1 As filed with the Securities and Exchange Commission on June 17, 1996 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ REGISTRATION STATEMENT ON FORM S-4 UNDER THE SECURITIES ACT OF 1933 ------------------------ BENTON OIL AND GAS COMPANY (Exact name of Registrant as specified in its charter) ------------------------ Delaware 1311 77-0196707 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction of Classification Code) Identification No.) incorporation or organization) 1145 Eugenia Place Suite 200 Carpinteria, California 93013 (805) 566-5600 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) A. E. Benton, CEO 1145 Eugenia Place Suite 200 Carpinteria, California 93013 (805) 566-5600 (Address, including zip code, and telephone number, including area code, of agent for service) with copies to: Jack A. Bjerke Emens, Kegler, Brown Hill & Ritter Co., L.P.A. 65 East State Street, Suite 1800 Columbus, Ohio 43215 (614) 462-5400 (614) 464-2634 (fax) ------------------------ Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. ------------------------ If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: / / ------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Proposed Proposed Maximum Title of Each Class Maximum Offering Aggregate Amount of of Securities to be Amount to be Price Per Offering Registration Registered Registered Note(1) Price(1) Fee - -------------------------------------------------------------------------------------------------------- 11 5/8% Senior Notes due 2003........................ $125,000,000 100% $125,000,000 $43,104 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of computing the registration fee, pursuant to Rule 457(f) The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING THE LOCATION OF INFORMATION REQUIRED BY PART I OF FORM S-4. ITEM NO. CAPTION LOCATION IN PROSPECTUS ----- ---------------------------------------------------- ------------------------------------- Item 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus............................ Facing Page of Registration Statement; Outside Front Cover Page of Prospectus Item 2. Inside Front and Outside Back Cover Pages of Prospectus.......................................... Available Information; Incorporation of Certain Documents by Reference Item 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information................................... Outside Front Cover Page of Prospectus; Summary; Risk Factors; Selected Consolidated Financial Data; The Exchange Offer; Incorporation of Certain Documents by Reference Item 4. Terms of the Transaction............................ Summary; The Exchange Offer; Description of the New Notes; Description of the Old Notes Item 5. Pro Forma Financial Information..................... * Item 6. Material Contracts with the Company Being Acquired............................................ * Item 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters....... * Item 8. Interests of Named Experts and Counsel.............. * Item 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities...................... * Item 10. Information with Respect to S-3 Registrants......... Summary; Capitalization; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Available Information; Incorporation of Certain Documents by Reference; Consolidated Financial Statements Item 11. Incorporation of Certain Information by Reference... Incorporation of Certain Documents by Reference Item 12. Information with Respect to S-2 or S-3 Registrants......................................... * Item 13. Incorporation of Certain Information by Reference... * Item 14. Information with Respect to Registrant Other than S-2 or S-3 Registrants.............................. * Item 15. Information with Respect to S-3 Companies........... * Item 16. Information with Respect to S-2 or S-3 Companies.... * Item 17. Information with Respect to Companies other than S-2 or S-3 Companies.................................... * Item 18. Information if Proxies, Consents or Authorizations are to be Solicited................................. * Item 19. Information if Proxies, Consents of Authorizations are not to be Solicited or in an Exchange Offer..... The Exchange Offer - --------------- * Omitted because the item is inapplicable or the answer is negative. 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION DATED JUNE 17, 1996 BENTON OIL AND GAS COMPANY OFFER TO EXCHANGE ITS 11 5/8% SENIOR NOTES DUE 2003 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING 11 5/8% SENIOR NOTES DUE 2003 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996, UNLESS EXTENDED. Benton Oil and Gas Company, a Delaware corporation (the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus (as the same may be amended or supplemented from time to time, the "Prospectus") and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange up to $125 million aggregate principal amount of its 11 5/8% Senior Notes due 2003 (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement (as defined herein) of which this Prospectus constitutes a part, for a like principal amount of its outstanding 11 5/8% Senior Notes due 2003 (the "Old Notes"), of which $125 million aggregate principal amount is outstanding. The terms of the New Notes are identical in all material respects to the terms of the Old Notes, except that (i) the New Notes have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer applicable to the Old Notes, will not contain certain legends relating thereto and will not be entitled to registration rights, and (ii) the New Notes will not provide for any increase in the interest rate thereon. In that regard, the Old Notes provide that if (i) a registration statement relating to the Exchange Offer is not filed with the Securities and Exchange Commission on or prior to July 1, 1996, (ii) the registration statement for the Exchange Offer is not declared effective on or prior to July 31, 1996, or (iii) the Exchange Offer is not consummated or a registration statement with respect to resale of the Old Notes is not declared effective on or prior to August 30, 1996, then additional interest (in addition to the interest otherwise due on the Old Notes) will accrue at an annual rate of 0.50% on the Old Notes from May 1, 1996. See "Description of the Old Notes." The New Notes are being offered for exchange in order to satisfy certain obligations of the Company under the Registration Rights Agreement dated as of May 2, 1996 (the "Registration Rights Agreement") between the Company and the Initial Purchaser (as defined herein) of the Old Notes. The New Notes will be issued under the same Indenture (as defined herein) as the Old Notes and the New Notes and the Old Notes will constitute a single series of debt securities under the Indenture. In the event that the Exchange Offer is consummated, any Old Notes which remain outstanding after consummation of the Exchange Offer and the New Notes issued in the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding principal amount of Notes (as defined herein) have taken certain actions or exercise certain rights under the Indenture. The New Notes and the Old Notes are collectively referred to herein as the "Notes" See "Description of the New Notes" and "Description of the Old Notes." Interest on the New Notes is payable semi-annually on May 1 and November 1 of each year, (each, an "Interest Payment Date"), commencing on the first such date following the original issuance date of the New Notes. The New Notes will mature on May 1, 2003. The New Notes are not entitled to any sinking fund. The New Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after May 1, 2000, at the redemption prices set forth herein, together with accrued and unpaid interest to the redemption date. The Company may also redeem at its option at any time prior to May 1, 1999 up to 25% of the aggregate principal amount of the Notes then outstanding with the proceeds of one or more public offerings of certain equity securities at a redemption price equal to 111.625% of the principal amount of such Notes, plus accrued and unpaid interest to the redemption date; provided that at least $93.75 million in aggregate principal amount of Notes remains outstanding immediately after giving effect to such redemption. The New Notes will be senior unsecured obligations of the Company and will rank senior in right of payment to all existing and future Subordinated Indebtedness (as defined) and pari passu with all other Senior Indebtedness (as defined) of the Company. The New Notes will be effectively subordinated to all liabilities of the Company's subsidiaries and all secured indebtedness of the Company. (Continued on next page) SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1996. 4 (Cover page continued) At March 31, 1996, $37.2 million of consolidated indebtedness and trade payables would have been liabilities of the Company's subsidiaries or secured indebtedness of the Company and ranked effectively senior to the Notes and the Company would have had $6.4 million of outstanding indebtedness and trade payables that would have ranked pari passu with the Notes. See "Capitalization" and "Description of the New Notes -Ranking." The Company is making the Exchange Offer in reliance on the position of the staff of the Division of Corporation Finance of the Securities and Exchange Commission (the "Commission") as set forth in certain interpretive letters addressed to third parties in other transactions. However, the Company has not sought its own interpretive letter and there can be no assurance that the staff of the Division of Corporation Finance of the Commission would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the staff of the Division of Corporation Finance, and subject to the two immediately following sentences, the Company believes that the New Notes issued pursuant to this Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such New Notes. However, any holder of Old Notes who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing New Notes, or any broker-dealer who purchased Old Notes from the Company to resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the staff of the Division of Corporation Finance of the Commission set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Old Notes in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Old Notes unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Old Notes acquired for its own account as a result of market-making or other trading activities and exchanges such Old Notes for New Notes, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such New Notes. Each holder of Old Notes who wishes to exchange Old Notes for New Notes in the Exchange Offer will be required to represent that (i) it is not an "affiliate" of the Company, (ii) any New Notes to be received by it are being acquired in the ordinary course of its business, (iii) it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such New Notes, and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such New Notes. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Old Notes for its own account as the result of market-making activities or other trading activities and must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the staff of the Division of Corporation Finance of the Commission in the interpretive letters referred to above, the Company believes that broker-dealers who acquired Old Notes for their own accounts, as a result of market-making activities or other trading activities ("Participating Broker-Dealers") may fulfill their prospectus delivery requirements with respect to the New Notes received upon exchange of such Old Notes (other than Old Notes which represent an unsold allotment from the original sale of the Old Notes) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such New Notes. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer during the period referred to below in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement, the Company has agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such New Notes for a period ending 180 days after the Expiration Date referred to below (subject to extension under certain limited circumstances described below) or, if earlier, when all such New Notes have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who is an "affiliate" of the Company may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. See "The Exchange Offer -- Resales of New Notes." In that regard, each Participating Broker-Dealer who surrenders Old Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution of the Letter of Transmittal, that, upon receipt of notice from the Company of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in this Prospectus untrue in any material respect or which causes this Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference herein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of 2 5 (Cover page continued) New Notes pursuant to this Prospectus until the Company has amended or supplemented this Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such Participating Broker-Dealer or the Company has given notice that the sale of the New Notes may be resumed, as the case may be. If the Company gives such notice to suspend the sale of the New Notes, it shall extend the 180-day period referred to above during which Participating Broker-Dealers are entitled to use this Prospectus in connection with the resale of New Notes by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker-Dealers shall have received copies of the amended or supplemented Prospectus necessary to permit resales of the New Notes or to and including the date on which the Company has given notice that the sale of New Notes may be resumed, as the case may be. The New Notes will be a new issue of securities for which there currently is no market. Although the Initial Purchaser has informed the Company that it currently intends to make a market in the New Notes, it is not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the New Notes. The Company currently does not intend to apply for listing of the New Notes on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Any Old Notes not tendered and accepted in the Exchange Offer will remain outstanding and will be entitled to all the same rights and will be subject to the same limitations applicable thereto under the Indenture (except for those rights which terminate upon consummation of the Exchange Offer). Following consummation of the Exchange Offer, the holders of Old Notes will continue to be subject to the existing restrictions upon transfer thereof and the Company will have no further obligation to such holders to provide for registration under the Securities Act of the Old Notes held by them. To the extent that Old Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered Old Notes could be adversely affected. See "Summary -- Certain Consequences of a Failure to Exchange Old Notes." THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER. Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York City time, on , 1996 (such time on such date being hereinafter called the "Expiration Date"), unless the Exchange Offer is extended by the Company (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). Tenders of Old Notes may be withdrawn at any time on or prior to the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. However, the Exchange Offer is subject to certain events and conditions which may be waived by the Company and to the terms and provisions of the Registration Rights Agreement. Old Notes may be tendered in whole or in part in a principal amount of $1,000 and integral multiples thereof. The Company has agreed to pay all expenses of the Exchange Offer. See "The Exchange Offer -- Fees and Expenses." Each New Note will bear interest from the most recent date to which interest has been paid or duly provided for on the Old Note surrendered in exchange for such New Note or, if no such interest has been paid or duly provided for on such Old Note, from May 1, 1996. Holders of the Old Notes whose Old Notes are accepted for exchange will not receive accrued interest on such Old Notes for any period from and after the last Interest Payment Date to which interest has been paid or duly provided for on such Old Notes prior to the original issue date of the New Notes or, if no such interest has been paid or duly provided for, will not receive any accrued interest on such Old Notes, and will be deemed to have waived the right to receive any interest on such Old Notes accrued from and after such Interest Payment Date or, if no such interest has been paid or duly provided for, from and after May 1, 1996. Any waiver, extension or termination of the Exchange Offer will be publicly announced by the Company through a release to the Dow Jones News Service and as otherwise required by applicable law or regulations. This Prospectus, together with the Letter of Transmittal, is being sent to all registered holders of Old Notes as of , 1996. The Company will not receive any cash proceeds from the issuance of the New Notes offered hereby. No dealer-manager is being used in connection with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution." 3 6 TABLE OF CONTENTS Page Page Summary 5 Risk Factors 16 Use of Proceeds 20 Capitalization 21 Selected Consolidated Financial Data 22 Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Business 30 Management 41 Exchange Offer 44 Withdrawal Rights 48 Description of Outstanding Indebtedness 50 Description of the New Notes 52 Description of the Old Notes 71 Certain United States Federal Income Tax Considerations 71 Plan of Distribution 72 Legal Matters 72 Experts 73 Available Information 73 Incorporation of Certain Documents by Reference 73 Glossary 74 Index to Consolidated Financial Statements F-1 4 7 SUMMARY The following summary information is qualified in its entirety by the more detailed information and financial statements appearing elsewhere, or incorporated by reference, in this Prospectus. Unless the context requires otherwise, "Benton" or the "Company" refers to Benton Oil and Gas Company and its subsidiaries. Capitalized terms in this summary under the caption "The Exchange Offer" and "The New Notes" and not otherwise defined are defined under the caption "Description of the New Notes -- Certain Definitions." See "Glossary" for the definition of certain oil and gas terms used herein. THE COMPANY GENERAL Benton Oil and Gas Company is an independent energy company which has been engaged in the development and production of oil and gas properties since 1989. Although originally active only in the United States, the Company has developed significant interests in Venezuela and Russia, and recently sold substantially all of its remaining United States oil and gas interests. The Company's operations are conducted principally through its 80%-owned Venezuelan subsidiary, Benton-Vinccler, C.A. ("Benton-Vinccler"), which operates in the South Monagas Unit in Venezuela, and its 34%-owned Russian joint venture, GEOILBENT, which operates in the North Gubkinskoye Field in Siberia, Russia. As of December 31, 1995, the Company had total assets of $214.8 million ($234.9 million at March 31, 1996), total estimated proved reserves of 96,212 MBOE, and a standardized measure of discounted future net cash flow, before income taxes, for total proved reserves of $372.3 million. For the year ended December 31, 1995 and the three months ended March 31, 1996, the Company had total revenues of $65.1 million and $32.9 million, respectively and net income of $10.6 million and $6.3 million, respectively. The Company has been successful in increasing reserves, production, revenues and earnings during the last two years. From year-end 1993 through 1995, estimated proved reserves increased from 42,785 MBOE to 96,212 MBOE, and net production increased from a total of 519 MBOE in 1993 to 6,647 MBOE in 1995. As production has increased over this period, average lifting costs per Bbl have declined from $7.26 to $1.19 in Venezuela, and from $16.22 to $5.63 in Russia. Between 1993 and 1995, the Company's annual revenues increased from $7.5 million to $65.1 million. During the same period, the Company's EBITDA (as defined in the Indenture) increased from $0.5 million to $32.4 million. See "--Summary Consolidated Financial Information." The following table summarizes the Company's financial operating data, proved reserves and production activity in Venezuela and Russia for each of the three years ended December 31: ------------------------------------------------------------------------ VENEZUELA(1) RUSSIA(2) --------------------------------- --------------------------------- Dollars in thousands 1993 1994 1995 1993 1994 1995(3) ------- ------- ------- ------- ------- ------- Oil and Gas Revenues $ 1,333 $21,472 $49,174 $ 324 $ 3,513 $6,016 Expenses(4) 1,394 8,806 17,876 558 3,670 4,276 ------- ------- ------- ------- ------- ------- Results of Operations from Oil and Gas Producing Activities $ (61) $12,666 $31,298 $ (234) $ (157) $1,740 ======= ======= ======= ======= ======= ======== Proved Reserves (MBOE) 19,389 60,707 73,593 10,121 17,540 22,618 Average Daily Production (BOE) 440 6,902 14,949 77 806 1,345 - --------------- (1) Includes 100% of the reserve information, production activity and financial data, without deduction for minority interest. All Venezuelan reserves are attributable to an operating service agreement between Benton-Vinccler and Lagoven, S.A. ("Lagoven") an affiliate of the national oil company, Petroleos de Venezuela, S.A. ("PdVSA"), under which all mineral rights are owned by the Government of Venezuela. See "Business -- South Monagas Unit, Venezuela" and "-- Reserves." (2) The Company's Russian operations are conducted through GEOILBENT, which is only 34%-owned by the Company and, consequently, does not qualify as a Restricted Subsidiary as defined in the Indenture. Accordingly, for purposes of the Indenture, the Company's Russian operations will be excluded from the calculation of covenants and Oil and Gas Reserve Estimate, as defined. See "Description of the New Notes -- Certain Covenants." (3) The financial information related to Russia and included in the 1995 presentation contains information for the nine months ended September 30, 1995, the end of the fiscal period for GEOILBENT. See Note 15 to the Company's Consolidated Financial Statements. (4) Expenses include lease operating costs and production taxes and depletion. 5 8 BUSINESS STRATEGY The Company's business strategy is to identify and exploit new oil and gas reserves in under-developed areas while seeking to minimize the associated risk of such activities. Specifically, the Company endeavors to minimize risk by employing the following strategies in its business activities: (i) seek new reserves in areas of low geologic risk; (ii) use proven advanced technology in both exploration and development to maximize recovery; (iii) establish a local presence through joint venture partners and the use of local personnel; (iv) commit capital in a phased manner to limit total commitments at any one time; and (v) reduce foreign exchange risks through receipt of revenues in U.S. currency. - - SEEK NEW RESERVES IN AREAS OF LOW GEOLOGIC RISK. The Company has had significant success in identifying under-developed reserves in the U.S. and internationally. In particular, the Company has notable experience and expertise in seeking and developing new reserves in countries where perceived potential political and operating difficulties have sometimes discouraged other energy companies from competing. As a result, the Company has established operations in Venezuela and Russia which have significant reserves that have been acquired and developed at relatively low costs. The Company is seeking similar opportunities in other countries and areas which it believes have high potential. - - USE OF PROVEN ADVANCED TECHNOLOGY IN BOTH EXPLORATION AND DEVELOPMENT. The Company's use of 3-D seismic technology, in which a three dimensional image of the earth's subsurface is created through the computer interpretation of seismic data, combined with its experience in designing the seismic surveys and interpreting and analyzing the resulting data, allow for a more detailed understanding of the subsurface than do conventional surveys. Such technology contributes significantly to field appraisal, development and production. The 3-D seismic information, in conjunction with subsurface geologic data from previously drilled wells, is used by the Company's experienced in-house technical team to identify previously undetected reserves. The 3-D seismic information can also be used to guide drilling on a real-time basis, and has been especially helpful in the horizontal drilling done in Venezuela in order to take advantage of oil-trapping faults. - - ESTABLISH A LOCAL PRESENCE THROUGH JOINT VENTURE PARTNERS AND THE USE OF LOCAL PERSONNEL. The Company has sought to establish a local presence where it does business to facilitate stronger relationships with local government and labor through joint venture arrangements with local partners. Moreover, the Company employs almost exclusively local personnel to run foreign operations both to take advantage of local knowledge and experience and to minimize cost. These efforts have created an expertise within Company management in forming effective foreign partnerships and operating abroad. The Company believes that it has gained access to new development opportunities as a result of its reputation as a dependable partner. - - COMMIT CAPITAL IN A PHASED MANNER TO LIMIT TOTAL COMMITMENTS AT ANY ONE TIME. While the Company typically has agreed to a minimum capital expenditure or development commitment at the outset of new projects, expenditures to fulfill these commitments are phased over time. In addition, the Company seeks, where possible, to use internally generated funds for further capital expenditures and to invest in projects which provide the potential for an early return to the Company. - - REDUCE FOREIGN EXCHANGE RISKS. The Company seeks to reduce foreign currency exchange risks by providing for the receipt of revenues by the Company in U.S. dollars while most operating costs are incurred in local currency. Pursuant to the operating agreement between the Company's Venezuelan subsidiary and the state oil company, the operating fees earned by the Company are paid directly to the Company's bank account in the U.S. in U.S. dollars. GEOILBENT receives revenues from export sales in U.S. dollars paid to its account in Moscow. As the Company expands internationally, it will seek to establish similar arrangements for new operations. THE VENEZUELAN OPERATIONS South Monagas Unit In July 1992, the Company and Venezolana de Inversiones y Construcciones Clerico, C.A. ("Vinccler"), a Venezuelan construction and engineering company, signed a 20-year operating service agreement with Lagoven to reactivate and further develop the Uracoa, Tucupita and Bombal Fields, which are a part of the South Monagas Unit. The oil and gas operations are conducted by Benton-Vinccler, the Company's 80%-owned subsidiary. Under the terms of the operating service agreement, Benton-Vinccler is a contractor for Lagoven and is responsible for overall operations of the South Monagas Unit. Benton-Vinccler invoices Lagoven each quarter based on Bbls of oil accepted by Lagoven during the quarter, using quarterly adjusted contract service fees per Bbl, and receives payments from Lagoven in U.S. dollars deposited directly into a U.S. bank account. During March 1996, a total of approximately 50 wells were producing an average of approximately 31.5 MBbls of oil per day in the Uracoa Field. Since 1992, 14 previously drilled wells have been reactivated and 42 new wells have been drilled in the Uracoa Field, with 41, or 98%, completed and placed on production. At December 31, 1995, proved reserves attributable to the Company's Venezuelan operations were 73,593 MBOE, which represented approximately 76% of the Company's proved reserves. During 1996, Benton-Vinccler plans to drill approximately 7 vertical and 26 horizontal wells, 2 injection wells and one 6 9 step-out well adjacent to the Uracoa Field at an anticipated cost of $40-45 million. In addition, Benton-Vinccler intends to expand the capacity of its production facilities during 1996 at an anticipated cost of $21 million. Before becoming inactive, Tucupita had been substantially developed and produced; relatively few wells had been drilled at Uracoa and Bombal. Benton-Vinccler intends to evaluate the potential of the Tucupita Field in 1996 by drilling a pilot oil well. Benton-Vinccler currently plans to reactivate and develop the Bombal Field beginning in 1998. Delta Centro Block In January 1996, the Company and its bidding partners, Louisiana Land and Exploration ("LL&E") and Norcen Energy Company ("Norcen"), were awarded the right to explore and develop the Delta Centro Block in Venezuela. The Delta Centro Block consists of approximately 2,100 square kilometers (526,000 acres) located in the delta of the Orinoco River in the eastern part of Venezuela. Although no significant exploratory activity has been conducted in the block, PdVSA has estimated that the area may contain recoverable reserves of as much as 820 MMBbls, and may be capable of producing up to 160 MBbls of oil per day. The general area of Venezuela in which the Delta Centro Block is located is known to be a significant source of hydrocarbons, evidenced by the Orinoco tar sands to the south and the recently discovered El Furrial light oil trend to the north. The contract requires a minimum exploration work program consisting of completing a 1,300 kilometer seismic survey and drilling three wells to depths of 12,000 to 18,000 feet within five years. The Company will have a 30% interest in the exploration venture, with LL&E and Norcen each owning a 35% interest, with possible subsequent significant participation in development by an affiliate of PdVSA. See "Business -- Delta Centro Block, Venezuela -- General." THE RUSSIAN OPERATIONS The Company operates in Russia through its 34% interest in the GEOILBENT joint venture. The Company's partners in this venture are the local exploration company, Purneftegasgeologia, and the local production company, Purneftegas, each of which owns a 33% interest. GEOILBENT develops, produces and markets oil from the North Gubkinskoye Field in the West Siberia region of Russia, located approximately 2,000 miles northeast of Moscow. Before GEOILBENT commenced its operations, North Gubkinskoye was one of the largest oil and gas fields in the region not under commercial production. Production from the field is delivered via the pipeline network owned by Transneft, the state oil pipeline monopoly, to various points on the western border of Russia. During 1995, the majority of GEOILBENT's crude sales were made to purchasers in Germany. All export sales are paid in U.S. dollars directly into GEOILBENT's account in Moscow. During March 1996, approximately 40 wells were producing an average of approximately 8.4 MBbls of oil per day. RECENT DEVELOPMENTS On April 12, 1996, the Company sold to Shell Offshore Inc. ("Shell") substantially all of its U.S. properties, including its interests in the West Cote Blanche Bay, Rabbit Island and Belle Isle Fields in Louisiana, for a purchase price of $35.4 million, with the sale effective as of December 31, 1995 (the "U.S. Property Sale"). The 1995 and 1996 consolidated financial data set forth herein includes the results of operations from these properties. See Note 14 to the Company's Consolidated Financial Statements. Because the properties were held for sale at December 31, 1995, the Company's reserve report excludes all reserves attributable to these properties. On April 22, 1996, the Venezuelan government announced the lifting of controls on foreign exchange transactions, having announced the lifting of controls on interest rates one week earlier. The Venezuelan government also announced a $1.4 billion preliminary loan accord with the International Monetary Fund. Although these actions have led to the devaluation of the bolivar and a rise in interest rates and are likely to lead to temporary increases in inflation, they are generally viewed as likely to have a positive effect in the long term. Upon the announcement, both the Venezuelan stock and bond markets showed strong gains and it is expected that additional funds will be made available soon by the World Bank and the Inter-American Development Bank. 7 10 THE EXCHANGE OFFER THE EXCHANGE OFFER........................... Up to $125 million aggregate principal amount of New Notes are being offered in exchange for a like aggregate principal amount of Old Notes. The Company is making the Exchange Offer in order to satisfy its obligations under the Registration Rights Agreement relating to the Old Notes. For a description of the procedures for tendering Old Notes, see "The Exchange Offer -- Procedures for Tendering Old Notes." EXPIRATION DATE.............................. 5:00 p.m., New York City time, on , 1996 (such time on such date being hereinafter called the "Expiration Date") unless the Exchange Offer is extended by the Company (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). Any waiver, extension or termination of the Exchange Offer will be publicly announced by the Company through a release to the Dow Jones News Service and as otherwise required by applicable law or regulations. See "The Exchange Offer -- Expiration Date; Extensions; Amendments." CERTAIN CONDITIONS TO THE EXCHANGE OFFER..... The Exchange Offer is subject to certain conditions. The Company reserves the right in its sole and absolute discretion, subject to applicable law, at any time and from time to time, (i) to delay the acceptance of the Old Notes for exchange, (ii) to terminate the Exchange Offer if certain specified conditions have not been satisfied, (iii) to extend the Expiration Date of the Exchange Offer and retain all Old Notes tendered pursuant to the Exchange Offer, subject, however, to the right of holders of Old Notes to withdraw their tendered Old Notes, or (iv) to waive any condition or otherwise amend the terms of the Exchange Offer in any respect. See "The Exchange Offer -- Expiration Date; Extensions; Amendments" and "-- Certain Conditions to the Exchange Offer." WITHDRAWAL RIGHTS............................ Tenders of Old Notes may be withdrawn at any time on or prior to 5:00 p.m., New York City time on the Expiration Date by delivering a written notice of such withdrawal to the Exchange Agent in conformity with certain procedures set forth below under "The Exchange Offer -- Withdrawal Rights." PROCEDURES FOR TENDERING OLD NOTES........... Tendering holders of Old Notes must complete and sign a Letter of Transmittal in accordance with the instructions contained therein and forward the same by mail, facsimile or hand delivery, together with any other required documents, to the Exchange Agent (as defined below) at the address set forth herein by 5:00 p.m. New York City time on the Expiration Date, either with the Old Notes to be tendered or in compliance with the specified procedures for guaranteed delivery of Old Notes. Certain brokers, dealers, commercial banks, trust companies and other nominees may also effect tenders by book-entry transfer. Holders of Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee are urged to contact such person promptly if they wish to tender Old Notes pursuant to the Exchange Offer. See "The Exchange Offer -- Procedures for Tendering Old Notes." Letters of Transmittal and certificates representing Old Notes should not be sent to the Company. Such documents should only be sent to the Exchange Agent. Questions regarding how to tender and requests for information should be directed to the Exchange Agent. See "The Exchange Offer -- Exchange Agent." 8 11 GUARANTEED DELIVERY PROCEDURES............... Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, a Letter of Transmittal or any other document required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Procedures for Tendering Old Notes -- Guaranteed Delivery." RESALES OF NEW NOTES......................... The Company is making the Exchange Offer in reliance on the position of the staff of the Division of Corporation Finance of the Commission as set forth in certain interpretive letters addressed to third parties in other transactions. However, the Company has not sought its own interpretive letter and there can be no assurance that the staff of the Division of Corporation Finance of the Commission would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the staff of the Division of Corporation Finance, and subject to the two immediately following sentences, the Company believes that New Notes issued pursuant to this Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such New Notes. However, any holder of Old Notes who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the New Notes, or any broker-dealer who purchased the Old Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the staff of the Division of Corporation Finance of the Commission set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Old Notes in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Old Notes unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Old Notes acquired for its own account as a result of market-making or other trading activities and exchanges such Old Notes for New Notes, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such New Notes. Each holder of Old Notes who wishes to exchange Old Notes for New Notes in the Exchange Offer will be required to represent that (i) it is not an "affiliate" of the Company, (ii) any New Notes to be received by it are being acquired in the ordinary course of its business, (iii) it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such New Notes, and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such New Notes. Each broker-dealer that receives New 9 12 Notes for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Old Notes for its own account as the result of market-making activities or other trading activities and must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the staff of the Division of Corporation Finance of the Commission in the interpretive letters referred to above, the Company believes that broker-dealers who acquired Old Notes for their own accounts as a result of market-making activities or other trading activities ("Participating Broker-Dealers") may fulfill their prospectus delivery requirements with respect to the New Notes received upon exchange of such Old Notes with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such New Notes. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement and to the limitations described below under "The Exchange Offer -- Resale of New Notes," the Company has agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such New Notes for a period ending 180 days after the Expiration Date (subject to extension under certain limited circumstances) or, if earlier, when all such New Notes have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who is an "affiliate" of the Company may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. See "The Exchange Offer -- Resales of New Notes." ACCEPTANCE OF OLD NOTES AND Subject to the terms and conditions of the Exchange DELIVERY OF NEW NOTES...................... Offer, including the reservation of certain rights by the Company, the Company will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer, and not withdrawn, prior to 5:00 p.m. New York City time, on the Expiration Date. Subject to such terms and conditions, the New Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Acceptance for Exchange and Issuance of New Notes." EXCHANGE AGENT............................... The exchange agent with respect to the Exchange Offer is First Trust of New York, National Association (the "Exchange Agent"). The addresses, and telephone and facsimile numbers of the Exchange Agent are set forth in "The Exchange Offer -- Exchange Agent" and in the Letter of Transmittal. USE OF PROCEEDS.............................. The Company will not receive any cash proceeds from the issuance of the New Notes offered hereby. See "Use of Proceeds." 10 13 CERTAIN UNITED STATES FEDERAL INCOME TAX Holders of Old Notes should review the information set CONSIDERATIONS............................. forth under "Certain United States Federal Income Tax Considerations" prior to tendering Old Notes in the Exchange Offer. THE NEW NOTES SECURITIES OFFERED........................... Up to $125 million aggregate principal amount of the Company's 11 5/8% Senior Notes due 2003 which have been registered under the Securities Act. The New Notes will be issued and the Old Notes were issued under an Indenture dated as of May 2, 1996 (the "Indenture") between the Company and First Trust of New York, National Association (the "Trustee"). The New Notes and any Old Notes which remain outstanding after consummation of the Exchange Offer will constitute a single series of debt securities under the Indenture and, accordingly, will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding principal amount thereof have taken certain actions or exercised certain rights under the Indenture. See "Description of the New Notes -- General." The terms of the New Notes are identical in all material respects to the terms of the Old Notes, except that (i) the New Notes have been registered under the Securities Act and therefore are not subject to certain restrictions on transfer applicable to the Old Notes, will not contain legends relating thereto and will not be entitled to registration rights or other rights under the Registration Rights Agreement, and (ii) the New Notes will not provide for any increase in the interest rate thereon. See "The Exchange Offer -- Purpose of the Exchange Offer," "Description of the New Notes" and "Description of the Old Notes." MATURITY DATE................................ May 1, 2003. INTEREST PAYMENT DATES....................... May 1 and November 1, commencing on November 1, 1996. OPTIONAL REDEMPTION.......................... The New Notes will be redeemable, at the Company's option, in whole or in part, at any time on or after May 1, 2000 at the redemption prices set forth herein plus accrued and unpaid interest, if any, to the date of redemption. The Company may also redeem at its option at any time prior to May 1, 1999 up to 25% of the aggregate principal amount of the New Notes and Old Notes then outstanding with the proceeds of one or more public offerings of certain equity securities at a redemption price equal to 111.625% of the principal amount of such New Notes and Old Notes, plus accrued and unpaid interest to the redemption date; provided that at least $93.75 million in aggregate principal amount of New Notes and old Notes remains outstanding immediately after giving effect to such redemption. See "Description of the New Notes -- Optional Redemption." CHANGE IN CONTROL............................ Upon a Change in Control, each holder of the New Notes may require the Company to repurchase such holder's New Notes, in whole or in part, at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest. See "Description of the New Notes -- Change in Control." 11 14 RANKING...................................... The New Notes will constitute senior unsecured debt obligations of the Company and will rank senior in right of payment to all existing and future Subordinated Indebtedness and pari passu with all other Senior Indebtedness. The New Notes will be effectively subordinated to secured indebtedness of the Company and all liabilities of the Company's subsidiaries, except to the extent that the Company is itself recognized as a creditor to such subsidiary, in which case the claims of the Company would still be subordinate to any security interest in the assets of such subsidiary, and indebtedness of such subsidiary senior to that held by the Company. At March 31, 1996, after giving pro forma effect to the U.S. Property Sale and the issuance of the Old Notes and the use of proceeds received from each transaction as set forth in "Capitalization," $37.2 million of consolidated indebtedness and trade payables would have been liabilities of the Company's subsidiaries or secured indebtedness of the Company and ranked effectively senior to the New Notes and the Company would have had $6.4 million of outstanding indebtedness and trade payables that would have ranked pari passu with the New Notes. In addition, the Company could have incurred up to $38.0 million of secured indebtedness under its revolving letter of credit and loan facility which would have ranked effectively senior to the New Notes. See "Description of the New Notes -- Ranking." CERTAIN COVENANTS............................ The Indenture contains certain covenants that, among other restrictions, limit the ability of the Company and its Restricted Subsidiaries to incur additional indebtedness, pay dividends and make certain investments, engage in transactions with its affiliates, sell assets, incur or suffer to exist certain liens securing indebtedness unless the New Notes are equally and ratably secured, and engage in mergers and consolidations. The Indenture will also limit the amount of indebtedness the Company's Restricted Subsidiaries may assume or the amount of indebtedness of the Company they may guarantee unless such Restricted Subsidiaries simultaneously guarantee the payment of the New Notes. See "Description of the New Notes -- Certain Covenants." USE OF PROCEEDS.............................. The Company will receive no proceeds from this Exchange Offer. ABSENCE OF MARKET FOR THE NEW NOTES.......... The New Notes will be a new issue of securities for which there currently is no market. Although J.P. Morgan Securities Inc., the initial purchaser of the Old Notes (the "Initial Purchaser"), has informed the Company that it currently intends to make a market in the New Notes, it is not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the New Notes. The Company currently does not intend to apply for listing of the New Notes on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. 12 15 CERTAIN CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES The Old Notes have not been registered under the Securities Act or any state securities laws and therefore may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act and any other applicable securities laws, or pursuant to an exemption therefrom or in a transaction not subject thereto, and in each case in compliance with certain other conditions and restrictions, including the Company's and the Trustee's right in certain cases to require the delivery of opinions of counsel, certifications and other information prior to any such transfer. Old Notes which remain outstanding after consummation of the Exchange Offer will continue to bear a legend reflecting such restrictions on transfer. In addition, upon consummation of the Exchange Offer, holders of Old Notes which remain outstanding will not be entitled to any rights to have such Old Notes registered under the Securities Act or to any similar rights under the Registration Rights Agreement. The Company currently does not intend to register under the Securities Act any Old Notes which remain outstanding after consummation of the Exchange Offer. To the extent that Old Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered Old Notes could be adversely affected. In addition, although the Old Notes are eligible for trading in the Private Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market, to the extent that Old Notes are tendered and accepted in connection with the Exchange Offer, any trading market for Old Notes which remain outstanding after the Exchange Offer could be adversely affected. The New Notes and any Old Notes which remain outstanding after consummation of the Exchange Offer will constitute a single series of debt securities under the Indenture and, accordingly, will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding principal amount thereof have taken certain actions or exercised certain rights under the Indenture. See "Description of the New Notes -- General." The Old Notes provide that, if the Exchange Offer is not consummated by August 31, 1996, the interest rate borne by the Old Notes will increase by 0.50% per annum following August 31, 1996 until the Exchange Offer is consummated. See "Description of the Old Notes." Following consummation of the Exchange Offer, the Old Notes will not be entitled to any increase in the interest rate thereon. The New Notes will not be entitled to any such increase in the interest rate thereon. 13 16 SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following table sets forth summary consolidated financial information for the Company and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements, related notes and other financial data included elsewhere herein or incorporated herein by reference. ----------------------- --------------------------------------- THREE MONTHS ENDED YEARS ENDED DECEMBER 31 MARCH 31 In thousands, except ratios 1993 1994 1995(1) 1995 1996(1) ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS: Total revenues(2) $ 7,503 $34,705 $65,068 $12,661 $32,939 Lease operating costs and production taxes(2) 5,110 9,531 10,703 2,246 4,073 Depletion, depreciation and amortization(2) 2,633 10,298 17,411 3,145 7,733 General and administrative expense 2,631 5,242 9,411 1,668 3,647 Interest expense(2) 1,958 3,888 7,497 1,619 2,260 Litigation settlement and partnership exchange expenses -- -- 1,673 -- 2,140 ------- ------- ------- ------- ------- Income (loss) before income taxes and minority interest (4,829) 5,746 18,373 3,983 13,086 Income tax expense -- 698 2,478 1,079 4,449 ------- ------- ------- ------- ------- Income (loss) before minority interest (4,829) 5,048 15,895 2,904 8,637 Minority interest -- 2,094 5,304 863 2,327 ------- ------- ------- ------- ------- Net income (loss) $(4,829) $ 2,954 $10,591 $ 2,041 $ 6,310 ======== ======== ======== ======== ======== ----------------------- --------------------------------------- THREE MONTHS ENDED YEARS ENDED DECEMBER 31 MARCH 31 1993 1994 1995(1) 1995 1996(1) ------- ------- ------- ------- ------- OTHER DATA: EBITDA(3) $ 598 $15,603 $32,396 $ 5,964 $20,512 Net cash provided by (used in) operating activities (1,790) 13,463 32,349 5,389 15,776 Net cash provided by (used in) investing activities (18,619) (55,078) (53,644) 3,584 (14,949) Net cash provided by (used in) financing activities 43,044 19,500 13,282 (1,956) 797 Capital expenditures 26,249 55,711 78,727 11,130 15,384 EBITDA/Interest Ratio(3)(4) 0.23 3.51 4.21 3.47 9.41 Ratio of earnings to fixed charges(5) -- 2.45 3.25 3.24 6.40 ------------------------------ AT MARCH 31, 1996 ACTUAL PRO FORMA(6) -------- ------------- BALANCE SHEET DATA: Working capital $ 2,726 $ 13,115 Total assets 234,893 222,183 Long-term obligations, net of current portion 46,050 33,442 Stockholders' equity(7) 117,996 117,895 - ------------------------ (1) The financial information related to Russia and included in the year end 1995 presentation contains information for the nine months ended September 30, 1995, the end of the fiscal period for GEOILBENT. Similarly, the 1996 presentation contains information at, and for the three months ended December 31, 1995. See Note 15 to the Company's Consolidated Financial Statements. (2) Assuming the U.S. Property Sale had occurred on January 1, 1995, pro forma effects on the consolidated statement of operations for the year ended December 31, 1995 would include reductions in oil and gas revenues, lease operating costs and production taxes, depletion and interest expense of $7.4 million, $1.0 million, $4.0 million and $2.7 million, respectively. The pro forma effects on the consolidated statement of operations for the three months ended March 31, 1996 would include reductions in oil and gas revenues, lease operating costs and production taxes, depletion and interest expense of $4.1 million, $0.2 million, $1.4 million and $0.6 million, respectively. (3) EBITDA has been calculated as defined in the Indenture and has been included solely to facilitate consideration of the covenants in the Indenture that are based, in part, on EBITDA. See "Description of the New Notes -- Certain Definitions." EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flow as a measure of liquidity. (4) EBITDA/Interest Ratio has been calculated as defined in the Indenture. See "Description of the New Notes -- Certain Definitions." (5) For purposes of determining the ratio of earnings to fixed charges, "earnings" represents income (loss) before income taxes plus fixed charges exclusive of capitalized interest, and "fixed charges" consists of interest, whether expensed or capitalized, amortization of debt expense and an estimated portion of rent expense representing interest costs. As a result of the losses incurred by the Company for the year ended December 31, 1993, earnings were insufficient to cover fixed charges by $4.8 million. After giving effect to the sale of the Old Notes, to the extent proceeds will be used to retire presently outstanding indebtedness, the pro forma ratio of earnings to fixed charges would have been 2.60 for the year ended December 31, 1995 and 6.03 for the three months ended March 31, 1996. (6) Pro forma for the U.S. Property Sale, as if such sale had occurred on March 31, 1996. (7) No cash dividends were paid during the periods presented. 14 17 SUMMARY OIL AND GAS RESERVE INFORMATION The following sets forth summary information with respect to the estimates of the Company's proved oil and gas reserves at December 31, 1993, 1994 and 1995, prepared by the Company and audited by Huddleston & Co., Inc., independent petroleum engineers. --------------------------------------- YEARS ENDED DECEMBER 31 Dollars in thousands 1993 1994 1995 --------- --------- --------- VENEZUELA(1): Crude oil and condensate (MBbl) 19,389 60,707 73,593 Natural gas (Mmcf) -- -- -- Oil equivalent (MBOE) 19,389 60,707 73,593 RUSSIA: Crude oil and condensate (MBbl) 10,121 17,540 22,618 Natural gas (Mmcf) -- -- -- Oil equivalent (MBOE) 10,121 17,540 22,618 UNITED STATES(2): Crude oil and condensate (MBbl) 10,258 233 -- Natural gas (Mmcf) 18,099 16,077 6 Oil equivalent (MBOE) 13,275 2,913 1 TOTAL(1): Crude oil and condensate (MBbl) 39,768 78,480 96,211 Natural gas (Mmcf) 18,099 16,077 6 Oil equivalent (MBOE) 42,785 81,160 96,212 Standardized measure of discounted future net cash flows before provision for income taxes(1)(3) $ 131,413 $ 336,320 $ 372,293 - --------------- (1) Includes 100% of the reserve information, without deduction for minority interest. All Venezuelan reserves are attributable to an operating service agreement between Benton-Vinccler and Lagoven under which all mineral rights are owned by the Government of Venezuela. (2) At December 31, 1995, substantially all of the Company's U.S. reserves and acreage positions were held for sale pursuant to the U.S. Property Sale, and accordingly all such reserves were excluded. (3) The Company values its reserves as of December 31 of each year, based on oil and natural gas prices as of that date. Market prices for both oil and natural gas are subject to a significant degree of variation both in domestic and international markets, and this variation will affect the calculation of future net cash flows reported by the Company at any specific date. 15 18 RISK FACTORS Prospective purchasers of the New Notes should read this entire Prospectus carefully. Ownership of the New Notes involves certain risks. In addition to the other information contained in this Prospectus, investors should carefully consider the following factors in connection with an investment in the New Notes. RISKS RELATED TO THE COMPANY Risk from Substantial Concentration of Operations The Company's cash flow-generating operations are substantially concentrated in Venezuela. For 1995, the Company derived approximately 78% of its consolidated oil and gas revenues and approximately 76% of its proved reserves from its Venezuelan operations. If the Venezuelan operations are adversely effected, the Company, due to its concentration in and reliance on the Venezuelan operations, will experience an adverse impact on its financial condition and operations. There are significant operating and economic risks associated with conducting business in Venezuela. See "-- Risks Related to the Company -- Political and Economic Risks of International Operations -- Venezuela." Political and Economic Risks of International Operations -- General Substantially all of the Company's oil and gas producing operations and non-financial assets are in Venezuela and Russia and all operating income is expected to be generated from these countries (absent any new investments). As a result, the Company is subject to certain political, economic and other uncertainties including risks of war, civil disturbance, expropriation, nationalization, renegotiation or modification of existing contracts, taxation policies, foreign exchange restrictions, international monetary fluctuations and other hazards arising out of foreign governmental sovereignty over the Company's operations. Political and Economic Risks of International Operations -- Venezuela The Company began to operate in Venezuela in 1992. For 1995, the Company derived approximately 78% of its consolidated oil and gas revenues and approximately 76% of its proved reserves from its Venezuelan operations. The petroleum industry in Venezuela is highly regulated by the government with respect to such matters as maximum daily production, methods of production and environmental matters, both directly and indirectly through PdVSA. In addition, the timing and extent of the Company's development activities are subject to the approval of Lagoven and the Ministry of Energy and Mines. There can be no assurance that the government or PdVSA will not impose significant new regulations regarding the petroleum industry generally or that the development activities proposed by Benton-Vinccler will receive the necessary approval. The Company also expects to increase its exposure to Venezuela through the continued investment in Benton-Vinccler and the Delta Centro consortium. While Benton-Vinccler has never had a material dispute or payment interruption with Lagoven, PdVSA or the Venezuelan government, the country of Venezuela has experienced significant political and economic instability, high inflation, and shortages of foreign currency. Political and Economic Situation. In May 1993, the Venezuelan Senate voted to authorize the impeachment of President Carlos Andres Perez. Subsequently, Rafael Caldera was elected president and took office in February 1994. Upon assuming the presidency, President Caldera was immediately faced with a solvency crisis in the banking system which necessitated a government takeover of nine financial institutions, including Banco Latino, one of the largest Venezuelan banks. Consequently, the bolivar devalued sharply, inflation rose and gross domestic product ("GDP") contracted. Though Venezuela experienced positive GDP growth for 1995, it was the first increase in three years, and the 1995 GDP figures did not reflect the full effects of a currency devaluation at year end. Many independent sources are predicting another GDP contraction in 1996. On April 22, 1996, the Venezuelan government announced the lifting of controls on foreign exchange transactions, having announced the lifting of controls on interest rates one week earlier. The Venezuelan government also announced a $1.4 billion preliminary loan accord with the International Monetary Fund. Although these actions have led to the devaluation of the bolivar and a rise in interest rates and are likely to lead to temporary increases in inflation, they are generally viewed as likely to have a positive effect in the long term. There can be no assurance, however, that such actions will be successful in resolving Venezuela's economic difficulties. Inflation and Currency Controls. Venezuela has experienced high levels of inflation over the past decade. The consumer price inflation rate was approximately 38% for calendar year 1993, 61% for 1994, and 60% for 1995. In addition to increasing the Company's bolivar-denominated expenses with respect to its Venezuelan operations, these high rates of inflation led the Venezuelan government to devalue the bolivar by 41% on December 11, 1995. In July 1994, the Venezuelan government imposed a program of currency exchange controls that was lifted in April 1996. Pursuant to its agreement with Lagoven, Benton-Vinccler receives its payments from Lagoven in U.S. dollars deposited directly into a U.S. bank account. Although the lifting of currency controls is expected to lead to increased economic stability in the long term, it is likely to lead to a temporary rise in 16 19 inflation in Venezuela. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Effects of Changing Prices, Foreign Exchange Rates and Inflation." Oil Production and OPEC. News reports speculate that Venezuela is currently producing oil in excess of the output quota established by OPEC. While Venezuela remains a member of OPEC and has yet to face any sanctions, there is a risk that pressure from OPEC could cause Venezuela to cut oil production voluntarily to comply with the established quotas or take action that could depress world oil prices. Such compliance could require a significant reduction in Venezuelan oil production and could have a material adverse impact on Benton-Vinccler. Political and Economic Risks of International Operations -- Russia Since the dissolution of the Soviet Union in 1991, Russia has experienced periods of political unrest and instability, high inflation, wide currency exchange rate swings, contractions in GDP, volatile tariff and taxation policies, and the lack of a clear and stable legal and administrative environment governing oil and gas licensing and operations. There can be no assurance that any of these factors in addition to other factors may not persist or worsen and therefore negatively effect the Company's operations in Russia. In addition to the factors discussed above, Russia has established an export tariff on all oil produced in and exported from Russia which, as imposed, has the effect of reducing the potential profits to the Company and could render its proved reserves attributable to Russia uneconomic. Russia has recently announced that effective in July 1996, oil export tariffs will be terminated in accordance with an IMF loan condition. However, Russia has proposed that such tariffs be replaced by an excise, pipeline or other tax on producers which may equal or exceed the export tariff, but it is unclear how such other tax rates and regimes will be set and administered. The legislative and regulatory environment in Russia continues to be subject to frequent change and uncertainty. The Company believes it will not receive any significant distributions from GEOILBENT for several years because substantially all of the money received by GEOILBENT from the North Gubkinskoye Field will be reinvested to fund development activities. Properties Under Development As of December 31, 1995, approximately 65% of the Company's proved reserves were undeveloped and required development activities, consisting primarily of development drilling and construction of production facilities. As a result, the Company will require substantial capital expenditures to develop all of its proved reserves. At December 31, 1995, the anticipated future development costs for proved reserves in Venezuela and Russia were $76.4 million and $36.7 million, respectively. The Company does not currently have the capital to develop all of these reserves, and if such capital does not otherwise become available, the Company will either enter into joint ventures to develop the projects, which will result in the Company retaining a smaller interest, or not develop the reserves. There can be no certainty regarding the commercial feasibility of developing these reserves, the availability of financing, or the timing or costs associated therewith. If such capital is available, there can be no assurance that the Company will be able to develop and produce sufficient reserves to recover the costs expended and operate the wells profitably. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Capital Resources and Liquidity." Engineers' Estimates of Reserves and Future Net Revenue Estimates of economically recoverable oil and gas reserves and of future net cash flows are based upon a number of variable factors and assumptions, all of which are to some degree speculative and may vary considerably from actual results. Therefore, actual production, revenues, taxes, and development and operating expenditures may not occur as estimated. Future results of operations of the Company will depend upon its ability to develop, produce and sell its oil and gas reserves. The reserve data included herein are estimates only and are subject to many uncertainties. Actual quantities of oil and gas may differ considerably from the amounts set forth herein. In addition, different reserve engineers may make different estimates of reserve quantities and cash flows based upon the same available data. See "Business -- Reserves." Development of Additional Reserves The Company's future success may also depend upon its ability to find or acquire additional oil and gas reserves that are economically recoverable. Except to the extent that the Company conducts successful exploration or development activities or acquires properties containing proved reserves, the proved reserves of the Company will generally decline as reserves are produced. There can be no assurance that the Company will be able to discover additional commercial quantities of oil and gas, or that the Company will be able to continue to acquire interests in under-developed oil and gas fields and enhance production and reserves by drilling replacement wells and drilling development wells, or that the Company will have continuing success drilling productive wells and acquiring under-developed properties at low finding costs. 17 20 Retention and Attraction of Key Personnel The Company depends to a large extent on the abilities and continued participation of certain key employees, the loss of whose services could have a material adverse effect on the Company's business. In an effort to minimize the risk, the Company has entered into employment agreements with certain key employees, and has purchased a $5.0 million key-man life insurance policy on the life of A.E. Benton. There can be no assurance that the Company will be able to attract and retain such personnel on acceptable terms and the failure to do so could have a material adverse effect on the Company. RISKS RELATED TO THE OIL AND GAS INDUSTRY Risk of Oil and Gas Operations The Company's operations are subject to all of the risks normally incident to the operation and development of oil and gas properties and the drilling of oil and gas wells, including encountering unexpected formations or pressures, blowouts, cratering and fires, and, in horizontal wellbores, the increased risk of mechanical failure and collapsed holes, the occurrence of any of which could result in personal injuries, loss of life, environmental damage and other damage to the properties of the Company or others. In addition, because the Company acquires interests in under-developed oil and gas fields that have been operated by others for many years, the Company may be liable for any damage or pollution caused by any prior operations of such oil and gas fields. In accordance with customary industry practice, the Company is not fully insured against these risks, nor are all such risks insurable. Accordingly, there can be no assurance that such insurance as the Company does maintain will be adequate to cover any losses or exposure for liability. Current Oil and Gas Industry Conditions Historically, the markets for oil and natural gas have been volatile and are likely to continue to be volatile in the future. Prices for oil and natural gas are subject to wide fluctuation in response to relatively minor changes in supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond the control of the Company. These factors include political conditions in the Middle East, the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer product demand, weather conditions, domestic and foreign government regulations, the price and availability of alternative fuels and overall economic conditions. Lower oil prices also may reduce the amount of the Company's oil that is economic to produce. In addition, the marketability of the Company's production depends upon the availability and capacity of gathering systems and pipelines. Government Regulation; Environmental Risks The Company's business is regulated by certain federal, state, local and foreign laws and regulations relating to the development, production, marketing and transmission of oil and gas, as well as environmental and safety matters. There can be no assurance that laws and regulations enacted in the future will not adversely affect the Company's exploration for, or the production and marketing of, oil and gas. Oil and gas operations are subject to extensive foreign, federal, state and local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. Numerous governmental departments issue rules and regulations to implement and enforce such laws which are often difficult and costly to comply with and which carry substantial penalties for failure to comply. The regulatory burden on the oil and gas industry increases its cost of doing business and consequently affects its profitability. These laws, rules and regulations affect the operations of the Company. Compliance with environmental requirements generally could have a material adverse effect upon the capital expenditures, earnings or competitive position of the Company. Competition The oil and gas exploration and production business is highly competitive. A large number of companies and individuals engage in the drilling for oil and gas, and there is a high degree of competition for desirable oil and gas properties suitable for drilling and for materials and third-party services essential for their exploration and development. Many of the Company's competitors have greater financial and other resources than does the Company. RISKS RELATED TO AN INVESTMENT IN THE NEW NOTES Substantial Leverage After giving effect to the sale of the Old Notes, the Company will require substantial cash flow to meet its principal repayment and interest obligations on the Notes. After giving effect to the sale of the Old Notes and the U.S. Property Sale as if each had occurred on March 31, 1996, the Company and its subsidiaries would have had total pro forma indebtedness of approximately $154.0 million at such date. The Company expects to use a substantial portion of the proceeds from the sale of the Old Notes for development activities at its oil and gas properties which the Company anticipates will increase oil and gas production and cash 18 21 flow to enable the Company to repay or refinance the Notes when due. However, there can be no assurance that expenditure of such proceeds will result in sufficient increased cash flow to repay or refinance the Notes when due. In addition, the Indenture will impose significant operating and financial restrictions on the Company. Such restrictions will affect, and in many respects limit or prohibit, among other things, the ability of the Company and its Restricted Subsidiaries to incur additional indebtedness, pay dividends and make certain investments, engage in transactions with affiliates, sell assets, incur or suffer to exist certain liens securing indebtedness unless the Notes are equally and ratably secured, and engage in mergers or consolidations. The Indenture will also limit the amount of indebtedness the Company's Restricted Subsidiaries may assume and the amount of indebtedness of the Company they may guarantee unless such Restricted Subsidiaries simultaneously guarantee the payment of the Notes. The leveraged position of the Company and the restrictive covenants contained in the Indenture could significantly limit the ability of the Company to respond to changing business or economic conditions or to respond to substantial declines in operating results. See "Description of the New Notes." Liquidity Needs; Ability to Repay Notes The Company may from time to time fund a portion of its working capital needs and capital expenditure requirements from external financing. In addition, the Company expects that in order to repay the principal amount of the Notes or to purchase the Notes upon the occurrence of a Change in Control, it may be required to seek additional financing or engage in asset sales or in similar transactions. There can be no assurance that sufficient funds for any of the foregoing purposes would be available to the Company at the time they were required. See "Description of the New Notes." Holding Company Structure The New Notes will be and the Old Notes are obligations exclusively of the Company. Because the Company's operations are conducted almost entirely through its subsidiaries, the cash flow and the consequent ability of the Company to service its debt, including the Notes, are dependent upon the earnings of the Company's subsidiaries and the distribution of those earnings to the Company. The subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes or to make funds available therefore, whether by dividends, loans or other payments. In addition, the payment of dividends and the making of loans and advances to the Company by its subsidiaries may be subject to statutory or contractual restrictions and are contingent upon the earnings of those subsidiaries and subject to various business considerations. Currently, the Company only has one operating subsidiary, Benton-Vinccler, that may be expected to make funds available to the Company to pay any amounts due pursuant to the Notes. Lack of a Public Market for the New Notes The New Notes will be a new issue of securities, and the Company does not intend to list them on any securities exchange. If the New Notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending upon prevailing interest rates, the market for similar securities and other factors. J. P. Morgan Securities Inc. has informed the Company that it currently intends to make a market in the New Notes. However, it is not obligated to do so, and any such market making may be discontinued at any time without notice. See "Plan of Distribution." There can be no assurance that an active trading market for the Notes will develop. See "Description of the New Notes." 19 22 USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the New Notes offered hereby. In consideration for issuing the New Notes in exchange for Old Notes as described in this Prospectus, the Company will receive Old Notes in like principal amount. The Old Notes surrendered in exchange for the New Notes will be retired and cancelled. Accordingly, the issuance of the New Notes will not result in any change in the indebtedness of the Company. The net proceeds to the Company from the sale of the Old Notes was approximately $120.8 million. The Company has used or intends to use such net proceeds: (i) to prepay in full the $20.0 million aggregate principal amount of its outstanding 13% Senior Notes due 2007 and accrued interest thereon, with a prepayment premium of approximately $7.4 million; (ii) to repay approximately $6.5 million in trade financings; and (iii) for general corporate purposes, including the Company's ongoing exploration and development programs. See "Business -- South Monagas Unit, Venezuela -- Drilling and Development Activity," "-- Delta Centro Block, Venezuela -- Drilling and Development Activity" and "-- North Gubkinskoye, Russia -- Drilling and Development Activity." 20 23 CAPITALIZATION The following table sets forth the short-term indebtedness and capitalization of the Company (i) as of March 31, 1996, (ii) pro forma to reflect the U.S. Property Sale and the use of proceeds therefrom to repay certain long-term debt, and (iii) pro forma, as adjusted to reflect the use of proceeds from the U.S. Property Sale and the sale of the Old Notes and the use of proceeds as described herein. --------------------------------------- AS OF MARCH 31, 1996 PRO FORMA, AS Dollars in thousands ACTUAL PRO FORMA ADJUSTED -------- --------- ---------- SHORT-TERM INDEBTEDNESS Current maturities of long-term indebtedness $ 8,138 $ 8,138 $ 2,429 Short-term indebtedness 21,307 21,307 20,610 -------- -------- -------- Total short-term indebtedness $ 29,445 $ 29,445 $ 23,039 ======== ======== ======== LONG-TERM INDEBTEDNESS(1) Old Notes $ -- $ -- $125,000 13% Senior unsecured notes due 2002 15,000 -- -- 13% Senior unsecured notes due 2007 20,000 27,392 (2) -- Revolving secured credit facility 5,000 -- -- 8% Convertible Subordinated Debentures due 2002 4,252 4,252 4,252 Other 1,798 1,798 1,666 -------- -------- -------- Total long-term indebtedness 46,050 33,442 130,918 -------- -------- -------- STOCKHOLDERS' EQUITY Common Stock, $0.01 par value; authorized 40,000,000 shares; issued and outstanding 26,092,559 shares 261 261 261 Additional paid-in capital 105,745 105,745 105,745 Retained earnings 11,990 11,889 11,889 -------- -------- -------- Total stockholders' equity 117,996 117,895 117,895 -------- -------- -------- Total capitalization $164,046 $151,337 $248,813 ======== ======== ======== - --------------- (1) See "Description of Outstanding Indebtedness." (2) Includes approximately $7.4 million accrued as a prepayment premium incurred upon consummation of the U.S. Property Sale. The calculation was based upon prevailing interest rates on May 2, 1996, the date the prepayment premium was paid. 21 24 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data for the Company for each of the five years in the period ended December 31, 1995, are derived from the Company's audited consolidated financial statements. The selected consolidated financial data for the three months ended March 31, 1995 and 1996 are derived from the Company's unaudited consolidated financial statements. In the opinion of management, such unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the consolidated financial condition and results of operations as of and for the periods presented. Operating results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 1996. The consolidated financial data below should be read in conjunction with the Company's Consolidated Financial Statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere herein or incorporated herein by reference. ------------------ -------------------------------------------------------- Dollars in thousands, except THREE MONTHS ENDED per share and ratio data YEARS ENDED DECEMBER 31 MARCH 31 1991(1) 1992 1993 1994 1995(2) 1995 1996(2) --------- -------- --------- --------- --------- -------- -------- STATEMENT OF OPERATIONS: Total revenues (3) $ 11,513 $ 8,622 $ 7,503 $ 34,705 $ 65,068 $ 12,661 $ 32,939 Lease operating costs and production taxes (3) 4,209 4,414 5,110 9,531 10,703 2,246 4,073 Depletion, depreciation and amortization (3) 3,058 3,041 2,633 10,298 17,411 3,145 7,733 General and administrative expense 1,998 2,245 2,631 5,242 9,411 1,668 3,647 Interest expense (3) 1,736 1,831 1,958 3,888 7,497 1,619 2,260 Litigation settlement and partnership exchange expenses -- -- -- -- 1,673 -- 2,140 --------- -------- --------- --------- --------- -------- -------- Income (loss) before income taxes and minority interest 512 (2,909) (4,829) 5,746 18,373 3,983 13,086 Income tax expense -- -- -- 698 2,478 1,079 4,449 --------- -------- --------- --------- --------- -------- -------- Income (loss) before minority interest 512 (2,909) (4,829) 5,048 15,895 2,904 8,637 Minority interest -- -- -- 2,094 5,304 863 2,327 --------- -------- --------- --------- --------- -------- -------- Net income (loss) $ 512 $ (2,909) $ (4,829) $ 2,954 $ 10,591 $ 2,041 $ 6,310 ======== ======= ======== ======== ======== ======= ======= Net income (loss) per common share $ 0.04 $ (0.22) $ (0.26) $ 0.12 $ 0.40 $ 0.08 $ 0.22 ======== ======= ======== ======== ======== ======= ======= -------------------- -------------------------------------------------------- THREE MONTHS ENDED MARCH YEARS ENDED DECEMBER 31 31 1991(1) 1992 1993 1994 1995(2) 1995 1996(2) --------- -------- --------- --------- --------- --------- --------- OTHER DATA: EBITDA (4) $ 5,974 $ 2,153 $ 598 $ 15,603 $ 32,396 $ 5,964 $ 20,512 Net cash provided by (used in) operating activities 4,027 (648) (1,790) 13,463 32,349 5,389 15,776 Net cash provided by (used in) investing activities (15,998) (10,944) (18,619) (55,078) (53,644) 3,584 (14,949) Net cash provided by (used in) financing activities 10,570 21,588 43,044 19,500 13,282 (1,956) 797 Capital expenditures 25,712 16,770 26,249 55,711 78,727 11,130 15,384 EBITDA/Interest Ratio (5) 3.60 1.48 0.23 3.51 4.21 3.47 9.41 Ratio of earnings to fixed charges (6) 1.29 -- -- 2.45 3.25 3.24 6.40 -------------------------------------------------------- -------------------- AT DECEMBER 31 AT MARCH 31 1991(1) 1992 1993 1994 1995(2) 1995 1996(2) --------- -------- --------- --------- --------- --------- --------- BALANCE SHEET DATA: Working capital (deficit) $ (14,777) $ 10,486 $ 26,635 $ 21,785 $ (2,888) $ 13,479 $ 2,726 Total assets 49,386 68,217 108,635 162,561 214,750 166,525 234,893 Long-term obligations, net of current portion 7,422 13,463 11,788 31,911 49,486 31,188 46,050 Stockholders' equity (7) 20,209 50,468 84,021 88,259 103,681 90,489 117,996 - --------------- (1) For the year ended December 31, 1991 the Company recorded income tax expense of $174,000 and an extraordinary item for the utilization of loss carryforward for the same amount. (2) The financial information related to Russia and included in the year end 1995 presentation contains information at, and for the nine months ended, September 30, 1995, the end of the fiscal period for GEOILBENT. See Note 15 to the Company's Consolidated Financial Statements. Similarly, the 1996 presentation contains information at, and for the three months ended December 31, 1995. (3) Assuming the U.S. Property Sale had occurred on January 1, 1995, pro forma effects on the consolidated statement of operations for the year ended December 31, 1995 would include reductions in oil and gas revenues, lease operating costs and production taxes, depletion and interest expense of $7.4 million, $1.0 million, $4.0 million and $2.7 million respectively. The pro forma effects on the consolidated statement of operations for the three months ended March, 31, 1996 would include reductions in oil and gas revenues, lease operating costs and production taxes, depletion and interest expense of $4.1 million, $0.2 million, $1.4 million and $0.6 million, respectively. (4) EBITDA has been calculated as defined in the Indenture and has been included solely to facilitate consideration of the covenants in the Indenture that are based, in part, on EBITDA. See "Description of the New Notes -- Certain Definitions." EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flow as a measure of liquidity. (5) EBITDA/Interest Ratio has been calculated as defined in the Indenture. See "Description of the New Notes -- Certain Definitions." (6) For purposes of determining the ratio of earnings to fixed charges, "earnings" represents income (loss) before income taxes plus fixed charges exclusive of capitalized interest, and "fixed charges" consists of interest, whether expensed or capitalized, amortization of debt expense and an estimated portion of rent expense representing interest costs. As a result of the losses incurred by the Company for the years ended December 31, 1992 and 1993, earnings were insufficient to cover fixed charges by $2.9 million and $4.8 million, respectively. After giving effect to the sale of the Old Notes, to the extent proceeds will be used to retire presently outstanding indebtedness, the pro forma ratio of earnings to fixed charges would have been 2.60 for the year ended December 31, 1995 and 6.03 for the three months ended March 31, 1996. (7) No cash dividends were paid during the periods presented. 22 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Principles of Consolidation and Accounting Methods The Company has included the results of operations of Benton-Vinccler in its consolidated statement of operations since January 1, 1994 and has reflected the 50% ownership interest of Vinccler during January and February 1994 and the 20% ownership interest of Vinccler subsequent thereto as a minority interest. Prior to 1994, Benton-Vinccler was proportionately consolidated based on the Company's 50% ownership interest. Beginning in 1995, GEOILBENT has been included in the consolidated financial statements based on a fiscal period ending September 30. Results of operations in Russia reflect the twelve months ended December 31, 1993 and 1994, the nine months ended September 30, 1995 for 1995 and the three months ended December 31, 1995 for the first quarter of 1996. The Company's investment in GEOILBENT is proportionately consolidated based on the Company's ownership interest, and for oil and gas reserve information, the Company reports its 34% share of the reserves attributable to GEOILBENT. The Company follows the full-cost method of accounting for its investments in oil and gas properties. The Company capitalizes all acquisition, exploration, and development costs incurred. The Company accounts for its oil and gas properties using cost centers on a country by country basis. Proceeds from sales of oil and gas properties are credited to the full-cost pools. Capitalized costs of oil and gas properties are amortized within the cost centers on an overall unit-of-production method using proved oil and gas reserves as audited by independent petroleum engineers. Costs amortized include all capitalized costs (less accumulated amortization), the estimated future expenditures (based on current costs) to be incurred in developing proved reserves, and estimated dismantlement, restoration and abandonment costs. See Note 1 to the Company's Consolidated Financial Statements. The following discussion of the financial condition and results of operations for March 31, 1996, December 31, 1995 and 1994 and for each of the years in the three year period ended December 31, 1995 and the three months ended March 31, 1996 and 1995, respectively, should be read in conjunction with the Company's Consolidated Financial Statements and related Notes thereto. RESULTS OF OPERATIONS The following table presents the Company's consolidated income statement items as a percentage of total revenues: ---------------- --------------------------- THREE MONTHS YEARS ENDED DECEMBER 31 ENDED MARCH 31 1993 1994 1995 1995 1996 ----- ----- ----- ----- ----- Oil and Gas Sales 96.3% 92.0% 95.5% 95.4% 95.0% Net Gain (Loss) on Exchange Rates (2.8) 4.2 1.6 1.0 3.4 Investment Earnings and Other 6.5 3.8 2.9 3.6 1.6 ----- ----- ----- ----- ----- Total Revenues 100.0 100.0 100.0 100.0 100.0 ----- ----- ----- ----- ----- Lease Operating Costs and Production Taxes 68.1 27.4 16.4 17.7 12.4 Depletion, Depreciation and Amortization 35.1 29.7 26.8 24.8 23.5 General and Administrative 35.0 15.1 14.5 13.2 11.0 Interest 26.1 11.2 11.5 12.8 6.9 Litigation Settlement and Partnership Exchange Expenses -- -- 2.6 -- 6.5 ----- ----- ----- ----- ----- Total Expenses 164.3 83.4 71.8 68.5 60.3 ----- ----- ----- ----- ----- Income (Loss) Before Income Taxes and Minority Interest (64.3) 16.6 28.2 31.5 39.7 Income Tax Expense -- 2.0 3.8 8.6 13.5 Minority Interest -- 6.1 8.1 6.8 7.0 ----- ----- ----- ----- ----- Net Income (Loss) (64.3)% 8.5% 16.3% 16.1% 19.2% ===== ===== ===== ===== ===== 23 26 Three Months ended March 31, 1996 and 1995 The Company had revenues of $32.9 million for the three months ended March 31, 1996. Expenses incurred during the period consisted of lease operating costs and production taxes of $4.1 million, depletion, depreciation and amortization expense of $7.7 million, general and administrative expense of $3.7 million, interest expense of $2.3 million, partnership exchange expense of $2.1 million, income tax expense of $4.4 million and a minority interest of $2.3 million. Net income for the period was $6.3 million or $0.22 per share. By comparison, the Company had revenues of $12.7 million for the three months ended March 31, 1995. Expenses incurred during the period consisted of lease operating costs and production taxes of $2.2 million, depletion, depreciation and amortization expense of $3.1 million, general and administrative expense of $1.7 million, interest expense of $1.6 million, income tax expense of $1.1 million and a minority interest of $0.9 million. Net income for the period was $2.0 million or $0.08 per share. Revenues increased $20.2 million, or 159%, during the three months ended March 31, 1996 compared to the corresponding period of 1995 primarily due to increased oil sales in Venezuela. Sales quantities for the three months ended March 31, 1996 from Venezuela and Russia were 2,623,444 and 223,397 Bbl, respectively, compared to 1,062,093 and 118,864 Bbl, respectively, for the three months ended March 31, 1995. Prices for crude oil averaged $9.63 per Bbl (pursuant to terms of an operating service agreement) from Venezuela and $10.32 per Bbl from Russia for the three months ended March 31, 1996 compared to $9.02 per Bbl from Venezuela and $13.12 per Bbl from Russia for the corresponding period of 1995. Domestic sales quantities for the three months ended March 31, 1996 were 5,163 Bbl of crude oil and condensate and 1,249,128 Mcf of natural gas compared to 32,317 Bbl of crude oil and condensate and 346,548 Mcf of natural gas for the three months ended March 31, 1995. Domestic prices for crude oil and natural gas averaged $19.94 per Bbl and $3.26 per Mcf during the three months ended March 31, 1996 compared to $17.10 per Bbl and $1.62 per Mcf during the corresponding period of 1995. Revenues for the three months ended March 31, 1996 were reduced by a loss of $0.4 million related to a commodity hedge agreement compared to a loss of $0.2 million during the corresponding period of 1995. Revenues for the three months ended March 31, 1996 were increased by a foreign exchange gain of $1.1 million compared to a gain of $0.1 million during the corresponding period of 1995. Lease operating costs and production taxes increased $1.9 million, or 86%, during the three months ended March 31, 1996 compared to the three months ended March 31, 1995 primarily due to the growth of the Company's Venezuelan operations, but decreased as a percentage of total revenues. Depletion, depreciation and amortization increased $4.6 million, or 148%, during the three months ended March 31, 1996 compared to the corresponding period of 1995 primarily due to the increased oil production in Venezuela, but decreased as a percentage of total revenues. Depletion expense per barrel of oil equivalent produced from Venezuela, Russia and the United States during the three months ended March 31, 1996 was $2.09, $3.52 and $6.47, respectively, compared to $1.99, $2.76 and $6.97, respectively, during the corresponding period of the previous year. General and administrative expenses increased $2.0 million, or 118%, during the three months ended March 31, 1996 compared to the corresponding period of 1995 primarily due to the implementation of certain consulting and related arrangements among Benton-Vinccler, the Company and Vinccler, Venezuelan municipal taxes (which are a function of growing oil revenues) and the Company's increased corporate activity associated with the growth of the Company's business; but decreased slightly as a percentage of total revenues. Interest expense increased $0.7 million, or 44%, during the three months ended March 31, 1996 compared to the three months ended March 31, 1995 primarily due to increased borrowing to fund operations in Venezuela and Russia, but decreased substantially as a percentage of total revenues. The Company incurred partnership exchange expenses of $2.1 million during the three months ended March 31, 1996 as a result of the completion of an exchange offer resulting in the liquidation of three limited partnerships. Income tax expense increased $3.3 million, or 300%, during the three months ended March 31, 1996 compared to the corresponding period of 1995 due primarily to increases in profitability in Venezuela, the United States and Russia. The net income attributable to the minority interest increased $1.4 million, or 156%, for the three months ended March 31, 1996 compared to the three months ended March 31, 1995 as a result of the increased profitability of Benton-Vinccler's operations in Venezuela. Years Ended December 31, 1995 and 1994 The Company had revenues of $65.1 million for the year ended December 31, 1995. Expenses incurred during the period consisted of lease operating costs and production taxes of $10.7 million, depletion, depreciation and amortization expense of $17.4 million, general and administrative expense of $9.4 million, interest expense of $7.5 million, litigation settlement expenses of $1.7 million, income tax expense of $2.5 million and a minority interest of $5.3 million. Net income for the period was $10.6 million or $0.40 per share. By comparison, the Company had revenues of $34.7 million for the year ended December 31, 1994. Expenses incurred during the period consisted of lease operating costs and production taxes of $9.5 million, depletion, depreciation and amortization 24 27 expense of $10.3 million, general and administrative expense of $5.2 million, interest expense of $3.9 million, income tax expense of $0.7 million and a minority interest of $2.1 million. The net income for the period was $3.0 million or $0.12 per share. Revenues increased $30.4 million, or 87%, during the year ended December 31, 1995 compared to the corresponding period of 1994 primarily due to increased oil sales in Venezuela. Sales quantities for the year ended December 31, 1995 from Venezuela and Russia were 5,456,473 and 490,960 Bbls, respectively, compared to 2,519,514 and 294,364 Bbls, respectively, for the year ended December 31, 1994. Prices per Bbl for crude oil averaged $9.01 (pursuant to terms of an operating service agreement) from Venezuela and $12.25 from Russia for the year ended December 31, 1995 compared to $8.52 and $11.93 from Venezuela and Russia, respectively, for the year ended December 31, 1994. Domestic sales quantities for the year ended December 31, 1995 were 68,975 Bbls of crude oil and condensate and 3,784,830 Mcf of natural gas compared to 225,954 Bbls of crude oil and condensate and 2,061,892 Mcf of natural gas for the year ended December 31, 1994. Domestic prices for crude oil and natural gas averaged $15.79 per Bbl and $1.77 per Mcf during the year ended December 31, 1995 compared to $14.46 per Bbl and $1.79 per Mcf during the year ended December 31, 1994. Revenues for the year ended December 31, 1995 were reduced by a loss of $0.7 million related to a commodity hedge agreement compared to a loss of $0.3 million in 1994. Revenues for the year ended December 31, 1995 were increased by a foreign exchange gain of $1.0 million compared to a gain of $1.4 million in 1994. Lease operating costs and production taxes increased $1.2 million, or 12%, during the year ended December 31, 1995 compared to 1994 primarily due to the growth of the Company's Venezuelan operations, partially offset by the sale of certain of the Company's interests in the West Cote Blanche Bay Field. Depletion, depreciation and amortization increased $7.1 million, or 69%, during the year ended December 31, 1995 compared to the corresponding period in 1994 primarily due to the increased oil production in Venezuela. Depletion expense per BOE produced from Venezuela, United States and Russia during the year ended December 31, 1995 was $2.09, $5.98 and $3.08, respectively, compared to $1.98, $7.46 and $2.85, respectively, during the previous year. The increase in general and administrative expenses of $4.2 million, or 80%, during the year ended December 31, 1995 compared to 1994 was primarily due to the Company's increased corporate activity associated with the growth of the Company's business. The Company incurred litigation settlement expenses of $1.7 million during the year ended December 31, 1995 as a result of a settlement agreement reached with investors in partnerships which were sponsored by a third party. See Note 5 to the Company's Consolidated Financial Statements. Interest expense increased $3.6 million, or 93%, in 1995 compared to 1994 primarily due to increased borrowing to fund operations in Venezuela and Russia. Income tax expense increased $1.8 million, or 255%, during the year ended December 31, 1995 compared to 1994 primarily due to increased income taxes in Venezuela and Russia. The net income attributable to the minority interest increased $3.2 million, or 153%, for 1995 compared to 1994 as a result of the increased profitability of Benton-Vinccler's operations in Venezuela. Years Ended December 31, 1994 and 1993 The Company had revenues of $34.7 million for the year ended December 31, 1994. Expenses incurred during the period consisted of lease operating costs and production taxes of $9.5 million, depletion, depreciation and amortization expense of $10.3 million, general and administrative expense of $5.2 million, interest expense of $3.9 million, income tax expense of $0.7 million, and a minority interest of $2.1 million. The net income for the period was $3.0 million or $0.12 per share. By comparison, the Company had revenues of $7.5 million for the year ended December 31, 1993. Expenses incurred during the period consisted of lease operating costs and production taxes of $5.1 million, depletion, depreciation and amortization expense of $2.6 million, general and administrative expense of $2.6 million and interest expense of $2.0 million. The net loss for the period was $4.8 million or $0.26 per share. Revenues increased $27.2 million, or 362%, during the year ended December 31, 1994 compared to the corresponding period of 1993 primarily due to increased revenues from Benton-Vinccler's operations in Venezuela, the Company's increased ownership of Benton-Vinccler, the initiation of oil sales in Russia in late 1993, gain on exchange rates in Venezuela and Russia, gas sales from the #831 well in the West Cote Blanche Bay Field and increased investment earnings. The increase was partially offset by lower oil sales from the West Cote Blanche Bay Field, lower sales prices and the sale of the Company's interest in the Pershing property in 1993. Sales quantities for the year ended December 31, 1994 from Venezuela and Russia were 2,519,514 and 294,364 Bbls, respectively, compared to 160,425 and 28,263 Bbls, respectively, for the year ended December 31, 1993. Prices per Bbl for crude oil averaged $8.52 (pursuant to terms of an operating service agreement) from Venezuela and $11.93 from Russia for the year ended December 31, 1994 compared to $8.31 and $11.46 from Venezuela and Russia, respectively, for the year ended December 31, 1993. Domestic sales quantities for the year ended December 31, 1994 were 225,954 Bbls of crude oil and condensate and 2,061,892 Mcf of natural gas compared to 292,266 Bbls of crude oil and condensate and 232,677 Mcf of natural gas for the year ended December 31, 1993. Domestic prices for crude oil and natural gas averaged $14.46 per Bbl and $1.79 per Mcf during the year ended December 31, 1994 compared to $17.30 per 25 28 Bbl and $2.19 per Mcf during the year ended December 31,1993. The Company has realized net foreign exchange gains during 1994 primarily as a result of the decline in the value of the Venezuelan bolivar and Russian rouble during periods when Benton-Vinccler and GEOILBENT had substantial net monetary liabilities denominated in bolivares and roubles. Lease operating costs and production taxes increased $4.4 million, or 87%, during the year ended December 31, 1994 compared to 1993 primarily due to the growth of the Company's Venezuelan and Russian operations and were partially offset by the sale of the Company's interest in certain property in 1993 and reduced operating costs at the West Cote Blanche Bay Field. Depletion, depreciation and amortization increased $7.7 million, or 291%, during the year ended December 31, 1994 compared to 1993 primarily due to increased oil production in Venezuela, gas sales from the #831 well in the West Cote Blanche Bay Field and the initiation of oil production in Russia. Depletion expense per BOE produced from the United States, Venezuela and Russia during the year ended December 31, 1994 was $7.46, $1.98 and $2.85, respectively, compared to $6.47, $1.43 and $3.51 during 1993. The increase in general and administrative expense of $2.6 million, or 99%, in 1994 compared to 1993 was primarily due to the growth of and the Company's increased ownership of Benton-Vinccler, the commencement of operations in Russia and increased corporate activity associated with the growth of the Company's business. Interest expense increased $1.9 million, or 99%, in 1994 compared to 1993 primarily due to increased borrowing to fund operations in Venezuela and Russia. The Company has included the results of operations of Benton-Vinccler in its consolidated statement of income since January 1, 1994 and has reflected the 50% ownership interest of Vinccler during January and February and the 20% ownership interest of Vinccler thereafter as a minority interest. For the year ended December 31, 1994, net income attributable to the minority interest was $2.1 million. INTERNATIONAL OPERATIONS The Company's costs of operations in Venezuela and Russia in 1993, 1994 and 1995 include certain fixed or minimum office, administrative, legal and personnel related costs and certain start up costs, including short term facilities rentals, organizational costs, contract services and consultants. Such costs are expected to grow over time as operations increase. In the last two years such costs have become less significant on a unit of production basis, but such costs can be expected to fluctuate in the future based upon a number of factors. In Venezuela, for the year ended December 31, 1993, the operating costs and general and administrative expenses were $7.26 and $2.25 per Bbl, respectively. For the year ended December 31, 1995 the operating costs and general and administrative expenses for Venezuela decreased to $1.19 and $0.63 per Bbl, respectively. The Company's Venezuelan operations grew considerably during 1994 and 1995, and are expected to continue to grow, and its operating costs and general and administrative expenses are expected to increase both in the aggregate and on a per unit basis. In Russia, for the year ended December 31, 1993, the operating costs and general and administrative expenses were $16.22 and $12.96 per Bbl, respectively, decreasing to $5.63 and $1.16 per Bbl, respectively, for the year ended December 31, 1995. The Company's Russian operations grew less significantly than the Venezuelan operations during 1994 and 1995. Capital expenditures through 1993 in both Venezuela and Russia focused on start-up infrastructure items such as roads, pipelines, and facilities rather than drilling. Beginning in 1994, a higher proportion of capital expenditures have been and will continue to be spent on drilling and production activities. See "Business -- South Monagas Unit, Venezuela -- Drilling and Development Activity" and "-- North Gubkinskoye, Russia -- Drilling and Development Activity." As a private contractor, Benton-Vinccler is subject to a statutory income tax rate of 34%. However, Benton-Vinccler reported significantly lower effective tax rates for 1994 and 1995 due to significant non-cash tax deductible expenses resulting from devaluations in Venezuela when Benton-Vinccler had net monetary liabilities in U.S. dollars. The Company cannot predict the timing or impact of future devaluations in Venezuela. Any Company operations related to Delta Centro will be subject to profit sharing, royalties and oil and gas industry taxation. See "Offering Memorandum Summary -- Recent Developments" and "Business -- Delta Centro Block, Venezuela." GEOILBENT is subject to a statutory income tax rate of 35%. GEOILBENT has also been subject to various other tax burdens, including an oil export tariff. The export tariff was 30 ECU's per ton through 1995, although GEOILBENT obtained an exemption from such tariff for 1995. The tariff was reduced to 20 ECU's per ton in January 1996, and Russia has recently announced that effective July 1996, oil export tariffs will be terminated. The Company anticipates that the tariff on oil exporters may be replaced by an excise, pipeline or other tax levied on all oil producers, but it is currently unclear how such other tax rates and regimes will be set and administered. EFFECTS OF CHANGING PRICES, FOREIGN EXCHANGE RATES AND INFLATION The Company's results of operations and cash flow are affected by changing oil and gas prices. However, the Company's Venezuelan revenues are based on a fee adjusted quarterly by the percentage change of a basket of crude oil prices instead of by 26 29 absolute dollar changes, which dampens both any upward and downward effects of changing prices on the Company's Venezuelan revenues and cash flows. If the price of oil and gas increases, there could be an increase in the cost to the Company for drilling and related services because of increased demand, as well as an increase in revenues. Fluctuations in oil and gas prices may affect the Company's total planned development activities and capital expenditure program. Effective May 1, 1994, the Company entered into a commodity hedge agreement with Morgan Guaranty Trust Company of New York ("Morgan Guaranty") designed to reduce a portion of the Company's risk from oil price movements. Pursuant to the hedge agreement, with respect to the period from May 1, 1994 through the end of 1996, the Company will receive from Morgan Guaranty $16.82 per Bbl and the Company will pay to Morgan Guaranty the average price per Bbl of West Texas Intermediate Light Sweet Crude Oil ("WTI") determined in the manner set forth in the hedge agreement. Such payments will be made with respect to production of 1,000 Bbls of oil per day for 1994, 1,250 Bbls of oil per day for 1995, and 1,500 Bbls of oil per day for 1996. During the quarter ended March 31, 1996, the average price per Bbl of WTI was $19.57 and the Company's net exposure for the quarter was $0.4 million. The Company's total exposure for the year ended December 31, 1995, under the hedge agreement was $0.7 million. The Company's oil production is not materially affected by seasonality. The returns under the hedge agreement are affected by world-wide crude oil prices, which are subject to wide fluctuation in response to a variety of factors that are beyond the control of the Company. There are presently no restrictions on conversion of currency in either Venezuela or Russia. However, from June 1994 through April 1996, Venezuela implemented exchange controls which significantly limited the ability to convert local currency into U.S. dollars. Because payments made to Benton-Vinccler are made in U.S. dollars into its United States bank account, and Benton-Vinccler is not subject to regulations requiring the conversion or repatriation of those dollars back into the country, the exchange controls did not have a material adverse effect on Benton-Vinccler or the Company. Within the United States, inflation has had a minimal effect on the Company, but is potentially an important factor in results of operations in Venezuela and Russia. With respect to Benton-Vinccler and GEOILBENT, substantially all of the sources of funds, including the proceeds from oil sales, the Company's contributions and credit financings, are denominated in U.S. dollars, while local transactions in Russia and Venezuela are conducted in local currency. Following the announcement of Venezuela's preliminary loan accord with the IMF and the lifting of exchange controls, inflation will likely rise temporarily in Venezuela and could be expected to have an adverse effect on Benton-Vinccler. During the year ended December 31, 1995 and the three months ended March 31, 1996, the Company realized net foreign exchange gains, primarily as a result of the decline in the value of the Venezuelan bolivar during periods when Benton-Vinccler had substantial net monetary liabilities denominated in bolivares. During the year ended December 31, 1995, the Company's net foreign exchange gains attributable to its Venezuelan operations were $1.0 million and net foreign exchange losses attributable to its Russian operations were $0.1 million. During the three months ended March 31, 1996, the Company's net foreign exchange gains attributable to its Venezuelan and Russian operations were $1.0 million and $0.1 million, respectively. However, there are many factors affecting foreign exchange rates and resulting exchange gains and losses, many of which are beyond the influence of the Company. The Company has recognized significant exchange gains and losses in the past, resulting from fluctuations in the relationship of the Venezuelan and Russian currencies to the U.S. dollar. It is not possible to predict the extent to which the Company may be affected by future changes in exchange rates and exchange controls. CAPITAL RESOURCES AND LIQUIDITY The oil and gas industry is a highly capital intensive business. The Company requires capital principally to fund the following costs: (i) drilling and completion costs of wells and the cost of production and transportation facilities; (ii) geological, geophysical and seismic costs; and (iii) acquisition of interests in oil and gas properties. The amount of available capital will affect the scope of the Company's operations and the rate of its growth. 27 30 The net funds raised and/or used in each of the operating, investing and financing activities for each of the years in the three year period ended December 31, 1995 and the three months ended March 31, 1995 and 1996 are summarized in the following table and discussed in further detail below: -------------------- --------------------------------- THREE MONTHS ENDED YEARS ENDED DECEMBER 31 MARCH 31 1993 1994 1995 1995 1996 --------- --------- --------- -------- --------- Dollars in thousands Net cash provided by (used in) operating activities $ (1,790) $ 13,462 $ 32,349 $ 5,388 $ 15,776 Net cash provided by (used in) investing activities (18,619) (55,078) (53,644) 3,584 (14,949) Net cash provided by (used in) financing activities 43,044 19,500 13,282 (1,956) 797 --------- --------- --------- -------- --------- Net increase (decrease) in cash $ 22,635 $ (22,116) $ (8,013) $ 7,016 $ 1,624 ============ ============ ============ At March 31, 1996, the Company had current assets of $64.2 million (including $19.3 million and $2.0 million of cash restricted as collateral for loans to Benton-Vinccler and GEOILBENT, respectively), and current liabilities of $61.5 million (including loans of $19.3 million and $0.6 million collateralized by restricted cash), resulting in working capital of $2.7 million and a current ratio of 1.04:1. This compares to the Company's working capital deficit of $2.9 million at December 31, 1995. The increase of $5.6 million was due primarily to working capital generated from operations in excess of capital expenditures. Cash Flow from Operating Activities During the three months ended March 31, 1996 and the years ended December 31, 1995 and 1994, net cash provided by operating activities was approximately $15.8 million, $32.4 million and $13.5 million, respectively, and during 1993, net cash used in operating activities was approximately $1.8 million. Cash flow from operating activities increased by $18.9 million and $15.3 million in 1995 and 1994, respectively, over the prior year, and $10.4 million during the three months ended March 31, 1996 compared to the corresponding period of the prior year, due primarily to increased oil and gas production in Venezuela. Cash Flow from Investing Activities During the three months ended March 31, 1996, the Company had drilling and production related capital expenditures of approximately $17.4 million, of which $12.0 million was attributable to the development of the South Monagas Unit in Venezuela, $1.8 million related to the development of the North Gubkinskoye Field in Russia, $1.7 million related to drilling activity in the West Cote Blanche Bay, Rabbit Island and Belle Isle Fields in Louisiana, and $1.9 million was attributable to other projects. During 1995, 1994 and 1993, the Company had drilling and production related capital expenditures of approximately $68.3 million, $39.6 million and $26.2 million, respectively. Of the 1995 expenditures, $49.0 million was attributable to the development of the South Monagas Unit in Venezuela, $12.4 million related to the development of the North Gubkinskoye Field in Russia, $6.0 million related to drilling activity in the West Cote Blanche Bay, Rabbit Island and Belle Isle Fields in Louisiana, and $0.9 million was attributable to other projects. The Company also sold certain oil and gas properties for net proceeds of approximately $1.3 million, $15.4 million, $5.8 million and $7.8 million during the three months ended March 31, 1996 and the years ended December 31, 1995, 1994 and 1993, respectively. In April 1996, the Company sold to Shell all of its interests in the West Cote Blanche Bay, Rabbit Island and Belle Isle Fields for a purchase price of $35.4 million. Proceeds of the sale will be used to repay debt as described below and for working capital purposes in Venezuela and other international activities. Cash Flow from Financing Activities In May 1996, the Company issued $125 million in aggregate principal amount of Old Notes. A portion of the proceeds therefrom was used to repay certain long term indebtedness and the remainder will be used for repayment of certain short term obligations and for capital expenditure and working capital purposes. On June 30, 1995, the Company issued $20 million in senior unsecured notes due June 30, 2007, with interest at 13% per annum, payable semi-annually on June 30 and December 31. Annual principal payments of $4 million are due on June 30 of each year beginning on June 30, 2003. Early payment of the notes would result in a substantial prepayment premium. The note agreement contains financial covenants including a minimum ratio of current assets to current liabilities and a maximum ratio of funded liabilities to net worth and to domestic oil and gas reserves. The note agreement also provides for limitations on liens, additional indebtedness, certain capital expenditures, dividends, sales of assets and mergers. Additionally, in connection with the issuance of the notes, the Company issued warrants entitling the holder to purchase 125,000 shares of common stock at $17.09 per share, subject to adjustment in certain circumstances, that are exercisable on or before June 30, 2007. The 28 31 Company prepaid these senior unsecured notes from the proceeds of the sale of the Old Notes and paid a prepayment premium of approximately $7.4 million. The holders of the senior notes provided consent to the sale of the U.S. properties and such consent requires payment of the notes on or before June 30, 1996. On September 30, 1994, the Company issued $15 million in senior unsecured notes due September 30, 2002, with interest at 13% per annum. The note agreement contained financial covenants and provided for limitations on sales of assets. Upon consummation of the U.S. Property Sale, the Company prepaid the outstanding principal and accrued interest on these senior notes, with a prepayment premium of approximately $3.2 million. On December 27, 1994, the Company entered into a revolving secured credit facility with a commercial bank. Under the terms of the credit agreement, the Company could borrow up to $15 million, with the initial available principal limited to $10 million. The credit facility was secured by the U.S. properties. The Company repaid the principal outstanding of approximately $5 million, with accrued interest, and made a payment for the net profits interest of $1.8 million upon closing the U.S. Property Sale. In February 1994, the Company and Benton-Vinccler entered into a six month loan arrangement with Morgan Guaranty to repay commercial paper and for working capital requirements, which has subsequently been renewed on a monthly basis. Under such arrangement, Benton-Vinccler may borrow up to $25 million, of which $10 million may be borrowed on a revolving basis. Borrowings under this loan arrangement are secured by cash collateral in the form of a time deposit from the Company. The loan arrangement contains no restrictive covenants and no financial ratio requirements. The principal amount of such loan outstanding at December 31, 1995 was $19.3 million. Benton-Vinccler can borrow an additional $5.7 million under the loan arrangement if the Company provides a time deposit to secure such additional borrowings. In October 1995, the Company and GEOILBENT entered into a loan arrangement with Morgan Guaranty for working capital requirements. Under such arrangement, GEOILBENT may borrow up to $10 million on a revolving basis. Borrowings under this loan arrangement are secured by cash collateral in the form of a time deposit by the Company. The loan arrangement contains no restrictive covenants and no financial ratio requirements. The principal amount of such loan outstanding at December 31, 1995 was $0.6 million. On May 30, 1996, the Company entered into a Credit Agreement with Morgan Guaranty. The Credit Agreement provides for the issuance of a letter of credit in the amount of $18,000,000 to be used to secure the Company's performance under its agreements related to the development of the Delta Centro Block in Venezuela. The letter of credit will be secured by cash collateral in the form of a time deposit from the Company. Morgan Guaranty will receive an arrangement fee and will receive a fee of .25% per annum computed on the daily average maximum available amount of the letter of credit. In addition, the Credit Agreement provides for a $20,000,000 unsecured revolving credit facility which must be repaid on or before March 14, 1998. Borrowings under such facility accrue interest at per annum rate equal to the sum of the Euro-Dollar margin plus the Adjusted London Interbank Offered Rate for such interest period. The Euro-Dollar margin will be 3% until September 14, 1997 and 3.75% per annum thereafter. The revolving credit facility is secured by a guarantee by the Company's subsidiary Benton-Vinccler, C.A. and a security interest in all payments made to Benton-Vinccler, C.A. under its Service Agreement with Fagoven, S.A. The Credit Agreement contains covenants and restrictions that are substantially the same as those provided in the Indenture. The Company expects 1996 capital expenditures to be approximately $100 million, including $12 million in expenditures for Russia (net to the Company's interest) which is dependent on proposed EBRD or other financing, which may or may not be obtained. See "Business -- North Gubkinskoye, Russia -- Drilling and Development Activity." Funding is expected to come from the proceeds from the sale of the Old Notes, cash flow from operations, sales of property interests, or project and trade financing sources. There can be no assurance that such financing will become available under terms and conditions acceptable to the Company, which may result in reduced capital expenditures in the Company's principal areas of operations. 29 32 BUSINESS INFORMATION INCORPORATED BY REFERENCE IN THIS PROSPECTUS The following documents filed with the Commission by the Company are hereby incorporated by reference in this Prospectus: (a) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as amended on Form 10-K/A dated June 14, 1996. (b) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. (c) All documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the Expiration Date. GENERAL The Company is an independent energy company which has been engaged in the development and production of oil and gas properties since 1989. Although originally active only in the United States, the Company has developed significant interests in Venezuela and Russia, and recently sold substantially all of its remaining United States oil and gas interests. The Company's operations are conducted principally through its 80%-owned Venezuelan subsidiary, Benton-Vinccler which operates in the South Monagas Unit in Venezuela, and its 34%-owned Russian joint venture, GEOILBENT, which operates in the North Gubkinskoye Field in Siberia, Russia. As of December 31, 1995, the Company had total assets of $214.8 million ($234.9 million at March 31, 1996), total estimated proved reserves of 96,212 MBOE, and a standardized measure of discounted future net cash flow, before income taxes, for total proved reserves of $372.3 million. For the year ended December 31, 1995 and the three months ended March 31, 1996, the Company had total revenues of $65.1 million and $32.9 million, respectively and net income of $10.6 million and $6.3 million, respectively. The Company has been successful in increasing reserves, production, revenues and earnings during the last two years. From year end 1993 through 1995, estimated proved reserves increased from 42,785 MBOE to 96,212 MBOE and net production increased from a total of 519 MBOE in 1993 to 6,647 MBOE in 1995. As production has increased over this period, average lifting costs per Bbl have declined from $7.26 to $1.19 in Venezuela, and from $16.22 to $5.63 in Russia. Over the same period, earnings per share have increased from a loss of $0.26 per share in 1993 to income of $0.40 per share for the year ended December 31, 1995. The Company was incorporated in Delaware in September 1988 and its principal executive offices are located at 1145 Eugenia Place, Suite 200, Carpinteria, California 93013, and its telephone number is (805) 566-5600. BUSINESS STRATEGY The Company's business strategy is to identify and exploit new oil and gas reserves in under-developed areas while seeking to minimize the associated risk of such activities. Specifically, the Company endeavors to minimize risk by employing the following strategies in its business activities: (i) seek new reserves in areas of low geologic risk; (ii) use proven advanced technology in both exploration and development to maximize recovery; (iii) establish a local presence through joint venture partners and the use of local personnel; (iv) commit capital in a phased manner to limit total commitments at any one time; and (v) reduce foreign exchange risks through receipt of revenues in U.S. currency. - - SEEK NEW RESERVES IN AREAS OF LOW GEOLOGIC RISK. The Company has had significant success in identifying under-developed reserves in the U.S. and internationally. In particular, the Company has notable experience and expertise in seeking and developing new reserves in countries where perceived potential political and operating difficulties have sometimes discouraged other energy companies from competing. As a result, the Company has established operations in Venezuela and Russia which have significant reserves that have been acquired and developed at relatively low costs. The Company is seeking similar opportunities in other countries and areas which it believes have high potential. - - USE OF PROVEN ADVANCED TECHNOLOGY IN BOTH EXPLORATION AND DEVELOPMENT. The Company's use of 3-D seismic technology, in which a three dimensional image of the earth's subsurface is created through the computer interpretation of seismic data, combined with its experience in designing the seismic surveys and interpreting and analyzing the resulting data, allow for a more detailed understanding of the subsurface than do conventional surveys. Such technology contributes significantly to field appraisal, development and production. The 3-D seismic information, in conjunction with subsurface geologic data from previously drilled wells, is used by the Company's experienced in-house technical team to identify previously undetected reserves. The 3-D seismic information can also be used to guide drilling on a real-time basis, and has been especially helpful in the horizontal drilling done in Venezuela in order to take advantage of oil-trapping faults. - - ESTABLISH A LOCAL PRESENCE THROUGH JOINT VENTURE PARTNERS AND THE USE OF LOCAL PERSONNEL. The Company has sought to establish a local presence where it does business to facilitate stronger relationships with local government and labor 30 33 through joint venture arrangements with local partners. Moreover, the Company employs almost exclusively local personnel to run foreign operations both to take advantage of local knowledge and experience and to minimize cost. These efforts have created an expertise within Company management in forming effective foreign partnerships and operating abroad. The Company believes that it has gained access to new development opportunities as a result of its reputation as a dependable partner. - - COMMIT CAPITAL IN A PHASED MANNER TO LIMIT TOTAL COMMITMENTS AT ANY ONE TIME. While the Company typically has agreed to a minimum capital expenditure or development commitment at the outset of new projects, expenditures to fulfill these commitments are phased over time. In addition, the Company seeks, where possible, to use internally generated funds for further capital expenditures and to invest in projects which provide the potential for an early return to the Company. - - REDUCE FOREIGN EXCHANGE RISKS. The Company seeks to reduce foreign currency exchange risks by providing for the receipt of revenues by the Company in U.S. dollars while most operating costs are incurred in local currency. Pursuant to the operating agreement between Benton-Vinccler and Lagoven, the operating fees earned by the Company are paid directly to the Company's bank account in the U.S. in U.S. dollars. GEOILBENT receives revenues from export sales in U.S. dollars paid to its account in Moscow. As the Company expands internationally, it will seek to establish similar arrangements for new operations. PRINCIPAL AREAS OF ACTIVITY The following table summarizes the Company's proved reserves, drilling and production activity, and financial operating data by principal geographic area at and for each of the years ended December 31: --------------------------------------------------------------------------------- VENEZUELA(1) RUSSIA UNITED STATES --------------------------- ------------------------- ------------------------- Dollars in thousands 1993 1994 1995 1993 1994 1995(2) 1993 1994 1995(3) ------- -------- -------- ------- ------- ------- ------- ------- ------- RESERVE INFORMATION: Proved Reserves (MBOE) 19,389 60,707 73,593 10,121 17,540 22,618 13,275 2,913 1 Discounted Future Net Cash Flows Before Income Taxes $72,206 $268,830 $286,916 $24,237 $48,833 $85,361 $34,970 $18,657 $ 16 Standardized Measure of Future Net Cash Flows $50,958 $172,703 $206,545 $19,512 $32,398 $55,434 $32,046 $18,286 $ 16 DRILLING AND PRODUCTION ACTIVITY: Gross Wells Drilled 5 11 19 4 9 25 9 5 5 Average Daily Production (BOE) 440 6,902 14,949 77 806 1,345 907 1,561 1,917 FINANCIAL DATA: Oil and Gas Revenues $ 1,333 $ 21,472 $ 49,174 $ 324 $ 3,513 $ 6,016 $ 5,565 $ 7,287 $ 7,683 Expenses: Lease Operating Costs and Production Taxes 1,165 3,808 6,483 458 2,832 2,764 3,487 2,891 1,456 Depletion 229 4,998 11,393 99 838 1,512 2,142 4,248 4,188 ------- -------- -------- ------- ------- ------- ------- ------- ------- Total Expenses 1,394 8,806 17,876 557 3,670 4,276 5,629 7,139 5,644 ------- -------- -------- ------- ------- ------- ------- ------- ------- Results of Operations from Oil and Gas Producing Activities $ (61) $ 12,666 $ 31,298 $ (233) $ (157) $ 1,740 $ (64) $ 148 $ 2,039 ======== ========= ========= ======== ======== ======== ======== ======== ======== - ------------------------ (1) Includes 100% of the reserve information, drilling and production activity and financial data, without deduction for minority interest. All Venezuelan reserves are attributable to an operating service agreement between Benton-Vinccler and Lagoven under which all mineral rights are owned by the Government of Venezuela. See "-- South Monagas Unit, Venezuela" and "-- Reserves." (2) The financial information for Russia for the 1995 presentation includes information for the nine months ended September 30, 1995, the end of the fiscal period for GEOILBENT. Results of operations in Russia reflect the twelve months ended December 31, 1993 and 1994 and the nine months ended September 30, 1995. (3) In April 1996, the Company sold substantially all its U.S. reserves and related acreage positions. See "-- Other Properties." The 1995 Reserve Information excludes the reserves which were sold. SOUTH MONAGAS UNIT, VENEZUELA General In July 1992, the Company and Vinccler, a Venezuelan construction and engineering company, signed a 20-year operating service agreement with Lagoven, an affiliate of the national oil company, PdVSA, to reactivate and further develop the Uracoa, Tucupita and Bombal Fields, which are a part of the South Monagas Unit (the "Unit"). At that time, the Company was one of three foreign companies ultimately awarded an operating service agreement to reactivate existing fields by PdVSA, and was the first U.S. company since 1976 to be granted such an oil field development contract in Venezuela. The oil and gas operations in the Unit are conducted by Benton-Vinccler, the Company's 80%-owned subsidiary. The remaining 20% of the outstanding capital stock of Benton-Vinccler is owned by Vinccler. The Company, through its majority ownership of 31 34 stock in Benton-Vinccler, makes all operational and corporate decisions related to Benton-Vinccler, subject to certain super-majority provisions of Benton-Vinccler's charter documents related to mergers, consolidations, sales of substantially all of its corporate assets, change of business and similar major corporate events. Vinccler has an extensive operating history in Venezuela. It provided the Company with initial financial assistance and continues to provide ongoing assistance with construction services and governmental and labor relations. Under the terms of the operating service agreement, Benton-Vinccler is a contractor for Lagoven and is responsible for overall operations of the South Monagas Unit, including all necessary investments to reactivate and develop the fields comprising the Unit. The Venezuelan government maintains full ownership of all hydrocarbons in the fields. In addition, Lagoven maintains full ownership of equipment and capital infrastructure following its installation. Benton-Vinccler invoices Lagoven each quarter based on Bbls of oil accepted by Lagoven during the quarter, using quarterly adjusted contract service fees per Bbl, and receives its payments from Lagoven in U.S. dollars deposited directly into a U.S. bank account. The operating service agreement provides for Benton-Vinccler to receive an operating fee for each Bbl of crude oil delivered and a capital recovery fee for certain of its capital expenditures, provided that such operating fee and capital recovery fee cannot exceed the maximum total fee per Bbl set forth in the agreement. The operating fee is subject to periodic adjustments to reflect changes in the special energy index of the U.S. Consumer Price Index, and the maximum total fee is subject to periodic adjustments to reflect changes in the average of certain world crude oil prices. Since commencement of operations, the adjusted maximum total fee has been cumulatively less than the adjusted operating fee, resulting in no capital recovery fee. The Company cannot predict the extent to which future maximum total fee adjustments will provide for capital recovery components in the fees it receives, and has recorded no income or asset for capital recovery fees. Under the terms of the operating service agreement, Benton-Vinccler was obligated to make certain capital and operating expenditures prior to December 31, 1995. Benton-Vinccler has satisfied all such obligations under the operating service agreement and no further capital commitments are contractually required. However, in order to expand operations, the Company will need to continue to make capital expenditures. See "-- South Monagas Unit, Venezuela -- Drilling and Development Activity." Since 1992, when Venezuela solicited initial calls for indications of interest related to the reactivation and further development of certain fields in Venezuela, the country has continued to invite foreign assistance in Venezuelan oil and gas exploration, development and production. Management believes that Venezuela continues to provide potential business opportunities for the Company. See "-- Delta Centro Block, Venezuela." Location and Geology The Unit is located in the southeastern part of the state of Monagas in eastern Venezuela. The Unit is approximately 51 miles long and eight miles wide and consists of 157,843 acres, of which the fields comprise approximately one-half. At December 31, 1995, proved reserves attributable to the Company's Venezuelan operations were 73,593 MBOE, which represented approximately 76% of the Company's proved reserves. Benton-Vinccler is currently developing the Oficina sands in the Uracoa Field, which contain 92.4% of the Unit's proved reserves. The associated natural gas which is produced is currently being reinjected into the field, as no ready market exists for the natural gas. Drilling and Development Activity Uracoa Field. Benton-Vinccler has been developing the Uracoa Field since 1992. During May 1996, approximately 63 wells were producing an average of approximately 33.6 MBbls of oil per day in the Uracoa Field. The following table sets forth Uracoa drilling activity and production information for each of the quarters presented: ---------------------------------------------------------- WELLS DRILLED AVERAGE DAILY VERTICAL HORIZONTAL PRODUCTION FROM FIELD (BBLS) ------------- ---------- ---------------------------- 1994: First Quarter 5 0 3,400 Second Quarter 0 0 6,700 Third Quarter 3 0 7,200 Fourth Quarter 0 3 10,200 1995: First Quarter 1 1 11,800 Second Quarter 1 2 11,300 Third Quarter 3 2 15,800 Fourth Quarter 1 8 20,800 1996: First Quarter 1 9 29,000 32 35 Benton-Vinccler contracts with third parties for drilling and completion of wells. Currently, Helmerich & Payne International Drilling Co. and Exeter Drilling Co. are performing drilling services for Benton-Vinccler under contract. The Company's technical personnel identify drilling locations, specify the drilling program and equipment to be used and monitor the drilling activities. To date, 14 previously drilled wells have been reactivated and 46 new wells have been drilled in the Uracoa Field using modern drilling and completion techniques that had not previously been utilized on the field, with 45, or 98%, completed and placed on production. Two drilling rigs are currently working in the field. In the Company's recent experience, each vertical deviated well, drilled to an average depth of 5,600 feet, has been drilled in approximately 10 days and completed in approximately 6 days, and each horizontal well, drilled to an average depth of 6,500 feet, has been drilled in 20 days and completed in 3 days. Benton-Vinccler plans to drill approximately 7 vertical and 26 horizontal wells, 2 injection wells and one step-out well adjacent to the Uracoa Field during 1996, at an anticipated cost of $40-45 million. In December 1993, Benton-Vinccler commenced drilling the first horizontal well in the Uracoa Field. Since the completion of this well, the Company has successfully integrated modern technology and modern drilling and completion techniques to improve the ultimate recovery. The Company has conducted a 3-D seismic survey and interpreted the seismic data over the Uracoa Field. As a horizontal well is drilled, information regarding formations encountered by the drill bit is transmitted to the Company. Geologists, engineers and geophysicists at the Company can determine the location of the drill bit by comparing the information about the formations being drilled with the 3-D seismic data. The Company then directs the movement of the drill bit to more accurately direct the well to the expected reservoir. The Company intends to continue this method of horizontal drilling in the development of the field. Once oil is produced in the Uracoa Field, it is transported to production facilities, which were designed in the United States and installed by Benton-Vinccler. These production facilities are of the type commonly used in heavy oil production in the United States, but not previously used extensively in Venezuela to process crude oil of similar gravity or quality. The current production facilities are capable of processing 30-35 MBbls of oil per day. Benton-Vinccler intends to expand the capacity of the production facilities in 1996 to a total capacity of 40-45 MBbls of oil per day. The Company anticipates capital expenditures of $21 million during 1996 to complete such expansion. Tucupita and Bombal Fields. Before becoming inactive, only Tucupita had been substantially developed and produced; relatively few wells had been drilled at Uracoa and Bombal. Benton-Vinccler has completed a 67-square mile 3-D seismic survey over portions of the Unit and is currently interpreting the data. Based on the interpretations of the seismic data, Benton-Vinccler may drill one or more wells to extend the boundaries of the three known fields or to confirm the existence of additional fields previously undetected in the area. Further analysis of the Unit indicates that significant reserves may remain in the Tucupita Field. Benton-Vinccler intends to evaluate the potential of the Tucupita Field in 1996 by drilling one oil well, and will expand existing production facilities in such field. Based on the performance of this pilot oil well, and if the Company's assumptions prove to be correct, the production facilities will be further expanded, and a pipeline to the Uracoa Field will be installed. The pipeline will also be used for production from the Bombal Field when it is developed. Benton-Vinccler currently plans to begin to reactivate and develop the Bombal Field beginning later in 1996. During 1996, the Company expects capital expenditures of $5-7 million for drilling and construction of facilities in the Tucupita and Bombal Fields. Customers and Market Information Oil produced in Venezuela is delivered to Lagoven under the terms of an operating service agreement for an operating service fee. Benton-Vinccler has constructed a 25-mile oil pipeline from its oil processing facilities at Uracoa to Lagoven's storage facility, which is the custody transfer point. The service agreement specifies that the oil stream may contain no more than 1% base sediment and water, and quality measurements are conducted both at Benton-Vinccler's facilities and at Lagoven's storage facility. A continuous flow measuring unit is installed at Benton-Vinccler's facility, so that quantity is monitored constantly. Lagoven provides Benton-Vinccler with a daily acknowledgment regarding the amount of oil accepted the previous day, which is reconciled to Benton-Vinccler's measurement. At the end of each quarter, Benton-Vinccler prepares an invoice to Lagoven for that quarter's deliveries. Lagoven pays the invoice at the end of the second month after the end of the quarter. Invoice amounts and payments are denominated in U.S. dollars. Payments are wire transferred into Benton-Vinccler's account in New York. Employees; Community Relations Benton-Vinccler seeks to employ nationals rather than bring expatriates into the country. Presently, there are five full-time expatriates working with Benton-Vinccler and 121 local employees. Benton-Vinccler also conducts ongoing community relations programs, providing medical care, training, equipment and supplies, and support for local schools, in both states in which the South Monagas Unit falls. 33 36 DELTA CENTRO BLOCK, VENEZUELA General In January 1996, the Company and its bidding partners, LL&E and Norcen, were awarded the right to explore and develop the Delta Centro Block in Venezuela. The contract requires a minimum exploration work program consisting of completing a 1,300 kilometer seismic survey and drilling three wells to depths of 12,000 to 18,000 feet within five years. PdVSA estimates that this minimum exploration work program will cost $60 million, and will require that the Company, LL&E and Norcen each post a performance surety bond or standby letter of credit for its pro rata share of the estimated work commitment expenditures. The Company will have a 30% interest in the exploration venture, with LL&E and Norcen each owning a 35% interest. Under the proposed terms of the operating agreement, which establishes the management company for the project, LL&E will be the operator of the field and therefore the Company will not be able to exercise control of the operations of the venture. It is currently proposed that Corporacion Venezolana del Petroleo, S.A. ("CVP"), an affiliate of the national oil company, will have a 35% interest in the management company, which will dilute the voting power of the partners on a pro rata basis. If areas within the block are deemed to be commercially viable, then the group has the right to enter into further agreements with CVP to develop those areas during the next 20-25 years. CVP would participate in the revenues and costs with an interest between 1-35%, at CVP's discretion. Any oil and gas produced by the Delta Centro consortium will be sold at market prices and will be subject to the oil and gas taxation regime in Venezuela and to the terms of a profit sharing agreement with PdVSA. Under the current oil and gas tax law, a royalty of up to 16.67% will be paid to the state. Under the contract bid terms, 41% of the pre-tax income will be shared with PdVSA for the period during which the first $1 billion of revenues is produced; thereafter, the profit sharing amount may increase to up to 50% according to a formula based on return on assets. Currently, the statutory income tax rate for oil and gas enterprises is 66.7%. Royalties and shared profits are currently deductible for tax purposes. Location and Geology The Delta Centro block consists of approximately 2,100 square kilometers (526,000 acres) located in the delta of the Orinoco River in the eastern part of Venezuela. Although no significant exploratory activity has been conducted on the block, PdVSA has estimated that the area may contain recoverable reserves of as much as 820 MMBbls, and may be capable of producing up to 160 MBbls of oil per day. The general area of Venezuela in which the Delta Centro Block is located is known to be a significant source of hydrocarbons, evidenced by the Orinoco tar sands to the south and the recently discovered El Furrial light oil trend to the north. Based on its geological studies of the basins in this area, the Company's technical staff believes that hydrocarbons have essentially migrated over time from the deeper Maturin basin area of Venezuela southward toward the shallower Orinoco tar belt area. If so, then potential trapping structures and/or faults in the path of the migrating oil would serve as traps for the migrating oil and have the opportunity to be filled to their spill points. Delta Centro is directly in line with this migration path, making it an attractive exploration area. The area is mostly swampy in nature, with terrain ranging from forest in the north to savannah in the south. The marshlands in the block are similar to the transition zone areas in the Gulf of Mexico in which the Company has significant experience in seismic and drilling operations. Drilling and Development Activity The venture intends to conduct a 3-D seismic survey over the southwestern portion of the Delta Centro Block beginning in 1996, at an expected total cost to the Company of approximately $6-7 million, of which $2 million is expected to be spent in 1996. Following the initial interpretation of the seismic data, the venture intends to drill an initial exploration well during 1997, at a cost to the Company of approximately $1.5-2 million. Seismic and drilling programs during 1998-2000 will be based on the results of the 1996-1997 activity. OVERVIEW OF VENEZUELAN OIL AND GAS INDUSTRY Oil and gas is a vital industry in Venezuela, currently representing 25% of the economy. Estimates by the Economist Intelligence Unit indicate that the oil sector grew 6.0% in 1995 and 4.6% in 1994. Oil, gas and petroleum product exports for 1995 reached $13.3 billion, accounting for almost 73% of total exports. In addition, such estimates indicate that PdVSA expects oil and gas product exports to total approximately $15.6 billion in 1996. PdVSA is one of the largest oil companies in the world based on several factors, including reserves, production capacity and product sales. At the end of 1995, PdVSA's proved crude oil reserves were approximately 64 BBbls, more reserves than any other company or country in the Western hemisphere. PdVSA is seeking to double its current production capacity over the next ten years, with private investment as a key source of capital to achieve such growth. In 1992, Venezuela initiated a field re-activation program, which was an important first step for the reentrance of private investment to the oil and gas sector. Service contracts for 15 underdeveloped units were awarded, nine of which currently produce 34 37 a total of 100 MBbls per day. Benton-Vinccler currently provides approximately 30% of this total production. In the beginning of 1996, Venezuela opened the oil and gas sector for profit sharing contracts. Ten areas were offered for auction at the end of January, marking the first time that exploration and production rights had been officially offered to the private sector since the nationalization of the oil industry in 1976. The Delta Centro consortium was one of the successful bidders. NORTH GUBKINSKOYE, RUSSIA General In December 1991, the joint venture agreement forming GEOILBENT among the Company (34% interest) and two Russian partners, Purneftegasgeologia and Purneftegas (each having a 33% interest), was registered with the Ministry of Finance of the USSR. In November 1993, the agreement was registered with the Russian Agency for International Cooperation and Development. Although GEOILBENT may only take action through the unanimous vote of the partners, the Company believes that it has developed a good relationship with its partners and has not experienced any disagreement with its partners on major operational matters. Mr. A.E. Benton, Chief Executive Officer of the Company, serves as Chairman of the Board of GEOILBENT. Location and Geology GEOILBENT develops, produces and markets crude oil from the North Gubkinskoye Field in the West Siberia region of Russia, located approximately 2,000 miles northeast of Moscow. The field, which covers an area approximately 15 miles long and 4 miles wide, has been delineated with over 60 exploratory wells (which tested 26 separate reservoirs) and is surrounded by large proven fields. Before commencement of GEOILBENT's operations, North Gubkinskoye was one of the largest oil and gas fields in the region not under commercial production. The field is a large anticlinal structure with multiple pay sands. The development to date has focused on the BP 8, 9, 10, 11 and 12 reservoirs. The natural gas which is produced is currently being flared in accordance with environmental regulations. Drilling and Development Activity GEOILBENT commenced initial operations in the field during the third quarter of 1992 with the construction of a 37-mile oil pipeline and installation of temporary production facilities. During May 1996, approximately 38 wells were producing an average of approximately 6.4 MBbls of oil per day. The following table sets forth drilling activity and production information for each of the quarters presented: --------------------------------------- AVERAGE DAILY PRODUCTION FROM FIELD WELLS DRILLED (BBLS) ------------- --------------------------- 1994: First Quarter 1 1,000 Second Quarter 1 2,400 Third Quarter 2 2,200 Fourth Quarter 5 4,900 1995: First Quarter 4 4,300 Second Quarter 1 5,600 Third Quarter 9 7,800 Fourth Quarter 11 7,900 1996: First Quarter 4 8,500 GEOILBENT contracts with third parties for drilling and completion of wells. Supervised by a joint American and Russian management team, GEOILBENT identifies drilling locations, then uses Russian drilling rigs, upgraded by certain western technology and materials including shaker screens, monitoring equipment and drilling and completion fluids, to drill and complete a well. To date, 12 previously drilled wells have been reactivated and 38 wells have been drilled in the field, with 37, or 97%, completed and placed on production. Four drilling rigs are currently working on pads in the field, and once all wells on the pad have been drilled, each such well will be tested for completion. Each well is drilled to an average depth of approximately 10,000 feet measured depth and 8,000 feet true depth. Once oil is produced from the North Gubkinskoye Field, it is transported to production facilities constructed and owned by GEOILBENT. Oil is then transferred to GEOILBENT's 37-mile pipeline which transports the oil from the North Gubkinskoye Field south to the main Russian oil pipeline network. 35 38 The current production facilities are operating at or near capacity and would need to be expanded to accommodate any increased production. Subject to obtaining financing, GEOILBENT has a 1996 capital expenditure budget of approximately $35 million, of which $21 million would be used to drill approximately 36 wells in the North Gubkinskoye Field and $14 million for construction of production facilities. Although no assurance can be given that such financing will be obtained, GEOILBENT and the Company continues discussions with the European Bank for Reconstruction and Development ("EBRD") for a proposed credit facility, which would be non-recourse to the Company, to be used for development of the North Gubkinskoye Field, including the production facility expansion. If EBRD or other financing is not completed, minimal capital expenditures are anticipated and production from the field is expected to experience a natural decline. Customers and Market Information GEOILBENT's 37-mile pipeline runs from the field to the main pipeline in the area where GEOILBENT transfers the oil to Transneft, the state oil pipeline monopoly. Transneft can transport the oil to the western border of Russia. All oil production is for export and all oil sales are handled by trading companies such as Russoil or NAFTA Moscow. During 1995, most of GEOILBENT's crude sales were made to purchasers in Germany. All sales have been paid in U.S. dollars into GEOILBENT's account in Moscow. Employees; Community and Country Relations Having access to the oilfield labor base in West Siberia, GEOILBENT employs Russian nationals almost exclusively. Presently, there are three full-time expatriates working with GEOILBENT and over 200 local employees. The Company conducts an ongoing community relations program in Russia, providing medical care, training, equipment and supplies in towns in which GEOILBENT personnel reside and also for the nomadic indigenous population which resides in the area of oilfield operations. Alternatives for Natural Gas Reserves The Company and GEOILBENT estimate that substantial recoverable associated gas and condensate reserves exist in the North Gubkinskoye Field. In addition, there are substantial non-associated natural gas reserves in the field. Currently, there exists no ready market for these reserves, and therefore there are no plans to produce these gas and condensate reserves. Associated gas and condensate are flared in allowable amounts under permits with the Ministry of Fuel and Energy. If no market develops for the gas and condensate, then over time GEOILBENT plans to begin reinjecting them back into the reservoirs. GEOILBENT currently has no rights to develop the gas caps in the field. However, GEOILBENT has recently entered into discussions with Gazprom, the state natural gas monopoly, for development and production of the solution gas, which is estimated by the Company to be 550-600 Bcf. Implementation of such a development plan would include construction of processing facilities and of a natural gas pipeline from the field area to the main transmission pipeline. Feasibility studies are currently in process and anticipated to be completed by year end 1996. Further development, subject to approval of all parties, will depend upon available financing. Importance of Russian Oil and Gas Industry Although estimates vary widely, it is believed that a substantial amount of oil and natural gas reserves are located in Russia. In 1994 and 1995, energy and fuels (including primarily oil, oil products, natural gas, and hard coal) accounted for approximately 45% and 41%, respectively, of total Russian exports, as reported by the Economist Intelligence Unit. These fuel and energy exports are important sources of hard currency. In the last several years, the Russian oil and gas industry has attracted a notable amount of foreign investment, including that of the Company. OTHER PROPERTIES Prior to 1996, the Company had successfully pursued acquisition and joint venture opportunities in the United States as major oil and gas companies continued to consolidate operations and focus exploration and development activities outside the United States. Substantially all of the Company's domestic activities were located in the Louisiana Gulf Coast at the West Cote Blanche Bay, Rabbit Island and Belle Isle Fields. The Company entered into agreements with Texaco, Inc. ("Texaco") and Oryx Energy Company ("Oryx") to produce the fields by using 3-D seismic technology integrated with subsurface geologic data from previously drilled wells. In addition, the Company entered into certain agreements with Tenneco Ventures Corporation ("Tenneco") whereby Tenneco purchased certain interests in the Company's operations in the three fields and was given the right to participate as a 50% partner in certain of the Company's future activities in the Gulf Coast for the next five years. In March 1995, the Company and its affiliates and Tenneco sold to WRT Energy Corporation a 43.75% working interest in the shallower depths (above approximately 10,575 feet) in the West Cote Blanche Bay Field for an aggregate purchase price of $20 million. Of this aggregate purchase price, the Company received $14.9 million. 36 39 On April 12, 1996, the Company sold to Shell all of its interests in the West Cote Blanche Bay, Rabbit Island and Belle Isle Fields, effective December 31, 1995, for a purchase price of $35.4 million. Because the properties were held for sale, the Company's reserve report excludes all reserves attributable to these properties. At December 31, 1995, the Company had proved reserves of 1 MBOE in the Scott Field in Louisiana. EVALUATION OF ADDITIONAL OPPORTUNITIES The Company continues to evaluate and pursue additional international opportunities which fit within the Company's business strategy. The Company is currently evaluating certain development and/or acquisition opportunities, but it is not presently known whether, or on what terms, such evaluations will result in future agreements or acquisitions. RESERVES The following table sets forth information regarding estimates of proved reserves at December 31, 1995 prepared by the Company and audited by Huddleston & Co., Inc., independent petroleum engineers: ------------------------------------------------------------------------------- CRUDE OIL AND CONDENSATE (MBBL) NATURAL GAS (MMCF) -------------------------------------- ------------------------------------- DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL --------- ----------- ------ --------- ----------- ----- Venezuela(1) 30,032 43,561 73,593 -- -- -- Russia(2) 3,475 19,143 22,618 -- -- -- United States(3) -- -- -- 6 -- 6 - - - ------ ------ ------ Total 33,507 62,704 96,211 6 0 6 ====== ====== ====== = = = - --------------- (1) Includes 100% of the reserve information, without deduction for minority interest. All Venezuelan reserves are attributable to an operating service agreement between Benton-Vinccler and Lagoven, under which all mineral rights are owned by the Government of Venezuela. See "-- South Monagas Unit, Venezuela." (2) Although the Company estimates that there are substantial natural gas reserves in the North Gubkinskoye Field, no natural gas reserves have been recorded because of a lack of a ready market. (3) The Company has entered into an agreement to sell substantially all of its U.S. reserves and acreage positions. See "-- Other Properties." The table excludes the reserves to be sold. Estimates of commercially recoverable oil and gas reserves and of the future net cash flows derived therefrom are based upon a number of variable factors and assumptions, such as historical production from the subject properties, comparison with other producing properties, the assumed effects of regulation by governmental agencies and assumptions concerning future operating costs, severance and excise taxes, export tariffs, abandonment costs, development costs and workover and remedial costs, all of which may vary considerably from actual results. All such estimates are to some degree speculative, and various classifications of reserves are only attempts to define the degree of speculation involved. For these reasons, estimates of the commercially recoverable reserves of oil attributable to any particular property or group of properties, the classification, cost and risk of recovering such reserves and estimates of the future net cash flows expected therefrom, prepared by different engineers or by the same engineers at different times, may vary substantially. The difficulty of making precise estimates is accentuated by the fact that 65% of the Company's total proved reserves were non-producing as of December 31, 1995. Therefore, the Company's actual production, revenues, severance and excise taxes, export tariffs, development expenditures, workover and remedial expenditures, abandonment expenditures and operating expenditures with respect to its reserves will likely vary from estimates, and such variances may be material. In addition, actual future net cash flows will be affected by factors such as actual production, supply and demand for oil, availability and capacity of gathering systems and pipelines, changes in governmental regulations or taxation and the impact of inflation on costs. The timing of actual future net revenue from proved reserves, and thus their actual present value, can be affected by the timing of the incurrence of expenditures in connection with development of oil and gas properties. The 10% discount factor, which is required by the Commission to be used to calculate present value for reporting purposes, is not necessarily the most appropriate discount factor based on interest rates in effect from time to time and risks associated with the oil and gas industry. Discounted present value, no matter what discount rate is used, is materially affected by assumptions as to the amount and timing of future production, which may and often do prove to be inaccurate. 37 40 PRODUCTION, PRICES AND LIFTING COST SUMMARY The following table sets forth by country net production, average sales prices and average lifting costs of the Company for the three months ended march 31, 1995 and 1996 and the years ended December 31, 1993, 1994 and 1995: -------------------------------------------------------- THREE MONTHS ENDED YEARS ENDED DECEMBER 31 MARCH 31 1993 1994 1995 1995 1996 -------- ---------- ---------- ---------- ---------- VENEZUELA Net Crude Oil Production (Bbl) 160,425 2,519,514 5,456,473 1,062,093 2,623,444 Average Crude Oil Sales Price ($ per Bbl) $8.31 $8.52 $9.01 $9.02 $9.63 Average Lifting Costs ($ per Bbl) 7.26 1.51 1.19 1.22 .88 RUSSIA (1) Net Crude Oil Production (Bbl) 28,263 294,364 490,960 118,864 223,397 Average Crude Oil Sales Price ($ per Bbl) $11.46 $11.93 $12.25 $13.12 $10.32 Average Lifting Costs ($ per Bbl) 16.22 9.62 5.63 2.93 6.72 UNITED STATES Net Production: Crude oil and condensate (Bbl) 292,266 225,954 68,975 32,317 5,163 Natural Gas (Mcf) 232,677 2,061,892 3,784,830 346,548 1,249,128 Average Sales Price: Crude oil and condensate ($ per Bbl) $17.30 $14.46 $15.79 $17.10 $19.94 Natural Gas ($ per Mcf) 2.19 1.79 1.77 1.62 3.26 Average Lifting Costs ($ per BOE) 10.53 5.08 2.08 6.73 1.20 - --------------- (1) The December 31, 1995 presentation includes information for the nine months ended September 30, 1995, the end of the fiscal period for GEOILBENT. Similarly, the 1996 presentation includes information for the three months ended December 31, 1995. REGULATION General The Company's operations are affected by political developments and laws and regulations in the areas in which it operates. In particular, oil and gas production operations and economics are affected by price controls, tax and other laws relating to the petroleum industry, by changes in such laws and by changing administrative regulations and the interpretations and application of such rules and regulations. In addition, various federal, state, local and international laws and regulations covering the discharge of materials into the environment, the disposal of oil and gas wastes, or otherwise relating to the protection of the environment, may affect the Company's operations and costs. Oil and gas industry legislation and agency regulation is periodically changed for a variety of political, economic, environmental and other reasons. Numerous governmental departments and agencies issue rules and regulations binding on the oil and gas industry, some of which carry substantial penalties for the failure to comply. The regulatory burden on the oil and gas industry increases the Company's cost of doing business. Venezuela Venezuela requires environmental and other permits for certain operations conducted in oil field development, such as site construction, drilling, and seismic activities. As a contractor to Lagoven, Benton-Vinccler submits capital and operating budgets to Lagoven for approval. Capital expenditures to comply with Venezuelan environmental regulations relating to the reinjection of gas in the field and water disposal are expected to approximate $7.8 million in 1996 and $14.4 million in 1997, respectively. Benton-Vinccler also submits requests for permits for drilling, seismic and operating activities to Lagoven, which then obtains such permits from the Ministry of Energy and Mines and Ministry of Environment, as required. Benton-Vinccler is also subject to income, municipal and value added taxes, and must file certain monthly and annual compliance reports to SENIAT (the national tax administration) and to various municipalities. Russia GEOILBENT submits annual production and development plans, which include information necessary for permits and approvals for its planned drilling, seismic and operating activities, to local and regional governments and to the Ministry of Fuel and Energy, Committee of Geology and Ministry of Economy. GEOILBENT also submits annual production targets and quarterly export nominations for oil pipeline transportation capacity to the Ministry of Fuel and Energy. GEOILBENT is subject to customs, value added, and municipal and income taxes. Various municipalities and regional tax inspectorates are involved in the assessment and collection of these taxes. GEOILBENT must file operating and financial compliance reports with several bodies, 38 41 including the Ministries of Fuel and Energy, Committee of Geology, Committee for Technical Mining Monitoring, the Ministry of Ecology, and the State Customs Committee. DRILLING, ACQUISITION AND FINDING COSTS During the years ended December 31, 1993, 1994 and 1995, the Company spent approximately $26 million, $53 million, and $74 million, respectively, for acquisitions of leases and producing properties, development and exploratory drilling, production facilities and additional development activities such as workovers and recompletions. The Company has drilled or participated in the drilling of wells as follows: --------------------------------------------------------------- YEARS ENDED DECEMBER 31 1993 1994 1995 ----------------- ----------------- ----------------- GROSS NET GROSS NET GROSS NET ----- ------ ----- ------ ----- ------ WELLS DRILLED: Exploratory: Crude oil 1 .435 -- -- 3 1.020 Natural gas -- -- 2 .875 3 .970 Dry holes 2 .869 2 .869 1 .375 Development:(1)(2)(3) Crude oil 13 5.693 20 11.860 41 22.680 Natural Gas -- -- 1 .435 1 .220 Dry Holes 2 .840 -- -- 1 .800 --- ------ --- ------ --- ------ TOTAL 18 7.837 25 14.039 50 26.065 === ====== === ====== === ====== AVERAGE DEPTH OF WELLS (FEET) 5,100 7,266 7,847 PRODUCING WELLS (4): Crude Oil 106 42.942 112 46.796 77 44.701 Natural Gas 6 1.271 4 .822 8 2.024 - --------------- (1) In addition to the activities set forth in the table, at the West Cote Blanche Bay Field during the year ended December 31, 1994, the Company participated in the successful recompletion of 13 gross (4.247 net) oil wells and one gross (.327 net) gas well. During the year ended December 31, 1993, the Company participated in the recompletion of 13 gross (5.650 net) oil wells, of which 11 gross (4.781 net) were completed as producers, and one gross (.435 net) gas well, which was completed as a producer. In March 1995, the Company sold certain of its interests in the field, a result of which was to substantially eliminate the Company's future participation in recompletion and redrilling activities and in April 1996, the Company sold the remainder of its interests in the field. See "-- Other Properties." (2) In addition to the activities set forth in the table, the Company participated in the successful recompletion of five gross (4.0 net) oil wells in Venezuela during the year ended December 31, 1994. The Company participated in the successful reactivation of nine gross (4.5 net) oil wells in Venezuela during the year ended December 31, 1993. (3) In addition to the activities set forth in the table, the Company participated in the successful reactivation of one gross (.34 net) oil well in Russia during the year ended December 31, 1995. The Company participated in the successful reactivation of six gross (2.04 net) oil wells in Russia during the year ended December 31, 1994. The Company participated in the successful reactivation of four gross (1.36 net) oil wells in Russia during the year ended December 31, 1993. (4) The information related to producing wells reflects wells the Company drilled, wells the Company participated in drilling and producing wells the Company acquired. At December 31, 1995, the Company was participating in the drilling of 2 wells in Venezuela, and 4 wells in Russia. All of the Company's drilling activities are conducted on a contract basis with independent drilling contractors. The Company does not own any drilling equipment. From commencement of operations through December 31, 1995, the Company added, net of production and property sales, approximately 96,180 MBOE of proved reserves through purchases of reserves-in-place, discoveries of oil and natural gas reserves, extensions of existing producing fields and revisions of previously estimated reserves. The Company's finding and development costs for its proved reserves from inception to December 31, 1995 were $1.75 per BOE. The Company's estimate of future development costs for its undeveloped proved reserves at December 31, 1995 was $1.80 per BOE. The estimated future development costs are based upon the Company's anticipated cost of developing its non-producing proved reserves, which costs are calculated using historical costs for similar activities. 39 42 ACREAGE The following table summarizes the developed and undeveloped acreage owned, leased or under concession as of December 31, 1995. See "-- Other Properties." ---------------------------------------------- DEVELOPED UNDEVELOPED GROSS NET GROSS NET ------ ------ ------- ------- Venezuela 7,480 5,984 150,363 120,290 Russia 16,080 5,467 149,680 50,891 United States(1) 5,002 1,689 10,000 6,862 ------ ------ ------- ------- Total 28,562 13,140 310,043 178,043 ====== ====== ======= ======= - --------------- (1) The Company sold substantially all of its U.S. reserves and related acreage positions. The table excludes the acreage sold. See "-- Other Properties." COMPETITION The Company encounters strong competition from major oil and gas companies and independent operators in acquiring properties and leases for exploration for crude oil and natural gas. The principal competitive factors in the acquisition of such oil and gas properties include the staff and data necessary to identify, investigate and purchase such leases, and the financial resources necessary to acquire and develop such leases. Many of the Company's competitors have financial resources, staffs and facilities substantially greater than those of the Company. EMPLOYEES AND CONSULTANTS At December 31, 1995, the Company had 43 employees and one independent consultant. Benton-Vinccler had 109 employees and GEOILBENT had 220 employees. TITLE TO DEVELOPED AND UNDEVELOPED ACREAGE All Venezuelan reserves are attributable to an operating service agreement between Benton-Vinccler and Lagoven, under which all mineral rights are owned by the Government of Venezuela. With regard to Russian acreage, GEOILBENT has obtained certain documentation from appropriate regulatory bodies in Russia which the Company believes is adequate to establish GEOILBENT's right to develop, produce and market oil and gas from the North Gubkinskoye Field in Russia. At the time of acquisition of undeveloped acreage in the United States, the Company conducted a limited title investigation. A title opinion from a qualified law firm was obtained prior to drilling any given U.S. prospect. Title to presently producing properties had been investigated by a qualified law firm prior to purchase. The Company believes its method of investigating the title to these domestic properties was consistent with general practices in the oil and gas industry and was designed to enable the Company to acquire title which was generally considered to be acceptable in the oil and gas industry. LEGAL PROCEEDINGS On June 13, 1994, Charles Agnew and other limited partners in several limited partnerships formed by the Company brought an action in the Superior Court of California, County of Ventura, against the Company for alleged actions and omissions of the Company in operating the partnerships and alleged misrepresentations made by the Company in selling the limited partnership interests. The claimants seek an unspecified amount of actual and punitive damages. On May 17, 1995, the Company agreed to a binding arbitration proceeding with respect to such claims, which is currently in the discovery stage. The Company will be forced to spend time and financial resources to defend or resolve these matters. In January 1996, the Company acquired all of the interests in three of the limited partnerships which are the subject of the arbitration, in exchange for shares of, and warrants to purchase shares of, the Company's common stock. In the arbitration proceeding, if any liability is found to exist, the arbitrator will determine the amount of any damages, and may consider all distributions made to the partners, including the consideration received in the exchange offer, in determining the extent of damages, if any. However, there can be no assurance that an arbitrator will consider such factors in his or her determination of damages if the allegations are found to be true and damages are awarded. The Company is also subject to ordinary litigation that is incidental to its business. 40 43 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Information with respect to the directors and executive officers of the Company is set forth below: NAME AGE POSITION - --------------------- --- ------------------------------------- A.E. Benton 53 Chairman of the Board, Chief Executive Officer and Director Michael B. Wray 60 President, Chief Financial Officer and Director William H. Gumma 47 Senior Vice President -- Operations, Managing Director of Benton-Vinccler and Director David H. Pratt 46 Vice President -- International Finance Joseph C. White 64 Vice President -- Operations Clarence Cottman, III 40 Vice President -- Business Development E. Sven Hagen 38 Vice President -- Exploration and Development Gregory S. Grabar 41 Vice President -- Corporate Development and Administration Chris C. Hickok 38 Vice President -- Controller and Chief Accounting Officer Bruce M. McIntyre 67 Director Richard W. Fetzner 66 Director Garrett A. Garrettson 52 Director A.E. BENTON A.E. Benton, founder of the Company, was first elected Chief Executive Officer and Chairman of the Board of the Company in September 1988. He has served as director of the Company since September 1988. From 1986 to October 1988, Mr. Benton was employed as president and director of Benton Petroleum Company. From 1981 to 1986, Mr. Benton was employed by May Petroleum, Inc., becoming its senior vice president of exploration. From 1979 to 1981, Mr. Benton was employed by TransOcean Oil Company and, upon TransOcean's acquisition by Mobil Oil Corporation, he was employed by another subsidiary of Mobil Oil Corporation as manager of geophysics. He was employed from 1968 to 1979 by Amoco Oil Company in various positions, including director of applied geophysical research. Mr. Benton has a B.S. degree in geophysics from California State University. Mr. Benton serves as a director of First Seismic Corporation. MICHAEL B. WRAY Michael B. Wray was first elected President and Chief Financial Officer of the Company in January, 1996. He has served as director of the Company since November 1988. From January 1994 to December 1995, Mr. Wray served as a consultant to the Company. From January 1992 until July 1993, Mr. Wray served as vice president -- finance and administration of Del Mar Operating, Inc. From 1985 through 1991, Mr. Wray was an independent financial consultant to oil and gas exploration and production companies. From 1979 to 1985, Mr. Wray served as a senior financial officer of Guardian Oil Company, Huffco Petroleum Corporation and May Petroleum, Inc. Prior to that time, Mr. Wray worked for over 15 years in New York as an investment banker, security analyst and officer in various investment firms including Donaldson, Lufkin & Jenrette, Inc., Drexel & Co. and L.F. Rothschild & Co. Mr. Wray began his career as an attorney with Morgan, Lewis & Bockius in Philadelphia. Mr. Wray holds a B.A. degree from Amherst College and a law degree from Columbia Law School. WILLIAM H. GUMMA William H. Gumma was first elected Vice President -- Gulf Coast Operations in August 1989 and was elected Senior Vice President -- Operations of the Company in September 1990. In December 1995, Mr. Gumma was elected Managing Director of 41 44 Benton-Vinccler. In September 1994, Mr. Gumma was appointed a director of the Company to fill a vacancy on the Board of Directors. From 1988 to 1989, Mr. Gumma was chief geophysicist-international for Maxus Energy Corp. (formerly Diamond Shamrock, Inc.), where he directed geophysical exploration in Europe, South America and North Africa. From 1986 to 1988, Mr. Gumma served as vice president of exploration for BHP Petroleum, Inc. From 1983 to 1986, Mr. Gumma served as chief geophysicist and later as Gulf Coast exploration manager for May Petroleum, Inc. From 1980 to 1983, Mr. Gumma served as chief geophysicist for Spectrum Oil and Gas Company. From 1978 to 1980, he was district geophysicist for Inexco Oil Company. From 1972 to 1978, Mr. Gumma was employed by Amoco Oil Company in various positions. Mr. Gumma received his B.S. from the Colorado School of Mines and his M.S. in geophysics from Oregon State University. DAVID H. PRATT David H. Pratt was first elected Vice President -- International Finance in January, 1996. From April 1989 to December 1995, Mr. Pratt served as Vice President -- Finance, Chief Financial Officer and Treasurer of the Company. From 1987 to 1989, Mr. Pratt was a consultant in the accounting services and systems industry. From 1982 to 1987, Mr. Pratt was employed by May Petroleum, Inc., becoming assistant treasurer. He also served as budget and planning manager, and managed corporate and partnership investor relations and other administrative areas. From 1974 to 1982, Mr. Pratt was employed by Arthur Andersen & Co. and he became a Certified Public Accountant in 1975. Mr. Pratt holds B.S. and M.B.A. degrees from Texas Christian University. JOSEPH C. WHITE Joseph C. White was elected Vice President -- Operations of the Company in February 1993. Previously, Mr. White was president of J.C. White and Associates, Inc., an independent consulting firm that prepared the Company's independent reserve reports from 1988 through 1992. Mr. White was employed by Texaco for 30 years in a variety of engineering and management positions. In 1968, he was appointed assistant to the vice president for Latin America and Trinidad in Texaco's New York City executive office and in 1971 was appointed assistant to the senior vice president for Texaco's worldwide producing operations. In 1972, he was appointed assistant division manager to Texaco's Denver Division in Colorado. In this position, he was responsible for all engineering and operational matters for Texaco's operations in the Rocky Mountain area. CLARENCE COTTMAN, III Clarence Cottman, III was first appointed Land Manager in June 1989, was elected Vice President -- Land of the Company in September 1990 and was elected Vice President -- Business Development in July 1993. Mr. Cottman, a Certified Petroleum Landman, was previously employed by Oryx Energy Company (formerly Sun Exploration and Production Company) from June 1982 to May 1989. Mr. Cottman had held a variety of exploration and production land positions in Oryx's Dallas, Houston, and Denver offices. Most recently, he was district landman for Oryx in Ventura, California, and responsible for all land activity on the West Coast. Mr. Cottman holds a B.A. degree from Rochester Institute of Technology and an M.B.A. from the University of Rhode Island. Mr. Cottman is the son-in-law of Richard W. Fetzner. E. SVEN HAGEN E. Sven Hagen was first appointed Gulf Coast Geologist in March 1990 and was elected Vice President -- Exploration and Development in July 1995. From March 1987 to February 1990, Mr. Hagen was employed by Shell Oil Company as an exploration geologist responsible for the technical evaluation of the oil and gas potential of West Africa salt basins including Angola, Congo, Gabon and Namibia. From December 1985 to February 1987, Mr. Hagen was employed by Standard Oil Production Company as an Exploration Geologist. Mr. Hagen holds a B.A. degree in geology from the University of California at Santa Barbara and a Ph.D. in geology from the University of Wyoming. GREGORY S. GRABAR Gregory S. Grabar was first elected Vice President -- Corporate Development and Administration in April 1993 and was first appointed Manager of Administration in October 1990. From 1989 to 1990, Mr. Grabar was in the corporate finance department of Citicorp Real Estate, Inc. From 1988 to 1989, Mr. Grabar was a consultant in the accounting services industry. From 1981 to 1988, Mr. Grabar was a vice president in the corporate finance department at Bateman Eichler, Hill Richards, Inc., a Kemper Securities Inc. company. From 1977 to 1981, Mr. Grabar was in both the audit and tax departments of Arthur Andersen & Co. and became a Certified Public Accountant. Mr. Grabar graduated cum laude from California State University with a B.A. in business administration and received his M.B.A. from the University of California at Los Angeles. 42 45 CHRIS C. HICKOK Chris C. Hickok was first appointed Controller in November 1991 and was elected Vice President -- Controller and Chief Accounting Officer in January 1995. From March 1979 to September 1991, Mr. Hickok was employed by Mission Resources, Inc. and held various positions in the accounting and finance department including financial analyst, assistant controller and controller. Mr. Hickok holds a B.S. degree in business administration from California State University at Hayward and is a Certified Management Accountant. BRUCE M. MCINTYRE Bruce M. McIntyre has served as director of the Company since November 1988. Mr. McIntyre is a private investor and a consultant in the oil and gas industry, in which he has been involved since 1952. He also serves in a management capacity with several small, private companies in the energy field. He currently serves as a director of MSC Corp., a private company which manages oil wells in Illinois. From 1981 to 1984, Mr. McIntyre served as president of Rocky Mountain Exploration Company, ultimately negotiating its merger into Carmel Energy, Inc., on whose board of directors he served until March 1986. Prior to that time, Mr. McIntyre held various management positions with C&K Petroleum, Inc. (now ENSTAR Petroleum, Inc.), Jenney Oil Company and Sinclair Oil & Gas Company. Mr. McIntyre is a graduate of Harvard College and the Harvard University Graduate School of Business Administration. RICHARD W. FETZNER Richard W. Fetzner has served as director of the Company since May 1990. Since 1989, Dr. Fetzner has been an associate professor of business administration at California Lutheran University in Thousand Oaks, California. From 1984 to 1989, Dr. Fetzner served in various academic capacities at the University of Singapore and California Lutheran University and was a consultant to the World Bank. From 1979 to 1984, Dr. Fetzner served as group vice president of Sun Company, Inc. and president of Sun Exploration and Production Company in Dallas, Texas. From 1958 to 1979, he served in various management and professional positions with Sun Oil Company and its subsidiaries including president of Sun International, Inc. and Sun Marine Transport, Inc. Dr. Fetzner holds a B.A. from Augustana College, an M.S. in geology from the University of Wisconsin, a Ph.D. in geology and economics from the University of Wisconsin and an M.B.A. from Drexel University. Dr. Fetzner is the father-in-law of Clarence Cottman, III, an officer of the Company. GARRETT A. GARRETTSON Garrett A. Garrettson has served as director of the Company since January 1996. In 1995, Mr. Garrettson was elected as chairman, chief executive officer and president of Contract Recording Technology, Inc. In addition, since 1993 he has served as president and chief executive officer of Censtor Corporation. From 1986 to 1989, Mr. Garrettson served as vice president of Imprimis Technology. Prior to that time, after serving in the United States Navy and Naval Reserves, Mr. Garrettson held various positions with Hewlett Packard Company, including laboratory director, department manager, project manager, and research engineer. Mr. Garrettson graduated from Stanford University with a B.S. and M.S. in engineering physics, and a Ph.D. in mechanical engineering. 43 46 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER In connection with the sale of the Old Notes, the Company entered into the Registration Rights Agreement with the Initial Purchaser, pursuant to which the Company agreed to use its best efforts to file with the Commission a registration statement with respect to the exchange of the Old Notes for debt securities with terms identical in all material respects to the terms of the Old Notes, except that (i) the New Notes have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer applicable to the Old Notes, will not contain certain legends relating thereto and will not be entitled to registration and other rights under the Registration Rights Agreement, and (ii) the New Notes will not provide for any increase in the interest rate thereon. In that regard, the Old Notes provide, among other things, that, if the Exchange Offer is not consummated by August 31, 1996, the interest rate borne by the Old Notes following August 31, 1996 will increase by 0.50% per annum until the Exchange Offer is consummated. Upon consummation of the Exchange Offer, holders of Old Notes will not be entitled to any increase in the rate of interest thereon or any further registration rights under the Registration Rights Agreement. See "Summary -- Certain Consequences of a Failure to Exchange Old Notes" and "Description of the Old Notes." The Exchange Offer is not being made to, nor will the Company accept tenders for exchange from, holders of Old Notes in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. TERMS OF THE EXCHANGE The Company hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, to exchange up to $125 million aggregate principal amount of New Notes for a like aggregate principal amount of Old Notes properly tendered on or prior to the Expiration Date (as defined below) and not properly withdrawn in accordance with the procedures described below. The Company will issue, promptly after the Expiration Date, an aggregate principal amount of up to $125 million of New Notes in exchange for a like principal amount of outstanding Old Notes tendered and accepted in connection with the Exchange Offer. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered. As of the date of this Prospectus $125 million aggregate principal amount of Old Notes is outstanding. Holders of Old Notes do not have any appraisal or dissenters' rights in connection with the Exchange Offer. Old Notes which are not tendered for exchange or are tendered but not accepted in connection with the Exchange Offer will remain outstanding and be entitled to the benefits of the Indenture, but will not be entitled to any further registration rights under the Registration Rights Agreement. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder thereof promptly after the Expiration Date. Holders who tender Old Notes in connection with the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes in connection with the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See " -- Fees and Expenses." NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" means 5:00 p.m., New York City time, on , 1996 unless the Exchange Offer is extended by the Company (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). 44 47 The Company expressly reserves the right in its sole and absolute discretion, subject to applicable law, at any time and from time to time, (i) to delay the acceptance of the Old Notes for exchange, (ii) to terminate the Exchange Offer (whether or not any Old Notes have theretofore been accepted for exchange) if the Company determines, in its sole and absolute discretion, that any of the events or conditions referred to under "-- Certain Conditions to the Exchange Offer" have occurred or exist or have not been satisfied, (iii) to extend the Expiration Date of the Exchange Offer and retain all Old Notes tendered pursuant to the Exchange Offer, subject, however, to the right of holders of Old Notes to withdraw their tendered Old Notes as described under "-- Withdrawal Rights," and (iv) to waive any condition or otherwise amend the terms of the Exchange Offer in any respect. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, or if the Company waives a material condition of the Exchange Offer, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders of the Old Notes, and the Company will extend the Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act. Any such delay in acceptance, extension, termination or amendment will be followed promptly by oral or written notice thereof to the Exchange Agent and by making a public announcement thereof, and such announcement in the case of an extension will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Company may choose to make any public announcement and subject to applicable law, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES Upon the terms and subject to the conditions of the Exchange Offer, the Company will exchange, and will issue to the Exchange Agent, New Notes for Old Notes validly tendered and not withdrawn (pursuant to the withdrawal rights described under "-- Withdrawal Rights") promptly after the Expiration Date. In all cases, delivery of New Notes in exchange for Old Notes tendered and accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) Old Notes or a book-entry confirmation of a book-entry transfer of Old Notes into the Exchange Agent's account at The Depositary Trust Company ("DTC"), (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and (iii) any other documents required by the Letter of Transmittal. The term "book-entry confirmation" means a timely confirmation of a book-entry transfer of Old Notes into the Exchange Agent's account at DTC. Subject to the terms and conditions of the Exchange Offer, the Company will be deemed to have accepted for exchange, and thereby exchanged, Old Notes validly tendered and not withdrawn as, if and when the Company gives oral or written notice to the Exchange Agent of the Company's acceptance of such Old Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent for the Company for the purpose of receiving tenders of Old Notes, Letters of Transmittal and related documents, and as agent for tendering holders for the purpose of receiving Old Notes, Letters of Transmittal and related documents and transmitting New Notes to validly tendering holders. Such exchange will be made promptly after the Expiration Date. If for any reason whatsoever, acceptance for exchange or the exchange of any Old Notes tendered pursuant to the Exchange Offer is delayed (whether before or after the Company's acceptance for exchange of Old Notes) or the Company extends the Exchange Offer or is unable to accept for exchange or exchange Old Notes tendered pursuant to the Exchange Offer, then, without prejudice to the Company's rights set forth herein, the Exchange Agent may, nevertheless, on behalf of the Company and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Old Notes and such Old Notes may not be withdrawn except to the extent tendering holders are entitled to withdrawal rights as described under "-- Withdrawal Rights." Pursuant to the Letter of Transmittal, a holder of Old Notes will warrant and agree in the Letter of Transmittal that it has full power and authority to tender, exchange, sell, assign and transfer Old Notes, that the Company will acquire good, marketable and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances, and the Old Notes tendered for exchange are not subject to any adverse claims or proxies. The holder also will warrant and agree that it will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the exchange, sale, assignment, and transfer of the Old Notes tendered pursuant to the Exchange Offer. PROCEDURES FOR TENDERING OLD NOTES Valid Tender. Except as set forth below, in order for Old Notes to be validly tendered pursuant to the Exchange Offer, a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and 45 48 any other required documents, must be received by the Exchange Agent at one of its addresses set forth under "-- Exchange Agent," and either (i) tendered Old Notes must be received by the Exchange Agent, or (ii) such Old Notes must be tendered pursuant to the procedures for book-entry transfer set forth below and a book-entry confirmation must be received by the Exchange Agent, in each case on or prior to the Expiration Date, or (iii) the guaranteed delivery procedures set forth below must be complied with. If less than all of the Old Notes are tendered, a tendering holder should fill in the amount of Old Notes being tendered in the appropriate box on the Letter of Transmittal. The entire amount of Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Book-Entry Transfer. The Exchange Agent will establish an account with respect to the Old Notes at DTC for purposes of the Exchange Offer within two business days after the date of this Prospectus. Any financial institution that is a participant in DTC's book-entry transfer facility system may make a book-entry delivery of the Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's account at DTC in accordance with DTC's procedures for transfers. However, although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other required documents, must in any case be delivered to and received by the Exchange Agent at its address set forth under "-- Exchange Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure set forth below must be complied with. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. Signature Guarantees. Certificates for the Old Notes need not be endorsed and signature guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate for the Old Notes is registered in a name other than that of the person surrendering the certificate or (b) such registered holder completes the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in the Letter of Transmittal. In the case of (a) or (b) above, such certificates for Old Notes must be duly endorsed or accompanied by a properly executed bond power, with the endorsement or signature on the bond power and on the Letter of Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor institution," including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association (an "Eligible Institution"), unless surrendered on behalf of such Eligible Institution. See Instruction 1 to the Letter of Transmittal. Guaranteed Delivery. If a holder desires to tender Old Notes pursuant to the Exchange Offer and the certificates for such Old Notes are not immediately available or time will not permit all required documents to reach the Exchange Agent on or before the Expiration Date, or the procedures for book-entry transfer cannot be completed on a timely basis, such Old Notes may nevertheless be tendered, provided that all of the following guaranteed delivery procedures are complied with: (i) such tenders are made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form accompanying the Letter of Transmittal, is received by the Exchange Agent, as provided below, on or prior to the Expiration Date; and (iii) the certificates (or a book-entry confirmation) representing all tendered Old Notes, in proper form for transfer, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other documents required by the Letter of Transmittal, are received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by facsimile or mail to the Exchange Agent and must include a guarantee by an Eligible Institution in the form set forth in such notice. Notwithstanding any other provision hereof, the delivery of New Notes in exchange for Old Notes tendered and accepted for exchange pursuant to the Exchange Offer will in all cases be made only after timely receipt by the Exchange Agent of Old Notes, 46 49 or of a book-entry confirmation with respect to such Old Notes, and a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees and any other documents required by the Letter of Transmittal. Accordingly, the delivery of New Notes might not be made to all tendering holders at the same time, and will depend upon when Old Notes, book-entry confirmations with respect to Old Notes and other required documents are received by the Exchange Agent. The Company's acceptance for exchange of Old Notes tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions of the Exchange Offer. Determination of Validity. All questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tendered Old Notes will be determined by the Company, in its sole discretion, whose determination shall be final and binding on all parties. The Company reserves the absolute right, in its sole and absolute discretion, to reject any and all tenders determined by it not to be in proper form or the acceptance of which, or exchange for, may, in the view of counsel to the Company, be unlawful. The Company also reserves the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer as set forth under "-- Certain Conditions to the Exchange Offer" or any condition or irregularity in any tender of Old Notes of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The Company's interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. No tender of Old Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. Neither the Company, any affiliates or assigns of the Company, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in tenders or incur any liability for failure to give any such notification. If any Letter of Transmittal, endorsement, bond power, power of attorney, or any other document required by the Letter of Transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by the Company, proper evidence satisfactory to the Company, in its sole discretion, of such person's authority to so act must be submitted. A beneficial owner of Old Notes that are held by or registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian is urged to contact such entity promptly if such beneficial holder wishes to participate in the Exchange Offer. RESALES OF NEW NOTES The Company is making the Exchange Offer in reliance on the position of the staff of the Division of Corporation Finance of the Commission as set forth in certain interpretive letters addressed to third parties in other transactions. However, the Company has not sought its own interpretive letter and there can be no assurance that the staff of the Division of Corporation Finance of the Commission would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the staff of the Division of Corporation Finance, and subject to the two immediately following sentences, the Company believes that New Notes issued pursuant to this Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such New Notes. However, any holder of Old Notes who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing New Notes, or any broker-dealer who purchased Old Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the staff of the Division of Corporation Finance of the Commission set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Old Notes in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Old Notes unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Old Notes acquired for its own account as a result of market-making or other trading activities and exchanges such Old Notes for New Notes, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such New Notes. Each holder of Old Notes who wishes to exchange Old Notes for New Notes in the Exchange Offer will be required to represent that (i) it is not an "affiliate" of the Company, (ii) any New Notes to be received by it are being acquired in the ordinary course 47 50 of its business, (iii) it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such New Notes, and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such New Notes. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Old Notes for its own account as the result of market-making activities or other trading activities and must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the staff of the Division of Corporation Finance of the Commission in the interpretive letters referred to above, the Company believes that broker-dealers who acquired Old Notes for their own accounts as a result of market-making activities or other trading activities ("Participating Broker-Dealers") may fulfill their prospectus delivery requirements with respect to the New Notes received upon exchange of such Old Notes (other than Old Notes which represent an unsold allotment from the original sale of the Old Notes) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such New Notes. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer during the period referred to below in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement, the Company has agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such New Notes for a period ending 180 days after the Expiration Date (subject to extension under certain limited circumstances described below) or, if earlier, when all such New Notes have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who is an "affiliate" of the Company may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. In that regard, each Participating Broker-Dealer who surrenders Old Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution of the Letter of Transmittal, that, upon receipt of notice from the Company of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in this Prospectus untrue in any material respect or which causes this Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference herein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of New Notes pursuant to this Prospectus until the Company has amended or supplemented this Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such Participating Broker-Dealer or the Company has given notice that the sale of the New Notes may be resumed, as the case may be. If the Company gives such notice to suspend the sale of the New Notes, it shall extend the 180-day period referred to above during which Participating Broker-Dealers are entitled to use this Prospectus in connection with the resale of New Notes by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker-Dealers shall have received copies of the amended or supplemented Prospectus necessary to permit resales of the New Notes or to and including the date on which the Company has given notice that the sale of New Notes may be resumed, as the case may be. WITHDRAWAL RIGHTS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time on or prior to the Expiration Date. In order for a withdrawal to be effective a written, telegraphic, telex or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth under "-- Exchange Agent" on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Old Notes to be withdrawn, the aggregate principal amount of Old Notes to be withdrawn, and (if certificates for such Old Notes have been tendered) the name of the registered holder of the Old Notes as set forth on the Old Notes, if different from that of the person who tendered such Old Notes. If Old Notes have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such Old Notes, the tendering holder must submit the serial numbers shown on the particular Old Notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Old Notes tendered for the account of an Eligible Institution. If Old Notes have been tendered pursuant to the procedures for book-entry transfer set forth in "-- Procedures for Tendering Old Notes," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Old Notes, in which case a notice of withdrawal will be effective if delivered to the Exchange 48 51 Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of Old Notes may not be rescinded. Old Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described above under "-- Procedures for Tendering Old Notes." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, in its sole discretion, whose determination shall be final and binding on all parties. Neither the Company, any affiliates or assigns of the Company, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Old Notes which have been tendered but which are withdrawn will be returned to the holder thereof promptly after withdrawal. INTEREST ON THE NEW NOTES Each New Note will bear interest at the rate of 11 5/8% per annum from the most recent date to which interest has been paid or duly provided for on the Old Note surrendered in exchange for such New Note or, if no interest has been paid or duly provided for on such Old Note, from May 1, 1996. Interest on the New Notes will be payable semiannually on May 1 and November 1 of each year, commencing on the first such date following the original issuance date of the New Notes. Holders of Old Notes whose Old Notes are accepted for exchange will not receive accrued interest on such Old Notes for any period from and after the last Interest Payment Date to which interest has been paid or duly provided for on such Old Notes prior to the original issue date of the New Notes or, if no such interest has been paid or duly provided for, will not receive any accrued interest on such Old Notes, and will be deemed to have waived the right to receive any interest on such Old Notes accrued from and after such Interest Payment Date or, if no such interest has been paid or duly provided for, from and after May 1, 1996. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provisions of the Exchange Offer, or any extension of the Exchange Offer, the Company will not be required to accept for exchange, or to exchange, any Old Notes for any New Notes, and, as described below, may terminate the Exchange Offer (whether or not any Old Notes have theretofore been accepted for exchange) or may waive any conditions to or amend the Exchange Offer, if any of the following conditions have occurred or exists or have not been satisfied: (a) the Exchange Offer, or the making of any exchange by a holder, violates any applicable law or any applicable interpretation of the staff of the Commission; (b) any action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency or body with respect to the Exchange Offer which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer; (c) any law, statute, rule or regulation shall have been adopted or enacted which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer; (d) a banking moratorium shall have been declared by United States federal or California or New York state authorities which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer; (e) trading on the New York Stock Exchange or generally in the United States over-the-counter market shall have been suspended by order of the Commission or any other governmental authority which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer; or (f) a stop order shall have been issued by the Commission or any state securities authority suspending the effectiveness of the Registration Statement or proceedings shall have been initiated or, to the knowledge of the Company, threatened for that purpose. If the Company determines in its sole and absolute discretion that any of the foregoing events or conditions has occurred or exists or has not been satisfied, the Company may, subject to applicable law, terminate the Exchange Offer (whether or not any Old Notes have theretofore been accepted for exchange) or may waive any such condition or otherwise amend the terms of the Exchange Offer in any respect. If such waiver or amendment constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders of the Old Notes, and the Company will extend the Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act. 49 52 EXCHANGE AGENT First Trust Company of New York, National Association, has been appointed as Exchange Agent for the Exchange Offer. Delivery of the Letters of Transmittal and any other required documents, questions, requests for assistance, and requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent as follows: By Mail: First Trust National Association P.O. Box 64485 St. Paul, Minnesota 55164-9549 Attn: Specialized Finance By Overnight Delivery or Hand: First Trust of New York, National Association 100 Wall Street New York, New York 10005 Attn: Cathy Donohue To Confirm by Telephone or for Information: (612) 244-1197 Attn: Phyliss Meath Facsimile Transmissions: (612) 244-1145 Delivery to other than one of the above addresses or facsimile numbers will not constitute a valid delivery. FEES AND EXPENSES The Company has agreed to pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The Company will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus and related documents to the beneficial owners of Old Notes, and in handling or tendering for their customers. Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, New Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Old Notes in connection with the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. The Company will not make any payment to brokers, dealers or others soliciting acceptances of the Exchange Offer. DESCRIPTION OF OUTSTANDING INDEBTEDNESS The summaries contained herein of certain provisions of the indebtedness of the Company do not purport to be complete and, except in the case of the short term debt, are qualified in their entirety by the provisions of the various agreements and indentures related thereto. CREDIT AGREEMENT On May 30, 1996, the Company entered into a Credit Agreement with Morgan Guaranty. The Credit Agreement provides for the issuance of a letter of credit in the amount of $18,000,000 to be used to secure the Company's performance under its agreements related to the development of the Delta Centro Block in Venezuela. The letter of credit will be secured by cash collateral in the form of a time deposit from the Company. Morgan Guaranty will receive an arrangement fee and will receive a fee of .25% per annum computed on the daily average maximum available amount of the letter of credit. In addition, the Credit Agreement provides for a $20,000,000 unsecured revolving credit facility which must be repaid on or before March 14, 1998. Borrowings under such facility accrue interest at per annum rate equal to the sum of the Euro-Dollar margin plus the Adjusted London Interbank Offered Rate for such interest period. The Euro-Dollar margin will be 3% until September 14, 1997 and 3.75% per annum thereafter. The revolving credit facility is secured by a guarantee by the Company's subsidiary Benton-Vinccler, C.A. and a security interest in all payments made to Benton-Vinccler, C.A. under its Service Agreement with Fagoven, S.A. The Credit Agreement contains covenants and restrictions that are substantially the same as those provided in the Indenture. 50 53 SHORT-TERM DEBT The Company, through Benton-Vinccler, has entered into a six month loan arrangement with Morgan Guaranty which has subsequently been renewed on a monthly basis. Under such arrangement, Benton-Vinccler may borrow up to $25 million, $10 million of which may be borrowed on a revolving basis. Borrowings under this loan arrangement are secured by cash collateral in the form of a time deposit from the Company. The loan arrangement contains no restrictive covenants and no financial ratio requirements. The principal amount of such loan outstanding at March 31, 1996 was $19.3 million. Benton-Vinccler can borrow an additional $5.7 million under the loan arrangement if the Company provides a time deposit to secure such additional borrowings. Interest on borrowings under the loan facility accrues, at the borrower's option, at either a fixed rate or a floating rate. The borrower also has the option to change or continue the type of interest rate borne by the loan. Floating rate borrowings (domestic loans) accrue interest at the higher of Morgan Guaranty's prime rate or the sum of .50% plus the Federal Funds Rate and may be prepaid at any time without penalty. Fixed rate borrowings (Eurodollar loans) accrue interest at an adjusted LIBOR rate plus a margin of .75%. A Eurodollar loan may not be repaid at the Company's option on a date other than the last day of an interest period. Events of default include failure to pay principal and interest when due, failure to pay principal or interest on any other indebtedness of Benton-Vinccler or any of its subsidiaries when due or upon acceleration thereof and insolvency of Benton-Vinccler or any subsidiary thereof. In October 1995, the Company and GEOILBENT entered into a loan arrangement with Morgan Guaranty for working capital requirements. Under such arrangement, GEOILBENT may borrow up to $10 million on a revolving basis. Borrowings under this loan arrangement are secured by cash collateral in the form of a time deposit by the Company. The loan arrangement contains no restrictive covenants and no financial ratio requirements. The principal amount of such loan outstanding at March 31, 1996 was $2.1 million. 8% CONVERTIBLE SUBORDINATED DEBENTURES DUE MAY 1, 2002 In May 1992, the Company issued $6,428,000 principal amount of publicly offered 8% Convertible Subordinated Debentures due May 1, 2002, convertible into Common Stock at the option of the holder at any time prior to maturity at 101.157 shares per $1,000 principal amount of Debentures with interest payments due May 1 and November 1. On May 18, 1996 the Company called all of its outstanding Debentures at a redemption price of 103% of the principal amount, together with accrued interest. Prior to July 23, 1996, holders may elect to convert their Debentures into Common Stock. As of June 4, 1996, approximately 55.4% of the outstanding Debentures have been converted into Common Stock, resulting in the issuance of 263,283 shares of the Company's Common Stock. At the Company's option, it may redeem the Debentures in whole or in part at any time on or after May 1, 1994 at 105% of the principal amount plus accrued interest, declining 1% annually to the principal amount on May 1, 1999. The Debentures also provide that the holders can redeem their Debentures following a change of control (as defined) of the Company. The Company may, at its option pay the redemption price in cash or shares of its Common Stock. The Indenture does not contain any restrictions on the payment of dividends, the repurchase of any securities of the Company or any financial covenants nor does the Indenture require any sinking fund or reserves for payment of the Debentures. The Indenture does not contain any limitation on senior indebtedness or any other indebtedness, secured or unsecured. Events of default include failure to pay principal and interest when due, breach of covenants, failure to pay principal of or interest on or any material indebtedness of the Company when due or upon acceleration thereof and bankruptcy or insolvency of the Company. At March 31, 1996, the aggregate principal amount outstanding was $4.3 million. 51 54 DESCRIPTION OF THE NEW NOTES GENERAL The Old Notes were issued and the New Notes are to be issued pursuant to an Indenture (the "Indenture") between the Company and First Trust of New York, National Association, as trustee (the "Trustee") dated as of May 2, 1996. The terms of the New Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Old Notes and New Notes are subject to all such terms, and holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. A copy of the Indenture will be made available to holders upon request. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture including the definitions therein of certain terms used below. The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions" or are otherwise defined in the Indenture. The Old Notes and the New Notes will constitute a single series of debt securities under the Indenture. If the Exchange Offer is consummated, holders of the Old Notes who do not exchange their Old Notes for New Notes will vote together with the holders of New Notes for all relevant purposes under the Indenture. In that regard, the Indenture requires that certain actions by the holders thereunder (including acceleration following an Event of Default) must be taken, and certain rights must be exercised, by specified minimum percentages of the aggregate principal amount of the outstanding debt securities. In determining whether holders of the requisite percentage in principal amount have given any notice, consent or waiver or taken any other action permitted under the Indenture, any Old Notes which remain outstanding after the Exchange Offer will be aggregated with the New Notes and the holders of such Old Notes and New Notes will vote together as a single series for all such purposes. Accordingly, all references herein to specified percentages in aggregate principal amount of the outstanding Notes shall be deemed to mean, at any time after the Exchange Offer is consummated, such percentage in aggregate principal amount of the Old Notes and New Notes then outstanding. The New Notes and the Old Notes are sometimes referred to as, collectively, the "Notes" and, individually, a "Note." The New Notes will mature on May 1, 2003, will be limited to $125 million aggregate principal amount at maturity and will be unsecured senior debt obligations of the Company. The principal amount at maturity of each New Note will be $1,000 or any integral multiple thereof. The New Notes will be presented for registration of transfer or exchange at the office of the registrar, which initially will be the Trustee. No service charge will be made for any registration of transfer or exchange of a New Note. However, the Company may require payment by a holder of a sum sufficient to cover any tax or other governmental charge payable in connection with the registration of such transfer or exchange. Interest on the New Notes will be payable semi-annually on May 1 and November 1 to holders of record on the close of business on the immediately preceding April 15 and October 15. Interest on the New Notes will accrue at the rate of 11 5/8% per annum from the most recent date to which interest has been paid or duly provided for on the Old Note surrendered in exchange for such New Note or, if no interest has been paid or duly provided for on such Old Note, from May 1, 1996, payable semianually on May 1 and November 1 of each year (each, an "Interest Payment Date"), commencing with the fist Interest Payment Date occurring after the date of original issuance of such New Note, to the person in whose name such New Note is registered at the close of business on the April 15 or October 15 next preceding such Interest Payment Date. Any overdue principal, premium, if any, or interest will bear interest, to the extent lawful, at 13 5/8% per annum. Interest will be computed on a basis of a 360-day year consisting of twelve 30-day months. Principal and interest will be payable at the office or agency of the Company maintained for that purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the holders of the New Notes. The New Notes will not provide for any increase in the interest rate thereon. For a discussion fo the circumstances under which the interest rate on the Old Notes may be temporarily increased, see "Description of the Old Notes." RANKING The New Notes will be senior unsecured debt obligations of the Company and will rank senior in right of payment to all existing and future Subordinated Indebtedness and pari passu with all other Senior Indebtedness. The New Notes are obligations exclusively of the Company. Because the Company's operations are conducted almost entirely through its Subsidiaries and joint ventures, the cash flow and the consequent ability of the Company to service its debt, including the New Notes and the Old Notes, are dependent upon the earnings of the Company's Subsidiaries and joint ventures and the distribution of those earnings to the Company. The Subsidiaries and joint ventures are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes or to make funds available therefor, 52 55 whether by dividends, loans or other payments. In addition, the payment of dividends and the making of loans and advances to the Company by its Subsidiaries and joint ventures may be subject to statutory or contractual restrictions and subject to various business considerations. Currently, the Company only has one operating subsidiary, Benton-Vinccler, that may be expected to make funds available to the Company to pay any amounts due pursuant to the Notes. The New Notes will be effectively subordinated to secured indebtedness of the Company and all liabilities of the Company's Subsidiaries, including trade payables and the liquidation value of Preferred Stock, if any, except to the extent that the Company is itself recognized as a creditor of such Subsidiary, in which case the claims of the Company would still be subordinate to any security interest in the assets of such Subsidiary and any indebtedness of such Subsidiary senior to that held by the Company. At March 31, 1996, after giving pro forma effect to the U.S. Property Sale and the issuance of the Old Notes and the use of proceeds received from each such transaction, $37.2 million of consolidated indebtedness and trade payables would have been liabilities of the Company's subsidiaries or secured indebtedness of the Company and ranked effectively senior to the Notes and the Company would have had $6.4 million of outstanding indebtedness and trade payables that would have ranked pari passu with the Notes. In addition, the Company could have incurred up to $38.0 million of secured indebtedness under its revolving letter of credit and loan facility which would have ranked effectively senior to the Notes. OPTIONAL REDEMPTION Commencing May 1, 2000, the New Notes will be subject to redemption at the option of the Company, in whole or in part, at any time and from time to time, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed in percentages of the principal amount) set forth below plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period beginning on May 1 of the year indicated below: YEAR PERCENTAGE ---- ---------- 2000 105.813% 2001 102.906% 2002 100.000% No sinking fund is provided for the New Notes. At any time before May 1, 1999, the Company may also redeem up to 25% of the aggregate principal amount of Notes then outstanding with the proceeds of a public offering of Capital Stock (other than Disqualified Stock and a public offering pursuant to a registration statement on Form S-8) of the Company within 90 days of such public offering at a redemption price equal to 111.625% of the principal amount of such Notes, plus accrued and unpaid interest to the redemption date; provided that at least $93.75 million in aggregate principal amount of Notes remain outstanding immediately after giving effect to such redemption. If less than all the Notes are to be redeemed, the particular Notes or portions thereof to be redeemed shall be selected by the Trustee from the outstanding Notes not previously called for redemption, either pro rata, by lot or by any other method the Trustee shall deem fair and reasonable, and the aggregate principal amount to be redeemed must be equal to $1,000 or any integral multiple thereof. CERTAIN COVENANTS The Indenture contains a number of covenants which restrict the ability of the Company and its Restricted Subsidiaries to engage in certain activities. For purposes of such covenants and the related definitions, the term Company shall mean Benton Oil and Gas Company only, and shall not refer to any Subsidiary or Affiliate of Benton Oil and Gas Company. In addition, whenever such covenants or related definitions require any calculation of the income, interest expense, discounted future net revenues attributable to proved oil and gas reserves or other financial data of the Company or any Restricted Subsidiary, such calculation shall, except to the extent that such covenants or definitions provide to the contrary, exclude the income, interest expense, discounted future net revenues attributable to proved oil and gas reserves or other financial data of any Unrestricted Subsidiary or Affiliate of the Company (including GEOILBENT) or such Restricted Subsidiary, as the case may be. GEOILBENT, which is only 34%-owned by the Company, does not qualify as a Subsidiary as defined in the Indenture and, consequently, the Indenture does not restrict the Incurrence of Indebtedness by GEOILBENT. However, Indebtedness of the Company and its Restricted Subsidiaries includes Indebtedness of any other person, including GEOILBENT, to the extent that such Indebtedness is guaranteed by, or secured by the assets of, the Company or any of its Restricted Subsidiaries and, as a result, the Incurrence of any such guaranteed or secured Indebtedness by GEOILBENT will, to the extent of the amount so guaranteed or secured, be subject to the provisions of the Indenture described under "Limitation on Indebtedness." In the event of any liquidation of GEOILBENT, the claims of GEOILBENT's creditors would have to be satisfied prior to the Company's receiving any distributions with respect to its 34% ownership interest in GEOILBENT. 53 56 The Indenture contains, among others, the following covenants: Limitation on Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness (including any Acquired Indebtedness) unless (i) no Default or Event of Default under the Indenture shall have occurred and be continuing at the time or as a consequence of the Incurrence of such Indebtedness, (ii) after giving effect thereto (including, in connection with any acquisition being financed through the Incurrence of such Indebtedness, any Acquired Indebtedness and any proved oil and gas reserves being acquired in connection therewith) the EBITDA/Interest Ratio would be greater than 3.0 to 1.0, (iii) in the event such Indebtedness would be Incurred by the Company but would not be Permitted Company Secured Indebtedness, such Indebtedness would have an Average Life greater than the Average Life of the Notes and a stated maturity later than the Stated Maturity of the Notes, and (iv) in the event such Indebtedness would be Incurred by a Restricted Subsidiary, such Indebtedness would also qualify as Permitted Restricted Subsidiary Indebtedness. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may Incur Permitted Indebtedness if no Default or Event of Default under any other provision of the Indenture shall have occurred and be continuing at the time or as a consequence of the Incurrence of such Indebtedness. For purposes of calculating the amount of any Indebtedness of the Company and its Restricted Subsidiaries, (i) any Indebtedness of a Restricted Subsidiary that is fully and unconditionally guaranteed by the Company or secured by a deposit of cash or Cash Equivalents of the Company shall be deemed to be Indebtedness of such Restricted Subsidiary, and (ii) the Vinccler Notes shall be deemed to be Indebtedness of the Company. Limitation on Indebtedness of Unrestricted Subsidiaries. The Company will not permit any Unrestricted Subsidiary to Incur any Indebtedness (including Acquired Indebtedness) other than Non-Recourse Indebtedness. Limitation on Restricted Payments. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment, if at the time of such Restricted Payment or after giving effect to such Restricted Payment (i) the Company would not be able to Incur at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness) pursuant to the provisions of the Indenture described above under "Limitation on Indebtedness," and (ii) the aggregate amount expended for all Restricted Payments (excluding any payments permitted by clauses (ii) through (ix) of the immediately succeeding paragraph) (the amount of any such Restricted Payment, if other than cash, as determined by the Board of Directors, whose determination shall be evidenced by a board resolution) exceeds the sum of: (a) 50% of the aggregate Consolidated Net Income of the Company and its Restricted Subsidiaries (or, if such aggregate Consolidated Net Income shall be a loss, minus 100% of such loss) accrued for the period (taken as one accounting period) beginning on July 1, 1996 and ending on the last day of the Company's last fiscal quarter ending prior to the date of such proposed Restricted Payment, plus (b) 100% of the aggregate Net Proceeds received by the Company after June 30, 1996 from the issuance and sale (other than to a Subsidiary of the Company) of (1) Capital Stock (including options, warrants or other rights to acquire Capital Stock) other than any such Capital Stock convertible into or exchangeable for (whether at the option of the Company or the holder thereof) a security other than Capital Stock and other than any such Capital Stock issued for any purpose specified in clauses (vi) or (vii) of the succeeding paragraph and (2) Indebtedness convertible into or exchangeable for Capital Stock but only to the extent such Indebtedness has been converted or exchanged, plus (c) the aggregate amount of any Repaid Investments and Restricted Subsidiary Investments but only to the extent such amount did not otherwise increase the amount available for Restricted Payments pursuant to (a) above or clause (iv) of the immediately succeeding paragraph, plus (d) $15,000,000. The foregoing provisions shall not be violated by reason of (i) the payment of any dividend within 60 days after the date of declaration thereof, if at the date of declaration such payment would comply with the foregoing provision, (ii) any Investment in the Company by any Restricted Subsidiary and any Investment in any Restricted Subsidiary or any person which concurrently with such Investment becomes a Restricted Subsidiary by the Company or another Restricted Subsidiary, (iii) any dividend payable to the Company by any Restricted Subsidiary or to any Restricted Subsidiary by another Restricted Subsidiary, (iv) any dividend payable to a holder (other than the Company or another Restricted Subsidiary) of Capital Stock (other than Preferred Stock) of a Restricted Subsidiary; provided that such dividend is paid concurrently with the payment of a dividend by such Restricted Subsidiary to the Company or another Restricted Subsidiary and the amount of such dividend does not exceed such holder's pro rata share (based on such holder's percentage ownership of the outstanding Capital Stock (other than Preferred Stock) of such Restricted Subsidiary) of the aggregate amount of the dividend payable to all holders of Capital Stock of such Restricted Subsidiary, (v) any dividend, distribution or other payment on or with respect to Capital Stock of the Company 54 57 to the extent payable solely in shares of Capital Stock of the Company, (vi) any purchase, redemption or other acquisition or retirement for value or any defeasance of any Subordinated Indebtedness, in exchange for, by conversion into or from the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of Capital Stock of the Company or new Subordinated Indebtedness; provided the Average Life of such new Subordinated Indebtedness is greater than the Average Life of the Notes, the stated maturity of such new Subordinated Indebtedness is later than the Stated Maturity of the Notes and the new Subordinated Indebtedness is subordinated to the Notes to at least the extent that the Subordinated Indebtedness being purchased, redeemed, acquired, retired or defeased was subordinated to the Notes, (vii) any purchase, redemption or other acquisition or retirement for value of any shares of Capital Stock of the Company in exchange for, by conversion into or from the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of Capital Stock of the Company, (viii) any Investment in a person that represents the portion of the consideration for an Asset Sale that is not, and is not required to be pursuant to the provisions of the Indenture described below under "Disposition of Proceeds of Asset Sales," cash or Cash Equivalents and (ix) payments or distributions pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of the Indenture described below under "Consolidation, Merger, Conveyance, Transfer or Lease"; provided that, in the case of any of the foregoing, no Default or Event of Default has occurred and is continuing or shall occur as a consequence thereof. Limitation on Transactions with Affiliates. The Company will not, and will not permit any Subsidiary to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) (such a transaction or series of related transactions, an "Affiliate Transaction") with (i) any Affiliate of the Company or any Subsidiary or (ii) any officer, director or employee of the Company or any Subsidiary or any Affiliate thereof unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those that would have been available in a comparable arm's-length transaction with an unaffiliated third party, and (ii) (a) with respect to any Affiliate Transaction involving aggregate payments equal to or in excess of $1 million (or, in the case of any loan or advance to any officer, director or employee of the Company or its Restricted Subsidiaries, $100,000), but less than $5 million, such Affiliate Transaction shall have received the approval of a majority of the Disinterested Directors (as evidenced by a board resolution of such Disinterested Directors) and (b) with respect to any Affiliate Transaction involving aggregate payments equal to or greater than $5 million, the Company shall have obtained a written opinion of an Independent Financial Advisor stating that the terms of such Affiliate Transaction is fair to the Company or the Subsidiary, as the case may be, from a financial point of view. The foregoing limitations shall not apply to (i) any transaction between the Company and any Restricted Subsidiary or between Restricted Subsidiaries, (ii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company, (iii) any employment contract to which any officer, director or employee is a party or stock option plan or grant of any option thereunder to any officer, director or employee; provided that any such agreement or arrangement (or series of related agreements or arrangements) involving aggregate payments (or in the case of any option grant, with an aggregate exercise price) equal to or in excess of $100,000 shall have received the approval of the Compensation Committee of the Board of Directors (as evidenced by a resolution of such Committee) which Committee shall be comprised of Disinterested Directors, or (iv) any Permitted Investment or any Restricted Payments not prohibited by the provisions of the Indenture described above under "Limitation on Restricted Payments." Disposition of Proceeds of Asset Sales. The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Sale unless (i) such Asset Sale is for not less than the fair market value of the properties and assets sold, (ii) at least 85% of the consideration (not including the assumption of any Indebtedness of the Company or any Restricted Subsidiary (other than Subordinated Indebtedness)) consists of cash, Cash Equivalents or Publicly Traded Stock (so long as prior to such Asset Sale the Board of Directors has made a determination as evidenced by a board resolution, to sell such Publicly Traded Stock for cash within ten Business Days after the date of such Asset Sale and such Publicly Traded Stock does not constitute more than 30% of such 85%), except (a) in the case of an Asset Sale involving oil and gas properties, the consideration may consist solely or in part of tangible properties or direct or indirect interests in tangible properties to be used in the Company's or its Restricted Subsidiaries' Oil and Gas Business ("Tangible Business Properties") having a fair market value at least equal to the fair market value of the assets exchanged and (b) the Company and its Restricted Subsidiaries may enter into farm-out transactions consistent with industry standards and otherwise in accordance with the terms of the Indenture including, but not limited to, the provisions described above under "Limitation on Transactions with Affiliates" above, (iii) unless prior to the date of such Asset Sale the Board of Directors has made a determination, as evidenced by a board resolution, to use all of the Net Cash Proceeds of such Asset Sale that consist of cash and Cash Equivalents to permanently repay or prepay Senior Indebtedness or Indebtedness of a Restricted Subsidiary within thirty days after the date of such Asset Sale, the Company could Incur an additional $1.00 of Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of the Indenture described above under "Limitation on Indebtedness," (iv) within ten Business Days after the date of such Asset Sale, any Publicly Traded Stock 55 58 required by a board resolution to be sold for cash, is sold for cash, and (v) the requirements set forth below are met. For purposes of the foregoing, in the case of any required fair market value determination with respect to any Asset Sale or Tangible Business Properties or Publicly Traded Stock acquired in connection with such Asset Sale having a fair market value in excess of $5 million, such determination shall be made by the Board of Directors as evidenced by a board resolution. Subject to clause (iii) above, within twelve months of any Asset Sale, the Company shall either (x) apply or cause the application of an amount equal to the Net Cash Proceeds of such Asset Sale, or a portion thereof, to the permanent repayment or prepayment of Senior Indebtedness or Indebtedness of any Restricted Subsidiary or (y) invest such Net Cash Proceeds, or a portion thereof, in the acquisition or development of Tangible Business Properties. The amount of such Net Cash Proceeds not applied, used or invested as set forth in clause (x) or (y) above shall constitute "Excess Proceeds." If the aggregate amount of Excess Proceeds, together with any remaining Excess Proceeds from any prior Asset Sale, equals or exceeds $25 million, the Company shall so notify the Trustee in writing and shall offer to purchase from all holders of the Notes (an "Asset Sale Offer"), and shall purchase from holders accepting such Asset Sale Offer on the date fixed for such Asset Sale Offer (the "Asset Sale Offer Date"), the maximum amount (expressed in integral multiples of aggregate principal amount of $1,000) of Notes that may be purchased out of the Excess Proceeds, in accordance with the procedures set forth in the Indenture, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the Asset Sale Offer Date. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds relating thereto (such shortfall constituting a "Deficiency"), then the Company may use such Deficiency, or a portion thereof, for general corporate purposes. Upon completion of an Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Limitation on Liens Securing Indebtedness. The Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien of any kind upon any of their respective assets or properties now owned or acquired after the date of the Indenture, or any income or profits therefrom, securing any Indebtedness of the Company or any Restricted Subsidiary (other than Permitted Liens) without making provision for all of the Notes to be equally and ratably secured with (or prior to) such Indebtedness, provided, however that if such Lien securing such Indebtedness ceases to exist, such equal and ratable (or prior) Lien for the benefit of the holders of the Notes shall cease to exist; provided, further, that the Lien securing any Subordinated Indebtedness shall be subordinated to the Lien securing the Notes to at least the extent that such Subordinated Indebtedness is subordinated to the Notes. Limitation on Conduct of Business. The Company will operate and will cause its Restricted Subsidiaries to be operated in a manner such that their business activities will be the Oil and Gas Business. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on Capital Stock of any Restricted Subsidiary or any Redeemable Stock of any Restricted Subsidiary owned by the Company or any Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any Restricted Subsidiary, (iii) make any Investment in the Company or any Restricted Subsidiary or (iv) transfer any of its property or assets to the Company or any Restricted Subsidiary, except (a) any encumbrance or restriction pursuant to an agreement in effect on the date of the Indenture, (b) any encumbrance or restriction with respect to any person that is not a Restricted Subsidiary on the date of the Indenture, in existence at the time such person becomes a Restricted Subsidiary and not created in connection with, or in contemplation of, such person becoming a Restricted Subsidiary so long as such encumbrance or restriction is not applicable to any person or the property or assets of any person other than the person becoming a Restricted Subsidiary, (c) any encumbrance or restriction pursuant to any agreement that extends, refinances, renews or replaces any agreement containing any encumbrance or restriction described in the foregoing clauses (a) and (b), provided, however, that the terms and conditions of any such encumbrance or restriction are not less favorable to the holders of the Notes than those contained in the agreement evidencing the restriction or encumbrance so extended, refinanced, renewed or replaced, (d) any encumbrance or restriction arising under law and (e) any restriction arising under customary non-assignment and nonsubletting clauses in leases. Nothing contained in the provisions of the Indenture described in this paragraph shall prevent the Company or any Restricted Subsidiary from entering into any agreement permitting the incurrence of Liens otherwise permitted under the provisions of the Indenture described above under the "Limitation on Liens Securing Indebtedness." Limitation on Guarantees. The Company will not permit any Restricted Subsidiary, directly or indirectly, to assume, guarantee or in any other manner become liable with respect to the payment of any Indebtedness of the Company unless such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for a guarantee of the payment of the Notes by such Restricted Subsidiary; provided, however, in the case of such Restricted Subsidiary's assumption, guarantee, or other liability with respect to Subordinated Indebtedness, such guarantee, assumption or other liability shall be 56 59 subordinated to such Restricted Subsidiary's guarantee of the Notes to at least the extent that such Subordinated Indebtedness is subordinated to the Notes; and provided, further, that the provisions of the Indenture described in this paragraph shall not be applicable to any guarantee, assumption or other liability with respect to the payment of any Indebtedness of the Company by any Restricted Subsidiary (i) in existence on the date of the Indenture, (ii) to the extent such Indebtedness of the Company could be Incurred by such Restricted Subsidiary as Permitted Restricted Subsidiary Indebtedness, or (iii) that (x) existed at the time such person became a Restricted Subsidiary of the Company and (y) was not Incurred in connection with, or in contemplation of, such person becoming a Restricted Subsidiary. Notwithstanding the foregoing, any such guarantee of the Notes by a Restricted Subsidiary shall provide by its terms that it shall be automatically and unconditionally released and discharged upon the release or discharge of such guarantee of such Indebtedness, other than a release or discharge by, or as a result of, any payment under such guarantee by such Restricted Subsidiary. CHANGE IN CONTROL If there shall have occurred a Change in Control, Notes shall be purchased by the Company, at the option of the holder thereof, in whole or in part in integral multiples of aggregate principal amount of $1,000, on a date that is not earlier than 45 days nor later than 60 days from the date the Change in Control Notice is given to holders or such later date as may be necessary for the Company to comply with requirements under the Exchange Act (such date or such later date, being the "Change in Control Purchase Date"), at a purchase price in cash (the "Change in Control Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to any Change in Control Purchase Date subject to satisfaction by or on behalf of the holder of the requirements established pursuant to the Indenture. The Company shall comply with any applicable tender offer rules then in effect, including Section 14(e) of the Exchange Act and Rule 14e-1 promulgated thereunder (or any successor provisions), in connection with a Change in Control offer. In the event of any conflict between such tender offer rules and the provisions set forth in the Indenture, such tender offer rules shall control. "Change in Control" of the Company means the occurrence of any of the following: (i) any "person" (as such term is used in Sections 13(d) and 14(d) (or any successor provisions) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 (or any successor provisions) under the Exchange Act) of 50% or more of the total voting power of the Voting Stock of the Company, (ii) there shall be consummated any consolidation or merger of the Company (a) in which the Company is not the continuing or surviving corporation or (b) pursuant to which the outstanding Voting Stock of the Company would be converted into cash, securities or other property, in each case other than a consolidation or merger of the Company in which (1) the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the continuing or surviving corporation and (2) the holders of the Company's Voting Stock immediately prior to the consolidation or merger own, directly or indirectly, at least a majority of the Voting Stock of the continuing or surviving corporation immediately after the consolidation or merger, (iii) the Company sells, transfers or otherwise disposes of all or substantially all of its assets, (iv) the cessation of Continuing Directors for any reason to constitute a majority of the Board of Directors then in office, (v) so long as any Indebtedness remains outstanding under the Convertible Debenture Indenture, a Fundamental Change as defined therein, (vi) the Company ceases to own on a fully diluted basis, directly or indirectly through one or more Restricted Subsidiaries that are Wholly Owned Subsidiaries of the Company, 51% of the outstanding Voting Stock of Benton-Vinccler, and (vii) Benton-Vinccler sells, transfers or otherwise disposes of a substantial part of its assets; provided that neither of the events described in clause (vi) or (vii) will constitute a "Change in Control" if (x) during the four full fiscal quarters ended immediately prior to the occurrence of such event, the EBITDA of the Company and its Restricted Subsidiaries attributable to Benton-Vinccler, as a percentage of the EBITDA of the Company and its Restricted Subsidiaries, was less than 20% and (y) immediately prior to such event, the Oil and Gas Reserve Estimate of the Company and its Restricted Subsidiaries attributable to Benton-Vinccler as a percentage of the Oil and Gas Reserve Estimate of the Company and its Restricted Subsidiaries, is less than 20%. In connection with clause (vii) of the preceding paragraph, a sale, transfer or other disposition of assets of Benton-Vinccler shall be deemed to be a sale, transfer or other disposition of a "substantial part" of the assets of Benton-Vinccler if such assets, when added to all other assets of Benton-Vinccler sold, transferred or otherwise disposed of (other than the disposition of hydrocarbons or other mineral products in the ordinary course of business) during the immediately preceding twelve months either (i) exceed (based on the book value of all assets so sold, transferred or otherwise disposed of during such twelve months) 25% of the net tangible assets of Benton-Vinccler as of the end of its most recently completed full fiscal quarter for which financial information is available determined in accordance with GAAP or (ii) contributed more than 25% of the net income of Benton-Vinccler during its most recently completed four full fiscal quarters for which financial information is available determined in accordance with GAAP. The Company's ability to repurchase the Notes will be dependent upon the availability of cash and other financing sources to consummate such a repurchase. The Company currently expects to incur additional Indebtedness to finance its capital 57 60 expenditure requirements and, therefore, the Company's ability to incur additional Indebtedness to repurchase the Notes may be adversely affected by what might then be a higher debt to equity ratio. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Capital Resources and Liquidity." The failure of the Company to repurchase all Notes tendered will constitute an Event of Default. The Change in Control provisions of the Indenture may make more difficult or discourage a takeover of the Company and the removal of incumbent management. The Change in Control provision is not the result of management's knowledge of any specific effort to accumulate shares of Common Stock or to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise, nor is it part of a plan by management to adopt an anti-takeover provision. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE The Company may not, without the consent of the holders of all Notes then outstanding, consolidate with, merge into or convey, sell, transfer, lease, exchange or otherwise dispose of all of its assets and properties substantially as an entirety to, any other person unless (i) the successor is a corporation or partnership organized under the laws of the United States or any political subdivision thereof or therein, (ii) the successor assumes all obligations of the Company under the Indenture and the Notes, (iii) after giving effect to such consolidation, merger, conveyance, sale, transfer, lease, exchange or other disposition, no Default or Event of Default, shall have occurred and be continuing, (iv) the successor would have a pro forma Consolidated Net Worth after giving effect to such consolidation, merger, conveyance, sale, transfer, lease, exchange or other disposition and prior to any purchase accounting adjustments at least equal to the Consolidated Net Worth of the Company prior to such consolidation, merger, conveyance, sale, transfer, lease, exchange or other disposition, and (v) the Company could Incur, immediately prior to such consolidation, merger, conveyance, sale, transfer, lease, exchange or other disposition, and the successor would be able to Incur, after giving effect to such consolidation, merger, conveyance, sale, transfer, lease, exchange or other disposition, an additional $1.00 of Indebtedness (excluding Permitted Indebtedness) pursuant to the provisions of the Indenture described above under "Certain Covenants -- Limitation on Indebtedness." Upon any consolidation or merger or any conveyance, sale, transfer, lease, exchange or other disposition of the properties and assets of the Company substantially as an entirety to any person in accordance with the provisions described above, the successor formed by such consolidation or into which the Company is merged or to which such conveyance, sale, transfer, lease, exchange or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor had been named as the Company in the Indenture; and thereafter, except in the case of a conveyance, sale, transfer, lease, exchange or other disposition of properties to another person, the predecessor person shall be released from all obligations and covenants under the Indenture and the Notes. PROVISION OF FINANCIAL INFORMATION To the extent permitted under the Exchange Act, whether or not the Company is required to comply with Section 13(a) or 15(d) (or any successor provision) of the Exchange Act, the Company will file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) (or any successor provision) if the Company were so required, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required to file such documents if the Company were so required. The Company will also in any event (i) within 15 days of each Required Filing Date transmit by mail to all holders of New Notes, without cost to such holders, copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) (or any successor provision) and (ii) if filing such documents by the Company with the Commission is not permitted under the Exchange Act, promptly upon written request supply copies of such documents to any holder of New Notes. CERTAIN DEFINITIONS "Acquired Indebtedness" means, with respect to any person, Indebtedness of such person (i) existing at the time such person becomes a Restricted Subsidiary or (ii) assumed in connection with the acquisition of assets from another person, including Indebtedness Incurred in connection with, or in contemplation of, such person becoming a Restricted Subsidiary or such acquisition, as the case may be. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling, controlled by, or under common control with, such person, or any other person that owns, directly or indirectly, 5% or more of such person's Voting Stock or any Affiliate of any such 5% or more owner. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any person, means the possession, 58 61 directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of Voting Stock, by contract or otherwise. "Affiliate Transaction" has the meaning provided under "Certain Covenants -- Limitation on Transactions with Affiliates." "amount" means, (i) with respect to any Indebtedness outstanding at any time other than Preferred Stock, the principal amount thereof; provided that the amount of any such Indebtedness outstanding at any time that was issued at a price less than the principal amount thereof shall equal the amount of the liability in respect thereof at such time determined in accordance with GAAP and (ii) with respect to any Indebtedness outstanding at any time that is Preferred Stock, the aggregate liquidation value thereof at such time. "Asset Acquisition" means (i) an Investment by the Company or any Restricted Subsidiary in any other person pursuant to which such person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary or shall be merged into or consolidated with the Company or any Restricted Subsidiary or (ii) an acquisition by the Company or any Restricted Subsidiary of the assets of any person other than the Company or any Restricted Subsidiary that constitute substantially all of a division or line of business of such person. "Asset Disposition" means the sale or other disposition by the Company or any Restricted Subsidiary (other than to the Company or another Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of any Restricted Subsidiary or (ii) all or substantially all of the assets that constitute a division or line of business of the Company or any Restricted Subsidiary. "Asset Sale" means any conveyance, transfer, lease or other disposition (including, without limitation, by way of any merger, consolidation or other similar transaction), directly or indirectly, in one or a series of related transactions, of any Capital Stock or Redeemable Stock of any Restricted Subsidiary (other than the sale and issuance of directors' qualifying shares) or any other properties or assets of the Company or any Restricted Subsidiary (other than any such conveyance, transfer, lease or other disposition (i) that is permitted under the provisions of the Indenture described under "Consolidation, Merger, Conveyance, Transfer or Lease" above, (ii) that involves any transfer of Capital Stock, Redeemable Stock or other property or assets of a Restricted Subsidiary to the Company or any other Restricted Subsidiaries or of the Company to a Restricted Subsidiary, (iii) of (1) hydrocarbon or other mineral products or (2) other assets in an amount not to exceed $10 million in any twelve month period, in each case in the ordinary course of business or (iv) that involves the abandonment of any lease of non-producing acreage). "Average Life" means, as of any date of determination, with respect to any Indebtedness, the quotient obtained by dividing (a) the sum of the product of (i) the number of years from such date of determination to the date of each successive scheduled principal payment of such Indebtedness and (ii) the amount of such principal payment by (b) the sum of all such principal payments. "Board of Directors" means the Board of Directors of the Company or any authorized committee of such Board. "Capital Stock" means, with respect to any person, any and all shares, interests, participations, rights or other equivalents (however designated) of such person's capital stock or partnership interests whether now outstanding or issued after the date of the Indenture, except Redeemable Stock. "Capitalized Lease Obligation" means, with respect to any person, any obligation relating to any property (whether real, personal or mixed) of that person as lessee which, in conformity with GAAP, is required to be accounted for as a capital lease for financial reporting purposes, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof), (ii) repurchase obligations for investments of the type described in clause (i) for which delivery of the investment is made against payment, (iii) demand or time deposits, bankers' acceptances and certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $300,000,000, and (iv) commercial paper with a maturity of 180 days or less issued by a corporation (except any Affiliate or Subsidiary of the Company) organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by Standard & Poor's Corporation and at least P-1 by Moody's Investors Service, Inc. "Change in Control" has the meaning provided in "Change in Control." "Commodity Swap Agreement" means any commodity swap agreement or other similar agreement or arrangement. 59 62 "Consolidated Interest Expense" means, for any period, the aggregate amount (without duplication) of (i) interest expense in accordance with GAAP (including, in accordance with the following sentence, interest attributable to Capitalized Lease Obligations and the undischarged balance of production payments) during such period in respect of all Indebtedness of the Company and its Restricted Subsidiaries (including (a) amortization of original issue discount on any Indebtedness, (b) the interest portion of all deferred payment obligations, calculated in accordance with GAAP, and (c) all commissions, discounts and other fees and charges owed with respect to bankers' acceptance financings and Currency Agreements, Interest Rate Agreements and Commodity Swap Agreements, in each case to the extent attributable to such period), and (ii) dividend requirements of the Company and its Restricted Subsidiaries with respect to Redeemable Stock and with respect to all other Preferred Stock of any Restricted Subsidiaries (in each case whether in cash or otherwise (except dividends payable solely in shares of Capital Stock of the Company or any Restricted Subsidiary)) paid, declared, accrued or accumulated during such period, in each case to the extent attributable to such period and excluding items eliminated in consolidation. For purposes of this definition, (a) interest with respect to a Capitalized Lease Obligation or a production payment shall be deemed to accrue at an interest rate reasonably determined by the Company to be the rate of interest implicit in such Capitalized Lease Obligation or production payment in accordance with GAAP and (b) interest expense attributable to any Indebtedness represented by the guarantee by the Company or a Restricted Subsidiary of an obligation of another person shall be deemed to be the interest expense attributable to the Indebtedness guaranteed. "Consolidated Net Income" means, for any period, the aggregate net income (or loss) of the Company and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that the following items shall be excluded from Consolidated Net Income (without duplication): (i) the net income of any person in which the Company or any of its Restricted Subsidiaries has an interest (which interest does not cause the net income of such person to be consolidated with the net income of the Company in accordance with GAAP) except to the extent of the amount of dividends or distributions actually paid to the Company or its Restricted Subsidiaries by such person in such period; (ii) solely for the purposes of calculating the amount of Restricted Payments that may be made pursuant to the Indenture (and in such case, except to the extent includible pursuant to the foregoing clause (i) above), the net income (or loss) of any person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such person are acquired by the Company or any of its Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation; and (iv) all extraordinary gains and losses or gains or losses attributable to Asset Sales. If the Consolidated Net Income for any fiscal quarter of the Company includes a ceiling limitation writedown (a "Writedown Quarter") in accordance with the full cost accounting method rules of the Commission (such writedown, an "Actual Writedown") but such Actual Writedown would have been less or would not have been required had such ceiling limitation been calculated using oil and gas prices in effect on the last day of either of the two fiscal quarters of the Company immediately succeeding such Writedown Quarter (such Actual Writedown, as so recalculated, a "Hypothetical Writedown"), then Consolidated Net Income for such Writedown Quarter, shall be increased by the amount by which such Actual Writedown exceeds such Hypothetical Writedown; provided that in no event shall any such increase singly, or in the case of any such increases for both quarters immediately succeeding such Writedown Quarter, in the aggregate, exceed the amount of such Actual Writedown). "Consolidated Net Worth" means, with respect to any person, as at any date of determination, the consolidated stockholders' equity (or like balance sheet designation) of such person as determined in accordance with GAAP. "Continuing Directors" means any member of the Board of Directors on the date of the Indenture, any director elected after the date thereof in any annual meeting of the stockholders upon the recommendation of the Board of Directors and any other member of the Board of Directors who is elected to succeed a Continuing Director by a majority of Continuing Directors who are then members of the Board of Directors. "Convertible Debenture Indenture" means the Indenture dated as of May 15, 1992 between the Company and Bank of New York. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disinterested Director" means, with respect to an Affiliate Transaction, a member of the Board of Directors who has no direct or indirect financial interest, and whose employer has no direct or indirect financial interest, in such Affiliate Transaction. 60 63 "Disqualified Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the date on which the Notes mature. "EBITDA" means, for any period, without duplication, Consolidated Net Income for such period, increased (to the extent deducted in determining Consolidated Net Income) by the sum of (i) Consolidated Interest Expense, (ii) income taxes (other than income taxes (either positive or negative) attributable to extraordinary and non-recurring gains or losses or gains or losses attributable to asset sales not in the ordinary course of business), (iii) depreciation and depletion expense, (iv) amortization expense and (v) all other non-cash items reducing Consolidated Net Income less all non-cash items increasing Consolidated Net Income (other than, in each case, minority interests which shall, in all cases, be excluded from the calculation of EBITDA) all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in conformity with GAAP. "EBITDA/Interest Ratio" means the ratio of (i) EBITDA for the Reference Period immediately prior to the date of the transaction giving rise to the need to calculate the EBITDA/Interest Ratio (the "Transaction Date") to (ii) Consolidated Interest Expense for the Reference Period. In making the foregoing calculation, (a) pro forma effect shall be given to (1) any Indebtedness Incurred subsequent to the end of such Reference Period, (2) any Indebtedness Incurred during such Reference Period to the extent such Indebtedness is outstanding on the Transaction Date and (3) any Indebtedness to be Incurred on the Transaction Date, in each case as if such Indebtedness had been Incurred on the first day of such Reference Period and after giving effect to the application of the proceeds thereof; (b) Consolidated Interest Expense attributable to interest or dividends on any Indebtedness (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest or dividend rate shall be computed as if the rate in effect on the date of computation (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months) had been the applicable rate for the entire period; (c) there shall be excluded from Consolidated Interest Expense any Consolidated Interest Expense related to any amount of Indebtedness that was outstanding during such Reference Period or thereafter but that is not outstanding or is to be repaid on the Transaction Date, except for Consolidated Interest Expense accrued (as adjusted pursuant to clause (b)) during such Reference Period under a revolving credit or similar arrangement to the extent of the commitment thereunder (or under any successor revolving credit or similar arrangement) on the Transaction Date; and (d) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions that occur during such Reference Period or thereafter and on or prior to the Transaction Date as if they had occurred on the first day of such Reference Period. "Event of Default" has the meaning provided in "Events of Default." "Excess Proceeds" has the meaning provided in "Certain Covenants -- Disposition of Proceeds of Asset Sales." "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means, with respect to any determination pursuant to the terms of the Indenture, such accounting principles as are generally accepted in the United States at the time of such determination. "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of any part or all of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. "Incur" means with respect to any Indebtedness, to incur, create, issue, assume, guarantee or otherwise become liable for or with respect to or extend the maturity of or become responsible for, the payment of, contingently or otherwise, such Indebtedness; provided that neither the accrual of interest (whether such interest is payable in cash or kind) nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness; provided further that (i) in the case of any Indebtedness of the Company to any Restricted Subsidiary, such Indebtedness shall be deemed to have been Incurred by the Company for purposes of the provisions of the Indenture described under "Certain Covenants -- Limitation on Indebtedness" at the time such Indebtedness is sold, transferred or otherwise disposed of by such Restricted Subsidiary or such Restricted Subsidiary is designated as an Unrestricted Subsidiary or otherwise ceases to be a Restricted Subsidiary, (ii) in the case of any Indebtedness of a Restricted Subsidiary to the Company or another Restricted Subsidiary, such Indebtedness shall be deemed to have been Incurred by such Restricted Subsidiary for purposes of the provisions of the Indenture described under "Certain Covenants -- Limitation on Indebtedness" at the time such Indebtedness is sold, transferred or otherwise disposed of by the Company or such other Restricted Subsidiary or the Restricted Subsidiary holding such Indebtedness is designated as an Unrestricted Subsidiary or otherwise ceases to be a Restricted Subsidiary and (iii) any Indebtedness of an Unrestricted Subsidiary that ceases to be Non-Recourse Indebtedness shall be deemed to have been Incurred by such Unrestricted Subsidiary at the time of such cessation. 61 64 "Indebtedness" means, without duplication, with respect to any person, (i) all obligations of such person (a) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (b) evidenced by bonds, notes, debentures or similar instruments, (c) representing the balance deferred and unpaid of the purchase price of any property or services (excluding accounts payable or other obligations arising in the ordinary course of business), (d) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (e) for the payment of money relating to a Capitalized Lease Obligation, or (f) evidenced by a letter of credit or reimbursement obligation of such person with respect to any letter of credit (regardless of whether such reimbursement obligation is to the issuer of the letter of credit or another person); (ii) all net obligations of such person under Interest Rate Agreements, Commodity Swap Agreements and Currency Agreements; (iii) the undischarged balance of any production payments as to which such person is obligated or its property is dedicated; (iv) all liabilities of others of the kind described in the preceding clause (i), (ii) or (iii) that such person has guaranteed or that are otherwise its legal liability; (v) Indebtedness (as otherwise defined in this definition) of others secured by a Lien on any asset of such person, whether or not such Indebtedness is assumed by such person (provided that if the obligations so secured have not been assumed in full by such person or are not otherwise such person's legal liability in full, then such obligations shall be deemed to be in an amount equal to the greater of (a) the lesser of (1) the full amount of such obligations, and (2) the fair market value of such asset, as determined in good faith by the board of directors of such person, which determination shall be evidenced by a board resolution, and (b) the amount of obligations as have been assumed by such person or which are otherwise such person's legal liability); and (vi) the liquidation preference and any mandatory redemption payment obligations in respect of (a) all Redeemable Stock of such person and its Subsidiaries and (b) all Preferred Stock of such Subsidiaries. "Independent Financial Advisor" means a nationally recognized investment banking firm (i) which does not (and whose directors, officers, employees and Affiliates do not) have a direct or indirect material financial interest in the Company and (ii) which, in the sole judgment of the Board of Directors, is otherwise independent and qualified to perform the task for which such firm is being engaged. "Independent Petroleum Engineers" means, with respect to any person, a nationally recognized petroleum engineering firm (i) which does not (and whose directors, officers, employees and Affiliates do not) have a direct or indirect material financial interest in such person and (ii) which, in the sole judgment of the board of directors of such person, is otherwise independent and qualified to perform the task for which such firm is being engaged. "Interest Rate Agreements" means any interest rate swap agreement, interest rate collar agreement or other similar agreement or arrangement designed to protect the Company or any of its Restricted Subsidiaries against fluctuations in interest rates. "Investment" means, with respect to any person, any investment in another person, whether by means of a share purchase, capital contribution, loan, advance (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such person) or similar credit extension constituting Indebtedness of such other person and any guarantee of obligations of any other person. "Lien" means any mortgage, lien, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). "Material Subsidiary" means, at the time of determination, any Restricted Subsidiary that, together with its Subsidiaries, (i) accounted for more than 5% of (a) the revenues of the Company and its Restricted Subsidiaries, on a consolidated basis, or (b) EBITDA, in each case for the most recently completed fiscal year of the Company for which financial information is available or (ii) owned more than 5% of the assets of the Company and its Restricted Subsidiaries, on a consolidated basis, as at the end of such fiscal year, all as shown on or derived from the consolidated financial statements of the Company for such fiscal year. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents (including proceeds from the sale of Publicly Traded Stock and payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents), net of (i) brokerage commissions and other reasonable fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) payments made to retire Indebtedness where payment of such Indebtedness is required in connection with such Asset Sale, (iv) obligations and expenses incurred in connection with the repatriation to the United States of any proceeds of such Asset Sale, (v) in the case of any Asset Sale made by a Restricted Subsidiary, any dividend or distribution of a portion of the proceeds of such Asset Sale to a holder (other than the Company or another Restricted Subsidiary) of Capital Stock (other than Preferred Stock) of such Restricted Subsidiary; provided that such dividend is paid or distribution is made concurrently with the payment of a dividend or making of a distribution of a portion of such proceeds by such Restricted Subsidiary to the Company or another Restricted Subsidiary and the amount of such dividend or distribution does not exceed 62 65 such holder's pro rata share (based on such holder's percentage ownership of the outstanding Capital Stock (other than Preferred Stock) of such Restricted Subsidiary) of the aggregate amount of the proceeds of such Asset Sale being dividended or distributed and (vi) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post- employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Net Proceeds" means, in the case of any sale by the Company of Capital Stock, the aggregate net cash proceeds received by the Company, after payment of expenses, commissions, discounts and any other transaction costs incurred in connection therewith. "Non-Recourse Indebtedness" means, with respect to any Unrestricted Subsidiary, Indebtedness of such Unrestricted Subsidiary as to which (i) neither the Company nor any Restricted Subsidiary (a) provides credit support including any undertaking, agreement or instrument which would constitute Indebtedness or (b) is directly or indirectly liable for such Indebtedness and (ii) no default with respect to such Indebtedness (including any rights which the holders thereof may have to take enforcement action against such Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Oil and Gas Business" means the exploration for and the development, acquisition, production, processing, marketing, storage and transportation of hydrocarbons and other related energy and natural resources businesses and any activity necessary, appropriate or incidental to the foregoing. "Oil and Gas Reserve Estimate" means, as of any date of determination, the estimated discounted future net revenues attributable to proved oil and gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with the Commission's guidelines (before any state or federal income taxes) as set forth in the most recently prepared reserve report of the Company and its Restricted Subsidiaries that has been audited by Independent Petroleum Engineers (which report shall be prepared as of a date no earlier than the end of the most recently completed fiscal year of the Company for which financial information is available) (the "Audited Report"), decreased, in the case of clause (i) below, and increased or decreased, as appropriate, in the case of clauses (ii) and (iii) below, by the Company's petroleum engineers to reflect, as of such date of determination, the estimated discounted future net revenues attributable to (i) the ownership interest of any holder (other than the Company or another Restricted Subsidiary) of Capital Stock (other than Preferred Stock) of any Restricted Subsidiary (based on such holder's percentage ownership of such Capital Stock as of such date of determination), but only to the extent such ownership interest is not otherwise deducted from the discounted future net revenues of the Company and its Restricted Subsidiaries set forth in the Audited Report, (ii) proved oil and gas reserves acquired or disposed of since the date of the Audited Report and (iii) increases or decreases in proved oil and gas reserves of the Company and its Restricted Subsidiaries due to exploration, development or exploitation activities or changes in geological conditions since the date of the Audited Report; provided that such adjustments are calculated in accordance with the Commission's guidelines by the Company's petroleum engineers utilizing the prices utilized in, and on a basis otherwise consistent with, the Audited Report. Notwithstanding the foregoing, (1) if the estimated discounted future net revenues from any proved oil and gas reserves acquired since the date of the Audited Report have been audited by Independent Petroleum Engineers and a report with respect thereto as of a date no earlier than the end of the most recently completed fiscal year of the person from whom such reserves were acquired has been prepared, such report (or, if a more recent audited reserve report is available, the most recent of such reports) shall be utilized for purposes of calculating the adjustment to discounted future net revenues of such person attributable to such acquired reserves, (2) if the estimated discounted future net revenues of the Company and its Restricted Subsidiaries, as adjusted pursuant to clauses (ii) and (iii) of the preceding sentence (excluding any adjustments calculated pursuant to clause (1) of this sentence) would vary by more than 10% from the discounted future net revenues of the Company and its Restricted Subsidiaries set forth in the Audited Report, such adjustments shall be audited by Independent Petroleum Engineers and (3) so long as Benton-Vinccler is a Restricted Subsidiary, for purposes of calculating the Oil and Gas Reserve Estimate of the Company and its Restricted Subsidiaries attributable to Benton-Vinccler as of any date of determination, the proportionate share of the Company and its Restricted Subsidiaries (based on their percentage ownership interest of Benton-Vinccler, C.A. as of such date of determination) of the estimated discounted future net revenues attributable to the proved oil and gas reserves subject to the operating service agreement dated as of July 31, 1992 with Lagoven, S.A. (as amended or supplemented from time to time and including any successor agreements or arrangements) shall be included in such Oil and Gas Reserve Estimate on the same basis as such net revenues would be included if such proved oil and gas reserves were owned by Benton-Vinccler. "Performance Letter of Credit" means, with respect to any person, a letter of credit or bond to secure the performance in any country of any obligations of such person under any contract entered into in the ordinary course of such person's Oil and Gas 63 66 Business; provided that the provision of any such letter of credit or bond is required by local law or, in the case of any such letter of credit or bond securing the performance of obligations outside the United States, is customarily required in connection with contracts relating to the Oil and Gas Business in such country and, in either case, such letter of credit or bond requires that any payment thereunder by the issuer thereof be immediately repaid by such person. "Permitted Benton-Vinccler Indebtedness" means Indebtedness of Benton-Vinccler in an aggregate amount not to exceed $25 million at any time outstanding. "Permitted Commodity Swap Agreements" means Commodity Swap Agreements entered into in order to protect the Company or its Restricted Subsidiaries against fluctuations in oil or gas prices with respect to their current or good faith estimated future oil and gas production irrespective of whether such production is owned by the Company or a Restricted Subsidiary or is produced by the Company or a Restricted Subsidiary pursuant to an arrangement under which the Company or a Restricted Subsidiary acts as a contractor for a third party that owns such production. "Permitted Company Secured Indebtedness" means secured Indebtedness of the Company Incurred after the date of the Indenture (other than pursuant to clause (xi) of the definition of Permitted Indebtedness) in an aggregate amount not to exceed $20 million outstanding at any time less the aggregate amount of Permitted Restricted Subsidiary Indebtedness outstanding at such time. "Permitted GEOILBENT Indebtedness" means Indebtedness of GEOILBENT which is non-recourse to the Company and its Restricted Subsidiaries except to the extent of the pledge of equity interests in GEOILBENT. "Permitted Indebtedness" means (i) the Old Notes and the New Notes; (ii) Indebtedness of the Company (other than the Vinccler Notes) and its Restricted Subsidiaries (other than Benton-Vinccler) outstanding on the date of the Indenture; (iii) obligations of the Company and its Restricted Subsidiaries pursuant to Interest Rate Agreements, Currency Agreements and Permitted Commodity Swap Agreements and compensation payable thereunder; (iv) Indebtedness of the Company to a Restricted Subsidiary or of a Restricted Subsidiary to the Company or another Restricted Subsidiary (but only so long as such Indebtedness is held or owned by the Company or a Restricted Subsidiary); (v) Indebtedness of the Company Incurred for the purpose of financing the working capital requirements of the Company or any Restricted Subsidiary in an aggregate amount not to exceed the greater of $10 million or 4% of the Oil and Gas Reserve Estimate, in each case at any time outstanding; (vi) Indebtedness (excluding Acquired Indebtedness) of the Company in addition to Indebtedness permitted by clauses (i) through (v) in an aggregate amount not to exceed $20 million at any time outstanding; (vii) (a) Indebtedness of Benton-Vinccler not in excess of $25 million in aggregate principal amount outstanding which is cash collateralized and (b) Permitted Benton-Vinccler Indebtedness; (viii) Permitted GEOILBENT Indebtedness; (ix)(a) one or more letters of credit having an aggregate face amount not exceeding $18 million issued in support of performance obligations in respect of the Delta Centro block in Venezuela and (b) Performance Letters of Credit with respect to which the account party is the Company or any Restricted Subsidiary; provided that the reimbursement obligation of the Company or such Restricted Subsidiary thereunder is unsecured; (x) unsecured obligations of the Company or any Restricted Subsidiary to reimburse any other person for all or a portion of such other person's reimbursement obligations with respect to any Performance Letter of Credit; provided that such Performance Letter of Credit secures the performance of obligations of the Company or a Restricted Subsidiary (in addition to any performance obligations of such other person which such Performance Letter of Credit may secure) under any contract entered into by the Company or such Restricted Subsidiary in the ordinary course of its Oil and Gas Business; (xi) the Vinccler Notes; and (xii) Indebtedness of the Company or any Restricted Subsidiary the proceeds of which are used to renew, extend, refinance or repurchase, or Indebtedness of the Company or any Restricted Subsidiary exchanged for, Indebtedness permitted by clause (i) or (ii) above so long as (a) the aggregate amount of such new Indebtedness (or, if such new Indebtedness will be issued at a price less than the principal amount thereof, the aggregate issue price thereof) would not be greater than the sum of the aggregate amount of the Indebtedness being renewed, extended, refinanced, repurchased or exchanged and any premium, accrued interest expense, commissions and other transaction costs incurred in connection with such renewal, extension, refinancing, repurchase or exchange (but only if such costs are of a kind and in an amount that would customarily be incurred in connection with such types of transactions), (b) if the Indebtedness being renewed, extended, refinanced, repurchased or exchanged is Indebtedness of the Company, such new Indebtedness would be Indebtedness of the Company and, unless the Indebtedness being renewed, extended, refinanced, repurchased or exchanged is fully secured, such new Indebtedness would have an Average Life greater than the Average Life of the Notes and a stated maturity later than the Stated Maturity of the Notes and (c) such new Indebtedness would be Subordinated Indebtedness if the Indebtedness renewed, extended, refinanced, repurchased or exchanged is Subordinated Indebtedness and such new Subordinated Indebtedness would be subordinated to the Notes at least to the extent that the Subordinated Indebtedness being renewed, extended, refinanced, repurchased or exchanged is subordinated to the Notes. 64 67 "Permitted Investment" means investments and expenditures made in the ordinary course of, and of a nature that is or shall have become customary in, the Oil and Gas Business as means of actively exploiting, exploring for, acquiring, developing, processing, gathering, marketing or transporting oil and gas through agreements, transactions, interests or arrangements which permit a person to share risks or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of the Oil and Gas Business jointly with third parties, including, without limitation, (i) ownership interests in oil and gas properties or gathering systems and (ii) Investments and expenditures in the form of or pursuant to operating agreements, processing agreements, farm-in agreements, farm-out agreements, development agreements, area of mutual interest agreements, unitization agreements, pooling arrangements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements (whether general or limited), subscription agreements, stock purchase agreements and other similar agreements with third parties (including Unrestricted Subsidiaries). "Permitted Liens" means Liens upon any real or tangible personal property securing (i) any Indebtedness of the Company or any Restricted Subsidiary existing on the date of the Indenture and any renewals, extensions, refinancings or exchanges of such Indebtedness permitted under the Indenture; provided that any such Lien securing any renewed, extended, refinanced or exchanged Indebtedness shall only attach to the property that secured such Indebtedness prior to such renewal, extension, refinancing or exchange; (ii) any Permitted Benton-Vinccler Indebtedness; (iii) any Permitted GEOILBENT Indebtedness, limited to the non-recourse pledge of equity interests in GEOILBENT; (iv) any Permitted Restricted Subsidiary Indebtedness; (v) any Permitted Company Secured Indebtedness; (vi) Permitted Commodity Swap Agreements; (vii) reimbursement obligations in respect of the letters of credit referred to in clause (ix)(a) of the definition of Permitted Indebtedness; (viii) Indebtedness of Benton-Vinccler referred to in clause (vii)(a) of the definition of Permitted Indebtedness, limited to cash collateral; and (ix) any other Indebtedness of the Company or any Restricted Subsidiary required by its terms to be secured in the event that the Notes are required to be secured pursuant to the terms of the Indenture; provided that (a) if such other Indebtedness is Subordinated Indebtedness, the Lien securing such other Indebtedness shall be subordinated to the Lien securing the Notes to at least the extent that such Subordinated Indebtedness is subordinated to the Notes, (b) in no event shall the Lien securing such other Indebtedness be prior to the Lien securing the Notes and (c) if the Lien securing the Notes ceases to exist, the Lien securing such other Indebtedness shall also cease to exist. "Permitted Restricted Subsidiary Indebtedness" means Indebtedness of any Restricted Subsidiary (including Permitted Benton-Vinccler Indebtedness but excluding Indebtedness of Benton-Vinccler referred to in clause (vii)(a) of the definition of Permitted Indebtedness) Incurred after the date of the Indenture (other than pursuant to clause (xii) of the definition of Permitted Indebtedness) in an aggregate amount for all such Restricted Subsidiaries not to exceed $20 million, in each case outstanding at any time less the aggregate amount of Permitted Company Secured Indebtedness outstanding at such time. "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof; provided that the term joint venture shall not include any contractual arrangement between the Company or any Restricted Subsidiary and one or more third parties pursuant to which the Company or such Restricted Subsidiary and such third party or parties agree to share the costs and benefits of exploring and developing oil and gas properties so long as (i) the interest of the Company or such Restricted Subsidiary in such properties and the hydrocarbons or other mineral products derived therefrom is owned directly by the Company or such Restricted Subsidiary, (ii) such contractual arrangement does not grant any Lien on the Company's or such Restricted Subsidiary's ownership interest in such properties or products derived therefrom or permit such third party or parties to restrict in any manner the ability of the Company or such Restricted Subsidiary to use, transfer, sell or otherwise dispose of such ownership interest (excluding, in each case, any agreement to sell such products to such third party or parties so long as such agreement was negotiated on an arm's-length basis) and (iii) no independent legal entity is created by such contractual arrangement. "Preferred Stock" means, with respect to any person, Capital Stock or Redeemable Stock of such person of any class or classes (however designated) whether now outstanding or issued after the date of the Indenture, that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation of such person, to any other class of Capital Stock of such person and includes, without limitation, all classes and series of preferred or preference stock. "Publicly Traded Stock" means, with respect to any person, Voting Stock of such person which is registered under Section 12 of the Exchange Act and which is actively traded on The New York Stock Exchange or American Stock Exchange or in the Nasdaq -- National Market. "Redeemable Stock" means, with respect to any person, any and all shares, interests, participations, rights or other equivalents (however designated) of such person's capital stock or partnership interests whether now outstanding or issued after the date of the Indenture that by their terms or otherwise are or may be required to be redeemed prior to the Stated Maturity of the Notes or are redeemable at the option of the holder thereof (including, without limitation, upon the happening of any specified event or with the passage of time) at any time prior to the Stated Maturity of the Notes; provided that if the only event that could require 65 68 redemption of any such securities prior to the Stated Maturity of the Notes is a change in control of the Company (defined in a manner substantially identical to the definition of Change in Control in the Indenture) and such right of redemption is expressly subordinated to the right of the holders of the Notes to require repurchase of the Notes upon the occurrence of a Change in Control pursuant to the terms of the Indenture, then such securities shall not be deemed to be Redeemable Stock. "Reference Period" means, with respect to any determination to be made pursuant to the terms of the Indenture, the four full fiscal quarters for which financial information is available immediately preceding any date upon which such determination is to be made. "Repaid Investment" means (i) the amount of any Investment in a person (which is a Restricted Payment) made by the Company or a Restricted Subsidiary after the date of the Indenture (a) to the extent such amount has been unconditionally repaid in cash to the Company or such Restricted Subsidiary (including any such repayment in the form of a dividend but excluding any payments of interest) or (b) to the extent of the net proceeds received in cash or Cash Equivalents from the sale thereof and (ii) the amount of any Indebtedness of a person guaranteed by the Company or a Restricted Subsidiary after the date of the Indenture (which guarantee is a Restricted Payment) to the extent such amount has been unconditionally released from such guarantee; provided that in each case such amount shall not exceed the amount of such Investment as recorded on the books of the Company or such Restricted Subsidiary in accordance with GAAP at the time such Investment was made. "Restricted Payment" means, with respect to any person, (i) the declaration or payment of any dividend or other distribution in respect of Capital Stock or Redeemable Stock of such person or any Subsidiary of such person, (ii) any payment on account of the purchase, redemption or other acquisition or retirement for value of Capital Stock or Redeemable Stock of such person or any Subsidiary of such person (including options, warrants or other rights to acquire such Capital Stock or Redeemable Stock), (iii) any payment on account of the purchase, redemption or other acquisition or retirement for value of, or any payment in respect of any amendment of the terms of, or any defeasance of, any Subordinated Indebtedness, directly or indirectly, by such person or a Subsidiary of such person prior to the scheduled maturity, any scheduled repayment of principal or any scheduled sinking fund payment, as the case may be, of such Subordinated Indebtedness and (iv) any Investment by such person other than any Investment in Cash Equivalents or any Permitted Investment. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary; provided that so long as Benton-Vinccler is a direct or indirect Subsidiary of the Company it shall remain a Restricted Subsidiary. "Restricted Subsidiary Investment" means, with respect to any person that becomes a Restricted Subsidiary, the amount of any Investment in such person (which is a Restricted Payment) made by the Company or a Restricted Subsidiary after the date of the Indenture but prior to the time such person becomes a Restricted Subsidiary; provided that such amount shall not exceed the amount of such Investment as recorded on the books of the Company or such Restricted Subsidiary in accordance with GAAP at the time such Investment was made. "Senior Indebtedness" means any Indebtedness of the Company (whether outstanding on the date hereof or hereinafter incurred), unless such Indebtedness is Subordinated Indebtedness. "Stated Maturity," when used with respect to any Note, means the date specified in such Note as the fixed date on which the principal of such Note is due and payable. "Subordinated Indebtedness" means any Indebtedness (whether outstanding on the date hereof or hereinafter incurred) which is by its terms expressly subordinate or junior in right of payment to the Notes. "Subsidiary" of any person means (i) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such person, by one or more Subsidiaries of such person or by such person and one or more Subsidiaries of such person or (ii) any other person (other than a corporation) in which such person, directly or indirectly, at the date of determination thereof, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company or of a Restricted Subsidiary (other than Benton-Vinccler) that is designated as an Unrestricted Subsidiary by a resolution adopted by the Board of Directors in accordance with the requirements of the following sentence and (ii) any Subsidiary of an Unrestricted Subsidiary. The Company may designate any Subsidiary of the Company or of a Restricted Subsidiary (excluding any Restricted Subsidiary that had been designated as an Unrestricted Subsidiary prior to its designation as a Restricted Subsidiary but including a newly acquired or newly formed Subsidiary of the Company or any Restricted Subsidiary) to be an Unrestricted Subsidiary by a resolution of the Board of Directors, if immediately after giving effect to such designation, (i) the Company could Incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the Indenture provisions described under the caption "Certain Covenants -- Limitation on Indebtedness," (ii) the Company could make an additional Restricted Payment of $1.00 pursuant 66 69 to the Indenture provisions described in the first paragraph under the caption "Limitation on Restricted Payments," (iii) such Subsidiary does not own or hold any Capital Stock or Redeemable Stock of, or any Lien on any property of, the Company or any Restricted Subsidiary and (iv) such Subsidiary is not liable, directly or indirectly, with respect to any Indebtedness other than Non-Recourse Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary (excluding any Unrestricted Subsidiary that had been a Restricted Subsidiary prior to its designation as an Unrestricted Subsidiary) to be a Restricted Subsidiary; provided that, immediately after giving effect to such designation, the Company could Incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the Indenture provisions described under the caption "Certain Covenants -- Limitation on Indebtedness." Upon any such designation by the Board of Directors, the Company shall promptly file with the Trustee a copy of a board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing. As of the date of the Indenture, the Company has no Unrestricted Subsidiaries. "Vinccler Notes" means the promissory notes in an aggregate original principal amount equal to $10 million issued to Vinccler by the Company and guaranteed by Benton-Vinccler. "Voting Stock" means, with respect to any person, securities of any class or classes of Capital Stock in such person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the board of directors or other governing body of such person but not including Capital Stock having the right to vote thereon solely upon the happening of a contingency unless and until such contingency has occurred, and then only so long as such Capital Stock has voting rights with respect thereto. "Wholly Owned Subsidiary" means, with respect to any person, any Subsidiary of such person if all of the Capital Stock (excluding Preferred Stock) in such Subsidiary (other than any director's qualifying shares) is owned directly or indirectly by such person. EVENTS OF DEFAULT An Event of Default will occur under the Indenture with respect to the Notes if any one of the following events occurs: (a) default in the payment of any installment of interest on the Notes as and when the same becomes due and payable, and the continuance of such default for 30 days; or (b) default in the payment of the principal of the Notes, the amount payable upon the redemption of any Notes, Change in Control Purchase Price or Asset Sale Offer Price when the same becomes due and payable as provided under the Indenture, whether at Stated Maturity, upon redemption, upon declaration of acceleration, when due for purchase by the Company or otherwise; or (c) default in the performance or breach of any covenant or agreement of the Company under the Indenture (other than a default in the performance or breach of a covenant or agreement that is specifically dealt with elsewhere herein), and continuance of such default or breach for a period of 30 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in principal amount of the outstanding Notes a written notice specifying such default or breach and stating that such notice is a "Notice of Default" under the Indenture; or (d) default in the payment of any principal, premium, if any, or interest when due or after the expiration of any applicable grace period in respect of any Indebtedness of the Company or any Restricted Subsidiary (including, without limitation, reimbursement obligations with respect to Performance Letters of Credit) having an outstanding principal amount (or with an outstanding reimbursement obligation) of $2.5 million or more individually or in the aggregate or the acceleration of the maturity of any such Indebtedness; or (e) one or more final judgments or orders rendered against the Company or any Restricted Subsidiary which require the payment in money, either individually or in an aggregate amount, of more than $500,000 shall remain unsatisfied or unstayed for 30 consecutive days after any such judgment or order becomes final and nonappealable; or (f) the entry of a decree or order by a court having jurisdiction in the premises (i) for relief in respect of the Company or any Material Subsidiary in an involuntary case or proceeding under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or (ii) adjudging the Company or any such Material Subsidiary as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any such Material Subsidiary under any such law, or (iii) appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any such Material Subsidiary or of any substantial part of any of their properties, or ordering the winding up or liquidation of any of their affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or 67 70 (g) the institution by the Company or any Material Subsidiary of a voluntary case or proceeding under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Company or any Material Subsidiary to the entry of a decree or order for relief in respect of the Company or any Material Subsidiary in any involuntary case or proceeding under any such law or to the institution of bankruptcy or insolvency proceedings against the Company or such Material Subsidiary, or the filing by the Company or any Material Subsidiary of a petition or answer or consent seeking reorganization or relief under any such law, or the consent by the Company or any Material Subsidiary to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of any of the Company or such Material Subsidiary or any substantial part of any of their properties, or the making by the Company or any Material Subsidiary of an assignment for the benefit of creditors, or the admission by the Company or any Material Subsidiary in writing of an inability to pay any of their debts generally as they become due or the taking of corporate action by the Company or any Material Subsidiary in furtherance of any such action. If an Event of Default with respect to the Notes (other than as specified in clauses (f) and (g) above) occurs and is continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding, by written notice to the Company (and to the Trustee if such notice is given by holders) may, and the Trustee at the request of such holders shall, declare the Notes and the accrued interest thereon to be immediately due and payable, as specified below. Upon a declaration of acceleration, such amount shall be due and payable immediately after receipt by the Company of such written notice. If an Event of Default specified in clause (f) or (g) above occurs and is continuing, then the Notes and the accrued interest thereon shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder. At any time after such declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of the Notes outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and (ii) the amounts payable in respect of any Notes which have become due otherwise than by such declaration of acceleration and overdue interest thereon (to the extent of such overdue interest at the rate borne by the Notes) and (b) the rescission would not conflict with any judgment or decree and (c) all existing Events of Default, other than the nonpayment of the principal amount of the Notes which have become due solely by such declaration of acceleration, have been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereon provided in the following paragraph. The holders of not less than a majority in aggregate principal amount of the outstanding Notes, by notice to the Trustee (and without notice to any other holder) on behalf of the holders of all the Notes may waive any past default or Event of Default under the Indenture with respect to such Notes and its consequences, except (i) an Event of Default described in clause (b) of the first paragraph under this section or (ii) a default in the payment of interest on any Notes or in respect of a covenant or provision that under the terms of the Indenture cannot be modified or amended without the consent of the holder of each outstanding Note affected thereby. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of the Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereto. In the Indenture, (i) the Company will covenant that (to the extent that it may lawfully do so) it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of the Indenture and the Company will expressly waive (to the extent that it may lawfully do so) all benefit or advantage of any such law and (ii) the Company will covenant that it will not hinder, delay or impede the execution of any power granted to the Trustee under the Indenture and will suffer and permit the execution of every such power as though no such law had been enacted. DEFEASANCE; SATISFACTION AND DISCHARGE The Indenture will provide that (i) the Company may be discharged from any and all obligations in respect of the outstanding Notes or (ii) the Company may omit to comply with certain restrictive covenants and that such omission shall not be deemed to be an Event of Default under the Indenture and the Notes in the case of either clause (i) or (ii) upon irrevocable deposit with the Trustee, in trust, of money and/or U.S. government obligations which will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent certified accountants to pay the principal of and each installment of interest, if any, on the outstanding Notes. With respect to clause (ii), the obligations under the Indenture other than with respect to such covenants and the Events of Default other than the Event of Default relating to such covenants shall remain in full force and effect. Such trust may only be established if, among other things (a) with respect to clause (i), the Company has delivered to the Trustee an Opinion of Counsel stating that the Company has received from, or there has been published by, the Internal 68 71 Revenue Service a ruling or there has been a change in law, and based thereon such Opinion of Counsel confirms that holders of the Notes will not recognize gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred or, with respect to clause (ii), the Company has delivered to the Trustee an Opinion of Counsel to the effect that the holders of the Notes will not recognize gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (b) no Event of Default or Default shall have occurred or be continuing; (c) the Company has delivered to the Trustee an Opinion of Counsel to the effect that such deposit shall not cause the Trustee or the trust so created to be subject to the Investment Company Act of 1940, as amended; and (d) certain other customary conditions precedent are satisfied. The Indenture will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Notes, substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes, rights of holders to receive payments of principal and interest and rights of holders of Notes to funds deposited with the Trustee) as to all outstanding Notes when either (i) all such Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid) have been delivered to the Trustee for cancellation, (ii) the Company has paid the principal of and interest on all Notes outstanding under the Indenture as and when the same shall have become due and payable, or (iii) all such Notes not theretofore delivered to the Trustee for cancellation (a) have become due and payable, or (b) will become due and payable within one year, or (c) are to be called for redemption within one year, and (x) the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of deposit (if such Notes are then due and payable) or to the applicable maturity or redemption date (as the case may be), (y) no default or Event of Default shall have occurred or be continuing and (z) such deposit would not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which it is bound, and the Company has paid all sums payable by it under the Indenture. GOVERNING LAW The Indenture and the Notes will be governed by the laws of the State of New York. MODIFICATION OF INDENTURE The Indenture contains provisions permitting the Company and the Trustee in limited circumstances, and otherwise, with the consent of the holders of not less than a majority in aggregate principal amount of Notes at the time outstanding, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the final maturity of any Note, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption of any Notes or upon an Event of Default, or reduce the Change in Control Purchase Price of the Asset Sale Offer Price, or impair or affect the right of any holder to institute suit for the payment thereof without the consent of the holder of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, the consent of the holders of which is required for any supplemental indenture, without the consent of the Holders of all Notes then outstanding. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. THE GLOBAL NOTES Upon the issuance of the Regulation S Global Note and the Restricted Global Note (each a "Global Note" and together the "Global Notes"), DTC or its custodian will credit, on its internal system, the respective principal amount of the individual beneficial interests represented by such Global Note to the accounts of persons who have accounts with such depositary. Such accounts initially will be designated by or on behalf of the Initial Purchaser. Ownership of beneficial interests in a Global Note will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. Ownership of beneficial interests in a Global Note will be shown on, and the transfer of that ownership will be effected only 69 72 through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Qualified institutional buyers may hold their interests in a Global Note directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. Investors may hold their interests in the Regulation S Global Note directly through Cedel or Euroclear, if they are participants in such systems, or indirectly through organizations that are participants in such system. Beginning 40 days after the later of the commencement of the offering and the Closing Date (but not earlier), investors may also hold such interests through organizations other than Cedel or Euroclear that are participants in the DTC system. Cedel and Euroclear will hold interests in the Regulation S Global Note on behalf of their participants through DTC. So long as DTC, or its nominee, is the registered owner of holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture and the Notes. No beneficial owner of an interest in a Global Note will be able to transfer that interest except in accordance with the procedures provided for under "Notice to Investors," as well as DTC's applicable procedures, and, if applicable, those of Euroclear and Cedel. Payments of the principal of, and interest on, the Global Notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that DTC or its nominee, upon receipt of any payment of principal or interest in respect of a Global Note will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown on the records of DTC or its nominee. The Company also expects that payments by participants to owners of beneficial interests in such Global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the name of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds. If a holder requires physical delivery of a Certificated Note for any reason, including to sell Notes to persons in states which require such delivery of such Notes or to pledge such Notes, such holder must transfer its interest in the Global Note in accordance with the normal procedures of DTC and the procedures set forth in "Transfer Restrictions." Transfers between participants in Euroclear and Cedel will be effected in the ordinary way in accordance with their respective rules and operating procedures. DTC has advised the Company that it will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose accounts the DTC interests in the Global Notes is credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default (as defined below) under the Notes, DTC will exchange the Global Notes for Certificated Notes, which it will distribute to its participants and which, if representing interests in the Restricted Global Note or the Temporary Regulation S Global Note, will be legended as set forth under the heading "Notice to Investors." DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC, Euroclear and Cedel have agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants of DTC, Euroclear and Cedel, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC, Euroclear or Cedel or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. 70 73 CERTIFICATED NOTES If DTC is at any time unwilling or unable to continue as a depositary for the Global Notes and a successor depositary is not appointed by the Company within 90 days, the Company will issue Certificated Notes in exchange for the Global Notes which, in the case of Notes issued in exchange for the Restricted Global Note will bear the legend referred to under the heading "Notice to Investors." DESCRIPTION OF THE OLD NOTES The terms of the Old Notes are identical in all material respects to the New Notes, except that (i) the Old Notes have not been registered under the Securities Act, are subject to certain restrictions on transfer, contain certain legends relating thereto and are entitled to certain registration rights under the Registration Rights Agreement (which rights will terminate upon consummation of the Exchange Offer); and (ii) the New Notes will not provide for any increase in the interest rate thereon. In that regard, the Old Notes provide that, in the event that the Exchange Offer is not consummated or a shelf registration statement (the "Shelf Registration Statement") with respect to the resale of the Old Notes is not declared effective on or prior to August 31, 1996, or if the Exchange Offer is not consummated on or prior to August 31, 1996, the interest rate on the Old Notes will increase by 0.50% per annum until the Exchange Offer is consummated. Upon the consummation of the Exchange Offer or the effectiveness of a Shelf Registration Statement, as the case may be, after August 31, 1996, the interest rate on any Old Notes which remain outstanding will be reduced, from the date of such consummation or effectiveness, as the case may be, to 11 5/8% per annum and the Old Notes will not thereafter be entitled to any increase in the interest rate thereon. The New Notes are not entitled to any such increase in the interest rate thereon. In addition, the Old Notes and the New Notes will constitute a single series of debt securities under the Indenture. See "Description of the New Notes -- General." Accordingly, holders of Old Notes should review the information set forth under "Summary -- Certain Consequences of a Failure to Exchange Old Notes" and "Description of the New Notes." CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following summary describes certain United States Federal income tax considerations to holders of the New Notes who are subject to U.S. net income tax with respect to the New Notes ("U.S. persons") and who will hold the New Notes as capital assets. There can be no assurance that the U.S. Internal Revenue Service (the "IRS") will take a similar view of the purchase, ownership or disposition of the New Notes. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial decisions now in effect, all of which are subject to change. It does not include any description of the tax laws of any state, local or foreign governments or any estate or gift tax considerations that may be applicable to the New Notes or holders thereof. It does not discuss all aspects of U.S. Federal income taxation that may be relevant to a particular investor in light of his particular investment circumstances or to certain types of investors subject to special treatment under the U.S. Federal income tax laws (for example, dealers in securities or currencies, S corporations, life insurance companies, tax-exempt organizations, taxpayers subject to the alternative minimum tax and non-U.S. persons) and also does not discuss New Notes held as a hedge against currency risks or as part of a straddle with other investments or as part of a "synthetic security" or other integrated investment (including a "conversion transaction") comprised of a New Note and one or more other investments, or situations in which the functional currency of the holders is not the U.S. dollar. Holders of Old Notes contemplating acceptance of the Exchange Offer should consult their own tax advisors with respect to their particular circumstances and with respect to the effects of state, local or foreign tax laws to which they may be subject. EXCHANGE OF NOTES The exchange of Old Notes for New Notes should not be a taxable event to holders for federal income tax purposes. The exchange of Old Notes for the New Notes pursuant to the Exchange Offer should not be treated as an "exchange" for federal income tax purposes because the New Notes should not be considered to differ materially in kind or extent from the Old Notes. If, however, the exchange of the Old Notes for the New Notes were treated as an exchange for federal income tax purposes, such exchange should constitute a recapitalization for federal income tax purposes. Accordingly, a holder should have the same adjusted basis and holding period in the New Notes as it had in the Old Notes immediately before the exchange. INTEREST ON THE NEW NOTES A holder of a New Note will be required to report as ordinary interest income for U.S. Federal income tax purposes interest earned on the New Note in accordance with the holder's method of tax accounting. 71 74 DISPOSITION OF NEW NOTES A holder's tax basis for a New Note generally will be the holder's purchase price for the Old Note. Upon the sale, exchange, redemption, retirement or other disposition of a New Note, a holder will recognize gain or loss equal to the difference (if any) between the amount realized and the holder's tax basis in the New Note. Such gain or loss will be long-term capital gain or loss if the New Note has been held for more than one year (including the period the Old Note was held) and otherwise will be short-term capital gain or loss (with certain exceptions to the characterization as capital gain if the New Note was acquired at a market discount). BACKUP WITHHOLDING A holder of a New Note may be subject to backup withholding at the rate of 31% with respect to interest paid on the New Note and proceeds from the sale, exchange, redemption or retirement of the New Note, unless such holder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates that fact or (b) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A holder of a New Note who does not provide the Company with his correct taxpayer identification number may be subject to penalties imposed by the IRS. A holder of a New Note who is not a U.S. person will generally be exempt from backup withholding and information reporting requirements, but may be required to comply with certification and identification procedures in order to obtain an exemption from backup withholding and information reporting. Any amount paid as backup withholding will be creditable against the holder's U.S. Federal income tax liability. PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account in connection with the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by Participating Broker-Dealers during the period referred to below in connection with resales of New Notes received in exchange for Old Notes if such Old Notes were acquired by such Participating Broker-Dealers for their own accounts as a result of market-making activities or other trading activities. The Company has agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such New Notes for a period ending 180 days after the Expiration Date (subject to extension under certain limited circumstances described herein) or, if earlier, when all such New Notes have been disposed of by such Participating Broker-Dealer. See "The Exchange Offer -- Resales of New Notes." The Company will not receive any cash proceeds from the issuance of the New Notes offered hereby. New Notes received by broker-dealers for their own accounts in connection with the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account in connection with the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that request such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer other than commissions or concessions of any brokers or dealers and will indemnify the holders of Old Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the issuance of the Notes will be passed upon for the Company by Emens, Kegler, Brown, Hill & Ritter, Co., L.P.A., Columbus, Ohio. 72 75 EXPERTS The financial statements incorporated in this registration statement by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The information appearing herein or incorporated herein with respect to proved oil and gas reserves of the Company at December 31, 1994 and 1995, to the extent stated herein, was estimated by the Company and audited by Huddleston & Co., Inc., independent petroleum engineers, and is included herein on the authority of such firm as experts in petroleum engineering. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files reports and other information with the Commission. Reports, proxy statements and other information statements filed by the Company with the Commission pursuant to the informational requirements of the Exchange Act may be inspected and copied at the public reference facilities maintained by the Commission, at Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549, and the following regional offices of the Commission: 7 World Trade Center, New York, New York 10048 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such material may be obtained at prescribed rates from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, heretofore filed by the Company with the Commission pursuant to the Exchange Act, are hereby incorporated by reference, except as superseded or modified herein (i) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as amended on Form 10-K/A filed on June 14, 1996; and (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. All documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to termination of the offering of the Notes shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the respective dates of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement or document so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. As used herein, the terms "Prospectus" and "herein" mean this Prospectus, including the documents incorporated or deemed to be incorporated herein by reference, as the same may be amended, supplemented or otherwise modified from time to time. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document, copies of which are available from the Company as described below, each such statement qualified in all respects by such reference. The Company undertakes to provide, without charge, to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, upon written or oral request of such person, a copy of any and all of the documents or information referred to above that has been or may be incorporated by reference in this Prospectus (excluding exhibits to such documents unless such exhibits are specifically incorporated by reference). Requests should be directed to Benton Oil and Gas Company, 1145 Eugenia Place, Suite 200, Carpinteria, California 93013 (the principal executive offices of the Company), telephone (805) 566-5600, Attn.: Corporate Secretary. 73 76 GLOSSARY When the following terms are used in the text they have the meanings indicated. MCF. "Mcf" means thousand cubic feet. "Mmcf" means million cubic feet. "Bcf" means billion cubic feet. "Tcf" means trillion cubic feet. BBL. "Bbl" means barrel. "MBbl" means thousand barrels. "MMBbl" means million barrels. "BBbl" means billion barrels. BOE. "BOE" means barrels of oil equivalent, which are determined using the ratio of one barrel of crude oil, condensate or natural gas liquids to six Mcf of natural gas so that six Mcf of natural gas is referred to as one barrel of oil equivalent or "BOE". "MBOE" means thousands of barrels of oil equivalent. "MMBOE" means millions of barrels of oil equivalent. CAPITAL EXPENDITURES. "Capital Expenditures" means costs associated with exploratory and development drilling (including exploratory dry holes); leasehold acquisitions; seismic data acquisitions; geological, geophysical and land-related overhead expenditures; delay rentals; producing property acquisitions; and other miscellaneous capital expenditures. COMPLETION COSTS. "Completion Costs" means, as to any well, all those costs incurred after the decision to complete the well as a producing well. Generally, these costs include all costs, liabilities and expenses, whether tangible or intangible, necessary to complete a well and bring it into production, including installation of service equipment, tanks, and other materials necessary to enable the well to deliver production. DEVELOPMENT WELL. A "Development Well" is a well drilled as an additional well to the same reservoir as other producing wells on a lease, or drilled on an offset lease not more than one location away from a well producing from the same reservoir. EXPLORATORY WELL. An "Exploratory Well" is a well drilled in search of a new and as yet undiscovered pool of oil or gas, or to extend the known limits of a field under development. FINDING COST. "Finding Cost", expressed in dollars per BOE, is calculated by dividing the amount of total capital expenditures related to acquisitions, exploration and development costs (reduced by proceeds for any sale of oil and gas properties) by the amount of total net reserves added or reduced as a result of property acquisitions and sales, drilling activities and reserve revisions during the same period. FUTURE DEVELOPMENT COST. "Future Development Cost" of proved nonproducing reserves, expressed in dollars per BOE, is calculated by dividing the amount of future capital expenditures related to development properties by the amount of total proved non-producing reserves associated with such activities. GROSS ACRES OR WELLS. "Gross Acres or Wells" are the total acres or wells, as the case may be, in which an entity has an interest, either directly or through an affiliate. LIFTING COSTS. "Lifting Costs" are the expenses of lifting oil from a producing formation to the surface, consisting of the costs incurred to operate and maintain wells and related equipment and facilities, including labor costs, repair and maintenance, supplies, insurance, production, severance and windfall profit taxes. NET ACRES OR WELLS. A party's "Net Acres" or "Net Wells" are calculated by multiplying the number of gross acres or gross wells in which that party has an interest by the fractional interest of the party in each such acre or well. PRODUCING PROPERTIES OR RESERVES. "Producing Reserves" are Proved Developed Reserves expected to be produced from existing completion intervals now open for production in existing wells. "Producing Properties" are properties to which Producing Reserves have been assigned by an independent petroleum engineer. PROVED DEVELOPED RESERVES. "Proved Developed Reserves" are Proved Reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. PROVED RESERVES. "Proved Reserves" are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions, that is, on the basis of prices and costs as of the date the estimate is made and any price changes provided for by existing conditions. PROVED UNDEVELOPED RESERVES. "Proved Undeveloped Reserves" are Proved Reserves which can be expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. 74 77 RESERVES. "Reserves" means crude oil and natural gas, condensate and natural gas liquids, which are net of leasehold burdens, are stated on a net revenue interest basis, and are found to be commercially recoverable. ROYALTY INTEREST. A "Royalty Interest" is an interest in an oil and gas property entitling the owner to a share of oil and gas production (or the proceeds of the sale thereof) free of the costs of production. STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS. The "Standardized Measure of Future Net Cash Flows" is a method of determining the present value of Proved Reserves. The future net revenues from Proved Reserves are estimated assuming that oil and gas prices and production costs remain constant. The resulting stream of revenues is then discounted at the rate of 10% per year to obtain a present value. 3-D SEISMIC. "3-D Seismic" is the method by which a three dimensional image of the earth's subsurface is created through the interpretation of seismic data. 3-D surveys allow for a more detailed understanding of the subsurface than do conventional surveys and contribute significantly to field appraisal, development and production. UNDEVELOPED ACREAGE. "Undeveloped Acreage" is oil and gas acreage (including, in applicable instances, rights in one or more horizons which may be penetrated by existing wellbores, but which have not been tested) to which Proved Reserves have not been assigned by independent petroleum engineers. 75 78 [BENTON OIL AND GAS COMPANY LOGO] 79 PART II ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under provisions of the Certificate of Incorporation and Bylaws of the Company, each person who is or was a director or officer of the Company shall be indemnified by the Company as a matter of right to the full extent permitted or authorized by law. The effects of the Certificate of Incorporation, Bylaws and General Corporation Law of Delaware may be summarized as follows: (a) Under Delaware law, to the extent that such a person is successful on the merits in defense of a suit or proceeding brought against him by reason of the fact that he is a director or officer of the Company, he shall be indemnified against expenses (including attorneys' fees) reasonably incurred in connection with such action. (b) If unsuccessful in defense of a third-party civil suit or a criminal suit, or if such a suit is settled, such a person shall be indemnified under such law against both (1) expenses (including attorneys' fees) and (2) judgments, fines and amounts paid in settlement if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action, had no reasonable cause to believe his conduct was unlawful. (c) If unsuccessful in defense of a suit brought by or in the right of the Company, or if such suit is settled, such a person shall be indemnified under such law only against expenses (including attorneys' fees) incurred in the defense or settlement of such suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company except that if such a person is adjudged to be liable in a suit in the performance of his duty to the Company, he cannot be made whole even for expenses unless the court determines that he is fairly and reasonably entitled to indemnity for such expenses. (d) The Company may not indemnify a person in respect of a proceeding described in (b) or (c) above unless it is determined that indemnification is permissible because the person has met the prescribed standard of conduct by any one of the following: (i) the Board of Directors, by a majority vote of a quorum consisting of directors not at the time parties to the proceeding, (ii) if a quorum of directors not parties to the proceeding cannot be obtained, or, if obtainable but the quorum so directs, by independent legal counsel selected by the Board of Directors or the committee thereof; or (iii) by the stockholders. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. 4.1 Indenture dated as of May 2, 1996 by and between the Company and First Trust Company of New York, National Association. 5.1 Opinion of Emens, Kegler, Brown, Hill & Ritter Co., LPA as to the legality of the securities being registered. 11.1 Statement regarding computation of per share earnings (incorporated by reference to Exhibit 11.1 to the Company's 10-K for the year ended December 31, 1995 and to Exhibit 11.1 to the Company's Form 10-Q for the quarter ended March 31, 1996). 12.1 Computation of ratio of earnings to fixed charges. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Emens, Kegler, Brown, Hill & Ritter Co., LPA. (Included in Exhibit 5.1) 23.3 Consent of Huddleston & Co., Inc. 24.1 Power of Attorney (included on signature page). 25.1 Statement of eligibility of Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Exchange Agent Agreement. 99.4 Form of Letter to Record Holders. 99.5 Form of Letter to Beneficial Holders. II-1 80 (b) Financial Statement Schedules. All schedules have been omitted because the required information is not significant or included in the financial statements or the notes thereto, or is not applicable. ITEM 22. UNDERTAKINGS. a. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1993; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represents a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. b. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans' annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. c. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. d. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. e. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, offer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 81 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Carpinteria, State of California, on the 14th day of June, 1996. BENTON OIL AND GAS COMPANY By: /s/ A. E. BENTON ---------------------------------------- A. E. Benton, Chief Executive Officer Each person whose signature appears below appoints A.E. Benton, Gregory S. Grabar, David H. Pratt, Jack A. Bjerke and Amy M. Shepherd, and all five of them, any of whom may act without the joinder of the others, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him, and in his stead, in any capacities to sign any and all amendments, including post-effective amendments to this Registration Statement, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed on June 14, 1996 by the following persons in the capacities indicated: SIGNATURE TITLE - --------- ----- /s/ A. E. BENTON Chief Executive Officer and Director - --------------------------------------------- A.E. Benton /s/ MICHAEL B. WRAY Principal Financial Officer and Director - --------------------------------------------- Michael B. Wray /s/ CHRIS C. HICKOK Principal Accounting Officer - --------------------------------------------- Chris C. Hickok /s/ GARRET A. GARRETSON Director - --------------------------------------------- Garret A. Garretson /s/ WILLIAM H. GUMMA Director - --------------------------------------------- William H. Gumma /s/ RICHARD W. FETZNER Director - --------------------------------------------- Richard W. Fetzner /s/ BRUCE M. MCINTYRE Director - --------------------------------------------- Bruce M. McIntyre