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 SEPTEMBER 30, 1997
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: (345) 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 October 31, 1997
- ------------------------------------------ -------------------------------
Ordinary Shares, par value $0.01 per share 36,536,426
- ------------------------------------------ -------------------------------
TRITON ENERGY LIMITED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 1997 and 1996 2
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 4
Condensed Consolidated Statement of Shareholders' Equity -
Nine months ended September 30, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 6. Exhibits and Reports on Form 8-K 26
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1997 1996 1997 1996
-------- -------- --------- ---------
SALES AND OTHER OPERATING REVENUES:
Oil and gas sales $36,993 $30,780 $ 99,244 $ 93,549
Other operating revenues --- --- 4,077 4,182
-------- -------- --------- ---------
36,993 30,780 103,321 97,731
-------- -------- --------- ---------
COSTS AND EXPENSES:
Operating 13,119 8,872 35,252 28,035
General and administrative 6,631 4,972 20,123 19,433
Depreciation, depletion and amortization 9,291 5,972 24,746 18,036
-------- -------- --------- ---------
29,041 19,816 80,121 65,504
-------- -------- --------- ---------
OPERATING INCOME 7,952 10,964 23,200 32,227
Interest income 1,038 2,015 4,354 5,726
Interest expense, net (5,697) (3,330) (17,946) (13,322)
Other income, net 8,018 11,248 8,324 23,004
-------- -------- --------- ---------
3,359 9,933 (5,268) 15,408
-------- -------- --------- ---------
EARNINGS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 11,311 20,897 17,932 47,635
Income tax expense 5,110 1,348 8,553 4,039
-------- -------- --------- ---------
EARNINGS BEFORE EXTRAORDINARY ITEM 6,201 19,549 9,379 43,596
Extraordinary item - extinguishment of debt --- (762) (14,491) (1,196)
-------- -------- --------- ---------
NET EARNINGS (LOSS) 6,201 18,787 (5,112) 42,400
Dividends on preference shares 187 213 400 985
-------- -------- --------- ---------
EARNINGS (LOSS) APPLICABLE TO ORDINARY SHARES $ 6,014 $18,574 $ (5,512) $ 41,415
-------- -------- --------- ---------
Average ordinary and equivalent shares outstanding 37,070 37,097 37,019 36,819
-------- -------- --------- ---------
EARNINGS (LOSS) PER ORDINARY SHARE:
Earnings before extraordinary item $ 0.16 $ 0.52 $ 0.24 $ 1.15
Extraordinary item - extinguishment of debt --- (0.02) (0.39) (0.03)
-------- -------- --------- ---------
NET EARNINGS (LOSS) $ 0.16 $ 0.50 $ (0.15) $ 1.12
-------- -------- --------- ---------
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- --------------
(Unaudited)
Current assets:
Cash and equivalents $ 35,056 $ 11,048
Short-term marketable securities --- 3,866
Trade receivables, net 17,357 11,526
Other receivables 40,041 49,000
Inventories, prepaid expenses and other 8,618 8,920
----------- --------------
Total current assets 101,072 84,360
Property and equipment at cost, less accumulated depreciation and
depletion of $77,522 for 1997 and $96,421 for 1996 810,392 676,833
Investments and other assets 169,670 153,331
----------- --------------
$1,081,134 $ 914,524
----------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 139,975 $ 199,552
Accounts payable and accrued liabilities 75,788 38,545
Deferred income 35,254 28,466
----------- --------------
Total current liabilities 251,017 266,563
Long-term debt, excluding current maturities 425,807 217,078
Deferred income taxes 45,517 45,431
Deferred income and other 58,662 84,808
Convertible debentures due to employees --- ---
Shareholders' equity:
Preference shares 7,511 8,515
Ordinary shares, par value $0.01 365 363
Additional paid-in capital 588,289 582,581
Accumulated deficit (293,797) (288,685)
Other (2,234) (2,128)
----------- --------------
300,134 300,646
Less cost of ordinary shares in treasury 3 2
----------- --------------
Total shareholders' equity 300,131 300,644
Commitments and contingencies (note 6) --- ---
----------- --------------
$1,081,134 $ 914,524
----------- --------------
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
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
1997 1996
---------- ----------
Cash flows from operating activities:
Net earnings (loss) $ (5,112) $ 42,400
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation, depletion and amortization 24,746 18,036
Amortization of debt discount 7,943 13,322
Amortization of deferred income (19,653) (6,078)
Gain on sale of assets (5,486) (15,543)
Payment of accreted interest on extinguishment of debt (124,794) ---
Extraordinary loss on extinguishment of debt, net of tax 14,491 1,196
Deferred income taxes and other 5,125 (1,288)
Changes in working capital pertaining to operating activities 14,421 16,605
---------- ----------
Net cash provided (used) by operating activities (88,319) 68,650
---------- ----------
Cash flows from investing activities:
Capital expenditures and investments (169,461) (186,071)
Proceeds from sales of marketable securities 2,000 38,507
Proceeds from sales of assets 5,784 38,473
Proceeds from sale of investment in Crusader Limited --- 69,583
Other 23,146 (2,491)
---------- ----------
Net cash used by investing activities (138,531) (41,999)
---------- ----------
Cash flows from financing activities:
Short-term borrowings, net 9,600 ---
Proceeds from long-term debt 558,531 43,601
Payments on long-term debt (321,515) (70,566)
Issuance of ordinary shares 4,987 5,363
Other (390) (1,919)
---------- ----------
Net cash provided (used) by financing activities 251,213 (23,521)
---------- ----------
Effect of exchange rate changes on cash and equivalents (355) (268)
---------- ----------
Net increase in cash and equivalents 24,008 2,862
Cash and equivalents at beginning of period 11,048 49,050
---------- ----------
Cash and equivalents at end of period $ 35,056 $ 51,912
---------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
ADDITIONAL
PREFERENCE ORDINARY PAID-IN ACCUMULATED
SHARES SHARES CAPITAL DEFICIT
---------- --------- ----------- -----------
Balance at December 31, 1996 $ 8,515 $ 363 $ 582,581 $ (288,685)
Net loss --- --- --- (5,112)
Dividends on preference shares --- --- (400) ---
Conversion of preference shares (1,004) --- 1,004 ---
Exercise of employee stock
options and debentures --- 2 3,666 ---
Other --- --- 1,438 ---
---------- --------- ----------- -----------
Balance at September 30, 1997 $ 7,511 $ 365 $ 588,289 $ (293,797)
---------- --------- ----------- -----------
TOTAL
TREASURY SHAREHOLDERS'
OTHER SHARES EQUITY
--------- --------- -------------
Balance at December 31, 1996 $ (2,128) $ (2) $ 300,644
Net loss --- --- (5,112)
Dividends on preference shares --- --- (400)
Conversion of preference shares --- --- ---
Exercise of employee stock
options and debentures --- --- 3,668
Other (106) (1) 1,331
--------- --------- -------------
Balance at September 30, 1997 $ (2,234) $ (3) $ 300,131
--------- --------- -------------
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Triton Energy Limited ("Triton") is an international oil and gas exploration
and production company. The term "Company" when used herein means Triton and
its subsidiaries and other affiliates through which the Company conducts its
business. The Company's principal properties, operations, and oil and gas
reserves are located in Colombia and Malaysia-Thailand. All sales currently
are derived from oil and gas production in Colombia. The Company also has oil
and gas interests in other Latin American, African, Asian and European
countries.
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 September 30, 1997, and the results of its operations for the
three and nine months ended September 30, 1997 and 1996, its cash flows for
the nine months ended September 30, 1997 and 1996, and shareholders' equity
for the nine months ended September 30, 1997. The results for the three and
nine months ended September 30, 1997, 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 the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
Certain other previously reported financial information has been reclassified
to conform to the current period's presentation.
2. ASSET DISPOSITIONS
In June 1997, the Company sold its Argentine subsidiary for cash proceeds of
$4.1 million and recognized a gain of $4.1 million in other operating
revenues.
In June and July 1996, the Company sold its 49.9% shareholdings in Crusader
Limited for total cash proceeds of $69.6 million. The Company recorded a
total gain of $10.4 million in other income.
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.
3. OTHER INCOME, NET
c>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------
1997 1996 1997 1996
--------- -------- --------- -------
Foreign exchange gain (loss) $ 5,759 $ (1,350) $ 8,739 $ 175
Change in fair value of WTI benchmark call options 562 5,579 (3,440) 6,151
Proceeds from legal settlements --- --- 765 7,624
Gain on sale of Crusader Limited --- 8,703 --- 10,417
Other 1,697 (1,684) 2,260 (1,363)
--------- -------- --------- -------
$ 8,018 $ 11,248 $ 8,324 $23,004
--------- -------- --------- -------
4. DEBT
In April 1997, the Company issued $400 million aggregate face value of senior
indebtedness to refinance other indebtedness. The senior indebtedness
consisted of $200 million face amount of 8 3/4% Senior Notes due April 15,
2002 (the "2002 Notes") at 99.942% of the principal amount (resulting in
$199.9 million aggregate net proceeds) and $200 million face amount of 9 1/4%
Senior Notes due April 15, 2005 (the "2005 Notes" and, together with the 2002
Notes, the "Senior Notes") at 100% of the principal amount, for total
aggregate net proceeds of $399.9 million before deducting transaction costs of
approximately $1 million.
Interest on the Senior Notes is payable in cash semi-annually every April 15
and October 15, commencing October 15, 1997. The Senior Notes are redeemable
at any time at the option of the Company in whole or in part and contain
certain covenants limiting the incurrence of certain liens, sale/leaseback
transactions, and mergers and consolidations.
In May and June 1997, the Company completed a tender offer and consent
solicitation with respect to its Senior Subordinated Discount Notes due
November 1, 1997 ("1997 Notes") and 9 3/4% Senior Subordinated Discount Notes
due December 15, 2000 ("9 3/4% Notes") that resulted in the retirement of the
1997 Notes and substantially all of the 9 3/4% Notes. The Company's results
of operations for the nine months ended September 30, 1997, included an
extraordinary expense of $14.5 million, net of a $7.8 million tax benefit,
associated with the extinguishment of the 1997 Notes and 9 3/4% Notes.
5. PETROLEUM PRICE RISK MANAGEMENT
Oil sold by the Company is normally priced with reference to a defined
benchmark, such as light sweet crude oil traded on the New York Mercantile
Exchange. Actual prices received vary from the benchmark depending on quality
and location differentials. It is the Company's policy to use financial
market transactions with creditworthy counterparties from time to time,
primarily to reduce risk associated with the pricing of a portion of the oil
and natural gas that it sells. The policy is structured to underpin the
Company's planned revenues and results of operations. The Company also may
enter into financial market transactions to benefit from its assessment of the
future prices of its production relative to other benchmark prices. There can
be no assurance that the use of financial market transactions will not
result in losses.
With respect to the sale of oil to be produced by the Company, the Company has
used a combination of swaps, options and collars to establish a minimum
weighted average West Texas Intermediate ("WTI") benchmark price of $19 per
barrel for an aggregate of 150,000 barrels of production during the period
from October through December 1997. As a result, to the extent WTI prices
exceed the minimum WTI benchmark price during each month within the period,
the Company will be able to sell its production at the higher market price
and, to the extent that WTI prices are below the minimum WTI benchmark price,
the Company will be able to realize prices related to the minimum WTI
benchmark price on its hedged production.
In anticipation of entering into a forward oil sale in 1995, the Company
purchased WTI benchmark call options to retain the ability to benefit from
future WTI price increases above a weighted average price of $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. During the three and
nine months ended September 30, 1997, the Company recorded an unrealized gain
(loss) of $.6 million and ($3.4 million), respectively, in other income, net
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.
During the nine months ended September 30, 1997, markets provided the Company
the opportunity to realize WTI benchmark oil prices on average $2.98 per
barrel (excluding forward oil sale barrels) above the WTI benchmark oil price
the Company set as part of its 1997 annual plan. As a result of financial and
commodity market transactions settled during the nine months ended September
30, 1997, the Company's risk management program resulted in an average net
realization of approximately $.16 per barrel lower than if the Company had not
entered into such transactions.
6. COMMITMENTS AND CONTINGENCIES
Development of the Cusiana and Cupiagua fields (the "Fields") in Colombia,
including drilling and construction of additional production facilities, will
require further capital outlays. Further exploration and development
activities on Block A-18 in the Malaysia-Thailand Joint Development Area in
the Gulf of Thailand, as well as exploratory drilling in other countries, also
will require substantial capital outlays. The Company's capital budget for
the year ending December 31, 1997, is approximately $310 million, excluding
capitalized interest, of which approximately $150 million relates to the
Fields and capital contributions to Oleoducto Central S.A. ("OCENSA"), $95
million relates to Block A-18, and $65 million relates to the Company's
exploration and drilling program in other parts of the world. The Company has
significantly underspent this plan during the first nine months of 1997, and
expects that the final capital expenditures for 1997 will be significantly
lower than the plan for the year. Capital requirements for the development of
Block A-18, which will not commence until a heads of agreement for a
definitive gas-sales contract is signed, are expected to be substantial over
the three-year period prior to the first gas deliveries.
The Company expects to meet capital needs to fund operations and capital
expenditures during the remainder of the year and beyond 1997 with a
combination of some or all of the following: the Company's cash flow from
operations, cash, credit facilities and additional facilities to be
negotiated, asset sales, and the issuance of debt and equity securities. (See
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Requirements.)
GUARANTEES
At September 30, 1997, the Company had guaranteed loans of approximately $3.7
million for a Colombian pipeline company in which the Company has an ownership
interest and guaranteed performance of $32.3 million in future exploration
expenditures in various countries. These commitments are backed primarily by
unsecured letters of credit and bank guarantees.
LITIGATION
As disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, the Company and subsidiaries or former subsidiaries of the
Company, including Triton Oil & Gas Corp., are or were among numerous
defendants in three related lawsuits brought in the Superior Court of the
State of California, County of Los Angeles, by (i) National Union Fire
Insurance Company ("National Union") and The Restaurant Enterprises Group,
(ii) Travelers Indemnity Company ("Travelers") and (iii) the City of Redondo
Beach. All three lawsuits arose out of a 1988 storm and tidal wave at King
Harbor in Redondo Beach, California. The lawsuits have alleged, among other
things, that the defendants' negligence contributed to the collapse of a hotel
and the flooding of a restaurant by extracting fluids from nearby oil wells
which allegedly resulted in ground subsidence and lowered the height of the
King Harbor breakwater.
The National Union and City of Redondo Beach lawsuits have been settled.
Trial in the Travelers lawsuit has been set for December 1997. The Company
believes that it and its subsidiaries have meritorious defenses and intends to
defend the suits vigorously.
During the quarter ended September 30, 1995, the Company was advised by the
United States Environmental Protection Agency ("EPA") and Justice Department
that one of its domestic oil and gas subsidiaries, as a potentially
responsible party for the clean-up of the Monterey Park, California Superfund
site operated by Operating Industries, Inc., could agree to contribute
approximately $2.8 million to settle its alleged liability for certain
remedial tasks at the site. The subsidiary was advised that if it did not
accept the settlement offer, it, together with other potentially responsible
parties, may be ordered to perform or pay for various remedial tasks. After
considering the cost of possible remedial tasks, its legal position relative
to potentially responsible parties and insurers, possible legal defenses and
other factors, the subsidiary declined to accept the offer.
In October 1997, the EPA advised the Company that the subsidiary has a formal
period of negotiation regarding the final remediation design for the clean-up
of the site and demanded reimbursement for certain unpaid costs that have
been incurred. The government estimates the aggregate amount being negotiated
as $217 million to be allocated among the 280 known operators. The
subsidiary's share would be approximately $1 million. The subsidiary has 60
days from the date of receipt of the offer to reply and is currently
considering the costs of remediation, its legal position relative to other
potentially responsible parties, possible legal defenses and other factors.
On August 22, 1997, the Company was sued in the Superior Court of the State of
California for the County of Los Angeles, by David A. Hite, Nordell
International Resources Ltd., and International Veronex Resources, Ltd. The
Company and the plaintiffs were adversaries in a 1990 arbitration proceeding
in which the interest of Nordell International Resources Ltd. in the Enim oil
field in Indonesia was awarded to the Company (subject to a 5% net profits
interest for Nordell) and Nordell was ordered to pay the Company nearly $1
million. The arbitration award was followed by a series of legal actions by
the parties in which the validity of the award and its enforcement were at
issue. As a result of these proceedings, the award was ultimately upheld and
enforced.
The current suit alleges that the plaintiffs were damaged in amounts
aggregating $13 million primarily because of the Company's prosecution of
various claims against the plaintiffs as well as its alleged
misrepresentations, infliction of emotional distress, and improper accounting
practices. The suit seeks specific performance of the arbitration award,
damages for alleged fraud and misrepresentation in accounting for Enim field
operating results, an accounting for Nordell's 5% net profit interest, and
damages for emotional distress and various other alleged torts. The suit
seeks interest, punitive damages and attorneys fees in addition to the alleged
actual damages.
On September 26, 1997, the Company removed the action to the United States
District Court for the Central District of California. The Company believes
the suit is without merit and intends vigorously to defend it.
The Company is also subject to other various litigation matters, none of which
is expected to have a material, adverse effect on the Company's operations or
consolidated financial condition.
7. 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, the completion of production facilities, future
production of the Cusiana and Cupiagua fields, the negotiation of a heads of
agreement to a gas-sales contract and a gas-sales 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
negotiation of additional credit facilities, the amount by which production
from the Cusiana and Cupiagua fields may increase or when such increased
production may commence, the Company's realization of its deferred tax asset,
the level of future expenditures for environmental costs, the outcome of
litigation matters, and proven oil and gas reserves and discounted future net
cash flows therefrom; 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 these prospects contain significant oil and gas reserves or that
the Company will be successful in its exploration activities thereon. The
Company follows the full cost method of accounting for exploration and
development of oil and gas reserves whereby all acquisition, exploration and
development costs are capitalized. Costs related to acquisition, holding and
initial exploration of licenses in countries with no proved reserves are
initially capitalized, including internal costs directly identified with
acquisition, exploration and development activities. The Company's
exploration licenses are periodically assessed for impairment on a
country-by-country basis. If the Company's investment in exploration licenses
within a country where no proved reserves are assigned is deemed to be
impaired, the licenses are written down to estimated recoverable value. If
the Company abandons all exploration efforts in a country where no proved
reserves are assigned, all exploration costs associated with the country are
expensed. The Company's assessments of whether its investment within a
country is impaired and whether exploration activities within a country will
be abandoned are made from time to time based on its review and assessment of
drilling results, seismic data and other information it deems relevant. Due
to the unpredictable nature of exploration drilling activities, the amount and
timing of impairment expense are difficult to predict with any certainty.
Financial information concerning the Company's assets at December 31, 1996,
including capitalized costs by geographic area, is set forth in note 23 of
Notes to Consolidated Financial Statements in Triton's Annual Report on Form
10-K for the year ended December 31, 1996.
The markets for oil and natural gas historically have been volatile and are
likely to continue to be volatile in the future. Oil and natural-gas prices
have been subject to significant fluctuations during the past several decades
in response to relatively minor changes in the 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 the level of
consumer product demand, weather conditions, domestic and foreign government
regulations, political conditions in the Middle East and other production
areas, the foreign supply of oil and natural gas, the price and availability
of alternative fuels, and overall economic conditions. It is impossible to
predict future oil and gas price movements with any certainty.
The Company's oil and gas business is also subject to all of the operating
risks normally associated with the exploration for and production of oil and
gas, including, without limitation, blowouts, cratering, pollution,
earthquakes, labor disruptions and fires, each of which could result in
substantial losses to the Company due to injury or loss of life and damage to
or destruction of oil and gas wells, formations, production facilities or
other properties. 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. There can be no assurance that any insurance will be adequate to
cover losses or liabilities. The Company cannot predict the continued
availability of insurance, or its availability at premium levels that justify
its purchase.
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. Many jurisdictions have at
various times imposed limitations on the production of natural gas and oil by
restricting the rate of flow for oil and natural-gas wells below their actual
capacity. There can be no assurance that present or future regulation will
not adversely affect the operations of the Company.
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
consolidated 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 U.S. 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.
CERTAIN FACTORS RELATING TO COLOMBIA
The Company is a participant in significant oil and gas discoveries in the
Cusiana and Cupiagua fields, located approximately 160 kilometers (100 miles)
northeast of Bogota, Colombia. Development of reserves in the Cusiana and
Cupiagua fields is ongoing and will require additional drilling and completion
of the production facilities currently under construction. The Company
expects that the production facilities will be completed in 1998. Pipelines
connect the major producing fields in Colombia to export facilities and to
refineries.
From time to time, guerrilla activity in Colombia has disrupted the operation
of oil and gas projects causing increased costs. Such activity has increased
in 1997 causing delays in the development of the Cupiagua field. Although the
Colombian government, the Company and its partners have taken steps to
maintain security and favorable relations with the local population, there can
be no assurance that attempts to reduce or prevent guerrilla activity will be
successful or that guerrilla activity will not disrupt operations in the
future.
Colombia is among several 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 1997, 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, has been or will be suspended; the Export-Import Bank of the
United States and the Overseas Private Investment Corporation will not approve
financing for new projects in Colombia; 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. Each of these consequences of the failure to receive such
certification could result in adverse economic consequences in Colombia and
could further heighten the political and economic risks associated with the
Company's operations in Colombia. 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.
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 as a contractor
under a production-sharing contract covering Block A-18 of the
Malaysia-Thailand Joint Development Area. Test results to date indicate that
significant gas and oil deposits lie within 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 under which any gas produced from the Company's contract area in
Malaysia-Thailand is 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 of transportation within
Thailand and its territorial waters. Recent changes in the government of
Thailand may affect the timing and terms of a heads of agreement for the sale
of gas from Block A-18 that has been the subject of negotiations between the
Company and its field partners as sellers and the state energy companies of
Malaysia and Thailand as buyers. The Company is unable to predict when such a
heads of agreement may be signed.
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.
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.
8. SUBSEQUENT EVENT
In October 1997, the Company entered into an unsecured revolving credit
facility with a bank providing for additional borrowings of up to $20 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL REQUIREMENTS
----------------------------------
Cash, cash equivalents and marketable securities totaled $35.1 million
and $14.9 million at September 30, 1997, and December 31, 1996, respectively.
Working capital (deficit) was ($149.9 million) at September 30, 1997, an
improvement of $32.3 million from December 31, 1996. At September 30, 1997,
borrowings of $119.9 million under the Company's $125 million bank revolving
credit facility, which matures August 31, 1998, were classified as a current
liability. In September 1997, the Company received a $25 million down-payment
in connection with the anticipated sale of its equity ownership interest in
Oleoducto Central S.A. ("OCENSA"), the consummation of which is subject to a
number of conditions and approvals. In the event the transaction is not
consummated, the down-payment, which was recorded as an other current
liability, must be repaid. Current liabilities included deferred income
totaling $35.3 million and $28.5 million at September 30, 1997 and December
31, 1996, respectively, related to a forward oil sale consummated in 1995.
During April 1997, the Company issued $400 million aggregate face value
of senior indebtedness to refinance other indebtedness. The senior
indebtedness consisted of $200 million face amount of 8 3/4% Senior Notes due
April 15, 2002, (the "2002 Notes") at 99.942% of the principal amount
(resulting in $199.9 million aggregate net proceeds) and $200 million face
amount of 9 1/4% Senior Notes due April 15, 2005, (the "2005 Notes" and
together with the 2002 Notes, the "Senior Notes") at 100% of the principal
amount for total aggregate net proceeds of $399.9 million before deducting
transaction costs of approximately $1 million. At September 30, 1997, accrued
interest on the Senior Notes, payable October 15, 1997, totaled $17 million.
In May and June 1997, the Company offered to purchase all of its
outstanding Senior Subordinated Discount Notes due November 1, 1997, (the
"1997 Notes") and 9 3/4% Senior Subordinated Discount Notes due December 15,
2000 (the "9 3/4% Notes"), resulting in the retirement of the 1997 Notes and
substantially all of the 9 3/4% Notes and the removal of the financial
covenants in the remaining 9 3/4% Notes. At December 31, 1996, $189.9 million
principle amount of the 1997 Notes was classified as a current liability. The
Company's cash flows from operating activities for the nine months ended
September 30, 1997 were reduced by $124.8 million, which was attributable to
the interest accreted with respect to the 1997 Notes and the 9 3/4% Notes
through the date of retirement. The Company has set aside funds for the
redemption of the remaining 9 3/4% Notes in December 1997.
The Company's capital expenditures and other capital investments were
$169.5 million for the nine months ended September 30, 1997, primarily for
development of the Cusiana and Cupiagua fields (the "Fields") in Colombia and
exploration in Block A-18 in the Malaysia-Thailand Joint Development Area in
the Gulf of Thailand. The capital spending program for the nine months ended
September 30, 1997, was funded primarily with cash flow from operations and
borrowings under the Company's credit facilities.
Development of the Fields, including drilling and construction of
additional production facilities, will require further capital outlays.
Further exploration and development activities on Block A-18, as well as
exploratory drilling in other countries, also will require substantial capital
outlays. The Company's capital budget for the year ending December 31, 1997,
is approximately $310 million, excluding capitalized interest, of which
approximately $150 million relates to the Fields and capital contributions to
OCENSA, $95 million relates to Block A-18, and $65 million relates to the
Company's exploration and drilling program in other parts of the world. The
Company has significantly underspent this plan during the first nine months of
1997, and expects that the final capital expenditures for 1997 will be
significantly lower than the plan for the year. Capital requirements for the
development of Block A-18, which will not commence until a heads of agreement
for a definitive gas-sales contract is signed, are expected to be substantial
over the three-year period prior to the first gas deliveries.
The Company expects to meet capital needs to fund operations and capital
expenditures during the remainder of the year and beyond 1997 with a
combination of some or all of the following: the Company's cash flow from
operations, cash, credit facilities and additional facilities to be
negotiated, asset sales, and the issuance of debt and equity securities. The
Company has received proposals from several banks to provide additional
committed credit facilities, a portion of which are needed to meet the
Company's cash needs for the remainder of 1997 depending on the timing of
completion of a sale of the Company's equity ownership interest in OCENSA.
In addition, the Company's existing $125 million credit facility requires
that the aggregate borrowings under the facility be reduced to $30
million in February 1998. The Company plans to replace the facility in the
first quarter of 1998 with other facilities currently signed or under
negotiation. There can be no assurance that the Company will be able to
successfully negotiate additional credit facilities or consummate its
anticipated sale of its equity ownership interest in OCENSA, and the Company
may be required to seek alternative sources of capital.
To facilitate a possible future securities issuance or issuances, the
Company has on file with the Securities and Exchange Commission a shelf
registration statement under which the Company could issue up to an aggregate
of $200 million debt or equity securities. Under the most restrictive covenant
in the Company's existing credit facilities, the Company generally could not
permit total indebtedness (as defined in the various agreements) to exceed
$650 million.
RESULTS OF OPERATIONS
---------------------
Sales volumes and average prices realized were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
Sales volumes
Oil (MBbls), excluding forward oil sale 1,374 1,431 3,805 4,379
Forward oil sale (1) (MBbls delivered) 762 175 1,700 526
------ ------ ------ ------
Total 2,136 1,606 5,505 4,905
------ ------ ------ ------
Gas (MMcf) 277 68 481 646
Weighted average price realized:
Oil (per Bbl) $17.18 $18.99 $17.93 $18.86
Gas (per Mcf) $ 1.06 $ 4.22 $ 1.14 $ 1.60
(1) Commencing April 1, 1997, the delivery requirements under the forward oil
sale increased by 195,711 barrels of oil per month.
THREE MONTHS ENDED SEPTEMBER 30, 1997,
COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1996
Sales and Other Operating Revenues
--------------------------------------
Revenue increased $6.2 million in 1997, due to higher production ($10.1
million). This increase was partially offset by lower average realized oil
prices ($3.8 million) reflecting the increased deliveries under the forward
oil sale.
Based on the operator's current projections, the Company expects gross
production capacity from the Fields to reach 320,000 barrels per day during
the fourth quarter and 500,000 barrels per day in 1998. In April 1997, the
Company's delivery requirement under the forward oil sale increased from
58,425 barrels per month to 254,136 barrels per month, which had an adverse
effect on the Company's earnings and cash flows on a per-barrel basis for the
second and third quarters of 1997. The Company expects that the adverse
effect on the Company's results of operations and cash flows will be mitigated
by increased production from the Fields. There can be no assurance, however,
about the timing of any increase in production.
Costs and Expenses
--------------------
Third quarter operating expenses increased $4.2 million in 1997, and
depreciation, depletion and amortization increased $3.3 million. The
Company's operating costs per equivalent barrel were $6.58 and $5.77 in 1997
and 1996, respectively. Operating expenses increased primarily due to an
increase in pipeline tariffs of $3.1 million. Depreciation, depletion and
amortization increased primarily due to higher production and a higher
depletion rate.
The Company expects that aggregate pipeline tariff costs from OCENSA will
increase further during 1997 and 1998. OCENSA imposes a tariff on the Cusiana
and Cupiagua fields shippers (the "Initial Shippers") estimated to recoup the
total capital cost of the project over a 15 year period, its operating
expenses, which include all Colombian taxes, interest expense, and the
dividend to be paid by OCENSA to its shareholders. Any shippers of crude oil
who are not Initial Shippers ("Third Party Shippers") will be assessed a
tariff on a per-barrel basis, and OCENSA will use revenues from such tariffs
to reduce the Initial Shippers' tariff. The Company cannot predict with any
certainty the impact of the increased tariff on a per-barrel basis due to the
uncertainty about the volumes of any Third Party Shippers' production to be
transported by OCENSA and when the increases in production from the Cusiana
and Cupiagua fields may occur.
General and administrative expense increased $1.7 million in 1997
primarily due to growth of the Company's operations. Capitalized general and
administrative costs were $9.7 million and $5.7 million in 1997 and 1996,
respectively. The increased capitalized costs reflect the Company's increased
exploration activities.
Other Income and Expenses
----------------------------
Interest expense increased $2.4 million due to higher average debt
outstanding during 1997 and lower capitalized interest ($.9 million) as a
result of the Company's reduced average cost of debt.
Other income included a foreign exchange gain (loss) of $5.8 million and
($1.4 million) in 1997 and 1996, respectively, primarily on deferred tax
liabilities in Colombia, and an unrealized gain of $.6 million and $5.6
million in 1997 and 1996, respectively, representing the change in the fair
market value of call options purchased in anticipation of a forward oil sale
in 1995. Other income in 1996 included an $8.7 million gain on the sale of
approximately 80% of the Company's shareholdings in Crusader Limited
("Crusader") and a loss provision of $2.3 million for certain legal matters.
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. 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 1997 included foreign deferred taxes
totaling $3.7 million in 1997, primarily related to the Company's Colombian
operations, compared with foreign deferred taxes of $5.5 million in 1996.
Additionally, the income tax provision included a deferred tax expense in the
United States totaling $.2 million, compared with a benefit of $5.3 million in
1996. Current taxes related to the Company's Colombian operations were $1.4
million and $.9 million in 1997 and 1996, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1997,
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1996
Sales and Other Operating Revenues
--------------------------------------
Revenue increased $8.4 million in 1997 (excluding properties sold during
1996), due to higher production ($13.4 million). This increase was partially
offset by lower average realized oil prices ($5 million) reflecting the
increased deliveries under the forward oil sale. Oil and gas sales from
properties sold during 1996 aggregated $2.7 million in 1996.
Other operating revenues in 1997 included a gain of $4.1 million from the
sale of the Company's Argentine subsidiary. Other operating revenues in 1996
included a gain of $4.1 million from the sale of the Company's royalty
interests in U.S. properties.
Costs and Expenses
--------------------
Operating expenses increased $7.2 million in 1997, and depreciation,
depletion and amortization increased $6.7 million. The Company's operating
costs per equivalent barrel were $6.75 and $5.82 in 1997 and 1996,
respectively. Operating expenses in Colombia increased by $9 million,
primarily due to an increase in pipeline tariffs of $6.4 million and an
increase in production taxes of $.7 million. Operating expenses attributable
to properties sold during 1996 were $1.8 million in 1996. Depreciation,
depletion and amortization in Colombia increased by $7.3 million due to higher
production and a higher depletion rate.
General and administrative expense increased $.7 million in 1997.
Capitalized general and administrative costs were $24.4 million and $17.2
million in 1997 and 1996, respectively. The increased capitalized costs
reflect the Company's increased exploration activities.
Other Income and Expenses
----------------------------
Interest expense increased $4.6 million due to a higher average debt
outstanding in 1997. Other income in 1997 and 1996 included an unrealized
gain (loss) of ($3.4 million) and $6.2 million, respectively, representing the
change in the fair market value of call options purchased in anticipation of a
forward oil sale in 1995, and foreign exchange gains of $8.7 million and $.2
million in 1997 and 1996, respectively, primarily on deferred tax liabilities
in Colombia. Other income in 1996 included a $10.4 million gain on the sale
of the Company's shareholdings in Crusader Limited, a $7.6 million benefit
from a legal settlement and a loss provision of $3.2 million for various legal
matters.
Income Taxes
-------------
The income tax provision for 1997 included foreign deferred taxes
totaling $9.3 million in 1997, primarily related to the Company's Colombian
operations, compared with foreign deferred taxes of $14.8 million in 1996.
Additionally, the income tax provision included a deferred tax benefit in the
United States totaling $3.7 million, compared with a benefit of $14.1 million
in 1996. Current taxes related to the Company's Colombian operations were $3.2
million and $2.7 million in 1997 and 1996, respectively.
Extraordinary Item
-------------------
The Company's results of operations for the nine months ended September
30, 1997, included an extraordinary expense of $14.5 million, net of a $7.8
million tax benefit, associated with extinguishment of the 1997 Notes and 9
3/4% Notes. During the nine months ended September 30, 1996, the Company
recognized an extraordinary expense of $1.2 million, net of a $.6 million tax
benefit, resulting from the purchase of $30 million face value of its 1997
Notes.
Petroleum Price Risk Management
----------------------------------
Oil sold by the Company is normally priced with reference to a defined
benchmark, such as light sweet crude oil traded on the New York Mercantile
Exchange. Actual prices received vary from the benchmark depending on quality
and location differentials. It is the Company's policy to use financial
market transactions with creditworthy counterparties from time to time,
primarily to reduce risk associated with the pricing of a portion of the oil
and natural gas that it sells. The policy is structured to underpin the
Company's planned revenues and results of operations. The Company also may
enter into financial market transactions to benefit from its assessment of the
future prices of its production relative to other benchmark prices. There can
be no assurance that the use of financial market transactions will not result
in losses.
With respect to the sale of oil to be produced by the Company, the
Company has used a combination of swaps, options and collars to establish a
minimum weighted average West Texas Intermediate ("WTI") benchmark price of
$19 per barrel for an aggregate of 150,000 barrels of production during the
period from October through December 1997. As a result, to the extent WTI
prices exceed the minimum WTI benchmark price during each month within the
period, the Company will be able to sell its production at the higher market
price, and to the extent that WTI prices are below the minimum WTI benchmark
price, the Company will be able to realize prices related to the minimum WTI
benchmark price on its hedged production.
In anticipation of entering into a forward oil sale in 1995, the Company
purchased WTI benchmark call options to retain the ability to benefit from
future WTI price increases above a weighted average price of $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. During the three and
nine months ended September 30, 1997, the Company recorded an unrealized gain
(loss) of $.6 million and ($3.4 million), respectively, in other income, net
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.
During the nine months ended September 30, 1997, markets provided the
Company the opportunity to realize WTI benchmark oil prices on average $2.98
per barrel (excluding forward oil sale barrels) above the WTI benchmark oil
price the Company set as part of its 1997 annual plan. As a result of
financial and commodity market transactions settled during the nine months
ended September 30, 1997, the Company's risk management program resulted in an
average net realization of approximately $.16 per barrel lower than if the
Company had not entered into such transactions.
Recent Accounting Pronouncements
----------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("SFAS 128"), "Earnings Per Share." This Statement is
effective for financial statements issued for periods ending after December
15, 1997. Earlier adoption is not permitted. SFAS 128 requires dual
presentation of basic and diluted EPS for entities with complex capital
structures. The impact of adopting this statement would not have a material
effect on the Company's earnings per share calculation based on its current
capital structure.
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; the completion of production facilities; future
production of the Cusiana and Cupiagua fields; the negotiation of a heads of
agreement to a gas-sales contract and a gas-sales 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
negotiation of additional credit facilities; the amount by which production
from the Cusiana and Cupiagua fields may increase or when such increased
production may commence; the Company's realization of its deferred tax asset;
the level of future expenditures for environmental costs, the outcome of
litigation matters; and proven oil and gas reserves and discounted future net
cash flows therefrom; 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 Notes to Condensed Consolidated
Financial Statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LITIGATION
As disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, the Company and subsidiaries or former subsidiaries of the
Company, including Triton Oil & Gas Corp., are or were among numerous
defendants in three related lawsuits brought in the Superior Court of the
State of California, County of Los Angeles, by (i) National Union Fire
Insurance Company ("National Union") and The Restaurant Enterprises Group,
(ii) Travelers Indemnity Company ("Travelers") and (iii) the City of Redondo
Beach. All three lawsuits arose out of a 1988 storm and tidal wave at King
Harbor in Redondo Beach, California. The lawsuits have alleged, among other
things, that the defendants' negligence contributed to the collapse of a hotel
and the flooding of a restaurant by extracting fluids from nearby oil wells
which allegedly resulted in ground subsidence and lowered the height of the
King Harbor breakwater.
The National Union and City of Redondo Beach lawsuits have been settled.
Trial in the Travelers lawsuit has been set for December 1997. The Company
believes that it and its subsidiaries have meritorious defenses and intends to
defend the suits vigorously.
During the quarter ended September 30, 1995, the Company was advised by the
United States Environmental Protection Agency ("EPA") and Justice Department
that one of its domestic oil and gas subsidiaries, as a potentially
responsible party for the clean-up of the Monterey Park, California Superfund
site operated by Operating Industries, Inc., could agree to contribute
approximately $2.8 million to settle its alleged liability for certain
remedial tasks at the site. The subsidiary was advised that if it did not
accept the settlement offer, it, together with other potentially responsible
parties, may be ordered to perform or pay for various remedial tasks. After
considering the cost of possible remedial tasks, its legal position relative
to potentially responsible parties and insurers, possible legal defenses and
other factors, the subsidiary declined to accept the offer.
In October 1997, the EPA advised the Company that the subsidiary has a formal
period of negotiation regarding the final remediation design for the clean-up
of the site and demanded reimbursement for certain unpaid costs that have
been incurred. The government estimates the aggregate amount being negotiated
as $217 million to be allocated among the 280 known operators. The
subsidiary's share would be approximately $1 million. The subsidiary has 60
days from the date of receipt of the offer to reply and is currently
considering the costs of remediation, its legal position relative to other
potentially responsible parties, possible legal defenses and other factors.
In June 1994, the Company and numerous other defendants were served by the
State of Nevada, Division of Environmental Protection in a state court
proceeding in Clark County, Nevada, relating to a potential remediation of
certain underground water contamination at the McCarran International Airport.
The proceeding was dismissed in September 1997.
On August 22, 1997, the Company was sued in the Superior Court of the State of
California for the County of Los Angeles, by David A. Hite, Nordell
International Resources Ltd., and International Veronex Resources, Ltd. The
Company and the plaintiffs were adversaries in a 1990 arbitration proceeding
in which the interest of Nordell International Resources Ltd. in the Enim oil
field in Indonesia was awarded to the Company (subject to a 5% net profits
interest for Nordell) and Nordell was ordered to pay the Company nearly $1
million. The arbitration award was followed by a series of legal actions by
the parties in which the validity of the award and its enforcement were at
issue. As a result of these proceedings, the award was ultimately upheld and
enforced.
The current suit alleges that the plaintiffs were damaged in amounts
aggregating $13 million primarily because of the Company's prosecution of
various claims against the plaintiffs as well as its alleged
misrepresentations, infliction of emotional distress, and improper accounting
practices. The suit seeks specific performance of the arbitration award,
damages for alleged fraud and misrepresentation in accounting for Enim field
operating results, an accounting for Nordell's 5% net profit interest, and
damages for emotional distress and various other alleged torts. The suit
seeks interest, punitive damages and attorneys fees in addition to the alleged
actual damages.
On September 26, 1997, the Company removed the action to the United States
District Court for the Central District of California. The Company believes
the suit is without merit and intends vigorously to defend it.
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' 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.)
3.1 Memorandum of Association. (1)
3.2 Articles of Association. (1)
4.1 Specimen Share Certificate of Ordinary Shares, $.01 par value, of the Company. (2)
4.2 Rights Agreement dated as of March 25, 1996, between Triton and Chemical Bank, as
Rights Agent, including, as Exhibit A thereto, Resolutions establishing the Junior
Preference Shares. (1)
4.3 Resolutions Authorizing the Company's 5% Convertible Preference Shares. (3)
4.4 Amendment No. 1 to Rights Agreement dated as of August 2, 1996, between Triton and
Chemical Bank, as Rights Agent. (4)
10.1 Amended and Restated Retirement Income Plan. (5)
10.2 Amended and Restated Supplemental Executive Retirement Income Plan. (6)
10.3 1981 Employee Non-Qualified Stock Option Plan. (7)
10.4 Amendment No. 1 to the 1981 Employee Non-Qualified Stock Option Plan. (8)
10.5 Amendment No. 2 to the 1981 Employee Non-Qualified Stock Option Plan. (7)
10.6 Amendment No. 3 to the 1981 Employee Non-Qualified Stock Option Plan. (5)
10.7 1985 Stock Option Plan. (9)
10.8 Amendment No. 1 to the 1985 Stock Option Plan. (7)
10.9 Amendment No. 2 to the 1985 Stock Option Plan. (5)
10.10 Amended and Restated 1986 Convertible Debenture Plan. (5)
10.11 1988 Stock Appreciation Rights Plan. (10)
10.12 1989 Stock Option Plan. (11)
10.13 Amendment No. 1 to 1989 Stock Option Plan. (7)
10.14 Amendment No. 2 to 1989 Stock Option Plan. (5)
10.15 Second Amended and Restated 1992 Stock Option Plan. (13)
10.16 Form of Amended and Restated Employment Agreement with Triton Energy Limited
and its executive officers. (20)
10.17 Form of Amended and Restated Employment Agreement with Triton Energy Limited
and certain officers. (20)
10.18 Amended and Restated 1985 Restricted Stock Plan. (5)
10.19 First Amendment to Amended and Restated 1985 Restricted Stock Plan. (12)
10.20 Second Amendment to Amended and Restated 1985 Restricted Stock Plan. (13)
10.21 Executive Life Insurance Plan. (14)
10.22 Long Term Disability Income Plan. (14)
10.23 Amended and Restated Retirement Plan for Directors. (9)
10.24 Amended and Restated Indenture dated as of March 25, 1996 between Triton and
Chemical Bank, with respect to the issuance of Senior Subordinated Discount Notes
due 1997. (13)
10.25 Amended and Restated Senior Subordinated Indenture by and between the Company and
United States Trust Company of New York, dated as of March 25, 1996. (13)
10.26 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. (9)
10.27 Contract for Exploration and Exploitation for Tauramena with an effective date of July
4, 1988, between Triton Colombia, Inc., and Empresa Colombiana De Petroleos. (10)
10.28 Summary of Assignment legalized by Public Instrument No. 1255 dated September 15,
1987 (Assignment is in Spanish language). (10)
10.29 Summary of Assignment legalized by Public Instrument No. 1602 dated June 11, 1990
(Assignment is in Spanish language). (10)
10.30 Summary of Assignment legalized by Public Instrument No. 2586 dated September 9,
1992 (Assignment is in Spanish language). (10)
10.31 401(K) Savings Plan. (5)
10.32 Contract between Malaysia-Thailand and Joint Authority and Petronas Carigali
SDN.BHD.and Triton Oil Company of Thailand relating to Exploration and Production
of Petroleum for Malaysia-Thailand Joint Development Area Block A-18.(15)
10.33 Triton Crude Purchase Agreement between Triton Colombia, Inc. and Oil Co., LTD.
dated May 25, 1995. (16)
10.34 Credit Agreement among Triton Colombia, Inc., Triton Energy Corporation,
NationsBank, N.A. (Carolinas) and Export-Import Bank of the United States. (12)
10.35 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. (12)
10.36 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. (13)
10.37 Agreement and Plan of Merger among Triton Energy Corporation, Triton Energy
Limited and TEL Merger Corp. (12)
10.38 Credit Agreement among Triton Energy Limited and Triton Energy Corporation, as
Borrowers, and NationsBank of Texas, N.A., Barclays Bank PLC, Meespierson N.V.,
The Chase Manhattan Bank and Societe Generale, Southwest Agency dated
August 30, 1996. (17)
10.45 Form of Indemnity Agreement entered into with each director and officer of the
Company. (17)
10.46 Restated Employment Agreement between John Tatum and the Company. (20)
10.47 Description of Performance Goals for Executive Bonus Compensation. (20)
10.48 Demand Promissory Note - Grid executed by Triton Energy Limited in favor of
Banque Paribas dated as of September 15, 1997. (23)
10.49 Supplemental Indenture dated April 17, 1997 among Triton Energy Corporation, Triton
Energy Limited and The Chase Manhattan Bank (formerly known as Chemical Bank)
amending Amended and Restated Indenture dated as of March 25, 1996 relating to
the Senior Subordinated Discount Notes due 1997. (21)
10.50 Supplemental Indenture dated April 17, 1997 among Triton Energy Corporation, Triton
Energy Limited and United States Trust Company of New York amending Amended
and Restated Senior Subordinated Indenture dated as of March 25, 1996 relating to the
9 3/4% Senior Subordinated Discount Notes due 2000. (21)
10.51 Senior Indenture dated April 10, 1997 among Triton Energy Corporation, Triton
Energy Limited and The Chase Manhattan Bank. (21)
10.52 First Supplemental Indenture dated April 10, 1997 among Triton Energy Corporation,
Triton Energy Limited and The Chase Manhattan Bank amending Senior Indenture
dated as of April 10, 1997 relating to the 8 3/4% Senior Notes due 2002. (21)
10.53 Second Supplemental Indenture dated April 10, 1997 among Triton Energy Corporation,
Triton Energy Limited and The Chase Manhattan Bank amending Senior Indenture
dated as of April 10, 1997 relating to the 9 1/4% Senior Notes due 2005. (21)
10.54 First Amendment to Credit Agreement dated as of April 4, 1997 among Triton Energy
Limited and Triton Energy Corporation, as Borrowers, and NationsBank of Texas, N.A.,
Barclays Bank PLC, Meespierson N.V., The Chase Manhattan Bank and Societe
Generale, Southwest Agency. (21)
10.55 1997 Share Compensation Plan. (21)
10.56 First Amendment to Second Amended and Restated 1992 Stock Option Plan. (21)
10.57 Agreement to Release Triton Energy Corporation and Second Amendment to Credit
Agreement dated as of July 21, 1997 among Triton Energy Limited and Triton Energy
Corporation, as Borrowers, and NationsBank of Texas, N.A., Barclays Bank PLC,
MeesPierson N.V., The Chase Manhattan Bank and Societe Generale, Southwest
Agency. (22)
10.58 Amended and Restated Indenture dated July 25, 1997 between Triton Energy Limited and
The Chase Manhattan Bank. (22)
10.59 Amended and Restated First Supplemental Indenture dated July 25, 1997 between Triton
Energy Limited and The Chase Manhattan Bank relating to the 8 3/4% Senior Notes
due 2002. (22)
10.60 Amended and Restated Second Supplemental Indenture dated July 25, 1997 between
Triton Energy Limited and The Chase Manhattan Bank relating to the 9 1/4% Senior
Notes due 2005. (22)
10.61 Third Amendment to Credit Agreement dated as of September 30, 1997 among Triton
Energy Limited, NationsBank of Texas, N.A., Barclays Bank PLC, MeesPierson N.V.,
The Chase Manhattan Bank and Societe Generale, Southwest Agency. (23)
11.1 Computation of Earnings per Share. (23)
12.1 Computation of Ratio of Earnings to Fixed Charges. (23)
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preference
Dividends. (23)
27.1 Financial Data Schedule.(23)
99.1 Rio Chitamena Association Contract. (19)
99.2 Rio Chitamena Purchase and Sale Agreement. (19)
99.3 Integral Plan - Cusiana Oil Structure. (19)
99.4 Letter Agreements with co-investor in Colombia. (19)
99.5 Colombia Pipeline Memorandum of Understanding. (19)
99.6 Amended and Restated Oleoducto Central S.A. Agreement dated as of March 31,
1995. (18)
___________________
(1) Previously filed as an exhibit to the Company's Registration Statement on Form S-3
(No 333-08005) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A
dated March 25, 1996 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 the Company's Registration Statement on Form 8-A/A
(Amendment No. 1) dated August 14, 1996 and incorporated herein by reference.
(5) 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.
(6) 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.
(7) 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.
(8) 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 by reference herein.
(9) 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.
(10) 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.
(11) 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 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 December 31, 1995 and incorporated herein by
reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 and incorporated herein by reference.
(14) 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.
(15) 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.
(16) Previously filed as an exhibit to Triton Energy Corporation's Current Report on Form
8-K dated May 26, 1995 and incorporated herein by reference.
(17) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by reference.
(18) 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.
(19) Previously filed as an exhibit to Triton Energy Corporation's current report on Form
8-K/A dated July 15, 1994 and incorporated by reference herein.
(20) Previously filed as an exhibit to Triton Energy Limited's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and incorporated herein by reference.
(21) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 and incorporated herein by reference.
(22) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.
(23) Filed herewith.
(b) Reports on Form 8-K
None
PART II. SIGNATURES
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: November 14, 1997