint a new Agent, to change the governing law, and to make certain other changes thereto, all as more fully described below; and to ratify, confirm and continue the Credit Agreement as so adopted and amended. AGREEMENTS: NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged by the Parties, the Parties agree as follows: 1. AMENDMENT AND ADOPTION OF THE CREDIT AGREEMENT. The Parties hereby adopt and continue the Credit Agreement as their own agreement. By executing this Agreement, each of the Parties agrees to be bound by the terms of the Credit Agreement as hereby adopted and amended. Each of the financial institutions executing this Agreement shall succeed to the rights of and be obligated to perform the obligations of a Bank under the Credit Documents and shall be considered a "Bank" for all purposes of the Credit Documents. 2. AMENDMENT OF DEFINITIONS. SECTION 1.1 of the Credit Agreement is amended to amend the following definitions: ""BUSINESS DAY" shall mean any day other than a day on which commercial banks are authorized or required to close in Houston, Texas, and where such term is used in the definition of "QUARTERLY DATE" or, if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, or an Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such borrowing, payment, prepayment or Interest Period, which is also a day on which dealings in Dollar deposits are carried out in the relevant Eurodollar interbank market. ""COMMITMENT" means, as to any Bank, the obligation, if any, of such Bank to extend credit to the Company in the form of Loans and Letter of Credit Liabilities in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set forth opposite such Bank's name on the signature pages of the Second Amendment under the caption "Commitment" or in its Assignment Agreement (as the same may be reduced from time to time or terminated pursuant to SECTION 2.5, modified pursuant to SECTION 12.6 or increased pursuant to SECTION 13 of the Second Amendment. ""HIGHEST LAWFUL RATE" shall mean, on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas law permits the higher interest rate, stated as a rate per annum. On each day, if any, that applicable Texas law establishes the Highest Lawful Rate, the Highest Lawful Rate shall be the "weekly ceiling" (as defined in ss.303 of the Texas Finance Code and Chapter 1D of Title 79, Texas Rev. Civ. Stats. 1925, as amended, respectively) for that day. ""MATURITY DATE" shall mean the earlier of (a) the date the principal amount then outstanding of and accrued interest on the Loans, all Letter of Credit Liabilities, all fees and all other amounts payable hereunder and under the Notes become due and payable pursuant to SECTION 10.1 or (b) May 15, 2003. ""PRIME RATE" shall mean, as of a particular date, the generally applicable prime rate most recently determined by Chase Texas. Without notice to the Company or any other Person, the Prime Rate shall change automatically from time to time as and in the amount by which said prime rate shall fluctuate. The prime rate is a reference rate and may not necessarily represent the lowest or best rate actually charged to any customer. Chase Texas may make commercial loans or other loans at rates of interest at, above or below the prime rate. ""PRINCIPAL OFFICE" shall mean the principal banking office of the Agent, presently located at 712 Main Street, Houston, Texas 77002. 2 Additionally, the references to "Chase" in the definitions of "Eurodollar Rate" and "Indemnified Person", in SECTION 12.6(G) of the Credit Agreement, and in the addresses on each of the exhibits to the Credit Agreement, are amended to refer instead to Chase Texas. 3. ADDITIONAL DEFINITIONS. There are hereby added to SECTION 1.1 of the Credit Agreement the following definitions: ""CHASE TEXAS" shall mean Chase Bank of Texas, National Association, in its individual capacity." ""SECOND AMENDMENT" shall mean the Agreement and Second Amendment to Credit Agreement dated as of May 15, 1998." 4. AMENDMENT OF SECTION 1.2(I). SECTION 1.2(I) of the Credit Agreement is hereby amended to provide in its entirety as follows: "(i) All times of day used in the Credit Documents mean local time in Houston, Texas." 5. AMENDMENT OF SECTION 2.1(A). SECTION 2.1(A) of the Credit Agreement is amended by adding at the end of that section the following sentence: "The Company and the Banks expressly agree, pursuant to Chapter 346 ("CHAPTER 346") of the Texas Finance Code, that Chapter 346 (which relates to open-end line of credit revolving loan accounts) shall not apply to any extension of credit under this Agreement and that neither this Agreement nor any such extension of credit shall be governed by Chapter 346 or subject to its provisions." 6. AMENDMENT OF SECTION 9.7(B). SECTION 9.7(B) of the Credit Agreement is amended to provide in its entirety as follows: 3 "(b) INDEBTEDNESS. Create, incur, suffer or permit to exist, or assume or enter into any Total Debt or any Guaranty, whether direct, indirect, absolute, contingent or otherwise, EXCEPT: (a) Total Debt under the Credit Documents; (b) Total Debt secured by Liens permitted by SECTION 9.7(A); (c) the Senior Subordinated Notes; (d) Total Debt in respect of Other Letters of Credit; (e) bonds or surety obligations required by any Governmental Authority in connection with the operation of the property of the Company and its Subsidiaries; (f) Total Debt or Guaranties to and among the Company and the Restricted Subsidiaries or Guaranties of Total Debt of the Company and the Restricted Subsidiaries; (g) other Total Debt having a weighted average life to maturity of not less than seven years from the date of issuance thereof and subject to terms (including representations, warranties, covenants and defaults and events of default) no more restrictive (as determined by the Agent in its sole discretion) with respect to the issuer thereof than the terms of the Credit Documents; (h) unsecured Total Debt or Guaranties constituting Total Debt in an aggregate amount at any one time outstanding not to exceed $50,000,000; and (i) unsecured Guaranties, not constituting Total Debt, in an aggregate amount at any one time outstanding not to exceed $25,000,000. Notwithstanding anything to the contrary in this SECTION 9.7(B), no member of the Combined Group shall create, incur or assume any Total Debt or Guaranty if to do so would cause or enlarge a Borrowing Base Deficiency or violate any other provision of this Agreement." 7. BORROWING BASE AND AVAILABLE BORROWING BASE. Until changed in accordance with the Credit Agreement, the Borrowing Base and the Available Borrowing Base shall each be $250,000,000. 8. DESIGNATION OF AGENT. The Banks hereby appoint Chase Texas as Agent under the Credit Documents, and Chase Texas hereby accepts such appointment. Chase Texas hereby succeeds to and becomes vested with all the rights, powers, privileges and duties of the Agent, and Chase is hereby discharged from its duties and obligations under the Credit Documents. Chase Texas hereby notifies the Company and the Banks that the Principal Office is the Principal Office as defined in this Agreement. The address of the Agent in each of the Credit Documents and the exhibits thereto shall be the Principal Office (as defined in the Credit Agreement). With respect to its Commitment, Loans and Letter of Credit Liabilities, Chase Texas in its capacity as a Bank hereunder shall have the same rights and powers under the Credit Documents as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust, letter of credit, agency or other business with the Company (and any of its Affiliates) as if it were not acting as the Agent, and the Agent may accept fees and other consideration from the Company and its Affiliates (in addition to the fees heretofore agreed to between the Company and the Agent) for services in connection with this Agreement or otherwise without having to account for the same to the Banks. Without limiting the rights and remedies of the Banks specifically set forth herein, no other Bank by virtue of being a Bank hereunder shall have any interest in any such activities, any present or future guaranty by or for the account of the Company, any present or future offset exercised by the Agent in respect of any such other activities, or any present or future property at any time taken as security for any such other activities; PROVIDED, HOWEVER, that if any payment in respect of such guaranties or such property or the proceeds thereof shall be applied to the Obligations, each Bank shall be entitled to share in such application PRO RATA according to its portion of the Obligations. 4 9. PLACE OF PAYMENT. The place of payment of each of the Notes shall be the Principal Office (as defined in the Credit Agreement). 10. AMENDMENT OF SECTION 12.11. SECTION 12.11 of the Credit Agreement is hereby amended to provide in its entirety as follows: "12.11. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. (A) EXCEPT TO THE EXTENT OTHERWISE SPECIFIED IN THE CREDIT DOCUMENTS, EACH CREDIT DOCUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (TO THE EXTENT PERMITTED BY LAW, OTHER THAN ITS CONFLICT OF LAW RULES) AND THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, AND THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS DAVID L. HICKS, WITH OFFICES ON THE DATE HEREOF AT 1616 SOUTH VOSS ROAD, HOUSTON, TEXAS 77057, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONSES, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH OR THE COMPANY DESIRES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT, THE COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN HOUSTON, TEXAS ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT UNDER THIS AGREEMENT. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING IN THIS AGREEMENT SHALL AFFECT THE RIGHT OF THE AGENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO THE EXTENT PERMITTED BY LAW TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE TO PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. 5 (B) TO THE EXTENT PERMITTED BY LAW, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE TEXAS COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (C) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED BY ANY CREDIT DOCUMENT." 11. AMENDMENT OF EXHIBIT A. EXHIBIT A to the Credit Agreement is amended to be identical to EXHIBIT A to this Agreement. 12. PRICING SCHEDULE. On and after the Effective Date, the Pricing Schedule shall be the Pricing Schedule attached to this Agreement. 13. INCREASE OF COMMITMENTS. PROVIDED that no Default shall have occurred and be continuing, the Company shall have the right, without the consent of the Banks but subject to the approval of the Agent (which consent shall not be unreasonably withheld), to effectuate from time to time an increase in the Aggregate Commitment under the Credit Agreement by adding to the Credit Agreement one or more commercial banks or other financial institutions (who shall, upon completion of the requirements stated in this SECTION 13, constitute Banks hereunder), or by allowing one or more Banks to increase their Commitments hereunder, so that such added and increased Commitments shall equal the increase in Commitments effectuated pursuant to this SECTION 13; PROVIDED that (a) no increase in Commitments pursuant to this SECTION 13 shall result in the Aggregate Commitment exceeding $300,000,000, (b) no Bank's Commitment amount shall be increased without the consent of such Bank, and (c) on the effective date of any such increase in Aggregate Commitment, there are no outstanding Eurodollar Loans. The Company shall give the Agent three Business Days' notice of the Company's intention to increase the Aggregate Commitment pursuant to this SECTION 13. Such notice shall specify each new commercial bank or other financial institution, if any, the changes in amounts of Commitments that will result, and such other information as is reasonably requested by the Agent. Each new commercial bank or other financial institution, and each Bank agreeing to increase its Commitment, shall execute and deliver to the Agent a document satisfactory to the Agent pursuant to which it becomes a party hereto or increases its Commitment, as the case may be, which document, in the case of a new commercial bank or other financial institution, shall (among other matters) specify the domestic lending office and Eurodollar lending office of such new commercial bank or other financial institution. In addition, the Company shall execute and deliver a Note in the principal amount of the Commitment of each new commercial bank or other financial institution, or, against delivery to it of such Bank's existing Note, a replacement Note in the principal amount of the increased Commitment of each Bank agreeing to increase its Commitment, as the case may be. Such Notes and other documents of the nature referred to in this SECTION 13 shall be furnished to the Agent in form and substance as may be reasonably required by it. Upon the execution and delivery of such documents, such new commercial bank or financial institution shall constitute a "Bank" under the Credit Agreement with a Commitment as specified therein, or such Bank's Commitment shall increase as specified therein, as the case may be. 6 14. CONDITIONS PRECEDENT. This Agreement shall become effective on the date (the "EFFECTIVE DATE") that each of the following conditions shall have been satisfied or waived in the discretion of the Agent: (a) CORPORATE ACTION AND STATUS. The Agent shall have received copies of the Organizational Documents of the Company certified by the Secretary of the Company, and resolutions of the Board of Directors of the Company, certified by the Secretary of the Company, for all corporate action taken by the Company authorizing the execution, delivery and performance of this Agreement and the Notes, together with such certificates as may be appropriate to demonstrate the existence, qualification and good standing of and payment of taxes by each member of the Combined Group in each jurisdiction listed for such member on SCHEDULE III to this Agreement. (b) INCUMBENCY. The Company shall have delivered to the Agent a certificate in respect of the name and signature of each officer who (i) is authorized to sign on its behalf this Agreement and the Notes and (ii) will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the other Credit Documents. The Agent and each Bank may conclusively rely on such certificates until they receive notice in writing from the Company to the contrary. (c) NOTES. The Agent shall have received the appropriate Note of the Company for each Bank, duly completed and executed. (d) CREDIT DOCUMENTS. The Company shall have duly executed and delivered this Agreement and the other Credit Documents provided for herein to which it is a party, and each such Credit Document shall be in Proper Form. Each such Credit Document shall be in substantially the form furnished to the Banks prior to their execution of this Agreement, together with such changes therein as the Agent may approve in its discretion. The Company shall have paid to the Agent all fees and expenses in the amounts previously agreed upon in writing among the Company and the Agent and all amounts due under SECTION 21. 7 (e) OPINION OF COUNSEL TO THE COMPANY. The Agent shall have received the opinions of Andrews & Kurth L.L.P. and of David L. Hicks, counsel to the Company, substantially in the forms of SCHEDULES I and II to this Agreement, respectively. (f) COUNTERPARTS. The Agent shall have received counterparts of this Agreement duly executed and delivered by or on behalf of each of the parties thereto (or, in the case of any Bank as to which the Agent shall not have received such a counterpart, the Agent shall have received evidence satisfactory to it of the execution and delivery by such Bank of a counterpart hereof). (g) CONSENTS. The Agent shall have received evidence satisfactory to it in its discretion that all consents of each Governmental Authority and of each other Person, if any, required in connection with the execution, delivery and performance of this Agreement and the Notes have been received and remain in full force and effect. (h) OTHER DOCUMENTS. The Agent shall have received such other documents consistent with the terms of this Agreement and relating to the transactions contemplated hereby as the Agent may reasonably request. (i) NO DEFAULT. No Default shall have occurred and be continuing. (j) NO LEGAL BAR. Such effectiveness shall not violate any Legal Requirement applicable to the Agent or any Bank. PROVIDED, HOWEVER, that this Agreement shall not become effective or be binding on any Party unless all of the foregoing conditions are satisfied not later than May 31, 1998. The Agent shall promptly notify the Company and the Banks of the Effective Date, and such notice shall be conclusive and binding on all Parties. All provisions and payments required by this SECTION 13 are subject to the provisions of SECTION 12.8 of the Credit Agreement. 15. ACKNOWLEDGMENTS; APPOINTMENT AND AUTHORIZATION. Each of Wells Fargo Bank (Texas), N.A. and PNC Bank, National Association (collectively, the "NEW BANKS") hereby (a) acknowledges receipt of copies of the Credit Agreement and the most recent financial statements of the Company, and (b) acknowledges and agrees that (1) it has, independently and without reliance upon the Agent or any other Bank and based on the financial statements of the Company delivered to such New Bank by the Company and such other documents and information as such New Bank has deemed appropriate, made its own credit analysis and decision to become a Bank and (2) it is a Bank for all purposes of the Credit Agreement, with all of the liabilities and obligations of a Bank to the extent of its Commitment. Each New Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the Notes as are delegated to the Agent by the terms of the Credit Agreement or the Notes, together with all such powers as are reasonably incidental thereto. 8 16. COLLATERAL. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in the Credit Agreement. 17. WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE CREDIT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. 18. REPRESENTATIONS TRUE; NO DEFAULT. The Company represents and warrants to the Agent and each Bank that (a) the representations and warranties contained in the Credit Agreement are true and correct on and as of the date hereof as though made on and as of such date (except to the extent such representations and warranties are expressly stated to be made solely as of an earlier date) and (b) no event has occurred and is continuing which constitutes a Default under the Credit Agreement or which upon the giving of notice or the lapse of time or both would constitute such a Default. 19. RATIFICATION. Except as expressly amended hereby, the Credit Agreement, as hereby adopted and amended, is in all respects ratified, confirmed and continued as the agreement of the Parties and is, and shall continue to be, in full force and effect and binding upon the Parties. The Company hereby agrees and acknowledges that all of its liabilities and obligations under the Credit Agreement, as hereby adopted and amended, remain in full force and effect and binding upon it as of the date of this Agreement. 20. DEFINITIONS AND REFERENCES. Unless otherwise defined herein, terms used herein which are defined in the Credit Agreement shall have the meanings therein ascribed to them. The term "Agreement" as used in the Credit Agreement and the term "Credit Agreement" as used in this Agreement or in any other instrument, document or writing furnished to the Agent or any Bank by or on behalf of the Company shall mean the Credit Agreement as hereby amended. 21. EXPENSES; ADDITIONAL INFORMATION. The Company shall pay to the Agent on demand (i) all out-of-pocket expenses (including fees and disbursements of special counsel to the Agent and expenses of syndication) in connection with the preparation and administration of this Agreement, any waiver or consent hereunder and any amendment hereof, and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Agent and each Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. 22. SEVERABILITY. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be deemed invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and this Agreement shall be valid and enforced to the fullest extent permitted by applicable law. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions thereof or affecting the validity or enforceability of such provision in any other jurisdiction and, to this end, the provisions of this Agreement are severable. 9 23. MISCELLANEOUS. This Agreement (a) shall be binding upon and inure to the benefit of the Company, the Agent and the Banks and their respective successors and assigns (however, the Company may not assign its rights hereunder without the express prior written consent of all Banks); (b) may be modified or amended only in the manner prescribed for amendments to the Credit Agreement in SECTION 12.5 of the Credit Agreement; (c) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (TO THE EXTENT PERMITTED BY LAW, OTHER THAN ITS CONFLICT OF LAW RULES) AND OF THE UNITED STATES OF AMERICA; (d) may be executed in several counterparts, and by the Parties on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original agreement, and all such separate counterparts shall constitute but one and the same agreement, and (e) together with the Credit Agreement and the Notes, embodies the entire agreement and understanding among the Parties with respect to the subject matter hereof and supersedes all prior agreements, consents and understandings relating to such subject matter. The headings herein shall be accorded no significance in interpreting this Agreement. 24. THIS AGREEMENT, TOGETHER WITH THE CREDIT AGREEMENT AND THE NOTES, REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AS TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. 10 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers effective as of the date provided herein. SANTA FE ENERGY RESOURCES, INC. By: ________________________________ Janet F. Clark Senior Vice President-Finance Chief Financial Officer and Treasurer COMMITMENT: CHASE BANK OF TEXAS, NATIONAL $50,000,000 ASSOCIATION, individually and as Administrative Agent By: ______________________________ Name: ____________________________ Title: ___________________________ Address for Notices: Domestic and Eurodollar Lending Offices: Chase Bank of Texas, National Association 600 Travis, 20th Floor Chase Bank of Texas, National Houston, Texas 77002-8086 Association Telephone: (713) 216-5733 600 Travis Street, 20th Floor Telecopy: (713) 216-4117 Houston, Texas 77002-8086 Attention: Debra Harris Attention: June Brand Telephone: (713) 216-5733 Telecopy: (713) 216-4117 COMMITMENT: ABN AMRO BANK N.V., HOUSTON $40,000,000 AGENCY, Individually and as a Co-Agent By: ______________________________ Name: ____________________________ Title: ___________________________ By: ______________________________ Name: ____________________________ Title: ___________________________ Address for Notices: Domestic and Eurodollar Three Riverway, Suite 1700 Lending Offices: Houston, TX 77056 Attention: Mr. Bryan Chapman Three Riverway, Suite 1700 Telephone: 713/964-3361 Houston, Texas 77056 Telecopy: 713/621-5801 COMMITMENT: BANK OF AMERICA NATIONAL TRUST AND $40,000,000 SAVINGS ASSOCIATION, Individually and as a Co-Agent By: _____________________________ Name: ___________________________ Title: __________________________ Address for Notices & Domestic and Eurodollar Lending Office: Name:Claudette Strickland Title: Account Administrator Address: Bank of America 1850 Gateway Blvd., 4th Floor Concord, California 94520 Telephone:(510) 675-7483 Facsimile:(510) 603-8208 cc: Phyllis Tennard Bank of America 333 Clay Street Houston, Texas 77002 Telephone:(713) 651-4819 (713) 651-4888 COMMITMENT: NATIONSBANK, N.A. $40,000,000 Individually and as a Co-Agent By: ___________________________ Name: _________________________ Title: ________________________ Address for Notices: Domestic and Eurodollar 700 Louisiana, 8th Floor Lending Offices: Houston, Texas 77002 Attention: Mr. James Allred NationsBank, N.A. Telephone: 713/247-6327 ABA #111000025 Telecopy: 13/247-6568 For Credit to: Acct. #0180019828 Attention: Loan Funds Transfer Reference: Santa Fe Energy Resources, Inc. COMMITMENT: BANK OF MONTREAL $32,500,000 By: _____________________________ Name: ___________________________ Title: __________________________ Address for Notices: Domestic and Eurodollar 700 Louisiana, Suite 4400 Lending Offices: Houston, Texas 77002 Attention: Mr. Bobby Roberts Harris Bank Telephone: 713/223-4400 ABA #071000288 Telecopy: 713/223-4007 For Credit To: Bank of Montreal, Chicago Branch Attention: E. Rios Reference: Santa Fe Energy Resources, Inc. COMMITMENT: WELLS FARGO BANK (TEXAS), N.A., $40,000,000 Individually and as a Co-Agent By: ______________________________ Jeffrey P. Rose Vice President Address for Business Matters: Domestic and Eurodollar 1000 Louisiana, 3rd Floor Lending Offices: Houston, Texas 77002 Attention: Ann Rhoads 1000 Louisiana, 3rd Floor Telephone: (713) 250-4035 Houston, Texas 77002 Telecopy: (713) 250-7912 Attention: Maria Valdivia Telephone: (713) 250-7155 Address for Administrative Matters: Telecopy: (713) 250-7912 1000 Louisiana, 3rd Floor Houston, Texas 77002 Attention: Maria Valdivia Telephone: (713) 250-7155 Telecopy: (713) 250-7912 COMMITMENT: PNC BANK, NATIONAL ASSOCIATION $32,500,000 By: _________________________________ John R. Way Assistant Vice President Address for Business Matters: Domestic and Eurodollar 249 Fifth Avenue, Third Floor Lending Offices: Pittsburgh, PA 15222-2707 Attention: John R. Way 620 Liberty Avenue Telephone: (412) 762-5290 Two PNC Plaza, Third Floor Telecopy: (412) 762-2571 Pittsburgh, PA 15222 Attention: Tina Lanuka Address for Administrative Matters: Telephone: (412) 768-5876 Telecopy: (412) 768-4586 620 Liberty Avenue Two PNC Plaza, Third Floor Pittsburgh, PA 15222 Attention: Tina Lanuka Telephone: (412) 768-5876 Telecopy: (412) 768-4586 EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF JUNE 30, 1998 AND THE INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS DEC-31-1998 JUN-30-1998 13,800 0 71,700 2,500 20,200 131,100 1,873,800 1,099,900 918,200 101,300 0 0 0 1,000 450,700 918,200 146,200 146,600 151,100 151,100 0 0 5,500 (6,900) (7,000) 100 0 0 0 100 0.00 0.00
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