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 JUNE 30, 1998
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 July 31, 1998
Ordinary Shares, par value $0.01 per share 36,628,674
----------------------------
TRITON ENERGY LIMITED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and six months ended June 30, 1998 and 1997 2
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 4
Condensed Consolidated Statement of Shareholders' Equity -
Six months ended June 30, 1998 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 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
<FN>
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------
1998 1997 1998 1997
-------------- ------------ ---------- ---------
Sales and other operating revenues:
Oil and gas sales $ 36,378 $ 28,492 $ 72,553 $ 62,251
Other operating revenues --- 4,077 --- 4,077
-------------- ----------- ---------- ---------
36,378 32,569 72,553 66,328
-------------- ----------- ---------- ---------
Costs and expenses:
Operating 21,081 10,912 36,768 22,133
General and administrative 6,495 7,788 14,184 13,492
Depreciation, depletion and amortization 12,804 8,012 24,883 15,455
Writedown of assets 182,672 --- 182,672 ---
-------------- ----------- ---------- ---------
223,052 26,712 258,507 51,080
-------------- ----------- ---------- ---------
Operating income (loss) (186,674) 5,857 (185,954) 15,248
Gain on sale of Triton Pipeline Colombia --- --- 50,227 ---
Interest income 757 2,411 1,492 3,316
Interest expense, net (5,154) (7,223) (10,320) (12,249)
Other income, net 1,536 1,163 3,028 306
-------------- ----------- ---------- ---------
(2,861) (3,649) 44,427 (8,627)
-------------- ----------- ---------- ---------
Earnings (loss) before income taxes
and extraordinary item (189,535) 2,208 (141,527) 6,621
Income tax expense (benefit) (39,473) 2,516 (34,377) 3,443
-------------- ----------- ---------- ---------
Earnings (loss) before extraordinary item (150,062) (308) (107,150) 3,178
Extraordinary item - extinguishment of debt --- (14,491) --- (14,491)
-------------- ----------- ---------- ---------
Net loss (150,062) (14,799) (107,150) (11,313)
Dividends on preference shares --- --- 187 213
-------------- ----------- ---------- ---------
Loss applicable to ordinary shares $ (150,062) $ (14,799) $(107,337) $(11,526)
============== =========== ========== =========
Average ordinary shares outstanding 36,595 36,432 36,581 36,404
============== =========== ========== =========
Basic earnings (loss) per ordinary share:
Earnings (loss) before extraordinary item $ (4.10) $ (0.01) $ (2.93) $ 0.08
Extraordinary item - extinguishment of debt --- (0.40) --- (0.40)
-------------- ----------- ---------- ---------
Net loss $ (4.10) $ (0.41) $ (2.93) $ (0.32)
============== =========== ========== =========
Diluted earnings (loss) per ordinary share:
Earnings (loss) before extraordinary item $ (4.10) $ (0.01) $ (2.93) $ 0.08
Extraordinary item - extinguishment of debt --- (0.40) --- (0.39)
-------------- ----------- ---------- ---------
Net loss $ (4.10) $ (0.41) $ (2.93) $ (0.31)
============== =========== ========== =========
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS JUNE 30, DECEMBER 31,
1998 1997
------------ -----------
(UNAUDITED)
Current assets:
Cash and equivalents $ 20,524 $ 13,451
Trade receivables, net 8,415 12,963
Other receivables 41,649 52,162
Inventories, prepaid expenses and other 2,954 5,219
Assets held for sale 2,005 58,178
------------ -----------
Total current assets 75,547 141,973
Property and equipment, at cost, less accumulated depreciation
and depletion of $284,143 for 1998 and $89,014 for 1997 723,369 835,506
Deferred taxes and other assets 120,140 120,560
------------ -----------
$ 919,056 $1,098,039
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 199,977 $ 184,975
Accounts payable and accrued liabilities 29,500 36,964
Deferred income 35,254 35,254
------------ -----------
Total current liabilities 264,731 257,193
Long-term debt, excluding current maturities 418,276 443,312
Deferred income taxes 12,100 50,968
Deferred income and other 32,727 49,946
Convertible debentures due to employees --- ---
Shareholders' equity:
Preference shares 7,473 7,511
Ordinary shares, par value $0.01 366 365
Additional paid-in capital 590,244 588,454
Accumulated deficit (404,731) (297,581)
Accumulated other non-owner changes in shareholders' equity (2,126) (2,126)
------------ -----------
191,226 296,623
Less cost of ordinary shares in treasury 4 3
------------ -----------
Total shareholders' equity 191,222 296,620
Commitments and contingencies (note 8) --- ---
------------ -----------
$ 919,056 $1,098,039
============ ===========
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
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)
1998 1997
---------- ----------
Cash flows from operating activities:
Net loss $(107,150) $ (11,313)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation, depletion and amortization 24,883 15,455
Amortization of deferred income (17,627) (10,839)
Gain on sale of Triton Pipeline Colombia (50,227) ---
Writedown of assets 182,672 ---
Payment of accreted interest on extinguishment of debt --- (124,794)
Extraordinary loss on extinguishment of debt, net of tax --- 14,491
Amortization of debt discount --- 7,937
Deferred income taxes (35,727) 1,699
Other (1,585) (79)
Changes in working capital pertaining to operating activities 10,069 17,627
---------- ----------
Net cash provided (used) by operating activities 5,308 (89,816)
---------- ----------
Cash flows from investing activities:
Capital expenditures and investments (97,849) (107,526)
Proceeds from sale of Triton Pipeline Colombia 97,656 ---
Proceeds from sales of assets 12,953 4,077
Other (899) (27)
---------- ----------
Net cash provided (used) by investing activities 11,861 (103,476)
---------- ----------
Cash flows from financing activities:
Proceeds from revolving lines of credit and long-term debt 114,005 508,880
Payments on revolving lines of credit and long-term debt (135,588) (316,140)
Short-term notes payable, net 10,000 10,000
Issuances of ordinary shares 1,940 4,336
Other (188) (201)
---------- ----------
Net cash provided (used) by financing activities (9,831) 206,875
---------- ----------
Effect of exchange rate changes on cash and equivalents (265) (552)
---------- ----------
Net increase in cash and equivalents 7,073 13,031
Cash and equivalents at beginning of period 13,451 11,048
---------- ----------
Cash and equivalents at end of period $ 20,524 $ 24,079
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
(UNAUDITED)
Preference shares:
Balance at December 31, 1997 $ 7,511
Conversion of 5% preference shares (38)
--------------
Balance at June 30, 1998 7,473
--------------
Ordinary shares:
Balance at December 31, 1997 365
Issuances under stock plans 1
--------------
Balance at June 30, 1998 366
--------------
Additional paid-in capital:
Balance at December 31, 1997 588,454
Cash dividends, 5% preference shares (187)
Conversion of 5% preference shares 38
Issuances under stock plans 1,939
--------------
Balance at June 30, 1998 590,244
--------------
Treasury shares:
Balance at December 31, 1997 (3)
Purchase of treasury shares (1)
--------------
Balance at June 30, 1998 (4)
--------------
Accumulated deficit:
Balance at December 31, 1997 (297,581)
Net loss (107,150)
--------------
Balance at June 30, 1998 (404,731)
--------------
Accumulated other non-owner changes in
shareholders' equity:
Balance at December 31, 1997 (2,126)
Other non-owner changes in shareholders' equity ---
--------------
Balance at June 30, 1998 (2,126)
--------------
Total shareholders' equity at June 30, 1998 $ 191,222
==============
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN TABLES IN THOUSANDS)
(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. The Company is
actively exploring for oil and gas in these areas, as well as in Southern
Europe, Africa, and the Middle East. All sales currently are derived from oil
and gas production in Colombia.
On March 30, 1998, the Company announced that its Board of Directors approved
the retention of CIBC World Markets Lovegrove & Associates and Lehman
Brothers, Inc. as independent advisers to assist in studying strategic
alternatives for the Company. The strategic alternatives under consideration
included the sale or farmout of a portion or all of the Company's interest in
Block A-18 of the Malaysia-Thailand Joint Development Area in the Gulf of
Thailand, the sale of a portion or all of the Company's interest in the
Cusiana and Cupiagua oil fields in Colombia, or both. The Company received
proposals regarding strategic alternatives during the second quarter. See
note 10 - Subsequent Events.
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 June 30, 1998, and the results of its operations for the three
and six months ended June 30, 1998 and 1997, its cash flows for the six months
ended June 30, 1998 and 1997, and shareholders' equity for the six months
ended June 30, 1998. The results for the three and six months ended June 30,
1998, 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, 1997.
Certain other previously reported financial information has been reclassified
to conform to the current period's presentation.
2. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement No.
130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 established
standards for the reporting and display of comprehensive income and its
components, specifically net income and all other changes in shareholders'
equity except those resulting from investments by and distributions to
shareholders. The Company, which adopted the standard beginning January 1,
1998, has elected to display comprehensive income (or non-owner changes in
shareholders' equity) in the Condensed Consolidated Statement of Shareholders'
Equity. This statement does not have any effect on the Company's results of
operations or financial position.
3. WRITEDOWN OF ASSETS
Writedown of assets is summarized as follows:
THREE AND SIX
MONTHS ENDED
JUNE 30, 1998
--------------
Evaluated oil and gas properties $ 105,354
Unevaluated oil and gas properties 73,890
Other assets 3,428
--------------
$ 182,672
==============
In June 1998, the carrying amount of the Company's evaluated oil and gas
properties in Colombia were written down by $105.4 million ($68.5 million, net
of tax) through application of the full cost ceiling limitation as prescribed
by the Securities and Exchange Commission ("SEC"), principally as a result of
a decline in oil prices. The SEC ceiling test was calculated using the June
30, 1998, West Texas Intermediate ("WTI") oil price of $14.18 per barrel with
a differential for Cusiana crude delivered at the port of Covenas in Colombia
of $1.18 per barrel, for a net price of $13 per barrel.
In conjunction with the culmination of the "strategic alternatives" process,
the Company assessed its investments in exploration licenses and determined
that certain investments were impaired based on a plan to restructure the
Company's operations and substantially scale back exploration related capital
expenditures. As a result, unevaluated oil and gas properties and other
assets totaling $77.3 million ($72.6 million, net of tax) were expensed. The
writedown included $27.2 million and $22.5 million related to exploration
activity in Guatemala and China, respectively. The remaining writedowns
relate to the Company's exploration projects in certain other areas of the
world.
4. ASSET DISPOSITIONS
In February 1998, the Company sold Triton Pipeline Colombia, Inc. ("TPC"), a
wholly owned subsidiary that held the Company's 9.6% equity interest in the
Colombian pipeline company, Oleoducto Central S. A. ("OCENSA"), to an
unrelated third party (the "Purchaser") for $100 million. Net proceeds were
approximately $97.7 million after $2.3 million of expenses. The sale resulted
in an aftertax gain of $50.2 million. TPC's investment in OCENSA, totaling
$47.4 million at December 31, 1997, was included in assets held for sale.
In conjunction with the sale of TPC, the Company entered into a five-year
equity swap with a creditworthy financial institution (the "Counterparty").
The equity swap has a notional amount of $97 million and requires the Company
to make floating LIBOR-based payments on the notional amount to the
Counterparty. In exchange, the Counterparty is required to make payments to
the Company equivalent to 97% of the dividends TPC receives in respect of its
equity interest in OCENSA. Upon a sale by the Purchaser of the TPC shares,
the Company will receive from the Counterparty, or make a cash payment to the
Counterparty, an amount equal to the excess or deficiency, as applicable, of
the difference between 97% of the net proceeds from the Purchaser's sale of
the TPC shares and the notional amount. The equity swap will be carried in
the Company's financial statements at fair value during the five-year term.
Fluctuations in the fair value of the equity swap will affect other income as
noncash adjustments.
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.
5. EXTRAORDINARY ITEM
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 six months ended June 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. The
remainder of the 9 3/4% Notes were retired in 1998.
6. DEBT
During the six months ended June 30, 1998, the Company used proceeds from the
sale of assets and net proceeds from borrowings under other unsecured credit
facilities to repay and terminate its $125 million unsecured credit facility
and fund other capital requirements.
7. EARNINGS PER ORDINARY SHARE
For the three and six months ended June 30, 1998 and the three months ended
June 30, 1997, the computation of diluted net loss per ordinary share was
antidilutive, and therefore, the amounts reported for basic and diluted net
loss per ordinary share were the same.
The following table reconciles the numerators and denominators of the basic
and diluted earnings per ordinary share computation for earnings from
continuing operations for the six months ended June 30, 1997.
INCOME SHARE PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
SIX MONTHS ENDED JUNE 30, 1997:
Earnings before extraordinary item $3,178
Less: Preference share dividends (213)
----------
Earnings before extraordinary item
available to ordinary shareholders 2,965
Basic earnings per ordinary share 36,404 $ 0.08
==========
Effect of dilutive securities:
Stock options --- 483
Convertible debentures --- 94
---------- -------------
Earnings before extraordinary item
available to ordinary shareholders
and assumed conversions $ 2,965
==========
Diluted earnings before extraordinary
item per ordinary share 36,981 $ 0.08
============= =========
At June 30, 1998, 217,169 shares of 5% preference shares were outstanding.
Each preference share is convertible any time into one ordinary share, subject
to adjustment in certain events. The preference shares were not included in
the computation of diluted earnings per ordinary share because the effect of
assuming conversion of preference shares was antidilutive.
8. COMMITMENTS AND CONTINGENCIES
Development of the Cusiana and Cupiagua fields (the "Fields"), including
drilling and construction of additional production facilities, will require
further capital outlays. The Company's capital budget for the year ending
December 31, 1998, was approximately $176 million, excluding capitalized
interest, of which approximately $103 million related to the Fields, $23
million related to Block A-18, and $50 million related to the Company's
activities in other parts of the world. See note 10 - Subsequent Events.
The Company expects to fund capital expenditures and repay debt in the future
with a combination of some or all of the following: cash flow from operations,
cash, credit facilities, 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 June 30, 1998, the Company had guaranteed loans of approximately $2.1
million for a Colombian pipeline company in which the Company has an ownership
interest. The Company also guaranteed performance of $27.9 million in future
exploration expenditures in various countries. These commitments are backed
primarily by unsecured letters of credit.
LITIGATION
In July and August 1998, five lawsuits were filed against the Company and
Thomas G. Finck, the former Chairman and Chief Executive Officer of the
Company, and three of which also are brought against Peter Rugg, the Chief
Financial Officer of the Company. Each case is filed on behalf of a putative
class of persons and/or entities who purchased the Company's securities
between March 30, 1998 and July 17, 1998, inclusive. The cases allege
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
as amended, and Rule 10b-5 promulgated thereunder in connection with
disclosures concerning the Company's properties, operations, and value
relating to a prospective sale of the Company or of all or a part of its
assets. Each lawsuit was filed in the United States District Court for the
Eastern District of Texas, Texarkana Division, as follows: D.H. Lee, Jr., et
al. v. Triton Energy Limited, et al.; Richard Strauss, et al. v. Triton Energy
Limited, et al.; Birdie Capital Corp., et al. v. Triton Energy Limited, et
al.; North River Trading Co., LLC, et al. v. Triton Energy, Ltd., et al.; and
Ken Bortner, et.al. v. Triton Energy Limited, et. al.
The Company believes it has meritorious defenses to these claims and intends
to vigorously defend these actions. The date for answer or response is not
yet due, no discovery has been taken at this time, and the ultimate outcome is
not currently predictable.
The Company is subject to certain other litigation matters, none of which is
expected to have a material, adverse effect on the Company's operations or
consolidated financial condition.
9. CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS
Certain statements in this report, including expectations, intentions, plans
and beliefs of the Company and management, 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 schedules for the start-up of
production facilities; expected or planned production or transportation
capacity; when the Fields might become self-financing; future production of
the Fields; the negotiation of a gas-sales contract in Malaysia-Thailand; the
Company's capital budget and future capital requirements; the Company's
meeting its future capital needs; the amount by which production from the
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 regulatory and litigation
matters; the impact of Year 2000 issues; 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, 1997,
including capitalized costs by geographic area, is set forth in note 21 of
Notes to Consolidated Financial Statements in Triton's Annual Report on Form
10-K for the year ended December 31, 1997.
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 where 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
Fields, located approximately 160 kilometers (100 miles) northeast of Bogota,
Colombia. Development of reserves in the 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 during 1998 and that drilling will continue at least into 1999.
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 increased over
the last year, 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 1998, the President of the United States
announced that Colombia would not be certified, but was granted a national
interest waiver. There can be no assurance that, in the future, Colombia will
receive certification or a waiver. The consequences of the failure to receive
certification or a national interest waiver generally include the following:
all bilateral aid, except anti-narcotics and humanitarian aid, would be
suspended; the Export-Import Bank of the United States and the Overseas
Private Investment Corporation would not approve financing for new projects in
Colombia; U.S. representatives at multilateral lending institutions would be
required to vote against all loan requests from Colombia, although such votes
would not constitute vetoes; and the President of the United States and
Congress would retain the right to apply future trade sanctions. Each of
these consequences 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 Malaysia and Thailand. In
connection with the sale to a subsidiary of Atlantic Richfield Company
("ARCO") of one-half of the shares of the Company's subsidiary that held its
interest in Block A-18, ARCO agreed to pay all future exploration and
development costs attributable to the Company's and ARCO's collective interest
in Block A-18, up to $377 million or until first production from a gas field,
at which time the Company and ARCO would each pay 50% of such costs. See note
10 - Subsequent Events.
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 where 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.
10. SUBSEQUENT EVENTS
In July 1998, the Company and ARCO signed an agreement providing financing for
the development of the Company's gas reserves on Block A-18 of the
Malaysia-Thailand Joint Development Area. Under terms of the agreement,
consumated in August 1998, the Company sold to a subsidiary of ARCO for $150
million one-half of the shares of the subsidiary through which the Company
owned its 50% share of Block A-18. The agreements also require ARCO to pay
all future exploration and development costs attributable to the Company's and
ARCO's collective interest in Block A-18, up to $377 million or until first
production from a gas field, at which time the Company and ARCO would each pay
50% of such costs. Additionally, the agreements require ARCO to pay the
Company an additional $65 million each at July 1, 2002 and July 1, 2005, if
certain specific development objectives are met by such dates, or $40 million
each if the objectives are met within one year thereafter.
The agreements provide that the Company will recover its investment in
recoverable costs in the project, approximately $105 million, and that ARCO
will recover its investment in recoverable costs, on a first-in, first-out
basis from the cost recovery portion of future production. The sale resulted
in an aftertax gain of approximately $63 million, which will be recorded in
the third quarter of 1998.
In July 1998, the Company announced a plan to restructure the Company's
operations, reduce overhead costs and substantially scale back exploration
related capital expenditures. The plan includes staff reductions, branch
office closings and the sale of the Company's remaining corporate aircraft.
The Company expects to record a restructuring charge of approximately $20
million in the third quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL REQUIREMENTS
-------------------------------------------------
Cash and cash equivalents totaled $20.5 million and $13.5 million at June
30, 1998, and December 31, 1997, respectively. Working capital deficit was
$189.2 million at June 30, 1998, compared with $115.2 million at December 31,
1997. At June 30, 1998, borrowings of $168 million under the Company's bank
credit facilities, which mature during the period November 1998 through March
1999, were classified as a current liability. Current liabilities also
included deferred income totaling $35.3 million at June 30, 1998 and at
December 31, 1997 related to a forward oil sale consummated in 1995.
The Company's capital expenditures and other capital investments were
$97.8 million ($83.2 million excluding capitalized interest) for the six
months ended June 30, 1998, 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 six months ended June 30, 1998, was funded
primarily with cash flow from operations, asset sales 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. The
Company's capital budget for the year ending December 31, 1998, was
approximately $176 million, excluding capitalized interest, of which
approximately $103 million related to the Fields ($50.2 million incurred
through June 30), $23 million related to Block A-18 ($10.8 million incurred
through June 30), and $50 million related to the Company's activities in other
parts of the world ($22.2 million incurred through June 30).
In July 1998, the Company and a subsidiary of the Atlantic Richfield
Company ("ARCO") signed an agreement providing financing for the
development of the Company's gas reserves on Block A-18 of the
Malaysia-Thailand Joint Development Area. Under terms of the agreement,
consumated in August 1998, the Company sold to a subsidiary of ARCO for $150
million one-half of the shares of the subsidiary through which the Company
owned its 50% share of Block A-18. The agreements also require ARCO to pay
all future exploration and development costs attributable to the Company's and
ARCO's collective interest in Block A-18, up to $377 million or until first
production from a gas field, at which time the Company and ARCO would each pay
50% of such costs. Additionally, the agreements require ARCO to pay the
Company an additional $65 million each at July 1, 2002 and July 1, 2005, if
certain specific development objectives are met by such dates, or $40 million
each if the objectives are met within one year thereafter.
The Company expects to fund capital expenditures and repay debt in the
future with a combination of some or all of the following: cash flow from
operations, cash, credit facilities, asset sales and the issuance of debt and
equity securities. The Company is currently pursuing a new long-term revolving
credit facility that combined with the proceeds from the sale to ARCO would
replace the Company's existing credit facilities and provide additional
working capital. 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.
Due to certain covenants contained in the existing revolving credit facilities
specifying minimum levels of production, the Company will be required, if such
levels of production are not met, to obtain waivers from the banks or
refinance the facilities prior to the end of the third quarter. The Company
expects that it will be able to either refinance the facilities or obtain such
waivers, but no assurance can be given. To facilitate a possible future
securities issuance or issuances, the Company has on file with the Securities
and Exchange Commission ("SEC") a shelf registration statement under which the
Company could issue up to an aggregate of $200 million debt or equity
securities.
RESULTS OF OPERATIONS
---------------------
Sales volumes and average prices realized were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1998 1997 1998 1997
--------- ------- ------- -------
Sales volumes
Oil (MBbls), excluding forward oil sale 2,069 1,018 3,965 2,431
Forward oil sale (1) (MBbls delivered) 763 763 1,525 938
--------- ------- ------- -------
Total 2,832 1,781 5,490 3,369
========= ======= ======= =======
Gas (MMcf) 102 127 267 204
Weighted average price realized:
Oil (per Bbl) $ 12.80 $ 15.91 $ 13.16 $ 18.40
Gas (per Mcf) $ 1.15 $ 1.17 $ 1.05 $ 1.24
<FN>
(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 JUNE 30, 1998,
COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
Sales and Other Operating Revenues
- --------------------------------------
Revenue increased $7.9 million in 1998, due to higher production ($16.8
million), which was offset by lower average realized oil prices ($8.9
million). Higher production was due to the start-up in late 1997 of two new
80,000 barrels per day ("BPD") oil-production units at the Cusiana central
processing facility. The lower average realized oil price resulted from a
significant decrease in the 1998 average West Texas Intermediate ("WTI") oil
price, compared with the prior-year quarter.
Other operating revenues in 1997 included a gain of $4.1 million
resulting from the sale of the Company's Argentine subsidiary.
Costs and Expenses
- --------------------
Operating expenses increased $10.2 million in 1998, and depreciation,
depletion and amortization increased $4.8 million, primarily due to higher
production volumes, including barrels delivered under the forward oil sale.
The Company pays lifting costs, production taxes and transportation costs to
the Colombian port of Covenas for barrels to be delivered under the forward
oil sale.
The Company's operating costs per equivalent-barrel were $7.67 and $6.57
in 1998 and 1997, respectively. Operating expenses on a per equivalent-barrel
basis were higher primarily due to Oleoducto Central S.A. ("OCENSA") pipeline
tariffs which totaled $15.5 million or $5.69 per barrel, and $6.3 million or
$3.84 per barrel in 1998 and 1997, respectively. OCENSA imposes a tariff on
shippers from the Fields (the "Initial Shippers"), which is 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 are assessed a premium tariff on a per-barrel
basis, and OCENSA will use revenues from such tariffs to reduce the Initial
Shippers' tariff. The increase in OCENSA pipeline tariffs was partially
offset by a decrease in production taxes of $1.8 million. Beginning in 1998,
no production taxes are assessed on production from the Cusiana Field. The
Company will be required to pay production taxes on production from the
Cupiagua Field equating to approximately 5.5%, 4% and 2.5% of gross realized
oil prices during 1998, 1999 and 2000, respectively.
General and administrative expense before capitalization decreased $2.2
million to $13.2 million in 1998. Capitalized general and administrative
costs were $6.7 million and $7.6 million in 1998 and 1997, respectively.
In June 1998, the carrying amount of the Company's evaluated oil and gas
properties in Colombia were written down by $105.4 million ($68.5 million, net
of tax) through application of the full cost ceiling limitation as prescribed
by the SEC, principally as a result of a decline in oil prices. The SEC
ceiling test was calculated using the June 30, 1998 WTI oil price of $14.18
per barrel with a differential for Cusiana crude delivered at the port of
Covenas in Colombia of $1.18 per barrel, for a net price of $13 per barrel.
An additional writedown may be required if oil prices fall below this level at
later quarter end dates.
In conjunction with the culmination of the "strategic alternatives"
process, the Company assessed its investments in exploration licenses and
determined that certain investments were impaired based on a plan to
restructure the Company's operations and substantially scale back exploration
related capital expenditures. As a result, unevaluated oil and gas properties
and other assets totaling $77.3 million ($72.6 million, net of tax) were
expensed. The writedown included $27.2 million and $22.5 million related to
exploration activity in Guatemala and China, respectively. The remaining
writedowns relate to the Company's exploration projects in certain other areas
of the world.
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 provisions for 1998 and 1997 included deferred tax expense
(benefit) of ($39.8 million) and $2.1 million, respectively. The benefit
recognized in 1998 related to the writedown of oil and gas properties. Current
taxes related to the Company's Colombian operations totaled $.3 million and
$.4 million in 1998 and 1997, respectively.
Extraordinary Item
-------------------
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 three months ended June 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. The
remainder of the 9 3/4% Notes were retired in 1998.
SIX MONTHS ENDED JUNE 30, 1998
COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Sales and Other Operating Revenues
- --------------------------------------
Revenue increased $10.3 million in 1998, due to higher production ($39.2
million), which was offset by lower average realized oil prices ($28.9
million). Higher production was due to the start-up in late 1997 of two new
80,000 BPD oil-production units at the Cusiana central processing facility.
The lower average realized oil price primarily resulted from a significant
decrease in the 1998 average WTI oil price, compared with the prior-year
period and increased deliveries under the forward oil sale. In April 1997,
the Company's delivery requirements 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 during
1998.
Based on the operator's current projections, the Company expects capacity
of the Fields' production facilities to reach 500,000 barrels per day
during 1998. The Company expects that the adverse effect on the Company's
results of operations and cash flows from the forward oil sale deliveries
of 254,136 barrels per month will be mitigated by increased production from
the Fields. There can be no assurance, however, regarding the timing of
any increase in production or as to future prices. Additional wells will
be required to be drilled into 1999. There can be no assurance that the
productivity of these additional wells, when combined with the productivity of
existing wells, will, over time, match the design capacity of the
production facilities.
Costs and Expenses
- --------------------
Operating expenses increased $14.6 million in 1998, and depreciation,
depletion and amortization increased $9.4 million, primarily due to higher
production volumes, including barrels delivered under the forward oil sale.
The Company's operating costs per equivalent-barrel were $6.85 in 1998 and
1997. OCENSA pipeline tariffs totaled $25.6 million or $4.82 per barrel, and
$12.4 million or $3.90 per barrel in 1998 and 1997, respectively. The
increase in OCENSA pipeline tariffs was partially offset by a decrease
in production taxes of $3.9 million.
General and administrative expense before capitalization decreased $1
million in 1998 to $27.2 million. Capitalized general and administrative
costs were $13 million and $14.7 million in 1998 and 1997, respectively. Due
to the Company's announced plan to reduce overhead costs through staff
reductions and branch office closings, the Company expects that gross general
and administrative expense and the portion of general and administrative
expense that will be capitalized will decrease in future periods.
Other Income and Expense
- ---------------------------
In 1998, the Company sold Triton Pipeline Colombia, Inc., a wholly owned
subsidiary that held the Company's 9.6% equity interest in the Colombian
pipeline company, OCENSA, for $100 million. Net proceeds were approximately
$97.7 million after $2.3 million of expenses. The sale resulted in an
aftertax gain of $50.2 million.
Gross interest expense for 1998 and 1997 totaled $25 million and $24.8
million, respectively, while capitalized interest for 1998 increased $2.1
million to $14.6 million. Due to the writedown of unevaluated property
totaling $73.9 million in June 1998 and a sale of 50% of the Company's Block
A-18 project in August 1998, the portion of interest expense that will be
capitalized will decrease in future periods.
Other income (expense), net included foreign exchange gains of $1.7
million and $3 million in 1998 and 1997, respectively, primarily related to
noncash adjustments to deferred tax liabilities in Colombia associated with
devaluation of the Colombian peso versus the U.S. dollar. In 1998, the
Company recognized a gain of $1.9 million on the sale of non-operating assets.
These gains were offset by an unrealized loss of $.1 million and $4 million in
1998 and 1997, respectively, representing the change in the fair market value
of call options purchased in anticipation of a forward oil sale in 1995.
Income Taxes
- -------------
The income tax provisions for 1998 and 1997 included deferred tax expense
(benefit) of ($35.7 million) and $1.7 million, respectively. The benefit
recognized in 1998 related to the writedown of oil and gas properties. Current
taxes related to the Company's Colombian operations totaled $1.4 million and
$1.7 million in 1998 and 1997, respectively.
Subsequent Events
- ------------------
In July 1998, the Company and ARCO signed an agreement providing
financing for the development of the Company's gas reserves on Block A-18 of
the Malaysia-Thailand Joint Development Area. Under terms of the agreement,
consumated in August 1998, the Company sold to a subsidiary of ARCO for $150
million one-half of the shares of the subsidiary through which the Company
owned its 50% share of Block A-18. The agreements also require ARCO to pay
all future exploration and development costs attributable to the Company's and
ARCO's collective interest in Block A-18, up to $377 million or until first
production from a gas field, at which time the Company and ARCO would each pay
50% of such costs. Additionally, the agreements require ARCO to pay the
Company an additional $65 million each at July 1, 2002 and July 1, 2005, if
certain specific development objectives are met by such dates, or $40 million
each if the objectives are met within one year thereafter.
The agreements provide that the Company will recover its investment in
recoverable costs in the project, approximately $105 million, and that ARCO
will recover its investment in recoverable costs, on a first-in, first-out
basis from the cost recovery portion of future production. The sale resulted
in an aftertax gain of approximately $63 million, which will be recorded in
the third quarter of 1998.
In July 1998, the Company announced a plan to restructure the Company's
operations, reduce overhead costs and substantially scale back exploration
related capital expenditures. The plan includes staff reductions, branch
office closings and the sale of the Company's remaining corporate aircraft.
The Company expects to record a restructuring charge of approximately $20
million in the third quarter.
Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." SFAS 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires
enterprises to recognize all derivatives as either assets or liabilities in
the balance sheet and measure those instruments at fair value. The requisite
accounting for changes in the fair value of a derivative will depend on the
intended use of the derivative and the resulting designation. The Company
must adopt SFAS 133 effective January 1, 2000. Based on the Company's
outstanding derivatives contracts, the impact of adopting this standard would
not have a material adverse effect on the Company's operations or consolidated
financial condition. However, no assurances can be given with regards to the
level of the Company's derivatives activities at the time SFAS 133 is adopted
or the resulting effect on the Company's operations or consolidated financial
condition.
Information Systems and the Year 2000
-------------------------------------
The Company has reviewed its operational, financial and other information
systems for potential conflicts with the Year 2000. The Company believes that
the Year 2000 will not cause any significant disruptions to its information
systems, and any costs to resolve Year 2000 issues will not be material.
The Company has begun an investigation into the potential impact to its
operations caused by Year 2000 problems that may occur at third parties,
including its oil and gas partners, financial institutions, and vendors. The
Company has identified certain third parties that may encounter Year 2000
problems, but has not yet determined the potential impact to the Company's
operations or the costs to the Company, if any, associated with these issues.
The Company has engaged a third-party Year 2000 consultant to assist the
Company in validating its assumptions and identify nonconformance.
Certain Factors That Could Affect Future Operations
---------------------------------------------------
Certain statements in this report, including expectations, intentions,
plans and beliefs of the Company and management, 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 schedules for the start-up of production facilities; expected or
planned production or transportation capacity; when the Fields might become
self-financing; future production of the Fields; the negotiation of a
gas-sales contract in Malaysia-Thailand; the Company's capital budget and
future capital requirements; the Company's meeting its future capital needs;
the amount by which production from the 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 regulatory and litigation matters; the impact of Year 2000 issues;
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 notes to Notes to Condensed Consolidated Financial Statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LITIGATION
In July and August 1998, five lawsuits were filed against the Company and
Thomas G. Finck, the former Chairman and Chief Executive Officer of the
Company, and three of which also are brought against Peter Rugg, the Chief
Financial Officer of the Company. Each case is filed on behalf of a putative
class of persons and/or entities who purchased the Company's securities
between March 30, 1998 and July 17, 1998, inclusive. The cases allege
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
as amended, and Rule 10b-5 promulgated thereunder in connection with
disclosures concerning the Company's properties, operations, and value
relating to a prospective sale of the Company or of all or a part of its
assets. Each lawsuit was filed in the United States District Court for the
Eastern District of Texas, Texarkana Division, as follows: D.H. Lee, Jr., et
al. v. Triton Energy Limited, et al.; Richard Strauss, et al. v. Triton Energy
Limited, et al.; Birdie Capital Corp., et al. v. Triton Energy Limited, et
al.; North River Trading Co., LLC, et al. v. Triton Energy, Ltd., et al. and
Ken Bortner, et. al. v. Triton Energy Limited, et. al.
The Company believes it has meritorious defenses to these claims and intends
to vigorously defend these actions. The date for answer or response is not
yet due; no discovery has been taken at this time, and the ultimate outcome is
not currently predictable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 12, 1998 at which
the shareholders of the Company voted on the proposal for election of six
directors. The directors elected and the votes cast for or withheld were as
follows: Fitzgerald S. Hudson (29,667,263 votes for and 484,279 votes
withheld), John R. Huff (29,674,185 votes for and 484,279 votes withheld),
James C. Musselman (29,656,333 votes for and 484,279 votes withheld), Lamar
Norsworthy (29,673,507 votes for and 484,279 votes withheld), John P. Lewis
(29,628,146 votes for and 484,279 votes withheld) and Sheldon R. Erickson
(29,674,550 votes for and 484,279 votes withheld). The following directors
continued in office: Ernest E. Cook, Thomas G. Finck, Jesse E. Hendricks,
Thomas P. Kellogg, Jr., Michael E. McMahon and Edwin D. Williamson. In July
1998, the Company announced that Thomas G. Finck had resigned from his
positions as the Company's Chairman, President and Chief Executive Officer.
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. (6)
10.17 Form of Amended and Restated Employment Agreement with Triton Energy Limited
and certain officers. (6)
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 Amendment No. 3 to Credit Agreement among Triton Colombia, Inc., Triton Energy
Limited, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United
States. (24)
10.38 Agreement and Plan of Merger among Triton Energy Corporation, Triton Energy
Limited and TEL Merger Corp. (12)
10.39 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)
10.40 Form of Indemnity Agreement entered into with each director and officer of the
Company. (17)
10.41 Restated Employment Agreement between John Tatum and the Company. (20)
10.42 Description of Performance Goals for Executive Bonus Compensation. (20)
10.43 Stock Purchase Agreement dated September 2, 1997 between the Strategic
Transaction Company and Triton International Petroleum, Inc. (6)
10.44 Fourth Amendment to Stock Purchase Agreement dated February 2, 1998 between
The Strategic Transaction Company and Triton International Petroleum, Inc. (6)
10.45 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)
10.46 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)
10.47 Senior Indenture dated April 10, 1997 among Triton Energy Corporation, Triton
Energy Limited and The Chase Manhattan Bank. (21)
10.48 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)
10.49 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)
10.50 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)
10.51 1997 Share Compensation Plan. (21)
10.52 First Amendment to 1997 Share Compensation Plan. (6)
10.53 First Amendment to Amended and Restated Retirement Plan for Directors. (6)
10.54 First Amendment to Second Amended and Restated 1992 Stock Option Plan. (21)
10.55 Second Amendment to Second Amended and Restated 1992 Stock Option Plan. (6)
10.56 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)
10.57 Amended and Restated Indenture dated July 25, 1997 between Triton Energy Limited
and The Chase Manhattan Bank. (22)
10.58 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)
10.59 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)
10.60 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)
10.61 Amendment to Amended and Restated Retirement Income Plan dated
December 31, 1996. (24)
10.62 Amendment to 401(K) Savings Plan dated December 31, 1996. (24)
10.63 Share Purchase Agreement dated July 17, 1998 among Triton Energy Limited, Triton
Asia Holdings, Inc., Atlantic Richfield Company and ARCO JDA Limited. (25)
10.64 Shareholders Agreement dated August 3, 1998 among Triton Energy Limited, Triton
Asia Holdings, Inc., Atlantic Richfield Company, and ARCO JDA Limited. (25)
10.65 Amendment to the Triton Exploration Services, Inc. Retirement Income Plan dated
August 1, 1998. (25)
10.66 Amendment to the Triton Exploration Services, Inc. 401(k) Savings Plan dated
August 1, 1998. (25)
12.1 Computation of Ratio of Earnings to Fixed Charges. (25)
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preference
Dividends. (25)
27.1 Financial Data Schedule.(25)
99.1 Heads of Agreement for the Supply of Gas from the Block A-18 of the Malaysia-
Thailand Joint Development Area. (24)
99.2 Rio Chitamena Association Contract. (19)
99.3 Rio Chitamena Purchase and Sale Agreement. (19)
99.4 Integral Plan - Cusiana Oil Structure. (19)
99.5 Letter Agreements with co-investor in Colombia. (19)
99.6 Colombia Pipeline Memorandum of Understanding. (19)
99.7 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 the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 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) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 and incorporated herein by reference.
(24) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 and incorporated herein by reference.
(25) Filed herewith.
(b) Reports on Form 8-K
None
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: August 13, 1998