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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 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-11516
REMINGTON OIL AND GAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2369148
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
8201 PRESTON ROAD, SUITE 600
DALLAS, TEXAS 75225-6211
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 210-2650
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $0.01 Par Value Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 24, 2000, was $81,640,833. On that date, the number of
outstanding shares, $0.01 par value, was 21,491,170.
Registrant's Registration Statement filed on Form S-2 effective December 1,
1992 for its 8 1/4% Convertible Subordinated Notes is incorporated by reference
in Part IV of this Form 10-K.
Registrant's Registration Statement filed on Form S-4 effective November
27, 1998, is incorporated by reference in Part IV of this Form 10-K.
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REMINGTON OIL AND GAS CORPORATION
TABLE OF CONTENTS
PART I...................................................... 3
Item 1. Business........................................ 3
Item 2. Properties...................................... 5
Item 3. Legal Proceedings............................... 7
Item 4. Submission of Matters to a Vote of Security
Holders................................................ 7
PART II..................................................... 8
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters............................ 8
Item 6. Selected Financial Data......................... 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 10
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................ 15
Item 8. Financial Statements and Supplementary Data..... 16
Item 9. Changes in and Disagreements with Accountants
and Financial Disclosure............................... 38
PART III.................................................... 39
Item 10. Directors and Executive Officers of the
Registrant............................................. 39
Item 11. Executive Compensation.......................... 43
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................... 51
Item 13. Certain Relationships and Related
Transactions........................................... 52
PART IV..................................................... 52
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................... 52
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PART I
ITEM 1. BUSINESS.
GENERAL
Remington Oil and Gas Corporation, a Delaware Corporation, began in 1981 as
OKC Limited Partnership. In 1992, the limited partnership was converted to a
corporation named Box Energy Corporation. We changed the name of the company to
Remington Oil and Gas Corporation in December 1997.
In December 1998, we restructured our two classes of common stock into a
single class of voting common stock when we merged with S-Sixteen Holding
Company. Our executive offices are located at 8201 Preston Road, Suite 600,
Dallas, Texas 75225-6211 (telephone number 214/210-2650). The company employed
23 people on December 31, 1999.
We explore for, acquire, develop, and produce oil and gas in the offshore
Gulf of Mexico and onshore Gulf Coast areas.
LONG-TERM STRATEGY
Our long-term strategy is to increase our oil and gas production and
reserves while keeping our production costs and our finding and development
costs competitive with the industry.
ACTIVITIES AND OPERATIONS
Our geophysical and geological staff identifies prospects in our core areas
primarily by using 3-D technology. If the prospect merits further exploration,
we then attempt to acquire a leasehold interest in the property. Next, we drill
an exploratory well. If the exploratory well finds enough oil and/or gas
reserves, we complete the well and begin producing the oil or gas. Many times,
before we actually produce the well, we need to build additional facilities such
as offshore platforms or gathering pipelines. The successful results of an
exploratory well may lead to further exploration or development of the property.
Periodically, we also purchase properties with existing oil and gas
reserves and production for further exploration, development, or exploitation.
We sell the oil and gas production from the properties and reinvest the net cash
flow from operations in exploration, development and acquisition activities.
RISKS INVOLVED IN EXPLORATION, DEVELOPMENT, AND PRODUCTION
Exploration, development, and production operations carry a high degree of
risk. Drilling unsuccessful wells or completing marginal wells that do not
produce enough oil or gas to return a profit on the amount invested is a risk.
We attempt to reduce this risk by using 3-D seismic data or other technology to
identify and define the parameters prior to drilling. However, such technology
does not guarantee successful results. Our success depends upon the quality of
the information used to determine drilling locations and the abilities and
experience of our management and technical personnel.
Additional operating risks include mechanical failure, title risk,
blowouts, environmental pollution, and personal injury. We maintain general
liability insurance and insurance against blowouts, redrilling, and certain
other operating hazards, including certain pollution risks. Uninsured losses or
losses and liabilities that exceed the limits of our insurance, could adversely
affect our financial condition.
COMPETITION IN THE OIL AND GAS INDUSTRY
We compete with:
- Large integrated oil and gas companies
- Independent exploration and production companies
- Private individuals
- Sponsored drilling programs
We compete for:
- Operational, technical, and support staff
- Options and/or leases on properties
- Sales of oil and gas production
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Many of our competitors may have significantly more financial, personnel,
technological, and other resources available. In addition, some of the larger
integrated companies may be better able to respond to industry changes including
price fluctuations, oil and gas demands, and governmental regulations.
MARKETS FOR OIL AND GAS PRODUCTION
Oil and gas are generally homogenous commodities, and the prices for these
commodities fluctuate significantly. Purchasers adjust prices for quality,
refined product yield, geographic proximity to refineries or major market
centers, and the availability of transportation pipelines or facilities. Outside
factors beyond our control combine to influence the market prices. Some of the
more critical factors that affect oil and gas commodity prices include the
following:
- Changes in supply and demand
- Changes in refinery utilization
- Levels of economic activity throughout the country
- Seasonal or extraordinary weather patterns
- Political developments throughout the world
Because of our size, we have no real ability to influence the market prices
and therefore, we sell our oil and gas production based on posted market prices,
spot market indices, or prices derived from the posted price or index. An
independent marketing company sells a significant portion of our gas production
and a small quantity of our oil production from the Gulf of Mexico. The revenue
from the sale of oil and gas by this marketing company accounted for
approximately 48% of our total oil and gas revenues in 1999. In addition, we
sold approximately 64% of our total oil production to one company during the
year, which accounted for approximately 32% of our total oil and gas revenues in
1999.
OPERATING AGREEMENTS
Typically, we own interests in oil and gas properties subject to joint
operating agreements. Other independent companies operate most of our
properties, however, during the last year we have begun to operate several
properties. Operating our own properties allows us to maintain a greater degree
of control over timing and amount of capital expenditures. Joint operating
agreements usually grant the operator a lien on the other participants'
interests to secure payment of their share of expenses.
GOVERNMENTAL REGULATION OF OIL AND GAS OPERATIONS AND ENVIRONMENTAL REGULATIONS
Numerous federal and state regulations affect our oil and gas operations.
Current regulations are constantly reviewed at the same time that new
regulations are being considered and implemented. In addition, because we hold
federal leases, the federal government requires us to comply with numerous
additional regulations that focus on government contractors. The regulatory
burden upon the oil and gas industry increases the cost of doing business and
consequently affects our profitability.
State regulations relate to virtually all aspects of the oil and gas
business including drilling permits, bonds, and operation reports. In addition,
many states have regulations relating to pooling of oil and gas properties,
maximum rates of production, and spacing and plugging and abandonment of wells.
Our oil and gas operations are subject to stringent federal, state, and
local laws and regulations related to improving or maintaining the quality of
the environment. The most significant environmental obligations include
compliance with federal legislation for the Oil Pollution Act of 1990 and the
Clean Water Act together with their amendments. The cost of compliance with this
federal and state legislation could have a significant impact on our financial
ability to carry out our oil and gas operations. The legislation and
accompanying regulations could impose financial responsibility requirements,
liability features, and operational requirements, which could be onerously
burdensome to satisfy.
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The laws that require or address environmental remediation apply
retroactively to previous waste disposal practices. In many cases, these laws
apply regardless of fault, legality of the original activities, or ownership or
control of sites. A company could be subject to severe fines and cleanup costs
if found liable under these laws. We have never been a liable party under these
laws nor have we been named a potentially responsible party for waste disposal
at any site.
OTHER BUSINESS INFORMATION
Except for our oil and gas leases with third parties and licenses to
acquire or use seismic data, we have no material patents, licenses, franchises,
or concessions that we consider significant to our oil and gas operations. The
nature of our business is such that we do not have any "backlog" of products,
customer orders, or inventory. We have not been a party to any bankruptcy,
reorganization, adjustment or similar proceeding except in the capacity as a
creditor.
ITEM 2. PROPERTIES.
We concentrate our principal operations in the federal waters of the Gulf
of Mexico and the onshore regions of the Gulf Coast. In addition to the
information below, we recommend that you read "Management's Discussion and
Analysis of Financial Condition and Results of Operations" found on pages 10
through 15 and "Consolidated Financial Statements and Notes to Consolidated
Financial Statements" found on pages 18 through 38. Note 4 -- Oil and Gas
Properties in our Notes to Consolidated Financial Statements provides detailed
information concerning costs incurred, proved oil and gas reserves, and
discounted future net revenue for proved reserves.
LEASEHOLD ACREAGE
Our leasehold acreage of proved and unproved properties at December 31,
1999 was as follows:
UNDEVELOPED DEVELOPED
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GROSS NET GROSS NET
------- ------ ------- ------
Offshore......................................... 97,166 56,080 74,834 18,220
Onshore.......................................... 100,751 32,158 25,254 6,489
------- ------ ------- ------
Total............................................ 197,917 88,238 100,088 24,709
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PRODUCING PROPERTIES
The table below summarizes our ownership in producing wells at the end of
the last three years.
AT DECEMBER 31,
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1999 1998 1997
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GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
Oil wells
Offshore Gulf of Mexico................. 18 4.87 22 5.87 17 4.37
Onshore Gulf Coast...................... 45 17.88 52 17.49 12 5.47
--- ----- --- ----- ----- -----
Total........................... 63 22.75 74 23.36 29 9.84
=== ===== === ===== ===== =====
Gas wells
Offshore Gulf of Mexico................. 26 5.02 41 5.92 10 2.46
Onshore Gulf Coast...................... 85 16.59 80 14.09 78 18.24
--- ----- --- ----- ----- -----
Total........................... 111 21.61 121 20.01 88 20.70
=== ===== === ===== ===== =====
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PROVED OIL AND GAS RESERVES
Net proved oil and gas reserves at December 31, 1999, as evaluated by
Netherland, Sewell, & Associates, Inc. and Miller and Lents, Ltd., are
summarized below on the following table. The Netherland, Sewell, & Associates
report covers approximately 91% of the total proved reserves. The quantities of
proved oil and gas reserves discussed in this section include only the amounts
which we reasonably expect to recover in the future from known oil and gas
reservoirs under the current economic and operating conditions. Proved reserves
include only quantities that we expect to recover commercially using current
prices, costs, existing regulatory practices and technology. Therefore, any
changes in future prices; costs, regulations, technology or other unforeseen
factors could significantly increase or decrease the proved reserve estimates.
NET OIL NET GAS PRE-TAX
RESERVES RESERVES PRESENT VALUE
BARRELS MCF DISCOUNTED @10%
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(IN THOUSANDS)
Offshore Gulf of Mexico............................ 3,483 52,543 $111,063
Onshore Gulf Coast................................. 3,694 12,965 52,602
----- ------ --------
Total.................................... 7,177 65,508 $163,665
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OFFSHORE PRODUCING PROPERTIES
We owned varying working interests in 42 offshore Gulf of Mexico blocks at
December 31, 1999. We currently produce from 13 of these blocks. Oil and gas
production from these 13 blocks accounted for 72% of our total oil production
and 83% of our total gas production. In addition to the leases that we currently
own, we have a long-term seismic licensing agreement with one of the largest 3-D
seismic contractors. Our agreement provides our technical team immediate,
in-house access to over 1,300 blocks of offshore 3-D seismic data. Our data
coverage is one of the most extensive contiguous 3-D seismic databases available
over the central and western regions of the Gulf of Mexico Shelf.
In early 2000, as operator, we successfully completed drilling three
exploratory wells located on East Cameron block 364, East Cameron block 344 and
Eugene Island block 297. We expect that production from the two East Cameron
discoveries will begin in 2001 and that Eugene Island production will begin in
September 2000.
South Pass 89 Complex
The South Pass 89 Complex accounted for approximately 52% of our oil and
gas production in 1999. Our interest in four contiguous blocks, South Pass 86,
87, 89, and West Delta 128 varies from 20% to 50%. We produce from 25 wells
located on three separate drilling and production platforms. In 1999 we drilled
two new wells, both successful, with a 33% working interest on South Pass Block
87. In February 2000, we successfully completed well D-11 with a 50% working
interest on South Pass block 87.
Other Offshore Properties
In 1999 interests in 10 other offshore fields, including Eugene Island 135,
West Cameron 170, and Galveston Island 333, accounted for approximately 26% of
our total production. Our working interests in these 10 fields range from 5% to
50%. In offshore areas other than the South Pass 89 Complex, we drilled a total
of five exploratory wells and completed a total of four as producers. Our
working interests in these wells range from 15% to 100%.
ONSHORE GULF COAST PROPERTIES
Our onshore Gulf Coast area properties are principally located in
Mississippi and Texas. In 1999, these properties accounted for approximately 22%
of our total production. We drilled a total of 30 wells on our onshore
properties and completed 24 wells as producers. Our working interests in these
wells range from 14% to 65%. In October 1999, we entered into a five prospect
drilling venture in the Mississippi Salt Basin. These
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five ready-to-drill, 3-D seismically defined prospects are located in Covington
and Jones Counties. Three of the five wells have been drilled with two completed
as producers and the third currently testing. Tentative plans are to drill the
remaining two prospects by the end of 2000.
DRILLING ACTIVITIES
The following is a summary of our exploration and development drilling
activities for the past three years.
FOR THE YEARS ENDED DECEMBER 31,
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1999 1998 1997
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GROSS NET GROSS NET GROSS NET
----------- ------------ ----------- ------------ ----------- ------------
PROD. DRY PROD. DRY PROD. DRY PROD. DRY PROD. DRY PROD. DRY
----- --- ----- ---- ----- --- ----- ---- ----- --- ----- ----
Exploratory
Offshore Gulf of
Mexico............. 5 1 1.73 0.33 3 -- 0.90 -- 2 2 0.30 0.42
Onshore Gulf Coast... 22 6 5.91 1.63 9 7 2.72 2.13 1 5 0.80 2.56
-- -- ---- ---- -- -- ---- ---- -- -- ---- ----
Total......... 27 7 7.64 1.96 12 7 3.62 2.13 3 7 1.10 2.98
== == ==== ==== == == ==== ==== == == ==== ====
Development
Offshore Gulf of
Mexico............. 1 -- 0.33 -- -- -- -- -- 1 -- 0.25 --
Onshore Gulf Coast... 2 -- 0.89 -- 2 1 0.82 0.30 4 4 1.58 2.77
-- -- ---- ---- -- -- ---- ---- -- -- ---- ----
Total......... 3 -- 1.22 -- 2 1 0.82 0.30 5 4 1.83 2.77
== == ==== ==== == == ==== ==== == == ==== ====
We had an interest in 7 wells (2.73 net) in progress at December 31, 1999,
5 wells (1.18 net) in progress at December 31, 1998, and 6 wells (2.47 net) in
progress at December 31, 1997.
OTHER PROPERTY AND OFFICE LEASE
We own several non-contiguous tracts of land covering approximately 7,800
surface acres in Southern Louisiana and Southern Mississippi. Outside parties
lease several of the tracts for farming, grazing, timber, sand and gravel,
camping, hunting, and other purposes. Gross revenues from these real estate
properties in 1999 totaled $241,000. We lease approximately 17,000 square feet
of office space in Dallas, Texas. The lease on this office space expires April
2008.
ITEM 3. LEGAL PROCEEDINGS.
The information required by this Item is incorporated herein by reference
to Item 8. "Financial Statements and Supplementary Data." -- Notes 7, 9, and 13
of Consolidated Notes to Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock trades on the NASDAQ National Market System under the
symbol ROIL and on the Pacific Exchange under the symbol REM.P. In December
1998, we issued a new single class of voting common stock in exchange for the
surrender of all of the previously outstanding voting and non-voting common
stock. Before this exchange of common stock, our two classes of shares traded on
the NASDAQ National Market System under the trading symbols ROILA and ROILB.
During the same period, the two classes traded on the Pacific Exchange under the
symbols REMA.P and REMB.P. The following table sets forth the high and low last
sales price per share as reported by NASDAQ for the periods indicated.
CLASS A CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK
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HIGH LOW HIGH LOW HIGH LOW
----- ----- ----- ----- ----- -----
2000
First Quarter through March 24................ 4.063 2.781 -- -- -- --
1999
Fourth Quarter................................ 5.688 3.625 -- -- -- --
Third Quarter................................. 6.000 4.375 -- -- -- --
Second Quarter................................ 5.063 3.125 -- -- -- --
First Quarter................................. 4.000 2.375 -- -- -- --
1998
Fourth Quarter................................ 3.188 2.938 5.000 3.000 4.688 2.875
Third Quarter................................. -- -- 6.750 3.750 5.875 3.375
Second Quarter................................ -- -- 7.250 5.500 6.750 5.375
First Quarter................................. -- -- 6.250 5.125 6.375 5.000
On March 24, 2000, the last reported sales price was $3.875 per share. On
that date, there were 590 stockholders of record. Our transfer agent informed us
that as of that date there were also 175 stockholders of record of class A
common stock and 421 stockholders of record of class B common stock who had not
yet surrendered their old stock for the new common stock to which they are
entitled. We have not declared or paid any cash dividends during the past eight
years. Our credit facility agreements prohibit our paying dividends. In
addition, if we pay dividends in excess of 2% of the market price per share
during a calendar quarter, the conversion price of the 8 1/4% Convertible
Subordinated Notes will be adjusted proportionately. The determination of future
cash dividends, if any, will depend upon, among other things, our financial
condition, cash flow from operating activities, the level of our capital and
exploration expenditure needs, future business prospects, and renegotiation of
our line of credit.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data should be read in conjunction with
our consolidated financial statements and notes to the consolidated financial
statements. In addition, you should also read our "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7.
below.
1999 1998(1) 1997(2) 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PRICES, VOLUMES, AND PER SHARE DATA)
FINANCIAL
Total revenue........................... $ 45,430 $ 87,689 $ 61,053 $ 70,210 $ 59,493
Net income (loss)....................... (3,703) 13,617 (26,790) (7,662) 5,392
Basic income (loss) per share........... (0.17) 0.67 (1.31) (0.37) 0.26
Diluted income (loss) per share......... (0.17) 0.66 (1.31) (0.37) 0.26
Total assets............................ 119,326 130,229 98,515 136,599 145,491
8 1/4% convertible subordinated notes... 5,950 38,371 38,371 55,077 55,077
Other bank debt......................... 30,028 3,500 6,000 -- --
Stockholders' equity.................... 56,054 59,699 44,287 74,356 82,047
Total shares outstanding................ 21,285 21,247 20,306 20,803 20,803
Cash Flow
Net cash flow from operations......... 19,180 54,040 27,546 28,955 24,047
Net cash flow from investing.......... (25,911) (38,149) (11,820) (47,602) (19,899)
Net cash flow from financing.......... (7,931) (1,425) (14,171) -- --
OPERATIONAL
Proved reserves(3)
Oil (MBbls)........................... 7,177 5,519 4,451 3,299 2,938
Gas (MMcf)............................ 65,508 52,709 36,543 39,332 51,373
Future discounted net revenue(3)
Before estimated income taxes......... 163,665 70,118 108,698 189,155 173,388
After estimated income taxes.......... 126,868 63,467 93,838 146,013 133,982
Average sales price
Oil (per Bbl)......................... 15.48 10.99 17.79 20.21 16.64
Gas (per Mcf)......................... 2.42 3.22 5.06 5.69 6.89
Average production (net sales volume)
Oil (barrels per day)................. 3,242 3,411 3,280 2,555 2,300
Gas (Mcf per day)..................... 27,229 17,488 19,496 22,518 16,074
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(1) Financial results for 1998 include $49.8 million in other income from the
termination of our gas sales contract and a $18.0 million charge recorded
for the Phillips Petroleum judgment.
(2) The net loss in 1997 includes a $14.6 million deferred income tax expense
that we recorded when we increased the valuation allowance against the
deferred income tax asset originally recorded in 1992.
(3) The quantities of proved oil and gas reserves discussed in this table
include only the amounts which we reasonably expect to recover in the future
from known oil and gas reservoirs under the current economic and operating
conditions. Proved reserves include only quantities that we can commercially
recover using current prices, costs, existing regulatory practices and
technology. Therefore, any changes in future prices, costs, regulations,
technology, or other unforeseen factors could significantly increase or
decrease the proved reserve estimates.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion will assist you in understanding our financial
position, liquidity, and results of operations. The information below should be
read in conjunction with the financial statements, and the related notes to
financial statements. Our discussion contains both historical and
forward-looking information. We assess the risks and uncertainties about our
business, long-term strategy, and financial condition before we make any
forward-looking statements, but we can not guarantee that our assessment is
accurate or that our goals and projections can or will be met. Statements
concerning results of future exploration, exploitation, development, and
acquisition expenditures as well as expense and reserve levels are
forward-looking statements. We make assumptions about commodity prices, drilling
results, production costs, administrative expenses, and interest costs that we
believe are reasonable based on currently available information of known facts
and trends.
LONG-TERM STRATEGY AND BUSINESS DEVELOPMENTS
Our long-term strategy is to increase shareholder value by economically
increasing reserves, production, and cash flow on an annual basis. We will
balance our capital expenditures, financed primarily by operating cash flow and
bank debt, among exploration, development, and acquisitions. Proved oil and gas
reserves at December 31, 1999, were 7.2 million barrels of oil and 65.5 Bcf of
gas compared to 5.5 million barrels of oil and 52.7 Bcf of gas at December 31,
1998. These results amount to a 30% increase in oil reserves, a 24% increase in
gas reserves, and a 27% growth in total barrels of oil equivalents. In 1999, we
replaced 234% of our total production and in 1998, we replaced 264% of our total
production, based on barrels of oil equivalent. During the last three years, we
have concentrated on reducing our costs and expenses to increase shareholder
value.
PHILLIPS PETROLEUM LITIGATION
Phillips contends that pursuant to its 33% net profits interest in South
Pass block 89, it was entitled to receive an overriding royalty for months in
which "net profits" were not achieved; that an excessive oil transportation fee
was being charged to the net profits account; and that the entire $69.6 million
cash payment that had been received by OKC Limited Partnership (our predecessor)
from the 1990 settlement of previous litigation between Texas Eastern
Transmission Corporation and us, should have been credited to the net profits
account instead of the $5.8 million that was credited.
On the latter claim, Phillips seeks to receive more than $21.5 million,
while on the first two claims Phillips alleges aggregate damages of several
million dollars. In addition, Phillips, under the Louisiana Mineral Code, is
seeking double damages and cancellation of the farm-out agreement that created
the net profits interest. We denied Phillips' claims and defended ourselves
during a non-jury trial in April 1997.
In August 1998, the trial court ruled in the litigation. In its ruling, the
court awarded Phillips $1.6 million plus interest for its overriding royalty
claim and $9.3 million plus interest for its claim on the 1990 settlement. The
trial court dismissed Phillips' claim of excessive transportation charges and
its claims for double damages and lease cancellation.
The trial court, applying federal law and the language of the farm-out
agreement, held that only income from actual production was to be included in
the net profits account. On this basis, the trial court allocated $41.2 million
of the 1990 settlement amount to proceeds from production rather than the $5.8
million originally credited.
In October 1998, the trial court finalized its judgment. The total
judgment, including interest, was $18.0 million. Phillips appealed the judgment
on the transportation issue and the judgment on the 1990 settlement, and we
appealed the decision on the overriding royalty issue. We posted an $18.0
million appeal bond, and set aside $9.0 million with the bonding company as
collateral for the bond. In addition, we recorded the $18.0 million as an
expense in the third quarter of 1998 in accordance with Statement of Financial
Accounting Standards No. 5 entitled "Accounting for Contingencies."
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On January 5, 2000, the Fourth Court of Appeal issued an opinion reversing
the trial court's judgment on the 1990 settlement issue and the excessive
transportation issue and upholding the judgment on the overriding royalty issue.
The appellate opinion increased the amount of the 1990 settlement subject to net
profits from the $28.1 million as allocated by the trial court to $63.8 million,
an increase of $35.7 million. The appeals court remanded this amount to the
trial court for further proceedings related to royalties due. The amount payable
to Phillips as determined by the appellate court, subject to remand, and
assuming no reversal, would be $21.1 million plus interest. The appellate court
opinion also disagreed with the trial court in stating that we owe Phillips $7.3
million plus interest on the transportation issue. In addition, according to the
appellate court's opinion, we would owe Phillips an additional $1.2 million plus
interest for transportation costs from December 1996 through the end of 1999.
We intend to vigorously contest the decision of the appellate court, and in
January 2000 we requested a rehearing in this case. If the rehearing is denied,
we will appeal to the Louisiana Supreme Court. Because we believe that it is
probable that the decision of the appellate court will not stand, we have not
recorded any additional contingent liability on our books. Statement of
Financial Accounting Standards No. 5 entitled "Accounting for Contingencies"
requires that when a loss contingency exists, it be accrued if it is reasonably
estimable and it is probable that an unfavorable outcome will occur. In reaching
our conclusion we rely on our legal counsel who have informed us that in their
opinions, the appellate court incorrectly applied the law and made erroneous
findings of fact in reversing the trial court's judgment and that it is as
likely as not that the Court of Appeal's errors will be corrected on rehearing
or on appeal to the Louisiana Supreme Court.
If however, we are not successful in this litigation, after exhausting all
appeals, we will owe Phillips approximately $31.2 million plus approximately
$23.4 million in interest on all three issues. This result would have a serious
effect on our financial position and liquidity and could constitute an event of
default under our bank loan agreement, which might result in acceleration of our
long-term debt. Our plans to deal with such a contingency might include selling
properties, additional debt financing or, as a last resort, seeking protection
from creditors under applicable law.
We also have litigation pending with Phillips in state court in Collin
County, Texas. This litigation centers on our termination of the gas contract
with Texas Eastern in 1998 for $49.8 million, and what, if any, of the
termination amount we received should be credited to the net profits account.
The court in Collin County stayed the case pending resolution of the Louisiana
appeals. Although not absolute, an unfavorable outcome of the Louisiana
litigation could have a detrimental effect on our position in this litigation.
If we were unsuccessful in this litigation we could owe Phillips approximately
$16.4 million plus approximately $1.5 million in interest through December 31,
1999. This litigation could take up to two years to resolve after the Louisiana
litigation is concluded.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities." As amended, the statement is effective for all fiscal
years beginning after June 15, 2000 (January 1, 2001 for us). SFAS No. 133
requires that derivatives be reported on the balance sheet at fair value. If the
derivative is not designated as a hedging instrument, changes in fair value must
be recognized in the income statement in the period of change. If the derivative
is designated as a hedge and to the extent such hedge is determined to be
effective, changes in fair value are either offset by the change in fair value
of the hedged asset or liability (if applicable) or reported as a component of
other comprehensive income in the period of change, and subsequently recognized
in the income statement when the offsetting hedged transaction occurs. The
definition of derivatives has also been expanded to include contracts that
require physical delivery of oil and gas if the contract allows for net cash
settlement. Currently we do not utilize any derivative instruments that fall
under the criteria defined in the accounting standard. Accordingly, we do not
expect the adoption of SFAS No. 133 to have a material effect on our reported
financial statements or disclosures.
11
12
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 1999, our current liabilities exceeded our current assets
by $4.3 million. Excluding the Phillips judgment payable from current
liabilities and the $9.0 million of restricted cash related thereto from current
assets would result in our current assets exceeding our current liabilities by
$5.6 million. From December 31, 1998, to December 31, 1999, our current assets
decreased by $9.0 million. The current assets decreased primarily because we
used cash to purchase $8.4 million of the 8 1/4% Convertible Subordinated Notes
and our capital expenditures exceeded our cash flow from operations during 1999.
Cash flow from operations for 1999 decreased $34.9 million, or 65%,
compared to 1998. The decrease relates to the cash received from the termination
of a gas contract with Texas Eastern Transmission Corporation. We received $49.8
million in cash in July 1998 for the termination. Without the proceeds from the
termination of the gas contract, cash flow from operations would have increased
by $14.9 million, or 354%. This increase resulted from higher average oil prices
and increased gas production. The average oil prices for 1999 were $15.48 per
barrel compared to $10.99 per barrel during 1998. The higher oil prices caused
oil revenues to be $5.6 million higher in 1999. Total gas production increased
by 56% in 1999 compared to 1998. The increased production added $8.8 million to
total oil and gas revenues. During 1999, we appealed certain orders to pay from
the Minerals Management Service. The appeal required us to post a bond for the
total amount of their claim for underpaid royalties. We set aside $1.8 million
as restricted cash collateral on the bonds.
The recent increase in oil prices has a positive impact on total revenues,
net income, and cash flow from operations. Based on this increase and an
expected increase in production, our current projections indicate that we can
finance the majority of our planned capital expenditures in 2000 through our
cash flow from operations.
We expect to continue to make significant capital expenditures over the
next several years as part of our long-term growth strategy. The primary source
of funding the capital expenditures will be net cash flow from operations and
additional bank debt. We have budgeted $37.0 million for capital expenditures in
2000. While we have projected this amount for capital expenditures, we can delay
or cancel the drilling of wells included in the current capital expenditure
budget.
In February 1999, we replaced our existing line of credit with a line of
credit from a different bank. The line of credit had a borrowing base of $32.0
million and expires in 2003. In March 2000, the bank amended the terms of the
line of credit to increase the borrowing base to $35.0 million. We pledged our
oil and gas properties as collateral for the increased line of credit and agreed
not to pay dividends. In February 1999, we borrowed $24.5 million on the line of
credit and used the majority of the proceeds to buy a portion of the convertible
notes. During 1999 we borrowed an additional $5.5 million which we used for
capital expenditures. The bank will review the borrowing base semi-annually and
may increase or decrease the borrowing base relative to a new determination of
the estimated proved oil and gas reserves.
YEAR 2000 ISSUE
We did not experience any problems related to the year 2000 issue. Our
expenses related to the year 2000 issue were insignificant.
RESULTS OF OPERATIONS
In 1999, we recorded a net loss totaling $3.7 million or $0.17 per share
compared to net income of $13.6 million or $0.67 per share ($0.66 diluted income
per share) in 1998. The decrease in net income resulted primarily from lower
revenues because of the termination of the gas contract with Texas Eastern in
July 1998. Increased oil prices and increased gas production during 1999
partially offset the decrease in total revenues from 1998 to 1999.
12
13
The following table discloses the net oil and gas production volumes,
sales, and sales prices for each of the three years ended December 31, 1999,
1998, and 1997. The table is an integral part of the following discussion of
results of operations for the periods 1999 compared to 1998 and 1998 compared to
1997.
% INCREASE % INCREASE
1999 (DECREASE) 1998 (DECREASE) 1997
------- ---------- -------- ---------- -------
Oil production volume (MBbls)............. 1,183 (5)% 1,245 4% 1,197
Oil sales revenue......................... $18,316 34% $ 13,677 (36)% $21,292
Price per barrel.......................... $ 15.48 41% $ 10.99 (38)% $ 17.79
Increase (decrease) in oil sales revenue
due to:
Change in prices.......................... $ 5,590 $ (8,140)
Change in production volume............... (951) 525
------- --------
Total increase (decrease) in oil
sales revenue................. $ 4,639 $ (7,615)
======= ========
Gas production volume (MMcf).............. 9,939 56% 6,383 (10)% 7,116
Gas sales revenue......................... $24,028 17% $ 20,579 (43)% $36,012
Price per Mcf............................. $ 2.42 (25)% $ 3.22 (36)% $ 5.06
Increase (decrease) in gas sales revenue
due to:
Change in prices.......................... $(5,106) $(13,093)
Change in production volume............... $ 8,555 $ (2,340)
------- --------
Total increase (decrease) in gas
sales revenue................. $ 3,449 $(15,433)
======= ========
1999 COMPARED TO 1998.
Oil revenue increased by $4.6 million in 1999 compared to the prior year
primarily because of the 41% increase in the average price. Oil production from
the three Gulf of Mexico offshore platforms in the South Pass area decreased
161.3 MBbls because of depletion of reserves from existing wells. However, oil
production from other Gulf of Mexico properties increased by 63.6 MBbls and
partially offset the decrease from the South Pass area. In addition, oil
production from Mississippi increased by approximately 37.0 MBbls. The net 5%
reduction in oil production decreased total oil revenues by $951,000.
Gas revenues for 1999 increased by $3.4 million primarily because of the
increase in gas production. Gas production from the offshore Gulf of Mexico
increased by approximately 2.7 Bcf. Gas production from the South Texas Gulf
Coast increased by approximately 0.8 Bcf. These volume increases, which resulted
in about $8.6 million in additional revenue, were substantially offset by lower
unit prices which reduced revenues by approximately $5.1 million. The average
price decreased because during the first half of 1998 we sold gas produced from
South Pass Block 89 under a gas sales contract at above market prices. We
terminated the gas contract in July 1998.
Interest income decreased $858,000 because of lower cash and investments
balances throughout 1999 compared to 1998. Other income decreased because in
August 1998 we received $49.8 million from Texas Eastern Corporation to
terminate the South Pass Block 89 gas sales contract.
Operating expenses increased by $1.1 million, or 19%, because of the
increase in the number of producing properties during 1999. Transportation
expenses decreased because we purchased S-Sixteen Holding Company in December
1998. We eliminated the transportation expense in the consolidation of CKB
Petroleum, Inc. Net Profits expense decreased $2.1 million because of lower
production volumes and the termination of the Texas Eastern gas sales contract
in July 1998. The termination of the gas sales contract caused gas revenues from
South Pass Block 89 to decrease significantly.
Exploration expenses decreased by $2.8 million, or 29%, because of lower
dry hole costs and lower 3-D seismic costs incurred during 1999 compared to
1998. Depreciation, depletion and amortization expense increased because of
increased producing properties and production. However, because our per-unit
finding
13
14
and development costs have decreased, our per-unit depreciation, depletion and
amortization amounts have decreased. In 1999, impairment of oil and gas
properties decreased $2.3 million from the prior year. In 1998 we recorded a
$2.5 million impairment charge on the South Pass block 89 property as a result
of the termination of the gas sales contract.
During the third quarter of 1998, we received a judgment against us for
$18.0 million in the Phillips litigation. We recorded the judgment during the
third quarter of 1998 and have continued to record interest on the judgment
amount. In February 2000, we reached an agreement to settle the litigation with
the two minority shareholders of CKB & Associates, Inc. and CKB Petroleum, Inc.
In addition, as part of the settlement agreement, we purchased their minority
interest in the two subsidiaries in March 2000. We recorded the estimated
expense portion of the settlement as a charge against income in the fourth
quarter of 1999.
1998 COMPARED TO 1997
Oil revenue for 1998, decreased $7.6 million because of a $6.80, or 38%,
decrease in prices, partially offset by a 48,000-barrel, or 4%, increase in oil
production. The lower prices alone caused oil revenue to be $8.1 million lower.
Oil production increased primarily because of additional oil production from the
Parker Creek property in Mississippi and the West Buna Property in South Texas.
Gas revenue for 1998 was $15.4 million, or 43%, lower than 1997, primarily
due to the lower production from South Pass block 89 in 1998 compared to the
prior year. In 1998, production from this block was 1.4 Bcf lower than in 1997,
causing a decrease in gas revenue of approximately $11.6 million. The average
gas price decrease, from $5.06 to $3.22, resulted primarily from the termination
of the gas sales contract on South Pass block 89. We sold gas from South Pass
block 89 at an average price of $8.54 per Mcf in 1997 compared to $6.20 in 1998.
Gas production from properties other than South Pass block 89 increased 630,000
Mcf, or 15%, primarily from Eugene Island block 135 in the Gulf of Mexico.
Other income increased primarily because of the $49.8 million received from
the termination of the gas sales contract. Operating costs increased during 1998
compared to 1997 because the number of our producing properties increased
significantly. Net profits expense decreased in 1998 because of the decreased
revenues credited to the net profits account on South Pass block 89.
Exploration expense increased $943,000, or 11%, primarily due to increased
expenditures for 3-D seismic data. Dry hole expense, which is included in
exploration expense, included $3.3 million for costs accumulated on the Main
Pass block 262 well A-3 at December 31, 1998. This well was determined to be
non-commercial during the first quarter of 1999. Depreciation, depletion and
amortization decreased by $4.3 million, or 18%, because of an increase in proved
oil and gas reserves on producing properties. The impairment expense recorded in
1998 includes $2.5 million for impairment on South Pass block 89 platform B that
was recorded in the third quarter of 1998 due to the termination of the gas
sales contract.
In connection with the August 1998 judgment issued in our litigation with
Phillips Petroleum Company, and in accordance with Statement of Financial
Accounting Standards No. 5 entitled "Accounting for Contingencies," we recorded
an $18.0 million expense in August 1998. This amount includes the damage award
by the trial court and the estimated interest on the award.
We reduced general and administrative expense by 25% in 1998 compared to
1997. The decrease in general and administrative expense was primarily from
reduced salaries and payroll expense, rent expense, and professional services
fees. Legal expenses decreased because of the reduction in expense associated
with defending the Phillips Petroleum Company litigation and the settlement of
other litigation.
Reorganization expense for 1997 includes payments to employees under
employee severance agreements and legal fees or other charges that relate to or
were paid because of the purchase of S-Sixteen Holding Company (formerly Box
Brothers Holding Company) by Mr. J. R. Simplot in August 1997. We recorded the
following as reorganization costs: employee severance payments $3.6 million,
Thomas D. Box severance and legal claims and fees $1.2 million, Mr. Simplot and
Mr. James Arthur Lyle $2.0 million for legal claims and fees, and other
associated expenses $300,000.
14
15
Interest expense is 19% lower for 1998 because of our purchase of $16.7
million of the outstanding 8 1/4% Convertible Subordinated Notes in October
1997. In 1997, we recorded a valuation allowance against the entire deferred tax
benefit, and reflected the amount in the income statement as deferred income tax
expense. In 1998, we were able to use those tax benefits to the extent that our
effective federal income tax rate for 1998 was about 5%. The income tax expense
for 1998 includes alternative minimum tax expense of $433,000 as a current
income tax expense.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk sensitive instrument at December 31, 1999, is a revolving
line of credit from a bank. At December 31, 1999, the unpaid principal balance
under the line was $30.0 million. The interest rate on this debt is sensitive to
market fluctuations, however we do not believe that significant fluctuations in
the market interest have a material effect on our consolidated financial
position, results of operations, or cash flow from operations.
15
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants........................... 17
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 18
Consolidated Statements of Income and Comprehensive Income
for 1999, 1998, and 1997.................................. 19
Consolidated Statements of Stockholders' Equity for 1999,
1998, and 1997............................................ 20
Consolidated Statements of Cash Flow for 1999, 1998, and
1997...................................................... 21
Notes to Consolidated Financial Statements.................. 22
16
17
REPORT OF INDEPENDENT ACCOUNTANTS
To The Stockholders and Board of Directors of
Remington Oil and Gas Corporation
We have audited the accompanying balance sheets of Remington Oil and Gas
Corporation ("the Company"), a Delaware corporation, as of December 31, 1999 and
1998, and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for the three years in the period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Remington Oil and Gas
Corporation as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 28, 2000
17
18
REMINGTON OIL AND GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
AT DECEMBER 31,
-------------------
1999 1998
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 4,356 $ 19,018
Restricted cash and cash equivalents...................... 11,042 8,750
Accounts receivable -- oil and gas........................ 6,148 2,400
Accounts receivable -- other.............................. 273 812
Prepaid expenses and other current assets................. 2,054 1,871
-------- --------
TOTAL CURRENT ASSETS.............................. 23,873 32,851
-------- --------
PROPERTIES
Oil and gas properties (successful-efforts method)........ 275,690 260,649
Other properties.......................................... 2,862 2,706
Accumulated depreciation, depletion and amortization...... (183,971) (167,053)
-------- --------
TOTAL PROPERTIES.................................. 94,581 96,302
-------- --------
Other assets.............................................. 872 1,076
-------- --------
TOTAL ASSETS...................................... $119,326 $130,229
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... $ 6,613 $ 7,264
Phillips judgment payable................................. 18,894 18,165
Short-term notes payable and current portion of long-term
note payable........................................... 2,635 8,651
-------- --------
TOTAL CURRENT LIABILITIES......................... 28,142 34,080
-------- --------
LONG-TERM LIABILITIES
Long-term accounts payable................................ 1,598 2,913
Notes payable............................................. 27,526 3,500
Convertible subordinated notes payable.................... 5,950 29,950
-------- --------
TOTAL LONG-TERM LIABILITIES....................... 35,074 36,363
-------- --------
TOTAL LIABILITIES................................. 63,216 70,443
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 9 AND NOTE 13)
Minority interest in subsidiaries........................... 56 87
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 25,000,000 shares
authorized, shares issued -- none
Common stock, $.01 par value, 100,000,000 shares
authorized, 21,491,170 shares issued and 21,285,195
shares outstanding in 1999, 21,453,453 shares issued
and 21,247,478 shares outstanding in 1998.............. 213 213
Additional paid-in capital................................ 44,273 44,117
Retained earnings......................................... 11,568 15,369
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 56,054 59,699
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $119,326 $130,229
======== ========
See accompanying Notes to Consolidated Financial Statements.
18
19
REMINGTON OIL AND GAS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- --------
REVENUES
Oil sales................................................. $18,316 $13,677 $ 21,292
Gas sales................................................. 24,028 20,579 36,012
Interest income........................................... 724 1,582 1,998
(Loss) on sale of investments............................. -- -- (125)
Other income.............................................. 2,362 51,851 1,876
------- ------- --------
TOTAL REVENUES.................................... 45,430 87,689 61,053
------- ------- --------
COSTS AND EXPENSES
Operating costs and expenses.............................. 6,978 5,861 4,015
Transportation expense.................................... 329 2,654 2,851
Net profits interest expense.............................. 1,492 3,600 8,341
Exploration expenses...................................... 6,725 9,497 8,554
Depreciation, depletion and amortization.................. 20,780 19,964 24,298
Impairment of oil and gas properties...................... 1,883 4,154 3,953
General and administrative................................ 4,790 4,782 6,344
Legal expense............................................. 1,465 552 2,509
Settlement of minority interest litigation................ 442 -- --
Phillips judgment......................................... -- 17,950 --
Reorganization expense.................................... -- -- 7,072
Interest and financing expense............................ 4,552 4,302 5,283
------- ------- --------
TOTAL COSTS AND EXPENSE........................... 49,436 73,316 73,220
------- ------- --------
INCOME (LOSS) BEFORE TAXES.................................. (4,006) 14,373 (12,167)
Income taxes.............................................. (273) 756 14,623
Minority interest......................................... (30) -- --
------- ------- --------
NET INCOME (LOSS)................................. (3,703) 13,617 (26,790)
------- ------- --------
OTHER COMPREHENSIVE INCOME (NET OF TAXES)
Unrealized gain on marketable securities -- available for
sale................................................... -- -- 186
------- ------- --------
TOTAL OTHER COMPREHENSIVE INCOME (NET OF TAXES)... -- -- 186
------- ------- --------
COMPREHENSIVE INCOME (LOSS)....................... $(3,703) $13,617 $(26,604)
======= ======= ========
BASIC INCOME (LOSS) PER SHARE..................... $ (0.17) $ 0.67 $ (1.31)
======= ======= ========
DILUTED INCOME (LOSS) PER SHARE................... $ (0.17) $ 0.66 $ (1.31)
======= ======= ========
See accompanying Notes to Consolidated Financial Statements.
19
20
REMINGTON OIL AND GAS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK
--------------------------------- VALUATION
CLASS A CLASS B COMMON ADDITIONAL ALLOWANCE
$1.00 PAR $1.00 PAR $.01 PAR PAID IN RETAINED TREASURY MARKETABLE
VALUE VALUE VALUE CAPITAL EARNINGS STOCK SECURITIES
--------- --------- --------- ---------- -------- -------- ----------
BALANCE DECEMBER 31, 1996... $3,250 $17,553 $ -- $25,197 $ 28,542 $ -- $(186)
Net income (loss)........... (26,790)
Purchase of treasury
stock..................... (3,465)
Unrealized gain (net of
income tax)............... 186
------ ------- ---- ------- -------- ------- -----
BALANCE DECEMBER 31, 1997... 3,250 17,553 -- 25,197 1,752 (3,465) --
------ ------- ---- ------- -------- ------- -----
Net income (loss)........... 13,617
Common stock issued......... 27 156
Treasury stock issued....... 305
Merger and exchange of
common stock.............. (3,250) (17,580) 213 18,764 3,160
------ ------- ---- ------- -------- ------- -----
BALANCE DECEMBER 31, 1998... -- -- 213 44,117 15,369 -- --
------ ------- ---- ------- -------- ------- -----
Net income (loss)........... (3,703)
Common stock issued......... 156
Dividends paid to minority
stockholders.............. (98)
------ ------- ---- ------- -------- ------- -----
BALANCE DECEMBER 31, 1999... $ -- $ -- $213 $44,273 $ 11,568 $ -- $ --
====== ======= ==== ======= ======== ======= =====
See accompanying Notes to Consolidated Financial Statements.
20
21
REMINGTON OIL AND GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
CASH FLOW PROVIDED BY OPERATIONS
NET INCOME (LOSS)........................................... $ (3,703) $ 13,617 $(26,790)
ADJUSTMENTS TO RECONCILE NET INCOME
Depreciation, depletion and amortization.................. 20,780 19,964 24,298
Amortization of deferred charges.......................... 752 254 658
Impairment of oil and gas properties...................... 1,883 4,154 3,953
Dry hole costs............................................ 5,187 5,222 5,319
Minority interest in net income of subsidiaries........... (30) -- --
Stock issued to directors and employees for
compensation........................................... 156 488 --
Amortization of premium of marketable securities.......... -- -- 27
(Gain) loss on sale of properties......................... (218) (111) 367
Deferred income tax expense............................... -- 323 14,623
CHANGES IN WORKING CAPITAL
(Increase) decrease in accounts receivable................ (3,230) 3,133 2,556
(Increase) decrease in prepaid expenses and other current
assets................................................. (183) 296 (157)
Increase in accounts payable and accrued expenses......... 78 15,554 2,692
(Increase) in deferred charges............................ -- (104) --
(Increase) in restricted cash............................. (2,292) (8,750) --
-------- -------- --------
NET CASH FLOW PROVIDED BY OPERATIONS........................ 19,180 54,040 27,546
-------- -------- --------
CASH FROM INVESTING ACTIVITIES
Payments for capital expenditures......................... (26,209) (40,155) (39,144)
Cash acquired in merger with S-Sixteen Holding Company and
Subsidiaries........................................... -- 79 --
Sales and maturities of marketable securities............. -- -- 33,411
Investment in marketable securities....................... -- -- (597)
Notes receivable S-Sixteen Holding Company................ -- -- (7,250)
Principal repayments -- S-Sixteen Holding Company......... -- 1,432 1,058
Proceeds from property sales.............................. 298 495 702
-------- -------- --------
NET CASH (USED IN) INVESTING ACTIVITIES..................... (25,911) (38,149) (11,820)
-------- -------- --------
CASH FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term accounts
payable................................................ 30,628 7,813 7,000
Payments on notes payable and long-term accounts
payable................................................ (37,933) (7,400) (17,706)
Commitment fee on line of credit.......................... (528) -- --
Repurchase common stock................................... -- -- (3,465)
Issuance costs for exchange of common stock............... -- (1,838) --
Dividends paid to minority interest holders............... (98) -- --
-------- -------- --------
NET CASH (USED IN) FINANCING ACTIVITIES..................... (7,931) (1,425) (14,171)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (14,662) 14,466 1,555
Cash and cash equivalents at beginning of period.......... 19,018 4,552 2,997
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 4,356 $ 19,018 $ 4,552
======== ======== ========
Cash paid for interest...................................... $ 2,577 $ 3,879 $ 5,398
======== ======== ========
Cash paid (received) for taxes.............................. $ (472) $ 433 $ --
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
21
22
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION
Remington Oil and Gas Corporation, formerly Box Energy Corporation, is an
independent oil and gas exploration and production company incorporated in
Delaware. We have working interest ownership rights in properties in the
offshore Gulf of Mexico and onshore Gulf Coast.
Management prepares the financial statements in conformity with accounting
principles generally accepted in the United States. This requires estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported periods. Some of the more significant estimates
include oil and gas reserves, useful lives of assets, impairment of oil and gas
properties, and future dismantlement and restoration liabilities. Actual results
could differ from those estimates. We make certain reclassifications to prior
year financial statements in order to conform to the current year presentation.
NOTE 2 -- CONSOLIDATION OF SUBSIDIARIES
On December 28, 1998, we acquired all of the assets of S-Sixteen Holding
Company including its five subsidiaries. Our total investment in the transaction
was $8.5 million. The effect of the acquisition, which we accounted for as a
purchase transaction, was not material to the financial statements. The
subsidiaries acquired are CKB Petroleum, Inc., CKB & Associates, Inc., Box
Brothers Realty Investments Company, CB Farms, Inc., and Box Resources, Inc. We
eliminated all inter-company transactions and account balances for the periods
of consolidation. The primary operating subsidiary, CKB Petroleum, Inc., owns an
undivided interest in a pipeline that transports oil from our South Pass blocks,
offshore Gulf of Mexico, to Venice Louisiana. Before the merger, S-Sixteen
Holding Company owned approximately 57% of our outstanding voting stock. Prior
to the acquisition, we paid CKB Petroleum, Inc., transportation costs totaling
$3.0 million in 1998 and $3.2 million in 1997.
NOTE 3 -- CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash equivalents consist of liquid investments that mature within three
months or less when purchased. Our cash equivalents include investment grade
commercial paper and institutional money market funds. We record cash
equivalents at cost, which approximates their market value at the balance sheet
date.
Our restricted cash includes amounts transferred to a surety company as
collateral for the suspensive appeal bond for the Phillips litigation, and for
various bonds in favor of the Minerals Management Service relating to audit
issues and qualifications as lessees and/or operators on various properties. See
Note 9 and Note 13.
NOTE 4 -- OIL AND GAS PROPERTIES, ACCOUNTING METHODS, COSTS, PROVED RESERVES AND
VALUE BASED INFORMATION
We use the successful-efforts method to account for oil and gas exploration
and development expenditures. Under this method, we record the expenditures for
leasehold acquisitions, tangible equipment, and intangible drilling costs for an
individual oil and gas property as an asset. In addition, if the construction
cost of an offshore platform is significant, we record an allocated portion of
the interest expense incurred during the construction period as part of the oil
and gas property cost.
22
23
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the capitalized costs on our oil and gas
properties, all of which are located in the United States.
AT DECEMBER 31,
-------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
PROVED UNPROVED TOTAL PROVED UNPROVED TOTAL
--------- -------- --------- --------- -------- ---------
(IN THOUSANDS)
Onshore..................... $ 38,373 $ 4,991 $ 43,364 $ 31,704 $ 5,861 $ 37,565
Offshore.................... 222,803 9,523 232,326 210,631 12,453 223,084
--------- ------- --------- --------- ------- ---------
Total............. 261,176 14,514 275,690 242,335 18,314 260,649
Accumulated depreciation,
Depletion and
amortization.............. (182,139) -- (182,139) (165,414) -- (165,414)
--------- ------- --------- --------- ------- ---------
Net oil and gas
properties................ $ 79,037 $14,514 $ 93,551 $ 76,921 $18,314 $ 95,235
========= ======= ========= ========= ======= =========
We accumulate the expenditures incurred in drilling exploratory wells as
work in process until we determine whether the well has encountered commercial
oil and gas reserves. If the well has encountered commercial reserves, we
transfer the accumulated cost to oil and gas properties; otherwise, we charge
the accumulated cost, net of salvage value, to dry hole expense. If the well has
encountered commercial reserves but can not be classified as proved within one
year after discovery, then we consider the well to be impaired, and we charge to
expense the capitalized costs (net of any salvage value) of drilling the well.
We record expenditures for geological, geophysical or other prospecting costs as
exploration expenses on the income statement when incurred. The following table
presents a summary of our oil and gas expenditures during the last three years.
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(UNAUDITED, IN THOUSANDS)
Unproved acquisition costs.............................. $ 2,732 $11,160 $ 5,793
Proved acquisition costs................................ $ 379 $ 5,353 $12,545
Exploration costs....................................... $17,535 $23,279 $13,767
Development costs....................................... $ 7,007 $ 4,318 $ 9,975
Capitalized interest expense............................ -- -- --
We amortize the capitalized cost of each oil and gas property using the
units-of-production method. To calculate the cost per unit we divide the
leasehold costs by total proved reserves and the costs for wells, platforms, and
other equipment by proved developed reserves. Oil and gas reserves that do not
require significant additional cost to access the reserves, such as a new well
or major sidetrack, are classified as proved developed. We then multiply the
cost per unit by the actual production and charge the result to depreciation,
depletion and amortization expense. Gas reserves are converted at a ratio of 6
Mcf to 1 barrel.
Future dismantlement, restoration and abandonment costs include the
estimated costs to dismantle, restore, and abandon our offshore platforms,
wells, and related facilities. As of December 31, 1999, the total estimated
liability of our future dismantlement and restoration costs is $5.4 million. We
record the liability over the life of the property using the units-of-production
method and record the expense as a component of depreciation, depletion and
amortization expense. The accrued liability at December 31, 1999 and 1998, was
$4.0 million and $3.6 million, respectively.
Periodically, if there is a large decrease in oil and gas reserves or
production on a property, or if a dry hole is drilled on or near one of our
properties we will review the properties for impairment. In addition,
significant decreases in oil and gas prices may also indicate that a property
has become impaired. If the net book value of a property is greater than the
estimated undiscounted future net cash flow before income taxes from the same
23
24
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
property, the property is considered impaired. The impairment expense is equal
to the difference between the net book value and the fair value of the asset. We
estimate fair value by discounting, at an appropriate rate, the future net cash
flows from the property. In addition, we assess the capitalized costs of
unproved properties periodically to determine whether their value has been
impaired below the capitalized costs. We recognize a loss to the extent that
such impairment is indicated. In making these assessments, we consider factors
such as exploratory drilling results, future drilling plans, and lease
expiration terms.
We recognized impairment expense totaling $1.9 million in 1999, $4.2
million in 1998, and $4.0 million in 1997. The expense in 1999 included an
impairment of $852,000 on the platform located on Main Pass block 262. The
expense in 1998 included $2.5 million from South Pass block 89 because of the
reduction in estimated undiscounted future net cash flow caused by the
termination of the long-term gas sales contract for that property. The remaining
impairment expense for 1999 and 1998 and the impairment expense for 1997
primarily resulted from inadequate oil and gas reserves or a significant
decrease in oil and gas production from the specific property.
The estimates of oil and gas reserves were prepared by the independent
engineering and consulting firms of Netherland, Sewell & Associates, Inc. and
Miller and Lents, Ltd. The Netherland, Sewell, & Associates, Inc. report covers
approximately 91% of the total proved oil and gas reserves in 1999. The
determination of these reserves is a complex and interpretative process that is
subject to continued revision as additional information becomes available. In
many cases, a relatively accurate determination of reserves may not be possible
for several years due to the time necessary for development drilling, testing
and studies of the reservoirs.
The quantities of proved oil and gas reserves presented below include only
the amounts which we reasonably expect to recover in the future from known oil
and gas reservoirs under the current economic and operating conditions. Proved
reserves include only quantities that we can commercially recover using current
prices, costs, existing regulatory practices and technology. Therefore, any
changes in future prices, costs, regulations, technology or other unforeseen
factors could significantly increase or decrease proved reserve estimates. The
following table presents our net ownership interest in proved oil and gas
reserves.
AT DECEMBER 31,
---------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
OIL GAS OIL GAS OIL GAS
BBLS MCF BBLS MCF BBLS MCF
------ ------ ------ ------ ------ ------
(UNAUDITED, IN THOUSANDS)
Beginning of period....................... 5,519 52,709 4,451 36,543 3,299 39,332
Revisions of previous estimates......... 1,173 3,340 850 6,533 330 (6,004)
Extensions, discoveries and other....... 1,668 19,580 1,311 10,958 1,046 4,115
Reserves purchased...................... -- -- 152 5,058 973 6,216
Reserves sold........................... -- (182)
Production.............................. (1,183) (9,939) (1,245) (6,383) (1,197) (7,116)
------ ------ ------ ------ ------ ------
End of period............................. 7,177 65,508 5,519 52,709 4,451 36,543
====== ====== ====== ====== ====== ======
Proved developed reserves
Beginning of period..................... 3,605 33,680 3,208 27,259 2,541 28,323
End of period........................... 5,593 56,742 3,605 33,680 3,208 27,259
The proved developed and undeveloped reserves and standardized measure of
discounted future net cash flows associated with South Pass block 89 are
burdened by a 33% net profits interest. The reserves included in the above table
include our full net ownership interest without any reduction for the net profit
interest. We treat the net profit interest as an operating expense rather than a
reduction in proved reserves. Please see Note 13 -- Net Profits Expense for a
more detailed discussion about the net profits interest.
24
25
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables represent value-based information about our proved oil
and gas reserves. The standardized measure of discounted future net cash flows
result from the application of specific criteria applicable to the value-based
disclosures of all oil and gas reserves in the industry. Due to the imprecise
nature of estimating oil and gas reserve quantities and the uncertainty of
future economic conditions, we cannot make any representation about
interpretations that may be made or what degree of reliance that may be placed
on this method of evaluating proved oil and gas reserves.
We compute future cash revenue by multiplying the year-end commodity prices
or contractual pricing if applicable, by the proved oil and gas reserves. Future
production and development costs include the estimated costs to produce or
develop the proved reserves based primarily on historical costs. We calculated
the future net profits expense by multiplying the net profit percentage to the
future revenue less production and development costs on South Pass block 89.
Future income tax expense was determined by applying the current tax rate to the
future net cash flow from all properties. Finally, we discounted the future net
cash flow, after tax, by 10% per year to arrive at the standardized measure of
discounted future net cash flows presented below.
AT DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(UNAUDITED, IN THOUSANDS)
Oil and natural gas revenues......................... $308,063 $160,416 $226,262
Production costs..................................... (47,243) (31,474) (31,702)
Development costs.................................... (25,603) (30,665) (23,954)
Net Profits expense.................................. (7,267) (3,453) (28,933)
Income tax expense................................... (49,843) (7,888) (16,845)
-------- -------- --------
Net cash flow........................................ 178,107 86,936 124,828
10% annual discount.................................. (51,239) (23,469) (30,990)
-------- -------- --------
Standardized measure of discounted future net cash
flow............................................... $126,868 $ 63,467 $ 93,838
======== ======== ========
25
26
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the principal sources of change in the
standardized measure of discounted future net cash flows from year to year
AT DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(UNAUDITED, IN THOUSANDS)
Standardized measure of discounted cash flows at
beginning of year.................................. $ 63,467 $ 93,838 $146,013
Sales and transfers of oil and natural gas produced,
net of production costs and net profits expense.... (33,393) (24,796) (42,097)
Net changes in prices and production costs........... 50,133 (77,769) (61,134)
Net changes in estimated development costs........... 1,746 1,274 (5,130)
Net changes in estimated net profits expense......... (5,306) 17,624 14,029
Net changes in income tax expense.................... (28,504) 8,208 28,283
Extensions, discoveries and improved recovery less
related costs...................................... 44,823 11,625 9,171
Proved oil and gas reserves purchased................ -- 5,050 13,865
Proved oil and gas reserves sold..................... (111) -- --
Development costs incurred during the year........... 7,007 4,318 9,975
Revisions of previous quantity estimates............. 25,122 18,673 (21,306)
Other changes........................................ (4,463) (3,962) (12,432)
Accretion of discount................................ 6,347 9,384 14,601
-------- -------- --------
Standardized measure of discounted future net cash
flows end of year.................................. $126,868 $ 63,467 $ 93,838
======== ======== ========
In July of 1998, we terminated our gas sales contract that covered gas
production on South Pass block 89. The standardized measure of discounted future
net cash flows in the prior years included future revenue based on the long-term
contract price.
NOTE 5 -- OTHER PROPERTIES
Other properties include improvements on the leased office space and office
computers and equipment. The company depreciates these assets using the
straight-line method over their estimated useful lives that range from 3 to 12
years.
NOTE 6 -- OTHER ASSETS
Long-term accounts receivable -- related party reflects CKB Petroleum's
claims under Collateral Assignment Split Dollar Insurance Agreements among CKB
Petroleum and Don D. Box (an officer and director) and two of his brothers.
We recorded the origination fees paid for the current bank line of credit
and the cost incurred when we issued the 8 1/4% Convertible Subordinated Notes
in 1992 as deferred charges on our balance sheet. We amortize the costs on a
straight-line basis over underlying term of the debt and charge the amortized
amount to interest and financing costs. In October 1997, we purchased $16.7
million of the outstanding notes and accelerated the amortization of the
allocated portion of the issuance costs by $416,000. Again in February 1999, we
accelerated the amortization of $600,000 of the debt issuance costs a second
time because of our purchase of an additional $32.4 million of the notes.
26
27
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- MINORITY INTEREST IN SUBSIDIARIES
Two individuals owned a combined 5.8824% in two of our subsidiaries, CKB
Petroleum, Inc. and CKB & Associates, Inc. The two subsidiaries were acquired
when we merged with S-Sixteen Holding Company in December 1998. The minority
interest liability reflects their percentage of the total combined equity in the
two subsidiaries. Before the merger, the two shareholders, who were former
officers of the companies, filed suit against S-Sixteen Holding Company and the
two subsidiaries. In this suit the plaintiffs alleged that the defendants wasted
and/or misappropriated CKB Petroleum's corporate assets. The plaintiffs wanted
certain expenditures to be reclassified as "constructive" dividends. In
addition, the plaintiffs also wanted the court to compel us to buy out their
interest. In February 2000, we reached an agreement to settle all claims and
purchase their minority interest in the two subsidiaries. In connection with the
settlement of this litigation we recorded $442,000 as a settlement expense as of
December 31, 1999.
NOTE 8 -- LONG-TERM ACCOUNTS PAYABLE AND NOTES PAYABLE
Long-term accounts payable include the long-term portion of future payments
due to a vendor over the next two years.
In February 1999 we replaced the existing line of credit with a line of
credit from a different bank. The line of credit had an initial borrowing base
of $32.0 million. In March 2000 the borrowing base increased to $35.0 million.
The line expires in 2003. We pledged our oil and gas properties as collateral
for the new line of credit. We will accrue and pay interest at varying rates
based on premiums of from 1.625 to 2.375 percentage points over the London
Interbank Offered Rates. On December 31, 1999, we had an outstanding balance of
$30.0 million and had issued letters of credit totaling $1.8 million. Interest
only is payable quarterly through September 30, 2000. Unless renegotiated or
extended, the loans under the line of credit convert to term loans on October 1,
2000, and principal payments on the $30.0 million will be scheduled as follows:
2000 -- $2.5 million; 2001 -- $10.0 million; 2002 -- $10.0 million; 2003 -- $7.5
million.
The most significant financial covenants in the new line of credit include,
among others, maintaining a minimum current ratio of 1.0 to 1.0, excluding any
current liabilities associated with the Phillips litigation, a minimum tangible
net worth of $55.0 million plus 50% of future net income and 100% of any
non-redeemable preferred or common stock offerings, maximum debt to EBITDA of
3.0 to 1.0, interest coverage of 3.0 to 1.0, and a prohibition of the payment of
dividends. Additionally, certain adverse outcomes of the Phillips litigation
could constitute an event of default. See Note 13.
In December 1992, we issued $55.1 million of 8 1/4% Convertible
Subordinated Notes. The notes mature December 1, 2002, and may convert into
shares of common stock at the election of the note-holder any time before
maturity, unless previously redeemed. Interest is payable semiannually on June 1
and December 1. We may redeem all or a portion of the notes any time after
December 1, 1995, at 105.775% of the face amount. The redemption price decreases
.825% each subsequent December 1. The notes are unsecured and subordinate to
existing and future senior indebtedness.
The indenture for the notes requires us to make an offer to purchase the
notes if a "change in control" occurs. The purchase price is the total of the
par value plus accrued interest through the date of purchase. In August 1997,
Mr. J.R. Simplot purchased S-Sixteen Holding Company, then known as Box Brothers
Holding Company. The purchase resulted in a "change in control" as defined in
the indenture. In October 1997, we repurchased $16.7 million of the notes
outstanding. In December 1998, we reclassified our two classes of common stock
into one class of common stock. The indenture also defined this transaction as a
"change in control," and we made another offer to purchase the notes. In
February 1999, we repurchased $32.4 million of the notes outstanding pursuant to
this offer.
We estimate that the fair value of our long-term indebtedness, including
the current maturities of such obligations, is approximately $35.5 million at
December 31, 1999 and $43.6 million at December 31, 1998. We
27
28
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based the fair value on the quoted market bid price in 1998 and the only known
broker estimate in 1999 for our convertible notes and on current rates available
for our other indebtedness.
NOTE 9 -- COMMITMENTS AND CONTINGENT LIABILITIES
We lease approximately 17,000 square feet of office space in Dallas Texas.
The non-cancelable operating lease expires in April 2008. The following table
reflects our rent payments for the past three years and the commitment for the
future minimum rental payments.
YEAR RENT
---- ----------
1997..................................................... $ 716,000
1998..................................................... $ 474,000
1999..................................................... $ 407,000
2000..................................................... $ 407,000
2001..................................................... $ 433,000
2002..................................................... $ 441,000
2003..................................................... $ 441,000
2004..................................................... $ 441,000
Remaining commitment..................................... $1,586,000
We are defendants in litigation with Phillips Petroleum Company concerning
their net profits interest ownership in South Pass block 89. We discuss this
litigation in more detail in Note 13 -- Net Profits Expense and Phillips
Petroleum Litigation.
Minerals Management Service Issues
During the first quarter of 1999, the Minerals Management Service (MMS)
informed us of certain audit issues. The issues involve alleged underpaid
royalties on the South Pass Block 89 Complex from 1990-1998. During the second
quarter of 1999, the MMS issued orders to pay additional royalties on these
claims. We strongly disagree with the MMS position. After posting bonds totaling
$3.6 million, collateralized with $1.8 million of restricted cash, we have
entered into negotiations with the MMS in regard to these items. In light of
these negotiations, it is impossible to determine the amount of royalty, if any,
we may owe. Certain possible outcomes of these proceedings could materially
affect our financial statements.
We have no other material pending legal proceedings other than the
litigation mentioned above. Other than certain possible outcomes of the Phillips
litigation, it is our opinion that any adverse judgments or results would not
have a material adverse effect on our financial position or results of
operation.
NOTE 10 -- COMMON STOCK, PREFERRED STOCK AND DIVIDENDS
In 1998, we increased the number of authorized common stock shares to 100
million and authorized 25.0 million shares of "blank check" preferred stock. The
par value of the new common stock is $0.01 per share. The board of directors can
issue multiple series of preferred stock and set different terms, voting rights,
conversion features, and redemption rights for each distinct series of the
preferred stock. We have reserved approximately 2.8 million shares of common
stock for our stock option plan and 250,000 shares for our non-employee director
stock purchase plan, which are discussed in more detail in Note 15 -- Employee
and Director Compensation Plans. Additionally, we reserved 200,000 shares for a
warrant issued in connection with our acquisition of S-Sixteen Holding Company
in December 1998.
In December 1998, the holders of class A common stock and class B common
stock approved the merger agreement with S-Sixteen Holding Company. Part of the
transaction involved the exchange of one class of new voting common stock for
the two classes of common stock that were outstanding. The stockholders who
28
29
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
owned class A common stock received 1.15 shares of the new common stock for each
share of class A common stock. The stockholders who owned class B common stock
received 1 share of the new common stock for each share of class B common stock.
We have not paid dividends since before 1992. Dividends are currently
restricted. Additionally, if we pay dividends in excess of 2% of the market
price per share during a calendar quarter, the conversion price of the 8 1/4%
Convertible Subordinated Notes will be adjusted proportionately. The
determination of future cash dividends, if any, will depend upon, among other
things, our financial condition, cash flow from operating activities, the level
of our capital and exploration expenditure needs, our future business prospects,
and renegotiation of our line of credit.
NOTE 11 -- OIL AND GAS REVENUES
We recognize oil and gas revenue in the month of actual production. Our
actual sales have not been materially different from our entitled share of
production and we do not have any significant gas imbalances. In 1999, sales by
a gas marketing company accounted for approximately 48% of our total oil and gas
revenue. In addition, we sold approximately 64% of our total oil production to
one company during the year, which accounted for approximately 32% of our total
oil and gas revenues in 1999. We do not believe that the risk of losing services
or sales from either of these companies would have a material adverse effect on
us.
NOTE 12 -- MARKETABLE SECURITIES
When we sell a marketable security, we record the realized gain or loss on
that specific security in the income statement. The following table includes
certain information about our marketable security transactions and the change in
net unrealized holding gains and losses.
FOR YEARS ENDED
DECEMBER 31,
---------------------
1999 1998 1997
---- ---- -------
(IN THOUSANDS)
Sales Proceeds.............................................. -- -- $33,411
Gross realized gains........................................ -- -- 46
Gross realized (losses)..................................... -- -- (169)
Change in net unrealized holding gains and losses........... -- -- 186
In 1997, we classified all of our marketable securities as
available-for-sale and recorded them on the balance sheet at their market value
as of the balance sheet date. The unrealized holding gains and losses that
result from the difference between the market value and the cost of these
securities are recorded, net of tax, as a separate component of stockholders'
equity.
NOTE 13 -- NET PROFITS EXPENSE AND PHILLIPS PETROLEUM LITIGATION
We pay Phillips Petroleum Company 33% of the "net profit," as defined in
the farm-out agreement, from South Pass block 89. The following table summarizes
the net profits expense calculation:
FOR YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
Oil and natural gas revenue (net of transportation)..... $ 6,611 $13,434 $30,567
Operating, overhead, and capital expenditures........... (2,090) (2,525) (5,292)
------- ------- -------
"Net profit" from South Pass block 89................... $ 4,521 $10,909 $25,275
======= ======= =======
Net profit expense (at 33%)................... $ 1,492 $ 3,600 $ 8,341
======= ======= =======
29
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REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Phillips contends that pursuant to its 33% net profits interest in South
Pass block 89, it was entitled to receive an overriding royalty for months in
which "net profits" were not achieved; that an excessive oil transportation fee
was being charged to the net profits account; and that the entire $69.6 million
cash payment that had been received by OKC Limited Partnership (our predecessor)
from the 1990 settlement of previous litigation between Texas Eastern
Transmission Corporation and us, should have been credited to the net profits
account instead of the $5.8 million that was credited.
On the latter claim, Phillips seeks to receive more than $21.5 million,
while on the first two claims Phillips alleges aggregate damages of several
million dollars. In addition, Phillips, under the Louisiana Mineral Code, is
seeking double damages and cancellation of the farm-out agreement that created
the net profits interest. We denied Phillips' claims and defended ourselves
during a non-jury trial in April 1997.
In August 1998, the trial court ruled in the litigation. In its ruling, the
court awarded Phillips $1.6 million plus interest for its overriding royalty
claim and $9.3 million plus interest for its claim on the 1990 settlement. The
trial court dismissed Phillips' claim of excessive transportation charges and
its claims for double damages and lease cancellation.
The trial court, applying federal law and the language of the farm-out
agreement, held that only income from actual production was to be included in
the net profits account. On this basis, the trial court allocated $41.2 million
of the 1990 settlement amount to proceeds from production rather than the $5.8
million originally credited.
In October 1998, the trial court finalized its judgment. The total
judgment, including interest, was $18.0 million. Phillips appealed the judgment
on the transportation issue and the judgment on the 1990 settlement, and we
appealed the decision on the overriding royalty issue. We posted an $18.0
million appeal bond, and set aside $9.0 million with the bonding company as
collateral for the bond. In addition, we recorded the $18.0 million as an
expense in the third quarter of 1998 in accordance with Statement of Financial
Accounting Standards No. 5 entitled "Accounting for Contingencies."
On January 5, 2000, the Fourth Court of Appeal issued an opinion reversing
the trial court's judgment on the 1990 settlement issue and the excessive
transportation issue and upholding the judgment on the overriding royalty issue.
The appellate opinion increased the amount of the 1990 settlement subject to net
profits from the $28.1 million as allocated by the trial court to $63.8 million,
an increase of $35.7 million. The appeals court remanded this amount to the
trial court for further proceedings related to royalties due. The amount payable
to Phillips as determined by the appellate court, subject to remand, and
assuming no reversal, would be $21.1 million plus interest. The appellate court
opinion also disagreed with the trial court in stating that we owe Phillips $7.3
million plus interest on the transportation issue. In addition, according to the
appellate court's opinion, we would owe Phillips an additional $1.2 million plus
interest for transportation costs from December 1996 through the end of 1999.
We intend to vigorously contest the decision of the appellate court, and in
January 2000 we requested a rehearing in this case. If the rehearing is denied,
we will appeal to the Louisiana Supreme Court. Because we believe that it is
probable that the decision of the appellate court will not stand, we have not
recorded any additional contingent liability on our books. Statement of
Financial Accounting Standards No. 5 entitled "Accounting for Contingencies"
requires that when a loss contingency exists, it be accrued if it is reasonably
estimable and it is probable that an unfavorable outcome will occur. In reaching
our conclusion we rely on our legal counsel who have informed us that in their
opinions, the appellate court incorrectly applied the law and made erroneous
findings of fact in reversing the trial court's judgment and that it is as
likely as not that the Court of Appeal's errors will be corrected on rehearing
or on appeal to the Louisiana Supreme Court.
If however, we are not successful in this litigation, after exhausting all
appeals, we will owe Phillips approximately $31.2 million plus approximately
$23.8 million in interest on all three issues. This result would have a serious
effect on our financial position and liquidity and could constitute an event of
default under our
30
31
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bank loan agreement, which might result in acceleration of our long-term debt.
Our plans to deal with such a contingency might include selling properties,
additional debt financing or, as a last resort, seeking protection from
creditors under applicable law.
We also have litigation pending with Phillips in state court in Collin
County, Texas. This litigation centers on our termination of the gas contract
with Texas Eastern in 1998 for $49.8 million, and what, if any, of the
termination amount we received should be credited to the net profits account.
The court in Collin County stayed the case pending resolution of the Louisiana
appeals. Although not absolute, an unfavorable outcome of the Louisiana
litigation could have a detrimental effect on our position in this litigation.
If we were unsuccessful in this litigation we could owe Phillips approximately
$16.4 million plus approximately $1.6 million in interest through December 31,
1999. This litigation could take up to two years to resolve after the Louisiana
litigation is concluded.
NOTE 14 -- REORGANIZATION COSTS
Reorganization expense recorded in 1997 includes employee severance
expense, litigation settlement amounts and other costs. During 1997, 31
employees were dismissed, resigned or notified us of their resignation. We paid
severance amounts to the employees ranging from 6 to 18 months of their base pay
because of severance agreements between the employees and us. The 31 employees
included three executive officers (Senior Vice President/Operations, Vice
President/Marketing and Supply, and Treasurer), ten employees from the
operations technical staff and 18 other professional or clerical personnel.
In the third quarter of 1997, we agreed to pay Thomas D. Box $1.2 million
to settle his severance claims and lawsuits against us. He was the Chief
Executive Officer and President of the company before his dismissal by the board
of directors in August 1996. In addition, the company granted him options to
purchase 50,000 shares of common stock at $9.00 per share.
When Mr. J.R. Simplot purchased S-Sixteen Holding Company in August 1997,
we executed a letter of intent to settle all the litigation brought by Mr.
Simplot and other plaintiffs. Under the terms of the subsequently-executed
settlement agreement, we paid Mr. Simplot $1.9 million for attorneys' fees and
Mr. James Arthur Lyle $100,000 for attorneys' fees. S-Sixteen Holding Company
owned approximately 57% of our voting common stock until December 1998. At
December 31, 1998, Mr. Simplot controlled approximately 27% of our common stock.
Mr. Lyle has been a member of the board of directors since September 2, 1997.
NOTE 15 -- EMPLOYEE AND DIRECTOR BENEFIT PLANS
Stock option plans
We have two stock option plans: the 1992 Incentive Stock Option Plan and
the 1997 Stock Option Plan. Remington discontinued a third plan, the 1992
Non-Qualified Stock Option Plan in 1997. We no longer use the 1992 Incentive
Stock Option Plan. A committee that includes at least two or more outside
non-employee directors administers the 1997 Stock Option Plan. The committee has
the discretion to determine the participants, the number of shares granted to
each person, the purchase price of the common stock covered by each option, and
most other terms of the option. Options granted under the plan may be either
incentive stock options or non-qualified stock options. The committee may issue
options for up to 2.8 million shares of common stock, but no more than 687,500
shares to any individual.
We continue to apply the accounting provisions of Accounting Principles
Board Opinion 25, entitled "Accounting for Stock Issued to Employees," and
related interpretations to account for stock-based compensation. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of our stock at the date of the grant over the amount an
employee must pay to acquire the
31
32
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock. A summary of our stock option plans as of December 31, 1999, 1998, and
1997, and changes during the years ending on those dates is presented below:
AT DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- -------- --------
Outstanding at beginning of
year.......................... 1,175,500 $6.15 455,000 $6.92 312,500 $ 9.52
Granted....................... 614,000 6.22 751,000 5.72 426,500 6.73
Exercised..................... -- -- --
Forfeited..................... (28,500) 9.63 (30,500) 6.80 (284,000) 9.51
--------- ----- --------- ----- -------- ------
Outstanding at end of year...... 1,761,000 6.12 1,175,500 6.15 455,000 6.92
========= ===== ========= ===== ======== ======
Options exercisable at
year-end...................... 653,682 6.78 257,921 7.07 8,000 11.88
Weighted-average fair value of
options granted during the
year.......................... 2.88 3.32 4.65
The options outstanding at December 31, 1999 have a weighted-average
remaining contractual life of 9 years and an exercise price ranging from $2.75
to $11.00 per share.
The table below reflects the effect on our net income or loss if we
recorded the estimated compensation costs for the stock options using the
estimated fair value as determined by applying the Black-Scholes option pricing
model.
FOR YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- --------
(IN THOUSANDS)
Net income (loss)........................ As reported $(3,703) $13,617 $(26,790)
Pro forma (4,719) 12,591 (27,062)
Basic income (loss) per share............ As reported (0.17) 0.67 (1.31)
Pro forma (0.22) 0.62 (1.32)
Diluted income (loss) per share.......... As reported (0.17) 0.66 (1.31)
Pro forma (0.22) 0.61 (1.32)
The fair value of each option grant for the years ended December 31, 1999,
1998, and 1997 is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
FOR YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------ ------ ------
Expected life (years)..................................... 10 10 10
Interest rate............................................. 5.88% 5.50% 6.19%
Volatility................................................ 56.74% 51.17% 49.50%
Dividend yield............................................ 0 0 0
Non-Employee Director Stock Purchase Plan
The stockholders approved the non-employee director stock purchase plan in
December 1997. The plan allows the non-employee directors to receive their
directors' fees in shares of restricted common stock instead of cash. The number
of shares received will be equal to 150% of the cash fees divided by the closing
market price of the common stock on the day that the cash fees would otherwise
be paid. The director can not transfer
32
33
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the common stock until one year after issuance or the termination of a director
resulting from death, disability, removal, or failure to be nominated for an
additional term. The director can vote the shares of restricted stock and
receive any dividend paid in cash or other property.
Transactions with Directors
We paid executive search fees during 1998 totaling $40,000 and during 1997
totaling $141,000 to Preng and Associates, Inc., which is a company controlled
by a member of our board of directors.
Pension Plan
Remington and CKB Petroleum each have a noncontributory defined benefit
pension plan. The retirement benefits available are generally based on years of
service and average earnings. We fund the plans with annual contributions at
least equal to the minimum funding provisions of the Employee Retirement Income
Security Act of 1974, as amended, but no more than the maximum tax deductible
contribution allowed. Plan assets consist primarily of equity and fixed income
securities. The following table sets forth the reconciliation of the benefit
obligation, plan assets, and funded status for the pension plans.
AT DECEMBER 31,
----------------
1999 1998
------ ------
(IN THOUSANDS)
RECONCILIATION OF THE CHANGE IN BENEFIT OBLIGATION
Beginning benefit obligation.............................. $3,331 $2,938
Service cost........................................... 101 79
Interest cost.......................................... 217 201
Effect of settlement................................... (335) (644)
Actuarial loss (gain).................................. (286) 372
Benefits paid.......................................... (178) (142)
------ ------
Ending benefit obligation................................. $2,850 $2,804
====== ======
RECONCILIATION OF THE CHANGE IN PLAN ASSETS
Beginning market value.................................... $3,389 $3,160
Actual return on plan assets........................... 625 312
Employer contributions................................. -- 150
Benefit payments....................................... (513) (786)
------ ------
Ending market value....................................... $3,501 $2,836
====== ======
FUNDED STATUS AND AMOUNTS RECOGNIZED IN THE BALANCE SHEET
Funded status............................................. $ 651 $ 32
Unrecognized net actuarial loss (gain).................... (394) 320
Effect of the settlement.................................. 32 (60)
------ ------
Adjusted prepaid (accrued) benefit cost................... $ 289 $ 292
====== ======
33
34
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic pension cost recognized in our income statements include
the following components:
FOR YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
COMPONENTS OF NET PERIODIC PENSION COST
Service cost............................................. $ 101 $ 79 $ 116
Interest cost on projected benefit obligation............ 217 201 222
Actual return on plan assets............................. (264) (259) (281)
Net amortization and deferrals........................... -- -- 21
----- ----- -----
Net periodic pension cost................................ 54 21 78
Special recognition due to curtailment and lump sum
settlements........................................... (32) -- (36)
----- ----- -----
Net periodic pension cost.................................. $ 22 $ 21 $ 42
===== ===== =====
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate............................................ 7.75% 7.00% 7.00%
Expected return on plan assets........................... 8.00% 8.00% 8.00%
Rate of compensation increase............................ 3.00% 3.00% 3.00%
Remington acquired CKB Petroleum in December 1998 as part of the merger
with S-Sixteen Holding Company. Because of the merger, we acquired the CKB
Petroleum pension plan. The following table presents the benefit obligation,
plan assets, and funded status of the CKB Petroleum plan at the time of
acquisition.
Benefit obligation........................................ $527,000
Market value of plan assets............................... 553,000
Adjusted prepaid benefit cost............................. 19,000
Statement of Financial Accounting Standards No. 88 entitled "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits" requires immediate recognition of certain previously
unrecognized amounts when certain transactions or events occur in a defined
benefit pension plan. It prescribes the method for determining the amount to be
recognized in earnings when a pension obligation is settled or a plan is
curtailed. Settlement is defined as an irrevocable action that relieves the
employer (or the plan) of primary responsibility for an obligation and
eliminates significant risks related to the obligation and the assets used to
effect the settlement. A curtailment is defined as a significant reduction in,
or an elimination of, defined benefit accruals for present employees' future
services. During 1999,
34
35
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Remington distributed plan assets in settlement of certain obligations to former
employees. The following is a reconciliation of the settlement on the various
components of the plan.
DISCLOSURE LOSS DISCLOSURE
PRIOR TO MEASURED AT WITH EFFECT OF
SETTLEMENT SETTLEMENT SETTLEMENT SETTLEMENT
---------- ----------- ---------- --------------
(IN THOUSANDS)
Vested benefit obligation.................. $(2,810) $(138) $ 335 $(2,613)
Non-vested benefit obligation.............. (137) -- -- (137)
------- ----- ----- -------
Accumulated benefit obligation............. (2,947) (138) 335 (2,750)
Effect of future pay increases............. (100) -- -- (100)
------- ----- ----- -------
Projected benefit obligation............... (3,047) (138) 335 (2,850)
Assets..................................... 3,836 -- (335) 3,501
------- ----- ----- -------
Funded status.............................. 789 (138) -- 651
Unrecognized (gain) loss................... (532) 138 32 (362)
------- ----- ----- -------
(Accrued) prepaid pension cost............. $ 257 $ -- $ 32 $ 289
======= ===== ===== =======
Contingent Stock Grant
In June 1999, the Board of Directors approved a contingent stock grant to
our employees and directors. If our common stock's closing price is at or above
$10.42 per share for twenty consecutive trading days prior to the expiration of
the five-year period beginning June 17, 1999, each grant of stock will become
effective. The number of shares granted each employee and director is relative
to the employee's salary (or base number in the case of directors) and the
closing stock price on June 17, 1999. The grants, if effective, will vest 50% in
three years, 75% in four years, and 100% in five years. The total number of
shares that could be issued under this contingent stock grant is 679,937.
Employee Severance Plan, Post Retirement Benefits and Post Employment Benefits
We adopted an employee severance plan in November 1997. The plan provides
severance benefits ranging from 2 months to 18 months of the employee's base
salary if the employee is terminated involuntarily. The plan incorporates the
provisions and terms of any individual contract or agreement that an employee
may have with the company. In 1995, certain employees had signed individual
severance agreements with the company. In addition, certain of the executive
officers have individual employment contracts with the company.
We have never paid post retirement benefits other than pensions and have
not obligated ourselves to pay such benefits in the future. Future obligations
for postemployment benefits are immaterial. Therefore, we have not recognized
any liability for either.
35
36
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- INCOME TAXES
Income tax expense or benefit includes both the current income taxes and
deferred income taxes. Current income tax expense or benefit equals the amount
calculated on our income tax return for that year. Deferred income tax expense
or benefit equals the change in the net deferred income tax asset or liability
from the beginning of the year to the end of the year. The following table
provides a reconciliation of our income tax expense or (benefit):
FOR YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
"Expected" tax expense (benefit) (35% of income before
taxes).................................................... $(1,402) $ 5,031 $(4,258)
Net adjustment to valuation allowance....................... 1,402 (4,708) 19,052
Other....................................................... (17) -- (171)
------- ------- -------
Total deferred income tax expense (benefit)....... (17) 323 14,623
Provision (credit) for alternative minimum tax.............. (256) 433 --
------- ------- -------
Total income tax expense (benefit)................ $ (273) $ 756 $14,623
======= ======= =======
In 1997 we increased the valuation allowance against the entire deferred
tax asset and recorded the related deferred income tax expense because our
actual 1997 results and future projections were significantly different than
anticipated in prior projections. The difference resulted from a significant
drop in commodity prices, the unusual and unforeseen reorganization expenses
incurred in the last half of 1997, and a downward revision in our proved gas
reserves as of January 1, 1998, on South Pass block 89.
We determine the amount of our deferred income tax asset or liability by
multiplying the enacted tax rate by the temporary differences, net operating or
capital loss carry-forwards plus any tax credit carry-forwards. The tax rate
used is the effective rate applicable for the year in which we expect the
temporary differences or carry-forwards to reverse. A valuation allowance
offsets deferred income tax assets that are not expected to reverse in future
years. The following table reflects the significant components of our deferred
tax asset.
AT DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
Asset (liability) from difference in book and tax basis of
oil and gas properties.................................... $ (1,873) $ (2,257)
Asset (liability) from difference in book and tax basis of
other assets.............................................. (337) 879
Asset from difference in book and tax basis of accrued
liabilities............................................... 6,334 5,339
Federal income tax operating loss carry-forward............. 11,654 7,977
Federal capital loss carry-forwards......................... 327 327
Alternative minimum tax credit carry-forward................ 389 644
-------- --------
Total deferred tax asset.......................... 16,494 12,909
Valuation allowance......................................... (16,494) (12,909)
-------- --------
Net deferred tax asset............................ $ -- $ --
======== ========
The unused federal income tax operating loss carry-forward of $33 million
will expire during the years 2007 through 2020 if not previously utilized, and
the capital loss carry-forward of $934,000 will expire in the years 2000 through
2002.
36
37
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- INCOME PER COMMON SHARE
We compute basic income per share by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted income per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shares in the net income of
the company. The following table presents our calculation of basic and diluted
income per share.
FOR YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (loss) available for basic income per
share............................................. $(3,703) $13,617 $(26,790)
Interest expense on the Notes (net of tax)(2)..... -- 2,058 --
------- ------- --------
Net income (loss) available for diluted income per
share............................................. $(3,703) $15,675 $(26,790)
======= ======= ========
Basic income (loss) per share....................... $ (0.17) $ 0.67 $ (1.31)
======= ======= ========
Diluted income (loss) per share..................... $ (0.17) $ 0.66 $ (1.31)
======= ======= ========
Weighted average common shares for basic income
(loss) per share.................................. 21,326 20,370 20,524
Dilutive stock options outstanding (treasury stock
method)(1)..................................... -- -- --
Shares assumed issued by conversion of the
Notes(2)....................................... -- 3,488 --
------- ------- --------
Total common share for diluted income
(loss) per share........................ 21,326 23,858 20,524
======= ======= ========
- ---------------
(1) Non dilutive.
(2) Non dilutive in 1999 and 1997.
Potential increase to net income for diluted income per
share
Interest expense on Notes (net of tax)............... $ 581 $ -- $ 2,835
Potential issues of common stock for diluted income per
share
Weighted average stock options granted............... 1,677 875 99
Weighted average shares from warrant issued in
merger............................................ 200 2
Weighted average shares issued assuming conversion of
Notes............................................. 985 -- 4,741
NOTE 18 -- OTHER RELATED PARTY TRANSACTIONS
A resolution adopted in 1992 by our board of directors authorizes us to
enter into a transaction with an affiliate of ours so long as the board of
directors determines that such a transaction is fair and reasonable to us and is
on terms no less favorable to us than can be obtained from an unaffiliated party
in an arm's length transaction.
In April 1997, Remington lent S-Sixteen Holding Company $7.3 million.
S-Sixteen Holding Company repaid $1.4 million of the principal balance of the
note receivable in 1998 and $1.1 million in 1997. The remaining $4.8 million
balance of the note receivable was effectively canceled in December 1998 when
the two companies merged. Remington received $527,000 in interest income in 1998
and $437,000 in interest income in 1997 from S-Sixteen Holding Company on the
note receivable. The interest rate was equal to the prime rate of Texas Commerce
Bank National Association plus 1% until the sixth month when the rate escalated
monthly by 0.1% over the previous month's rate.
37
38
REMINGTON OIL AND GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We advanced litigation expenses on behalf of certain directors and officers
of the company for certain lawsuits which are no longer pending or continuing.
In accordance with our By-Laws, the defendants have executed written
undertakings to repay us for any related expenses advanced on their behalf if it
is later found that such costs were not subject to indemnification. No judicial
determination has been made that any of the general partners, directors or
officers are not entitled to indemnification for litigation expenses incurred.
The total legal costs incurred related to these cases were $351,000 in 1997.
Included in Accounts receivable -- other is a receivable in the amount of
$210,000 from the Estate of Cloyce K. Box. Don D. Box, an officer and director
of the company, is co-executor of the Estate.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.
None.
38
39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following information relates to the members of our board of directors
or executive officers during 1999. Each director holds office until his
successor is elected and qualified or until their resignation or removal.
Executive officers hold their respective offices at the pleasure of the board of
directors.
DON D. BOX Age 49
Positions with us:
- - Director since March 1991
- - Executive Vice President since October 1997
- - Chairman of the Board January 1994-October 1997
- - Chief Executive Officer August 1996-October 1997
- - President August 1996-March 1997
- - Director, Corporate Development March 1994-January 1995
Positions with our affiliates:
- - CKB Petroleum, Inc.
-- Vice President since September 1997
-- Director August 1982-September 1997
-- President August 1982-September 1997
- - CKB & Associates, Inc.
-- Vice President since May 1981
-- Director May 1981-September 1997
- - S-Sixteen Holding Company
-- Director December 1981-September 1997
-- President December 1981-February 1996, April 1997-September 1997
-- Vice President February 1996-April 1997, September 1997-December 1998
Outside directorships
- - Authoriszer, Inc.
Education
- - Bachelor of Arts -- University of Pennsylvania
- - Bachelor of Science in Economics -- The Wharton School of the University of
Pennsylvania
- - Masters of Business Administration -- Southern Methodist University
JOHN E. GOBLE, JR., CPA Age: 53
Positions with us:
- - Director since April 1997
- - Member -- Audit Committee
Employment:
- - Byrd Investments -- Investment and financial advisor since 1986
Outside Directorships:
- - Miracle of Pentecost Foundation
Education:
- - Bachelor of Business Administration -- Southern Methodist University
Professional:
- - Member -- American Institute of Certified Public Accountants and Texas Society
of Certified Public Accountants
WILLIAM E. GREENWOOD Age: 61
Positions with us:
- - Director since April 1997
- - Member -- Audit Committee
- - Member -- Compensation Committee
Employment:
- - Consultant since 1995
- - Director and Chief Operating Officer -- Burlington Northern Railroad
Corporation from 1990 until 1994
Outside Directorships:
- - AmeriTruck Distribution Corporation
- - Mark VII, Inc.
- - Transport Dynamics, Inc.
- - President -- Mendota Museum and Historical Society
Education:
- - Bachelor of Science -- Marquette University
DAVID H. HAWK Age: 55
Positions with us:
- - Director since September 1997
- - Chairman of the Board since October 1997
- - Member -- Executive Committee
Employment:
- - J.R. Simplot Company -- Director, Energy Natural Resources since 1984
- - Previously employed with Atlantic Richfield Company and Tenneco Inc. as an
Exploration Geologist
- - Prior executive positions with IGC Production Company, Sundance Oil Company
and Horn Resources Corporation
39
40
Education:
- - Bachelor of Science in Geology and Distinguished Graduate
Medalist -- University of Idaho
- - Master of Science in Geology -- University of Oklahoma
JAMES ARTHUR LYLE, CCIM Age: 54
Current positions with us:
- - Director since September 1997
- - Member -- Compensation Committee
Employment:
- - Owner -- James Arthur Lyle & Associates, Inc., a commercial, industrial and
investment real estate firm, since 1976
Outside directorships:
- - Director, Chief Operating Officer and President since 1984 -- Hueco Mountain
Estates, Inc., a 10,500 acre multi-use real estate development located in El
Paso County, Texas
Education:
- - Bachelor of Science in Industrial Management -- Georgia Institute of
Technology
DAVID E. PRENG Age: 53
Position with us:
- - Director since April 1997
- - Chairman -- Compensation Committee
Employment:
- - Chief Executive Officer and President since 1980 -- Preng and Associates,
Inc., an international executive search firm specializing in the energy
industry
Outside directorships:
- - Director -- Citizens National Bank of Texas
- - Director -- British American Business Council
- - Fellow -- Institute of Directors
Education:
- - Bachelor of Science in Business Administration -- Marquette University
- - Master of Business Administration
-- DePaul University
THOMAS W. ROLLINS Age: 69
Positions with us:
- - Director since July 1996
- - Member -- Executive Committee
Employment:
- - Chief Executive Officer since 1985 -- Rollins Resources, a natural gas and oil
consulting firm
- - Previously President and Chief Executive Officer -- Park Avenue Exploration
Corporation, an oil and gas exploration firm and a subsidiary of USF&G
Corporation
- - Previously held executive positions and/or directorships with Shell Oil
Company, Pennzoil Company, Florida Gas Transmission Company, Pogo Producing
Company, Magma Copper Company and Felmont Oil Corporation.
Outside directorships:
- - Director -- Enron Cash Company #2
- - Director -- Pheasant Ridge Winery
- - Director -- The Teaching Company
- - Director -- Nature Conservancy of Texas
Education:
- - Geological Engineering Degree and Distinguished Graduate Medalist -- The
Colorado School of Mines
ALAN C. SHAPIRO Age: 54
Positions with us:
- - Director since May 1994
- - Chairman -- Audit Committee
Employment:
- - The Ivadelle and Theodore Johnson Professor of Banking and Finance in the
Department of Finance and Business Economics, Marshall School of Business,
University of Southern California, since 1992
- - Previously Chairman of the Department of Finance and Business Economics,
University of Southern California, 1993 -- 1998
- - Frequent consultant and/or expert witness to business and government
Publications:
- - Multinational Financial Management, a best selling textbook used in MBA
programs worldwide
- - Numerous other books and articles
Education:
- - Bachelor of Arts in Mathematics -- Rice University
- - Ph.D. in Economics -- Carnegie Mellon University
JAMES A. WATT Age: 50
Positions with us:
- - President and Chief Operating Officer from March 1997
- - Chief Executive Officer since February 1998
- - Director since September 1997
- - Member -- Executive Committee
40
41
Positions with our Affiliates:
- - CKB Petroleum, Inc.
-- Director and President since January 1999
- - CKB & Associates, Inc.
-- Director and President since January 1999
Previous employment highlights:
- - Vice President/Exploration -- Seagull E&P, Inc., 1993-1997
- - Vice President/Exploration and Exploitation -- Nerco Oil & Gas, Inc.,
1991-1993
Education:
- - Bachelor of Science in Physics -- Rensselaer Polytechnic Institute
ROBERT P. MURPHY Age: 41
Positions with us:
- - Senior Vice President/Exploration & Production since July 1999
- - Vice President/Exploration, January 1998-June 1999
Previous employment:
- - Director -- Cairn Energy USA, Inc., May 1996-November 1997
- - Vice President -- Exploration -- Cairn Energy USA, March 1993-January 1998
- - Exploration Geologist -- Cairn Energy USA, 1990-March 1993
- - Exploration Geologist -- Enserch Exploration, 1984-1990
Education:
- - Bachelor of Science in Geology -- The University of Texas at Austin
- - Master of Science in Geosciences -- The University of Texas at Dallas
STEVEN J. CRAIG Age: 48
Positions with us:
- - Senior Vice President/Planning and Administration since April 1997
- - Administrative Assistant to the Chairman, August 1996 to April 1997
- - Vice President, February 1994-March 1995
Positions with our affiliates:
- - CKB Petroleum, Inc.
-- Director and Vice President since January 1999
-- Vice President and Assistant Treasurer, March 1997-October 1997
-- Director, March 1997-August 1997
-- Assistant Treasurer and Controller, March 1996-March 1997
- - CKB & Associates, Inc.
-- Director and Vice President since January 1999
-- Vice President and Assistant Treasurer, March 1997-October 1997
-- Director, March 1997-August 1997
-- Assistant Treasurer and Controller, March 1996-March 1997
- - S-Sixteen Holding Company
-- Vice President and Assistant Treasurer, March 1997-October 1997
-- Director, March 1997-August 1997
-- Chief Financial Officer and Assistant Treasurer, May 1996-March 1997
Previous Employment:
- - Self Employed -- Real Estate and Consulting, 1992-1994, March 1995-March 1996
Education:
- - Bachelor of Arts in Economics -- Southern Methodist University
- - Master of Business Administration in Finance and Quantitative
Analysis -- Southern Methodist University
J. BURKE ASHER Age: 59
Positions with us:
- - Vice President/Finance since December 1997
- - Secretary since October 1996
- - Chief Accounting Officer, September 1996-December 1997
Positions with our affiliates:
- - CKB Petroleum
-- Treasurer and Assistant Secretary since March 1997
-- Director, March 1997-April 1997
- - CKB & Associates
-- Treasurer and Assistant Secretary since March 1997
-- Director, March 1997-August 1997
- - S-Sixteen Holding Company
-- Treasurer and Assistant Secretary, March 1997-December 1998
-- Director, March 1997-August 1997
Previous employment:
- - Self employed financial consultant and advisor, 1987-1996
- - Controller -- Doty-Moore Tower Services, Inc., a contractor to the
communications industry, 1993-1995
41
42
Education:
- - Bachelor of Science in Economics -- The Wharton School of the University of
Pennsylvania
EDWARD V. HOWARD, CPA Age: 37
Positions with us:
- - Vice President/Controller since March 1992
- - Senior Accountant, October 1989-March 1992
- - Assistant Secretary since October 1997
Education:
- - Bachelor of Business Administration -- West Texas State University
Except for Mr. Rollins' consulting practice, no director has a significant
personal interest in the exploration, development or production of oil and gas.
Mr. Rollins is required to abstain on matters in which there may be a conflict
of interest between us and one of his clients.
LITIGATION INVOLVING DIRECTORS AND EXECUTIVE OFFICERS
We know of no present litigation involving the directors or executive
officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon the company's review of Forms 3, 4, and 5 received by the
company, all persons required by Section 16(a) of the Securities Exchange Act of
1934 ("the Act") to file such forms complied with Section 16(a) of the Act with
the following exceptions: David E. Preng filed one late Form 4 reporting one
transaction. David H. Hawk filed one late Form 4 reporting two transactions and
one late Form 4 reporting three transactions. William E. Greenwood reported late
on Form 5 one transaction which should have been reported on Form 4.
42
43
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation paid by the company during
1999, 1998, and 1997 to the company's Chief Executive Officer and its four most
highly compensated executive officers, other than the Chief Executive Officer,
whose total annual salary and bonus in 1999 exceeded $100,000.
SUMMARY COMPENSATION TABLE
-------------------------------- --------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- --------------------------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS SAR'S COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($)
- ------------------ ------ ------- ------- ------------ ---------- ---------- ------------
James A. Watt............ 1999 260,004 156,000 -- -- 80,000 695(7)
President and Chief 1998 250,006 70,000 -- -- 130,000 174(7)
Executive Officer(2) 1997 166,250 100,000 -- 112,500(3) 100,000 148,039(4)
Don D. Box............... 1999 160,004 8,000 -- -- 20,000 299(7)
Executive Vice 1998 200,004 -- -- -- 40,000 174(7)
President(5) 1997 183,335 -- -- -- 100,000 2,884(6)
Robert P. Murphy......... 1999 168,108 52,500 -- -- 45,000 257(7)
Senior Vice President/ 1998 146,260 30,000 -- -- 80,000 62(7)
Exploration and 1997 -- -- -- -- -- --
Production
Steven J. Craig.......... 1999 114,708 27,500 -- -- 25,000 390(7)
Senior Vice President/ 1998 110,259 20,000 -- -- 40,000 174(7)
Planning and 1997 100,008 15,000 -- -- 20,000 177(7)
Administration
J. Burke Asher........... 1999 109,200 26,200 -- -- 25,000 1,008(7)
Vice President/Finance 1998 105,000 19,000 -- -- 35,000 450(7)
and Secretary 1997 95,004 15,000 -- -- 20,000 450(7)
- ---------------
(1) No amount is included as it is less than 10% of the total salary and bonus
of the individual for the year.
(2) James A. Watt served as President and Chief Operating Officer from March 17,
1997, and on February 4, 1998, he was appointed Chief Executive Officer.
(3) At December 31, 1999, Mr. Watt held 9,000 restricted shares of common stock
with a value of $34,875. The total number of restricted shares awarded
effective March 17, 1997, was 15,000, which vest 20% per year from the
effective date. If any dividends are paid to holders of common stock, Mr.
Watt's restricted shares will be entitled to receive dividends.
(4) This amount includes a signing bonus of $25,000, reimbursed relocation
expenses of $122,892, and $147 for group term life insurance premiums paid
by the company.
(5) Don D. Box served as Chairman of the Board from January 1994 to October 1997
and as Chief Executive Officer from August 1996 to October 1997. He served
as President from August 1996 until March 1997.
(6) Of this amount, $2,722 is for director's fees and $162 is for group term
life insurance premiums paid by the company.
(7) These amounts are for group term life insurance premiums paid by the
company.
See "Change in Control Arrangements and Employment Contracts" below.
STOCK OPTIONS
We have stock option plans for our employees and directors because we
believe these options act as both an incentive and a reward for the long-term
growth of our company. The core of our stock option program is
43
44
the 1997 stock option plan. Both directors and employees are eligible for
options under this plan. Significant attributes of the 1997 plan include the
following:
- Administered by the Compensation Committee of our board of directors.
- Up to 2,750,000 shares of our common stock may be issued under the plan.
- Up to 687,500 shares may be issued to any single individual.
- Both qualified incentive and non-qualified options may be issued.
- The plan terminates December 4, 2007.
The importance of whether an option is granted as a qualified incentive
option or a non-qualified option is mainly tax driven. If an option is an
incentive option, the exercise price can be no less than the fair market value
on the date of grant. Additional details concerning the 1997 stock option plan
are contained in the plan itself. For a copy of the plan, call Investor
Relations at (214) 210-2650.
We also have a 1992 stock option plan but no options are outstanding under
this plan. As of September 30, 1999, the employees who held the 28,500 options
then outstanding terminated their rights to the 1992 options and received an
equal number of 1997 plan options. The exercise price of these new options,
which is considerably lower than the 1992 options, equals the closing price of
the stock as of September 30, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE
NAME GRANTED FISCAL YEAR $/SHARE DATE $(1)
- ---- ---------- ------------ -------- ---------- -------------
James A. Watt......................... 80,000 25.81% 4.250 12/06/09 249,920
Don D. Box............................ 20,000 6.44% 4.250 12/06/09 62,480
Robert P. Murphy...................... 45,000 14.49% 4.250 12/06/09 140,580
Steven J. Craig....................... 25,000 8.05% 4.250 12/06/09 78,100
J. Burke Asher........................ 25,000 8.05% 4.250 12/06/09 78,100
- ---------------
(1) We determined these values using the Black-Scholes option pricing model with
the following assumptions: stock price volatility of 56.82%; interest rate
based on the yield to maturity of a 10-year Treasury security; exercise in
the tenth year; and a dividend rate of zero. We made no adjustments for
nontransferability or risk of forfeiture. Our use of this model does not
constitute an endorsement or an acknowledgment that such model can
accurately determine the value of options. No assurance can be given that
the actual value, if any, realized by an executive upon the exercise of
these options will approximate the estimated values calculated by using the
Black-Scholes model.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
James A. Watt............. -- -- 83,334 226,666 10,000 20,000
Don D. Box................ -- -- 53,334 106,666 2,500 5,000
Robert P. Murphy.......... -- -- 26,668 98,332 5,000 10,000
Steven J. Craig........... -- -- 26,668 58,332 3,125 6,250
J. Burke Asher............ -- -- 25,001 54,999 2,500 5,000
44
45
- ---------------
(1) Computed as the number of securities multiplied by the difference between
the option exercise prices and the closing price of our common stock on
December 31, 1999.
PENSION PLANS
Our defined benefit pension plans provide retirement and other benefits to
eligible employees upon reaching the "normal retirement age," which is age 65 or
after five years of service, if later. Directors who are not also employees of
the company are not eligible to participate in the plans. Employees are eligible
to participate on January 1 following the completion of six months of service or
the attainment of age 20 1/2, if later. Additional provisions are made for early
or late retirement, disability retirement and benefits to surviving spouses. At
normal retirement age, an eligible employee will receive a monthly retirement
income equal to 35% of his or her average monthly compensation during the three
consecutive calendar years in the prior 10 years which provide the highest
average compensation, plus 0.65% of such average compensation in excess of the
amount shown in the Social Security Covered Compensation Table (as published
annually by the Internal Revenue Service) multiplied by his or her years of
service, limited to 35 years. If an employee terminates employment (other than
by death or disability) before completion of five years of service, no benefits
are payable. If an employee terminates employment after five years of service,
the employee is entitled to all accrued benefits. The following table
illustrates the annual pension for plan participants that retire at "normal
retirement age" in 1999:
PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE (1)(3)(4)
COMPENSATION ------------------------------------------
(1)(2) 15 20 25 30 35
- ------------ ------ ------ ------ ------ ------
($) ($) ($) ($) ($) ($)
125,000 52,896 55,944 58,983 62,041 65,090
150,000 64,083 67,944 71,805 75,666 79,527
160,000 68,558 72,744 76,930 81,116 85,302
175,000 68,558 72,744 76,930 81,116 85,302
200,000 68,558 72,744 76,930 81,116 85,302
225,000 68,558 72,744 76,930 81,116 85,302
250,000 68,558 72,744 76,930 81,116 85,302
300,000 68,558 72,744 76,930 81,116 85,302
400,000 68,558 72,744 76,930 81,116 85,302
450,000 68,558 72,744 76,930 81,116 85,302
500,000 68,558 72,744 76,930 81,116 85,302
- ---------------
(1) As of December 31, 1999, the Internal Revenue Code does not allow qualified
plan compensation to exceed $160,000 or the benefit payable annually to
exceed $130,000. The Internal Revenue Service will adjust these limitations
for inflation in future years. When the limitations are raised, the
compensation considered and the benefits payable under the pension plans
will increase to the level of the new limitations or the amount otherwise
payable under the pension plans, whichever amount is lower.
(2) Subject to the above limitations, compensation in this table is generally
equal to all of a participant's compensation paid in a fiscal year (the
total of Salary, Bonus, Other Annual Compensation, and All Other
Compensation in the Summary Compensation Table). Average compensation in
this table is the average of a plan participant's compensation during the
highest three consecutive years out of the prior 10 years.
(3) The estimated credited service at December 31, 1999, for the executive
officers shown in the Summary Compensation Table on page 43 is as follows:
James A. Watt (3 years), Don D. Box (4 years), Robert P. Murphy (2 years),
Steven J. Craig (5 years), and J. Burke Asher (3 years).
45
46
(4) The normal form of payment is a life annuity for a single participant or a
50% joint and survivor annuity for a married participant. Such benefits are
not subject to a deduction for Social Security or other offset amounts.
COMPENSATION OF DIRECTORS
- Only non-employee directors are compensated for board service
- Compensation includes:
-- Annual retainer of $20,000
-- $1,000 per board meeting attended
-- Committee meeting fee of $750 per meeting attended if on a different
day than a full board meeting
-- Directors are entitled to reimbursement of company related
out-of-pocket expenses
-- We provide directors and officers insurance and indemnification to the
full extent allowed by law
-- All or part of a director's board compensation may be received in
company stock in accordance with the Non-Employee Director Stock
Purchase Plan
- Four board meetings in 1999
- All directors attended at least 75% of the meetings
- During 1999, we paid Rollins Resources, a proprietorship owner by
director Thomas W. Rollins, $1,500 for consulting fees
NON-EMPLOYEE DIRECTOR STOCK PURCHASE PLAN
- Adopted December 4, 1997
- Each non-employee director may, once a year, elect to receive all or part
of his board compensation in our common stock
- The number of shares received equals 150% of the cash amount of
compensation divided by the closing market price of our common stock on
the day the cash fees would be payable
- Shares received under this plan may not be transferred for one year after
issuance
- Shares may be transferred earlier than one year based on a director's
death, disability or departure from the board
- During the restricted transfer period, the director may vote the stock
and receive any dividends
- The board may terminate this plan at any time
- Shares received under plan for 1999:
-- John E. Goble, Jr. 4,440 shares in lieu of $12,000 cash
-- James Arthur Lyle 7,399 shares in lieu of $20,000 cash
-- David E. Preng 9,598 shares in lieu of $26,250 cash
-- Thomas W. Rollins 7,399 shares in lieu of $20,000 cash
-- Alan C. Shapiro 8,880 shares in lieu of $24,000 cash
CHANGE IN CONTROL ARRANGEMENTS AND EMPLOYMENT CONTRACTS
All of our full-time regular employees are covered by a severance plan that
we adopted in 1997. Under this plan, if an employee is involuntarily terminated,
as that term is defined in the plan, the employee will be entitled to a payment
of between two months base pay and eighteen months base pay depending on the
employee's job and years of experience. If an employee voluntarily quits, is
terminated for cause as defined in
46
47
the plan, dies, leaves due to a disability for which benefits are payable or the
termination is expected to be of short duration, the employee is not eligible
for payment under the plan. In addition, under certain circumstances, a change
in control could cause immediate vesting and triggering of stock options and
contingent restrictive stock grants. If the contingent restricted stock grants
were triggered by a change in control, it would result in the issuance of a
maximum aggregate of 679,937 shares to directors and employees.
Employment Agreements
We have employment agreements with James A. Watt, Robert P. Murphy, Steven
J. Craig, and J. Burke Asher. The most significant terms of such agreements are
summarized below:
James A. Watt
Effective March 17, 1997, through January 30, 2000:
- Term of five years from March 17, 1997, renewable by mutual agreement
- Starting base salary of $210,000 a year with increases at board
discretion
- Target bonus of 50% of base salary
- Reimbursement for moving expenses
- Stock grant of 15,000 shares, with options for an additional 100,000
shares to be vested over a five year period
- Payment equal to his base salary and target bonus in the event he leaves
the company for reasons other than for cause, or good reason after a
change of control
- If he leaves his employment for good reason, as defined in the contract,
he receives either three or two times his base salary plus target bonus,
depending on how soon after a change of control he leaves
New agreement effective January 31, 2000:
- Term of three years from January 31, 2000, subject to single year
extensions by mutual agreement
- Base salary of $270,000 a year subject to discretionary increases
- Eligible to receive discretionary performance bonus (targeted at 50% of
base salary)
- If terminated prior to a change in control, without cause, he receives
his salary plus a pro rata bonus
- He receives 2.99 times the sum of his base salary plus his target bonus
if he is terminated within 24 months of a change in control, other than
for death, disability or cause, or he leaves for good reason within the
24 month period
Robert P. Murphy
- Term of three years from September 30, 1999, subject to single year
extensions by mutual agreement
- Base salary of $175,000 a year subject to discretionary increases
- Eligible to receive discretionary performance bonus (targeted at 25% of
base salary)
- If terminated prior to a change in control, without cause, he receives
his salary plus a pro rata bonus
- He receives 2.99 times the sum of his base salary plus his target bonus
if he is terminated within twelve months of a change in control, other
than for death, disability or cause, or he leaves for good reason within
the twelve month period
47
48
Steven J. Craig and J. Burke Asher
- Term of two years from September 30, 1999, subject to single year
extensions by mutual agreement
- Base salary of $114,200 (Mr. Craig) and $109,200 (Mr. Asher) subject to
discretionary increases
- Eligible to receive discretionary performance bonus (targeted at 20% of
base salary)
- Severance payments similar to Robert Murphy's, except that Mr. Craig and
Mr. Asher receive 2 times the sum of their respective annual salaries
plus target bonus in connection with leaving employment within twelve
months of a change in control
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
No executive officer serves on the compensation committee of the board. The
company paid $234,000 to Preng & Associates, Inc., which is majority-owned by
David E. Preng, chairman of compensation committee, for executive search
services provided to the company from July 1996 through the end of 1998,
including $40,000 in 1998. The level of fees received by Preng & Associates
usually depends, at least in part, on the initial level of compensation we offer
to the candidate successfully recruited by us through Preng & Associates.
48
49
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
We believe that employing and retaining highly qualified and high
performing executive officers is vital to our achievement of long-term business
goals. To this end, the Compensation Committee of the board of directors (the
"Committee") developed an executive compensation program which is designed to
attract and retain such officers.
The philosophy is to develop a systematic, competitive executive
compensation program which recognizes an executive officer's position and
responsibilities, takes into account competitive compensation levels payable
within the industry by similarly sized companies, and reflects both individual
and company performance.
The executive compensation program developed by the Committee is composed
of the following three elements: (i) a base salary, (ii) a performance-based
annual cash incentive (short-term), and (iii) a stock-based incentive
(long-term). Under this program, short-term and long-term incentives are "at
risk" and are based on performance of the company versus defined goals.
The Committee compiles data reflecting the compensation practices of a
broad range of organizations in the oil and gas industry that are similar to us
in size and performance. For both the base salary and annual cash incentives
portions of executive compensation discussed below, the Committee adopted a
philosophy of paying the executive officers at a level that is competitive and
within the ranges reflected by the data compiled.
BASE SALARIES
Base salary is the portion of an executive officer's total compensation
package which is payable for performing the specific duties and assuming the
specific responsibilities defining the executive's position with the company.
The Committee's objective is to provide each executive officer a base salary
that is competitive at the desired level.
ANNUAL CASH INCENTIVES
The Committee developed a performance-based annual cash incentive plan
covering the executive officers and top managers. The objectives in designing
the plan are to reward participants for accomplishing objectives which are
generally measurable and increase shareholder value. Under the annual cash
incentive plan, the Committee has established a "target" cash incentive award
for each executive officer (including the Chief Executive Officer) that is
payable based mostly upon the company's achieving certain performance targets
and, to a lesser extent, for achieving highly challenging individual performance
objectives. The performance targets are increasing reserves and production;
controlling finding, development, and production costs; and achieving an overall
return on capital; all of which are competitive with a peer group of oil and gas
companies. The committee also determined that award levels under the plan should
be fiscally prudent.
LONG-TERM STOCK-BASED INCENTIVES
We maintain a stock option plan for officers and other employees. The
philosophy is to award stock options to selected plan participants based on
their levels within the company and upon individual merit. The plan is to grant
stock options which are competitive within the industry for other individuals at
the employee's level and which provide the employee a meaningful incentive to
remain with the company, to increase performance, and to focus on achieving
long-term increases in shareholder value. Other factors the Committee considers
in granting stock options include the employee's contributions toward achieving
the company's long-term objectives, such as reserve replacements and
acquisitions, as well as the employee's contributions in achieving the company's
short-term and long-term profitability targets.
COMPENSATION COMMITTEE
David E. Preng
William E. Greenwood
James Arthur Lyle
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50
PERFORMANCE GRAPH
The following performance graph compares the performance of all classes of
our common stock to the NASDAQ indices of United States companies and to a peer
group comprised of NASDAQ companies listed under the Standard Industrial
Classification Codes 1310-1319 for the company's last five fiscal years. Such
industrial codes include companies engaged in the oil and gas business. The
graph assumes that the value of an investment in our common stock and in each
index was $100 at December 31, 1994, and that all dividends were reinvested.
[Perf.graph]
- ---------------------------------------------------------------------------------------------------------------------------
12/31/1994 12/31/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999
- ---------------------------------------------------------------------------------------------------------------------------
ROILA(1) 100.00 77.68 66.07 37.50 26.18 31.83
ROILB(1) 100.00 80.23 84.88 48.26 29.65 36.05
NASDAQ U.S 100.00 141.30 173.90 213.10 300.40 556.00
NASDAQ O&G 100.00 105.10 151.90 144.70 70.30 72.10
(1) The last day of trading for ROILA and ROILB was December 24, 1998. Effective
at the opening of trading on December 28, 1998, both former classes of stock
were replaced by a new single class of voting common stock (ROIL). The
values shown above as of December 31, 1998 and 1999, for ROILA give effect
to the 1.15:1 exchange ratio that the former holders of ROILA received in
the exchange for the new class of common stock, and the 1:1 exchange ratio
that the former holders of ROILB received in the exchange for the new class
of common stock.
50
51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 24, 2000, the following persons held shares of the company's
common stock in amounts totaling more than 5% of the total shares of common
stock outstanding. This information was furnished to us by such persons or
statements filed with the Commission.
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
- ------------------- ---------------------- ------------
J.R. Simplot................................................ 5,831,028(1) 27%
999 Main Street
Boise, Idaho 83702(1)
Heartland Advisors, Inc..................................... 3,680,375(2) 17%
789 North Water Street
Milwaukee, Wisconsin 53202(2)
- ---------------
(1) Mr. J.R. Simplot is the trustee and beneficiary of the J.R. Simplot Self
Declaration of Revocable Trust dated December 21, 1989, an inter vivos
revocable trust. The Trust is the sole general partner of S-Sixteen Limited
Partnership, an Idaho limited partnership. Included in shares of common
stock beneficially owned by Mr. Simplot are all of the following, of which
Mr. Simplot may be deemed a beneficial owner: 2,785,028 shares and 200,000
warrants owned by S-Sixteen Limited Partnership; 2,845,000 shares owned by
the Trust; and 1,000 shares owned jointly by Mr. Simplot and his spouse.
200,000 shares of common stock are issuable to S-Sixteen Limited
Partnership upon the exercise of the warrants within 60 days of March 24,
2000. 100,000 warrants are exercisable at $9.00 per share for a period of
36 months from December 28, 1998; and 100,000 warrants are exercisable at
$11.00 per share for a period of 60 months from December 28, 1998.
(2) The most recent Schedule 13G filed by Heartland Advisors, Inc. indicates
that it has sole dispositive power over all 3,680,375 shares and sole voting
power over 2,726,575 of the shares.
OWNERSHIP OF MANAGEMENT
The number of shares of the company's common stock beneficially owned as of
March 24, 2000, by directors of the company, each officer listed in the
compensation table on page 43, and as a group comprising all directors and
executive officers, are set forth in the following table. This information was
furnished to the company by such persons.
SHARES OF OPTIONS
COMMON STOCK EXERCISABLE PERCENT OF
BENEFICIALLY WITHIN 60 DAYS OF COMMON
OWNED MARCH 24, 2000 TOTAL STOCK
--------- ----------------- --------- ----------
J. Burke Asher.................................... 3,001 30,001 33,002 *
Don D. Box........................................ 42,207 60,001 102,208 *
Steven J. Craig................................... 10,365 31,668 42,033 *
John E. Goble, Jr. ............................... 9,458 75,000 84,458 *
William E. Greenwood.............................. 2,000 75,000 77,000 *
David H. Hawk..................................... 2,030 78,334 80,364 *
James Arthur Lyle................................. 17,079 75,000 92,079 *
Robert P. Murphy.................................. 7,650 40,002 47,652 *
David E. Preng.................................... 37,035 78,334 115,369 *
Thomas W. Rollins................................. 24,304 75,000 99,304 *
Alan C. Shapiro................................... 27,364 75,000 102,364 *
James A. Watt..................................... 32,700 120,001 152,701 *
All directors and executive officers as a group
(13 persons).................................... 216,593 836,508 1,053,101 4.7%
- ---------------
* Less than one percent of the outstanding shares.
51
52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A resolution adopted in 1992 by our board of directors authorizes us to
enter into a transaction with an affiliate of ours so long as the board of
directors determines that such a transaction is fair and reasonable to us and is
on terms no less favorable to us than can be obtained from an unaffiliated party
in an arms' length transaction.
In the merger with S-Sixteen Holding Company we acquired a receivable in
the estimated fair value amount of $210,000 from the Estate of Cloyce K. Box.
Don D. Box is co-executor of the Estate.
A long-term receivable in the aggregate amount of $320,000 acquired in the
merger reflects CKB Petroleum's claims under Collateral Assignment Split Dollar
Insurance Agreements among CKB Petroleum and Don D. Box and two of his brothers.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements included in Item 8:
(i) Independent Auditors' Report
(ii) Consolidated Balance Sheets as of December 31, 1999 and 1998
(iii) Consolidated Statements of Income and Comprehensive Income for
years ended December 31, 1999, 1998 and 1997
(iv) Consolidated Statement of Stockholders' Equity for years ended
December 31, 1999, 1998 and 1997
(v) Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997
(vi) Notes to Consolidated Financial Statements
(vii) Supplemental Oil and Natural Gas Information (Unaudited)
2. Financial Statement Schedules
Financial statement schedules are omitted as they are not applicable,
or the required information is included in the financial statements or
notes thereto.
(b) We did not file any reports on Form 8-K during the quarter ended
December 31, 1999.
(c) Exhibits:
2.0++ -- Agreement and Plan of Merger dated as of June 22, 1998,
by and between Remington Oil and Gas Corporation and
S-Sixteen Holding Company.
3.1* -- Certificate of Incorporation, as amended.
3.2### -- Certificate of Amendment of Certificate of Incorporation
of Box Energy Corporation.
3.2.1++ -- Certificate of Amendment of Certificate of Incorporation
of Remington Oil and Gas Corporation.
3.3+++ -- By-Laws as amended.
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53
4.1* -- Form of Indenture Box Energy Corporation to United States
Trust Company of New York, Trustee, dated December 1,
1992, 8 1/4% Convertible Subordinated Notes due December
1, 2002.
10.1* -- Farmout Agreement with Aminoil USA, Inc., effective May
1, 1977, dated May 9, 1977.
10.2* -- Transportation Agreement with CKB Petroleum, Inc. dated
March 1, 1985, as amended on April 19, 1989.
10.3* -- Agreement of Compromise and Amendment to Farmout
Agreement, dated July 3, 1989.
10.4** -- Pension Plan of Box Energy Corporation, effective April
16, 1992.
10.5# -- First Amendment to the Pension Plan of Box Energy
Corporation dated December 16, 1993.
10.6## -- Second Amendment to the Pension Plan of Box Energy
Corporation dated December 31, 1994.
10.7*** -- Amended and Restated Promissory Note between Box Energy
Corporation and Box Brothers Holding Company.
10.8*** -- Amended and Restated Pledge Agreement between Box Energy
Corporation and Box Brothers Holding Company.
10.9*** -- Agreement by and between Box Energy Corporation and James
A. Watt.
10.10### -- Box Energy Corporation Severance Plan.
10.11+ -- Box Energy Corporation 1997 Stock Option Plan. (as
amended June 17, 1999)
10.12### -- Box Energy Corporation Non-Employee Director Stock
Purchase Plan
10.13S -- Form of Employment Agreement effective September 30,
1999, by and between Remington Oil and Gas Corporation
and two executive officers.
10.14S -- Form of Employment Agreement effective September 30,
1999, by and between Remington Oil and Gas Corporation
and an executive officer.
10.15 -- Employment Agreement effective January 31, 2000, by and
between Remington Oil and Gas Corporation and James A.
Watt.
21 -- Subsidiaries of the registrant.
23.1 -- Consent of Arthur Andersen LLP
27.1 -- Financial Data Schedule
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form
S-2 (file number 33-52156) filed with the Commission and effective on
December 1, 1992.
** Incorporated by reference to the Company's Form 10-K (file number 0-19967)
for the fiscal year ended December 31, 1992 filed with the Commission and
effective on or about March 30, 1993.
# Incorporated by reference to the Company's Form 10-K (file number 0-19967)
for the fiscal year ended December 31, 1993 filed with the Commission and
effective on or about March 30, 1994.
## Incorporated by reference to the Company's Form 10-K (file number 0-19967)
for the fiscal year ended December 31, 1994 filed with the Commission and
effective on or about March 30, 1995.
+ Incorporated by reference to the Company's Form 10-Q (file number 1-11516)
for the fiscal quarter ended June 30, 1999 filed with the Commission and
effective on or about August 13, 1999.
*** Incorporated by reference to the Company's Form 10-Q (file number 1-11516)
for the fiscal quarter ended June 30, 1997 filed with the Commission and
effective on or about August 12, 1997.
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### Incorporated by reference to the Company's Form 10-K (file number 1-11516)
for the fiscal year ended December 31, 1997 filed with the Commission and
effective on or about March 30, 1998.
++ Incorporated by reference to the Company's Registration Statement on Form
S-4 (file number 333-61513) filed with the Commission and effective on
November 27, 1998.
+++ Incorporated by reference to the Company's Form 10-K (file number 1-11516)
for the fiscal year ended December 31, 1998 filed with the Commission and
effective on or about March 30, 1999.
S Incorporated by reference to the Company's Form 10-Q (file number 1-11516)
for the fiscal quarter ended September 30, 1999 filed with the Commission
and effective on or about November 12, 1999.
54
55
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.
REMINGTON OIL AND GAS
CORPORATION
By: /s/ JAMES A. WATT
----------------------------------
James A. Watt
President and Chief Executive
Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities 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 date indicated.
DIRECTORS:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DON D. BOX Director March 30, 2000
- -----------------------------------------------------
Don D. Box
/s/ JOHN E. GOBLE, JR. Director March 30, 2000
- -----------------------------------------------------
John E. Goble, Jr.
/s/ WILLIAM E. GREENWOOD Director March 30, 2000
- -----------------------------------------------------
William E. Greenwood
/s/ DAVID H. HAWK Director March 30, 2000
- -----------------------------------------------------
David H. Hawk
/s/ JAMES ARTHUR LYLE Director March 30, 2000
- -----------------------------------------------------
James Arthur Lyle
/s/ DAVID E. PRENG Director March 30, 2000
- -----------------------------------------------------
David E. Preng
/s/ THOMAS W. ROLLINS Director March 30, 2000
- -----------------------------------------------------
Thomas W. Rollins
/s/ ALAN C. SHAPIRO Director March 30, 2000
- -----------------------------------------------------
Alan C. Shapiro
/s/ JAMES A. WATT Director March 30, 2000
- -----------------------------------------------------
James A. Watt
55
56
OFFICERS:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JAMES A. WATT President and Chief Executive March 30, 2000
- ----------------------------------------------------- Officer
James A. Watt
/s/ J. BURKE ASHER Vice President/Finance March 30, 2000
- -----------------------------------------------------
J. Burke Asher
/s/ EDWARD V. HOWARD Vice President/Controller March 30, 2000
- -----------------------------------------------------
Edward V. Howard
56
57
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.0++ -- Agreement and Plan of Merger dated as of June 22, 1998,
by and between Remington Oil and Gas Corporation and
S-Sixteen Holding Company.
3.1* -- Certificate of Incorporation, as amended.
3.2### -- Certificate of Amendment of Certificate of Incorporation
of Box Energy Corporation.
3.2.1++ -- Certificate of Amendment of Certificate of Incorporation
of Remington Oil and Gas Corporation.
3.3+++ -- By-Laws as amended.
4.1* -- Form of Indenture Box Energy Corporation to United States
Trust Company of New York, Trustee, dated December 1,
1992, 8 1/4% Convertible Subordinated Notes due December
1, 2002.
10.1* -- Farmout Agreement with Aminoil USA, Inc., effective May
1, 1977, dated May 9, 1977.
10.2* -- Transportation Agreement with CKB Petroleum, Inc. dated
March 1, 1985, as amended on April 19, 1989.
10.3* -- Agreement of Compromise and Amendment to Farmout
Agreement, dated July 3, 1989.
10.4** -- Pension Plan of Box Energy Corporation, effective April
16, 1992.
10.5# -- First Amendment to the Pension Plan of Box Energy
Corporation dated December 16, 1993.
10.6## -- Second Amendment to the Pension Plan of Box Energy
Corporation dated December 31, 1994.
10.7*** -- Amended and Restated Promissory Note between Box Energy
Corporation and Box Brothers Holding Company.
10.8*** -- Amended and Restated Pledge Agreement between Box Energy
Corporation and Box Brothers Holding Company.
10.9*** -- Agreement by and between Box Energy Corporation and James
A. Watt.
10.10### -- Box Energy Corporation Severance Plan.
10.11+ -- Box Energy Corporation 1997 Stock Option Plan. (as
amended June 17, 1999)
10.12### -- Box Energy Corporation Non-Employee Director Stock
Purchase Plan
10.13S -- Form of Employment Agreement effective September 30,
1999, by and between Remington Oil and Gas Corporation
and two executive officers.
10.14S -- Form of Employment Agreement effective September 30,
1999, by and between Remington Oil and Gas Corporation
and an executive officer.
10.15 -- Employment Agreement effective January 31, 2000, by and
between Remington Oil and Gas Corporation and James A.
Watt.
21 -- Subsidiaries of the registrant.
23.1 -- Consent of Arthur Andersen LLP
27.1 -- Financial Data Schedule
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form
S-2 (file number 33-52156) filed with the Commission and effective on
December 1, 1992.
58
** Incorporated by reference to the Company's Form 10-K (file number 0-19967)
for the fiscal year ended December 31, 1992 filed with the Commission and
effective on or about March 30, 1993.
# Incorporated by reference to the Company's Form 10-K (file number 0-19967)
for the fiscal year ended December 31, 1993 filed with the Commission and
effective on or about March 30, 1994.
## Incorporated by reference to the Company's Form 10-K (file number 0-19967)
for the fiscal year ended December 31, 1994 filed with the Commission and
effective on or about March 30, 1995.
+ Incorporated by reference to the Company's Form 10-Q (file number 1-11516)
for the fiscal quarter ended June 30, 1999 filed with the Commission and
effective on or about August 13, 1999.
*** Incorporated by reference to the Company's Form 10-Q (file number 1-11516)
for the fiscal quarter ended June 30, 1997 filed with the Commission and
effective on or about August 12, 1997.
### Incorporated by reference to the Company's Form 10-K (file number 1-11516)
for the fiscal year ended December 31, 1997 filed with the Commission and
effective on or about March 30, 1998.
++ Incorporated by reference to the Company's Registration Statement on Form
S-4 (file number 333-61513) filed with the Commission and effective on
November 27, 1998.
+++ Incorporated by reference to the Company's Form 10-K (file number 1-11516)
for the fiscal year ended December 31, 1998 filed with the Commission and
effective on or about March 30, 1999.
S Incorporated by reference to the Company's Form 10-Q (file number 1-11516)
for the fiscal quarter ended September 30, 1999 filed with the Commission
and effective on or about November 12, 1999.