SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER: 1-11675
TRITON ENERGY LIMITED
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS NONE
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
CALEDONIAN HOUSE, MARY STREET, P.O. BOX 1043, GEORGE TOWN, GRAND CAYMAN,
CAYMAN ISLANDS
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (809) 949-0050
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES (X) NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of Shares
Title of Each Class Outstanding at April 30, 1996
------------------------------
Ordinary Shares, par value $0.01 per share 36,167,076
- ----------------------------------------------------- ------------------------------
TRITON ENERGY LIMITED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1996 and 1995 2
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995 4
Condensed Consolidated Statement of Shareholders' Equity -
Three months ended March 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Results of Votes of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1996 1995
-------- --------
SALES AND OTHER OPERATING REVENUES:
Oil and gas sales $31,599 $19,464
Other operating revenues 4,182 287
-------- --------
35,781 19,751
-------- --------
COSTS AND EXPENSES:
Operating expenses 9,541 8,080
General and administrative 7,684 5,825
Depreciation, depletion and amortization 6,401 4,658
-------- --------
23,626 18,563
-------- --------
OPERATING INCOME 12,155 1,188
Interest income 1,834 1,236
Interest expense (5,698) (5,534)
Equity in earnings (loss) of affiliate (46) 2,927
Other income (expense), net 3,799 2,607
-------- --------
(111) 1,236
-------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 12,044 2,424
Income tax expense 693 2,777
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 11,351 (353)
DISCONTINUED OPERATIONS:
Loss from operations --- (1,202)
-------- --------
NET EARNINGS (LOSS) 11,351 (1,555)
DIVIDENDS ON PREFERENCE SHARES 772 449
-------- --------
EARNINGS (LOSS) APPLICABLE TO ORDINARY SHARES $10,579 $(2,004)
-------- --------
Average ordinary and equivalent shares outstanding 36,623 35,129
-------- --------
EARNINGS (LOSS) PER ORDINARY SHARE:
Continuing operations $ 0.29 $ (0.02)
Discontinued operations --- (0.04)
-------- --------
NET EARNINGS (LOSS) $ 0.29 $ (0.06)
-------- --------
See accompanying notes to condensed consolidated financial statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31,
ASSETS 1996 DECEMBER 31,
(UNAUDITED) 1995
------------ --------------
Current assets:
Cash and equivalents $ 48,481 $ 49,050
Short-term marketable securities 26,509 42,419
Receivables 35,358 23,187
Inventories, prepaid expenses and other 4,695 4,128
------------ --------------
Total current assets 115,043 118,784
Long-term marketable securities --- 3,985
Property and equipment, at cost, less accumulated depreciation and
depletion of $87,470 and $264,796, respectively 544,938 524,381
Investments and other assets 185,465 177,017
------------ --------------
$ 845,446 $ 824,167
------------ --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 10,010 $ 1,313
Accounts payable and accrued liabilities 34,257 31,873
------------ --------------
Total current liabilities 44,267 33,186
------------ --------------
Long-term debt, excluding current installments 398,342 401,190
Deferred income taxes 32,944 29,897
Deferred income and other 111,898 113,869
Convertible debentures due to employees --- ---
Shareholders' equity:
Preference shares 8,840 14,109
Ordinary shares, par value $0.01 361 35,927
Additional paid-in capital 556,231 516,326
Accumulated deficit (299,943) (311,294)
Foreign currency translation adjustment (7,457) (8,616)
Other (37) (89)
------------ --------------
257,995 246,363
Less cost of ordinary shares in treasury --- 338
------------ --------------
Total shareholders' equity 257,995 246,025
Commitments and contingencies (Note 4) --- ---
------------ --------------
$ 845,446 $ 824,167
------------ --------------
The Company uses the full cost method to account for its oil and gas producing
activities.
See accompanying notes to condensed consolidated financial statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
1996 1995
--------- ---------
Cash flows from operating activities:
Net earnings (loss) $ 11,351 $ (1,555)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation, depletion and amortization 6,401 4,775
Amortization of debt discount 5,698 5,597
Amortization of unearned revenue (2,026) ---
Gain on sale of assets (4,150) ---
Equity in (earnings) losses of affiliate 46 (2,927)
Deferred income taxes and other (3,304) 2,999
Changes in working capital pertaining to operating activities 3,158 (6,815)
--------- ---------
Net cash provided by operating activities 17,174 2,074
--------- ---------
Cash flows from investing activities:
Capital expenditures and investments (54,946) (36,035)
Proceeds from sale of marketable securities 18,008 6,550
Proceeds from sale of assets 25,475 ---
Other (1,743) (709)
--------- ---------
Net cash used by investing activities (13,206) (30,194)
--------- ---------
Cash flows from financing activities:
Short-term borrowings, net --- (10,000)
Proceeds from long-term debt 43,601 26,000
Payments on long-term debt (48,959) ---
Issuance of ordinary shares 2,013 ---
Other (1,119) (829)
--------- ---------
Net cash provided (used) by financing activities (4,464) 15,171
--------- ---------
Effect of exchange rate changes on cash and equivalents (73) (279)
--------- ---------
Net decrease in cash and equivalents (569) (13,228)
Cash and equivalents at beginning of period 49,050 22,341
--------- ---------
Cash and equivalents at end of period $ 48,481 $ 9,113
--------- ---------
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
ADDITIONAL
PREFERENCE ORDINARY PAID-IN ACCUMULATED TREASURY
SHARES SHARES CAPITAL DEFICIT OTHER SHARES
------------ ---------- ------------ ------------- -------- ----------
Balance at
December 31, 1995 $ 14,109 $ 35,927 $ 516,326 $ (311,294) $(8,705) $ (338)
Net income --- --- --- 11,351 --- ---
Foreign currency translation
adjustment --- --- --- --- 1,159 ---
Dividends on preference shares --- --- (772) --- --- ---
Conversion of preference shares (5,269) 153 5,116 --- --- ---
Reduction in par value --- (35,799) 35,595 --- --- 204
Stock issue costs --- --- (2,831) --- --- ---
Exercise of employee stock
options and debentures --- 80 2,505 --- --- ---
Other --- --- 292 --- 52 134
------------ ---------- ------------ ------------- -------- ----------
Balance at March 31, 1996 $ 8,840 $ 361 $ 556,231 $ (299,943) $(7,494) $ ---
------------ ---------- ------------ ------------- -------- ----------
TOTAL
SHAREHOLDERS'
EQUITY
---------------
Balance at
December 31, 1995 $ 246,025
Net income 11,351
Foreign currency translation
adjustment 1,159
Dividends on preference shares (772)
Conversion of preference shares ---
Reduction in par value ---
Stock issue costs (2,831)
Exercise of employee stock
options and debentures 2,585
Other 478
---------------
Balance at March 31, 1996 $ 257,995
---------------
TRITON ENERGY LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Triton Energy Limited, a Cayman Islands company, was incorporated in August
1995 to become the parent holding company of Triton Energy Corporation, a
Delaware corporation ("TEC"). The term "Company" when used herein means
Triton Energy Limited and its subsidiaries and other affiliates through which
the Company conducts its business.
On March 25, 1996, the stockholders of TEC approved the merger of a wholly
owned subsidiary of the Company with and into TEC (the "Reorganization").
Pursuant to the Reorganization, the Company became the parent holding company
of TEC and each share of Common Stock, par value $1.00, and 5% Convertible
Preferred Stock of TEC outstanding on March 25, 1996, was converted into one
Ordinary Share, par value $.01, and one 5% Convertible Preference Share,
respectively, of the Company. The Reorganization has been accounted for as a
combination of entities under common control (as if it were a pooling of
interests).
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Company contain all adjustments of a
normal recurring nature necessary to present fairly the Company's financial
position as of March 31, 1996, and the results of its operations for the three
months ended March 31, 1996 and 1995, its cash flows for the three months
ended March 31, 1996 and 1995, and shareholders' equity for the three months
ended March 31, 1996. The results of operations for the three months ended
March 31, 1996 and 1995, are not necessarily indicative of the final results
to be expected for the full year.
The condensed consolidated financial statements should be read in conjunction
with the Notes to Consolidated Financial Statements, which are included as
part of TEC's Annual Report on Form 10-K for the year ended December 31,
1995.
The Company discontinued its aviation sales and services segment in June 1995.
The Condensed Consolidated Statement of Operations for the three months ended
March 31, 1995 has been restated to reflect the aviation sales and services
segment as discontinued operations.
Certain other previously reported financial information has been reclassified
to conform to the current period's presentation.
2. DIVESTITURES
In March 1996, the Company sold its royalty interests in U.S. properties for
$23.8 million based on an effective date of January 1, 1996. The Company
recorded the resulting gain of $4.1 million in other operating revenues.
In March 1996, the Company executed an agreement with Deminex Colombia
Petroleum GmbH ("Deminex") providing Deminex the right to earn a 50% interest
in the El Pinal, Guayabo A and B, and Las Amelias contract areas of Colombia.
Deminex has paid approximately $13 million into an escrow account that will be
released to the Company upon receiving the approval from Ecopetrol and the
Ministry of Mines. The escrow amount has been recorded as a current
receivable at March 31, 1996.
In March 1995, Crusader Limited ("Crusader"), a 49.9% owned affiliate of the
Company, completed the sale of Saracen Minerals for proceeds of $14.3
million. This sale resulted in a net gain to the Company of
approximately $3.8 million, which is included in equity in earnings of
affiliate.
3. PETROLEUM PRICE RISK MANAGEMENT
In the normal course of business, the Company enters into financial and
commodity market transactions for purposes other than trading to manage its
exposure to commodity price risk. As a result of such transactions to date,
the Company has set the price benchmark on approximately 33% of its projected
Colombian oil production for the last nine months of 1996 at a weighted
average West Texas Intermediate ("WTI") benchmark price of $17.69 per barrel.
In addition, the Company has purchased WTI benchmark call options on a total
of 200,000 barrels for various delivery dates in April and May 1996 in order
to retain the opportunity to participate in prices above $19.72 per barrel.
In anticipation of entering into a forward oil sale, the Company purchased
from a creditworthy counterparty call options to retain the ability to benefit
from future WTI price increases above $20.42 per barrel. The volumes and
expiration dates on the call options coincide with the volumes and delivery
dates of the forward oil sale, which has delivery terms of 58,425 barrels per
month through March 1997 and 254,136 barrels per month from April 1997 to
March 2000. During the three months ended March 31, 1996, the Company
recorded an unrealized gain of $2.1 million as other income related to the
change in the fair market value of the call options. Future fluctuations in
the fair market value of the call options will continue to affect other income
as noncash adjustments.
4. COMMITMENTS AND CONTINGENCIES
Continued development of the Cusiana and Cupiagua fields (the "Fields") in
Colombia, including drilling and construction of additional production
facilities, will require significant capital. In 1995 and early 1996,
Carigali-Triton Operating Company ("CTOC") discovered gas with its first three
wells on Block A-18 in the Malaysia-Thailand Joint Development Area in the
Gulf of Thailand. Further exploration and development activities on Block
A-18, as well as exploratory drilling in other countries, will also require
substantial capital. The Company's capital budget for the year ending
December 31, 1996 is approximately $260 million, excluding capitalized
interest, of which approximately $157 million relates to the Fields, $34
million relates to Block A-18, $40 million relates to the Company's
exploration and drilling program in other parts of the world and $29 million
relates to capital contributions to Oleoducto Central S.A. ("OCENSA").
Capital requirements for full field development of the Fields are expected to
continue at substantial levels into 1997 and capital requirements for
exploration and development relating to Block A-18 are expected to increase
significantly into 1998.
The Company expects to meet capital needs in the future with a combination of
some or all of the following: the Company's revolving credit facility, cash
flow from its Colombian operations, cash on hand and marketable securities,
asset sales, and the issuance of debt and equity securities. As a result of
certain modifications to the indenture relating to the 1997 Notes effected in
November 1995, the Company's indebtedness limitation was increased to permit
the Company to incur total indebtedness (excluding certain permitted
indebtedness) of up to 25% of the sum of its indebtedness and market
capitalization of its capital stock.
GUARANTEES
At March 31, 1996, the Company had guaranteed loans of approximately $6.1
million for a Colombian pipeline company in which the Company has an ownership
interest and guaranteed performance of $7.6 million in future exploration
expenditures in various countries. These commitments are backed by letters of
credit and bank guarantees.
REGULATORY MATTERS
The Company has been advised that the Department of Justice has concluded its
inquiry into the Company's 1989-1990 operations in Indonesia without taking
any action against the Company. The Company continues to cooperate with a
parallel inquiry by the Securities and Exchange Commission (the "Commission").
The Commission's enforcement staff has offered to recommend settlement of any
charges the Commission might assert against the Company on a "consent decree"
basis in which the Company would pay a civil monetary penalty of up to
$350,000. The Company is engaged in discussions with the staff regarding the
staff's proposal. The Company continues to believe that the outcome of the
inquiry will not have a material adverse effect on its operations or
consolidated financial condition.
LITIGATION
The Company is subject to litigation that is incidental to its business, none
of which is expected to have a material adverse effect on the Company's
operations or consolidated financial condition.
5. TRITON ENERGY CORPORATION FINANCIAL INFORMATION
TEC has ceased filing periodic reports with the Commission. TEC's 9 3/4%
Senior Subordinated Discount Notes and 1997 Senior Subordinated Discount Notes
remain outstanding and are fully guaranteed by Triton Energy Limited. The
following table sets forth certain summarized financial information of
TEC and its subsidiaries (in thousands):
MARCH 31, DECEMBER 31,
1996 1995
---------- -------------
Current assets $ 115,043 $ 118,784
Noncurrent assets 731,960 705,383
---------- -------------
Total $ 847,003 $ 824,167
---------- -------------
Current liabilities $ 42,300 $ 33,186
Noncurrent liabilities 543,184 544,956
Stockholders' equity 261,519 246,025
---------- -------------
Total $ 847,003 $ 824,167
---------- -------------
THREE MONTHS ENDED
MARCH 31,
1996 1995
-------------------- --------
Sales and other operating revenues $ 35,781 $19,751
Operating income 12,155 1,188
Other income (expense), net (111) 1,236
-------------------- --------
Earnings from continuing operations before
income taxes 12,044 2,424
Income tax expense 693 2,777
-------------------- --------
11,351 (353)
Loss from discontinued operations --- (1,202)
-------------------- --------
Net earnings (loss) $ 11,351 $(1,555)
-------------------- --------
6. CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS
Certain statements in this report, including statements of the Company's and
management's expectations, intentions, plans and beliefs, including those
contained in or implied by "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and these Notes to Condensed Consolidated
Financial Statements, are forward-looking statements, as defined in Section
21D of the Securities Exchange Act of 1934, that are dependent on certain
events, risks and uncertainties that may be outside the Company's control.
These forward-looking statements include statements of management's plans and
objectives for the Company's future operations and statements of future
economic performance; information regarding drilling schedules, expected or
planned production or transportation capacity, the future construction or
upgrades of pipelines (including costs), when the Cusiana and Cupiagua fields
might become self-financing, future production of the Cusiana and Cupiagua
fields, the negotiation of a gas contract and commencement of production in
Malaysia-Thailand, the Company's capital budget and future capital
requirements, the Company's meeting its future capital needs, the Company's
realization of its deferred tax asset, the level of future expenditures for
environmental costs and the outcome of regulatory and litigation matters; and
the assumptions described in this report underlying such forward-looking
statements. Actual results and developments could differ materially from
those expressed in or implied by such statements due to a number of factors,
including those described in the context of such forward-looking statements,
as well as those presented below.
CERTAIN FACTORS RELATING TO THE OIL AND GAS INDUSTRY
The Company's strategy is to focus its exploration activities on what the
Company believes are relatively high-potential prospects. No assurance can be
given that the Company will be successful in its exploration activities.
Oil prices have been subject to significant fluctuations during the past
several decades. The Company expects that levels of production maintained by
the member nations of the Organization of Petroleum Exporting Countries and
other major oil-producing countries, and the actions of oil traders, will
continue to be major determinants of crude oil price movements in the near
term. It is impossible to predict future oil price movements with any
certainty.
The Company's oil and gas business is subject to all of the operating risks
normally associated with the exploration for and production of oil and gas,
including blowouts, cratering, pollution, earthquakes, labor disruptions and
fires, each of which could result in damage to or destruction of oil and gas
wells, formations, production facilities or properties, or in personal injury.
In accordance with customary industry practices, the Company maintains
insurance coverage limiting financial loss resulting from certain of these
operating hazards. Losses and liabilities arising from uninsured or
underinsured events would reduce revenues and increase costs to the Company.
The Company's oil and gas business is also subject to laws, rules and
regulations in the countries in which it operates, which generally pertain to
production control, taxation, environmental and pricing concerns, and other
matters relating to the petroleum industry.
The Company is subject to extensive environmental laws and regulations. These
laws regulate the discharge of oil, gas or other materials into the
environment and may require the Company to remove or mitigate the
environmental effects of the disposal or release of such materials at various
sites. The Company does not believe that its environmental risks are
materially different from those of comparable companies in the oil and gas
industry. Nevertheless, no assurance can be given that environmental laws and
regulations will not, in the future, adversely affect the Company's results of
operations, cash flows or financial position. Pollution and similar
environmental risks generally are not fully insurable.
CERTAIN FACTORS RELATING TO INTERNATIONAL OPERATIONS
The Company derives substantially all of its consolidated revenues from
international operations. Risks inherent in international operations include
loss of revenue, property and equipment from such hazards as expropriation,
nationalization, war, insurrection and other political risks; trade protection
measures; risks of increases in taxes and governmental royalties; and
renegotiation of contracts with governmental entities; as well as changes in
laws and policies governing operations of other companies. Other risks
inherent in international operations are the possibility of realizing economic
currency exchange losses when transactions are completed in currencies other
than United States dollars and the Company's ability to freely repatriate its
earnings under existing exchange control laws. To date, the Company's
international operations have not been materially affected by these risks.
COMPETITION
The Company encounters strong competition from major oil companies
(including government-owned companies), independent operators and other
companies for favorable oil and gas concessions, licenses, production sharing
contracts and leases, drilling rights and markets. Additionally, the
governments of certain countries in which the Company operates may from time
to time give preferential treatment to their nationals. The oil and gas
industry as a whole also competes with other industries in supplying the
energy and fuel requirements of industrial, commercial and individual
consumers.
MARKETS
Crude oil, natural gas, condensate and other oil and gas products generally
are sold to other oil and gas companies, government agencies and other
industries. The availability of ready markets for oil and gas that might be
discovered by the Company and the prices obtained for such oil and gas depend
on many factors beyond the Company's control, including the extent of local
production and imports of oil and gas, the proximity and capacity of pipelines
and other transportation facilities, fluctuating demands for oil and gas, the
marketing of competitive fuels, and the effects of governmental regulation of
oil and gas production and sales. Pipeline facilities do not exist in certain
areas of exploration and, therefore, any actual sales of discovered oil or gas
might be delayed for extended periods until such facilities are constructed.
CERTAIN FACTORS RELATING TO COLOMBIA
The Company is a participant in significant oil and gas discoveries located in
the Llanos Basin in the foothills of the Andes Mountains, approximately 160
kilometers (100 miles) northeast of Bogata, Colombia. The Company owns
interests in three contiguous areas known as the Santiago de las Atalayas
("SDLA"), Tauramena and Rio Chitamena contract areas. Well results to date
indicate that significant oil and gas deposits lie across the Cusiana and
Cupiagua fields.
Largely due to complex geology, drilling of wells in the Cusiana and Cupiagua
fields has been comparatively difficult, lengthy in duration and expensive.
The Company believes that considerable progress has been achieved in reducing
the time and expenditures required to drill and complete wells in the Cusiana
and Cupiagua fields based on experience gained from initial wells drilled.
Although there can be no assurance, the Company believes that the experience
gained in the area to date will allow the operator to continue to reduce the
time and expenditures required to drill and complete wells in the area.
However, because the Company is not the operator of these contract areas, the
Company does not control the timing or manner of these operations.
Full development of reserves in the Cusiana and Cupiagua fields will take
several years and require additional drilling and extensive production
facilities, which in turn will require significant additional capital
expenditures, the ultimate amount of which cannot be predicted. Pipelines
connect the major producing fields in Colombia to export facilities and to
refineries. These pipelines are in the process of being upgraded and expanded
to accommodate production from the Cusiana and Cupiagua fields.
Guerrilla activity in Colombia has from time to time disrupted the operation
of oil and gas projects and increased costs. Although the Colombian
government, the Company and its partners have taken steps to improve security
and improve relations with the local population, there can be no assurance
that attempts to reduce or prevent guerrilla activity will be successful or
that such activity will not disrupt operations in the future.
Numerous Colombian government officials, including the President of Colombia,
are the subjects of investigations and allegations that claim they have
accepted illegal campaign contributions. These circumstances have led to
speculation as to whether these officials will remain in office. The
President of Colombia has stated that any such illicit contributions were made
without his knowledge. In response to the allegations, the leadership of the
opposition Conservative Party withdrew its support of the government, and
certain cabinet ministers and ambassadors and a high-ranking military officer
resigned. Any changes in the holders of significant government offices could
have adverse consequences on the Company's relationship with the Colombian
national oil company and the Colombian government's ability to control
guerrilla activities, and could exacerbate the factors relating to foreign
operations discussed above.
At the same time, Colombia is among 31 nations whose progress in stemming the
production and transit of illegal drugs is subject to annual certification by
the President of the United States. In March 1996, the President of the
United States announced that Colombia would neither be certified nor granted a
national interest waiver. The consequences of the failure to receive
certification generally include the following: all bilateral aid, except
anti-narcotics and humanitarian aid, will be suspended; the Export-Import Bank
of the United States ("EXIM") and the Overseas Private Investment Corporation
will not approve financing for new projects in Colombia, although currently
approved EXIM financings are not expected to be affected; U.S. representatives
at multilateral lending institutions will be required to vote against all loan
requests from Colombia, although such votes will not constitute vetoes; and
the President of the United States and Congress retain the right to apply
future trade sanctions.
CERTAIN FACTORS RELATING TO MALAYSIA-THAILAND
The Company is a partner in a significant gas exploration project located in
the upper Malay Basin in the Gulf of Thailand approximately 450 kilometers
northeast of Kuala Lumpur and 750 kilometers south of Bangkok. The Company is
a contractor under a production sharing contract covering Block A-18 of the
Malaysia-Thailand Joint Development Area. Test results for the initial
exploratory wells indicate that significant gas deposits lie under the block.
Development of gas production is in the early planning stages but is expected
to take several years and require the drilling of additional wells and the
installation of production facilities, which will require significant
additional capital expenditures, the ultimate amount of which cannot be
predicted. Pipelines also will be required to be connected between Block A-18
and ultimate markets. The terms on which any gas produced from the Company's
contract area in Malaysia-Thailand may be sold may be affected adversely by
the present monopoly gas purchase and transportation conditions in both
Thailand and Malaysia, including the Thai national oil company's monopoly in
transportation within Thailand and its territorial waters.
LITIGATION
The outcome of litigation and its impact on the Company are difficult to
predict due to many uncertainties, such as jury verdicts, the application of
laws to various factual situations, the actions that may or may not be taken
by other parties and the availability of insurance. In addition, in certain
situations, such as environmental claims, one defendant may be responsible, or
potentially responsible, for the liabilities of other parties. Moreover,
circumstances could arise under which the Company may elect to settle claims
at amounts that exceed the Company's expected liability for such claims in
order to avoid costly litigation. Judgments or settlements could, therefore,
exceed any reserves.
7. SUBSEQUENT EVENT
In April 1996, the Company received $7.6 million resulting from settlement of
litigation in which the Company was plaintiff.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY, CAPITAL REQUIREMENTS AND FUNDING ALTERNATIVES
Cash, cash equivalents and marketable securities totaled $75 million and
$95.5 million at March 31, 1996 and December 31, 1995, respectively. Working
capital was $70.8 million at March 31, 1996, a decrease of $14.8 million from
December 31, 1995.
The Company's capital expenditures and other capital investments were
$54.9 million for the three months ended March 31, 1996, primarily for
exploration and development of the Cusiana and Cupiagua fields (the "Fields")
in Colombia and Block A-18 in the Malaysia-Thailand Joint Development Area in
the Gulf of Thailand. The capital spending program for the three months ended
March 31, 1996 was funded with cash flow from operations ($17.2 million), net
proceeds from marketable securities ($18 million) and asset sales ($25.5
million). During the first quarter of 1996, the Company borrowed
approximately $45 million against a credit line supported by a guarantee of
the Export-Import Bank of the United States. The proceeds were used primarily
to reduce the Company's long-term revolving credit facility.
Continued development of the Fields, including drilling and construction
of additional production facilities, will require significant capital. In
1995 and early 1996, Carigali-Triton Operating Company ("CTOC") discovered gas
on its first three wells on Block A-18 in the Malaysia-Thailand Joint
Development Area in the Gulf of Thailand. Further exploration and development
activities on Block A-18, as well as exploratory drilling in other countries,
also will require substantial capital. The Company's capital budget for the
year ending December 31, 1996 is approximately $260 million, excluding
capitalized interest, of which approximately $157 million relates to the
Fields, $34 million relates to Block A-18, $40 million relates to the
Company's exploration and drilling program in other parts of the world and $29
million relates to capital contributions to Oleoducto Central S.A. ("OCENSA").
Capital requirements for full field development of the Fields are expected to
continue at substantial levels into 1997, and capital requirements for
exploration and development relating to Block A-18 are expected to increase
significantly into 1998.
In December 1994, the Company, along with other investors, formed an
independent company, OCENSA, to own, expand, finance and operate a pipeline
system from the Fields to the Caribbean port of Covenas. The Company's
ownership percentage is 9.6%. OCENSA's capitalization plan contemplates an
ultimate capital structure of approximately 30% equity from the Company and
other investors and 70% debt. OCENSA has raised significant amounts of debt
in separate tranches supported by various agreements with the Company or its
partners as the case may be (relating, in particular, to tariffs on each
partner's throughput). The Company assisted OCENSA in raising one such
tranche for $65 million in April 1996 and another tranche for $60 million in
1995, which are supported by the Company's tariff commitments for its share of
production from the Fields. The Company has no further obligation to assist
OCENSA in obtaining additional debt financing. Based on OCENSA's current
plan, the Company believes OCENSA should not need to incur additional
indebtedness to complete expansion of the pipeline system; however, no
assurance can be given that OCENSA will not need to borrow additional amounts.
The Company expects to meet capital needs in the future with a
combination of some or all of the following: the Company's revolving credit
facility, cash flow from its Colombian operations, cash on hand and marketable
securities, asset sales, and the issuance of debt and equity securities. As
a result of certain modifications to the indenture relating to the 1997 Notes
effected in November 1995, the Company's indebtedness limitation was increased
to permit the Company to incur total indebtedness (excluding certain permitted
indebtedness) of up to 25% of the sum of its indebtedness and market
capitalization of its capital stock.
RESULTS OF OPERATIONS
The Company reported net earnings of $11.4 million (before
preference dividends) in 1996, compared with a net loss of $1.6 million
in the 1995 period. The improved 1996 results reflected increased production
in Colombia, higher oil prices and a gain on the sale of the Company's
royalty interests in U.S. properties.
Sales volumes and average price realized were as follows:
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
------------------- ------
Sales volumes
Oil (MBbls) 1,541 1,209
Gas (MMcf) 527 234
Forward oil sale (MBbls delivered) 175 ---
Weighted average price realized:
Oil (per Bbl) $ 18.03 $15.79
Gas (per Mcf) 1.25 1.61
Sales and Other Operating Revenues
Revenues in Colombia increased by $15.7 million in 1996 primarily due to
higher production ($11.3 million) and higher oil prices resulting from
batching of Cusiana crude that began in mid-1995 and more favorable market
conditions ($4.4 million). Sales volumes in Colombia, including barrels
delivered under the forward oil sale, increased from 910,000 barrels in 1995
to 1,638,000 barrels in 1996 even though the Company received 213,000 fewer
barrels in 1996 as reimbursement of pre-commerciality costs related to the
Cusiana Field. Sales from the Company's oil properties in France, which were
sold in August 1995, were $3.6 million.
Other operating revenues in 1996 included a gain of $4.1 million
resulting from the sale of the Company's royalty interests in U.S. properties
for $23.8 million based on an effective date of January 1, 1996.
Costs and Expenses
Operating expenses increased $1.5 million in 1996, while depreciation,
depletion and amortization increased $1.7 million. Higher production in
Colombia increased operating expenses by $4.2 million and depreciation,
depletion and amortization by $2 million. The Company's operating costs per
equivalent barrel were $5.55 and $8.48 in 1996 and 1995, respectively. The
1995 results included operating expenses and depletion for Triton France of
$2.4 million and $.6 million, respectively.
General and administrative expenses increased $1.9 million in 1996
primarily due to higher personnel costs. Capitalized general and
administrative costs were $5.6 million and $4.9 million in 1996 and 1995,
respectively.
Other Income and Expenses
Gross interest expense increased by $1.6 million in 1996 due to higher
debt outstanding. Capitalized interest increased from $3.8 million in 1995 to
$5.2 million in 1996 due to construction of support equipment and facilities
in the Fields and greater exploration activities.
Equity in earnings (loss) of affiliate decreased in 1996 primarily due to
a net gain to the Company of $3.8 million realized on the sale of Saracen
Minerals by Crusader Limited in 1995.
Other income in 1996 included a $2.1 million noncash benefit representing
the change in fair market value of call options purchased in anticipation of a
forward oil sale in May 1995, and foreign exchange gains of $1 million,
primarily on deferred tax liabilities in Colombia. Other income in 1995
included $1.9 million received from the settlement of a lawsuit.
Income Taxes
Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes," requires that the Company make projections
about the timing and scope of certain future business transactions in order to
estimate recoverability of deferred tax assets primarily resulting from the
expected utilization of net operating loss carryforwards ("NOLs"). Changes in
the timing or nature of actual or anticipated business transactions,
projections and income tax laws can give rise to significant adjustments to
the Company's deferred tax expense or benefit that may be reported from time
to time. For these and other reasons, compliance with SFAS 109 may result in
significant differences between tax expense for income statement purposes and
taxes actually paid.
The income tax provision for 1996 decreased $2.1 million, compared with
1995, primarily due to an increased deferred tax benefit in the United States
of $3.3 million related to anticipated future utilization of net operating
loss carryforwards. Foreign tax expense in 1996 increased $.9 million from
1995, mainly due to the Company's Colombian operations.
Petroleum Price Risk Management
In the normal course of business, the Company enters into financial and
commodity market transactions for purposes other than trading to manage its
exposure to commodity price risk. As a result of such transactions to date,
the Company has set the price benchmark on approximately 33% of its projected
Colombian oil production for the last nine months of 1996 at a weighted
average West Texas Intermediate ("WTI") benchmark price of $17.69 per barrel.
In addition, the Company has purchased WTI benchmark call options on a total
of 200,000 barrels for various delivery dates in April and May 1996 in order
to retain the opportunity to participate in prices above $19.72 per barrel.
In anticipation of entering into a forward oil sale, the Company
purchased from a creditworthy counterparty call options to retain the ability
to benefit from future WTI price increases above $20.42 per barrel. The
volumes and expiration dates on the call options coincide with the volumes and
delivery dates of the forward oil sale, which has delivery terms of 58,425
barrels per month through March 1997 and 254,136 barrels per month from April
1997 to March 2000. During the three months ended March 31, 1996, the Company
recorded an unrealized gain of $2.1 million in other income related to the
change in the fair market value of the call options. Future fluctuations in
the fair market value of the call options will continue to affect other income
as noncash adjustments.
Certain Factors That Could Affect Future Operations
Certain statements in this report, including statements of the Company's
and management's expectations, intentions, plans and beliefs, are
forward-looking statements, as defined in Section 21D of the Securities
Exchange Act of 1934, that are dependent on certain events, risks and
uncertainties that may be outside the Company's control. These
forward-looking statements include statements of management's plans and
objectives for the Company's future operations and statements of future
economic performance; information regarding drilling schedules, expected or
planned production or transportation capacity, the future construction or
upgrades of pipelines (including costs), when the Cusiana and Cupiagua fields
might become self-financing, future production of the Cusiana and Cupiagua
fields, the negotiation of a gas contract and commencement of production in
Malaysia-Thailand, the Company's capital budget and future capital
requirements, the Company's meeting its future capital needs, the Company's
realization of its deferred tax asset, the level of future expenditures for
environmental costs and the outcome of regulatory and litigation matters; and
the assumptions described in this report underlying such forward-looking
statements. Actual results and developments could differ materially from
those expressed in or implied by such statements due to a number of factors,
including those described in the context of such forward-looking statements
and in the Notes to Condensed Consolidated Financial Statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been advised that the Department of Justice has concluded its
Foreign Corrupt Practices Act ("FCPA") inquiry into the Company's 1989-1990
operations in Indonesia without taking any action against the Company. The
Company continues to cooperate with a parallel inquiry by the Securities and
Exchange Commission (the "Commission"). The Commission's enforcement staff
has offered to recommend settlement of any charges the Commission might assert
against the Company on a "consent decree" basis in which the Company would pay
a civil monetary penalty of up to $350,000. The Company has not yet accepted
this proposed settlement because it does not believe any of the payments in
question violated the FCPA. Moreover, the Company believes, given its
management and compliance procedures now in place, that there should be no
implication that there is any reason to believe the Company would commit any
FCPA violations. The Company is continuing, however, to negotiate with the
Staff in hopes of resolving this matter amicably. In any event, the Company
does not believe that the outcome of the inquiry will have a material adverse
effect on its operations or consolidated financial condition.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
On March 25, 1996, the stockholders of the Company's predecessor, Triton
Energy Corporation, a Delaware corporation ("TEC"), approved the merger of a
wholly owned subsidiary of the Company with and into TEC (the
"Reorganization"). Pursuant to the Reorganization, the Company became the
parent holding company of TEC and each share of Common Stock, par value $1.00,
and 5% Convertible Preferred Stock of TEC outstanding on March 25, 1996, was
converted into one Ordinary Share, par value $.01, and one 5% Convertible
Preference Share, respectively, of the Company. At the Meeting, 26,392,196
votes were cast for the Reorganization, 713,718 votes were cast against the
Reorganization and there were 180,072 abstentions and no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following documents are filed as part of this Quarterly
Report on Form 10-Q:
1. Exhibits required to be filed by Item 601 of Regulation S-K. (Where
the amount of securities authorized to be issued under any of Triton Energy
Limited's and any of its subsidiaries' or its affiliate Crusader's long-term
debt agreements does not exceed 10% of the Company's assets, pursuant to
paragraph (b)(4) of Item 601 of Regulation S-K, in lieu of filing such as
exhibits, the Company hereby agrees to furnish to the Commission upon request
a copy of any agreement with respect to such long-term debt.)
4.1 Specimen Share Certificate of Ordinary Shares, $0.01 par value, of the Company. (1)
4.2 Rights Agreement dated as of March 25, 1996, between Triton Energy Limited and
Chemical Bank, as Rights Agent, including, as Exhibit A thereto, Resolutions
establishing the Junior Preference Shares. (1)
4.3 Form of Debt Securities. (2)
4.4 Proposed Form of Senior Indenture. (2)
4.5 Proposed Form of Senior Subordinated Indenture. (2)
4.6 Resolutions authorizing the Company's 5 % Convertible Preference Shares. (3)
10.1 Amended and Restated Retirement Income Plan. (4)
10.2 Amended and Restated Supplemental Executive Retirement Income Plan. (5)
10.3 1981 Employee Non-Qualified Stock Option Plan. (6)
10.4 Amendment No. 1 to the 1981 Employee Non-Qualified Stock Option Plan. (7)
10.5 Amendment No. 2 to the 1981 Employee Non-Qualified Stock Option Plan. (6)
10.6 Amendment No. 3 to the 1981 Employee Non-Qualified Stock Option Plan. (4)
10.7 1985 Stock Option Plan. (8)
10.8 Amendment No. 1 to the 1985 Stock Option Plan. (6)
10.9 Amendment No. 2 to the 1985 Stock Option Plan. (4)
10.10 Amended and Restated 1986 Convertible Debenture Plan. (4)
10.11 1988 Stock Appreciation Rights Plan. (9)
10.12 1989 Stock Option Plan. (10)
10.13 Amendment No. 1 to the 1989 Stock Option Plan. (6)
10.14 Amendment No. 2 to the 1989 Stock Option Plan. (4)
10.15 Second Amended and Restated 1992 Stock Option Plan . (18)
10.16 Form of Amended and Restated Employment Agreement. (5)
10.17 Amended and Restated 1985 Restricted Stock Plan. (4)
10.18 First Amendment to 1985 Amended and Restated Restricted Stock Plan. (11)
10.19 Second Amendment to Amended and Restated 1985 Restricted Stock Plan. (18)
10.20 Executive Life Insurance Plan. (12)
10.21 Long Term Disability Income Plan. (12)
10.22 Amended and Restated Retirement Plan for Directors. (8)
10.23 Amended and Restated Indenture dated as of March 25, 1996 among Triton Energy
Limited, Triton Energy Corporation and Chemical Bank, with respect to the issuance
of Senior Subordinated Discount Notes due 1997. (18)
10.24 Amended and Restated Senior Subordinated Indenture by and among Triton Energy
Limited, Triton Energy Corporation and United States Trust Company of New York,
dated as of March 25, 1996. (18)
10.25 Contract for Exploration and Exploitation for Santiago de Atalayas I with an
effective date of July 1, 1982, between Triton Colombia, Inc., and Empresa
Colombiana De Petroleos. (8)
10.26 Contract for Exploration and Exploitation for Tauramena with an effective date of July
4, 1988, between Triton Colombia, Inc. and Empresa Colombiana De Petroleos. (9)
10.27 Summary of Assignment legalized by Public Instrument No. 1255 dated September 15,
1987 (Assignment is in Spanish language). (9)
10.28 Summary of Assignment legalized by Public Instrument No. 1602 dated June 11,
1990 (Assignment is in Spanish language). (9)
10.29 Summary of Assignment legalized by Public Instrument No. 2586 dated September 9,
1992 (Assignment is in Spanish language). (9)
10.30 401(K) Savings Plan. (4)
10.31 Contract between Malaysia-Thailand and Joint Authority and Petronas Carigali
SDN.BHD. and Triton Oil Company of Thailand relating to Exploration and Produc-
tion of Petroleum for Malaysia-Thailand Joint Development Area Block A-18. (13)
10.32 Credit Agreement between Triton Energy Corporation and Banque Paribas Houston
Agency dated as of March 28, 1995, together with related form of revolving credit
note. (14)
10.33 First Amendment to Credit Agreement between Triton Energy Corporation and Banque
Paribas Houston Agency dated May 16, 1995. (15)
10.34 Security Agreement between Triton Energy Corporation and Banque Paribas Houston
Agency. (14)
10.35 Second Amendment to Credit Agreement and First Amendment to Security Agreement
between Triton Energy Corporation and Banque Paribas Houston Agency dated August
11, 1995. (5)
10.36 Third Amendment to Credit Agreement between Triton Energy Corporation and Banque
Paribas Houston Agency dated September 29, 1995. (5)
10.37 Consent, Waiver and Guaranty among Triton Energy Limited, Triton Energy
Corporation and Bank Paribas Houston Agency dated as of March 25, 1996. (18)
10.38 Triton Crude Purchase Agreement between Triton Colombia, Inc. and Oil Co., LTD.
dated May 25, 1995. (16)
10.39 Credit Agreement among Triton Colombia, Inc., Triton Energy Corporation,
NationsBank, N.A. (Carolinas) and Export-Import Bank of the United States. (11)
10.40 Amendment No. 1 to Credit Agreement among Triton Colombia, Inc., Triton Energy
Corporation, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United
States. (11)
10.41 Amendment No. 2 to Credit Agreement among Triton Colombia, Inc., Triton Energy
Corporation, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United
States. (18)
10.42 Agreement and Plan of Merger among Triton Energy Corporation, Triton Energy
Limited and TEL Merger Corp. (11)
11.1 Computation of Earnings per Share. (18)
12.1 Computation of Ratio of Earnings to Fixed Charges. (18)
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preference
Dividends. (18)
27.1 Financial Data Schedule. (18)
99.1 Rio Chitamena Association Contract. (17)
99.2 Rio Chitamena Purchase and Sale Agreement. (17)
99.3 Integral Plan - Cusiana Oil Structure. (17)
99.4 Letter Agreements with co-investor in Colombia. (17)
99.5 Colombia Pipeline Memorandum of Understanding. (17)
99.6 Amended and Restated Oleoducto Central S.A. Agreement dated as of March 31,
1995. (15)
________________
(1) Previously filed as an exhibit to Triton Energy Corporation's Registration
Statement on Form 8-A dated March 25, 1996 and incorporated herein by reference.
(2) Previously filed as an exhibit to Triton Energy Corporation's Registration Statement
on Form S-3 (No. 33-69230) and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's and Triton Energy Corporation's
Registration Statement on Form S-4 (No. 333-923) and incorporated herein by
Reference.
(4) Previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on
Form 10-Q for the quarter ended November 30, 1993 and incorporated by
reference herein.
(5) Previously filed as an exhibit to Triton Energy Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995 and incorporated herein
by reference.
(6) Previously filed as an exhibit to Triton Energy Corporation's Annual Report
on Form 10-K for the fiscal year ended May 31, 1992 and incorporated herein
by reference.
(7) Previously filed as an exhibit to Triton Energy Corporation's Annual Report
on Form 10-K for the fiscal year ended May 31, 1989 and incorporated herein
by reference.
(8) Previously filed as an exhibit to Triton Energy Corporation's Annual Report
on Form 10-K for the fiscal year ended May 31, 1990 and incorporated herein
by reference.
(9) Previously filed as an exhibit to Triton Energy Corporation's Annual Report
on Form 10-K for the fiscal year ended May 31, 1993 and incorporated by
reference herein.
(10) Previously filed as an exhibit to Triton Energy Corporation's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1988 and incorporated by
reference herein.
(11) Previously filed as an exhibit to Triton Energy Corporation's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated herein
by reference.
(12) Previously filed as an exhibit to Triton Energy Corporation's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991 and incorporated herein
by reference.
(13) Previously filed as an exhibit to Triton Energy Corporation's current report on
Form 8-K dated April 21, 1994 and incorporated by reference herein.
(14) Previously filed as an exhibit to Triton Energy Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein
by reference.
(15) Previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 and incorporated herein
by reference.
(16) Form 8-K dated May 26, 1995 and incorporated herein by reference.
(17) Previously filed as an exhibit to Triton Energy Corporation's current report
on Form 8-K/A dated July 15, 1994 and incorporated herein by reference.
(18) Filed herewith.
(b) Reports on Form 8-K
On February 9, 1996, Triton Energy Corporation filed a Current Report on
Form 8-K relating to the public release of Triton Energy Corporation's
results of operations for the year ended December 31, 1995.
SIGNATURES
PART II. OTHER INFORMATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRITON ENERGY LIMITED
By: /s/ Peter Rugg
Peter Rugg
Senior Vice President and Chief Financial Officer
Date: May 13, 1996