1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 8-K
ON
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 23, 2001
NEWFIELD EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-12534 72-1133047
(State or other jurisdiction (Commission file (I.R.S. employer
of incorporation or organization) number) identification number)
363 N. Sam Houston Parkway E.
Suite 2020
Houston, Texas 77060
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (281) 847-6000
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2
Item 2. Acquisition or Disposition of Assets
On January 23, 2001, Newfield Exploration Company ("Newfield") acquired all
of the outstanding capital stock of Lariat Petroleum Inc ("Lariat") by merging
Lariat with and into Newfield Exploration Mid-Continent Inc., a wholly owned
subsidiary of Newfield. The total consideration for the acquisition was
approximately $333 million, inclusive of the assumption of debt and certain
other obligations of Lariat. The transaction will be accounted for as a
purchase.
The total consideration consisted of approximately 1.9 million shares of
Newfield's stock with a value of $68 million and $265 million in cash. Newfield
financed the cash portion of the consideration under its new credit facility.
Lariat is a private, independent exploration and production company primarily
focused in the Anadarko Basin of Oklahoma. As of June 30, 2000, Lariat had a
proved reserve base of 256 billion cubic feet equivalent ("Bcfe").
Approximately 75% of Lariat's proved reserves are natural gas and 90% are
located in Oklahoma. During 2000, Lariat drilled 91 wells in Oklahoma and seven
wells in the Permian Basin. Lariat's daily production at the end of 2000 was
approximately 45 million cubic feet of gas and 1,900 barrels of oil.
The acquisition provides a new focus area for Newfield, adding natural gas
assets with a reserve life index of about 11 years. As a result of the
acquisition, Newfield's total proved reserves are in excess of 900 Bcfe and
approximately 40% of those reserves are located onshore U.S.
Randy Foutch, the President and Chief Executive Officer of Lariat, will
continue in such capacity with Newfield Exploration Mid-Continent Inc. and was
elected Vice President - Mid-Continent of Newfield.
The statements set forth in this Report regarding estimated reserves and
reserve life indices are forward looking and are based upon assumptions and
anticipated results that are subject to numerous uncertainties. Actual results
may vary significantly from those anticipated due to many factors, including
drilling results, oil and gas prices, industry conditions, the prices of goods
and services, the availability of drilling rigs and other support services and
the availability of capital resources, labor conditions and other factors set
forth in Newfield's Annual Report on Form 10-K for the year ended December 31,
1999. In addition, the drilling of oil and gas wells and the production of
hydrocarbons are subject to governmental regulations and operating risks.
3
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
See "Index to Financial Statements" on page F-1.
(b) Pro Forma Financial Information.
See "Index to Financial Statements" on page F-1.
(c) Exhibits.
The following two exhibits were filed with Form 8-K on February 7, 2001,
and are hereby amended and restated to include conformed signature pages
as filed herewith:
10.2.1 Credit Agreement, dated as of January 23, 2001, among Newfield,
The Chase Manhattan Bank, as Agent, and the banks signatory
thereto (the "Credit Agreement")
10.2.2 First Amendment Agreement, dated January 31, 2001,
amending the Credit Agreement
The following exhibit is filed herewith:
23.1 Consent of Arthur Andersen LLP
4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWFIELD EXPLORATION COMPANY
Date: February 12, 2001 By: /s/ Terry W. Rathert
-----------------------------------
Terry W. Rathert
Vice President, Chief Financial
Officer and Secretary
(Authorized Officer and Principal
Financial Officer)
5
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants. . . . . . . . . . . . . . F-2
Consolidated Balance Sheet of Lariat Petroleum, Inc. as of
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Operations of Lariat Petroleum, Inc.
for the year ended December 31, 1999. . . . . . . . . . . . . . . F-4
Consolidated Statement of Changes in Stockholders' Equity of
Lariat Petroleum, Inc. for the year ended December 31, 1999 . . . F-5
Consolidated Statement of Cash Flows of Lariat Petroleum, Inc.
for the year ended December 31, 1999. . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements of Lariat Petroleum, Inc.
for the year ended December 31, 1999. . . . . . . . . . . . . . . F-7
Supplementary Oil and Gas Disclosures of Lariat Petroleum, Inc.
for the year ended December 31, 1999 (Unaudited). . . . . . . . . F-16
Consolidated Balance Sheet of Lariat Petroleum, Inc. as of
September 30, 2000 (Unaudited). . . . . . . . . . . . . . . . . . F-19
Consolidated Statement of Operations of Lariat Petroleum, Inc.
for the nine months ended September 30, 2000 (Unaudited). . . . . F-20
Consolidated Statement of Changes in Stockholders' Equity of
Lariat Petroleum, Inc. for the nine months ended
September 30, 2000 (Unaudited). . . . . . . . . . . . . . . . . . F-21
Consolidated Statement of Cash Flows of Lariat Petroleum, Inc.
for the nine months ended September 30, 2000 (Unaudited). . . . . F-22
Notes to Consolidated Financial Statements of Lariat
Petroleum, Inc. for the nine months ended
September 30, 2000 (Unaudited). . . . . . . . . . . . . . . . . . F-23
Pro Forma Combined Financial Statements (Unaudited) . . . . . . . . F-25
Pro Forma Combined Supplementary Oil and Gas Disclosures as of December 31,
1999 (Unaudited) . . . . . . . . . . . . . . . . . . F-32
F-1
6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Newfield Exploration Company:
We have audited the accompanying consolidated balance sheet of Lariat
Petroleum, Inc. (a Delaware corporation) and subsidiary as of December 31,
1999, and the related consolidated statement of operations, changes in
stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lariat Petroleum, Inc. and
subsidiary as of December 31, 1999, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
January 24, 2001
F-2
7
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 4,800
Accounts receivable -
Oil and gas sales............................................... 5,756
Joint operations and other...................................... 1,176
Prepaid expenses and other current assets......................... 548
--------
Total current assets...................................... 12,280
--------
Property and equipment, at cost:
Oil and gas properties, full cost method.......................... 150,657
Other............................................................. 1,984
--------
152,641
Less - accumulated depreciation, depletion and amortization....... 16,420
--------
136,221
Other assets........................................................ 575
--------
Total assets.............................................. $149,076
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revenue payable................................................... $ 1,831
Accounts payable - trade.......................................... 420
Accrued interest.................................................. 439
Natural gas imbalance............................................. 845
Other accrued liabilities......................................... 2,803
--------
Total current liabilities................................. 6,338
--------
Long-term debt to banks............................................. 67,492
--------
Stockholder subordinated notes payable.............................. 36,300
--------
Commitments and contingencies
Stockholders' equity:
Common stock -
Series A, $0.01 par value, 370,000 shares authorized,
367,870 shares issued and outstanding......................... 4
Series B, $0.01 par value, 463,250 shares authorized,
no shares issued.............................................. --
Additional paid-in capital........................................ 40,205
Accumulated deficit............................................... (1,263)
--------
Total stockholders' equity................................ 38,946
--------
Total liabilities and stockholders' equity................ $149,076
========
The accompanying notes are an integral part of this balance sheet.
F-3
8
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands, except share and per share amounts)
Oil and gas sales............................................ $32,694
-------
Operating expenses:
Lease operating............................................ 4,520
Production taxes........................................... 2,256
Depreciation, depletion and amortization................... 12,725
General and administrative................................. 4,502
-------
Total operating expenses........................... 24,003
-------
Income from operations....................................... 8,691
-------
Other income(expenses):
Interest and other income.................................. 168
Interest expense........................................... (6,549)
-------
(6,381)
-------
Income before income taxes................................... 2,310
-------
Income taxes:
Current.................................................... --
Deferred................................................... --
-------
--
-------
Net income................................................... $ 2,310
=======
Earnings per common share:
Basic...................................................... $ 6.57
=======
Diluted.................................................... $ 6.57
=======
Weighted average common shares outstanding:
Basic...................................................... 351,541
=======
Diluted.................................................... 351,541
=======
The accompanying notes are an integral part of this statement.
F-4
9
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands, except share amounts)
SERIES A
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
------- ----- ---------- ----------- -------
BALANCE, December 31, 1998......... 302,870 $ 3 $32,086 $(3,573) $28,516
Issuance of Series A common
stock.......................... 64,800 1 8,099 -- 8,100
Exercise of stock options........ 200 -- 20 -- 20
Net income....................... -- -- -- 2,310 2,310
------- --- ------- ------- -------
BALANCE, December 31, 1999......... 367,870 $ 4 $40,205 $(1,263) $38,946
======= === ======= ======= =======
The accompanying notes are an integral part of this statement.
F-5
10
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands)
Cash flows from operating activities:
Net income............................................... $ 2,310
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation, depletion and amortization............. 12,725
Interest on stockholder subordinated notes........... 2,300
Other non-cash charges............................... 90
---------
17,425
Changes in assets and liabilities -
Increase in receivables............................ (5,375)
Increase in prepaid expenses....................... (505)
Increase in payables and accruals.................. 4,006
---------
Net cash provided by operating activities........ 15,551
---------
Cash flows from investing activities:
Capital expenditures -
Oil and gas properties................................. (105,124)
Other.................................................. (1,054)
Prepayment of drilling costs............................. (692)
---------
Net cash used in investing activities............ (106,870)
---------
Cash flows from financing activities:
Proceeds from sale of common stock....................... 8,100
Proceeds from issuance of stockholder subordinated
notes.................................................. 34,000
Advances on credit facility.............................. 50,000
Financing costs incurred................................. (573)
---------
Net cash provided by financing activities........ 91,527
---------
Increase in cash and cash equivalents...................... 208
Cash and cash equivalents, beginning of period............. 4,592
---------
Cash and cash equivalents, end of period................... $ 4,800
=========
Supplemental information of cash paid during the year for:
Interest................................................. $ 3,762
=========
Income taxes............................................. $ --
=========
The accompanying notes are an integral part of this statement.
F-6
11
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
1. ORGANIZATION AND BASIS OF PRESENTATION:
Lariat Petroleum, Inc. is an independent energy company engaged in the
exploration for and the development and production of natural gas and oil in
the continental United States, with a particular emphasis in the Mid-Continent
region. The Company's operations currently focus on the Anadarko and Arkoma
Basins of Oklahoma and the Permian Basin of Texas and New Mexico.
The consolidated financial statements include the accounts of Lariat
Petroleum, Inc. and its wholly-owned subsidiary, Anadarko Geophysical
Exploration, L.L.C. (collectively, the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Oil and Gas Properties
The Company uses the full cost method of accounting for its oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including certain related employee costs, incurred for the purpose of
finding oil and gas are capitalized. Such amounts include the cost of drilling
and equipping productive wells, dry hole costs, lease acquisition costs, delay
rentals and costs related to such activities. Exclusive of field-level costs,
the Company capitalized approximately $1,307,000 of internal costs in 1999.
Costs, including related employee costs, associated with production and general
corporate activities are expensed in the period incurred. Sales of natural gas
and oil properties, whether or not being amortized currently, are accounted for
as adjustments of capitalized costs, with no gain or loss recognized unless
such adjustments would significantly alter the relationship between capitalized
costs and proved reserves of oil and gas.
The Company computes the provision for depreciation, depletion and
amortization ("DD&A") of oil and gas properties using the units of production
method based upon production and estimates of proved reserve quantities.
Unevaluated costs and related carrying costs are excluded from the amortization
base until the properties associated with these costs are evaluated. The
amortization base includes estimated future development costs and
dismantlement, restoration and abandonment costs, net of estimated salvage
values. DD&A per equivalent Mcf of the Company's oil and gas properties was
$0.87 for the year ended December 31, 1999.
The Company excludes the costs directly associated with acquisition and
evaluation of unproved properties from the DD&A calculation until it is
determined whether or not proved reserves can be assigned to the properties.
These properties are assessed at least annually to ascertain whether an
impairment has occurred. Such costs are transferred into the amortization base
on an ongoing basis as projects are evaluated and proved reserves established
or impairment determined. As of December 31, 1999, the Company excluded
approximately $17,004,000 of costs related to unproved properties from the
amortization base, of which approximately $11,004,000, $2,684,000 and
$3,316,000 were incurred in 1999, 1998 and 1997, respectively. The majority of
the costs will be evaluated over the next two years.
F-7
12
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's unamortized costs of oil and gas properties are limited to the
sum of the future net revenues attributable to proved oil and gas reserves
using unescalated prices in effect at year end, discounted at ten percent, plus
the lower of cost or fair value of any unproved properties, as adjusted for
related income tax effects (the "Full Cost Ceiling"). If the Company's
unamortized costs of oil and gas properties exceed the Full Cost Ceiling, the
excess must be charged to expense. The Company's capitalized costs were not in
excess of the Full Cost Ceiling at December 31, 1999.
Other Property and Equipment
Other property and equipment consists of automobiles, office furniture,
computer hardware and software and leasehold improvements. Depreciation of
other property and equipment is determined using the straight-line method based
on estimated useful lives ranging from three to seven years.
Revenue Payable
Amounts payable to royalty and working interest owners resulting from sales
of oil and gas from jointly owned properties are classified as revenue payable
in the accompanying financial statements.
Revenue Recognition
Natural gas revenues are recorded using the sales method. Under this method,
the Company recognizes revenues based on actual volumes of gas sold to
purchasers. The Company and other joint interest owners may sell more or less
than their entitlement share of the natural gas volumes produced. A liability
is recorded and revenue is deferred if the Company's excess sales of natural
gas volumes exceed its estimated remaining recoverable reserves.
Hedging
The Company uses hedges (swaps, floors, collars and forward sales) to reduce
the impact of oil and natural gas price fluctuations and the impact of interest
rate fluctuation. Gains or losses from commodity swaps, floors and collars are
recognized as an adjustment to sales revenue when the related transactions
being hedged are finalized. Gains or losses from interest rate swaps are
recognized as an adjustment to interest expense when the interest from the
period being hedged is recognized. The cash flows from such agreements are
included in operating activities in the statements of cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the statement of operations.
Companies must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
SFAS 133 was originally effective for fiscal years beginning after June 15,
1999; however, Statement of Financial Accounting Standards No. 137, Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133--An Amendment of FASB Statement No. 133 extended
implementation to fiscal years beginning after June 15, 2000. Early adoption is
permitted. SFAS 133 cannot be applied retroactively and must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantially modified after
December 31, 1997 (and, at the Company's election, before January 1, 1998).
F-8
13
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SFAS 133, in part, allows special hedge accounting for "fair value" and "cash
flow" hedges. SFAS 133 provides that the gain or loss on a derivative
instrument designated and qualifying as a "fair value" hedging instrument as
well as the offsetting gain or loss on the hedged item attributable to the
hedged risk be recognized currently in earnings in the same accounting period.
SFAS 133 provides that the effective portion of the gain or loss on a
derivative instrument designated and qualifying as a "cash flow" hedging
instrument be reported as a component of other comprehensive income and be
reclassified into earnings in the same period or periods during which the
hedged forecasted transaction affects earnings. The remaining gain or loss on
the derivative instrument, if any, must be recognized currently in earnings.
SFAS 133 could increase volatility in earnings and other comprehensive income.
Note 6 presents the fair value of the derivatives held or issued by the
Company. SFAS 133 will require that those derivative instruments be recognized
in the Company's balance sheet at their fair value. The Company adopted SFAS
133 as of January 1, 2001. Upon adoption of SFAS 133, the Company will
recognize the fair value of these instruments on the balance sheet through
other comprehensive income. The Company will then reclassify into earnings the
gain or loss that is recorded in accumulated other comprehensive income as the
related physical transactions occur. Had the Company adopted SFAS 133 as of
December 31, 1999, a loss of approximately $2,855,000 would have been recorded
to other comprehensive income.
Income Taxes
Deferred income taxes are provided on transactions which are recognized in
different periods for financial and tax reporting purposes. Such temporary
differences arise primarily from the deduction of certain oil and gas
exploration and development costs, which are capitalized for financial
reporting purposes and differences in the methods of depreciation. Deferred tax
assets may be reduced by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
General and Administrative Expense
The Company receives fees for operation of jointly owned oil and gas
properties and records such reimbursements as reductions of general and
administrative expense. Such fees totaled approximately $628,000 in 1999.
Earnings Per Share
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted
earnings per share was the same as basic earnings per share because the assumed
exercise of the Company's stock options would have been anti-dilutive.
Concentration of Credit Risk
The Company's oil and gas sales are to a variety of purchasers, including
intrastate and interstate pipelines or their marketing affiliates, independent
marketing companies and major oil companies. In 1999, sales to two customers
accounted for approximately 20% and 18%, respectively, of total sales.
Management believes that the credit risk imposed by this concentration is
offset by the creditworthiness of the Company's customer base. The Company's
joint operations accounts receivable are from a large number of major and
independent oil and gas companies, partnerships, individuals and others who own
interests in the properties operated by the Company.
F-9
14
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The counterparty to the financial hedge discussed in Note 6 is a large
commercial bank. The counterparties to the Company's physical hedges discussed
in Note 6 are large national marketing companies. The Company does not believe
that any of these counterparties represent a significant credit risk.
In 1999, sales to two customers accounted for approximately 20% and 18%,
respectively, of total sales.
Reclassifications
Certain amounts in the statement of operations are classified differently
than in previously issued financial statements of the Company. These
reclassifications were made to conform with the presentation required by the
Securities and Exchange Commission and had no effect on net income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates include depreciation, depletion and amortization of
proved oil and gas properties. Oil and gas reserve estimates, which are the
basis for units of production DD&A and the Full Cost Ceiling, are inherently
imprecise and are expected to change as future information becomes available.
3. LONG-TERM DEBT:
Long-term Debt to Banks
The Company had a credit agreement with certain banks (the "Syndicated Credit
Agreement"). Total outstanding advances at December 31, 1999 were $67,492,400
at an average interest rate of 7.93%.
In connection with the transaction discussed in Note 12, on January 23, 2001,
all outstanding borrowings under the Syndicated Credit Agreement were repaid
and the Syndicated Credit Agreement was terminated.
Stockholder Subordinated Notes Payable
On March 31, 1999, the Company entered into an agreement with its principal
stockholder for the issuance of subordinated notes in an amount up to
$38,500,000 (the "Note Purchase Agreement"). As of December 31, 1999, the
Company had issued subordinated notes totaling $34,000,000 under the Note
Purchase Agreement. The subordinated notes bore interest at an annual rate of
9% through March 31, 2000 and bore interest at an annual rate of 10%
thereafter. Interest was payable at maturity.
In connection with the transaction discussed in Note 12, on January 23, 2001,
all outstanding principal and interest related to the stockholder subordinated
notes payable were repaid and the Note Purchase Agreement was terminated.
4. CAPITAL STOCK:
The Company's common stock consisted of Series A and Series B shares. In the
event of liquidation, Series A shareholders had a preference of $100 per share
over Series B shareholders. Dividends were required to be declared and paid at
the same rate per share for both Series A and Series B common stock. The Series
A and Series B stockholders voted together as a single class, with each
receiving one vote per share. Each share of Series A common stock was
convertible into one share of Series B common stock at the option of the
holder. No Series A common shares were converted into Series B common shares.
F-10
15
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Effective April 1, 1997, the Company adopted the Lariat Petroleum, Inc. 1997
Stock Option Plan (the "1997 Plan"). Under the 1997 Plan, up to 89,500 shares
of Series B common stock were available for issuance to key employees of the
Company.
The 1997 Plan was administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee"). Subject to the terms of the 1997
Plan, the Committee had the authority to determine plan participants, the
amount of the awards to be granted and the terms, conditions and provisions of
awards. Options granted pursuant to the 1997 Plan could be, at the discretion
of the Committee, either incentive stock options or non-qualified stock
options. Options granted under the 1997 Plan had a ten-year term and provided
for vesting over five years.
In 1999, non-qualified options were granted to two non-management directors
of the Company to purchase 500 shares each of Series B common stock under terms
identical to those of the 1997 Plan.
The following is an analysis of all option activity under the 1997 Plan for
1999:
Weighted Average
Shares Exercise Price
------- ----------------
Options outstanding, December 31, 1998..... 42,775 $161.89
Granted.................................. 27,558 176.19
Cancelled................................ (4,400) 150.00
------ -------
Options outstanding, December 31, 1999..... 65,933 $168.66
====== =======
Options exercisable, December 31, 1999..... 21,980 $164.26
====== =======
The exercise price of all options granted in 1999 was greater than the fair
market value of the stock on the date of grant. The weighted average fair value
of the options granted in 1999 was $21.35. The options outstanding at December
31, 1999 had exercise prices ranging from $150 to $187.50 and a weighted
average remaining contractual life of eight years.
In 1997, the Company granted non-qualified options to two non-management
directors of the Company for the purchase of shares of Series A common stock.
Each of these outside directors received options to purchase 500 shares of
Series A common stock at a price of $0.01 per share. A total of 800 of these
options have been exercised. Since the exercise price of these options was less
than the fair market value of the common stock on the date of grant, the
Company has recorded total compensation expense of approximately $80,000 since
the options were granted, based on a fair value of $100 per option granted.
The Company accounts for stock options under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS 123"). Accordingly, the
compensation cost of $80,000 discussed above is the only compensation cost that
has been recognized by the Company related to stock options. Had compensation
cost for these options been determined consistent with the provisions of SFAS
123, the Company's net income for the year ended December 31, 1999, would have
been reduced by approximately $225,000 and basic and diluted earnings per share
would have been reduced by $0.64. The fair value of each option granted is
estimated on the date of grant based on the difference between the fair market
value of the common stock and the present value of the exercise price. For
options granted in 1999, the Company used a risk-free interest rate of
approximately 5.4% and expected lives of ten years.
F-11
16
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the transaction discussed in Note 12, on January 23, 2001,
all of the Series B options outstanding became immediately vested and all of
the Series B options were exercised. The remaining unvested 200 Series A
options granted to the two non-management directors of the Company expired.
5. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses under an operating lease for its office space
of approximately $169,000 in 1999. The Company's future minimum commitments
under this lease at December 31, 1999, were approximately $263,000 in 2000 and
$173,000 in 2001. Currently, the Company's future minimum commitments under
office leases are approximately $389,000 in 2001, $418,000 in 2002 and $139,000
in 2003.
The Company is, from time to time, party to certain legal actions and claims
arising in the ordinary course of business. While the outcome of these events
cannot be predicted with certainty, management does not expect these matters to
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
6. FINANCIAL INSTRUMENTS AND OTHER COMMODITY CONTRACTS:
Price Risk Management
The Company periodically uses hedges to reduce the impact of oil and natural
gas price fluctuations on its operating results and cash flows. As of December
31, 1999, the Company had hedged gas production of 18,000 MMBtu per day and oil
production of 1,000 Bbls per day under various physical sales arrangements. All
of the prices quoted below are net prices to the Company before the costs of
gathering, transportation, compression and fuel.
The Company had two fixed price natural gas sales contracts in place at
December 31, 1999. Under the first contract, the Company agreed to sell 9,000
MMBtu per day from the period January 1, 2000 through May 31, 2001, at prices
that are fixed for each month of the contract. The prices that the Company will
receive under this contract range from $2.34 per MMBtu to $3.17 per MMBtu. The
second fixed price contract covered 1,000 MMBtu per day for the month of June
2000, under which the Company would receive $2.17 per MMBtu.
A summary of the physical natural gas sales floors that the Company had in
place at December 31, 1999, is as follows:
Cost of
Floor Price Transaction
Volume Term (per MMBtu) (per MMBtu)
------------------- ------------------------ ------------ -----------
5,000 MMBtu per day January 1 - May 31, 2000 $2.16 $0.1888
3,000 MMBtu per day January 1 - March 31, 2000 2.31 0.1940
1,000 MMBtu per day January 1 - March 31, 2000 2.34 0.2000
2,000 MMBtu per day April 1 - May 31, 2000 2.16 0.1900
1,000 MMBtu per day April 1 - May 31, 2000 2.21 0.2000
1,000 MMBtu per day April 1 - May 31, 2000 2.08 0.1400
The Company also had two physical crude oil collars in place at December 31,
1999. From January 1, 2000 to April 30, 2000, the Company was guaranteed a
minimum price of $13.55 per Bbl and the purchaser was guaranteed a maximum
price of $16.80 per Bbl covering production of 1,000 Bbls per day. There was no
premium paid to the Company or the purchaser under this collar arrangement.
From May 1, 2000 to April 30, 2001, the Company will pay a purchaser a premium
of $0.70 per Bbl for 1,000 Bbls per day and is guaranteed a minimum price of
$16.30 per Bbl and the purchaser is guaranteed a maximum price of $20.85 per
Bbl.
F-12
17
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On December 20, 1999, the Company entered into a financial hedge in the form
of a costless collar agreement covering production of 10,000 MMBtu of natural
gas per day for the period from June 1, 2000 through May 31, 2001. The Company
is guaranteed to receive a minimum price of $2.27 per MMBtu and will receive no
greater than $2.685 per MMBtu. The counterparty to this hedge is a commercial
bank. This agreement was the only financial hedge that the Company had in place
at December 31, 1999.
Effective January 31, 2000, three of the natural gas sales puts (3,000 MMBtu
per day at $2.31, 2,000 MMBtu per day at $2.16 and 1,000 MMBtu per day at
$2.21) were cancelled at no cost to the Company.
The Company also entered into two other financial hedging arrangements
subsequent to December 31, 1999. A commercial bank is the counterparty to both
of these arrangements. In March 2000, the Company entered into a natural gas
price swap covering 10,000 MMBtu per day of natural gas production from April
2000 through March 2003. Under this price swap agreement, the Company receives
a fixed price of $2.78 per MMBtu through March 2001, $2.64 per MMBtu through
March 2002 and $2.61 per MMBtu through March 2003. In December 2000, the
Company entered into another natural gas price swap covering a total of 5
million MMBtu at various monthly volumes through December 2001. The prices that
the Company will receive under this arrangement are fixed for each month and
range from $5.00 per MMBtu to $9.70 per MMBtu.
Interest Rate Risk Management
In May 2000, the Company entered into an interest rate swap with a bank to
reduce the impact of interest rate fluctuations on its operating results and
cash flows. Under the terms of this agreement, the Company receives a LIBOR
rate of 7.43% (before applicable margins) on $50,000,000 of its borrowings
under the Syndicated Credit Agreement. This swap expires on May 6, 2002.
Fair Value of Financial Instruments
The Company values financial instruments as required by Statement of
Financial Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments. The Company's financial instruments consist of cash and
cash equivalents, accounts receivable, accounts payable and debt. The carrying
amount of cash and cash equivalents, accounts receivable, and accounts payable
approximates fair value because of the short-term nature of these items. The
carrying amount of long-term debt to banks approximates fair value because the
terms of the debt are at market rates.
The Company estimates the value of its subordinated notes payable based on
the estimated borrowing rates currently available to the Company for long-term
loans with similar terms and remaining maturities. The estimated fair value of
the Company's subordinated notes payable at December 31, 1999, was
approximately $39,732,000 compared with a carrying value of $36,300,000.
The fair value of commodity hedges are the amount at which the contract price
differs from the quoted market prices, less the cost of the contract. At
December 31, 1999, the fair value of the physical crude oil collars was a
liability of approximately $2,592,000 and the fair value of the physical
natural gas sales contract was a liability of approximately $263,000. At
December 31, 2000, the fair value of the physical crude oil collar was a
liability of approximately $637,000, the fair value of the fixed price natural
gas sales contract was a liability of approximately $7,363,000 and the fair
value of the financial natural gas price hedges was a liability of
approximately $30,940,000.
The fair value of the interest rate hedge is the amount at which the fixed
interest rate differs from the quoted market rate. At December 31, 2000, the
fair value of the interest rate swap was a liability of approximately $616,000.
F-13
18
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. INCOME TAXES:
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109"). SFAS 109 requires
an asset and liability approach to accounting for income taxes. Under SFAS 109,
deferred income taxes reflect the net tax effects of (1) temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (2) operating loss
and tax credit carryforwards.
The significant items giving rise to the deferred income tax assets and
liabilities at December 31, 1999, are as follows (in thousands):
Deferred Tax Liabilities:
Differences between book and tax basis of property..... $15,025
-------
Deferred Tax Assets:
Net operating loss carryforwards ("NOLs").............. 14,477
Accrued interest on stockholder subordinated notes..... 895
Other.................................................. 114
-------
15,486
Valuation Allowance...................................... (461)
-------
15,025
-------
Net Deferred Tax Liability............................... $ --
=======
A reconciliation of the Federal statutory income tax rate to the effective
rate is as follows:
Statutory income tax rate.................................. 35.0 %
State income tax........................................... 3.9
Permanent differences...................................... 0.5
Utilization of NOLs not previously benefited.............. (39.4)
-------
-- %
=======
At December 31, 1999, the Company had a net operating loss carryforward of
approximately $37,215,000, which is available to offset taxable income in
future years. The net operating loss carryforward will begin to expire in 2011.
8. SIGNIFICANT ACQUISITIONS:
On March 31, 1999, the Company acquired certain oil and gas properties in
Oklahoma for approximately $90,000,000 in cash. If this acquisition had been
consummated as of January 1, 1999, the Company's unaudited pro forma revenues
and net income for the year ended December 31, 1999, would have been as shown
below; however, such pro forma information is not necessarily indicative of
what actually would have occurred had the transaction occurred on such date.
(unaudited)
Revenues (in thousands)................................... $36,914
Net income (loss) (in thousands).......................... 1,042
F-14
19
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On March 31, 2000, the Company acquired certain oil and gas properties in
Oklahoma, Texas, New Mexico, Kansas and Colorado for approximately $31,500,000
in cash. If this acquisition had been consummated as of January 1, 1999, the
Company's unaudited pro forma revenues and net income for the year ended
December 31, 1999, would have been as shown below; however, such pro forma
information is not necessarily indicative of what actually would have occurred
had the transaction occurred on such date.
(unaudited)
Revenues (in thousands)................................... $39,967
Net income (in thousands)................................. 654
9. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consisted of the following at December 31, 1999 (in
thousands):
Lease operating expenses................................... $ 608
Compensation and benefits.................................. 1,235
Capital expenditures....................................... 884
Other...................................................... 76
------
$2,803
======
10. QUARTERLY RESULTS (UNAUDITED):
The following is a summary of the quarterly results of operations for the
year ended December 31, 1999 (in thousands):
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Revenues.................. $2,589 $8,908 $10,404 $10,793
Operating income.......... 2 2,516 3,129 3,044
Net income (loss)......... (279) 498 1,127 964
F-15
20
LARIAT PETROLEUM, INC. AND SUBSIDIARY
SUPPLEMENTAL FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES - UNAUDITED
11. SUPPLEMENTAL FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES:
Capitalized Costs and Costs Incurred Relating to Oil and Gas Producing
Activities
The Company's net investment in oil and gas properties at December 31, 1999,
was as follows (in thousands):
Proved properties being amortized........................ $133,653
Unproved properties not being amortized.................. 17,004
--------
Total capitalized costs................................ 150,657
--------
Less - accumulated depreciation, depletion and
amortization........................................... 15,677
--------
Net capitalized costs.................................... $134,980
========
The following sets forth certain information with respect to costs incurred
(exclusive of general support facilities) in the Company's oil and gas
activities during 1999 (in thousands):
Acquisitions:
Proved properties...................................... $ 80,135
Unproved properties.................................... 13,630
Exploratory.............................................. 5,685
Development.............................................. 7,239
--------
Total costs incurred............................... $106,689
========
Estimated Quantities of Proved Oil and Gas Reserves (unaudited)
Proved reserves are estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves are
those which are expected to be recovered through existing wells with existing
equipment and operating methods. The following is an analysis of the Company's
proved oil and gas reserves, all of which are located in the United States:
Oil Gas
(MBbls) (MMcf)
-------- --------
Proved reserves at December 31, 1998............ 258 42,315
Revisions of previous estimates................. 216 (1,267)
Extensions, discoveries and other additions..... 503 9,388
Production...................................... (482) (11,228)
Purchase of reserves in place................... 7,776 85,989
Sales of reserves in place...................... -- (166)
----- -------
Proved reserves at December 31, 1999............ 8,271 125,031
===== =======
Proved developed reserves at December 31, 1999... 6,184 105,430
===== =======
F-16
21
LARIAT PETROLEUM, INC. AND SUBSIDIARY
SUPPLEMENTAL FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES - UNAUDITED - (Continued)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves (unaudited)
The Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves ("Standardized Measure") is a disclosure
requirement under Statement of Financial Accounting Standards No. 69,
Disclosures About Oil and Gas Producing Activities ("SFAS 69"). The
Standardized Measure does not purport to present the fair market value of
proved oil and gas reserves. This would require consideration of expected
future economic and operating conditions which are not taken into account in
calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by
applying year end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year end proved reserves. Future cash
inflows were reduced by estimated future production, development and
abandonment costs based on year end costs to determine pre-tax cash inflows.
Future income taxes were computed by applying the statutory tax rate to the
excess of pre-tax cash inflows over the Company's tax basis in the associated
proved oil and gas properties. Future net cash inflows after income taxes were
discounted using a 10 percent annual discount rate to arrive at the
Standardized Measure.
Set forth below is the Standardized Measure relating to proved oil and gas
reserves at December 31, 1999 (in thousands):
Future cash inflows........................................ $470,182
Future production costs.................................... 134,058
Future development and abandonment costs................... 30,330
--------
Future net cash inflows before income tax expense.......... 305,794
Future income tax expense.................................. 67,124
--------
Future net cash flows...................................... 238,670
10 percent annual discount for estimated timing of
cash flows............................................... 113,331
--------
Standardized Measure of discounted future net cash flows... $125,339
========
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves (unaudited)
The following is an analysis of the changes in the Standardized Measure
during 1999 (in thousands):
Standardized Measure, December 31, 1998................... $ 32,489
Increases (decreases) -
Sales, net of production costs.......................... (25,918)
Net change in sales price, net of production costs...... 15,147
Discoveries and extensions, net of related future
development and production costs...................... 13,368
Changes in estimated future development costs........... 2,458
Development costs incurred.............................. 4,105
Revisions of previous quantity estimates................ 29
Accretion of discount................................... 3,598
Net change in income taxes.............................. (31,758)
Purchase of reserves in place........................... 132,071
Sales of reserves in place.............................. (92)
Timing of production of reserves and other.............. (20,158)
--------
Standardized Measure, December 31, 1999................... $125,339
========
F-17
22
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. SUBSEQUENT EVENT:
On January 23, 2001, Newfield Exploration Company ("Newfield") acquired all
of the outstanding capital stock of the Company by merging the Company with and
into Newfield Exploration Mid-Continent Inc., a wholly owned subsidiary of
Newfield. The total consideration for the acquisition was approximately $333
million, inclusive of the assumption of debt and certain other obligations of
the Company. The total consideration consisted of approximately 1.9 million
shares of Newfield's stock with a value, based on the closing price on January
22, of $68 million and $265 million in cash.
F-18
23
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(unaudited)
(in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 1,944
Accounts receivable -
Oil and gas sales............................................... 12,454
Joint operations and other...................................... 5,800
Prepaid expenses and other current assets......................... 3,908
--------
Total current assets...................................... 24,106
--------
Property and equipment, at cost:
Oil and gas properties, full cost method.......................... 216,552
Other............................................................. 3,429
--------
219,981
Less - accumulated depreciation, depletion and amortization....... 29,316
--------
190,665
Other assets........................................................ 489
--------
Total assets.............................................. $215,260
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revenue payable................................................... $ 9,321
Accounts payable - trade.......................................... 1,004
Accrued interest.................................................. 693
Natural gas imbalance............................................. 1,048
Other accrued liabilities......................................... 6,008
--------
Total current liabilities................................. 18,074
--------
Long-term debt...................................................... 109,992
--------
Stockholder subordinated notes payable.............................. 38,767
--------
Deferred income taxes............................................... 3,210
--------
Commitments and contingencies
Stockholders' equity:
Common stock -
Series A, $0.01 par value, 370,000 shares authorized,
368,070 shares issued and outstanding......................... 4
Series B, $0.01 par value, 463,250 shares authorized,
no shares issued.............................................. --
Additional paid-in capital........................................ 40,225
Retained earnings................................................. 4,988
--------
Total stockholders' equity................................ 45,217
--------
Total liabilities and stockholders' equity................ $215,260
========
The accompanying notes are an integral part of this balance sheet.
F-19
24
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(unaudited)
(in thousands, except share and per share amounts)
Oil and gas sales............................................ $44,187
-------
Operating expenses:
Lease operating............................................ 5,284
Production taxes........................................... 3,310
Depreciation, depletion and amortization................... 12,962
General and administrative................................. 4,984
-------
Total operating expenses........................... 26,540
-------
Income from operations....................................... 17,647
Other income(expenses):
Interest and other income.................................. 159
Interest expense........................................... (8,345)
-------
(8,186)
-------
Income before income taxes................................... 9,461
Income taxes:
Current.................................................... --
Deferred................................................... 3,210
-------
3,210
-------
Net income................................................... $ 6,251
=======
Earnings per common share:
Basic...................................................... $ 16.99
=======
Diluted.................................................... $ 15.25
=======
Weighted average common shares outstanding:
Basic...................................................... 367,958
=======
Diluted.................................................... 409,966
=======
The accompanying notes are an integral part of this statement.
F-20
25
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(unaudited)
(in thousands, except share amounts)
SERIES A RETAINED
COMMON STOCK ADDITIONAL EARNINGS /
--------------- PAID-IN (ACCUMULATED
SHARES VALUE CAPITAL DEFICIT) TOTAL
------- ----- ---------- ------------ -------
BALANCE, December 31, 1999........ 367,870 $ 4 $40,205 $(1,263) $38,946
Exercise of stock options....... 200 -- 20 -- 20
Net income...................... -- -- -- 6,251 6,251
------- --- ------- ------- --------
BALANCE, September 30, 2000....... 368,070 $ 4 $40,225 $ 4,988 $45,217
======= === ======= ======= =======
The accompanying notes are an integral part of this statement.
F-21
26
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(unaudited)
(in thousands)
Cash flows from operating activities:
Net income............................................... $ 6,251
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation, depletion and amortization............. 12,962
Deferred income taxes................................ 3,210
Interest on Stockholder subordinated notes........... 2,468
Other non-cash charges............................... 39
---------
24,930
Changes in assets and liabilities -
Increase in receivables............................ (11,322)
Increase in other current assets................... (50)
Increase in payables and accruals.................. 8,649
---------
Net cash provided by operating activities........ 22,207
---------
Cash flows from investing activities:
Capital expenditures -
Oil and gas properties................................. (61,270)
Other.................................................. (1,446)
Prepayment of drilling costs............................. (4,847)
---------
Net cash used in investing activities............ (67,563)
---------
Cash flows from financing activities:
Advances on credit facility.............................. 44,500
Payments on credit facility.............................. (2,000)
---------
Net cash provided by financing activities........ 42,500
---------
Decrease in cash and cash equivalents...................... (2,856)
Cash and cash equivalents, beginning of period............. 4,800
---------
Cash and cash equivalents, end of period................... $ 1,944
=========
Supplemental information of cash paid during the period for:
Interest................................................. $ 5,788
=========
Income taxes............................................. $ --
=========
The accompanying notes are an integral part of this statement.
F-22
27
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(unaudited)
1. GENERAL:
The accompanying interim financial statements are unaudited. The consolidated
financial statements include the accounts of Lariat Petroleum, Inc. and its
wholly-owned subsidiary, Anadarko Geophysical Exploration, L.L.C.
(collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. Management believes that
all material adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation have been made. These financial statements
and notes should be read in conjunction with the 1999 audited financial
statements and related notes contained herein.
2. SIGNIFICANT ACCOUNTING POLICIES:
Depreciation, Depletion and Amortization
The Company computes the provision for depreciation, depletion and
amortization ("DD&A") of oil and gas properties using the units of production
method based upon production and estimates of proved reserve quantities.
Unevaluated costs and related carrying costs are excluded from the amortization
base until the properties associated with these costs are evaluated. The
amortization base includes estimated future development costs and
dismantlement, restoration and abandonment costs, net of estimated salvage
values. DD&A per equivalent Mcf of the Company's oil and gas properties was
$0.84 for the nine months ended September 30, 2000.
Earnings Per Share
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted
earnings per common share were computed assuming the exercise of all dilutive
options, as determined by applying the treasury stock method.
3. LONG-TERM DEBT:
The Company had a credit agreement with certain banks (the "Syndicated Credit
Agreement"). Total outstanding advances at September 30, 2000 were $109,992,400
at an average interest rate of 8.62%.
In connection with the transaction discussed in Note 5, on January 23, 2001,
all outstanding borrowings under the Syndicated Credit Agreement and
outstanding principal and interest related to the stockholder subordinated
notes payable were repaid. The Syndicated Credit Agreement and the agreement
for the issuance of subordinated notes were terminated.
4. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consisted of the following at September 30, 2000,
(in thousands):
Lease operating expenses................................... $1,372
Compensation and benefits.................................. 1,358
Capital expenditures....................................... 3,087
Other...................................................... 191
------
$6,008
======
F-23
28
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. SUBSEQUENT EVENT:
On January 23, 2001, Newfield Exploration Company ("Newfield") acquired all
of the outstanding capital stock of the Company by merging the Company with and
into Newfield Exploration Mid-Continent Inc., a wholly owned subsidiary of
Newfield. The total consideration for the acquisition was approximately $333
million, inclusive of the assumption of debt and certain other obligations of
the Company. The total consideration consisted of approximately 1.9 million
shares of Newfield's stock with a value, based on the closing price on January
22, of $68 million and $265 million in cash.
F-24
29
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited)
The following unaudited pro forma combined statements of income for the year
ended December 31, 1999 and the nine months ended September 30, 2000 give
effect to the acquisition of Lariat Petroleum, Inc. ("Lariat Petroleum) in a
transaction to be accounted for as a purchase, as if the acquisition had
occurred on January 1, 1999. The accompanying unaudited pro forma combined
balance sheet as of September 30, 2000 includes the acquisition of Lariat
Petroleum as if such acquisition had occurred on September 30, 2000.
Also included in the unaudited pro forma combined statements of income for the
year ended December 31, 1999 and the nine months ended September 30, 2000 are
adjustments that give effect to the acquisition of three producing properties
in South Texas from Headington Oil Company L.P. in a transaction accounted for
as a purchase. The Headington Acquisition closed on February 25, 2000. The
purchase price of Headington is included in the historical balance sheet of
Newfield in the accompanying unaudited pro forma combined balance sheet as of
September 30, 2000 and its results of operations from February 25, 2000 through
September 30, 2000 are included in the historical results for Newfield in the
accompanying unaudited pro forma combined statement of operations for the
period ended September 30, 2000.
These unaudited pro forma financial statements should be read in conjunction
with the historical financial statements and notes thereto of Newfield and
Lariat Petroleum and are not necessarily indicative of the results that
actually would have occurred had the transaction been in effect on the dates or
for the periods indicated, or of results that may occur in the future.
In the fourth quarter of 2000, subsequent to the periods presented in the
accompanying pro forma financial statements, Newfield will adopt SEC Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101) and Emerging Issues Task Force No. 00-10, Accounting for Shipping and
Handling Fees and Costs (EITF 00-10). The adoption of SAB 101 will require
Newfield to report crude oil inventory associated with its Australian offshore
operations at lower of cost or market, which is a change from Newfield's
historical policy of recording such inventory at market value on the balance
sheet date, net of estimated costs to sell. The adoption of SAB 101 will be
reported as a cumulative effect adjustment in the fourth quarter of 2000. Had
the provisions of SAB 101 been in effect for the periods presented herein,
income from operations reported on the accompanying pro forma statements of
operations would have been $66.8 million and $153.7 million for the year ended
December 31, 1999 and the nine months ended September 30, 2000, respectively.
Current assets and stockholders equity reported on the accompanying pro forma
combined balance sheet as of September 30, 2000 would have been $177.3 million
and $538.9 million, respectively. The adoption of EITF 00-10 will require
Newfield to reclassify third party costs incurred to transport production to
its respective sales point, which costs have historically been netted against
the related revenues, to cost of sales for all periods presented. Accordingly,
Newfield will report higher revenues with a corresponding increase in cost of
sales. Newfield is still quantifying the effect of EITF 00-10 in prior periods,
however, the amounts are not expected to be material and will not change
previously reported income from operations or net income.
F-25
30
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME (Unaudited)
(In thousands, except share and per share data)
Year Ended December 31, 1999
----------------------------------------------------------------------------------
Pro Forma Adjustments Pro Forma Adjustments
----------------------- ----------------------
Headington Lariat
Historical Properties Adjustments Pro Forma Petroleum Adjustments Pro Forma
----------- ---------- ----------- --------- --------- ----------- ---------
Oil and gas revenues. . . . . . . . . . . . . $281,967 $29,444 (F) $311,411 $32,694 (A) $344,105
Operating expenses:
Lease operating . . . . . . . . . . . . . . . 47,776 3,998 (F) 51,774 6,776 (A) 58,550
Depreciation, depletion and amortization. . . 152,644 16,981 (B) 169,625 $24,628 (B) 194,253
General and administrative (exclusive of
stock compensation) . . . . . . . . . . . . 14,405 14,405 4,502 (A) 18,907
Stock compensation. . . . . . . . . . . . . . 1,999 1,999 1,999
------- ------ ------- ------ --------
Total operating expenses. . . . . . . . . . . 216,824 3,998 237,803 11,278 273,709
------- ------ ------- ------ --------
Income from operations. . . . . . . . . . . . 65,143 25,446 73,608 21,416 70,396
Other income (expenses) . . . . . . . . . . . (13,128) (6,140)(G) (19,268) 168 (15,962)(C) (35,062)
------- ------- ------ --------
Income before income taxes. . . . . . . . . . 52,015 54,340 21,584 35,334
Income tax provision. . . . . . . . . . . . . 18,811 814 (D) 19,625 (6,652)(D) 12,973
------- ------- -------
Net income. . . . . . . . . . . . . . . . . . $ 33,204 $34,715 $ 22,361
======= ======= =======
Basic earning per common share. . . . . . . . $0.81 $0.84 $0.52
===== ===== =====
Diluted earning per common share. . . . . . . $0.79 $0.82 $0.51
===== ===== =====
Weighted average number of shares
outstanding for basic earnings per share . . 41,194,021 41,194,021 1,906,530(E) 43,100,551
========== ========== ========= ==========
Weighted average number of shares
outstanding for diluted earnings per share . 42,293,865 42,293,865 1,906,530(E) 44,200,395
========== ========== ========= ==========
The accompanying notes are an integral part of the
unaudited pro forma combined financial statements.
F-26
31
NEWFIELD EXPLORATION COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited)
The pro forma adjustments for the pro forma combined statement of income for
the year ended December 31, 1999 are described as follows:
(A) Reflects the recognition of revenues and operating expenses of Lariat
Petroleum for the year ended December 31, 1999.
(B) Reflects additional estimated depreciation, depletion and amortization
attributable to the acquisitions as if such acquisitions had occurred on
January 1, 1999. The additional depreciation, depletion and amortization
was calculated on the unit-of-production method based on pro forma
capitalized costs and estimated future development, dismantlement and
abandonment costs and estimates of total pro forma proved reserves.
(C) Reflects additional interest expense of $18.6 million (less capitalized
interest of $2.6 million for the portion of the purchase price allocated
to unproved properties) as if the Company incurred borrowings of
approximately $265 million under its credit facility to fund a portion of
the Lariat Petroleum purchase price. The applicable interest rate on the
credit facility was 6.94% at December 31, 1999.
A 1/8 percent variance in the assumed interest rate would change total pro
forma interest expense by approximately $288,000.
(D) Reflects pro forma adjustments to the income tax provision, assuming a 35
percent rate, based on the pro forma change in net pre-tax income.
(E) Reflects the issuance of 1,906,530 shares of Newfield stock to fund a
portion of the purchase price of Lariat Petroleum as if the acquisition
had occurred on January 1, 1999.
(F) Reflects the recognition of revenues and operating expenses of the
Headington Properties for the year ended December 31, 1999.
(G) Reflects additional interest expense of $7.6 million (less capitalized
interest of $1.5 million for the portion of the purchase price allocated
to unproved properties) as if the Company incurred borrowings of
approximately $110 million under its credit facility to fund a portion of
the Headington Properties purchase price. The applicable interest rate on
the credit facility was 6.94% at December 31, 1999.
A 1/8 percent variance in the assumed interest rate would change total pro
forma interest expense by approximately $138,000.
F-27
32
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME (Unaudited)
(In thousands, except share and per share data)
Nine Months Ended September 30, 2000
----------------------------------------------------------------------------------
Pro Forma Adjustments Pro Forma Adjustments
----------------------- ----------------------
Headington Lariat
Historical Properties Adjustments Pro Forma Petroleum Adjustments Pro Forma
----------- ---------- ----------- --------- --------- ----------- ---------
Oil and gas revenues. . . . . . . . . . . . . $365,180 $5,500 (F) $370,680 $44,187 (A) $414,867
Operating expenses:
Lease operating . . . . . . . . . . . . . . . 53,107 506 (F) 53,613 8,594 (A) 62,207
Depreciation, depletion and amortization. . . 139,140 $2,452 (G) 141,592 $24,616 (B) 166,208
Ceiling test writedown. . . . . . . . . . . . 503 503 503
General and administrative (exclusive of
stock compensation) . . . . . . . . . . . . 20,639 20,639 4,984 (A) 25,623
Stock compensation. . . . . . . . . . . . . . 2,262 2,262 2,262
------- ------ ------- ------ --------
Total operating expenses. . . . . . . . . . . 215,651 506 218,609 13,578 256,803
------- ------ ------- ------ --------
Income from operations. . . . . . . . . . . . 149,529 4,994 152,071 30,609 158,064
Other income (expenses) . . . . . . . . . . . (13,120) (958)(H) (14,078) 159 (12,403)(C) (26,322)
------- ------- ------ --------
Income before income taxes. . . . . . . . . . 136,409 137,993 30,768 131,742
Income tax provision. . . . . . . . . . . . . 45,387 554 (D) 45,941 (2,188)(D) 43,753
------- ------- -------
Net income. . . . . . . . . . . . . . . . . . $ 91,022 $92,052 $ 87,989
======= ======= =======
Basic earning per common share. . . . . . . . $2.15 $2.18 $1.99
===== ===== =====
Diluted earning per common share. . . . . . . $2.03 $2.05 $1.87
===== ===== =====
Weighted average number of shares
outstanding for basic earnings per share . . 42,259,827 42,259,827 1,906,530(E) 44,166,357
========== ========== ========= ==========
Weighted average number of shares
outstanding for diluted earnings per share . 47,157,527 47,157,527 1,906,530(E) 49,064,057
========== ========== ========= ==========
The accompanying notes are an integral part of the
unaudited pro forma combined financial statements.
F-28
33
NEWFIELD EXPLORATION COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited)
The pro forma adjustments for the pro forma combined statement of income for
the nine months ended September 30, 2000 are described as follows:
(A) Reflects the recognition of revenues and operating expenses of Lariat
Petroleum for the nine months ended September 30, 2000.
(B) Reflects additional estimated depreciation, depletion and amortization
attributable to the acquisition during the nine months ended September 30,
2000 as if such acquisition had occurred on January 1, 1999. The
additional depreciation, depletion and amortization was calculated on the
unit-of-production method based on pro forma capitalized costs and
estimated future development, dismantlement and abandonment costs and
estimates of total pro forma proved reserves.
(C) Reflects additional interest expense during the nine months ended
September 30, 2000 of $14.4 million (less capitalized interest of $2.0
million for the portion of the purchase price allocated to unproved
properties) as if the Company incurred borrowings of approximately $265
million under its credit facility to fund a portion of the Lariat
Petroleum purchase price. The applicable interest rate on the credit
facility was 7.19% at September 30, 2000.
A 1/8 percent variance in the assumed interest rate would change total pro
forma interest expense by approximately $216,000.
(D) Reflects pro forma adjustments to the income tax provision, assuming a 35
percent rate, based on the pro forma change in net pre-tax income.
(E) Reflects the issuance of 1,906,530 shares of Newfield stock to fund a
portion of the purchase price of Lariat as if the acquisition had occurred
on January 1, 1999.
(F) Reflects the recognition of revenues and operating expenses of the
Headington Properties for the period from January 1, 2000 through February
25, 2000, the closing date of the Headington Properties acquisition.
(G) Reflects additional estimated depreciation, depletion and amortization
attributable to the acquisition for the period from January 1, 2000
through February 25, 2000, the closing date of the Headington Properties
acquisition, as if such acquisition had occurred on January 1, 1999. The
additional depreciation, depletion and amortization was calculated on the
unit-of-production method based on pro forma capitalized costs and
estimated future development, dismantlement and abandonment costs and
estimates of total pro forma proved reserves.
(H) Reflects additional interest expense for the period from January 1, 2000
through February 25, 2000, the closing date of the Headington Properties
acquisition, of $1.2 million (less capitalized interest of $0.2 million
for the portion of the purchase price allocated to unproved properties) as
if the Company incurred borrowings of approximately $110 million under its
credit facility to fund a portion of the Headington Properties purchase
price. The applicable interest rate on the credit facility was 7.19% at
September 30, 2000.
A 1/8 percent variance in the assumed interest rate would change total pro
forma interest expense by approximately $21,000.
F-29
34
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED BALANCE SHEET (Unaudited)
(In thousands, except share data)
September 30, 2000
----------------------------------------
Pro Forma
Historical Adjustments Pro Forma
------------ ----------- ----------
ASSETS
Current assets . . . . . . . . . . . . . . . . . . . . $ 161,560 $ 24,414 (C) $ 185,974
Oil and gas properties, net (full cost method) . . . . 795,549 438,258 (E) 1,233,807
Other assets . . . . . . . . . . . . . . . . . . . . . 10,627 10,627
--------- ------- ---------
Total assets. . . . . . . . . . . . . . . . . . . $ 967,736 $462,672 $1,403,408
========= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities. . . . . . . . . . . . . . . . . . $ 127,571 40,769 (C) $ 168,340
Other liabilities. . . . . . . . . . . . . . . . . . . 6,835 7,963 (C) 14,798
Long-term debt . . . . . . . . . . . . . . . . . . . . 162,703 265,000 (A) 427,703
Deferred taxes . . . . . . . . . . . . . . . . . . . . 50,804 80,940 (D) 131,744
--------- ------- ---------
Total long-term liabilities . . . . . . . . . . . 220,342 353,903 574,245
Company - obligated, mandatorily redeemable,
convertible preferred securities of Newfield
Financial Trust I . . . . . . . . . . . . . . . . . . 143,750 143,750
Stockholders' equity . . . . . . . . . . . . . . . . . 476,073 68,000 (B) 544,073
--------- ------- ---------
Total liabilities and stockholders' equity. . . . $ 967,736 $462,672 $1,430,408
========= ======= =========
The accompanying notes are an integral part of the
unaudited pro forma combined financial statements.
F-30
35
NEWFIELD EXPLORATION COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited)
The pro forma adjustments for the pro forma combined balance sheet are
described as follows:
(A) Reflects borrowings under the Company's credit facility of approximately
$265 million. A portion of the proceeds was used to retire approximately
$157 million in long-term obligations of Lariat Petroleum. The remaining
proceeds, along with the issuance of Newfield stock (see item (B) below),
funded the purchase of the net assets of Lariat Petroleum at their
estimated fair value at the acquisition date.
(B) Reflects the issuance of 1,906,530 shares of Newfield stock that, along
with the remaining proceeds from borrowings under the credit facility (see
item (A) above), funded the purchase of the net assets of Lariat Petroleum
at their estimated fair value at the acquisition date.
(C) Reflects working capital of Lariat Petroleum assumed at the acquisition
date.
(D) Reflects deferred taxes associated with the $291 million of purchase price
allocated to producing properties (tax basis of approximately $130
million) net of acquired net operating loss carryforwards of approximately
$42 million that are expected to be fully utilized by Newfield.
(E) Reflects the estimated fair value of producing properties of approximately
$355 million (including a step up for deferred taxes of approximately $64
million) plus approximately $35 million in unproved properties.
F-31
36
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED SUPPLEMENTARY OIL AND GAS DISCLOSURES (Unaudited)
The following pro forma estimated reserve quantities show the effect of the
acquisitions of the Headington Properties and Lariat Petroleum as of December
31, 1999:
Headington Lariat
Historical Properties Pro Forma Petroleum Pro Forma
---------- ---------- --------- --------- ---------
December 31, 1999:
Proved:
Oil and condensate (MBbls). . . . . 25,770 1,448 27,218 8,271 35,489
Gas (MMcf). . . . . . . . . . . . . 440,173 104,648 544,821 125,031 669,852
Proved developed:
Oil and condensate (MBbls). . . . . 23,256 746 24,002 6,184 30,186
Gas (MMcf). . . . . . . . . . . . . 376,820 48,873 425,693 105,430 531,123
F-32
37
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED SUPPLEMENTARY OIL AND GAS DISCLOSURES (Unaudited)
The following pro forma estimated standardized measure of discounted future
net cash flows shows the effect of the acquisitions of the Headington
Properties and Lariat Petroleum as of December 31, 1999:
Headington Lariat
Historical Properties Pro Forma Petroleum Pro Forma
----------- ---------- --------- --------- ---------
(in thousands of dollars)
December 31, 1999:
Future cash inflows. . . . . . . . . . . . . . . . $1,708,520 $287,532 $1,996,052 $470,182 $2,466,234
Less related future:
Production costs . . . . . . . . . . . . . . . (334,262) (27,024) (361,286) (134,058) (495,344)
Development and abandonment costs. . . . . . . (236,726) (33,483) (270,209) (30,330) (300,529)
---------- -------- ---------- -------- ----------
Future net cash flows before income taxes. . . . . 1,137,532 227,025 1,364,557 305,794 1,670,351
10% annual discount for estimating timing of
cash flows. . . . . . . . . . . . . . . . . . . . (224,239) (76,775) (301,014) (145,204) (446,218)
---------- -------- ---------- -------- ----------
Standardized measure of discounted future
net cash flows before income taxes. . . . . . . . 913,293 150,250 1,063,543 160,590 1,224,133
Future income tax expense, net of 10% annual
discount. . . . . . . . . . . . . . . . . . . . . (180,774) (19,695) (200,469) (35,251) (235,720)
---------- -------- ---------- -------- ----------
Standardized measure of discounted future
net cash flows. . . . . . . . . . . . . . . . . . $ 732,519 $130,555 $ 863,074 $125,339 $ 988,413
========== ======== ========= ======== ==========
F-33
38
EXHIBIT INDEX
Exhibit
No.
10.2.1 Credit Agreement, dated as of January 23, 2001, among Newfield, The
Chase Manhattan Bank, as Agent, and the banks signatory thereto (the
"Credit Agreement")
10.2.2 First Amendment Agreement, dated January 31, 2001,
amending the Credit Agreement
23.1 Consent of Arthur Andersen LLP