ITEM 3. LEGAL PROCEEDINGS
Three federal securities actions were brought against the Company and certain of its senior officers in the United States District Court for the Northern District of Texas in 1992. These actions, now consolidated, purport to be brought on behalf of a class of open market purchasers of the Common Stock during the period October 3, 1991, through June 4, 1992. The plaintiffs allege that the Company made false and misleading statements about its financial prospects and, in particular, about its intentions to continue paying dividends at the same level as in the past. Plaintiffs claim violations of Section 10(b) of the Securities Exchange Act of 1934 and related provisions. The consolidated complaint seeks damages for alleged market losses in an unquantified amount. The Company filed a motion to dismiss the complaint in December 1992, and plaintiffs filed a motion for class certification in March 1993. The Court heard argument on both motions in August 1993, but has not ruled on either motion. Management believes that the claims have no merit and will defend against them vigorously.
The Company is involved in a number of legal and administrative proceedings arising in the ordinary course of its oil and gas business. Although the ultimate outcome of these proceedings cannot be ascertained at this time, it is reasonably possible that some of the proceedings could be resolved unfavorably to the Company. Management of the Company believes that any liabilities which may arise would not be material in relation to its financial position at December 31, 1993. The Company intends to maintain liability and other insurance of the type customary in the oil and gas business with such coverage limits as the Company deems prudent.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
On May 6, 1993, the Annual Meeting of Shareholders of Oryx Energy Company was held to vote on proposals as follows:
(a) To elect three directors to Class II of the Company's Board of Directors.
(b) To approve the appointment of Coopers & Lybrand as independent certified public accountants for the fiscal year 1993.
EXECUTIVE OFFICERS
The following table sets forth information as to the Company's executive officers. All officers of the Company hold their offices at the pleasure of the Board of Directors.
PART II
ITEM 5.
ITEM 5. MARKET FOR ORYX ENERGY COMPANY COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The common stock, $1 par value, of the Company (Common Stock) trades on the New York Stock Exchange under the symbol "ORX". The following table sets forth the high and low sales prices per share of Common Stock, as reported on the New York Stock Exchange Composite Transactions quotations, and the dividends paid per share of Common Stock for the periods indicated:
The Company had 40,967 holders of record of Common Stock as of February 28, 1994.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Management's discussion and analysis of the Company's financial position and results of operations follows. This discussion should be read in conjunction with the Consolidated Financial Statements and Selected Financial Data included in this report.
BUSINESS CLIMATE
The Company has an evenly balanced portfolio of oil and gas production. The fundamentals in the U.S. natural gas market are better today than they have been since the mid-1980's. Excess deliverability is no longer a problem due to solid growth in demand and reduced supply, although oil prices have constrained the upward movement of gas prices. The Company's realized U.S. gas price in 1993 was $1.96 per mcf or 14 percent higher than the $1.72 per mcf realized in 1992.
The fundamentals in worldwide oil markets continue to reflect an excess of supply over demand. OPEC members have not restrained their production in a weak global economy and prices have fallen to five-year lows. The Company's realized oil price fell by $2.69 per barrel to $16.08 per barrel, or 14 percent less than the 1992 price. The worldwide crude price in the fourth quarter of 1993 was $6.20 per barrel lower than the fourth quarter of 1992. Prices in early 1994 have not shown any significant improvement from levels realized in late 1993.
The two highest priorities for the Company are to increase its production volumes and to preserve its financial strength. These are particularly important in times of low prices. The Company's spending is constrained by internally generated cash flow.
LIQUIDITY AND CAPITAL RESOURCES
ED&A OUTLAYS. Total ED&A outlays differ from capital expenditures in that they exclude capitalized interest but include cash exploration costs. ED&A outlays were $451 million in 1993, compared to $390 million in 1992 and $569 million in 1991. In 1994, total ED&A outlays are expected to be $370 million of which 70 percent has been earmarked for development, primarily of fields where
increases in production volumes can be expected in the near term. Finding, development and acquisition costs per eb were $5.53 in 1993 compared to $4.21 in 1992 and $5.21 in 1991. The average FD&A cost for the five years 1989 through 1993 was $4.64 per eb. The Company replaced 103-percent of its production in 1993, bringing its five-year average to 154-percent.
Capital expenditures in 1993 included $33 million to acquire an additional 8.2-percent interest in Ninian located in the U.K. sector of the North Sea. The purchase cost is included in Deferred Credits and Other Liabilities. See Note 16 to the Consolidated Financial Statements.
The Company's spending levels are constrained by cash flow from operating activities which will continue to be affected by prevailing oil and gas prices, cost levels and production volumes. The Company is basing its 1994 spending plans on spot oil and gas prices averaging $16.50 per barrel (WTI) and $1.94 per mmbtu.
CASH FLOW. In 1993, the Company generated net cash flow from operating activities of $379 million, including $28 million of proceeds from certain interest rate hedging arrangements. In 1993, the Company generated net proceeds from divestments of $46 million, as compared to $272 million in 1992 and $484 million in 1991. The Company's divestment plan was substantially completed in 1992.
In the fourth quarter of 1993, the Company's $200 million of 9.85-percent notes matured and were refinanced with commercial paper and debt securities issued under the Company's medium-term note program. Medium-term notes were also used to repurchase approximately $78 million principal amount of its 10 3/8-percent debentures. The Company incurred a $7 million extraordinary loss associated with the early retirement of the debentures; however, due to the lower interest rates on the medium-term notes, this cost will be recovered in approximately two years.
In 1992, the amount of our quarterly dividend on common stock was reduced from $.30 per share to $.10 per share. In 1994, the Board of Directors suspended the payment of dividends on common stock.
The Company's total debt was $1,769 million at December 31, 1993, compared to $1,707 million at December 31, 1992. The Company expects its debt obligations at the end of 1994 to be about the same level as the end of 1993.
GENERAL. Cash was $10 million at the end of 1993 and 1992. As a result of the debt reduction program and refinancing activities, we have been able to reduce the amount of our revolving credit facility from $1.1 billion at the end of 1991 to $620 million in 1992 and 1993. The Company's current borrowing capacity is more than adequate to meet its needs under existing economic conditions. Moreover, the revolving credit facility is available to support the outstanding commercial paper program, potential refinancing needs and general liquidity.
In January 1994, Standard & Poor's (S&P) announced that it had placed the credit ratings of the Company and seven other oil and gas companies on "CreditWatch" with negative implications due to the "sharp decline in oil prices since the latter part of 1993." The holders of the Company's senior ESOP notes ($102 million outstanding at December 31, 1993) would have the right, in the event of a downgrade by S&P, to require the Company to repay the senior ESOP notes in full at par plus a makewhole premium which at December 31, 1993 would have been $33 million. Should such a put occur, the Company has sufficient availability under the revolving credit facility to refinance the senior ESOP notes.
Any shortfall in the Company's expected cash flow from operating activities may require that it adjust its business plans. Among its options, it can defer discretionary ED&A outlays, draw against the unused portion of its revolving credit facility, seek additional bank borrowings or seek access to capital markets. Its ability to incur additional indebtedness as well as its long-term cash generation capability is ultimately tied to the value of its proved reserve base.
FINANCIAL PERFORMANCE
In 1991, net income fell to $19 million, a decrease of $206 million from 1990, primarily due to the impact of asset disposals on oil and gas volumes as well as lower prices. Results for 1991 include a net restructuring charge of $35 million, a $25 million tax benefit resulting from a decrease in the U.K. corporate tax rate and a comparative decrease in net gains from asset sales of $14 million.
Net income for 1992 was $14 million, including $19 million from asset disposals and a restructuring charge of $9 million. Excluding special charges, total costs and expenses fell by $263 million, or 17 percent. However, this was largely offset by the impacts of lower production volumes and lower oil prices. Relative to 1991, volumes fell by about 10 percent due to asset sales and normal declines. Oil prices were more than $2.00 per barrel lower than 1991 levels, while U.S. natural gas prices were higher by about $.17 per mcf. The sale of substantially all of its gas processing business in 1992 negatively affected subsequent plant margins. In 1992, the Company also recorded a $9 million net restructuring charge for the estimated cost of further workforce reductions.
The net loss for 1993 was $100 million which included tax-related charges of $16 million due to the recognition of a higher U.S. corporate income tax rate, $5 million of losses on asset disposals and a $7 million extraordinary loss related to early debt retirement. Production volumes fell by 10-percent due primarily to asset sales, production shortfalls and normal declines. The Company's hedging activities decreased the overall price it received by $.28 per barrel of oil and $.08 per mcf of gas in 1993 and by $.03 per barrel and $.02 per mcf in 1992. Total costs and expenses decreased $157 million or 12 percent to $1,162 million in 1993 from $1,319 million in 1992, excluding the provisions for restructuring and relinquishment of non-producing properties. The Company is continuing to review its cost structure in an effort to further reduce costs at all levels.
INCOME TAXES
Oryx Energy adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1992. The overall effect for 1992 was zero and for 1993 was a benefit of $5 million. As a result of applying the provisions of SFAS No. 109, a non-cash charge or credit is included in business results based on the change in foreign exchange rates and the corresponding impact on the deferred tax liability. We believe these items tend to distort current period business results and should be disregarded in analyzing its current business.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Oryx Energy adopted SFAS No. 106, "Accounting for Postretirement Benefits," effective January 1, 1993, and began accruing the cost of postretirement benefits other than pensions. The after-tax impact of $59 million is being amortized over a twenty-year period. The increase in annual expense for providing these benefits was $4 million after the effect of income taxes. However, cash outflows are unaffected by the adoption of SFAS No. 106.
Oryx Energy also adopted SFAS No. 112, "Employer's Accounting for Postemployment Benefits," effective January 1, 1993, and began accruing the cost of postemployment benefits. Since the Company has previously recognized certain costs as required by this standard, the effect of adoption in 1993 was insignificant.
ENVIRONMENTAL
The Company's oil and gas operations are subject to stringent environmental regulations. The Company is dedicated to the preservation of the environment and has committed significant resources to comply with such regulations. Although it has been named as a potentially responsible party at sites related to past operations, the Company believes that the potential costs to it, in the aggregate, are not material to its financial condition. However, risks of substantial costs and liabilities are inherent in the oil and gas business. Should other developments occur, such as increasingly strict environmental laws, regulations and enforcement policies or claims for damages resulting from the Company's operations, they could result in additional costs and liabilities in the future. See Note 16 to the Consolidated Financial Statements.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ORYX ENERGY COMPANY CONSOLIDATED STATEMENTS OF INCOME
(See Accompanying Notes)
ORYX ENERGY COMPANY CONSOLIDATED BALANCE SHEETS ASSETS
The successful efforts method of accounting is followed.
(See Accompanying Notes)
ORYX ENERGY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
(See Accompanying Notes)
ORYX ENERGY COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(See Accompanying Notes)
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Oryx Energy Company (together with its consolidated subsidiaries, unless the context otherwise requires, Company) was incorporated in Delaware in 1971 and became an independent, publicly traded company on November 1, 1988. The Company's business operations consist of the exploration and development of oil and natural gas reserves. Since December 1, 1985, the Company has functioned as the managing general partner for and has conducted its United States operations through Sun Energy Partners, L.P. The Company's principal operations located outside of the United States were acquired effective January 1, 1990 and are identified herein by the separate geographic areas of the United Kingdom, Indonesia and Other Foreign.
The consolidated financial statements contain the accounts of the Company after elimination of intercompany balances and transactions. The Company's interests in Sun Energy Partners, L.P. and its related operating partnerships (Partnership) are fully consolidated.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities of less than three months to be cash equivalents. Cash equivalents are stated at cost which approximates market value.
PROPERTIES, PLANTS AND EQUIPMENT
The successful efforts method of accounting is followed for costs incurred in oil and gas operations.
CAPITALIZATION POLICY -- Acquisition costs are capitalized when incurred. Costs of unproved properties are transferred to proved properties when proved reserves are added. Exploration costs, including geological and geophysical costs and costs of carrying unproved properties, are charged against income as incurred. Exploratory drilling costs are capitalized initially; however, if it is determined that an exploratory well did not find proved reserves, such capitalized costs are charged to expense, as dry hole costs, at that time. Development costs are capitalized. Costs incurred to operate and maintain wells and equipment are expensed.
LEASEHOLD IMPAIRMENT AND DEPRECIATION, DEPLETION AND AMORTIZATION -- Periodic valuation provisions for impairment of capitalized costs of unproved properties are expensed.
The acquisition costs of proved properties are depleted by the unit-of-production method based on proved reserves by field. Capitalized exploratory drilling costs which result in the addition of proved reserves and development costs are amortized by the unit-of-production method based on proved developed reserves by field.
DISMANTLEMENT, RESTORATION AND ABANDONMENT COSTS -- Estimated costs of future dismantlement, restoration and abandonment are accrued as a component of depreciation, depletion and amortization expense; actual costs are charged to the accrual.
RETIREMENTS -- Gains and losses on the disposals of fixed assets are generally reflected in income. For certain property groups, the cost less salvage value of property sold or abandoned is charged to accumulated depreciation, depletion and amortization except that gains and losses for these groups are taken into income for unusual retirements or retirements involving an entire property group.
CAPITALIZED INTEREST
The Company capitalizes interest costs incurred as a result of the acquisition and installation of significant assets.
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES
In February 1992, Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" was issued and it required the adoption of its provisions no later than January 1, 1993. During the fourth quarter of 1992, the Company adopted the provisions of SFAS No. 109 retroactive to January 1, 1992. The effect to the Company of adopting SFAS No. 109 was to increase, as of January 1, 1992, deferred foreign income tax liabilities, which resulted in a $59 million ($.68 per share) cumulative charge (Cumulative Charge) to 1992 earnings. This increase in the Company's deferred foreign income tax liabilities results from the remeasurement of the Company's foreign currency denominated deferred tax liabilities at current exchange rates. The remeasurement provisions of SFAS No. 109 also affect the reported earnings of the Company for 1993 and 1992. Earnings for 1993 were increased by $5 million from remeasuring the Company's foreign deferred tax liabilities under SFAS No. 109. Earnings for 1992 were increased by $59 million from remeasuring the Company's foreign deferred tax liabilities. Management believes that such non-cash remeasurement credits and debits distort current period economic results and should be disregarded in analyzing the Company's current business. Future economic results may also be distorted because payment of the deferred tax liability is not expected to occur in the near-term and it is likely that exchange rates will fluctuate prior to the eventual settlement of the liability.
PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company has established noncontributory defined benefit plans and defined contribution plans to provide retirement benefits for most of its employees. Pension benefits are charged against earnings of the Company over the periods in which they are earned by the employees (Note 12).
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees and certain insurance and other postemployment benefits for individuals whose employment is terminated by the Company prior to their normal retirement. Substantially all of the Company's employees may become eligible for postretirement benefits if they reach normal retirement age while working for the Company. Historically, the cost of retiree health care and life insurance benefits and certain postemployment benefits have been recognized as expenses as such claims or costs were paid. In December 1990, SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", was issued and it requires companies to recognize the costs of postretirement benefits other than pensions on an accrual basis. The Company adopted SFAS No. 106 on January 1, 1993, and began accruing the cost of postretirement benefits other than pensions. The related transition obligation of $59 million after-tax is being amortized to expense over a twenty year period. The increase in annual expense for providing these benefits was $4 million after the effect of income taxes. However, cash outflows are unaffected by the adoption of SFAS No. 106.
In November 1992, SFAS No. 112, "Employers' Accounting for Postemployment Benefits", was issued. It requires companies to recognize the costs of postemployment benefits on an accrual basis. The Company adopted SFAS No. 112 on January 1, 1993, and began accruing the cost of postemployment benefits. Since the Company had previously recognized certain costs as required by this standard, the effect of adoption was insignificant.
SALES OF OIL AND GAS
Sales of oil and gas are recorded on the entitlement method. Differences between actual production and entitlements result in amounts due when underproduction occurs and amounts owed when overproduction occurs.
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FOREIGN CURRENCY TRANSLATION
The United States dollar is the functional currency for the Company's consolidated foreign operations. For those operations, all transaction gains or losses from currency fluctuations are included in income currently.
FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign exchange contracts to reduce the impact of changes in exchange rates upon foreign denominated receivables and payables. Market value gains and losses recognized offset foreign exchange gains or losses.
At December 31, 1993 and 1992, the Company was party to contracts with foreign currency equivalents of $49 million and $94 million. Counterparties to these agreements are major financial institutions. The Company believes that losses from nonperformance by the counterparties are unlikely to occur.
INTEREST RATE FUTURES AGREEMENTS
The Company has entered into interest rate hedging arrangements to effectively alter the floating rate portion of its underlying debt portfolio. The differentials to be paid or received under such agreements are accrued as interest rates change and are recorded as increments or offsets to interest and debt expense. Proceeds received from certain agreements are amortized over the life of the agreements as an offset to interest and debt expense.
At December 31, 1993, the Company had outstanding $100 million of interest rate caps maturing in 1997 and $250 million maturing in 1998. Under the terms of the caps, the Company must pay the counterparty the excess, if any, by which LIBOR (3.5 percent at December 31, 1993) exceeds 5 percent. The Company also sold to counterparties an option to exercise a $250 million interest rate swap on August 15, 1995. If exercised, the Company must pay 9.75 percent and receive LIBOR for a three year period commencing September 1995. At December 31, 1992, the Company was party to interest rate hedging arrangements with notional amounts of $400 million. Counterparties to these agreements are major financial institutions. The Company believes that losses from nonperformance by the counterparties are unlikely to occur.
FUTURES TRADING ACTIVITY
The Company, from time to time, enters into futures contracts to hedge the impact of price fluctuations on crude and natural gas production. Futures trading activity decreased oil and gas revenue by $29 million in 1993 and $7 million in 1992. At December 31, 1993 the Company had hedged about 30 percent of its 1994 U.S. gas production at an average floor of $2.04 per mmbtu and an average ceiling of $2.28 per mmbtu.
FINANCIAL INSTRUMENTS
The difference between the values calculated as prescribed by SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", of the Company's financial instruments and their carrying value is not material.
ENVIRONMENTAL COSTS
The Company establishes reserves for environmental liabilities as such liabilities are incurred (Note 16).
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CEILING TESTS
For ceiling test purposes, the Company compares its worldwide undiscounted standardized measure of future net cash flows from estimated production of proved oil and gas reserves before income taxes to its net properties, plants and equipment related to oil and gas operations.
STATEMENT PRESENTATION
Certain items in years prior to 1993 have been reclassified to conform to the 1993 presentation.
(2) OTHER REVENUES The components of other revenues were as follows:
(3) PRODUCTION TAXES Production taxes consisted of the following:
(4) CHANGES IN BUSINESS Effective January 31, 1991, the Company sold its interests in the Midway-Sunset Field producing oil and gas assets and a steam cogeneration facility. Net proceeds of $534 million from the sale, including $54 million of debt assumed by the purchaser, were used to reduce the Company's debt in 1991.
In 1991, the Company commenced a major restructuring program designed to accelerate the implementation of its key operating strategies and reduce its debt and cost structure. The program outlined a plan to reduce debt by selling substantially all of the Company's gas plant business and certain producing oil and gas properties located primarily in the onshore U.S.
Additionally, in 1992 the Company relinquished $63 million of U.S. non-producing properties which generated a $31 million tax benefit. Overall, asset disposals in 1992 generated an after-tax gain of $19 million to the Company. As of December 31, 1992, the Company had completed asset disposals which generated $342 million in net proceeds. At December 31, 1992, the asset disposal program was
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) CHANGES IN BUSINESS (CONTINUED) substantially complete although from time to time the Company will have divestments. In 1993, the Company completed asset disposals that generated $46 million in net proceeds and generated an after-tax loss of $5 million.
Associated with the restructuring, the Company recognized a $53 million pretax ($35 million after-tax) provision in 1991. An additional $14 million pretax ($9 million after-tax) provision for restructuring was recognized in 1992, together with a $63 million pretax ($41 million after-tax) provision for the early relinquishment of certain U.S. non-producing properties.
(5) INCOME TAXES Loss before extraordinary item and benefit for income taxes consisted of the following:
The benefit for income taxes for each of the years 1993, 1992 and 1991 is applicable to continuing operations.
The components of the benefit for income taxes on loss before extraordinary item and accounting changes were as follows:
At December 31, 1993, the Company had Alternative Minimum Tax (AMT) credit carryforwards of approximately $30 million and other deferred tax assets of approximately $77 million.
The types of differences between the tax bases of assets and liabilities and their financial reporting amounts that give rise to significant portions of deferred income tax liabilities and assets were: valuation and amortization of properties, plants and equipment; provision for write-down of assets; accrual of employee terminations, office closings and other matters; and tax net operating loss carryforwards and carrybacks.
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES (CONTINUED) Following is the reconciliation of the tax benefit calculated at the U.S. statutory tax rate to the Company's actual tax benefit on loss before extraordinary item and accounting changes:
(6) INCOME PER SHARE The 7,259,394 shares of Series B Preference Stock are common stock equivalents. Conversion of the Series B Preference Stock in 1993, 1992 or 1991 would have been anti-dilutive to the Company's earnings per share. The Company has reserved 5,111,438 shares of Common Stock for issuance to the owners of its 7 1/2% Convertible Subordinated Debentures Due 2014 (Debentures). The Debentures are convertible into the Company's Common Stock at any time prior to maturity at $39.125 per share of Common Stock. The Debentures are not common stock equivalents. If conversion of the Debentures were assumed to have occurred, the result would have been anti-dilutive to 1993, 1992 and 1991 earnings per share.
(7) PROPERTIES, PLANTS AND EQUIPMENT At December 31, the Company's properties, plants and equipment and accumulated depreciation, depletion and amortization were as follows:
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) ACCRUED LIABILITIES At December 31, the Company's accrued liabilities were comprised of the following:
(9) LONG-TERM DEBT At December 31, long-term debt consisted of the following (in millions of dollars):
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) LONG-TERM DEBT (CONTINUED)
Long-term debt maturities are $28 million, $138 million, $266 million, $153 million and $264 million for each of the years 1994 through 1998. Each of the maturity amounts for 1996 and 1997 include an assumed payment of $125 million related to the revolving credit facility which Management intends to renew.
The Company's long-term debt contains restrictive covenants, including a limitation on total indebtedness; restriction on the payment of common stock dividends in excess of $1.20 annually and minimum cash flow interest coverage. At December 31, 1993, the Company was in compliance with all of its debt covenants.
The Company pays a fee ranging from .375 percent to .5 percent on the unused portion of its $620 million revolving credit facility. As of December 31, 1993, the Company had the capacity to borrow $281 million under such facility. The commitments are subject to withdrawal if the Company were to be in default under any agreement for indebtedness in excess of $25 million.
During the fourth quarter of 1993, the Company repurchased $78 million of its 10.375 percent debentures at a total cost of $88 million resulting in an after-tax loss of $7 million which is reflected as an extraordinary item in the Consolidated Statement of Income.
(10) COMMITMENTS AND CONTINGENT LIABILITIES The Company has operating leases for office space and other property and equipment. Total rental expense for such leases for the years 1993, 1992 and 1991 was $32 million, $33 million and $38 million. Under contracts existing as of December 31, 1993, future minimum annual rental payments applicable to non-cancelable operating leases that have initial or remaining lease terms in excess of one year were as follows (in millions of dollars):
Under the terms of an operating lease which expires in December 1994, the Company is obligated to pay the lessor at the expiration of the lease the amount, if any, by which the fair market value of the asset is less than $31 million.
Several legal and administrative proceedings are pending against the Company. Although the ultimate outcome of these proceedings cannot be ascertained at this time, and it is reasonably possible that some of them could be resolved unfavorably to the Company, management believes that any liabilities which may arise would not be material in relation to the consolidated financial position of the Company at December 31, 1993.
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) SHAREHOLDERS' EQUITY Effective in October 1988, 3,001,876 shares of Common Stock of the Company were issued to an operating partnership of the Partnership in exchange for certain assets, which shares have been deducted from the number of shares shown in the consolidated balance sheet as outstanding. Such shares are not entitled to be voted at the annual meeting of shareholders. All other shares of Common Stock are entitled to one vote per share.
On August 1, 1989, the Company privately placed $110 million of notes (ESOP Notes) with maturities ranging from 15 to 20 years and interest rates currently ranging from 8.35% to 8.70%. The ESOP Notes were issued pursuant to the provisions of the Oryx Energy Company Capital Accumulation Plan (CAP), which is designed to constitute an employee stock ownership plan (ESOP) within the meaning of the Internal Revenue Code. The Company loaned the proceeds from the issuance of the ESOP Notes to the ESOP, which used the funds to purchase Common Stock of the Company. The ESOP is repaying the loan to the Company using the Company's contributions to the CAP and any dividends paid on shares of Common Stock held by the ESOP.
The Company has 280,000,000 authorized shares of stock, consisting of (i) 250,000,000 shares of Common Stock having a par value of $1.00 per share, (ii) 15,000,000 shares of Cumulative Preference Stock (Preference Stock) having a par value of $1.00 and a liquidation preference of $.001 per share, and (iii) 15,000,000 shares of Preferred Stock (Preferred Stock) having a par value of $1.00 per share. As of December 31, 1993, there were 96,932,277 shares of Common Stock outstanding. There are two series of Preference Stock designated, of which there were 7,259,394 shares of Series B Preference Stock outstanding and 120,000 shares of Series A Preference Stock designated and reserved for issuance upon exercise of the Stock Purchase Rights (Rights), of which none were outstanding. The Preferred Stock was authorized by vote of the shareholders on May 5, 1992 and there are currently no shares of Preferred Stock designated or outstanding. In addition, on December 31, 1993 the Company had reserved for issuance 7,259,394 shares of Common Stock on conversion of the outstanding Series B Preference Stock, 5,111,438 shares of Common Stock on conversion of the outstanding 7 1/2% Convertible Debentures and 1,914,832 shares of Common Stock upon the exercise of outstanding management options.
COMMON STOCK
Each share of Common Stock entitles its record owner to one vote on all matters submitted to the stockholders for action. The stockholders are not entitled to cumulative voting rights in the election of directors. Subject to the rights of holders of any class of Preference Stock or Preferred Stock, the holders of Common Stock are entitled to share ratably in dividends in such amount as may be declared by the Company's Board of Directors (Board) from time to time out of funds legally available therefor. The payment of dividends on the Common Stock is restricted under the Credit Agreement to no more than $1.20 per share annually, and is prohibited in the event of a default.
PREFERENCE STOCK
The Board is authorized by the Certificate to issue Preference Stock in one or more series and to fix for each such series such qualifications, privileges, limitations, options, conversion rights, and other special rights as are stated and adopted by the Board and as are permitted by the Certificate and the Delaware General Corporation Law, including the designation and number of shares issuable, the dividend rate, voting rights, conversion rights, redemption and sinking fund provisions, and liquidation values of each such series.
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) SHAREHOLDERS' EQUITY (CONTINUED) Holders of Preference Stock are entitled to receive, when and as declared by the Board out of assets legally available for that purpose, annual cumulative dividends payable in quarterly installments. Unless full cumulative dividends on the Preference Stock have been paid, no dividend may be declared or paid on, or other distributions made upon, Preferred Stock or Common Stock, nor may any Preferred Stock or Common Stock be redeemed or purchased by the Company.
Subject to certain conditions, the Company may redeem all or any part of the Preference Stock then outstanding.
The Company had 7,259,394 shares of Series B Preference Stock outstanding at December 31, 1993. Any such shares held by the original holder shall be entitled to a dividend in excess of the dividend payable on Common Stock. Any periodic dividend declared subsequent to 1993 will be increased by a dividend preference equal to $.0625 per share with respect to the first and second succeeding quarters and $.025 per share with respect to the third through sixth succeeding quarters. In 1994, the Board of Directors of the Company voted to suspend the dividend on Common Stock. Such suspension will not affect the dividend preference on the Series B Preference Stock.
Series B Preference Stock is non-voting, except in certain cases specified in the Certificate or by law, and it is convertible into Common Stock on a share-for-share basis by the holder thereof subject to certain restrictions. After September 10, 1995, if the original holder of the Series B Preference Stock still owns it, those shares may be converted into Common Stock on a share-for-share basis by the holder thereof without the restrictions that applied on or before that date.
PREFERRED STOCK
The Board is authorized by the Certificate to issue Preferred Stock in one or more series and to fix for each such series such qualifications, privileges, limitations, options, conversion rights, and other special rights as are stated and adopted by the Board and as are permitted by the Certificate and the Delaware General Corporation Law, including the designation and number of shares issuable, the dividend rate, voting rights, conversion rights, redemption and sinking fund provisions, and liquidation values of each such series.
Subject to the rights of holders of any class of Preference Stock, if any, the holders of Preferred Stock are entitled to receive dividends, when and as declared by the Board out of funds legally available for that purpose. As to dividends and rights upon liquidation, dissolution or winding up, the Preferred Stock will rank junior and subordinate to any series of Preference Stock, and prior to the Common Stock.
RIGHTS
On September 11, 1990, the Board declared a dividend distribution of one Stock Purchase Right on each outstanding share of Common Stock, payable September 28, 1990, to holders of record of the Common Stock on that date. The Rights are also issuable upon the issuance of additional shares of Common Stock prior to the time the Right are redeemed or expire. Initially, the Rights are represented by the certificates for the Common Stock and will trade only with the Common Stock. The Rights will expire September 11, 2000 unless earlier redeemed by the Company.
(12) EMPLOYEE AND RETIREE BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
The Company has noncontributory defined benefit plans which provide retirement benefits for most of its employees. Plan benefits are generally based on years of service, age at retirement and the employee's compensation. It is the Company's policy to fund defined benefit pension contributions, at a minimum, in accordance with the requirements of the Internal Revenue Code.
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) EMPLOYEE AND RETIREE BENEFIT PLANS (CONTINUED) The cost of the Company's primary defined benefit pension plans consisted of the following:
The following table sets forth the funded status and amounts recognized in the Company's Consolidated Balance Sheets at:
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) EMPLOYEE AND RETIREE BENEFIT PLANS (CONTINUED) As of December 31, 1993 and 1992, the projected benefit obligations were determined using a weighted average assumed discount rate of 7 and 7.5 percent and a rate of compensation increase of 4 and 5 percent, respectively. The weighted average expected long-term rate of return on plan assets was 9.5 percent in 1993 and 1992. All of these rates are subject to change in the future as economic conditions change.
DEFINED CONTRIBUTION PENSION PLANS
Defined contribution plans designed to provide retirement benefits are available to substantially all employees. Contributions, which are principally based on employees' compensation, are expensed as incurred.
The principal defined contribution plan is CAP which is a combined stock bonus and leveraged ESOP and is available to substantially all U.S. employees. The first 5 percent of employee contributions are matched by the Company at 110 percent up to the first $50,000 of employee base salary and at 100 percent thereafter. The Company's contributions to CAP are used to repay the debt issued to fund the purchase of Common Stock held by the leveraged ESOP. From time to time, the Company may contribute more than the calculated matching contribution when necessary to meet loan payments. CAP costs recognized amounted to $10 million, $9 million and $8 million for 1993, 1992 and 1991.
Additional information with respect to the leveraged ESOP portion of CAP is as follows:
HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company sponsors unfunded defined benefit health care and life insurance benefit plans to substantially all employees and retirees. Benefits under the health care plan are provided on a self-insured basis or through certain Health Maintenance Organizations (HMOs). The health care plan provides comprehensive major medical coverage which integrates with Medicare and contains provisions for cost sharing with participants through contributions, coinsurance, deductibles and caps on employer costs. Benefits under the life insurance plan are provided through an insurance contract. The life insurance plan contains provisions for retiree cost sharing through contributions and provides benefits based on preretirement compensation with a scheduled reduction in benefits commencing at age 66 and termination of all benefits at age 70 for substantially all participants.
The cost of health care and life insurance benefit plans was $20 million, $16 million and $16 million, of which $12 million, $7 million and $5 million was for retirees in 1993, 1992 and 1991. The Company adopted SFAS No. 106 on January 1, 1993, and in accordance with its provisions has changed to the accrual accounting method in computing postretirement health care and life insurance benefit plan expense. The Company formerly accounted for these costs using the pay-as-you-go (cash) method.
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) EMPLOYEE AND RETIREE BENEFIT PLANS (CONTINUED) The cost, net of retiree contributions, of the postretirement health care and life insurance benefit plans in 1993 calculated in accordance with the provisions of SFAS No. 106 is as follows:
The following table sets forth the funded status and amounts reported in the Company's Consolidated Balance Sheet at:
The assumed health care cost trend rate used to measure the expected cost of benefits covered by the plan for 1994 is 7 percent. Health care cost trend rates for future years are assumed to gradually trend downward over a seven year period to meet and thereafter parallel the projected rate of general inflation of 4.5 percent. A 1 percent increase in the assumed health care cost trend rates for future years would result in a $1 million increase in annual cost and a $9 million increase in the accumulated postretirement benefit obligation for the Company's health care plan.
The weighted average of the assumed discount rates used to measure the accumulated postretirement benefit obligation is 7 percent. For the life insurance plan, an assumed rate of increase of compensation of 4 percent was used to measure the accumulated postretirement benefit obligation.
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) MANAGEMENT INCENTIVE PLANS The Company provides management incentive plans to certain employees in the management of the Company. Total charges against income for these plans were $2 million, $4 million and $2 million for 1993, 1992 and 1991.
The principal management incentive plans are the 1992 Long-Term Incentive Plan (1992 LTIP), the Long-Term Incentive Plan (LTIP) and the Executive Long-Term Incentive Plan (ELTIP). The ELTIP provides that no awards may be granted after November 1, 1988 and was replaced by the LTIP which provides that no awards may be granted after December 31, 1991. All previous awards granted under both the ELTIP and LTIP remain in effect in accordance with their terms. As of December 31, 1993, there were no outstanding awards granted under the ELTIP. The 1992 LTIP replaced the LTIP and became effective January 1, 1992. A maximum of 3,000,000 shares of Common Stock were authorized for issuance under the 1992 LTIP.
Under the provisions of these plans, stock options, stock appreciation rights and limited rights were granted in various tandem combinations so that the exercise of any one of them will reduce, on a one-for-one basis, the tandem options or rights. In addition, certain stock options were granted which become exercisable (subject to the option vesting schedule) only upon the cancellation of the related performance shares for non-attainment of performance targets.
The following table summarizes information with respect to Common Stock options awarded under the 1992 LTIP, the LTIP and the ELTIP:
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) GEOGRAPHIC SEGMENT INFORMATION During 1993, sales of oil to the Company's top two purchasers totaled approximately 12 and 10 percent of oil revenue. During 1992, sales of oil to the Company's top purchaser totaled approximately 25 percent of oil revenue. Sales of gas to the Company's top purchaser in 1993 totaled approximately 14 percent and in 1992 totaled approximately 19 percent of gas revenue. The Company believes that the loss of any major purchaser would not have a material adverse effect on the Company's business.
Financial information by segment for the years ended December 31, 1993, 1992 and 1991 are summarized as follows:
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
(15) STATEMENT OF CASH FLOWS Amounts paid for interest and income taxes were as follows:
During 1993 and 1991, the Company recognized deferred tax liabilities of $3 million and $74 million associated with international properties acquisitions. In 1991, the Company eliminated $87 million of long-term debt through the cancellation of a $33 million capital lease obligation and the assumption of $54 million of debt by the purchaser of the Midway-Sunset Field producing oil and gas assets. In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," non-cash transactions are not reflected within the accompanying Consolidated Statements of Cash Flows.
ORYX ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(16) DEFERRED CREDITS AND OTHER LIABILITIES At December 31, the Company's deferred credits and other liabilities were comprised of the following:
Environmental cleanup costs have been accrued in response to the identification of several sites that require cleanup based on environmental pollution, some of which have been designated as superfund sites by the Environmental Protection Agency (EPA). The Company has been designated as a Potentially Responsible Party (PRP) at a site in southern California where the EPA is requiring the PRP's to undertake remediation of the site in several phases. The Company is a member of the group that is responsible for carrying out the first phase of the work, which is expected to take 5 to 8 years. Completion of all phases is estimated to take up to 30 years. The maximum liability of the group, which is joint and several for each member of the group, is expected to range from approximately $450 million to $600 million, of which the Company's share is expected to be approximately $10 million (net of $3 million in recoveries from third parties). Cleanup costs are payable over the period that the work is completed.
ORYX ENERGY COMPANY REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors, Oryx Energy Company:
We have audited the consolidated balance sheets of Oryx Energy Company and its Subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, cash flows and changes in shareholders' equity for each of the three years in the period ended December 31, 1993. These 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 generally accepted auditing standards. 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 consolidated financial position of Oryx Energy Company and its Subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the Consolidated Financial Statements, in 1993 the Company changed its methods of accounting for postretirement benefits other than pensions and postemployment benefits and in 1992 the Company changed its method of computing deferred income taxes.
COOPERS & LYBRAND
Dallas, Texas February 19, 1994
ORYX ENERGY COMPANY SUPPLEMENTARY FINANCIAL AND OPERATING INFORMATION (UNAUDITED)
OIL AND GAS DATA CAPITALIZED COSTS
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
EXPLORATION COSTS
ESTIMATED NET QUANTITIES OF PROVED OIL AND GAS RESERVES
Proved reserves are the estimated quantities which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from reservoirs under existing economic and operating conditions. Proved developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods. These reserve estimates were principally prepared by Company engineers and are based on current technology and economic conditions. The Company considers such estimates to be reasonable; however, due to inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are imprecise and subject to change over time as additional information becomes available.
There has been no major discovery or other favorable or adverse event that has caused a significant change in estimated proved reserves since December 31, 1993. The Company has no long-term supply agreements or contracts with governments or authorities in which it acts as producer nor does it have any interest in oil and gas operations accounted for by the equity method.
ORYX ENERGY COMPANY
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM ESTIMATED PRODUCTION OF PROVED OIL AND GAS RESERVES AFTER INCOME TAXES
The standardized measure of discounted future net cash flows from estimated production of proved oil and gas reserves after income taxes is presented in accordance with the provisions of SFAS No. 69, "Disclosures about Oil and Gas Producing Activities" (SFAS No. 69). In computing this data, assumptions other than those mandated by SFAS No. 69 could produce substantially different results. The Company cautions against viewing this information as a forecast of future economic conditions or revenues.
The standardized measure has been prepared assuming year-end selling prices adjusted for future fixed and determinable contractual price changes, year-end development, production and direct general and administrative costs, year-end statutory tax rates adjusted for future tax rates already legislated and a ten percent annual discount rate.
ORYX ENERGY COMPANY
SUMMARY OF CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM ESTIMATED PRODUCTION OF PROVED OIL AND GAS RESERVES AFTER INCOME TAXES
ORYX ENERGY COMPANY
QUARTERLY FINANCIAL INFORMATION
During the fourth quarter of 1992, the Company adopted the provisions of SFAS No. 109 retroactive to January 1, 1992 (see Note 1 to the Consolidated Financial Statements). Certain information previously reported by the Company in 1992 was restated as a result of this change.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on directors required by this Item is incorporated herein by reference to the section entitled "Election of Directors" on pages 2-4 of the Company's definitive Proxy Statement dated March 23, 1994.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the section entitled "Executive Compensation" on pages 7-20 of the Company's definitive Proxy Statement dated March 23, 1994.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the section entitled "Security Ownership of Management" on page 6 of the Company's definitive Proxy Statement dated March 23, 1994.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the section entitled "Certain Transactions and Relationships" on page 20 of the Company's definitive Proxy Statement dated March 23, 1994.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Consolidated Financial Statements
2. Financial Statement Schedules
See Index to Financial Statements, Supplementary Financial and Operating Information and Financial Statement Schedules on page 21.
Other schedules and separate financial statements of unconsolidated subsidiaries are omitted because the information is shown elsewhere in this report, is not required or is not applicable.
3. Exhibits:
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter ended December 31, 1993.
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.
ORYX ENERGY COMPANY
By: /s/ EDWARD W. MONEYPENNY
-------------------------------------- EDWARD W. MONEYPENNY SENIOR VICE PRESIDENT, FINANCE, AND CHIEF FINANCIAL OFFICER
Date: March 11, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Oryx Energy Company:
Our report on the consolidated financial statements of Oryx Energy Company and its Subsidiaries is included on page 44 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page 21 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND
Dallas, Texas February 19, 1994
ORYX ENERGY COMPANY SCHEDULE V -- PROPERTIES, PLANTS AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1993, 1992 AND 1991 (MILLIONS OF DOLLARS)
ORYX ENERGY COMPANY SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTIES, PLANTS AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (MILLIONS OF DOLLARS)
ORYX ENERGY COMPANY SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (MILLIONS OF DOLLARS)