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, 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 November 2, 1998
Ordinary Shares, par value $0.01 per share 36,636,452
-------------------------------
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, 1998 and 1997 2
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1998 and 1997 4
Condensed Consolidated Statement of Shareholders' Equity -
Nine 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 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities and use of Proceeds 31
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 34
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,
------------------------ ---------------------
1998 1997 1998 1997
----------- ----------- ---------- ---------
Sales and other operating revenues:
Oil and gas sales $ 42,625 $ 36,993 $ 115,178 $ 99,244
Gain on sale of oil and gas assets 63,237 --- 63,237 4,077
----------- ----------- ---------- ---------
105,862 36,993 178,415 103,321
----------- ----------- ---------- ---------
Costs and expenses:
Operating 18,299 13,119 55,067 35,252
General and administrative 6,405 6,631 20,589 20,123
Depreciation, depletion and amortization 13,812 9,291 38,695 24,746
Writedown of assets --- --- 182,672 ---
Non-recurring charges 15,000 --- 15,000 ---
----------- ----------- ---------- ---------
53,516 29,041 312,023 80,121
----------- ----------- ---------- ---------
Operating income (loss) 52,346 7,952 (133,608) 23,200
Gain on sale of Triton Pipeline Colombia --- --- 50,227 ---
Interest income 838 1,038 2,330 4,354
Interest expense, net (6,785) (5,697) (17,105) (17,946)
Other income, net 3,595 8,018 6,623 8,324
----------- ----------- ---------- ---------
(2,352) 3,359 42,075 (5,268)
----------- ----------- ---------- ---------
Earnings (loss) before income taxes
and extraordinary item 49,994 11,311 (91,533) 17,932
Income tax expense (benefit) 2,786 5,110 (31,591) 8,553
----------- ----------- ---------- ---------
Earnings (loss) before extraordinary item 47,208 6,201 (59,942) 9,379
Extraordinary item - extinguishment of debt --- --- --- (14,491)
----------- ----------- ---------- ---------
Net earnings (loss) 47,208 6,201 (59,942) (5,112)
Dividends on preference shares 181 187 368 400
----------- ----------- ---------- ---------
Earnings (loss) applicable to ordinary shares $ 47,027 $ 6,014 $ (60,310) $ (5,512)
=========== =========== ========== =========
Average ordinary shares outstanding 36,634 36,534 36,599 36,448
=========== =========== ========== =========
Basic earnings (loss) per ordinary share:
Earnings (loss) before extraordinary item $ 1.28 $ 0.16 $ (1.65) $ 0.25
Extraordinary item - extinguishment of debt --- --- --- (0.40)
----------- ----------- ---------- ---------
Basic earnings (loss) $ 1.28 $ 0.16 $ (1.65) $ (0.15)
=========== =========== ========== =========
Diluted earnings (loss) per ordinary share:
Earnings (loss) before extraordinary item $ 1.28 $ 0.16 $ (1.65) $ 0.24
Extraordinary item - extinguishment of debt --- --- --- (0.39)
----------- ----------- ---------- ---------
Diluted earnings (loss) $ 1.28 $ 0.16 $ (1.65) $ (0.15)
=========== =========== ========== =========
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -----------
(UNAUDITED)
Current assets:
Cash and equivalents $ 59,332 $ 13,451
Trade receivables, net 17,754 12,963
Other receivables 46,247 52,162
Inventories, prepaid expenses and other 3,086 5,219
Assets held for sale --- 58,178
------------- -----------
Total current assets 126,419 141,973
Property and equipment, at cost, less accumulated depreciation
and depletion of $296,237 for 1998 and $89,014 for 1997 667,961 835,506
Deferred taxes and other assets 116,633 120,560
------------- -----------
$ 911,013 $1,098,039
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 18,650 $ 184,975
Accounts payable and accrued liabilities 52,051 36,964
Deferred income 35,254 35,254
------------- -----------
Total current liabilities 105,955 257,193
Long-term debt, excluding current maturities 413,769 443,312
Deferred income taxes 10,328 50,968
Deferred income and other 25,342 49,946
Convertible debentures due to employees --- ---
Shareholders' equity:
5% Preference shares 7,214 7,511
8% Preference shares 127,575 ---
Ordinary shares, par value $0.01 366 365
Additional paid-in capital 580,117 588,454
Accumulated deficit (357,523) (297,581)
Accumulated other non-owner changes in shareholders' equity (2,126) (2,126)
------------- -----------
355,623 296,623
Less cost of ordinary shares in treasury 4 3
------------- -----------
Total shareholders' equity 355,619 296,620
Commitments and contingencies (note 11) --- ---
------------- -----------
$ 911,013 $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
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)
1998 1997
---------- ----------
Cash flows from operating activities:
Net loss $ (59,942) $ (5,112)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation, depletion and amortization 38,695 24,746
Amortization of deferred income (26,440) (19,653)
Gain on sale of oil and gas assets (63,237) (4,077)
Gain on sale of Triton Pipeline Colombia (50,227) ---
Writedown of assets 182,672 ---
Non-recurring charges 11,802 ---
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 --- 7,943
Deferred income taxes (34,250) 5,582
Gain on sale of other assets (6,905) (1,409)
Other 1,863 (457)
Changes in working capital pertaining to operating activities 12,369 14,421
---------- ----------
Net cash provided (used) by operating activities 6,400 (88,319)
---------- ----------
Cash flows from investing activities:
Capital expenditures and investments (140,417) (169,461)
Proceeds from sale of oil and gas assets 142,527 4,077
Proceeds from sale of Triton Pipeline Colombia 97,656 ---
Proceeds from sales of other assets 21,170 1,707
Other (2,421) 25,146
---------- ----------
Net cash provided (used) by investing activities 118,515 (138,531)
---------- ----------
Cash flows from financing activities:
Proceeds from revolving lines of credit and long-term debt 152,531 558,531
Payments on revolving lines of credit and long-term debt (350,178) (321,515)
Short-term notes payable, net --- 9,600
Issuances of 8% preference shares, net 116,825 ---
Issuances of ordinary shares 2,485 4,987
Other (369) (390)
---------- ----------
Net cash provided (used) by financing activities (78,706) 251,213
---------- ----------
Effect of exchange rate changes on cash and equivalents (328) (355)
---------- ----------
Net increase in cash and equivalents 45,881 24,008
Cash and equivalents at beginning of period 13,451 11,048
---------- ----------
Cash and equivalents at end of period $ 59,332 $ 35,056
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
(UNAUDITED)
5% Preference shares:
Balance at December 31, 1997 $ 7,511
Conversion of 5% preference shares (297)
----------
Balance at September 30, 1998 7,214
----------
8% Preference shares:
Balance at December 31, 1997 ---
Issuances of 1,822,500 shares at $70 per share 127,575
----------
Balance at September 30, 1998 127,575
----------
Ordinary shares:
Balance at December 31, 1997 365
Issuances under stock plans 1
----------
Balance at September 30, 1998 366
----------
Additional paid-in capital:
Balance at December 31, 1997 588,454
Transaction costs for issuance of 8% preference shares (10,750)
Cash dividends, 5% preference shares (368)
Conversion of 5% preference shares 297
Issuances under stock plans 2,484
----------
Balance at September 30, 1998 580,117
----------
Treasury shares:
Balance at December 31, 1997 (3)
Purchase of treasury shares (1)
----------
Balance at September 30, 1998 (4)
----------
Accumulated deficit:
Balance at December 31, 1997 (297,581)
Net loss (59,942)
----------
Balance at September 30, 1998 (357,523)
----------
Accumulated other non-owner changes in
shareholders' equity:
Balance at December 31, 1997 (2,126)
Other non-owner changes in shareholders' equity ---
----------
Balance at September 30, 1998 (2,126)
----------
Total shareholders' equity at September 30, 1998 $ 355,619
==========
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(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.
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, 1998, and the results of its operations for the three and nine
months ended September 30, 1998 and 1997, its cash flows for the nine months
ended September 30, 1998 and 1997, and shareholders' equity for the nine months
ended September 30, 1998. The results for the three and nine months ended
September 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. ASSET DISPOSITIONS
In July 1998, the Company and 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 agreements provide that the Company will recover its investment in
recoverable costs in the project, approximately $101 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 $63.2 million in the third quarter of 1998.
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 an 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 is carried in the Company's financial statements at fair
value during its time which, as amended, will expire December 31, 1999.
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.
4. WRITEDOWN OF ASSETS
Writedown of assets is summarized as follows:
NINE MONTHS ENDED
SEPTEMBER 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 that, after
a differential for Cusiana crude delivered at the port of Covenas in Colombia,
resulted in a net price of approximately $13 per barrel.
In conjunction with a plan to restructure operations and scale back exploration
related expenditures, the Company assessed its investments in exploration
licenses and determined that certain investments were impaired. As a result,
unevaluated oil and gas properties and other assets totaling $77.3 million
($72.6 million, net of tax) were expensed in June 1998. The writedown included
$27.2 million and $22.5 million related to exploration activity in Guatemala and
China, respectively. The remaining writedowns related to the Company's
exploration projects in certain other areas of the world.
5. NON-RECURRING CHARGES
In July 1998, the Company commenced a plan to restructure the Company's
operations, reduce overhead costs and substantially scale back exploration
related expenditures. As a result of the restructuring, the Company recognized
non-recurring charges totaling $15 million in the third quarter. The major
component of the non-recurring charges related to the elimination of
approximately 105 positions or 41% of the Company's worldwide workforce. An
accrual of $11.2 million was included in non-recurring charges related to the
reduction in workforce for severence, benefit continuation and outplacement
costs. Additionally, the Company has closed or is in the process of closing
branch offices in four countries which resulted in a $2.1 million non-recurring
charge related to the termination of office leases and the write-down of related
assets to their fair market value. The Company expects to complete the closing
of its branch offices by the third quarter of 1999. The remaining non-recurring
charges of $1.7 million primarily related to the write-off of surplus fixed
assets resulting from the reduction in workforce.
6. OTHER INCOME, NET
For the three months ended September 30, 1998 and 1997, other income, net
included foreign exchange gains of $.8 million and $5.8 million, respectively,
primarily related to noncash adjustments to deferred tax liabilities in Colombia
associated with devaluation of the Colombian peso versus the U.S. dollar.
During the same three month period in 1998 and 1997, the Company recognized
gains of $5.3 million and $1.4 million, respectively, on the sale of
non-operating assets. These gains were offset by an unrealized loss of $2.1
million on the change in the fair value of the equity swap in the third quarter
of 1998.
For the nine months ended September 30, 1998 and 1997, other income, net
included foreign exchange gains of $2.5 million and $8.7 million, respectively,
primarily related to noncash adjustments to deferred tax liabilities in Colombia
associated with devaluation of the Colombian peso versus the U.S. dollar.
During the same nine month period in 1998 and 1997, the Company recognized gains
of $6.8 million and $1.5 million, respectively, on the sale of non-operating
assets. Additionally, an unrealized gain (loss) of $.5 million and ($3.4
million) was recognized 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. These gains were offset by a realized loss of $2.9 million on
the change in the fair market value of the equity swap during 1998.
7. 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 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. The
remainder of the 9 3/4% Notes were retired in 1998.
8. DEBT
During the nine months ended September 30, 1998, the Company used proceeds from
the sale of assets and the issuance of equity securities (see note 9) to repay
borrowings under unsecured credit facilities and fund other capital
requirements.
9. SALE OF 8% PREFERENCE SHARES
On August 31, 1998, the Company entered into a Stock Purchase Agreement (the
"Purchase Agreement") with HM4 Triton, L.P. ("HM4 Triton"), an affiliate of
Hicks, Muse, Tate & Furst Incorporated. The First Closing, as contemplated by
the Purchase Agreement, occurred on September 30, 1998, pursuant to which the
Company issued to HM4 Triton 1,822,500 shares of 8% convertible preference
shares ("8% preference shares") for $70.00 per share, or total proceeds of
$127.6 million (before expenses of $10.8 million). Each 8% preference share is
convertible at any time at the option of the holder into four ordinary shares of
the Company (subject to certain antidilution protections). Holders of 8%
preference shares are entitled to receive, when and if declared by the Board of
Directors, cumulative dividends at a rate per annum equal to 8% of the
liquidation preference of $70.00 per share, payable for each semi-annual period
ending June 30 and December 30, commencing June 30, 1999. At the Company's
option, dividends may be paid in cash or by the issuance of additional whole
shares of 8% preference shares. Holders of 8% preference shares will be entitled
to vote with the holders of ordinary shares on all matters submitted to the
shareholders of the Company for a vote, with each share of 8% preference share
entitling its holder to a number of votes equal to the number of ordinary shares
into which it could be converted at that time. The 8% preference shares can be
redeemed by the Company commencing September 30, 2001, but only if the market
value of the ordinary shares meets certain targets at the time of redemption
(but if the Company redeems any shares, it must redeem all of the shares).
Under the provisions of the Company's Articles of Association, the terms of the
8% preference shares can be amended with the approval of the holders of at
least two-thirds of the 8% preference shares voting separately as a class.
The Purchase Agreement requires the Company to conduct a rights offering (the
"Rights Offering") pursuant to which the Company would distribute to each record
holder of ordinary shares, 5% convertible preference shares and 8% preference
shares, as of a record date to be established by the Company's Board of
Directors, the transferable right (the "Rights") to purchase, at $70.00 per
share, a pro-rata portion (determined based on the number of ordinary shares
into which such shares are convertible as of the record date) of approximately
3,177,500 8% preference shares for an aggregate purchase price of approximately
$222 million. The Purchase Agreement provides that following the Rights
Offering, subject to the terms and conditions set forth in the Purchase
Agreement, HM4 Triton would be required to purchase at a second closing (the
"Second Closing") a number of 8% preference shares equal to (i) the number of
shares it could purchase upon exercise of Rights it receives in respect of the
8% preference shares it holds as of the record date and (ii) any 8% preference
shares not subscribed for in the Rights Offering; provided that HM4 Triton is
not required to purchase more than 3,177,500 8% preference shares at the Second
Closing. If all 3,177,500 8% preference shares are issued, the total number of
8% preference shares outstanding (on an as-converted basis) would represent
approximately 35% of the Company's pro forma ordinary shares outstanding. HM4
Triton's obligations to purchase any additional 8% preference shares at the
Second Closing is subject to customary closing conditions. On November 10,
1998, the Company announced that the Rights Offering, as previously announced,
would be delayed and could possibly be restructured or cancelled, following
consideration by the Company of additional capital raising alternatives.
In connection with the issuance of the 1,822,500 shares of 8% preference shares
to HM4 Triton in September 1998, the Company and HM4 Triton entered into a
Shareholders Agreement (the "Shareholders Agreement") pursuant to which, among
other things, the size of the Company's Board of Directors was set at ten, and
HM4 Triton exercised its right to designate four out of such ten directors. The
Shareholders Agreement provides that, in general, for so long as the entire
Board of Directors consists of ten members, HM4 Triton (and its designated
transferees, collectively) may designate four nominees for election to the Board
(with such number of designees increasing or decreasing proportionately with any
change in the total number of members of the Board and with any fractional
directorship rounded up to the next whole number). The right of HM4 Triton (and
its designated transferees) to designate nominees for election to the Board will
be reduced if the number of ordinary shares held by HM4 Triton and its
affiliates (assuming conversion of 8% preference shares into ordinary shares)
represents less than certain specified percentages of the number of ordinary
shares (assuming conversion of 8% preference shares into ordinary shares)
purchased by HM4 Triton pursuant to the Purchase Agreement.
The Shareholders Agreement provides that, for so long as HM4 Triton and its
affiliates continue to hold a certain minimum number of ordinary shares
(assuming conversion of 8% preference shares into ordinary shares), the Company
may not take certain actions without the consent of HM4 Triton, including (i)
entering into any merger or sale of substantial assets, (ii) issuing a class of
preference shares that would rank equal to or senior to the 8% preference
shares, (iii) paying dividends on ordinary shares or other shares ranking junior
to the 8% preference shares, other than regular dividends on the Company's 5%
convertible preference shares, or (iv) incurring indebtedness (other than
certain permitted indebtedness), or issuing preference shares, unless the
Company's leverage ratio at the time, after giving pro forma effect to such
incurrence or issuance and to the use of the proceeds, is less than 2.5 to 1.
As a result of HM4 Triton's ownership of 8% preference shares and ordinary
shares and the rights conferred upon HM4 Triton and its designees pursuant to
the above-described agreements, HM4 Triton has significant influence over the
actions of the Company and will be able to influence, and in some cases,
determine the outcome of matters submitted for approval of the shareholders. The
existence of HM4 Triton as a shareholder of the Company may make it more
difficult for a third party to acquire, or discourage a third party from seeking
to acquire, a majority of the outstanding ordinary shares. A third party would
be required to negotiate any such transaction with HM4 Triton, and the interests
of HM4 Triton as a shareholder may be different from the interests of the other
shareholders of the Company.
10. EARNINGS PER ORDINARY SHARE
For the nine months ended September 30, 1998, 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 three months ended September 30, 1998 and the three and nine
months ended September 30, 1997.
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
THREE MONTHS ENDED SEPTEMBER 30, 1998:
Net earnings $47,208
Less: 5% Preference share dividends (181)
--------
Earnings available to ordinary shareholders 47,027
Basic earnings per ordinary share 36,634 $1.28
=====
Effect of dilutive securities:
8% Preference shares --- 79
Stock options --- 59
5% Preference shares 181 212
-------- ------
Earnings available to ordinary shareholders
and assumed conversions $47,208
========
Diluted earnings per ordinary share 36,984 $1.28
====== =====
THREE MONTHS ENDED SEPTEMBER 30, 1997:
Net earnings $ 6,201
Less: 5% Preference share dividends (187)
--------
Earnings available to ordinary shareholders 6,014
Basic earnings per ordinary share 36,534 $0.16
=====
Effect of dilutive securities:
Stock options --- 449
Convertible debentures --- 87
-------- ------
Earnings available to ordinary shareholders
and assumed conversions $ 6,014
========
Diluted earnings per ordinary share 37,070 $0.16
========= =====
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
NINE MONTHS ENDED SEPTEMBER 30, 1997:
Earnings before extraordinary item $ 9,379
Less: 5% Preference share dividends (400)
--------
Earnings before extraordinary item
available to ordinary shareholders 8,979
Basic earnings per ordinary share 36,448 $0.25
========= =====
Effect of dilutive securities:
Stock options --- 485
Convertible debentures --- 86
-------- ---------
Earnings before extraordinary item
available to ordinary shareholders and
assumed conversions $ 8,979
========
Diluted earnings before extraordinary
item per ordinary share 37,019 $0.24
======== =====
On September 30, 1998, 1,822,500 shares of 8% preference shares were issued to
HM4 Triton. Each preference share is convertible any time into four ordinary
shares, subject to adjustment in certain events. The number of 8% preference
shares included in the computation of weighted average shares outstanding for
purposes of diluted earnings per ordinary share for the three months ended
September 30, 1998, was significantly lower than it will be in future periods as
these shares were outstanding for only one day during the three month period.
Additionally, the Purchase Agreement requires the Company to conduct the Rights
Offering for approximately 3,177,500 8% preference shares, which, if
consummated, would affect diluted earnings per share in future periods. See
note 9 - Sale of 8% Preference Shares.
11. 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 3 - Asset Dispositions.
During the normal course of business, the Company is subject to the terms of
various operating agreements and capital commitments associated with the
exploration and development of its oil and gas properties. It is management's
belief that such commitments, including capital requirements in Colombia and
Block A-18 in the Gulf of Thailand discussed above, will be met without any
material, adverse effect on the Company's operations or consolidated financial
condition. See Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Requirements.
GUARANTEES
At September 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 through October 1998, several lawsuits were filed against the Company
and a former and a present officer of the Company. Each case was 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, and
seeks recovery of compensatory damages, fees and costs. The cases allege
violations of securities laws 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. Additionally, one case alleges
negligent misrepresentation and seeks recovery of punitive damages. On September
21, 1998, a motion for consolidation and for appointment as lead plaintiffs and
for approval of selection of lead counsel was filed with respect to the cases.
That motion is presently pending.
The Company believes it has meritorious defenses to these claims and intends to
vigorously defend these actions. No discovery has been taken at this time, and
the ultimate outcome is not currently predictable. There can be no assurance
that the litigation will be resolved in the Company's favor. An adverse result
could have a material adverse effect on the Company's financial position or
results of operations.
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.
12. 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 21E of the Securities Exchange
Act of 1934, as amended, 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 completion of production facilities; the
closing of branch offices; changes in gross general and administrative expense
and the portion that will be capitalized; 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 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 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 3- Asset
Dispositions.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL REQUIREMENTS
----------------------------------
Cash and cash equivalents totaled $59.3 million and $13.5 million at
September 30, 1998, and December 31, 1997, respectively. Working capital
(deficit) was $20.5 million at September 30, 1998, compared with ($115.2
million) at December 31, 1997. Current liabilities included deferred income
totaling $35.3 million at September 30, 1998 and at December 31, 1997 related to
a forward oil sale consummated in 1995. The following summary table reflects
cash flows for the Company for the nine months ended September 30, 1998 (in
thousands):
Net cash provided (used) by operating activities $ 6,400
Net cash provided (used) by investing activities $118,515
Net cash provided (used) by financing activities $(78,706)
Operating Activities
--------------------
The Company's cash flows provided by operating activities for the nine
months ended September 30, 1998, benefited from increased production from the
Cusiana and Cupiagua fields (the "Fields") in Colombia. Gross production from
the Fields averaged 324,000 barrels per day ("BPD") during the first nine months
of 1998. The increased production was partially offset by a lower average
realized oil price. See "Results of Operations - Sales and Other Operating
Revenues" below.
Investing Activities
---------------------
The Company's capital expenditures and other capital investments were
$140.4 million ($120.6 million excluding capitalized interest) for the nine
months ended September 30, 1998, primarily for development of the Fields.
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 ($75.3 million incurred through September 30), $23 million
related to Block A-18 ($13.2 million incurred through September 30), and $50
million related to the Company's activities in other parts of the world ($32.1
million incurred through September 30).
In February 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, Oleoducto Central S. A. ("OCENSA"), to an unrelated third
party for $100 million. Net proceeds were approximately $97.7 million after
$2.3 million of expenses.
In July 1998, the Company and a subsidiary of 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.
Financing Activities
---------------------
During the nine months ended September 30, 1998, the Company used
proceeds from the sale of assets and issuance of equity securities (see below)
to repay borrowings under unsecured credit facilities and fund other capital
requirements.
On August 31, 1998, the Company entered into a Stock Purchase Agreement
(the "Purchase Agreement") with HM4 Triton, L.P. ("HM4 Triton"), an
affiliate of Hicks, Muse, Tate & Furst Incorporated. The First Closing, as
contemplated by the Purchase Agreement, occurred on September 30, 1998,
pursuant to which the Company issued to HM4 Triton 1,822,500 shares of 8%
convertible preference shares ("8% preference shares") for $70.00 per
share, or total proceeds of $127.6 million (before expenses of $10.8 million).
Each 8% preference share is convertible at any time at the option of the holder
into four ordinary shares of the Company (subject to certain antidilution
protections). Holders of 8% preference shares are entitled to receive, when
and if declared by the Board of Directors, cumulative dividends at a rate
per annum equal to 8% of the liquidation preference of $70.00 per share,
payable for each semi-annual period ending June 30 and December 30,
commencing June 30, 1999. At the Company's option, dividends may be paid
in cash or by the issuance of additional whole shares of 8% preference
shares.
The Purchase Agreement requires the Company to conduct a rights offering
(the "Rights Offering") pursuant to which the Company would distribute to each
record holder of ordinary shares, 5% convertible preference shares and 8%
preference shares, as of a record date to be established by the Company's Board
of Directors, the transferable right (the "Rights") to purchase, at $70.00 per
share, a pro-rata portion (determined based on the number of ordinary shares
into which such shares are convertible as of the record date) of approximately
3,177,500 8% preference shares, for an aggregate purchase price of approximately
$222 million. The Purchase Agreement provides that following the Rights
Offering, subject to the terms and conditions set forth in the Purchase
Agreement, HM4 Triton would be required to purchase at a second closing (the
"Second Closing") a number of 8% preference shares equal to (i) the number of
shares it could purchase upon exercise of Rights it receives in the Rights
Offering in respect of the 8% preference shares it holds as of the record date
and (ii) any 8% preference shares not subscribed for in the Rights Offering;
provided that HM4 Triton is not required to purchase more than 3,177,500 8%
preference shares at the Second Closing. If all 3,177,500 8% preference shares
are issued, the total number of 8% preference shares outstanding (on an
as-converted basis) would represent approximately 35% of the Company's pro forma
ordinary shares outstanding. HM4 Triton's obligations to purchase any additional
8% preference shares at the Second Closing is subject to customary closing
conditions. On November 10, 1998, the Company announced that the Rights
Offering, as previously announced, would be delayed, and could possibly be
restructured or cancelled, following consideration by the Company of additional
capital raising alternatives.
Future Capital Needs
----------------------
The Company is continuing its efforts to reduce its general and
administrative expenses and exploration expenditures. Nevertheless, the Company
expects that cash from operating activities in 1999 will not be sufficient to
cover all of its capital needs for 1999. For internal planning purposes, the
Company is assuming that the West Texas Intermediate oil price will average
$14.00 per barrel in 1999, that average daily oil production from the Cusiana
and Cupiagua fields in 1999 will average approximately 430,000 barrels per day,
that the Company's share of capital expenditures in Colombia will be
approximately $85 million to $90 million (as currently estimated by the
operator) and that the Company will be successful in reducing its exploration
commitments by approximately one-half. Based on these assumptions, the Company
expects that it would spend at least $100 to $125 million more in cash in 1999
than it generates from operating activities. The Company expects to fund the
shortfall by a combination of cash on hand and, either proceeds from the Rights
Offering and the issuance of additional 8% preference shares to HM4 Triton
pursuant to the Purchase Agreement or other capital raising alternatives. These
assumptions may not prove to be valid or other factors may materially adversely
impact the Company's cash position. If the Rights Offering and the issuance of
the additional 8% preference shares to HM4 are not consummated, the Company
expects that it will be required to seek alternative sources of capital in early
1999.
In connection with the issuance of the 1,822,500 shares of 8% preference
shares to HM4 Triton in September 1998, the Company and HM4 Triton entered into
a Shareholders Agreement (the "Shareholders Agreement") pursuant to which, among
other things, HM4 Triton (and its designated transferees, collectively) may
designate a certain number of nominees for election to the Board. In addition,
the Shareholders Agreement provides that, for so long as HM4 Triton and its
affiliates continue to hold a certain minimum number of ordinary shares
(assuming conversion of 8% preference shares into ordinary shares), the Company
may not take certain actions without the consent of HM4 Triton, including (i)
entering into any merger or sale of substantial assets, (ii) issuing a class of
preference shares that would rank equal to or senior to the 8% preference
shares, (iii) paying dividends on ordinary shares or other shares ranking junior
to the 8% preference shares, other than regular dividends on the Company's 5%
convertible preference shares, or (iv) incurring indebtedness (other than
certain permitted indebtedness), or issuing preference shares, unless the
Company's leverage ratio at the time, after giving pro forma effect to such
incurrence or issuance and to the use of the proceeds, is less than 2.5 to 1. As
a result of HM4 Triton's ownership of 8% preference shares and ordinary shares
and the rights conferred upon HM4 Triton and its designees pursuant to the
Shareholders Agreement, HM4 Triton has significant influence over the actions of
the Company and will be able to influence, and in some cases, determine the
outcome of matters submitted for approval of the shareholders. The existence of
HM4 Triton as a shareholder of the Company may make it more difficult for a
third party to acquire, or discourage a third party from seeking to acquire, a
majority of the outstanding ordinary shares. A third party would be required to
negotiate any such transaction with HM4 Triton, and the interests of HM4 Triton
as a shareholder may be different from the interests of the other shareholders
of the Company.
RESULTS OF OPERATIONS
---------------------
Sales volumes and average prices realized were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1998 1997 1998 1997
-------- ------ ------ ------
Sales volumes
Oil (MBbls), excluding forward oil sale 2,620 1,374 6,585 3,805
Forward oil sale (1) (MBbls delivered) 762 762 2,287 1,700
-------- ------- ------- -------
Total 3,382 2,136 8,872 5,505
======== ======= ======= =======
Gas (MMcf) 109 277 376 481
Weighted average price realized:
Oil (per Bbl) $ 12.57 $ 17.18 $ 12.94 $ 17.93
Gas (per Mcf) $ 0.91 $ 1.06 $ 1.01 $ 1.14
(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, 1998,
COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1997
Sales and Other Operating Revenues
- --------------------------------------
Oil and gas sales for the third quarter of 1998 totaled $42.6 million, a
15% increase from the third quarter of 1997, due to higher production which was
partially offset by lower average realized oil prices. Oil production,
including production related to barrels delivered under the forward oil sale,
increased 58% in third quarter 1998, compared to the prior-year quarter,
resulting in an increase in revenues of $21.4 million. Gross production from
the Fields averaged 359,000 BPD for the third quarter 1998, compared to 220,000
BPD for the prior-year quarter. The increased production was primarily due to
the start-up in late 1997 of two new 80,000 BPD oil-production units at the
Cusiana central processing facility. In addition, a 100,000 BPD oil-production
unit at the Cupiagua central processing facility began production during the
latter-half of the third quarter. The average realized oil price decreased
$4.61 per barrel, or 27%, resulting in a decrease in revenues of $15.6 million
compared to the same period in 1997. 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.
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 in the Malaysia-Thailand Joint Development Area. The sale
resulted in an aftertax gain of $63.2 million.
Costs and Expenses
- --------------------
Operating expenses increased $5.2 million in 1998, and depreciation,
depletion and amortization increased $4.5 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 $5.76 and $6.58 in
1998 and 1997, respectively. Operating expenses on a per equivalent-barrel
basis were lower primarily due to higher production volumes and a decrease in
production taxes of $1.7 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. These improvements to operating cost were partially
offset by an increase in OCENSA pipeline tariffs which totaled $12.6 million or
$3.99 per barrel, and $7.2 million or $3.72 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.
In July 1998, the Company commenced a plan to restructure the Company's
operations, reduce overhead costs and substantially scale back exploration
related expenditures. As a result of the restructuring, the Company recognized
non-recurring charges totaling $15 million in the third quarter. The major
component of the non-recurring charges relates to the elimination of
approximately 105 positions or 41% of the Company's worldwide workforce. An
accrual of $11.2 million was included in non-recurring charges related to the
reduction in workforce for severence, benefit continuation and outplacement
costs. Additionally, the Company has closed or is in the process of closing
branch offices in four countries which resulted in a $2.1 million non-recurring
charge related to the termination of office leases and the write-down of related
assets to their fair market value. The Company expects to complete the closing
of its branch offices by the third quarter of 1999. The remaining non-recurring
charges of $1.7 million primarily related to the write-off of surplus fixed
assets resulting from the reduction in workforce.
General and administrative expense before capitalization decreased $5.5
million to $10.9 million in 1998. Capitalized general and administrative costs
were $4.5 million and $9.7 million in 1998 and 1997, respectively. General and
administrative expenses, and the portion capitalized, decreased as a result of
restructuring activities undertaken in the third quarter. The Company is
continuing its efforts to reduce its general and administrative expenses and
exploration expenses. As a result, 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 Expenses
- ----------------------------
Gross interest expense for 1998 and 1997 totaled $11.9 million and $12.3
million, respectively, while capitalized interest for 1998 decreased $1.4
million to $5.2 million. The decrease in capitalized interest is primarily 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. On September
30 and October 1, 1998, the Company repaid a total of $81.9 million under
unsecured bank credit facilities which constitutes all of the Company's
outstanding borrowings under bank credit facilities.
Other income, net included foreign exchange gains of $.8 million and $5.8
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 and 1997, the Company recognized
gains of $5.3 million and $1.4 million, respectively, on the sale of
non-operating assets. These gains were offset by an unrealized loss of $2.1
million on the change in the fair value of the equity swap in 1998.
Fluctuations in the fair value of the equity swap will continue to affect other
income as noncash adjustments, the magnitude of which cannot be predicted with
any certainty. See Item 1. Notes to Condensed Consolidated Financial
Statements, note 3 - Asset Dispositions.
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
of $1.5 million and $3.9 million, respectively. Current taxes related to the
Company's Colombian operations totaled $1.3 million and $1.4 million in 1998 and
1997, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1997
Sales and Other Operating Revenues
- --------------------------------------
Oil and gas sales in 1998 totaled $115.2 million, a 16% increase from the
prior year, due to higher production which was offset partially by lower average
realized oil prices. Oil production, including production related to barrels
delivered under the forward oil sale, increased 61% in 1998 compared to the
prior year, resulting in increased revenues of $60.5 million. Gross production
from the Fields averaged 324,000 BPD in 1998, compared to 195,000 BPD in 1997.
The increased production was primarily due to the start-up in late 1997 of two
new 80,000 BPD oil-production units at the Cusiana central processing facility.
In addition, a 100,000 BPD oil-production unit at the Cupiagua central
processing facility began production in the latter-half of the third quarter of
1998. The average realized oil price decreased $4.99 per barrel, or 28%,
resulting in a decrease in revenues of $44.4 million compared to 1997. 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.
Costs and Expenses
- --------------------
Operating expenses increased $19.8 million in 1998, and depreciation,
depletion and amortization increased $13.9 million, primarily due to higher
production volumes, including barrels delivered under the forward oil sale. The
Company's operating costs per equivalent-barrel were $6.44 and $6.75 in 1998 and
1997, respectively. OCENSA pipeline tariffs totaled $38.2 million or $4.51 per
barrel, and $19.6 million or $3.83 per barrel in 1998 and 1997, respectively.
The increase in OCENSA pipeline tariffs was partially offset by a decrease in
production taxes of $5.6 million.
General and administrative expense before capitalization decreased $6.5
million in 1998 to $38.1 million. Capitalized general and administrative costs
were $17.5 million and $24.4 million in 1998 and 1997, respectively. General and
administrative expense and the portion capitalized, decreased as a result of
restructuring activities undertaken in the third quarter.
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
that, after a differential for Cusiana crude delivered at the port of Covenas in
Colombia, resulted in a net price of approximately $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 plan to restructure operations and scale back
exploration related expenditures, the Company assessed its investments in
exploration licenses and determined that certain investments were impaired. 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 related to the Company's
exploration projects in certain other areas of the world.
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.
Other income, net included foreign exchange gains of $2.5 million and $8.7
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 and 1997, the Company recognized
gains of $6.8 million and $1.5 million, respectively, on the sale of
non-operating assets. An unrealized gain (loss) of $.5 million and ($3.4
million) was recognized 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. These gains were offset by an unrealized loss of $2.9 million
on the change in the fair market value of the equity swap in 1998. See Item 1.
Notes to Condensed Consolidated Financial Statements, note 3 - Asset
Dispositions.
Income Taxes
- -------------
The income tax provisions for 1998 and 1997 included deferred tax expense
(benefit) of ($34.3 million) and $5.6 million, respectively. The benefit
recognized in 1998 primarily resulted from the writedown of oil and gas
properties. Current taxes related to the Company's Colombian operations totaled
$2.6 million and $3.2 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 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. The
remainder of the 9 3/4% Notes were retired in 1998.
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 Year 2000 issue involves circumstances where a computerized system may
not properly recognize or process date-sensitive information on or after January
1, 2000. The Company began a formal process in 1998 to identify those internal
computerized systems that are not Year 2000 compliant, prioritize those
business-critical computerized systems that need remediation or replacement,
test compliance once the appropriate corrective measures have been implemented,
and develop any contingency plans where considered necessary. In addition, the
Company intends to conduct a survey of partners, vendors and customers that the
Company believes could have an impact on the Company's material business
operations.
The Company's information technology infrastructure consists of desktop
Pentium class Intel based PC systems, servers and Sparc UNIX based computers and
off-the-shelf software packages. The systems are networked via Microsoft NT 4.0
and other telecommunications equipment. The Company does not use mini or
mainframe computer systems and uses only off-the-shelf software products. The
PBX and phone system is a standard off-the-shelf phone system with voice mail
capability. Additionally, telefax and copier machines are additional business
tools used by the Company in conducting its day to day activities.
The Company has substantially completed its assessment of Year 2000
readiness of its internal computerized systems. The next phase will include
installing upgrades to its off-the-shelf financial and operational software
applications, hardware and telecommunications equipment. The Company expects
that such remediation procedures will be completed by the second quarter of
1999. The last phase will include testing of newly upgraded systems to ensure
compliance with Year 2000 date recognition and the development of contingency
plans. The Company expects to complete this last phase by the third quarter of
1999.
All of the Company's sales are derived from oil and gas production
from the Fields, which is heavily dependent upon the operation of the Fields
by British Petroleum Colombia (the "Operator") and the transportation of
oil through OCENSA, the Colombian pipeline company. The Company is monitoring
progress of the Operator of the Fields and OCENSA on their activities related
to the Year 2000. At this time, the Company expects that field operations
will not be interrupted due to improper recognition of the Year 2000 by
computerized systems of the Operator of the Fields or OCENSA. There can be
no assurance that the Operator of the Fields or OCENSA will not experience
problems with the Year 2000, or that contingency plans will resolve any
problems experienced, or the timeliness of implementing such contingency plans.
The Company also relies on other oil and gas partners, vendors, and financial
institutions in its daily operations. The Company believes it has identified
those third-party relationships that could have a material adverse effect on the
Company's results of operations and financial position should their computerized
systems not be compliant for the Year 2000. The Company intends to survey the
identified third parties on their readiness for the Year 2000 and establish
appropriate alternatives, if needed, where noncompliance may pose a risk to the
Company's operations.
The Company does not believe that the costs to resolve any Year 2000 issues will
be material. To date, the Company has spent less than $100,000 on Year 2000
matters and it expects that the total cost, primarily consulting fees, will not
exceed $700,000.
The failure to correct a material Year 2000 problem by the Company, its
partners or other vendors could result in an interruption of the Company's
normal business activities or operations, including production in the Fields or
transportation of the Company's crude oil to the port of Covenas. Any
interruptions could result in a material adverse effect on the Company's results
of operations, cash flows and financial condition. Due to the inherent
uncertainties relating to the effect of the Year 2000 on the Company's
operations, it is difficult to predict what impact, if any, noncompliance with
the Year 2000 issue will have on the Company's results of operations, cash flows
and financial condition.
As the Company progresses further through its Year 2000 analysis, it
intends to develop contingency plans for risks that could cause a material
adverse effect on the Company's results of operations, cash flows and financial
condition.
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 21E of the Securities Exchange Act of 1934, as amended,
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 completion of production facilities; the closing of branch
offices; changes in gross general and administrative expense and the portion
that will be capitalized; 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 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 through October 1998, eight lawsuits were filed against the Company and
Thomas G. Finck, the former Chairman and Chief Executive Officer of the Company,
seven of which also are brought against Peter Rugg, the Chief Financial Officer
of the Company. Each case was 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, and seeks recovery of compensatory damages, fees
and costs. 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. Additionally, one case alleges negligent misrepresentation
and seeks recovery of punitive damages. 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 Limited, et al.; Ken Bortner, et al. v. Triton Energy Limited, et al.;
Richard Zorn, et al. v. Triton Energy Limited, et al.; Elizabeth Clofine, et al.
v. Triton Energy Limited, et al.; and Sarah Schreiber, et al. v. Triton Energy
Limited, et al. On September 21, 1998, a motion for consolidation and for
appointment as lead plaintiffs and for approval of selection of lead counsel was
filed with respect to the cases filed in the Texarkana Division. That motion is
presently pending.
The Company believes it has meritorious defenses to these claims and intends to
vigorously defend these actions. No discovery has been taken at this time, and
the ultimate outcome is not currently predictable. There can be no assurance
that the litigation will be resolved in the Company's favor. An adverse result
could have a material adverse effect on the Company's financial position or
results of operations
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 30, 1998, the Company issued to HM4 Triton, an affiliate of Hicks,
Muse, Tate & Furst Incorporated, 1,822,500 shares of 8% preference shares for
$70.00 per share, or total proceeds of $127.6 million (before expenses of $10.8
million). The Company issued the shares to HM4 Triton in a private offering
without registration under the Securities Act of 1933 (the "Act"), as amended,
in reliance on the exemption from registration provided by Section 4(2) of the
Act. Each 8% preference share is convertible at any time at the option of the
holder into four ordinary shares of the Company (subject to certain antidilution
protections). Pursuant to the Shareholders Agreement between the Company and
HM4 Triton, L.P., for so long as HM4 Triton and its affiliates continue to hold
a certain minimum number of ordinary shares (assuming conversion of 8%
preference shares into ordinary shares), the Company may not take certain
actions without the consent of HM4 Triton, including paying dividends on
ordinary shares or other shares ranking junior to the 8% preference shares,
other than regular dividends on the Company's 5% convertible preference shares.
In addition, the terms of the 8% preference shares prohibit the payment of
dividends on the ordinary shares unless full cumulative dividends on all such
outstanding shares have been paid in full or set aside for payment. Under
the provisions of the Company's Articles of Association, the terms of the 8%
preference shares can be amended with the approval of the holders of at
least two-thirds of the 8% preference shares voting separately as a class.
See Item 1. Notes to Condensed Consolidated Financial Statements - note 9 Sale
of 9% Preference Shares and Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Requirements.
ITEM 5. OTHER INFORMATION.
In July 1998, Thomas G. Finck resigned from his positions as Chairman of the
Board and Chief Executive Officer of the Company, Sheldon R. Erikson was elected
Chairman of the Board, Robert B. Holland, III, was elected Interim Chief
Executive Officer and Nick De'Ath resigned from his position as Senior Vice
President Exploration of the Company.
Pursuant to the Shareholders Agreement, on September 30, 1998, the size of the
Company's Board of Directors was set at ten, and HM4 Triton exercised its right
to designate four out of such ten directors. The Company's Board of Directors
now consists of the following individuals: Sheldon R. Erikson, Chairman,
President and Chief Executive Officer of Cooper Cameron Corporation; Jack D.
Furst, a Managing Director and Principal of Hicks, Muse, Tate & Furst
Incorporated; Thomas O. Hicks, Chairman and Chief Executive Officer of Hicks,
Muse, Tate & Furst Incorporated; Fitzgerald S. Hudson, a General Partner of
Hudson Group Partners; John R. Huff, Chairman and Chief Executive Officer of
Oceaneering International, Inc.; Michael E. McMahon, Principal of Rockport
Partners; James C. Musselman, Chairman, President and Chief Executive Officer of
Avia Energy Development, LLC, and currently the President and Interim Chief
Executive Officer of the Company; Lamar Norsworthy, Chairman and Chief Executive
Officer of The Holly Corporation; C. Richard Vermillion, Chairman of Gammaloy
Holdings L.P.; and J. Otis Winters, Chairman-Director of Pate, Winters & Stone,
Inc. Messrs. Furst, Hicks, Vermillion and Winters are new to the Board, while
Messrs. Erikson, Hudson, Huff, McMahon, Musselman and Norsworthy had previously
been serving as members of the Board. Effective September 30, 1998, Messrs.
Ernest E. Cook, Jesse E. Hendricks, Thomas P. Kellogg, Jr., John P. Lewis, and
Edwin D. Williamson resigned from the Board.
In October 1998, the Board of Directors of the Company elected Mr. Thomas O.
Hicks Chairman of the Board of the Company, James C. Musselman President and
Interim Chief Executive Officer, and Robert B. Holland, III Chief Operating
Officer. The Board is continuing its search for a permanent Chief Executive
Officer.
In connection with the July 1998 change in management, in an effort to retain
the remaining members of the senior management team, the Company entered into
amended and restated employment agreements with Robert B. Holland, III, then the
Interim Chief Executive Officer of the Company, Peter Rugg, Senior Vice
President and Chief Financial Officer, and Al E. Turner, Senior Vice President,
Operations. The new employment agreements did not change the benefits previously
provided under the prior employment agreements with respect to a change in
control (although the definition of change in control was amended to reduce the
percentage of outstanding securities required to be purchased in order for a
change of control to be triggered from 25% to 15%), except that the new
agreements provide that, (i) rather than the officer being entitled to a cash
payment in lieu of issuing shares in respect of any options held by the officer,
such options would remain outstanding and be exercisable for one year from the
date of termination, and (ii) the officer would be entitled to the lump sum
payment under the Company's Supplemental Executive Retirement Plan in the event
of a change in control as defined in that plan. The new agreements also added a
severance benefit in the event the officer were terminated without cause, or for
good reason, prior to a change in control. In the event of a termination prior
to a change in control, the officer would be entitled to the following benefits:
(i) salary for eighteen months following the date of termination and (ii) any
stock options would become fully vested and remain exercisable for one year. As
a result of the sale of the 1,822,500 8% preference shares to the Purchaser, a
change in control has been deemed to have occurred for the purposes of these
amended and restated agreements. Therefore, if any of Messrs. Holland, Rugg or
Turner is terminated without cause, or if any such officer terminates his
employment for good reason, then such officer will be entitled to the benefits
provided in the agreements. For purposes of these agreements, "good reason"
includes (i) the assignment to the officer of duties inconsistent with his
positions, responsibilities and status with the Company, or a change in his
reporting responsibilities, titles or offices with the Company, as in effect
immediately prior to the change in control, (ii) a reduction in the officer's
base salary, (iii) the officer being required based anywhere other than the
Company's offices immediately prior to the change in control and (iv) the
failure by the Company to continue in effect any benefit plan. In addition, Mr.
Holland's agreement was amended to include within the definition of good reason
the appointment of a new President or 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)
4.5 Unanimous Written Consent of the Board of Directors authorizing a Series of
Preference Shares. (26)
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. (26)
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)
10.67 Stock Purchase Agreement dated as of August 31, 1998 between Triton Energy
Limited and HM4 Triton, L.P. (26)
10.68 Shareholders Agreement dated as of September 30, 1998 between Triton Energy
Limited and HM4 Triton, L.P. (26)
10.69 Financial Advisory Agreement dated as of September 30, 1998 between Triton Energy
Limited and Hicks, Muse & Co. Partners, L.P. (26)
10.70 Monitoring and Oversight Agreement dated as of September 30, 1998 between Triton
Energy Limited and Hicks, Muse & Co. Partners, L.P. (26)
10.71 Amended and Restated Employment Agreement among Triton Energy Limited, Triton
Exploration Services, Inc. and Robert B. Holland, III. (26)
10.72 Form of Amended and restated Employment Agreement among Triton Energy Limited,
Triton Exploration Services, Inc. and each of Peter Rugg and Al E. Turner. (26)
10.73 Second Amendment to 1997 Share Compensation Plan. (26)
10.74 Severance Agreement dated as of July 15, 1998 between Thomas G. Finck and Triton
Energy Limited. (26)
12.1 Computation of Ratio of Earnings to Fixed Charges. (26)
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preference
Dividends. (26)
27.1 Financial Data Schedule.(26)
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) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 and incorporated herein by reference.
(26) Filed herewith.
(b) Reports on Form 8-K
On August 17, 1998, the Company filed a Current Report on Form 8-K reporting the
sale to ARCO of one-half of the shares of the subsidiary through which the
Company owned its 50% share of Block A-18.
On September 9, 1998, the Company filed a Current Report on Form 8-K reporting
the execution of the Stock Purchase Agreement with HM4 Triton.
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 13, 1998