UNIMAR COMPANY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1.Financial Statements
Condensed Consolidated Statements of Earnings
for the Three Months and Six Months ended
June 30, 1999 and June 30, 1998 1
Condensed Consolidated Balance Sheet
as of June 30, 1999 and December 31, 1998 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999 and
June 30, 1998 3
Notes to Condensed Consolidated Financial
Statements as of June 30, 1999 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II. OTHER INFORMATION
ITEM 5. Other Event 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 11
PART I. FINANCIAL INFORMATION
UNIMAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------ ----- ------- -----
Gas revenues $25,588 $24,549 $49,958 $63,228
Oil and condensate revenues 7,573 9,167 16,054 18,420
Less: IPU Cost (2,776) (2,418) (6,045) (7,066)
------- ------ ------ ------
Total revenues 30,385 31,298 59,967 74,582
------ ------ ------ ------
Production costs 6,172 5,029 12,072 9,646
Depletion, depreciation
and amortization 7,802 8,598 18,943 19,322
Exploration costs
including dry holes 213 290 268 924
------ ------ ------ ------
Total cost of sales 14,187 13,917 31,283 29,892
------ ------ ------ ------
Operating profit 16,198 17,381 28,684 44,690
General and administrative
expe nses 308 12 519 262
Other income (14) (54) (27) (115)
------ ------ ------ ------
Earnings before income
taxes 15,904 17,423 28,192 44,543
Income tax expense (benefit)
Current 9,243 11,810 18,041 31,196
Deferred (729) (674) (257) (2,159)
------ ------ ------ ------
8,514 11,136 17,784 29,037
------ ------ ------ ------
Net earnings $7,390 $6,287 $10,408 $15,506
====== ====== ======= ======
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
UNIMAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED)
ASSETS
<C<
Current assets:
Cash and cash equivalents $ 9,417 $ 9,122
Accounts receivable 6,907 7,887
Inventories 13,475 9,239
Other current assets 3,866 2,810
------- -------
Total current assets 33,665 29,058
Property, plant and equipment, at cost:
Oil and gas properties (successful
efforts method) 1,130,038 1,120,150
Other 2,070 1,965
-------- --------
1,132,108 1,122,115
Less: accumulated depreciation
and depletion 821,156 801,984
------- -------
Net property, plant and equipment 310,952 320,131
Other assets 2,237 2,227
------- -------
$346,854 $351,416
======= ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 211 $ 929
Advances from joint venture partners 4,221 4,556
Accrued liabilities 12,958 11,712
Income and other taxes 6,283 8,866
------- -------
Total current liabilities 23,673 26,063
Deferred income taxes 124,002 124,259
Other liabilities 14,569 12,692
Partners' capital 265,936 269,728
Less: accumulated other
comprehensive income 1,326 1,326
------- -------
264,610 268,402
Less: demand notes receivable 80,000 80,000
------- -------
184,610 188,402
-------- --------
Commitments and Contingencies
$346,854 $351,416
======== ========
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
UNIMAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
1999 1998
Operating activities:
Net earnings $10,408 $15,506
Adjustments to reconcile to net cash
provided by operating activities:
Depletion, depreciation and amortization 19,173 19,407
Deferred income taxes (257) (2,159)
Exploratory dry hole costs (8) 11
Changes in working capital and other (4,500) (9,661)
------ ------
Net cash provided by operating activities 24,816 23,104
------ ------
Investment activities:
Capital expenditures (9,986) (12,136)
------ ------
Net cash used in investing activities (9,986) (12,136)
------ -------
Financing activities:
Capital contributions - 9,000
Capital distributions (14,200) (17,800)
------- -------
Net cash used in financing activities (14,200) (8,800)
------- ------
(Decrease) Increase in advances from joint
venture partners (335) 1,286
------ ------
Net increase in cash and cash equivalents 295 3,454
Cash and cash equivalents at beginning
of period 9,122 4,454
------ ------
Cash and cash equivalents at end of period $9,417 $7,908
====== ======
Supplemental cash flow disclosure:
IPU distributions paid $5,282 $9,162
====== ======
Income taxes paid $20,623 $38,435
======= =======
See accompanying Notes to Condensed Consolidated Financial
Statements (Unaudited).
UNIMAR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(1) Unimar Company (the Company) is a general partnership
organized under the Texas Uniform Partnership Act. The
Company's sole business is its 23.125 percent working
interest in, and it is the operator of, a joint venture for
the exploration, development and production of oil and
natural gas in East Kalimantan, Indonesia, under a
Production Sharing Contract with Pertamina, the state
petroleum enterprise of Indonesia. The Company's partners
are Unistar, Inc., a Delaware corporation and a wholly-owned
subsidiary of Atlantic Richfield Company, and LASMO Oil &
Gas, Inc., a Delaware corporation and an indirect wholly-
owned subsidiary of LASMO plc, a public limited company
organized under the laws of England. Each partner shares
equally in the Company's net earnings, distributions and
capital contributions. See Part II. Other Information -
Item 5. Other Events.
(2) These condensed consolidated financial statements should
be read in the context of the consolidated financial
statements and notes thereto included in the Company's 1998
annual report on Form 10-K. In the opinion of management,
the accompanying financial statements contain all
adjustments of a normal recurring nature necessary for a
fair presentation. Interim results are not necessarily
indicative of results on an annualized basis.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
(3) Including the second quarter Indonesian Participating Unit
(IPU) payment shown below, there are two remaining periods for
which IPU holders are entitled to receive participation payments
until the expiration of the IPUs on September 25, 1999. See
"Expiration of Indonesian Participating Units (IPUs)" in the
Management's Discussion and Analysis of Financial Condition and
Results of Operation. The table below outlines the calculation
of the IPU participation payment for the second quarter of 1999.
1999 Second Quarter
(Thousands of dollars)
Positive cash flow:
Gas receipts $25,854
Oil and condensate receipts 8,720
Other non-revenue cash receipts from
the Joint Venture 1,657
-----
Total positive cash flow 36,231
------
Cash outflows:
Expenditures to the Joint Venture 15,486
Indonesian income taxes 8,796
------
Total cash outflows 24,282
------
Net positive cash flow from 23.125%
interest in the Joint Venture $11,949
=======
Net cash flow for the benefit of the
IPU holders* $2,910
======
Participation Payment per IPU* $0.27
======
*Each IPU is entitled to 1/14,077,747 of 32% of net positive
cash flow until September 25, 1999 at which time the Units
will expire with no residual value. As of June 30, 1999,
there were 10,778,590 IPUs issued and outstanding.
UNIMAR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(4) Comprehensive Income - There was no movement in other
comprehensive income during the first six months of 1998.
Accumulated other comprehensive income, which is separately
identified within Partners' capital was $1,326 at June 30,
1999 and at December 31, 1998 and represented movements in
the minimum pension liability.
(5) In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" for
fiscal years beginning after June 15, 1999. This Standard
establishes standards of accounting for and disclosures of
derivative instruments and hedging activities. In June
1999, the FASB issued SFAS No. 137, an amendment to SFAS No.
133 that delayed its effective date by one year. Under the
new rules, SFAS No. 133 is effective for all fiscal years
beginning after June 15, 2000. The Company believes that
adoption of this Standard will not have an impact on the
Company's financial condition or results of operations.
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction
with the business section, consolidated financial
statements, notes, and management's discussion contained in
the Company's 1998 annual report on Form 10-K and condensed
consolidated financial statements and notes contained in
this report.
Expiration of Indonesian Participating Units (IPUs)
Including the second quarter, there are two remaining
periods in 1999 for which IPU holders are entitled to
receive participation payments until the expiration of the
IPUs on September 25, 1999. The following table outlines
significant dates for the remaining distributions:
Second Quarter Final Period
Participation
period Apr. 1 - Jun. 30, 1999 Jul. 1 - Sep. 25, 1999
Record date Aug. 13, 1999 Sep. 24, 1999
Payment date Aug. 30, 1999 Nov. 24, 1999
The Indenture between the Company and its transfer agent
provides that the final period will run from July 1, 1999
through September 25, 1999, the expiration date of the IPUs.
With respect to the final period, the month of September's
net cash flow will be calculated for the entire month and
prorated for 25 days. The Indenture also provides that the
final period's record date will be its expiration date.
Because September 25, 1999 is a Saturday, the record date
for the final distribution will be Friday, September 24,
1999.
The IPUs will be delisted by the American Stock Exchange
on their expiration. While the Company will continue to
hold a 23.125% interest in the Joint Venture after the
expiration of the IPUs, the Company will not continue as a
reporting company under the Securities Exchange Act of 1934
after the IPUs are delisted by the American Stock Exchange.
Liquidity and Capital Resources
Cash flow from operations for the six months ended June
30, 1999 amounted to $25 million, as compared to $23 million
for the same period in 1998. The $2 million increase
resulted primarily from a lower Indonesian tax rate and
working capital movements. Capital expenditures of $10
million were spent on continued development activities in
the Indonesian Joint Venture (IJV). Net distributions to
the partners for the first six months of 1999 were $14
million (six months 1998, $9 million).
The Company's ability to generate cash is primarily
dependent on the prices it receives for the sale of
liquefied natural gas (LNG) and, to a lesser extent, the
sale of crude oil and liquefied petroleum gas (LPG). LNG is
primarily sold under long term contracts whose prices are
derived from a basket of Indonesian crudes. In the event
cash generated from operations is not sufficient to meet
capital investment and other requirements, the partners will
fund any shortfall through additional cash contributions.
The Company cannot predict with any degree of certainty the
prices it will receive in future periods for its crude oil,
LNG and LPG. The Company's financial condition, operating
results and liquidity will be materially affected by any
significant fluctuations in its sales prices.
The economic and political events in Southeast Asia
have not significantly affected the Company, and the IJV's
production operations have continued without interruption.
LNG revenue is supported by U.S. dollar-denominated, long-
term take-or pay contracts, which are administered through a
U.S. based trustee. The effects of the Asian economic
crisis have impacted the ability of certain customers to
take (or pay for) their contracted commitments. During the
latter part of 1998, Chinese Petroleum Corporation (CPC)
advised that it would be unable to take delivery of some of
its contractual 1999 volumes under the Badak VI sales
contract. A tentative agreement was reached early this year
between CPC and Pertamina for the deferral of certain
cargoes into later years. It is not anticipated that this
volume reduction will have
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (cont'd)
a significant impact on the Company's current year earnings.
The Company, through the Operator of the IJV, continues to
closely monitor the situation both in Indonesia and
throughout the Asia Pacific region to measure the effect of
these events on its operating and financial condition.
See Part II. Other Information - Item 5. Other Events.
Results of Operations
Quarter Ended June 30, 1999 compared to Quarter Ended June
30, 1998
Net earnings were $7 million for the second quarter of
1999, as compared to $6 million for the second quarter of
1998. The increase in earnings between the quarters
resulted from a $1 million decrease in revenues offset by a
$2 million decrease in income taxes.
Total revenues of $30 million for the second quarter of
1999 decreased by $1 million as compared to the second
quarter of 1998, as lower volumes offset higher prices. The
weighted average crude oil basket price used to determine
LNG prices was $14.67 per barrel for the second quarter of
this year, or $1.68 per barrel higher than in the
corresponding 1998 quarter. As a result, the average price
received for LNG during the second quarter of 1999 increased
to $2.26 per million BTUs from $2.10 per million BTUs. The
average price received for the Company's crude oil sales
during the second quarter of 1999 was $16.08 per barrel, or
$2.13 per barrel higher than during the corresponding 1998
quarter. The prices received by the Company for its
products reflected the trend in worldwide crude oil prices.
LNG volumes of 46 trillion BTUs (15.5 net equivalent
cargoes) net to the IJV for the second quarter of 1999 were
approximately 6 percent lower than 1998 second quarter
volumes of 49 trillion BTUs (16.8 net equivalent cargoes).
Crude oil volumes net to the Company were 457 thousand
barrels in the second quarter of 1999 (second quarter 1998,
618 thousand barrels). Lower volumes were due in part to
lower overall production as well as a reduction in cost-
recoverable expenditures.
Cost of sales for the second quarter of 1999 was slightly
higher than the second quarter of 1998. Operating costs
increased by $1 million due to the revaluation of the Rupiah-
denominated severance provision but were offset by lower
depletion charges.
Income taxes of $9 million decreased by approximately $3
million due to the lower level of taxable revenues as well
as the lower Indonesian tax rate under the amended and
extended PSC, which became effective on August 8, 1998.
Six Months Ended June 30, 1999 compared to Six Months Ended
June 30, 1998
Net earnings were $10 million for the first six months of
1999, as compared to $16 million for the first six months of
1998. Earnings for the first half of 1999 included a $15
million decrease in total revenues and a $2 million increase
in operating expenses offset by an $11 million decrease in
income taxes.
Revenues of $60 million for the first six months of 1999
were $15 million lower than last year's first half revenues,
mainly due to lower gas volumes. The IJV's share of LNG
sold during the first six months of 1999 was 99 trillion
BTUs (33.6 net equivalent cargoes), approximately 15 percent
lower than the first half 1998 volumes of 117 trillion BTUs
(39.8 net equivalent cargoes). For the year 1999, LNG
shipments on behalf of the Joint Venture's Production
Sharing Contract (PSC) are expected to increase by 4 percent
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (cont'd)
over 1998. However, the IJV's share of these shipments is
expected to decline because of the reduced equity share
under the amended and extended PSC, which became effective
on August 8, 1998, and lower cost-recoverable expenditures.
Crude oil volumes of 1.1 million barrels net to the Company
for the first six months of 1999 remained unchanged from the
same period last year.
The weighted average crude oil basket price used to
determine LNG prices was $12.74 per barrel for the first six
months of this year, or $1.35 per barrel lower than for the
first half of 1998. As a result, the average price received
for LNG decreased $0.08 per million BTUs to $2.20 per
million BTUs. The average price received for the Company's
crude oil sales during the first six months of 1999 was
$13.69 per barrel, as compared to $14.19 per barrel for the
same period last year. The prices received by the Company
for its products reflected the trend in worldwide crude oil
prices.
Cost of sales for the first half of 1999 increased by
approximately $2 million as compared to the first half of
1998. Operating costs increased by $2 million partly due to
the revaluation of the Rupiah-denominated severance
provision but were offset by lower depletion charges and
exploration write-offs.
Income taxes of $18 million decreased by $11 million as
compared to the first half of 1998 due to the lower level of
taxable revenues as well as the lower Indonesian tax rate
under the amended and extended PSC, which became effective
on August 8, 1998.
Year 2000 Issue
The year 2000 issue (Y2K) relates to computer programs
and embedded computer chips having two digits rather than
four to define the applicable year. Computer programs or
equipment having date-sensitive software may recognize a
date using "00" as the year 1900 instead of 2000. The
Company's most significant Y2K risk is through its
subsidiary VICO, as operator of the Joint Venture. VICO has
a comprehensive Y2K Program that was initiated in May of
1997 and appointed a special task force (the Y2K Team) to
identify, assess and develop remediation plans for both
internal and external Y2K problems. The Y2K Team reports
regularly to VICO's Board of Directors and has the authority
and resources to carry out its directive.
The Y2K Team completed its evaluation of all internal
date-sensitive systems and equipment critical to the
organization in December of 1998. The assessment phase of
the Program included ranking those items considered to be of
low, medium and high importance according to their
individual impact on the Joint Venture's business, safety,
and the environment. Both information technology and
embedded processors (East Kalimantan field control
facilities, etc.) were analyzed. Special emphasis was given
to control systems at the East Kalimantan field facilities.
For all those items identified with Y2K problems, remedial
action plans have been developed. The remedial planning
phase of the Project was also completed in December of 1998.
The remediation implementation phase is approximately
95 percent complete. The majority of remediation work will
be completed by the end of August 1999. There are a few
exceptions that will be completed by October 1999.
With the assistance of an outside consulting firm, VICO
has recently completed the conversion of its finance and
accounting systems to a year 2000 compliant system.
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year 2000 Issue (cont'd)
The Y2K Team is assessing third-party risk to VICO (and
the Joint Venture) and preparing the appropriate contingency
plans for high-risk third parties. This phase is
approximately 80 percent complete. Third-party risk can be
segregated into two areas - the Production Chain and Other
Services. The Production Chain includes the Bontang LNG
plant, the Santan oil terminal (operated by UNOCAL Indonesia
Company), the vessels taking deliveries of oil and gas, and
the buyers' receiving terminals. VICO has assisted in
several reviews of the Y2K program at the Bontang LNG plant
and has provided additional instrumentation experts to the
plant to assist in its remediation plans. PERTAMINA is
assisting VICO and other PSCs in verifying the Y2K
compliance of all vessels and receiving terminals. Other
Services include various third-party service providers and
suppliers. The Y2K Team has currently completed a list that
identifies all other critical third parties related to the
Jakarta office and has begun this process for the East
Kalimantan Field locations.
The Y2K Team has begun to prepare a detailed
contingency plan. The plan, which is approximately 65
percent complete, includes the following:
- - Pre-year 2000 actions to mitigate the impact of Y2K
problems, should they appear;
- - Daily plans for critical Y2K dates;
- - Detailed business recovery plans for various Y2K failure
scenarios; and
- - Staff and other resources required for Y2K.
The costs to address Y2K are estimated to be
approximately $7 million and are funded out of Joint Venture
operating cash flows. The Joint Venture is entitled to cost
recover these expenditures as incurred.
The Y2K Program is expected to significantly reduce the
level of uncertainties about the Year 2000 problems to the
Company and the Joint Venture. The Company believes the
possibility of significant interruptions in normal
operations should be reduced with the implementation of new
business systems and the timely completion of the Y2K
program. However, if any material Year 2000 problems are
not properly corrected, particularly any for which the
Company has no control, there can be no assurance that this
will not have a material impact on the results of operation,
liquidity and financial condition of the Company and on the
interests held by other partners in the Joint Venture.
Forward Looking Statements
The discussion of the Company's business and operations
in this report, and its discussion regarding the Year 2000
Issue, include in several instances forward-looking
statements, which are based upon management's good faith
assumptions relating to the financial, market, operating,
political and other relevant environments that will exist
and affect the Company's business and operations in the
future. No assurance can be made that the assumptions upon
which management based its forward-looking
statements will prove to be correct, or that the Company's
business and operations will not be affected in any
substantial manner by other factors not currently
foreseeable by management or beyond the Company's control.
All forward-looking statements involve risks and
uncertainty, including those described in this report. Such
statements shall be deemed in the future to be modified in
their entirety by the Company's public pronouncements,
including those contained in all future reports and other
documents filed by the Company with the Securities and
Exchange Commission.
UNIMAR COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 5.Other Events
On April 1, 1999, Atlantic Richfield Company (ARCO) and BP
Amoco plc (BP Amoco) announced that they had entered into an
Agreement and Plan of Merger dated March 31, 1999. The all-
share transaction is subject to approval by ARCO and BP
Amoco shareholders as well as various regulatory agencies,
including the European Commission and the U.S. Federal Trade
Commission.
ITEM 6.Exhibits and Reports on Form 8-K
(a) Exhibits
(27)-1-Financial Data Schedule for the six months ended
June 30, 1999.
(b) Reports on Form 8-K
None.
UNIMAR COMPANY AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
UNIMAR COMPANY
By: /S/ Linda A. Kubecka
--------------------
Linda A. Kubecka
Member of the Management Board
(Principal financial officer and
the officer duly authorized
to sign on behalf of the registrant.)
DATE: August 13, 1999