-----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, GSnM+UpW9pnO64wvReSSmkEy+1rcZh1mfkF4C7N4GXR6Wd6yIy0h37uACjzpFkYn is3/JAlp6hvD3wLhkE8XiA== 0000950134-00-002701.txt : 20000331 0000950134-00-002701.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950134-00-002701 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REMINGTON OIL & GAS CORP CENTRAL INDEX KEY: 0000874992 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752369148 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11516 FILM NUMBER: 584713 BUSINESS ADDRESS: STREET 1: 8201 PRESTON RD STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2148908000 MAIL ADDRESS: STREET 1: 8201 PRESTON RD STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75225-6211 FORMER COMPANY: FORMER CONFORMED NAME: BOX ENERGY CORP DATE OF NAME CHANGE: 19930328 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1999 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 1-11516 REMINGTON OIL AND GAS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 75-2369148 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 8201 PRESTON ROAD, SUITE 600 DALLAS, TEXAS 75225-6211 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 210-2650 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $0.01 Par Value Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01 PAR VALUE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant on March 24, 2000, was $81,640,833. On that date, the number of outstanding shares, $0.01 par value, was 21,491,170. Registrant's Registration Statement filed on Form S-2 effective December 1, 1992 for its 8 1/4% Convertible Subordinated Notes is incorporated by reference in Part IV of this Form 10-K. Registrant's Registration Statement filed on Form S-4 effective November 27, 1998, is incorporated by reference in Part IV of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 REMINGTON OIL AND GAS CORPORATION TABLE OF CONTENTS PART I...................................................... 3 Item 1. Business........................................ 3 Item 2. Properties...................................... 5 Item 3. Legal Proceedings............................... 7 Item 4. Submission of Matters to a Vote of Security Holders................................................ 7 PART II..................................................... 8 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................ 8 Item 6. Selected Financial Data......................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 10 Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................................ 15 Item 8. Financial Statements and Supplementary Data..... 16 Item 9. Changes in and Disagreements with Accountants and Financial Disclosure............................... 38 PART III.................................................... 39 Item 10. Directors and Executive Officers of the Registrant............................................. 39 Item 11. Executive Compensation.......................... 43 Item 12. Security Ownership of Certain Beneficial Owners and Management......................................... 51 Item 13. Certain Relationships and Related Transactions........................................... 52 PART IV..................................................... 52 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 52
2 3 PART I ITEM 1. BUSINESS. GENERAL Remington Oil and Gas Corporation, a Delaware Corporation, began in 1981 as OKC Limited Partnership. In 1992, the limited partnership was converted to a corporation named Box Energy Corporation. We changed the name of the company to Remington Oil and Gas Corporation in December 1997. In December 1998, we restructured our two classes of common stock into a single class of voting common stock when we merged with S-Sixteen Holding Company. Our executive offices are located at 8201 Preston Road, Suite 600, Dallas, Texas 75225-6211 (telephone number 214/210-2650). The company employed 23 people on December 31, 1999. We explore for, acquire, develop, and produce oil and gas in the offshore Gulf of Mexico and onshore Gulf Coast areas. LONG-TERM STRATEGY Our long-term strategy is to increase our oil and gas production and reserves while keeping our production costs and our finding and development costs competitive with the industry. ACTIVITIES AND OPERATIONS Our geophysical and geological staff identifies prospects in our core areas primarily by using 3-D technology. If the prospect merits further exploration, we then attempt to acquire a leasehold interest in the property. Next, we drill an exploratory well. If the exploratory well finds enough oil and/or gas reserves, we complete the well and begin producing the oil or gas. Many times, before we actually produce the well, we need to build additional facilities such as offshore platforms or gathering pipelines. The successful results of an exploratory well may lead to further exploration or development of the property. Periodically, we also purchase properties with existing oil and gas reserves and production for further exploration, development, or exploitation. We sell the oil and gas production from the properties and reinvest the net cash flow from operations in exploration, development and acquisition activities. RISKS INVOLVED IN EXPLORATION, DEVELOPMENT, AND PRODUCTION Exploration, development, and production operations carry a high degree of risk. Drilling unsuccessful wells or completing marginal wells that do not produce enough oil or gas to return a profit on the amount invested is a risk. We attempt to reduce this risk by using 3-D seismic data or other technology to identify and define the parameters prior to drilling. However, such technology does not guarantee successful results. Our success depends upon the quality of the information used to determine drilling locations and the abilities and experience of our management and technical personnel. Additional operating risks include mechanical failure, title risk, blowouts, environmental pollution, and personal injury. We maintain general liability insurance and insurance against blowouts, redrilling, and certain other operating hazards, including certain pollution risks. Uninsured losses or losses and liabilities that exceed the limits of our insurance, could adversely affect our financial condition. COMPETITION IN THE OIL AND GAS INDUSTRY We compete with: - Large integrated oil and gas companies - Independent exploration and production companies - Private individuals - Sponsored drilling programs We compete for: - Operational, technical, and support staff - Options and/or leases on properties - Sales of oil and gas production 3 4 Many of our competitors may have significantly more financial, personnel, technological, and other resources available. In addition, some of the larger integrated companies may be better able to respond to industry changes including price fluctuations, oil and gas demands, and governmental regulations. MARKETS FOR OIL AND GAS PRODUCTION Oil and gas are generally homogenous commodities, and the prices for these commodities fluctuate significantly. Purchasers adjust prices for quality, refined product yield, geographic proximity to refineries or major market centers, and the availability of transportation pipelines or facilities. Outside factors beyond our control combine to influence the market prices. Some of the more critical factors that affect oil and gas commodity prices include the following: - Changes in supply and demand - Changes in refinery utilization - Levels of economic activity throughout the country - Seasonal or extraordinary weather patterns - Political developments throughout the world Because of our size, we have no real ability to influence the market prices and therefore, we sell our oil and gas production based on posted market prices, spot market indices, or prices derived from the posted price or index. An independent marketing company sells a significant portion of our gas production and a small quantity of our oil production from the Gulf of Mexico. The revenue from the sale of oil and gas by this marketing company accounted for approximately 48% of our total oil and gas revenues in 1999. In addition, we sold approximately 64% of our total oil production to one company during the year, which accounted for approximately 32% of our total oil and gas revenues in 1999. OPERATING AGREEMENTS Typically, we own interests in oil and gas properties subject to joint operating agreements. Other independent companies operate most of our properties, however, during the last year we have begun to operate several properties. Operating our own properties allows us to maintain a greater degree of control over timing and amount of capital expenditures. Joint operating agreements usually grant the operator a lien on the other participants' interests to secure payment of their share of expenses. GOVERNMENTAL REGULATION OF OIL AND GAS OPERATIONS AND ENVIRONMENTAL REGULATIONS Numerous federal and state regulations affect our oil and gas operations. Current regulations are constantly reviewed at the same time that new regulations are being considered and implemented. In addition, because we hold federal leases, the federal government requires us to comply with numerous additional regulations that focus on government contractors. The regulatory burden upon the oil and gas industry increases the cost of doing business and consequently affects our profitability. State regulations relate to virtually all aspects of the oil and gas business including drilling permits, bonds, and operation reports. In addition, many states have regulations relating to pooling of oil and gas properties, maximum rates of production, and spacing and plugging and abandonment of wells. Our oil and gas operations are subject to stringent federal, state, and local laws and regulations related to improving or maintaining the quality of the environment. The most significant environmental obligations include compliance with federal legislation for the Oil Pollution Act of 1990 and the Clean Water Act together with their amendments. The cost of compliance with this federal and state legislation could have a significant impact on our financial ability to carry out our oil and gas operations. The legislation and accompanying regulations could impose financial responsibility requirements, liability features, and operational requirements, which could be onerously burdensome to satisfy. 4 5 The laws that require or address environmental remediation apply retroactively to previous waste disposal practices. In many cases, these laws apply regardless of fault, legality of the original activities, or ownership or control of sites. A company could be subject to severe fines and cleanup costs if found liable under these laws. We have never been a liable party under these laws nor have we been named a potentially responsible party for waste disposal at any site. OTHER BUSINESS INFORMATION Except for our oil and gas leases with third parties and licenses to acquire or use seismic data, we have no material patents, licenses, franchises, or concessions that we consider significant to our oil and gas operations. The nature of our business is such that we do not have any "backlog" of products, customer orders, or inventory. We have not been a party to any bankruptcy, reorganization, adjustment or similar proceeding except in the capacity as a creditor. ITEM 2. PROPERTIES. We concentrate our principal operations in the federal waters of the Gulf of Mexico and the onshore regions of the Gulf Coast. In addition to the information below, we recommend that you read "Management's Discussion and Analysis of Financial Condition and Results of Operations" found on pages 10 through 15 and "Consolidated Financial Statements and Notes to Consolidated Financial Statements" found on pages 18 through 38. Note 4 -- Oil and Gas Properties in our Notes to Consolidated Financial Statements provides detailed information concerning costs incurred, proved oil and gas reserves, and discounted future net revenue for proved reserves. LEASEHOLD ACREAGE Our leasehold acreage of proved and unproved properties at December 31, 1999 was as follows:
UNDEVELOPED DEVELOPED ---------------- ---------------- GROSS NET GROSS NET ------- ------ ------- ------ Offshore......................................... 97,166 56,080 74,834 18,220 Onshore.......................................... 100,751 32,158 25,254 6,489 ------- ------ ------- ------ Total............................................ 197,917 88,238 100,088 24,709 ======= ====== ======= ======
PRODUCING PROPERTIES The table below summarizes our ownership in producing wells at the end of the last three years.
AT DECEMBER 31, --------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- GROSS NET GROSS NET GROSS NET ----- ----- ----- ----- ----- ----- Oil wells Offshore Gulf of Mexico................. 18 4.87 22 5.87 17 4.37 Onshore Gulf Coast...................... 45 17.88 52 17.49 12 5.47 --- ----- --- ----- ----- ----- Total........................... 63 22.75 74 23.36 29 9.84 === ===== === ===== ===== ===== Gas wells Offshore Gulf of Mexico................. 26 5.02 41 5.92 10 2.46 Onshore Gulf Coast...................... 85 16.59 80 14.09 78 18.24 --- ----- --- ----- ----- ----- Total........................... 111 21.61 121 20.01 88 20.70 === ===== === ===== ===== =====
5 6 PROVED OIL AND GAS RESERVES Net proved oil and gas reserves at December 31, 1999, as evaluated by Netherland, Sewell, & Associates, Inc. and Miller and Lents, Ltd., are summarized below on the following table. The Netherland, Sewell, & Associates report covers approximately 91% of the total proved reserves. The quantities of proved oil and gas reserves discussed in this section include only the amounts which we reasonably expect to recover in the future from known oil and gas reservoirs under the current economic and operating conditions. Proved reserves include only quantities that we expect to recover commercially using current prices, costs, existing regulatory practices and technology. Therefore, any changes in future prices; costs, regulations, technology or other unforeseen factors could significantly increase or decrease the proved reserve estimates.
NET OIL NET GAS PRE-TAX RESERVES RESERVES PRESENT VALUE BARRELS MCF DISCOUNTED @10% -------- -------- --------------- (IN THOUSANDS) Offshore Gulf of Mexico............................ 3,483 52,543 $111,063 Onshore Gulf Coast................................. 3,694 12,965 52,602 ----- ------ -------- Total.................................... 7,177 65,508 $163,665 ===== ====== ========
OFFSHORE PRODUCING PROPERTIES We owned varying working interests in 42 offshore Gulf of Mexico blocks at December 31, 1999. We currently produce from 13 of these blocks. Oil and gas production from these 13 blocks accounted for 72% of our total oil production and 83% of our total gas production. In addition to the leases that we currently own, we have a long-term seismic licensing agreement with one of the largest 3-D seismic contractors. Our agreement provides our technical team immediate, in-house access to over 1,300 blocks of offshore 3-D seismic data. Our data coverage is one of the most extensive contiguous 3-D seismic databases available over the central and western regions of the Gulf of Mexico Shelf. In early 2000, as operator, we successfully completed drilling three exploratory wells located on East Cameron block 364, East Cameron block 344 and Eugene Island block 297. We expect that production from the two East Cameron discoveries will begin in 2001 and that Eugene Island production will begin in September 2000. South Pass 89 Complex The South Pass 89 Complex accounted for approximately 52% of our oil and gas production in 1999. Our interest in four contiguous blocks, South Pass 86, 87, 89, and West Delta 128 varies from 20% to 50%. We produce from 25 wells located on three separate drilling and production platforms. In 1999 we drilled two new wells, both successful, with a 33% working interest on South Pass Block 87. In February 2000, we successfully completed well D-11 with a 50% working interest on South Pass block 87. Other Offshore Properties In 1999 interests in 10 other offshore fields, including Eugene Island 135, West Cameron 170, and Galveston Island 333, accounted for approximately 26% of our total production. Our working interests in these 10 fields range from 5% to 50%. In offshore areas other than the South Pass 89 Complex, we drilled a total of five exploratory wells and completed a total of four as producers. Our working interests in these wells range from 15% to 100%. ONSHORE GULF COAST PROPERTIES Our onshore Gulf Coast area properties are principally located in Mississippi and Texas. In 1999, these properties accounted for approximately 22% of our total production. We drilled a total of 30 wells on our onshore properties and completed 24 wells as producers. Our working interests in these wells range from 14% to 65%. In October 1999, we entered into a five prospect drilling venture in the Mississippi Salt Basin. These 6 7 five ready-to-drill, 3-D seismically defined prospects are located in Covington and Jones Counties. Three of the five wells have been drilled with two completed as producers and the third currently testing. Tentative plans are to drill the remaining two prospects by the end of 2000. DRILLING ACTIVITIES The following is a summary of our exploration and development drilling activities for the past three years.
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------------ 1999 1998 1997 -------------------------- -------------------------- -------------------------- GROSS NET GROSS NET GROSS NET ----------- ------------ ----------- ------------ ----------- ------------ PROD. DRY PROD. DRY PROD. DRY PROD. DRY PROD. DRY PROD. DRY ----- --- ----- ---- ----- --- ----- ---- ----- --- ----- ---- Exploratory Offshore Gulf of Mexico............. 5 1 1.73 0.33 3 -- 0.90 -- 2 2 0.30 0.42 Onshore Gulf Coast... 22 6 5.91 1.63 9 7 2.72 2.13 1 5 0.80 2.56 -- -- ---- ---- -- -- ---- ---- -- -- ---- ---- Total......... 27 7 7.64 1.96 12 7 3.62 2.13 3 7 1.10 2.98 == == ==== ==== == == ==== ==== == == ==== ==== Development Offshore Gulf of Mexico............. 1 -- 0.33 -- -- -- -- -- 1 -- 0.25 -- Onshore Gulf Coast... 2 -- 0.89 -- 2 1 0.82 0.30 4 4 1.58 2.77 -- -- ---- ---- -- -- ---- ---- -- -- ---- ---- Total......... 3 -- 1.22 -- 2 1 0.82 0.30 5 4 1.83 2.77 == == ==== ==== == == ==== ==== == == ==== ====
We had an interest in 7 wells (2.73 net) in progress at December 31, 1999, 5 wells (1.18 net) in progress at December 31, 1998, and 6 wells (2.47 net) in progress at December 31, 1997. OTHER PROPERTY AND OFFICE LEASE We own several non-contiguous tracts of land covering approximately 7,800 surface acres in Southern Louisiana and Southern Mississippi. Outside parties lease several of the tracts for farming, grazing, timber, sand and gravel, camping, hunting, and other purposes. Gross revenues from these real estate properties in 1999 totaled $241,000. We lease approximately 17,000 square feet of office space in Dallas, Texas. The lease on this office space expires April 2008. ITEM 3. LEGAL PROCEEDINGS. The information required by this Item is incorporated herein by reference to Item 8. "Financial Statements and Supplementary Data." -- Notes 7, 9, and 13 of Consolidated Notes to Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None 7 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock trades on the NASDAQ National Market System under the symbol ROIL and on the Pacific Exchange under the symbol REM.P. In December 1998, we issued a new single class of voting common stock in exchange for the surrender of all of the previously outstanding voting and non-voting common stock. Before this exchange of common stock, our two classes of shares traded on the NASDAQ National Market System under the trading symbols ROILA and ROILB. During the same period, the two classes traded on the Pacific Exchange under the symbols REMA.P and REMB.P. The following table sets forth the high and low last sales price per share as reported by NASDAQ for the periods indicated.
CLASS A CLASS B COMMON STOCK COMMON STOCK COMMON STOCK ------------- ------------- ------------- HIGH LOW HIGH LOW HIGH LOW ----- ----- ----- ----- ----- ----- 2000 First Quarter through March 24................ 4.063 2.781 -- -- -- -- 1999 Fourth Quarter................................ 5.688 3.625 -- -- -- -- Third Quarter................................. 6.000 4.375 -- -- -- -- Second Quarter................................ 5.063 3.125 -- -- -- -- First Quarter................................. 4.000 2.375 -- -- -- -- 1998 Fourth Quarter................................ 3.188 2.938 5.000 3.000 4.688 2.875 Third Quarter................................. -- -- 6.750 3.750 5.875 3.375 Second Quarter................................ -- -- 7.250 5.500 6.750 5.375 First Quarter................................. -- -- 6.250 5.125 6.375 5.000
On March 24, 2000, the last reported sales price was $3.875 per share. On that date, there were 590 stockholders of record. Our transfer agent informed us that as of that date there were also 175 stockholders of record of class A common stock and 421 stockholders of record of class B common stock who had not yet surrendered their old stock for the new common stock to which they are entitled. We have not declared or paid any cash dividends during the past eight years. Our credit facility agreements prohibit our paying dividends. In addition, if we pay dividends in excess of 2% of the market price per share during a calendar quarter, the conversion price of the 8 1/4% Convertible Subordinated Notes will be adjusted proportionately. The determination of future cash dividends, if any, will depend upon, among other things, our financial condition, cash flow from operating activities, the level of our capital and exploration expenditure needs, future business prospects, and renegotiation of our line of credit. 8 9 ITEM 6. SELECTED FINANCIAL DATA. The selected consolidated financial data should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements. In addition, you should also read our "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7. below.
1999 1998(1) 1997(2) 1996 1995 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PRICES, VOLUMES, AND PER SHARE DATA) FINANCIAL Total revenue........................... $ 45,430 $ 87,689 $ 61,053 $ 70,210 $ 59,493 Net income (loss)....................... (3,703) 13,617 (26,790) (7,662) 5,392 Basic income (loss) per share........... (0.17) 0.67 (1.31) (0.37) 0.26 Diluted income (loss) per share......... (0.17) 0.66 (1.31) (0.37) 0.26 Total assets............................ 119,326 130,229 98,515 136,599 145,491 8 1/4% convertible subordinated notes... 5,950 38,371 38,371 55,077 55,077 Other bank debt......................... 30,028 3,500 6,000 -- -- Stockholders' equity.................... 56,054 59,699 44,287 74,356 82,047 Total shares outstanding................ 21,285 21,247 20,306 20,803 20,803 Cash Flow Net cash flow from operations......... 19,180 54,040 27,546 28,955 24,047 Net cash flow from investing.......... (25,911) (38,149) (11,820) (47,602) (19,899) Net cash flow from financing.......... (7,931) (1,425) (14,171) -- -- OPERATIONAL Proved reserves(3) Oil (MBbls)........................... 7,177 5,519 4,451 3,299 2,938 Gas (MMcf)............................ 65,508 52,709 36,543 39,332 51,373 Future discounted net revenue(3) Before estimated income taxes......... 163,665 70,118 108,698 189,155 173,388 After estimated income taxes.......... 126,868 63,467 93,838 146,013 133,982 Average sales price Oil (per Bbl)......................... 15.48 10.99 17.79 20.21 16.64 Gas (per Mcf)......................... 2.42 3.22 5.06 5.69 6.89 Average production (net sales volume) Oil (barrels per day)................. 3,242 3,411 3,280 2,555 2,300 Gas (Mcf per day)..................... 27,229 17,488 19,496 22,518 16,074
- --------------- (1) Financial results for 1998 include $49.8 million in other income from the termination of our gas sales contract and a $18.0 million charge recorded for the Phillips Petroleum judgment. (2) The net loss in 1997 includes a $14.6 million deferred income tax expense that we recorded when we increased the valuation allowance against the deferred income tax asset originally recorded in 1992. (3) The quantities of proved oil and gas reserves discussed in this table include only the amounts which we reasonably expect to recover in the future from known oil and gas reservoirs under the current economic and operating conditions. Proved reserves include only quantities that we can commercially recover using current prices, costs, existing regulatory practices and technology. Therefore, any changes in future prices, costs, regulations, technology, or other unforeseen factors could significantly increase or decrease the proved reserve estimates. 9 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion will assist you in understanding our financial position, liquidity, and results of operations. The information below should be read in conjunction with the financial statements, and the related notes to financial statements. Our discussion contains both historical and forward-looking information. We assess the risks and uncertainties about our business, long-term strategy, and financial condition before we make any forward-looking statements, but we can not guarantee that our assessment is accurate or that our goals and projections can or will be met. Statements concerning results of future exploration, exploitation, development, and acquisition expenditures as well as expense and reserve levels are forward-looking statements. We make assumptions about commodity prices, drilling results, production costs, administrative expenses, and interest costs that we believe are reasonable based on currently available information of known facts and trends. LONG-TERM STRATEGY AND BUSINESS DEVELOPMENTS Our long-term strategy is to increase shareholder value by economically increasing reserves, production, and cash flow on an annual basis. We will balance our capital expenditures, financed primarily by operating cash flow and bank debt, among exploration, development, and acquisitions. Proved oil and gas reserves at December 31, 1999, were 7.2 million barrels of oil and 65.5 Bcf of gas compared to 5.5 million barrels of oil and 52.7 Bcf of gas at December 31, 1998. These results amount to a 30% increase in oil reserves, a 24% increase in gas reserves, and a 27% growth in total barrels of oil equivalents. In 1999, we replaced 234% of our total production and in 1998, we replaced 264% of our total production, based on barrels of oil equivalent. During the last three years, we have concentrated on reducing our costs and expenses to increase shareholder value. PHILLIPS PETROLEUM LITIGATION Phillips contends that pursuant to its 33% net profits interest in South Pass block 89, it was entitled to receive an overriding royalty for months in which "net profits" were not achieved; that an excessive oil transportation fee was being charged to the net profits account; and that the entire $69.6 million cash payment that had been received by OKC Limited Partnership (our predecessor) from the 1990 settlement of previous litigation between Texas Eastern Transmission Corporation and us, should have been credited to the net profits account instead of the $5.8 million that was credited. On the latter claim, Phillips seeks to receive more than $21.5 million, while on the first two claims Phillips alleges aggregate damages of several million dollars. In addition, Phillips, under the Louisiana Mineral Code, is seeking double damages and cancellation of the farm-out agreement that created the net profits interest. We denied Phillips' claims and defended ourselves during a non-jury trial in April 1997. In August 1998, the trial court ruled in the litigation. In its ruling, the court awarded Phillips $1.6 million plus interest for its overriding royalty claim and $9.3 million plus interest for its claim on the 1990 settlement. The trial court dismissed Phillips' claim of excessive transportation charges and its claims for double damages and lease cancellation. The trial court, applying federal law and the language of the farm-out agreement, held that only income from actual production was to be included in the net profits account. On this basis, the trial court allocated $41.2 million of the 1990 settlement amount to proceeds from production rather than the $5.8 million originally credited. In October 1998, the trial court finalized its judgment. The total judgment, including interest, was $18.0 million. Phillips appealed the judgment on the transportation issue and the judgment on the 1990 settlement, and we appealed the decision on the overriding royalty issue. We posted an $18.0 million appeal bond, and set aside $9.0 million with the bonding company as collateral for the bond. In addition, we recorded the $18.0 million as an expense in the third quarter of 1998 in accordance with Statement of Financial Accounting Standards No. 5 entitled "Accounting for Contingencies." 10 11 On January 5, 2000, the Fourth Court of Appeal issued an opinion reversing the trial court's judgment on the 1990 settlement issue and the excessive transportation issue and upholding the judgment on the overriding royalty issue. The appellate opinion increased the amount of the 1990 settlement subject to net profits from the $28.1 million as allocated by the trial court to $63.8 million, an increase of $35.7 million. The appeals court remanded this amount to the trial court for further proceedings related to royalties due. The amount payable to Phillips as determined by the appellate court, subject to remand, and assuming no reversal, would be $21.1 million plus interest. The appellate court opinion also disagreed with the trial court in stating that we owe Phillips $7.3 million plus interest on the transportation issue. In addition, according to the appellate court's opinion, we would owe Phillips an additional $1.2 million plus interest for transportation costs from December 1996 through the end of 1999. We intend to vigorously contest the decision of the appellate court, and in January 2000 we requested a rehearing in this case. If the rehearing is denied, we will appeal to the Louisiana Supreme Court. Because we believe that it is probable that the decision of the appellate court will not stand, we have not recorded any additional contingent liability on our books. Statement of Financial Accounting Standards No. 5 entitled "Accounting for Contingencies" requires that when a loss contingency exists, it be accrued if it is reasonably estimable and it is probable that an unfavorable outcome will occur. In reaching our conclusion we rely on our legal counsel who have informed us that in their opinions, the appellate court incorrectly applied the law and made erroneous findings of fact in reversing the trial court's judgment and that it is as likely as not that the Court of Appeal's errors will be corrected on rehearing or on appeal to the Louisiana Supreme Court. If however, we are not successful in this litigation, after exhausting all appeals, we will owe Phillips approximately $31.2 million plus approximately $23.4 million in interest on all three issues. This result would have a serious effect on our financial position and liquidity and could constitute an event of default under our bank loan agreement, which might result in acceleration of our long-term debt. Our plans to deal with such a contingency might include selling properties, additional debt financing or, as a last resort, seeking protection from creditors under applicable law. We also have litigation pending with Phillips in state court in Collin County, Texas. This litigation centers on our termination of the gas contract with Texas Eastern in 1998 for $49.8 million, and what, if any, of the termination amount we received should be credited to the net profits account. The court in Collin County stayed the case pending resolution of the Louisiana appeals. Although not absolute, an unfavorable outcome of the Louisiana litigation could have a detrimental effect on our position in this litigation. If we were unsuccessful in this litigation we could owe Phillips approximately $16.4 million plus approximately $1.5 million in interest through December 31, 1999. This litigation could take up to two years to resolve after the Louisiana litigation is concluded. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." As amended, the statement is effective for all fiscal years beginning after June 15, 2000 (January 1, 2001 for us). SFAS No. 133 requires that derivatives be reported on the balance sheet at fair value. If the derivative is not designated as a hedging instrument, changes in fair value must be recognized in the income statement in the period of change. If the derivative is designated as a hedge and to the extent such hedge is determined to be effective, changes in fair value are either offset by the change in fair value of the hedged asset or liability (if applicable) or reported as a component of other comprehensive income in the period of change, and subsequently recognized in the income statement when the offsetting hedged transaction occurs. The definition of derivatives has also been expanded to include contracts that require physical delivery of oil and gas if the contract allows for net cash settlement. Currently we do not utilize any derivative instruments that fall under the criteria defined in the accounting standard. Accordingly, we do not expect the adoption of SFAS No. 133 to have a material effect on our reported financial statements or disclosures. 11 12 LIQUIDITY AND CAPITAL RESOURCES On December 31, 1999, our current liabilities exceeded our current assets by $4.3 million. Excluding the Phillips judgment payable from current liabilities and the $9.0 million of restricted cash related thereto from current assets would result in our current assets exceeding our current liabilities by $5.6 million. From December 31, 1998, to December 31, 1999, our current assets decreased by $9.0 million. The current assets decreased primarily because we used cash to purchase $8.4 million of the 8 1/4% Convertible Subordinated Notes and our capital expenditures exceeded our cash flow from operations during 1999. Cash flow from operations for 1999 decreased $34.9 million, or 65%, compared to 1998. The decrease relates to the cash received from the termination of a gas contract with Texas Eastern Transmission Corporation. We received $49.8 million in cash in July 1998 for the termination. Without the proceeds from the termination of the gas contract, cash flow from operations would have increased by $14.9 million, or 354%. This increase resulted from higher average oil prices and increased gas production. The average oil prices for 1999 were $15.48 per barrel compared to $10.99 per barrel during 1998. The higher oil prices caused oil revenues to be $5.6 million higher in 1999. Total gas production increased by 56% in 1999 compared to 1998. The increased production added $8.8 million to total oil and gas revenues. During 1999, we appealed certain orders to pay from the Minerals Management Service. The appeal required us to post a bond for the total amount of their claim for underpaid royalties. We set aside $1.8 million as restricted cash collateral on the bonds. The recent increase in oil prices has a positive impact on total revenues, net income, and cash flow from operations. Based on this increase and an expected increase in production, our current projections indicate that we can finance the majority of our planned capital expenditures in 2000 through our cash flow from operations. We expect to continue to make significant capital expenditures over the next several years as part of our long-term growth strategy. The primary source of funding the capital expenditures will be net cash flow from operations and additional bank debt. We have budgeted $37.0 million for capital expenditures in 2000. While we have projected this amount for capital expenditures, we can delay or cancel the drilling of wells included in the current capital expenditure budget. In February 1999, we replaced our existing line of credit with a line of credit from a different bank. The line of credit had a borrowing base of $32.0 million and expires in 2003. In March 2000, the bank amended the terms of the line of credit to increase the borrowing base to $35.0 million. We pledged our oil and gas properties as collateral for the increased line of credit and agreed not to pay dividends. In February 1999, we borrowed $24.5 million on the line of credit and used the majority of the proceeds to buy a portion of the convertible notes. During 1999 we borrowed an additional $5.5 million which we used for capital expenditures. The bank will review the borrowing base semi-annually and may increase or decrease the borrowing base relative to a new determination of the estimated proved oil and gas reserves. YEAR 2000 ISSUE We did not experience any problems related to the year 2000 issue. Our expenses related to the year 2000 issue were insignificant. RESULTS OF OPERATIONS In 1999, we recorded a net loss totaling $3.7 million or $0.17 per share compared to net income of $13.6 million or $0.67 per share ($0.66 diluted income per share) in 1998. The decrease in net income resulted primarily from lower revenues because of the termination of the gas contract with Texas Eastern in July 1998. Increased oil prices and increased gas production during 1999 partially offset the decrease in total revenues from 1998 to 1999. 12 13 The following table discloses the net oil and gas production volumes, sales, and sales prices for each of the three years ended December 31, 1999, 1998, and 1997. The table is an integral part of the following discussion of results of operations for the periods 1999 compared to 1998 and 1998 compared to 1997.
% INCREASE % INCREASE 1999 (DECREASE) 1998 (DECREASE) 1997 ------- ---------- -------- ---------- ------- Oil production volume (MBbls)............. 1,183 (5)% 1,245 4% 1,197 Oil sales revenue......................... $18,316 34% $ 13,677 (36)% $21,292 Price per barrel.......................... $ 15.48 41% $ 10.99 (38)% $ 17.79 Increase (decrease) in oil sales revenue due to: Change in prices.......................... $ 5,590 $ (8,140) Change in production volume............... (951) 525 ------- -------- Total increase (decrease) in oil sales revenue................. $ 4,639 $ (7,615) ======= ======== Gas production volume (MMcf).............. 9,939 56% 6,383 (10)% 7,116 Gas sales revenue......................... $24,028 17% $ 20,579 (43)% $36,012 Price per Mcf............................. $ 2.42 (25)% $ 3.22 (36)% $ 5.06 Increase (decrease) in gas sales revenue due to: Change in prices.......................... $(5,106) $(13,093) Change in production volume............... $ 8,555 $ (2,340) ------- -------- Total increase (decrease) in gas sales revenue................. $ 3,449 $(15,433) ======= ========
1999 COMPARED TO 1998. Oil revenue increased by $4.6 million in 1999 compared to the prior year primarily because of the 41% increase in the average price. Oil production from the three Gulf of Mexico offshore platforms in the South Pass area decreased 161.3 MBbls because of depletion of reserves from existing wells. However, oil production from other Gulf of Mexico properties increased by 63.6 MBbls and partially offset the decrease from the South Pass area. In addition, oil production from Mississippi increased by approximately 37.0 MBbls. The net 5% reduction in oil production decreased total oil revenues by $951,000. Gas revenues for 1999 increased by $3.4 million primarily because of the increase in gas production. Gas production from the offshore Gulf of Mexico increased by approximately 2.7 Bcf. Gas production from the South Texas Gulf Coast increased by approximately 0.8 Bcf. These volume increases, which resulted in about $8.6 million in additional revenue, were substantially offset by lower unit prices which reduced revenues by approximately $5.1 million. The average price decreased because during the first half of 1998 we sold gas produced from South Pass Block 89 under a gas sales contract at above market prices. We terminated the gas contract in July 1998. Interest income decreased $858,000 because of lower cash and investments balances throughout 1999 compared to 1998. Other income decreased because in August 1998 we received $49.8 million from Texas Eastern Corporation to terminate the South Pass Block 89 gas sales contract. Operating expenses increased by $1.1 million, or 19%, because of the increase in the number of producing properties during 1999. Transportation expenses decreased because we purchased S-Sixteen Holding Company in December 1998. We eliminated the transportation expense in the consolidation of CKB Petroleum, Inc. Net Profits expense decreased $2.1 million because of lower production volumes and the termination of the Texas Eastern gas sales contract in July 1998. The termination of the gas sales contract caused gas revenues from South Pass Block 89 to decrease significantly. Exploration expenses decreased by $2.8 million, or 29%, because of lower dry hole costs and lower 3-D seismic costs incurred during 1999 compared to 1998. Depreciation, depletion and amortization expense increased because of increased producing properties and production. However, because our per-unit finding 13 14 and development costs have decreased, our per-unit depreciation, depletion and amortization amounts have decreased. In 1999, impairment of oil and gas properties decreased $2.3 million from the prior year. In 1998 we recorded a $2.5 million impairment charge on the South Pass block 89 property as a result of the termination of the gas sales contract. During the third quarter of 1998, we received a judgment against us for $18.0 million in the Phillips litigation. We recorded the judgment during the third quarter of 1998 and have continued to record interest on the judgment amount. In February 2000, we reached an agreement to settle the litigation with the two minority shareholders of CKB & Associates, Inc. and CKB Petroleum, Inc. In addition, as part of the settlement agreement, we purchased their minority interest in the two subsidiaries in March 2000. We recorded the estimated expense portion of the settlement as a charge against income in the fourth quarter of 1999. 1998 COMPARED TO 1997 Oil revenue for 1998, decreased $7.6 million because of a $6.80, or 38%, decrease in prices, partially offset by a 48,000-barrel, or 4%, increase in oil production. The lower prices alone caused oil revenue to be $8.1 million lower. Oil production increased primarily because of additional oil production from the Parker Creek property in Mississippi and the West Buna Property in South Texas. Gas revenue for 1998 was $15.4 million, or 43%, lower than 1997, primarily due to the lower production from South Pass block 89 in 1998 compared to the prior year. In 1998, production from this block was 1.4 Bcf lower than in 1997, causing a decrease in gas revenue of approximately $11.6 million. The average gas price decrease, from $5.06 to $3.22, resulted primarily from the termination of the gas sales contract on South Pass block 89. We sold gas from South Pass block 89 at an average price of $8.54 per Mcf in 1997 compared to $6.20 in 1998. Gas production from properties other than South Pass block 89 increased 630,000 Mcf, or 15%, primarily from Eugene Island block 135 in the Gulf of Mexico. Other income increased primarily because of the $49.8 million received from the termination of the gas sales contract. Operating costs increased during 1998 compared to 1997 because the number of our producing properties increased significantly. Net profits expense decreased in 1998 because of the decreased revenues credited to the net profits account on South Pass block 89. Exploration expense increased $943,000, or 11%, primarily due to increased expenditures for 3-D seismic data. Dry hole expense, which is included in exploration expense, included $3.3 million for costs accumulated on the Main Pass block 262 well A-3 at December 31, 1998. This well was determined to be non-commercial during the first quarter of 1999. Depreciation, depletion and amortization decreased by $4.3 million, or 18%, because of an increase in proved oil and gas reserves on producing properties. The impairment expense recorded in 1998 includes $2.5 million for impairment on South Pass block 89 platform B that was recorded in the third quarter of 1998 due to the termination of the gas sales contract. In connection with the August 1998 judgment issued in our litigation with Phillips Petroleum Company, and in accordance with Statement of Financial Accounting Standards No. 5 entitled "Accounting for Contingencies," we recorded an $18.0 million expense in August 1998. This amount includes the damage award by the trial court and the estimated interest on the award. We reduced general and administrative expense by 25% in 1998 compared to 1997. The decrease in general and administrative expense was primarily from reduced salaries and payroll expense, rent expense, and professional services fees. Legal expenses decreased because of the reduction in expense associated with defending the Phillips Petroleum Company litigation and the settlement of other litigation. Reorganization expense for 1997 includes payments to employees under employee severance agreements and legal fees or other charges that relate to or were paid because of the purchase of S-Sixteen Holding Company (formerly Box Brothers Holding Company) by Mr. J. R. Simplot in August 1997. We recorded the following as reorganization costs: employee severance payments $3.6 million, Thomas D. Box severance and legal claims and fees $1.2 million, Mr. Simplot and Mr. James Arthur Lyle $2.0 million for legal claims and fees, and other associated expenses $300,000. 14 15 Interest expense is 19% lower for 1998 because of our purchase of $16.7 million of the outstanding 8 1/4% Convertible Subordinated Notes in October 1997. In 1997, we recorded a valuation allowance against the entire deferred tax benefit, and reflected the amount in the income statement as deferred income tax expense. In 1998, we were able to use those tax benefits to the extent that our effective federal income tax rate for 1998 was about 5%. The income tax expense for 1998 includes alternative minimum tax expense of $433,000 as a current income tax expense. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our market risk sensitive instrument at December 31, 1999, is a revolving line of credit from a bank. At December 31, 1999, the unpaid principal balance under the line was $30.0 million. The interest rate on this debt is sensitive to market fluctuations, however we do not believe that significant fluctuations in the market interest have a material effect on our consolidated financial position, results of operations, or cash flow from operations. 15 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS Report of Independent Accountants........................... 17 Consolidated Balance Sheets as of December 31, 1999 and 1998...................................................... 18 Consolidated Statements of Income and Comprehensive Income for 1999, 1998, and 1997.................................. 19 Consolidated Statements of Stockholders' Equity for 1999, 1998, and 1997............................................ 20 Consolidated Statements of Cash Flow for 1999, 1998, and 1997...................................................... 21 Notes to Consolidated Financial Statements.................. 22
16 17 REPORT OF INDEPENDENT ACCOUNTANTS To The Stockholders and Board of Directors of Remington Oil and Gas Corporation We have audited the accompanying balance sheets of Remington Oil and Gas Corporation ("the Company"), a Delaware corporation, as of December 31, 1999 and 1998, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Remington Oil and Gas Corporation as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Dallas, Texas March 28, 2000 17 18 REMINGTON OIL AND GAS CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
AT DECEMBER 31, ------------------- 1999 1998 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 4,356 $ 19,018 Restricted cash and cash equivalents...................... 11,042 8,750 Accounts receivable -- oil and gas........................ 6,148 2,400 Accounts receivable -- other.............................. 273 812 Prepaid expenses and other current assets................. 2,054 1,871 -------- -------- TOTAL CURRENT ASSETS.............................. 23,873 32,851 -------- -------- PROPERTIES Oil and gas properties (successful-efforts method)........ 275,690 260,649 Other properties.......................................... 2,862 2,706 Accumulated depreciation, depletion and amortization...... (183,971) (167,053) -------- -------- TOTAL PROPERTIES.................................. 94,581 96,302 -------- -------- Other assets.............................................. 872 1,076 -------- -------- TOTAL ASSETS...................................... $119,326 $130,229 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses..................... $ 6,613 $ 7,264 Phillips judgment payable................................. 18,894 18,165 Short-term notes payable and current portion of long-term note payable........................................... 2,635 8,651 -------- -------- TOTAL CURRENT LIABILITIES......................... 28,142 34,080 -------- -------- LONG-TERM LIABILITIES Long-term accounts payable................................ 1,598 2,913 Notes payable............................................. 27,526 3,500 Convertible subordinated notes payable.................... 5,950 29,950 -------- -------- TOTAL LONG-TERM LIABILITIES....................... 35,074 36,363 -------- -------- TOTAL LIABILITIES................................. 63,216 70,443 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 9 AND NOTE 13) Minority interest in subsidiaries........................... 56 87 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 25,000,000 shares authorized, shares issued -- none Common stock, $.01 par value, 100,000,000 shares authorized, 21,491,170 shares issued and 21,285,195 shares outstanding in 1999, 21,453,453 shares issued and 21,247,478 shares outstanding in 1998.............. 213 213 Additional paid-in capital................................ 44,273 44,117 Retained earnings......................................... 11,568 15,369 -------- -------- TOTAL STOCKHOLDERS' EQUITY........................ 56,054 59,699 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $119,326 $130,229 ======== ========
See accompanying Notes to Consolidated Financial Statements. 18 19 REMINGTON OIL AND GAS CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 ------- ------- -------- REVENUES Oil sales................................................. $18,316 $13,677 $ 21,292 Gas sales................................................. 24,028 20,579 36,012 Interest income........................................... 724 1,582 1,998 (Loss) on sale of investments............................. -- -- (125) Other income.............................................. 2,362 51,851 1,876 ------- ------- -------- TOTAL REVENUES.................................... 45,430 87,689 61,053 ------- ------- -------- COSTS AND EXPENSES Operating costs and expenses.............................. 6,978 5,861 4,015 Transportation expense.................................... 329 2,654 2,851 Net profits interest expense.............................. 1,492 3,600 8,341 Exploration expenses...................................... 6,725 9,497 8,554 Depreciation, depletion and amortization.................. 20,780 19,964 24,298 Impairment of oil and gas properties...................... 1,883 4,154 3,953 General and administrative................................ 4,790 4,782 6,344 Legal expense............................................. 1,465 552 2,509 Settlement of minority interest litigation................ 442 -- -- Phillips judgment......................................... -- 17,950 -- Reorganization expense.................................... -- -- 7,072 Interest and financing expense............................ 4,552 4,302 5,283 ------- ------- -------- TOTAL COSTS AND EXPENSE........................... 49,436 73,316 73,220 ------- ------- -------- INCOME (LOSS) BEFORE TAXES.................................. (4,006) 14,373 (12,167) Income taxes.............................................. (273) 756 14,623 Minority interest......................................... (30) -- -- ------- ------- -------- NET INCOME (LOSS)................................. (3,703) 13,617 (26,790) ------- ------- -------- OTHER COMPREHENSIVE INCOME (NET OF TAXES) Unrealized gain on marketable securities -- available for sale................................................... -- -- 186 ------- ------- -------- TOTAL OTHER COMPREHENSIVE INCOME (NET OF TAXES)... -- -- 186 ------- ------- -------- COMPREHENSIVE INCOME (LOSS)....................... $(3,703) $13,617 $(26,604) ======= ======= ======== BASIC INCOME (LOSS) PER SHARE..................... $ (0.17) $ 0.67 $ (1.31) ======= ======= ======== DILUTED INCOME (LOSS) PER SHARE................... $ (0.17) $ 0.66 $ (1.31) ======= ======= ========
See accompanying Notes to Consolidated Financial Statements. 19 20 REMINGTON OIL AND GAS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK --------------------------------- VALUATION CLASS A CLASS B COMMON ADDITIONAL ALLOWANCE $1.00 PAR $1.00 PAR $.01 PAR PAID IN RETAINED TREASURY MARKETABLE VALUE VALUE VALUE CAPITAL EARNINGS STOCK SECURITIES --------- --------- --------- ---------- -------- -------- ---------- BALANCE DECEMBER 31, 1996... $3,250 $17,553 $ -- $25,197 $ 28,542 $ -- $(186) Net income (loss)........... (26,790) Purchase of treasury stock..................... (3,465) Unrealized gain (net of income tax)............... 186 ------ ------- ---- ------- -------- ------- ----- BALANCE DECEMBER 31, 1997... 3,250 17,553 -- 25,197 1,752 (3,465) -- ------ ------- ---- ------- -------- ------- ----- Net income (loss)........... 13,617 Common stock issued......... 27 156 Treasury stock issued....... 305 Merger and exchange of common stock.............. (3,250) (17,580) 213 18,764 3,160 ------ ------- ---- ------- -------- ------- ----- BALANCE DECEMBER 31, 1998... -- -- 213 44,117 15,369 -- -- ------ ------- ---- ------- -------- ------- ----- Net income (loss)........... (3,703) Common stock issued......... 156 Dividends paid to minority stockholders.............. (98) ------ ------- ---- ------- -------- ------- ----- BALANCE DECEMBER 31, 1999... $ -- $ -- $213 $44,273 $ 11,568 $ -- $ -- ====== ======= ==== ======= ======== ======= =====
See accompanying Notes to Consolidated Financial Statements. 20 21 REMINGTON OIL AND GAS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- CASH FLOW PROVIDED BY OPERATIONS NET INCOME (LOSS)........................................... $ (3,703) $ 13,617 $(26,790) ADJUSTMENTS TO RECONCILE NET INCOME Depreciation, depletion and amortization.................. 20,780 19,964 24,298 Amortization of deferred charges.......................... 752 254 658 Impairment of oil and gas properties...................... 1,883 4,154 3,953 Dry hole costs............................................ 5,187 5,222 5,319 Minority interest in net income of subsidiaries........... (30) -- -- Stock issued to directors and employees for compensation........................................... 156 488 -- Amortization of premium of marketable securities.......... -- -- 27 (Gain) loss on sale of properties......................... (218) (111) 367 Deferred income tax expense............................... -- 323 14,623 CHANGES IN WORKING CAPITAL (Increase) decrease in accounts receivable................ (3,230) 3,133 2,556 (Increase) decrease in prepaid expenses and other current assets................................................. (183) 296 (157) Increase in accounts payable and accrued expenses......... 78 15,554 2,692 (Increase) in deferred charges............................ -- (104) -- (Increase) in restricted cash............................. (2,292) (8,750) -- -------- -------- -------- NET CASH FLOW PROVIDED BY OPERATIONS........................ 19,180 54,040 27,546 -------- -------- -------- CASH FROM INVESTING ACTIVITIES Payments for capital expenditures......................... (26,209) (40,155) (39,144) Cash acquired in merger with S-Sixteen Holding Company and Subsidiaries........................................... -- 79 -- Sales and maturities of marketable securities............. -- -- 33,411 Investment in marketable securities....................... -- -- (597) Notes receivable S-Sixteen Holding Company................ -- -- (7,250) Principal repayments -- S-Sixteen Holding Company......... -- 1,432 1,058 Proceeds from property sales.............................. 298 495 702 -------- -------- -------- NET CASH (USED IN) INVESTING ACTIVITIES..................... (25,911) (38,149) (11,820) -------- -------- -------- CASH FROM FINANCING ACTIVITIES Proceeds from notes payable and long-term accounts payable................................................ 30,628 7,813 7,000 Payments on notes payable and long-term accounts payable................................................ (37,933) (7,400) (17,706) Commitment fee on line of credit.......................... (528) -- -- Repurchase common stock................................... -- -- (3,465) Issuance costs for exchange of common stock............... -- (1,838) -- Dividends paid to minority interest holders............... (98) -- -- -------- -------- -------- NET CASH (USED IN) FINANCING ACTIVITIES..................... (7,931) (1,425) (14,171) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (14,662) 14,466 1,555 Cash and cash equivalents at beginning of period.......... 19,018 4,552 2,997 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 4,356 $ 19,018 $ 4,552 ======== ======== ======== Cash paid for interest...................................... $ 2,577 $ 3,879 $ 5,398 ======== ======== ======== Cash paid (received) for taxes.............................. $ (472) $ 433 $ -- ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. 21 22 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION Remington Oil and Gas Corporation, formerly Box Energy Corporation, is an independent oil and gas exploration and production company incorporated in Delaware. We have working interest ownership rights in properties in the offshore Gulf of Mexico and onshore Gulf Coast. Management prepares the financial statements in conformity with accounting principles generally accepted in the United States. This requires estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Some of the more significant estimates include oil and gas reserves, useful lives of assets, impairment of oil and gas properties, and future dismantlement and restoration liabilities. Actual results could differ from those estimates. We make certain reclassifications to prior year financial statements in order to conform to the current year presentation. NOTE 2 -- CONSOLIDATION OF SUBSIDIARIES On December 28, 1998, we acquired all of the assets of S-Sixteen Holding Company including its five subsidiaries. Our total investment in the transaction was $8.5 million. The effect of the acquisition, which we accounted for as a purchase transaction, was not material to the financial statements. The subsidiaries acquired are CKB Petroleum, Inc., CKB & Associates, Inc., Box Brothers Realty Investments Company, CB Farms, Inc., and Box Resources, Inc. We eliminated all inter-company transactions and account balances for the periods of consolidation. The primary operating subsidiary, CKB Petroleum, Inc., owns an undivided interest in a pipeline that transports oil from our South Pass blocks, offshore Gulf of Mexico, to Venice Louisiana. Before the merger, S-Sixteen Holding Company owned approximately 57% of our outstanding voting stock. Prior to the acquisition, we paid CKB Petroleum, Inc., transportation costs totaling $3.0 million in 1998 and $3.2 million in 1997. NOTE 3 -- CASH, CASH EQUIVALENTS AND RESTRICTED CASH Cash equivalents consist of liquid investments that mature within three months or less when purchased. Our cash equivalents include investment grade commercial paper and institutional money market funds. We record cash equivalents at cost, which approximates their market value at the balance sheet date. Our restricted cash includes amounts transferred to a surety company as collateral for the suspensive appeal bond for the Phillips litigation, and for various bonds in favor of the Minerals Management Service relating to audit issues and qualifications as lessees and/or operators on various properties. See Note 9 and Note 13. NOTE 4 -- OIL AND GAS PROPERTIES, ACCOUNTING METHODS, COSTS, PROVED RESERVES AND VALUE BASED INFORMATION We use the successful-efforts method to account for oil and gas exploration and development expenditures. Under this method, we record the expenditures for leasehold acquisitions, tangible equipment, and intangible drilling costs for an individual oil and gas property as an asset. In addition, if the construction cost of an offshore platform is significant, we record an allocated portion of the interest expense incurred during the construction period as part of the oil and gas property cost. 22 23 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the capitalized costs on our oil and gas properties, all of which are located in the United States.
AT DECEMBER 31, ------------------------------------------------------------------- 1999 1998 -------------------------------- -------------------------------- PROVED UNPROVED TOTAL PROVED UNPROVED TOTAL --------- -------- --------- --------- -------- --------- (IN THOUSANDS) Onshore..................... $ 38,373 $ 4,991 $ 43,364 $ 31,704 $ 5,861 $ 37,565 Offshore.................... 222,803 9,523 232,326 210,631 12,453 223,084 --------- ------- --------- --------- ------- --------- Total............. 261,176 14,514 275,690 242,335 18,314 260,649 Accumulated depreciation, Depletion and amortization.............. (182,139) -- (182,139) (165,414) -- (165,414) --------- ------- --------- --------- ------- --------- Net oil and gas properties................ $ 79,037 $14,514 $ 93,551 $ 76,921 $18,314 $ 95,235 ========= ======= ========= ========= ======= =========
We accumulate the expenditures incurred in drilling exploratory wells as work in process until we determine whether the well has encountered commercial oil and gas reserves. If the well has encountered commercial reserves, we transfer the accumulated cost to oil and gas properties; otherwise, we charge the accumulated cost, net of salvage value, to dry hole expense. If the well has encountered commercial reserves but can not be classified as proved within one year after discovery, then we consider the well to be impaired, and we charge to expense the capitalized costs (net of any salvage value) of drilling the well. We record expenditures for geological, geophysical or other prospecting costs as exploration expenses on the income statement when incurred. The following table presents a summary of our oil and gas expenditures during the last three years.
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- (UNAUDITED, IN THOUSANDS) Unproved acquisition costs.............................. $ 2,732 $11,160 $ 5,793 Proved acquisition costs................................ $ 379 $ 5,353 $12,545 Exploration costs....................................... $17,535 $23,279 $13,767 Development costs....................................... $ 7,007 $ 4,318 $ 9,975 Capitalized interest expense............................ -- -- --
We amortize the capitalized cost of each oil and gas property using the units-of-production method. To calculate the cost per unit we divide the leasehold costs by total proved reserves and the costs for wells, platforms, and other equipment by proved developed reserves. Oil and gas reserves that do not require significant additional cost to access the reserves, such as a new well or major sidetrack, are classified as proved developed. We then multiply the cost per unit by the actual production and charge the result to depreciation, depletion and amortization expense. Gas reserves are converted at a ratio of 6 Mcf to 1 barrel. Future dismantlement, restoration and abandonment costs include the estimated costs to dismantle, restore, and abandon our offshore platforms, wells, and related facilities. As of December 31, 1999, the total estimated liability of our future dismantlement and restoration costs is $5.4 million. We record the liability over the life of the property using the units-of-production method and record the expense as a component of depreciation, depletion and amortization expense. The accrued liability at December 31, 1999 and 1998, was $4.0 million and $3.6 million, respectively. Periodically, if there is a large decrease in oil and gas reserves or production on a property, or if a dry hole is drilled on or near one of our properties we will review the properties for impairment. In addition, significant decreases in oil and gas prices may also indicate that a property has become impaired. If the net book value of a property is greater than the estimated undiscounted future net cash flow before income taxes from the same 23 24 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) property, the property is considered impaired. The impairment expense is equal to the difference between the net book value and the fair value of the asset. We estimate fair value by discounting, at an appropriate rate, the future net cash flows from the property. In addition, we assess the capitalized costs of unproved properties periodically to determine whether their value has been impaired below the capitalized costs. We recognize a loss to the extent that such impairment is indicated. In making these assessments, we consider factors such as exploratory drilling results, future drilling plans, and lease expiration terms. We recognized impairment expense totaling $1.9 million in 1999, $4.2 million in 1998, and $4.0 million in 1997. The expense in 1999 included an impairment of $852,000 on the platform located on Main Pass block 262. The expense in 1998 included $2.5 million from South Pass block 89 because of the reduction in estimated undiscounted future net cash flow caused by the termination of the long-term gas sales contract for that property. The remaining impairment expense for 1999 and 1998 and the impairment expense for 1997 primarily resulted from inadequate oil and gas reserves or a significant decrease in oil and gas production from the specific property. The estimates of oil and gas reserves were prepared by the independent engineering and consulting firms of Netherland, Sewell & Associates, Inc. and Miller and Lents, Ltd. The Netherland, Sewell, & Associates, Inc. report covers approximately 91% of the total proved oil and gas reserves in 1999. The determination of these reserves is a complex and interpretative process that is subject to continued revision as additional information becomes available. In many cases, a relatively accurate determination of reserves may not be possible for several years due to the time necessary for development drilling, testing and studies of the reservoirs. The quantities of proved oil and gas reserves presented below include only the amounts which we reasonably expect to recover in the future from known oil and gas reservoirs under the current economic and operating conditions. Proved reserves include only quantities that we can commercially recover using current prices, costs, existing regulatory practices and technology. Therefore, any changes in future prices, costs, regulations, technology or other unforeseen factors could significantly increase or decrease proved reserve estimates. The following table presents our net ownership interest in proved oil and gas reserves.
AT DECEMBER 31, --------------------------------------------------- 1999 1998 1997 --------------- --------------- --------------- OIL GAS OIL GAS OIL GAS BBLS MCF BBLS MCF BBLS MCF ------ ------ ------ ------ ------ ------ (UNAUDITED, IN THOUSANDS) Beginning of period....................... 5,519 52,709 4,451 36,543 3,299 39,332 Revisions of previous estimates......... 1,173 3,340 850 6,533 330 (6,004) Extensions, discoveries and other....... 1,668 19,580 1,311 10,958 1,046 4,115 Reserves purchased...................... -- -- 152 5,058 973 6,216 Reserves sold........................... -- (182) Production.............................. (1,183) (9,939) (1,245) (6,383) (1,197) (7,116) ------ ------ ------ ------ ------ ------ End of period............................. 7,177 65,508 5,519 52,709 4,451 36,543 ====== ====== ====== ====== ====== ====== Proved developed reserves Beginning of period..................... 3,605 33,680 3,208 27,259 2,541 28,323 End of period........................... 5,593 56,742 3,605 33,680 3,208 27,259
The proved developed and undeveloped reserves and standardized measure of discounted future net cash flows associated with South Pass block 89 are burdened by a 33% net profits interest. The reserves included in the above table include our full net ownership interest without any reduction for the net profit interest. We treat the net profit interest as an operating expense rather than a reduction in proved reserves. Please see Note 13 -- Net Profits Expense for a more detailed discussion about the net profits interest. 24 25 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following tables represent value-based information about our proved oil and gas reserves. The standardized measure of discounted future net cash flows result from the application of specific criteria applicable to the value-based disclosures of all oil and gas reserves in the industry. Due to the imprecise nature of estimating oil and gas reserve quantities and the uncertainty of future economic conditions, we cannot make any representation about interpretations that may be made or what degree of reliance that may be placed on this method of evaluating proved oil and gas reserves. We compute future cash revenue by multiplying the year-end commodity prices or contractual pricing if applicable, by the proved oil and gas reserves. Future production and development costs include the estimated costs to produce or develop the proved reserves based primarily on historical costs. We calculated the future net profits expense by multiplying the net profit percentage to the future revenue less production and development costs on South Pass block 89. Future income tax expense was determined by applying the current tax rate to the future net cash flow from all properties. Finally, we discounted the future net cash flow, after tax, by 10% per year to arrive at the standardized measure of discounted future net cash flows presented below.
AT DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (UNAUDITED, IN THOUSANDS) Oil and natural gas revenues......................... $308,063 $160,416 $226,262 Production costs..................................... (47,243) (31,474) (31,702) Development costs.................................... (25,603) (30,665) (23,954) Net Profits expense.................................. (7,267) (3,453) (28,933) Income tax expense................................... (49,843) (7,888) (16,845) -------- -------- -------- Net cash flow........................................ 178,107 86,936 124,828 10% annual discount.................................. (51,239) (23,469) (30,990) -------- -------- -------- Standardized measure of discounted future net cash flow............................................... $126,868 $ 63,467 $ 93,838 ======== ======== ========
25 26 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the principal sources of change in the standardized measure of discounted future net cash flows from year to year
AT DECEMBER 31 ------------------------------ 1999 1998 1997 -------- -------- -------- (UNAUDITED, IN THOUSANDS) Standardized measure of discounted cash flows at beginning of year.................................. $ 63,467 $ 93,838 $146,013 Sales and transfers of oil and natural gas produced, net of production costs and net profits expense.... (33,393) (24,796) (42,097) Net changes in prices and production costs........... 50,133 (77,769) (61,134) Net changes in estimated development costs........... 1,746 1,274 (5,130) Net changes in estimated net profits expense......... (5,306) 17,624 14,029 Net changes in income tax expense.................... (28,504) 8,208 28,283 Extensions, discoveries and improved recovery less related costs...................................... 44,823 11,625 9,171 Proved oil and gas reserves purchased................ -- 5,050 13,865 Proved oil and gas reserves sold..................... (111) -- -- Development costs incurred during the year........... 7,007 4,318 9,975 Revisions of previous quantity estimates............. 25,122 18,673 (21,306) Other changes........................................ (4,463) (3,962) (12,432) Accretion of discount................................ 6,347 9,384 14,601 -------- -------- -------- Standardized measure of discounted future net cash flows end of year.................................. $126,868 $ 63,467 $ 93,838 ======== ======== ========
In July of 1998, we terminated our gas sales contract that covered gas production on South Pass block 89. The standardized measure of discounted future net cash flows in the prior years included future revenue based on the long-term contract price. NOTE 5 -- OTHER PROPERTIES Other properties include improvements on the leased office space and office computers and equipment. The company depreciates these assets using the straight-line method over their estimated useful lives that range from 3 to 12 years. NOTE 6 -- OTHER ASSETS Long-term accounts receivable -- related party reflects CKB Petroleum's claims under Collateral Assignment Split Dollar Insurance Agreements among CKB Petroleum and Don D. Box (an officer and director) and two of his brothers. We recorded the origination fees paid for the current bank line of credit and the cost incurred when we issued the 8 1/4% Convertible Subordinated Notes in 1992 as deferred charges on our balance sheet. We amortize the costs on a straight-line basis over underlying term of the debt and charge the amortized amount to interest and financing costs. In October 1997, we purchased $16.7 million of the outstanding notes and accelerated the amortization of the allocated portion of the issuance costs by $416,000. Again in February 1999, we accelerated the amortization of $600,000 of the debt issuance costs a second time because of our purchase of an additional $32.4 million of the notes. 26 27 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- MINORITY INTEREST IN SUBSIDIARIES Two individuals owned a combined 5.8824% in two of our subsidiaries, CKB Petroleum, Inc. and CKB & Associates, Inc. The two subsidiaries were acquired when we merged with S-Sixteen Holding Company in December 1998. The minority interest liability reflects their percentage of the total combined equity in the two subsidiaries. Before the merger, the two shareholders, who were former officers of the companies, filed suit against S-Sixteen Holding Company and the two subsidiaries. In this suit the plaintiffs alleged that the defendants wasted and/or misappropriated CKB Petroleum's corporate assets. The plaintiffs wanted certain expenditures to be reclassified as "constructive" dividends. In addition, the plaintiffs also wanted the court to compel us to buy out their interest. In February 2000, we reached an agreement to settle all claims and purchase their minority interest in the two subsidiaries. In connection with the settlement of this litigation we recorded $442,000 as a settlement expense as of December 31, 1999. NOTE 8 -- LONG-TERM ACCOUNTS PAYABLE AND NOTES PAYABLE Long-term accounts payable include the long-term portion of future payments due to a vendor over the next two years. In February 1999 we replaced the existing line of credit with a line of credit from a different bank. The line of credit had an initial borrowing base of $32.0 million. In March 2000 the borrowing base increased to $35.0 million. The line expires in 2003. We pledged our oil and gas properties as collateral for the new line of credit. We will accrue and pay interest at varying rates based on premiums of from 1.625 to 2.375 percentage points over the London Interbank Offered Rates. On December 31, 1999, we had an outstanding balance of $30.0 million and had issued letters of credit totaling $1.8 million. Interest only is payable quarterly through September 30, 2000. Unless renegotiated or extended, the loans under the line of credit convert to term loans on October 1, 2000, and principal payments on the $30.0 million will be scheduled as follows: 2000 -- $2.5 million; 2001 -- $10.0 million; 2002 -- $10.0 million; 2003 -- $7.5 million. The most significant financial covenants in the new line of credit include, among others, maintaining a minimum current ratio of 1.0 to 1.0, excluding any current liabilities associated with the Phillips litigation, a minimum tangible net worth of $55.0 million plus 50% of future net income and 100% of any non-redeemable preferred or common stock offerings, maximum debt to EBITDA of 3.0 to 1.0, interest coverage of 3.0 to 1.0, and a prohibition of the payment of dividends. Additionally, certain adverse outcomes of the Phillips litigation could constitute an event of default. See Note 13. In December 1992, we issued $55.1 million of 8 1/4% Convertible Subordinated Notes. The notes mature December 1, 2002, and may convert into shares of common stock at the election of the note-holder any time before maturity, unless previously redeemed. Interest is payable semiannually on June 1 and December 1. We may redeem all or a portion of the notes any time after December 1, 1995, at 105.775% of the face amount. The redemption price decreases .825% each subsequent December 1. The notes are unsecured and subordinate to existing and future senior indebtedness. The indenture for the notes requires us to make an offer to purchase the notes if a "change in control" occurs. The purchase price is the total of the par value plus accrued interest through the date of purchase. In August 1997, Mr. J.R. Simplot purchased S-Sixteen Holding Company, then known as Box Brothers Holding Company. The purchase resulted in a "change in control" as defined in the indenture. In October 1997, we repurchased $16.7 million of the notes outstanding. In December 1998, we reclassified our two classes of common stock into one class of common stock. The indenture also defined this transaction as a "change in control," and we made another offer to purchase the notes. In February 1999, we repurchased $32.4 million of the notes outstanding pursuant to this offer. We estimate that the fair value of our long-term indebtedness, including the current maturities of such obligations, is approximately $35.5 million at December 31, 1999 and $43.6 million at December 31, 1998. We 27 28 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) based the fair value on the quoted market bid price in 1998 and the only known broker estimate in 1999 for our convertible notes and on current rates available for our other indebtedness. NOTE 9 -- COMMITMENTS AND CONTINGENT LIABILITIES We lease approximately 17,000 square feet of office space in Dallas Texas. The non-cancelable operating lease expires in April 2008. The following table reflects our rent payments for the past three years and the commitment for the future minimum rental payments.
YEAR RENT ---- ---------- 1997..................................................... $ 716,000 1998..................................................... $ 474,000 1999..................................................... $ 407,000 2000..................................................... $ 407,000 2001..................................................... $ 433,000 2002..................................................... $ 441,000 2003..................................................... $ 441,000 2004..................................................... $ 441,000 Remaining commitment..................................... $1,586,000
We are defendants in litigation with Phillips Petroleum Company concerning their net profits interest ownership in South Pass block 89. We discuss this litigation in more detail in Note 13 -- Net Profits Expense and Phillips Petroleum Litigation. Minerals Management Service Issues During the first quarter of 1999, the Minerals Management Service (MMS) informed us of certain audit issues. The issues involve alleged underpaid royalties on the South Pass Block 89 Complex from 1990-1998. During the second quarter of 1999, the MMS issued orders to pay additional royalties on these claims. We strongly disagree with the MMS position. After posting bonds totaling $3.6 million, collateralized with $1.8 million of restricted cash, we have entered into negotiations with the MMS in regard to these items. In light of these negotiations, it is impossible to determine the amount of royalty, if any, we may owe. Certain possible outcomes of these proceedings could materially affect our financial statements. We have no other material pending legal proceedings other than the litigation mentioned above. Other than certain possible outcomes of the Phillips litigation, it is our opinion that any adverse judgments or results would not have a material adverse effect on our financial position or results of operation. NOTE 10 -- COMMON STOCK, PREFERRED STOCK AND DIVIDENDS In 1998, we increased the number of authorized common stock shares to 100 million and authorized 25.0 million shares of "blank check" preferred stock. The par value of the new common stock is $0.01 per share. The board of directors can issue multiple series of preferred stock and set different terms, voting rights, conversion features, and redemption rights for each distinct series of the preferred stock. We have reserved approximately 2.8 million shares of common stock for our stock option plan and 250,000 shares for our non-employee director stock purchase plan, which are discussed in more detail in Note 15 -- Employee and Director Compensation Plans. Additionally, we reserved 200,000 shares for a warrant issued in connection with our acquisition of S-Sixteen Holding Company in December 1998. In December 1998, the holders of class A common stock and class B common stock approved the merger agreement with S-Sixteen Holding Company. Part of the transaction involved the exchange of one class of new voting common stock for the two classes of common stock that were outstanding. The stockholders who 28 29 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) owned class A common stock received 1.15 shares of the new common stock for each share of class A common stock. The stockholders who owned class B common stock received 1 share of the new common stock for each share of class B common stock. We have not paid dividends since before 1992. Dividends are currently restricted. Additionally, if we pay dividends in excess of 2% of the market price per share during a calendar quarter, the conversion price of the 8 1/4% Convertible Subordinated Notes will be adjusted proportionately. The determination of future cash dividends, if any, will depend upon, among other things, our financial condition, cash flow from operating activities, the level of our capital and exploration expenditure needs, our future business prospects, and renegotiation of our line of credit. NOTE 11 -- OIL AND GAS REVENUES We recognize oil and gas revenue in the month of actual production. Our actual sales have not been materially different from our entitled share of production and we do not have any significant gas imbalances. In 1999, sales by a gas marketing company accounted for approximately 48% of our total oil and gas revenue. In addition, we sold approximately 64% of our total oil production to one company during the year, which accounted for approximately 32% of our total oil and gas revenues in 1999. We do not believe that the risk of losing services or sales from either of these companies would have a material adverse effect on us. NOTE 12 -- MARKETABLE SECURITIES When we sell a marketable security, we record the realized gain or loss on that specific security in the income statement. The following table includes certain information about our marketable security transactions and the change in net unrealized holding gains and losses.
FOR YEARS ENDED DECEMBER 31, --------------------- 1999 1998 1997 ---- ---- ------- (IN THOUSANDS) Sales Proceeds.............................................. -- -- $33,411 Gross realized gains........................................ -- -- 46 Gross realized (losses)..................................... -- -- (169) Change in net unrealized holding gains and losses........... -- -- 186
In 1997, we classified all of our marketable securities as available-for-sale and recorded them on the balance sheet at their market value as of the balance sheet date. The unrealized holding gains and losses that result from the difference between the market value and the cost of these securities are recorded, net of tax, as a separate component of stockholders' equity. NOTE 13 -- NET PROFITS EXPENSE AND PHILLIPS PETROLEUM LITIGATION We pay Phillips Petroleum Company 33% of the "net profit," as defined in the farm-out agreement, from South Pass block 89. The following table summarizes the net profits expense calculation:
FOR YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (IN THOUSANDS) Oil and natural gas revenue (net of transportation)..... $ 6,611 $13,434 $30,567 Operating, overhead, and capital expenditures........... (2,090) (2,525) (5,292) ------- ------- ------- "Net profit" from South Pass block 89................... $ 4,521 $10,909 $25,275 ======= ======= ======= Net profit expense (at 33%)................... $ 1,492 $ 3,600 $ 8,341 ======= ======= =======
29 30 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Phillips contends that pursuant to its 33% net profits interest in South Pass block 89, it was entitled to receive an overriding royalty for months in which "net profits" were not achieved; that an excessive oil transportation fee was being charged to the net profits account; and that the entire $69.6 million cash payment that had been received by OKC Limited Partnership (our predecessor) from the 1990 settlement of previous litigation between Texas Eastern Transmission Corporation and us, should have been credited to the net profits account instead of the $5.8 million that was credited. On the latter claim, Phillips seeks to receive more than $21.5 million, while on the first two claims Phillips alleges aggregate damages of several million dollars. In addition, Phillips, under the Louisiana Mineral Code, is seeking double damages and cancellation of the farm-out agreement that created the net profits interest. We denied Phillips' claims and defended ourselves during a non-jury trial in April 1997. In August 1998, the trial court ruled in the litigation. In its ruling, the court awarded Phillips $1.6 million plus interest for its overriding royalty claim and $9.3 million plus interest for its claim on the 1990 settlement. The trial court dismissed Phillips' claim of excessive transportation charges and its claims for double damages and lease cancellation. The trial court, applying federal law and the language of the farm-out agreement, held that only income from actual production was to be included in the net profits account. On this basis, the trial court allocated $41.2 million of the 1990 settlement amount to proceeds from production rather than the $5.8 million originally credited. In October 1998, the trial court finalized its judgment. The total judgment, including interest, was $18.0 million. Phillips appealed the judgment on the transportation issue and the judgment on the 1990 settlement, and we appealed the decision on the overriding royalty issue. We posted an $18.0 million appeal bond, and set aside $9.0 million with the bonding company as collateral for the bond. In addition, we recorded the $18.0 million as an expense in the third quarter of 1998 in accordance with Statement of Financial Accounting Standards No. 5 entitled "Accounting for Contingencies." On January 5, 2000, the Fourth Court of Appeal issued an opinion reversing the trial court's judgment on the 1990 settlement issue and the excessive transportation issue and upholding the judgment on the overriding royalty issue. The appellate opinion increased the amount of the 1990 settlement subject to net profits from the $28.1 million as allocated by the trial court to $63.8 million, an increase of $35.7 million. The appeals court remanded this amount to the trial court for further proceedings related to royalties due. The amount payable to Phillips as determined by the appellate court, subject to remand, and assuming no reversal, would be $21.1 million plus interest. The appellate court opinion also disagreed with the trial court in stating that we owe Phillips $7.3 million plus interest on the transportation issue. In addition, according to the appellate court's opinion, we would owe Phillips an additional $1.2 million plus interest for transportation costs from December 1996 through the end of 1999. We intend to vigorously contest the decision of the appellate court, and in January 2000 we requested a rehearing in this case. If the rehearing is denied, we will appeal to the Louisiana Supreme Court. Because we believe that it is probable that the decision of the appellate court will not stand, we have not recorded any additional contingent liability on our books. Statement of Financial Accounting Standards No. 5 entitled "Accounting for Contingencies" requires that when a loss contingency exists, it be accrued if it is reasonably estimable and it is probable that an unfavorable outcome will occur. In reaching our conclusion we rely on our legal counsel who have informed us that in their opinions, the appellate court incorrectly applied the law and made erroneous findings of fact in reversing the trial court's judgment and that it is as likely as not that the Court of Appeal's errors will be corrected on rehearing or on appeal to the Louisiana Supreme Court. If however, we are not successful in this litigation, after exhausting all appeals, we will owe Phillips approximately $31.2 million plus approximately $23.8 million in interest on all three issues. This result would have a serious effect on our financial position and liquidity and could constitute an event of default under our 30 31 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) bank loan agreement, which might result in acceleration of our long-term debt. Our plans to deal with such a contingency might include selling properties, additional debt financing or, as a last resort, seeking protection from creditors under applicable law. We also have litigation pending with Phillips in state court in Collin County, Texas. This litigation centers on our termination of the gas contract with Texas Eastern in 1998 for $49.8 million, and what, if any, of the termination amount we received should be credited to the net profits account. The court in Collin County stayed the case pending resolution of the Louisiana appeals. Although not absolute, an unfavorable outcome of the Louisiana litigation could have a detrimental effect on our position in this litigation. If we were unsuccessful in this litigation we could owe Phillips approximately $16.4 million plus approximately $1.6 million in interest through December 31, 1999. This litigation could take up to two years to resolve after the Louisiana litigation is concluded. NOTE 14 -- REORGANIZATION COSTS Reorganization expense recorded in 1997 includes employee severance expense, litigation settlement amounts and other costs. During 1997, 31 employees were dismissed, resigned or notified us of their resignation. We paid severance amounts to the employees ranging from 6 to 18 months of their base pay because of severance agreements between the employees and us. The 31 employees included three executive officers (Senior Vice President/Operations, Vice President/Marketing and Supply, and Treasurer), ten employees from the operations technical staff and 18 other professional or clerical personnel. In the third quarter of 1997, we agreed to pay Thomas D. Box $1.2 million to settle his severance claims and lawsuits against us. He was the Chief Executive Officer and President of the company before his dismissal by the board of directors in August 1996. In addition, the company granted him options to purchase 50,000 shares of common stock at $9.00 per share. When Mr. J.R. Simplot purchased S-Sixteen Holding Company in August 1997, we executed a letter of intent to settle all the litigation brought by Mr. Simplot and other plaintiffs. Under the terms of the subsequently-executed settlement agreement, we paid Mr. Simplot $1.9 million for attorneys' fees and Mr. James Arthur Lyle $100,000 for attorneys' fees. S-Sixteen Holding Company owned approximately 57% of our voting common stock until December 1998. At December 31, 1998, Mr. Simplot controlled approximately 27% of our common stock. Mr. Lyle has been a member of the board of directors since September 2, 1997. NOTE 15 -- EMPLOYEE AND DIRECTOR BENEFIT PLANS Stock option plans We have two stock option plans: the 1992 Incentive Stock Option Plan and the 1997 Stock Option Plan. Remington discontinued a third plan, the 1992 Non-Qualified Stock Option Plan in 1997. We no longer use the 1992 Incentive Stock Option Plan. A committee that includes at least two or more outside non-employee directors administers the 1997 Stock Option Plan. The committee has the discretion to determine the participants, the number of shares granted to each person, the purchase price of the common stock covered by each option, and most other terms of the option. Options granted under the plan may be either incentive stock options or non-qualified stock options. The committee may issue options for up to 2.8 million shares of common stock, but no more than 687,500 shares to any individual. We continue to apply the accounting provisions of Accounting Principles Board Opinion 25, entitled "Accounting for Stock Issued to Employees," and related interpretations to account for stock-based compensation. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of our stock at the date of the grant over the amount an employee must pay to acquire the 31 32 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) stock. A summary of our stock option plans as of December 31, 1999, 1998, and 1997, and changes during the years ending on those dates is presented below:
AT DECEMBER 31, ----------------------------------------------------------------- 1999 1998 1997 -------------------- -------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- -------- --------- -------- -------- -------- Outstanding at beginning of year.......................... 1,175,500 $6.15 455,000 $6.92 312,500 $ 9.52 Granted....................... 614,000 6.22 751,000 5.72 426,500 6.73 Exercised..................... -- -- -- Forfeited..................... (28,500) 9.63 (30,500) 6.80 (284,000) 9.51 --------- ----- --------- ----- -------- ------ Outstanding at end of year...... 1,761,000 6.12 1,175,500 6.15 455,000 6.92 ========= ===== ========= ===== ======== ====== Options exercisable at year-end...................... 653,682 6.78 257,921 7.07 8,000 11.88 Weighted-average fair value of options granted during the year.......................... 2.88 3.32 4.65
The options outstanding at December 31, 1999 have a weighted-average remaining contractual life of 9 years and an exercise price ranging from $2.75 to $11.00 per share. The table below reflects the effect on our net income or loss if we recorded the estimated compensation costs for the stock options using the estimated fair value as determined by applying the Black-Scholes option pricing model.
FOR YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- -------- (IN THOUSANDS) Net income (loss)........................ As reported $(3,703) $13,617 $(26,790) Pro forma (4,719) 12,591 (27,062) Basic income (loss) per share............ As reported (0.17) 0.67 (1.31) Pro forma (0.22) 0.62 (1.32) Diluted income (loss) per share.......... As reported (0.17) 0.66 (1.31) Pro forma (0.22) 0.61 (1.32)
The fair value of each option grant for the years ended December 31, 1999, 1998, and 1997 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
FOR YEARS ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 ------ ------ ------ Expected life (years)..................................... 10 10 10 Interest rate............................................. 5.88% 5.50% 6.19% Volatility................................................ 56.74% 51.17% 49.50% Dividend yield............................................ 0 0 0
Non-Employee Director Stock Purchase Plan The stockholders approved the non-employee director stock purchase plan in December 1997. The plan allows the non-employee directors to receive their directors' fees in shares of restricted common stock instead of cash. The number of shares received will be equal to 150% of the cash fees divided by the closing market price of the common stock on the day that the cash fees would otherwise be paid. The director can not transfer 32 33 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the common stock until one year after issuance or the termination of a director resulting from death, disability, removal, or failure to be nominated for an additional term. The director can vote the shares of restricted stock and receive any dividend paid in cash or other property. Transactions with Directors We paid executive search fees during 1998 totaling $40,000 and during 1997 totaling $141,000 to Preng and Associates, Inc., which is a company controlled by a member of our board of directors. Pension Plan Remington and CKB Petroleum each have a noncontributory defined benefit pension plan. The retirement benefits available are generally based on years of service and average earnings. We fund the plans with annual contributions at least equal to the minimum funding provisions of the Employee Retirement Income Security Act of 1974, as amended, but no more than the maximum tax deductible contribution allowed. Plan assets consist primarily of equity and fixed income securities. The following table sets forth the reconciliation of the benefit obligation, plan assets, and funded status for the pension plans.
AT DECEMBER 31, ---------------- 1999 1998 ------ ------ (IN THOUSANDS) RECONCILIATION OF THE CHANGE IN BENEFIT OBLIGATION Beginning benefit obligation.............................. $3,331 $2,938 Service cost........................................... 101 79 Interest cost.......................................... 217 201 Effect of settlement................................... (335) (644) Actuarial loss (gain).................................. (286) 372 Benefits paid.......................................... (178) (142) ------ ------ Ending benefit obligation................................. $2,850 $2,804 ====== ====== RECONCILIATION OF THE CHANGE IN PLAN ASSETS Beginning market value.................................... $3,389 $3,160 Actual return on plan assets........................... 625 312 Employer contributions................................. -- 150 Benefit payments....................................... (513) (786) ------ ------ Ending market value....................................... $3,501 $2,836 ====== ====== FUNDED STATUS AND AMOUNTS RECOGNIZED IN THE BALANCE SHEET Funded status............................................. $ 651 $ 32 Unrecognized net actuarial loss (gain).................... (394) 320 Effect of the settlement.................................. 32 (60) ------ ------ Adjusted prepaid (accrued) benefit cost................... $ 289 $ 292 ====== ======
33 34 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The net periodic pension cost recognized in our income statements include the following components:
FOR YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- ------- (IN THOUSANDS) COMPONENTS OF NET PERIODIC PENSION COST Service cost............................................. $ 101 $ 79 $ 116 Interest cost on projected benefit obligation............ 217 201 222 Actual return on plan assets............................. (264) (259) (281) Net amortization and deferrals........................... -- -- 21 ----- ----- ----- Net periodic pension cost................................ 54 21 78 Special recognition due to curtailment and lump sum settlements........................................... (32) -- (36) ----- ----- ----- Net periodic pension cost.................................. $ 22 $ 21 $ 42 ===== ===== ===== WEIGHTED AVERAGE ASSUMPTIONS Discount rate............................................ 7.75% 7.00% 7.00% Expected return on plan assets........................... 8.00% 8.00% 8.00% Rate of compensation increase............................ 3.00% 3.00% 3.00%
Remington acquired CKB Petroleum in December 1998 as part of the merger with S-Sixteen Holding Company. Because of the merger, we acquired the CKB Petroleum pension plan. The following table presents the benefit obligation, plan assets, and funded status of the CKB Petroleum plan at the time of acquisition. Benefit obligation........................................ $527,000 Market value of plan assets............................... 553,000 Adjusted prepaid benefit cost............................. 19,000
Statement of Financial Accounting Standards No. 88 entitled "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" requires immediate recognition of certain previously unrecognized amounts when certain transactions or events occur in a defined benefit pension plan. It prescribes the method for determining the amount to be recognized in earnings when a pension obligation is settled or a plan is curtailed. Settlement is defined as an irrevocable action that relieves the employer (or the plan) of primary responsibility for an obligation and eliminates significant risks related to the obligation and the assets used to effect the settlement. A curtailment is defined as a significant reduction in, or an elimination of, defined benefit accruals for present employees' future services. During 1999, 34 35 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Remington distributed plan assets in settlement of certain obligations to former employees. The following is a reconciliation of the settlement on the various components of the plan.
DISCLOSURE LOSS DISCLOSURE PRIOR TO MEASURED AT WITH EFFECT OF SETTLEMENT SETTLEMENT SETTLEMENT SETTLEMENT ---------- ----------- ---------- -------------- (IN THOUSANDS) Vested benefit obligation.................. $(2,810) $(138) $ 335 $(2,613) Non-vested benefit obligation.............. (137) -- -- (137) ------- ----- ----- ------- Accumulated benefit obligation............. (2,947) (138) 335 (2,750) Effect of future pay increases............. (100) -- -- (100) ------- ----- ----- ------- Projected benefit obligation............... (3,047) (138) 335 (2,850) Assets..................................... 3,836 -- (335) 3,501 ------- ----- ----- ------- Funded status.............................. 789 (138) -- 651 Unrecognized (gain) loss................... (532) 138 32 (362) ------- ----- ----- ------- (Accrued) prepaid pension cost............. $ 257 $ -- $ 32 $ 289 ======= ===== ===== =======
Contingent Stock Grant In June 1999, the Board of Directors approved a contingent stock grant to our employees and directors. If our common stock's closing price is at or above $10.42 per share for twenty consecutive trading days prior to the expiration of the five-year period beginning June 17, 1999, each grant of stock will become effective. The number of shares granted each employee and director is relative to the employee's salary (or base number in the case of directors) and the closing stock price on June 17, 1999. The grants, if effective, will vest 50% in three years, 75% in four years, and 100% in five years. The total number of shares that could be issued under this contingent stock grant is 679,937. Employee Severance Plan, Post Retirement Benefits and Post Employment Benefits We adopted an employee severance plan in November 1997. The plan provides severance benefits ranging from 2 months to 18 months of the employee's base salary if the employee is terminated involuntarily. The plan incorporates the provisions and terms of any individual contract or agreement that an employee may have with the company. In 1995, certain employees had signed individual severance agreements with the company. In addition, certain of the executive officers have individual employment contracts with the company. We have never paid post retirement benefits other than pensions and have not obligated ourselves to pay such benefits in the future. Future obligations for postemployment benefits are immaterial. Therefore, we have not recognized any liability for either. 35 36 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 16 -- INCOME TAXES Income tax expense or benefit includes both the current income taxes and deferred income taxes. Current income tax expense or benefit equals the amount calculated on our income tax return for that year. Deferred income tax expense or benefit equals the change in the net deferred income tax asset or liability from the beginning of the year to the end of the year. The following table provides a reconciliation of our income tax expense or (benefit):
FOR YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (IN THOUSANDS) "Expected" tax expense (benefit) (35% of income before taxes).................................................... $(1,402) $ 5,031 $(4,258) Net adjustment to valuation allowance....................... 1,402 (4,708) 19,052 Other....................................................... (17) -- (171) ------- ------- ------- Total deferred income tax expense (benefit)....... (17) 323 14,623 Provision (credit) for alternative minimum tax.............. (256) 433 -- ------- ------- ------- Total income tax expense (benefit)................ $ (273) $ 756 $14,623 ======= ======= =======
In 1997 we increased the valuation allowance against the entire deferred tax asset and recorded the related deferred income tax expense because our actual 1997 results and future projections were significantly different than anticipated in prior projections. The difference resulted from a significant drop in commodity prices, the unusual and unforeseen reorganization expenses incurred in the last half of 1997, and a downward revision in our proved gas reserves as of January 1, 1998, on South Pass block 89. We determine the amount of our deferred income tax asset or liability by multiplying the enacted tax rate by the temporary differences, net operating or capital loss carry-forwards plus any tax credit carry-forwards. The tax rate used is the effective rate applicable for the year in which we expect the temporary differences or carry-forwards to reverse. A valuation allowance offsets deferred income tax assets that are not expected to reverse in future years. The following table reflects the significant components of our deferred tax asset.
AT DECEMBER 31, ------------------- 1999 1998 -------- -------- (IN THOUSANDS) Asset (liability) from difference in book and tax basis of oil and gas properties.................................... $ (1,873) $ (2,257) Asset (liability) from difference in book and tax basis of other assets.............................................. (337) 879 Asset from difference in book and tax basis of accrued liabilities............................................... 6,334 5,339 Federal income tax operating loss carry-forward............. 11,654 7,977 Federal capital loss carry-forwards......................... 327 327 Alternative minimum tax credit carry-forward................ 389 644 -------- -------- Total deferred tax asset.......................... 16,494 12,909 Valuation allowance......................................... (16,494) (12,909) -------- -------- Net deferred tax asset............................ $ -- $ -- ======== ========
The unused federal income tax operating loss carry-forward of $33 million will expire during the years 2007 through 2020 if not previously utilized, and the capital loss carry-forward of $934,000 will expire in the years 2000 through 2002. 36 37 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 17 -- INCOME PER COMMON SHARE We compute basic income per share by dividing net income by the weighted average number of common shares outstanding for the period. Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shares in the net income of the company. The following table presents our calculation of basic and diluted income per share.
FOR YEARS ENDED DECEMBER 31, ----------------------------------------- 1999 1998 1997 ---------- ---------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income (loss) available for basic income per share............................................. $(3,703) $13,617 $(26,790) Interest expense on the Notes (net of tax)(2)..... -- 2,058 -- ------- ------- -------- Net income (loss) available for diluted income per share............................................. $(3,703) $15,675 $(26,790) ======= ======= ======== Basic income (loss) per share....................... $ (0.17) $ 0.67 $ (1.31) ======= ======= ======== Diluted income (loss) per share..................... $ (0.17) $ 0.66 $ (1.31) ======= ======= ======== Weighted average common shares for basic income (loss) per share.................................. 21,326 20,370 20,524 Dilutive stock options outstanding (treasury stock method)(1)..................................... -- -- -- Shares assumed issued by conversion of the Notes(2)....................................... -- 3,488 -- ------- ------- -------- Total common share for diluted income (loss) per share........................ 21,326 23,858 20,524 ======= ======= ========
- --------------- (1) Non dilutive. (2) Non dilutive in 1999 and 1997. Potential increase to net income for diluted income per share Interest expense on Notes (net of tax)............... $ 581 $ -- $ 2,835 Potential issues of common stock for diluted income per share Weighted average stock options granted............... 1,677 875 99 Weighted average shares from warrant issued in merger............................................ 200 2 Weighted average shares issued assuming conversion of Notes............................................. 985 -- 4,741
NOTE 18 -- OTHER RELATED PARTY TRANSACTIONS A resolution adopted in 1992 by our board of directors authorizes us to enter into a transaction with an affiliate of ours so long as the board of directors determines that such a transaction is fair and reasonable to us and is on terms no less favorable to us than can be obtained from an unaffiliated party in an arm's length transaction. In April 1997, Remington lent S-Sixteen Holding Company $7.3 million. S-Sixteen Holding Company repaid $1.4 million of the principal balance of the note receivable in 1998 and $1.1 million in 1997. The remaining $4.8 million balance of the note receivable was effectively canceled in December 1998 when the two companies merged. Remington received $527,000 in interest income in 1998 and $437,000 in interest income in 1997 from S-Sixteen Holding Company on the note receivable. The interest rate was equal to the prime rate of Texas Commerce Bank National Association plus 1% until the sixth month when the rate escalated monthly by 0.1% over the previous month's rate. 37 38 REMINGTON OIL AND GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) We advanced litigation expenses on behalf of certain directors and officers of the company for certain lawsuits which are no longer pending or continuing. In accordance with our By-Laws, the defendants have executed written undertakings to repay us for any related expenses advanced on their behalf if it is later found that such costs were not subject to indemnification. No judicial determination has been made that any of the general partners, directors or officers are not entitled to indemnification for litigation expenses incurred. The total legal costs incurred related to these cases were $351,000 in 1997. Included in Accounts receivable -- other is a receivable in the amount of $210,000 from the Estate of Cloyce K. Box. Don D. Box, an officer and director of the company, is co-executor of the Estate. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE. None. 38 39 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following information relates to the members of our board of directors or executive officers during 1999. Each director holds office until his successor is elected and qualified or until their resignation or removal. Executive officers hold their respective offices at the pleasure of the board of directors. DON D. BOX Age 49 Positions with us: - - Director since March 1991 - - Executive Vice President since October 1997 - - Chairman of the Board January 1994-October 1997 - - Chief Executive Officer August 1996-October 1997 - - President August 1996-March 1997 - - Director, Corporate Development March 1994-January 1995 Positions with our affiliates: - - CKB Petroleum, Inc. -- Vice President since September 1997 -- Director August 1982-September 1997 -- President August 1982-September 1997 - - CKB & Associates, Inc. -- Vice President since May 1981 -- Director May 1981-September 1997 - - S-Sixteen Holding Company -- Director December 1981-September 1997 -- President December 1981-February 1996, April 1997-September 1997 -- Vice President February 1996-April 1997, September 1997-December 1998 Outside directorships - - Authoriszer, Inc. Education - - Bachelor of Arts -- University of Pennsylvania - - Bachelor of Science in Economics -- The Wharton School of the University of Pennsylvania - - Masters of Business Administration -- Southern Methodist University JOHN E. GOBLE, JR., CPA Age: 53 Positions with us: - - Director since April 1997 - - Member -- Audit Committee Employment: - - Byrd Investments -- Investment and financial advisor since 1986 Outside Directorships: - - Miracle of Pentecost Foundation Education: - - Bachelor of Business Administration -- Southern Methodist University Professional: - - Member -- American Institute of Certified Public Accountants and Texas Society of Certified Public Accountants WILLIAM E. GREENWOOD Age: 61 Positions with us: - - Director since April 1997 - - Member -- Audit Committee - - Member -- Compensation Committee Employment: - - Consultant since 1995 - - Director and Chief Operating Officer -- Burlington Northern Railroad Corporation from 1990 until 1994 Outside Directorships: - - AmeriTruck Distribution Corporation - - Mark VII, Inc. - - Transport Dynamics, Inc. - - President -- Mendota Museum and Historical Society Education: - - Bachelor of Science -- Marquette University DAVID H. HAWK Age: 55 Positions with us: - - Director since September 1997 - - Chairman of the Board since October 1997 - - Member -- Executive Committee Employment: - - J.R. Simplot Company -- Director, Energy Natural Resources since 1984 - - Previously employed with Atlantic Richfield Company and Tenneco Inc. as an Exploration Geologist - - Prior executive positions with IGC Production Company, Sundance Oil Company and Horn Resources Corporation 39 40 Education: - - Bachelor of Science in Geology and Distinguished Graduate Medalist -- University of Idaho - - Master of Science in Geology -- University of Oklahoma JAMES ARTHUR LYLE, CCIM Age: 54 Current positions with us: - - Director since September 1997 - - Member -- Compensation Committee Employment: - - Owner -- James Arthur Lyle & Associates, Inc., a commercial, industrial and investment real estate firm, since 1976 Outside directorships: - - Director, Chief Operating Officer and President since 1984 -- Hueco Mountain Estates, Inc., a 10,500 acre multi-use real estate development located in El Paso County, Texas Education: - - Bachelor of Science in Industrial Management -- Georgia Institute of Technology DAVID E. PRENG Age: 53 Position with us: - - Director since April 1997 - - Chairman -- Compensation Committee Employment: - - Chief Executive Officer and President since 1980 -- Preng and Associates, Inc., an international executive search firm specializing in the energy industry Outside directorships: - - Director -- Citizens National Bank of Texas - - Director -- British American Business Council - - Fellow -- Institute of Directors Education: - - Bachelor of Science in Business Administration -- Marquette University - - Master of Business Administration -- DePaul University THOMAS W. ROLLINS Age: 69 Positions with us: - - Director since July 1996 - - Member -- Executive Committee Employment: - - Chief Executive Officer since 1985 -- Rollins Resources, a natural gas and oil consulting firm - - Previously President and Chief Executive Officer -- Park Avenue Exploration Corporation, an oil and gas exploration firm and a subsidiary of USF&G Corporation - - Previously held executive positions and/or directorships with Shell Oil Company, Pennzoil Company, Florida Gas Transmission Company, Pogo Producing Company, Magma Copper Company and Felmont Oil Corporation. Outside directorships: - - Director -- Enron Cash Company #2 - - Director -- Pheasant Ridge Winery - - Director -- The Teaching Company - - Director -- Nature Conservancy of Texas Education: - - Geological Engineering Degree and Distinguished Graduate Medalist -- The Colorado School of Mines ALAN C. SHAPIRO Age: 54 Positions with us: - - Director since May 1994 - - Chairman -- Audit Committee Employment: - - The Ivadelle and Theodore Johnson Professor of Banking and Finance in the Department of Finance and Business Economics, Marshall School of Business, University of Southern California, since 1992 - - Previously Chairman of the Department of Finance and Business Economics, University of Southern California, 1993 -- 1998 - - Frequent consultant and/or expert witness to business and government Publications: - - Multinational Financial Management, a best selling textbook used in MBA programs worldwide - - Numerous other books and articles Education: - - Bachelor of Arts in Mathematics -- Rice University - - Ph.D. in Economics -- Carnegie Mellon University JAMES A. WATT Age: 50 Positions with us: - - President and Chief Operating Officer from March 1997 - - Chief Executive Officer since February 1998 - - Director since September 1997 - - Member -- Executive Committee 40 41 Positions with our Affiliates: - - CKB Petroleum, Inc. -- Director and President since January 1999 - - CKB & Associates, Inc. -- Director and President since January 1999 Previous employment highlights: - - Vice President/Exploration -- Seagull E&P, Inc., 1993-1997 - - Vice President/Exploration and Exploitation -- Nerco Oil & Gas, Inc., 1991-1993 Education: - - Bachelor of Science in Physics -- Rensselaer Polytechnic Institute ROBERT P. MURPHY Age: 41 Positions with us: - - Senior Vice President/Exploration & Production since July 1999 - - Vice President/Exploration, January 1998-June 1999 Previous employment: - - Director -- Cairn Energy USA, Inc., May 1996-November 1997 - - Vice President -- Exploration -- Cairn Energy USA, March 1993-January 1998 - - Exploration Geologist -- Cairn Energy USA, 1990-March 1993 - - Exploration Geologist -- Enserch Exploration, 1984-1990 Education: - - Bachelor of Science in Geology -- The University of Texas at Austin - - Master of Science in Geosciences -- The University of Texas at Dallas STEVEN J. CRAIG Age: 48 Positions with us: - - Senior Vice President/Planning and Administration since April 1997 - - Administrative Assistant to the Chairman, August 1996 to April 1997 - - Vice President, February 1994-March 1995 Positions with our affiliates: - - CKB Petroleum, Inc. -- Director and Vice President since January 1999 -- Vice President and Assistant Treasurer, March 1997-October 1997 -- Director, March 1997-August 1997 -- Assistant Treasurer and Controller, March 1996-March 1997 - - CKB & Associates, Inc. -- Director and Vice President since January 1999 -- Vice President and Assistant Treasurer, March 1997-October 1997 -- Director, March 1997-August 1997 -- Assistant Treasurer and Controller, March 1996-March 1997 - - S-Sixteen Holding Company -- Vice President and Assistant Treasurer, March 1997-October 1997 -- Director, March 1997-August 1997 -- Chief Financial Officer and Assistant Treasurer, May 1996-March 1997 Previous Employment: - - Self Employed -- Real Estate and Consulting, 1992-1994, March 1995-March 1996 Education: - - Bachelor of Arts in Economics -- Southern Methodist University - - Master of Business Administration in Finance and Quantitative Analysis -- Southern Methodist University J. BURKE ASHER Age: 59 Positions with us: - - Vice President/Finance since December 1997 - - Secretary since October 1996 - - Chief Accounting Officer, September 1996-December 1997 Positions with our affiliates: - - CKB Petroleum -- Treasurer and Assistant Secretary since March 1997 -- Director, March 1997-April 1997 - - CKB & Associates -- Treasurer and Assistant Secretary since March 1997 -- Director, March 1997-August 1997 - - S-Sixteen Holding Company -- Treasurer and Assistant Secretary, March 1997-December 1998 -- Director, March 1997-August 1997 Previous employment: - - Self employed financial consultant and advisor, 1987-1996 - - Controller -- Doty-Moore Tower Services, Inc., a contractor to the communications industry, 1993-1995 41 42 Education: - - Bachelor of Science in Economics -- The Wharton School of the University of Pennsylvania EDWARD V. HOWARD, CPA Age: 37 Positions with us: - - Vice President/Controller since March 1992 - - Senior Accountant, October 1989-March 1992 - - Assistant Secretary since October 1997 Education: - - Bachelor of Business Administration -- West Texas State University Except for Mr. Rollins' consulting practice, no director has a significant personal interest in the exploration, development or production of oil and gas. Mr. Rollins is required to abstain on matters in which there may be a conflict of interest between us and one of his clients. LITIGATION INVOLVING DIRECTORS AND EXECUTIVE OFFICERS We know of no present litigation involving the directors or executive officers. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based solely upon the company's review of Forms 3, 4, and 5 received by the company, all persons required by Section 16(a) of the Securities Exchange Act of 1934 ("the Act") to file such forms complied with Section 16(a) of the Act with the following exceptions: David E. Preng filed one late Form 4 reporting one transaction. David H. Hawk filed one late Form 4 reporting two transactions and one late Form 4 reporting three transactions. William E. Greenwood reported late on Form 5 one transaction which should have been reported on Form 4. 42 43 ITEM 11. EXECUTIVE COMPENSATION. The following table summarizes the compensation paid by the company during 1999, 1998, and 1997 to the company's Chief Executive Officer and its four most highly compensated executive officers, other than the Chief Executive Officer, whose total annual salary and bonus in 1999 exceeded $100,000. SUMMARY COMPENSATION TABLE
-------------------------------- -------------------------------------- ANNUAL COMPENSATION LONG-TERM COMPENSATION -------------------------------- -------------------------------------- SECURITIES OTHER RESTRICTED UNDERLYING ANNUAL STOCK OPTIONS/ ALL OTHER NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS SAR'S COMPENSATION PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($) - ------------------ ------ ------- ------- ------------ ---------- ---------- ------------ James A. Watt............ 1999 260,004 156,000 -- -- 80,000 695(7) President and Chief 1998 250,006 70,000 -- -- 130,000 174(7) Executive Officer(2) 1997 166,250 100,000 -- 112,500(3) 100,000 148,039(4) Don D. Box............... 1999 160,004 8,000 -- -- 20,000 299(7) Executive Vice 1998 200,004 -- -- -- 40,000 174(7) President(5) 1997 183,335 -- -- -- 100,000 2,884(6) Robert P. Murphy......... 1999 168,108 52,500 -- -- 45,000 257(7) Senior Vice President/ 1998 146,260 30,000 -- -- 80,000 62(7) Exploration and 1997 -- -- -- -- -- -- Production Steven J. Craig.......... 1999 114,708 27,500 -- -- 25,000 390(7) Senior Vice President/ 1998 110,259 20,000 -- -- 40,000 174(7) Planning and 1997 100,008 15,000 -- -- 20,000 177(7) Administration J. Burke Asher........... 1999 109,200 26,200 -- -- 25,000 1,008(7) Vice President/Finance 1998 105,000 19,000 -- -- 35,000 450(7) and Secretary 1997 95,004 15,000 -- -- 20,000 450(7)
- --------------- (1) No amount is included as it is less than 10% of the total salary and bonus of the individual for the year. (2) James A. Watt served as President and Chief Operating Officer from March 17, 1997, and on February 4, 1998, he was appointed Chief Executive Officer. (3) At December 31, 1999, Mr. Watt held 9,000 restricted shares of common stock with a value of $34,875. The total number of restricted shares awarded effective March 17, 1997, was 15,000, which vest 20% per year from the effective date. If any dividends are paid to holders of common stock, Mr. Watt's restricted shares will be entitled to receive dividends. (4) This amount includes a signing bonus of $25,000, reimbursed relocation expenses of $122,892, and $147 for group term life insurance premiums paid by the company. (5) Don D. Box served as Chairman of the Board from January 1994 to October 1997 and as Chief Executive Officer from August 1996 to October 1997. He served as President from August 1996 until March 1997. (6) Of this amount, $2,722 is for director's fees and $162 is for group term life insurance premiums paid by the company. (7) These amounts are for group term life insurance premiums paid by the company. See "Change in Control Arrangements and Employment Contracts" below. STOCK OPTIONS We have stock option plans for our employees and directors because we believe these options act as both an incentive and a reward for the long-term growth of our company. The core of our stock option program is 43 44 the 1997 stock option plan. Both directors and employees are eligible for options under this plan. Significant attributes of the 1997 plan include the following: - Administered by the Compensation Committee of our board of directors. - Up to 2,750,000 shares of our common stock may be issued under the plan. - Up to 687,500 shares may be issued to any single individual. - Both qualified incentive and non-qualified options may be issued. - The plan terminates December 4, 2007. The importance of whether an option is granted as a qualified incentive option or a non-qualified option is mainly tax driven. If an option is an incentive option, the exercise price can be no less than the fair market value on the date of grant. Additional details concerning the 1997 stock option plan are contained in the plan itself. For a copy of the plan, call Investor Relations at (214) 210-2650. We also have a 1992 stock option plan but no options are outstanding under this plan. As of September 30, 1999, the employees who held the 28,500 options then outstanding terminated their rights to the 1992 options and received an equal number of 1997 plan options. The exercise price of these new options, which is considerably lower than the 1992 options, equals the closing price of the stock as of September 30, 1999. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------- PERCENT OF NUMBER OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE GRANT DATE OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE NAME GRANTED FISCAL YEAR $/SHARE DATE $(1) - ---- ---------- ------------ -------- ---------- ------------- James A. Watt......................... 80,000 25.81% 4.250 12/06/09 249,920 Don D. Box............................ 20,000 6.44% 4.250 12/06/09 62,480 Robert P. Murphy...................... 45,000 14.49% 4.250 12/06/09 140,580 Steven J. Craig....................... 25,000 8.05% 4.250 12/06/09 78,100 J. Burke Asher........................ 25,000 8.05% 4.250 12/06/09 78,100
- --------------- (1) We determined these values using the Black-Scholes option pricing model with the following assumptions: stock price volatility of 56.82%; interest rate based on the yield to maturity of a 10-year Treasury security; exercise in the tenth year; and a dividend rate of zero. We made no adjustments for nontransferability or risk of forfeiture. Our use of this model does not constitute an endorsement or an acknowledgment that such model can accurately determine the value of options. No assurance can be given that the actual value, if any, realized by an executive upon the exercise of these options will approximate the estimated values calculated by using the Black-Scholes model.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES - -------------------------------------------------------------------------------------------------------------- NUMBER OF SECURITIES VALUE OF UNEXERCISED NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT SHARES VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END ($)(1) ACQUIRED ON REALIZED --------------------------- --------------------------- NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- -------- ----------- ------------- ----------- ------------- James A. Watt............. -- -- 83,334 226,666 10,000 20,000 Don D. Box................ -- -- 53,334 106,666 2,500 5,000 Robert P. Murphy.......... -- -- 26,668 98,332 5,000 10,000 Steven J. Craig........... -- -- 26,668 58,332 3,125 6,250 J. Burke Asher............ -- -- 25,001 54,999 2,500 5,000
44 45 - --------------- (1) Computed as the number of securities multiplied by the difference between the option exercise prices and the closing price of our common stock on December 31, 1999. PENSION PLANS Our defined benefit pension plans provide retirement and other benefits to eligible employees upon reaching the "normal retirement age," which is age 65 or after five years of service, if later. Directors who are not also employees of the company are not eligible to participate in the plans. Employees are eligible to participate on January 1 following the completion of six months of service or the attainment of age 20 1/2, if later. Additional provisions are made for early or late retirement, disability retirement and benefits to surviving spouses. At normal retirement age, an eligible employee will receive a monthly retirement income equal to 35% of his or her average monthly compensation during the three consecutive calendar years in the prior 10 years which provide the highest average compensation, plus 0.65% of such average compensation in excess of the amount shown in the Social Security Covered Compensation Table (as published annually by the Internal Revenue Service) multiplied by his or her years of service, limited to 35 years. If an employee terminates employment (other than by death or disability) before completion of five years of service, no benefits are payable. If an employee terminates employment after five years of service, the employee is entitled to all accrued benefits. The following table illustrates the annual pension for plan participants that retire at "normal retirement age" in 1999: PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE (1)(3)(4) COMPENSATION ------------------------------------------ (1)(2) 15 20 25 30 35 - ------------ ------ ------ ------ ------ ------ ($) ($) ($) ($) ($) ($) 125,000 52,896 55,944 58,983 62,041 65,090 150,000 64,083 67,944 71,805 75,666 79,527 160,000 68,558 72,744 76,930 81,116 85,302 175,000 68,558 72,744 76,930 81,116 85,302 200,000 68,558 72,744 76,930 81,116 85,302 225,000 68,558 72,744 76,930 81,116 85,302 250,000 68,558 72,744 76,930 81,116 85,302 300,000 68,558 72,744 76,930 81,116 85,302 400,000 68,558 72,744 76,930 81,116 85,302 450,000 68,558 72,744 76,930 81,116 85,302 500,000 68,558 72,744 76,930 81,116 85,302
- --------------- (1) As of December 31, 1999, the Internal Revenue Code does not allow qualified plan compensation to exceed $160,000 or the benefit payable annually to exceed $130,000. The Internal Revenue Service will adjust these limitations for inflation in future years. When the limitations are raised, the compensation considered and the benefits payable under the pension plans will increase to the level of the new limitations or the amount otherwise payable under the pension plans, whichever amount is lower. (2) Subject to the above limitations, compensation in this table is generally equal to all of a participant's compensation paid in a fiscal year (the total of Salary, Bonus, Other Annual Compensation, and All Other Compensation in the Summary Compensation Table). Average compensation in this table is the average of a plan participant's compensation during the highest three consecutive years out of the prior 10 years. (3) The estimated credited service at December 31, 1999, for the executive officers shown in the Summary Compensation Table on page 43 is as follows: James A. Watt (3 years), Don D. Box (4 years), Robert P. Murphy (2 years), Steven J. Craig (5 years), and J. Burke Asher (3 years). 45 46 (4) The normal form of payment is a life annuity for a single participant or a 50% joint and survivor annuity for a married participant. Such benefits are not subject to a deduction for Social Security or other offset amounts. COMPENSATION OF DIRECTORS - Only non-employee directors are compensated for board service - Compensation includes: -- Annual retainer of $20,000 -- $1,000 per board meeting attended -- Committee meeting fee of $750 per meeting attended if on a different day than a full board meeting -- Directors are entitled to reimbursement of company related out-of-pocket expenses -- We provide directors and officers insurance and indemnification to the full extent allowed by law -- All or part of a director's board compensation may be received in company stock in accordance with the Non-Employee Director Stock Purchase Plan - Four board meetings in 1999 - All directors attended at least 75% of the meetings - During 1999, we paid Rollins Resources, a proprietorship owner by director Thomas W. Rollins, $1,500 for consulting fees NON-EMPLOYEE DIRECTOR STOCK PURCHASE PLAN - Adopted December 4, 1997 - Each non-employee director may, once a year, elect to receive all or part of his board compensation in our common stock - The number of shares received equals 150% of the cash amount of compensation divided by the closing market price of our common stock on the day the cash fees would be payable - Shares received under this plan may not be transferred for one year after issuance - Shares may be transferred earlier than one year based on a director's death, disability or departure from the board - During the restricted transfer period, the director may vote the stock and receive any dividends - The board may terminate this plan at any time - Shares received under plan for 1999: -- John E. Goble, Jr. 4,440 shares in lieu of $12,000 cash -- James Arthur Lyle 7,399 shares in lieu of $20,000 cash -- David E. Preng 9,598 shares in lieu of $26,250 cash -- Thomas W. Rollins 7,399 shares in lieu of $20,000 cash -- Alan C. Shapiro 8,880 shares in lieu of $24,000 cash
CHANGE IN CONTROL ARRANGEMENTS AND EMPLOYMENT CONTRACTS All of our full-time regular employees are covered by a severance plan that we adopted in 1997. Under this plan, if an employee is involuntarily terminated, as that term is defined in the plan, the employee will be entitled to a payment of between two months base pay and eighteen months base pay depending on the employee's job and years of experience. If an employee voluntarily quits, is terminated for cause as defined in 46 47 the plan, dies, leaves due to a disability for which benefits are payable or the termination is expected to be of short duration, the employee is not eligible for payment under the plan. In addition, under certain circumstances, a change in control could cause immediate vesting and triggering of stock options and contingent restrictive stock grants. If the contingent restricted stock grants were triggered by a change in control, it would result in the issuance of a maximum aggregate of 679,937 shares to directors and employees. Employment Agreements We have employment agreements with James A. Watt, Robert P. Murphy, Steven J. Craig, and J. Burke Asher. The most significant terms of such agreements are summarized below: James A. Watt Effective March 17, 1997, through January 30, 2000: - Term of five years from March 17, 1997, renewable by mutual agreement - Starting base salary of $210,000 a year with increases at board discretion - Target bonus of 50% of base salary - Reimbursement for moving expenses - Stock grant of 15,000 shares, with options for an additional 100,000 shares to be vested over a five year period - Payment equal to his base salary and target bonus in the event he leaves the company for reasons other than for cause, or good reason after a change of control - If he leaves his employment for good reason, as defined in the contract, he receives either three or two times his base salary plus target bonus, depending on how soon after a change of control he leaves New agreement effective January 31, 2000: - Term of three years from January 31, 2000, subject to single year extensions by mutual agreement - Base salary of $270,000 a year subject to discretionary increases - Eligible to receive discretionary performance bonus (targeted at 50% of base salary) - If terminated prior to a change in control, without cause, he receives his salary plus a pro rata bonus - He receives 2.99 times the sum of his base salary plus his target bonus if he is terminated within 24 months of a change in control, other than for death, disability or cause, or he leaves for good reason within the 24 month period Robert P. Murphy - Term of three years from September 30, 1999, subject to single year extensions by mutual agreement - Base salary of $175,000 a year subject to discretionary increases - Eligible to receive discretionary performance bonus (targeted at 25% of base salary) - If terminated prior to a change in control, without cause, he receives his salary plus a pro rata bonus - He receives 2.99 times the sum of his base salary plus his target bonus if he is terminated within twelve months of a change in control, other than for death, disability or cause, or he leaves for good reason within the twelve month period 47 48 Steven J. Craig and J. Burke Asher - Term of two years from September 30, 1999, subject to single year extensions by mutual agreement - Base salary of $114,200 (Mr. Craig) and $109,200 (Mr. Asher) subject to discretionary increases - Eligible to receive discretionary performance bonus (targeted at 20% of base salary) - Severance payments similar to Robert Murphy's, except that Mr. Craig and Mr. Asher receive 2 times the sum of their respective annual salaries plus target bonus in connection with leaving employment within twelve months of a change in control COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS No executive officer serves on the compensation committee of the board. The company paid $234,000 to Preng & Associates, Inc., which is majority-owned by David E. Preng, chairman of compensation committee, for executive search services provided to the company from July 1996 through the end of 1998, including $40,000 in 1998. The level of fees received by Preng & Associates usually depends, at least in part, on the initial level of compensation we offer to the candidate successfully recruited by us through Preng & Associates. 48 49 BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION We believe that employing and retaining highly qualified and high performing executive officers is vital to our achievement of long-term business goals. To this end, the Compensation Committee of the board of directors (the "Committee") developed an executive compensation program which is designed to attract and retain such officers. The philosophy is to develop a systematic, competitive executive compensation program which recognizes an executive officer's position and responsibilities, takes into account competitive compensation levels payable within the industry by similarly sized companies, and reflects both individual and company performance. The executive compensation program developed by the Committee is composed of the following three elements: (i) a base salary, (ii) a performance-based annual cash incentive (short-term), and (iii) a stock-based incentive (long-term). Under this program, short-term and long-term incentives are "at risk" and are based on performance of the company versus defined goals. The Committee compiles data reflecting the compensation practices of a broad range of organizations in the oil and gas industry that are similar to us in size and performance. For both the base salary and annual cash incentives portions of executive compensation discussed below, the Committee adopted a philosophy of paying the executive officers at a level that is competitive and within the ranges reflected by the data compiled. BASE SALARIES Base salary is the portion of an executive officer's total compensation package which is payable for performing the specific duties and assuming the specific responsibilities defining the executive's position with the company. The Committee's objective is to provide each executive officer a base salary that is competitive at the desired level. ANNUAL CASH INCENTIVES The Committee developed a performance-based annual cash incentive plan covering the executive officers and top managers. The objectives in designing the plan are to reward participants for accomplishing objectives which are generally measurable and increase shareholder value. Under the annual cash incentive plan, the Committee has established a "target" cash incentive award for each executive officer (including the Chief Executive Officer) that is payable based mostly upon the company's achieving certain performance targets and, to a lesser extent, for achieving highly challenging individual performance objectives. The performance targets are increasing reserves and production; controlling finding, development, and production costs; and achieving an overall return on capital; all of which are competitive with a peer group of oil and gas companies. The committee also determined that award levels under the plan should be fiscally prudent. LONG-TERM STOCK-BASED INCENTIVES We maintain a stock option plan for officers and other employees. The philosophy is to award stock options to selected plan participants based on their levels within the company and upon individual merit. The plan is to grant stock options which are competitive within the industry for other individuals at the employee's level and which provide the employee a meaningful incentive to remain with the company, to increase performance, and to focus on achieving long-term increases in shareholder value. Other factors the Committee considers in granting stock options include the employee's contributions toward achieving the company's long-term objectives, such as reserve replacements and acquisitions, as well as the employee's contributions in achieving the company's short-term and long-term profitability targets. COMPENSATION COMMITTEE David E. Preng William E. Greenwood James Arthur Lyle 49 50 PERFORMANCE GRAPH The following performance graph compares the performance of all classes of our common stock to the NASDAQ indices of United States companies and to a peer group comprised of NASDAQ companies listed under the Standard Industrial Classification Codes 1310-1319 for the company's last five fiscal years. Such industrial codes include companies engaged in the oil and gas business. The graph assumes that the value of an investment in our common stock and in each index was $100 at December 31, 1994, and that all dividends were reinvested. [Perf.graph]
- --------------------------------------------------------------------------------------------------------------------------- 12/31/1994 12/31/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999 - --------------------------------------------------------------------------------------------------------------------------- ROILA(1) 100.00 77.68 66.07 37.50 26.18 31.83 ROILB(1) 100.00 80.23 84.88 48.26 29.65 36.05 NASDAQ U.S 100.00 141.30 173.90 213.10 300.40 556.00 NASDAQ O&G 100.00 105.10 151.90 144.70 70.30 72.10
(1) The last day of trading for ROILA and ROILB was December 24, 1998. Effective at the opening of trading on December 28, 1998, both former classes of stock were replaced by a new single class of voting common stock (ROIL). The values shown above as of December 31, 1998 and 1999, for ROILA give effect to the 1.15:1 exchange ratio that the former holders of ROILA received in the exchange for the new class of common stock, and the 1:1 exchange ratio that the former holders of ROILB received in the exchange for the new class of common stock. 50 51 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS As of March 24, 2000, the following persons held shares of the company's common stock in amounts totaling more than 5% of the total shares of common stock outstanding. This information was furnished to us by such persons or statements filed with the Commission.
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENT OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK - ------------------- ---------------------- ------------ J.R. Simplot................................................ 5,831,028(1) 27% 999 Main Street Boise, Idaho 83702(1) Heartland Advisors, Inc..................................... 3,680,375(2) 17% 789 North Water Street Milwaukee, Wisconsin 53202(2)
- --------------- (1) Mr. J.R. Simplot is the trustee and beneficiary of the J.R. Simplot Self Declaration of Revocable Trust dated December 21, 1989, an inter vivos revocable trust. The Trust is the sole general partner of S-Sixteen Limited Partnership, an Idaho limited partnership. Included in shares of common stock beneficially owned by Mr. Simplot are all of the following, of which Mr. Simplot may be deemed a beneficial owner: 2,785,028 shares and 200,000 warrants owned by S-Sixteen Limited Partnership; 2,845,000 shares owned by the Trust; and 1,000 shares owned jointly by Mr. Simplot and his spouse. 200,000 shares of common stock are issuable to S-Sixteen Limited Partnership upon the exercise of the warrants within 60 days of March 24, 2000. 100,000 warrants are exercisable at $9.00 per share for a period of 36 months from December 28, 1998; and 100,000 warrants are exercisable at $11.00 per share for a period of 60 months from December 28, 1998. (2) The most recent Schedule 13G filed by Heartland Advisors, Inc. indicates that it has sole dispositive power over all 3,680,375 shares and sole voting power over 2,726,575 of the shares. OWNERSHIP OF MANAGEMENT The number of shares of the company's common stock beneficially owned as of March 24, 2000, by directors of the company, each officer listed in the compensation table on page 43, and as a group comprising all directors and executive officers, are set forth in the following table. This information was furnished to the company by such persons.
SHARES OF OPTIONS COMMON STOCK EXERCISABLE PERCENT OF BENEFICIALLY WITHIN 60 DAYS OF COMMON OWNED MARCH 24, 2000 TOTAL STOCK --------- ----------------- --------- ---------- J. Burke Asher.................................... 3,001 30,001 33,002 * Don D. Box........................................ 42,207 60,001 102,208 * Steven J. Craig................................... 10,365 31,668 42,033 * John E. Goble, Jr. ............................... 9,458 75,000 84,458 * William E. Greenwood.............................. 2,000 75,000 77,000 * David H. Hawk..................................... 2,030 78,334 80,364 * James Arthur Lyle................................. 17,079 75,000 92,079 * Robert P. Murphy.................................. 7,650 40,002 47,652 * David E. Preng.................................... 37,035 78,334 115,369 * Thomas W. Rollins................................. 24,304 75,000 99,304 * Alan C. Shapiro................................... 27,364 75,000 102,364 * James A. Watt..................................... 32,700 120,001 152,701 * All directors and executive officers as a group (13 persons).................................... 216,593 836,508 1,053,101 4.7%
- --------------- * Less than one percent of the outstanding shares. 51 52 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. A resolution adopted in 1992 by our board of directors authorizes us to enter into a transaction with an affiliate of ours so long as the board of directors determines that such a transaction is fair and reasonable to us and is on terms no less favorable to us than can be obtained from an unaffiliated party in an arms' length transaction. In the merger with S-Sixteen Holding Company we acquired a receivable in the estimated fair value amount of $210,000 from the Estate of Cloyce K. Box. Don D. Box is co-executor of the Estate. A long-term receivable in the aggregate amount of $320,000 acquired in the merger reflects CKB Petroleum's claims under Collateral Assignment Split Dollar Insurance Agreements among CKB Petroleum and Don D. Box and two of his brothers. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents filed as part of this report: 1. Financial Statements included in Item 8: (i) Independent Auditors' Report (ii) Consolidated Balance Sheets as of December 31, 1999 and 1998 (iii) Consolidated Statements of Income and Comprehensive Income for years ended December 31, 1999, 1998 and 1997 (iv) Consolidated Statement of Stockholders' Equity for years ended December 31, 1999, 1998 and 1997 (v) Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 (vi) Notes to Consolidated Financial Statements (vii) Supplemental Oil and Natural Gas Information (Unaudited) 2. Financial Statement Schedules Financial statement schedules are omitted as they are not applicable, or the required information is included in the financial statements or notes thereto. (b) We did not file any reports on Form 8-K during the quarter ended December 31, 1999. (c) Exhibits: 2.0++ -- Agreement and Plan of Merger dated as of June 22, 1998, by and between Remington Oil and Gas Corporation and S-Sixteen Holding Company. 3.1* -- Certificate of Incorporation, as amended. 3.2### -- Certificate of Amendment of Certificate of Incorporation of Box Energy Corporation. 3.2.1++ -- Certificate of Amendment of Certificate of Incorporation of Remington Oil and Gas Corporation. 3.3+++ -- By-Laws as amended.
52 53 4.1* -- Form of Indenture Box Energy Corporation to United States Trust Company of New York, Trustee, dated December 1, 1992, 8 1/4% Convertible Subordinated Notes due December 1, 2002. 10.1* -- Farmout Agreement with Aminoil USA, Inc., effective May 1, 1977, dated May 9, 1977. 10.2* -- Transportation Agreement with CKB Petroleum, Inc. dated March 1, 1985, as amended on April 19, 1989. 10.3* -- Agreement of Compromise and Amendment to Farmout Agreement, dated July 3, 1989. 10.4** -- Pension Plan of Box Energy Corporation, effective April 16, 1992. 10.5# -- First Amendment to the Pension Plan of Box Energy Corporation dated December 16, 1993. 10.6## -- Second Amendment to the Pension Plan of Box Energy Corporation dated December 31, 1994. 10.7*** -- Amended and Restated Promissory Note between Box Energy Corporation and Box Brothers Holding Company. 10.8*** -- Amended and Restated Pledge Agreement between Box Energy Corporation and Box Brothers Holding Company. 10.9*** -- Agreement by and between Box Energy Corporation and James A. Watt. 10.10### -- Box Energy Corporation Severance Plan. 10.11+ -- Box Energy Corporation 1997 Stock Option Plan. (as amended June 17, 1999) 10.12### -- Box Energy Corporation Non-Employee Director Stock Purchase Plan 10.13S -- Form of Employment Agreement effective September 30, 1999, by and between Remington Oil and Gas Corporation and two executive officers. 10.14S -- Form of Employment Agreement effective September 30, 1999, by and between Remington Oil and Gas Corporation and an executive officer. 10.15 -- Employment Agreement effective January 31, 2000, by and between Remington Oil and Gas Corporation and James A. Watt. 21 -- Subsidiaries of the registrant. 23.1 -- Consent of Arthur Andersen LLP 27.1 -- Financial Data Schedule
- --------------- * Incorporated by reference to the Company's Registration Statement on Form S-2 (file number 33-52156) filed with the Commission and effective on December 1, 1992. ** Incorporated by reference to the Company's Form 10-K (file number 0-19967) for the fiscal year ended December 31, 1992 filed with the Commission and effective on or about March 30, 1993. # Incorporated by reference to the Company's Form 10-K (file number 0-19967) for the fiscal year ended December 31, 1993 filed with the Commission and effective on or about March 30, 1994. ## Incorporated by reference to the Company's Form 10-K (file number 0-19967) for the fiscal year ended December 31, 1994 filed with the Commission and effective on or about March 30, 1995. + Incorporated by reference to the Company's Form 10-Q (file number 1-11516) for the fiscal quarter ended June 30, 1999 filed with the Commission and effective on or about August 13, 1999. *** Incorporated by reference to the Company's Form 10-Q (file number 1-11516) for the fiscal quarter ended June 30, 1997 filed with the Commission and effective on or about August 12, 1997. 53 54 ### Incorporated by reference to the Company's Form 10-K (file number 1-11516) for the fiscal year ended December 31, 1997 filed with the Commission and effective on or about March 30, 1998. ++ Incorporated by reference to the Company's Registration Statement on Form S-4 (file number 333-61513) filed with the Commission and effective on November 27, 1998. +++ Incorporated by reference to the Company's Form 10-K (file number 1-11516) for the fiscal year ended December 31, 1998 filed with the Commission and effective on or about March 30, 1999. S Incorporated by reference to the Company's Form 10-Q (file number 1-11516) for the fiscal quarter ended September 30, 1999 filed with the Commission and effective on or about November 12, 1999. 54 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REMINGTON OIL AND GAS CORPORATION By: /s/ JAMES A. WATT ---------------------------------- James A. Watt President and Chief Executive Officer Date: March 30, 2000 Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. DIRECTORS:
SIGNATURE TITLE DATE --------- ----- ---- /s/ DON D. BOX Director March 30, 2000 - ----------------------------------------------------- Don D. Box /s/ JOHN E. GOBLE, JR. Director March 30, 2000 - ----------------------------------------------------- John E. Goble, Jr. /s/ WILLIAM E. GREENWOOD Director March 30, 2000 - ----------------------------------------------------- William E. Greenwood /s/ DAVID H. HAWK Director March 30, 2000 - ----------------------------------------------------- David H. Hawk /s/ JAMES ARTHUR LYLE Director March 30, 2000 - ----------------------------------------------------- James Arthur Lyle /s/ DAVID E. PRENG Director March 30, 2000 - ----------------------------------------------------- David E. Preng /s/ THOMAS W. ROLLINS Director March 30, 2000 - ----------------------------------------------------- Thomas W. Rollins /s/ ALAN C. SHAPIRO Director March 30, 2000 - ----------------------------------------------------- Alan C. Shapiro /s/ JAMES A. WATT Director March 30, 2000 - ----------------------------------------------------- James A. Watt
55 56 OFFICERS:
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES A. WATT President and Chief Executive March 30, 2000 - ----------------------------------------------------- Officer James A. Watt /s/ J. BURKE ASHER Vice President/Finance March 30, 2000 - ----------------------------------------------------- J. Burke Asher /s/ EDWARD V. HOWARD Vice President/Controller March 30, 2000 - ----------------------------------------------------- Edward V. Howard
56 57 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 2.0++ -- Agreement and Plan of Merger dated as of June 22, 1998, by and between Remington Oil and Gas Corporation and S-Sixteen Holding Company. 3.1* -- Certificate of Incorporation, as amended. 3.2### -- Certificate of Amendment of Certificate of Incorporation of Box Energy Corporation. 3.2.1++ -- Certificate of Amendment of Certificate of Incorporation of Remington Oil and Gas Corporation. 3.3+++ -- By-Laws as amended. 4.1* -- Form of Indenture Box Energy Corporation to United States Trust Company of New York, Trustee, dated December 1, 1992, 8 1/4% Convertible Subordinated Notes due December 1, 2002. 10.1* -- Farmout Agreement with Aminoil USA, Inc., effective May 1, 1977, dated May 9, 1977. 10.2* -- Transportation Agreement with CKB Petroleum, Inc. dated March 1, 1985, as amended on April 19, 1989. 10.3* -- Agreement of Compromise and Amendment to Farmout Agreement, dated July 3, 1989. 10.4** -- Pension Plan of Box Energy Corporation, effective April 16, 1992. 10.5# -- First Amendment to the Pension Plan of Box Energy Corporation dated December 16, 1993. 10.6## -- Second Amendment to the Pension Plan of Box Energy Corporation dated December 31, 1994. 10.7*** -- Amended and Restated Promissory Note between Box Energy Corporation and Box Brothers Holding Company. 10.8*** -- Amended and Restated Pledge Agreement between Box Energy Corporation and Box Brothers Holding Company. 10.9*** -- Agreement by and between Box Energy Corporation and James A. Watt. 10.10### -- Box Energy Corporation Severance Plan. 10.11+ -- Box Energy Corporation 1997 Stock Option Plan. (as amended June 17, 1999) 10.12### -- Box Energy Corporation Non-Employee Director Stock Purchase Plan 10.13S -- Form of Employment Agreement effective September 30, 1999, by and between Remington Oil and Gas Corporation and two executive officers. 10.14S -- Form of Employment Agreement effective September 30, 1999, by and between Remington Oil and Gas Corporation and an executive officer. 10.15 -- Employment Agreement effective January 31, 2000, by and between Remington Oil and Gas Corporation and James A. Watt. 21 -- Subsidiaries of the registrant. 23.1 -- Consent of Arthur Andersen LLP 27.1 -- Financial Data Schedule
- --------------- * Incorporated by reference to the Company's Registration Statement on Form S-2 (file number 33-52156) filed with the Commission and effective on December 1, 1992. 58 ** Incorporated by reference to the Company's Form 10-K (file number 0-19967) for the fiscal year ended December 31, 1992 filed with the Commission and effective on or about March 30, 1993. # Incorporated by reference to the Company's Form 10-K (file number 0-19967) for the fiscal year ended December 31, 1993 filed with the Commission and effective on or about March 30, 1994. ## Incorporated by reference to the Company's Form 10-K (file number 0-19967) for the fiscal year ended December 31, 1994 filed with the Commission and effective on or about March 30, 1995. + Incorporated by reference to the Company's Form 10-Q (file number 1-11516) for the fiscal quarter ended June 30, 1999 filed with the Commission and effective on or about August 13, 1999. *** Incorporated by reference to the Company's Form 10-Q (file number 1-11516) for the fiscal quarter ended June 30, 1997 filed with the Commission and effective on or about August 12, 1997. ### Incorporated by reference to the Company's Form 10-K (file number 1-11516) for the fiscal year ended December 31, 1997 filed with the Commission and effective on or about March 30, 1998. ++ Incorporated by reference to the Company's Registration Statement on Form S-4 (file number 333-61513) filed with the Commission and effective on November 27, 1998. +++ Incorporated by reference to the Company's Form 10-K (file number 1-11516) for the fiscal year ended December 31, 1998 filed with the Commission and effective on or about March 30, 1999. S Incorporated by reference to the Company's Form 10-Q (file number 1-11516) for the fiscal quarter ended September 30, 1999 filed with the Commission and effective on or about November 12, 1999. EX-10.15 2 EMPLOYMENT AGREEMENT - JAMES A. WATTS 1 Exhibit 10.15 EMPLOYMENT AGREEMENT This Agreement entered into as of the 31st day of January, 2000 (the "Effective Date"), by and between Remington Oil and Gas Corporation (the "Company") and James A. Watt (the "Executive"). WHEREAS, the Company desires to employ the Executive and the Executive desires to be employed by the Company in the capacities and for the term and compensation and subject to the terms and conditions hereinafter set forth, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is essential and in the best interest of the Company and its stockholders to retain the services of the Executive especially in the event of a threat or occurrence of a Change of Control and to ensure his continued dedication and efforts in such event without undue concern for his personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company particularly in the event of a threat or an occurrence of a Change in Control, the Company desires to enter into this Agreement with the Executive to provide the Executive with certain benefits during the term of his employment before and after a Change of Control and to provide the Executive with the Gross-Up Payment (as hereinafter defined). NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. TERM OF AGREEMENT. The Employment Term shall commence on the Effective Date and shall expire on the third anniversary of the Effective Date; provided, however, that on each anniversary of the Effective Date, the Employment Term shall be extended an additional one (1) year from such anniversary at the mutual written agreement of the Company and the Executive. 2. EMPLOYMENT. 2.1 Subject to the provisions of Section 4 hereof, the Company agrees to continue to employ the Executive and the Executive agrees to remain in the employ of the Company during the Employment Term. During the Employment Term, the Executive shall be employed as the President and Chief Executive Officer of the Company or in such other senior executive capacity as may be mutually agreed to in writing by the parties. The Executive shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons situated in a similar executive capacity. He shall also promote, by entertainment or otherwise, the business of the Company. 2.2 During the Employment Term, excluding periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company to the extent necessary to discharge the responsibilities assigned to the Executive hereunder. The Executive may (1) serve on corporate, civil or charitable boards or committees, (2) manage personal investments, and (3) deliver lectures and teach at educational institutions or events so long as such activities do not significantly interfere with the performance of the Executive's duties hereunder. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. 3. COMPENSATION 3.1 Base Salary. During the Employment Term, the Company agrees to pay or cause to be paid to the Executive an annual base salary of $270,000, and as may be increased from time to time at the discretion of the Board or its 2 designee, the Compensation Committee of the Board (the "Compensation Committee"), (hereinafter referred to as the "Base Salary"). Such Base Salary shall be payable in accordance with the Company's customary practices applicable to its executives. 3.2 Bonus. In addition to the Base Salary, the Executive shall be eligible to receive an annual performance bonus (the "Bonus"). The amount of the Bonus shall be targeted at 50% of the Base Salary, provided, however, that the amount of the Bonus may be increased or decreased at the discretion of the Board or the Compensation Committee following consultation with the Executive. Each Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Bonus is awarded, unless the Executive shall elect to defer the receipt of such Bonus. 3.3 Benefits. During the Employment Term, the Executive shall be entitled to participate in all employee, executive or key-employee benefit or incentive compensation plans maintained or established by the Company for the purpose of providing compensation and/or benefits to employees, executives or key employees, generally, including without limitation, all pension, retirement, profit sharing, savings, stock option, deferred compensation, restricted stock grants, medical, hospitalization, dental, life or travel accident insurance plans. Unless otherwise provided herein, the compensation and benefits hereunder, and the Executive's participation in such plans, practices and programs shall be on the same basis and terms as applicable to the other eligible participants in the particular plan, practice or program. No additional compensation provided under any such plans shall be deemed to modify or otherwise affect the terms of this Agreement or any of the Executive's entitlements hereunder. 3.4 Vacation and Sick Leave. During the Employment Term, at such reasonable times as the Board shall in its discretion permit, the Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, provided that: (1) the Executive shall be entitled to four (4) weeks of annual paid vacation; such vacation to be taken in accordance with the policies of the Company in regard to vacation, and (2) the Executive shall be entitled to sick leave (without loss of pay) in accordance with the Company's policies in effect from time to time. 3.5 Fringe Benefits, Perquisites and Expenses. During the Employment Term, the Executive shall be entitled to all fringe benefits and perquisites generally made available by the Company to its executives; provided, however, even if not provided to all executives by the Company, the Company shall provide the Executive with a membership in a luncheon or petroleum club, memberships in appropriate professional associations, and an automobile allowance in an amount deemed appropriate by the Board or the Compensation Committee. The Executive shall be entitled to receive prompt reimbursement of all expenses reasonably incurred by him in connection with the performance of his duties hereunder or for promoting, pursuing or otherwise furthering the business or interest of the Company. 4. TERMINATION 4.1 During the Employment Term, the Executive's employment hereunder may be terminated under the following circumstances: (1) Cause. The Company may terminate the Executive's employment for "Cause" by written notice to the Executive ("Notice of Termination"), which termination shall be effective upon the date of sending of such notice (the "Termination Date"), if the Executive, as determined by at least two-thirds (2/3rds) of the Board, not including the Executive who will not be entitled to vote on the issue in the event he is a member of the Board, (a) shall have been convicted of a felony or entered a plea of nolo contendre to a felony charge, (b) shall have been involved in any act of material fraud, theft, or other material misconduct detrimental to the best interests of the Company, (c) shall have engaged in gross negligence or willful misconduct with respect to his duties to the Company and as a result caused material harm to the Company, (d) shall have engaged in competitive behavior against the Company, misappropriated or aided in misappropriating a material opportunity of the Company, secured or attempted to secure a personal benefit not fully disclosed to and approved by a majority 3 of the Board in connection with any transaction of or on behalf of the Company, or (e) shall have failed to substantially perform his duties as set forth herein. (2) Disability. The Company may terminate the Executive's employment after having established the Executive's disability. For purposes of this Agreement, "Disability" means a physical or mental infirmity which impairs the Executive's ability to substantially perform his duties under this Agreement, which continues for a period of at least one hundred eighty (180) continuous days. The Executive shall be entitled to the compensation and benefits provided under this Agreement for any period during the Employment term and prior to the establishment of the Executive's Disability during which the Executive is unable to work due to a physical or mental infirmity. Notwithstanding anything contained in this Agreement to the contrary, until the Termination Date specified in the Notice of Termination (as each term is hereinafter defined) relating to the Executive's disability, the Executive shall be entitled to return to his position with the Company as set forth in this Agreement in which event no Disability of the Executive will be deemed to have occurred. (3) Good Reason. The Executive may terminate his employment for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions described in Subsections (a) through (e) hereof: (a) any change in the Executive's title, position, duties or responsibilities that results in the Executive not having duties and responsibilities substantially equivalent to or greater than those the Executive had immediately prior to such change, (b) the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with his status, title, position or responsibilities, (c) any removal of the Executive from or failure to reappoint or reelect him to any of such offices or positions, except in connection with the termination of his employment for Disability, Cause, as a result of his death, or by the Executive other than for Good Reason, (d) a reduction in the Executive's Base Salary, Bonus or any failure to pay the Executive any compensation or benefits to which he is entitled within ten (10) days of the date due, or (e) the Executive is required to perform a substantial portion of his duties and responsibilities required hereunder outside the Dallas/Fort Worth metropolitan area. 4.2 Upon termination of the Executive's employment during the Employment Term, the Executive shall be entitled to the following benefits: (1) If the Executive's employment with the Company is terminated (a) by the Company for Cause or Disability, (b) by reason of the Executive's death, or (c) by the Executive other than for Good Reason, the Company shall pay the Executive all amounts earned or accrued through the Termination Date, including Base Salary, reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date, and all unpaid accumulated and accrued benefits due under any benefit plan or program in which the Executive was a participant in accordance with the terms and conditions of such plan or program ("Accrued Compensation"). In addition to the foregoing, if the Executive's employment is terminated by the Company for Disability or by reason of the Executive's death, the Company shall pay the Executive or his beneficiaries an amount equal to his Bonus multiplied by a fraction the numerator of which is the number of days in such fiscal year through the Termination Date and the denominator of which is 365 ("Pro-Rata Bonus"). The Executive's entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plan, including stock option plans, and other applicable programs and practices then in effect. (2) If the Executive's employment is terminated by the Company for reasons other than change of control, Cause, Disability, or by reason of the Executive's death, the Executive will be entitled to the following: (a) the Company shall pay the Executive all Accrued Compensation and a Pro Rata Bonus, (b) the Company shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment, an amount in cash equal to one (1) times the sum of the Executive's then current Base Salary, (c) the Company shall provide the Executive twelve (12) months of out placement services at the Company's sole expense, (d) for a term of one (1) year following the Termination Date, or until the Executive gains new employment with substantially similar benefits, the Company, at its expense, shall provide the Executive and his immediate family the same level of health benefits, including, without limitation, medical, dental, disability, and life insurance, provided the Executive and his immediate family at any time 4 within six (6) months of the Termination Date, and (e) all stock options granted the Executive will be immediately vested in accordance with any stock option agreements between the Executive and the Company currently in effect at the Termination Date. (3) If the Executive's employment is terminated by the Company within twenty-four (24) months after a change of control for reasons other than Cause, Disability, by reason of the Executive's death; or if the Executive terminates his employment with the Company for Good Reason, the Executive will be entitled to the following: (a) the Company shall pay the Executive all Accrued Compensation and a Pro Rata Target Bonus, (b) the Company shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment, an amount in cash equal to two and ninety-nine one hundredths percent (2.99%) times the sum of (i) the Executive's then current Base Salary and (ii) the Targeted Bonus (not subject to reduction), (c) the Company shall provide the Executive twelve (12) months of out placement services at the Company's sole expense, (d) for a term of three (3) years following the Termination Date, or until the Executive gains new employment with substantially similar benefits, the Company, at its expense, shall provide the Executive and his immediate family the same level of health benefits, including, without limitation, medical, dental, disability, and life insurance, provided the Executive and his immediate family at any time within six (6) months of the Termination Date, and (e) all stock options granted the Executive will be immediately vested in accordance with any stock option agreements between the Executive and the Company currently in effect at the Termination Date. 4.3 The amounts provided for in Sections 4.2(1) and 4.2(2) of this Agreement shall be paid within five (5) working days after the Executive's Termination Date. 4.4 The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided the Executive in any subsequent employment except as provided in Section 4.2(2)(d). 4.5 The severance pay and benefits provided for in Sections 4.2(1) and 4.2(2) of this Agreement shall be in lieu of any other severance pay to which the Executive may be entitled under any Company severance plan, program or arrangement. 4.6 As used in this Agreement, the term "Change of Control" shall have the same meaning as ascribed to it in the Company's 1997 Stock Option Plan (Exhibit A) or as amended from time to time. 5. EXCISE TAX PAYMENTS 5.1 In the event that any payment or benefit (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") to the Executive or for his benefit paid or payable pursuant to the terms of this Agreement or otherwise arising out of his employment with the Company, or a change of ownership or effective control of the Company or of a substantial portion of its assets (a "Payment" or "Payments"), would be subject to excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive will be entitled to receive an additional payment (the "Gross-Up Payment") in an amount such that after payment by the Executive of all applicable taxes, interest and penalties (other than interest and penalties due to the Executive's failure to timely file a tax return or pay taxes shown on his return) including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 5.2 The Company shall bear any expense necessary in determining whether a Gross-Up Payment is required pursuant to this Agreement. The Gross-Up Payment, if any, shall be paid by the Company to the Executive within five days of the Company's receipt of a determination from any accounting firm satisfactory to the Executive that such Gross-Up Payment is required. 5 6. CONFIDENTIAL INFORMATION. The Executive acknowledges and agrees that he will not, without the prior written consent of the Company, at any time during the Employment Term or for a period of three (3) years thereafter, except as may be required by any competent legal authority, use or disclose to any person, firm or other legal authority, any confidential records, secrets or information related to the Company or any of its subsidiaries. The Executive acknowledges and agrees that all information and secrets of the Company and/or its subsidiaries that he has acquired or may acquire, were received, or will be received in confidence and as a fiduciary of the Company. The Executive will exercise utmost diligence to protect and guard such information and secrets. 7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and the business of the Company (including this Agreement) whether by operation of law or otherwise. Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent or distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 8. NOTICE. For purposes of this Agreement, notices and all other communications provided for in this Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided, that all notices to the Company shall be directed to the Board with a copy to the Secretary of the Company. 9. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company or its subsidiaries. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 10. SETTLEMENT OF CLAIMS. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, defense, recoupment, or other right which the Company may have against the Executive or others. 11. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. 13. SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 14. WAIVER OF DEFAULT. Any waiver by either party of a breach of any provision in this Agreement shall not operate as or be construed as a waiver of any subsequent breach thereof. 6 15. ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all prior agreements and understandings with respect to such subject matter. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement effective as of the Effective Date. Remington Oil and Gas Corporation By: -------------------------------- Title: ------------------------------ Executive: ------------------------------------ James A. Watt 7 EXHIBIT A A "Change of Control" shall mean any of the following events: (i) a merger or consolidation to which the Company is a party if the individuals and entities who were stockholders of the Company immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of less than 50% of the total combined voting power for election of directors of the surviving corporation following the effective date of such merger or consolidation; (ii) the acquisition or holding of direct or indirect beneficial ownership (as defined under Rule 13d-3 of the Exchange Act) of securities of the Company representing in the aggregate 30% or more of the total combined voting power of the Company's then issued and outstanding voting securities by any person, entity or group of associated persons or entities acting in concert, other than S-Sixteen Holding Company, any employee benefit plan of the Company or of any subsidiary of the Company, or any entity holding such securities for or pursuant to the terms of any such plan, beginning from and after such time as S-Sixteen Holding Company shall no longer have direct or indirect beneficial ownership (as so defined) of securities of the Company representing in the aggregate a larger percentage of the total combined voting power of the Company's then issued and outstanding securities than that held by any other person, entity or group; (iii) the sale of all or substantially all of the assets of the Company to any person or entity that is not a wholly owned subsidiary of the Company; or (iv) the approval by the stockholders of the Company of any plan or proposal for the liquidation of the Company or its material subsidiaries, other than into the Company. EX-21 3 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 REMINGTON OIL AND GAS CORPORATION LIST OF SUBSIDIARIES OF THE REGISTRANT CKB Petroleum, Inc. (incorporated in Texas). Other subsidiaries are omitted because, if considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary as of December 31, 1999. EX-23.1 4 CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement of Remington Oil and Gas Corporation (formerly Box Energy Corporation), on Form S-4 (File No. 333-61513) of our report dated March 27, 2000 on our audits of the consolidated financial statements of Remington Oil and Gas Corporation as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999. ARTHUR ANDERSEN LLP Dallas, Texas March 30, 2000 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REMINGTON OIL AND GAS CORPORATION'S FORM 10-K FOR THE ANNUAL PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 4,356 0 6,421 0 0 23,873 278,552 183,971 119,326 28,142 5,950 0 0 213 55,841 119,326 42,344 45,430 38,187 44,884 0 0 4,552 (4,006) (273) (3,703) 0 0 0 (3,703) (0.17) (0.17)
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