SUBJECT TO COMPLETION DATED MARCH 28, 1997
THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE INFORMATION CONTAINED HEREIN ARE
SUBJECT TO COMPLETION OR AMENDMENT AND PROSPECTIVE PURCHASERS ARE REFERRED TO
THE RELATED FINAL PROSPECTUS SUPPLEMENT FOR DEFINITIVE INFORMATION ON ANY MATTER
CONTAINED HEREIN. NEITHER THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS SHALL CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 28, 1997)
$400,000,000
TRITON ENERGY LIMITED
TRITON ENERGY CORPORATION
$200,000,000 % SENIOR NOTES DUE 2002
$200,000,000 % SENIOR NOTES DUE 2027
The $200,000,000 % Senior Notes due 2002 (the "Five-Year Notes") and the
$200,000,000 % Senior Notes due 2027 (the "Thirty-Year Notes" and, together
with the Five-Year Notes, the "Notes") will constitute series of Joint and
Several Debt Securities to be issued by Triton Energy Limited ("TEL" or the
"Company") and Triton Energy Corporation, its wholly owned subsidiary ("TEC",
and together with TEL, the "Issuers"), as described herein and in the
accompanying Prospectus.
Interest on the Notes will be payable semi-annually on and
of each year, commencing , 1997, at the rate of % per
annum for the Five-Year Notes and % per annum for the Thirty-Year Notes. The
Five-Year Notes will mature on , 2002 and the Thirty-Year Notes will
mature on , 2027. The Five-Year Notes will be redeemable at any time
at the option of the Issuers and the Thirty-Year Notes will be redeemable at any
time after , 2007 at the option of the Issuers, in either case, in whole
or in part, at a redemption price equal to the sum of (i) the principal amount
of the Notes being redeemed plus accrued interest to the redemption date; and
(ii) the Make-Whole Amount (as defined herein in "Description of
Notes--Redemption"), if any. In addition, each holder of the Thirty-Year Notes
has the right to require the Issuers to repay such holder's Thirty-Year Notes,
in whole or in part, on , 2007, at a repayment price equal to 100%
of the aggregate principal amount thereof plus accrued and unpaid interest
thereon to the repayment date. See "Description of Notes--Thirty-Year Notes--
Repayment at the Option of the Holder" herein.
The Notes will be senior unsecured joint and several obligations of the
Issuers ranking PARI PASSU in right and priority of payment with all other
unsecured and unsubordinated indebtedness of the Issuers.
The Five-Year Notes and the Thirty-Year Notes each will be represented by
one or more global certificates (each, a "Global Certificate") registered in the
name of The Depository Trust Company ("DTC") or its nominee. Beneficial
interests in the Notes will be shown on, and transfers thereof will be effected
only through, records maintained by DTC and its participants. Except as
described herein and in the accompanying Prospectus, Notes in certificated form
will not be issued in exchange for the global certificates. See "Description of
the Notes--Book Entry System" herein and "Description of Debt
Securities--Provisions Applicable to Senior, Senior Subordinated and TEL
Subordinated Debt Securities" in the accompanying Prospectus.
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-7 HEREIN AND BEGINNING ON PAGE 4 IN
THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNTS (2) ISSUERS (1)(3)
Per Five-Year Note..................... % % %
Total.................................. $ $ $
Per Thirty-Year Note................... % % %
Total.................................. $ $ $
(1) Plus accrued interest, if any, from , 1997.
(2) The Issuers, jointly and severally, have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Issuers estimated at $ .
------------------------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters and subject to the approval
of certain legal matters by counsel for the Underwriters and certain other
conditions. They reserve the right to withdraw, cancel or modify such offer and
to reject any orders in whole or in part. It is expected that the Notes offered
hereby will be ready for delivery in book-entry form only through the facilities
of DTC in New York, New York on or about April , 1997 against payment therefor
in immediately available funds.
JOINT BOOK-RUNNING MANAGERS
BEAR, STEARNS & CO. INC. SALOMON BROTHERS INC
CO-MANAGERS
LEHMAN BROTHERS
MORGAN STANLEY & CO.INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
UBS SECURITIES
HOWARD, WEIL, LABOUISSE, FRIEDRICHSINCORPORATED
The date of this Prospectus Supplement is , 1997
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS INCLUDED ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
THE COMPANY
The Company is an international oil and gas exploration company primarily
engaged in exploration and production through subsidiaries and affiliates. The
Company's principal properties and operations are located in Colombia and
Malaysia-Thailand. The Company also has oil and gas interests in other Latin
American, European and Asian countries.
TEL was formed in the Cayman Islands in 1995 and became the parent holding
company of TEC through the merger (the "Merger") of a subsidiary of TEL with and
into TEC. The Merger was consummated on March 25, 1996. In connection with the
Merger, each share of common stock of TEC was converted into one ordinary share
of TEL.
OIL AND GAS PROPERTIES
COLOMBIA
CUSIANA AND CUPIAGUA. In the foothills of the Llanos Basin area in eastern
Colombia, the Company holds, through a wholly owned subsidiary, a 12% interest
in three contract areas, covering approximately 109,000 acres, where an active
appraisal and development program is being carried out in the Cusiana and
Cupiagua fields. Triton's partners in these areas are Empresa Colombiana De
Petroleos ("Ecopetrol"), the Colombian national oil company, with a 50%
interest, BP Exploration Company (Colombia) Limited ("BP"), the operator, with a
19% interest, and TOTAL Exploratie en Produktie Maatschippij B.V. ("TOTAL"),
also with a 19% interest. The Company and its private partners have secured the
right to produce oil and gas from the three contract areas through the years
2010, 2016, and either 2015 or 2019, depending on contract interpretation,
respectively.
The initial production units of the Cusiana Field central processing
facility are designed to handle approximately 180,000 barrels of daily
production throughput. Construction is under way to increase production capacity
from the Cusiana and Cupiagua fields to at least 500,000 barrels per day by year
end 1997. Additional pipeline capacity is required to meet the transportation
needs associated with development of these fields. To that end, in April 1995,
Triton Pipeline Colombia, Inc., a wholly owned subsidiary of the Company, along
with Ecopetrol, BP Colombia Pipelines Ltd., Total Pipeline Colombie, S.A., IPL
Enterprises (Colombia) Inc. and TCPL International Investments Inc., completed
the formation of a company, Oleoducto Central S.A. ("OCENSA"), to own and
finance pipeline and port facilities to be constructed and operated for the
transport of crude oil from the Cusiana and Cupiagua fields to the Caribbean
port of Covenas. Triton's equity participation in OCENSA is 9.6%. This pipeline
project consists of a 793-kilometer (495-mile) pipeline system from the Cusiana
and Cupiagua fields to the port of Covenas. Expansion of the pipeline system is
under way and scheduled for completion in 1997. The current plan is to increase
pipeline capacity to transport at least 500,000 barrels of oil per day from the
Cusiana and Cupiagua fields by year end 1997.
OTHER AREAS IN COLOMBIA. The Company owns rights to four additional
licenses in Colombia. In the Middle Magdalena Valley basin and adjacent
foothills, Triton owns a 50% interest (before certain royalties and government
participation) in the El Pinal contract area, which covers approximately 71,000
acres. In the southern part of El Pinal, the Company discovered and confirmed
the Liebre Field with two wells (the Liebre-1 and -2). In 1995, Ecopetrol
approved the Company's application to declare the Liebre Field commercial, and
production from the field began in January 1997.
S-3
MALAYSIA-THAILAND
Two of the Company's wholly owned subsidiaries are parties to a production
sharing contract covering an area located offshore, designated as Block A-18 of
the Malaysia-Thailand Joint Development Area. The contract area encompasses
approximately 731,000 acres. The other parties to the production sharing
contract are the Malaysia-Thailand Joint Authority (the "MTJA"), which has been
established by treaty to administer the Joint Development Area, and Petronas
Carigali (JDA) Sdn. Bhd. ("Carigali"), a subsidiary of the Malaysian national
oil company. The treaty provides for the development of the Joint Development
Area that includes Block A-18.
In May 1996, the MTJA, the Company and Carigali signed a Memorandum of
Understanding on the sale and purchase of natural gas with Petronas and PTT, the
national oil companies of Malaysia and Thailand, respectively. The Memorandum of
Understanding provides a basis for negotiation of a gas-sales agreement for
natural gas to be produced from Block A-18. The parties currently are
negotiating a heads of agreement intended to include agreement in principle on
the key gas-sales agreement terms. The Company expects that negotiation and
execution of a definitive gas-sales agreement reflecting the heads of agreement
will follow execution of the heads of agreement.
OTHER
Through its subsidiaries, the Company also holds interests in properties
located in Argentina, Ecuador, Guatemala, China, Italy, Oman, and Indonesia.
RESERVES
The following table sets forth a summary of the estimated oil and gas
reserves of the Company at December 31, 1996, and is based on separate estimates
of the Company's net proved reserves, prepared by the independent petroleum
engineers, DeGolyer and MacNaughton, with respect to all proved reserves in the
Cusiana and Cupiagua fields in Colombia, and by the Company's own petroleum
engineers with respect to all proved reserves in Malaysia-Thailand and the
Liebre Field in Colombia. This table sets forth the estimated net quantities of
proved developed and undeveloped oil and gas reserves and total proved oil and
gas reserves owned by the Company and its consolidated subsidiaries. At December
31, 1996, the Company had no proved developed or proved undeveloped reserves in
Argentina, Ecuador, Guatemala, China, Italy, Oman or Indonesia. Oil reserves
data include natural gas liquids and condensate.
Net Proved Reserves at December 31, 1996:
PROVED UNDEVELOPED
PROVED DEVELOPED TOTAL PROVED
---------------------- ---------------------- --------------------
OIL GAS OIL GAS OIL GAS
(MBBLS) (MMCF) (MBBLS) (MMCF) (MBBLS) (MMCF)
----------- --------- ----------- --------- --------- ---------
Colombia(1)............................................... 67,193 11,146 68,117 3,505 135,310 14,651
Malaysia-Thailand(2)...................................... -- -- 24,700 871,100 24,700 871,100
Total..................................................... 67,193 11,146 92,817 874,605 160,010 885,751
- ------------------------
(1) Includes liquids to be recovered from Ecopetrol as reimbursement for
precommerciality expenditures.
(2) As of December 31, 1996, the Company did not have a contract for the sale of
gas to be produced from its interest in the Malaysia-Thailand Joint
Development Area. In estimating its reserves attributable to such interest,
the Company assumed that production from the interest would be sold at
prices for natural gas derived from what the Company believed to be the most
comparable market price at December 31, 1996. There can be no assurance that
the price to be provided in any gas contract will be equal to the price used
in the Company's calculations.
S-4
THE OFFERING
Notes Offered................ $200,000,000 aggregate principal amount of % Senior Notes
due 2002 (the "Five-Year Notes"); and $200,000,000 aggregate
principal amount of % Senior Notes due 2027 (the
"Thirty-Year Notes" and, together with the Five-Year Notes,
the "Notes").
Issuers...................... The Notes will be joint and several obligations of TEL and
TEC. TEC may be released from its obligations under the
Indenture and the Notes, without the consent of the holders
of the Notes, under certain circumstances. See "Description
of the Notes--Condition for Release of TEC" herein.
FIVE-YEAR NOTES
Maturity Date.............. , 2002
Interest Payment Dates..... Interest on the Five-Year Notes will accrue at the rate of
% per annum and will be payable in cash semi-annually on
each and , commencing ,
1997.
THIRTY-YEAR NOTES
Maturity Date.............. , 2027
Interest Payment Date...... Interest on the Thirty-Year Notes will accrue at the rate of
% per annum and will be payable in cash semi-annually on
each and , commencing ,
1997.
Repayment at the Option of
the Holder................. Each holder of the Thirty-Year Notes has the right to
require the Issuers to repay such holder's Thirty-Year
Notes, in whole or in part, on , 2007, at a
repayment price equal to 100% of the aggregate principal
amount thereof plus accrued and unpaid interest thereon to
the repayment date. See "Description of the Notes--
Thirty-Year Notes--Repayment at the Option of the Holder"
herein.
PROVISIONS APPLICABLE TO THE
NOTES
Redemption................. The Five-Year Notes may be redeemed at any time at the
option of the Issuers and the Thirty-Year Notes may be
redeemed at any time after , 2007 at the option of
the Issuers, in either case, in whole or from time to time
in part, at a redemption price equal to the sum of: (i) the
principal amount of the Notes being redeemed plus accrued
interest thereon to the redemption date; and (ii) the
excess, if any, of: (a) the aggregate present value as of
the date of such redemption of each dollar of principal
being redeemed and the amount of interest (exclusive of
interest accrued to the date of redemption) that would have
been payable in respect of each such dollar if such
redemption had not been made, determined by discounting, on
a semi-annual basis, such principal and interest at the
Reinvestment Rate (determined on the third Business Day
preceding the date notice of such redemption is given) from
the respective dates on which such principal and interest
would have been payable if such
S-5
redemption had not been made, to the date of redemption;
over (b) the aggregate principal amount of the Notes being
redeemed.
Certain Covenants.......... The Indenture will contain certain covenants, including, but
not limited to, covenants limiting the Issuers and their
subsidiaries with respect to the following: (i) liens, (ii)
sale/leaseback transactions and (iii) mergers and
consolidations. These limitations will be subject to a
number of important qualifications. See "Description of
Notes-- Certain Covenants" herein.
Condition for Release of
TEC........................ TEC may be released from its obligations under the Indenture
and the Notes, without the consent of the holders of the
Notes, if no more than $25,000,000 in aggregate principal
amount of TEC's Senior Subordinated Discount Notes due 1997
(the "1997 Notes") and TEC's 9 3/4% Senior Subordinated
Discount Notes due 2000 (the "9 3/4% Notes"), taken
together, are outstanding and certain other conditions are
satisfied. See "Description of the Notes--Condition for
Release of TEC."
Ranking.................... The Notes will be senior unsecured joint and several
obligations of the Issuers ranking PARI PASSU in right and
priority of payment with all other unsecured and
unsubordinated indebtedness of the Issuers.
Use of Proceeds............ The net proceeds from the sale of the Notes will be used to
refinance, through redemption, tender offer or a combination
thereof, the 1997 Notes and the 9 3/4% Notes, and to repay
indebtedness outstanding under the Company's revolving
credit facility. See "Use of Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Notes.
S-6
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AND THE RISK FACTORS SET FORTH IN THE
ACCOMPANYING PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING CONSIDERATIONS BEFORE PURCHASING THE NOTES OFFERED HEREBY.
THE OIL AND GAS INDUSTRY GENERALLY. The Company's strategy is to focus its
exploration activities on what the Company believes are relatively high
potential prospects. No assurance can be given that these prospects contain
significant oil and gas reserves or that the Company will be successful in its
exploration activities thereon. The Company follows the full cost method of
accounting for exploration and development of oil and gas reserves whereby all
acquisition, exploration and development costs are capitalized. Costs related to
acquisition, holding and initial exploration of concessions in countries with no
proved reserves are initially capitalized, including internal costs directly
identified with acquisition, exploration and development activities. The
Company's exploration concessions are periodically assessed for impairment on a
country by country basis. If the Company's investment in exploration concessions
within a country where no proved reserves are assigned is deemed to be impaired,
the concessions are written down to estimated recoverable value. If the Company
abandons all exploration efforts in a country where no proved reserves are
assigned, all exploration costs associated with the country are expensed. The
Company's assessments of whether its investment within a country is impaired and
whether exploration activities within a country will be abandoned are made from
time to time based on its review and assessment of drilling results, seismic
data and other information it deems relevant. Due to the unpredictable nature of
exploration drilling activities, the amount and timing of impairment expense are
difficult to predict with any certainty. Financial information concerning the
Company's assets, including capitalized costs by geographic area, is set forth
in note 23 of Notes to Consolidated Financial Statements included elsewhere
herein.
The markets for oil and natural gas historically have been volatile and are
likely to continue to be volatile in the future. Oil and natural gas prices have
been subject to significant fluctuations during the past several decades in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of additional factors that are
beyond the control of the Company. These factors include the level of consumer
product demand, weather conditions, domestic and foreign government regulations,
political conditions in the Middle East and other production areas, the foreign
supply of oil and natural gas, the price and availability of alternative fuels,
and overall economic conditions. It is impossible to predict future oil and gas
price movements with any certainty.
The Company's oil and gas business is also subject to all of the operating
risks normally associated with the exploration for and production of oil and
gas, including, without limitation, blowouts, cratering, pollution, earthquakes,
labor disruptions and fires, each of which could result in substantial losses to
the Company due to injury or loss of life and damage to or destruction of oil
and gas wells, formations, production facilities or other properties. In
accordance with customary industry practices, the Company maintains insurance
coverage limiting financial loss resulting from certain of these operating
hazards. Losses and liabilities arising from uninsured or underinsured events
would reduce revenues and increase costs to the Company. There can be no
assurance that any insurance will be adequate to cover losses or liabilities.
The Company cannot predict the continued availability of insurance, or its
availability at premium levels that justify its purchase.
The Company's oil and gas business is also subject to laws, rules and
regulations in the countries in which the Company operates, which generally
pertain to production control, taxation, environmental and pricing concerns and
other matters relating to the petroleum industry. Many jurisdictions have at
various times imposed limitations on the production of oil and natural gas by
restricting the rate of flow for oil and natural gas wells below their actual
capacity. There can be no assurance that present or future regulation will not
adversely affect the operations of the Company.
S-7
Moreover, because the Company may not be the operator or own a majority
interest in a number of contract areas, it will not be able to control the
timing or manner in which capital expenditures will occur in these areas to the
same degree as if it was the operator or owner of a majority interest. Any
inability of the Company to meet its obligations in these and other contract
areas could have a material adverse effect on its interests in these contract
areas.
FINANCIAL POSITION. Cash, cash equivalents, and marketable securities
totaled $14.9 million at December 31, 1996, while the unused portion of an
available credit facility was $111.8 million at December 31, 1996. A working
capital deficit of $182.2 million at December 31, 1996, primarily resulted from
the classification of the 1997 Notes ($189.9 million at December 31, 1996) as a
current liability. External sources of funding, asset sales and net cash flow
from operations have been sufficient to service the Company's existing debt
obligations and capital spending programs. The Company expects to pursue
external financing alternatives and may from time to time consider dispositions
of certain assets or operations in order to meet expenditure requirements on
existing or contemplated projects and to service its debt obligations, the
timing and nature of which may be affected by, among other things, the timing
and extent of production and capital expenditures in Colombia, Malaysia-Thailand
and elsewhere. There can be no assurance as to the ability of the Company to
effect sales of its assets or to access public or private markets for such
financings, the timing of such sales or financings or the proceeds, if any, that
the Company could realize therefrom.
For information regarding the Company's financial position and results of
operations, including the Company's net working capital from time to time, and
the Company's ratios of earnings to fixed charges and earnings to combined fixed
charges and preference dividends, see "Ratios of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and Preference Dividends" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" herein
and TEL's Consolidated Statements of Operations, Consolidated Balance Sheets and
Consolidated Statements of Cash Flows included elsewhere herein.
HOLDING COMPANY STRUCTURE. Substantially all of the operations of the
Company are conducted through its subsidiaries. Claims of creditors of the
Company's subsidiaries and claims of preferred stockholders (if any) of such
subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Notes. The Notes, therefore, will be effectively
subordinated to creditors (including trade creditors) and preferred stockholders
(if any) of subsidiaries of the Company. The Indenture provides that TEC may be
released from its obligations under the Indenture without the consent of the
holders of the Notes, if no more than $25,000,000 in aggregate principal amount
of the 1997 Notes and the 9 3/4% Notes, taken together, is outstanding and
certain other conditions are met. In the event of a release of TEC under such
circumstances, the Notes would be effectively subordinated to any indebtedness
of TEC, including any indebtedness under the 1997 Notes and the 9 3/4% Notes and
any bank indebtedness of TEC then outstanding. The Company and TEC currently are
joint and several obligors under the Company's revolving credit facility. See
"Capitalization." The Indenture does not impose any limitation on the incurrence
of Indebtedness by the Company's subsidiaries.
ENVIRONMENTAL MATTERS. The Company is subject to extensive environmental
laws and regulations. These laws regulate the discharge of oil, gas or other
materials into the environment and may require the Company to remove or mitigate
the environmental effects of the disposal or release of such materials at
various sites. The Company does not believe that its environmental risks are
materially different from those of comparable companies in the oil and gas
industry. Nevertheless, no assurance can be given that environmental laws and
regulations will not, in the future, adversely affect the Company's consolidated
results of operations, cash flows or financial position. Pollution and similar
environmental risks generally are not fully insurable.
S-8
RISKS OF INTERNATIONAL OPERATIONS. The Company derives substantially all of
its consolidated revenues from international operations. Risks inherent in
international operations include loss of revenue, property and equipment from
such hazards as expropriation, nationalization, war, insurrection and other
political risks; trade protection measures; risks of increases in taxes and
governmental royalties; and renegotiation of contracts with governmental
entities; as well as changes in laws and policies governing operations of other
companies. Other risks inherent in international operations are the possibility
of realizing economic currency exchange losses when transactions are completed
in currencies other than United States dollars and the Company's ability to
freely repatriate its earnings under existing exchange control laws.
CERTAIN FACTORS RELATING TO COLOMBIA. The Company is a participant in
significant oil and gas discoveries located in the Llanos Basin in the foothills
of the Andes Mountains, approximately 160 kilometers (100 miles) northeast of
Bogota, Colombia. The Company owns interests in three contiguous areas known as
the Santiago de las Atalayas ("SDLA"), Tauramena and Rio Chitamena contract
areas. Well results to date indicate that significant oil and gas deposits lie
across the SDLA, Tauramena and Rio Chitamena contract areas (the "Cusiana
Field"), and within the SDLA contract area (the "Cupiagua Field").
Development of reserves in the Cusiana and Cupiagua fields will take more
than one year and require additional drilling and extensive production
facilities, which in turn will require significant additional capital
expenditures, the ultimate amount of which cannot be predicted. Pipelines
connect the major producing fields in Colombia to export facilities and to
refineries. These pipelines are in the process of being upgraded and expanded to
accommodate production from the Cusiana and Cupiagua fields.
Guerilla activity in Colombia has from time to time disrupted the operation
of oil and gas projects and increased costs. Although the Colombian government,
the Company and its partners have taken steps to improve security and improve
relations with the local population, there can be no assurance that attempts to
reduce or prevent guerrilla activity will be successful or that such activity
will not disrupt operations in the future.
Colombia is among several nations whose progress in stemming the production
and transit of illegal drugs is subject to annual certification by the President
of the United States. In 1997, the President of the United States announced that
Colombia would neither be certified nor granted a national interest waiver. The
consequences of the failure to receive certification generally include the
following: all bilateral aid, except anti-narcotics and humanitarian aid, has
been or will be suspended; the Export-Import Bank of the United States and the
Overseas Private Investment Corporation will not approve financing for new
projects in Colombia; U.S. representatives at multilateral lending institutions
will be required to vote against all loan requests from Colombia, although such
votes will not constitute vetoes; and the President of the United States and
Congress retain the right to apply future trade sanctions. Each of these
consequences of the failure to receive such certification could result in
adverse economic consequences in Colombia and could further heighten the
political and economic risks associated with the Company's operations in
Colombia. Any changes in the holders of significant government offices could
have adverse consequences on the Company's relationship with the Colombian
national oil company and the Colombian government's ability to control guerilla
activities, and could exacerbate the factors relating to foreign operations
discussed above.
CERTAIN FACTORS RELATING TO MALAYSIA-THAILAND. The Company is a partner in
a significant gas exploration project located in the upper Malay Basin in the
Gulf of Thailand approximately 450 kilometers northeast of Kuala Lumpur and 750
kilometers south of Bangkok. The Company is a contractor under a production
sharing contract covering Block A-18 of the Malaysia-Thailand Joint Development
Area. Well results to date indicate that significant gas deposits lie across
four fields within the block.
Development of gas production is in the early planning stages but is
expected to take several years and require the drilling of additional wells and
the installation of production facilities, which will require significant
additional capital expenditures, the ultimate amount of which cannot be
predicted. Pipelines
S-9
will also be required to be connected between Block A-18 and ultimate markets.
The terms on which any gas produced from the Company's contract area in
Malaysia-Thailand may be sold may be adversely affected by the present monopoly
gas purchase and transportation conditions in both Thailand and Malaysia,
including the Thai national oil company's monopoly in transportation within
Thailand and its territorial waters.
RESERVE ESTIMATES. The reserve estimates contained herein are approximate
and may be expected to change as additional information becomes available.
Furthermore, estimates of oil and gas reserves, of necessity, are projections
based on engineering data, and there are uncertainties inherent in the
interpretation of such data, as well as the projection of future rates of
production and the timing of development expenditures. Reservoir engineering is
a subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact way, and the accuracy of any reserve estimate is
a function of the quality of available data and of engineering and geological
interpretation and judgment. Accordingly, there can be no assurance that the
reserves set forth herein will ultimately be produced nor can there be assurance
that the proved undeveloped reserves will be developed within the periods
anticipated.
ABSENCE OF PUBLIC MARKET. Prior to the offering of the Notes, there has
been no public market for the Notes and there can be no assurance that any such
market will develop or that holders will have the ability to sell their Notes.
Although the Underwriters have informed the Issuers that they intend to make a
market in the Notes, the Underwriters are not obligated to do so, and any market
making activity may be discontinued at any time. If such market making
activities do occur, the Notes may trade at prices higher or lower than the
principal amount thereof, depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities. The Issuers do not intend to apply for the listing of the Notes on
any securities exchange. See "Underwriting."
S-10
THE COMPANY
Triton Energy Limited is an international oil and gas exploration company
primarily engaged in exploration and production through subsidiaries and
affiliates. The Company's principal properties, operations and oil and gas
reserves are located in Colombia and Malaysia-Thailand. The Company also has oil
and gas interests in other Latin American, Asian and European countries.
Triton Energy Limited was incorporated in the Cayman Islands in 1995 to
become the parent holding company of Triton Energy Corporation ("TEC"), a
corporation formed in Texas in 1962 and reincorporated in Delaware in 1995. The
Company's principal executive offices are located at Caledonian House, Mary
Street, George Town, Grand Cayman, Cayman Islands, and its telephone number is
(345) 949-0050. The terms "Company" and "Triton" when used herein mean Triton
Energy Limited and its subsidiaries and other affiliates through which Triton
conducts its business, unless the context otherwise implies.
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used to refinance,
through redemption, tender offer or a combination thereof, the 1997 Notes and
the 9 3/4% Notes, and to repay indebtedness outstanding under the Company's
revolving credit facility. The 1997 Notes accrue original issue discount at
12 1/2% per annum and mature on November 1, 1997. The 9 3/4% Notes accrue
interest at 9 3/4% per annum and mature on December 15, 2000. Borrowings under
the revolving credit facility bear interest at various spreads over either prime
or LIBOR and mature in August 1998. As of the date hereof, the rate at which
such borrowings bear interest ranges from 6.69% to 8.875% per annum.
CAPITALIZATION
The following table sets forth the cash and equivalents and capitalization
of the Company and its consolidated subsidiaries at December 31, 1996 and as
adjusted to give effect to the issuance and sale of the Notes and the
application of the net proceeds therefrom, assuming 100% of the 1997 Notes and
the 9 3/4% Notes are redeemed and/or repurchased. See "Use of Proceeds" herein.
AT DECEMBER 31, 1996
----------------------
AS
ACTUAL ADJUSTED
---------- ----------
(IN THOUSANDS)
Cash and equivalents.................................................. $ 11,048 $ 11,048
---------- ----------
---------- ----------
Long-term debt:
Five-Year Notes offered hereby...................................... $ -- $ 200,000
Thirty-Year Notes offered hereby.................................... -- 200,000
1997 Notes.......................................................... 189,869 --
9 3/4% Notes........................................................ 170,000 --
Term credit facility................................................ 40,622 40,622
Revolving credit facility........................................... 11,000(1) 4,560
Other............................................................... 5,139 5,139
Total long-term debt.............................................. 416,630 450,321
Shareholders' equity:
Preference shares................................................... 8,515 8,515
Ordinary shares..................................................... 363 363
Additional paid-in capital.......................................... 582,581 582,581
Deficit............................................................. (288,685) (303,825)
Other............................................................... (2,130) (2,130)
Total shareholders' equity........................................ 300,644 285,504
Total capitalization.............................................. $ 717,274 $ 735,825
---------- ----------
---------- ----------
- ------------------------
(1) As of March 28, 1997, approximately $101,800 was outstanding under the
revolving credit facility, after giving effect to a draw-down thereunder of
$71,800 on such date. Such draw-down represented an addition to the
Company's cash balance as of such date.
S-11
SELECTED HISTORICAL FINANCIAL AND OIL AND GAS DATA
The following table sets forth the selected historical financial and oil and
gas data of (i) the Company for the year ended December 31, 1996 and (ii) TEC
for (a) the year ended December 31, 1995, (b) the seven months ended December
31, 1994 and (c) the fiscal years ended May 31, 1994, 1993 and 1992. The
financial data for the fiscal years ended December 31, 1996 and 1995, for the
seven months ended December 31, 1994 and for the fiscal years ended May 31,
1994, 1993 and 1992 have been derived from the Company's and TEC's audited
consolidated financial statements. Oil and gas data for all periods are
unaudited. The selected historical financial and oil and gas data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained herein and other
information included elsewhere in this Prospectus Supplement, the accompanying
Prospectus and the documents incorporated herein by reference.
AS OF OR AS OF OR
AS OF OR FOR YEAR FOR SEVEN FOR YEAR
ENDED MONTHS ENDED ENDED MAY
DECEMBER 31, DECEMBER 31, 31,
---------------------- -------------- ----------
1996 1995 1994 1994
---------- ---------- -------------- ----------
OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
Sales and other operating revenues(1)......................................... $ 133,977 $ 107,472 $ 20,736 $ 43,208
Earnings (loss) from continuing operations(1)(2).............................. 23,805 6,541 (26,630) (4,597)
Earnings (loss) before extraordinary items and cumulative effect of accounting
change...................................................................... 23,805 2,720 (27,708) (9,341)
Net earnings (loss)(2)........................................................ 22,609 2,720 (27,708) (9,341)
Average ordinary and equivalent shares outstanding............................ 36,919 35,147 34,944 34,775
Earnings (loss) per ordinary share:
Continuing operations(1)(2)................................................. $ 0.62 $ 0.16 $ (0.78) $ (0.13)
Before extraordinary item and cumulative effect of accounting change........ 0.62 0.05 (0.81) (0.27)
Net earnings (loss)......................................................... 0.59 0.05 (0.81) (0.27)
Ratio of earnings to fixed charges(3)......................................... -- 1.1x -- --
Pro forma ratio of earnings to fixed charges.................................. 1x
BALANCE SHEET DATA (IN THOUSANDS):
Net property and equipment.................................................... $ 676,833 $ 524,381 $ 399,658 $ 308,498
Total assets.................................................................. 914,524 824,167 619,201 616,101
Long-term debt(4)............................................................. 217,078 401,190 315,258 294,441
Redeemable preference shares of subsidiaries.................................. -- -- -- --
Shareholders' equity.......................................................... 300,644 246,025 237,195 263,422
CERTAIN OIL AND GAS DATA(5):
Production
Oil (Mbbls)(6).............................................................. 5,987 6,303 1,488 2,886
Gas (MMcf).................................................................. 2,517 5,312 3,427 9,078
Average sales price
Oil (per bbl)............................................................... $ 19.61 $ 16.60 $ 16.41 $ 15.15
Gas (per Mcf)............................................................... $ 1.69 $ 1.64 $ 1.44 $ 1.44
1993 1992
---------- ----------
OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
Sales and other operating revenues(1)......................................... $ 84,414 $ 90,724
Earnings (loss) from continuing operations(1)(2).............................. (76,509) (81,333)
Earnings (loss) before extraordinary items and cumulative effect of accounting
change...................................................................... (93,552) (94,037)
Net earnings (loss)(2)........................................................ (89,535) (94,037)
Average ordinary and equivalent shares outstanding............................ 34,241 29,898
Earnings (loss) per ordinary share:
Continuing operations(1)(2)................................................. $ (2.23) $ (2.77)
Before extraordinary item and cumulative effect of accounting change........ (2.73) (3.19)
Net earnings (loss)......................................................... (2.61) (3.19)
Ratio of earnings to fixed charges(3)......................................... -- --
Pro forma ratio of earnings to fixed charges..................................
BALANCE SHEET DATA (IN THOUSANDS):
Net property and equipment.................................................... $ 330,151 $ 385,979
Total assets.................................................................. 561,931 571,169
Long-term debt(4)............................................................. 159,147 27,587
Redeemable preference shares of subsidiaries.................................. 11,399 12,972
Shareholders' equity.......................................................... 255,432 336,013
CERTAIN OIL AND GAS DATA(5):
Production
Oil (Mbbls)(6).............................................................. 3,691 3,777
Gas (MMcf).................................................................. 21,958 24,366
Average sales price
Oil (per bbl)............................................................... $ 18.67 $ 19.26
Gas (per Mcf)............................................................... $ 1.27 $ 1.21
- ------------------------
(1) Operating data for the seven months ended December 31, 1994 and the years
ended May 31, 1994, 1993 and 1992 are restated to reflect the aviation sales
and services segment and the wholesale fuel products segment as discontinued
operations in 1995 and 1993, respectively.
(2) Gives effect to the writedown of assets and loss provisions of $46.2
million, $1.1 million, $1.0 million, $45.8 million, $99.9 million and $48.8
million for the years ended December 31, 1996 and 1995, the seven months
ended December 31, 1994 and the years ended May 31, 1994, 1993 and 1992,
respectively.
(3) Earnings were inadequate to cover fixed charges for the year ended December
31, 1996 by $6.3 million, for the seven months ended December 31, 1994 by
$30.6 million and for the years ended May 31, 1994, 1993 and 1992 by $41
million, $152.4 million and $92.9 million, respectively. Without
nonrecurring items, earnings would have been inadequate to cover fixed
charges for the year ended December 31, 1995 by approximately $9.9 million,
for the seven months ended December 31, 1994 by approximately $29.6 million
and for the years ended May 31, 1994, 1993, and 1992 by approximately $51.4
million, $45.2 million and $32.3 million, respectively.
(4) Long-term debt does not include current maturities totaling $199.6 million,
$1.3 million, $.3 million, $.3 million, $3.4 million, and $8.5 million at
December 31, 1996, 1995 and 1994 and May 31, 1994, 1993 and 1992,
respectively.
(5) Information presented includes the 49.9% equity investment in Crusader
Limited, which was sold in 1996.
(6) Includes natural gas liquids and condensate. Production excludes .7 million
and .4 million barrels of oil produced and delivered under a forward oil
sale entered into in May 1995 for the years ended December 31, 1996 and
1995, respectively.
S-12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cash, cash equivalents and marketable securities totaled $14.9 million and
$95.5 million at December 31, 1996 and 1995, respectively, while the unused
portion of available credit facilities was $111.8 million and $58.6 million at
December 31, 1996 and 1995, respectively. Working capital (deficit) was ($182.2
million) at December 31, 1996, compared with $85.6 million at December 31, 1995.
The decline in working capital primarily resulted from the classification of the
1997 Notes ($189.9 million) as a current liability and use of cash and
marketable securities to fund the 1996 capital spending program.
The Company's capital expenditures and other capital investments were $252.7
million, $178.2 million, $89.9 million and $86.8 million during the years ended
December 31, 1996 and 1995, the seven months ended December 31, 1994, and the
year ended May 31, 1994, respectively, primarily for exploration and development
of the Cusiana and Cupiagua fields (the "Fields") in Colombia, and for
exploration in Block A-18 of the Malaysia-Thailand Joint Development Area in the
Gulf of Thailand and in other areas. The 1996 capital spending program and
repayment of debt were funded with cash, cash flow from operations ($80.7
million), and proceeds from sales of marketable securities ($38.5 million) and
other assets ($108.1 million). At December 31, 1996, the Company had outstanding
borrowings of $40.6 million under a term credit facility supported by a
guarantee issued by the Export-Import Bank of the United States. In 1996, the
Company signed a $125 million unsecured bank revolving credit facility. The
facility matures in August 1998. The Company had outstanding borrowings of $11
million under the facility as of December 31, 1996. Also during 1996, the
Company purchased in the open market $30 million face value of the 1997 Notes
and realized an extraordinary after-tax expense of $1.2 million. At December 31,
1996, $210 million face value of the 1997 Notes remained outstanding.
The 1995 capital spending program was funded with cash flow from operations
(including a forward sale of Cusiana crude oil), cash, proceeds from marketable
securities, sales of assets ($20.9 million) and net borrowings ($36.3 million).
In May 1995, the Company sold 10.4 million barrels of oil in a forward oil sale.
Under the terms of the sale, the Company received approximately $87 million of
the approximately $124 million net proceeds and is entitled to receive
substantially all of the remaining proceeds (now held in various
interest-bearing reserve accounts) when the Company's Cusiana and Cupiagua
fields project in Colombia becomes self-financing, which is expected in 1997,
and when certain other conditions are met. During 1995, the Company repaid $25
million of short-term debt and borrowed $48.6 million under a $65 million
long-term revolving credit facility. This facility was paid off in 1996 and was
terminated.
Capital expenditures incurred during the seven months ended December 31,
1994, were funded by cash, net proceeds from marketable securities ($30.8
million) and borrowings ($17.2 million). The principal sources for funds for the
year ended May 31, 1994, used to support operations, capital expenditures and
debt repayment were $100 million in proceeds from the sale of assets and
approximately $124 million from the issuance of $170 million principal amount of
the 9 3/4% Notes.
Development of the Fields, including drilling and construction of additional
production facilities, will require further capital outlays. Further exploration
and development activities on Block A-18, as well as exploratory drilling in
other countries, also will require substantial capital outlays. The Company's
capital budget for the year ending December 31, 1997, is approximately $310
million, excluding capitalized interest, of which approximately $150 million
relates to the Fields and capital contributions to Oleoducto Central S.A.
("OCENSA"), $95 million relates to Block A-18, and $65 million relates to the
Company's exploration and drilling program in other parts of the world. The
Company assisted OCENSA in raising one tranche of debt totaling $65 million in
1996 and may assist OCENSA in raising up to $25 million of additional debt in
1997. Capital requirements for exploration and development relating to Block
A-18 are expected to increase significantly into 1998.
S-13
The Company has filed a shelf registration statement with the Securities and
Exchange Commission (the "SEC") that provides for the issuance of up to $600
million of securities, of which up to $200 million may be equity securities.
The Company expects to meet capital needs, including raising funds to repay
the 1997 Notes, in the future with a combination of some or all of the
following: the Company's revolving credit facility, cash flow from its Colombian
operations (including additional proceeds from the 1995 forward oil sale), cash
and marketable securities, asset sales, and the issuance of debt and equity
securities. The indentures relating to the 1997 Notes and the 9 3/4% Notes
permit the Company to incur total indebtedness (excluding certain permitted
indebtedness) of up to 25% of the sum of its indebtedness and market
capitalization of its capital stock. As of year end 1996, the revolving credit
facility permitted the Company to incur total indebtedness of up to
approximately $630 million. Availability under the credit facility may be more
in the future under certain circumstances.
RESULTS OF OPERATIONS
The Company changed its fiscal year end from May 31 to December 31 beginning
in 1995. The Consolidated Statements of Operations report the Company's results
of operations for the years ended December 31, 1996 and 1995, the seven months
ended December 31, 1994, and the year ended May 31, 1994; however, Management's
Discussion and Analysis compares the calendar years ended December 31, 1996,
1995 and 1994. The results of operations for the year ended December 31, 1994,
for which the Company would have reported a net loss after preferred dividends
of $53.2 million, have not been audited.
YEAR ENDED DECEMBER 31, 1996, COMPARED WITH YEAR ENDED DECEMBER 31, 1995
REVENUES
Sales and other operating revenues were $134 million and $107.5 million in
1996 and 1995, respectively. Revenue in Colombia increased by $37.2 million in
1996 due to higher production ($15.7 million) and higher oil prices ($21.5
million) resulting from more favorable market conditions and batching of Cusiana
crude that began in mid-1995. Revenue barrels in Colombia, including barrels
delivered under the forward oil sale, increased from 5.5 million barrels in 1995
to 6.5 million barrels in 1996, even though the Company received .7 million
fewer barrels in 1996 as reimbursement of pre-commerciality costs related to the
Cusiana Field. Oil and gas sales from properties sold in late 1995 and early
1996 aggregated $17 million in 1995, compared with $2.7 million in 1996.
Based on the operator's current projections, the Company expects gross
production capacity from the Fields to reach 320,000 barrels per day during
summer 1997 and at least 500,000 barrels per day by the end of 1997. Beginning
in April 1997, the Company's delivery requirement under the forward oil sale
will increase from 58,425 barrels per month to 254,136 barrels per month, which
will have an adverse effect on the Company's earnings and cash flows on a per
barrel basis. The Company expects that the adverse effect on the Company's
results of operations and cash flows will be mitigated by increased production
from the Fields. There can be no assurance, however, as to the timing of any
such increase in production or that any such increase would occur in the same
accounting period as the increase in the Company's forward oil sale delivery
requirement.
Other operating revenues in 1996 included a gain of $4.1 million resulting
from the sale of the Company's royalty interests in U.S. properties for $23.8
million based on an effective date of January 1, 1996.
COSTS AND EXPENSES
Operating expenses increased $1.4 million in 1996, and depreciation,
depletion and amortization increased $2.4 million. The Company's operating costs
per equivalent barrel were $5.77 and $6.28 in 1996
S-14
and 1995, respectively. Higher production in Colombia increased operating
expenses by $9.9 million and depreciation and depletion by $3.6 million.
Operating expenses from properties sold in late 1995 and early 1996 were $1.8
million and $10.2 million in 1996 and 1995, respectively.
During 1997, the Company expects that aggregate pipeline tariff costs from
OCENSA will increase. When the pipeline expansion project is completed and
shipments through the pipeline upgrade commence, and each year thereafter,
OCENSA will assess to the Cusiana and Cupiagua fields shippers (the "Initial
Shippers") a tariff estimated to recoup the total cost of the project over a
period of 15 years, its operating expenses, which include all Colombian taxes,
interest expense, and the dividend to be paid by OCENSA to its shareholders.
Shippers of crude oil which are not Initial Shippers ("Third Party Shippers")
will be assessed a tariff on a per barrel basis and OCENSA will use revenues
from such tariffs to reduce the Initial Shippers' tariff. The Company cannot
predict with any certainty the impact of the increased tariff on a per barrel
basis due to the uncertainty as to the volumes of the Third Party Shippers'
production to be transported by OCENSA and when the increases in production from
the Cusiana and Cupiagua fields may occur.
General and administrative expenses before capitalization increased $3.8
million in 1996 to $50.5 million, primarily due to greater exploration
activities. Capitalized general and administrative costs were $24.6 million and
$21.1 million in 1996 and 1995, respectively.
In 1996, the Company's oil and gas properties and other assets in Argentina
were written down $43 million following a review of technical information that
indicated the acreage portfolio did not meet the Company's exploration
objectives.
OTHER INCOME AND EXPENSES
Interest expense before capitalization increased $2.7 million in 1996 to $43
million. Capitalized interest increased from $16.2 million in 1995 to $27.1
million in 1996 due to construction of support equipment and facilities in the
Fields and greater exploration activities throughout the world.
Other income, net in 1996 included a $10.4 million gain on the sale of the
Company's shareholdings in Crusader, a $7.6 million benefit for settlement of a
lawsuit in which the Company was plaintiff and an $11 million unrealized gain
representing the change in fair market value of the West Texas Intermediate
("WTI") benchmark call options purchased in 1995. These gains were offset by
$3.2 million in loss provisions for various legal matters. Other income, net in
1995 included $7.2 million received from legal settlements, a $3.5 million gain
on the sale of Triton France and $2.9 million received from the early redemption
of the Crusader convertible notes. These gains were offset by a $4.2 million
unrealized expense representing the change in fair market value of the WTI
benchmark call options.
INCOME TAXES
Statement of Financial Accounting Standards No. 109 ("SEAS l09"),
"Accounting for Income Taxes," requires that the Company make projections about
the timing and scope of certain future business transactions in order to
estimate recoverability of deferred tax assets primarily resulting from the
expected utilization of net operating loss carryforwards ("NOLs"). Changes in
the timing or nature of actual or anticipated business transactions,
projections, organizational changes, and income tax laws can give rise to
significant adjustments to the Company's deferred tax expense or benefit that
may be reported from time to time. For these and other reasons, compliance with
SEAS 109 may result in significant differences between tax expense for income
statement purposes and taxes actually paid.
The income tax provision for 1996 represented current and deferred taxes in
Colombia, deferred taxes on exploration projects throughout the world, and a
deferred tax benefit in the United States related to anticipated future
utilization of NOLs. Subject to the factors described above, the Company
currently expects that its foreign deferred tax provision will substantially
exceed its current tax provision (i.e., actual
S-15
taxes paid) resulting in an effective tax for income statement purposes that
will exceed statutory tax rates, at least until the Cusiana and Cupiagua fields
project reaches peak production. The primary reason for the expected difference
is the nondeductibility for Colombian tax purposes of certain capital expenses
and the treatment of reimbursements for pre-commerciality costs as a return of
capital under Colombian tax laws. Conversely, Colombian tax law permits the
Company to adjust the tax basis of certain assets based on the Colombian
inflation rate and to include any resulting increases in tax depreciation of the
underlying asset based on rates of production and other factors. The Company's
deferred tax liability has not been reduced to reflect the impact of this
inflation adjustment.
At December 31, 1996, the Company had NOLs of approximately $230.7 million,
and certain subsidiaries had separate return limitation years ("SRLY") operating
loss carryforwards of approximately $50.9 million. The NOLs expire from 1998 to
2012, and the SRLY operating loss carryforwards expire from 1997 to 2002. See
note 12 of Notes to Consolidated Financial Statements.
The Company recorded a deferred tax asset of $71.4 million, net to a
valuation allowance of $30.7 million at December 31, 1996. The valuation
allowance is primarily attributable to SRLY operating losses that are currently
not realizable due to the lack of potential future income in the applicable
subsidiaries, and the expectation that other tax credits will expire without
being utilized. The minimum amount of future taxable income necessary to realize
the deferred tax asset is approximately $204 million. Although there can be no
assurance the Company will achieve such levels of income, management believes
the deferred tax asset will be realized through increasing income from its
operations.
The income tax provision for 1996 decreased primarily due to the recognition
of a deferred tax benefit in the United States totaling $23.5 million related to
anticipated future utilization of NOLs, compared with a similar benefit of $12.8
million in 1995. The 1996 benefit reflects the improvement in the Company's
anticipated operating results. Foreign current tax expense of $5.4 million in
1996 increased $1.4 million from 1995, mainly due to increased profitability
from the Company's Colombian operations. Foreign deferred tax expense of $15.4
million in 1996 decreased $2.9 million from 1995, primarily due to the writedown
of the Company's Argentina assets, which lowered taxes by $3.7 million in 1996
compared with 1995.
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994
REVENUES
Sales and other operating revenues were $107.5 million and $33 million in
1995 and 1994, respectively. Revenues in Colombia increased by $81.6 million in
1995 primarily due to greater production capacity from the installation in late
1994 and early 1995 of four production units in the Cusiana central processing
facility and higher oil prices in Colombia ($16.29 per barrel in 1995, compared
with $13.16 per barrel in 1994) resulting from more favorable market conditions
and batching of Cusiana crude beginning in mid-1995. The 1995 results also
included revenues of $14.5 million relating to the reimbursement of pre-
commerciality costs for the Cusiana Field. Oil sales in France were $5.8 million
higher in 1994 than in 1995, primarily because of the sale of Triton France in
August 1995.
COSTS AND EXPENSES
Operating expenses increased $14.1 million to $35.3 million in 1995, while
depreciation, depletion and amortization increased $9.5 million to $23.2 million
in 1995. Higher production in Colombia increased operating expenses by $19.1
million and depreciation, depletion and amortization by $13.4 million. The
Company's operating costs per equivalent barrel were $6.28 and $10.75 in 1995
and 1994, respectively. The sale of Triton France reduced operating expenses and
depletion in 1995 by $3.6 million and $3.7 million, respectively. The 1994
results included an accrual of $1.1 million for environmental clean-up costs in
the United States.
S-16
General and administrative expenses decreased from $29.1 million in 1994 to
$25.7 million in 1995, primarily due to increased capitalization of general and
administrative expenses from $14.9 million in 1994 to $21.1 million in 1995
resulting from increased exploration and development activities.
Writedown of assets in 1994 totaling $14.7 million was primarily related to
oil properties in France under application of the SEC full cost ceiling
limitation.
OTHER INCOME AND EXPENSES
Interest income was $8 million and $8.1 million in 1995 and 1994,
respectively. Interest expense increased by $12 million in 1995 due to higher
debt outstanding and lower capitalized interest. Capitalized interest was $16.2
million and $20.6 million in 1995 and 1994, respectively.
Equity in loss of affiliates, net was $2.2 million in 1995, compared with
$2.9 million in 1994. Equity in loss of Crusader for 1995 included a net gain of
$3.8 million on the sale of Saracen Minerals Limited, a $2.7 million loss
related to the early redemption of Crusader's Convertible Notes and writedowns
of $2.9 million on unproved oil and gas properties and a coal mining property.
Other income, net was $11.6 million in 1995, compared with $2.8 million in
1994. Other income during 1995 included $7.2 million received from legal
settlements, a $3.5 million gain on the sale of Triton France and $2.9 million
received from the early redemption of Crusader's Convertible Notes. These gains
were offset by a $4.2 million noncash charge representing the change in fair
market value of WTI benchmark call options purchased in 1995.
INCOME TAXES
Income tax expense of $10 million in 1995 increased $8.5 million from 1994,
mainly due to increased profitability from the Company's Colombian operations
and the absence of tax refunds of $2 million received in 1994. The income tax
provisions for 1995 and 1994 included deferred tax benefits in the United States
of $12.8 million and $10.1 million, respectively, related to anticipated future
utilization of NOLs.
DISCONTINUED OPERATIONS
The results of operations for the aviation sales and services segment and
wholesale fuel products segment have been reported as discontinued operations.
In June 1995, the Company sold the assets of its subsidiary, Jet East, Inc., for
$2.9 million in cash and a note, and realized a loss of $1.4 million on the
sale. The Company accrued $.6 million for costs associated with final disposal
of the segment, which occurred m August 1995. The 1994 losses of the wholesale
fuel products segment, which was discontinued in 1993, were offset against a
loss provision of $16.1 million, net of tax, at May 31, 1993. An additional
accrual of $.7 million, net of tax, was recorded at May 31, 1994, for estimated
operating losses associated with the final disposition of this segment.
MINORITY INTEREST IN LOSSES OF SUBSIDIARIES
The Company ceased to record minority interest related to Triton Europe
following the purchase of shares held by the minority interest owners on March
31, 1994.
PETROLEUM PRICE RISK MANAGEMENT
Oil and natural gas sold by the Company are normally priced with reference
to a defined benchmark, such as light sweet crude oil traded on the New York
Mercantile Exchange. Actual prices received vary from the benchmark depending on
quality and location differentials. It is the Company's policy to use financial
market transactions with credit-worthy counterparties from time to time
primarily to reduce risk associated with the pricing of a portion of the oil and
natural gas that it sells. The policy is structured to underpin the Company's
planned revenues and results of operations. The Company may also enter into
S-17
financial market transactions to benefit from its assessment of the future
prices of its production relative to other benchmark prices. There can be no
assurance that the use of financial market transactions will not result in
losses.
With respect to the sale of oil to be produced by the Company, the Company
has used a combination of swaps, options and collars to establish a minimum
weighted average WTI benchmark price of $19.58 per barrel for an aggregate of
1.5 million barrels of production during the period from January through June
1997. As a result, to the extent WTI prices exceed the minimum WTI benchmark
price during each month within the period, the Company will be able to sell its
production at the higher market price, and to the extent that WTI prices are
below the minimum WTI benchmark price, the Company will be able to realize
prices related to the minimum WTI benchmark price on its hedged production.
In anticipation of entering into a forward oil sale, the Company purchased
WTI benchmark call options to retain the ability to benefit from future WTI
price increases above a weighted average price of $20.42 per barrel. The volumes
and expiration dates on the call options coincide with the volumes and delivery
dates of the forward oil sale, which has delivery terms of 58,425 barrels per
month through March 1997 and 254,136 barrels per month from April 1997 through
March 2000. During the years ended December 31, 1996 and 1995, the Company
recorded an unrealized gain of $11 million and an unrealized loss of $4.2
million, respectively, in other income, net related to the change in the fair
market value of the call options. Future fluctuations in the fair market value
of the call options will continue to affect other income as noncash adjustments.
During the year ended December 31, 1996, markets provided the Company the
opportunity to realize WTI benchmark oil prices on average $4.68 per barrel
above the WTI benchmark oil price the Company set as part of its 1996 annual
plan. As a result of financial and commodity market transactions settled during
the year ended December 31, 1996, the Company's risk management program resulted
in an average net realization of approximately $1.21 per barrel lower than if
the Company had not entered into such transactions. International Operations
The Company derives substantially all of its consolidated revenues from
international operations. A risk inherent in international operations is the
possibility of realizing economic currency exchange losses when transactions are
completed in currencies other than U.S. dollars. The Company's risk of realizing
currency-exchange losses currently is largely mitigated because the Company
receives U.S. dollars for sales of its petroleum products in Colombia.
EXPLORATION OPERATIONS
Costs related to acquisition, holding and initial exploration of licenses in
countries with no proved reserves are initially capitalized, including internal
costs directly identified with acquisition, exploration and development
activities. The Company's exploration licenses are periodically assessed for
impairment on a country-by-country basis. If the Company's investment in
exploration licenses within a country where no proved reserves are assigned is
deemed to be impaired, the licenses are written down to estimated recoverable
value. If the Company abandons all exploration efforts in a country where no
proved reserves are assigned, all exploration costs associated with the country
are expensed. Due to the unpredictable nature of exploration drilling
activities, the amount and timing of impairment expense are difficult to predict
with any certainty.
ENVIRONMENTAL MATTERS
The Company is subject to extensive environmental laws and regulations.
These laws regulate the discharge of oil, gas or other materials into the
environment and may require the Company to remove or mitigate the environmental
effects of the disposal or release of such materials at various sites. Also, the
Company remains liable for certain environmental matters that may arise from
formerly owned fuel businesses that were involved in the storage, handling and
sale of hazardous materials, including fuel
S-18
storage in underground tanks. The Company believes that the level of future
expenditures for environmental matters, including clean-up obligations, is
impractical to determine with a precise and reliable degree of accuracy.
Management believes that such costs, when finally determined, will not have a
material, adverse effect on the Company's operations or consolidated financial
condition.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein, in the accompanying Prospectus and in
the documents incorporated herein by reference, including statements of the
Company's and management's expectations, intentions, plans and beliefs, are
forward-looking statements, as defined in Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and Section 21D of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are dependent on
certain events, risks and uncertainties that may be outside of the Company's
control. These forward-looking statements include statements of management's
plans and objectives for the Company's future operations and statements of
future economic performance; information regarding drilling schedules, expected
or planned production or transportation capacity, the future construction or
upgrades of pipelines (including costs), when the Cusiana and Cupiagua fields
might become self-financing, future production of the Cusiana and Cupiagua
fields, the negotiation of a gas-sales contract and commencement of production
in Malaysia-Thailand, the Company's capital budget and future capital
requirements, the Company's meeting its future capital needs, the amount by
which production from the Cusiana and Cupiagua fields may increase or when such
increased production may commence, the Company's realization of its deferred tax
asset, the level of future expenditures for environmental costs, the outcome of
regulatory and litigation matters, and proven oil and gas reserves and
discounted future net cash flows therefrom; and the assumptions described in
this report underlying such forward-looking statements. Actual results and
developments could differ materially from those expressed in or implied by such
statements due to a number of factors, including those described in the context
of such forward-looking statements and in Notes 20 and 21 of Notes to
Consolidated Financial Statements included elsewhere herein.
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BUSINESS
GENERAL
Triton Energy Limited is an international oil and gas exploration company
primarily engaged in exploration and production through subsidiaries and
affiliates. The Company's principal properties, operations and oil and gas
reserves are located in Colombia and Malaysia-Thailand. The Company also has oil
and gas interests in other Latin American, Asian and European countries.
OIL AND GAS OPERATIONS
GENERAL
The Company's oil and gas exploration and development activities are, or
have been, conducted through the Company's wholly owned subsidiaries, except as
noted in this paragraph. In Malaysia-Thailand, the Company's activities are
conducted by the Company's wholly owned subsidiaries, Triton Oil Company of
Thailand and Triton Oil Company of Thailand (JDA) Limited (collectively, "Triton
Thailand"), and Triton Thailand's 50% owned affiliate, Carigali-Triton Operating
Company Sdn. Bhd. ("CTOC"). In Europe, its activities were conducted by its
wholly owned (but until March 1994, 59.5% owned) subsidiary, Triton Europe
Limited ("Triton Europe"). In Indonesia, its activities are or were conducted by
its wholly owned subsidiaries, Triton Indonesia, Inc., Triton Indonesia
Resources, Inc. and TriBlora Indonesia B.V. (collectively, "Triton Indonesia")
and its 33.7% owned (but until August 1994, 63.7% owned) affiliate, New Zealand
Petroleum Company Limited ("New Zealand Petroleum"). In the United States, its
activities were conducted by its wholly owned subsidiary, Triton Oil & Gas Corp.
("Triton Oil"), and Crusader Limited ("Crusader"), a 49.9% owned affiliate until
the Company's sale of its interest in 1996. In New Zealand, its activities are
or were conducted by New Zealand Petroleum and Crusader. In Canada its
activities were conducted by Crusader, until June 1995, and by Triton Canada
Resources Ltd. ("Triton Canada") until August 1993, and in Australia its
activities were conducted by Crusader.
S-20
PRODUCTION AND SALES
The following table sets forth the net quantities of oil and gas produced by
the Company for the years ended December 31, 1996 and 1995, the seven months
ended December 31, 1994, and the year ended May 31, 1994, including production
attributable to the Company's 49.9% ownership interest in Crusader through the
date of its sale (which included the minority interests in Crusader's
consolidated subsidiaries). The production and sales information relating to
properties or subsidiary or affiliate ownership interests acquired or disposed
of is reflected in the table only since or up to the effective dates of their
respective acquisitions or sales, as the case may be.
OIL PRODUCTION(1) GAS PRODUCTION
------------------------------------------------ --------------------
YEAR ENDED SEVEN MOS. YEAR YEAR ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31,
-------------------- DEC. 31, MAY 31, --------------------
1996 1995 1994 1994 1996 1995
--------- --------- ------------- ----------- --------- ---------
(IN MBBLS) (IN MMCF)
Colombia(2).................................... 5,738 5,089 435 467 298 158
Argentina...................................... -- -- -- 18 -- --
France(3)...................................... -- 498 514 1,053 -- --
Indonesia(4)................................... 95 255 186 441 -- --
United States(5)............................... 20 121 66 156 475 1,207
Canada(5)...................................... -- -- -- 102 -- --
Crusader (6):
Australia.................................... 134 287 180 404 1,744 3,884
Canada....................................... -- 53 99 213 -- 63
United States................................ -- -- 8 32 -- --
--------- --------- ----- ----- --------- ---------
Total...................................... 5,987 6,303 1,488 2,886 2,517 5,312
--------- --------- ----- ----- --------- ---------
--------- --------- ----- ----- --------- ---------
SEVEN MOS. YEAR
ENDED ENDED
DEC. 31, MAY 31,
1994 1994
------------- -----------
Colombia(2).................................... -- --
Argentina...................................... -- --
France(3)...................................... -- --
Indonesia(4)................................... -- --
United States(5)............................... 618 1,150
Canada(5)...................................... -- 3,521
Crusader (6):
Australia.................................... 2,707 4,202
Canada....................................... 96 150
United States................................ 6 55
----- -----
Total...................................... 3,427 9,078
----- -----
----- -----
- ------------------------
(1) Includes natural gas liquids and condensate.
(2) Includes Ecopetrol reimbursement and excludes .7 million and .4 million
barrels of oil produced and delivered for the years ended December 31, 1996
and 1995, respectively, in connection with the Company's forward sale of oil
in May 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations" and note 3 of
Notes to Consolidated Financial Statements included elsewhere herein.
(3) In August 1995, Triton Europe sold its interest in its subsidiary, Triton
France S.A.
(4) In May 1996, the Company sold substantially all of the assets of Triton
Indonesia, Inc.
(5) In March 1996, Triton Oil sold substantially all of its domestic royalty and
mineral interests. During the fiscal year ended May 31, 1994, Triton Oil
sold substantially all its working interests in oil and gas reserves in the
United States and its common equity interest in Triton Canada. See note 2 of
Notes to Consolidated Financial Statements included elsewhere herein.
(6) In 1996, the Company sold all of its interest in Crusader. In June 1995,
Crusader sold all of its interest in Ausquacan Energy Limited and in
September 1994, Crusader sold all of its oil and gas interests in the United
States.
S-21
The following tables summarize for the years ended December 31, 1996 and
1995, the seven months ended December 31, 1994, and the year ended May 31, 1994:
(i) the average sales price per barrel of oil and Mcf of natural gas; (ii) the
average sales price per equivalent barrel of production; (iii) the depletion
cost per equivalent barrel of production; and (iv) the production cost per
equivalent barrel of production:
AVERAGE SALES PRICE AVERAGE SALES PRICE
PER BARREL OF OIL(1) PER MCF OF GAS
---------------------------------------------- ---------------------------------
YEAR ENDED SEVEN MOS. YEAR YEAR ENDED SEVEN MOS.
DECEMBER 31, ENDED ENDED DECEMBER 31, ENDED
-------------------- DEC. 31, MAY 31, -------------------- DEC. 31,
1996 1995 1994 1994 1996 1995 1994
--------- --------- ----------- ----------- --------- --------- -----------
Colombia.................................. $ 19.62 $ 16.29 $ 14.37 $ 12.66 $ 2.56 $ 1.96 $ --
Argentina................................. -- -- -- 9.22 -- -- --
France.................................... -- 18.11 17.64 16.38 -- -- --
Indonesia................................. 19.54 17.77 17.06 16.29 -- -- --
United States............................. 16.00 13.62 15.65 14.19 1.15 1.49 1.55
Canada.................................... -- -- -- 16.43 -- -- --
Crusader:
Australia............................... 19.95 20.38 18.39 15.33 1.69 1.69 1.43
Canada.................................. -- 15.42 14.62 12.43 -- 0.99 1.01
United States........................... -- -- 17.75 15.23 -- -- 1.25
YEAR
ENDED
MAY 31,
1994
-----------
Colombia.................................. $ --
Argentina................................. --
France.................................... --
Indonesia................................. --
United States............................. 2.23
Canada.................................... 1.11
Crusader:
Australia............................... 1.50
Canada.................................. 1.11
United States........................... 1.53
PER EQUIVALENT BARREL(2)
-------------------------------------------------------------------------------------------------------------
PRODUCTION
COST
---------
AVERAGE SALES PRICE DEPLETION(3)
------------------------------------------------ ------------------------------------------------ YEAR
ENDED
YEAR ENDED SEVEN MOS. YEAR YEAR ENDED SEVEN MOS. YEAR DECEMBER
DECEMBER 31, ENDED ENDED DECEMBER 31, ENDED ENDED 31,
-------------------- DEC. 31, MAY 31, -------------------- DEC. 31, MAY 31, ---------
1996 1995 1994 1994 1996 1995 1994 1994 1996
--------- --------- ------------- ----------- --------- --------- ------------- ----------- ---------
Colombia..... $ 19.58 $ 16.26 $ 14.37 $ 12.66 $ 2.83 $ 2.67 $ 2.57 $ 1.96 $ 5.66
Argentina.... -- -- -- 9.22 -- -- -- -- --
France....... -- 18.11 17.64 16.38 -- 3.14 4.15 8.97 --
Indonesia.... 19.54 17.77 17.06 16.29 0.52 0.95 1.60 3.09 15.89
United
States..... 8.75 10.68 11.77 13.75 5.59 6.05 7.04 6.58 3.25
Canada....... -- -- -- 8.13 -- -- -- 3.60 --
Crusader:
Australia... 13.23 13.29 9.53 11.31 3.47 3.35 3.99 3.33 4.10
Canada..... -- 13.87 13.43 11.83 -- 2.25 2.31 2.97 --
United
States... -- -- 16.56 13.88 -- -- 5.22 13.82 --
SEVEN MOS. YEAR
ENDED ENDED
DEC. 31, MAY 31,
1995 1994 1994
--------- ------------- -----------
Colombia..... $ 5.52 $ 9.87 $ 9.06
Argentina.... -- -- 13.83
France....... 10.96 11.25 9.83
Indonesia.... 17.34 11.04 14.54
United
States..... 1.03 0.85 7.00
Canada....... -- -- 4.24
Crusader:
Australia... 4.77 4.01 3.97
Canada..... 7.52 7.96 7.44
United
States... -- 6.00 7.77
- ------------------------
(1) Includes natural gas liquids and condensate.
(2) Natural gas has been converted into equivalent barrels based on six Mcf of
natural gas per barrel.
(3) Includes depreciation calculated on the unit of production method for
support equipment and facilities.
COMPETITION
The Company encounters strong competition from major oil companies
(including government-owned companies), independent operators and other
companies for favorable oil and gas concessions, licenses, production sharing
contracts and leases, drilling rights and markets. Additionally, the governments
of certain countries in which the Company operates may from time to time give
preferential treatment to their nationals. The oil and gas industry as a whole
also competes with other industries in supplying the energy and fuel
requirements of industrial, commercial and individual consumers. The principal
means of competition in the sale of oil and gas are product availability, price
and quality. While it
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is not possible for the Company to state precisely its competitive position in
the oil and gas industry, the Company believes that it represents a minor
competitive factor.
MARKETS
Crude oil, natural gas, condensate and other oil and gas products generally
are sold to other oil and gas companies, government agencies and other
industries. The Company does not believe that the loss of any single customer or
contract pursuant to which oil and gas is sold would have a long-term material,
adverse effect on the revenues from the Company's oil and gas operations.
In Colombia, crude oil is exported through the Caribbean port of Covenas
where it is sold at prices based on United States prices, adjusted for quality
and transportation. The oil produced from the Cusiana Field is transported to
the export terminal through pipelines owned by the Colombian national oil
company or joint stock companies partially owned by the Company. This pipeline
system is in the process of being upgraded to accommodate additional production
from the Cusiana and Cupiagua fields. See "Oil and Gas Properties--Colombia" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
For a discussion of certain factors regarding the Company's markets and
potential markets that could affect future operations, see note 20 of Notes to
Consolidated Financial Statements included elsewhere herein.
OIL AND GAS PROPERTIES
COLOMBIA
Through the Company's wholly owned subsidiaries, Triton Colombia, Inc. and
Triton Resources Colombia, Inc. (collectively, "Triton Colombia"), the Company
has varying participation interests in seven licenses in Colombia.
CUSIANA AND CUPIAGUA FIELDS
Contract Terms. In the foothills of the Llanos Basin area in eastern
Colombia, Triton Colombia holds a 12% interest in the SDLA, Tauramena and Rio
Chitamena contract areas, covering approximately 66,000, 36,300 and 6,700 acres,
respectively, where an active appraisal and development program is being carried
out in the Cusiana and Cupiagua fields. Triton's partners in these areas are
Empresa Colombiana De Petroleos ("Ecopetrol"), the Colombian national oil
company, with a 50% interest, BP Exploration Company (Colombia) Limited ("BP"),
the operator, with a 19% interest, and TOTAL Exploratie en Produktie
Maatschippij B.V. ("TOTAL"), also with a 19% interest. In 1993, Ecopetrol
declared the Cusiana and Cupiagua fields to be commercial and exercised its
right to acquire a 50% interest. Triton's net revenue interest is approximately
9.6% after governmental royalties. Triton's net revenue is reduced by up to
0.36% pursuant to an agreement with an original co-investor, subject to Triton
being reimbursed for a proportionate share of expenditures relating thereto.
The Company and its private partners have secured the right to produce oil
and gas from the SDLA and Tauramena contract areas through the years 2010 and
2016, respectively, and from the Rio Chitamena contract area through 2015 or
2019, depending on contract interpretation. In July 1994, Triton Colombia, BP,
TOTAL and Ecopetrol entered into an Integral Plan for the Unified Exploitation
of the Cusiana Oil Structure in the SDLA, Tauramena and Rio Chitamena
Association Contract Areas. Under the plan, the parties have agreed to develop
the Cusiana oil structure in a technically efficient and cooperative manner
during three consecutive periods of time. During the initial period (ending with
the expiration of the SDLA association contract in 2010), petroleum produced
from the unified area will be owned by the parties according to their respective
undivided interests in each contract area.
Within the first quarter of 2005, an independent determination of the
original barrels of oil equivalent ("BOE") of petroleum in place under the
unified area and under each association contract will be made,
S-23
as a result of which a "tract factor" will be calculated for each association
contract. Each tract factor will be the amount of original BOEs of petroleum in
place under the particular association contract as a percentage of the total
original BOEs under the unified area. Each party's unified area interest during
the second period (commencing from the expiration of the SDLA association
contract in 2010) and during the final period (commencing from the termination
of the second association contract to termination) will be the aggregate of that
party's interest in each remaining association contract multiplied by the tract
factor for each such contract.
Recent Drilling Results. In the Cusiana Field, Triton Colombia and its
working interest partners have completed and have in service 24 producing wells
and six gas injection wells. The injection wells recycle to the reservoir most
of the gas that is associated with the oil production to increase the oil
recoverable over the life of the field. There are currently five drilling rigs
operating in the Cusiana Field, and it is expected that 18 oil production and
gas injection wells will be completed during 1997. Development drilling is
proceeding on a schedule which is intended to have sufficient well capacity at
all times to meet production capacities of field facilities and export pipelines
from the area.
In the Cupiagua Field during 1996, Triton Colombia and its working interest
partners completed an additional six wells, bringing the year end total
completions to 10 wells, which are awaiting startup of production facilities in
1997. There are currently six drilling rigs operating in the Cupiagua Field, and
it is expected that 15 additional wells will be completed during 1997.
Development wells drilled during 1996 more fully defined the areal extent of the
field and defined hydrocarbon/water contacts in the fields.
The Cupiagua-5 well was completed in late 1995 and was tested in 1996. The
well penetrated the Mirador, Barco and Guadalupe reservoirs, and the lower
extension of the well discovered a lower thrust of the Mirador Formation which
underlies the main body of the Cupiagua Field. The lower thrust of the Mirador
was confirmed in the Cupiagua-7 and Cupiagua-10 development wells. The well data
and the 3D seismic results are being analyzed to determine the optimum
development plan for this underlying Mirador reservoir. In 1997, Triton Colombia
and its working interest partners plan to drill additional wells dedicated to
exploring the lower thrust.
Tests of the Cupiagua-5 well, which were conducted in early 1996, indicated
the well has a productive capacity of about 75 MMcf of gas and 22,000 barrels of
condensate per day through 7" tubing. The well was tied in to the Cusiana
central processing facility in August 1996 and put on production at rates over
16,000 barrels of condensate per day. Additional Cupiagua wells will be placed
on production in 1997 and tied in to the Cusiana central processing facility for
early production prior to the completion of the Cupiagua central processing
facility in 1997.
Production Facilities and Pipelines. The four initial production units of
the Cusiana Field central processing facility are designed to handle
approximately 180,000 barrels of daily production throughput. Construction is
under way to increase production capacity from the Cusiana and Cupiagua fields
to at least 500,000 barrels per day by year end 1997. Additional pipeline
capacity is required to meet the transportation needs associated with
development of these fields. To that end, in April 1995, Triton Pipeline
Colombia, Inc., a wholly owned subsidiary of the Company, along with Ecopetrol,
BP Colombia Pipelines Ltd., Total Pipeline Colombie, S.A., IPL Enterprises
(Colombia) Inc. and TCPL International Investments Inc., completed the formation
of a company, Oleoducto Central S.A. ("OCENSA"), to own and finance pipeline and
port facilities to be constructed and operated for the transport of crude oil
from the Cusiana and Cupiagua fields to the Caribbean port of Covenas. Triton's
equity participation in OCENSA is 9.6%.
This pipeline project consists of a 793-kilometer (495-mile) pipeline system
from the Cusiana and Cupiagua fields to the port of Covenas. It loops and
generally follows the route of the two existing pipelines: the Central Llanos
pipeline from El Porvenir to Vasconia and the Oleoducto de Colombia pipeline
from Vasconia to Covenas. A portion of the Central Llanos pipeline and pump
station upgrades at E1 Porvenir and Miraflores were acquired by OCENSA during
1995. Expansion of the pipeline system is
S-24
under way and scheduled for completion in 1997. The current plan is to increase
pipeline capacity to transport at least 500,000 barrels of oil per day from the
Fields by year end 1997.
OTHER AREAS IN COLOMBIA
Triton owns rights to four additional licenses in Colombia. In the Middle
Magdalena Valley basin and adjacent foothills, Triton owns a 50% interest
(before certain royalties and government participation) in the El Pinal contract
area, which covers approximately 71,000 acres (after contractually required
relinquishment in 1996) approximately 330 kilometers (205 miles) north of
Bogota. In the southern part of El Pinal, Triton discovered and confirmed the
Liebre Field with two wells (the Liebre-1 and -2). In 1995, Ecopetrol approved
Triton's application to declare the Liebre Field commercial, and production from
the field began in January 1997 at an initial rate of 1,200 barrels of oil per
day from the two wells.
The Yumeca-1 exploratory well, located in the northern part of El Pinal, was
drilled to a total depth of 13,675 feet and tested in 1995. It was intended that
the well test a new play concept in the foothills of the Middle Magdalena
Valley. The well encountered hydrocarbon shows at various intervals but was
plugged and abandoned after four zones were tested.
The Yumeca-2 exploratory well, completed in 1997, was drilled to a total
depth of 13,500 feet and plugged and abandoned after electronic logs failed to
confirm the presence of commercial quantities of oil or gas.
In June 1995, the Company was awarded the Guayabo A and B and Las Amelias
association contracts covering a contiguous area of approximately 1.8 million
acres. The area is located approximately 150 kilometers (93 miles) north of
Bogota and 140 kilometers (87 miles) northwest of the Cusiana and Cupiagua
fields, and is contiguous with the El Pinal contract area to the north. The
terms of these association contracts are less favorable than the terms of the
Cusiana and Cupiagua association contracts. Triton is acquiring seismic data in
a program totaling 142 kilometers (85 miles) over the Guayabo A block, 36
kilometers (22 miles) over the Guayabo B block, and 250 kilometers (150 miles)
over the Las Amelias block.
In March 1996, the Company executed an agreement with Deminex Colombia
Petroleum GmbH ("Deminex") providing Deminex the right to earn a 50% interest in
the El Pinal, Guayabo A and B and Las Amelias contract areas. The Ministry of
Mines and Energy of Colombia formally approved this assignment in August 1996.
Triton Colombia sold its 22.5% and 20% interests (before certain royalties),
respectively, in the 32,834-acre Tolima-B and 32,240-acre San Luis contract
areas in December 1996.
MALAYSIA-THAILAND
CONTRACT TERMS
In April 1994, Triton Thailand became a party to a production sharing
contract covering an area located offshore, designated as Block A-18 of the
Malaysia-Thailand Joint Development Area. The contract area, which encompasses
approximately 731,000 acres, had been the subject of overlapping claims between
Malaysia and Thailand. The other parties to the production sharing contract are
the Malaysia-Thailand Joint Authority (the "MTJA"), which has been established
by treaty to administer the Joint Development Area, and Petronas Carigali (JDA)
Sdn. Bhd. ("Carigali"), a subsidiary of the Malaysian national oil company. The
treaty provides for the development of the Joint Development Area that includes
Block A-18. Triton Thailand previously held a license from Thailand that covered
part of the Joint Development Area.
The term of the contract is 35 years, subject to possible relinquishment of
certain areas and subject to the treaty between Malaysia and Thailand creating
the MTJA remaining in effect. Triton and Carigali have the right to explore for
oil and gas for the first five years of the contract. The contract provides that
if there
S-25
is a discovery of natural gas (not associated with crude oil) and the MTJA
agrees, the contractors will be able to hold that gas field without production
for an additional five-year period, provided the contractors submit to the MTJA
an acceptable development plan for the field. The contractors then have a
five-year period from the MTJA's acceptance of the development plan to develop
the field, and have the right to produce gas from the field for 20 years plus a
number of years equal to the number of years, if any, prior to the end of the
holding period that gas production commenced (or until the termination of the
contract, if earlier). The contract grants to the operators the right to produce
oil from an oil field for 25 years plus a number of years equal to the number of
years, if any, prior to the fifth anniversary of the contract that oil
production commenced (or until the termination of the contract, if earlier). Any
areas not developed and producing within the periods provided will be
relinquished.
As oil and gas are produced, the MTJA is entitled to a 10% royalty. Up to
50% of each unit of production is considered "cost oil" or "cost gas" and will
be allocated to the contractors to the extent of their recoverable costs, with
the balance considered "profit oil" or "profit gas" to be divided 50% to the
MTJA and 50% to the contractors (i.e., 25% to Carigali and 25% to Triton).
Triton's share of production is subject to an additional royalty equal to 0.75%
of Block A-18 production. Tax rates imposed by the MTJA on behalf of the
governments of Malaysia and Thailand are 0% for the first eight years of
production, 10% for the next seven years of production and 20% for any remaining
production.
Simultaneously with the execution of the production sharing contract, the
parties executed a joint operating agreement governing Block A-18 operations.
The operating agreement designated as operator CTOC, a company owned equally by
Triton Thailand and Carigali.
NEGOTIATIONS FOR A GAS-SALES AGREEMENT
In May 1996, the MTJA, Triton and Carigali signed a Memorandum of
Understanding on the sale and purchase of natural gas with Petronas and PTT, the
national oil companies of Malaysia and Thailand, respectively. The Memorandum of
Understanding provides a basis for negotiation of a gas-sales agreement for
natural gas to be produced from Block A-18. The parties currently are
negotiating a heads of agreement intended to include agreement in principle on
the key gas-sales agreement terms. The Company expects that negotiation and
execution of a definitive gas-sales agreement reflecting the heads of agreement
will follow execution of the heads of agreement.
RECENT DRILLING RESULTS
The initial phase of Block A-18 operations included a 2D seismic survey
covering approximately 5,700 kilometers (3,542 miles), a 3D seismic survey
conducted in 1995 covering approximately 620 square kilometers (239 square
miles) over the Cakerawala Field, data analysis and the drilling of three
exploratory wells.
In August 1995, the first of the three wells, the Cakerawala-lA, was tested
at a combined flow rate of 58 MMcf of gas and 945 barrels of condensate and oil
per day. The well was drilled in approximately 200 feet of water to a total
depth of 7,878 feet. A second well, Suriya-1, was tested at a combined flow rate
of 58 MMcf of gas and 351 barrels of condensate per day. The Suriya-1 well was
drilled in approximately 180 feet of water to a total depth of 7,273 feet and is
located on a separate structure. The Suriya-1 well is located approximately 11
kilometers (7 miles) east-southeast of the Cakerawala-1 A well.
A third well, Cakerawala East-l, was drilled in approximately 180 feet of
water to a total depth of 11,808 feet. Cakerawala East-1 tested at 22 MMcf of
gas and 138 barrels of condensate per day from the two shallow sequences that
constitute the principal producing zones for phase one field development. The
well confirmed anticipated fault separations from the structure on which the
Cakerawala-lA well and the Pilong well (drilled by Exxon in 1971) were drilled,
and found comparable sand thickness, flow rates and gas-water contacts and
lesser CO2 content than the same sequences in the Cakerawala-lA and Pilong
wells. Intermediate sequences were wet and were not tested. The well also
confirmed the presence of deeper,
S-26
overpressure sandstone sequences, but the deeper zones tested wet or
inconclusively due to mechanical difficulties. The deeper zones remain an
exploratory prospect for future drilling.
During 1996, petroleum operations in Block A-18 included the drilling of six
wells and the acquisition of a second 3D seismic survey that covered 534 square
kilometers (206 square miles).
In March 1996, two appraisal wells, Cakerawala-2 and Cakerawala-3, were
drilled to delineate the Cakerawala Field. The Cakerawala-2 well was tested at a
combined rate of 31 MMcf of gas and 645 barrels of condensate per day. The well
was drilled in approximately 190 feet of water to a total depth of 9,650 feet,
approximately seven kilometers (four miles) north of the Cakerawala-lA well. The
Cakerawala-3 well was tested at a combined rate of 47 MMcf of gas, 225 barrels
of condensate and 3,002 barrels of oil per day. The well was drilled in
approximately 180 feet of water to a total depth of 9,814 feet, approximately
three kilometers (two miles) southwest of Cakerawala-lA. The two appraisal wells
confirmed the gas pools proven in the earlier wells drilled in the field and
also discovered oil in relatively shallow zones, which require further
delineation.
Following delineation of the Cakerawala Field, two exploratory wells were
drilled to test other prospects in Block A-18. The Bulan-1 well tested at a
combined rate of 36 MMcf of gas and 123 barrels of condensate per day. The well
was drilled in approximately 180 feet of water to a total depth of 7,140 feet,
approximately seven kilometers (four miles) west-northwest of Cakerawala-lA. The
well proved a third commercial field in the block on a separate structure
immediately west of the Cakerawala Field. The Bumi-1 well tested at a combined
rate of 73 MMcf of gas and 305 barrels of condensate per day. The well was
drilled in approximately 180 feet of water to a total depth of 9,279 feet,
approximately four kilometers (three miles) east of the Suriya-1 well. The well
proved a fourth commercial field on the block on a separate structure
immediately east of the Suriya Field.
Two other wells were drilled in 1996 to appraise the Suriya and Bulan
fields. The Suriya-2 well confirmed the discovery made by Suriya-l. The well
tested at a combined rate of 56 MMcf of gas and 268 barrels of condensate per
day. The well was drilled in approximately 180 feet of water to a total depth of
8,315 feet, approximately five kilometers (three miles) south of Suriya-l. The
Bulan-2 well confirmed the discovery made by Bulan-l. The well tested at a
combined rate of 30 MMcf of gas and 185 barrels of condensate per day. The well
was drilled in approximately 176 feet of water to a total depth of 9,160 feet
approximately five kilometers (three miles) south of the Bulan-1 well.
A field development plan for the Cakerawala Field was submitted to the MTJA
for approval in October 1996. Development of the field is expected to commence
following execution of the heads of agreement and to take approximately 30 to 36
months to complete.
ARGENTINA
Through the Company's subsidiaries, Triton Argentina, Inc. and Triton
Resources Argentina, Inc., the Company holds a 100% working interest in the
approximately 47,000-acre Sierra Azul Sur license in the oil and gas producing
Neuquen Basin in western Argentina.
In September 1996, Triton assigned its interests in the Loma Cortaderal and
Cerro Dona Juana blocks to Cordex Petroleums Argentina Ltd. In consideration of
the assigned interest, Cordex agreed to undertake certain work obligations and
to grant Triton an overriding royalty interest of 8% on any future hydrocarbon
production from the areas covered by these blocks. The assignment of these two
areas is subject to government approval. Triton relinquished its interest in the
Malargue Sur license in March 1996.
In January 1997, the Company announced that, after a review of certain
technical information, it had determined that its interest in the Sierra Azul
Sur license, although commercially prospective, did not meet its exploration
objectives. Accordingly, the Company recorded a charge against its results of
operations for the year ended December 31, 1996. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
S-27
ECUADOR
Through the Company's subsidiary, Triton Ecuador, Inc. LLC, the Company
holds an interest in Block 19, which covers approximately 494,000 acres located
in the Ecuadorian foothills of the eastern side of the Andes Mountains in the
Oriente Basin. Triton's partners in the block are Vintage Petroleum Ecuador,
Inc., with a 30% interest, and Ranger Oil Limited, with a 15% interest, subject
to certain government approvals. The partners' work program commitments for
Block 19 consist of the acquisition of 400 kilometers (250 miles) of new seismic
data and the drilling of two exploratory wells during a four-year exploration
period. A total of 442 kilometers (275 miles) of new seismic data was acquired
during 1996. The first exploratory well is expected to be drilled in 1997.
GUATEMALA
Through the Company's subsidiary, Triton Guatemala S.A., the Company has
acquired an interest in two contiguous blocks. The blocks cover a total of
approximately 608,000 acres located on the border with Mexico in an extension of
the Chiapas Fold Belt province. During 1996, Triton processed and interpreted
seismic and gravity data acquired in 1995 and conducted other preparatory
operations for the planned drilling of the Piedras Blancas #1 well to test the
extension of the Chiapas Fold Belt. Drilling is expected to begin in 1997.
CHINA
The Company's subsidiary, Triton China, Inc. LLC, has signed production
sharing contracts with the China National Offshore Oil Company ("CNOOC"), which
give the Company the right to explore and develop two contiguous offshore
contract areas, Blocks 16/03 and 16/22. The blocks are located approximately 175
kilometers (110 miles) offshore from Hong Kong in water depths ranging from 300
to 650 feet. Block 16/22 (791,000 acres) and Block 16/03 (2.2 million acres) are
located in the Huizhou Sub-basin of the Pearl River Mouth Basin. Block 16/22 has
a primary three-year exploration term with a commitment of reprocessing 500
kilometers (310 miles) of existing seismic and the drilling of an exploratory
well for a total expenditure of not less than $7.5 million. Block 16/03 has a
primary one-and-one-half-year exploration term with a commitment of reprocessing
1,000 kilometers (621 miles) of existing seismic and the drilling of an
exploratory well for a total expenditure of not less than $3 million. Seismic
reprocessing on both blocks of an aggregate of approximately 8,800 kilometers
(5,500 miles), was completed in 1995 and 1996.
In April 1996, Triton executed an agreement with Mobil Exploration &
Production China Inc. ("Mobil") providing Mobil the right to earn a 50% interest
in both blocks. Subsequently, the HZ 23-2-1 exploratory well was drilled on
Block 16/22 to a total depth of 14,830 feet in water depths of 390 feet. The
well was plugged and abandoned after encountering hydrocarbon shows, although in
noncommercial quantities. The remaining obligatory well for Block 16/03 is
expected to be drilled in 1997.
Effective January 1997, Triton signed two one-year offshore Joint Study
Agreements with CNOOC. JSA 24/05 covers approximately 1.5 million acres in water
depths ranging from 50 to 200 feet in the Liedong area of the South China Sea.
This study area has a commitment of 3,500 kilometers (2,175 miles) of existing
seismic to be reprocessed. JSA 24/10 covers approximately 3.7 million acres in
water depths ranging from 30 to 295 feet in the South Yellow Sea. This study
area has a commitment of 4,000 kilometers (2,500 miles) of existing seismic to
be reprocessed.
ITALY
The Company has a 40% interest in each of the contiguous DR71 and DR72
licenses operated by Enterprise Oil, plc, in the Adriatic Sea, and a 50%
interest in three onshore licenses, operated by Triton, in the southern
Apennines Mountains. Triton has applied for two new licenses onshore in the
southern Apennines and one new license offshore in the Adriatic.
S-28
The DR71 and DR72 licenses lie 45 kilometers (28 miles) offshore from the
city of Brindisi and cover approximately 493,000 acres. One well, Medusa-l, was
drilled on DR72 in 1996 to a total depth of 4,725 feet. The well proved the
presence of oil and gas in a new play but in noncommercial quantities and was
not tested. Additional drilling is expected in late 1997 or early 1998.
The contiguous Southern Apennines licenses--Fosso del Lupo, Valsinni and
Masseria di Sole--cover approximately 101,000 acres in the Matera province. The
licenses were awarded in August 1996. Triton intends to purchase and acquire
seismic data over the licenses in 1997.
OMAN
The Company's subsidiary, Triton Oman, Inc., was awarded a 100% interest in
a production sharing contract covering Block 22, Masirah Bay, by the Sultanate
of Oman in June 1996. The offshore block covers approximately two million acres
in water depths ranging from 50 to 200 feet. The minimum contractual obligation
during the initial three-year exploration period requires the reprocessing and
reinterpretation of existing seismic data, 1,000 kilometers (625 miles) of
seismic acquisition and one exploratory well contingent on the results of the
seismic program.
INDONESIA
In February 1997, the Company's subsidiary, TriBlora Indonesia B.V., signed,
subject to government approval, an agreement with Eurafrep B.V. to acquire a 30%
interest in the Blora production sharing contract covering a block of
approximately 1.4 million acres located within Central Java. Triton's partners
are Eurafrep B.V., the operator, with a 40% interest, and YPF International Ltd.
with a 30% interest.
The work program calls for an unspecified amount of seismic reprocessing, as
well as the acquisition of 150 kilometers (95 miles) of 2D seismic and the
drilling of a well within the three-year initial exploration period for a total
expenditure of not less than $4.5 million. Reprocessing of seismic began in
January 1997 with acquisition of new seismic to be undertaken in the third
quarter of 1997. Exploratory drilling is planned to begin in 1998.
In 1996, the Company sold its interest in the Enim project in Indonesia.
RESERVES
The following table sets forth a summary of the estimated oil and gas
reserves of the Company at December 31, 1996, and is based on separate estimates
of the Company's net proved reserves, prepared by the independent petroleum
engineers, DeGolyer and MacNaughton, with respect to all proved reserves in the
Cusiana and Cupiagua fields in Colombia, and by the Company's own petroleum
engineers with respect to all proved reserves in Malaysia-Thailand and the
Liebre Field in Colombia. This table sets forth the estimated net quantities of
proved developed and undeveloped oil and gas reserves and total proved oil and
gas reserves owned by the Company and its consolidated subsidiaries. At December
31, 1996, the Company had no proved developed or proved undeveloped reserves in
Argentina, Ecuador, Guatemala, China, Italy, Oman or Indonesia. For additional
information regarding the Company's reserves, including the standardized measure
of future net cash flows, see note 25 of Notes to Consolidated Financial
Statements included elsewhere herein. Oil reserves data include natural gas
liquids and condensate.
S-29
Net Proved Reserves at December 31, 1996:
PROVED DEVELOPED PROVED UNDEVELOPED
TOTAL PROVED
---------------------- ---------------------- --------------------
OIL GAS OIL GAS OIL GAS
(MBBLS) (MMCF) (MBBLS) (MMCF) (MBBLS) (MMCF)
----------- --------- ----------- --------- --------- ---------
Colombia(1)................................................. 67,193 11,146 68,117 3,505 135,310 14,651
Malaysia-Thailand(2)........................................ -- -- 24,700 871,100 24,700 871,100
Total....................................................... 67,193 11,146 92,817 874,605 160,010 885,751
- ------------------------
(1) Includes liquids to be recovered from Ecopetrol as reimbursement for
precommerciality expenditures.
(2) As of December 31, 1996, the Company did not have a contract for the sale of
gas to be produced from its interest in the Malaysia-Thailand Joint
Development Area. In estimating its reserves attributable to such interest,
the Company assumed that production from the interest would be sold at
prices for natural gas derived from what the Company believed to be the most
comparable market price at December 31, 1996. There can be no assurance that
the price to be provided in any gas contract will be equal to the price used
in the Company's calculations.
Reserve estimates are approximate and may be expected to change as
additional information becomes available. Furthermore, estimates of oil and gas
reserves, of necessity, are projections based on engineering data, and there are
uncertainties inherent in the interpretation of such data, as well as the
projection of future rates of production and the timing of development
expenditures. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced nor can there be assurance that the proved undeveloped
reserves will be developed within the periods anticipated.
No estimates of total proved net oil or gas reserves have been filed by the
Company with, or included in any report to, any United States authority or
agency pertaining to the Company's individual reserves since the beginning of
the Company's last fiscal year.
ACREAGE
The following table shows the total gross and net developed and undeveloped
oil and gas acreage held by Triton at December 31, 1996. "Gross" refers to the
total number of acres in an area in which the Company holds an interest without
adjustment to reflect the actual percentage interest held therein by the
Company. "Net" refers to the gross acreage as adjusted for working interests
owned by parties other than the Company.
S-30
"Developed" acreage is acreage spaced or assignable to productive wells.
"Undeveloped" acreage is acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas, regardless of whether such acreage contains proved reserves.
DEVELOPED UNDEVELOPED
AVERAGE AVERAGE(1)
------------- --------------------
GROSS NET GROSS NET
----------- --- --------- ---------
(IN THOUSANDS)
Colombia........................................................................... 30 4 1,940 939
Malaysia-Thailand.................................................................. -- -- 731 366
Argentina.......................................................................... -- -- 47 47
Ecuador............................................................................ -- -- 494 272
Guatemala.......................................................................... -- -- 608 608
China(2)........................................................................... -- -- 2,990 1,495
Italy.............................................................................. -- -- 594 248
Oman............................................................................... -- -- 2,044 2,044
-- --
--------- ---------
Total.............................................................................. 30 4 9,448 6,019
-- --
-- --
--------- ---------
--------- ---------
- ------------------------
(1) Triton's interests in certain of this acreage may expire if not developed at
various times in the future pursuant to the terms and provisions of the
leases, licenses, concessions, contracts, permits or other agreements under
which it was acquired.
(2) Does not include acreage attributable to the two Joint Study Agreements
signed with CNOOC in January 1997.
PRODUCTIVE WELLS AND DRILLING ACTIVITY
In this section, "gross" wells refers to the total number of wells drilled
in an area in which the Company holds any interest without adjustment to reflect
the actual ownership interest held. "Net" refers to the gross number of wells
drilled adjusted for working interests owned by parties other than the Company.
At December 31, 1996, Triton held gross and net working interests in 33 and
4.22 productive wells, respectively, in Colombia.
The following tables set forth the results of the oil and gas well drilling
activity on a gross basis for wells in which the Company held an interest for
the years ended December 31, 1996 and 1995, the seven months ended December 31,
1994, and for the year ended May 31, 1994.
S-31
GROSS EXPLORATORY WELLS
PRODUCTIVE(1) DRY
-------------------------------------------------------- -----------------------------------------
YEAR ENDED SEVEN MOS. YEAR YEAR ENDED SEVEN MOS.
DECEMBER 31, ENDED ENDED DECEMBER 31, ENDED
------------------------ DEC. 31, MAY 31, ------------------------ DEC. 31,
1996 1995 1994 1994 1996 1995 1994
----- ----- --------------- ------------- ----- ----- ---------------
Colombia............. 3 2 1 3 -- 2 --
Malaysia-Thailand.... 7 2 -- -- -- -- --
Argentina............ -- -- -- -- 2 2 --
Italy................ -- -- -- -- 1 -- --
China................ -- -- -- -- 1 -- --
New Zealand.......... -- -- -- 1 -- -- --
Crusader(1):
Argentina.......... -- 1 1 -- -- 2 --
Australia.......... 14 23 9 5 4 11 3
Canada............. -- -- -- -- -- -- --
United States...... -- -- -- 2 -- -- 2
Philippines........ -- -- -- -- -- -- 1
-- -- -- -- -- -- --
Total................ 24 28 11 11 8 17 6
-- -- -- -- -- -- --
-- -- -- -- -- -- --
TOTAL
--------------------------------------------------------
YEAR YEAR ENDED YEAR
ENDED DECEMBER 31, SEVEN MOS. ENDED
MAY 31, ------------------------ ENDED MAY 31,
1994 1996 1995 DEC. 31, 1994 1994
------------- ----- ----- --------------- -------------
Colombia............. -- 3 4 1 3
Malaysia-Thailand.... -- 7 2 -- --
Argentina............ 1 2 2 -- --
Italy................ -- 1 -- -- 1
China................ -- 1 -- -- --
New Zealand.......... -- -- -- -- 1
Crusader(1):
Argentina.......... -- -- 3 1 --
Australia.......... 2 18 34 12 7
Canada............. 1 -- -- -- 1
United States...... 1 -- -- 2 3
Philippines........ -- -- -- 1 --
-- -- -- -- --
Total................ 5 32 45 17 16
-- -- -- -- --
-- -- -- -- --
GROSS DEVELOPMENT WELLS
PRODUCTIVE(1) DRY
-------------------------------------------------------- -----------------------------------------
YEAR ENDED SEVEN MOS. YEAR YEAR ENDED SEVEN MOS.
DECEMBER 31, ENDED ENDED DECEMBER 31, ENDED
------------------------ DEC. 31, MAY 31, ------------------------ DEC. 31,
1996 1995 1994 1994 1996 1995 1994
----- ----- --------------- ------------- ----- ----- ---------------
Colombia............. 15 8 3 -- -- -- --
Malaysia-Thailand.... -- -- -- -- -- -- --
Indonesia............ -- -- -- 3 -- -- --
Crusader(1):
Australia.......... 2 5 8 13 -- 1 1
Canada............. -- -- -- 9 -- -- --
United States...... -- -- 1 -- -- -- --
-- -- -- -- -- -- --
Total................ 17 13 12 25 -- 1 1
-- -- -- -- -- -- --
-- -- -- -- -- -- --
TOTAL
--------------------------------------------------------
YEAR YEAR ENDED YEAR
ENDED DECEMBER 31, SEVEN MOS. ENDED
MAY 31, ------------------------ ENDED MAY 31,
1994 1996 1995 DEC. 31, 1994 1994
------------- ----- ----- --------------- -------------
Colombia............. -- 15 8 3 --
Malaysia-Thailand.... -- -- -- -- --
Indonesia............ 1 -- -- -- 4
Crusader(1):
Australia.......... 1 2 6 9 14
Canada............. -- -- -- -- 9
United States...... 1 -- -- 1 1
-- -- -- -- --
Total................ 3 17 14 13 28
-- -- -- -- --
-- -- -- -- --
- ------------------------
(1) In 1996, the Company sold all of its interest in Crusader and in the Enim
project in Indonesia. In 1995, Crusader sold its interests in Argentina and
Canada.
The following tables set forth the results of drilling activity on a net
basis for wells in which the Company held an interest for the years ended
December 31, 1996 and 1995, the seven months ended December 31, 1994 and for the
year ended May 31, 1994 (those wells acquired or disposed of since May 31, 1993
are reflected in the following tables only since or up to the effective dates of
their respective acquisitions or sales, as the case may be):
S-32
NET EXPLORATORY WELLS
PRODUCTIVE(1) DRY
------------------------------------------------------ -----------------------------------------
YEAR ENDED SEVEN MOS. YEAR YEAR ENDED SEVEN MOS.
DECEMBER 31, ENDED ENDED DECEMBER 31, ENDED
------------------------ DEC. 31, MAY 31, ------------------------ DEC. 31,
1996 1995 1994 1994 1996 1995 1994
----- ----- --------------- ----------- ----- ----- ---------------
Colombia(2).......... 0.12 0.12 0.12 1.24 0.50 2.00 --
Malaysia-Thailand.... 3.50 1.00 -- -- -- -- --
Argentina............ -- -- -- -- 2.00 2.00 --
Italy................ -- -- -- -- 0.40 -- --
China................ -- -- -- -- 0.50 -- --
New Zealand.......... -- -- -- 0.20 -- -- --
Crusasder(3)
Argentina.......... -- 0.06 0.12 -- -- 0.12 --
Australia.......... 0.34 0.35 0.15 0.10 0.10 0.29 0.63
Canada............. -- -- -- -- -- -- --
United States...... -- -- -- 0.20 -- -- 0.40
Philippines........ -- -- -- -- -- -- 0.20
--- --- --- --- --- --- ---
Total................ 3.96 1.53 0.39 1.74 3.50 4.41 1.23
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
TOTAL
------------------------------------------------------
YEAR YEAR ENDED YEAR
ENDED DECEMBER 31, SEVEN MOS. ENDED
MAY 31, ------------------------ ENDED MAY 31,
1994 1996 1995 DEC. 31, 1994 1994
----------- ----- ----- --------------- -----------
Colombia(2).......... -- 0.62 2.12 0.12 1.24
Malaysia-Thailand.... -- 3.50 1.00 -- --
Argentina............ -- 2.00 2.00 -- --
Italy................ 0.10 0.40 -- -- 0.10
China................ -- 0.50 -- -- --
New Zealand.......... -- -- -- -- 0.20
Crusasder(3)
Argentina.......... -- -- 0.18 0.12 --
Australia.......... 0.02 0.44 0.64 0.78 0.12
Canada............. 0.50 -- -- -- 0.50
United States...... 0.10 -- -- 0.40 0.30
Philippines........ -- -- -- 0.20 --
--- --- --- --- ---
Total................ 0.72 7.46 5.94 1.62 2.46
--- --- --- --- ---
--- --- --- --- ---
NET DEVELOPMENT WELLS
PRODUCTIVE(1) DRY
------------------------------------------------------ -----------------------------------------
YEAR ENDED SEVEN MOS. YEAR YEAR ENDED SEVEN MOS.
DECEMBER 31, ENDED ENDED DECEMBER 31, ENDED
------------------------ DEC. 31, MAY 31, ------------------------ DEC. 31,
1996 1995 1994 1994 1996 1995 1994
----- ----- --------------- ----------- ----- ----- ---------------
Colombia(2).......... 1.80 0.96 0.36 -- -- -- --
Malaysia-Thailand.... -- -- -- -- -- -- --
Indonesia............ -- -- -- 3.00 -- -- --
Crusader(3):
Australia.......... 0.05 1.10 0.17 0.40 -- 0.02 0.01
Canada............. -- -- -- 2.00 -- -- --
United States...... -- -- 0.20 -- -- -- --
--- --- --- --- --- --- ---
Total................ 1.85 1.06 0.73 5.40 -- 0.02 0.01
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
TOTAL
------------------------------------------------------
YEAR YEAR ENDED YEAR
ENDED DECEMBER 31, SEVEN MOS. ENDED
MAY 31, ------------------------ ENDED MAY 31,
1994 1996 1995 DEC. 31, 1994 1994
----------- ----- ----- --------------- -----------
Colombia(2).......... -- 1.80 0.96 0.36 --
Malaysia-Thailand.... -- -- -- -- --
Indonesia............ 1.00 -- -- -- 4.00
Crusader(3):
Australia.......... 0.02 0.05 0.12 0.18 0.42
Canada............. -- -- -- -- 2.00
United States...... 0.20 -- -- 0.20 0.20
--- --- --- --- ---
Total................ 1.22 1.85 1.08 0.74 6.62
--- --- --- --- ---
--- --- --- --- ---
- ------------------------
(1) A productive well is producing or capable of producing oil and/or gas in
commercial quantities. Multiple completions have been counted as one well.
Any well in which one of the multiple completions is an oil completion is
classified as an oil well.
(2) Adjusted to reflect the national oil company participation at commerciality
for the Cusiana and Cupiagua fields.
(3) Adjusted to reflect the Company's 49.9% interest in Crusader, which was sold
in 1996.
OTHER PROPERTIES
The Company owns or has interests in oil and gas production facilities
relating to its oil and gas production operations throughout the world. In
addition, the Company leases or owns office space and other properties for its
various operations in various parts of the world.
For additional information on the Company's leases, including its office
leases, see note 21 of Notes to Consolidated Financial Statements included
elsewhere herein.
S-33
MANAGEMENT
The following table sets forth certain information regarding the executive
officers of the Company:
SERVED
WITH THE
NAME AGE POSITION WITH THE COMPANY COMPANY SINCE
- --------------------------------------------- --- --------------------------------------------- -----------------
Thomas G. Finck.............................. 50 Chairman of the Board and Chief Executive 1992
Officer
Nick De'Ath.................................. 48 Senior Vice President, Exploration 1993
Robert B. Holland............................ 44 Senior Vice President, General Counsel and 1993
Secretary
Peter Rugg................................... 49 Senior Vice President and Chief Financial 1993
Officer
A.E. Turner, III............................. 48 Senior Vice President, Operations 1994
In August 1992, Mr. Finck was elected Director, President and Chief
Operating Officer of the Company. Effective January 1993, Mr. Finck was elected
Chief Executive Officer and effective May 1995 he assumed the additional
position of Chairman of the Board. From July 1991 to August 1992, Mr. Finck
served as President and Chief Executive Officer of American Energy Group, an
independent oil and natural gas exploration and production company. From May
1984 until June 1991, Mr. Finck served as President and Chief Executive Officer
of Ensign Oil & Gas, Inc., a private domestic oil and gas exploration company.
Mr. De'Ath was elected Senior Vice President, Exploration in 1993. From 1992
to 1993, Mr. De'Ath served as President and owner of Pinnacle Ltd., a management
consulting firm providing services to multinational companies in Colombia, and
from 1971 to 1991 served in various positions with subsidiaries of British
Petroleum Company, p.1.c., including general manager of exploration for BP
International Limited in Mexico from 1991 to 1992 and general manager of BP's
Colombian operation from 1986 to 1991.
Mr. Holland was elected Senior Vice President, General Counsel and Secretary
of the Company in January 1993. For more than five years prior to joining the
Company, Mr. Holland was a partner of the law firm of Jackson & Walker, L.L.P.,
Dallas, Texas.
Mr. Rugg was elected Senior Vice President and Chief Financial Officer in
April 1993. From September 1992 to April 1993, Mr. Rugg served as Vice President
of J.P. Morgan & Co., Incorporated ("J.P. Morgan"), a financial services firm,
and for more than the five years prior to September 1992, Mr. Rugg served as
Vice President of Morgan Guaranty Trust Company of New York, an international
bank owned by J.P. Morgan.
Mr. Turner was elected Senior Vice President, Operations in March 1994. From
1988 to February 1994, Mr. Turner served in various positions with British Gas
Exploration & Production, Inc., including Vice President and General Manager of
operations in Africa and the Western Hemisphere from October 1993.
All executive officers of the Company are elected annually by the Board of
Directors of the Company to serve in such capacities until removed or their
successors are duly elected and qualified. There are no family relationships
among the executive officers of the Company.
S-34
DESCRIPTION OF THE NOTES
The Notes offered hereby will be issued under a Joint and Several Senior
Indenture to be dated as of April , 1997 (the "Senior Indenture"), as
supplemented by Supplemental Indentures, each to be dated as of April , 1997
relating to the Notes (the "Supplemental Indentures"), among the Issuers and The
Chase Manhattan Bank, as trustee (the "Trustee"). The Senior Indenture and the
Supplemental Indentures are referred to herein collectively as the "Indenture."
This summary of the terms of the Notes supplements, and should be read in
conjunction with (and, to the extent inconsistent, in substitution for), the
"Description of Debt Securities" in the accompanying Prospectus. Certain
capitalized terms used below are defined under "Certain Definitions." The
following summaries of the material provisions of the Indenture do not purport
to be complete and, while the Issuers believe that the summaries of the material
provisions of the Indenture contained herein are accurate summaries of such
material terms, such summaries are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Indenture, including the
definitions therein of certain terms that are used herein or are not otherwise
defined in this Prospectus Supplement or the accompanying Prospectus, as well as
those terms made a part of the Indenture by the Trust Indenture Act of 1939, as
amended.
CONDITION FOR RELEASE OF TEC
TEC may be released from its obligations under the Indenture without the
consent of the holders of the Notes, if no more than $25,000,000 in aggregate
principal amount of the 1997 Notes and the 9 3/4% Notes, taken together, are
outstanding or if TEL or any successor to TEL has assumed the obligations of TEC
under the Notes. In the event of such release, the Notes would be effectively
subordinated to indebtedness of TEC. See "Risk Factors--Holding Company
Structure." In addition, in the event of such release, a taxable sale or
exchange of a Note for a new Note will not be deemed to occur unless the release
results in a change in payment expectations with respect to the Notes. For these
purposes a change in payment expectations with respect to a debt instrument is
generally deemed to occur if there is a substantial enhancement or impairment of
the obligor's capacity to meet payment obligations under the debt instrument and
certain other conditions are met. In the event a release were to be treated as a
taxable sale or exchange, a holder of a Note would recognize gain or loss on the
sale or exchange and might be required to include in income different amounts
during the remaining term of the Note than would have been included absent such
release.
THE FIVE-YEAR NOTES
The Five-Year Notes will be unsecured joint and several senior debt
obligations of the Issuers. The Five-Year Notes will mature on ,
2002 and will be limited to $200,000,000 aggregate principal amount. The
principal amount of each Five-Year Note will be $1,000 or any integral multiple
thereof. Five-Year Notes may be presented for exchange or registration of
transfer at the office of the registrar, which initially will be the Trustee. No
service charge will be made for any transfer or exchange or redemption of a
Five-Year Note. However, the Issuers may require payment by a holder of a sum
sufficient to cover any tax or other governmental charge payable in connection
with the registration of such transfer or exchange.
Commencing , 1997, interest on the Five-Year Notes will accrue
at the rate of % per annum. Interest on the Five-Year Notes will be payable
semi-annually on and to holders of record on the
immediately preceding and . Interest on the Five-Year
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from , 1997, and the first interest
payment date will be , 1997. Interest will be computed on the basis
of a 360-day year consisting of twelve 30-day months. Principal and interest
will be payable at the office or agency of the Issuers maintained for that
purpose within the City and State of New York.
S-35
THE THIRTY-YEAR NOTES
The Thirty-Year Notes will be unsecured joint and several senior debt
obligations of the Issuers. The Thirty-Year Notes will mature on ,
2027 and will be limited to $200,000,000 aggregate principal amount. The
principal amount of each Thirty-Year Note will be $1,000 or any integral
multiple thereof. Thirty-Year Notes may be presented for exchange or
registration of transfer at the office of the registrar, which initially will be
the Trustee. No service charge will be made for any transfer or exchange or
redemption of a Thirty-Year Note. However, the Issuers may require payment by a
holder of a sum sufficient to cover any tax or other governmental charge payable
in connection with the registration of such transfer or exchange.
Commencing , 1997, interest on the Thirty-Year Notes will accrue
at the rate of % per annum. Interest on the Thirty-Year Notes will be payable
semi-annually on and to holders of record on the
immediately preceding and . Interest on the Thirty-Year
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from , 1997, and the first interest
payment date will be , 1997. Interest will be computed on the basis
of a 360-day year consisting of twelve 30-day months. Principal and interest
will be payable at the office or agency of the Issuers maintained for that
purpose within the City and State of New York.
REPAYMENT AT THE OPTION OF THE HOLDER
The Thirty-Year Notes will be repayable by the Issuers at the option of the
holders thereof on , 2007 (the "Optional Repayment Date"), in whole
or in part in increments of $1,000 (providing that any remaining principal
amount thereof shall be at least $1,000), at a repayment price equal to 100% of
the unpaid principal amount to be repaid on the Optional Repayment Date,
together with unpaid interest accrued thereon to such date. Prior to ,
2007, the Issuers will mail a notice to each registered holder stating, among
other things, that for any Thirty-Year Note to be repaid on the Optional
Repayment Date, such Thirty-Year Note must be received, together with the form
thereon entitled "Option to Elect Repayment" duly completed, by the Issuers at
their offices maintained for such purpose in the Borough of Manhattan, The City
of New York, currently the Corporate Trust Office of the Trustee, not more than
60 nor less than 30 calendar days prior to the date of repayment. Exercise of
such repayment option by a holder will be irrevocable.
Only DTC or Cede & Co. (DTC's nominee) may exercise the repayment option in
respect of Thirty-Year Notes in book-entry form. Accordingly, Beneficial Owners
(as defined herein) of Thirty-Year Notes that desire to have all or any portion
of the Thirty-Year Notes repaid must instruct the Participant (as defined
herein) through which they own their interest to direct DTC to exercise the
repayment option on their behalf by delivering the appropriate instructions and
a duly completed election form to the Trustee as aforesaid. In order to ensure
that such instructions and election form are received by the Trustee on a
particular day, the applicable Beneficial Owner must so instruct the Participant
through which it owns its interest before such Participant's deadline for
accepting instructions for that day. Participants may have different deadlines
for accepting instructions from their customers. Accordingly, Beneficial Owners
should consult the Participants through which they own their interest for the
respective deadlines of such Participants. All instructions given to
Participants from Beneficial Owners relating to the option to elect repayment
shall be irrevocable. In addition, at the time such instructions are given, each
such Beneficial Owner shall cause the Participant through which it owns its
interest to transfer such Beneficial Owner's interest in the Global Certificate
representing the Thirty-Year Notes, on DTC's records, to the Trustee. See "Book
Entry System."
If applicable, the Issuers will comply with the requirements of Section
14(e) of the Exchange Act, and the rules promulgated thereunder, and any other
securities laws or regulations in connection with such repayment.
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REDEMPTION
The Five-Year Notes may be redeemed at any time at the option of the Issuers
and the Thirty-Year Notes may be redeemed at any time after , 2007 at
the option of the Issuers, in whole or in part, at a redemption price equal to
the sum of: (i) the principal amount of the Notes being redeemed plus accrued
interest thereon to the redemption date; and (ii) the Make-Whole Amount (as
defined below), if any, with respect to such Notes (the "Redemption Price").
If notice of redemption has been given as provided in the Indenture and
funds for the redemption of any Notes called for redemption shall have been made
available on the redemption date referred to in such notice, such Notes will
cease to bear interest on the date fixed for such redemption specified in such
notice and the only right of the holders of the Notes from and after the
redemption date will be to receive payment of the Redemption Price upon
surrender of such Notes in accordance with such notice.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption of any
Notes, the excess, if any, of: (a) the aggregate present value as of the date of
such redemption of each dollar of principal being redeemed and the amount of
interest (exclusive of interest accrued to the date of redemption) that would
have been payable in respect of each such dollar if such redemption had not been
made, determined by discounting, on a semi-annual basis, such principal and
interest at the Reinvestment Rate (determined on the third Business Day
preceding the date notice of such redemption is given) from the respective dates
on which such principal and interest would have been payable if such redemption
had not been made, to the date of redemption; over (b) the aggregate principal
amount of the Notes being redeemed.
"Reinvestment Rate" means the yield on Treasury securities at a constant
maturity corresponding to the remaining life (as of the date of redemption,
rounded to the nearest month) to the stated maturity of the principal being
redeemed (the "Treasury Yield") plus % with respect to the Five-Year Notes
and % with respect to the Thirty-Year Notes. For purposes hereof, the
Treasury Yield shall be equal to the arithmetic mean of the yields published in
the Statistical Release (as defined below) under the heading "Week Ending" for
"U.S. Government Securities--Treasury Constant Maturities" with a maturity equal
to such remaining life; provided, that if no published maturity exactly
corresponds with such remaining life, then the Treasury Yield shall be
interpolated or extrapolated on a straight-line basis from the arithmetic means
of the yields for the next shortest and next longest published maturities. For
purposes of calculating the Reinvestment Rate, the most recent Statistical
Release published prior to the date of determination of the Make-Whole Amount
shall be used. If the format or content of the Statistical Release changes in a
manner that precludes determination of the Treasury Yield in the above manner,
then the Treasury Yield shall be determined in the manner that most closely
approximates the above manner, as reasonably determined by the Issuers.
"Statistical Release" means the statistical release designated "H.15 (519)"
or any successor publication which is published weekly by the Board of Governors
of the Federal Reserve System and which reports yields on actively traded United
States government securities adjusted to constant maturities, or, if such
statistical release is not published at the time of any determination under the
Indenture, then such other reasonably comparable index which shall be designated
by the Issuers.
No sinking fund is provided for the Notes.
If less than all the Notes are to be redeemed, the particular Notes or
portions thereof to be redeemed shall be selected not more than 60 days and not
less than 30 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption, either pro rata, by lot
or by another method the Trustee shall deem fair and reasonable, and the
aggregate principal amounts to be redeemed must be equal to $1,000 or any
integral multiple thereof.
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BOOK-ENTRY SYSTEM
DTC will act as securities depositary for the Notes. The Notes will be
issued only as fully-registered securities registered in the name of Cede & Co.
One or more fully-registered global certificates will be issued for the Notes,
representing the aggregate principal balance of the Notes, and will be deposited
with the Trustee as custodian for DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. "Direct Participants"
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain custodial
relationships with Direct Participants, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the SEC.
Purchases of the Notes within the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's records.
The ownership interest of each actual purchaser of each Note (a "Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Notes. Transfers of ownership interests in
the Notes are to be accomplished by entries made on the books of Participants
acting on behalf Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the Notes, except in the
event that use of the book-entry system for the Notes is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Notes; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Notes are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners, and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Notes. If less than all of the Notes are being redeemed, DTC's current
practice is to determine by lot the amount of the interest of each Direct
Participant to be redeemed.
Although voting with respect to the Notes is limited to holders of record of
the Notes, in those instances in which a vote is required, neither DTC nor Cede
& Co. will itself consent or vote with respect to the Notes. Under its usual
procedures, DTC would mail an omnibus proxy (the "Omnibus Proxy") to the Trustee
as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
such Notes are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
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Interest payments on the Notes will be made by the Trustee to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participants and not of DTC, the Trustee or the Issuers, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of interest to DTC is the responsibility of the Trustee, disbursement of
such payments to Direct Participants is the responsibility of DTC, and
disbursements of such payments to the Beneficial Owners is the responsibility of
Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to the Notes at any time after giving reasonable notice to the Trustee
and the Issuers. In the event that a successor securities depositary is not
obtained, definitive certificates representing the Notes are required to be
printed and delivered. The Issuers, at their option, may decide to discontinue
use of the system of book-entry transfers through DTC (or a successor
depositary).
The information contained herein concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuers believe to be accurate, but the
Issuers assume no responsibility for the accuracy thereof. The Issuers have no
responsibility for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters (as defined
herein) in immediately available funds. If the total outstanding principal
amount of the Notes is represented by a Global Certificate, all payments of
principal of and any premium and interest on the Notes will be made by the
Issuers in immediately available funds; otherwise, payments on definitive
physical certificates will be made in U.S. Clearing House funds. Secondary
market trading activity in the Notes will also settle in immediately available
funds.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATIONS ON LIENS
The Indenture will provide that the Issuers will not, and will not permit
any Restricted Subsidiary to, issue, assume or guarantee any Indebtedness for
borrowed money secured by any Lien on any property or asset now owned or
hereafter acquired by the Issuers or such Restricted Subsidiary without making
effective provision whereby any and all Notes then or thereafter outstanding
will be secured by a Lien equally and ratably with any and all other obligations
thereby secured for so long as any such obligations shall be so secured.
The foregoing restriction will not, however, apply to:
(a) Liens existing on the date on which the Notes are originally issued
or provided for under the terms of agreements existing on such date;
(b) Liens on property securing (i) all or any portion of the cost of
exploration, drilling or development of such property, (ii) all or any
portion of the cost of acquiring, constructing, altering, improving or
repairing any property or assets, real or personal, or improvements used or
to be used in connection with such property or (iii) Indebtedness incurred
by the Restricted Subsidiary to provide funds for the activities set forth
in clauses (i) and (ii) above;
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(c) Liens securing Indebtedness owed by a Restricted Subsidiary to an
Issuer or to any other Restricted Subsidiary;
(d) Liens on property existing at the time of acquisition of such
property by the Company or a Subsidiary or Liens on the property of any
corporation or other entity existing at the time such corporation or other
entity becomes a Restricted Subsidiary or is merged with an Issuer in
compliance with the Indenture and in either case not incurred as a result of
(or in connection with or in anticipation of) the acquisition of such
property or such corporation or other entity becoming a Restricted
Subsidiary or being merged with an Issuer, provided that such Liens do not
extend to or cover any property or assets of the Issuers or any Restricted
Subsidiaries other than the property so acquired;
(e) Liens on any property securing (i) Indebtedness incurred in
connection with the construction, installation or financing of pollution
control or abatement facilities or other forms of industrial revenue bond
financing or (ii) Indebtedness issued or guaranteed by the United States or
any State thereof or any department, agency or instrumentality of either;
(f) any Lien extending, renewing or replacing (or successive extensions,
renewals or replacements of) any Lien of any type permitted under clauses
(a) through (e) above, provided that such Lien extends to or covers only the
property that is subject to the Lien being extended, renewed or replaced;
(g) certain Liens arising in the ordinary course of business of the
Issuers and the Restricted Subsidiaries;
(h) any Lien resulting from the deposit of moneys or evidences of
indebtedness in trust for the purpose of defeasing Indebtedness of the
Issuers or any subsidiary; or
(i) Liens (exclusive of any Lien of any type otherwise permitted under
clauses (a) through (h) above) securing Indebtedness of the Issuers or any
Restricted Subsidiary in an aggregate principal amount which, together with
the aggregate amount of Attributable Indebtedness deemed to be outstanding
in respect of all Sale/Leaseback Transactions entered into pursuant to
clause (a) of the covenant described under "Limitation on Sale/Leaseback
Transactions" below (exclusive of any such Sale/Leaseback Transactions
otherwise permitted under clauses (a) through (h) above), does not at the
time such Indebtedness is incurred exceed 15% of the Consolidated Net
Tangible Assets of the Company (as shown in the most recent audited
consolidated balance sheet of the Company and its subsidiaries).
The following types of transactions will not be prohibited or otherwise
limited by the foregoing covenant: (i) the sale, granting of Liens with respect
to, or other transfer of, crude oil, natural gas or other petroleum hydrocarbons
in place for a period of time until, or in an amount such that, the transferee
will realize therefrom a specified amount (however determined) of money or of
such crude oil, natural gas or other petroleum hydrocarbons; (ii) the sale or
other transfer of any other interest in property of the character commonly
referred to as a production payment, overriding royalty, forward sale or similar
interest; (iii) the entering into of Currency Hedge Obligations, Interest Rate
Hedging Agreements or Oil and Gas Hedging Contracts although Liens securing any
Indebtedness for borrowed money that is the subject of any such obligation shall
not be permitted hereby unless permitted under clauses (a) through (i) above;
and (iv) the granting of Liens required by any contract or statute in order to
permit the Issuers or any Restricted Subsidiary to perform any contract or
subcontract made by it with or at the request of the United States or any State
thereof or any department, agency or instrumentality of either, or to secure
partial, progress, advance or other payments to the Issuers or any Restricted
Subsidiary by such governmental unit pursuant to the provisions of any contract
or statute.
S-40
LIMITATION OF SALE/LEASEBACK TRANSACTIONS
The Indenture will provide that the Issuers will not, and will not permit
any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with any
person (other than the Issuers or a Restricted Subsidiary) unless:
(a) the Issuers or such Restricted Subsidiary would be entitled to incur
Indebtedness, in a principal amount equal to the Attributable Indebtedness with
respect to such Sale/Leaseback Transaction, secured by a Lien on the property
subject to such Sale/Leaseback Transaction pursuant to the covenant described
under "--Limitation on Liens" above without equal and ratably securing the Notes
pursuant to such covenant;
(b) after the date on which the Notes are originally issued and within a
period commencing six months prior to the consummation of such Sale/Leaseback
Transaction and ending six months after the consummation thereof, the Issuers or
such Restricted Subsidiary shall have expended for property used or to be used
in the ordinary course of business of the Issuers and the Restricted
Subsidiaries (including amounts expended for the exploration, drilling or
development thereof, and for additions, alterations, repairs and improvements
thereto) an amount equal to all or a portion of the net proceeds of such Sale/
Leaseback Transaction and the Issuers shall have elected to designate such
amount as a credit against such Sale/Leaseback Transaction (with any such amount
not being so designated to be applied as set forth in clause (c) below); or
(c) the Issuers during the twelve-month period after the effective date of
such Sale/Leaseback Transaction, shall have applied to the voluntary repurchase,
repayment, defeasance or retirement of all or a portion of a series of Notes or
any PARI PASSU Indebtedness an amount equal to the greater of the net proceeds
of the sale or transfer of the property leased in such Sale/Leaseback
Transaction and the fair value, as determined by the Board of Directors of an
Issuer, of such property at the time of entering into such Sale/Leaseback
Transaction (in either case adjusted to reflect the remaining term of the lease
and any amount expended by an Issuer as set forth in clause (b) above), less an
amount equal to the principal amount of Notes and PARI PASSU Indebtedness
voluntarily repurchased, repaid, defeased or retired by the Issuers within such
twelve-month period and not designated as a credit against any other
Sale/Leaseback Transaction entered into by the Issuers or any Restricted
Subsidiary during such period.
LIMITATIONS ON MERGERS AND CONSOLIDATIONS
The Indenture provides that either of the Issuers may merge or consolidate
with or into any other Person or Persons (whether or not affiliated with such
Issuer), or successive consolidations or mergers in which such Issuer or its
respective successor or successors shall be a party or parties, and may sell,
lease, exchange or otherwise dispose of all or substantially all its property
and assets to any other Person (whether or not affiliated with such Issuer)
authorized to acquire and operate the same; PROVIDED, HOWEVER, that any such
consolidation, merger, sale, lease, exchange or other disposition shall be upon
the conditions that (a) immediately after giving effect to such consolidation,
merger, sale, lease, exchange or other disposition of the person (whether such
Issuer or such other person) formed by or surviving any such consolidation or
merger, or to which such sale, lease, exchange or other disposition shall have
been made, no Event of Default, and no event which after notice or lapse of time
or both, would become an Event of Default, shall have occurred and be
continuing; (b) the person (if other than such Issuer) formed by or surviving
any such consolidation or merger, or to which such sale, lease, exchange or
other disposition shall have been made, shall be a corporation or partnership
organized under the laws of the United States of America, any state thereof or
the District of Columbia or the Cayman Islands or any political subdivision
thereof; and (c) the due and punctual payment of the principal of and interest,
if any, on all the Notes, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of the
Indenture to be performed by such Issuer shall be expressly assumed by the
person (if
S-41
other than such Issuer) formed by such consolidation, or into which such Issuer
shall have been merged, or by the Person which shall have acquired or leased
such property.
CERTAIN DEFINITIONS
"ATTRIBUTABLE INDEBTEDNESS" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount of
rent required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date at the rate of
interest per annum implicit in the terms of the lease. As used in the preceding
sentence, the net amount of rent under any lease for any such period shall mean
the sum of rental and other payments required to be paid with respect to such
period by the lessee thereunder excluding any amounts required to be paid by
such lessee on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges. In the case of any lease which is
terminable by the lessee upon payment of a penalty, such net amount of rent
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated.
"CURRENCY HEDGE OBLIGATIONS" means, at any time as to any Person, the
obligations of such Person at such time that were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"INTEREST RATE HEDGING AGREEMENTS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person or any of its
subsidiaries against fluctuations in interest rates.
"OIL AND GAS HEDGING CONTRACTS" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.
"RESTRICTED SUBSIDIARY" means any subsidiary of the Company which owns or
leases (as lessor or lessee) (i) any property owned or leased by the Company or
any subsidiary, or any interest of the Company or any subsidiary in property
which is considered by the Company to be capable of producing oil or gas or
minerals in commercial quantities, (ii) any processing or manufacturing plant or
pipeline owned or leased by the Company or any subsidiary except any processing
or manufacturing plant or pipeline, or portion thereof, which the Board of
Directors in its good faith judgement determines in a board resolution is not
material to the business of the Company and its subsidiaries taken as a whole
and (iii) any subsidiary designated as a Restricted Subsidiary by the Board of
Directors.
"SALE/LEASEBACK TRANSACTION" means with respect to the Issuers or any of its
Restricted Subsidiaries, any arrangement with any Person providing for the
leasing by the Issuers or any of its Restricted Subsidiaries of any principal
property, acquired or placed into service more than 180 days prior to such
arrangement, whereby such property has been or is to be sold or transferred by
the Issuers or any of its Restricted Subsidiaries to such Person.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture with respect to the Notes
of either series if any one of the following events occurs: (a) default in the
payment of principal of or premium, if any, with respect to the Notes of that
series when due; (b) default in the payment of any installment of interest upon
any of the Notes of that series when due, continued for 30 days; (c) default in
the payment or satisfaction
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of purchase obligation with respect to the Thirty-Year Notes when due; (d)
default in the performance of any other covenant of either of the Issuers
applicable to Notes of that series, continued for 60 days after written notice
to the Issuers by the Trustee or to the Issuers and the Trustee, by the holders
of at least 25% in aggregate principal amount of the Notes of such series then
outstanding requiring the same to be remedied; (e) certain events of bankruptcy,
insolvency or reorganization of either of the Issuers or any Restricted
Subsidiary; and (f) default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by either of the Issuers or any Restricted
Subsidiary or under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any indebtedness for
money borrowed of either of the Issuers or any Restricted Subsidiary resulting
in the acceleration of such indebtedness, or any default in payment of such
indebtedness (after expiration of any applicable grace periods and presentation
of any debt instruments, if required), if the aggregate amount of all such
indebtedness that has been so accelerated and with respect to which there has
been such a default in payment shall exceed $10,000,000 and there has been a
failure to obtain rescission or annulment of all such accelerations or to
discharge all such defaulted indebtedness within 20 days after written notice of
the type specified in the foregoing clause (d).
If any Event of Default shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes of that
series then outstanding, by notice in writing to the Issuers (and to the
Trustee, if given by the holders), may declare the principal of all of the Notes
of such series and the interest, if any, accrued thereon to be due and payable
immediately; PROVIDED, HOWEVER, that the holders of a majority in aggregate
principal amount of the Notes of such series then outstanding, by notice in
writing to the Issuers and the Trustee, may rescind and annul such declaration
and its consequences if all defaults under such Indenture are cured or waived.
Each Indenture provides that no holder of any series of Notes then
outstanding may institute any suit, action or proceeding with respect to, or
otherwise attempt to enforce, such Indenture, unless (i) such holder previously
shall have given to the Trustee written notice of default and of the continuance
thereof, (ii) the holders of not less than 25% in aggregate principal amount of
such series of Notes then outstanding shall have made written request to the
Trustee to institute such suit, action or proceeding and shall have offered to
the Trustee such reasonable indemnity as it may require with respect thereto and
(iii) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding; PROVIDED that, the right of any holder of any Note
to receive payment of the principal of, premium, if any, or interest, if any, on
such Note, on or after the respective due dates, or to institute suit for the
enforcement of any such payment shall not be impaired or affected without the
consent of such holder. The holders of a majority in aggregate principal amount
of the Notes of such series then outstanding may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the Notes
of such series, provided that the Trustee may decline to follow such direction
if the Trustee determines that such action or proceeding is unlawful or would
involve the Trustee in personal liability.
The Issuers are required to furnish to the Trustee annually a certificate as
to compliance by the Issuers with all conditions and covenants under each
Indenture.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Issuers have agreed to sell to each of the Underwriters (the "Underwriters")
named below, and each Underwriter has severally agreed to purchase from the
Issuers, the principal amount of Notes set forth opposite its name below:
PRINCIPAL AMOUNT OF NOTES
------------------------------
FIVE-YEAR THIRTY-YEAR
UNDERWRITER NOTES NOTES
- ------------------------------------------------------------- -------------- --------------
Bear, Stearns & Co. Inc...................................... $ $
Salomon Brothers Inc.........................................
Lehman Brothers Inc..........................................
Morgan Stanley & Co. Incorporated............................
NationsBanc Capital Markets, Inc.............................
UBS Securities LLC...........................................
Howard, Weil, Labouisse, Friedrichs Incorporated.............
-------------- --------------
Total.................................................... $ 200,000,000 $ 200,000,000
-------------- --------------
-------------- --------------
The Underwriting Agreement between the Underwriters and the Issuers provides
that the obligations of the Underwriters thereunder are subject to approval of
certain legal matters by counsel and various other conditions. The nature of the
obligations of the Underwriters is such that they are committed to purchase all
of the Notes from the Issuers at the public offering price set forth on the
cover page of this Prospectus Supplement, less the underwriting discount, if any
are purchased. The sale of each issue of Notes is not conditional on the sale of
the other issue of Notes.
The Underwriters have advised the Issuers that they propose to offer the
Notes directly to the public initially at the public offering price set forth on
the cover page of this Prospectus Supplement and to certain dealers at that
price less a concession not in excess of % and % of the principal amount
of the Five-Year Notes and the Thirty-Year Notes, respectively, and that the
Underwriters may allow, and those dealers may reallow, to certain other dealers
a further concession not in excess of % and % of the principal amount of
the Five-Year Notes and the Thirty-Year Notes, respectively. After the initial
offering, the price to the public and selling concessions may be changed by the
Underwriters.
The Notes are a new issue of securities with no established trading market.
The Notes will not be listed on any national securities exchange. The Issuers
have been advised by the Underwriters that they intend to make a market in the
Notes but are not obligated to do so and may discontinue market making at any
time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.
In connection with the sale of the Notes, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot the offering, creating a
syndicate short position. In addition, the Underwriters may bid for, and
purchase, the Notes in the open market to cover syndicate shorts or to stabilize
the price of the Notes. Finally, the underwriting syndicate may reclaim selling
concessions allowed for distributing the Notes in the offering, if the syndicate
repurchases previously distributed Notes in syndicate covering transactions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Notes above independent market levels. The
Underwriters will not be required to engage in these activities, and may end any
of these activities at any time.
In the ordinary course of their respective businesses, certain of the
Underwriters or their affiliates have engaged, and in the future may engage, in
investment banking and commercial banking transactions with the Company. In
connection with the reorganization of TEL, the Company paid an affiliate of
Lehman Brothers Inc. a financial advisory fee of $250,000 in February 1996 and a
transaction fee of $600,000 in April 1996. An affiliate of NationsBanc Capital
Markets, Inc. is a co-agent under the
S-44
Company's revolving credit facility, for which services it has received
customary compensation. In addition, it is expected that a portion of the net
proceeds of the sale of the Notes will be paid to such affiliate in its capacity
as a lender under such facility.
The Issuers have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Notes will be
passed upon for the Company and TEC by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York and for TEL by
W.S. Walker & Company, Grand Cayman, Cayman Islands. Certain legal matters with
respect to the Notes will be passed upon for the Underwriters by Andrews & Kurth
L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements included elsewhere herein and
incorporated herein by reference have been so included and incorporated in
reliance upon the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
Certain information with respect to the gas and oil reserves of Triton
Energy Limited and Triton Energy Corporation and their subsidiaries derived from
the report of DeGolyer and MacNaughton, independent petroleum engineers, has
been incorporated by reference herein in reliance upon such firm as experts with
respect to the matters contained therein.
S-45
PROSPECTUS
TRITON ENERGY LIMITED
PREFERENCE SHARES
ORDINARY SHARES
WARRANTS TO PURCHASE PREFERENCE SHARES
WARRANTS TO PURCHASE ORDINARY SHARES
DEBT SECURITIES
WARRANTS TO PURCHASE DEBT SECURITIES
TRITON ENERGY LIMITED
TRITON ENERGY CORPORATION
DEBT SECURITIES
WARRANTS TO PURCHASE DEBT SECURITIES
------------------
Triton Energy Limited ("TEL" or the "Company") may offer and sell from time
to time, in one or more series, (i) its preference shares, par value $.01 per
share (the "Preference Shares"), (ii) its Ordinary Shares, par value $.01 per
share (the "Ordinary Shares"), (iii) unsecured debt securities consisting of
notes, debentures or other evidences of indebtedness (the "TEL Debt Securities")
which may be senior ("TEL Senior Debt Securities"), senior subordinated ("TEL
Senior Subordinated Debt Securities") or subordinated ("TEL Subordinated Debt
Securities"), and (iv) warrants to purchase Preference Shares, Ordinary Shares
or TEL Debt Securities (the "TEL Warrants"), or any combination of the
foregoing.
TEL and its wholly-owned subsidiary, Triton Energy Corporation ("TEC"), may
offer and sell from time to time, in one or more series, (i) their joint and
several unsecured debt securities consisting of notes, debentures or other
evidences of indebtedness (the "Joint and Several Debt Securities", and together
with the TEL Debt Securities, the "Debt Securities") which may be senior ("Joint
and Several Senior Debt Securities", and together with the TEL Senior Debt
Securities, the "Senior Debt Securities") or senior subordinated ("Joint and
Several Senior Subordinated Debt Securities", and together with the TEL Senior
Subordinated Debt Securities, the "Senior Subordinated Debt Securities") and
(ii) warrants to purchase Joint and Several Debt Securities (the "Joint and
Several Warrants" and, together with the TEL Warrants, the "Warrants"), or any
combination of the foregoing.
The Preference Shares, Ordinary Shares, Debt Securities and Warrants are
collectively referred to as the "Securities". The Preference Shares, Ordinary
Shares, TEL Debt Securities and TEL Warrants may be offered at an aggregate
initial offering price not to exceed $200,000,000 and the Joint and Several Debt
Securities and Joint and Several Warrants may be offered at an aggregate initial
offering price not to exceed $400,000,000, in each case at prices and on terms
to be determined at or prior to the time of sale.
Specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an accompanying Prospectus Supplement
("Prospectus Supplement"), together with the terms of the offering of the
Securities and the initial price and the net proceeds to TEL or TEC, as the case
may be, from the sale thereof. The Prospectus Supplement will set forth with
regard to the particular Securities, without limitation, the following: (i) in
the case of Debt Securities, the specific designation, aggregate principal
amount, ranking as senior debt, senior subordinated debt or subordinated debt,
maturity, rate or rates (or method of determining the same) and time or times
for the payment of interest, if any, any terms for optional or mandatory
redemption or repurchase or sinking fund provisions, and any conversion or
exchange rights, (ii) in the case of Preference Shares, the designation, number
of shares, liquidation preference per share, initial public offering price,
dividend rate (or method of calculation thereof), dates on which dividends shall
be payable and dates from which dividends shall accrue, any redemption or
sinking fund provisions, and any conversion or exchange rights, (iii) in the
case of Ordinary Shares, the number of Ordinary Shares and the terms of the
offering and sale thereof and (iv) in the case of Warrants, the number and terms
thereof, the designation and the number of securities issuable upon their
exercise, the exercise price, the terms of the offering and sale thereof and,
where applicable, the duration and detachability thereof.
The Securities may be sold directly by TEL or TEC to investors, through
agents designated from time to time or to or through underwriters or dealers.
See "Plan of Distribution." If any agents of TEL or TEC or any underwriters are
involved in the sale of any Securities in respect of which this Prospectus is
being delivered, the names of such agents or underwriters and any applicable
commissions or discounts will be set forth in the Prospectus Supplement.
FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS," BEGINNING ON PAGE 4.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS MARCH 28, 1997.
AVAILABLE INFORMATION
TEL is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by TEL may be inspected and copied at the public reference facilities
maintained by the Commission, 450 Fifth Street, N.W., Judiciary Plaza, Room
1024, Washington, D.C. 20549 and at the web site (http://www.sec.gov.)
maintained by the Commission; and at regional offices of the Commission at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at 7 World Trade Center, New York, New York 10048. Copies of such material
may be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material may also be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information contained in the Registration Statement on Form S-3,
as amended (the "Registration Statement"), of which this Prospectus is a part.
For further information with respect to the Company and the Securities offered
hereby, reference is made to the Registration Statement and the exhibits
thereto. Statements made in this Prospectus as to the contents of any contract,
agreement or other document are not necessarily complete; and while the Company
believes the descriptions of the material provisions of such contracts,
agreements and other documents contained in this Prospectus are accurate
summaries of such material provisions, reference is made to such contract,
agreement or other document filed as an exhibit to the Registration Statement
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus TEL's Annual
Report on Form 10-K for the year ended December 31, 1996.
Each document filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities pursuant hereto shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any statement
contained in this Prospectus or in a document incorporated or deemed to be
incorporated by reference in this Prospectus shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained in this Prospectus or in any subsequently
filed document that also is or is deemed to be incorporated by reference in this
Prospectus modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents that are incorporated by reference in this
Prospectus, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to Investor Relations, Triton Energy, 6688 North Central Expressway,
Suite 1400, Dallas, Texas 75206-9926, telephone (214) 691-5200.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
The Company is a Cayman Islands company, certain of its officers and
directors may be residents of various jurisdictions outside the United States
and its Cayman Islands counsel, W.S. Walker & Company, are residents of the
Cayman Islands. All or a substantial portion of the assets of TEL and of such
persons may be located outside the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon such persons or to enforce in United States courts judgments obtained
against such persons in United States courts and predicated upon the civil
liability provisions of the Securities Act. Notwithstanding the foregoing, TEL
has irrevocably agreed that it may be served with process with respect to
actions based on offers and sales of securities made hereby in the United States
by
2
serving Robert B. Holland, III, c/o Triton Energy Corporation, 6688 North
Central Expressway, Suite 1400, Dallas, Texas 75206-9926, TEL's United States
agent appointed for that purpose. TEL has been advised by its Cayman Islands
counsel, W.S. Walker & Company, that there is doubt as to whether Cayman Islands
courts would enforce (a) judgments of United States courts obtained in actions
against such persons or TEL that are predicated upon the civil liability
provisions of the Securities Act or (b) in original actions brought against TEL
or such persons predicated upon the Securities Act. There is no treaty in effect
between the United States and the Cayman Islands providing for such enforcement,
and there are grounds upon which Cayman Islands courts may not enforce judgments
of United States courts. Certain remedies available under the United States
federal securities laws would not be allowed in Cayman Islands courts as
contrary to that nation's policy.
THE COMPANY
GENERAL
The Company is an international oil and gas exploration company primarily
engaged in exploration and production through subsidiaries and affiliates. The
Company's principal properties and operations are located in Colombia and
Malaysia-Thailand. The Company also has oil and gas interests in other Latin
American, European and Asian countries.
TEL was formed in the Cayman Islands in 1995 and became the parent holding
company of TEC through the merger (the "Merger") of a subsidiary of TEL with and
into TEC . The Merger was consummated on March 25, 1996. In connection with the
Merger, each share of common stock of TEC was converted into one Ordinary Share.
TEL's principal executive offices are located at Caledonian House, Mary Street,
P.O. Box 1043, George Town, Grand Cayman, Cayman Islands and its telephone
number is (809) 949-0050.
TEC was incorporated in Delaware in 1995 and is the successor by merger to
Triton Energy Corporation, a Texas corporation incorporated in 1962. TEC 's
principal executive offices are located at 6688 North Central Expressway, Suite
1400, Dallas, Texas 75206-9926 and its telephone number is (214) 691-5200. The
"Company" refers collectively to TEL and its consolidated subsidiaries,
including TEC .
RESERVES
The following table is a summary of the Company's net proved reserves at
December 31, 1996 and is based on estimates prepared by the independent
petroleum engineers, DeGolyer and MacNaughton, with respect to all proved
reserves in the Cusiana and Cupiagua fields in Colombia, and on estimates
prepared by the Company's own petroleum engineers with respect to all proved
reserves in the Malaysia-Thailand Joint Development Area and the Liebre field in
Colombia. Oil reserves data include natural gas liquids and condensate.
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
---------------------- ---------------------- --------------------
OIL GAS OIL GAS OIL GAS
(MBBLS) (MMCF) (MBBLS) (MMCF) (MBBLS) (MMCF)
----------- --------- ----------- --------- --------- ---------
Colombia(1)........................................ 67,193 11,146 68,117 3,505 135,310 14,651
Malaysia-Thailand(2)............................... -- -- 24,700 871,100 24,700 871,100
----------- --------- ----------- --------- --------- ---------
Total.............................................. 67,193 11,146 92,817 874,605 160,010 885,751
----------- --------- ----------- --------- --------- ---------
----------- --------- ----------- --------- --------- ---------
- ------------------------
(1) Includes liquids to be recovered from the government oil company of Colombia
as reimbursement for precommerciality expenditures.
(2) As of December 31, 1996, the Company did not have a contract for the sale of
gas to be produced from its interest in the Malaysia-Thailand Joint
Development Area. In estimating its reserves attributable to such interest,
the Company assumed that production from the interest would be sold at
prices for natural gas derived from what the Company believed to be the most
comparable market price at December 31, 1996. There can be no assurance that
the price to be provided in any gas contract will be equal to the price used
in the Company's calculations.
3
Reserve estimates are approximate and may be expected to change as
additional information becomes available. Furthermore, estimates of oil and gas
reserves, of necessity, are projections based on engineering data, and there are
uncertainties inherent in the interpretation of such data as well as the
projection of future rates of production and the timing of development
expenditures. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced nor can there be assurance that the proved undeveloped
reserves will be developed within the periods anticipated.
RISK FACTORS
Certain statements included or incorporated by reference in this Prospectus,
such as statements regarding proven oil and gas reserves and statements of the
Company's and management's expectations, intentions, plans and beliefs, are
forward-looking statements (as such term is used in the Private Securities
Litigation Reform Act of 1995), and the factors discussed hereunder could cause
actual results and developments to be materially different from those expressed
in or implied by such statements. Accordingly, in addition to the other
information set forth in or incorporated by reference in this Prospectus and any
applicable Prospectus Supplement, potential investors in the Securities should
consider the following investment considerations.
THE OIL AND GAS INDUSTRY GENERALLY. The Company's strategy is to focus its
exploration activities on what the Company believes are relatively high
potential prospects. No assurance can be given that these prospects contain
significant oil and gas reserves or that the Company will be successful in its
exploration activities thereon. The Company follows the full cost method of
accounting for exploration and development of oil and gas reserves whereby all
acquisition, exploration and development costs are capitalized. Costs related to
acquisition, holding and initial exploration of concessions in countries with no
proved reserves are initially capitalized, including internal costs directly
identified with acquisition, exploration and development activities. The
Company's exploration concessions are periodically assessed for impairment on a
country by country basis. If the Company's investment in exploration concessions
within a country where no proved reserves are assigned is deemed to be impaired,
the concessions are written down to estimated recoverable value. If the Company
abandons all exploration efforts in a country where no proved reserves are
assigned, all exploration costs associated with the country are expensed. The
Company's assessments of whether its investment within a country is impaired and
whether exploration activities within a country will be abandoned are made from
time to time based on its review and assessment of drilling results, seismic
data and other information it deems relevant. Due to the unpredictable nature of
exploration drilling activities, the amount and timing of impairment expense are
difficult to predict with any certainty. Financial information concerning the
Company's assets, including capitalized costs by geographic area, is set forth
in note 23 of Notes to Consolidated Financial Statements included elsewhere
herein.
The markets for oil and natural gas historically have been volatile and are
likely to continue to be volatile in the future. Oil and natural gas prices have
been subject to significant fluctuations during the past several decades in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of additional factors that are
beyond the control of the Company. These factors include the level of consumer
product demand, weather conditions, domestic and foreign government regulations,
political conditions in the Middle East and other production areas, the foreign
supply of oil and natural gas, the price and availability of alternative fuels,
and overall economic conditions. It is impossible to predict future oil and gas
price movements with any certainty.
The Company's oil and gas business is also subject to all of the operating
risks normally associated with the exploration for and production of oil and
gas, including, without limitation, blowouts, cratering, pollution, earthquakes,
labor disruptions and fires, each of which could result in substantial losses to
the
4
Company due to injury or loss of life and damage to or destruction of oil and
gas wells, formations, production facilities or other properties. In accordance
with customary industry practices, the Company maintains insurance coverage
limiting financial loss resulting from certain of these operating hazards.
Losses and liabilities arising from uninsured or underinsured events would
reduce revenues and increase costs to the Company. There can be no assurance
that any insurance will be adequate to cover losses or liabilities. The Company
cannot predict the continued availability of insurance, or its availability at
premium levels that justify its purchase.
The Company's oil and gas business is also subject to laws, rules and
regulations in the countries in which the Company operates, which generally
pertain to production control, taxation, environmental and pricing concerns and
other matters relating to the petroleum industry. Many jurisdictions have at
various times imposed limitations on the production of oil and natural gas by
restricting the rate of flow for oil and natural gas wells below their actual
capacity. There can be no assurance that present or future regulation will not
adversely affect the operations of the Company.
Moreover, because the Company may not be the operator or own a majority
interest in a number of contract areas, it will not be able to control the
timing or manner in which capital expenditures will occur in these areas to the
same degree as if it was the operator or owner of a majority interest. Any
inability of the Company to meet its obligations in these and other contract
areas could have a material adverse effect on its interests in these contract
areas.
FINANCIAL POSITION. Cash, cash equivalents, and marketable securities
totaled $14.9 million at December 31, 1995, while the unused portion of an
available credit facility was $111.8 million at December 31, 1996. A working
capital deficit of $182.2 million at December 31, 1996, primarily resulted from
the classification of the 1997 Notes ($189.9 million at December 31, 1996) as a
current liability external sources of funding, asset sales and net cash flow
from operations have been sufficient to service the Company's existing debt
obligations and capital spending programs. The Company expects to pursue
external financing alternatives and may from time to time consider dispositions
of certain assets or operations in order to meet expenditure requirements on
existing or contemplated projects and to service its debt obligations, the
timing and nature of which may be affected by, among other things, the timing
and extent of production and capital expenditures in Colombia, Malaysia-Thailand
and elsewhere. There can be no assurance as to the ability of the Company to
effect sales of its assets or to access public or private markets for such
financings, the timing of such sales or financings or the proceeds, if any, that
the Company could realize therefrom. Moreover, the Company's ability to pursue
additional debt financing is limited by covenants in the Company's credit
facility as well as covenants in the indenture pursuant to which $240 million
principal amount of TEC 's 12 1/2% Senior Subordinated Discount Notes due 1997
(the "1997 Notes") were issued in 1992 and in the indenture pursuant to which
$170 million principal amount of TEC's 9 3/4% Senior Subordinated Discount Notes
due 2000 (the "2000 Notes") were issued in 1993.
For information regarding the Company's financial position and results of
operations, including the Company's net working capital from time to time, and
the Company's ratios of earnings to fixed charges and earnings to combined fixed
charges and preference dividends, see "Ratios of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and Preference Dividends" and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
herein and the Company's Consolidated Statements of Operations, Consolidated
Balance Sheets and Consolidated Statements of Cash Flows included elsewhere
herein.
ENVIRONMENTAL MATTERS. The Company is subject to extensive environmental
laws and regulations. These laws regulate the discharge of oil, gas or other
materials into the environment and may require the Company to remove or mitigate
the environmental effects of the disposal or release of such materials at
various sites. The Company does not believe that its environmental risks are
materially different from those of comparable companies in the oil and gas
industry. Nevertheless, no assurance can be given that environmental laws and
regulations will not, in the future, adversely affect the Company's consolidated
5
results of operations, cash flows or financial position. Pollution and similar
environmental risks generally are not fully insurable.
RISKS OF INTERNATIONAL OPERATIONS. The Company derives substantially all of
its consolidated revenues from international operations. Risks inherent in
international operations include loss of revenue, property and equipment from
such hazards as expropriation, nationalization, war, insurrection and other
political risks; trade protection measures; risks of increases in taxes and
governmental royalties; and renegotiation of contracts with governmental
entities; as well as changes in laws and policies governing operations of other
companies. Other risks inherent in international operations are the possibility
of realizing economic currency exchange losses when transactions are completed
in currencies other than United States dollars and the Company's ability to
freely repatriate its earnings under existing exchange control laws.
CERTAIN FACTORS RELATING TO COLOMBIA. The Company is a participant in
significant oil and gas discoveries located in the Llanos Basin in the foothills
of the Andes Mountains, approximately 160 kilometers (100 miles) northeast of
Bogota, Colombia. The Company owns interests in three contiguous areas known as
the Santiago de las Atalayas ("SDLA"), Tauramena and Rio Chitamena contract
areas. Well results to date indicate that significant oil and gas deposits lie
across the SDLA, Tauramena and Rio Chitamena contract areas (the "Cusiana
Field"), and within the SDLA contract area (the "Cupiagua Field").
Development of reserves in the Cusiana and Cupiagua fields will take more
than one year and require additional drilling and extensive production
facilities, which in turn will require significant additional capital
expenditures, the ultimate amount of which cannot be predicted. Pipelines
connect the major producing fields in Colombia to export facilities and to
refineries. These pipelines are in the process of being upgraded and expanded to
accommodate production from the Cusiana and Cupiagua fields.
Guerilla activity in Colombia has from time to time disrupted the operation
of oil and gas projects and increased costs. Although the Colombian government,
the Company and its partners have taken steps to improve security and improve
relations with the local population, there can be no assurance that attempts to
reduce or prevent guerrilla activity will be successful or that such activity
will not disrupt operations in the future.
Colombia is among several nations whose progress in stemming the production
and transit of illegal drugs is subject to annual certification by the President
of the United States. In 1997, the President of the United States announced that
Colombia would neither be certified nor granted a national interest waiver. The
consequences of the failure to receive certification generally include the
following: all bilateral aid, except anti-narcotics and humanitarian aid, has
been or will be suspended; the Export-Import Bank of the United States and the
Overseas Private Investment Corporation will not approve financing for new
projects in Colombia; U.S. representatives at multilateral lending institutions
will be required to vote against all loan requests from Colombia, although such
votes will not constitute vetoes; and the President of the United States and
Congress retain the right to apply future trade sanctions. Each of these
consequences of the failure to receive such certification could result in
adverse economic consequences in Colombia and could further heighten the
political and economic risks associated with the Company's operations in
Colombia. Any changes in the holders of significant government offices could
have adverse consequences on the Company's relationship with the Colombian
national oil company and the Colombian government's ability to control guerilla
activities, and could exacerbate the factors relating to foreign operations
discussed above.
CERTAIN FACTORS RELATING TO MALAYSIA-THAILAND. The Company is a partner in
a significant gas exploration project located in the upper Malay Basin in the
Gulf of Thailand approximately 450 kilometers northeast of Kuala Lumpur and 750
kilometers south of Bangkok. The Company is a contractor under a production
sharing contract covering Block A-18 of the Malaysia-Thailand Joint Development
Area. Well results to date indicate that significant gas deposits lie across
four fields within the block.
6
Development of gas production is in the early planning stages but is
expected to take several years and require the drilling of additional wells and
the installation of production facilities, which will require significant
additional capital expenditures, the ultimate amount of which cannot be
predicted. Pipelines will also be required to be connected between Block A-18
and ultimate markets. The terms on which any gas produced from the Company's
contract area in Malaysia-Thailand may be sold may be adversely affected by the
present monopoly gas purchase and transportation conditions in both Thailand and
Malaysia, including the Thai national oil company's monopoly in transportation
within Thailand and its territorial waters.
USE OF PROCEEDS
Unless otherwise provided in the applicable Prospectus Supplement, the net
proceeds from the sale of the particular Securities offered by this Prospectus
and each Prospectus Supplement (the "Offered Securities") will be used
principally to continue funding the Company's obligations relating to the
development of its operations in Colombia and Malaysia-Thailand and for general
corporate purposes, as well as to retire or refinance existing debt obligations.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND
PREFERENCE DIVIDENDS
For purposes of computing the ratios of earnings to fixed charges and
earnings to combined fixed charges and preference dividends, earnings consist of
earnings (loss) from continuing operations before income taxes, minority
interest, extraordinary items and cumulative effect of accounting changes, plus
fixed charges (interest charges and preference share dividend requirements of
subsidiaries, adjusted to a pretax basis), less interest capitalized, less
preference share dividend requirements of subsidiaries adjusted to a pretax
basis and less undistributed earnings of affiliates whose debt is not guaranteed
by the Company.
The following table sets forth the ratios of earnings to fixed charges and
earnings to combined fixed charges and preference dividends for the Company for
the periods indicated:
SEVEN
MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, YEARS ENDED MAY 31,
-------------------- ------------ -------------------------------
1996 1995 1994 1994 1993 1992
--------- --------- ------------ --------- --------- ---------
Ratio of earnings to fixed charges............... (a) 1.1x (a) (a) (a) (a)
Ratio of earnings to combined fixed charges and
preference dividends........................... (b) 1.0x (b) (b) (b) (b)
- ------------------------
(a) Earnings were inadequate to cover fixed charges for the year ended December
31, 1996 by $6,275,000, for the seven months ended December 31, 1994 by
$30,565,000 and for the years ended May 31, 1994, 1993 and 1992 by
$40,976,000, $152,391,000 and $92,875,000, respectively. Without
nonrecurring items, earnings would have been inadequate to cover fixed
charges for the year ended December 31, 1995 by $9,921,000, for the seven
months ended December 31, 1994 by $29,581,000 and for the years ended May
31, 1994, 1993 and 1992 by $51,415,000, $45,183,000 and $32,301,000,
respectively.
(b) Earnings were inadequate to cover fixed charges and preference dividends for
the year ended December 31, 1996 by $7,260,000, for the seven months ended
December 31, 1994 by $31,014,000 and for the years ended May 31, 1994, 1993
and 1992 by $40,976,000, $152,391,000 and $94,261,000, respectively. Without
nonrecurring items, earnings would have been inadequate to cover fixed
charges and preference dividends, for the year ended December 31, 1995 by
$10,723,000, for the seven months ended December 31, 1994 by $30,030,000,
and for the years ended May 31, 1994, 1993 and 1992 by $51,415,000,
$45,183,000 and $33,687,000, respectively.
7
DESCRIPTION OF DEBT SECURITIES
The TEL Debt Securities will be unsecured senior, senior subordinated or
subordinated debt of TEL and will be issued, in the case of TEL Senior Debt
Securities, under a Senior Indenture (the "TEL Senior Debt Indenture") between
TEL and The Chase Manhattan Bank, as trustee, in the case of TEL Senior
Subordinated Debt Securities, under a Senior Subordinated Indenture (the "TEL
Senior Subordinated Debt Indenture") between TEL and United States Trust Company
of New York, as trustee, and in the case of TEL Subordinated Debt Securities,
under a Subordinated Indenture (the "TEL Subordinated Debt Indenture") between
TEL and The Chase Manhattan Bank, as Trustee. The TEL Senior Debt Indenture, the
TEL Senior Subordinated Debt Indenture and the TEL Subordinated Debt Indenture
are sometimes hereinafter referred to individually as a "TEL Indenture" and
collectively as the "TEL Indentures." The Joint and Several Debt Securities will
be unsecured senior or senior subordinated joint and several debt of TEL and TEC
and will be issued, in the case of Joint and Several Senior Debt Securities,
under a Senior Indenture (the "Joint and Several Senior Debt Indenture") among
TEC, TEL and The Chase Manhattan Bank, as trustee, and in the case of Joint and
Several Senior Subordinated Debt Securities, under a Senior Subordinated
Indenture (the "Joint and Several Senior Subordinated Debt Indenture") among
TEC, TEL and United States Trust Company of New York, as trustee. The Joint and
Several Senior Debt Indenture and the Joint and Several Senior Subordinated Debt
Indenture are sometimes hereinafter referred to individually as a "Joint and
Several Indenture" and collectively as the "Joint and Several Indentures." The
Joint and Several Senior Debt Indenture and the TEL Senior Indenture are
sometimes collectively referred to individually as a "Senior Debt Indenture" and
collectively as the "Senior Debt Indentures." The Joint and Several Senior
Subordinated Debt Indenture and the TEL Senior Subordinated Debt Indenture are
sometimes referred to individually as a "Senior Subordinated Debt Indenture" and
collectively as the "Senior Subordinated Debt Indentures." The Joint and Several
Indentures and the TEL Indentures are sometimes referred to individually as an
"Indenture" and collectively as the "Indentures." None of the Indentures limits
the amount of Debt Securities that may be issued thereunder and the Indentures
provide that the Debt Securities may be issued from time to time in one or more
series. The Indentures permit the appointment of a different trustee for each
series of Debt Securities. As used herein, the term "Trustee" means The Chase
Manhattan Bank or United States Trust Company of New York, as the case may be.
If there is at any time more than one trustee under any Indenture, the term
"Trustee" as used in this Prospectus will mean each such trustee and will apply
to each such trustee only with respect to those series of Debt Securities with
respect to which it is serving as trustee. The Indentures are filed as exhibits
to the Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indentures and the Debt Securities do not
purport to be complete and, while TEL and TEC believe the descriptions of the
material provisions of the Indentures and Debt Securities contained in this
Prospectus are accurate summaries of such material provisions, such summaries
are subject to the detailed provisions of the applicable Indenture to which
reference is hereby made for a full description of such provisions, including
the definition of certain terms used herein. Section references in parentheses
below are to sections in each Indenture unless otherwise indicated. Wherever
particular sections or defined terms of the applicable Indenture are referred
to, such sections or defined terms are incorporated herein by reference as part
of the statement made, and the statement is qualified in its entirety by such
reference. The Indentures are substantially identical, except for provisions
relating to subordination. For purposes of the summaries set forth below, the
term "Issuers" shall refer collectively to TEL and TEC in the case of the Joint
and Several Debt Securities and the Joint and Several Indentures, and to TEL
only in the case of the TEL Debt Securities and the TEL Indentures.
PROVISIONS APPLICABLE TO SENIOR, SENIOR SUBORDINATED AND TEL SUBORDINATED DEBT
SECURITIES
GENERAL. TEL Debt Securities will be unsecured senior, senior subordinated
or subordinated obligations of TEL, and Joint and Several Debt Securities will
be unsecured senior or senior subordinated joint and several obligations of TEL
and TEC, except that, under certain circumstances, TEC may be released from such
obligations. See "--Condition for Release of TEC ." Except to the extent set
forth in the
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applicable Prospectus Supplement, none of the Indentures limits the payment of
dividends by or the acquisition of stock of TEL or TEC. Except to the extent set
forth in any Prospectus Supplement, the Indentures do not, and the Debt
Securities will not, contain any covenants or other provisions that are intended
to afford holders of the Debt Securities special protection in the event of
either a change of control of TEL or a highly leveraged transaction by TEL.
Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Debt Securities being offered (the "Offered Debt
Securities") (to the extent such terms are applicable to such Offered Debt
Securities): (i) the title of the Offered Debt Securities; (ii) classification
as Joint and Several Senior Debt Securities, Joint and Several Senior
Subordinated Debt Securities, TEL Senior Debt Securities, TEL Senior
Subordinated Debt Securities or TEL Subordinated Debt Securities, aggregate
principal amount, purchase price and denomination; (iii) the date or dates on
which the Offered Debt Securities will mature; (iv) the method by which amounts
payable in respect of principal, premium, if any, or interest, if any, on or
upon the redemption of such Offered Debt Securities may be calculated; (v) the
interest rate or rates (or the method by which such will be determined), and the
date or dates from which such interest, if any, will accrue; (vi) the date or
dates on which such interest, if any, will be payable; (vii) the place or places
where and the manner in which the principal of, premium, if any, and interest,
if any, on the Offered Debt Securities will be payable and the place or places
where the Offered Debt Securities may be presented for transfer; (viii) the
right, if any, or obligation, if any, of the Issuers to redeem, repay or
purchase the Offered Debt Securities pursuant to any sinking fund or analogous
provisions or at the option of a holder thereof, and the period or periods
within which, the price or prices (or the method by which such price or prices
will be determined, or both) at which, the form or method of payment therefor if
other than in cash and the terms and conditions upon which the Offered Debt
Securities will be redeemed, repaid or purchased pursuant to any such
obligation; (ix) the terms for conversion or exchange, if any, of the Offered
Debt Securities; (x) any provision relating to the issuance of the Offered Debt
Securities at an original issue discount; (xi) if the amounts of payments of
principal of, premium, if any, and interest, if any, on the Offered Debt
Securities are to be determined with reference to an index, the manner in which
such amounts shall be determined; (xii) any applicable United States federal
income tax consequences; (xiii) the currency or currencies for which the Offered
Debt Securities may be purchased and the currency or currencies in which
principal, premium, if any, and interest, if any, may be payable; (xiv) if a
trustee other than The Chase Manhattan Bank with respect to any series of Senior
Debt Securities or TEL Subordinated Debt Securities or United States Trust
Company of New York with respect to any series of Senior Subordinated Debt
Securities is named for such series of Offered Debt Securities, the name of such
Trustee; and (xv) any other specific terms of the Offered Debt Securities,
including any deleted, modified or additional events of default or remedies or
additional covenants provided with respect to such Offered Debt Securities, and
any terms that may be required by or advisable under applicable laws or
regulations.
Unless otherwise specified in any Prospectus Supplement, the Debt Securities
will be issuable in registered form and in denominations of $1,000 and any
integral multiple thereof (Section 2.7). No service charge will be made for any
transfer or exchange of any Debt Securities but the Issuers may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith (Section 2.8).
Debt Securities may bear interest at a fixed rate or a floating rate. Debt
Securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate may be sold at a discount below
their stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to certain
Debt Securities issued at par that are treated as having been issued at a
discount for United States federal income tax purposes will be described in the
applicable Prospectus Supplement.
In determining whether the holders of the requisite aggregate principal
amount of outstanding Debt Securities of any series have given any request,
demand, authorization, direction, notice, consent or waiver
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under the Indentures, the principal amount of any series of Debt Securities
originally issued at a discount from their stated principal amount that will be
deemed to be outstanding for such purposes will be the amount of the principal
thereof that would be due and payable as of the date of such determination upon
a declaration of acceleration of the maturity thereof.
GLOBAL SECURITIES. The Debt Securities of a series may be issued in whole
or in part in the form of one or more global securities ("Global Securities")
that will be deposited with, or on behalf of, a depositary (the "Depositary")
identified in the Prospectus Supplement relating to such series. Global
Securities may be issued only in fully registered form and in either temporary
or permanent form. Unless and until it is exchanged in whole or in part for the
individual Debt Securities represented thereby, a Global Security (i) may not be
transferred except as a whole and (ii) may only be transferred (A) by the
Depositary for such Global Security to its nominee, (B) by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or (C) by
such Depositary or any such nominee to a successor Depositary or nominee of such
successor Depositary (Section 2.8).
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to such
series. The Issuers anticipate that the following provisions will generally
apply to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit, on its book-entry registration and transfer
system, the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depositary. Such accounts shall be designated by the dealers,
underwriters or agents with respect to such Debt Securities or by the Issuers if
such Debt Securities are offered and sold directly by the Issuers. Ownership of
beneficial interests in a Global Security will be limited to persons that have
accounts with the applicable Depositary ("participants") or persons that may
hold interests through participants. Ownership of beneficial interests in such
Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants). The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security or its nominee is the
registered owner of such Global Security, such Depositary or its nominee, as the
case may be, will be considered the sole owner or holder of the Debt Securities
of the series represented by such Global Security for all purposes under the
Indenture governing such Debt Securities. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have any of
the individual Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Debt Securities in definitive form and will not be
considered the owners or holders thereof under the Indenture governing such Debt
Securities.
Payment of principal of, premium, if any, and interest, if any, on
individual Debt Securities represented by a Global Security registered in the
name of a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Security
representing such Debt Securities. The Issuers expect that the Depositary for a
series of Debt Securities or its nominee, upon receipt of any payment of
principal of, premium, if any, and interest, if any, in respect of a Global
Security representing any such Debt Securities, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Security
for such Securities as shown on the records of such Depositary or its nominee.
The Issuers also expect that payments by participants to owners of beneficial
interests in such Global Security held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name." Such
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payments will be the responsibility of such participants. Neither the Issuers,
the Trustee for such Debt Securities, any paying agent nor the registrar for
such Debt Securities will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of the Global Security for such Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
If the Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is not
appointed by the Issuers within 90 days, the Issuers will issue individual Debt
Securities of such series in exchange for the Global Security representing such
series of Debt Securities. In addition, the Issuers may at any time and in their
sole discretion, subject to any limitations described in the Prospectus
Supplement relating to such Debt Securities, determine not to have any Debt
Securities of a series represented by a Global Security and, in such event, will
issue individual Debt Securities of such series in exchange for the Global
Security representing such series of Debt Securities. Further, if the Issuers so
specify with respect to the Debt Securities of a series, an owner of a
beneficial interest in a Global Security representing Debt Securities of such
series may, on terms acceptable to the Issuers, the Trustee and the Depositary
for such Global Security, receive individual Debt Securities of such series in
exchange for such beneficial interests, subject to any limitations described in
the Prospectus Supplement relating to such Debt Securities. In any such
instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery of individual Debt Securities of the series
represented by such Global Security equal in principal amount to such beneficial
interest and to have such Debt Securities registered in its name. Individual
Debt Securities of such series so issued will be issued in registered form and
in denominations, unless otherwise specified in the applicable Prospectus
Supplement relating to such series of Debt Securities, of $1,000 and integral
multiples thereof.
EVENTS OF DEFAULT. Unless otherwise specified in the applicable Prospectus
Supplement, an Event of Default is defined under each Indenture with respect to
the Debt Securities of any series issued under such Indenture as being: (a)
default in the payment of principal of or premium, if any, with respect to Debt
Securities of such series when due; (b) default in the payment of any
installment of interest upon any of the Debt Securities of such series when due,
continued for 30 days; (c) default in the payment or satisfaction of any sinking
fund or other purchase obligation with respect to Debt Securities of such series
when due; (d) default in the performance of any other covenant of either of the
Issuers applicable to Debt Securities of such series, continued for 90 days
after written notice to the Issuers by the Trustee or to the Issuers and the
Trustee, by the holders of at least 25% in aggregate principal amount of the
Debt Securities of such series then outstanding requiring the same to be
remedied; (e) certain events of bankruptcy, insolvency or reorganization of
either of the Issuers; and (f) default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by either of the Issuers or under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed of
either of the Issuers resulting in the acceleration of such indebtedness, or any
default in payment of such indebtedness (after expiration of any applicable
grace periods and presentation of any debt instruments, if required), if the
aggregate amount of all such indebtedness that has been so accelerated and with
respect to which there has been such a default in payment shall exceed
$20,000,000 and there has been a failure to obtain rescission or annulment of
all such accelerations or to discharge all such defaulted indebtedness within 20
days after written notice of the type specified in the foregoing clause (d)
(Section 5.1).
If any Event of Default shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Debt
Securities of such series then outstanding, by notice in writing to the Issuers
(and to the Trustee, if given by the holders), may declare the principal (or, in
the case of any series of Debt Securities originally issued at a discount from
their stated principal amount, such portion of the principal amount as may be
specified in the terms of such series) of all of the Debt Securities of such
series and the interest, if any, accrued thereon to be due and payable
immediately; PROVIDED, HOWEVER, that the holders of a majority in aggregate
principal amount of the Debt Securities of such series then
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outstanding, by notice in writing to the Issuers and the Trustee, may rescind
and annul such declaration and its consequences if all defaults under such
Indenture are cured or waived (Section 5.1).
Each Indenture provides that no holder of any series of Debt Securities then
outstanding may institute any suit, action or proceeding with respect to, or
otherwise attempt to enforce, such Indenture, unless (i) such holder previously
shall have given to the Trustee written notice of default and of the continuance
thereof, (ii) the holders of not less than 25% in aggregate principal amount of
such series of Debt Securities then outstanding shall have made written request
to the Trustee to institute such suit, action or proceeding and shall have
offered to the Trustee such reasonable indemnity as it may require with respect
thereto and (iii) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to institute any
such action, suit or proceeding; PROVIDED that, subject to the subordination
provisions applicable to the Senior Subordinated Debt Securities and the TEL
Subordinated Debt Securities, the right of any holder of any Debt Security to
receive payment of the principal of, premium, if any, or interest, if any, on
such Debt Security, on or after the respective due dates, or to institute suit
for the enforcement of any such payment shall not be impaired or affected
without the consent of such holder (Section 5.4). The holders of a majority in
aggregate principal amount of the Debt Securities of such series then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee with respect to the Debt Securities of such series,
provided that the Trustee may decline to follow such direction if the Trustee
determines that such action or proceeding is unlawful or would involve the
Trustee in personal liability (Section 5.7).
The Issuers are required to furnish to the Trustee annually a certificate as
to compliance by the Issuers with all conditions and covenants under each
Indenture (Section 4.3).
DISCHARGE AND DEFEASANCE. Unless otherwise specified in the applicable
Prospectus Supplement, the Issuers can discharge or defease their respective
obligations with respect to any series of Debt Securities as set forth below
(Article Ten).
The Issuers may discharge all of their obligations (except those set forth
below) to holders of any series of Debt Securities issued under any Indenture
that have not already been delivered to the Trustee for cancellation and that
have either become due and payable, or are by their terms due and payable within
one year (or scheduled for redemption within one year), by irrevocably
depositing with the Trustee cash or U.S. Government Obligations (as defined in
such Indenture), or a combination thereof, as trust funds in an amount certified
to be sufficient to pay when due the principal of, premium, if any, and
interest, if any, on all outstanding Debt Securities of such series and to make
any mandatory sinking fund payments, if any, thereon when due.
Unless otherwise provided in the applicable Prospectus Supplement, the
Issuers may also elect at any time to (a) defease and be discharged from all of
their obligations (except those set forth below) to holders of any series of
Debt Securities issued under each Indenture ("defeasance") or (b) be released
from all of their obligations with respect to certain covenants applicable to
any series of Debt Securities issued under each Indenture ("covenant
defeasance"), if, among other things: (i) the Issuers irrevocably deposit with
the Trustee cash or U.S. Government Obligations, or a combination thereof, as
trust funds in an amount certified to be sufficient to pay when due the
principal of, premium, if any, and interest, if any, on all outstanding Debt
Securities of such series and to make any mandatory sinking fund payments, if
any, thereon when due and such funds have been so deposited for 91 days; (ii)
such deposit will not result in a breach or violation of, or cause a default
under, any agreement or instrument to which either of the Issuers is a party or
by which it is bound; and (iii) the Issuers deliver to the Trustee an opinion of
counsel to the effect that the holders of such series of Debt Securities will
not recognize income, gain or loss for United States federal income tax purposes
as a result of such defeasance or covenant defeasance and that defeasance or
covenant defeasance will not otherwise alter the United States federal income
tax treatment of such holders' principal and interest payments, if any, on such
series of Debt Securities. Such opinion in
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the case of defeasance under clause (a) above must be based on a ruling of the
Internal Revenue Service or a change in United States federal income tax law
occurring after the date of the Indenture relating to the Debt Securities of
such series, since such a result would not occur under current tax law (Section
10.1).
Notwithstanding the foregoing, no discharge, defeasance or covenant
defeasance described above shall affect the following obligations to or rights
of the holders of any series of Debt Securities: (i) rights of registration of
transfer and exchange of Debt Securities of such series, (ii) rights of
substitution of mutilated, defaced, destroyed, lost or stolen Debt Securities of
such series, (iii) rights of holders of Debt Securities of such series to
receive payments of principal thereof and premium, if any, and interest, if any,
thereon, upon the original due dates therefor (but not upon acceleration), and
to receive mandatory sinking fund payments thereon when due, if any, (iv)
rights, obligations, duties and immunities of the Trustee, (v) rights of holders
of Debt Securities of such series as beneficiaries with respect to property so
deposited with the Trustee payable to all or any of them and (vi) obligations of
the Issuers to maintain an office or agency in respect of Debt Securities of
such series (Section 10.1).
The Issuers may exercise the defeasance option with respect to any series of
Debt Securities notwithstanding the prior exercise of the covenant defeasance
option with respect to any series of Debt Securities. If the Issuers exercise
the defeasance option with respect to any series of Debt Securities, payment of
such series of Debt Securities may not be accelerated because of an Event of
Default with respect to such series of Debt Securities. If the Issuers exercise
the covenant defeasance option with respect to any series of Debt Securities,
payment of such series of Debt Securities may not be accelerated by reason of an
Event of Default with respect to the covenants to which such covenant defeasance
is applicable. However, if such acceleration were to occur by reason of another
Event of Default, the realizable value at the acceleration date of the cash and
U.S. Government Obligations in the defeasance trust could be less than the
principal of, premium, if any, and interest, if any, and any mandatory sinking
fund payments, if any, then due on such series of Debt Securities, in that the
required deposit in the defeasance trust is based upon scheduled cash flow
rather than market value, which will vary depending upon interest rates and
other factors.
MODIFICATION OF THE INDENTURE. Each Indenture provides that the Issuers and
the Trustee may enter into supplemental indentures without the consent of the
holders of the Debt Securities to (a) evidence the assumption by a successor
entity of the obligations of either or both of the Issuers under such Indenture,
(b) add covenants or new events of default for the protection of the holders of
such Debt Securities, (c) cure any ambiguity or correct any inconsistency in the
Indenture, (d) establish the form and terms of Debt Securities of any series,
(e) evidence the acceptance of appointment by a successor trustee, (f) secure
such Debt Securities, (g) designate a bank or trust company other than The Chase
Manhattan Bank to act as Trustee for a series of Senior Debt Securities or TEL
Subordinated Debt Securities and United States Trust Company of New York to act
as Trustee for a series of Senior Subordinated Debt Securities, (h) modify the
existing covenants and events of default solely in respect of, or add new
covenants and events of default that apply solely to, Debt Securities not yet
issued and outstanding on the date of such supplemental indenture, (i) provide
for the issuance of Debt Securities of any series in coupon form and
exchangeability of such Debt Securities for fully registered Debt Securities,
(j) modify, eliminate or add to the provisions of such Indenture as necessary to
effect the qualification of such Indenture under the Trust Indenture Act of 1939
and to add certain provisions expressly permitted by such Act, (k) modify the
provisions to provide for the denomination of Debt Securities in foreign
currencies which shall not adversely affect the interests of the holders of such
Debt Securities in any material respect and (l) in the case of the Joint and
Several Indentures, evidence and provide for the release of TEC of its
obligations under the Joint and Several Indentures and such Debt Securities.
(Section 8.1).
Each Indenture also contains provisions permitting the Issuers and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of Debt Securities of each series then outstanding
and affected, to add any provisions to, or change in any manner or eliminate any
of the provisions of, such Indenture or of any supplemental indenture or modify
in any manner the rights of the
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holders of the Debt Securities of such series; PROVIDED that the Issuers and the
Trustee may not, without the consent of the holder of each outstanding Debt
Security affected thereby, (a) extend the stated final maturity of any Debt
Security, reduce the principal amount thereof, reduce the rate or extend the
time of payment of interest, if any, thereon, reduce or alter the method of
computation of any amount payable on redemption, repayment or purchase by the
Issuers, change the coin or currency in which principal, premium, if any, and
interest, if any, are payable, reduce the amount of the principal of any
original issue discount security payable upon acceleration or provable in
bankruptcy, impair or affect the right to institute suit for the enforcement of
any payment or repayment thereof or, if applicable, adversely affect any right
of prepayment at the option of the holder or (b) reduce the aforesaid percentage
in aggregate principal amount of Debt Securities of any series issued under such
Indenture (Section 8.2).
CONSOLIDATION, MERGER, SALE OR CONVEYANCE. Except as otherwise provided in
the applicable Prospectus Supplement, the Joint and Several Indentures provide
that TEC or TEL may, and the TEL Indentures provide that TEL may, without the
consent of the holders of Debt Securities, consolidate with, merge into or
transfer, exchange or dispose of all of its properties to, any other corporation
or partnership organized under the laws of the United States or any political
subdivision thereof or therein or under the laws of the Cayman Islands or any
political subdivision thereof, provided that (i) the successor corporation
assumes all obligations of TEC or TEL, as the case may be, by supplemental
indenture satisfactory in form to the applicable Trustee executed and delivered
to such Trustee, under the Indentures and the Debt Securities, (ii) immediately
after giving effect to such consolidation, merger, exchange or other
disposition, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing and (iii) certain other conditions are met. (Section 9.1).
CONDITION FOR RELEASE OF TEC. Except as otherwise provided in the
applicable Prospectus Supplement, each Joint and Several Indenture provides that
TEC may be released from its obligations under such Joint and Several Indenture
and the Joint and Several Debt Securities, without the consent of the holders of
the Joint and Several Debt Securities of any series, if the 1997 Notes and the
2000 Notes issued by TEC are no longer outstanding or if TEL or any successor to
TEL has assumed the obligations of TEC under such Joint and Several Debt
Securities. (Section 3.7 of the Joint and Several Senior Debt Indenture and
Section 3.6 of the Joint and Several Senior Subordinated Debt Indenture). In the
event of such release, a taxable sale or exchange of a Debt Security for a new
Debt Security will not be deemed to occur unless the release results in a change
in payment expectations with respect to Debt Securities. For these purposes a
change in payment expectations with respect to a debt instrument is generally
deemed to occur if there is a substantial enhancement or impairment of the
obligator's capacity to meet payment obligations under the debt instrument and
certain other conditions are met. In the event a release were to be treated as a
taxable sale or exchange, a holder of a Debt Security would recognize gain or
loss on the sale or exchange and might be required to include in income
different amounts during the remaining term of the Debt Security than would have
been included absent such release.
CERTAIN DEFINITIONS. Except as otherwise provided in the applicable
Prospectus Supplement, the following definitions are applicable to the
discussions of the Indentures (Article One).
"Consolidated Net Tangible Assets" means the aggregate amount of assets
included on the most recent consolidated balance sheet of TEL and its
Restricted Subsidiaries, less applicable reserves and other properly
deductible items and after deducting therefrom (a) all current liabilities
and (b) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all in accordance with
generally accepted accounting principles consistently applied.
"Indebtedness," with respect to any person, means, without duplication:
(a)(i) the principal of, premium, if any, and interest, if any, on
indebtedness for money borrowed of such person, indebtedness of such person
evidenced by bonds, notes, debentures or similar
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obligations, and any guaranty by such person of any indebtedness for money
borrowed or indebtedness evidenced by bonds, notes, debentures or similar
obligations of any other person, whether any such indebtedness or guaranty
is outstanding on the date of the Indenture or is thereafter created,
assumed or incurred, (ii) obligations of such person for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar
credit transaction, (iii) the principal of and premium, if any, and
interest, if any, on indebtedness incurred, assumed or guaranteed by such
person in connection with the acquisition by it or any of its subsidiaries
of any other businesses, properties or other assets, (iv) lease obligations
that such person capitalized in accordance with Statement of Financial
Accounting Standards No. 13 promulgated by the Financial Accounting
Standards Board or such other generally accepted accounting principles as
may be from time to time in effect, (v) any indebtedness of such person
representing the balance deferred and unpaid of the purchase price of any
property or interest therein (except any such balance that constitutes an
accrued expense or trade payable) and any guaranty, endorsement or other
contingent obligation of such person in respect of any indebtedness of
another that is outstanding on the date of the Indenture or is thereafter
created, assumed or incurred by such person and (vi) obligations of such
person under interest rate, commodity or currency swaps, caps, collars,
options and similar arrangements if and to the extent that any of the
foregoing indebtedness in (i) through (vi) would appear as a liability on
the balance sheet of such person in accordance with generally accepted
accounting principles; and
(b) any amendments, modifications, refundings, renewals or extensions of
any indebtedness or obligation described as Indebtedness in clause (a)
above.
"Restricted Subsidiary" means (a) any Subsidiary of TEL other than an
Unrestricted Subsidiary, and (b) any Subsidiary of TEL which was an
Unrestricted Subsidiary but which, subsequent to the date of the Indentures,
is designated by the Board of Directors of TEL to be a Restricted
Subsidiary; PROVIDED, HOWEVER, that TEL may not designate any such
Subsidiary to be a Restricted Subsidiary if TEL would thereby breach any
covenant or agreement contained in the Indentures (on the assumptions that
any outstanding Indebtedness of such Subsidiary was incurred at the time of
such designation).
"Subsidiary" of any specified Person means any corporation of which such
Person, or such Person and one or more Subsidiaries of such Person, or any
one or more Subsidiaries of such Person, directly or indirectly own voting
securities entitling any one or more of such Person and its Subsidiaries to
elect a majority of the directors, either at all times, or so long as there
is no default or contingency which permits the holders of any other class or
classes of securities to vote for the election of one or more directors.
"Unrestricted Subsidiary" means (a) any Subsidiary of TEL acquired or
organized after the date of the Indentures, PROVIDED, HOWEVER, that such
Subsidiary shall not be a successor, directly or indirectly, to any
Restricted Subsidiary and (b) any Subsidiary of TEL substantially all the
assets of which consist of stock or other securities of a Subsidiary or
Subsidiaries of the character described in clause (a) above, unless and
until such Subsidiary shall have been designated to be a Restricted
Subsidiary.
PROVISIONS APPLICABLE SOLELY TO SENIOR DEBT SECURITIES
GENERAL. Senior Debt Securities will be issued under a Senior Debt
Indenture and will rank PARI PASSU with all other unsecured and unsubordinated
debt of the Issuers.
LIMITATIONS ON LIENS. The Senior Debt Indentures provide that, so long as
any Senior Debt Securities are outstanding, the Issuers will not, and will not
permit any Restricted Subsidiary to, pledge, mortgage, hypothecate or grant a
security interest in, or permit any mortgage, pledge, security interest or other
lien upon, any property or assets owned by an Issuer or any Restricted
Subsidiary to secure any
15
Indebtedness, without making effective provision whereby outstanding Senior Debt
Securities shall be equally and ratably secured.
Under the terms of the Senior Debt Indentures, the foregoing limitation does
not apply to (a) any mortgage, pledge, security interest, lien or encumbrance
upon any property or assets created at the time of the acquisition of such
property or assets by an Issuer or any Restricted Subsidiary or within one year
after such time to secure all or a portion of the purchase price for such
property or assets; (b) any mortgage, pledge, security interest, lien or
encumbrance upon any property or assets existing thereon at the time of the
acquisition thereof by an Issuer or any Restricted Subsidiary (whether or not
the obligations secured thereby are assumed by an Issuer or any Restricted
Subsidiary); (c) any mortgage, pledge, security interest, lien or encumbrance
upon any property or assets, whenever acquired, of any corporation or other
entity that becomes a Restricted Subsidiary after the date of the Senior Debt
Indenture, provided that (i) the instrument creating such mortgage, pledge,
security interest, lien or encumbrance shall be in effect prior to the time such
corporation or other entity becomes a Restricted Subsidiary and (ii) such
mortgage, pledge, security interest, lien or encumbrance shall only apply to
properties or assets owned by such corporation or other entity at the time it
becomes a Restricted Subsidiary or thereafter acquired by it from sources other
than an Issuer or another Restricted Subsidiary; (d) any mortgage, pledge,
security interest, lien or encumbrance arising from or in connection with a
conveyance by an Issuer or a Restricted Subsidiary of any production payment
with respect to oil, gas, natural gas, carbon dioxide, sulphur, helium, coal,
metals, minerals, steam, timber or other natural resources; (e) any mortgage,
pledge, security interest, lien or encumbrance with respect to, or other
transfer of, crude oil, natural gas or other petroleum hydrocarbons in place for
a period of time until, or in an amount such that, the transferee will realize
therefrom a specified amount (however determined) of money or of such crude oil,
natural gas or other petroleum hydrocarbons; (f) any mortgage, pledge, security
interest, lien or encumbrance required by any contract or statute in order to
permit an Issuer or any Restricted Subsidiary to perform any contract or
subcontract made by it with or at the request of the United States or any State
thereof or any foreign government or any department, agency, organization or
instrumentality thereof, or to secure partial, progress, advance or other
payments to an Issuer or any Restricted Subsidiary by such governmental unit
pursuant to the provisions of any contract or statute; (g) any mortgage, pledge,
security interest, lien or encumbrance in favor of an Issuer or any wholly-owned
Subsidiary of TEL; (h) any mortgage, pledge, security interest, lien or
encumbrance created or assumed by an Issuer or a Restricted Subsidiary in
connection with the issuance of debt securities the interest on which is
excludable from gross income of the holder of such security pursuant to the
Internal Revenue Code of 1986, as amended, for the purpose of financing, in
whole or in part, the acquisition or construction of property or assets to be
used by an Issuer or a Subsidiary; (i) any extension, renewal or refunding of
any mortgage, pledge, security interest, lien or encumbrance described in the
foregoing subparagraphs (a) through (h) on substantially the same property or
assets theretofore subject thereto; or (j) any mortgage, pledge, security
interest, lien or encumbrance securing any Indebtedness in an amount which,
together with all other Indebtedness secured by a mortgage, pledge, security
interest, lien or encumbrance that is not otherwise permitted by the foregoing
provisions, does not at the time of the incurrence of the Indebtedness so
secured exceed 20% of Consolidated Net Tangible Assets. For the purpose of this
provision, "security interest" will include the interest of the lessor under a
lease with a term of three years or more that should be, in accordance with
generally accepted accounting principles, recorded as a capital lease, and any
such lease of property or assets not acquired from an Issuer or any Restricted
Subsidiary in contemplation of such lease shall be treated as though the lessee
had purchased such property or assets from the lessor. (Section 3.6 of the
Senior Debt Indentures).
PROVISIONS APPLICABLE SOLELY TO SENIOR SUBORDINATED DEBT SECURITIES AND TEL
SUBORDINATED DEBT SECURITIES
SUBORDINATION. The TEL Subordinated Debt Securities will be subordinate and
junior in right of payment, to the extent set forth in the TEL Subordinated Debt
Indenture, to all Senior Indebtedness. The Senior Subordinated Debt Securities
will be subordinate and junior in right of payment, to the extent set
16
forth in the Senior Subordinated Debt Indentures, to all Senior Indebtedness of
the Issuers. The Senior Subordinated Debt Securities will rank senior to all
existing and future Indebtedness of the Issuers that is neither Senior
Indebtedness nor Senior Subordinated Indebtedness, and only Indebtedness of the
Issuers that is Senior Indebtedness will rank senior to the Senior Subordinated
Debt Securities in accordance with the subordination provisions of the Senior
Subordinated Debt Indentures.
"SENIOR INDEBTEDNESS" is defined in the TEL Subordinated Debt Indenture and
the Senior Subordinated Debt Indentures with respect to either Issuer as
Indebtedness of such Issuer outstanding at any time (other than the Indebtedness
evidenced by the Debt Securities of any series) except (a) any Indebtedness as
to which, by the terms of the instrument creating or evidencing the same, it is
provided that such Indebtedness is not senior or prior in right of payment to
the Debt Securities or is PARI PASSU or subordinate by its terms in right of
payment to the Debt Securities, (b) renewals, extensions and modifications of
any such Indebtedness, (c) any Indebtedness of such Issuer to a wholly-owned
Subsidiary of TEL, (d) interest accruing after the filing of a petition
initiating certain events of bankruptcy or insolvency unless such interest is an
allowed claim enforceable against such Issuer in a proceeding under federal or
state bankruptcy laws and (e) trade payables.
17
"SENIOR SUBORDINATED INDEBTEDNESS" of either Issuer means the Senior
Subordinated Debt Securities and any other Indebtedness of such Issuer that
ranks PARI PASSU with the Senior Subordinated Debt Securities (including the
1997 Notes, the 2000 Notes and the Guarantees thereof). Any Indebtedness of an
Issuer that is subordinate or junior by its terms in right of payment to any
other Indebtedness of such Issuer shall be subordinate to Senior Subordinated
Indebtedness of such Issuer unless the instrument creating or evidencing the
same or pursuant to which the same is outstanding specifically provides that
such Indebtedness (i) is to rank PARI PASSU with other Senior Subordinated
Indebtedness of such Issuer and (ii) is not subordinated by its terms to any
Indebtedness of such Issuer which is not Senior Indebtedness of such Issuer.
"SUBORDINATED INDEBTEDNESS" of either Issuer means the Senior Subordinated
Debt Securities, any other Senior Subordinated Indebtedness of such Issuer and
any other Indebtedness that is subordinate or junior in right of payment to
Senior Indebtedness of such Issuer.
If (i) either Issuer should default in the payment of any principal of,
premium, if any, or interest, if any, on any Senior Indebtedness of such Issuer
when the same becomes due and payable, whether at maturity or at a date fixed
for prepayment or by declaration of acceleration or otherwise or (ii) any other
default with respect to Senior Indebtedness of such Issuer shall occur and the
maturity of such Senior Indebtedness has been accelerated in accordance with its
terms, then, upon written notice of such default to such Issuer by the holders
of such Senior Indebtedness or any trustee therefor, unless and until such
default shall have been cured or waived or shall have ceased to exist or such
acceleration shall have been rescinded, no direct or indirect payment (in cash,
property, securities, by set-off or otherwise) will be made or agreed to be made
for principal of, premium, if any, or interest, if any, on any of the Senior
Subordinated Debt Securities or the TEL Subordinated Debt Securities, or in
respect of any redemption, retirement, purchase or other acquisition of the
Senior Subordinated Debt Securities or the TEL Subordinated Debt Securities
other than those made in capital stock of TEL (or cash in lieu of fractional
shares thereof) (Sections 13.1 and 13.4 of the Senior Subordinated Debt
Indentures and Sections 13.1 and 13.4 of the TEL Subordinated Debt Indenture).
If any default (other than a default described in the preceding paragraph)
under the Senior Indebtedness of an Issuer, pursuant to which the maturity
thereof may be accelerated immediately or the expiration of any applicable grace
periods occurs (a "Senior Nonmonetary Default"), then, upon the receipt by such
Issuer and the Trustee of written notice thereof (a "Payment Notice") from or on
behalf of holders of such Senior Indebtedness specifying an election to prohibit
such payment and other action by such Issuer in accordance with the following
provisions of this paragraph, such Issuer may not make any payment or take any
other action that would be prohibited by the immediately preceding paragraph
during the period (the "Payment Blockage Period") commencing on the date of
receipt of such Payment Notice and ending on the earlier of (i) the date, if
any, on which the holders of such Senior Indebtedness or their representative
notify the Trustee that such Senior Nonmonetary Default is cured or waived or
ceases to exist or the Senior Indebtedness to which such Senior Nonmonetary
Default relates is discharged or (ii) the 179th day after the date of receipt of
such Payment Notice. Notwithstanding the provisions described in the immediately
preceding sentence, such Issuer may resume payments on the Senior Subordinated
Debt Securities and the TEL Subordinated Debt Securities after such Payment
Blockage Period.
If (i) (A) without the consent of an Issuer, a receiver, conservator,
liquidator or trustee of such Issuer or of any of its property is appointed by
the order or decree of any court or agency or supervisory authority having
jurisdiction, and such decree or order remains in effect for more than 60 days
or (B) such Issuer is adjudicated bankrupt or insolvent or (C) any of its
property is sequestered by court order and such order remains in effect for more
than 60 days or (D) a petition is filed against such Issuer under any state or
federal bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution, liquidation or receivership law of any jurisdiction whether
now or hereafter in effect, and is not dismissed within 60 days after such
filing; (ii) such Issuer (A) commences a voluntary case or other proceeding
seeking
18
liquidation, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or other relief with respect to itself or its debt or
other liabilities under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or (B) consents to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or (C) fails generally to, or cannot, pay its
debts generally as they become due or (D) takes any corporate action to
authorize or effect any of the foregoing; or (iii) any Subsidiary of such Issuer
takes, suffers or permits to exist any of the events or conditions referred to
in the foregoing clause (i) or (ii), then all Senior Indebtedness of such Issuer
(including any interest thereon accruing after the commencement of any such
proceedings) will first be paid in full before any payment or distribution,
whether in cash, securities or other property, is made by any Issuer to any
holder of Senior Subordinated Debt Securities or TEL Subordinated Debt
Securities on account of the principal of, premium, if any, or interest, if any,
on such Senior Subordinated Debt Securities or TEL Subordinated Debt Securities,
as the case may be. Any payment or distribution, whether in cash, securities or
other property (other than securities of such Issuer or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in the subordination provisions
with respect to the indebtedness evidenced by the Senior Subordinated Debt
Securities or the TEL Subordinated Debt Securities, to the payment of all Senior
Indebtedness of such Issuer then outstanding and to any securities issued in
respect thereof under any such plan of reorganization or readjustment) that
would otherwise (but for the subordination provisions) be payable or deliverable
in respect of the Senior Subordinated Debt Securities or the TEL Subordinated
Debt Securities of any series will be paid or delivered directly to the holders
of Senior Indebtedness of such Issuer in accordance with the priorities then
existing among such holders until all Senior Indebtedness of such Issuer
(including any interest thereon accruing after the commencement of any such
proceedings) has been paid in full. In the event of any such proceeding, after
payment in full of all sums owing with respect to Senior Indebtedness of such
Issuer, the holders of Senior Subordinated Debt Securities, together with the
holders of any obligations of such Issuer ranking on a parity with the Senior
Subordinated Debt Securities, will be entitled to be repaid from the remaining
assets of such Issuer the amounts at that time due and owing on account of
unpaid principal of, premium, if any, or interest, if any, on the Senior
Subordinated Debt Securities and such other obligations before any payment or
other distribution, whether in cash, property or otherwise, shall be made on
account of any capital stock or obligations of such Issuer ranking junior to the
Senior Subordinated Debt Securities (including the TEL Subordinated Debt
Securities) and such other obligations (Section 13.1 of the Senior Subordinated
Debt Indentures and Section 13.1 of the TEL Subordinated Debt Indenture).
If any payment or distribution of any character, whether in cash, securities
or other property (other than securities of such Issuer or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in the subordination provisions
with respect to the Senior Subordinated Debt Securities or the TEL Subordinated
Debt Securities, to the payment of all Senior Indebtedness of such Issuer then
outstanding and to any securities issued in respect thereof under any such plan
of reorganization or readjustment), shall be received by the Trustee, or any
holder of any Senior Subordinated Debt Securities or TEL Subordinated Debt
Securities in contravention of any of the terms of the Senior Subordinated Debt
Indentures or the TEL Subordinated Debt Indenture, as the case may be, such
payment or distribution of securities will be received in trust for the benefit
of, and will be paid over or delivered and transferred to, the holders of the
Senior Indebtedness of such Issuer then outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness of such Issuer remaining unpaid to the extent necessary
to pay all such Senior Indebtedness in full (Section 13.1 of the Senior
Subordinated Debt Indentures and Section 13.1 of the TEL Subordinated Debt
Indenture).
By reason of such subordination, in the event of the insolvency of either
Issuer, holders of Senior Indebtedness of such Issuer may receive more, ratably,
than holders of the Senior Subordinated Debt
19
Securities or TEL Subordinated Debt Securities. Such subordination will not
prevent the occurrence of any Event of Default (as defined in the Indentures) or
limit the right of acceleration in respect of the Senior Subordinated Debt
Securities or TEL Subordinated Debt Securities.
CONCERNING THE TRUSTEE
The Chase Manhattan Bank, the Trustee under the Senior Debt Indentures and
the TEL Subordinated Debt Indenture, may make loans to TEC or TEL in the normal
course of business. The Chase Manhattan Bank serves as trustee with respect to
TEC's 12 1/2% Senior Subordinated Discount Notes due 1997. United States Trust
Company of New York, the Trustee under the Senior Subordinated Debt Indentures,
serves as trustee with respect to TEC 's 9 3/4% Senior Subordinated Discount
Notes due 2000. If a bank or trust company other than The Chase Manhattan Bank
or United States Trust Company of New York is to act as Trustee for a series of
Debt Securities, information concerning such other Trustee will be set forth in
the Prospectus Supplement relating to such series of Debt Securities.
DESCRIPTION OF SHARE CAPITAL OF TEL
The following statements with respect to TEL's share capital are subject to
the detailed provisions of the Company's Articles of Association (the "Articles
of Association"), its Memorandum of Association (the "Memorandum of
Association"), the resolutions with respect to the Convertible Preference Shares
(the "Resolutions"), and the Preference Share Purchase Rights created pursuant
to the Rights Agreement entered into between the Company and Chemical Bank, as
Rights Agent (the "Rights Agreement"). These statements do not purport to be
complete and, while the Company believes the descriptions of the material
provisions of the Articles of Association, Memorandum of Association,
Resolutions and Rights Agreement contained in this Prospectus are accurate
statements with respect to such material provisions, such statements are subject
to the detailed provisions in the Articles of Association, Memorandum of
Association, Resolutions and Rights Agreement to which reference is hereby made
for a full description of such provisions.
PREFERENCE SHARES
Under the Articles of Association, the Company has authority to issue
20,000,000 preference shares, par value $.01 per share. There were 247,469
shares of 5% convertible preference shares, par value $.01 per share (the
"Convertible Preference Shares") outstanding at January 31, 1997. No other
preference shares are currently outstanding.
The Preference Shares may be issued by resolutions of the Company's Board of
Directors from time to time without any action of the shareholders. Such
resolutions may authorize issuances in one or more classes or series of the
preference shares and may fix and determine dividend and liquidation
preferences, voting rights, conversion privileges, redemption terms, and other
privileges and rights of the shareholders of each class or series so authorized.
The specific terms of a particular series of Preference Shares offered hereby
will be described in a Prospectus Supplement relating to such series and will
include the following:
(i) The maximum number of shares to constitute the series and the
distinctive designation thereof;
(ii) The annual dividend rate, if any, on shares of the series, the date
or dates from which dividends will begin to accrue or accumulate and the
dates upon which such dividends shall be payable and whether dividends will
be cumulative;
(iii) Whether the shares of the series will be redeemable and, if so, the
price at and the terms and conditions on which the shares of the series may
be redeemed, including the time during which shares of the series may be
redeemed and any accumulated dividends thereon that the holders of shares of
the series shall be entitled to receive upon the redemption thereof;
20
(iv) The liquidation preference, if any, applicable to shares of the
series; (v) Whether the shares of the series will be subject to operation of
a retirement or sinking fund and, if so, the extent and manner in which any
such fund shall be applied to the purchase or redemption of the shares of
the series for retirement or for other corporate purposes, and the terms and
provisions relating to the operation of such fund;
(vi) The terms and conditions, if any, on which the shares of the series
shall be convertible into, or exchangeable for, shares of any other class or
series of share capital of TEL or another corporation or any series of any
other class or classes, or of any other series of the same class, including
the price or prices or the rates of conversion or exchange and the method,
if any, of adjusting the same;
(vii) The voting rights, if any, on the shares of the series; and
(viii) Any other preferences and relative, participating, optional or
other special rights or qualifications, limitations or restrictions thereof.
OUTSTANDING 5% CONVERTIBLE PREFERENCE SHARES
DIVIDENDS. Holders of Convertible Preference Shares are entitled to
receive, when, as, and if declared by the Board of Directors of the Company out
of funds of the Company legally available for payment, cumulative cash dividends
at the annual rate per share equal to 5 percent of the Redemption Price (defined
to be $34.41 per share) of the shares payable semi-annually on September 30 and
March 30 in each year, except that if any such date is a Saturday, Sunday, or
legal holiday, then such dividend shall be payable on the next day that is not a
Saturday, Sunday, or legal holiday. Dividends accrue from the date on which the
Convertible Preference Shares were issued and are payable to holders of record
as they appear on the stock books of the Company on such record dates as are
fixed by the Board of Directors of the Company. The amount of dividends payable
for each semi-annual dividend period is computed by dividing the annual dividend
amount by two. The amount of dividends payable for any period other than a full
semi-annual dividend period is computed on the basis of a 360-day year of twelve
30-day months. No interest will be payable in respect of any dividend payment on
the Convertible Preference Shares which may be in arrears.
If dividends on the Convertible Preference Shares shall not have been
declared and paid in full, or funds set aside for payment, by a date 15 days
after a dividend payment date (a "Calculation Date"), dividends payable on the
Convertible Preference Shares shall be increased by an amount equal to the prime
rate of Morgan Guaranty Trust Company of New York as in effect on each
Calculation Date plus 1 percent applied against the amount of dividends so due
and unpaid until such dividends shall be paid (the "Penalty Dividend").
The Convertible Preference Shares have priority as to dividends over
Ordinary Shares and any other series or class of the Company's shares hereafter
issued which ranks junior as to dividends to the Convertible Preference Shares
("Junior Dividend Shares"), and no dividend (other than dividends payable solely
in Junior Dividend Shares) may be paid on, and no purchase, redemption, or other
acquisition may be made by the Company of, any Junior Dividend Shares unless all
accrued and unpaid dividends on the Convertible Preference Shares have been paid
or declared and set apart for payment. The Company may not pay dividends on any
class or series of its shares having parity with the Convertible Preference
Shares as to dividends ("Parity Dividend Shares"), unless it has paid or
declared and set apart for payment or contemporaneously pays or declares and
sets apart for payment all accrued and unpaid dividends for all prior periods on
the Convertible Preference Shares and may not pay dividends on the Convertible
Preference Shares unless it has paid or declared and set apart for payment or
contemporaneously pays or declares and sets apart for payment all accrued and
unpaid dividends for all prior periods on the Parity Dividend Shares.
Notwithstanding the preceding sentence, whenever all accrued dividends are not
paid in full on the Convertible Preference Shares or any Parity Dividend Shares,
all dividends declared on the
21
Convertible Preference Shares and such Parity Dividend Shares will be declared
or made pro rata so that the amount of dividends declared per share on the
Convertible Preference Shares and such Parity Dividend Shares will bear the same
ratio that accrued and unpaid dividends per share on the Convertible Preference
Shares and such Parity Dividend Shares bear to each other. The Convertible
Preference Shares will be junior as to dividends to any series or class of TEL's
shares hereafter issued which ranks senior as to dividends to the Convertible
Preference Shares ("Senior Dividend Shares"), and if at any time TEL has failed
to pay or declare and set apart for payment accrued and unpaid dividends on any
Senior Dividend Shares, TEL may not pay any dividend on the Convertible
Preference Shares.
LIQUIDATION RIGHTS. In case of the voluntary or involuntary liquidation,
dissolution, or winding up of the Company, holders of Convertible Preference
Shares are entitled to receive an amount per share equal to the Redemption
Price, plus any accrued and unpaid dividends (including Penalty Dividends) to
the payment date (the "Liquidation Price"), before any payment or distribution
is made to the holders of Ordinary Shares or any other series or class of the
Company's shares hereafter issued which ranks junior as to liquidation rights to
the Convertible Preference Shares, but the holders of Convertible Preference
Shares will not be entitled to receive the Liquidation Price of such shares
until the liquidation price of any other series or class of the Company's shares
hereafter issued which ranks senior as to liquidation rights to the Convertible
Preference Shares ("Senior Liquidation Shares") has been paid in full; provided,
if, at such time, any holder of Convertible Preference Shares has any
outstanding debts, liabilities or engagements to or with the Company (whether
presently payable or not), either alone or jointly with any other person,
whether a shareholder or not, (including, without any limitation, any liability
associated with the unpaid purchase price of such Convertible Preference
Shares), the liquidator appointed to oversee the liquidation of the Company may
deduct from the fixed liquidation amount payable in respect of such Convertible
Preference Shares the aggregate amount of such debts, liabilities and
engagements and apply such amount to any of such debts, liabilities or
engagements. The holders of Convertible Preference Shares and all series or
classes of the Company's shares hereafter issued which rank on a parity as to
liquidation rights with the Convertible Preference Shares are entitled to share
ratably, in accordance with the respective preferential amounts payable on such
shares, in any distribution (after payment of the liquidation price of the
Senior Liquidation Shares) which is not sufficient to pay in full the aggregate
of the amounts payable thereon. After payment in full of the Liquidation Price
of the Convertible Preference Shares, the holders of such shares will not be
entitled to any further participation in any distribution of assets by the
Company. Neither a consolidation or merger of the Company with another company
nor a sale or transfer of all or part of the Company's assets for cash,
securities, or other property will be considered a liquidation, dissolution, or
winding up of the Company.
REDEMPTION. The Company may, at its option, redeem the Convertible
Preference Shares, in whole or in part, at any time on or after March 30, 1998
or at any time when there are fewer than 133,005 Convertible Preference Shares
outstanding. The redemption price payable upon such optional redemption shall be
the Redemption Price plus any accrued and unpaid dividends (including Penalty
Dividends) to the redemption date. Such Redemption Price shall be payable in
cash.
The Convertible Preference Shares shall be subject to mandatory redemption
by the Company on March 30, 2004. At the option of the Company, such redemption
may be for (i) cash at the Redemption Price plus any accrued and unpaid
dividends (including Penalty Dividends) to the redemption date; (ii) such number
of Ordinary Shares whose aggregate value (based on the then current market price
determined as set forth in the Resolutions) equals the Redemption Price plus any
accrued and unpaid dividends (including Penalty Dividends) to the redemption
date; or (iii) a combination of cash and Ordinary Shares equal to the Redemption
Price plus any accrued and unpaid dividends (including Penalty Dividends) to the
redemption date. The Redemption Price equals $34.41 per share.
22
VOTING RIGHTS. The holders of Convertible Preference Shares have no voting
rights except as described below or as required by Cayman Islands law. In
exercising any such vote each outstanding Convertible Preference Share is
entitled to one vote.
So long as any Convertible Preference Shares are outstanding, the Company
will not, without the affirmative vote or consent of the holders of at least
two-thirds of the outstanding Convertible Preference Shares, voting or
consenting separately as a class with holders of any other class of the
Company's preference shares similarly affected, issue other than wholly for cash
consideration, any shares of any class of Senior Dividend Shares or Senior
Liquidation Shares, or amend the Articles of Association in a manner adversely
affecting the rights of such shareholders.
The Articles of Association may be amended to increase the number of
authorized shares of the Company's preference shares without the vote of the
holders of the outstanding Convertible Preference Shares.
The holders of the Convertible Preference Shares have no pre-emptive rights
with respect to any shares of the Company or any other securities of TEL
convertible into or carrying rights or options to purchase any such shares.
CONVERSION RIGHTS. The holders of Convertible Preference Shares are
entitled to convert their Convertible Preference Shares into Ordinary Shares
subject to the qualifications described below, except that, with respect to
Convertible Preference Shares called for redemption, conversion rights will
expire at the close of business on the fifth day prior to the redemption date
(unless the Company defaults in the payment of the Redemption Price). No payment
or adjustment will be made in respect of dividends on the Convertible Preference
Shares that may be accrued or unpaid or in arrears upon conversion of shares of
Convertible Preference Shares except as set forth below. No fractional shares
will be issued and, in lieu of any fractional share, the Company will pay a cash
adjustment based on the then current market price (determined as set forth in
the Resolutions) of the Ordinary Shares.
Each Convertible Preference Share is convertible initially into one Ordinary
Share. However, the number of Ordinary Shares issuable on conversion of each
Convertible Preference Share (the "Conversion Rate") is subject to adjustment as
described below.
The Conversion Rate is subject to adjustment in certain circumstances,
including in respect of any dividends not declared and paid in full in respect
of any dividend payment date occurring prior to the date of conversion and any
Penalty Dividends payable thereon, upon the issuance of Ordinary Shares as a
stock dividend, in connection with combinations and subdivisions of Ordinary
Shares, upon certain reclassifications of Ordinary Shares, upon the issuance to
the Company's shareholders of rights or warrants to subscribe for or purchase
Ordinary Shares at a price per share less than the then current market price of
Ordinary Shares, and in connection with certain distributions to the Company's
shareholders of evidences of indebtedness or assets. Except in the case of the
adjustment in respect of dividends, no adjustment in the Conversion Price will
be required unless it would result in at least a 1 per cent increase or decrease
in the Conversion Price; however, any adjustment not made will be carried
forward.
In case of any consolidation or merger of the Company with any other
company, or in the case of any merger of another company into the Company (other
than a merger with a company in which merger the Company is the continuing
company and which does not result in any reclassification, conversion, exchange
or cancellation of outstanding shares of the Company), or in the case of a sale
or conveyance of all or substantially all of the assets of the Company to
another company, the Company will be required to make proper provisions so that
the holder of each Convertible Preference Share then outstanding will have the
right thereafter to convert such Convertible Preference Share into the kind or
amount of shares of stock and other securities and property receivable upon such
consolidation, merger, sale or conveyance by a holder of the number of Ordinary
Shares into which such Convertible Preference Share might have been converted
immediately prior to such consolidation, merger, sale or conveyance.
23
PREFERENCE SHARE PURCHASE RIGHTS
The Board of Directors of TEL has adopted a Shareholder Rights Plan pursuant
to which preference share purchase rights attach to all Ordinary Shares at the
rate of one right for each Ordinary Share. Chemical Bank is the Rights Agent for
the Preference Share Purchase Rights. Each right entitles the registered holder
to purchase from the Company one one-thousandth of a Series A Junior
Participating Preference Share, par value $.01 per share (the "Junior Preference
Shares"), of the Company at a price of $120 per one one-thousandth of a share of
such Junior Preference Shares, subject to adjustment.
Generally, the rights only become distributable ten days following public
announcement that a person has acquired beneficial ownership of 15% or more of
the Ordinary Shares or ten business days following commencement of a tender or
exchange offer for 15% or more of the outstanding Ordinary Shares; provided
that, pursuant to the terms of the Shareholder Rights Plan, Oppenheimer Group,
Inc. may increase its level of beneficial ownership to 19.9% without triggering
a distribution of the rights. If, among other events, any person becomes the
beneficial owner of 15% or more of the Ordinary Shares (except as aforesaid),
each right not owned by such person generally becomes the right to purchase such
number of Ordinary Shares that is equal to the amount obtained by dividing the
right's exercise price (currently $120) by 50% of the market price of the
Ordinary Shares on the date of the first occurrence. In addition, if the Company
is subsequently merged or certain other extraordinary business transactions are
consummated, each right generally becomes a right to purchase such number of
shares of common stock of the acquiring person that is equal to the amount
obtained by dividing the right's exercise price by 50% of the market price of
such Ordinary Shares on the date of the first occurrence.
Under certain circumstances, the Company's directors may determine that a
tender offer or merger is fair to all shareholders and prevent the rights from
being exercised. At any time after any person or group acquires 15% or more of
the Ordinary Shares outstanding (except as aforesaid) and prior to the
acquisition by such person or group of 50% or more of the outstanding Ordinary
Shares or the occurrence of an event described in the prior paragraph, the Board
of Directors of the Company may exchange the rights (other than rights owned by
such person or group which will have become void), in whole or in part, at an
exchange ratio of one Ordinary Share, or one one-thousandth of a Junior
Preference Share per right (subject to adjustment). The Company has the ability
to amend the rights (except the redemption price) in any manner prior to the
public announcement that a 15% position has been acquired or a tender offer has
been commenced.
Any Junior Preference Shares issued pursuant to the Shareholders Rights Plan
will rank junior as to dividends and liquidation to the Convertible Preference
Shares. Junior Preference Shares purchasable upon exercise of the rights will
not be redeemable. Each Junior Preference Share will be entitled, when, as and
if declared, to a minimum preferential quarterly dividend payment of $1 per
share but will be entitled to an aggregate dividend of 1,000 times the dividend
declared per Ordinary Share. In the event of liquidation, the holders of the
Junior Preference Shares will be entitled to a minimum preferential liquidation
payment of $1000 per share (plus any accrued but unpaid dividends) but will be
entitled to an aggregate payment of 1,000 times the payment made per Ordinary
Share. Each Junior Preference Share will have 1,000 votes, voting together with
Ordinary Shares. Finally, in the event of any merger, consolidation or other
transaction in which Ordinary Shares are converted or exchanged, each Junior
Preference Share will be entitled to receive 1,000 times the amount received per
Ordinary Share. These rights are protected by customary antidilution provisions.
The Company will be entitled to redeem the rights at $0.01 a right at any
time prior to the time that a 15% position has been acquired. The rights will
expire on May 22, 2005.
ORDINARY SHARES
GENERAL. Under the Articles of Association, the Company has authority to
issue 200,000,000 Ordinary Shares. There were 36,363,264 Ordinary Shares
outstanding as of January 31, 1997.
24
VOTING AND OTHER RIGHTS. Under the Articles of Association, the holders of
Ordinary Shares are entitled to one vote for each share held on all matters
submitted to shareholders' meetings, including the election and removal of
directors, and vote together as a single class with any voting preference shares
unless the terms of any voting preference shares or the Articles of Association
otherwise provide. The Articles of Association provide that the quorum required
for a general meeting of the shareholders is a majority of the outstanding
Ordinary Shares entitled to vote at such meeting. All matters voted upon at any
duly held shareholders' meeting shall be carried by a majority of the votes cast
at the meeting by shareholders represented in person or by proxy, except (i)
election of directors, who are elected by plurality vote, (ii) approval of a
merger or a similar arrangement, which, pursuant to Cayman Islands law, requires
the approval by 75% of the votes cast (but, in any event, under the Articles of
Association, at least a majority of the outstanding shares), and (iii) approval
of a Special Resolution (as defined below). A change of corporate name, the
voluntary dissolution, liquidation or winding-up of the affairs of the Company,
a reduction of paid-up share capital, and any amendment to the Company's
Articles of Association or Memorandum of Association require approval by a
Special Resolution by the shareholders of the Company. A Special Resolution
requires the approval of at least two-thirds of the votes cast by the
shareholders represented in person or by proxy at a duly convened meeting. The
Board of Directors or the President may at any time proceed to convene a general
meeting of the Company. The Company must provide at least 10 days' notice of a
general meeting.
Because holders are not entitled to cumulate their votes, shareholders
holding a majority of the outstanding Ordinary Shares, voting together as a
class with the holders of any voting preference shares which may be issued, are
able to elect all members of the board of directors of TEL. The Articles of
Association provide that the directors are to be elected in three classes of
approximately equal number and for a term of three years, with the result that
shareholders will not vote for the election of a majority of directors in any
single year. Holders of Ordinary Shares have no preemptive rights.
The Articles of Association provide that whenever the share capital of TEL
is divided into different classes of shares, the rights attached to any class
may (unless otherwise provided by the terms of issue of the shares of that
class) be varied only with the consent in writing of the holders of such class
or pursuant to a Special Resolution adopted at a meeting with such holders
voting separately as a class. The Articles of Association further provide that,
unless otherwise provided by the rights attached to any shares, such rights will
not be deemed to be varied by the allotment of further shares which confer on
the holders voting rights more favorable than those conferred by such shares.
Such rights will not otherwise be deemed to be varied by the creation or
issuance of further shares, including any additional Ordinary Shares or
different classes of shares with preferential rights as to dividends or capital.
There are no limitations on the right of nonresident shareholders to hold or
vote their Ordinary Shares imposed by Cayman Islands law or the Articles of
Association.
DIVIDEND RIGHTS. The holders of Ordinary Shares are entitled at any time to
receive such dividends as are declared by the Board of Directors. The ability of
the Company to pay dividends on capital stock is restricted by covenants in the
Company's credit facility as well as covenants in the indentures relating to the
1997 Notes and the 2000 Notes. The Company currently intends to retain earnings
for use in its business and the financing of its capital requirements. The
payment of any future cash dividends is necessarily dependent upon the earnings
and financial needs of the Company, along with applicable legal and contractual
restrictions.
LIQUIDATION OF THE COMPANY. If, at the time of any liquidation, dissolution
or winding-up of the Company the holder of Ordinary Shares has any outstanding
debts, liabilities or engagements to or with the Company (whether presently
payable or not), either alone or jointly with any other person, whether a
shareholder or not (including, without limitation, any liability associated with
the unpaid purchase price of such Ordinary Shares), the liquidator appointed to
oversee the liquidation of the Company may deduct from the amount payable in
respect of such Ordinary Shares the aggregate amount of such debts, liabilities
25
and engagements and apply such amount to any of such holder's debts, liabilities
or engagements to or with TEL (whether presently payable or not). The liquidator
may distribute, in kind, to the holders of the Ordinary Shares remaining assets
of TEL or may sell, transfer or otherwise dispose of all or any part of such
remaining assets to any other company, trust or entity and receive payment
therefor in cash, shares or obligations of such other company, trust or entity
or any combination thereof, and may sell all or any part of the consideration so
received, and may distribute the consideration received or any balance or
proceeds thereof to holders of the Ordinary Shares in accordance with the
procedures set forth above. The liquidator may, with the like sanction, vest the
whole or any part of such assets in trustees upon such trusts for the benefit of
the contributories as the liquidator, with the like sanction shall think fit,
but so that no shareholder shall be compelled to accept any shares or other
securities whereon there is any liability.
CONVERTIBLE DEBENTURES
The Company has a convertible debenture plan under which key management
personnel may purchase debentures that are convertible into Ordinary Shares. All
debentures issuable under the plan have been issued. The aggregate number of
Ordinary Shares issuable upon the conversion of the debentures cannot exceed
1,000,000 shares, subject to adjustment in certain events. Of such shares,
458,000 are issuable upon conversion of outstanding debentures and 4,000 shares
are available for issuance upon conversion of debentures issuable in the future.
DESCRIPTION OF WARRANTS
TEL and TEC may issue Warrants to purchase Joint and Several Debt Securities
and TEL may issue TEL Warrants, including Warrants to purchase Ordinary Shares
or Preference Shares and Warrants to purchase TEL Debt Securities. Warrants may
be issued independently of or together with any other Securities and may be
attached to or separate from such Securities. Each series of Warrants will be
issued under a separate Warrant Agreement (each a "Warrant Agreement") to be
entered into between TEC and/or TEL and a Warrant Agent ("Warrant Agent"). The
Warrant Agent will act solely as an agent of TEC and/or TEL in connection with
the Warrants of such series and will not assume any obligation or relationship
of agency or trust for or with holders or beneficial owners of Warrants. The
following sets forth certain general terms and provisions of the Warrants
offered hereby. Further terms of the Warrants and the applicable Warrant
Agreement will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is being
delivered: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the designation, aggregate principal amount and terms of the securities
purchasable upon exercise of such Warrants; (v) the designation and terms of the
Securities with which such Warrants are issued and the number of such Warrants
issued with each such security; (vi) if applicable, the date on and after which
such Warrants and the related securities will be separately transferable; (vii)
the price at which the securities purchasable upon exercise of such Warrants may
be purchased; (viii) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire; (ix) the minimum or
maximum amount of such Warrants which may be exercised at any one time; (x)
information with respect to book-entry procedures, if any; (xi) a discussion of
certain Federal income tax considerations; and (xii) any other terms of such
Warrants, including terms, procedures and limitations relating to the exchange
and exercise of such Warrants.
PLAN OF DISTRIBUTION
TEL and TEC may sell the Securities to or through underwriters or dealers,
and also may sell the Securities directly to one or more other purchasers or
through agents. The applicable Prospectus Supplement will set forth the names of
any underwriters or agents involved in the sale of the Offered Securities and
any applicable commissions or discounts.
26
Underwriters, dealers or agents may offer and sell the Offered Securities at
a fixed price or prices, which may be changed, or from time to time at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. In connection with the sale of the
Securities, underwriters or agents may be deemed to have received compensation
from TEC or TEL in the form of underwriting discounts or commissions and may
also receive commissions from purchasers of the Securities for whom they may act
as agent. Underwriters or agents may sell the Securities to or through dealers,
and such dealers may receive compensation in the form of discounts, concessions
or commissions from the underwriters or commissions from the purchasers for whom
they may act as agent.
The Securities (other than the Ordinary Shares), when first issued, will
have no established trading market. Any underwriters or agents to or through
whom Securities are sold by TEC or TEL for public offering and sale may make a
market in such Securities, but such underwriters or agents will not be obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any
Securities.
Any underwriters, dealers or agents participating in the distribution of the
Securities may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the Securities may
be deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended (the "1933 Act"). Underwriters, dealers or agents may be
entitled, under agreements entered into with TEC or TEL, to indemnification
against or contribution toward certain civil liabilities, including liabilities
under the 1933 Act.
If so indicated in the Prospectus Supplement, TEC or TEL will authorize
underwriters or other persons acting as its agents to solicit offers by certain
institutions to purchase Securities from it pursuant to contracts providing for
payment and delivery on a future date. Institutions with which such contracts
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and others,
but in all cases will be subject to the condition that the purchase of the
Securities shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject. The underwriters and such
agents will not have any responsibility in respect of the validity or
performance of such contracts.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Securities will be
passed upon for TEC by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York and for TEL by W.S. Walker &
Company, Grand Cayman, Cayman Islands. Certain legal matters with respect to the
Securities will be passed upon for the underwriters or agents, if any, named in
the Prospectus Supplement by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements included elsewhere herein and
incorporated herein by reference have been so included and incorporated in
reliance upon the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
Certain information with respect to the gas and oil reserves of Triton
Energy Limited and Triton Energy Corporation and their subsidiaries derived from
the report of DeGolyer and MacNaughton, independent petroleum engineers, has
been incorporated by reference herein in reliance upon such firm as experts with
respect to the matters contained therein.
27
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NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION WITH RESPECT
TO THOSE SECURITIES TO WHICH IT RELATES TO ANY PERSONS IN ANY JURISDICTION WHERE
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION CONTAINED OR INCORPORATED HEREIN AT ITS DATE IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary................................. S-3
Risk Factors............................ S-7
The Company............................. S-11
Use of Proceeds......................... S-11
Capitalization.......................... S-11
Selected Historical Financial and Oil
and Gas Data........................... S-12
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations............................. S-13
Disclosure Regarding Forward-Looking
Statements............................. S-19
Business................................ S-20
Management.............................. S-34
Description of the Notes................ S-35
Underwriting............................ S-44
Legal Matters........................... S-45
Experts................................. S-45
PROSPECTUS
Available Information................... 2
Incorporation of Certain Documents by
Reference.............................. 2
Enforceability of Civil Liabilities
against Foreign Persons................ 2
The Company............................. 3
Risk Factors............................ 4
Use of Proceeds......................... 7
Ratios of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and
Preference Dividends................... 7
Description of Debt Securities.......... 8
Description of Share Capital of TEL..... 20
Description of Warrants................. 26
Plan of Distribution.................... 26
Legal Matters........................... 27
Experts................................. 27
Financial Statements.................... F-1
$400,000,000
[LOGO]
TRITON ENERGY LIMITED
TRITON ENERGY CORPORATION
$200,000,000
% SENIOR NOTES DUE 2002
$200,000,000
% SENIOR NOTES DUE 2027
----------------------------------
PROSPECTUS SUPPLEMENT
AND PROSPECTUS
----------------------------------
JOINT BOOK-RUNNING MANAGERS
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
CO-MANAGERS
LEHMAN BROTHERS
MORGANSTANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
UBS SECURITIES
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
, 1997
- ---------------------------------------------
---------------------------------------------
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TRITON ENERGY LIMITED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
TRITON ENERGY LIMITED AND SUBSIDIARIES:
Report of Independent Accountants ..................................... F-2
Consolidated Statements of Operations - Years ended
December 31, 1996 and 1995, seven months ended December
31, 1994 and year ended May 31, 1994 ................................ F-3
Consolidated Balance Sheets - December 31, 1996 and
1995 ................................................................ F-4
Consolidated Statements of Cash Flows - Years ended
December 31, 1996 and 1995, seven months ended December
31, 1994 and year ended May 31, 1994 ................................ F-5
Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1996 and 1995, seven months ended
December 31, 1994 and year ended May 31, 1994 ....................... F-6
Notes to Consolidated Financial Statements ............................ F-7
Schedule:
II - Valuation and Qualifying Accounts - Years ended
December 31, 1996 and 1995, seven months ended
December 31, 1994 and year ended May 31, 1994 ............... F-53
All other schedules are omitted as the required information is inapplicable or
presented in the consolidated financial statements or related notes
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Triton Energy Limited
In our opinion, the consolidated financial statements as of and for the years
ended December 31, 1996 and 1995, for the seven months ended December 31, 1994,
and for the year ended May 31, 1994 listed in the accompanying index present
fairly, in all material respects, the financial position of Triton Energy
Limited and its subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years ended December 31, 1996 and
1995, the seven months ended December 31, 1994 and the year ended May 31, 1994,
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Dallas, Texas
February 4, 1997
F-2
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Seven
Year ended December 31, months ended Year ended
----------------------- December 31, May 31,
1996 1995 1994 1994
--------- --------- --------- ---------
Sales and other operating revenues:
Oil and gas sales $ 129,795 $ 106,844 $ 20,477 $ 40,894
Other operating revenues 4,182 628 259 2,314
--------- --------- --------- ---------
133,977 107,472 20,736 43,208
--------- --------- --------- ---------
Costs and expenses:
Operating 36,654 35,276 12,362 27,887
General and administrative 25,945 25,672 15,997 30,429
Depreciation, depletion and amortization 25,640 23,208 7,339 19,821
Writedown of assets 42,960 -- 984 45,754
--------- --------- --------- ---------
131,199 84,156 36,682 123,891
--------- --------- --------- ---------
Operating income (loss) 2,778 23,316 (15,946) (80,683)
Gain on sale of Triton Canada stock -- -- -- 47,865
Interest income 6,703 7,954 4,144 6,542
Interest expense (15,897) (24,055) (7,754) (7,504)
Other income (expense), net 27,361 9,385 (3,278) 10,676
--------- --------- --------- ---------
18,167 (6,716) (6,888) 57,579
--------- --------- --------- ---------
Earnings (loss) from continuing operations
before income taxes, minority interest and
extraordinary item 20,945 16,600 (22,834) (23,104)
Income tax expense (benefit) (2,860) 10,059 3,796 (6,536)
--------- --------- --------- ---------
23,805 6,541 (26,630) (16,568)
Minority interest in loss of subsidiaries -- -- -- 11,971
--------- --------- --------- ---------
Earnings (loss) from continuing operations
before extraordinary item 23,805 6,541 (26,630) (4,597)
Discontinued operations:
Loss from operations -- (1,858) (1,078) (4,094)
Loss on disposal -- (1,963) -- (650)
--------- --------- --------- ---------
Earnings (loss) before extraordinary item 23,805 2,720 (27,708) (9,341)
Extraordinary item - extinguishment of debt (1,196) -- -- --
--------- --------- --------- ---------
Net earnings (loss) 22,609 2,720 (27,708) (9,341)
Dividends on preference shares 985 802 449 --
--------- --------- --------- ---------
Earnings (loss) applicable to ordinary
shares $ 21,624 $ 1,918 $ (28,157) $ (9,341)
========= ========= ========= =========
Average ordinary and equivalent shares outstanding 36,919 35,147 34,944 34,775
========= ========= ========= =========
Earnings (loss) per ordinary share:
Continuing operations $ 0.62 $ 0.16 $ (0.78) $ (0.13)
Discontinued operations -- (0.11) (0.03) (0.14)
Extraordinary item (0.03) -- -- --
--------- --------- --------- ---------
Net earnings (loss) $ 0.59 $ 0.05 $ (0.81) $ (0.27)
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-3
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
ASSETS
December 31,
---------------------
1996 1995
--------- ---------
Current assets:
Cash and equivalents $ 11,048 $ 49,050
Short-term marketable securities 3,866 42,419
Trade receivables, net 11,526 6,504
Other receivables 49,000 16,683
Inventories, prepaid expenses and other 8,920 4,128
--------- ---------
Total current assets 84,360 118,784
Long-term marketable securities -- 3,985
Property and equipment, at cost, net 676,833 524,381
Deferred income taxes 71,416 47,283
Investments and other assets 81,915 129,734
--------- ---------
$ 914,524 $ 824,167
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 199,552 $ 1,313
Accounts payable and accrued liabilities 38,545 23,794
Deferred income 28,466 8,079
--------- ---------
Total current liabilities 266,563 33,186
Long-term debt, excluding current maturities 217,078 401,190
Deferred income taxes 45,431 29,897
Deferred income and other 84,808 113,869
Convertible debentures due to employees -- --
Shareholders' equity:
Preference shares, par value $.01 for 1996 and without par value for 1995;
authorized 5,000,000 shares; issued 247,469 and 410,017 shares at
December 31, 1996 and 1995, respectively; stated value $34.41 8,515 14,109
Ordinary shares, par value $.01 and $1.00 for 1996 and 1995, respectively;
authorized 200,000,000 shares; issued 36,342,181 and 35,927,279
shares at December 31, 1996 and 1995, respectively 363 35,927
Additional paid-in capital 582,581 516,326
Accumulated deficit (288,685) (311,294)
Other (2,128) (8,705)
--------- ---------
300,646 246,363
Less cost of ordinary shares in treasury 2 338
--------- ---------
Total shareholders' equity 300,644 246,025
Commitments and contingencies (note 21)
--------- ---------
$ 914,524 $ 824,167
========= =========
The Company uses the full cost method to account for its oil- and gas-producing
activities. See accompanying notes to consolidated financial statements.
F-4
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Seven
Year ended December 31, months ended Year ended
----------------------- December 31, May 31,
1996 1995 1994 1994
--------- --------- -------- ----------
Cash flows from operating activities:
Net earnings (loss) $ 22,609 $ 2,720 $(27,708) $ (9,341)
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 25,640 23,467 7,587 20,490
Amortization of debt discount 15,897 23,928 7,939 7,852
Proceeds from forward oil sale -- 86,610 -- --
Amortization of unearned revenue (8,105) (4,725) -- --
(Gain) loss on sale of assets, net (15,831) (2,938) 201 (8,328)
Gain on sale of Triton Canada stock -- -- -- (47,865)
Writedowns, loss provisions and discontinued
operations 45,753 7,192 984 46,404
Deferred income taxes (8,759) 5,444 4,569 (10,224)
Minority interest in undistributed loss of
subsidiaries -- -- -- (11,971)
Other, net (5,815) (536) 5,198 2,090
Changes in working capital:
Marketable debt securities - trading 4,149 8,074 10,429 --
Receivables (5,048) (1,677) (3,064) (1,797)
Inventories, prepaid expenses and other (787) (790) (4,408) (6,310)
Accounts payable and accrued liabilities 10,732 2,367 2,657 (12,126)
Income taxes 270 (42) (6,398) 6,162
--------- --------- -------- ---------
Net cash provided (used) by operating
activities 80,705 149,094 (2,014) (24,964)
--------- --------- -------- ---------
Cash flows from investing activities:
Capital expenditures and investments (252,684) (178,161) (89,895) (86,819)
Purchases of investments and marketable securities -- (45,281) (5,879) (190,025)
Proceeds from sale of investments and marketable
securities 38,507 42,050 36,664 119,905
Proceeds from sale of shareholdings in Crusader 69,583 -- -- --
Sales of property and equipment and other assets 38,505 20,866 539 22,816
Proceeds from sale of Triton Canada stock -- -- -- 59,029
Proceeds from sale of discontinued operations -- 2,100 1,737 18,450
Other 571 (1,368) (3,509) (4,370)
--------- --------- -------- ---------
Net cash used by investing activities (105,518) (159,794) (60,343) (61,014)
--------- --------- -------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 53,911 85,627 1,701 123,408
Proceeds from short-term borrowings with
maturities greater than three months -- -- 7,671 --
Short-term borrowings, net -- (10,000) 8,040 (1,640)
Payments on long-term debt (70,884) (39,366) (212) (3,150)
Payments on debt associated with discontinued
operations -- (2,004) (1,883) (18,959)
Issuance of ordinary shares 5,874 8,398 639 3,164
Other (1,879) (3,752) (707) (1,054)
--------- --------- -------- ---------
Net cash provided (used) by financing
activities (12,978) 38,903 15,249 101,769
--------- --------- -------- ---------
Effects of exchange rate changes on cash and equivalents (211) (1,494) 444 275
--------- --------- -------- ---------
Net increase (decrease) in cash and equivalents (38,002) 26,709 (46,664) 16,066
Cash and equivalents at beginning of period 49,050 22,341 69,005 52,939
--------- --------- -------- ---------
Cash and equivalents at end of period $ 11,048 $ 49,050 $ 22,341 $ 69,005
========= ========= ======== =========
See accompanying notes to consolidated financial statements.
F-5
TRITON ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Seven
Year ended December 31, months ended Year ended
----------------------- December 31, May 31,
1996 1995 1994 1994
--------- --------- -------- ----------
Preference shares:
Balance at beginning of period $ 14,109 $ 17,976 $ 17,978 $ --
Purchase of minority interest in Triton Europe -- -- -- 17,978
Conversion of 5% preference shares (5,594) (3,867) (2) --
--------- --------- --------- ---------
Balance at end of period 8,515 14,109 17,976 17,978
--------- --------- --------- ---------
Ordinary shares:
Balance at beginning of period 35,927 35,577 35,519 35,231
Exercise of employee stock options and debentures 81 238 58 288
Conversion of 5% preference shares 153 112 -- --
Reduction in par value (35,783) -- -- --
Other, net (15) -- -- --
--------- --------- --------- ---------
Balance at end of period 363 35,927 35,577 35,519
--------- --------- --------- ---------
Additional paid-in capital:
Balance at beginning of period 516,326 505,256 505,122 502,217
Cash dividends, 5% preference shares (985) (802) (449) --
Exercise of employee stock options and debentures 7,974 8,160 464 2,876
Conversion of 5% preference shares 5,441 3,755 -- --
Reduction in par value 35,783 -- -- --
Sale of shareholdings in Crusader 20,413 -- -- --
Other, net (2,371) (43) 119 29
--------- --------- --------- ---------
Balance at end of period 582,581 516,326 505,256 505,122
--------- --------- --------- ---------
Accumulated deficit:
Balance at beginning of period (311,294) (314,014) (286,306) (276,965)
Net earnings (loss) 22,609 2,720 (27,708) (9,341)
--------- --------- --------- ---------
Balance at end of period (288,685) (311,294) (314,014) (286,306)
--------- --------- --------- ---------
Foreign currency translation adjustment:
Balance at beginning of period (8,616) (5,639) (7,163) (4,087)
Sale of foreign operations -- (3,268) -- (3,341)
Sale of shareholdings in Crusader 4,890 -- -- --
Translation rate changes 1,600 291 1,524 265
--------- --------- --------- ---------
Balance at end of period (2,126) (8,616) (5,639) (7,163)
--------- --------- --------- ---------
Other, net:
Balance at beginning of period (89) (1,384) (1,046) (246)
Valuation reserve on marketable securities 87 1,295 (429) (955)
Adjustment for minimum pension liability -- -- 91 155
--------- --------- --------- ---------
Balance at end of period (2) (89) (1,384) (1,046)
--------- --------- --------- ---------
Treasury shares:
Balance at beginning of period (338) (577) (682) (718)
Purchase of treasury shares (5) (4) (3) (5)
Transfer of shares to employee benefit plans 137 243 108 41
Retirement of treasury shares 204 -- -- --
--------- --------- --------- ---------
Balance at end of period (2) (338) (577) (682)
--------- --------- --------- ---------
Total shareholders' equity $ 300,644 $ 246,025 $ 237,195 $ 263,422
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-6
TRITON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Triton Energy Limited ("Triton") is an international oil and gas
exploration company primarily engaged in exploration and production
through subsidiaries and affiliates. The term "Company" when used herein
means Triton and its subsidiaries and other affiliates through which the
Company conducts its business. The Company's principal properties,
operations and oil and gas reserves are located in Colombia and
Malaysia-Thailand. All sales are currently derived from oil and gas
production in Colombia. The Company also has oil and gas interests in
other Latin American, Asian and European countries.
Triton, a Cayman Islands company, was incorporated in August 1995 to
become the parent holding company of Triton Energy Corporation, a Delaware
corporation ("TEC"). On March 25, 1996, the stockholders of TEC approved
the merger of a wholly owned subsidiary of Triton with and into TEC (the
"Reorganization"). Pursuant to the Reorganization, Triton became the
parent holding company of TEC and each share of common stock, par value
$1.00, and 5% preferred stock of TEC outstanding on March 25, 1996, was
converted into one ordinary share, par value $.01, and one 5% preference
share, respectively, of Triton. The Reorganization has been accounted for
as a combination of entities under common control.
Change in Fiscal Yearend
Effective January 1, 1995, the Company changed its fiscal yearend from May
31 to December 31. These financial statements include the Company's
transition period for the seven months ended December 31, 1994.
Principles of Consolidation
The consolidated financial statements include the accounts of Triton and
its majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Investments in
20%-to-50%-owned affiliates in which the Company exercises significant
influence over operating and financial policies are accounted for using
the equity method. Investments in less than 20%-owned affiliates are
accounted for using the cost method.
F-7
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
Cash Equivalents and Marketable Securities
Cash equivalents are highly liquid investments purchased with an original
maturity of three months or less.
Investments in marketable debt securities are reported at fair value
except for those investments that management has the positive intent and
the ability to hold to maturity. Investments available-for-sale are
classified based on the stated maturity of the securities and changes in
fair value are reported as a separate component of shareholders' equity.
Trading investments are classified as current regardless of the stated
maturity of the underlying securities and changes in fair value are
reported in other income, net. Investments that will be held-to-maturity
are classified based on the stated maturity of the securities.
Property and Equipment
The Company follows the full cost method of accounting for exploration and
development of oil and gas reserves, whereby all acquisition, exploration
and development costs are capitalized. Individual countries are designated
as separate cost centers. All capitalized costs plus the undiscounted
future development costs of proved reserves are depleted using the unit of
production method based on total proved reserves applicable to each
country. A gain or loss is recognized on sales of oil and gas properties
only when the sale involves significant reserves.
Costs related to acquisition, holding and initial exploration of licenses
in countries with no proved reserves are initially capitalized, including
internal costs directly identified with acquisition, exploration and
development activities. Costs related to production, general overhead or
similar activities are expensed. The Company's exploration licenses are
periodically assessed for impairment on a country-by-country basis. If the
Company's investment in exploration licenses within a country where no
proved reserves are assigned is deemed to be impaired, the licenses are
written down to estimated recoverable value. If the Company abandons all
exploration efforts in a country where no proved reserves are assigned,
all acquisition and exploration costs associated with the country are
expensed. Due to the unpredictable nature of exploration drilling
activities, the amount and timing of impairment expense are difficult to
predict with any certainty.
The net capitalized costs of oil and gas properties for each cost center,
less related deferred income taxes, cannot exceed the sum of (i) the
estimated future net revenues from the properties, discounted at 10%; (ii)
unevaluated costs not being amortized; and (iii) the lower of cost or
estimated fair value of unproved properties being amortized; less (iv)
income tax effects related to differences between the financial statement
basis and tax basis of oil and gas properties.
F-8
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
The estimated costs, net of salvage value, of dismantling facilities or
projects with limited lives or facilities that are required to be
dismantled by contract, regulation or law and the estimated costs of
restoration and reclamation associated with oil and gas operations are
included in estimated future development costs as part of the amortizable
base.
Support equipment and facilities are depreciated using the unit of
production method based on total reserves of the field related to the
support equipment and facilities. Other property and equipment, which
includes furniture and fixtures, vehicles, aircraft and leasehold
improvements, are depreciated principally on a straight-line basis over
estimated useful lives ranging from 3 to 30 years.
Repairs and maintenance are expensed as incurred, and renewals and
improvements are capitalized.
Environmental Matters
Environmental costs are expensed or capitalized depending on their future
economic benefit. Costs that relate to an existing condition caused by
past operations and have no future economic benefit are expensed.
Liabilities for future expenditures of a noncapital nature are recorded
when future environmental expenditures and/or remediation is deemed
probable, and the costs can be reasonably estimated.
Income Taxes
Deferred tax liabilities or assets are recognized for the anticipated
future tax effects of temporary differences between the financial
statement basis and the tax basis of the Company's assets and liabilities
using the enacted tax rates in effect at yearend. A valuation allowance
for deferred tax assets is recorded when it is more likely than not that
the benefit from the deferred tax asset will not be realized.
Revenue Recognition
Oil and gas revenues are recognized at the point of first measurement
after production which is generally upon delivery into field storage
tank/processing facilities or pipelines. Cost reimbursements arising from
carried interests granted by the Company are revenues to the extent the
reimbursements are contingent upon and derived from production.
Obligations arising from net profit interest conveyances are recorded as
operating expenses when the obligation is incurred.
F-9
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
Foreign Currency Translation
The U.S. dollar is the designated functional currency for all of the
Company's foreign operations, except for foreign operations of certain
affiliates where the local currencies are used as the functional currency.
The cumulative translation effects from translating balance sheet accounts
from the functional currency into U.S. dollars at current exchange rates
are included as a separate component of shareholders' equity.
Risk Management
Oil and natural gas sold by the Company are normally priced with reference
to a defined benchmark, such as light sweet crude oil traded on the New
York Merchantile Exchange (West Texas Intermediate or "WTI"). Actual
prices received vary from the benchmark depending on quality and location
differentials. It is the Company's policy to use financial market
transactions with credit-worthy counterparties from time to time primarily
to reduce risk associated with the pricing of a portion of the oil and
natural gas that it sells. The Company may also enter into financial
market transactions to benefit from its assessment of the future prices of
its production relative to other benchmark prices.
Gains or losses on financial market transactions that qualify for hedge
accounting are recognized in oil and gas sales at the time of settlement
of the underlying hedged transactions. Premiums paid for financial market
contracts are capitalized and amortized as operating expenses over the
contract period. Changes in the fair market value of financial market
transactions that do not qualify for hedge accounting are reflected as
noncash adjustments to other income, net in the period the change occurs.
Realized gains or losses on financial market transactions that do not
qualify for hedge accounting are recorded in oil and gas sales.
The Company occasionally enters into foreign exchange contracts to reduce
risk of unfavorable exchange-rate movements. The gains or losses arising
from currency exchange contracts offset foreign exchange gains or losses
on the underlying assets or liabilities or are deferred and offset against
the carrying value of the firm commitment.
Discontinued Operations and Reclassifications
The Company discontinued its aviation sales and services segment in June
1995. The Consolidated Statements of Operations for the seven months ended
December 31, 1994, and the year ended May 31, 1994, have been restated to
reflect the aviation sales and services segment as discontinued
operations.
Certain other previously reported financial information has been
reclassified to conform to the current period's presentation.
F-10
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
Earnings (Loss) per Ordinary Share
Primary earnings (loss) per ordinary share amounts were computed by
dividing net earnings (loss) after deduction of dividends on preference
shares by the weighted average number of ordinary and dilutive equivalent
shares outstanding. Ordinary share equivalents were not material or were
antidilutive for the year ended December 31, 1995, the seven months ended
December 31, 1994, and the year ended May 31, 1994. Prior to the Company's
sale of its investment in Crusader Limited ("Crusader") in July 1996, the
Company's proportionate shares owned by Crusader were not considered
outstanding for purposes of determining weighted average number of shares
outstanding. Fully diluted earnings (loss) per ordinary share is not
presented due to the antidilutive effect of including all potentially
dilutive securities.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," encourages, but does not
require, the adoption of a fair value- based method of accounting for
employee stock-based compensation transactions. The Company has elected to
continue to apply the provisions of Accounting Principles Board Opinion
No. 25 ("Opinion 25"), "Accounting for Stock Issued to Employees," and
related interpretations, in accounting for its stock-based compensation
plans. Under Opinion 25, compensation cost is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the
grant above the amount an employee must pay to acquire the stock.
The Use of Estimates in Preparing Financial Statements
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,
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period.
2. DIVESTITURES AND DISCONTINUED OPERATIONS
In June and July 1996, the Company sold its 49.9% shareholdings in
Crusader for total cash proceeds of $69.6 million to an unrelated third
party in conjunction with a May 1996 take-over bid by the same party for
the outstanding shares of Crusader. The Company recorded a total gain of
$10.4 million in other income, net and an increase to additional paid-in
capital of $20.4 million, representing the Company's proportion of Triton
ordinary shares owned by Crusader that were previously treated as owned by
Triton.
F-11
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
In March 1996, the Company sold its royalty interests in U.S. properties
for $23.8 million based on an effective date of January 1, 1996. The
Company recorded the resulting gain of $4.1 million in other operating
revenues.
In August 1995, the Company sold Triton France S.A. to an unrelated third
party. The Company received net proceeds, including repayment of
intercompany debt, of approximately $16 million and recorded a net gain of
$3.5 million and a reduction in shareholder equity of approximately $3.3
million for the foreign currency translation adjustment.
In June 1995, the Company sold the assets of its subsidiary, Jet East,
Inc., for $2.9 million in cash and a note, and realized a loss of $1.4
million on the sale. The Company accrued $.6 million for costs associated
with final disposal of the segment, which occurred in August 1995.
Summarized information for the aviation sales and services segment portion
of discontinued operations follows:
Year ended Seven Year ended
December 31, months ended May, 31,
1995 Dec. 31, 1994 1994
------- ------------- --------
Revenues $ 4,694 $ 6,117 $ 12,885
======= ======= ========
Loss before income taxes $(2,022) $(1,078) $ (4,094)
Income tax expense (benefit) -- -- --
------- ------- --------
Net loss $(2,022) $(1,078) $ (4,094)
======= ======= ========
In the first quarter of fiscal 1994, the Company completed the sale of its
76% interest in the common stock of Triton Canada Resources Ltd. The
Company received net proceeds of $59 million and recorded a gain of $47.9
million.
In August and October 1993, the Company sold its working interest in U.S.
properties for net proceeds of $19.5 million, resulting in a gain of $7
million. The properties that were sold accounted for approximately 55.7%
of discounted future net revenues associated with United States proved
properties at May 31, 1993.
In fiscal 1993, the Company initiated a plan to discontinue its remaining
operations in the wholesale fuel products segment. An accrual of $16.1
million was recorded at May 31, 1993, as an estimate of the results of
operations for discontinued operations during fiscal 1994 and the
anticipated loss on disposal of the segment. An additional accrual of $.7
million was
F-12
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
recorded at May 31, 1994, for estimated operating losses caused by closing
the sales of several operating divisions later than originally
anticipated. All operations have been sold.
Summarized information for the wholesale fuel products segment portion of
discontinued operations follows:
Seven Year ended
months ended March 31,
Dec. 31, 1994 1994
------------- -----------
Revenues $ 8,820 $ 81,383
======= ========
Loss before income taxes $(2,070) $(14,422)
Income tax expense 5 7
------- --------
Net loss $(2,075) $(14,429)
======= ========
3. FORWARD SALE OF COLOMBIAN OIL PRODUCTION
In May 1995, the Company sold 10.4 million barrels of oil in a forward oil
sale. Under the terms of the sale, the Company received approximately $87
million of the approximately $124 million net proceeds and is entitled to
receive substantially all of the remaining proceeds (now held in various
interest-bearing reserve accounts) when the Company's Cusiana and Cupiagua
fields project in Colombia becomes self-financing, which is expected in
1997, and when certain other conditions are met. At December 31, 1996,
proceeds held in interest-bearing reserve accounts of $30 million and $5.6
million have been recorded as current and long-term receivables,
respectively. The Company has recorded the net proceeds as deferred income
and will recognize such revenue when the barrels of oil are delivered
during a five-year period that began in June 1995. The Company is required
to deliver to the buyer 58,425 barrels per month through March 1997 and
254,136 barrels per month from April 1997 to March 2000.
4. PURCHASE OF THE TRITON EUROPE MINORITY INTEREST
On March 31, 1994, the Company acquired all of the outstanding shares not
owned by the Company, representing the minority shareholders' 40.5%
interest in Triton Europe plc ("Triton Europe"), in exchange for 522,460
shares of the Company's 5% Convertible Preferred Stock ("5% preferred
stock"), with a value of $18 million, and $2.6 million in cash, including
transaction costs. The transaction was recorded as a purchase, and
accordingly, 100% of Triton Europe's operating results have been included
in the Company's results of operations since March 31, 1994. The excess of
the purchase price over the carrying value of the minority interest in
Triton Europe of $3.5 million was allocated to the full cost pools within
Triton Europe.
F-13
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
5. INVESTMENTS IN MARKETABLE SECURITIES
The carrying values of marketable securities are as follows:
December 31,
-----------------
1996 1995
------- -------
Short-term marketable securities:
Held-to-maturity $ -- $18,861
Available-for-sale 1,998 17,519
Trading 1,868 6,039
------- -------
Total short-term marketable securities $ 3,866 $42,419
======= =======
Long-term available-for-sale $ -- $ 3,985
======= =======
Proceeds from the sale of available-for-sale securities were $19.5 million
and $7.7 million in the years ended December 31, 1996 and 1995,
respectively.
6. OTHER RECEIVABLES
Other receivables consisted of the following:
December 31,
-----------------
1996 1995
------- -------
Receivable from the forward oil sale $30,000 $ --
Central Llanos pipeline receivable 6,380 9,930
Receivable from partners 5,371 3,171
Other 7,249 3,582
------- -------
$49,000 $16,683
======= =======
Triton Colombia, Inc. ("Triton Colombia"), along with its joint venture
partners in the Cusiana and Cupiagua fields in Colombia, advanced 50% of
the cost to upgrade the capacity of the Central Llanos pipeline that was
formerly owned by Empresa Colombiana de Petroleos ("Ecopetrol"). In
November 1995, Oleoducto Central S.A. ("OCENSA") acquired the Central
Llanos pipeline from Ecopetrol. The Company will recover the remaining
outstanding receivable based on the production from the Cusiana and
Cupiagua fields transported through the pipeline. The outstanding balance
of the receivable bears interest at the London Interbank Offered Rate
("LIBOR") plus 1%.
F-14
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
7. PROPERTY AND EQUIPMENT
Property and equipment, at cost, are summarized as follows:
December 31,
-----------------
1996 1995
------- -------
Oil and gas properties, full cost method:
Evaluated $398,446 $506,405
Unevaluated 149,648 173,061
Support equipment and facilities 194,116 87,289
Other 31,044 22,422
-------- --------
773,254 789,177
Less accumulated depreciation and depletion 96,421 264,796
-------- --------
$676,833 $524,381
======== ========
The Company capitalizes interest on qualifying assets, principally
unevaluated oil and gas properties, major development projects in progress
and support equipment and facilities under construction. Capitalized
interest amounted to $27.1 million and $16.2 million in the years ended
December 31, 1996 and 1995, respectively, $11.8 million in the seven
months ended December 31, 1994, and $16.9 million in the year ended May
31, 1994. The Company capitalized general and administrative expenses
related to exploration and development activities of $24.6 million and
$21.1 million in the years ended December 31, 1996 and 1995, respectively,
$9.5 million in the seven months ended December 31, 1994, and $11.2
million in the year ended May 31, 1994.
Evaluated oil and gas properties and accumulated depreciation and
depletion decreased by $246.9 million and $228.3 million, respectively, in
1996 due to the sales of the Company's royalty interests in U.S.
properties and the assets of Triton Indonesia, Inc. and $265.5 million and
$247 million, respectively, in 1995 due to the sale of Triton France S.A.
F-15
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
8. INVESTMENTS AND OTHER ASSETS
Investments and other assets consisted of the following:
December 31,
-----------------
1996 1995
------- -------
Investment in OCENSA $34,311 $15,789
Investment in ODC 11,108 11,108
Investment in Crusader -- 31,530
WTI benchmark call options 11,048 4,580
Unamortized debt issue costs 6,878 9,349
Receivable from the forward oil sale 5,613 35,613
Other 12,957 21,765
------- -------
$81,915 $129,734
======= ========
The Company's wholly owned subsidiary Triton Pipeline Colombia, Inc.
("Triton Pipeline") owns the Company's 9.6% interest in OCENSA. Triton
Colombia, owns approximately 6.6% in Oleoducto de Colombia S.A. ("ODC").
The Company amortizes debt issue costs over the life of the borrowing
using the interest method. Amortization related to the Company's debt
issue costs was $3.6 million and $2.3 million in the years ended December
31, 1996 and 1995, respectively, $1.3 million in the seven months ended
December 31, 1994, and $1.5 million in the year ended May 31, 1994.
F-16
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
9. CRUSADER
Crusader, a 49.9% owned affiliate until the Company's sale of its
shareholdings in June and July 1996, is an Australian company engaged in
oil and gas exploration and production and coal mining in Australia.
Summarized financial information for Crusader follows:
December 31,
1995
------------
Assets
Current assets $ 44,190
Noncurrent assets 103,387
--------
$147,577
--------
Liabilities and Shareholders' Equity
Current liabilities $ 7,002
Noncurrent liabilities 56,114
Minority interest in subsidiaries 8,884
Shareholders' equity 75,577
--------
$147,577
--------
Seven Year ended
Year ended months ended May 31,
Dec 31, 1995 Dec 31, 1994 1994
------------ ------------ ----------
Revenues $ 46,867 $ 22,535 $ 40,193
Costs and expenses (52,990) (25,145) (40,574)
Income tax (expense) benefit (1,757) (6,934) 476
Minority interest 2,927 1,052 716
-------- -------- --------
Net earnings (loss) $ (4,953) $ (8,492) $ 811
======== ======== ========
Company's equity in earnings (loss) $ (2,249) $ (4,102) $ 554
======== ======== ========
Company's share of dividends $ -- $ -- $ 620
======== ======== ========
In March 1995, Crusader completed the sale of Saracen Minerals Limited for
proceeds of $14.3 million. This sale resulted in a net gain to the Company
of approximately $3.8 million. In June 1995, Crusader recorded a $5.3
million loss (the Company's share - $2.7 million) due to a payment to
holders of its 12% Convertible Subordinated Unsecured Notes to effect
early redemption of these Notes to shares of Crusader common stock. The
Company received
F-17
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
approximately $2.9 million from its exchange of such notes and recorded
the proceeds as other income. Also in 1995, Crusader contributed its Irish
coal briquetting operations to Phoenix Coal Limited ("Phoenix"), a
corporate joint venture, in exchange for preference shares and 49% of
Phoenix's common shares outstanding. Crusader recorded its investment in
Phoenix at historical book value.
At December 31, 1995, Crusader owned approximately 3% of the Company's
ordinary shares. Crusader's investment in the Company, using the cost
method of accounting, was $12.2 million at December 31, 1995. The
Company's investment in Crusader and additional paid-in capital were
reduced to eliminate the Company's proportionate share of its ordinary
shares owned by Crusader.
The Company charged Crusader $.2 million and $.6 million for the years
ended December 31, 1996 and 1995, respectively, $.3 million for the seven
months ended December 31, 1994, and $.6 million for the year ended May 31,
1994, for administrative services. Also during fiscal 1994, the Company
was paid $1.2 million by Crusader for acting as agent in issuing its 6%
Notes and recorded $.6 million as other income.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are summarized as follows:
December 31,
-----------------
1996 1995
------- -------
Accrued exploration and development $21,082 $ 8,112
Accounts payable, principally trade 2,697 8,004
Litigation and environmental matters 3,282 1,836
Employee compensation and benefits 2,315 2,405
Other 9,169 3,437
------- -------
$38,545 $23,794
======= =======
F-18
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
11. LONG-TERM DEBT
A summary of long-term debt follows:
December 31,
-----------------
1996 1995
------- -------
Senior Subordinated Discount Notes due 1997 $189,869 $192,220
Senior Subordinated Discount Notes due 2000 170,000 155,203
Term credit facility maturing 2001 40,622 --
Revolving credit facility maturing 1998 11,000 --
Revolving credit facility -- 48,628
Other notes and capitalized leases 5,139 6,452
-------- --------
416,630 402,503
Less current maturities 199,552 1,313
-------- --------
$217,078 $401,190
======== ========
On November 13, 1992, the Company completed the sale of $240 million in
principal amount of Senior Subordinated Discount Notes ("1997 Notes") due
November 1, 1997, providing net proceeds to the Company of approximately
$126 million. The original issue price was 54.76% of par, representing a
yield to maturity of 12 1/2% per annum compounded on a semi-annual basis
without periodic payments of interest. The Indenture, as amended, for the
1997 Notes contains financial covenants including certain limitations on
indebtedness, dividends, certain investments, transactions with
affiliates, and engaging in mergers and consolidations. Additional
provisions include optional and mandatory redemptions, and requirements
associated with changes in control.
During 1996, the Company purchased in the open market $30 million face
value of its 1997 Notes and realized an extraordinary expense of $1.2
million, net of a $.6 million tax benefit. At December 31, 1996, $210
million face value of the 1997 Notes remained outstanding. The Company
believes that it will be able to extinguish or refinance the 1997 Notes at
maturity with a combination of some or all of the following: the Company's
revolving credit facility, cash flow from its Colombian operations, cash
and marketable securities, asset sales, and the issuance of debt and
equity securities.
On December 15, 1993, the Company completed the sale of $170 million in
principal amount of 9 3/4% Senior Subordinated Discount Notes ("9 3/4%
Notes") due December 15, 2000, providing net proceeds to the Company of
approximately $124 million. The original issue price was 75.1% of par,
representing a yield to maturity of 9 3/4%. No interest was payable on the
9 3/4% Notes during the first three years of issue. Commencing December
15, 1996, interest on the 9 3/4% Notes began to accrue at the rate of 9
3/4% per annum and will be
F-19
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
payable semi-annually on June 15 and December 15, beginning on June 15,
1997. The Indenture, as amended, for the 9 3/4% Notes contains financial
covenants that include certain limitations on indebtedness, dividends,
certain investments, transactions with affiliates, and engaging in mergers
and consolidations. Additional provisions include optional and mandatory
redemptions, and requirements associated with changes in control. The
indentures for the 1997 Notes and the 9 3/4% Notes permit the Company to
incur total indebtedness (excluding certain permitted indebtedness) of up
to 25% of the sum of its indebtedness and market capitalization of its
capital stock.
In November 1995, the Company signed an unsecured term credit facility
with a bank supported by a guarantee issued by the Export-Import Bank of
the United States ("EXIM") for $45 million, which matures in January 2001.
Principal and interest payments are due semi-annually on January 15 and
July 15 beginning on July 15, 1996 and borrowings bear interest at LIBOR
(5.5% at December 31, 1996) plus .25%, adjusted on a semi-annual basis. At
December 31, 1996, the Company had outstanding borrowings of $40.6 million
under the facility.
In 1996, the Company signed a $125 million unsecured bank revolving credit
facility that matures in August 1998. Borrowings bear interest at various
spreads over either prime or LIBOR. At December 31, 1996, the Company had
outstanding borrowings of $11 million and letters of credit for $2.3
million under the facility. The revolving credit facility contains
financial covenants that include certain limitations on dividends,
investments, prepayments of debt, transactions with affiliates, and
mergers and acquisitions, and include certain mandatory pay-down
requirements. As of December 31, 1996, the revolving credit facility
permitted the Company to incur total indebtedness of up to approximately
$630 million. Availability under the credit facility may be greater in the
future under certain circumstances.
At December 31, 1995, the Company had outstanding borrowings of $48.6
million under a $65 million revolving credit facility with a bank. The
facility was secured by the Company's marketable securities portfolio and
the Company's ownership in Crusader shareholdings. The facility was paid
in full in 1996 and was terminated.
The aggregate maturities of long-term debt for the five years in the
period ending December 31, 2001, are as follows: 1997 -- $199.6 million;
1998 -- $20.7 million; 1999 -- $9.7 million; 2000 -- $179.7 million; and
2001 -- $5.2 million. The 1997 amount excludes future accretion of
interest on the 1997 Notes.
F-20
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
12. INCOME TAXES
The components of earnings (loss) from continuing operations before income
taxes, minority interest, and extraordinary item were as follows:
Seven
Year ended December 31, months ended Year ended
----------------------- December 31, May 31,
1996 1995 1994 1994
--------- --------- -------- ----------
Cayman Islands $ (446) $ -- $ -- $ --
United States 3,006 (21,412) (23,197) 33,869
Foreign - other 18,385 38,012 363 (56,973)
-------- -------- -------- --------
$ 20,945 $ 16,600 $(22,834) $(23,104)
======== ======== ======== ========
Pursuant to the Reorganization in March 1996, Triton, a Cayman Islands
company, became the parent holding company of TEC, a Delaware Corporation.
As a result, the Company's corporate domicile became the Cayman Islands.
The components of the provision for income taxes on continuing operations
were as follows:
Seven
Year ended December 31, months ended Year ended
----------------------- December 31, May 31,
1996 1995 1994 1994
--------- --------- -------- ----------
Current:
Cayman Islands $ -- $ -- $ -- $ --
United States (172) 627 71 (8)
Foreign - other 5,427 3,988 (844) 3,696
-------- -------- -------- --------
Total current 5,255 4,615 (773) 3,688
-------- -------- -------- --------
Deferred:
Cayman Islands -- -- -- --
United States (23,489) (12,797) (61) (9,426)
Foreign - other 15,374 18,241 4,630 (798)
-------- -------- -------- --------
Total (8,115) 5,444 4,569 (10,224)
deferred
-------- -------- -------- --------
Total $ (2,860) $ 10,059 $ 3,796 $ (6,536)
======== ======== ======== ========
F-21
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
A reconciliation of the differences between the Company's applicable
statutory tax rate and the Company's effective income tax rate follows:
Seven
Year ended December 31, months ended Year ended
----------------------- December 31, May 31,
1996 1995 1994 1994
--------- --------- ------------ ----------
Tax provision at statutory tax rate 0.0% 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
Net change in valuation allowance (111.6)% (201.6)% (103.8)% (4.4)%
Recognition of outside basis adjustments (20.3)% (107.6)% 84.2% --- %
Foreign items without tax benefit 25.8% 23.9% (10.7)% (18.8)%
Income tax rate changes -- % 16.9% -- % 12.0%
Income subject to tax in excess of
statutory rate 58.4% -- % -- % -- %
Branch loss recapture/Subpart F -- % 97.1% -- % -- %
Current year change in NOL/credit
carryforwards (59.2)% 51.2% (15.6)% -- %
Temporary differences:
Oil and gas basis adjustments 80.6% 116.4% (14.2)% -- %
Reimbursement of pre-commerciality
costs 10.9% 30.5% -- % -- %
Other 1.8% (1.2)% 8.5% 4.5%
--------- -------- --------- -------
(13.6)% 60.6% (16.6)% 28.3%
========= ======== ========= =======
The components of the net deferred tax asset and liability are as follows:
December 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
Other Other
U.S. Colombia Foreign U.S. Colombia Foreign
--------- --------- --------- --------- --------- ---------
Deferred tax asset:
Net operating loss carryforwards $ 98,555 $ 9,540 $ 2,347 $ 88,426 $ 4,631 $ 3,619
Depreciable/depletable property 1,558 -- -- 5,523 -- --
Credit carryforwards 2,054 -- -- 3,046 -- --
Reserves 1,259 -- -- 1,664 -- --
Other 792 -- -- 2,670 -- 28
--------- --------- --------- --------- --------- ---------
Gross deferred tax asset 104,218 9,540 2,347 101,329 4,631 3,647
Valuation allowances (30,657) -- -- (54,046) -- --
--------- --------- --------- --------- --------- ---------
Net deferred tax asset 73,561 9,540 2,347 47,283 4,631 3,647
--------- --------- --------- --------- --------- ---------
Deferred tax liability:
Depreciable/depletable property -- (50,874) (6,444) -- (30,069) (8,106)
WTI benchmark call options (2,145) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net deferred tax asset (liability) 71,416 (41,334) (4,097) 47,283 (25,438) (4,459)
Less current deferred tax asset (liability) -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Noncurrent deferred tax asset (liability) $ 71,416 $ (41,334) $ (4,097) $ 47,283 $ (25,438) $ (4,459)
========= ========= ========= ========= ========= =========
At December 31, 1996, the Company had net operating loss ("NOL") and
depletion carryforwards for U.S. tax purposes of $230.7 million and $6.8
million, respectively. In
F-22
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
addition, at December 31, 1996, certain subsidiaries had separate return
limitation year ("SRLY") operating loss and depletion carryforwards of
$50.9 million and $13.5 million, respectively, which are available to
offset only the future taxable income of those subsidiaries. The depletion
carryforwards are available indefinitely. The NOL and SRLY operating loss
carryforwards expire from 1997 through 2012 as follows:
NOLs SRLYs
expiring expiring
by year by year
---------------- ----------------
May 1997 $ -- $ 10,740
May 1998 10,939 8,964
May 1999 8,809 8,437
May 2000 7,315 13,066
May 2001 20,713 9,675
May 2002 22,670 32
May 2003 - May 2012 160,226 --
-------- --------
$230,672 $ 50,914
======== ========
The deferred tax valuation allowance was reduced by $23.4 million in 1996
due to changes in expectations of future U.S. taxable income resulting
from improvements in anticipated operating results. The remaining
valuation allowance is primarily attributable to SRLY operating losses
that are currently not realizable due to the lack of potential future
income in the applicable subsidiaries, and the expectation that other tax
credits will expire without being utilized. Furthermore, changes in the
timing or nature of actual or anticipated business transactions,
projections, organizational changes, and income tax laws may give rise to
significant adjustments to the Company's deferred tax expense or benefit
that may be reported in the future.
If certain changes in the Company's ownership should occur, there would be
an annual limitation on the amount of NOL carryforwards that can be
utilized. To the extent a change in ownership does occur, the limitation
is not expected to materially impact the utilization of such
carryforwards.
F-23
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
13. EMPLOYEE BENEFITS
Pension Plans
The Company has a defined benefit pension plan covering substantially all
employees in the United States. The benefits are based on years of service
and the employee's final average monthly compensation. Contributions are
intended to provide for benefits attributed to past and future services.
The Company also has a Supplemental Executive Retirement Plan ("SERP")
that is unfunded and provides supplemental pension benefits to a select
group of management and key employees.
The funding status of the plans follows:
December 31, 1996 December 31, 1996
----------------- -----------------
Defined Defined
benefit SERP benefit SERP
plan plan plan plan
------- ------- ------- -------
Actuarial present value of benefit obligations:
Vested benefit obligations $ 3,748 $ 4,079 $ 3,632 $ 3,849
======= ======= ======= =======
Accumulated benefit obligations $ 4,037 $ 4,079 $ 3,844 $ 3,849
======= ======= ======= =======
Projected benefit obligations $ 4,849 $ 5,288 $ 4,513 $ 4,966
Plan assets at fair value, primarily listed stocks
and United States government securities 4,790 -- 4,326 --
------- ------- ------- -------
Unfunded projected benefit obligations 59 5,288 187 4,966
Unrecognized net gain (loss) 2 (46) (54) (283)
Prior service cost not yet recognized in net periodic
pension cost (653) (144) (709) (155)
Unrecognized net asset (liability) at adoption 11 (1,456) 13 (1,624)
Adjustment required to recognize minimum liability -- 437 -- 945
------- ------- ------- -------
Accrued (prepaid) pension cost $ (581) $ 4,079 $ (563) $ 3,849
======= ======= ======= =======
F-24
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
A summary of the components of pension expense follows:
Year
ended Year
December Seven ended
31, months May
----------------- ended 31,
1996 1995 1994 1994
------- ------- ------- -------
Service cost - benefits earned
during the period $ 767 $ 780 $ 454 $ 733
Interest cost on projected benefit obligation 736 653 344 553
Actual return on plan assets (387) (849) 219 111
Net amortization and deferral 244 793 (256) (173)
------- ------- ------- -------
$ 1,360 $ 1,377 $ 761 $ 1,224
======= ======= ======= =======
The projected benefit obligations at December 31, 1996 and 1995, assume a
discount rate of 8% and a rate of increase in compensation expense of 5%.
The expected long-term rate of return on assets is 9% for the defined
benefit plan.
Employee Stock Ownership Plan
Effective January 1, 1994, the Company amended and restated the employee
stock ownership plan to form a 401(k) plan (the "plan"). The Company
recognizes expense relating to the plan based on actual amounts
contributed since the inception of the plan. The Company used the shares
allocated method prior to the January 1, 1994 amendment.
14. SHAREHOLDERS' EQUITY
Preference Shares
In connection with the acquisition of the minority interest in Triton
Europe, the Company designated a series of 550,000 preferred shares
(522,460 shares issued) as 5% preferred stock, no par value, with a stated
value of $34.41 per share. Pursuant to the Reorganization, Triton
converted each share of 5% preferred stock into one 5% preference share,
par value $.01. Each share of the Company's 5% preference shares is
convertible into one ordinary share, subject to adjustment in certain
events. The 5% preference shares are convertible any time on or after
October 1, 1994, and bear a fixed cumulative cash dividend of 5% per annum
payable semi-annually on March 30 and September 30, commencing September
30, 1994. The Company may, at its option, redeem the preference shares, in
whole or in part, at any time on or after March 30, 1998, or at any time
there are fewer than 133,005 preference shares outstanding. If not
converted or redeemed earlier, each 5% preference share will be redeemed
on March 30, 2004, either for cash, or at the option of the Company, for
the Company's ordinary shares. At December 31, 1996 and 1995, 247,469 and
410,017 preference shares were outstanding, respectively.
F-25
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
Ordinary Shares
Changes in issued ordinary shares were as follows:
Seven
Year ended months Year
December 31, ended ended
--------------------------- Dec. 31, May 31,
1996 1995 1994 1994
----------- ----------- ----------- -----------
Balance at beginning of period 35,927,279 35,577,009 35,519,103 35,231,142
Exercise of employee stock options
and debentures 258,333 237,875 57,858 287,961
Conversion of 5% preference shares 162,548 112,395 48 --
Other, net (5,979) -- -- --
----------- ----------- ----------- -----------
36,342,181
Balance at end of period 36,342,181 35,927,279 35,577,009 35,519,103
=========== =========== =========== ===========
Changes in ordinary shares held in treasury were as follows:
Seven
Year ended months Year
December 31, ended ended
--------------------------- Dec. 31, May 31,
1996 1995 1994 1994
----------- ----------- ----------- -----------
Balance at beginning of period 26,635 45,837 54,354 57,483
Purchase of treasury shares 91 89 98 149
Transfer of shares to employee benefit plans (10,797) (19,291) (8,615) (3,278)
Retirement of treasury shares (15,889) -- -- --
----------- ----------- ----------- -----------
Balance at end of period 40 26,635 45,837 54,354
=========== =========== =========== ===========
15. STOCK COMPENSATION PLANS
Stock Option Plans
Options to purchase ordinary shares of the Company may be granted to
officers and employees under various stock option plans. The exercise
price of each option equals the market price of the Company's ordinary
shares on the date of grant. Grants generally become exercisable in 25%
cumulative annual increments beginning one year from the date of issuance
and expire during a period between 5 to 10 years after the date of grant,
depending on terms of the grant. Pursuant to the 1992 stock option plan,
each non-employee director receives an option to purchase 15,000 shares
each year. These grants become exercisable in 33% cumulative annual
increments beginning one year from the date of issuance and expire at the
end of 10 years. At December 31, 1996 and 1995, shares available for grant
were 731,090 and 624,165, respectively.
F-26
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
A summary of the status of the Company's stock option plans is presented
below:
December December December May
31, 31, 31, 31,
1996 1995 1994 1994
--------------------- ----------------------- ----------------------- -----------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
--------- ----- --------- ----- --------- ----- --------- -----
Outstanding at beginning of year 3,177,304 $35.49 3,074,854 $33.80 2,666,545 $33.52 1,721,406 $34.48
Granted 971,000 47.97 373,500 49.33 544,500 34.11 1,414,800 31.95
Exercised (216,333) 30.40 (237,875) 35.30 (48,691) 9.22 (133,411) 9.98
Canceled (77,925) 40.74 (33,175) 35.62 (87,500) 41.08 (336,250) 41.16
--------- ----------- ----------- -----------
Outstanding at end of year 3,854,046 38.81 3,177,304 35.49 3,074,854 33.80 2,666,545 33.52
========= =========== =========== ===========
Options exercisable at yearend 2,042,492 1,449,424 873,551 563,741
Weighted average fair value per
share of options granted
during the year 19.89 $ 20.75
The following table summarizes information about stock options outstanding
at December 31, 1996:
Options Options
Outstanding Exercisable
---------------------------------------- --------------------------
Weighted
Range Average Weighted Weighted
of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices Dec. 31, 1996 Life Price Dec. 31, 1996 Price
-------------- -------------- ----------- --------- --------------- ---------
$ 8.38 - 19.88 68,156 3.7 years $ 11.00 68,156 $ 11.00
28.50 - 39.63 2,107,440 6.9 years 33.11 1,495,586 33.36
40.00 - 48.38 899,250 6.6 years 42.47 374,750 41.88
50.20 - 57.38 779,200 9.0 years 52.44 104,000 51.55
--------- ---------
3,854,046 2,042,492
========= =========
Convertible Debenture Plan
The Company has a convertible debenture plan under which key management
personnel and others may purchase debentures that are convertible into
ordinary shares of the Company. The aggregate number of ordinary shares
issuable upon conversion of the debentures cannot exceed 1,000,000 shares,
subject to adjustment in certain events. Each debenture represents an
unsecured, subordinated obligation due in 10 years and may be redeemed
after three years at a redemption price of 120% of the principal amounts.
The debentures outstanding at December 31, 1996, bear interest at the
prime rate.
The participants in the plan purchased debentures by delivery of
promissory notes to the Company. The promissory notes are secured by the
debentures that are held as security by the Company, are due on the
earlier of 10 years from the date of issue or termination of employment
and require annual interest payments equal to prime plus 1/8%. The
debentures
F-27
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
are reflected as a noncurrent liability, net of the related promissory
notes, in the Consolidated Balance Sheets as follows:
December 31,
----------------------
1996 1995
--------- --------
Convertible debentures due employees $ 15,491 $ 16,969
--------- --------
Promissory notes (15,491) (16,969)
--------- --------
$ -- $ --
========= ========
A summary of the status of the Company's convertible debenture plan is
presented below:
December December December May
31, 31, 31, 31,
1996 1995 1994 1994
------------------ ------------------ ------------------ --------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ ----- ------ -----
Outstanding at beginning of year 500,000 $33.94 250,000 $25.13 259,167 $24.52 163,717 $11.64
Granted -- -- 250,000 42.75 -- -- 250,000 25.13
Exercised (42,000) 35.20 -- -- (9,167) 8.00 (154,550) 11.86
------- ------- ------- -------
Outstanding at yearend 458,000 33.82 500,000 33.94 250,000 25.13 259,167 24.52
======= ======= ======= =======
Options exercisable at yearend 458,000 250,000 -- 9,167
Weighted average fair value per
share of options granted during
the year $ -- $ 19.45
The following table summarizes information about convertible debentures
outstanding at December 31, 1996:
Options Options
Outstanding Exercisable
----------------------------- -------------------------------------
Weighted
Range Average Weighted Weighted
of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices Dec. 31, 1996 Life Price Dec. 31, 1996 Price
------ ------------- ---- ----- ------------- -----
$ 25.13 232,000 7.3 years $ 25.13 232,000 $ 25.13
42.75 226,000 8.3 years 42.75 226,000 42.75
F-28
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
Employee Stock Purchase Plan
The Company has an employee stock purchase plan that provides for the
award of up to 100,000 ordinary shares to key officers and employees. At
December 31, 1996 and 1995, shares available for grant were 49,417 and
20,124, respectively. Under the terms of the plan, employees can choose
each semi-annual period to have up to 15% of their annual gross or base
compensation withheld to purchase the Company's ordinary shares. The
purchase price of the stock is 85% of the lower of its beginning of period
or end of period market price. Under the plan, the Company sold 22,633
shares and 21,314 shares to employees for the years ended December 31,
1996 and 1995, respectively.
The Company applies Opinion 25 in accounting for its plans. Accordingly,
no compensation cost has been recognized for its fixed stock option plans,
convertible debenture plan, and its stock purchase plan. Had the Company
elected to recognize compensation expense consistent with the fair
value-based methodology in SFAS 123, the Company's net income and earnings
per share would have been reduced by $4.2 million or $0.09 per share in
1996, and $2.6 million or $0.05 per share in 1995.
The fair value of each option or debenture granted was estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 1996 and 1995:
dividend yield of 0%; expected volatility of 26.9% and 27.8%,
respectively; risk-free interest rate of approximately 6%; and expected
life of five to seven years.
Shareholder Rights Plan
The Company has adopted a Shareholder Rights Plan pursuant to which
preference share rights attach to all ordinary shares at the rate of one
right for each ordinary share. Generally, the rights become exercisable
only if a person acquires beneficial ownership of 15% or more of the
Company's ordinary shares or announces a tender offer for 15% or more of
the ordinary shares. If, among other events, any such person becomes the
beneficial owner of 15% or more of the Company's ordinary shares, each
right not owned by such person generally becomes the right to purchase
such number of ordinary shares of the Company, equal to the number
obtained by dividing the right's exercise price (currently $120) by 50% of
the market price of the ordinary shares on the date of the first
occurrence. In addition, if the Company is subsequently merged or certain
other extraordinary business transactions are consummated, each right
generally becomes a right to purchase such number of shares of common
stock of the acquiring person, which is equal to the amount obtained by
dividing the right's exercise price by 50% of the market price of the
common stock on the date of the first occurrence. The rights will expire
on May 22, 2005, unless such expiration date is extended or unless the
rights are earlier redeemed or exchanged by the Company. At any time prior
to
F-29
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
a person acquiring beneficial ownership of 15% or more of the Company's
ordinary shares, the Company may redeem the rights in whole, but not in
part, at a price of $.01 per right.
Stock Appreciation Rights Plan
The Company has a stock appreciation rights ("SARs") plan which authorizes
the granting of SARs to non-employee directors of the Company. Upon
exercise, SARs allow the holder to receive the difference between the
SARs' exercise price and the fair market value of the ordinary shares
covered by SARs on the exercise date and expire at the earlier of 10 years
or a date based on the termination of the holder's membership on the board
of directors. At December 31, 1996, SARs covering 25,000 ordinary shares,
with an exercise price of $8 per share, were outstanding.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS, RISK MANAGEMENT AND CREDIT RISK
CONCENTRATIONS
Fair Value of Financial Instruments
At December 31, 1996 and 1995, the Company's financial instruments
included cash, cash equivalents, short-term receivables, marketable
securities, long-term receivables, short-term and long-term debt and
financial market transactions. The fair value of cash, cash equivalents,
short-term receivables and short-term debt approximated carrying values
because of the short maturities of these instruments. The fair values of
the Company's marketable securities, long-term receivables and financial
market transactions, based on broker quotes, quoted market prices and
discounted cash flows approximated the carrying values. The estimated fair
value of long-term debt, based on quoted market prices and market data for
similar instruments, was $433 million and $396 million at December 31,
1996 and 1995, respectively.
Risk Management
Oil and natural gas sold by the Company are normally priced with reference
to a defined benchmark, such as light sweet crude oil traded on the New
York Mercantile Exchange. Actual prices received vary from the benchmark
depending on quality and location differentials. It is the Company's
policy to use financial market transactions with credit-worthy
counterparties from time to time primarily to reduce risk associated with
the pricing of a portion of the oil and natural gas that it sells. The
policy is structured to underpin the Company's planned revenues and
results of operations. The Company may also enter into financial market
transactions to benefit from its assessment of the future prices of its
production relative to other benchmark prices. There can be no assurance
that the use of financial market transactions will not result in losses.
F-30
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
With respect to the sale of oil to be produced by the Company, the Company
has used a combination of swaps, options and collars to establish a
minimum weighted average WTI benchmark price of $19.58 per barrel for an
aggregate of 1.5 million barrels of production during the period from
January through June 1997. As a result, to the extent WTI prices exceed
the minimum WTI benchmark price during each month within the period, the
Company will be able to sell its production at the higher market price,
and to the extent that WTI prices are below the minimum WTI benchmark
price, the Company will be able to realize prices related to the minimum
WTI benchmark price on its hedged production.
In anticipation of entering into a forward oil sale, the Company purchased
WTI benchmark call options to retain the ability to benefit from future
WTI price increases above a weighted average price of $20.42 per barrel.
The volumes and expiration dates on the call options coincide with the
volumes and delivery dates of the forward oil sale, which has delivery
terms of 58,425 barrels per month through March 1997 and 254,136 barrels
per month from April 1997 through March 2000. During the years ended
December 31, 1996 and 1995, the Company recorded an unrealized gain of $11
million and an unrealized loss of $4.2 million, respectively, in other
income, net related to the change in the fair market value of the call
options. Future fluctuations in the fair market value of the call options
will continue to affect other income as noncash adjustments.
During the year ended December 31, 1996, markets provided the Company the
opportunity to realize WTI benchmark oil prices on average $4.68 per
barrel above the WTI benchmark oil price the Company set as part of its
1996 annual plan. As a result of financial and commodity market
transactions settled during the year ended December 31, 1996, the
Company's risk management program resulted in an average net realization
of approximately $1.21 per barrel lower than if the Company had not
entered into such transactions.
Concentration of Credit Risk
Financial instruments that are potentially subject to concentrations of
credit risk consist of cash equivalents, marketable securities,
receivables and financial market transactions. The Company places its cash
equivalents, marketable securities and financial market transactions with
high credit-quality financial institutions. The Company believes the risk
of incurring losses related to credit risk is remote.
Triton Colombia sells its crude oil production from the Cusiana and
Cupiagua fields through an agreement with a third party to approximately
10 to 15 refineries located primarily in the United States. The Company
does not believe that the loss of any single customer or a termination of
the agreement with the third party would have a long-term material,
adverse effect on its operations.
F-31
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
17. OTHER INCOME (EXPENSE), NET
Other income (expense), net is summarized as follows:
Year
ended
December Seven Year
31, months ended
------------------------- ended May 31,
1996 1995 Dec. 31, 1994 1994
---------- ---------- ---------- ----------
Change in fair market value of WTI
benchmark call options $ 10,987 $ (4,171) $ -- $ --
Gain on sale of shareholdings in Crusader 10,417 -- -- --
Proceeds from legal settlements 7,624 7,222 -- --
Loss provisions (3,193) (1,058) -- --
Gain on the sale of Triton France -- 3,496 -- --
Gain on early redemption of Crusader's
convertible notes -- 2,899 -- --
Gain on sale of U.S.
working interest properties -- -- -- 7,028
Gain on sale of Aero Services International
Inc.'s common stock -- -- -- 1,500
Foreign exchange gain (loss) (561) 1,874 383 252
Equity in earnings (loss) of affiliates, net 118 (2,249) (4,102) 645
Other 1,969 1,372 441 1,251
---------- ---------- ---------- ----------
$ 27,361 $ 9,385 $ (3,278) $ 10,676
========== ========== ========== ==========
18. WRITEDOWN OF ASSETS
Writedown of assets are summarized as follows:
Year
ended
December Seven Year
31, months ended
-------------------------- ended May 31,
1996 1995 Dec. 31, 1994 1994
----------- ----------- ----------- -----------
Evaluated oil and gas properties $ -- $ -- $ 984 $ 44,123
Unevaluated oil and gas properties 39,963 -- -- 251
Inventory -- -- -- 1,064
Investments and other assets 2,997 -- -- 316
----------- ----------- ----------- -----------
$ 42,960 $ -- $ 984 $ 45,754
=========== =========== =========== ===========
In 1996, the Company's oil and gas properties and other assets in
Argentina were written down $43 million following a review of technical
information that indicated the acreage portfolio did not meet the
Company's exploration objectives.
During fiscal 1994, the carrying amounts of the Company's evaluated oil
properties in France were written down by $43.2 million through
application of the ceiling limitation prescribed
F-32
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
by the Securities and Exchange Commission principally as a result of a
temporary drop in oil prices and a downward revision in estimated
reserves.
19. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash payments and noncash investing and
financing activities follows:
Year
ended
December Seven Year
31, months ended
-------------------------- ended May 31,
1996 1995 Dec. 31, 1994 1994
----------- ----------- ----------- -----------
Cash paid during the year for:
Interest (net of amount capitalized) $ -- $ -- $ -- $ --
Income taxes 200 920 5,557 222
Noncash investing and financing activities:
Preferred stock issued for purchase of
Triton
Triton Europe minority interest -- -- -- 17,978
Conversion of preferred stock into
common stock
common stock 5,594 3,867 -- --
Property and equipment exchanged for
a long-term note receivable -- 650 -- 1,980
20. CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS
Certain statements in this report, including statements of the Company's
and management's expectations, intentions, plans and beliefs, including
those contained in or implied by "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and these Notes to
Consolidated Financial Statements, are forward-looking statements, as
defined in Section 21D of the Securities Exchange Act of 1934, that are
dependent on certain events, risks and uncertainties that may be outside
the Company's control. These forward-looking statements include statements
of management's plans and objectives for the Company's future operations
and statements of future economic performance; information regarding
drilling schedules, expected or planned production or transportation
capacity, the future construction or upgrades of pipelines (including
costs), when the Cusiana and Cupiagua fields might become self-financing,
future production of the Cusiana and Cupiagua fields, the negotiation of a
gas-sales contract and commencement of production in Malaysia-Thailand,
the Company's capital budget and future capital requirements, the
Company's meeting its future capital needs, the amount by which production
from the Cusiana and Cupiagua fields may increase or when such increased
production may commence, the Company's realization of its deferred tax
asset, the level of future expenditures for environmental costs, the
outcome of regulatory and litigation matters, and
F-33
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
proven oil and gas reserves and discounted future net cash flows
therefrom; and the assumptions described in this report underlying such
forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a
number of factors, including those described in the context of such
forward-looking statements, as well as those presented below.
Certain Factors Relating to the Oil and Gas Industry
The Company's strategy is to focus its exploration activities on what the
Company believes are relatively high-potential prospects. No assurance can
be given that these prospects contain significant oil and gas reserves or
that the Company will be successful in its exploration activities thereon.
The Company follows the full cost method of accounting for exploration and
development of oil and gas reserves whereby all acquisition, exploration
and development costs are capitalized. Costs related to acquisition,
holding and initial exploration of licenses in countries with no proved
reserves are initially capitalized, including internal costs directly
identified with acquisition, exploration and development activities. The
Company's exploration licenses are periodically assessed for impairment on
a country-by-country basis. If the Company's investment in exploration
licenses within a country where no proved reserves are assigned is deemed
to be impaired, the licenses are written down to estimated recoverable
value. If the Company abandons all exploration efforts in a country where
no proved reserves are assigned, all exploration costs associated with the
country are expensed. The Company's assessments of whether its investment
within a country is impaired and whether exploration activities within a
country will be abandoned are made from time to time based on its review
and assessment of drilling results, seismic data and other information it
deems relevant. Due to the unpredictable nature of exploration drilling
activities, the amount and timing of impairment expense are difficult to
predict with any certainty.
The markets for oil and natural gas historically have been volatile and
are likely to continue to be volatile in the future. Oil and natural-gas
prices have been subject to significant fluctuations during the past
several decades in response to relatively minor changes in the supply of
and demand for oil and natural gas, market uncertainty and a variety of
additional factors that are beyond the control of the Company. These
factors include the level of consumer product demand, weather conditions,
domestic and foreign government regulations, political conditions in the
Middle East and other production areas, the foreign supply of oil and
natural gas, the price and availability of alternative fuels, and overall
economic conditions. It is impossible to predict future oil and gas price
movements with any certainty.
The Company's oil and gas business is also subject to all of the operating
risks normally associated with the exploration for and production of oil
and gas, including, without limitation, blowouts, cratering, pollution,
earthquakes, labor disruptions and fires, each of
F-34
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
Competition
The Company encounters strong competition from major oil companies
(including government-owned companies), independent operators and other
companies for favorable oil and gas concessions, licenses,
production-sharing contracts and leases, drilling rights and markets.
Additionally, the governments of certain countries in which the Company
operates may from time to time give preferential treatment to their
nationals. The oil and gas industry as a whole also competes with other
industries in supplying the energy and fuel requirements of industrial,
commercial and individual consumers.
Markets
Crude oil, natural gas, condensate, and other oil and gas products
generally are sold to other oil and gas companies, government agencies and
other industries. The availability of ready markets for oil and gas that
might be discovered by the Company and the prices obtained for such oil and
gas depend on many factors beyond the Company's control, including the
extent of local production and imports of oil and gas, the proximity and
capacity of pipelines and other transportation facilities, fluctuating
demands for oil and gas, the marketing of competitive fuels, and the
effects of governmental regulation of oil and gas production and sales.
Pipeline facilities do not exist in certain areas of exploration and,
therefore, any actual sales of discovered oil or gas might be delayed for
extended periods until such facilities are constructed.
Certain Factors Relating to Colombia
The Company is a participant in significant oil and gas discoveries located
in the Llanos Basin in the foothills of the Andes Mountains, approximately
160 kilometers (100 miles) northeast of Bogota, Colombia. The Company owns
interests in three contiguous areas known as the Santiago de las Atalayas
("SDLA"), Tauramena and Rio Chitamena contract areas. Well results to date
indicate that significant oil and gas deposits lie across the Cusiana and
Cupiagua fields.
Development of reserves in the Cusiana and Cupiagua fields will take more
than one year and require additional drilling and extensive production
facilities, which in turn will require significant additional capital
expenditures, the ultimate amount of which cannot be predicted. Pipelines
connect the major producing fields in Colombia to export facilities and to
refineries. These pipelines are in the process of being upgraded and
expanded to accommodate production from the Cusiana and Cupiagua fields.
Guerrilla activity in Colombia has from time to time disrupted the
operation of oil and gas projects and increased costs. Although the
Colombian government, the Company and its partners have taken steps to
improve security and improve relations with the local population,
F-36
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
there can be no assurance that attempts to reduce or prevent guerrilla
activity will be successful or that such activity will not disrupt
operations in the future.
Colombia is among several nations whose progress in stemming the production
and transit of illegal drugs is subject to annual certification by the
President of the United States. In 1997, the President of the United States
announced that Colombia would neither be certified nor granted a national
interest waiver. The consequences of the failure to receive certification
generally include the following: all bilateral aid, except anti-narcotics
and humanitarian aid, has been or will be suspended; the Export-Import Bank
of the United States and the Overseas Private Investment Corporation will
not approve financing for new projects in Colombia; U.S. representatives at
multilateral lending institutions will be required to vote against all loan
requests from Colombia, although such votes will not constitute vetoes; and
the President of the United States and Congress retain the right to apply
future trade sanctions. Each of these consequences of the failure to
receive such certification could result in adverse economic consequences in
Colombia and could further heighten the political and economic risks
associated with the Company's operations in Colombia. Any changes in the
holders of significant government offices could have adverse consequences
on the Company's relationship with the Colombian national oil company and
the Colombian government's ability to control guerrilla activities and
could exacerbate the factors relating to foreign operations discussed
above.
Certain Factors Relating to Malaysia-Thailand
The Company is a partner in a significant gas exploration project located
in the upper Malay Basin in the Gulf of Thailand approximately 450
kilometers northeast of Kuala Lumpur and 750 kilometers south of Bangkok.
The Company is a contractor under a production-sharing contract covering
Block A-18 of the Malaysia-Thailand Joint Development Area. Well results to
date indicate that significant gas deposits lie across four fields within
the block.
Development of gas production is in the early planning stages but is
expected to take several years and require the drilling of additional wells
and the installation of production facilities, which will require
significant additional capital expenditures, the ultimate amount of which
cannot be predicted. Pipelines also will be required to be connected
between Block A-18 and ultimate markets. The terms on which any gas
produced from the Company's contract area in Malaysia-Thailand may be sold
may be affected adversely by the present monopoly gas- purchase and
transportation conditions in both Thailand and Malaysia, including the Thai
national oil company's monopoly in transportation within Thailand and its
territorial waters.
Litigation
The outcome of litigation and its impact on the Company are difficult to
predict due to many uncertainties, such as jury verdicts, the application
of laws to various factual situations, the
F-37
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
actions that may or may not be taken by other parties and the availability
of insurance. In addition, in certain situations, such as environmental
claims, one defendant may be responsible, or potentially responsible, for
the liabilities of other parties. Moreover, circumstances could arise under
which the Company may elect to settle claims at amounts that exceed the
Company's expected liability for such claims in order to avoid costly
litigation. Judgments or settlements could, therefore, exceed any reserves.
21. COMMITMENTS AND CONTINGENCIES
Development of the Cusiana and Cupiagua fields ("the Fields"), including
drilling and construction of additional production facilities, will require
further capital outlays. Further exploration and development activities on
Block A-18, as well as exploratory drilling in other countries, also will
require substantial capital outlays. The Company's capital budget for the
year ending December 31, 1997, is approximately $310 million, excluding
capitalized interest, of which approximately $150 million relates to the
Fields and capital contributions to OCENSA, $95 million relates to Block
A-18, and $65 million relates to the Company's exploration and drilling
program in other parts of the world. The Company assisted OCENSA in raising
one tranche of debt totaling $65 million in 1996 and may assist OCENSA in
raising up to $25 million of additional debt in 1997. Capital requirements
for exploration and development relating to Block A-18 are expected to
increase significantly into 1998.
The Company expects to meet capital needs in the future with a combination
of some or all of the following: the Company's revolving credit facility,
cash flow from its Colombian operations (including additional proceeds from
the 1995 forward oil sale), cash and marketable securities, asset sales,
and the issuance of debt and equity securities. The Company's indentures
permit the Company to incur total indebtedness (excluding certain permitted
indebtedness) of up to 25% of the sum of its indebtedness and market
capitalization of its capital stock. As of yearend 1996, the revolving
credit facility permitted the Company to incur total indebtedness of up to
approximately $630 million. Availability under the credit facility may be
more in the future under certain circumstances.
During the normal course of business, the Company is subject to the terms
of various operating agreements and capital commitments associated with the
exploration and development of its oil and gas properties. It is
management's belief that such commitments, including the capital
requirements in Colombia and Malaysia-Thailand discussed above, will be met
without any material, adverse effect on the Company's operations or
consolidated financial condition.
The Company leases office space, other facilities and equipment under
various operating leases expiring through 2011. Total rental expense was $2
million and $1.9 million for the years ended December 31, 1996 and 1995,
respectively, $1.3 million for the seven months
F-38
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
ended December 31, 1994, and $2.6 million for the year ended May 31, 1994.
At December 31, 1996, the minimum payments required over the next five
years are as follows: 1997 -- $2.5 million; 1998 -- $2.3 million; 1999 --
$1.8 million; 2000 -- $.9 million; 2001 -- $.2 million; and thereafter --
$1.2 million.
Guarantees
At December 31, 1996, the Company had guaranteed loans of approximately
$4.5 million of a Colombian pipeline company in which the Company has an
ownership interest and guaranteed performance of $4.1 million in future
exploration expenditures in various countries. These commitments are backed
primarily by unsecured letters of credit and bank guarantees.
Environmental Matters
The Company is subject to extensive environmental laws and regulations.
These laws regulate the discharge of oil, gas or other materials into the
environment and may require the Company to remove or mitigate the
environmental effects of the disposal or release of such materials at
various sites. Also, the Company remains liable for certain environmental
matters that may arise from formerly owned fuel businesses that were
involved in the storage, handling and sale of hazardous materials,
including fuel storage in underground tanks. The Company believes that the
level of future expenditures for environmental matters, including clean-up
obligations, is impracticable to determine with a precise and reliable
degree of accuracy. Management believes that such costs, when finally
determined, will not have a material adverse effect on the Company's
operations or consolidated financial condition.
Litigation
The Company and subsidiaries or former subsidiaries of the Company,
including Triton Oil and Gas Corporation ("Triton Oil"), are among numerous
defendants in three related lawsuits brought in the Superior Court of the
State of California, County of Los Angeles, by (i) National Union Fire
Insurance Company ("National Union") and The Restaurant Enterprises Group,
(ii) Travelers Indemnity Company ("Travelers") and (iii) the City of
Redondo Beach. All three lawsuits arise out of a 1988 tidal wave at King
Harbor in Redondo Beach, California. The lawsuits allege, among other
things, that the defendants' negligence contributed to the collapse of a
hotel and the flooding of a restaurant in the tidal wave. In the case of
Triton Oil, the alleged negligence was Triton Oil's drilling of nearby oil
wells and alleged resulting ground subsidence, which purportedly lowered
the height of the King Harbor breakwater. The Travelers lawsuit asserts
damages in excess of $14.6 million, although in a separate lawsuit against
the Army Corps of Engineers, the court found damages to be approximately
$6.7 million. Of that $6.7 million, Travelers recovered $4 million from the
City of Redondo Beach. The National Union lawsuit asserts damages in excess
of $4.75
F-39
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
million, although in a separate lawsuit against the Army Corps of
Engineers, the court found damages to be approximately $3.7 million. Of
that $3.7 million, Travelers recovered $1 million from the City of Redondo
Beach. The City of Redondo Beach lawsuit asserts damages in excess of $13.2
million, including indemnity for amounts it paid to settle the foregoing
lawsuits and other claims arising out of the flooding. The three lawsuits
have been consolidated for trial, which has been set for October 1997. The
Company believes that it and its subsidiaries have meritorious defenses and
intend to defend the suits vigorously.
The Company is also subject to other various litigation matters, none of
which is expected to have a material adverse effect on the Company's
operations or consolidated financial condition.
22. TRITON ENERGY CORPORATION FINANCIAL INFORMATION
Following the Reorganization, TEC ceased filing periodic reports with the
Securities and Exchange Commission ("SEC"). TEC's 9 3/4% Notes and 1997
Notes remain outstanding and are fully guaranteed by Triton. The following
table sets forth certain summarized financial information of TEC and its
subsidiaries:
December 31,
1996
-----------
Current assets $ 69,783
Noncurrent assets 946,592
-----------
$ 1,016,375
===========
Current liabilities $ 247,811
Noncurrent liabilities 379,294
Stockholders' equity 389,270
-----------
$ 1,016,375
===========
Year ended
December 31,
-----------
1996
-----------
Sales and other operating revenues $ 132,629
Costs and expenses 69,154
-----------
Operating income 63,475
Other income, net 10,889
-----------
Earnings before income taxes
and extraordinary item 74,364
Income tax expense 1,518
-----------
Earnings before extraordinary item 72,846
Extraordinary item - extinguishment of debt (1,196)
-----------
Net earnings $ 71,650
===========
F-40
TRITON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands)
Summarized financial information of TEC and its subsidiaries as of and for
the year ended December 31, 1995, for the seven months ended December 31,
1994, and for the year ended May 31, 1994, is not presented herewith
because such summarized financial information would be identical to the
Consolidated Balance Sheet at December 31, 1995 and the Consolidated
Statements of Operations for the year ended December 31, 1995, for the
seven months ended December 31, 1994 and for the year ended May 31, 1994.
23. GEOGRAPHIC DATA
Information about the Company's operations by geographic area follows:
Malaysia- United
Colombia Thailand France Indonesia States Other Corporate Total
-------- -------- ------ --------- ------ ----- --------- -----
Year ended December 31, 1996:
Sales and other operating revenues $ 127,071 $ -- $ -- $ 1,856 $ 5,050 $ -- $ -- $ 133,977
Operating profit (loss) 70,874 (509) -- (340) 3,400 (47,158) (23,489) 2,778
Trade and other receivables 56,647 494 -- 53 -- 3,212 120 60,526
Identifiable assets 629,978 113,364 -- 2,592 -- 55,257 113,333 914,524
Year ended December 31, 1995:
Sales and other operating revenues $ 89,851 $ -- $ 9,206 $ 4,531 $ 3,884 $ -- $ -- $ 107,472
Operating profit (loss) 49,086 (239) 1,123 (858) (230) (2,669) (22,897) 23,316
Trade and other receivables 19,823 366 -- 785 717 730 766 23,187
Identifiable assets 487,472 50,867 -- 1,744 23,261 63,159 197,664 824,167
Seven months ended December 31, 1994:
Sales and other operating revenues $ 6,249 $ -- $ 9,179 $ 3,174 $ 2,134 $ -- $ -- $ 20,736
Operating profit (loss) (192) -- 722 (75) (919) (2,258) (13,224) (15,946)
Trade and other receivables 11,759 -- 3,866 1,257 1,332 667 1,360 20,241
Identifiable assets 335,474 21,372 27,038 2,553 32,232 33,477 167,055 619,201
Year ended May 31, 1994:
Sales and other operating revenues $ 5,911 $ -- $ 17,494 $ 7,186 $ 5,629 $ 6,988 $ -- $ 43,208
Operating loss (503) -- (49,734) (4,582) (1,269) (3,332) (21,263) (80,683)
Trade and other receivables 5,508 -- 3,431 1,303 1,336 1,110 1,891 14,579
Identifiable assets 237,397 15,764 28,954 3,978 37,091 36,205 256,712 616,101
Corporate assets were principally cash and cash equivalents, marketable
securities, the U.S. deferred tax asset and other fixed assets. Other
identifiable assets primarily represented capitalized costs related to the
Company's exploration activities in other areas of the world, no one
country of which is material.
F-41
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
24. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter
-------------------------------------
First Second Third Fourth
----- ------ ----- ------
Year Ended December 31, 1996:
Sales and other operating revenues $ 35,781 $31,170 $30,780 $ 36,246
Gross profit (loss) 19,839 15,885 15,936 (22,937)
Net earnings (loss) before extraordinary item 11,351 12,696 19,549 (19,791)
Net earnings (loss) 11,351 12,262 18,787 (19,791)
Earnings (loss) per ordinary share:
Before extraordinary item 0.29 0.34 0.52 (0.53)
Net earnings (loss) 0.29 0.33 0.50 (0.53)
Year Ended December 31, 1995:
Sales and other operating revenues $ 19,751 $28,504 $32,586 $ 26,631
Gross profit 7,013 13,670 15,351 12,954
Net earnings (loss) (1,555) 2,388 1,279 608
Net earnings (loss) per ordinary share (0.06) 0.07 0.03 0.02
Gross profit (loss) consists of sales and other operating revenues less
operating expenses, depreciation, depletion and amortization, and
writedowns pertaining to operating assets.
In the fourth quarter of 1996, the Company recorded a writedown of $43
million related to oil and gas properties and other assets in Argentina.
In the fourth quarter of 1995, the Company recorded a loss provision of
$1.1 million related to property available for sale, and Crusader recorded
a writedown of $3 million (the Company's share - $1.5 million) related to a
coal property of its majority-owned affiliate. Also, the Company recorded a
charge to deferred tax expense of $2.8 million due to a change in income
tax rates in Colombia and a benefit of $8.5 million based on a reduction in
the valuation allowance on its deferred U.S. tax asset.
25. OIL AND GAS DATA (UNAUDITED)
The following tables provide additional information about the Company's oil
and gas exploration and production activities. Equity affiliate amounts
reflect only the Company's proportionate interest in Crusader, which was
sold in 1996.
F-42
Results of Operations
The results of operations for oil- and gas-producing activities,
considering direct costs only, follow:
United Total
Colombia France Indonesia State Other Worldwide
-------- ------ --------- ----- ----- ---------
Year ended December 31, 1996:
Revenues $ 127,071 $ -- $ 1,856 $ 5,050 $ -- $ 133,977
Costs:
Production costs 34,822 -- 1,510 322 -- 36,654
General operating expenses 1,909 -- 553 774 -- 3,236
Depletion 18,515 -- 49 554 -- 19,118
Writedown of assets -- -- -- -- 42,960 42,960
Income taxes 25,766 -- -- -- -- 25,766
--------- -------- ------- ------- -------- ---------
Results of operations $ 46,059 $ -- $ (256) $ 3,400 $(42,960) $ 6,243
========= ======== ======= ======= ======== =========
Year ended December 31, 1995:
Revenues $ 89,851 $ 9,206 $ 4,531 $ 3,884 $ -- $ 107,472
Costs:
Production costs 24,942 5,460 4,422 452 -- 35,276
General operating expenses 740 1,061 726 1,030 -- 3,557
Depletion 14,776 1,562 241 1,950 -- 18,529
Writedown of assets -- -- -- -- -- --
Income taxes 17,395 374 -- -- -- 17,769
--------- -------- ------- ------- -------- ---------
Results of operations $ 31,998 $ 749 $ (858) $ 452 $ -- $ 32,341
========= ======== ======= ======= ======== =========
Seven months ended December
31, 1994:
Revenues $ 6,249 $ 9,179 $ 3,174 $ 1,919 $ -- $ 20,521
Costs:
Production costs 4,290 5,784 2,054 144 -- 12,272
General operating expenses 997 541 897 502 -- 2,937
Depletion 1,184 2,132 298 1,189 -- 4,803
Writedown of assets -- -- -- 984 -- 984
Income taxes 82 318 -- -- -- 400
--------- -------- ------- ------- -------- ---------
Results of operations $ (304) $ 404 $ (75) $ (900) $ -- $ (875)
========= ======== ======= ======= ======== =========
Year ended May 31, 1994:
Revenues $ 5,911 $ 17,252 $ 7,186 $ 4,700 $ 6,190 $ 41,239
Costs:
Production costs 4,230 10,347 6,413 2,436 3,200 26,626
General operating expenses 1,267 4,237 3,070 1,044 614 10,232
Depletion 917 9,443 1,363 2,290 2,482 16,495
Writedown of assets -- 43,201 922 -- 251 44,374
Income taxes 8 -- -- -- 195 203
--------- -------- ------- ------- -------- ---------
Results of operations $ (511) $(49,976) $(4,582) $(1,070) $ (552) $ (56,691)
========= ======== ======= ======= ======== =========
Depletion includes depreciation on support equipment and facilities
calculated on the unit of production method.
F-43
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per barrel data)
The Company's equity share of Crusader's results of operations for oil- and
gas-producing activities follows:
United
Australia Canada States Other Total
--------- ------ ------ ----- -----
December 31, 1996 $1,243 $-- $ -- $ -- $ 1,243
====== ==== ======= ======= =======
December 31, 1995 $2,998 $269 $ -- $(1,401) $ 1,866
====== ==== ======= ======= =======
December 31, 1994 $1,339 $243 $ 36 $(1,662) $ (44)
====== ==== ======= ======= =======
May 31, 1994 $2,904 $712 $(1,270) $ -- $ 2,346
====== ==== ======= ======= =======
Costs Incurred and Capitalized Costs
The costs incurred in oil and gas acquisition, exploration and development
activities and related capitalized costs follow:
Malaysia- United Total
Colombia Thailand France Indonesia States Other Worldwide
-------- -------- ------ --------- ------ ----- ---------
December 31, 1996:
Costs incurred:
Property acquisition $ -- $ -- $ -- $ -- $ -- $ 600 $ 600
Exploration 18,875 60,955 -- -- -- 33,103 112,933
Development 39,902 470 -- -- -- -- 40,372
Depletion per equivalent
barrel of production 2.83 -- -- 0.52 5.59 -- 2.84
Cost of properties at period-end:
Unevaluated $ 2,487 $97,151 $ -- $ -- $ -- $50,010 $149,648
======== ======= ======== ======== ======== ======= ========
Evaluated $338,955 $10,861 $ -- $ -- $ -- $48,630 $398,446
======== ======= ======== ======== ======== ======= ========
Support equipment and
facilities $194,116 $ -- $ -- $ -- $ -- $ -- $194,116
======== ======= ======== ======== ======== ======= ========
Accumulated depletion and
depreciation at period-end $ 35,723 $ -- $ -- $ -- $ -- $48,630 $ 84,353
======== ======= ======== ======== ======== ======= ========
F-44
TRITON ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per barrel data)
Malaysia- United Total
Colombia Thailand France Indonesia States Other Worldwide
-------- -------- ------ --------- ------ ----- ---------
December 31, 1995:
Costs incurred:
Property acquisition $ 1,101 $ -- $ -- $ -- $ -- $ 250 $ 1,351
Exploration 45,961 25,948 -- -- -- 28,480 100,389
Development 48,419 -- -- 299 -- -- 48,718
Depletion per equivalent
barrel of production 2.67 -- 3.14 0.95 6.05 -- 2.81
Cost of properties at period-end:
Unevaluated $ 59,087 $46,282 $ -- $ -- $ 9,202 $58,490 $173,061
======== ======= ======== ======= ======== ======= ========
Evaluated $260,058 $ -- $ -- $47,301 $190,379 $ 8,667 $506,405
======== ======= ======== ======= ======== ======= ========
Support equipment and
facilities $ 87,289 $ -- $ -- $ -- $ -- $ -- $ 87,289
======== ======= ======== ======= ======== ======= ========
Accumulated depletion and
depreciation at period-end $ 17,355 $ -- $ -- $47,153 $180,574 $ 8,667 $253,749
======== ======= ======== ======= ======== ======= ========
December 31, 1994:
Costs incurred:
Property acquisition $ 9,824 $ -- $ -- $ -- $ -- $ 1,058 $ 10,882
Exploration 21,691 5,151 79 -- -- 7,088 34,009
Development 31,892 -- 5 1 1 -- 31,899
Depletion per equivalent
barrel of production 2.57 -- 4.15 1.60 7.04 -- 3.63
Cost of properties at period-end:
Unevaluated $ 38,000 $20,334 $ 281 $ -- $ 9,202 $31,513 $ 99,330
======== ======= ======== ======= ======== ======= ========
Evaluated $175,281 $ -- $265,284 $44,594 $190,396 $ 8,667 $684,222
======== ======= ======== ======= ======== ======= ========
Support equipment and
facilities $ 78,601 $ -- $ -- $ -- $ -- $ -- $ 78,601
======== ======= ======== ======= ======== ======= ========
Accumulated depletion
at period-end $ 2,645 $ -- $244,264 $44,097 $178,623 $ 8,667 $478,296
======== ======= ======== ======= ======== ======= ========
May 31, 1994:
Costs incurred:
Property acquisition $ -- $ 750 $ -- $ -- $ -- $ 94 $ 844
Exploration 24,865 4,775 205 -- -- 12,626 42,471
Development 29,833 -- 3,575 1,050 300 2,022 36,780
Depletion per equivalent
barrel of production 1.96 -- 8.97 3.09 6.58 3.60 5.47
Cost of properties at period-end:
Unevaluated $ 47,833 $15,183 $ 212 $ -- $ 10,094 $23,847 $ 97,169
======== ======= ======== ======= ======== ======= ========
Evaluated $118,215 $ -- $266,231 $47,677 $190,033 $ 7,715 $629,871
======== ======= ======== ======= ======== ======= ========
Support equipment and
facilities $ 45,688 $ -- $ -- $ -- $ -- $ -- $ 45,688
======== ======= ======== ======= ======== ======= ========
Accumulated depletion
at period-end $ 1,461 $ -- $243,084 $46,560 $176,450 $ 7,715 $475,270
======== ======= ======== ======= ======== ======= ========
F-45
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except per share data)
A summary of costs excluded from depletion at December 31, 1996, by year
incurred follows:
December, 31
-------------------------------- May 31,
Total 1996 1995 1994 1994
----- ---- ---- ---- ----
Property acquisition $ 1,536 $ 600 $ 250 $ -- $ 686
Exploration 130,625 80,018 38,173 7,662 4,772
Capitalized interest 17,487 10,992 3,981 1,222 1,292
-------- ------- ------- ------ ------
Total worldwide $149,648 $91,610 $42,404 $8,884 $6,750
======== ======= ======= ====== ======
The Company excludes from its depletion computation property acquisition
and exploration cost of unevaluated properties and major development
projects in progress. The excluded costs include $97.2 million for Block
A-18 in the Malaysia-Thailand Joint Development Area which will become
depletable once production begins, currently estimated for early 2000. At
this time, the Company is unable to predict either the timing of the
inclusion of the remaining costs and the related oil and gas reserves in
its depletion computation or their potential future impact on depletion
rates. Drilling or other exploration activities are being conducted in each
of these cost centers.
The Company's equity share of costs incurred by Crusader follows:
United
Australia Canada States Other Total
--------- ------ ------ ----- -----
Cost of property acquisition,
exploration and development:
December 31, 1996 $ 2,105 $ -- $ -- $ -- $ 2,105
======= ====== ====== ====== =======
December 31, 1995 $ 1,187 $ 507 $ -- $ 541 $ 2,235
======= ====== ====== ====== =======
December 31, 1994 $ 3,557 $ 313 $ 26 $1,028 $ 4,924
======= ====== ====== ====== =======
May 31, 1994 $ 2,955 $1,099 $1,687 $ -- $ 5,741
======= ====== ====== ====== =======
Net capitalized costs:
December 31, 1995 $25,818 $ -- $ -- $ 299 $26,117
======= ====== ====== ====== =======
December 31, 1994 $28,987 $3,889 $ -- $1,340 $34,216
======= ====== ====== ====== =======
May 31, 1994 $27,001 $4,395 $3,750 $ -- $35,146
======= ====== ====== ====== =======
F-46
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
Oil and Gas Reserve Data
The following tables present the Company's estimates of its proved oil and gas
reserves. These estimates were prepared by the Company's independent petroleum
engineers, DeGolyer and MacNaughton, with respect to all proved reserves in the
Cusiana and Cupiagua fields in Colombia and the Company's own petroleum
reservoir engineers with respect to all proved reserves in Malaysia-Thailand and
the Liebre Field in Colombia. The Company emphasizes that reserve estimates are
approximates and are expected to change as additional information becomes
available. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced nor can there be assurance that the proved undeveloped
reserves will be developed within the periods anticipated. Oil reserves are
stated in thousands of barrels and gas reserves are stated in millions of cubic
feet. As of December 31, 1996, the Company did not have a contract for the sale
of gas to be produced from its interest in the Malaysia-Thailand Joint
Development Area. In estimating reserves attributable to such interest, the
Company assumed that production from the interest would be sold at prices for
natural gas derived from what the Company believed to be the most comparable
market price at December 31, 1996. There can be no assurance that the price to
be provided in any gas contract will be equal to the price used in the Company's
calculations.
Colombia Malaysia-Thailand France Indonesia United States
-------------------- ----------------- ------ --------- -------------------
Oil Gas Oil Gas Oil Oil Oil Gas
-------- ------- ------ ------- ------ ---- ------ -------
Proved developed and
undeveloped reserves:
As of May 31, 1993 86,216 16,250 -- -- 8,189 951 1,952 21,549
Revisions 3,682 -- -- -- (2,177) 165 23 (1,644)
Sales -- -- -- -- (502) -- (1,171) (11,426)
Extensions and discoveries 3,173 -- -- -- -- -- -- --
Production (467) -- -- -- (1,053) (441) (156) (1,150)
-------- ------- ------ ------- ------ ---- ------ -------
As of May 31, 1994 92,604 16,250 -- -- 4,457 675 648 7,329
Revisions 10,113 (1,529) -- -- 2,301 (87) 14 486
Purchases of minerals in place 2,111 -- -- -- -- -- -- --
Production (435) -- -- -- (514) (186) (66) (618)
-------- ------- ------ ------- ------ ---- ------ -------
As of December 31, 1994 104,393 14,721 -- -- 6,244 402 596 7,197
Revisions -- -- -- -- -- 23 119 967
Sales (10,434) -- -- -- (5,746) -- -- --
Extensions and discoveries 32,556 1,127 -- -- -- -- -- --
Production (5,089) (158) -- -- (498) (255) (121) (1,207)
-------- ------- ------ ------- ------ ---- ------ -------
As of December 31, 1995 121,426 15,690 -- -- -- 170 594 6,957
Revisions 270 (403) -- -- -- -- -- --
Sales (548) (338) -- -- -- (75) (574) (6,482)
Extensions and discoveries 19,900 -- 24,700 871,100 -- -- -- --
Production (5,738) (298) -- -- -- (95) (20) (475)
-------- ------- ------ ------- ------ ---- ------ -------
As of December 31, 1996 135,310 14,651 24,700 871,100 -- -- -- --
======== ======= ====== ======= ====== ==== ====== =======
Canada Other Total Worldwide
------------------ ----- ----------------------
Oil Gas Oil Oil Gas
------ ------- --- -------- --------
Proved developed and
undeveloped reserves:
As of May 31, 1993 2,686 78,449 -- 99,994 116,248
Revisions -- -- 18 1,711 (1,644)
Sales (2,584) (74,928) -- (4,257) (86,354)
Extensions and discoveries -- -- -- 3,173 --
Production (102) (3,521) (18) (2,237) (4,671)
------ ------- --- -------- --------
As of May 31, 1994 -- -- -- 98,384 23,579
Revisions -- -- -- 12,341 (1,043)
Purchases of minerals in place -- -- -- 2,111 --
Production -- -- -- (1,201) (618)
------ ------- --- -------- --------
As of December 31, 1994 -- -- -- 111,635 21,918
Revisions -- -- -- 142 967
Sales -- -- -- (16,180) --
Extensions and discoveries -- -- -- 32,556 1,127
Production -- -- -- (5,963) (1,365)
------ ------- --- -------- --------
As of December 31, 1995 -- -- -- 122,190 22,647
Revisions -- -- -- 270 (403)
Sales -- -- -- (1,197) (6,820)
Extensions and discoveries -- -- -- 44,600 871,100
Production -- -- -- (5,853) (773)
------ ------- --- -------- --------
As of December 31, 1996 -- -- -- 160,010 885,751
====== ======= === ======== ========
F-47
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
Colombia Malaysia-Thailand France Indonesia United States Total Worldwide
---------------- ----------------- ------ --------- ---------------- ----------------
Oil Gas Oil Gas Oil Oil Oil Gas Oil Gas
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Proved developed reserves at:
May 31, 1994 1,237 -- -- -- 4,457 675 648 7,329 7,017 7,329
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
December 31, 1994 47,789 14,721 -- -- 6,244 402 596 7,197 55,031 21,918
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
December 31, 1995 65,856 10,515 -- -- -- 170 594 6,957 66,620 17,472
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
December 31, 1996 67,193 11,146 -- -- -- -- -- -- 67,193 11,146
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
The Company's proportional equity interest in Crusader's estimated proved
developed and undeveloped oil and gas reserves was as follows:
Australia Canada United States Total
---------------- ---------------- ---------------- ----------------
Oil Gas Oil Gas Oil Gas Oil Gas
------ ------ ------ ------ ------ ------ ------ ------
May 31, 1994 2,574 40,174 963 2,790 48 122 3,585 43,086
====== ====== ====== ====== ====== ====== ====== ======
December 31, 1994 3,163 59,115 823 1,836 -- -- 3,986 60,951
====== ====== ====== ====== ====== ====== ====== ======
December 31, 1995 3,319 60,915 -- -- -- -- 3,319 60,915
====== ====== ====== ====== ====== ====== ====== ======
F-48
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for share data)
Standardized Measure of Discounted Future Net Cash Inflows and Changes
Therein
The following table presents for the net quantities of proved oil and gas
reserves a standardized measure of discounted future net cash inflows
discounted at an annual rate of 10%. The future net cash inflows were
calculated in accordance with Securities and Exchange Commission
guidelines. Future cash inflows were computed by applying yearend prices of
oil and gas relating to the Company's proved reserves to the estimated
yearend quantities of those reserves. As of December 31, 1996, the Company
did not have a contract for the sale of gas to be produced from its
interest in the Malaysia-Thailand Joint Development Area. In estimating
discounted future net cash inflows attributable to such interest, the
Company assumed that production from the interest would be sold at prices
for natural gas derived from what the Company believed to be the most
comparable market price at December 31, 1996. Future price changes were
considered only to the extent provided by contractual agreements in
existence at yearend. Future production and development costs were computed
by estimating those expenditures expected to occur in developing and
producing the proved oil and gas reserves at the end of the year, based on
yearend costs. The Company emphasizes that the future net cash inflows
should not be construed as representative of the fair market value of the
Company's proved reserves. The meaningfulness of the estimates is highly
dependent upon the accuracy of the assumptions upon which they were used.
Actual future cash inflows may vary considerably.
Malaysia- United Total
Columbia Thailand France Indonesia States Worldwide
-------- -------- ------ --------- ------ ---------
December 31, 1996:
Future cash inflows $3,519,893 $2,530,702 $ -- $ -- $ -- $6,050,595
Future production and
development costs 1,283,851 1,188,981 -- -- -- 2,472,832
---------- ---------- -------- -------- -------- ----------
Future net cash inflows before
income taxes $2,236,042 $1,341,721 $ -- $ -- $ -- $3,577,763
========== ========== ======== ======== ======== ==========
Future net cash inflows before
income taxes discounted at 10%
per annum $1,283,158 $ 320,900 $ -- $ -- $ -- $1,604,058
Future income taxes discounted
at 10% per annum 290,763 21,100 -- -- -- 311,863
---------- ---------- -------- -------- -------- ----------
Standardized measure of
discounted future net cash inflows $ 992,395 $ 299,800 $ -- $ -- $ -- $1,292,195
========== ========== ======== ======== ======== ==========
F-49
Malaysia- United Total
Columbia Thailand France Indonesia States Worldwide
-------- -------- ------ --------- ------ ---------
December 31, 1995:
Future cash inflows $2,321,424 $ -- $ -- $ 2,909 $ 19,076 $2,343,409
Future production and
development costs 730,139 -- -- 2,250 2,037 734,426
---------- ---------- ---------- ---------- ---------- ----------
Future net cash inflows before
income taxes $1,591,285 $ -- $ -- $ 659 $ 17,039 $1,608,983
========== ========== ========== ========== ========== ==========
Future net cash inflows before
income taxes discounted at 10%
per annum $ 803,665 $ -- $ -- $ 626 $ 11,150 $ 815,441
Future income taxes discounted
at 10% per annum 173,745 -- -- -- -- 173,745
---------- ---------- ---------- ---------- ---------- ----------
Standardized measure of
discounted future net cash inflows $ 629,920 $ -- $ -- $ 626 $ 11,150 $ 641,696
========== ========== ========== ========== ========== ==========
December 31, 1994:
Future cash inflows $1,764,939 $ -- $ 105,523 $ 6,677 $ 20,072 $1,897,211
Future production and
development costs 440,227 -- 59,558 5,645 1,845 507,275
---------- ---------- ---------- ---------- ---------- ----------
Future net cash inflows before
income taxes $1,324,712 $ -- $ 45,965 $ 1,032 $ 18,227 $1,389,936
========== ========== ========== ========== ========== ==========
Future net cash inflows before
income taxes discounted at 10%
per annum $ 594,061 $ -- $ 25,759 $ 974 $ 11,824 $ 632,618
Future income taxes discounted
at 10% per annum 132,948 -- -- -- -- 132,948
---------- ---------- ---------- ---------- ---------- ----------
Standardized measure of
discounted
future net cash inflows $ 461,113 $ -- $ 25,759 $ 974 $ 11,824 $ 499,670
========== ========== ========== ========== ========== ==========
May 31, 1994:
Future cash inflows $1,591,448 $ -- $ 76,755 $ 10,278 $ 23,562 $1,702,043
Future production and
development costs 474,382 -- 44,603 7,575 1,945 528,505
---------- ---------- ---------- ---------- ---------- ----------
Future net cash inflows before
income taxes $1,117,066 $ -- $ 32,152 $ 2,703 $ 21,617 $1,173,538
========== ========== ========== ========== ========== ==========
Future net cash inflows before
income taxes discounted at 10%
per annum $ 506,022 $ -- $ 23,147 $ 2,570 $ 14,008 $ 545,747
Future income taxes discounted
at 10% per annum 150,537 -- -- -- -- 150,537
---------- ---------- ---------- ---------- ---------- ----------
Standardized measure of
discounted future net cash inflows $ 355,485 $ -- $ 23,147 $ 2,570 $ 14,008 $ 395,210
========== ========== ========== ========== ========== ==========
F-50
The Company's proportional equity interest in Crusader's standardized
measure of discounted future net cash inflows was as follows:
United
Australia Canada States Total
--------- ------ ------ -----
December 31, 1995 $30,382 $ -- $ -- $30,382
======= ======= ======= =======
December 31, 1994 $32,492 $ 3,424 $ -- $35,916
======= ======= ======= =======
May 31, 1994 $35,306 $ 3,997 $ 526 $39,829
======= ======= ======= =======
Changes in the standardized measure of discounted future net cash inflows
follow:
December 31, May 31,
------------------------------------------- -----------
1996 1995 1994 1994
----------- ----------- ----------- -----------
Total worldwide, excluding equity share:
Beginning of period $ 641,696 $ 499,670 $ 395,210 $ 451,482
Sales, net of production costs (97,323) (67,471) (8,249) (14,613)
Sales of reserves (10,473) (144,361) -- (83,462)
Revisions of quantity estimates 2,617 2,348 43,816 879
Net change in prices and production costs 228,349 42,044 (14,746) (54,143)
Extensions, discoveries and improved recovery 1,125,733 339,413 -- 16,521
Change in future development costs (652,902) (102,323) 3,695 (57,459)
Purchases of reserves -- -- 9,573 --
Development and facilities costs incurred 92,856 28,068 45,152 57,485
Accretion of discount 80,672 62,188 31,835 60,831
Changes in production rates and other 19,088 22,917 (24,205) 11,392
Net change in income taxes (138,118) (40,797) 17,589 6,297
----------- ----------- ----------- -----------
End of period $ 1,292,195 $ 641,696 $ 499,670 $ 395,210
=========== =========== =========== ===========
F-51
- --------------------------------------------------------------------------------
SCHEDULE II
TRITON ENERGY LIMITED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
-----------------------
Balance at Charged to Balance
beginning Charged to other at close
Classifications of year earnings accounts Deductions of year
-------- ---------- ---------- ---------- --------
Year ended May 31, 1994:
Allowance for doubtful
receivables, excluding
discontinued operations $ 1,162 $ (149) $ 4 $ (144) $ 873
======== ======== ======== ======== ========
Allowance for deferred
tax asset $ 62,789 $ 1,027 $ -- $ -- $ 63,816
======== ======== ======== ======== ========
Period ended Dec. 31, 1994:
Allowance for doubtful
receivables $ 873 $ 19 $ 20 $ (15) $ 897
======== ======== ======== ======== ========
Allowance for deferred
tax asset $ 63,816 $ 23,702 $ -- $ -- $ 87,518
======== ======== ======== ======== ========
Year ended Dec. 31, 1995:
Allowance for doubtful
receivables $ 897 $ -- $ 41 $ (128) $ 810
======== ======== ======== ======== ========
Allowance for deferred
tax asset $ 87,518 $(33,472) $ -- $ -- $ 54,046
======== ======== ======== ======== ========
Year ended Dec. 31, 1996:
Allowance for doubtful
receivables $ 810 $ 35 $ -- $ (769) $ 76
======== ======== ======== ======== ========
Allowance for deferred
tax asset $ 54,046 $(23,389) $ -- $ -- $ 30,657
======== ======== ======== ======== ========
- ----------
Note -- Deductions for the allowance for doubtful receivables in the year ended
December 31, 1996, related primarily to disposal of other assets.
F-52
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