MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SIGNIFICANT EVENTS IN 1993
- - The Company spent $515 million in oil and gas acquisitions, exploration and
development.
- - The Company replaced production of its reserves on an equivalent barrel
basis in 1993 by a factor of five.
- - The cost of finding of all reserves added in 1993 was $5.14 per BOE.
- - The Company restructured its long-term debt and reduced its average
interest rate with the redemption in May 1993 of its 7 1/4% Convertible
Debentures Due 2012 and the issuance of $330 million in new debt
securities in October 1993 to finance a $305 million acquisition.
- - The Company maintained sufficient cash balances to have available $100
million for possible acquisitions of properties as it entered 1994.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
Net cash provided by operating activities was $139.4 million for 1993, an 11
percent and 56 percent increase over the $125.1 million and $89.2 million in
1992 and 1991, respectively. Cash and short-term cash investments increased to
$176.4 million at December 31, 1993, from $118.7 million at year end 1992.
The Company's current ratio (current assets divided by current liabilities)
was 1.75:1 at December 31, 1993, compared to 3.39:1 at December 31, 1992.
Included in short-term borrowing at December 31, 1993, was a note due to FM
Properties Operating Co. for $95.6 million. The Company paid the note on
January 4, 1994, from available cash and short-term cash investments. The
Company's current ratio at December 31, 1993, giving pro forma effect to such
note repayment, would have been 3.16:1.
RESERVES ADDED AND COST OF FINDING
During 1993, the Company spent $515 million on acquisitions of oil and gas
properties and on oil and gas exploration and development. Approximately 82
percent of the expenditures was for acquisitions, $405 million of which was
expended on two purchases from Freeport-McMoRan. Total proved gas reserves
increased from 372.2 BCF at year end 1992 to 691.5 BCF at year end 1993 and
total proved oil reserves increased from 47.4 million barrels at year end 1992
to 73 million barrels at year end 1993.
One accepted method of calculating cost of finding is to divide the Company's
expenditures for oil and gas exploration, development and acquisitions by the
BOE's added during the year. Using this method, the Company's cost of finding
for 1993 was $5.14 per BOE. A three year schedule of cost of finding follows:
THREE
(DOLLARS AND BOE'S STATED IN MILLIONS, YEAR
EXCEPT FINDING COST) 1993 1992 1991 TOTAL
- ----------------------------------------------------------------------------------------------
Oil reserves added.............................. 33.3 10.8 8.9 53
Gas reserves added BOE (6:1).................... 66.9 8.4 18.7 94
----- ----- ----- -----
Total reserves added BOE........................ 100.2 19.2 27.6 147
----- ----- ----- -----
----- ----- ----- -----
Cost incurred in oil and gas acquisition,
exploration and development activities..... $ 515 $ 76 $ 147 $ 738
Average finding cost per BOE.................... $ 5.14 $ 3.96 $ 5.33 $ 5.02*
<FN>
*Three year average
(This page contained two graphs in the margin: Gas Reserves Added For Three
Years and Oil Reserves Added For Three Years, See Appendix I)
Page 15
LONG-TERM FINANCING
Total long-term debt at December 31, 1993 was $453,760,000 compared with
$224,793,000 at December 31, 1992. Ratio of long-term debt to book capital
(defined as the Company's long-term debt plus its equity) at December 31, 1993
was 52 percent compared with 42 percent at December 31, 1992. No current
installments are due on any of the debt.
In May 1993, the Company redeemed its $100,000,000 of 7 1/4% Convertible
Debentures Due 2012. As a result of the call for redemption, owners of
$98,155,000 of the debentures elected to convert into a total of 5,001,373
shares of Company common stock.
On October 21, 1993, the Company issued $230,000,000 of 4 1/4% Convertible
Subordinated Notes Due 2003 and $100,000,000 of 7 1/4% Notes Due 2023. The
Company's long-term debt also includes $125,000,000 of 10 1/8% Notes Due
June 1, 1997, which become redeemable at par on June 1, 1994.
The Company may redeem or possibly refinance all or a portion of the 10 1/8%
Notes in 1994. The amount of any such redemption would be dependent upon the
amount of available cash on hand as the redemption date approaches. Such
available cash balances can be affected by numerous factors, the most
significant of which are: (1) prices received for the sale of oil and gas, (2)
changes in capital and exploratory expenditures during the year and (3)
acquisitions of producing oil and gas properties.
OTHER
The Company follows an entitlements method of accounting for its gas
imbalances. The Company's estimated gas imbalance receivables were $12.9 million
and $17 million at December 31, 1993 and 1992, respectively, and estimated gas
imbalance liabilities were $7.6 million and $12.8 million at December 31, 1993
and 1992, respectively. These imbalances are valued at the amount which is
expected to be received or paid to settle the imbalances. The settlement of the
imbalances can occur either during, or at the end of the life of a well, on a
volume basis or by cash settlement. The Company does not expect that a
significant portion of the settlements will occur in any one year. Thus, the
Company believes the periodic settlement of gas imbalances will have little
impact on its liquidity.
The Company has sold a number of nonstrategic onshore oil and gas properties
over the past two years, recognizing a $128,000 gain in 1993 and a $711,000 loss
in 1992. Total amounts of oil and gas reserves associated with these disposals
during the last two years were 870,000 BBLS of oil and 4.5 BCF of gas. The
Company believes the disposal of nonstrategic properties furthers the goal of
concentrating its efforts on the strategic properties.
The Company has paid quarterly dividends of $.04 per share since August 21,
1989, and currently anticipates it will continue to pay quarterly dividends of
$.04 per share.
During 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." The effect of adopting SFAS No.
109 was not material to the Company's financial position and results of
operations. For additional information on SFAS No. 109, see Note 4 to the
financial statements.
Also during 1993, the Company adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." The effect of adopting SFAS
No. 106 was not material to the Company's financial position and results of
operations, but it resulted in recording a cumulative catch-up adjustment for
the accumulated postretirement
(This page contained two graphs in the margin: Three Years of Costs Incurred For
Acquisitions, Exploration and Development and Net Undeveloped Acres by
Geographic Regions, 360,000 Acres Year End 1993, See Appendix I)
Page 16
transition obligation of approximately $1,003,000 before tax and net 1993
postretirement benefit cost of approximately $173,000. For additional
information on SFAS No. 106, see Note 6 to the financial statements.
The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits" in 1994. The estimated impact of SFAS No. 112 is not material to the
Company's consolidated financial position or results of operations.
RESULTS OF OPERATIONS
NET INCOME AND REVENUES
Net income for 1993 was $12.6 million, or $.26 per share, down 69 percent
from 1992 net income of $41.2 million, or $.93 per share, and down 35 percent
from 1991 net income of $19.3 million, or $.44 per share. Revenues for 1993 were
$286.6 million, down 6 percent from 1992 and up 14 percent from 1991. Despite
higher production volumes for both oil and gas during 1993, net income decreased
from each of the prior two years. The increase in average gas price in 1993 was
more than offset by the decrease in average oil price. Revenues and net income
for 1993 are less than 1992 in part due to a pretax gain of $27.9 million on the
sale of the Company's investment in Natural Gas Clearinghouse and the receipt of
$7.5 million from a gas contract settlement.
NATURAL GAS INFORMATION
Gas sales increased 19 percent in 1993 to $159.2 million from $134.2 million
in 1992 and 21 percent from $111.1 million in 1991. Average daily gas production
in 1993 increased 3 percent to 211.1 MMCF from 204.6 MMCF in 1992 and 15 percent
in 1992 from 178.4 MMCF in 1991. The acquisitions from Freeport-McMoRan
increased average daily production 98.4 MMCF for the fourth quarter of 1993.
Average daily production during 1993 ranged from a low of 175.2 MMCF in April to
a high of 282.1 MMCF in October.
Average gas price in 1993 increased to $2.10 per MCF from $1.81 in 1992. In
1993 the Company's average gas prices ranged from a low of $1.86 per MCF in June
to a high of $2.43 per MCF in December. The average gas price in 1993 reflected
$3.7 million of reduced value relating to hedging production at prices below the
ultimate spot price for gas. This lowered the average gas price received by
$.048 per MCF.
A three-year summary of gas related information follows:
1993 1992 1991
- --------------------------------------------------------------------------
Proved reserves at year end (MMCF) . . . . 691,530 372,223 396,610
Gas revenues (millions). . . . . . . . . . $159.2 $134.2 $111.1
Average gas price per MCF* . . . . . . . . $2.10 $1.81 $1.74
Average daily production (MMCF). . . . . . 211.1 204.6 178.4
Gas sales as a % of oil and gas sales. . . 59% 53% 50%
<FN>
*The above amount reflects a reduction of $.048 per MCF in 1993, a reduction of
$.045 per MCF in 1992 and income of $.01 per MCF in 1991 from hedging.
CRUDE OIL INFORMATION
Oil sales decreased 7 percent in 1993 to $111.3 million. Average daily
production increased to 19,496 barrels, up 9 percent from 17,826 barrels in
1992. The acquisitions from Freeport-McMoRan increased average daily production
4,639 barrels for the fourth quarter of 1993. Offsetting the benefit of the
production increase was a 15 percent decrease in average oil price. In 1992, oil
sales increased 10 percent over 1991 to $120.2 million. This increase was due to
a 19 percent
(This page contained two graphs in the margin: Net Income For Three Years and
Gas Revenues For Three Years, See Appendix I)
Page 17
increase in average daily production over the 15,001 barrels in 1991. Oil sales
in 1992 reflected an 8 percent decrease in average oil price per barrel from
$20.39 in 1991 to $18.68 in 1992.
International sales accounted for 19 percent of 1993 total oil sales. During
1992 and 1991, international oil sales accounted for 23 percent and 13 percent
of total oil sales, respectively. Average daily oil production in barrels from
properties outside the United States was 3,465 in 1993 and 4,194 in 1992 and
2,097 in 1991.
Although oil prices have decreased, the Company believes that oil prices
should improve moderately over time. When conditions warrant, price hedging may
be used to minimize the Company's exposure to price volatility. The Company's
average oil price in 1993 included approximately $100,000 of hedging income
which increased the average oil price for the year by $.02 per barrel.
A three-year summary of oil related information follows:
1993 1992 1991
- -----------------------------------------------------------------------------------------------
Proved reserves at year end (thousands of barrels)
Working interest . . . . . . . . . . . . . . . . 70,245 45,400 42,090
Royalty interest (1) . . . . . . . . . . . . . . 2,710 1,980 1,790
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . 72,955 47,380 43,880
------ ------ ------
------ ------ ------
Oil revenues (millions). . . . . . . . . . . . . $111.3 $120.2 $109.2
Average oil price per barrel (2) . . . . . . . . $15.91 $18.68 $20.39
Average daily production (barrels) . . . . . . . 19,496 17,826 15,001
Oil sales as a % of oil and gas sales. . . . . . 41% 47% 50%
<FN>
(1) Includes royalty oil, condensate and gas reserves stated in BOE's.
(2) Includes $.02 per barrel in 1993, $.33 per barrel in 1992 and
$1.17 per barrel in 1991 from hedging income.
COSTS AND EXPENSES
In 1993 oil and gas exploration expense increased $7.5 million over 1992 to
$36.5 million. The increase resulted, in part, from a $2.3 million increase in
dry hole expense, a $1.7 million increase in undeveloped lease amortization and
a $4.2 million increase in abandoned assets of which $4 million related to costs
associated with the writedown of an offshore California property. In 1992 oil
and gas exploration expense decreased $5.2 million from 1991 to $29.0 million.
The decrease resulted, in part, from a $2.6 million decrease in dry hole expense
and an $8.9 million decrease in abandoned assets, which was partially offset by
a $5 million increase in undeveloped lease amortization.
In 1993 oil and gas operations expense increased $6.7 million over 1992 to
$75.1 million. Approximately $3.6 million of the increase is attributable to
properties purchased during 1993. In 1992 oil and gas operations expense
increased $8.1 million over 1991 to $68.4 million. That increase was primarily a
result of incurring a full year of expenses on the Company's properties in
Equatorial Guinea and Indonesia compared to a partial year of operations on the
properties, which commenced production during 1991. Also, during the first nine
months of 1992 the Company owned an 80 percent interest in the Tazerka Field
offshore Tunisia compared to a 40 percent interest during 1991.
In 1993 depreciation, depletion and amortization expense (DD&A) increased
$12.4 million over 1992 to $107.2 million. DD&A expense for 1992 increased $15.1
million over 1991 to $94.8 million. The higher DD&A expenses were primarily the
result of higher production rates. In 1993, DD&A associated with acquired
properties was $15.2 million, and $4.7 million was due to a reserve writedown on
the Camar property in Samedan Oil of Indonesia, Inc. In 1992 an additional $6.2
million of DD&A expense was incurred due to the writedown of reserves on the
Company's High Island A-480 block. The unit rate of DD&A expense per BOE,
converting gas to oil on a 6:1 basis, was $5.37 for 1993, $5.00 for 1992 and
$4.93 for 1991.
(This page contained two graphs in the margin: Oil Revenues For Three Years and
Average Production and Lifting Cost Per BOE, See Appendix I)
Page 18
The Company provides for the cost of future liabilities related to
restoration and dismantlement costs for offshore facilities. This provision is
based on the Company's best estimate of such costs to be incurred in future
years based on information from the Company's engineers. These estimated costs
are provided through DD&A expense using a ratio of production divided by
reserves multiplied by the estimated costs to restore and dismantle. The Company
has provided $23.2 million for such future costs classified with accumulated
DD&A in the balance sheet. The total future restoration and abandonment costs of
$62.8 million are included in estimated future production and development costs
for purposes of estimating the future net revenues relating to the Company's
proved reserves. The Company is currently unaware of any site with potential
environmental liabilities requiring restoration or reclamation.
In 1993, selling, general and administrative (SG&A) expense increased
$686,000 over 1992. During the year certain changes occurred which impacted SG&A
in various geographic locations. In an effort to best utilize personnel, the
Midland, Texas office was closed and employees were transferred primarily to
Houston, Texas and Denver, Colorado.
INTEREST EXPENSE
Interest expense remained flat in 1993 even though the outstanding long-term
debt at December 31, 1993 increased $229 million to $453.8 million from $224.8
million at year end 1992. This was primarily the result of redeeming the 7 1/4%
Notes in May 1993, lower average interest rates experienced in the debt
securities issued and higher capitalized interest during the year.
In 1993 capitalized interest increased $3.8 million over 1992. This increase
is primarily due to capitalizing $3.6 million of interest on East Cameron 320,
331 and 332 which were acquired during the year and are currently under
development. Interest capitalization will continue until these properties are
capable of production in late 1994.
FUTURE TRENDS
Oil and gas production in the fourth quarter of 1993 was 22,689 BBLS and
271,564 MCF per day, which reflected production from certain oil and gas
properties acquired from Freeport-McMoRan on October 1, 1993, in addition to
production from the Company's other gas properties. The Company anticipates its
oil and gas production volumes will continue to increase in 1994 as a result of
the properties acquired from Freeport-McMoRan as well as planned development of
new oil and gas properties.
The Company's capital budget in 1994 is $179 million. The budget includes no
provision for acquisitions, and as such, is primarily capital dollars budgeted
for successful drilling and development. The comparable expenditures in 1993
were $92 million. The Company plans to remain quite active in the Gulf of Mexico
where 76 percent of its capital budget is currently planned to be spent.
Principal properties in the Gulf of Mexico on which capital expenditures are
budgeted for 1994 include Vermilion Block 371, East Cameron Blocks 320, 331 and
332, High Island Block A-547 and Ship Shoal Block 315. Production from these
properties, as well as others currently under development, is expected to
commence at varying dates during 1994 or 1995.
The Company intends to remain active in its onshore domestic operations with
drilling and development operations planned primarily in Oklahoma, Texas,
Colorado, California and Montana. Such onshore drilling and development amounts
budgeted for 1994 are $22 million compared to $23 million spent in 1993.
The Company's onshore prospects combine higher risk exploratory drilling in
all areas with lower risk development drilling primarily in existing secondary
oil units and in the recently acquired Bowdoin Field and Niobrara gas area.
(This page contained two graphs in the margin: DD&A Expense Per BOE of
Production For Three Years and SG&A Expense Per BOE of Production For Three
Years, See Appendix I)
Page 19
The Company's international budget is $13 million: $9 million for successful
exploration and development in Canada and $4 million for the drilling operations
in Tunisia. No other material capital expenditures are currently budgeted in
1994 for international drilling and development.
While the Company added significantly to its oil and gas reserve base in 1993
primarily through acquisitions, it anticipates it can continue to add to its
reserve base with its 1994 capital budget along with its other exploratory
outlays. Such capital budget and exploration expenditures are planned to be
funded through internally generated cash flows.
On January 13, 1994, the Company announced the formation of Noble Gas
Marketing, Inc., a subsidiary of Noble Affiliates, Inc. The purpose of Noble Gas
Marketing, Inc. is to seek out opportunities to enhance the value of the
Company's gas by marketing directly to end users.
The marketing affiliate also plans to be actively involved in the purchase
and sale of gas from other producers. Such third party gas may be purchased from
non-operators who own working interests in the Company's wells, or from other
producers' properties in which the Company may not own an interest.
Noble Gas Marketing, Inc. also expects to engage in the installation,
purchase and operation of gas gathering lines.
FERC Order 636 has facilitated the transport of gas through interstate
pipelines and the direct sale of gas to end users. The marketing strategy of the
Company is to avail itself of the base load gas markets of large local gas
distribution companies as well as electrical utilities that use gas to fire
their power generators.
Samedan Oil Corporation is an unsecured creditor of Columbia Gas Transmission
Corporation, which filed for protection from creditors under Chapter 11 of the
Federal Bankruptcy Code on July 31, 1991. Samedan and Columbia are parties to a
gas sales contract, covering a Gulf of Mexico property, which was rejected by
Columbia in its bankruptcy proceeding. On March 16, 1992, Samedan filed a proof
of claim with the bankruptcy court in the amount of approximately $117 million
covering approximately $3 million for the contract price on prepetition gas
purchases, approximately $2 million for the contract price due on prepetition
take or pay obligations and approximately $112 million for damages arising from
the rejection of Samedan's gas sales contract. The full amount of Samedan's
claim is classified as an unsecured claim.
Except for the $3 million receivable recorded for prepetition gas purchased
by Columbia, the Company's financial statements do not reflect any other
receivables from Columbia relative to its claim.
Although Columbia filed a preliminary plan of reorganization on January 18,
1994, it is unknown whether resolution of Samedan's claim will occur in 1994, or
at what amount the ultimate resolution of the claim may be settled.
Management believes that the Company is well positioned with its balanced
reserves of oil and gas to take advantage of future price increases that may
occur. However, the uncertainty of oil and gas prices continues to affect the
domestic oil and gas industry. Due to the volatility of oil and gas prices, the
Company, from time to time, uses hedging and plans to do so in the future as a
means of controlling its exposure to price changes.
Spot gas prices in early 1994 have increased over the prior year's prices
primarily as a result of harsher winter conditions in much of the United States,
while oil prices have sunk to a 7 1/2 year low as a result of worldwide
oversupply. The Company cannot predict the extent to which its revenues will be
affected by inflation, government regulation or changing prices.
(This page contained two graphs in the margin: Average Daily Gas Production
Fourth Quarter 1993 and Average Daily Oil Production Fourth Quarter 1993,
See Appendix I)
Page 20
SELECTED FINANCIAL DATA NOBLE AFFILIATES, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
REVENUES AND INCOME
Revenues........................................... $ 286,583 $ 303,782 $ 250,417 $ 243,196 $ 211,607
Net cash provided by operating activities.......... 139,381 125,107 89,179 107,188 91,787
Net income before accounting change................ 12,625 41,240 19,308 28,554 22,553
Net income......................................... 12,625 41,240 19,308 28,554 31,378
PER SHARE DATA
Net income before accounting change................ $ .26 $ .93 $ .44 $ .65 $ .52
Net income......................................... .26 .93 .44 .65 .72
Cash dividends..................................... .16 .16 .16 .16 .14
Year end stock prices ............................. 26.50 17.63 13.63 14.13 16.75
Average shares outstanding......................... 48,098 44,341 44,135 43,986 43,748
FINANCIAL POSITION
Property, plant and equipment, net:
Oil and gas mineral interests,
equipment and facilities....................... $ 784,235 $ 409,740 $ 458,892 $ 437,363 $ 428,504
Total assets....................................... 1,067,996 625,621 589,642 588,071 544,190
Long-term obligations:
Long-term debt................................... 453,760 224,793 224,746 224,699 224,652
Deferred income taxes............................ 45,108 33,378 35,227 38,172 34,300
Other............................................ 7,158 7,010 8,488 9,985 11,229
Shareholders' equity............................... 415,432 304,779 264,509 250,851 226,116
Ratio of long-term debt to
shareholders' equity............................. 1.09 .74 .85 .90 .99
CAPITAL EXPENDITURES
Oil and gas mineral interests,
equipment and facilities......................... $ 508,506 $ 64,066 $ 121,378 $ 90,588 $ 93,694
Other.............................................. 1,607 1,744 3,970 6,766 2,928
--------- --------- --------- --------- ---------
Total capital expenditures......................... $ 510,113 $ 65,810 $ 125,348 $ 97,354 $ 96,622
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
OPERATING STATISTICS
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
GAS
Sales (in millions)..................... $ 159.2 $ 134.2 $ 111.1 $ 113.2 $ 112.9
Production (MMCF per day)............... 211.1 204.6 178.4 158.2 152.8
Average price (per MCF)................. $ 2.10 $ 1.81 $ 1.74 $ 2.00 $ 2.07
OIL
Sales (in millions)..................... $ 111.3 $ 120.2 $ 109.2 $ 102.9 $ 60.5
Production (BBLS per day)............... 19,496 17,826 15,001 12,856 9,779
Average price (per BBL)................. $ 15.91 $ 18.68 $ 20.39 $ 22.47 $ 17.59
Royalty sales (in millions)............. $ 7.5 $ 5.4 $ 6.2 $ 6.8 $ 6.1
Page 21
CONSOLIDATED BALANCE SHEET NOBLE AFFILIATES, INC. AND SUBSIDIARIES
DECEMBER 31,
---------------------------------
(IN THOUSANDS OF DOLLARS) 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and short-term cash investments................... $ 176,432 $ 118,726
Accounts receivable - trade............................ 66,314 61,869
Materials and supplies inventories..................... 3,302 3,616
Other current assets................................... 10,516 4,413
------------- ------------
Total current assets............................... 256,564 188,624
------------- ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Oil and gas mineral interests, equipment and facilities
(successful efforts method of accounting)............ 1,460,937 1,024,786
Other.................................................. 26,131 24,849
------------- ------------
1,487,068 1,049,635
Accumulated depreciation, depletion and amortization... (692,463) (628,003)
------------- ------------
794,605 421,632
------------- ------------
OTHER ASSETS................................................ 16,827 15,365
------------- ------------
$1,067,996 $ 625,621
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade............................... $ 29,354 $ 29,548
Other current liabilities.............................. 19,241 18,474
Short-term borrowing................................... 95,600
Income taxes:
Current.............................................. 2,343 4,311
Deferred............................................. 3,328
------------- ------------
Total current liabilities.......................... 146,538 55,661
------------- ------------
DEFERRED INCOME TAXES....................................... 45,108 33,378
------------- ------------
OTHER DEFERRED CREDITS AND NONCURRENT LIABILITIES........... 7,158 7,010
------------- ------------
LONG-TERM DEBT.............................................. 453,760 224,793
------------- ------------
SHAREHOLDERS' EQUITY:
Preferred stock - par value $1;
4,000,000 shares authorized, none issued
Common stock - par value $3.33 1/3;
100,000,000 shares authorized;
51,461,122 and 46,132,342 shares issued
in 1993 and 1992, respectively....................... 171,535 153,772
Capital in excess of par value......................... 140,703 52,672
Retained earnings...................................... 118,612 113,753
------------- ------------
430,850 320,197
Less common stock in treasury, at cost
(1993 and 1992, 1,524,900 shares).................... (15,418) (15,418)
------------- ------------
415,432 304,779
------------- ------------
$1,067,996 $ 625,621
------------- ------------
------------- ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 22
CONSOLIDATED STATEMENT OF OPERATIONS NOBLE AFFILIATES, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31,
---------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------
REVENUES:
Oil and gas sales and royalties........... $ 278,004 $ 259,765 $ 226,453
Other income.............................. 8,579 44,017 23,964
----------- ----------- -----------
286,583 303,782 250,417
----------- ----------- -----------
COSTS AND EXPENSES:
Oil and gas exploration................... 36,473 28,950 34,106
Oil and gas operations.................... 75,110 68,371 60,327
Depreciation, depletion and amortization.. 107,215 94,819 79,748
Selling, general and administrative....... 31,784 31,098 28,571
Interest.................................. 20,402 20,482 20,960
Interest capitalized...................... (5,060) (1,260) (1,895)
----------- ----------- -----------
265,924 242,460 221,817
----------- ----------- -----------
INCOME BEFORE TAXES............................ 20,659 61,322 28,600
----------- ----------- -----------
INCOME TAX PROVISIONS:
Current................................... 558 18,816 15,134
Deferred.................................. 7,476 1,266 (5,842)
----------- ----------- -----------
8,034 20,082 9,292
----------- ----------- -----------
NET INCOME..................................... $ 12,625 $ 41,240 $ 19,308
----------- ----------- -----------
----------- ----------- -----------
NET INCOME PER SHARE........................... $ .26 $ .93 $ .44
----------- ----------- -----------
----------- ----------- -----------
AVERAGE NUMBER SHARES OUTSTANDING.............. 48,098 44,341 44,135
----------- ----------- -----------
----------- ----------- -----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 23
CONSOLIDATED STATEMENT OF CASH FLOWS NOBLE AFFILIATES, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31,
------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,625 $ 41,240 $ 19,308
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization. . . . . . . . . . . . . 107,215 94,819 79,748
Amortization of undeveloped lease costs, net. . . . . . . . . . . 12,063 10,352 5,328
Undistributed income from unconsolidated affiliate. . . . . . . . (5,200)
Gain on sale of investment in unconsolidated affiliate. . . . . . (27,956)
Gain on sale of marketable securities . . . . . . . . . . . . . . (849)
Loss on disposal of assets. . . . . . . . . . . . . . . . . . . . 4,821 1,455 10,657
Noncurrent deferred income taxes. . . . . . . . . . . . . . . . . 11,730 (1,849) (2,945)
Increase (decrease) in other deferred credits . . . . . . . . . . 148 (1,478) (1,497)
(Increase) decrease in other assets . . . . . . . . . . . . . . . 3,744 3,676 (2,241)
Changes in working capital, not including cash:
(Increase) decrease in accounts receivable. . . . . . . . . . . . (4,445) 2,892 (9,529)
(Increase) decrease in other current assets . . . . . . . . . . . (5,789) 3,816 3,242
Increase (decrease) in accounts payable . . . . . . . . . . . . . (194) (6,571) (5,530)
Increase (decrease) in other current liabilities. . . . . . . . . (2,537) 5,560 (2,162)
------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . 139,381 125,107 89,179
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . (508,506) (66,365) (122,575)
Proceeds from sale of property, plant and equipment . . . . . . . . 10,606 9,164 1,929
Proceeds from sale of investment in unconsolidated affiliate. . . . 49,100
Proceeds from sale of marketable securities . . . . . . . . . . . . 1,454
------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . (497,900) (6,647) (120,646)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt. . . . . . . . . . . . 324,589
Short-term debt for property acquisition. . . . . . . . . . . . . . 95,600
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . 5,647 6,122 1,411
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (7,766) (7,092) (7,061)
Cash redemption of convertible debt . . . . . . . . . . . . . . . . (1,845)
------- -------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES . . . . . . . . . . . 416,225 (970) (5,650)
------- -------- --------
INCREASE (DECREASE) IN CASH AND SHORT-TERM CASH INVESTMENTS . . . . . 57,706 117,490 (37,117)
CASH AND SHORT-TERM CASH INVESTMENTS AT BEGINNING OF YEAR . . . . . . . 118,726 1,236 38,353
------- -------- --------
CASH AND SHORT-TERM CASH INVESTMENTS AT END OF YEAR . . . . . . . . . . $176,432 $ 118,726 $ 1,236
------- -------- --------
------- -------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized). . . . . . . . . . . . . . . . $ 13,335 $ 18,933 $ 18,502
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,300 $ 19,667 $ 15,067
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 24
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CAPITAL IN TREASURY
COMMON STOCK EXCESS OF STOCK AT RETAINED
---------------------
(IN THOUSANDS OF DOLLARS) SHARES AMOUNT PAR VALUE COST EARNINGS
- -----------------------------------------------------------------------------------------------------------------------------
JANUARY 1, 1991 . . . . . . . . . . . . . . . . 45,618,053 $152,058 $ 46,853 $ (15,418) $ 67,358
Net income . . . . . . . . . . . . . . . . . . . 19,308
Exercise of stock options. . . . . . . . . . . . 102,270 341 1,070
Cash dividends ($.16 per share). . . . . . . (7,061)
---------- -------- -------- -------- --------
DECEMBER 31, 1991 . . . . . . . . . . . . . . 45,720,323 152,399 47,923 (15,418) 79,605
Net income . . . . . . . . . . . . . . . . . . . 41,240
Exercise of stock options. . . . . . . . . . . . 412,019 1,373 4,749
Cash dividends ($.16 per share). . . . . . . . . (7,092)
---------- -------- -------- -------- --------
DECEMBER 31, 1992 . . . . . . . . . . . . . . 46,132,342 153,772 52,672 (15,418) 113,753
Net Income . . . . . . . . . . . . . . . . . . . 12,625
Exercise of stock options. . . . . . . . . . . . 327,407 1,092 4,555
Redemption of convertible debentures . . . . . . 5,001,373 16,671 83,476
Cash dividends ($ .16 per share) . . . . . . . . (7,766)
---------- -------- -------- -------- --------
DECEMBER 31, 1993 . . . . . . . . . . . . . . . 51,461,122 $171,535 $140,703 $(15,418) $118,612
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Noble Affiliates, Inc.:
We have audited the accompanying consolidated balance sheet of Noble
Affiliates, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These 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 generally accepted auditing
standards. 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 Noble Affiliates, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
Oklahoma City, Oklahoma ARTHUR ANDERSEN & CO.
January 24, 1994
Page 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN TABLES, UNLESS OTHERWISE INDICATED, ARE IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS.)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated accounts include Noble Affiliates, Inc. (the
Company) and the consolidated accounts of its wholly owned subsidiaries: Noble
Natural Gas, Inc. (NNG), which was dissolved effective December 31, 1992, and
Samedan Oil Corporation (Samedan). Samedan consolidated accounts include the
following wholly owned subsidiaries: Samedan Oil of Canada, Inc.; Samedan Oil of
Indonesia, Inc.; Samedan of North Africa, Inc.; Samedan North Sea, Inc.; Samedan
of Papua New Guinea, Inc.; Samedan Pipe Line Corporation; Samedan Royalty
Corporation; and Samedan of Tunisia, Inc. All significant intercompany
transactions and balances have been eliminated. Foreign exchange and translation
gains and losses relating to oil and gas operations, which are recognized
currently, are not material.
INVENTORIES - Materials and supplies inventories consisting principally of
tubular goods and production equipment are stated at the lower of cost or
market, with cost being determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT - The Company accounts for oil and gas
properties under the successful efforts method of accounting. Under this method,
costs to acquire mineral interests in oil and gas properties, to drill and equip
exploratory wells that find proved reserves and to drill and equip development
wells are capitalized. Capitalized costs of producing oil and gas properties are
amortized to operations by the unit-of-production method based on proved
developed oil and gas reserves allocated property by property as estimated by
Company engineers. Estimated future restoration and abandonment costs are
recorded by charges to depreciation, depletion and amortization expense over the
productive lives of the related properties. The Company has provided $23.2
million for such future costs classified with accumulated DD&A in the balance
sheet. The total future restoration and abandonment costs of $62.8 million are
included in estimated future production and development costs for purposes of
estimating the future net revenues relating to the Company's proved reserves.
Upon sale or retirement of depreciable or depletable property, the cost and
related accumulated depreciation and depletion are eliminated from the accounts
and the resulting gain or loss is recognized.
Undeveloped oil and gas properties which are individually significant are
periodically assessed for impairment of value and a loss is recognized at the
time of impairment by providing an impairment allowance. Other undeveloped
properties are amortized on a composite method based on the Company's experience
of successful drilling and average holding period. Geological and geophysical
costs, delay rentals and costs to drill exploratory wells which do not find
proved reserves are expensed.
Repairs and maintenance are charged to expense as incurred. Renewals and
betterments are capitalized.
INCOME TAXES - The Company files a consolidated federal income tax return.
Deferred income taxes are provided for temporary differences between the
financial reporting and tax bases of the Company's assets and liabilities.
NET INCOME PER SHARE - Net income per share of common stock has been computed
on the basis of the weighted average number of shares outstanding during each
period. The effect of shares issuable upon the exercise of stock options is
immaterial. The convertible debentures, which are not common stock equivalents,
have not been included in computing fully diluted earnings per share since their
inclusion would be antidilutive.
CAPITALIZATION OF INTEREST - The Company capitalizes interest costs
associated with the acquisition or construction of significant oil and gas
properties.
STATEMENT OF CASH FLOWS - For purposes of reporting cash flows, cash and
short-term cash investments include cash on hand and investments purchased with
maturities of three months or less.
GAS IMBALANCES - Gas imbalances occur when the Company sells more or less gas
than its actual ownership percentage of total gas production. The Company
follows an entitlements method of accounting, in which any excess amount
received above the Company's share is treated as a liability. If less than the
Company's entitlement is received, the underproduction is recorded as a
receivable. The Company records the noncurrent liability in Other Deferred
Credits and Noncurrent Liabilities, and the current liability in Other Current
Liabilities. The Company's gas imbalance liabilities were $7.6 million and $12.8
million for 1993 and 1992, respectively. The Company records the noncurrent
receivable in Other Assets, and the current receivable in Other Current Assets.
Page 26
The Company's gas imbalance receivables were $12.9 million and $17.0 million
for 1993 and 1992, respectively, and are valued at the amount which is expected
to be received.
TAKE-OR-PAY SETTLEMENTS - The Company records gas contract settlements which
are not subject to recoupment in Other Income when the settlement is received.
TRADING AND HEDGING ACTIVITIES - The Company records trading and hedging
gains or losses in oil and gas sales in the period the related transaction is
completed. The Company had no oil or gas hedges in place at December 31, 1993,
nor any hedge related deposits.
NOTE 2 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments pursuant to the requirements of Statements
of Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value
of Financial Instruments":
CASH AND SHORT-TERM CASH INVESTMENTS
The carrying amount approximates fair value due to the short maturity of
the instruments.
OIL AND GAS PRICE SWAP AGREEMENTS
The fair value of oil and gas price swaps (used for hedging purposes) is
the estimated amount that the Company would receive or pay to terminate the
swap agreements at the reporting date, taking into account the difference
between year-end oil and gas prices and the fixed swap price and the
creditworthiness of the swap parties.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
1993 1992
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------
Cash and short-term
cash investments....... $176,432 $176,432 $ 118,726 $ 118,726
Oil and gas price swap
agreements............. $ 1,829
Long-term debt........... $453,760 $453,221 $ 224,793 $ 238,325
NOTE 3 - DEBT
A summary of debt follows:
DECEMBER 31
-----------------------------
1993 1992
- -------------------------------------------------------------------------------
10 1/8% Notes Due June 1, 1997.......... $125,000 $125,000
7 1/4% Convertible Debentures Due 2012.. 100,000
4 1/4% Convertible Subordinated
Notes Due 2003........................ 230,000
7 1/4% Notes Due 2023................... 100,000
Short-term borrowing.................... 95,600
-------- --------
550,600 225,000
Less: unamortized discount.............. 1,240 207
Short-term borrowing.................... 95,600
-------- ---------
Total long-term debt.................... $453,760 $224,793
-------- --------
-------- --------
The $125 million, 10 1/8% Notes Due June 1, 1997, may be redeemed, in whole
or in part, at the Company's election on or after June 1, 1994. The redemption
could occur upon at least 30 and not more than 60 days notice, at the principal
amount plus accrued interest to the redemption date. The indenture governing the
Notes contains restrictions as to the sale of assets and incurrence of
additional debt.
On May 10, 1993, the Company called its 7 1/4% Convertible Debentures Due
2012. As a result of the call for redemption, owners of $98,155,000 of the
debentures elected to convert into a total of 5,001,373 shares of common stock.
The debentures were converted into shares of the Company's common stock at $19
5/8 per share. The remaining $1,845,000 was redeemed with cash at 103.63 percent
of the principal amount, plus accrued interest to the redemption date.
In October 1993, the Company issued $230,000,000 of 4 1/4% Convertible
Subordinated Notes Due 2003 which are convertible into common stock of the
Company, at any time prior to maturity, at $36.65 per share. The securities are
subordinated to all present and future senior indebtedness. The Company, at its
election on or after November 1, 1996, may redeem the Notes in whole or in part
at 102.975 percent of the principal amount. The call premium percent decreases
November 1, 1997, and each year thereafter until 2003 when the Notes are
redeemable at par value plus accrued interest.
In October 1993, the Company issued $100,000,000 of 7 1/4% Notes Due 2023. The
Company may not redeem any portion of the Notes prior to maturity. The indenture
governing the Notes contains certain restrictions as to the sale of assets and
incurrence of additional debt.
The proceeds from both new issues were used to repay the bank line of credit
utilized in the second acquisition of properties from Freeport-McMoRan and to
pay for the remaining costs of the acquisition and for general corporate
purposes.
Page 27
During the next five years no principal payments on long-term debt are
required except during 1997 when the $125 million 10 1/8% Notes become due.
The Company has a line of credit agreement with certain banks which provides
for maximum unsecured borrowings of $50,000,000 at variable rates. The line of
credit was temporarily increased during the year to allow for bridge financing
between the effective date of the Freeport-McMoRan acquisitions and finalization
of the two new long-term debt issues. The Company borrowed $175 million on
October 1, 1993, and used a portion of the proceeds of the new debt issues to
repay that amount in full on October 21,1993.
In conjunction with the second Freeport-McMoRan acquisition, the Company
issued a short-term installment note for $95,600,000. On January 4, 1994, the
Company paid off the installment note including accrued interest.
No amounts were outstanding against the line of credit at December 31, 1993.
The weighted average interest rate on the borrowings was 4.4 percent. There is a
commitment fee equal to one-quarter of one percent on the unused portion of the
line. The agreement contains covenants including maintenance of certain
financial ratios, net worth requirements and restrictions of additional
borrowings.
NOTE 4 - INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 replaced SFAS No. 96, of the same
title, which the Company previously used to account for income taxes. The
primary difference between SFAS No. 109 and SFAS No. 96 is to permit, under
certain circumstances, the recognition of deferred tax benefits that were not
recognized under SFAS No. 96. The effect of adopting SFAS No. 109 was not
material to the Company's financial statements. Prior years' financial
statements have not been restated to apply the provisions of SFAS No. 109.
The components of income from operations before income taxes for each year are
as follows:
1993 1992 1991
- ------------------------------------------------------------
Domestic............. $39,564 $78,155 $41,813
Foreign.............. (18,905) (16,833) (13,213)
------- ------- -------
$20,659 $61,322 $28,600
------- ------- -------
------- ------- -------
The income tax provisions relating to operations for each year consist of the
following:
1993 1992 1991
- ------------------------------------------------------------
U.S. current....... $ 327 $18,566 $14,205
U.S. deferred...... 7,701 931 (5,198)
State current...... 231 250 250
State deferred..... 85 8 (55)
Foreign current.... 679
Foreign deferred... (310) 327 (589)
------ ------- -------
$8,034 $20,082 $9,292
------ ------- -------
------ ------- -------
The effect of the federal corporate tax rate increase in 1993 to 35 percent
resulted in an increase in the U.S. deferred tax provision and related liability
of $1.1 million which is reflected in the above table.
The net current deferred tax asset in the following table is classified as
Other Current Assets in the Consolidated Balance Sheet at December 31, 1993. The
tax effects of temporary differences which gave rise to deferred tax assets and
liabilities as of December 31, 1993 were:
1993
- -----------------------------------------------------------------
U.S. and State Current Deferred
Tax Assets
Accrued expenses................................... $554
Deferred income.................................... 100
Minimum tax........................................ 624
Other.............................................. (351)
--------
Net current deferred tax asset..................... 927
--------
U.S. and State Non-current Deferred
Tax Liabilities
Property, plant, and equipment, principally due to
differences in depreciation, amortization, lease
impairment, and abandonments.................... (45,841)
Other........................................... 415
Income tax accruals............................. 906
--------
Net non-current deferred liability.............. (44,520)
--------
U.S. and state net deferred tax liability....... (43,593)
--------
Foreign Deferred Tax Liabilities
Property, plant, and equipment of
foreign operations............................. 5,929
Net operating loss carryforwards due to
foreign operations............................. 2,817
--------
Foreign deferred asset.......................... 8,746
Valuation allowance............................. (9,334)
--------
Deferred tax liability......................... (588)
--------
Total deferred taxes................................. $(44,181)
--------
--------
A valuation allowance of $9,334,000, related to the Company's foreign
operations, was established for the portion of the deferred tax assets which
management believes is unlikely to have a tax benefit realized.
At December 31, 1993, the Company had foreign net operating loss carryforwards
of $6.3 million that have no expiration dates.
Page 28
Prior to the change in the method of accounting for income taxes discussed
above, the sources of deferred tax items and the corresponding tax effects
during 1992 and 1991 were as follows:
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1992 1991
- ------------------------------------------------------------------------------
Capitalized intangible development
costs expensed for tax purposes in
excess of book dry hole expense................... $ 9,653 $ 9,217
Excess of book over tax amortization
and depletion of capitalized
intangible development and
producing leasehold costs......................... (11,941) (10,284)
Interest capitalized for book purposes,
expensed for tax purposes......................... 437 572
Excess of book over tax amortization
of undeveloped leaseholds......................... (3,540) (1,812)
Seismic costs expensed for book
purposes, capitalized for tax..................... (1,423) (1,250)
Disposal of assets book/tax
difference........................................ 4,681 (1,384)
Accrued expenses.................................... 2,015 (180)
Insurance proceeds reported for book
in excess of tax.................................. 1,510
Other, net.......................................... (126) (721)
-------- --------
$ 1,266 $ (5,842)
-------- --------
-------- --------
The following table details the difference between the federal statutory tax
rate and the effective tax rate:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
(AMOUNTS EXPRESSED IN PERCENTAGES) 1993 1992 1991
- -------------------------------------------------------------------------
Statutory rate............................ 35.0 34.0 34.0
Effect of:
One percent rate increase on prior
year temporary differences.............. 5.0
State taxes............................. 1.1 .4 .7
Other net............................... (2.2) (1.7) (2.3)
------ ------ ------
Effective rate............................ 38.9 32.7 32.4
------ ------ ------
------ ------ ------
NOTE 5 - COMMON STOCK AND STOCK OPTIONS
Under the Company's 1992 Stock Option and Restricted Stock Plan, adopted in
January 1992, the Board of Directors may grant stock options and award
restricted stock. The plan covers a maximum of 2,000,000 shares of the Company's
authorized but unissued common stock. At December 31, 1993, the Company had
reserved 1,974,318 shares of its common stock for issuance under its 1992 stock
option plan.
The Company's 1988 Nonemployee Director Stock Option Plan, adopted in July
1988 provides for the grant of options to purchase a maximum of 250,000 shares
of the Company's authorized but unissued common stock. At December 31, 1993, the
Company had reserved 175,000 shares of its common stock for issuance under its
1988 stock option plan.
The 1982 Stock Option Plan was terminated according to its terms on February
1, 1992, but certain options which were granted prior to the termination were
still outstanding at December 31, 1993.
The 1978 Nonqualified Stock Option Plan was terminated according to its terms
on January 25, 1988, but certain options which were granted prior to the
termination were still outstanding at December 31, 1993.
There were 1,419,951 and 94,000 shares available for grant at December 31,
1993, under the Company's 1992 Stock Option and Restricted Stock Plan and 1988
Non-Employee Director Stock Option Plan, respectively. Under all the Company's
stock option plans, 606,141 and 678,423 shares were exercisable at December 31,
1993 and 1992, respectively.
A summary of option activity for each of the plans for the three years ended
December 31, 1993, is as follows:
NUMBER PRICE
OF SHARES PER SHARE
- -------------------------------------------------------------------------------
1992 Stock Option and Restricted Stock Plan:
- -------------------------------------------------------------------------------
Granted. . . . . . . . . . . . . . . . . . . . 338,825 $16.88
OUTSTANDING DECEMBER 31, 1992 . . . . . . . . . 338,825 $16.88
Granted. . . . . . . . . . . . . . . . . . . . 241,224 $24.88
Exercised. . . . . . . . . . . . . . . . . . . (25,682) $16.88
------- -------------
OUTSTANDING DECEMBER 31, 1993 . . . . . . . . . 554,367 $16.88-$24.88
- -------------------------------------------------------------------------------
1988 Non-Employee Director Stock Option Plan:
- -------------------------------------------------------------------------------
OUTSTANDING DECEMBER 31, 1990 . . . . . . . . . 89,500 $11.63-$15.88
Granted. . . . . . . . . . . . . . . . . . . . 30,000 $13.50
Exercised. . . . . . . . . . . . . . . . . . . (5,500) $11.63
------- -------------
OUTSTANDING DECEMBER 31, 1991 . . . . . . . . . 114,000 $11.63-$15.88
Granted. . . . . . . . . . . . . . . . . . . . 30,000 $15.00
Exercised. . . . . . . . . . . . . . . . . . . (31,000) $11.63-$15.88
. . . . . . . . . . . . . . . . . . . . . . ------- -------------
OUTSTANDING DECEMBER 31, 1992 . . . . . . . . . 113,000 $11.63-$15.88
Granted. . . . . . . . . . . . . . . . . . . . 30,000 $24.63
Exercised. . . . . . . . . . . . . . . . . . . (15,000) $11.63
Cancelled. . . . . . . . . . . . . . . . . . . (23,500) $11.63-$15.88
------- -------------
OUTSTANDING DECEMBER 31, 1993 . . . . . . . . . 104,500 $11.63-$15.88
- -----------------------------------------------------------------------------
1982 Stock Option Plan:
- -----------------------------------------------------------------------------
OUTSTANDING DECEMBER 31, 1990 . . . . . . . . . 1,015,477 $10.63-$17.47
Granted. . . . . . . . . . . . . . . . . . . . 246,600 $13.75
Exercised. . . . . . . . . . . . . . . . . . . (88,470) $10.88-$17.47
Cancelled. . . . . . . . . . . . . . . . . . . (21,300) $11.63-$16.38
------- -------------
OUTSTANDING DECEMBER 31, 1991 . . . . . . . . . 1,152,307 $10.63-$17.47
Exercised. . . . . . . . . . . . . . . . . . . (334,402) $10.88-$17.47
Cancelled. . . . . . . . . . . . . . . . . . . (63,482) $10.88-$17.47
. . . . . . . . . . . . . . . . . . . . . . ------- -------------
OUTSTANDING DECEMBER 31, 1992 . . . . . . . . . 754,423 $10.88-$17.47
Exercised. . . . . . . . . . . . . . . . . . . (254,549) $10.88-$17.47
Cancelled. . . . . . . . . . . . . . . . . . . (9,817) $10.88-$17.47
------- -------------
OUTSTANDING DECEMBER 31, 1993 . . . . . . . . . 490,057 $10.88-$16.38
- -----------------------------------------------------------------------------
1978 Nonqualified Stock Option Plan:
- -----------------------------------------------------------------------------
OUTSTANDING DECEMBER 31, 1990 . . . . . . . . . 144,200 $10.63
Exercised. . . . . . . . . . . . . . . . . . . (13,800) $10.63
Cancelled. . . . . . . . . . . . . . . . . . . (1,800) $10.63
------- -------------
OUTSTANDING DECEMBER 31, 1991 . . . . . . . . . 128,600 $10.63
Exercised. . . . . . . . . . . . . . . . . . . (49,100) $10.63
Cancelled. . . . . . . . . . . . . . . . . . . (800) $10.63
------- -------------
OUTSTANDING DECEMBER 31, 1992 . . . . . . . . . 78,700 $10.63
Exercised. . . . . . . . . . . . . . . . . . . (42,176) $10.63
------- -------------
OUTSTANDING DECEMBER 31, 1993 . . . . . . . . . 36,524 $10.63
- -----------------------------------------------------------------------------
Page 29
NOTE 6 - EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on an employee's years of service and
average earnings for the 60 consecutive calendar months of highest compensation.
The Company's funding policy has been to make annual contributions equal to the
actuarially computed liability to the extent such amounts are deductible for
income tax purposes. Plan assets consist principally of equity securities and
fixed income investments.
The projected benefit obligation was determined using an assumed discount rate
of 7 percent in 1993 and 8.5 percent in 1992 and an assumed long-term rate of
compensation increase of 5 percent in 1993 and 6 percent in 1992. The assumed
long-term rate of return on plan assets was 8.5 percent in 1993 and 1992.
The periodic pension expense included the following components:
1993 1992 1991
- -----------------------------------------------------------------------------
Service cost-benefits
earned in the period.................... $ 1,388 $ 1,150 $ 938
Interest cost on projected
benefit obligation...................... 2,611 2,453 2,259
Actual return on plan assets.............. (4,411) (2,695) (6,311)
Net amortization and deferral............. 1,428 (71) 3,704
------- ------- -------
Net pension expense....................... $ 1,016 $ 837 $ 590
------- ------- -------
------- ------- -------
The funded status of the plan at December 31, was as follows:
1993 1992
- --------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation................ $ 26,988 $ 22,379
Nonvested benefit obligation............. 2,374 1,585
-------- --------
Accumulated benefit obligation........... $ 29,362 $ 23,964
-------- --------
-------- --------
Projected benefit obligation............... $ (38,654) $ (31,407)
Plan assets at fair value.................. 38,789 36,429
-------- --------
Plan assets in excess of projected
benefit obligation....................... 135 5,022
Unrecognized net gain...................... (2,996) (6,338)
Unrecognized net asset at transition....... (2,582) (2,797)
Unrecognized prior service cost............ 1,952 1,629
-------- --------
Accrued pension cost in the Consolidated
Balance Sheet............................ $ (3,491) $ (2,484)
-------- --------
-------- --------
The Company sponsors other plans for the benefit of its employees and retired
employees. These plans include health care and life insurance benefits.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The Company
recorded a cumulative catch-up adjustment for the accumulated postretirement
transition obligation of approximately $1,003,000. The net 1993 annual
postretirement benefit cost was approximately $173,000.
The accumulated postretirement benefit obligation was computed using an
assumed discount rate of 7 percent. The health care cost trend rate was assumed
to be 13 percent for 1993, declining by one percent for seven successive years
to 6 percent in 2000, decreasing to 5.5 percent for 2002 and remaining at that
rate thereafter.
If the health care cost trend rate were increased one percent for all future
years, the accumulated postretirement benefit obligation as of December 31,
1993, would have increased approximately $330,000. The effect of this change on
the aggregate of service and interest cost for 1993 would have been an increase
of approximately $50,000.
Net postretirement benefit cost for 1993 includes the following components:
1993
- -------------------------------------------------------------------
Service cost - benefits earned
in the period..................................... $ 91
Interest costs - accumulated benefit obligation..... 82
Cumulative catch up................................. 1,003
------
Net postretirement benefit cost..................... $ 1,176
------
------
The plan's postretirement benefit obligation at December 31, 1993, was as
follows:
1993
- --------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees............................................... $ (223)
Fully eligible active employees........................ (140)
Active employees, not fully eligible................... (845)
-------
$ (1,208)
-------
-------
Plan assets............................................ $
Funded status.......................................... (1,208)
Unrecognized transition obligation.....................
Unrecognized net loss.................................. 169
-------
Accrued postretirement benefit obligation.............. $ (1,039)
-------
-------
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, "Employers' Accounting for Postemployment Benefits." The Company will adopt
SFAS No. 112 in 1994. The estimated impact of SFAS No. 112 is not material to
the Company's consolidated financial position or results of operations.
Page 30
NOTE 7 - ADDITIONAL BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION
Other current liabilities include the following:
1993 1992
- -------------------------------------------------------------------
Gas imbalance liabilities.................... $1,520 $6,451
Other material amounts included in costs and expenses consist of the following:
1993 1992 1991
- ---------------------------------------------------------------
Repairs and maintenance.............. $7,913 $7,360 $7,580
Severance taxes...................... 5,526 5,596 5,042
Other material amounts included in other income consist of the following:
1993 1992 1991
- -----------------------------------------------------------------
Gain on sale of unconsolidated
affiliate........................... $27,956
Oil and gas exploration expense includes the following:
1993 1992 1991
- -----------------------------------------------------------------------------
Dry hole expense........................... $13,968 $11,657 $14,219
Undeveloped lease amortization............. 12,063 10,352 5,328
Abandoned assets........................... 6,068 1,863 10,795
Seismic.................................... 5,199 4,969 4,289
Listed below are the purchasers who accounted for more than ten percent of
total oil and gas sales and royalties in the past three years.
1993 1992 1991
- -----------------------------------------------------------------------------
Natural Gas Clearinghouse.................. 16% 13% *
<FN>
*Less than ten percent
NOTE 8 - ACQUISITIONS
The Company completed two major acquisitions of oil and gas properties during
1993. In the first acquisition, on July 15, 1993, the Company purchased for $100
million all of Freeport-McMoRan's interest in East Cameron blocks 320, 331 and
332 in the Gulf of Mexico. Net proved undeveloped reserves were estimated at
76.6 BCF of natural gas and 4.3 MMBBLS of oil and condensate as of December 31,
1993. The Company acts as operator of these properties with an average working
interest of 70 percent. Facilities are under construction for the acquired
properties with a production capacity of up to 100 MMCF of gas and 10,000
barrels of oil per day. Production is expected to commence in the fourth quarter
of 1994. This acquisition was purchased with cash on hand, without additional
borrowings.
In the second acquisition, on October 1, 1993, the Company purchased for $305
million substantially all the remaining oil and gas properties of
Freeport-McMoRan located in the Gulf of Mexico, Montana, Colorado and
California. Net proved reserves of the acquired properties were estimated by the
Company to be 253.0 BCF of gas and 21.6 MMBBLS of oil as of October 1, 1993. The
Company completed two issuances of long-term debt to finance the second
acquisition.
The acquisitions of the Freeport-McMoRan properties were accounted for as a
purchase and the results of operations are included in the statement of
operations from the date of the acquisitions.
The cost of the acquisitions has been allocated on the basis of the estimated
market value of the assets acquired. The allocation of the purchase price will
be finalized upon completion of certain asset valuations.
The following unaudited pro forma data includes various adjustments as are
considered necessary to properly state the amounts as though the acquisitions
had occurred at the beginning of each period shown.
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
(IN THOUSANDS) 1993 1992
- -------------------------------------------------------------------
Revenues................................... $ 377,532 $ 369,176
Net income................................. $ 39,138 $ 42,496
Net income per share....................... $ .81 $ .96
The pro forma data presented above are based on several assumptions and should
not be viewed as indicative of the operations of the Company in future periods.
Page 31
NOTE 9 - SUPPLEMENTAL OIL AND GAS INFORMATION
(UNAUDITED)
The following reserve schedules were developed by the Company's reserve
engineers and set forth the changes in estimated quantities of proved oil and
gas reserves of the Company during each of the three years presented, and the
proved developed oil and gas reserves as of the beginning of each year.
Proved reserves are estimated quantities of crude oil, natural gas and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those which are
expected to be recovered through existing wells with existing equipment and
operating methods.
PROVED GAS AND OIL RESERVES
NATURAL GAS & CRUDE OIL & CONDENSATE
CASINGHEAD GAS (MMCF) (BARRELS IN THOUSANDS)
----------------------------------------------------------------------------------------
UNITED OTHER UNITED OTHER
PROVED DEVELOPED AND UNDEVELOPED: STATES CANADA FOREIGN TOTAL STATES CANADA FOREIGN TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
PROVED RESERVES AS OF DECEMBER 31, 1990....... 325,834 20,716 3,380 349,930 34,848 1,432 4,281 40,561
Revisions of previous estimates............... (5,533) 95 (5,438) (546) (39) (786) (1,371)
Extensions, discoveries and other additions... 30,302 3,143 33,445 4,492 928 5,420
Production.................................... (60,476) (3,028) (63,504) (4,822) (362) (409) (5,593)
Sale of minerals in place..................... (430) (1,752) (2,182) (18) (18)
Purchase of minerals in place................. 83,579 780 84,359 4,100 781 4,881
------- ------ ------ ------- ------ ----- ----- ------
PROVED RESERVES AS OF DECEMBER 31, 1991....... 373,276 20,926 2,408 396,610 38,054 1,959 3,867 43,880
Revisions of previous estimates............... (1,450) 17 (1,433) 772 91 731 1,594
Extensions, discoveries and other additions... 42,102 7,711 49,813 5,406 462 2,172 8,040
Production.................................... (69,367) (3,926) (73,293) (5,115) (339) (1,197) (6,651)
Sale of minerals in place..................... (1,352) (1,352) (139) (493) (632)
Purchase of minerals in place................. 1,157 721 1,878 980 169 1,149
------- ------ ----- ------- ------ ----- ----- ------
PROVED RESERVES AS OF DECEMBER 31, 1992....... 344,366 25,449 2,408 372,223 39,958 2,342 5,080 47,380
Revisions of previous estimates............... (5,811) 809 (5,002) (2,374) 168 (277) (2,483)
Extensions, discoveries and other additions... 62,479 2,131 64,610 7,285 1,410 8,695
Production.................................... (71,310) (3,829) (75,139) (6,064) (347) (950) (7,361)
Sale of minerals in place..................... (6,903) (20) (6,923) (389) (23) (412)
Purchase of minerals in place................. 341,578 183 341,761 27,107 29 27,136
------- ------ ----- ------- ------ ----- ----- ------
PROVED RESERVES AS OF DECEMBER 31, 1993....... 664,399 24,723 2,408 691,530 65,523 3,579 3,853 72,955
- ----------------------------------------------------------------------------------------------------------------------------------
PROVED DEVELOPED RESERVES:
January 1, 1991....................... 325,643 19,771 3,380 348,794 30,276 1,432 4,281 35,989
January 1, 1992....................... 372,100 19,981 2,408 394,489 34,000 1,501 3,867 39,368
January 1, 1993....................... 344,366 24,504 2,408 371,278 36,938 1,884 5,080 43,902
January 1, 1994....................... 570,462 24,723 2,408 597,593 64,284 3,032 3,853 71,169
Page 32
Costs incurred in connection with the Company's oil and gas acquisition,
exploration and development activities during the year are shown below. Amounts
are presented in accordance with SFAS No. 19, and may not agree with amounts
determined using traditional industry definitions.
1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
UNITED OTHER UNITED OTHER
STATES CANADA FOREIGN TOTAL STATES CANADA FOREIGN TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
Property
acquisition costs:
Proved.................. $418,087 $ 364 $ $418,451 $ 4,406 $1,498 $ 300 $ 6,204
Unproved................ 2,537 1,902 4,439 1,474 1,037 2,511
-------- ------ ------ -------- -------- ------- ----- --------
Total................... $420,624 $ 2,266 $ $422,890 $ 5,880 $2,535 $ 300 $ 8,715
--------- ----- ------ -------- -------- ------- ----- --------
--------- ----- ------ -------- -------- ------- ----- --------
Exploration
costs................... $ 23,392 $4,708 $5,449 $33,549 $ 16,122 $3,351 $ 5,639 $25,112
-------- ------ ------ ------- -------- ------- ----- -------
-------- ------ ------ ------- -------- ------- ----- -------
Development
costs................... $ 53,650 $ 4,192 $ 730 $ 58,572 $ 34,473 $2,549 $ 4,658 $41,680
-------- ------ ------ -------- -------- ------ ------ -------
-------- ------ ------ -------- -------- ------ ------ -------
1991
- -----------------------------------------------------------------------------------
UNITED OTHER
STATES CANADA FOREIGN TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
Property
acquisition costs:
Proved.................. $47,490 $ 100 $ $47,590
Unproved................ 7,588 1,299 8,887
------- ------ ------- -------
Total................... $55,078 $1,399 $ $56,477
------- ------ ------- -------
------- ------ ------- -------
Exploration
costs................... $22,998 $2,137 $ 7,266 $32,401
------- ------ ------- -------
------- ------ ------- -------
Development
costs................... $37,315 $1,868 $ 19,386 $58,569
------- ------ ------- -------
------- ------ ------- -------
Aggregate capitalized costs relating to the Company's oil and gas producing
activities, and related accumulated depreciation, depletion and amortization
(DD&A) as of the end of the year are shown below.
1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
UNITED OTHER UNITED OTHER
STATES CANADA FOREIGN TOTAL STATES CANADA FOREIGN TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
Unproved oil and gas properties... $ 32,941 $ 6,564 $ 3,340 $ 42,845 $ 40,226 $ 5,230 $ 261 $ 45,717
Proved oil and gas properties..... 1,344,490 35,505 38,097 1,418,092 908,640 29,605 40,823 979,068
--------- ------- ------- --------- -------- ------- ------- ---------
1,377,431 42,069 41,437 1,460,937 948,866 34,835 41,084 1,024,785
Accumulated DD&A.................. 631,292 19,544 25,866 676,702 583,288 17,349 14,408 615,045
--------- ------- ------- --------- -------- ------- ------- ---------
Net capitalized costs............. $ 746,139 $22,525 $15,571 $ 784,235 $365,578 $17,486 $26,676 $ 409,740
--------- ------- ------- --------- -------- ------- ------- --------
--------- ------- ------- --------- -------- ------- ------- --------
Aggregate results of operations in connection with the Company's oil and gas
producing activities are shown below.
1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
UNITED OTHER UNITED OTHER
STATES CANADA FOREIGN TOTAL STATES CANADA FOREIGN TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
Revenues.................... $250,636 $12,812 $14,556 $278,004 $226,410 $11,961 $21,394 $259,765
Production costs............ 66,507 4,150 6,084 76,741 57,108 2,950 8,668 68,726
Exploration expenses........ 28,927 5,662 8,333 42,922 24,506 4,434 10,229 39,169
DD&A and valua-
tion provision............ 101,609 3,549 11,396 116,554 88,442 2,593 11,727 102,762
-------- ------- ------- -------- ------- ------- ------- --------
53,593 (549) (11,257) 41,787 56,354 1,984 (9,230) 49,108
Income tax expense
(benefit)................. 19,345 (776) (3,559) 15,010 19,170 891 (3,139) 16,922
-------- ------- ------- -------- ------- ------- ------- --------
Results of operations
from producing
activities (excluding
corporate overhead
and interest costs)....... $ 34,248 $ 227 $(7,698) $ 26,777 $ 37,184 $ 1,093 $(6,091) $ 32,186
-------- ------- ------- -------- ------- ------- ------- --------
-------- ------- ------- -------- ------- ------- ------- --------
1991
- ----------------------------------------------------------------------------
UNITED OTHER
STATES CANADA FOREIGN TOTAL
- ----------------------------------------------------------------------------
Revenues.................... $207,639 $12,033 $ 6,781 $226,453
Production costs............ 53,672 2,446 3,728 59,846
Exploration expenses........ 25,980 3,909 10,708 40,597
DD&A and valua-
tion provision............ 76,865 2,887 3,788 83,540
-------- -------- -------- --------
51,122 2,791 (11,443) 42,470
Income tax expense
(benefit)................. 17,397 1,008 (3,891) 14,514
-------- -------- -------- --------
Results of operations
from producing
activities (excluding
corporate overhead
and interest costs)....... $ 33,725 $ 1,783 $ (7,552) $ 27,956
-------- -------- -------- --------
-------- -------- -------- --------
Page 33
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
STANDARDIZED MEASURE AT DECEMBER 31, 1993
- -----------------------------------------------------------------------------------
UNITED OTHER
(IN MILLIONS OF DOLLARS) STATES CANADA FOREIGN TOTAL
- -----------------------------------------------------------------------------------
Future cash inflows............... $ 2,635 $102 $55 $2,792
Future production &
development costs............... 869 47 17 933
Future income tax
expenses........................ 481 15 10 506
------ ---- --- ------
Future net cash flows............. 1,285 40 28 1,353
10% annual discount
for estimated timing
of cash flows................... 656 13 9 678
------ ---- --- ------
Standardized measure of
discounted future net
cash flows...................... $ 629 $27 $19 $ 675
------ ---- --- ------
------ ---- --- ------
STANDARDIZED MEASURE AT DECEMBER 31, 1992
- -----------------------------------------------------------------------------------
UNITED OTHER
(IN MILLIONS OF DOLLARS) STATES CANADA FOREIGN TOTAL
- -----------------------------------------------------------------------------------
Future cash inflows............... $ 1,471 $86 $93 $1,650
Future production &
development costs............... 608 36 36 680
Future income tax
expenses........................ 220 13 14 247
------ ---- --- ------
Future net cash flows............. 643 37 43 723
10% annual discount
for estimated timing
of cash flows.................. 209 12 14 235
------ ---- --- ------
Standardized measure of
discounted future net
cash flows...................... $ 434 $25 $29 $ 488
------ ---- --- ------
------ ---- --- ------
STANDARDIZED MEASURE AT DECEMBER 31, 1991
- -----------------------------------------------------------------------------------------
UNITED OTHER
(IN MILLIONS OF DOLLARS) STATES CANADA FOREIGN TOTAL
- -----------------------------------------------------------------------------------------
Future cash inflows............... $ 1,337 $66 $73 $1,476
Future production &
development costs............... 533 22 25 580
Future income tax
expenses........................ 197 21 12 230
------ ---- --- ------
Future net cash flows............. 607 23 36 666
10% annual discount
for estimated timing
of cash flows................... 201 8 12 221
------ ---- --- ------
Standardized measure of
discounted future net
cash flows...................... $ 406 $15 $24 $ 445
------ ---- --- ------
------ ---- --- ------
Future cash inflows are computed by applying year-end prices of oil and gas
relating to the Company's proved reserves to the year-end quantities of those
reserves, with consideration given to the effect of existing trading and hedging
contracts if any. The year end weighted average oil price utilized in the
computation of future cash inflows was approximately $11.76 per barrel.
Oil prices at the end of February 1994 increased slightly since year end. The
Company estimates that a $1.00 per barrel change in the average oil price from
the year-end price would change discounted future net cash flows before income
taxes by approximately $42 million.
The year end weighted average gas price utilized in the computation of future
cash inflows was approximately $2.42 per MCF. Natural gas spot prices at the end
of February 1994 decreased slightly since year end. The Company estimates that a
$.10 per MCF change in the average gas price from the year-end price would
change discounted future net cash flows before income taxes by approximately $36
million.
Future production and development costs, which include restoration and
dismantlement expense, are computed by estimating the expenditures to be
incurred in developing and producing the Company's proved oil and gas reserves
at the end of the year, based on year-end costs, and assuming continuation of
existing economic conditions.
Future income tax expenses are computed by applying the appropriate year-end
statutory tax rates to the future pretax net cash flows relating to the
Company's proved oil and gas reserves, less the tax basis of the properties
involved. The future income tax expenses give effect to tax credits and
allowances, but do not reflect the impact of general and administrative cost and
exploration expenses of ongoing operations relating to the Company's proved oil
and gas reserves.
The 10 percent annual discount is applied to the future net cash flows in an
attempt to reflect the timing of the future net cash flows relating to the
Company's proved oil and gas reserves.
At December 31, 1993, the Company had estimated gas imbalance receivables of
$12.9 million and estimated liabilities of $7.6
Page 34
million; at year end 1992, $17.0 million in receivables and $12.8 million in
liabilities; and at year end 1991, $19.1 million in receivables and $10.7
million in liabilities. Neither the gas imbalance receivables nor liabilities
have been included in the standardized measure of discounted future net cash
flows for the three years ended December 31, 1993.
Principal changes in the aggregate standardized measure of discounted future net
cash flows attributable to the Company's proved oil and gas reserves at year end
are shown below.
(IN MILLIONS OF DOLLARS) 1993 1992 1991
- ------------------------------------------------------------------------------------------
Standardized measure of discounted future net
cash flows at the beginning of the year............... $488 $445 $596
Extensions, discoveries and improved
recovery, less related costs.......................... 89 113 63
Revisions of previous quantity and timing
estimates............................................. (19) 15 (25)
Changes in estimated future
development costs..................................... (23) (5) (18)
Purchases/sales of minerals in place.................... 397 4 108
Net changes in prices and production costs.............. (40) 52 (298)
Accretion of discount................................... 66 60 85
Sales of oil and gas produced, net of
production costs...................................... (200) (189) (166)
Development costs incurred during the period............ 8 10 27
Net change in income taxes.............................. (102) (12) 94
Other................................................... 11 (5) (21)
----- ----- -----
Standardized measure of discounted future net
cash flows at the end of the year..................... $675 $488 $445
----- ----- -----
----- ----- -----
NOTE 10 - INTERIM FINANCIAL INFORMATION
(UNAUDITED)
Interim financial information for the two years ended December 31, 1993 is as
follows:
- ---------------------------------------------------------------------------------------------------------
QUARTER ENDED
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
- ---------------------------------------------------------------------------------------------------------
1993
Revenues............................ $ 69,854 $66,327 $ 64,346 $86,056
Gross profit (loss)
from operations................... $ 16,696 $ 5,041 $ 11,318 $ (372)
Net income (loss)................... $ 4,488 $ 4,002 $ 4,265 $ (130)
Net income (loss)
per share......................... $ .10 $ .08 $ .09 $ (.01)
1992
Revenues............................ $ 61,531 $96,943 $ 68,493 $76,814
Gross profit from
operations........................ $ 10,539 $12,127 $ 9,096 $ 7,912
Net income.......................... $ 2,551 $24,086 $ 6,519 $ 8,083
Net income
per share......................... $ . 06 $ .54 $ .15 $ .18
During the fourth quarter of 1993, the cumulative effect of oil and gas
reserve revisions on the DD&A provision for the preceding three quarters was
insignificant.
During the fourth quarter of 1992, DD&A expense decreased by approximately
$4,121,000 relating to the cumulative effect of oil and gas reserve revisions on
the DD&A provision for the preceding three quarters.
Page 35
CORPORATE INFORMATION
NOBLE AFFILIATES, INC.
CORPORATE HEADQUARTERS
110 West Broadway
P. O. Box 1967
Ardmore, Oklahoma 73402
(405) 223-4110
SUBSIDIARY HEADQUARTERS
Samedan Oil Corporation
110 West Broadway
P. O. Box 909
Ardmore, Oklahoma 73402
TRANSFER AGENT AND REGISTRAR
The Liberty National Bank
and Trust Company of
Oklahoma City
P. O. Box 25848
Oklahoma City, Oklahoma 73125
INDEPENDENT ACCOUNTANTS
Arthur Andersen & Co.
Oklahoma City, Oklahoma
COMMON STOCK LISTED
New York Stock Exchange
Symbol - NBL
SHAREHOLDERS' PROFILE
DECEMBER 31, 1993
SHARES SHAREHOLDERS
OUTSTANDING OF RECORD
- ---------------------------------------------
Individuals.......... 886,471 1,302
Joint accounts....... 129,879 332
Fiduciaries.......... 282,912 383
Institutions......... 6,939,275 55
Brokers.............. 1,300 1
Nominees............. 41,681,746 10
Foreign.............. 14,639 17
---------- -----
Total.............. 49,936,222 2,100
---------- -----
---------- -----
DIVIDENDS AND STOCK PRICES BY QUARTERS
- --------------------------------------------------------------------------------------------
YEAR
QUARTER ENDED END
3/31 6/30 9/30 12/31 TOTAL
- ---------------------------------------------------------------------------------------------
Dividends
1993 $.04 .04 .04 .04 .16
1992 $.04 .04 .04 .04 .16
Low-High
1993 $15 3/4-22 3/4 20 1/2-25 1/4 22 1/8-31 23-30 1/8
1992 $11 5/8-14 1/2 13 1/4-16 5/8 14 3/4-20 1/4 15 1/8-19 5/8
- ---------------------------------------------------------------------------------------------
ANNUAL MEETING
The Annual Meeting of Shareholders of Noble Affiliates, Inc. will be held on
Tuesday, April 26, 1994, at 10:00 a.m. at the Charles B. Goddard Center located
at "D" Street and First Avenue S.W. in Ardmore, Oklahoma. All shareholders are
cordially invited to attend.
FORM 10-K
A copy of Form 10-K, as filed with the Securities and Exchange Commission, is
available upon request by writing to Vice President - Finance and Treasurer,
Noble Affiliates, Inc., P.O. Box 1967, Ardmore, Oklahoma 73402.
Page - Inside back cover
APPENDIX I.
The following describes graphs which were listed in the margins of the
Management's Discussion and Analysis on pages 15 through 20 of the Registrant's
1993 annual report.
Page 15 - Gas Reserves Added for Three Years
1991: 112.4 BCF's
1992: 50.3 BCF's
1993: 401.4 BCF's
Oil Reserves Added for Three Years
1991: 8.9 million barrels
1992: 10.8 million barrels
1993: 33.3 million barrels
Page 16 - Three Years of Costs Incurred for Acquisitions, Exploration and
Development
1991: $147.4 million
1992: $ 75.5 million
1993: $515.0 million
Net Undeveloped Acres by Geographic Regions - 360,000 Acres Year End
1993
Gulf: 211.6 thousand acres
Rocky Mts: 60.4 thousand acres
Calif: 34.0 thousand acres
Texas: 27.5 thousand acres
Other: 26.5 thousands acres
Page 17 - Net Income for Three Years
1991: $19.3 million
*1992: $41.2 million
1993: $12.6 million
*Includes sale of investment in NGC
Natural Gas Revenues for Three Years
1991: $111.1 million - $1.74 Average price per mcf
1992: $134.2 million - $1.81 Average price per mcf
1993: $159.2 million - $2.10 Average price per mcf
Page 18 - Oil Revenues for Three Years
1991: $109.2 million - $20.39 Average price per barrel
1992: $120.2 million - $18.68 Average price per barrel
1993: $111.3 million - $15.91 Average price per barrel
Average Production and Lifting Cost Per BOE
1991: $5.48
1992: $5.02
1993: $4.43
Gas converted to BOE based on average sales prices
Page 19 - DD&A Expense Per BOE of Production for Three Years
1991: $4.93 per barrel
1992: $5.00 per barrel
1993: $5.37 per barrel
Gas converted 6:1
SG&A Expense Per BOE of Production for Three Years
1991: $1.75 per barrel
1992: $1.64 per barrel
1993: $1.59 per barrel
Gas converted 6:1
Page 20 - Average Daily Gas Production - Fourth Quarter 1993
Acquired Properties: 98.4 MMCF
Without Acquired Properties: 173.2 MMCF
Total: 271.6 MMCF
Average Daily Oil Production - Fourth Quarter 1993
Acquired Properties: 4.6 thousand barrels
Without Acquired Properties: 18.1 thousand barrels
Total: 22.7 thousand barrels