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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________
COMMISSION FILE NUMBER 1-9019
UNION TEXAS PETROLEUM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0040040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1330 POST OAK BLVD.
HOUSTON, TEXAS 77056
(Address of principal
executive offices
and zip code)
(713) 623-6544
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of July 21, 1995, there were 87,756,733 shares of Union Texas Petroleum
Holdings, Inc. $.05 par value Common Stock issued and outstanding.
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FORM 10-Q
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1995 1994
---------- ------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,687 $ 8,389
Accounts and notes receivable, less allowance for doubtful accounts . . . . . 73,262 54,773
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,252 43,228
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . 45,437 30,675
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 173,638 137,065
Equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,846 114,505
Property, plant and equipment, at cost, less accumulated
depreciation, depletion and amortization* . . . . . . . . . . . . . . . . . . 1,282,175 1,286,278
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,894 6,786
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,577,553 $1,544,634
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . $ 2,292 $ 2,292
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,603 106,032
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,582 89,281
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,779 48,069
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 34,012 41,862
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 252,268 287,536
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430,362 430,085
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363,032 365,777
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,451 111,737
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,161,113 1,195,135
---------- ----------
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,391 4,391
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,408 19,889
Cumulative foreign exchange translation adjustment and other . . . . . . . . (59,108) (65,476)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452,817 394,806
Common stock held in treasury, at cost:
57,550 shares at June 30, 1995 and 221,565 shares at
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,068) (4,111)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 416,440 349,499
---------- ----------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $1,577,553 $1,544,634
========== ==========
* The Company follows the successful efforts method of accounting for oil and
gas activities.
The accompanying notes are an integral part of this financial statement.
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FORM 10-Q
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
-------- --------
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Sales and operating revenues . . . . . . . . . . . . . $ 200,425 $ 145,608 $ 439,982 $ 339,705
Interest income and other revenues . . . . . . . . . . (377) 30 330 123
Net earnings of equity investee . . . . . . . . . . . 5,533 3,392 10,941 10,179
--------- ---------- --------- ----------
205,581 149,030 451,253 350,007
Costs and other deductions:
Product costs and operating expenses . . . . . . . . . 74,386 69,892 153,563 133,945
Exploration expenses . . . . . . . . . . . . . . . . . 22,099 11,443 37,649 24,327
Depreciation, depletion and amortization . . . . . . . 38,102 28,213 84,647 75,042
Selling, general and administrative expenses . . . . . 6,111 6,260 12,281 11,904
Interest expense . . . . . . . . . . . . . . . . . . . 5,242 3,355 10,510 4,538
--------- ---------- --------- ----------
Income before income taxes . . . . . . . . . . . . . . . . 59,641 29,867 152,603 100,251
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 39,539 21,571 85,825 65,340
--------- ---------- --------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 20,102 $ 8,296 $ 66,778 $ 34,911
========= ========== ========= ==========
Earnings per share of common stock . . . . . . . . . . . . $ .23 $ .09 $ .76 $ .40
========= ========== ========= ==========
Dividends per share of common stock . . . . . . . . . . . . $ .05 $ .05 $ .10 $ .10
========= ========== ========= ==========
Weighted average number of shares outstanding (000s) . . . 87,735 87,711 87,687 87,696
========= ========== ========= ==========
The accompanying notes are an integral part of this financial statement.
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FORM 10-Q
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,778 $ 34,911
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . 84,647 75,042
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (3,192) 685
Net income of equity investee . . . . . . . . . . . . . . . . . . . . . . (10,941) (10,179)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,566 2,260
----------- ---------
Net cash provided by operating activities before changes in other
assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . 138,858 102,719
Increase in accounts and notes receivable . . . . . . . . . . . . . . . . (18,431) (14,129)
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . 3,226 (4,100)
Increase in prepaid expenses and other assets . . . . . . . . . . . . . . (16,281) (2,250)
Increase (decrease) in accounts payable and other liabilities . . . . . . (8,711) 7,616
Increase (decrease) in income taxes payable . . . . . . . . . . . . . . . 2,202 (30,007)
----------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . 100,863 59,849
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . (60,788) (63,790)
Cash provided (required) by equity investee . . . . . . . . . . . . . . . . 13,600 (6,950)
Net cash required by sale of businesses . . . . . . . . . . . . . . . . . . (772) (1,091)
----------- ---------
Net cash required by investing activities . . . . . . . . . . . . . . . . (47,960) (71,831)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term notes . . . . . . . . . . . . . . . 197,713
Payments to settle long-term debt . . . . . . . . . . . . . . . . . . . . . (36,146)
Net payments under credit facilities . . . . . . . . . . . . . . . . . . . . (201,353) (20,000)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,767) (8,770)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . 311
Proceeds from issuance of treasury stock . . . . . . . . . . . . . . . . . . 1,407
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . (2,779)
Net (payments) proceeds from short-term borrowings . . . . . . . . . . . . . (35,605) 70,434
----------- ---------
Net cash (required) provided by financing activities . . . . . . . . . . (46,605) 3,050
----------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 6,298 (8,932)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . 8,389 18,143
----------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . $ 14,687 $ 9,211
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) . . . . . . . . . . . . . . . . . . $ 11,906 $ 5,645
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,197 87,738
The accompanying notes are an integral part of this financial statement.
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FORM 10-Q
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 1 - BASIS OF PRESENTATION - These consolidated financial statements should
be read in the context of the consolidated financial statements and notes
thereto filed with the Commission in the Company's 1994 annual report on Form
10-K. In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments, consisting only of normal
adjustments, necessary to present fairly the financial position of Union Texas
Petroleum Holdings, Inc. and its consolidated subsidiaries at June 30, 1995,
and the results of operations and cash flows for the three and six months ended
June 30, 1995 and 1994. The results of operations for the six months ended
June 30, 1995, should not necessarily be taken as indicative of the results of
operations that may be expected for the entire year 1995. Certain prior period
amounts have been reclassified for comparative purposes.
NOTE 2 - ALBA ACQUISITION - On July 18, 1995, the Company, through its
subsidiary, Union Texas Petroleum Limited ("UTPL"), acquired from Oryx UK
Energy Company ("Oryx") their 15.5% working interest in Block 16/26 in the
central United Kingdom North Sea, which includes the Alba field. UTPL paid
Oryx approximately $270 million for the interest. The effective date of the
transaction was July 1, 1995.
NOTE 3 - SECONDARY PUBLIC OFFERING - In May 1995, pursuant to a secondary
public offering registered by the Company under the Securities Act of 1933 as
amended, 11.5 million shares of the 33.3 million shares of the Company's common
stock owned by partnerships affiliated with Kohlberg Kravis Roberts & Co.
("KKR") were sold in the open market. The Company did not receive any proceeds
from the offering.
NOTE 4 - CREDIT FACILITIES - The Company currently has three unsecured bank
credit facilities (the "Credit Facilities"). One of the Credit Facilities is a
$100 million revolver that provides for conversion of amounts outstanding on
April 15, 1996 to a one-year term loan maturing April 15, 1997. Another Credit
Facility is a $450 million revolver that reduces quarterly by $35 million
beginning July 31, 1998, with a final maturity of April 30, 1999. In June
1995, the Company entered into a $100 million revolver that provides for
conversion of amounts outstanding on June 15, 1996 to a one-year term loan
maturing June 15, 1997. In addition to such Credit Facilities, the Company has
the ability to obtain short-term borrowings on uncommitted and unsecured lines
of credit established with several banks.
In May 1995, the Company's indirect subsidiary, Union Texas Britannia Limited,
which is a wholly owned subsidiary of Union Texas Petroleum Limited, entered
into a 150 million pounds sterling secured financing. The financing will be
used to fund the Company's share of the cost of developing the Britannia field
to production.
NOTE 5 - DEBT OFFERINGS - In March 1995, the Company publicly issued $125
million principal amount of 8-3/8% Senior Notes due 2005 (the "8-3/8% Senior
Notes") at an initial public offering price of 99.431%. In April 1995, the
Company publicly issued $75 million principal amount of 8-1/2% Senior Notes due
2007 (the "8-1/2% Senior Notes") at an initial public offering price of
99.658%. The net proceeds from the sale of the 8-3/8% Senior Notes and the
8-1/2% Senior Notes were approximately $123.5 million and $74.2 million,
respectively (after deducting underwriting discount, commissions and offering
expenses). The Company used such proceeds to reduce debt under its existing
credit facility and its uncommitted and unsecured lines of credit.
NOTE 6 - ACCOUNTING PRONOUNCEMENTS RECENTLY ISSUED - In March 1995, the
Financial Accounting Standards Board ("FASB") released Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which set forth the
criteria for impairment of plant, property and equipment and other long-lived
assets. Adoption of the Statement is required for years beginning after
December 15, 1995. The Company is still reviewing the Statement; however, the
Company believes its current policy on oil and gas asset impairment is
consistent with this pronouncement and that the pronouncement will have no
material impact on the Company.
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NOTE 7 - CONTINGENCIES - The Company and its subsidiaries and related companies
are named defendants in a number of lawsuits and named parties in numerous
government proceedings arising in the ordinary course of business. While the
outcome of contingencies, lawsuits or other proceedings against the Company
cannot be predicted with certainty, management expects that any liability, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial statements of the Company.
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UNION TEXAS PETROLEUM HOLDINGS, INC.
With respect to the unaudited consolidated financial information of Union Texas
Petroleum Holdings, Inc. for the three and six month periods ended June 30,
1995 and 1994, Price Waterhouse LLP reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report dated July 25, 1995 appearing
below, states that they did not audit and they do not express an opinion on
that unaudited consolidated financial information. Price Waterhouse LLP has
not carried out any significant or additional audit tests beyond those which
would have been necessary if their report had not been included. Accordingly,
the degree of reliance on their report on such information should be restricted
in light of the limited nature of the review procedures applied. Price
Waterhouse LLP is not subject to the liability provisions of section 11 of the
Securities Act of 1933 for their report on the unaudited consolidated financial
information because that report is not a "report" prepared or certified by
Price Waterhouse LLP within the meaning of sections 7 and 11 of the Act.
REPORT ON REVIEW BY INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Union Texas Petroleum Holdings, Inc.
We have reviewed the accompanying consolidated balance sheet of Union Texas
Petroleum Holdings, Inc. and consolidated subsidiaries as of June 30, 1995 and
the related consolidated statements of operations for the three and six month
periods ended June 30, 1995 and 1994 and of cash flows for the six month
periods ended June 30, 1995 and 1994. This financial information is the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1994, and the related
consolidated statements of operations, of cash flows, and of stockholders'
equity for the year then ended (not presented herein), and in our report dated
January 25, 1995 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of December 31, 1994, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
PRICE WATERHOUSE LLP
Houston, Texas
July 25, 1995
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements, notes, and management's discussion contained in the registrant's
1994 annual report on Form 10-K, and condensed financial statements and notes
contained in this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1994
Net income for the three months ended June 30, 1995, was $20 million, or $.23
per share as compared to net income of $8 million, or $.09 per share reported
for the same period in 1994. The current quarter was favorably impacted by
higher U.S. ethylene margins and sales volumes, higher oil and gas prices,
higher volumes in the U.K. and higher Indonesian LNG volumes, partially offset
by higher exploration expenses.
Sales and operating revenues for the three months ended June 30, 1995, were
$200 million, up from $146 million for the second quarter of 1994.
International revenues totaled $145 million as compared to $109 million for the
second quarter of 1994. In the U.K., sales and operating revenues increased by
$15 million due to higher prices and increased sales volumes. In Indonesia,
sales increased $19 million due to higher LNG volumes and sales prices for LNG
and crude oil. In Pakistan, sales were $3 million above 1994 primarily due to
higher prices and higher crude oil volumes.
Average prices received and volumes sold by the Company's major operations
during the second quarter of 1995 and 1994, respectively, were as follows:
PRICES VOLUMES
(000S PER DAY)
1995 1994 1995 1994
---- ---- ---- ----
Crude oil (barrels):
U.K. $17.79 $14.74 29 26
Pakistan 14.90 13.41 6 5
Indonesia 17.85 15.33 6 6
Indonesian LNG (Mcf) 3.19 2.68 202 170
Pakistan natural gas (Mcf) 1.30 1.10 45 47
U.K. natural gas (Mcf) 2.85 1.65 24 7
U.S. ethylene (pounds) .28 .17 1,298 1,247
Petrochemical revenues totaled $55 million as compared to $36 million in the
second quarter of 1994, while operating profit was $19 million as compared to
$3 million in the prior period. The increase was primarily due to higher
ethylene sales prices, which resulted in an increase in ethylene margins to 16
cents per pound in 1995 vs. 3 cents per pound in 1994. Higher ethylene sales
volumes also contributed to the increased operating profit.
Exploration expenses increased by $11 million primarily due to drilling
expenditures in Argentina and Ireland. Interest expense increased by $2
million during the period due to higher levels of debt and higher interest
rates. The effective tax rate decreased from the prior year due primarily to
the increase in U.S. petrochemical income, which is taxed at lower rates,
partially offset by higher new venture exploration expenses, most of which
generate no tax benefits.
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SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1994
Net income for the six months ended June 30, 1995, was $67 million, or $.76 per
share as compared to net income of $35 million, or $.40 per share reported for
the same period in 1994. The current period was favorably impacted by higher
U.S. ethylene margins and sales volumes and higher oil and gas prices,
partially offset by higher exploration expenses and lower Indonesian volumes.
Sales and operating revenues for the six months ended June 30, 1995, were $440
million, up from $340 million in the prior year. International revenues
totaled $329 million as compared to $272 million for the first six months of
1994. In the U.K., sales and operating revenues increased by $34 million due
to higher prices and increased sales volumes. In Indonesia, sales increased
$18 million as compared to 1994 due to higher crude oil and LNG prices, which
were partially offset by lower volumes. Lower LNG volumes are attributable to
a lower average participation interest in cargoes delivered for the period and
it is anticipated that LNG sales volumes for the remainder of 1995 will
continue to be lower as compared to 1994. In Pakistan, sales were $5 million
above 1994 primarily due to higher prices and higher crude oil volumes.
Average prices received and volumes sold by the Company's major operations
during the first six months of 1995 and 1994, respectively, were as follows:
PRICES VOLUMES
(000S PER DAY)
1995 1994 1995 1994
---- ---- ---- ----
Crude oil (barrels):
U.K. $16.98 $13.83 33 30
Pakistan 14.77 13.10 6 4
Indonesia 17.56 15.01 6 7
Indonesian LNG (Mcf) 3.13 2.70 222 225
Pakistan natural gas (Mcf) 1.30 1.10 44 46
U.K. natural gas (Mcf) 2.96 2.71 34 23
U.S. ethylene (pounds) .28 .16 1,318 1,077
Petrochemical revenues totaled $110 million as compared to $68 million in the
first half of 1994, while operating profit was $38 million as compared to $3
million in the prior period. The increase was primarily due to higher ethylene
sales prices, which resulted in an increase in ethylene margins to 16 cents per
pound in 1995 vs. 2 cents per pound in 1994, and due to higher volumes.
Exploration expenses increased by $13 million primarily due to drilling
expenditures in Argentina and Ireland. Interest expense increased by $6
million during the period due to higher levels of debt and to higher interest
rates. The effective tax rate decreased from the prior year due primarily to
the increase in U.S. petrochemical income, which is taxed at lower rates,
partially offset by higher new venture exploration expenses, most of which
generate no tax benefits.
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FINANCIAL CONDITION
Cash flow from operations: Net cash provided by operating activities was $101
million in the first six months of 1995, an increase of $41 million from the
same period in the prior year. The increase was primarily the result of
improved ethylene margins and sales volumes and higher international oil and
gas prices, partially offset by lower Indonesian volumes.
Ethylene margins have averaged approximately 16 cents per pound in the first
half of 1995. The Company cannot predict the duration of the favorable trends
in the ethylene business. The ethylene business is cyclical and there can be
no assurances that margins will remain at their current levels over the near
term. The prices the Company receives for its ethylene are sensitive to many
factors beyond the control of the Company, such as worldwide and U.S. demand
for petrochemicals, inventory levels, feedstock costs and availability, plant
utilization rates, plant operations and costs and competitive capacity
expansion.
Capital resources: Capital expenditures for the first half of 1995 were $90
million including capitalized interest of $11 million. Capital expenditures for
the first half of 1994 were $64 million including capitalized interest of $9
million. The increase is principally due to development costs for the
Britannia field and increased exploration spending.
On July 18, 1995, the Company, through its subsidiary, Union Texas Petroleum
Limited ("UTPL"), acquired from Oryx UK Energy Company ("Oryx") their 15.5%
working interest in Block 16/26 in the central United Kingdom North Sea, which
includes the Alba field. UTPL paid Oryx approximately $270 million for the
interest. The effective date of the transaction was July 1, 1995. The Company
funded the acquisition under its bank credit facilities and its uncommitted and
unsecured lines of credit. As a result of the acquisition, the Company expects
to record approximately 45 million barrels of oil as proved reserves. The Alba
field commenced production in January 1994. The Company expects to spend about
$25 million to $30 million net over the next five years for future development
expenditures. The Alba field is operated by Chevron U.K. Ltd.
The Company's plans in the near term are to focus on integrating the interests
in Alba as well as the undeveloped Britannia field acquired in late 1994 into
its existing North Sea program while utilizing any excess cash flow for the
reduction of debt. The Company will also continue to emphasize developing its
core holdings and conducting an active exploration program as well as
controlling costs.
Financing activities: The Company has three unsecured credit facilities (the
"Credit Facilities"). One of the Credit Facilities is a $100 million unsecured
credit agreement with NationsBank of Texas, N.A. ("NationsBank"), as agent,
Bank of America National Trust and Savings Association ("Bank of America") and
Union Bank of Switzerland, Houston Agency ("UBS"), as co-agents, and certain
other banks, that provides for conversion of amounts outstanding on April 15,
1996 to a one-year term loan maturing April 15, 1997. This Credit Facility
replaced a prior $200 million revolver. Another Credit Facility is with
NationsBank, as agent, Bank of America and UBS, as co-agents, and certain other
banks. Initially this Credit Facility was a $350 million revolver that in
April 1995 was amended to increase the amount of the facility to $450 million
and to provide that the amount of the facility would reduce quarterly by $35
million beginning July 31, 1998, with a final maturity of April 30, 1999. The
$450 million revolver allows the Company to obtain up to $300 million of
availability thereunder in U.S. dollar loans that bear interest at a rate
determined in a competitive bid process. Loans under the $450 million revolver
may be made in both pounds sterling and U.S. dollars at the option of the
Company. In June 1995, the Company executed an amendment to eliminate the
total indebtedness restriction under such two Credit Facilities, which was a
$775 million limitation. In June 1995, the Company entered into an additional
$100 million unsecured credit agreement with NationsBank, as agent, and Bank of
America and UBS, as co-agents. This Credit Facility is a revolver that
provides for conversion of amounts outstanding on June 15, 1996 to a one-year
term loan maturing June 15, 1997. Loans under the Credit Facilities bear
interest at floating market rates based on, at the Company's option, the agent
bank's base rate or LIBOR, plus applicable margins, subject to increase in
certain events. Borrowings under the Credit Facilities are guaranteed by
certain subsidiaries of the Company that also guarantee the Company's senior
notes. The Credit Facilities contain restrictive covenants, including
maintenance of certain coverage ratios related to the incurrence of additional
indebtedness and limitations on asset sales and mergers or consolidations. The
covenants also require maintenance of a certain level of stockholders' equity.
Under the terms of the Credit Facilities, the Company may pay dividends and
make stock repurchases, provided that such level of minimum stockholders'
equity is maintained and the Company complies with the other covenants
10
11
in the Credit Facilities. Based on current conditions, the Company expects to
pay dividends without restriction under the Credit Facilities. At June 30,
1995, $116 million was outstanding under the Credit Facilities bearing interest
at a weighted average rate of 6.8% per annum.
At June 30, 1995, $72 million was outstanding under the Company's uncommitted
and unsecured lines of credit. These amounts outstanding bear interest at a
weighted average rate of 7.2% per annum and do not reduce amounts available
under the Company's Credit Facilities.
In May 1995, the Company's indirect subsidiary, Union Texas Britannia Limited
("UTBL"), which is a wholly owned subsidiary of UTPL, entered into a 150
million pounds sterling secured financing from Chemical Bank, NationsBank N.A.
(Carolinas), National Westminster Bank plc and certain other banks. The
financing will be used to fund the Company's share of the cost of developing
the Britannia field to production (including interest and other financing costs
incurred prior to completion and potential cost overruns), and any remaining
availability after completion may, subject to certain coverage ratios being
met, be used for UTBL's general corporate purposes. Except for certain support
by UTPL related to any potential cost overruns in excess of the facility amount
(limited to 30 million pounds sterling), insurance, tax benefits and
administrative services, the lenders' recourse will be limited to the Britannia
field project assets and is nonrecourse to the Company. The financing has a
final maturity in September 2005. At June 30, 1995, 7 million pounds sterling
($11 million) was outstanding under UTBL's financing.
In May 1995, pursuant to a secondary public offering registered by the Company
under the Securities Act of 1933 as amended, 11.5 million shares of the 33.3
million shares of the Company's common stock owned by partnerships affiliated
with Kohlberg Kravis Roberts & Co. ("KKR") were sold in the open market. The
Company did not receive any proceeds from the offering.
In March 1995, the Company publicly issued $125 million principal amount of
8-3/8% Senior Notes due 2005 (the "8-3/8% Senior Notes") at an initial public
offering price of 99.431%. In April 1995, the Company publicly issued $75
million principal amount of 8-1/2% Senior Notes due 2007 (the "8-1/2% Senior
Notes") at an initial public offering price of 99.658%. The net proceeds from
the sale of the 8-3/8% Senior Notes and the 8-1/2% Senior Notes were
approximately $123.5 million and $74.2 million, respectively (after deducting
underwriting discount, commissions and offering expenses). The Company used
such proceeds to reduce debt under its existing credit facility and its
uncommitted and unsecured lines of credit. The Company's $100 million principal
amount of 8.25% Senior Notes due 1999 ("the 8.25% Senior Notes) together with
the 8-1/2% Senior Notes and the 8-3/8% Senior Notes are referred to herein as
the "Senior Notes." The Senior Notes represent general unsecured obligations of
the Company and rank pari passu in right of payment with the Company's
obligations under its Credit Facilities, and senior in right of payment to
subordinated indebtedness, if any, of the Company. The Senior Notes are
guaranteed by the subsidiaries of the Company that are also guarantors under
the Company's Credit Facilities and the two recent issuances contain
restrictive covenants similar to the Company's 8.25% Senior Notes. The Senior
Notes are redeemable at any time, at the option of the Company, in whole or in
part, at a price equal to 100% of their principal amount plus accrued interest
plus a make whole premium relating to the then-prevailing Treasury Yield and
the remaining life of the Senior Notes.
In addition, at the 1995 Annual Meeting of Stockholders held May 10, 1995, the
Company's stockholders approved the authorization of a new class of 15 million
shares of preferred stock. The new preferred stock provides the Company
additional financing flexibility to issue from time to time this form of equity
based on current market conditions.
On April 27, 1994, the Company's Board of Directors authorized the repurchase
of up to 2,000,000 shares of the Company's common stock and pursuant thereto,
the Company had repurchased 307,500 shares as of December 31, 1994. The
repurchased stock will be used for general corporate purposes, including
fulfilling employee benefit program obligations. No repurchases were made by
the Company during the first half of 1995. As of June 30, 1995, 57,550 shares
of common stock were held, at cost, as treasury shares.
11
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Financial condition: In the second quarter of 1995, the Company declared and
paid a dividend of approximately $4.4 million on its common stock. On July 19,
1995, the Company announced a dividend on its common stock of $.05 per share to
stockholders of record as of July 31, 1995, payable on August 15, 1995.
In March 1995, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which set forth the criteria for impairment of plant, property and equipment
and other long-lived assets. Adoption of the Statement is required for years
beginning after December 15, 1995. The Company is still reviewing the
Statement; however, the Company believes its current policy on oil and gas
asset impairment is consistent with this pronouncement and that the
pronouncement will have no material impact on the Company.
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FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company and its subsidiaries and related companies are named defendants in
numerous lawsuits and named parties in numerous governmental proceedings
arising in the ordinary course of business. While the outcome of lawsuits or
other proceedings against the Company cannot be predicted with certainty,
management does not expect these matters to have a material adverse effect on
the financial position of the Company. (See Item 3 in the Company's 1994
annual report on Form 10-K.)
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 10, 1995, the 1995 Annual Meeting of Stockholders of the Company was
held. The following persons were elected as proposed in the proxy solicitation
issued pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, to serve as directors until the next Annual Meeting of Stockholders or
until their successors are elected and qualified: A. Clark Johnson, Stanley P.
Porter, Henry R. Kravis, George R. Roberts, Michael W. Michelson, Saul A. Fox,
Sellers Stough, Richard R. Shinn, James H. Greene, Jr., Edward A. Gilhuly and
Glenn A. Cox. Stockholders ratified the appointment of Price Waterhouse LLP as
the Company's independent accountants for the fiscal year ending December 31,
1995. The stockholders also approved the amendment to the Company's Restated
Certificate of Incorporation to provide for a new class of preferred stock, the
1994 Incentive Plan and the amendment to the 1992 Stock Option Plan.
There were 79,914,814 shares voted for the election of directors with 332,872
withholding votes and no abstentions or broker non-votes. Results by nominated
director were:
VOTED AUTHORITY
FOR WITHHELD
A. Clark Johnson 79,150,234 1,097,452
Stanley P. Porter 79,860,163 387,523
Henry R. Kravis 76,718,269 3,529,417
George R. Roberts 76,723,688 3,523,998
Michael W. Michelson 79,127,436 1,120,250
Saul A. Fox 77,069,033 3,178,653
Sellers Stough 79,864,090 383,596
Richard R. Shinn 79,855,690 391,996
James H. Greene, Jr. 79,129,826 1,117,860
Edward A. Gilhuly 79,126,826 1,120,860
Glenn A. Cox 79,893,331 354,355
There were 80,087,552 shares voted for the ratification of the appointment of
Price Waterhouse LLP as the Company's independent public accountants, with
28,355 shares voted against, 131,779 abstentions and no broker non-votes.
There were 71,869,719 shares voted for the approval of the proposed amendment
to the Restated Certificate of Incorporation of the Company relating to
preferred stock, with 4,786,269 shares voted against, 359,807 abstentions and
3,231,891 broker non-votes.
There were 74,189,858 shares voted for the approval of the 1994 Incentive Plan,
with 5,669,005 shares voted against, 388,823 abstentions and no broker
non-votes.
There were 75,254,028 shares voted for the approval of the proposed amendment
to the 1992 Stock Option Plan, with 4,600,586 shares voted against, 393,072
abstentions and no broker non-votes.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 Third Amendment Agreement dated as of April
24, 1995, to the Amended and Restated
Credit Agreement dated as of May 13, 1994,
as amended, among Union Texas Petroleum
Holdings, Inc., the Banks and Co-Agents
listed therein and NationsBank of Texas,
N.A., as Agent.
10.2 Second Amendment to Amended and Restated
Subsidiary Guaranty Agreement dated as of
April 24, 1995, among Union Texas Petroleum
Energy Corporation, Union Texas Products
Corporation, Union Texas East Kalimantan
Limited, Union Texas International
Corporation and Unistar, Inc., and
NationsBank of Texas, N.A., as Agent.
10.3 $100,000,000 Credit Agreement dated as of
April 24, 1995, among Union Texas Petroleum
Holdings, Inc., the Banks and Co-Agents
listed therein and NationsBank of Texas,
N.A., as Agent.
10.4 Subsidiary Guaranty Agreement dated as of
April 24, 1995, among Union Texas Petroleum
Energy Corporation, Union Texas Products
Corporation, Union Texas East Kalimantan
Limited, Union Texas International
Corporation and Unistar, Inc., and
NationsBank of Texas, N.A., as Agent.
10.5 Fourth Amendment Agreement dated as of June
16, 1995, to the Amended and Restated
Credit Agreement dated as of May 13, 1994,
as amended, among Union Texas Petroleum
Holdings, Inc., the Banks and Co-Agents
listed therein and NationsBank of Texas,
N.A., as Agent.
10.6 First Amendment Agreement dated as of June
16, 1995, to the Credit Agreement dated as
of April 24, 1995, as amended, among Union
Texas Petroleum Holdings, Inc., the Banks
and Co-Agents listed therein and
NationsBank of Texas, N.A., as Agent.
10.7 $100,000,000 Credit Agreement dated as of
June 30, 1995, among Union Texas Petroleum
Holdings, Inc., the Co-Agents listed
therein and NationsBank of Texas, N.A., as
Agent.
10.8 Subsidiary Guaranty Agreement dated as of
June 30, 1995, among Union Texas Petroleum
Energy Corporation, Union Texas Products
Corporation, Union Texas East Kalimantan
Limited, Union Texas International
Corporation and Unistar, Inc., and
NationsBank of Texas, N.A., as Agent.
10.9 Facility Agreement, dated May 26, 1995,
among Union Texas Britannia Limited
("UTBL"), Chemical Bank, as Arranger,
NationsBank, N.A. Carolinas
("NationsBank"), as Facility Agent,
National Westminster Bank plc, as Funding
Agent, and the Co-Arrangers, Technical
Agents, Account Bank and Banks named
therein.
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10.10 Sponsor Direct Agreement, dated May 26,
1995, among Union Texas Petroleum Limited
("UTPL"), UTBL and NationsBank, as Facility
Agent.
10.11 Sponsor Support Agreement, dated May 26,
1995, between UTPL and UTBL.
10.12 Union Texas Petroleum Holdings, Inc. 1994
Incentive Plan.
10.13 First Amendment to Union Texas Petroleum
Holdings, Inc. 1992 Stock Option Plan.
10.14 Sale and Purchase Agreement dated May 31,
1995, between Union Texas Petroleum Limited
and Oryx U.K. Energy Company.
15 Independent Accountants' Awareness Letter.
27.1 Financial Data Schedule for the six-month
period ended June 30, 1995.
(b) Reports on Form 8-K
The Company filed a Form 8-K dated April 10, 1995 to attach a
schedule showing the calculation of the proforma ratio of earnings
to fixed charges with respect to the issuance of $75 million of
8-1/2% Senior Notes due 2007 (the "8-1/2% Notes") and a press
release announcing the pricing of the Company's offering of the
8-1/2% Notes.
The Company filed a Form 8-K dated April 28, 1995 to disclose
certain amendments to its Credit Facilities, to include an
Independent Accountants' Awareness Letter and to attach press
releases announcing the Company's filing of a secondary offering of
certain shares of the Company's stock held by KKR, the Company's
first quarter earnings and an update of the offshore Argentina
drilling program.
The Company filed a Form 8-K dated May 4, 1995 to disclose an
update of the Company's drilling program in the Colville Delta area
of Alaska.
The Company filed a Form 8-K dated May 18, 1995 to attach a form of
U.S. and international underwriting agreements, to attach a
Restated Certificate of Incorporation of the Company, as amended
through May 10, 1995 and to attach a press release reporting the
results of the Company's Annual Stockholders Meeting.
The Company filed a Form 8-K dated June 28, 1995 to disclose the
Company's agreement to acquire Block 16/26 in the North Sea, to
disclose an update on the Company's financing activities and to
attach press releases announcing the pricing and closing of the
secondary offering of 11.5 million shares of the Company's common
stock held by KKR and a conference update of operations activities.
The Company filed a Form 8-K dated July 14, 1995 to disclose
completion of financing on Train G in Indonesia and an update of
the offshore Ireland drilling activities.
The Company filed a Form 8-K dated July 25, 1995 to attach a press
release announcing the Company's second quarter earnings.
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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.
UNION TEXAS PETROLEUM HOLDINGS, INC.
Date: July 27, 1995 By: /s/ DONALD M. MCMULLAN
----------------------
Donald M. McMullan
Vice President and Controller
(Chief Accounting Officer
and officer duly authorized to
sign on behalf of the registrant)
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.1 Third Amendment Agreement dated as of April 24, 1995, to the
Amended and Restated Credit Agreement dated as of May 13,
1994, as amended, among Union Texas Petroleum Holdings,
Inc., the Banks and Co-Agents listed therein and
NationsBank of Texas, N.A., as Agent.
10.2 Second Amendment to Amended and Restated Subsidiary Guaranty
Agreement dated as of April 24, 1995, among Union Texas
Petroleum Energy Corporation, Union Texas Products
Corporation, Union Texas East Kalimantan Limited, Union
Texas International Corporation and Unistar, Inc., and
NationsBank of Texas, N.A., as Agent.
10.3 $100,000,000 Credit Agreement dated as of April 24, 1995,
among Union Texas Petroleum Holdings, Inc., the Banks and
Co-Agents listed therein and NationsBank of Texas, N.A., as
Agent.
10.4 Subsidiary Guaranty Agreement dated as of April 24, 1995,
among Union Texas Petroleum Energy Corporation, Union Texas
Products Corporation, Union Texas East Kalimantan Limited,
Union Texas International Corporation and Unistar, Inc., and
NationsBank of Texas, N.A., as Agent.
10.5 Fourth Amendment Agreement dated as of June 16, 1995, to the
Amended and Restated Credit Agreement dated as of May 13,
1994, as amended, among Union Texas Petroleum Holdings,
Inc., the Banks and Co-Agents listed therein and
NationsBank of Texas, N.A., as Agent.
10.6 First Amendment Agreement dated as of June 16, 1995, to the
Credit Agreement dated as of April 24, 1995, as amended,
among Union Texas Petroleum Holdings, Inc., the Banks and
Co-Agents listed therein and NationsBank of Texas, N.A., as
Agent.
10.7 $100,000,000 Credit Agreement dated as of June 30, 1995,
among Union Texas Petroleum Holdings, Inc., the Co-Agents
listed therein and NationsBank of Texas, N.A., as Agent.
10.8 Subsidiary Guaranty Agreement dated as of June 30, 1995,
among Union Texas Petroleum Energy Corporation, Union Texas
Products Corporation, Union Texas East Kalimantan Limited,
Union Texas International Corporation and Unistar, Inc., and
NationsBank of Texas, N.A., as Agent.
10.9 Facility Agreement, dated May 26, 1995, among Union Texas
Britannia Limited ("UTBL"), Chemical Bank, as Arranger,
NationsBank, N.A. Carolinas ("NationsBank"), as Facility
Agent, National Westminster Bank plc, as Funding Agent, and
the Co-Arrangers, Technical Agents, Account Bank and Banks
named therein.
10.10 Sponsor Direct Agreement, dated May 26, 1995, among Union
Texas Petroleum Limited ("UTPL"), UTBL and NationsBank, as
Facility Agent.
10.11 Sponsor Support Agreement, dated May 26, 1995, between UTPL
and UTBL.
18
Exhibit
Number Description
- ------ -----------
10.12 Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan.
10.13 First Amendment to Union Texas Petroleum Holdings, Inc. 1992
Stock Option Plan.
10.14 Sale and Purchase Agreement dated May 31, 1995, between
Union Texas Petroleum Limited and Oryx U.K. Energy Company.
15 Independent Accountants' Awareness Letter.
27.1 Financial Data Schedule for the six-month period ended June
30, 1995.