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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year
ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934
Commission File Number 1-8094
SEAGULL ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1764876
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1001 Fannin, Suite 1700
Houston, Texas 77002-6714
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 951-4700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $.10 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 20, 1997, the aggregate market value of the outstanding
shares of Common Stock of the Company held by non-affiliates (based on the
closing price of these shares on the New York Stock Exchange) was approximately
$1,145,771,074.
As of March 20, 1997, 62,931,403 shares of Common Stock, par value
$0.10 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
(1) Annual Report to Shareholders for PARTS I and II
year ended December 31, 1996
(2) Proxy Statement for Annual Meeting PART III
of Shareholders to be held on May 13, 1997
PART I
Item 1. Business
Seagull Energy Corporation (the "Company" or "Seagull") is an
international oil and gas company engaged primarily in exploration and
development activities in the United States, Canada, Egypt, Cote d'Ivoire,
Indonesia and the Russian Republic of Tatarstan. It also transports, distributes
and markets natural gas, liquids products and petrochemicals in the U.S. and
Canada. The Company was incorporated in Texas in 1973 as a wholly owned
subsidiary of Houston Oil & Minerals Corporation ("HO&M"). In March 1981, the
Company became an independent entity as a result of the spin-off of its shares
to the stockholders of HO&M. The growth in the Company's exploration and
development activities has been achieved primarily through acquisitions: HO&M in
1988, Houston Oil Trust in 1989, Wacker Oil Inc. in 1990, certain oil and gas
assets from Mesa Limited Partnership in 1991, Arkla Exploration in 1992, Novalta
Resources Inc. in 1994, and two Egyptian concessions purchased from units of
Exxon Corporation in 1996.
On October 3, 1996, the shareholders of Seagull and Global Natural
Resources Inc. ("Global") approved a merger of a wholly owned subsidiary of
Seagull into Global (the "Global Merger"). Pursuant to the Global Merger, each
share of Global common stock was converted into 0.88 shares of Seagull common
stock with approximately 26.3 million shares issued to the shareholders of
Global. The Global Merger was accounted for as a pooling of interests. Therefore
all financial information and statistics have been restated. The "Company" or
"Seagull" refers to Seagull and its consolidated subsidiaries, unless otherwise
indicated or the context otherwise suggests.
For financial information relating to industry segments, see Note 13 of
Notes to Consolidated Financial Statements of Seagull Energy Corporation and
Subsidiaries. The Consolidated Financial Statements of Seagull Energy
Corporation and Subsidiaries and the Notes related thereto (the "Consolidated
Financial Statements") are included in the Company's 1996 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto.
Items 1, 3 and 7 of this document include forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although Seagull
believes that its expectations are based on reasonable assumptions, it can give
no assurance that its goals will be achieved. Important factors that could cause
actual results to differ materially from those in the forward looking statements
include political developments in foreign countries, federal and state
regulatory developments, the timing and extent of changes in commodity prices,
the timing and extent of success in discovering, developing and producing or
acquiring oil and gas reserves and conditions of the capital and equity markets
during the periods covered by the forward looking statements.
OIL AND GAS OPERATIONS
Seagull's Oil and Gas Operations ("O&G") segment is the Company's
primary business segment and is comprised of the following material direct and
indirect wholly owned subsidiaries of the Company: Seagull Energy E&P Inc.;
Global Natural Resources Inc.; Seagull Midcon Inc.; Seagull Mid-
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South Inc., Seagull Energy Canada Ltd. ("Seagull Canada"), Seagull East Zeit
Petroleum Ltd. and various other subsidiaries.
Natural gas is stated herein in billion cubic feet ("Bcf"), million
cubic feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural
gas liquids ("NGL") are stated in barrels ("Bbl"). MMcfe and Mcfe represent the
equivalent of one million and one thousand cubic feet of natural gas,
respectively. Oil, condensate and NGL are converted to gas at a ratio of one
barrel of liquids per six Mcf of gas, based on relative energy content. MBOE and
BOE represent one thousand barrels of oil equivalent and one barrel of oil
equivalent, respectively, with six Mcf of gas converted to one barrel of liquid.
As used in this Annual Report on Form 10-K, liquids means oil, condensate and
natural gas liquids, unless otherwise indicated or the context otherwise
suggests.
Revenues from the O&G segment accounted for 81%, 76% and 78% of the
Company's consolidated revenues for 1996, 1995 and 1994, respectively.
Production of gas and liquids for 1996 averaged 391.5 MMcf per day ("MMcf/d")
and 13,409 Bbl per day ("Bbl/d"), respectively, compared to 382.6 MMcf/d and
8,753 Bbl/d, respectively, in 1995. Oil production in 1996 increased from the
prior year primarily as a result of increased production in Egypt and Cote
d'Ivoire. In September 1995, the Company sold substantially all of its gas
gathering and processing assets. With the sale of these assets, Seagull's
former Exploration and Production segment and the Pipeline and Marketing segment
have been reclassified into Oil and Gas Operations.
Seagull's principal oil and gas producing properties include the
following:
Proved Reserves at December 31, 1996
--------------------------------------------------------------------------------------
Gas (MMcf) Oil (Mbbl) MBOE
-------------------------- ------------------------- -------------------------
UNITED STATES:
Arkoma Basin.................. 121,896 - 20,316
Arklatex Area................. 297,719 7,687 57,306
Mid-Continent Area............ 203,692 7,958 41,906
Offshore Gulf of Mexico....... 82,095 2,404 16,087
Gulf Coast Onshore............ 27,608 1,166 5,767
Other......................... 82,771 670 14,465
-------------------------- ------------------------- -------------------------
815,781 19,885 155,847
CANADA.......................... 233,744 3,725 42,682
EGYPT:
Qarun......................... 1,447 9,462 9,703
East Zeit..................... - 16,262 16,262
-------------------------- ------------------------- -------------------------
1,447 25,724 25,965
COTE D'IVOIRE................... 21,644 1,525 5,132
TATARSTAN....................... - 16,338 16,338
INDONESIA....................... 65,217 1,125 11,993
-------------------------- ------------------------- -------------------------
1,137,833 68,322 257,957
========================== ========================= =========================
For additional information relating to the Company's oil and gas
reserves, based substantially upon reports of DeGolyer and MacNaughton,
Netherland, Sewell & Associates, Inc. and Ryder Scott Company, independent
petroleum engineers (collectively the "Engineers"), see Note 15 of the
Consolidated Financial Statements included in the Company's 1996 Annual Report
to Shareholders and as part of Exhibit 13 attached hereto. The Engineers
provided the estimates of "proved developed and undeveloped reserves" and
"proved developed reserves" at the beginning and end of each of the three years
included in Note 15. Under "Standardized Measure of Discounted Future Net Cash
Flows" in Note 15, the Engineers provided all information except "discounted
income taxes" and "standardized measure of discounted future net cash flows."
All information in Note 15 not provided by the Engineers
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was supplied by the Company. The Company's reserve estimates in Indonesia have
been obtained by the Company from a public source which, although not
independently verified, the Company believes to be reliable. As required,
Seagull also files estimates of oil and gas reserve data with various
governmental regulatory authorities and agencies. The basis for reporting
reserves to these authorities and agencies, in some cases, may not be
comparable. However, the difference in estimates does not exceed 5%.
The future results of this segment will be affected by the market
prices of natural gas and liquids and the degree of internal exploration and
exploitation success. The availability of a ready market for gas and liquids
products in the future will depend on numerous factors beyond the control of the
Company, including weather, production of other natural gas and liquids
products, imports, marketing of competitive fuels, proximity and capacity of gas
and liquids pipelines and other transportation facilities, demand for storage
refills, any oversupply or undersupply of gas and liquids products, the
regulatory environment and other regional, international and political events,
none of which can be predicted with certainty.
UNITED STATES
Most of the Company's proved oil and gas reserves and annual
production are contributed by properties in the United States. These properties
are generally located in three geographic areas -- the Mid-South region, the
Mid-Continent region and the Gulf Coast region. The Company's capital program
for 1997 is designed to hold domestic reserves and deliverability to
approximately year-end 1996 levels. In addition, Seagull will continue to pursue
small acquisitions to increase its domestic reserves and deliverability. Capital
expenditures, excluding small acquisitions, for the Company's domestic
activities are expected to be approximately $114 million for 1997, including $50
million for exploration, $57 million for development and $7 million for
leaseholds.
Mid-South Region
The Company's Mid-South properties are situated generally in the Arkoma
Basin of eastern Oklahoma and western Arkansas and the Arklatex area of east
Texas and northwest Louisiana. Combined, these two areas held proved reserves
totaling 77,622 MBOE at December 31, 1996, 30% of the Company's total proved
reserves. These proved reserves are contained in some 80 fields in which there
are approximately 1,300 producing wells. Production from these two areas at
December 31, 1996, averaged approximately 28 MBOE per day.
The Company's continuing expenditures in the Mid-South region are
devoted principally to exploitation activities. Such expenditures in 1996, which
totaled $34.0 million, were devoted to 81 development wells. Plans for 1997 call
for 69 development wells and capital spending of about $31 million. The Company
estimates that it held approximately 313 development drilling locations in the
area at the end of 1996.
Mid-Continent Region
The Company's Mid-Continent properties are situated generally in the
Anadarko Basin of the Texas Panhandle and western Oklahoma. This area held
proved reserves totaling 41,906 MBOE at December 31, 1996, some 16% of the
Company's total proved reserves. These proved reserves are
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contained in 20 fields in which there are approximately 900 producing wells.
Production from this area at December 31, 1996, averaged approximately 16 MBOE
per day.
The Company's continuing expenditures in the Mid-Continent region are
devoted principally to exploitation activities. Such expenditures in 1996, which
totaled $19.3 million, were devoted primarily to 39 development wells. Plans for
1997 call for 66 development wells and capital spending of about $21 million.
The Company estimates that it held 314 approximately development drilling
locations in the area at the end of 1996.
Gulf Coast Region
The Company's Gulf Coast region properties are located onshore in south
Texas and south Louisiana and offshore in the Gulf of Mexico off the coasts of
the same two states. As of December 31, 1996, the Company's holdings in the Gulf
Coast region totaled 21,854 MBOE of proved reserves, representing 8% of the
Company's total such reserves.
The Company at December 31, 1996, had 68 undrilled exploratory
prospects in its Gulf Coast region, some 60 of which were located offshore.
Further, the Company estimates that it held approximately 20 development
drilling locations at year-end 1996.
Both exploration and exploitation activities are conducted in this
region. In 1996 such activity consisted of 28 exploratory and 5 development
wells and cumulative capital spending of $86.4 million. The Company's capital
budget but also for development drilling and the acquisition of offshore leases
for 1997 anticipates spending of $62 million, primarily for 24 exploratory wells
but also for development drilling and the acquisition of offshore leases in the
Gulf Coast region.
CANADA
The Company's operations in Canada consist of interests in a small
number of fields located in Alberta, Canada. As of December 31, 1996, the
Company's holdings in Canada totaled 42,682 MBOE representing 17% of the
Company's reserves. Seagull's 1997 capital program includes approximately $15
million in exploratory and development capital expenditures for Canadian
operations.
EGYPT
The Company's Egyptian operations consist of working interests in two
producing (Qarun and East Zeit) and three exploratory (East Beni Suef, Darag and
South Hurghada) concessions. As discussed below, the East Zeit and South
Hurghada concessions were purchased in 1996. The Company's interests in Qarun,
East Beni Suef and Darag were owned by Global prior to the Global Merger.
Each concession is governed by a concession agreement (collectively,
the "Egyptian Concession Agreements") between the working interest partners and
the Egyptian national oil company ("EGPC"). Under the Egyptian Concession
Agreements, the working interest partners pay 100% of capital and
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operating costs and production is split between EGPC and the working interest
partners. Working interest partners recover costs from a percentage, which
varies by concession, of the oil and gas produced and sold from the applicable
concession ("cost recovery petroleum"). See the discussions of each concession
below for the applicable cost recovery percentage. Cost recovery petroleum forms
a single unified pool for the entire concession from which costs of all fields,
zones, products and types may be recovered without differentiation, except that
operating costs are recovered prior to the recovery of any capital costs.
Capital costs (which include exploration, development and other equipment and
facilities costs) are amortized for recovery over four to five years while
operating expenses are recoverable on a current basis. To the extent that the
costs eligible for recovery in any quarter exceed the amount of cost recovery
petroleum produced and sold in that quarter, such costs are recoverable from
cost recovery petroleum in future quarters with no limit on the ability to carry
forward such costs.
The remaining oil and gas produced and sold ("remaining oil" or
"remaining gas") is divided between EGPC and the working interest partners. See
the discussions of each concession below for the applicable remaining oil or gas
percentage. From EGPC's share of this remaining oil or gas, all Egyptian
government royalties as well as the applicable Egyptian income taxes of the
working interest partners are paid.
Qarun
The Company has a 25% non-operated working interest in the Qarun
Concession Agreement ("QCA"). The concession covers approximately 1.9 million
gross acres located 45 miles southwest of Cairo, Egypt. Exploratory drilling
activities began in mid 1994. Initial oil production, via trucking, began in
late 1995 while conventional development facilities were completed in late 1996.
These development facilities are expected to be fully operational in early 1997.
As required by the QCA, the Qarun Production Company was formed in 1995 to
operate the Qarun block and is jointly owned by the QCA partners and EGPC. Under
the QCA, cost recovery petroleum may be up to 40% of the oil and gas produced
and sold. Any portion of cost recovery petroleum not used to recover costs goes
to EGPC. The working interest partners receive 20%-30% of the remaining oil
depending upon production levels and 22% of the remaining gas. Up to 16
exploratory wells, as well as ongoing development activities, are scheduled on
the Qarun concession during 1997. Plans for 1997 include approximately $30
million in capital expenditures net to the Company's 25% working interest.
East Zeit
On September 10, 1996, Seagull purchased the East Zeit and South
Hurghada concessions from units of Exxon Corporation (the "Esso Suez
Acquisition") for a net purchase price of $74 million. The Company, as operator,
has a 100% working interest in the East Zeit concession which is located
offshore in the Gulf of Suez. Under terms of the concession agreement, cost
recovery petroleum may be up to 25% of the oil produced and sold. Any portion of
cost recovery petroleum not used to recover costs goes to EGPC. As the working
interest partner, the Company receives 15% of remaining oil (11.25% of total oil
production). However, the Company receives no allocation of gas production as
all such production is taken by EGPC. Plans for 1997 include approximately $30
million in capital expenditures, primarily for development activities and one
exploratory well.
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East Beni Suef
Seagull, as the operator, has a 50% working interest in the East Beni
Suef Concession Agreement. The concession covers approximately 6.8 million gross
acres lying adjacent and to the south of the Qarun concession. The working
interest partners have committed to drill one exploratory well in the initial
three year exploratory period. The exploration rights may be extended for an
additional six years by the assumption of additional drilling obligations. Up to
40% of the oil and gas produced and sold is available as cost recovery
petroleum. The working interest partners receive 15%-30% of the remaining oil
depending upon production levels and 25% of the remaining gas. Any portion of
cost recovery petroleum not used to recover costs is shared among the working
interest partners and EGPC in the same manner as remaining petroleum. The
Company has budgeted just over $3 million for 1997 capital expenditures in the
block, including its share of the first two exploratory wells.
Darag
The Company has a 50%, non-operated working interest in the Darag block
which is located in the northern portion of the Gulf of Suez, and covers 460,000
gross acres. Up to 40% of the oil and gas produced and sold is available as cost
recovery petroleum. Any portion of cost recovery petroleum not used to recover
costs is shared among the working interest partners and EGPC in the same manner
as remaining petroleum. The working interest partners receive 13%-30% of the
remaining oil based on the level of production and 25% of the remaining gas. The
Company's 1997 capital budget is just over $5 million, including its share of
two exploratory wells.
South Hurghada
As discussed above, the South Hurghada Concession Agreement, covering
over 61,000 million acres, was acquired on September 10, 1996. Seagull, as
operator, has a 100% working interest in the concession located onshore on the
coast of the Gulf of Suez approximately 250 miles south of Cairo. Up to 40%
of the oil and gas produced and sold is available as cost recovery petroleum.
Any portion of cost recovery petroleum not used to recover costs goes to EGPC.
The Company receives 12%-20% of the remaining oil depending upon production
levels and 20% of the remaining gas. While there are currently no producing
activities at South Hurghada, there are two existing oil discoveries. Projected
1997 capital spending in the block approximates $11 million, primarily for
geophysical data acquisition and evaluation, two exploratory wells and
installation of production facilities.
COTE D'IVOIRE
Seagull's operations in Cote d'Ivoire, West Africa consist of working
interests in three blocks- CI-11, CI-12 and CI-104. Each block is subject to a
Production Sharing Contract ("PSC") with similar terms for each of the blocks.
Under the terms of the PSCs, the working interest partners pay 100% of capital
and operating costs, and production is split between the Ivorian government and
the working interest partners. Working interest partners recover costs from a
percentage, which varies by concession, of the oil and gas produced and sold
from the applicable contract area ("cost recovery petroleum"). See the
discussions of each concession below for the applicable cost recovery
percentage. Cost recovery petroleum forms a single unified pool for the entire
PSC from which costs of all fields, zones, products and types may be recovered
without differentiation, except that operating and financing costs are recovered
prior to the recovery of any capital costs. Capital costs include exploration,
development and
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other equipment and facilities costs. To the extent that the costs eligible for
recovery in any calendar year exceed the amount of cost recovery petroleum
produced and sold in that quarter, such costs are recoverable from cost recovery
petroleum in future years with no limit on the ability to carry forward such
costs. Any portion of cost recovery petroleum not used to recover costs will be
split between the Ivorian government and the working interest partners in the
same manner as remaining petroleum.
The remaining oil and gas produced and sold is divided between the
Ivorian government and the working interest partners. See the discussions of
each concession below for the applicable remaining oil and gas percentage. From
the Ivorian government's share of remaining petroleum, all Ivorian government
royalties as well as the applicable Ivorian income taxes for the working
interest partners are paid.
CI-11
Pursuant to the CI-11 PSC, the Company has a 13.2% unitized working
interest in the area located from onshore to approximately eight miles offshore
Cote d'Ivoire. Under this PSC, 40% of the oil and gas produced and sold is
available as cost recovery petroleum. The working interest partners receive
10%-50% of the remaining petroleum based on the level of production and the
water depth location of the specific wellhead. The Company has budgeted
approximately $16 million as its share of 1997 capital spending, primarily
for development drilling and facilities.
CI-12
In April 1995, the Company signed a PSC for block CI-12 which lies
adjacent to the west of block CI-11. The Company acquired a 16.67% working
interest in the PSC which covers approximately 525,000 gross acres. The working
interest partners have committed to drill one exploratory well in the initial
two year period. The exploration rights may be extended for an additional four
years by the assumption of additional drilling obligations. The terms and
conditions of the CI-12 PSC are similar to those of CI-11, except that 50% of
the oil and gas produced is available to recover costs. The Company's capital
budget for 1997 includes just over $2 million for CI-12, primarily for its share
of two exploratory wells.
CI-104
In 1996, the Company received a 100% working interest in block CI-104,
which lies adjacent to the west of block CI-12 and covers approximately 250,000
gross acres. The Company has committed to drill one exploratory well in the
initial two year period. The exploration rights may be extended for an
additional four years by the assumption of additional drilling obligations.
While the terms and conditions of the CI-104 PSC are similar to those of CI-11,
75% of the oil and gas produced is available to recover costs. The Company
receives 30%-50% of the remaining petroleum depending upon production levels
and the water depth location of the specific wellhead. Seismic work is scheduled
to begin in 1997 with initial drilling beginning in 1998.
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TATARSTAN
Through its 90% owned subsidiary, Texneft, the Company has a net 45%
interest in a joint venture in Tatarstan, a republic in the Russian Federation
located west of the Ural Mountains and east of the Volga River. The joint
venture is with Tatneft, a Russian open joint stock company. The joint venture,
Tatex, operates various oil fields in Tatarstan. Under the terms of the joint
venture and various supplemental agreements, the funding for the joint venture
is supplied by Texneft and Tatneft through various credit agreements.
The joint venture's activities currently include three projects: (i)
vapor recovery, (ii) the development and operation of the Onbysk field and (iii)
the upcoming development and operation of the Suncheleevsky and Demkinsky
fields. Texneft's share of capital spending for 1997 is some $6 million,
primarily for development drilling and facilities.
INDONESIA
Seagull has a 1.714% interest in the Indonesia Joint Venture
("IJV") for the exploration, development and production of oil and gas in East
Kalimantan, Indonesia, under a production sharing contract with Perusahaan
Pertambangan Minyak Dan Gas Bumi Negara, the state petroleum enterprise of
Indonesia ("Pertamina"). The majority of the revenue derived from the IJV
results from the sale of liquefied natural gas ("LNG"). Under the terms of the
PSC with Pertamina, the IJV is authorized to explore for, develop and produce
petroleum reserves in an approximately 1.1 million acre area in East Kalimantan.
In accordance with the requirements of the PSC, which expires on August 7, 2018,
the IJV must relinquish 10% of the PSC area by August 7, 1998, 10% by December
31, 2000; 15% by each December 31, 2001, 2002 and 2004. However, the IJV is not
required to relinquish any of the PSC area in which oil or gas is held
for production.
Under the PSC, the IJV participants are entitled to recover cumulative
operating and certain capital costs out of the oil and gas produced each year,
and to receive a share of the remaining oil production and a share of the
remaining revenues from the sale of gas on an after Indonesian tax basis.
Through August 7, 1998, the share of revenues from the sale of gas after cost
recovery will remain at 35% to the IJV and 65% to Pertamina. After August 7,
1998, the split will be (i) 25 % to the IJV and 75% to Pertamina for gas sales
under various LNG sales contracts specified in the PSC to the extent that
production is committed from the Badak or Nilam fields and (ii) 30% to the IJV
and 70% to Pertamina for all LNG revenues from other fields. Based on current
and projected oil production, the revenue split from oil sales after cost
recovery through August 7, 2018 will remain at 15% to the IJV and 85% to
Pertamina. These revenue splits are based on Indonesian income tax rates of 56%
through August 7, 1998 and 48% thereafter.
OTHER INTERNATIONAL
The Company's other international operations consist of activities in
the United Kingdom and Malaysia. In the United Kingdom, Seagull has several
production licenses awarded to two exploration groups which include Seagull.
Although the Company currently has no producing properties in the
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United Kingdom, a well designed to delineate a 1994 discovery is scheduled for
late 1997. While Seagull currently has several minor interests in Malaysia,
exploratory efforts in 1993 and 1994 did not find commercial quantities of
hydrocarbons. The Company and its joint venture partners do not currently have
any additional plans for activities in Malaysia.
OIL AND GAS DRILLING ACTIVITIES
Seagull's oil and gas exploratory and developmental drilling activities
are as follows for the periods indicated. Totals shown in each category include
wells completed as productive wells and wells abandoned as dry holes. A well is
considered productive for purposes of the following table if it justifies the
installation of permanent equipment for the production of oil or gas. A well is
deemed to be a dry hole if it is determined to be incapable of commercial
production. The term "gross wells" means the total number of wells in which
Seagull owns an interest, while the term "net wells" means the sum of the
fractional working interests Seagull owns in gross wells. The number of wells
drilled refers to the number of wells completed during the fiscal years,
regardless of when drilling was initiated. Wells classified as "in progress" at
year-end represent wells where drilling activity is ongoing, wells awaiting
installation of permanent equipment and wells awaiting the drilling of
additional delineation wells.
Year Ended December 31,
------------------------------------------------------------------------------------
1996 1995 1994
Gross Net Gross Net Gross Net
--------- --------- -------- --------- ---------- ---------
UNITED STATES:
Exploratory Drilling:
Productive Wells................. 14 6.2 9 5.7 14 5.9
Dry Holes........................ 15 6.6 14 7.5 19 10.3
Development Drilling:
Productive Wells................. 123 54.2 64 29.0 137 71.5
Dry Holes........................ 13 8.2 4 1.1 11 5.1
CANADA:
Exploratory Drilling:
Productive Wells................. 5 0.8 3 1.0 5 1.7
Dry Holes ....................... 2 2.0 3 3.0 1 0.3
Development Drilling:
Productive Wells................. 17 8.6 7 1.9 110 55.0
Dry Holes ....................... 2 1.5 1 0.5 1 0.5
COTE D'IVOIRE:
Exploratory Drilling:
Productive Wells................. 2 0.3 - - 1 0.1
Dry Holes ....................... 1 0.1 - - - -
Development Drilling:
Productive Wells................. 1 0.1 4 0.6 1 0.1
EGYPT:
Exploratory Drilling:
Productive Wells................. 2 0.5 2 0.5 2 0.5
Dry Holes ....................... 5 1.3 1 0.3 - -
Development Drilling:
Productive Wells................. 14 3.5 4 1.0 - -
Dry Holes ....................... - - 1 0.3 - -
TATARSTAN:
Exploratory Drilling:
Dry Holes....................... - - 1 0.5 - -
Development Drilling:
Productive Wells................ 20 10.0 17 8.5 19 9.5
OTHER INTERNATIONAL:
Exploratory Drilling:
Dry Holes ....................... - - 2 0.4 2 0.5
TOTALS:
Exploratory Drilling:
Productive Wells................ 23 7.8 14 7.2 22 8.2
Dry Holes....................... 23 10.0 21 11.7 22 11.1
Development Drilling:
Productive Wells................ 175 76.4 96 41.0 267 136.1
Dry Holes....................... 15 9.7 6 1.9 12 5.6
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The Company had 15 gross (8.3 net) exploratory wells and 34 gross (21.3
net) development wells in progress at December 31, 1996. The exploratory wells
in progress at year-end added 15.7 Bcfe to Seagull's proved reserves at December
31, 1996. The Company's capital expenditures for 1996 included $8.4 million
related to these wells.
PRODUCTION
The following table summarizes the Company's production, average sales
prices and direct operating costs for the periods indicated:
Year Ended December 31,
------------------------------------------------------------
1996 1995 1994
---------------- ----------------- --------------
UNITED STATES:
Net Production:
Gas (MMcf).................................................... 116,238 113,482 118,804
Oil, condensate and NGL (MBbl)................................ 1,561 1,403 1,650
Average sales price (1):
Gas (per Mcf)................................................. $.2.17 $ 1.62 $ 1.88
Oil, condensate and NGL (per Bbl)............................. $19.03 $15.84 $15.08
Average direct operating costs (per Mcfe) (2)................... $ 0.49 $ 0.44 $ 0.43
CANADA(5):
Net Production:
Gas (MMcf).................................................... 21,203 22,057 19,755
Oil, condensate and NGL (MBbl)................................ 361 399 427
Average sales price:
Gas (per Mcf)................................................. $.1.27 $ 1.02 $ 1.55
Oil, condensate and NGL (per Bbl)............................. $16.77 $13.01 $11.57
Average direct operating costs (per Mcfe)....................... $.0.51 $ 0.45 $ 0.51
EGYPT:
Net Production:
Oil (MBbl).................................................... 1,305 25 -
Average Sales Price:
Oil (per Bbl)................................................. $21.56 $17.97 -
Average direct operating costs (per Mcfe)....................... $.0.49 $ 0.38 -
COTE D'IVOIRE:
Net Production:
Gas (MMcf).................................................... 1,445 203 -
Oil (MBbl).................................................... 511 261 -
Average sales price:
Gas (per Mcf)................................................. $ 1.77 $ 1.61 -
Oil (per Bbl)................................................. $20.04 $15.51 -
Average direct operating costs (per Mcfe)....................... $ 0.54 $ 0.57 -
TATARSTAN:
Net Production:
Oil (MBbl)..................................................... 1,117 1,062 842
Average Sales Price:
Oil (per Bbl).................................................. $13.98 $15.11 $14.21
Average direct operating costs (per Mcfe)........................ $ 1.18 $ 0.97 $ 1.55
INDONESIA:
Net Production:
Gas (MMcf)..................................................... 4,429 3,933 4,473
Oil (MBbl)..................................................... 51 45 47
Average sales price:
Gas (per Mcf).................................................. $ 3.36 $ 2.96 $ 2.45
Oil (per Bbl).................................................. $19.58 $17.38 $16.58
Average direct operating costs (per Mcfe)........................ - - -
(1) Average sales prices are before deduction of production, severance, and
other taxes.
(2) Direct operating costs represent costs incurred to operate and maintain
wells and related equipment and facilities. These costs include, among
other things, repairs and maintenance, workover expenses, labor,
materials, supplies, property taxes, insurance, severance taxes and
transportation costs.
The following table sets forth information regarding the number of
productive wells in which the Company held a working interest at December 31,
1996. Productive wells are either producing wells or wells capable of commercial
production although currently shut-in. One or more completions in the same
borehole are counted as one well.
-10-
Gross Wells Net Wells
----------------------------------------------- ----------------------------------------------------
Multiple Multiple
Gas Oil Total Completions Gas Oil Total Completions
--------- --------- --------- -------------- ---------- -------- ---------- ---------------
United States.... 2,385 1,574 3,959 269 957.3 160.9 1,118.2 133.0
Canada........... 748 9 757 515 399.4 1.8 401.2 281.9
Cote d'Ivoire.... 2 9 11 - 0.3 1.2 1.5 -
Egypt............ - 31 31 - - 15.3 15.3 -
Indonesia........ 317 195 512 388 5.4 3.4 8.8 4.8
Tatarstan........ - 174 174 35 - 87.0 87.0 17.5
--------- --------- --------- -------------- ---------- -------- ---------- ---------------
3,452 1,992 5,444 1,207 1,362.4 269.6 1,632.0 437.2
========= ========= ========= ============== ========== ======== ========== ===============
For additional information relating to oil and gas producing
activities, see Note 15 of the Consolidated Financial Statements included in the
Company's 1996 Annual Report to Shareholders and as part of Exhibit 13 attached
hereto.
DEVELOPED AND UNDEVELOPED OIL AND GAS ACREAGE
As of December 31, 1996, the Company owned working interests in the
following developed and undeveloped oil and gas acreage:
Developed Undeveloped
--------------------------------------- --------------------------------------
Gross Net (*) Gross Net (*)
---------------- --------------- --------------- --------------
UNITED STATES:
Onshore:
Oklahoma....................... 278,885 132,285 42,948 24,959
Texas.......................... 220,131 97,386 79,277 24,767
Arkansas....................... 214,156 71,971 5,282 2,447
Louisiana...................... 43,581 22,049 4,772 2,937
Montana........................ 1,159 68 174,922 160,937
Other.......................... 26,888 8,977 56,155 26,913
Bays and State Waters............ 8,975 2,810 16,472 10,047
Federal Offshore:
Texas.......................... 127,864 65,898 297,483 235,611
Louisiana...................... 66,284 33,352 221,915 115,081
ARCTIC ISLANDS..................... - - 752,293 33,364
CANADA............................. 375,753 196,166 409,548 258,739
COTE D'IVOIRE:
CI-11............................ 11,860 1,542 180,329 23,443
CI-12............................ - 525,000 87,517
CI-104........................... - - 250,300 250,300
EGYPT:
Qarun............................ 46,447 11,612 1,853,553 463,388
East Zeit........................ 6,672 6,672 - -
East Beni Suef................... - - 6,819,960 3,409,980
Darag............................ - - 459,606 229,803
South Hurghada................... - - 61,561 61,561
INDONESIA.......................... 97,000 1,663 1,156,780 19,827
MALAYSIA........................... - - 1,556,100 233,415
TATARSTAN.......................... 12,630 6,315 12,107 6,053
UNITED KINGDOM..................... - - 637,479 126,450
---------------- --------------- --------------- --------------
1,538,285 658,766 15,573,842 5,807,539
================ =============== =============== ==============
(*) When describing acreage on drilling locations, the term "net" refers to
the total acres on drilling locations in which the Company has a working
interest, multiplied by the percentage working interest owned by the
Company.
Additionally, as of December 31, 1996, the Company owned mineral and/or
royalty interests in 584,430 gross (43,154 net) developed and 2,834,359 gross
(105,889 net) undeveloped oil and gas acres, located primarily in the United
States.
-11-
REGULATION
The availability of a ready market for oil and natural gas production
depends upon numerous regulatory factors beyond the Company's control. These
factors include regulation of oil and natural gas production, federal and state
regulations governing environmental quality and pollution control and state
limits on allowable rates of production by a well or proration unit. State and
federal regulations generally are intended to prevent waste of oil and natural
gas, protect rights to produce oil and natural gas between owners in a common
reservoir, control the amount of oil and natural gas produced by assigning
allowable rates of production and control contamination of the environment.
Regulation of Oil and Natural Gas Exploration and Production.
Exploration and production operations of the Company are subject to various
types of regulation at the federal, state and local levels. Such regulation
includes requiring permits for the drilling of wells, maintaining bonding
requirements in order to drill or operate wells, and regulating the location of
wells, the method of drilling and casing wells, the surface use and restoration
of properties upon which wells are drilling and the plugging and abandonment of
wells. The Company's operations are also subject to various conservation laws
and regulations. These include the regulation of the size of drilling and
spacing units or proration units and the density of wells which may be drilled
and unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of tracts to facilitate
exploration while other states rely on voluntary pooling of lands and leases. In
addition, state conservation laws establish maximum rates of production
requirements regarding the ratability of production.
Natural Gas Marketing and Transportation. Although maximum selling
prices of natural gas were formerly regulated, the Natural Gas Wellhead
Decontrol Act of 1989 ("Decontrol Act") terminated wellhead price controls on
all domestic natural gas on January 1, 1993, and amended the Natural Gas Policy
Act of 1978 to remove completely by January 1, 1993 price and nonprice controls
for all "first sales" of natural gas, which will include all sales by the
Company of its own production. Consequently, sales of the Company's natural gas
currently may be made at market prices, subject to applicable contract
provisions. The FERC's jurisdiction over natural gas transportation was
unaffected by the Decontrol Act.
The Federal Energy Regulatory Commission (the "FERC") regulates
interstate natural gas transportation rates and service conditions, which affect
the marketing of natural gas produced by the Company, as well as the revenues
received by the Company for sales of such natural gas. Since the latter part of
1985, the FERC has endeavored to make interstate natural gas transportation more
accessible to gas buyers and sellers on an open and nondiscriminatory basis. The
FERC's efforts have significantly altered the marketing and pricing of natural
gas. Commencing in April 1992, the FERC issued Order Nos. 636, 636-A and 636-B
(collectively, "Order No. 636"), which, among other things, require interstate
pipelines to "restructure" to provide transportation separate or "unbundled"
from the pipelines' sales of gas. Also, Order No. 636 requires pipelines to
provide open-access transportation on a basis that is equal for all gas
supplies.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any such
proposals might become effective, or their effect, if any, on the Company's
-12-
operations. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future. State regulation of gathering facilities generally includes
various transportation, safety, environmental, and nondiscriminatory purchase
and transport requirements, but does not generally entail rate regulation.
Offshore Leasing. Certain operations the Company conducts are on
federal oil and gas leases, which the Minerals Management Service ("MMS")
administers. The MMS issues such leases through competitive bidding. These
leases contain relatively standardized terms and require compliance with
detailed MMS regulations and orders pursuant to the Outer Continental Shelf
Lands Act ("OCSLA") (which are subject to change by the MMS). For offshore
operations, lessees must obtain MMS approval for exploration plans and
development and production plans prior to the commencement of such operations.
In addition to permits required from other agencies (such as the Coast Guard,
the Army Corps of Engineers and the Environmental Protection Agency), lessees
must obtain a permit from the MMS prior to the commencement of drilling. The MMS
has promulgated regulations requiring offshore production facilities located on
the Outer Continental Shelf ("OCS") to meet stringent engineering and
construction specifications, and has recently proposed additional safety-related
regulations concerning the design and operating procedures for OCS production
platforms and pipelines. The MMS also has issued regulations to prohibit the
flaring of liquid hydrocarbons and oil without prior authorization. Similarly,
the MMS has promulgated other regulations governing the plugging and abandonment
of wells located offshore and the removal of all production facilities. To cover
the various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met.
In addition, the MMS is conducting an inquiry into certain contract
settlement agreements from which producers on MMS leases have received
settlement proceeds that are royalty bearing and the extent to which producers
have paid the appropriate royalties on those proceeds. The restructuring of oil
and gas markets has resulted in a shifting of markets downstream from the wells.
Deregulation has altered the marketplace such that lessors, including the MMS,
are challenging the methods of valuation of gas for royalty purposes.
The MMS has recently issued a notice of proposed rulemaking in which it
proposes to amend its regulations governing the calculation of royalties and the
valuation of oil and natural gas produced from federal leases. The principal
feature in the amendments, as proposed, would establish an alternative
market-index based method to calculate royalties on certain natural gas
production sold to affiliates or pursuant to non-arms'-length sales contracts.
The MMS has proposed this rulemaking to facilitate royalty valuation in light of
changes in the gas marketing environment. The Company cannot predict what action
the MMS will take on these matters, nor can it predict at this stage of the
rulemaking proceedings how the Company might be affected by amendments to the
regulations.
In Canada, exploration, production and development activities are
governed by federal and provincial laws which subject operators to extensive
controls and regulations. Exports of oil and gas across interprovincial borders
or on pipelines which connect to United States pipelines are governed by the
National Energy Board and each province has its own laws governing the
operations of producers and protection of the environment.
-13-
PIPELINE, MARKETING AND OTHER
The Company's O&G segment also includes pipeline and marketing
operations involving (i) the transportation and marketing of Seagull's own and
third-party gas, oil and natural gas liquids; (ii) gas gathering and processing;
and (iii) pipeline engineering design, construction and operation.
The Company actively provides marketing services geared toward
matching gas supplies available in the major producing areas with attractive
markets available in the Midwest, Northeast, Mid-Atlantic, Appalachian and
Texas/Louisiana Gulf Coast areas. The matching process includes arranging
transportation on a network of open-access pipelines on a firm or interruptible
basis. Seagull contracts to provide oil and natural gas to various customers and
aggregates supplies from various sources including third-party producers,
marketing companies, pipelines, financial institutions and the Company's own
production. Marketing profit margins are often small due to competition, and
results can vary significantly from month to month. Large amounts of working
capital are involved for relatively small net margins, which makes working
capital management critical. The Company has policies and procedures in place
that are designed to minimize any potential risk of loss from these
transactions. These policies and procedures are reviewed and updated
periodically by the Company's management.
Most of the Company's natural gas is transported through gas gathering
systems and gas pipelines which are not owned by the Company. Transportation
space on such gathering systems and pipelines is occasionally limited and at
times unavailable due to repairs or improvements being made to such facilities
or due to such space being utilized by other gas shippers with priority
transportation agreements. While the Company has not experienced any inability
to market its natural gas, if transportation space is restricted or is
unavailable, the Company's cash flow from the affected properties could be
adversely affected.
In 1995, the Company initiated an active risk management program for
both its own E&P production and third party activities, utilizing such
derivative financial instruments as futures contracts, options and swaps. The
primary objective of the risk management program is as a hedging strategy to
manage commodity prices associated with oil and gas production sales and to
reduce the impact of price fluctuations. The Company's policy is to leave the
majority of its own E&P production either unhedged or protected only from price
decreases. The Company accounts for its commodity derivative contracts as
hedging activities and, accordingly, income or costs are included in revenues
when the commodities are produced. The risk management program is also an
important part of the Company's third party marketing efforts, allowing the
Company to convert a customer's requested price to a price structure that is
consistent with the Company's overall pricing strategy. See Note 2 to the
Company's Consolidated Financial Statements and Oil and Gas Operations in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, both of which are included in the Company's 1996 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto.
Pipeline Operations and Construction
Seagull operates certain pipelines owned by other companies. In some
cases the operating agreements provide for reimbursement of expenses incurred in
connection with operations plus a profit margin. In other cases the Company
receives a negotiated annual fee. The Company also builds pipelines for other
companies for which it receives construction fees that are fixed, cost-plus or a
-14-
combination of both. The Company currently has one ongoing construction project
and continues to pursue additional operating and construction opportunities as
they arise.
COMPETITION
The Company's competitors in oil and gas exploration, development,
production and marketing include major oil companies, as well as numerous
independent oil and gas companies, individuals and drilling programs. Some of
these competitors have financial and personnel resources substantially in excess
of those available to the Company and, therefore, the Company may be placed at a
competitive disadvantage. The Company's success in discovering reserves will
depend on its ability to select suitable prospects for future exploration in
today's competitive environment.
The Company actively competes with numerous other companies for the
construction and operation of short and medium length pipelines. The Company's
competitors include oil companies, other pipeline companies, natural gas
gatherers and petrochemical transporters, many of which have financial
resources, staffs and facilities substantially larger than those of the Company.
In addition, many of the Company's gas purchasers are also competitors or
potential competitors in the sense that they have extensive pipeline-building
capabilities and experience and generally operate large pipeline systems of
their own. Seagull believes that its ability to compete will depend primarily on
its ability to complete pipeline projects quickly and cost effectively, and to
operate pipelines efficiently.
The Company's gas marketing activities are in competition with numerous
other companies offering the same services. Some of these competitors are
affiliates of companies with extensive pipeline systems that are used for
transportation from producers to end-users. The Company believes its ability to
compete depends upon building strong relationships with producers and end-users
by consistently purchasing and supplying gas at competitive prices.
INTERNATIONAL OPERATIONS
Seagull's interests in countries outside the United States are subject
to the various risks inherent in foreign operations. These risks may include,
among other things, currency restrictions and exchange rate fluctuations, loss
of revenue, property and equipment as a result of expropriation,
nationalization, war, insurrection and other political risks, risks of increases
in taxes and governmental royalties, renegotiation of contracts with
governmental entities, changes in laws and policies governing operations of
foreign-based companies and other uncertainties arising out of foreign
government sovereignty over the Company's international operations. The
Company's international operations may also be adversely affected by laws and
policies of the United States affecting foreign trade, taxation and investment.
In addition, in the event of a dispute arising from foreign operations, the
Company may be subject to the exclusive jurisdiction of foreign courts or may
not be successful in subjecting foreign persons to the jurisdiction of the
courts of the United States. The Company seeks to manage these risks by
maintaining political risk insurance and concentrating its international
exploration efforts in areas where the Company believes that the existing
government is stable and favorably disposed towards United States exploration
and production companies.
-15-
ALASKA TRANSMISSION AND DISTRIBUTION
The Company operates in Alaska through ENSTAR Natural Gas Company
("ENG"), a division of the Company, and Alaska Pipeline Company ("APC"), an
Alaska corporation and a wholly owned subsidiary of the Company. ENG and APC are
currently operated as a single business unit ("ENSTAR Alaska"), and are
regulated as a single operating unit by the Alaska Public Utilities Commission
(the "APUC"). APC engages in the intrastate transmission of natural gas in
South-Central Alaska. ENG engages in the distribution of natural gas in
Anchorage and other nearby communities in Alaska and is APC's only customer.
Revenues from the natural gas transmission and distribution segment accounted
for 19%, 24% and 22% of the Company's consolidated revenues for 1996, 1995 and
1994, respectively.
ENSTAR Alaska's predecessor was formed in 1959 and began serving the
Anchorage area with natural gas in 1961. Five years later, in 1966, the
predecessor became one of the original entities that formed Alaska Interstate
Company, a newly organized public company the shares of which were traded on the
New York Stock Exchange. Alaska Interstate Company changed its name to ENSTAR
Corporation in 1982.
In 1985, the Company purchased ENSTAR Alaska for $55 million in cash
plus $10 million in the form of a seven-year unsecured, 10% subordinated note.
At the time of the acquisition, APC had outstanding debt of approximately $65
million. The transaction received the final approval of the APUC in June 1985.
GAS TRANSMISSION SYSTEM
APC owns and operates the only natural gas transmission lines in its
service area that are operated for utility purposes. The pipeline transmission
system is composed of approximately 277 miles of 12 to 20-inch diameter pipeline
and approximately 72 miles of smaller diameter pipeline. The system's present
design delivery capacity is approximately 410 MMcf/d. The average throughput of
the system in 1996, 1995 and 1994 was 131, 122 and 121 MMcf/d, respectively.
In September 1995, APC entered into a 33-year agreement to lease a
60-mile, 8-inch diameter pipeline between Anchorage, Alaska and Whittier,
Alaska. Conversion of the pipeline to natural gas was completed in 1996. The new
pipeline is expected to account for nearly 1,000 new customers over the next two
to three years.
GAS DISTRIBUTION SYSTEM
ENG distributes natural gas through approximately 2,051 miles of gas
mains to approximately 94,100 residential, commercial, industrial and electric
power generation customers within the cities and environs of Anchorage, Eagle
River, Palmer, Wasilla, Soldotna, Kenai and the Nikiski area of the Kenai
Peninsula, Alaska. During the year ended December 31, 1996, ENG added
approximately 56 miles of new gas distribution mains, installed 2,500 new
service lines and added approximately 2,000 net customers. ENG anticipates
relatively modest growth in its residential customer base and will install
additional main and service lines to accommodate this growth.
-16-
ENG distributes gas to its customers under tariffs and contracts which
provide for varying delivery priorities. ENG's business is seasonal with
approximately 65-70% of its revenues earned in the first and fourth quarters of
each year.
In 1996, purchase/resale volumes represented 56% of ENG's throughput
and 82% of ENG's operating margin. The remaining volumes are transported for
power, industrial and large commercial customers for a transportation fee.
ENG's five largest customers are the Municipality of Anchorage; ARCO
Alaska, Inc.; Aurora Gas, Inc.; the State of Alaska; and Unocal Corporation.
Together, they account for about $10 million in annual operating margin and
about 18.8 Bcf per year in volumes, which represent approximately 18% and 39%,
respectively, of ENG totals.
GAS SUPPLY
In May 1988, APC entered into a gas purchase contract (the "Marathon
Contract") with Marathon Oil Company ("Marathon") providing for the delivery of
approximately 450 Bcf of gas in the aggregate. The Marathon Contract is a
"requirements" contract with no specified daily deliverability or annual
take-or-pay quantities. APC has agreed to purchase and Marathon has agreed to
deliver all of APC's gas requirements in excess of those provided for in other
presently existing gas supply contracts, subject to certain exceptions, until
the commitment has been exhausted and without limit as to time; however,
Marathon's delivery obligations are subject to certain specified annual
limitations after 2001. The contract has a base price of $1.55 per Mcf plus
reimbursements for any severance taxes and other charges. The base price is
subject to annual adjustment based on changes in the price of certain traded oil
futures contracts. During 1996, the cost of gas purchased under the Marathon
Contract averaged $1.64 per Mcf, including reimbursements for severance taxes.
The Marathon Contract, as amended in 1991, has been approved by the APUC.
APC also has a gas purchase contract with Shell Oil Company and ARCO
Alaska, Inc. (the "Shell Contract") which provides for the delivery of up to
approximately 220 Bcf of gas through the year 2009. The Shell Contract provides
a base price of $1.97 per Mcf plus reimbursements for any severance taxes and an
annual adjustment based on changes in the price of certain traded oil futures
contracts from the relevant base price. The Shell Contract also provides that
certain portions of the gas purchased under the amendments may be priced under a
pricing term similar to the Marathon Contract. The 1996 price under the Shell
Contract, after application of contractual adjustments, averaged $1.63 per Mcf,
including reimbursements for severance taxes. The Shell Contract, as amended,
has been approved by the APUC.
Combined, the Marathon and Shell Contracts will supply all of ENSTAR
Alaska's gas supply requirements through the year 2001. After that time supplies
will still be available under the contracts in accordance with their terms, but
the annual limitations contained in the Marathon Contract will take effect. As a
result, after 2001, at least a portion of ENSTAR Alaska's requirements are
expected to be satisfied outside the terms of the contracts, as currently in
effect.
-17-
Based on gas purchases during the twelve months ended December 31,
1996, which are not necessarily indicative of the volume of future purchases,
gas reserves committed to APC under the Marathon and Shell Contracts would have
a current reserve life index of approximately 14 years.
ENSTAR Alaska's average cost of gas sold in 1996, 1995 and 1994 was
$1.59, $1.75 and $1.74 per Mcf, respectively. ENSTAR Alaska's average gas sales
price in 1996, 1995 and 1994 was $3.29, $3.41 and $3.23 per Mcf, respectively.
As stated above, ENSTAR Alaska purchases all of its natural gas under
long-term contracts in which the price is indexed to changes in the price of
crude oil futures contracts. However, because ENSTAR Alaska's sales prices are
adjusted to include the projected cost of its natural gas, there has been and is
expected to be little or no impact on margins derived from ENSTAR Alaska's gas
sales as a result of fluctuations in oil prices due to worldwide political
events and changing market conditions.
COMPETITION
ENSTAR Alaska competes primarily with municipal and cooperative
electric power distributors and with various suppliers of fuel oil and propane
for the available energy market. There are also extensive coal reserves
proximate to ENSTAR Alaska's operating area; however, such reserves are not
presently being produced.
During the last eight years, ENSTAR Alaska's natural gas volumes
delivered on a purchase/resale basis have declined. Beginning in 1989, several
of its major customers began purchasing gas directly from gas producers or gas
marketers. However, the APUC has approved tariffs allowing ENSTAR Alaska to
transport these volumes for a transportation fee that approximates the margin
that would have been earned had the customer remained a sales customer rather
than becoming a transportation customer. Consequently, ENSTAR Alaska anticipates
no adverse economic impact to result from these transportation arrangements.
If any other existing large customer of ENSTAR Alaska chooses to
purchase gas directly from producers, ENSTAR Alaska would expect to collect a
fee for transporting that gas equivalent to the margin earned on sales volumes
for those customers because the large distance of remaining user facilities from
producing fields would preclude the by-pass of ENSTAR Alaska's pipelines.
ENSTAR Alaska supplies natural gas to its customers at prices that at
the present time economically preclude substitution of alternative fuels. Since
the Shell Contract and the Marathon Contract include prices that fluctuate based
on oil indices, a competitive margin favoring natural gas over oil-based energy
sources is expected to continue. However, there is no assurance that the
competitive advantage over other alternative fuels will not be reduced or
eliminated by the development of new energy technology or by changes in the
price of oil or refined products.
REGULATION
The APUC has jurisdiction as to rates and charges for gas sales,
construction of new facilities, extensions and abandonments of service and
certain other matters. Rates are generally designed to
-18-
permit the recovery of the cost of providing service, including purchased gas
costs, and a return on investment in plant. APC and ENG are regulated by the
APUC on a combined basis as though they were a single entity. Because ENSTAR
Alaska's operations are wholly intrastate, ENSTAR Alaska is not subject to or
affected by Order 636 or any other economic regulation by the FERC.
As a result of a proceeding filed in 1984, which was concluded in May
1986, the APUC granted ENSTAR Alaska an aggregate rate increase of 20.27% and
authorized a regulatory rate of return on common equity of 15.65%. ENSTAR Alaska
has no significant regulatory issues pending before the APUC. Since its
inception in 1961, ENSTAR Alaska has participated in only three formal rate
proceedings.
CORPORATE
REGULATION
The Company is a "public utility company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act").
Accordingly, if any "company" (as defined for purposes of the 1935 Act and
therefore including so-called "organized groups") becomes the owner of 10% or
more of the Company's outstanding voting stock, that company would be required
to register as a "holding company" under the 1935 Act, in the absence of an
exemption of the type described below. Section 9(a)(2) also requires a person
(including both individuals and "companies") to obtain prior approval from the
Securities and Exchange Commission (the "SEC") in connection with the
acquisition of 5% or more of the outstanding voting stock of a public utility if
that person is also the owner of 5% or more of the outstanding voting stock of
another public utility.
In March 1991, the Company filed in good faith with the SEC an
application pursuant to Section 2(a)(8) of the 1935 Act, seeking a determination
that Seagull was not subject to regulation as a "subsidiary company" of FMR
Corp. (the "FMR Application"), which was then the owner of 2,805,624 shares
(approximately 12.5% at such time) (shares adjusted for a 2-for-1 stock split of
all the issued shares of the Company's common stock (the "Common Stock"),
effected June 4, 1993) of the outstanding Common Stock. Under the 1935 Act, a
company is a "subsidiary company" of a "holding company" if the "holding
company" owns 10% or more of the total voting power of the "subsidiary company",
unless the SEC determines otherwise. Based upon the most recent information
furnished to the Company by FMR Corp., FMR Corp.'s beneficial shares owned has
fallen below 5% of the outstanding voting stock of the Company.
In December 1993, Seagull filed in good faith with the SEC an
additional application pursuant to Section 2(a)(8) of the 1935 Act, seeking a
determination that the Company was not subject to regulation as a "subsidiary
company" of AXA Assurances I. A. R. D. Mutuelle, AXA Assurances Vie Mutuelle,
Alpha Assurances I. A. R. D. Mutuelle, Alpha Assurances Vie Mutuelle, Uni Europe
Assurance Mutuelle and AXA (collectively, the "Mutuelles AXA") and The Equitable
Companies Incorporated ("Equitable") and their respective affiliates
(collectively, the "Equitable Entities"), (the "Equitable Application"). At such
time, the Equitable Entities beneficially owned 4,495,600 shares (approximately
12.5%) of Common Stock. Based upon the most recent information furnished to the
Company by the
-19-
Equitable Entities, the Equitable Entities' beneficial shares owned has fallen
below 5% of the outstanding voting stock of the Company.
On October 3, 1996, the Company filed in good faith with the SEC an
application pursuant to Section 2(a)(8) of the 1935 Act, seeking a determination
that Seagull was not subject to regulation as a "subsidiary company" of The
Prudential Insurance Company of America ("Prudential"), (the "Prudential
Application"), which was then the owner of 5,573,061 shares (approximately 8.9%
at such time of the outstanding Common Stock. According to information provided
by Prudential, in its capacity as investment adviser, is beneficial owner of
6,546,741 shares (10.4%) of the Common Stock which are owned by numerous
investment counseling clients, none of which is known to have such interest with
respect to more than 5% of the class. Prudential has sole voting and dispositive
power as to 5,573,061 shares and shared voting and dispositive power as to
946,680 shares.
As a result of the Company's good faith filing of the Prudential
Application, it currently would not be subject to any obligation, duty or
liability imposed by the 1935 Act, unless and until the SEC enters an order
denying or otherwise adversely disposing of the Prudential Application. To date,
no such order has been issued. The Company believes that the Prudential
Application ultimately should be granted.
ENVIRONMENTAL MATTERS
Seagull's operations are subject to federal, state and local laws and
regulation governing the discharge of materials into the environment or
otherwise relating to environmental protection. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands
and other protected areas, and impose substantial liabilities for pollution
resulting from the Company's operations. In addition, these laws, rules and
regulations may restrict the rate of oil and natural gas production below the
rate that would otherwise exist. State laws often require some form of remedial
action to prevent pollution from former operations, such as pit closure and
plugging abandoned wells.
The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons who are considered to be responsible for the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances. Under CERCLA,
such persons may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment, for damages to natural resources and for the costs of certain
health studies. It is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and property damage allegedly caused
by hazardous substances or other pollutants released into the environment.
Stricter standards in environmental legislation may be imposed on the
oil and gas industry in the future. For instance, legislation has been proposed
in Congress from time to time that would reclassify
-20-
certain oil and natural gas exploration and production wastes as "hazardous
wastes" and make the reclassified wastes subject to more stringent handling,
disposal and clean-up requirements. If such legislation were to be enacted, it
could have a significant impact on the operating costs of the Company, as well
as the oil and gas industry in general. Furthermore, although petroleum,
including crude oil and natural gas, is exempt from CERCLA, at least two courts
have recently ruled that certain wastes associated with the production of crude
oil may be classified as "hazardous substances" under CERCLA and thus such
wastes may become subject to liability and regulation under CERCLA, as described
above. State initiatives to further regulate the disposal of oil and natural gas
wastes are also pending in certain states, and these various initiatives could
have a similar impact on the Company. Compliance with environmental requirements
generally could have a material adverse effect upon the capital expenditures,
earnings or competitive position of the Company. Although the Company has not
experienced any material adverse effect from compliance with environmental
requirements, there is no assurance that this will continue in the future.
The Oil Pollution Act of 1990 ("OPA") and regulations promulgated
pursuant thereto impose a variety of requirements on "responsible Parties"
related to the prevention of oil spills and liability for damages resulting from
such spills. Few defenses exist to the liability imposed by the OPA and such
liability could be substantial. A failure to comply with ongoing requirements or
inadequate cooperation in a spill event could subject a responsible party to
civil or criminal enforcement action.
On October 19, 1996, legislative amendments to OPA were enacted. These
amendments reduced the requirement of obtaining a certificate of financial
responsibility to $35 million in the event of a spill, instead of the $150
million originally called for under OPA. In addition, the Texas Railroad
Commission proposed an amendment to its regulations in line with OPA. The
proposed amendment requires operators of hazardous liquid pipeline facilities
inland of the Gulf coast to prepare facility response plans within 60 days of
the effective date of the rule or simultaneously with the filing of the plan
with federal authorities.
In addition, the OCSLA authorizes regulations relating to safety and
environmental protection applicable to lessees and permittees operating in the
OCS. Specific design and operation standards may apply to OCS vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing operations
and the cancellation of leases. Such enforcement liabilities can result from
either governmental or private prosecution.
The Federal Water Pollution Control Act ("FWPCA") imposes restrictions
and strict controls regarding the discharge of pollutants to state and federal
waters. The FWPCA provides for civil, criminal and administrative penalties for
any unauthorized discharges of oil and other hazardous substances in reportable
quantities and, along with the OPA, imposes substantial potential liability for
the costs of removal, remediation and damages. State laws for the control of
water pollution also provide varying civil, criminal and administrative
penalties and liabilities in the case of a discharge of petroleum or its
derivatives into state waters. Within the next few years, both state water
discharge regulations and the federal permits are expected to prohibit the
discharge of produced water and sand, and some other substances related to the
oil and gas industry, to coastal waters. Although the costs to comply with zero
discharge mandates under federal or state law may be significant, the entire
industry will experience similar costs and the Company believes that these costs
will not have a material adverse impact on the Company's financial condition and
operations. Some oil and gas exploration and production facilities
-21-
are required to obtain permits for their storm water discharges. Costs may be
associated with treatment of wastewater or developing storm water pollution
prevention plans. Further, the Coastal Zone Management Act authorizes state
implementation and development of programs of management measures for non-point
source pollution to restore and protect coastal waters.
Many states in which the Company operates have recently begun to
regulate naturally occurring radioactive materials ("NORM") and NORM wastes that
are generated in connection with oil and gas exploration and production
activities. NORM wastes typically consist of very low-level radioactive
substances that become concentrated in pipe scale and in production equipment.
State regulations may require the testing of pipes and production equipment for
the presence of NORM, the licensing of NORM-contaminated facilities and the
careful handling and disposal of NORM wastes. The Company believes that the
growing regulation of NORM will have a minimal effect on the Company's
operations because the Company generates only a very small quantity of NORM on
an annual basis.
EMPLOYEES
As of March 1, 1997, the Company had 724 full time employees. In
addition to the services of its full time employees, the Company employs, as
needed, the services of consulting geologists, engineers, regulatory
consultants, contract pumpers and certain other temporary employees.
ENSTAR Alaska operates under collective bargaining agreements with
separate bargaining units for operating and clerical employees. These units
represent approximately 80% of ENSTAR Alaska's work force. Contracts have been
negotiated that set wages and work relationships for the two units. The
operating bargaining unit contract, effective from April 1, 1992 through April
1, 1996, is in the process of being renegotiated. The clerical bargaining unit
contract is effective from April 1, 1995 through April 1, 2000. The Company is
not a party to any other collective bargaining agreements. The Company has never
had a work stoppage.
The Company considers its relations with its employees to be
satisfactory.
-22-
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, each of whom has been elected to
serve until his or her successor is elected and qualified, are as follows:
Name Age Present Position and Prior Business Experience
Barry J. Galt......... 63 Chairman of the Board and Chief Executive Officer
since December 1983; President of the Company
from December 1983 to October 1996
Robert F. Vagt........ 50 President and Chief Operating Officer since
October 1996; President and Chief Executive
Officer of Global from May 1992 to October
1996; Chairman of the Board of Global since
December 1994; Director, President and Chief
Operating Officer of Adobe Resources Corporation
(Director from May 1986 to May 1992 and President
and Chief Operating Officer from November 1990 to
May 1992)
John W. Elias......... 56 Executive Vice President since April 1993; Chief
Operating Officer of the Company from January
1995 through October 1996; For the previous 30
years, he served in a variety of positions for
Amoco Production Company and its parent, Amoco
Corporation, most recently as Group Vice
President of Worldwide Natural Gas for Amoco
Production Company
Richard F. Barnes..... 53 President of ENSTAR Natural Gas Company (a
division of the Company) and Alaska Pipeline
Company (a subsidiary of the Company) since
September 1987
Gerald R. Colley...... 46 Senior Vice President, International Exploration
and Production since November 1996; Senior Vice
President - International Exploration of Global
from December 1994 to November 1996; Vice
President - International Exploration of Global
from July 1993 to December 1994; Vice President
- International Exploration of Global Natural
Resources Corporation of Nevada ("GNRC"), a
wholly owned subsidiary of Global, since October
1992; Vice President and Exploration Director of
Hadson Europe, Inc. from August 1986 to October
1992
John N. Goodpasture... 48 Senior Vice President, Pipelines and Marketing
since May 1993; President of Seagull Pipeline
Company since March 1990
John A. Howard........ 50 Senior Vice President, Canadian Exploration and
Production since November 1996; President of
Seagull Energy Canada Ltd., a wholly owned
subsidiary of the Company, since January 1994;
President and Chief Executive Officer of Novalta
Resources Inc. from 1987 to January 1994
William L. Transier... 42 Senior Vice President and Chief Financial Officer
since May 1996; For the previous 20 years, he
held a variety of positions at KPMG Peat Marwick
LLP and was promoted to partner in July 1986
Janice K. Hartrick.... 44 Chief Counsel and Vice President, Environmental
Affairs since December 1992; Chief Counsel of the
Company since 1989
Gordon L. McConnell... 50 Vice President and Controller since November
1996; Vice President - Accounting of Global from
January 1996 to November 1996; Controller of
Global from July 1993 to January 1996; Controller
of GNRC since October 1991; Assistant Controller
of GNRC from July 1991 to October 1991
H. Alan Payne......... 55 Vice President, Investor Relations since November
1996; Director, Investor Relations from December
1984 to November 1996
Jack M. Robertson..... 53 Vice President, Human Resources since November
1996; Director, Human Resources from November
1990 to November 1996
Stephen A. Thorington. 41 Vice President, Finance and Treasurer since May
1996; Managing Director of Chase Securities Inc.
from January 1992 to May 1996; Managing
Director for The Chase Manhattan Bank, N.A. from
June 1991 through April 1994
Carl E. Volke......... 53 Vice President, Administration since November
1996; Director, Administration from November 1986
to November 1996
Lee Van Winkle........ 44 Vice President, Corporate Planning since November
1996; Vice President - Corporate Planning of
Global from July 1993 to November 1996; Vice
President - Corporate Planning of GNRC since
August 1992; Corporate Manager - Planning and
Budget for Adobe Resources Corporation for more
than five years prior to August 1992
-23-
Item 2. Properties
Incorporated herein by reference to Item 1 of this Annual Report on
Form 10-K.
Item 3. Legal Proceedings
Royalty Litigation. Increasingly, royalty owners under oil and gas
leases are challenging valuation methodology and post-production deductions used
by producers. These cases have arisen because of the manner in which oil and gas
producers such as Seagull have begun to provide services that had previously
been provided by the interstate gas pipelines prior to the "unbundling" of gas
services. For example, in 1996, Seagull has been sued in Anne K. Barnaby, et al.
v. Seagull MidSouth, Inc. This case is pending in state court of Latimer County,
Oklahoma. In this case, the plaintiffs seek additional royalties based upon the
deduction by Seagull of post-production costs, such as those related to
gathering, compression, dehydration and treating. In addition, the plaintiffs
have questioned the sales price used by Seagull as a basis for calculating
royalty to the extent that sales were made to Seagull's gas marketing
subsidiary.
NorAm Litigation. Seagull Mid-South has been sued in NorAm Gas
Transmission Co., et al. v. Seagull Mid-South Inc. The case relates to Seagull's
termination of a 1956 gas contract, which provided for the sale of gas by
Seagull from certain wells in the Aetna Filed in Arkansas for $0.16 per Mcf.
NorAm Gas Transmission ("NorAm) has sought a declaratory judgment that the gas
contract remains in effect with respect to these wells. Since the termination by
Seagull of the gas contract, Seagull has been selling the gas in question on the
spot market. Seagull believes that it has reasonable grounds for terminating the
gas contract. The NorAm case is currently scheduled for trial in mid-1997 in
District Court in Harris County, Texas. Seagull intends to vigorously defend
this case and does not believe that this case will have a material adverse
effect on its financial condition or results of operations.
NorAm has also sought a declaratory judgment to the effect that certain
additional wells in the Aetna Field (including any new wells) would be subject
to the $0.16 per Mcf price (the "Additional Well Claim"). If NorAm were
successful with the Additional Well Claim, Seagull's operations in the Aetna
Field would be materially affected in an adverse manner. However, Seagull
believes that there is little basis for this claim by NorAm and believes that it
will not be required to pay any amounts in connection with the Additional Well
Claim.
Gulf Coast Vacuum Site. In 1993, the Environmental Protection Agency
("EPA") notified the Company that a subsidiary was a potentially responsible
party ("PRP") at the Gulf Coast Vacuum Services Superfund Site (the "GCV Site")
in Vermilion Parish, Louisiana. Based upon the Company's investigation of this
claim, the Company believes that the basis for its alleged liability is a series
of transactions between the Company's subsidiaries and the operator of the GCV
Site that occurred during 1979 and 1980. While the EPA's cleanup cost estimate
of the GCV Site is in the range of $17 million, the Company believes that its
liability is unlikely to be material to its financial condition, results of
operations or cash flows because of the large number of potentially responsible
parties at the GCV Site and the relative amount of contamination, if any, that
may have been caused at the GCV Site by the disposal of wastes by the Company
during 1979 and 1980.
Caddo Natural Gas Company Site. The Company was notified by the
Louisiana Department of Environmental Quality on March 20, 1996, that one of the
Company's wholly owned subsidiaries is a PRP in a state Superfund site known as
the Caddo Natural Gas Company Site. This site is reported to be contaminated
with low levels of PCB, an additive used in lubricating oils prior to the 1980s.
Subsequent to year-end, the Company signed a settlement agreement whereby
Seagull would pay a portion of the cleanup costs for the Caddo Natural Gas
Company Site. Seagull's share of the cleanup costs is not expected to be
material to its financial condition, results of operations or cash flows.
Other. The Company is a party to ongoing litigation in the normal
course of business or other litigation with respect to which the Company is
indemnified pursuant to various purchase agreements or other contractual
arrangements. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. While the outcome of lawsuits or other proceedings
against the Company cannot be predicted with certainty, management believes that
the effect on its financial condition, results of operations or cash flows, if
any, will not be material.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-24-
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
A. The Company's Common Stock (the "Common Stock") is traded on the New
York Stock Exchange under the ticker symbol SGO. The high and low sales prices
on the New York Stock Exchange Composite Tape for each quarterly period during
the last two fiscal years were as follows:
1996 1995
--------------------------------------- --------------------------------------
High Low High Low
----------------- ----------------- ---------------- ----------------
First Quarter 22 7/8 17 1/8 20 15 1/4
Second Quarter 25 1/2 21 19 7/8 16 1/2
Third Quarter 26 17 1/2 22 1/2 16
Fourth Quarter 24 3/8 20 5/8 22 1/4 16 5/8
B. As of March 3, 1997, there were approximately 4,764 holders of
record of Common Stock.
C. Seagull has not declared any cash dividends on its Common Stock
since it became a public entity in 1981. The decision to pay Common Stock
dividends in the future will depend upon the Company's earnings and financial
condition and such other factors as the Company's Board of Directors deems
relevant. The Company's revolving credit agreements (the "Credit Facilities")
restrict the Company's declaration or payment of dividends on and repurchases of
Common Stock unless each of the following tests have been met: (i) the aggregate
amount of outstanding loans under the Credit Agreement, together with all other
senior indebtedness of Seagull and its subsidiaries (excluding APC) then
outstanding, must not exceed the Borrowing Base, (ii) Tangible Net Worth cannot
be less than $465 million plus 50% of the Company's net income, if positive,
beginning with the fiscal year ended December 31, 1997, (iii) the Company's
Debt/Capitalization Ratio cannot be more than 65% and (iv) no Default or Event
of Default shall have occurred and be continuing. The capitalized terms used
herein to describe the restrictions contained in the Credit Facilities have the
meanings assigned to them in the Credit Facilities. Under the most restrictive
of these tests, as of December 31, 1996, approximately $133 million was
available for payment of dividends or repurchase of Common Stock. In addition,
certain debt instruments of APC restrict the ability of APC to transfer funds to
the Company in the form of cash dividends, loans or advances. For a description
of such restrictions, reference is made to Note 6 of the Consolidated Financial
Statements included in the Company's 1996 Annual Report to Shareholders and as
part of Exhibit 13 attached hereto.
-25-
Item 6. Selected Financial Data
Incorporated herein by reference to the Selected Financial Data
included in the Company's 1996 Annual Report to Shareholders and as part of
Exhibit 13 attached hereto.
SELECTED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data (stated in thousands except per
share amounts) is as follows:
Quarter Ended
-----------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------------- -------------------- -------------------- --------------------
1996:
Revenues:
Previously Reported................ $110,647 $ 85,788 $ 85,205 NA
Global (1)......................... 26,193 26,649 25,581 NA
-------------------- -------------------- -------------------- --------------------
As Restated...................... $136,840 $112,437 $110,786 $158,515
==================== ==================== ==================== ====================
Operating Profit:
Previously Reported................ $ 30,609 $ 7,262 $ 12,643 NA
Global (1)......................... 7,092 6,564 7,473 NA
-------------------- -------------------- -------------------- --------------------
As Restated...................... $ 37,701 $ 13,826 $ 20,116 $ 33,412
==================== ==================== ==================== ====================
Net Income (Loss):
Previously Reported................ $ 14,846 $ (5,907) $ 1,633 NA
Global (1)......................... 3,466 2,973 5,825 NA
-------------------- -------------------- -------------------- --------------------
As Restated...................... $ 18,312 $ (2,934) $ 7,458 $ 6,125 (6)
==================== ==================== ==================== ====================
Earnings (Loss) per Share (2):
Previously Reported................ $ 0.40 $ (0.16) $ 0.04 NA
As Restated........................ $ 0.29 $ (0.05) $ 0.12 $ 0.10
==================== ==================== ==================== ====================
1995:
Revenues:
Previously Reported................ $ 94,850 $ 81,487 $ 68,087 $ 91,849
Global (1)......................... 17,577 17,108 17,294 20,174
-------------------- -------------------- -------------------- --------------------
As Restated...................... $112,427 $ 98,595 $ 85,381 $112,023
==================== ==================== ==================== ====================
Operating Profit (Loss):
Previously Reported................ $(44,366) $ (7) $ (2,421) $ 12,677
Global (1)......................... (3,103) (2,107) 946 4,003
-------------------- -------------------- -------------------- --------------------
As Restated...................... $(47,469) (3) $ (2,114) $ (1,475) $ 16,680
==================== ==================== ==================== ====================
Net Income (Loss):
Previously Reported................ $(38,550) $ (7,125) $ 41,550 $ 4,757
Global (1)......................... (4,216) (2,938) 2,142 2,642
-------------------- -------------------- -------------------- --------------------
As Restated...................... $(42,766) (3) $(10,063) (4) $ 43,692 (5) $ 7,399
==================== ==================== ==================== ====================
Earnings (Loss) per Share (2):
Previously Reported................ $ (1.07) $ (0.20) $ 1.13 $ 0.13
As Restated........................ $ (0.69) $ (0.16) $ 0.70 $ 0.12
==================== ==================== ==================== ====================
(1) Certain adjustments were made to conform the accounting policies and
presentation of Seagull and Global.
(2) Quarterly earnings (loss) per common share may not total to the full
year per share amount, as the weighted average number of shares
outstanding for each quarter fluctuated as a result of the assumed
exercise of stock options.
(3) Includes $48.8 million non-cash charge relating to the impairment of
long-lived assets.
(4) Includes one-time pre-tax charges of $8 million for expenses involved
in the workforce reduction and consolidation.
(5) Includes $82 million pre-tax gain on the sale of the Pipeline Assets .
(6) Includes $10 million pre-tax merger expenses relating to the Global
Merger.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Incorporated herein by reference to Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1996 Annual Report to Shareholders and as part of Exhibit 13 attached
hereto.
-26-
Item 8. Financial Statements and Supplementary Data
Incorporated herein by reference to the Consolidated Financial
Statements and Supplementary Data included in the Company's 1996 Annual Report
to Shareholders and as part of Exhibit 13 attached hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to "Election of Directors" included in
the Proxy Statement for the Company's Annual Meeting of Shareholders to be held
on May 13, 1997 (the "Proxy Statement"). See also "Executive Officers of the
Company" included in Part I of this Annual Report on Form 10-K, which is
incorporated by reference herein.
Item 11. Executive Compensation
Incorporated herein by reference to "Election of Directors --Executive
Compensation--Summary Compensation Table," "--Compensation Arrangements,"
"--Option Exercises and Fiscal Year-End Values," "--Option Grants," "--Executive
Supplemental Retirement Plan," "--ENSTAR Natural Gas Company Supplemental
Executive Retirement Plan" and "--ENSTAR Natural Gas Company Retirement Plan";
and "Election of Directors-Compensation of Directors" included in the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to "Principal Shareholders" and
"Election of Directors--Security Ownership of Directors and Management" included
in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to "Election of Directors--Certain
Transactions" included in the Proxy Statement.
-27-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements:
The following Consolidated Financial Statements and Independent
Auditors' Report thereon are included in the Company's 1996 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto, and are incorporated
herein by reference:
Independent Auditors' Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
2. Schedules:
All schedules have been omitted because the required information is
insignificant or not applicable.
3. Exhibits:
3.1 Articles of Incorporation of the Company, as amended,
including Articles of Amendment filed May 12, 1988, May
21, 1991, and May 21, 1993 with the Secretary of State of
the State of Texas, that certain Statement of Relative
Rights and Preferences related to the designation and
issuance of the Company's $2.25 Convertible Exchangeable
Preferred Stock, Series A, filed August 6, 1986 with the
Secretary of State of the State of Texas and that certain
Statement of Resolution Establishing Series of Shares of
Series B Junior Participating Preferred Stock of Seagull
Energy Corporation filed March 21, 1989 with the Secretary
of State of the State of Texas (incorporated by reference
to Exhibit 3.1 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
3.2 Bylaws of the Company, as amended through March 17, 1995
(incorporated by reference to Exhibit 3.1 to Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995).
*4.1 $650 Million Reducing Revolving Credit and Competitive
Bid Facility among Seagull Energy Corporation, The Chase
Manhattan Bank and The Other Banks Signatory Thereto, dated
December 23, 1996.
*4.2 U.S. $100 Million Reducing Revolving Credit Facility among
Seagull Energy Canada Ltd. and The Chase Manhattan Bank of
Canada, The Bank of Nova Scotia, Canadian Imperial Bank
of Commerce, and The Other Banks Signatory Hereto, dated
December 23, 1996.
4.3 Senior Indenture dated as of July 15, 1993 by and between
the Company and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to Current
Report on Form 8-K dated August 4, 1993; Specimen of 7 7/8%
Senior Note due 2003 and resolutions adopted by the
Chairman of the Board of Directors is incorporated by
reference to Exhibit 4.3 to Current Report on Form 8-K
dated August 4, 1993).
4.4 Senior Subordinated Indenture dated as of July 15, 1993
by and between the Company and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.2 to
Current Report on Form 8-K dated August 4, 1993; Specimen
of 8 5/8% Senior Subordinated Note due 2005 and resolutions
adopted by the
-28-
Chairman of the Board of Directors is incorporated by
reference to Exhibit 4.4 to Current Report on Form 8-K
dated August 4, 1993).
4.5 Note Agreement dated June 17, 1985 by and among APC and
The Travelers Insurance Company, The Travelers Life
Insurance Company, and the Equitable Life Assurance Society
of the United States (collectively, the "Insurance
Companies") (including forms of notes and other exhibits
thereto) and Inducement Agreement of even date therewith
by and among Seagull and the Insurance Companies (the
Note Agreement including exhibits thereto incorporated
by reference to Exhibit 4.1 to Annual Report on Form 10-K
for the year ended December 31, 1995; the Form of
Consent and Agreement dated April 15, 1991 by and among
APC and the Insurance Companies (including exhibits
thereto) is incorporated by reference to Exhibit 4.2
to Annual Report on Form 10-K for the year ended December
31, 1992).
4.6 Note Agreement dated May 14, 1992 by and among Alaska
Pipeline Company and each of the purchasers thereto
(including forms of notes and other exhibits thereto)
and Inducement Agreement of even date therewith by and
among Seagull and Aid Association for Lutherans, The
Equitable Life Assurance Society of the United States,
Equitable Variable Life Insurance Company, Provident
Life & Accident Insurance Company and Teachers Insurance
& Annuity Association of America (including exhibits
thereto) (incorporated by reference to Exhibit 4.7 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992).
4.7 Trust Agreement dated as of September 1, 1995 for the
Seagull Series 1995 Trust (the Trust Agreement is
incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995; the Guaranty by Seagull Energy Corporation in favor
of the Seagull Series 1995 Trust is incorporated by
reference to Exhibit 10.2 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995).
4.8 Rights Agreement dated as of March 17, 1989 between the
Company and NCNB Texas National Bank, as Rights Agent,
which includes the form of Statement of Resolution setting
forth the terms of the Series B Junior Participating
Preferred Stock, par value $1.00 per share, as Exhibit
A, the form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit
C (the Rights Agreement is incorporated by reference to
Exhibit 4.8 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the First Amendment dated as
of June 18, 1992 is incorporated by reference to Exhibit
3.4 to Registration Statement on Form S-3 (File No.
33-55426)).
#10.1 Seagull Energy Corporation 1994 Executive Incentive Plan
(incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994).
#10.2 Seagull Energy Corporation 1995 Executive Incentive Plan
(incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
*#10.3 Seagull Energy Corporation 1996 Executive Incentive Plan.
*#10.4 Seagull Energy Corporation 1981 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.6 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993; Form of Amendement
to Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.5 Seagull Energy Corporation 1983 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.7 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.15 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendement
to Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
-29-
*#10.6 Seagull Energy Corporation 1986 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.8 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.16 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendment to
Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.7 Seagull Energy Corporation 1990 Stock Option Plan,
including forms of agreements, as amended (incorporated by
reference to Exhibit 10.22 to Annual Report on form 10-K
for the year ended December 31, 1995; Form of Amendment to
Stock Option Agreement(s) is filed herewith).
*#10.8 Global Natural Resources Inc. 1989 Key Employees Stock
Option Plan (the Plan is incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-31537 of
Global Natural Resources Inc.; the Form of Stock Option
Agreement is incorporated by reference to Exhibit 4.2 to
Registration Statement No. 33-31537 of Global Natural
Resources Inc.; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.9 Global Natural Resources Inc. 1992 Stock Option Plan (the
Plan is incorporated by reference to Exhibit 10.47 to the
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 of Global Natural Resources Inc. (Registration
No. 1-8674); the Form of Stock Option Agreement is
incorporated by reference to Exhibit 10.48 to the
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 of Global Natural Resources Inc. (Registration
No. 1-8674); Form of Amendment to Stock Option
Agreement(s) is filed herewith).
#10.10 Seagull Energy Corporation 1993 Nonemployee Directors
Stock Option Plan, including forms of agreements (the Plan
is incorporated by reference to Exhibit 10.37 to Annual
Report on Form 10-K for the year ended December 31, 1992;
the amended form of Nonstatutory Stock Option Agreement is
incorporated by reference to Exhibit 10.29 to Annual
Report on Form 10-K for the year ended December 31, 1993;
the Amendment to Nonemployee Directors' Stock Option
Agreements is incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
*#10.11 Seagull Energy Corporation 1993 Stock Option Plan,
including forms of agreements (the Plan is incorporated by
reference to Exhibit 10.38 to Annual Report on Form 10-K
for the year ended December 31, 1992; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.30 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendment to
Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.12 1995 Omnibus Stock Plan (the Plan is incorporated by
reference to Exhibit 10.3 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995; Form of Amendment to
Stock Option Agreement(s) is filed herewith).
*#10.13 Seagull Energy Corporation Management Stability Plan (the
Plan is incorporated by reference to Exhibit 10.35 to
Annual Report on Form 10-K for the year ended December 31,
1994; the First Amendment is filed herewith).
#10.14 Outside Directors Deferred Fee Plan of the Company, as
amended and restated (incorporated by reference to Exhibit
10.2 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
*#10.15 Employment Agreement dated December 30, 1983 by and
between the Company and Barry J. Galt, Chairman of the
Board, President and Chief Executive Officer of the
Company (the Employment Agreement is incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993; Amendment to
Employment Agreement is filed herewith).
-30-
#10.16 Executive Supplemental Retirement Plan Membership
Agreement between the Company and Barry J. Galt dated as
of February 3, 1986, as amended (incorporated by reference
to Exhibit 10.2 to Quarterly Report on Form 10-Q for the
quarter ended September 31, 1996).
#10.17 Restricted Stock Agreement made and entered into as of
March 17, 1995 between Seagull Energy Corporation and
Barry J. Galt (incorporated by reference to Exhibit 10.32
to Annual Report on Form 10-K for the year ended December
31, 1994).
#10.18 Severance Agreement between Seagull Energy Corporation and
Barry J. Galt (incorporated by reference to Exhibit 10.3
to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
#10.19 Seagull Energy Corporation Executive Supplemental
Retirement Plan, as amended (incorporated by reference to
Exhibit 1.1 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
#10.20 Seagull Energy Corporation Supplemental Benefit Plan, as
amended, including the First Amendment thereto
(incorporated by reference to Exhibit 10.11 to Annual
Report on Form 10-K for the year ended December 31, 1995).
#10.21 Form of Restricted Stock Agreement made and entered into
as of March 17, 1995 between Seagull Energy Corporation
and, individually, Richard F. Barnes (granted 2,000 shares
of restricted Common Stock), John W. Elias (granted 3,000
shares of restricted Common Stock) and Thomas P. McConn
(granted 2,000 shares of restricted Common Stock)
(incorporated by reference to Exhibit 10.33 to Annual
Report on Form 10-K for the year ended December 31, 1994).
#10.22 Form of Severance Agreement between Seagull Energy
Corporation and Richard F. Barnes, John W. Elias, and
Thomas P. McConn (incorporated by reference to Exhibit
10.34 to Annual Report on Form 10-K for the year ended
December 31, 1994).
10.23 Joint Venture Agreement dated August 8, 1968, between
Huffington, Virginia International Company, Austral
Petroleum Gas Corporation, Golden Eagle Indonesia, Limited
and Union Texas Far East Corporation, as amended
(incorporated by reference to Exhibit 6.6 to Registration
Statement No. 2-58834 of Global Natural Resources Inc.).
10.24 Agreement dated as of October 1, 1979 among the parties to
the Joint Venture Agreement referred to in Exhibit 10.21
above (incorporated by reference to Exhibit 5.2 to
Registration Statement No. 2-66661 of Global Natural
Resources Inc.).
10.25 Production Sharing Contract, dated August 8, 1968, between
Pertamina, Huffington, and Virginia International Company,
as amended (incorporated by reference to Exhibit 6.5 to
Registration Statement No. 2-58834 of Global Natural
Resources Inc.; Amendment dated as of January 1, 1978
incorporated by reference to Exhibit 5.4 to Registration
Statement No. 2-66661 of Global Natural Resources Inc.).
10.26 Royalty Incentive Plan, as amended (incorporated by
reference to Exhibit 1.4 to the Annual Report on Form 20-F
for the year ended December 31, 1981 of the U.K. Company).
10.27 Acquisition Agreement dated May 17, 1993 between UMIC Cote
d'Ivoire Corporation and G.N.R. (Cote d'Ivoire) Ltd. Ivory
Coast Production Sharing Contract - Block CI-11
(incorporated by reference to Exhibit 10.40 to the Annual
Report on Form 10-K for the year ended December 31, 1994
of Global Natural Resources Inc. (Registration No.
1-8674)).
10.28 Farmout Agreement dated July 25, 1994 between GNR (Egypt)
Ltd. and Apache Oil Egypt, Inc. Qarun Concession Egypt
(incorporated by reference to Exhibit 10.41 to the Annual
Report on Form 10-K for the year ended December 31, 1994
of Global Natural Resources Inc. (Registration No.
1-8674)).
10.29 Purchase and Sale Agreement by and among Seagull Energy
Corporation, Amoco Gas Company, Houston Pipe Line Company,
Enron Gas Processing Company and Mantaray Pipeline
Company, as sellers and Seahawk Gathering & Liquids
Company as buyer and Tejas Power Corporation as Guarantor
dated July
-31-
28, 1995 (incorporated by reference to Exhibit 10.6 to
Quarterly Report on Form 10-Q for the quarter ended June
30, 1995).
10.30 Stock Purchase Agreement Between Seagull Energy
Corporation and Exxon Corporation relating to all of the
Outstanding Capital Stock of Esso Suez Inc., as executed
in Houston, Texas on July 22, 1996 (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K
filed on August 28, 1996).
10.31 Purchase and Sale Agreement Between Esso Egypt Limited and
Seagull Energy Corporation dated July 22, 1996
(incorporated by reference to Exhibit 2.2 to the Current
Report on Form 8-K filed on August 28, 1996).
10.32 Agreement and Plan of Merger dated as of July 22, 1996 by
and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc.
(incorporated by reference to Exhibit 2.1 to Registration
Statement No. 333-09845 on Form S-4 of Seagull Energy
Corporation).
10.33 Voting Agreement dated as of July 22, 1996 among Seagull
Energy Corporation and The Prudential Life Insurance
Company of America (incorporated by reference to Exhibit
2.2 to Registration Statement 333-09845 on Form S-4 of
Seagull Energy Corporation).
*13 Portions of the Seagull Energy Corporation and
Subsidiaries Annual Report to Shareholders for the year
ended December 31, 1996 which are incorporated by
reference herein to this Annual Report on Form 10-K of
Seagull Energy Corporation and Subsidiaries for the year
ended December 31, 1996.
*21 Subsidiaries of Seagull Energy Corporation.
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Ryder Scott Company, independent petroleum
engineers.
*23.3 Consent of DeGolyer and MacNaughton, independent petroleum
engineers.
*23.4 Consent of Netherland, Sewell and Associates, Inc.,
independent petroleum engineers.
*27.1 Financial Data Schedule.
- --------------------
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
(b) Reports on Form 8-K
On October 18, 1996, the Company filed a current report on Form 8-K
dated October 3, 1996 with respect to Seagull's merger with Global. The items
reported in such current report were Item 2 (Acquisition and Disposition of
Assets) and Item 7 (Financial Statements and Exhibits). The following financial
statements were included in that report:
(a) Financial statements of businesses acquired.
The consolidated financial statements of Global for the years
ended December 31, 1995, 1994 and 1993 (incorporated by
reference to Global's Annual Report on Form 10-K for the year
ended December 31, 1995; Registration No. 1-8674).
-32-
The unaudited consolidated financial statements of Global for
the six months ended June 30, 1996 and 1995 (incorporated by
reference to Global's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996; Registration No. 1-8674).
(b) Pro forma financial information.
The pro forma financial information giving effect to (i) the
merger of Seagull and Global using the pooling of interest
method of accounting for business combinations and (ii) the
Esso Suez Acquisition financed under Seagull's revolving
credit facilities and using the purchase method of accounting.
On October 18, 1996, the Company filed an amendment to current report
on Form 8-K dated September 10, 1996 with respect to Seagull's acquisition of
all the outstanding common stock of Esso Suez Inc. and certain assets of Esso
Egypt Limited. The item reported in such current report was Item 7 (Financial
Statements and Exhibits). The following financial statements were included in
that report:
The pro forma financial information giving effect to (i) the
merger of Seagull and Global using the pooling of interest
method of accounting for business combinations and (ii) the
Esso Suez Acquisition financed under Seagull's revolving
credit facilities and using the purchase method of accounting
(incorporated by reference to Exhibit 99.1 of the Company's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on October 18, 1996).
On November 13, 1996, the Company filed an amendment to current report
on Form 8-K dated October 3, 1996 with respect to Seagull's merger with Global.
The item reported in such current report was Item 7 (Financial Statements and
Exhibits). The following financial statements were included in that report:
Supplemental consolidated statements of earnings and cash
flows of Seagull and Global for each of the quarters in the
three quarters ended September 30, 1996 and four quarters
ended December 31, 1995 and the supplemental consolidated
balance sheets of Seagull and Global as of September 30, June
30, and March 31, 1996 and December 31, 1995.
-33-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SEAGULL ENERGY CORPORATION
Date: March 27, 1997 By: /s/ Barry J.Galt
Barry J. Galt, Chairman of
the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Barry J. Galt By: /s/ Thomas H. Cruikshank
Barry J. Galt, Chairman of the Thomas H. Cruikshank, Director
Board and Chief Executive Officer Date: March 27, 1997
and Director (Principal Executive
Officer) By: /s/ Peter J. Fluor
Date: March 27, 1997 Peter J. Fluor, Director
Date: March 27, 1997
By: /s/ Robert F. Vagt
Robert F. Vagt, President and By: /s/ William R. Grant
Chief Operating Officer and William R. Grant, Director
Director Date: March 27, 1997
Date: March 27, 1997
By: /s/ Dean P. Guerin
By: /s/ John W. Elias Dean P. Guerin, Director
John W. Elias, Executive Vice Date: March 27, 1997
President and Director
Date: March 27, 1997 By: /s/ Richard M. Morrow
Richard M. Morrow, Director
By: /s/ William L. Transier Date: March 27, 1997
William L. Transier, Senior Vice
President and Chief Financial By: /s/ Dee S. Osborne
Officer (Principal Financial Dee S. Osborne, Director
Officer) Date: March 27, 1997
Date: March 27, 1997
By: /s/ Sidney R. Petersen
By: /s/ Gordon L. McConnell Sidney R. Petersen, Director
Gordon L. McConnell, Vice Date: March 27, 1997
President and Controller
(Principal Accounting Officer) By: /s/ Sam F. Segnar
Date: March 27, 1997 Sam F. Segnar, Director
Date: March 27, 1997
By: /s/ J. Evans Attwell
J. Evans Attwell, Director By: /s/ R. A. Walker
Date: March 27, 1997 R. A. Walker, Director
Date: March 27, 1997
By: /s/ Richard J. Burgess
Richard J. Burgess, Director
Date: March 27, 1997
By: /s/ Milton Carroll
Milton Carroll, Director
Date: March 27, 1997
-34-
EXHIBIT INDEX
EXHIBITS:
3.1 Articles of Incorporation of the Company, as amended,
including Articles of Amendment filed May 12, 1988, May
21, 1991, and May 21, 1993 with the Secretary of State of
the State of Texas, that certain Statement of Relative
Rights and Preferences related to the designation and
issuance of the Company's $2.25 Convertible Exchangeable
Preferred Stock, Series A, filed August 6, 1986 with the
Secretary of State of the State of Texas and that certain
Statement of Resolution Establishing Series of Shares of
Series B Junior Participating Preferred Stock of Seagull
Energy Corporation filed March 21, 1989 with the Secretary
of State of the State of Texas (incorporated by reference
to Exhibit 3.1 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
3.2 Bylaws of the Company, as amended through March 17, 1995
(incorporated by reference to Exhibit 3.1 to Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995).
*4.1 $650 Million Reducing Revolving Credit and Competitive
Bid Facility among Seagull Energy Corporation, The Chase
Manhattan Bank and The Other Banks Signatory Thereto, dated
December 23, 1996.
*4.2 U.S. $100 Million Reducing Revolving Credit Facility among
Seagull Energy Canada Ltd. and The Chase Manhattan Bank of
Canada, The Bank of Nova Scotia, Canadian Imperial Bank
of Commerce, and The Other Banks Signatory Hereto, dated
December 23, 1996.
4.3 Senior Indenture dated as of July 15, 1993 by and between
the Company and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to Current
Report on Form 8-K dated August 4, 1993; Specimen of 7 7/8%
Senior Note due 2003 and resolutions adopted by the
Chairman of the Board of Directors is incorporated by
reference to Exhibit 4.3 to Current Report on Form 8-K
dated August 4, 1993).
4.4 Senior Subordinated Indenture dated as of July 15, 1993
by and between the Company and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.2 to
Current Report on Form 8-K dated August 4, 1993; Specimen
of 8 5/8% Senior Subordinated Note due 2005 and resolutions
adopted by the Chairman of the Board of Directors is
incorporated by reference to Exhibit 4.4 to Current Report
on Form 8-K dated August 4, 1993).
4.5 Note Agreement dated June 17, 1985 by and among APC and
The Travelers Insurance Company, The Travelers Life
Insurance Company, and the Equitable Life Assurance Society
of the United States (collectively, the "Insurance
Companies") (including forms of notes and other exhibits
thereto) and Inducement Agreement of even date therewith
by and among Seagull and the Insurance Companies (the
Note Agreement including exhibits thereto incorporated
by reference to Exhibit 4.1 to Annual Report on Form 10-K
for the year ended December 31, 1995; the Form of
Consent and Agreement dated April 15, 1991 by and among
APC and the Insurance Companies (including exhibits
thereto) is incorporated by reference to Exhibit 4.2
to Annual Report on Form 10-K for the year ended December
31, 1992).
4.6 Note Agreement dated May 14, 1992 by and among Alaska
Pipeline Company and each of the purchasers thereto
(including forms of notes and other exhibits thereto)
and Inducement Agreement of even date therewith by and
among Seagull and Aid Association for Lutherans, The
Equitable Life Assurance Society of the United States,
Equitable Variable Life Insurance Company, Provident
Life & Accident Insurance Company and Teachers Insurance
& Annuity Association of America (including exhibits
thereto) (incorporated by reference to Exhibit 4.7 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992).
4.7 Trust Agreement dated as of September 1, 1995 for the
Seagull Series 1995 Trust (the Trust Agreement is
incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995; the Guaranty by Seagull Energy Corporation in favor
of the Seagull Series 1995 Trust is incorporated by
reference to Exhibit 10.2 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995).
4.8 Rights Agreement dated as of March 17, 1989 between the
Company and NCNB Texas National Bank, as Rights Agent,
which includes the form of Statement of Resolution setting
forth the terms of the Series B Junior Participating
Preferred Stock, par value $1.00 per share, as Exhibit
A, the form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit
C (the Rights Agreement is incorporated by reference to
Exhibit 4.8 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the First Amendment dated as
of June 18, 1992 is incorporated by reference to Exhibit
3.4 to Registration Statement on Form S-3 (File No.
33-55426)).
#10.1 Seagull Energy Corporation 1994 Executive Incentive Plan
(incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994).
#10.2 Seagull Energy Corporation 1995 Executive Incentive Plan
(incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
*#10.3 Seagull Energy Corporation 1996 Executive Incentive Plan.
*#10.4 Seagull Energy Corporation 1981 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.6 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993; Form of Amendement
to Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.5 Seagull Energy Corporation 1983 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.7 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.15 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendement
to Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
quarter ended June 30, 1995; Form of Amendment to Stock
Option Agreement(s) is filed herewith).
*#10.6 Seagull Energy Corporation 1986 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.8 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.16 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendment to
Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.7 Seagull Energy Corporation 1990 Stock Option Plan,
including forms of agreements, as amended (incorporated by
reference to Exhibit 10.22 to Annual Report on form 10-K
for the year ended December 31, 1995; Form of Amendment to
Stock Option Agreement(s) is filed herewith).
*#10.8 Global Natural Resources Inc. 1989 Key Employees Stock
Option Plan (the Plan is incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-31537 of
Global Natural Resources Inc.; the Form of Stock Option
Agreement is incorporated by reference to Exhibit 4.2 to
Registration Statement No. 33-31537 of Global Natural
Resources Inc.; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.9 Global Natural Resources Inc. 1992 Stock Option Plan (the
Plan is incorporated by reference to Exhibit 10.47 to the
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 of Global Natural Resources Inc. (Registration
No. 1-8674); the Form of Stock Option Agreement is
incorporated by reference to Exhibit 10.48 to the
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 of Global Natural Resources Inc. (Registration
No. 1-8674); Form of Amendment to Stock Option
Agreement(s) is filed herewith).
#10.10 Seagull Energy Corporation 1993 Nonemployee Directors
Stock Option Plan, including forms of agreements (the Plan
is incorporated by reference to Exhibit 10.37 to Annual
Report on Form 10-K for the year ended December 31, 1992;
the amended form of Nonstatutory Stock Option Agreement is
incorporated by reference to Exhibit 10.29 to Annual
Report on Form 10-K for the year ended December 31, 1993;
the Amendment to Nonemployee Directors' Stock Option
Agreements is incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
*#10.11 Seagull Energy Corporation 1993 Stock Option Plan,
including forms of agreements (the Plan is incorporated by
reference to Exhibit 10.38 to Annual Report on Form 10-K
for the year ended December 31, 1992; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.30 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendment to
Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.12 1995 Omnibus Stock Plan (the Plan is incorporated by
reference to Exhibit 10.3 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995; Form of Amendment to
Stock Option Agreement(s) is filed herewith).
*#10.13 Seagull Energy Corporation Management Stability Plan (the
Plan is incorporated by reference to Exhibit 10.35 to
Annual Report on Form 10-K for the year ended December 31,
1994; the First Amendment is filed herewith).
#10.14 Outside Directors Deferred Fee Plan of the Company, as
amended and restated (incorporated by reference to Exhibit
10.2 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
*#10.15 Employment Agreement dated December 30, 1983 by and
between the Company and Barry J. Galt, Chairman of the
Board, President and Chief Executive Officer of the
Company (the Employment Agreement is incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993; Amendment to
Employment Agreement is filed herewith).
#10.16 Executive Supplemental Retirement Plan Membership
Agreement between the Company and Barry J. Galt dated as
of February 3, 1986, as amended (incorporated by reference
to Exhibit 10.2 to Quarterly Report on Form 10-Q for the
quarter ended September 31, 1996).
#10.17 Restricted Stock Agreement made and entered into as of
March 17, 1995 between Seagull Energy Corporation and
Barry J. Galt (incorporated by reference to Exhibit 10.32
to Annual Report on Form 10-K for the year ended December
31, 1994).
#10.18 Severance Agreement between Seagull Energy Corporation and
Barry J. Galt (incorporated by reference to Exhibit 10.3
to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
#10.19 Seagull Energy Corporation Executive Supplemental
Retirement Plan, as amended (incorporated by reference to
Exhibit 1.1 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
#10.20 Seagull Energy Corporation Supplemental Benefit Plan, as
amended, including the First Amendment thereto
(incorporated by reference to Exhibit 10.11 to Annual
Report on Form 10-K for the year ended December 31, 1995).
#10.21 Form of Restricted Stock Agreement made and entered into
as of March 17, 1995 between Seagull Energy Corporation
and, individually, Richard F. Barnes (granted 2,000 shares
of restricted Common Stock), John W. Elias (granted 3,000
shares of restricted Common Stock) and Thomas P. McConn
(granted 2,000 shares of restricted Common Stock)
(incorporated by reference to Exhibit 10.33 to Annual
Report on Form 10-K for the year ended December 31, 1994).
#10.22 Form of Severance Agreement between Seagull Energy
Corporation and Richard F. Barnes, John W. Elias, and
Thomas P. McConn (incorporated by reference to Exhibit
10.34 to Annual Report on Form 10-K for the year ended
December 31, 1994).
10.23 Joint Venture Agreement dated August 8, 1968, between
Huffington, Virginia International Company, Austral
Petroleum Gas Corporation, Golden Eagle Indonesia, Limited
and Union Texas Far East Corporation, as amended
(incorporated by reference to Exhibit 6.6 to Registration
Statement No. 2-58834 of Global Natural Resources Inc.).
10.24 Agreement dated as of October 1, 1979 among the parties to
the Joint Venture Agreement referred to
in Exhibit 10.21 above (incorporated by reference to
Exhibit 5.2 to Registration Statement No. 2-66661 of
Global Natural Resources Inc.).
10.25 Production Sharing Contract, dated August 8, 1968, between
Pertamina, Huffington, and Virginia International Company,
as amended (incorporated by reference to Exhibit 6.5 to
Registration Statement No. 2-58834 of Global Natural
Resources Inc.; Amendment dated as of January 1, 1978
incorporated by reference to Exhibit 5.4 to Registration
Statement No. 2-66661 of Global Natural Resources Inc.).
10.26 Royalty Incentive Plan, as amended (incorporated by
reference to Exhibit 1.4 to the Annual Report on Form 20-F
for the year ended December 31, 1981 of the U.K. Company).
10.27 Acquisition Agreement dated May 17, 1993 between UMIC Cote
d'Ivoire Corporation and G.N.R. (Cote d'Ivoire) Ltd. Ivory
Coast Production Sharing Contract - Block CI-11
(incorporated by reference to Exhibit 10.40 to the Annual
Report on Form 10-K for the year ended December 31, 1994
of Global Natural Resources Inc. (Registration No.
1-8674)).
10.28 Farmout Agreement dated July 25, 1994 between GNR (Egypt)
Ltd. and Apache Oil Egypt, Inc. Qarun Concession Egypt
(incorporated by reference to Exhibit 10.41 to the Annual
Report on Form 10-K for the year ended December 31, 1994
of Global Natural Resources Inc. (Registration No.
1-8674)).
10.29 Purchase and Sale Agreement by and among Seagull Energy
Corporation, Amoco Gas Company, Houston Pipe Line Company,
Enron Gas Processing Company and Mantaray Pipeline
Company, as sellers and Seahawk Gathering & Liquids
Company as buyer and Tejas Power Corporation as Guarantor
dated July 28, 1995 (incorporated by reference to Exhibit
10.6 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).
10.30 Stock Purchase Agreement Between Seagull Energy
Corporation and Exxon Corporation relating to all of the
Outstanding Capital Stock of Esso Suez Inc., as executed
in Houston, Texas on July 22, 1996 (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K
filed on August 28, 1996).
10.31 Purchase and Sale Agreement Between Esso Egypt Limited and
Seagull Energy Corporation dated July 22, 1996
(incorporated by reference to Exhibit 2.2 to the Current
Report on Form 8-K filed on August 28, 1996).
10.32 Agreement and Plan of Merger dated as of July 22, 1996 by
and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc.
(incorporated by reference to Exhibit 2.1 to Registration
Statement No. 333-09845 on Form S-4 of Seagull Energy
Corporation).
10.33 Voting Agreement dated as of July 22, 1996 among Seagull
Energy Corporation and The Prudential Life Insurance
Company of America (incorporated by reference to Exhibit
2.2 to Registration Statement 333-09845 on Form S-4 of
Seagull Energy Corporation).
*13 Portions of the Seagull Energy Corporation and
Subsidiaries Annual Report to Shareholders for the year
ended December 31, 1996 which are incorporated by
reference herein to this Annual Report on Form 10-K of
Seagull Energy Corporation and Subsidiaries for the year
ended December 31, 1996.
*21 Subsidiaries of Seagull Energy Corporation.
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Ryder Scott Company, independent petroleum
engineers.
*23.3 Consent of DeGolyer and MacNaughton, independent petroleum
engineers.
*23.4 Consent of Netherland, Sewell and Associates, Inc.,
independent petroleum engineers.
*27.1 Financial Data Schedule.
- --------------------
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.