EXHIBIT (C)(3)
Confidential
Project Viper
PRESENTATION TO THE SPECIAL COMMITTEE
May 23, 2000
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
PROJECT VIPER / MAY 23, 2000
Confidential Material Presented to the Special Committee
The following pages contain material provided to the Special Committee of the
Board of Directors (the "Special Committee") of Viper ("Viper" or the "Company")
in the context of a meeting of the Special Committee held to consider the
proposed merger of the Company with a wholly-owned subsidiary of Boa. The
accompanying material was compiled or prepared on a confidential basis solely
for use by the Special Committee and not with a view toward public disclosure
under state and federal securities laws or otherwise. The information utilized
in preparing this presentation was obtained from the Company and public sources.
Any estimates and projections for the Company contained herein have been
prepared by management, or are based upon such estimates and projections, and
involve numerous and significant subjective determinations, which may or may not
prove to be correct. No representation or warranty, express or implied, is made
as to the accuracy or completeness of such information, and nothing contained
herein is, or shall be relied upon as, a representation, whether as to the past
or the future. Because this material was prepared for use in the context of an
oral presentation to the Special Committee, which is familiar with the business
and the affairs of the Company, neither the Company nor Salomon Smith Barney
Inc. nor Petrie Parkman & Co. nor any of their respective legal or financial
advisors or accountants take any responsibility for the accuracy or completeness
of any of the material if used by persons other than the Special Committee.
Neither the Company nor Salomon Smith Barney Inc. nor Petrie Parkman & Co.
undertakes any obligation to update or otherwise revise the accompanying
materials.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
PROJECT VIPER / MAY 23, 2000
Table of Contents
1 TRANSACTION OVERVIEW
2 MARKET UPDATE
3 VALUATION MATERIALS
4 PRECEDENT MINORITY SQUEEZE-OUT PREMIUMS
APPENDIX
A. Salomon Smith Barney Valuation Analysis
B. Petrie Parkman & Co. Valuation Analysis
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PROJECT VIPER / MAY 23, 2000
1 TRANSACTION OVERVIEW
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
PROJECT VIPER / MAY 23, 2000
Scope of Work
IN FORMULATING OUR OPINIONS, SALOMON SMITH BARNEY AND PETRIE PARKMAN & CO.
REVIEWED:
. A draft of the Merger Agreement, dated May 19, 2000
. Certain publicly-available information regarding Viper
. Internal financial forecasts for Viper, prepared by management
. Publicly-available information regarding the trading of, and the
trading market for, Viper common stock and for certain other
companies, the operations of which are similar to those of Viper
. Publicly-available information regarding the terms of other M&A
transactions and asset acquisitions we each considered relevant
. Other economic, financial, and market information we each deemed
relevant
The Special Committee of the Board of Directors has asked Salomon Smith Barney
and Petrie Parkman & Co. to render opinions as to the fairness, from a financial
point of view, of the consideration to be received in the offer dated May 19 and
the merger by the public shareholders of Viper common stock.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
1
PROJECT VIPER / MAY 23, 2000
Transaction Structure
TRANSACTION STRUCTURE
. Pursuant to the Merger Agreement to be executed between Viper and Boa,
Viper will be merged with a newly-formed subsidiary of Anaconda,
becoming a wholly-owned subsidiary of Anaconda, which is itself wholly-
owned by Boa
TERMS
. The public shareholders of Viper, who represent approximately 18% of the
diluted shares outstanding, will receive $83 in cash per Viper share
(the "May 19 Offer")
- Boa originally had offered $71 in cash per Viper share on March 16,
2000 (the "Initial Offer")
CONDITIONS
. The only material condition to the merger is the approval of two-thirds
of the outstanding voting stock of Viper not already owned by Viper,
Anaconda or Boa
MISCELLANEOUS
. In the event of termination, no break-up fee or other payment shall be
provided to either party, and both parties shall be responsible for
their own expenses
ESTIMATED TIMING
. Boa and Viper intend to announce on May 23, after the markets close in
the United States
. Boa and Viper will file a merger proxy and Schedule 13E-3 with the SEC
as soon as practicable
. A shareholder meeting will occur as soon as practicable, but not less
than 20 business days after the mailing of the proxy statement
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2
PROJECT VIPER / MAY 23, 2000
May 19 Offer Implied Multiples
(Dollars in millions)
May 19 Offer
---------------------
Offer Price $ 83.00
Fully-Diluted Shares Outstanding 100.3
-------
$ 8,325
Less: Option Proceeds ($ 97)
-------
Equity Value $ 8,229
Plus: Total Debt (@ 3/31/00) $ 940
Less: Cash (@ 3/31/00) (5)
-------
Firm Value ("FV") $ 9,164
First Call /(4)/ N Y M E X /(5)/
----------------------- ---------------------
1999 2000E 2001E 2000E 2001E
--------- ----------------------- ----------------------
Price/Earnings Per Share 38.6x 27.2x 27.6x 15.4x 16.9x
Price/Cash Flow/(1)/ Per Share 8.7 7.8 7.8 6.4 6.6
FV/EBITDAX/(2)/ 10.4 8.5 8.5 6.4 6.8
FV/Mcfe/(3)/ of Reserves $ 2.25 $ 1.96 $ 1.66 $ 1.96 $ 1.66
(1) Cash Flow Per Share = Earnings plus deferred taxes, exploration expense,
and depletion, depreciation and amortization per share.
(2) EBITDAX = Earnings before interest, income taxes, depletion, depreciation,
and amortization and exploration expense.
(3) Mcfe = Thousand cubic feet of gas equivalent.
(4) Source of estimates: Viper Base Case hereinafter refers to Viper
management's Base Case financial plan updated as of May 1, 2000 using First
Call price deck as of May 15, 2000.
(5) Source of estimates: Viper Base Case using NYMEX strip as of May 15, 2000.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
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PROJECT VIPER / MAY 23, 2000
2 MARKET UPDATE
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
PROJECT VIPER / MAY 23, 2000
Relative Price Performance Since Boa/Anaconda Announcement
DAILY DATA: MAR/26/1999 THROUGH MAY/19/2000
[Graph reflecting historical market price of each of Viper and a Competitor
Index, as a percent of the Base Period (March/16/1999), daily, March/16/1999
through May/19/2000, concluding that, as of May 19, 2000:
- -------------------------------------- ------------------------------
Price as Percent of Base
------------------------
Period
------
- -------------------------------------- ------------------------------
Competitor Index 164%
- -------------------------------------- ------------------------------
Viper 181%
- -------------------------------------- ------------------------------
Viper at $83 187%]
- -------------------------------------- ------------------------------
Competitor Index: (APC, APA, BRR, BR, XTO, CHK, DVN, EOG, KMG, LD, NFX, NBL,
PXD, UCL, UPR)
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
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PROJECT VIPER / MAY 23, 2000
Enterprise Value Appreciation
[Bar graph reflecting the following appreciation of the enterprise value for
Vastar and the Competitor Group companies:
2/11/00(1) - 5/19/00
- ------------------------------- ------------------------------
Selected Comparable Company Enterprise Value
--------------------------- ----------------
Appreciation (2)
----------------
- ------------------------------- ------------------------------
UPR (4) 63.3%
- ------------------------------- ------------------------------
NBL 60.5%
- ------------------------------- ------------------------------
EOG 59.9%
- ------------------------------- ------------------------------
Viper @ $83 56.3%
- ------------------------------- ------------------------------
APC 48.2%
- ------------------------------- ------------------------------
APA 40.7%
- ------------------------------- ------------------------------
NFX 39.0%
- ------------------------------- ------------------------------
DVN 38.7%
- ------------------------------- ------------------------------
BR 38.0%
- ------------------------------- ------------------------------
LD 36.0%
- ------------------------------- ------------------------------
Viper @ $71 35.8%
- ------------------------------- ------------------------------
BRR 33.6%
- ------------------------------- ------------------------------
XTO 32.4%
- ------------------------------- ------------------------------
UCL 25.0%
- ------------------------------- ------------------------------
PXD 20.6%
- ------------------------------- ------------------------------
CHK 17.6%
- ------------------------------- ------------------------------
KMG 14.7%
- ------------------------------- ------------------------------
MEAN (3) 37.9%]
- ------------------------------- ------------------------------
(1) Date on which federal judge confirmed hearing dates to consider
government's request for an injunction of the Boa and Anaconda merger.
(2) Enterprise value is defined as fully diluted shares outstanding
multiplied by share price, plus debt, preferred, and out-of-the-money
convertible preferred, less options proceeds and cash. Balance sheet
data as of 12/31/99.
(3) Excluding Viper.
(4) UPR performance during period driven by announcement of acquisition by
Anadarko.
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PROJECT VIPER / MAY 23, 2000
Relative Price Performance: Five Years
WEEKLY DATA: MAY/19/1995 THROUGH MAY/19/2000
[Graph reflecting historical market price of each of Viper and 60/40 Gas/Oil
Blended Spot, as a percent of the Base Period (May/19/2000), weekly, May/19/1995
through May/19/2000, concluding that, as of May 19, 2000:
- -------------------------------------- ------------------------------
Price as Percent of Base
------------------------
Period
------
- -------------------------------------- ------------------------------
60/40 Gas/Oil Blended Spot 199%
- -------------------------------------- ------------------------------
Viper 274%
- -------------------------------------- ------------------------------
Viper at $83 283%]
- -------------------------------------- ------------------------------
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
6
PROJECT VIPER / MAY 23, 2000
Public Market Trading Comparison - Competitor Group
(Dollars in millions, except per share data)
- --------------------------------------------------------------------------------------------------------
Price / Firm Value /
Price at Equity Firm Cash Flow EBITDAX Firm Value /
------------ -------------
5/19/00 Value Value 2000E 2001E 2000E 2001E Mcfe
- --------------------------------------------------------------------------------------------------------
Anadarko/(1)/ $ 51.25 $12,756 $17,030 8.2x 7.9x 9.1x 9.2x $ 1.46
Apache 58.88 7,143 9,116 6.2 6.3 6.9 7.0 1.88
Barrett Resources 38.75 1,293 1,628 7.6 6.5 8.9 7.7 1.44
Burlington Resources 44.81 9,708 12,439 6.4 6.3 6.7 6.6 1.21
Chesapeake Energy 5.19 539 1,695 3.0 2.8 6.7 6.4 1.41
Cross Timbers 18.06 882 1,996 3.9 3.7 7.0 6.7 0.99
Devon Energy 57.88 4,831 6,451 6.3 6.1 6.8 6.8 1.61
EOG Resources 31.06 3,798 4,863 5.3 5.5 6.3 6.5 2.00
Kerr-McGee 58.75 5,536 7,794 4.2 4.5 4.1 4.5 1.42
Louis Dreyfus 31.88 1,317 1,863 5.5 5.3 6.8 6.6 1.27
Newfield Exploration 43.94 1,925 2,152 6.3 5.6 7.0 6.4 3.62
Noble Affiliates 39.50 2,269 2,711 5.0 4.6 5.1 4.8 1.36
Pioneer Natural Resources 13.31 1,331 3,043 3.7 3.6 6.6 6.5 0.84
Unocal 37.88 9,189 13,186 5.2 5.4 5.5 5.7 1.33
- --------------------------------------------------------------------------------------------------------
High: 8.2x 7.9x 9.1x 9.2x $ 3.62
Median: 5.4 5.4 6.8 6.5 1.41
Low: 3.0 2.8 4.1 4.5 0.84
- --------------------------------------------------------------------------------------------------------
Viper at Offer Price $ 83.00 $8,229 $ 9,164 7.8x 7.8x 8.5x 8.5x $ 2.25
- --------------------------------------------------------------------------------------------------------
Source: SEC filings, First Call Corporation and Viper Base Case with First Call price deck.
(1) Pro forma for acquisition of UPR.
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PROJECT VIPER / MAY 23, 2000
Public Market Trading Comparison - Competitor Group (cont'd)
[Bar graphs reflecting the following:
- --------------------------- -----------------------------------------
Firm Value to 2000 EBITDAX:
---------------------------
- --------------------------- --------------------- -------------------
March 24, 2000 May 19, 2000
-------------- ------------
- --------------------------- --------------------- -------------------
APC 9.7x 9.1x
- --------------------------- --------------------- -------------------
APA 5.6x 6.9x
- --------------------------- --------------------- -------------------
BRR 7.2x 8.9x
- --------------------------- --------------------- -------------------
BR 6.0x 6.7x
- --------------------------- --------------------- -------------------
CHK 6.0x 6.7x
- --------------------------- --------------------- -------------------
XTO 6.2x 7.0x
- --------------------------- --------------------- -------------------
DVN 5.1x 6.8x
- --------------------------- --------------------- -------------------
EOG 5.0x 6.3x
- --------------------------- --------------------- -------------------
KMG 5.1x 4.1x
- --------------------------- --------------------- -------------------
LD 6.5x 6.8x
- --------------------------- --------------------- -------------------
NFX 5.5x 7.0x
- --------------------------- --------------------- -------------------
NBL 4.4x 5.1x
- --------------------------- --------------------- -------------------
PXD 6.2x 6.6x
- --------------------------- --------------------- -------------------
UCL 5.0x 5.5x
- --------------------------- --------------------- -------------------
Viper at $71 7.4x
- --------------------------- -----------------------------------------
Viper at $83 8.5x
- --------------------------- -----------------------------------------
- --------------------------- -----------------------------------------
Price to 2000 Cash Flow
-----------------------
- --------------------------- -----------------------------------------
March 24, 2000 May 19, 2000
-------------- ------------
- --------------------------- --------------------- -------------------
APC 10.1x 8.2x
- --------------------------- --------------------- -------------------
APA 5.0x 6.2x
- --------------------------- --------------------- -------------------
BRR 6.0x 7.6x
- --------------------------- --------------------- -------------------
BR 5.4x 6.4x
- --------------------------- --------------------- -------------------
CHK 1.6x 3.0x
- --------------------------- --------------------- -------------------
XTO 2.8x 3.9x
- --------------------------- --------------------- -------------------
DVN 5.1x 6.3x
- --------------------------- --------------------- -------------------
EOG 3.9x 5.3x
- --------------------------- --------------------- -------------------
KMG 4.1x 4.2x
- --------------------------- --------------------- -------------------
LD 5.1x 5.5x
- --------------------------- --------------------- -------------------
NFX 5.2x 6.3x
- --------------------------- --------------------- -------------------
NBL 3.9x 5.0x
- --------------------------- --------------------- -------------------
PXD 2.9x 3.7x
- --------------------------- --------------------- -------------------
UCL 4.2x 5.2x
- --------------------------- --------------------- -------------------
Viper at $71 6.7x
- --------------------------- -----------------------------------------
Viper at $83 7.8x]
- --------------------------- -----------------------------------------
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8
PROJECT VIPER / MAY 23, 2000
3 VALUATION MATERIALS
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PROJECT VIPER / MAY 23, 2000
Historical Operating and Financial Performance
------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 CAGR '95-'99
------------------------------------------------------------------------------------------------------------------
Production (Bcfe) /(1)/ 395 426 433 471 525 7.4%
End of Year Reserves (Bcfe) 2,725 2,916 3,153 3,700 4,074 10.6
Reserve Replacement Rate /(2)/ 143% 144% 154% 215% 170%
Total Capital Program ($MM) /(3)/ $ 442 $ 567 $ 672 $ 1,133 $ 664 10.7%
Reserve Replacement Cost ($/Mcfe) $ 0.80 $ 0.93 $ 1.02 $ 1.11 $ 0.71
Revenues ($MM) $ 740 $ 967 $ 1,014 $ 941 $ 1,176 12.3%
EBITDAX 528 727 747 674 878 13.6
Cash Flow per Share $ 4.93 $ 6.94 $ 7.96 $ 7.55 $ 9.01 16.3%
Earnings per Share 1.05 2.26 2.46 1.39 2.16 19.8
(1) Bcfe = billions of cubic feet gas equivalent, or 1,000,000 Mcfe.
(2) Reserve replacement rate equals the ratio of reserve additions to
production.
(3) Total capital program equals exploratory and development drilling,
property acquisitions, geologic and geophysical and other additions.
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PROJECT VIPER / MAY 23, 2000
Projected Operating and Financial Performance
BASE PLAN WITH NYMEX PRICE DECK
-------------------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2005 2009 CAGR '99-'09
-------------------------------------------------------------------------------------------------------------------------
Production (Bcfe) 525 547 582 631 799 978 1,712 13%
End of Year Reserves (Bcfe) 4,074 4,678 5,533 6,435 7,150 8,278 14,772 14
Reserve Replacement Rate 170% 213% 249% 245% 192% 165% 199%
Total Capital Program ($MM) $ 664 $ 880 $ 1,197 $ 1,456 $ 1,374 $ 1,859 $ 4,106 20%
Reserve Replacement Cost ($/Mcfe) $ 0.71 $ 0.79 $ 0.86 $ 0.97 $ 0.93 $ 1.18 $ 1.22
Revenues ($MM) $ 1,176 $ 1,776 $ 1,714 $ 1,695 $ 2,136 $ 2,702 $ 5,098 16%
EBITDAX 878 1,433 1,353 1,311 1,670 2,146 4,168 17
Cash Flow per Share $ 9.01 $ 13.03 $ 12.64 $ 12.99 $ 14.91 $ 18.97 $ 37.82 15%
Earnings per Share 2.16 5.41 4.93 3.93 4.67 6.55 12.45 19
Source: Viper Base Case using NYMEX strip as of May 15, 2000.
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PROJECT VIPER / MAY 23, 2000
Projected Operating and Financial Performance
BASE PLAN WITH LRP PRICE DECK
-----------------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2005 2009 CAGR '99-'09
-----------------------------------------------------------------------------------------------------------------------
Production (Bcfe) 525 547 582 631 799 978 1,712 13%
End of Year Reserves (Bcfe) 4,074 4,678 5,533 6,435 7,150 8,278 14,772 14
Reserve Replacement Rate 170% 213% 249% 245% 192% 165% 199%
Total Capital Program ($MM) $ 664 $ 880 $ 1,197 $ 1,456 $ 1,374 $ 1,859 $ 4,106 20%
Reserve Replacement Cost ($/Mcfe) $ 0.71 $ 0.79 $ 0.86 $ 0.97 $ 0.93 $ 1.18 $ 1.22
Revenues ($MM) $ 1,176 $ 1,251 $ 1,306 $ 1,431 $ 1,915 $ 2,485 $ 4,902 15%
EBITDAX 878 927 958 1,056 1,457 1,937 3,978 16
Cash Flow per Share $ 9.01 $ 9.62 $ 9.80 $ 10.61 $ 13.03 $ 17.26 $ 35.29 15%
Earnings per Share 2.16 2.10 2.21 1.99 2.92 4.70 10.39 17
Source: Viper Base Plan with LRP Price Deck.
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PROJECT VIPER / MAY 23, 2000
Valuation Approaches
. Salomon Smith Barney and Petrie Parkman have performed analyses of
Viper using various customary methodologies
. Most of the methodologies employed by the financial advisors were very
similar and yielded similar results
-----------------------------------------------------------------------------------------------------------------------------
Methodology Description
-----------------------------------------------------------------------------------------------------------------------------
Public Market Trading Comparison of Viper performance and asset multiples with corresponding multiples
Comparison (SSB) and Capital for a selected universe of publicly-traded independent oil & gas companies
Market Comparison (PPC)
-----------------------------------------------------------------------------------------------------------------------------
Property Transactions Comparison of Viper's assets with precedent oil and gas property transactions on
Analysis (PPC) a regional basis
-----------------------------------------------------------------------------------------------------------------------------
Precedent Corporate Comparison of Viper performance and asset multiples with precedent corporate
Transactions (SSB) and and offers for control involving companies in the independent oil and gas
Company Transaction Analysis sector
(PPC)
-----------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Asset-focused assessment of Viper's existing inventory of producing, non-
Analysis (PPC) producing, and other assets. Various sensitivities were also performed on the
projected financial results
-----------------------------------------------------------------------------------------------------------------------------
Going Concern DCF Analysis Equity-focused assessment based on projections of full financial statements for
(SSB & PPC) Viper as a going concern entity assuming reinvestment of free cash flow and a
capitalization of a terminal value at the end of the evaluation period. Various
sensitivities were also performed on the projected financial results
-----------------------------------------------------------------------------------------------------------------------------
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PROJECT VIPER / MAY 23, 2000
SSB Valuation Summary
[Bar graph reflecting the following information:
- ------------------------------------------------------------ -----------------------------------
52-Week Trading Range (Prior to Initial Offer) $41 - $70
- ------------------------------------------------------------ -----------------------------------
Public Market Trading Comparison - Competitor Group $70 - $76
- ------------------------------------------------------------ -----------------------------------
Public Market Trading Comparison - Regional Pure Plays $68 - $74
- ------------------------------------------------------------ -----------------------------------
Precedent Corporate Transactions $71 - $81
- ------------------------------------------------------------ -----------------------------------
Going Concern DCF Analysis (1) $80 - $95]
- ------------------------------------------------------------ -----------------------------------
(1) SSB Going Concern DCF reference range is based upon Viper Base Case using
both LRP and NYMEX pricing scenarios, various operating sensitivities,
terminal multiples of 6.25x to 6.75x estimated 2009 EBITDAX and discount
rates of 9.5% to 10.5%.
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PROJECT VIPER / MAY 23, 2000
PPC Valuation Summary
[Bar graph reflecting the following information:
- ------------------------------------------------------------ -----------------------------------
DCF Analysis $53 - $68
- ------------------------------------------------------------ -----------------------------------
Property Transactions Analysis $46 - $59
- ------------------------------------------------------------ -----------------------------------
Company Transaction Analysis $70 - $80
- ------------------------------------------------------------ -----------------------------------
Capital Market Comparison $70 - $76
- ------------------------------------------------------------ -----------------------------------
Going Concern DCF Analysis - Debt Paydown Case (1) $75 - $85
- ------------------------------------------------------------ -----------------------------------
Going Concern DCF Analysis - Tactical Acquisition Case (1) $80 - $90]
- ------------------------------------------------------------ -----------------------------------
(1) Analysis based upon Viper Base Case with Entrada projections for Proved,
Accretion, Probable, Possible, and non-Deepwater Exploration, and PPC
30-Prospect Deepwater projections for Deepwater assets. Reference value
range based upon a terminal multiple of 1.9x to 2.1x estimated 2009 SEC
value, with derived equity value discounted at a 15.0% equity rate of
return.
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PROJECT VIPER / MAY 23, 2000
4 PRECEDENT MINORITY SQUEEZE-OUT PREMIUMS
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PROJECTED VIPER / MAY 23, 2000
Precedent Minority Squeeze-Outs
Premium to Market
Acquiror's ---------------------------------------------
Holdings at Number of One Month One Day
Time of Offer Transactions Before Initial Offer Before Initial Offer
- ------------------------------------------------------------------------------------------------
50.1% - 79.9% 32 High 101.7% 100.0%
Mean 37.6% 29.5%
Median 30.9% 23.8%
Low -5.9% -17.8%
80.0% + 13 High 54.5% 43.7%
Mean 22.2% 17.5%
Median 21.5% 19.4%
Low 1.1% 0.0%
- ------------------------------------------------------------------------------------------------
All Transactions 45 High 101.7% 100.0%
Mean 33.2% 26.0%
Median 29.2% 19.9%
Low -5.9% -17.8%
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Viper Price $52.19 $63.13
Viper Premium @ Initial Offer 36.0% 12.5%
Viper Premium @ May 19 Offer 59.0% 31.5%
- ------------------------------------------------------------------------------------------------
NB: Genetics Institute / American Home Products transaction dated 12/17/96
excluded due to distorted premium caused by call price agreement.
Source: Securities Data Company, May 2000. Includes cash transactions, greater
than $100 million since 1988 where acquiror owned more than 50% of
target before the transaction.
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PROJECT VIPER / MAY 23, 2000
APPENDIX
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PROJECT VIPER / MAY 23, 2000
A. Salomon Smith Barney Valuation Analysis
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
PROJECT VIPER / MAY 23, 2000
Public Market Trading Comparison Valuation - Competitor Group
(Dollars in millions, except per share data)
- ------------------------------------------------------------------------------------------------
Firm Value to
------------------------------------------------------------
2000E 2001E
EBITDAX EBITDAX
- ------------------------------------------------------------------------------------------------
Viper Statistic (1) $1,075 $1,076
Relevant Multiple Range 7.0x -- 8.0x 6.5x -- 7.5x
------------------------ ---------------------------
Implied Firm Value $7,523 $8,598 $6,996 $8,073
Less Net Debt and Option Proceeds 838 838
------------------------ ---------------------------
Implied Equity Value $6,685 -- $7,760 $6,159 -- $7,235
Fully Diluted Shares 100.3 100.3
Implied Equity Value per Share $66.65 -- $77.36 $61.40 -- $72.13
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Preliminary Reference Range $70.00 -- $76.00
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Value to Firm Value to
---------------------------------------
2000E 2001E Reserves
Cash Flow Cash Flow
- -----------------------------------------------------------------------------------------------------------------------------------
Viper Statistic (1) $1,049 $1,055 4,074 Bcfe
Relevant Multiple Range 6.5x -- 7.5x 6.0x -- 7.0x $ 1.50 -- $ 2.00 / Mcfe
------------------------- -------------------------- ---------------------------------------
Implied Firm Value n/a n/a $6,111 $8,148
Less Net Debt and Option Proceeds n/a n/a 838
------------------------- -------------------------- ---------------------------------------
Implied Equity Value $6,820 -- $7,869 $6,331 -- $7,386 $5,273 -- $7,310
Fully Diluted Shares 100.3 100.3 100.3
Implied Equity Value per Share $67.99 -- $78.45 $63.11 -- $73.63 $52.57 -- $72.88
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Preliminary Reference Range
- -----------------------------------------------------------------------------------------------------------------------------------
Source: Viper Base Case with First Call price deck.
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16
PROJECT VIPER / MAY 23, 2000
Public Market Trading Comparison - Competitor Group
(Dollars in millions, except per share data)
- --------------------------------------------------------------------------------------------------------
Price / Firm Value /
Price at Equity Firm Cash Flow EBITDAX Firm Value /
----------- ------------
5/19/00 Value Value 2000E 2001E 2000E 2001E Mcfe
- --------------------------------------------------------------------------------------------------------
Anadarko /1/ $ 51.25 $12,756 $17,030 8.2x 7.9x 9.1x 9.2x $ 1.46
Apache 58.88 7,143 9,116 6.2 6.3 6.9 7.0 1.88
Barrett Resources 38.75 1,293 1,628 7.6 6.5 8.9 7.7 1.44
Burlington Resources 44.81 9,708 12,439 6.4 6.3 6.7 6.6 1.21
Chesapeake Energy 5.19 539 1,695 3.0 2.8 6.7 6.4 1.41
Cross Timbers 18.06 882 1,996 3.9 3.7 7.0 6.7 0.99
Devon Energy 57.88 4,831 6,451 6.3 6.1 6.8 6.8 1.61
EOG Resources 31.06 3,798 4,863 5.3 5.5 6.3 6.5 2.00
Kerr-McGee 58.75 5,536 7,794 4.2 4.5 4.1 4.5 1.42
Louis Dreyfus 31.88 1,317 1,863 5.5 5.3 6.8 6.6 1.27
Newfield Exploration 43.94 1,925 2,152 6.3 5.6 7.0 6.4 3.62
Noble Affiliates 39.50 2,269 2,711 5.0 4.6 5.1 4.8 1.36
Pioneer Natural Resources 13.31 1,331 3,043 3.7 3.6 6.6 6.5 0.84
Unocal 37.88 9,189 13,186 5.2 5.4 5.5 5.7 1.33
- --------------------------------------------------------------------------------------------------------
High: 8.2x 7.9x 9.1x 9.2x $ 3.62
Median: 5.4 5.4 6.8 6.5 1.41
Low: 3.0 2.8 4.1 4.5 0.84
- --------------------------------------------------------------------------------------------------------
Viper at Offer Price $ 83.00 $ 8,229 $ 9,164 7.8x 7.8x 8.5x 8.5x $ 2.25
- --------------------------------------------------------------------------------------------------------
Source: SEC filings, First Call Corporation and Viper Base Case with First Call
price deck.
(1) Pro forma for acquisition of UPR.
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17
PROJECT VIPER / MAY 23, 2000
Public Market Trading Comparison Valuation - Regional Pure Plays
(Dollars in millions, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
Firm Value to Equity Value to
----------------------------------------- ---------------------------------------------
2000E 2001E 2000E 2001E
EBITDAX EBITDAX Cash Flow Cash Flow
- ----------------------------------------------------------------------------------------------------------------------------------
Viper Statistic (1) $1,075 $1,076 $1,049 $1,055
- ----------------------------------------------------------------------------------------------------------------------------------
Relevant Multiple Range
GOM/Gulf Coast 6.5x -- 7.5x 6.0x -- 7.0x 6.0x -- 7.0x 5.5x -- 6.5x
On-Shore 6.5x -- 7.0x 6.0x -- 6.5x 5.5x -- 6.5x 5.5x -- 6.5x
Rockies 8.0x -- 9.0x 7.0x -- 8.0x 7.0x -- 8.0x 6.5x -- 7.5x
- ----------------------------------------------------------------------------------------------------------------------------------
Relative Weight
GOM/Gulf Coast 61% 61% 57% 61%
On-Shore 20% 19% 18% 15%
Rockies 19% 20% 25% 24%
Blended Multiple Range (2) 6.8x -- 7.7x 6.2x -- 7.1x 6.2x -- 7.2x 5.7x -- 6.7x
Implied Firm Value $7,295 $8,264 $6,674 $7,649 n/a n/a
Less Net Debt and Option
Proceeds 838 838 n/a n/a
----------------------- ----------------------- -------------------- ----------------------
Implied Equity Value $6,457 -- $7,426 $5,836 -- $6,811 $6,463 -- $7,513 $6,059 -- $7,121
Fully Diluted Shares 100.3 100.3 100.3 100.3
Implied Equity Value per Share $64.37 -- $74.04 $58.18 -- $67.90 $64.44 -- $74.90 $60.41 -- $70.99
- ----------------------------------------------------------------------------------------------------------------------------------
Selected Preliminary Reference Range $68.00 -- $74.00
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data)
- ----------------------------------------------------------------
Firm Value to
Reserves
- ------------------------------------------------------------------
Viper Statistic (1) 4,074 Bcfe
- ------------------------------------------------------------------
Relevant Multiple Range
GOM/Gulf Coast $2.50 -- $3.00
On-Shore $1.25 -- $1.75
Rockies $1.10 -- $1.35
- ------------------------------------------------------------------
Relative Weight
GOM/Gulf Coast 58%
On-Shore 21%
Rockies 20%
Blended Multiple Range (2) $1.95 -- $2.40
Implied Firm Value $7,945 $9,778
Less Net Debt and Option
Proceeds 838
-----------------------------
Implied Equity Value $7,108 -- $8,940
Fully Diluted Shares 100.3
Implied Equity Value per Share $70.86 -- $89.13
- ------------------------------------------------------------------
Selected Preliminary Reference Range
- ------------------------------------------------------------------
(1) Viper Base Case with First Call price deck.
(2) Weighted by contribution to EBITDAX, cash flow and reserves as per reported
and projected figures.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
18
PROECT VIPER / MAY 23, 2000
Public Market Trading Comparison - Regional Pure Plays
(Dollars in millions, except per share data)
- --------------------------------------------------------------------------------------------------------------------------
Price / Firm Value / Firm
Price at Equity Firm Cash Flow EBITDAX Value /
---------------- ----------------
Company 5/19/00 Value Value 2000E 2001E 2000E 2001E Mcfe
- --------------------------------------------------------------------------------------------------------------------------
GOM / Gulf Coast
- ----------------
Basin Exploration $ 17.44 $ 329 $ 359 4.1x 3.8x 4.5x 4.2x $ 1.71
Chieftain Int'l 21.69 358 416 5.7 5.0 6.6 5.9 1.74
Stone Energy 58.56 1,118 1,204 7.0 6.3 7.3 6.6 3.11
Newfield Exploration 43.94 1,925 2,152 6.3 5.6 7.0 6.4 3.62
Houston Exploration 22.50 665 930 4.1 3.6 5.5 4.9 1.72
Meridian Resources 4.81 226 780 2.6 2.9 7.2 7.7 2.14
- --------------------------------------------------------------------------------------------------------------------------
Median: $ 511 $ 855 4.9x 4.4x 6.8x 6.1x $ 1.94
On-Shore
- --------
Chesapeake Energy $ 5.19 $ 539 $ 1,695 3.0x 2.8x 6.7x 6.4x $ 1.41
Louis Dreyfus 31.88 1,317 1,863 5.5 5.3 6.8 6.6 1.27
EOG Resources 31.06 3,798 4,863 5.3 5.5 6.3 6.5 2.00
Burlington Resources 44.81 9,708 12,439 6.4 6.3 6.7 6.6 1.21
Noble Affiliates 39.50 2,269 2,711 5.0 4.6 5.1 4.8 1.36
- --------------------------------------------------------------------------------------------------------------------------
Median: $2,269 $ 2,711 5.3x 5.3x 6.7x 6.5x $ 1.36
Rockies
- -------
Patina Oil & Gas $ 16.50 $ 298 $ 488 4.2x 4.2x 6.5x 6.5x $ 1.05
Barrett Resources 38.75 1,293 1,628 7.6 6.5 8.9 7.7 1.44
HS Resources 27.38 535 1,067 3.2 2.8 5.2 4.7 0.96
Evergreen Resources 23.88 356 371 16.5 11.4 15.8 11.2 0.66
Tom Brown 20.63 780 873 7.4 7.1 8.6 8.1 1.67
- --------------------------------------------------------------------------------------------------------------------------
Median: $ 535 $ 873 7.4x 6.5x 8.6x 7.7x $ 1.05
- --------------------------------------------------------------------------------------------------------------------------
Viper at Offer Price $ 83.00 $8,229 $ 9,164 7.8x 7.8x 8.5x 8.5x $ 2.25
- --------------------------------------------------------------------------------------------------------------------------
Source: SEC filings, First Call Corporation and Viper Base Case with First Call price deck.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
19
PROJECT VIPER / MAY 23, 2000
Precedent Corporate Transactions Valuation
(Dollars in millions, except per unit data)
- -----------------------------------------------------------------------------------------------------------------------------------
Firm Value to Equity Value to Firm Value to
---------------------------------------------- ---------------------
1999A 2000E 2000E Reserves
EBITDAX EBITDAX Cash Flow (Bcfe)
- -----------------------------------------------------------------------------------------------------------------------------------
Viper Statistic (1) $878 $1,075 $1,049 4,074
Relevant Multiple Range 8.5x -- 9.5x 7.5x -- 8.5x 7.0x -- 8.0x $1.25 -- $2.00
---------------------- ---------------------- ------------------ ---------------------
Implied Firm Value $7,460 -- $8,338 $8,060 -- $9,135 n/a $5,093 -- $8,148
Less Net Debt and Option Proceeds 838 838 n/a 838
---------------------- ---------------------- -------------------- --------------------
Implied Equity Value $6,623 -- $7,500 $7,223 -- $8,297 $7,344 -- $8,394 $4,255 -- $7,310
Fully Diluted Shares 100.3 100.3 100.3 100.3
Implied Equity Value per Share $66.03 -- $74.78 $72.01 -- $82.72 $73.22 -- $83.68 $42.42 -- $72.88
- -------------------------------------------------------------------------------------------------------------------------------- ---
Selected Preliminary Reference Range $71.00 -- $81.00
- -------------------------------------------------------------------------------------------------------------------------------- ---
(1) Viper Base Case with First Call price deck.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
20
PROJECT VIPER / MAY 23, 2000
Precedent Corporate Transactions
(Dollars in millions, except per Mcfe data)
- ---------------------------------------------------------------------------------------------------------
Date Acquiror Target Transaction Equity Premium
-----------------
Announced Value Value 1 Day 30 Days
- ----------------------------------------------------------------------------------------------------------
3-Apr-00 Anadarko Petroleum Union Pacific Resources $ 7,911 $ 4,435 21.4 % 73.8 %
16-Aug-99 Burlington Resources Inc. Poco Petroleums Ltd. 2,594 1,779 25.1 39.1
9-Jun-99 Norsk Hydro ASA/Statoil Saga Petroleum ASA 4,299 2,600 58.8 71.9
20-May-99 Devon Energy Corp. PennzEnergy Company 1,964 725 (3.6) 42.7
4-May-99 LASMO plc Monument Oil and Gas plc 1,197 963 35.3 55.3
15-Oct-98 Kerr-McGee Corp. Oryx Energy Company 3,437 1,800 50.6 23.7
29-May-98 USX-Marathon Group Tarragon Oil & Gas Ltd. 1,060 677 38.9 46.0
4-May-98 Atlantic Richfield Company Union Texas Petroleum 3,621 2,500 41.5 41.5
26-Jan-98 Union Pacific Resources Norcen Energy Resources 3,635 2,606 29.4 29.4
23-Dec-97 Ocean Energy, Inc. United Meridian Corp. 1,322 1,109 (13.9) (15.7)
23-Nov-97 Sonat Inc. Zilkha Energy Company 1,264 na na na
17-Jul-97 Burlington Resources Inc. Louisiana Land & Exploration 3,075 2,553 20.8 36.3
7-Apr-97 Parker & Parsley Petroleum MESA Inc. 2,166 1,303 (9.5) (11.9)
- ---------------------------------------------------------------------------------------------------------
High: $7,911 $4,435 58.8 % 73.8 %
Medium: $2,594 $1,790 27.2 % 40.3 %
Low: $1,060 $ 677 (13.9)% (15.7)%
- ---------------------------------------------------------------------------------------------------------
Viper at Offer Price $9,164 $8,229 31.5 % 59.0 %
- ---------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Transaction Value to Equity Firm
-----------------------
Date Acquiror Target LTM FWD Value/ Value/
Announced EBITDAX EBITDAX FWD CF Mcfe
- ------------------------------------------------------------------------------------------------------------------------
3-Apr-00 Anadarko Petroleum Union Pacific Resources 6.4x 5.5x 3.8x $ 1.00
16-Aug-99 Burlington Resources Inc. Poco Petroleums Ltd. 10.3 8.2 7.3 1.36
9-Jun-99 Norsk Hydro ASA/Statoil Saga Petroleum ASA 8.1 5.9 na 0.87
20-May-99 Devon Energy Corp. PennzEnergy Company 3.7 9.3 4.7 0.91
4-May-99 LASMO plc Monument Oil and Gas plc 14.2 1.9 2.9 1.23
15-Oct-98 Kerr-McGee Corp. Oryx Energy Company 6.0 5.7 3.7 0.93
29-May-98 USX-Marathon Group Tarragon Oil & Gas Ltd. 10.2 10.1 9.4 0.89
4-May-98 Atlantic Richfield Company Union Texas Petroleum 7.2 6.8 8.9 1.07
26-Jan-98 Union Pacific Resources Norcen Energy Resources 5.4 8.6 6.3 1.25
23-Dec-97 Ocean Energy, Inc. United Meridian Corp. 7.0 7.1 6.8 1.36
23-Nov-97 Sonat Inc. Zilkha Energy Company na na na 3.04
17-Jul-97 Burlington Resources Inc. Louisiana Land & Exploration 7.0 7.1 6.7 1.09
7-Apr-97 Parker & Parsley Petroleum MESA Inc. 10.1 6.8 5.8 1.17
- ----------------------------------------------------------------------------------------------------------------------
14.2x 10.1x 9.4x $ 3.04
7.1x 7.0x 6.3x $ 1.09
3.7x 1.9x 2.9x $ 0.87
- ----------------------------------------------------------------------------------------------------------------------
Viper at Offer Price 10.4x 8.5x 7.8x $ 2.25
- ----------------------------------------------------------------------------------------------------------------------
Source: Herold's M&A Database, Securities Data Corp, Investext Research
Reports, Bloomberg LLP, Factset/IDD, Company SEC filings and Viper Base Case
with First Call price deck to provide comparability to public company trading
estimates.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
21
PROJECT VIPER / MAY 23, 2000
Summary of Going-Concern DCF Analysis
PRICE SENSITIVITES
. Base Case - LRP Pricing: management's projections using the LRP
projected commodity prices
. Base Case - NYMEX Pricing: management's projections using the NYMEX
strip as of 5/15/00 for oil through 2006 and gas through 2003 and
escalating at 2% thereafter
OPERATING SENSITIVITES
. Opportunity and accretion wedge scale: assumed that management's
projected opportunity and deepwater accretion wedges are only 50% as
large as projected in the Viper Base Case
. Reserve Sensitivity: reduced annual deepwater exploration and
accretion wedge reserves, production and EBITDAX by 10% while leaving
capital unchanged to represent a sensitivity in the total deepwater
reserve find
. Capital Sensitivity: increased deepwater exploration wedge capital by
33% while holding expected production and EBITDAX at Viper Base Case
levels to represent finding cost sensitivity
. Entrada Sensitivity: Entrada standalone value (100% success rate)
added to Base Case scenario (adjusted to exclude risk-weighted
Entrada prospect)
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
22
PROJECT VIPER / MAY 23, 2000
Going-Concern DCF Analysis: Viper Base Plan
[Bar Graph reflecting the following information:
- ----------------------------------------------------- --------------------------------------------------------------------
WACC range of 9.5% to 10.5% and terminal EBITDAX multiple range of
6.25x to 6.75x
- ----------------------------------------------------- --------------------------------- ----------------------------------
LRP price deck NYMEX price deck,
top end of range
- ----------------------------------------------------- --------------------------------- ----------------------------------
Viper Base Case $80 - $97 $113
- ----------------------------------------------------- --------------------------------- ----------------------------------
Opportunity and Accretion Wedge Scale Sensitivity (1) $70 - $84 $97
- ----------------------------------------------------- --------------------------------- ----------------------------------
Reserve Sensitivity (2) $60 - $83 $100
- ----------------------------------------------------- --------------------------------- ----------------------------------
Capital Sensitivity (3) $72 - $89 $106
- ----------------------------------------------------- --------------------------------- ----------------------------------
Entrada Sensitivity (4) $84 - $102 $118
- ----------------------------------------------------- --------------------------------- ----------------------------------
(1) Deepwater accretion and opportunity wedges scaled down by a factor of
50%.
(2) Deepwater exploration and accretion wedge reserves, production and
EBITDAX reduced by 10%. Total capital unchanged.
(3) Deepwater capital costs increased by 33%. Total reserves unchanged.
(4) Entrada standalone value (100% success rate) added to Base Case
scenario (adjusted to exclude risk-weighted Entrada prospect).]
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
23
PROJECT VIPER / MAY 23, 2000
B. Petrie Parkman & Co. Valuation Analysis
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
PROJECT VIPER / MAY 23, 2000
Petrie Parkman & Co. Benchmark Pricing Cases
[Graphs reflecting PP & Co. Benchmark Oil Price Forecast ($/Bb1) and PP & Co.
Benchmark Gas Price Forecast ($MMBtu), summarized as follows:]
=========================================================================================================================
PP&Co. Benchmark Oil Price Forecast ($/Bbl) PP&Co. Benchmark Gas Price Forecast ($/MMBtu)
Pricing Case 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004
- ---------------- ---------------------------------------------- -------------------------------------------------
Pricing Case I $21.25 $17.51 $18.04 $18.58 $19.13 $2.50 $2.37 $2.44 $2.51 $2.59
Pricing Case II $22.49 $19.57 $20.16 $20.76 $21.38 $2.62 $2.58 $2.65 $2.73 $2.81
Pricing Case III $24.35 $22.66 $23.34 $24.04 $24.76 $2.75 $2.78 $2.86 $2.95 $3.04
Strip Pricing $28.54 $24.48 $21.52 $19.40 $19.08 $3.48 $3.40 $3.06 $2.96 $3.05
Adjustments were made to the above benchmarks based on the historical
relationship between the benchmarks and Viper's realized prices.
Note: Strip Price as of 5/19/00. Year 2000 Prices = blended prices utilizing
actual prices through 5/19/00 and $17, $19, and $22 oil and $2.30, $2.50
and $2.70 gas prices for Cases I, II and III, respectively.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
24
Summary of Analyses PROJECT VIPER / MAY 23, 2000
[Bar graph reflecting the Equity Reference Value Range ($/sh) implied by various
valuation methodologies, summarized by the following table.]
Methodology
DCF Analysis Property Transaction Company Transaction Capital Market Going Concern Analysis- Going Concern Analysis-
Analysis Analysis Comparison Debt Paydown Case Tactical Acquisition Case
$68.00 $59.04 $79.71 $75.72 $85.00 $90.00
$53.00 $45.87 $69.74 $69.74 $75.00 $80.00
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
25
PROJECT VIPER / MAY 23, 2000
Discounted Cash Flow Analysis
====================================================================================================================================
Reference Value Ranges - Non Stepped-Up Analysis ($MM)
--------------------------------------------------------------------------------------
Pricing Case I Pricing Case II Pricing Case III Strip Pricing
--------------------------------------------------------------------------------------
Proved Reserves
PDP/1/ (8.0 - 10.0%) $1,750 - $1,889 $1,902 - $2,055 $2,077 - $2,245 $2,264 - $2,431
PDNP/2/ (10.0 - 12.5%) 295 - 325 326 - 358 363 - 399 370 - 404
PUD/3/ (12.5 - 15.0%) 328 - 411 451 - 548 616 - 733 519 - 613
-------------------- ----------------- ------------------ -----------------
Total Proved Reserves $2,373 - $2,625 $2,678 - $2,961 $3,056 - $3,377 $3,153 - $3,449
Accretion Reserves/3/ (12.5 - 15.0%) 176 - 244 232 - 312 295 - 388 266 - 354
Probables/4/ (15.0 - 20.0%) 241 - 392 312 - 487 400 - 606 332 - 503
Possibles/5/ (20.0 - 25.0%) 277 - 433 356 - 539 459 - 677 337 - 514
Deepwater Exploration/6/ (15.0 - 17.5%) 720 - 1,427 1,211 2,086 1,926 3,044 798 1,531
Other Exploration/5/ (20.0 - 25.0%) 16 - 72 58 - 134 111 - 223 138 - 245
-------------------- ----------------- ------------------ -----------------
Total Reserves $3,802 - $5,192 $4,847 - $6,519 $6,247 - $8,316 $5,024 - $6,596
Cogen Margin/2/ 36 - 42 22 - 26 7 - 10 (11) - (8)
Tax Credits/1/ 235 - 241 235 - 241 235 - 241 235 - 241
Equity in Earnings of Affiliate/7/ 138 - 147 138 - 147 138 - 147 138 - 147
Seismic/8/ 133 - 265 133 - 265 133 - 265 133 - 265
Fee Lands/9/ 98 - 122 98 - 122 98 - 122 98 - 122
Hedging/1/ (1) - (1) (2) - (2) (6) - (6) (17) - (17)
Balance Sheet Adjustment/10/ (64) - (64) (64) - (64) (64) - (64) (64) - (64)
G&A/11/ (162) - (145) (162) - (145) (162) - (145) (162) - (145)
-------------------- ----------------- ------------------ -----------------
Enterprise Reference Value Range $4,213 - $5,799 $5,243 - $7,109 $6,624 - $8,886 $5,373 - $7,136
Less: Long Term Debt at 3/31/00 (940) - (940) (940) - (940) (940) - (940) (940) - (940)
-------------------- ----------------- ------------------ -----------------
Equity Reference Value Range $3,273 - $4,859 $4,303 - $6,169 $5,685 - $7,946 $4,433 - $6,196
Equity Reference Value Range - $/Share/12/ $32.63 - $48.44 $42.90 - $61.50 $56.67 - $79.22 $44.19 - $61.78
- ----------------------------------------------------------------------------------------------------------------------------------
Composite Equity Reference Value Range $53.00 - $68.00
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Based on the NPV of after-tax cash flows using discount rates of 8.0
-10.0%.
(2) Based on the NPV of after-tax cash flows using discount rates of 10.0 -
12.5%.
(3) Based on the NPV of after-tax cash flows using discount rates of 12.5 -
15.0%.
(4) Based on the NPV of after-tax cash flows using discount rates of 15.0 -
20.0%.
(5) Based on the NPV of after-tax cash flows using discount rates of 20.0 -
25.0%.
(6) Based on the NPV of after-tax cash flows using discount rates of 15.0 -
17.5%.
(7) Based on the NPV of after-tax cash flows using discount rates of 10.0 -
12.5%. Assumes exercise of SCEM put.
(8) Based on 50.0 - 100.0% of estimated book value at 3/31/00.
(9) Based on the NPV of after-tax cash flows using discount rates of 8.0 -
10.0% assuming $15 MM of annual pre-tax cash flow.
(10) Represents current assets (including assumed proceeds received from
exercise of options)+ other assets - current liabilities - other
liabilities (excluding estimated abandonment liability) as of 3/31/00.
(11) Based on the NPV of after-tax G&A expenses using discount rates of 10.0 -
12.5%.
(12) Based on 100.3 MM diluted shares outstanding.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
26
PROJECT VIPER / MAY 23, 2000
Discounted Cash Flow Analysis (cont'd)
. Petrie Parkman calculated after-tax net cash flows for the reserves using
the following assumptions and procedures:
. Production and Operating Profile
- Production and operating profiles for proved, probable, possible,
accretion and other exploration reserve projections were based
upon estimates prepared by Viper management and supplied to Petrie
Parkman by Viper management. This report (the "Reserve Report") is
dated as of 12/31/99.
- Production and operating profiles for deepwater exploration
reserves were based upon Petrie Parkman's 30 prospect deepwater
case developed, in part, through discussions with Viper
management.
. Currency
- All $ figures represent United States dollars.
. Product Pricing
- Petrie Parkman utilizes four pricing scenarios for West Texas
Intermediate ("WTI") equivalent oil and for natural gas (Henry
Hub). WTI forecasts are based on current NYMEX WTI spot prices and
escalators; gas prices are based on current NYMEX Henry Hub spot
prices and escalators. Adjustments were made to the forecasts
above to account for quality and for transportation differentials
consistent with Viper's historical realized differentials.
. Basis Differentials
- Based on the Company's realized historical and projected levels.
. Cost Escalation
- Operating and capital costs were taken from the Reserve Report and
then escalated at 3% per annum.
. Income Tax Rates
- U.S. federal rate = 35%.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
27
PROJECT VIPER / MAY 23, 2000
Property Transaction Analysis
==================================================================================================================
Viper
Data Transaction Enterprise Reference
Measure Bcfe Parameters Value Range ($MM)
- ------------------------------------------------------ ------ ----------------- -----------------------
Proved Reserves
Gulf of Mexico 1,985 $1.00 - 1.40 $1,985 - 2,779
Mid Continent 876 $0.85 - 1.05 745 - 920
San Juan / Rockies 818 $0.75 - 0.85 614 - 695
Gulf Coast 395 $1.00 - 1.25 395 - 494
------ ----------------- --------------------
Total 4,074 $0.92 - 1.20 $3,738 4,888
Other Assets:
Deepwater Exploration Value Range/1/ $1,165 - 1,165
Seismic Database/2/ 133 - 265
Tax Credits/3/ 235 - 241
Equity in Earnings of Affiliate/4/ 138 - 147
Fee Lands/5/ 98 - 122
--------------------
Enterprise Reference Value Range $5,506 - 6,827
Adjusted for:
Long Term Debt at 3/31/00 ($940) - (940)
Net Working Capital at 3/31/00 $ 35 - 35
--------------------
Equity Reference Value Range ($MM) $4,601 - 5,922
- ---------------------------------------------------------------------------------------------------------------
Equity Reference Value Range - $ per Share/6/ $45.87 - 59.04
- ---------------------------------------------------------------------------------------------------------------
(1) Based upon the midpoint of the Discounted Cash Flow Analysis Reference
Value Range for Deepwater Exploration using the Strip Pricing Case.
(2) Based on 50.0 - 100.0% of estimated book value at 3/31/00.
(3) Based on the NPV of after-tax cash flows using discount rates of 8.0 -
10.0%.
(4) Based on the NPV of after-tax cash flows using discount rates of 10.0 -
12.5%. Assumes exercise of SCEM put.
(5) Based on the NPV of after-tax cash flows using discount rates of 8.0 -
10.0% assuming $15 MM of annual pre-tax cash flow.
(6) Based on 100.3 MM diluted shares outstanding.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
- ------------------------------
28
PROJECT VIPER / MAY 23, 2000
Property Transaction Analysis (cont'd)
. Petrie Parkman reviewed publicly-available information related to 105
announced oil and gas property transactions and proprietary information
related to 6 oil and gas property transactions between January 1997 and May
2000 in the Gulf of Mexico, Mid Continent, San Juan/Rockies, and Gulf Coast
regions to determine the transaction parameters for each region relevant for
an analysis of Viper.
. The number of transactions reviewed and the range of purchase price of
reserves per unit of equivalent proved reserves (6:1 Mcf to Bbl basis) are
as follows:
==========================================================================================
Gulf of Mid San Juan/ Gulf
Mexico Continent Rockies Coast
---------- --------- --------- --------
Number of Transactions 23 33 12 43
Purchase Price of Reserves /
Proved Reserves ($/Mcfe)
Maximum $1.46 $1.42 $0.86 $1.63
Mean $1.06 $0.79 $0.67 $0.81
Minimum $0.71 $0.40 $0.35 $0.20
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
- ------------------------------
29
PROJECT VIPER / MAY 23, 2000
Company Transaction Analysis
=================================================================================================================================
Viper Transaction Enterprise Reference
Measure Data Parameters Value Range ($MM)
- ------------------------------------------------------- ------------- ---------------------- --------------------------
IPPR / Proved Reserves (Bcfe)/1/ 4,074 $1.00 - 1.50 $4,677 - 6,886
IPPR / SEC Value ($MM)/1/ $3,475 2.0 - 2.3x $7,554 - 8,768
Purchase Price / LTM DsCF ($MM)/2/ $1,000 7.5 - 8.5x $8,401 - 9,401
Total Investment / LTM EBITDX ($MM) $ 991 7.5 - 9.0x $7,430 - 8,916
Premium Analysis Premiums
- ------------------------------------------------------ ---------------------
1 day prior/3/ $63.13 20% - 30% $8,503 - 9,136
30 days prior/3/ $52.19 30% - 40% $7,710 - 8,234
60 days prior/3/ $55.63 25% - 35% $7,879 - 8,437
------------------------
Composite Enterprise Reference Value Range $7,900 - 8,900
Adjusted for:
Long Term Debt at 3/31/00 ($940)- (940)
Net Working Capital at 3/31/00 $ 35 - 35
-------------------------
Equity Reference Value Range ($MM) $6,995 - 7,995
- ------------------------------------------------------------------------------------------------------------------------------
Equity Reference Value Range - $ per Share/4/ $69.74 - 79.71
- ------------------------------------------------------------------------------------------------------------------------------
(1) Enterprise Reference Value Range includes other assets (seismic, tax
credits, equity in earnings of affiliates, and fee lands) of $603 MM to
$775 MM.
(2) Enterprise Reference Value Range adjusted for $940 MM of long term debt and
$35 MM of working capital.
(3) Viper stock price relative to 3/16/00 (announcement of Boa's initial offer
to Viper).
(4) Based on 100.3 MM diluted shares outstanding.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
- ------------------------------
30
PROJECT VIPER / MAY 23, 2000
Company Transaction Analysis (cont'd)
==========================================================================================================================
Implied
Acquiring Company/ Announcement Total Purchase Price IPPR/ PP/ Total Inv./
-------------------
Target Company Date Investment of Reserves Mcfe SEC Value DsCF EBITDX
- -------------------------------------------------------------------------------------------------------------------------
$/Mcfe x x x
Anadarko Petroleum Corporation 4/3/00 $7,278 $7,098 $1.24 1.5x 3.8x 6.0x
Union Pacific Resources Group Inc.
Burlington Resources Inc. 8/16/99 $2,464 $2,438 $1.28 N/A 8.5x 9.5x
Poco Petroleums Ltd.
Santa Fe Energy Resources, Inc. 1/14/99 $ 623 $ 606 $0.99 2.1x 6.0x 7.9x
Snyder Oil Corporation
Kerr-McGee 10/15/98 $3,428 $3,370 $0.88 1.6x 3.4x 5.4x
Oryx Energy
Devon Energy 6/29/98 $ 872 $ 841 $0.87 N/A 5.9x 5.9x
Northstar Energy
USX-Marathon Group 5/30/98 $1,089 $1,089 $1.10 2.6x 9.0x 11.0x
Tarragon Oil & Gas
Atlantic Richfield 5/4/98 $3,636 $3,586 $1.06 2.2x 7.5x 7.2x
Union Texas
Union Pacific Resources 1/26/98 $3,379 $3,099 $0.82 N/A 6.4x 7.2x
Norcen Energy Resources
Sonat, Inc. 11/24/97 $1,279 $1,268 $3.15 1.8x 9.0x 10.2x
Zilkha Energy
Burlington Resources Inc. 7/17/97 $2,860 $2,835 $1.74 1.7x 5.8x 8.4x
Louisiana Land & Exploration
Mesa Inc. 4/7/97 $1,733 $1,733 $0.96 1.0x 6.0x 6.5x
Parker & Parsley Petroleum
Max $3.15 2.6x 9.0x 11.0x
Mean $1.28 1.8x 6.5x 7.7x
Median $1.06 1.8x 6.0x 7.2x
Min $0.82 1.0x 3.4x 5.4x
Premium - Above Stock Price
---------------------------------
Day 30 Days 60 Days
Prior Prior Prior
---------------------------------
Anadarko Petroleum Corporation 21.4% 76.0% 61.9%
Union Pacific Resources Group Inc.
Burlington Resources Inc. 27.6% 39.3% 42.8%
Poco Petroleums Ltd.
Santa Fe Energy Resources, Inc. -8.5% 3.6% -17.3%
Snyder Oil Corporation
Kerr-McGee 50.6% 18.4% 9.5%
Oryx Energy
Devon Energy 25.6% 42.4% 25.6%
Northstar Energy
USX-Marathon Group 45.4% 46.2% 46.2%
Tarragon Oil & Gas
Atlantic Richfield 41.5% 35.3% 41.9%
Union Texas
Union Pacific Resources 29.4% 28.6% 18.2%
Norcen Energy Resources
Sonat, Inc. N/A N/A N/A
Zilkha Energy
Burlington Resources Inc. 20.8% 36.3% 34.0%
Louisiana Land & Exploration
Mesa Inc. 34.7% 31.4% 23.4%
Parker & Parsley Petroleum
50.6% 76.0% 61.9%
28.9% 35.8% 28.6%
28.5% 35.8% 29.8%
-8.5% 3.6% -17.3%
Notes:
PP = Purchase Price of Equity
Total Investment = Purchase Price of Equity + Long Term Debt + Preferred Stock +
Minority Interest - Working Capital
Implied Purchase Price of Reserves = Total Investment - Other Assets - Estimated
Value of Undeveloped Acreage (if available)
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PROJECT VIPER / MAY 23, 2000
Capital Market Comparison
================================================================================================================
Viper Transaction Enterprise Reference
Measure Data Parameters Value Range ($MM)
---------------------------------------------------- -------- --------------- ---------------------
Market Cap / LTM DsCF/1/($MM) $1,000 7.5 - 8.5x $8,401 - 9,401
Market Cap / 2000E DsCF/1/,/2/($MM) $1,015 6.5 - 7.5x $7,503 - 8,518
Market Cap / 2001E DsCF/1/,/2/($MM) $1,081 6.0 - 7.0x $7,391 - 8,472
Enterprise Value / LTM EBITDX($MM) $ 991 8.0 - 9.0x $7,926 - 8,916
Enterprise Value / 2000E EBITDX/2/($MM) $1,100 6.5 - 7.5x $7,150 - 8,250
Enterprise Value / 2001E EBITDX/2/($MM) $1,100 6.5 - 7.5x $7,150 - 8,250
Enterprise Value / 1999 Proved Reserves (Bcfe) 4,074 $1.40 - 2.00 $5,704 - 8,148
Enterprise Value / 12/31/99 SEC Value ($MM) $3,475 1.9 - 2.2x $6,603 - 7,646
---------------------
Enterprise Reference Value Range ($MM) $7,900 - 8,500
Adjusted for:
Long Term Debt at 3/31/00 $ (940) - (940)
Net Working Capital at 3/31/00 $ 35 - 35
---------------------
Equity Reference Value Range ($MM) $6,995 - 7,595
---------------------------------------------------------------------------------------------------------------
Equity Reference Value Range - $ per Share/3/ $69.74 - 75.72
---------------------------------------------------------------------------------------------------------------
(1) Enterprise Reference Value Range adjusted for $940 MM of long-term debt and
$35 MM of working capital.
(2) Based on IBES and Petrie Parkman research estimates.
(3) Based on 100.3 MM diluted shares outstanding.
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PROJECT VIPER / MAY 23, 2000
Capital Market Comparison (cont'd)
===========================================================================================================================
Market Value to: Enterprise Value to:
------------------------- ----------------------------------------------
Market DsCF Enterprise EBITDX Proved SEC
------------------------- ----------------------------
Value LTM 2000E 2001E Value LTM 2000E 2001E Reserves Value
--------------------------------- ---------------------------------------------------------
$MM x x x $MM x x x $/Mcfe x
Anadarko Petroleum $6,564 17.9x 12.2x 8.1x $8,312 16.1x 11.3x 8.6x $1.40 1.9x
Apache Corp. $6,695 7.6x 6.2x 6.3x $8,896 7.9x 6.4x 6.4x $1.84 2.2x
Burlington Resources $9,648 7.3x 6.8x 6.6x $12,253 8.0x 6.6x 6.5x $1.19 1.9x
Devon Energy $5,012 6.6x 6.6x 6.4x $8,046 8.6x 8.0x 8.1x $2.00 2.6x
EOG $3,646 6.1x 5.5x 5.7x $4,735 6.9x 5.5x 5.8x $1.31 2.0x
Newfield $1,860 7.9x 6.4x 5.8x $2,214 8.9x 6.3x 6.0x $3.72 3.1x
Noble Affiliates $2,201 6.0x 5.1x 4.8x $2,707 6.0x 5.1x 5.1x $1.36 1.8x
Pioneer $1,326 4.2x 3.9x 3.9x $3,069 7.7x 6.4x 6.4x $0.84 1.0x
Union Pacific Resources $5,766 4.7x 5.0x 4.9x $8,451 6.4x 5.5x 5.7x $1.48 1.8x
Unocal $9,198 6.9x 6.0x 5.6x $12,488 7.0x 5.7x 6.2x $1.26 2.1x
Max 17.9x 12.2x 8.1x 16.1x 11.3x 8.6x $3.72 3.1x
Mean 7.5x 6.4x 5.8x 8.3x 6.7x 6.5x $1.64 2.0x
Median 6.7x 6.1x 5.8x 7.8x 6.4x 6.3x $1.38 2.0x
Min 4.2x 3.9x 3.9x 6.0x 5.1x 5.1x $0.84 1.0x
Note: Market Value as of 5/19/00. Sources: Company filings, IBES and Petrie
Parkman research.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
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PROJECT VIPER / MAY 23, 2000
Going Concern Analysis
. Petrie Parkman has prepared a going-concern analysis for the calendar years
2000-2009 using the following assumptions.
Methodology: The reference value range is based upon the
NPV of i) projected dividends plus ii)
projected 2009 equity value. Projected 2009
equity value was derived from estimates of
2009 enterprise value determined by applying
multiples of 1.90x, 2.00x and 2.10x SEC Value
("SEC Value") to projected 2009 SEC Value.
Estimated 2009 debt and net working capital
were deducted from projected 2009 enterprise
value to estimate the 2009 equity value of
Viper.
Discount Rates: An after-tax discount rate of 15.0%.
Viper Projections: 2000 through 2009 operating estimates were
based upon Viper Management LRP Case w/Entrada
projections for PDP, PDNP, PUD, Accretion,
Probable, Possible, and Exploration (except
Deepwater Exploration - see below) assets,
with excess cash flow used to pay down debt.
Two cases were analyzed, a "Debt Repayment
Case" and a "Tactical Acquisition Case" in
which the principal difference was the
assumption that $250 MM of producing
properties would be acquired each year in the
Tactical Acquisition Case.
Deepwater Projections: Based upon PP&Co. DCF analysis assumptions for
Viper's Deepwater Exploration program.
Acquisition Projections: Assumes $250 MM of producing
properties are acquired each year for $1.00
/Mcfe, with the acquisition cost escalated at
3.0% annually. The production and operating
profile for the acquired properties was based
upon Viper historical results.
Oil and Gas Pricing: Based upon PP&Co. Benchmark pricing scenarios
I, II, and III and the Strip Case.
G&A Expenses: Based upon Viper estimates.
[LOGO OF SALOMON SMITH BARNEY] [LOGO OF PETRIE PARKMAN & Co.]
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PROJECT VIPER / MAY 23, 2000
Going Concern Analysis (cont'd)
Debt Paydown Case
$MM, except per share amounts
Terminal Multiple of Year 10 Estimated SEC Value
====================================================================================================================================
Equity Reference Value $MM
---------------------------------------------------------------------------------------
Pricing Case I Pricing Case II Pricing Case III Strip Pricing Case
------------------- ------------------- ------------------- --------------------
Terminal Multiple of SEC Value 15.0% 15.0% 15.0% 15.0%
1.90 $7,205 $8,089 $ 9,358 $7,420
2.00 $7,575 $8,505 $ 9,840 $7,800
2.10 $7,944 $8,921 $10,323 $8,181
====================================================================================================================================
Equity Reference Value $/Share
---------------------------------------------------------------------------------------
Pricing Case I Pricing Case II Pricing Case III Strip Pricing Case
------------------- ------------------- ------------------- --------------------
Terminal Multiple of SEC Value 15.0% 15.0% 15.0% 15.0%
1.90 $71.84 $80.65 $ 93.30 $73.98
2.00 $75.52 $84.79 $ 98.11 $77.77
2.10 $79.20 $88.94 $102.92 $81.56
====================================================================================================================================
Equity Reference Value Range $/Share $75.00 - 85.00
====================================================================================================================================
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PROJECT VIPER / MAY 23, 2000
Going Concern Analysis (cont'd)
Tactical Acquisition Case
$MM, except per share amounts
Terminal Multiple of Year 10 Estimated SEC Value
====================================================================================================================================
Equity Reference Value $MM
---------------------------------------------------------------------------------------
Pricing Case I Pricing Case II Pricing Case III Strip Pricing Case
------------------- ------------------- ------------------- --------------------
Terminal Multiple of SEC Value 15.0% 15.0% 15.0% 15.0%
1.90 $7,726 $8,666 $10,005 $8,000
2.00 $8,122 $9,112 $10,521 $8,411
2.10 $8,519 $9,558 $11,038 $8,822
====================================================================================================================================
Equity Reference Value $/Share
---------------------------------------------------------------------------------------
Pricing Case I Pricing Case II Pricing Case III Strip Pricing Case
------------------- ------------------- ------------------- --------------------
Terminal Multiple of SEC Value 15.0% 15.0% 15.0% 15.0%
1.90 $77.03 $86.40 $ 99.75 $79.76
2.00 $80.98 $90.85 $104.90 $83.86
2.10 $84.93 $95.30 $110.05 $87.96
====================================================================================================================================
Equity Reference Value Range $/Share $80.00 - 90.00
====================================================================================================================================
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