ITEM 3. LEGAL PROCEEDINGS
The Company has pending litigation incidental to its operations. Management believes that none of the litigation is expected to have a material adverse effect on the Company's financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended December 31, 1994.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The high and low sales prices for the common stock of the Company for each quarter of the two years ended December 31, 1994, in the United States on the New York Stock Exchange (under the symbol "GNR"), were as follows:
As of March 1, 1995, the Company had 2,703 stockholders of record. The Company has never paid cash dividends and does not expect to pay cash dividends in the near future.
As of December 31, 1994 and March 1, 1995, the Company held 3,900,697 of its own shares in treasury.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR DATA
Selected financial data for the Company on a consolidated basis is presented below. See Note 1 to Consolidated Financial Statements for discussion of changes in the method of accounting for certain investments and natural gas revenues in 1994, and income taxes in 1993.
--------------
(1) Net income on a fully diluted basis for 1993 was $.15 per share.
(2) To be read in the context of the Consolidated Statements of Cash Flows included in Item 8 herein.
(3) See Note 4 to Consolidated Financial Statements for discussion of redeemable bearer shares.
(4) See Note 5 to Consolidated Financial Statements for discussion of convertible preferred shares.
(5) Net of treasury shares.
INTERIM FINANCIAL DATA (UNAUDITED)
The following is a condensed summary of the results of operations for the calendar quarters of 1994 and 1993.
During the second, third and fourth quarters of 1994, the Company incurred exploration expenditures of $6.4 million, $4.7 million and $6.1 million, respectively. Included in these expenditures were dry hole costs for unsuccessful exploratory wells of $4.6 million, $2.5 million and $3.9 million, respectively.
During the first and fourth quarters of 1993, the Company recorded gains of $2.1 million ($.09 per share) and $.6 million ($.02 per share), respectively, on the sale of assets. (Unless otherwise indicated, all per share information presented herein is on a per primary share basis.)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
In 1994, 1993 and 1992, the Company generated $36.7 million, $18.3 million and $7.5 million respectively, in cash from operating activities. The Company's expenditures for exploration and development activities in 1994, 1993 and 1992 were $42.9 million, $18.9 million and $7.3 million, respectively. In 1994 and 1992, the Company's expenditures for the acquisition of producing properties were $3.8 million and $15 thousand, respectively. In 1993, the Company acquired no producing properties. The Company currently anticipates expending approximately $37.3 million in 1995 for exploration and development activities. Domestic exploration and development expenditures are projected to be approximately $15.3 million with expenditures related to international exploration and development activities including Russia projected to be approximately $22 million in 1995.
During 1994, 1993, and 1992 the Company's worldwide oil and gas reserve base increased approximately 14.9 Mmbls (46%), 6.7 Mmbls (26%), and 1.6 Mmbls (6%) of oil equivalent, respectively. These increases are the direct result of the Company exploration and development efforts undertaken during these years.
The Company's reserve replacement ratio, inclusive of revisions of previous estimates and based on net equivalent barrels, from exploration and development activities for 1994, 1993 and 1992 was 502%, 336% and (6%), respectively. The reserve replacement ratio for 1994 was the result of the Company's 1994 drilling program, primarily international, and positive revisions to previous estimates. The positive reserve replacement ratio for 1993 was the result of the Company's 1993 drilling program, primarily domestic, and positive revisions to previous reserve estimates primarily associated with the Company's Taylor Lake and San Juan properties. The negative reserve replacement ratio for 1992 was the result of downward revisions of previous estimates for the Oak Hill field in East Texas and a diminished drilling program during the year.
RESULTS OF OPERATIONS
In 1994, the Company had a net loss of $8.3 million ($.28 per share) compared to net income of $4.5 million ($.16 per share) and a net loss of $2.8 million ($.12 per share) in 1993 and 1992, respectively. The net loss for 1994 includes $18.8 million in exploration expenses. During 1993 and 1992, exploration expenses were $6.8 million and $6.5 million, respectively. The increase in exploration expenses during 1994 is reflective of the Company's increased international and domestic exploration activities in comparison to previous years. Included in 1994 exploration expenditures were dry hole costs of $11.2 million as compared to $1.9 million and $0.9 million in 1993 and 1992, respectively. The net income for 1993 includes a $1.3 million distribution from IPI, a $1.6 million net gain on the sale of producing properties, including certain interests in San Juan properties, and $.7 million in gains on other assets sales. The net loss for 1992 includes a $.4 million loss on the disposition of domestic producing properties.
Oil and Gas
In 1994, 1993 and 1992, worldwide oil and gas production accounted for $31.9 million (63%), $31.1 million (44%) and $31.2 million (56%) of the Company's operating revenues, respectively. Domestic oil and gas operations accounted for $20.1 million (40%), $19.3 million (27%) and $19.0 million (34%) of the Company's operating revenues during the same periods, respectively. Indonesian oil and gas operations accounted for $11.7 million (23%), $11.4 million (16%) and $11.7 million (21%) of the Company's operating revenues in 1994, 1993 and 1992, respectively.
Worldwide oil and gas revenues increased approximately 3% from 1993 to 1994. Slight increases were recorded for both Indonesian and domestic revenues. During 1994, domestic oil and gas revenues increased approximately 4% as compared to 1993. This increase is the direct result of increased natural gas production from the Company's Taylor Lake field and from new offshore fields from which initial production began late in 1994. When compared to 1993, domestic natural gas production increased 27% during 1994. However, this increased production was principally offset by decreases during 1994 as compared to 1993 in gas prices, oil prices and oil production of 12%, 9% and 13%, respectively.
The slight decrease in worldwide oil and gas revenues from 1992 to 1993 was due primarily to the decrease in Indonesian revenues. Domestic gas production increased approximately 10% in 1993. This increased production was primarily in the Taylor Lake field located in the onshore Gulf Coast area. The price received per Mcf increased 6% and is attributed to the demand for domestic natural gas which resulted in gradually increasing gas prices throughout 1993. These increases were partially offset by decreases in both domestic oil production and the overall price per barrel received in 1993. In 1993, domestic oil production decreased 21% primarily as the result of sales during the fourth quarter of 1992 of certain properties in the Rockies area.
The Company's oil and gas volumes and unit prices for the United States, Indonesia and Argentina for 1994, 1993 and 1992 are summarized in the following table:
The oil and gas revenue variances resulting from volume and price changes for the United States and Indonesia during 1994 and 1993 are summarized in the table below (amounts in thousands).
Future oil and gas revenues, both domestic and foreign, will depend on volumes sold and prices received. These in turn will depend on a number of factors beyond the control of the Company including demand and price adjustments under buyers' contracts with Pertamina.
Production expenses decreased 19% and 27% during 1994 and 1993, respectively, when compared to production expenses of the previous year. Domestic production expenses per equivalent barrel of oil produced during 1992, 1993 and 1994 were $3.68, $2.61 and $1.97, respectively. The decrease in production expenses per equivalent barrel of oil during these three years is reflective of the Company's decision to dispose of certain high cost properties during 1992 and 1993 and of increased production during 1993 and 1994 from the Company's lower cost Taylor Lake field.
Exploration expenses in 1994 increased approximately $12 million when compared to exploration expenses incurred during 1993 and 1992. This increase is reflective of the increased worldwide exploration activities undertaken by the Company. As a result of these exploration efforts, the Company added during 1994 to its reserve base, excluding Russia, approximately 11.2 Mmbls (43%) on a barrel of equivalent oil bases and increased future discounted net revenues after tax effects approximately $38.8 million (40%). Included in 1994 exploration expenses were dry hole expenditures, leasehold impairments and geological costs of approximately $11.2 million, $2.4 million and $2.9 million. The same expenditures during 1993 were approximately $1.8 million, $2.4 million and $1.0 million, respectively.
Depletion, depreciation and amortization increased approximately 7% during 1994 when compared to 1993. This increase is the result of an increase in oil and gas production. Domestic depletion, depreciation and amortization per equivalent barrel of oil produced during 1992, 1993 and 1994 were $4.96, $4.12 and $3.83. This downward trend is reflective of disposition of certain high cost properties and of the Company's successful exploration and development activities.
Administrative expenses decreased 13% and 9% during 1994 and 1993, respectively, when compared to previous years. These decreases are reflective of the Company's continuing efforts to focus on and reduce controllable costs whenever possible. These cost reductions have occurred during periods of increased exploration and development activities and increased oil and gas production.
Pipeline Operations
Pipeline operations accounted for $18 million (35%), $38.6 million (55%) and $23.9 million (43%) of the Company's consolidated revenues in 1994, 1993 and 1992, respectively. Pipeline operating expenses exclusive of depreciation were $16.9 million, $37.5 million and $22.0 million for 1994, 1993 and 1992, respectively. The pipeline segment generated losses from operations before taxes of $0.3 million in 1994, $0.6 million in 1993 and $0.3 million in 1992. While the losses from operations before taxes improved during 1994, the pipeline segment continued to experience constricted operating margins. The increase in the loss from operations before taxes from 1992 to 1993 of $0.3 million was primarily the result of decreased operating margins in 1993. The loss in 1992 was due primarily to the impairment of certain pipeline assets and to repairs, environmental and safety expenditures.
The primary reason for the decrease in pipeline segment revenues and expenditures in 1994 as compared to 1993 was a decrease in marketing activities for working interest partners at the Taylor Lake field. During 1994, revenue and expenses, excluding depreciation, attributable to the marketing of gas production from certain of the Company's operated
properties were $3.3 million and $3.2 million, respectively. During 1993, these revenues and expenses were $22.4 million and $22.2 million, respectively. In addition, the Company has temporarily shut down operations of the nitrogen rejection unit at its McLeod plant because of insufficient quantities of nitrogen laden natural gas. The Company is not certain when or if sufficient quantities of nitrogen laden natural gas will be available to resume operating this unit.
The increase in pipeline segment revenues and expenses from 1992 to 1993 was primarily due to increased gas marketing activities of gas production from certain of the Company's operated properties, and from increased gathering systems volumes. During 1992, revenues and expenses, excluding depreciation, attributable to the marketing of gas production from certain of the Company's operated properties were $5.3 million and $5.2 million, respectively.
Russian Operations
The Company, through its 90% owned subsidiary, Texneft, has a net 45% interest in Tatex, a Russian joint venture. Tatex's activities currently include two projects: 1) vapor recovery and 2) the development and operation of the Onbysk field. The vapor recovery activity was expanded in 1994 with a total of 19 units on production at year's end. In addition, a total of 19 wells were drilled in the Onbysk field by the joint venture during the year.
A third project, which is currently inactive, was a well stimulation program in and adjacent to the Romashkino field. In connection with this project during 1994, a total of 42 stimulations were performed of which 34 were performed within the Onbysk field and 8 in other fields. Activities were directed primarily at the Onbysk field because the Government had not indicated whether or not, in the long-term, incremental oil resulting from the stimulation activities in the Romashkino area would be designated as "own oil" and which may be exported freely for hard currency. Because of the lack of clarification of long-range Government policy towards stimulation, the contract was terminated on November 1, 1994. Should progress be made in establishing a firm "own oil" classification over a clearly defined period, the stimulation program may be reactivated at some later date.
The assumption of operations by the joint venture of a fourth project, the development of undeveloped reserves underlying urban areas within the Romashkino field, is no longer considered an appropriate project for Tatex under the prevailing tax and administrative uncertainties. As a result, no further action will be taken to finalize the contract for the urban project which existed in draft form. However, Tatneft and Texneft have agreed to examine alternative opportunities to expand Tatex operations into other fields in which exploration but not development, activities have been carried out.
As of December 31, 1994 and 1993, the Company's advances to Texneft were $18.2 million and $11.7 million, respectively. The Company has recognized net losses from its Russian operations for the periods ended December 31, 1994, 1993 and 1992 of $.1 million, $1.2 million and $.8 million, respectively. Included in the 1994, 1993 and 1992 losses are $3.4 million, $1.4 million and $.3 million, respectively, of expense for the Russian government export tax on crude oil. On March 3, 1995, the Company was notified that Tatex had received an exemption from paying export tax on crude oil sold outside of Russia. The exemption received was for one year and was effective January 1, 1995. The exemption is subject to an annual review by the Government and subject to its approval, can be renewed for two additional years.
LIQUIDITY AND CAPITAL RESOURCES
Key balance sheet amounts and ratios stated in millions (except ratios and per share amounts) at December 31, 1994, 1993 and 1992 were as follows:
(1) If Prudential had converted its Preferred Stock to common stock on December 31, 1992, equity per common share outstanding would have been $3.85. See Note 5 to Consolidated Financial Statements.
Cash and cash equivalents combined with short-term liquid investments decreased by $30 million during the year ended December 31, 1994. This decrease was primarily due to capital expenditures of $45.8 million and the $5.3 million treasury stock acquisition. These cash outlays were partially offset by the $36.7 million of cash provided by operating activities net of the $16.2 million change in short-term liquid investments.
Cash and cash equivalents combined with short-term liquid investments increased by $24.7 million during the year ended December 31, 1993. This increase was primarily due to the $19.2 million received in August 1993, representing an interest-free loan, of the remaining cash held by Hambros Trust. The loan is repayable on demand only to the extent necessary to redeem bearer shares presented for exchange until July 2008. The loan is secured by a letter of credit from a bank. The letter of credit is secured by certain of the Company's short-term liquid investments. Each bearer share presented during this period will be redeemed for $6.66. As of December 31, 1994, there were 2,685,487 outstanding bearer shares. In July 2008, the obligation of the Company to holders of bearer shares will cease, the interest-free loan will terminate, and any remaining cash will revert to the Company and will be accounted for as an increase in capital in excess of par value.
Cash provided by operating activities for the year ended December 31, 1994 was $36.7 million compared to $18.3 million for the same period in 1993. This $18.4 million increase in cash provided by operations is primarily the result of a decrease in short-term liquid investments of $16.2 million.
Cash provided by operating activities for the year ended December 31, 1993 was $18.3 million compared to $7.5 million for the same period in 1992. This $10.8 million increase in cash provided by operations is primarily the result of a $2.0 million net increase in income from operations adjusted for depletion, impairments, dry hole expense and gain on disposition of properties and an $8.4 million net increase resulting from changes in accounts receivable, other current assets, accounts payable and accrued liabilities for 1993 as compared to 1992.
The Company expended approximately $45.8 million for additions to properties and equipment in 1994 compared to $21.5 million and $7.1 million in 1993 and 1992, respectively. Capital expenditures combined with the $5.3 million treasury stock acquisition are the primary reasons for the $36.2 million decrease in working capital in 1994. Working capital increased $20.9 million in 1993. The 1993 increase was primarily due to the $19.2 million proceeds from redeemable bearer shares previously discussed.
In 1995, the Company intends to direct cash flow from its current base of domestic properties and Indonesian interests to expand its exploration and development efforts in the United States, mainly offshore Gulf of Mexico while directing its balance sheet cash (cash and short-term investments) primarily toward international opportunities. The Company plans to spend in 1995 approximately $15.3 million on exploration and development activities in the United States. Capital expenditures for international activities, primarily in Russia, Egypt and the Ivory Coast, are projected to be approximately $22 million for 1995. Factors such as political stability in the various host countries and world oil
prices will heavily influence the amount and timing of these expenditures. The Company believes that it has adequate resources to fund these planned expenditures.
In order to insure that the Company continues to have the necessary financial flexibility in the future, the Company is currently negotiating a $25 million unsecured line of credit. In addition, the Company and its working interest partners are currently negotiating project financing for the Ivory Coast development activities. The Company seeks to finalize these credit resources by mid-1995. In addition, the Company plans to obtain project financing for Egyptian development activities when the extent of those activities is more clearly defined.
Effective January 1, 1994, the Company adopted Financial Accounting Standards Board ("FASB") Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement requires the use of fair value accounting for investments in marketable equity and all debt securities. The adoption of this statement had no impact on the Company's current year income.
Effective the second quarter of 1994, the Company changed its method of accounting for natural gas revenues from the sales method, whereby the Company recorded natural gas revenues based on the amount of gas sold, to the entitlements method. Under the entitlements method, the Company records natural gas revenues based upon the Company's entitled share of gas production. The Company believes that the entitlement method will provide a more meaningful presentation of the Company's financial position and will produce a better matching of current revenues and costs. Prior to 1994, the Company had no material gas imbalances, therefore the effect of the change in accounting method would have had no material impact on net income reported in previous periods. As of December 31, 1994, the Company had recorded a deferred credit from the sale of approximately .4 billion cubic feet of natural gas in excess of its entitled share. As a result, 1994 income was reduced by approximately $.7 million.
The Company believes inflation has not had a material effect on its domestic operations or on its financial condition, but there can be no assurance that future increases in the inflation rate, particularly in Russia, would not have an adverse effect on the Company's financial statements. In addition, the Company is not aware of any impending material change in its cost of supplies, materials, equipment or labor. The Company's employees are currently not members of any labor union or trade association.
A continued trend to greater environmental and safety awareness and increasing environmental regulation has resulted in higher operating costs for the oil and gas industry and the Company. The Company believes environmental and safety costs will continue to increase in the future. To date, compliance with environmental laws and regulations has not had a material impact on the Company's capital expenditures, earnings or competitive position. The Company has not received any notices from any regulatory agency regarding violations of environmental laws. The Company monitors environmental laws and believes it is in compliance with applicable environmental regulations and certain air quality standards set by the Texas Air Quality Control Board and other appropriate regulatory agencies. The Company is unable to predict the impact of future laws and regulations on the Company's operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Global Natural Resources Inc.:
We have audited the accompanying consolidated balance sheets of Global Natural Resources Inc. and subsidiaries as of December 31, 1994 and 1993 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Global Natural Resources Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in notes 1 and 2 to the consolidated financial statements, in 1994 the Company changed its method of accounting for certain investments to adopt the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Debt and Equity Securities." As discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for natural gas revenues in 1994. As discussed in notes 1 and 6 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes to adopt the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG PEAT MARWICK LLP
Houston, Texas February 28, 1995
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
See accompanying notes to consolidated financial statements.
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
See accompanying notes to consolidated financial statements.
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AMOUNTS IN THOUSANDS)
See accompanying notes to consolidated financial statements.
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AMOUNTS IN THOUSANDS)
See accompanying notes to consolidated financial statements.
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Supplemental disclosure of non-cash investing and financing activities:
In connection with the Company's Employees 401(k) Savings Plan referred to in Note 7, the Company contributed 14,194 treasury shares during 1994 with a market value of $104,000 to the plan. During 1993, the Company contributed 4,638 treasury shares with a market value of $35,000 to the plan.
As referred to in Note 5, in March 1993, Prudential converted its preferred stock into 6,311,537 shares of the Company's common stock.
On September 21, 1992, Noel Group, Inc. ("Noel") completed a distribution of shares owned by Noel in the Company, Garnet Resources Corporation ("Garnet") and VISX, Incorporated ("VISX") to Noel shareholders. The Company received from Noel 46,468 shares of Garnet, 53,907 shares of VISX and 203,098 shares of the Company's stock as a result of the Noel distribution. The Company recorded the investment in Garnet and VISX and the receipt of treasury stock at their respective September 21, 1992 market values and reduced the book value of its investment in Noel by a corresponding amount. On November 29, 1993, Noel distributed shares owned by Noel in Sylvan Foods Holdings, Inc. ("Sylvan") to Noel shareholders. The Company received from Noel 54,860 shares of Sylvan as a result of the Noel distribution. The Company recorded the investment in Sylvan at its November 29, 1993 market value and reduced the book value of Noel by a corresponding amount.
As a result of the Hambros agreements referred to in Note 4, $.4 million was transferred into capital in excess of par value and $.1 million into common stock as a result of the reduction in common stock subject to put during 1992. In 1993, $.2 million was transferred into capital in excess of par value and approximately $28 thousand into common stock as a result of the reduction in common stock subject to put.
See accompanying notes to consolidated financial statements.
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain reclassifications have been made in the 1993 and 1992 financial statements to conform to presentation used in 1994.
Principles of Consolidation
The consolidated financial statements include the accounts of Global Natural Resources Inc. and its majority-owned entities (the "Company"). The Company accounts for its investment in its Russian joint venture using the equity method. All significant intercompany accounts and transactions have been eliminated.
Cash Equivalents
The Company considers all investments with a maturity of ninety days or less when purchased to be cash equivalents.
Short-Term Liquid Investments
Short-term liquid investments include investments having a maturity at the date of purchase of more than ninety days. These investments, which have a minimum rating of A1/P1, consist primarily of repurchase agreements, commercial paper, certificates of deposit and U.S. government securities and are carried at cost, which approximates market value. The Company believes that no single short-term liquid investment exposes the Company to significant credit risk. As of December 31, 1994, excluding U.S. government securities, the largest individual short-term liquid investment did not exceed $6 million.
Current Investments
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 ("Statement No. 115"), "Accounting for Certain Investments in Debt and Equity Securities." The cumulative effect of this accounting change as of January 1, 1994 had no material impact upon the financial statements of the Company. Under Statement No. 115, the Company classifies its debt and marketable equity securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities for which the Company has the ability and intent to hold until maturity. Any securities not classified as trading or held-to-maturity are classified as available-for-sale.
The Company has no held-to-maturity or available-for-sale securities. Trading securities are recorded at fair value. Unrealized holding gains and losses on trading securities are included in earnings. Dividend and interest income are recognized when earned.
Current investments are trading securities carried at fair value. Prior to the adoption of Statement No. 115, current investments were carried at the lower of aggregate cost or market value.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for its oil and gas operations whereby acquisition costs and exploratory drilling costs related to properties with proved reserves and all development costs, including development dry holes, are capitalized. Geological and geophysical costs and the cost of retaining unproven properties are charged to expense as incurred. Exploratory drilling costs applicable to unsuccessful exploration efforts are charged to expense at the time the wells or other exploration activities are determined to be nonproductive. Costs incurred to operate and maintain wells and equipment and to lift oil and gas to the surface are expended as incurred. Acquisition costs of unproved properties are evaluated periodically and any impairment assessed is charged to expense. Capitalized costs are depleted using the unit of production method based upon proved reserves for acquisition costs and proved developed reserves for exploration and development costs. Estimated costs (net of salvage value) of dismantling oil and gas production facilities, including abandonment and site restoration costs, are computed by the Company's engineers and are included when calculating depreciation and depletion using the unit-of-production method. On a
world-wide basis, should net capitalized costs exceed the estimated future undiscounted after tax net cash flows from proved oil and gas reserves, such excess costs will be charged to expense.
Other Property and Equipment
Pipelines, plant and equipment are depreciated on the straight-line method over their estimated useful lives ranging from three to twenty-two years. Miscellaneous property and equipment are depreciated on the straight-line and declining-balance methods, based upon estimated useful lives ranging from three to ten years.
Investment in Indonesian Production Sharing Contract
The Company has a 1.714% interest in a joint venture (the "IJV") for the exploration, development and production of oil and natural gas in East Kalimantan, Indonesia, under a production sharing contract ("PSC") with Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, the state petroleum enterprise of Indonesia ("Pertamina"). The Company makes advances to the operator for exploration, development and operating costs. In April 1990, Pertamina and the IJV signed an amendment and a 20-year extension to the PSC with generally similar terms and conditions as the PSC prior to such amendment and extension. The extended PSC will expire August 7, 2018. The share of revenues from the sale of gas after cost recovery through August 7, 1998 will remain at 35% to the IJV after Indonesian income taxes and 65% to Pertamina. The split after August 7, 1998 will be either 25% or 30% to the IJV after Indonesian income taxes and 75% or 70% to Pertamina, depending upon the sales contract involved. Based on current and projected oil production, the revenue split from oil sales after cost recovery through August 7, 2018 will remain at 15% to the IJV after Indonesian income taxes and 85% to Pertamina. These revenue splits are based on Indonesian income tax rates of 56% through August 7, 1998 and 48% thereafter. The cost of the Company's original investment is depleted on a straight-line basis over the remaining life of the original production sharing contract.
Investment Properties International, Limited (IPI)
The Company owns 47% of the equity interests in IPI, which was a real estate investment company that is now in liquidation under the supervision of a liquidator. Definitive information relative to the net realizable assets of IPI is not available. However, based upon limited information available from the liquidator, the Company believes that the majority of the assets have been liquidated. In 1993, the Company received a distribution from IPI of approximately $1.3 million. No distributions were received from IPI during 1994 or 1992. At December 31, 1994 and 1993, the Company had no costs recorded related to this investment.
Foreign Currency Translation
The Company uses the U.S. dollar as the functional currency for its operations in Russia. Transactions denominated in rubles are translated into U.S. dollars using the market rate.
Concentrations of Credit Risk
The Company's trade receivables include amounts due from purchasers of oil and gas production and amounts due from joint venture partners for their respective portions of operating expenses and exploration and development costs. The Company believes that no single customer or joint venture partner exposes the Company to significant credit risk. The Company's customers and joint venture partners may be similarly affected by changes in economic, regulatory or other factors and thereby impact the Company's overall credit risk. There can be no assurance that the Company's joint venture partners will be in a position to pay their joint venture obligations, in which case the Company may be required to assume all or a portion of their financing obligations. Trade receivables are generally not collateralized; however, the Company analyzes customers' and joint venture partners' historical credit positions prior to extending credit.
Environmental Liabilities
A provision for environmentally related expenditures is recorded when it is determined that the Company's liability for environmental assessments and/or cleanup is probable and the cost can be reasonably estimated. If it is anticipated that future economic benefit will arise from environmental expenditures, the amounts are capitalized; otherwise, they are expended.
Natural Gas Revenues
Effective the second quarter of 1994, the Company changed its method of accounting for natural gas revenues from the sales method, whereby the Company recorded natural gas revenues based on the amount of gas sold, to the entitlements method. Under the entitlements method, the Company records natural gas revenues based upon the Company's entitled share of gas production. The Company believes that the entitlement method will provide a more meaningful presentation of the Company's financial position and will produce a better matching of current revenues and costs. Prior to 1994, the Company had no material gas imbalances, therefore the effect of the change in accounting method would have had no material impact on net income reported in previous periods. As of December 31, 1994, the Company had recorded a deferred credit from the sale of approximately .4 billion cubic feet of natural gas in excess of its entitled share. As a result, 1994 income was reduced by approximately $.7 million ($.02 per share).
Income Taxes
Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 ("Statement No. 109"). This change in accounting method had no impact on income. Under the asset and liability method of Statement No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Pursuant to the deferred method under APB Opinion 11, which was applied in 1992 and prior years, deferred income taxes were recognized for income and expense items that were reported in different years for financial reporting and income tax purposes using the tax rate applicable for the year of the calculation.
Earnings per Share
Earnings per share is computed based upon the weighted average common shares outstanding, computed on a monthly basis. Unexercised stock options do not have a dilutive effect on the reported amount of earnings per common share. Fully diluted earnings per share for 1993 was calculated assuming conversion of Prudential's preferred stock into Company common stock effective January 1, 1993. See Note 5.
(2) CURRENT INVESTMENTS
Current investments at December 31, 1994 and 1993 consist of certificates of deposit and U.S. government and corporate debt securities (included in short-term liquid investments), and equity securities (included in current investments). During the twelve month period ending December 31, 1994, the Company recorded $0.5 million of unrealized losses resulting from changes in the differences between cost and market value of short-term liquid investments and current investments.
Short-term liquid investments at December 31, 1993 were carried at cost which approximates fair value. Current investments at December 31, 1993 were carried at the lower of aggregate cost ($1.7 million) or market value ($1.9 million). In 1993 the Company recorded a net unrealized loss of approximately $0.6 million as the result of changes in the differences between the cost and market value of items held as current investments at year end. No unrealized losses were recorded in 1992.
(3) INVESTMENT IN TEXNEFT
In 1990, the Company formed Texneft Inc. ("Texneft") to participate in a joint venture in Russia with Tatneft, a Russian oil production amalgamation which operates the oil fields of Tatarstan, Russia. Texneft, a 90% owned subsidiary, has a 50% interest in the joint venture, Tatex. In November 1994, the Company purchased an additional 10% of Texneft's common stock, increasing its ownership from 80% to 90%. An agreement between the minority shareholder of Texneft and the Company requires the Company to advance to Texneft sufficient cash to fund its administrative expenses and its contributions to Tatex. In turn, Texneft will make no distributions to its shareholders until the Company has been repaid a sum equal to the total of its advances to Texneft. As of December 31, 1994, the Company's outstanding advances totaled $18.2 million.
Tatex was registered with the Ministry of Finance of the former USSR on November 15, 1990, and subsequently registered with the governments of Russia, Tatarstan and the City of Almetyevsk. The joint venture activities currently include two projects: 1) vapor recovery and, 2) the development and operation of the Onbysk field. A third project which is currently inactive, was well stimulation in and adjacent to the Romashkino field. The assumption of operations by the joint venture of a fourth project, development of undeveloped reserves underlying urban areas within the Romashkino field, is no longer considered an appropriate project for Tatex under the prevailing tax and administrative uncertainties. However, Tatneft and Texneft have agreed to examine alternative opportunities to expand Tatex operations in other fields in which exploration, but not development, activities have been carried out.
The joint venture capital contributions total approximately $2.8 million as of December 31, 1994. In 1991, Tatneft contributed .5 million rubles while Texneft contributed the equivalent of .5 million rubles at the official exchange rate. Fifty percent of Texneft's initial contribution, or approximately $.4 million, was made in equipment and materials. In 1993, Texneft and Tatneft each contributed $1 million to the Charter Fund as their share of contributions required to finance the development of the Onbysk field and the well stimulation operations.
Additional funding for the joint venture will be supplied by Texneft and Tatneft through various credit agreements. The aggregate amount of all loans made under the various credit agreements will not exceed $19.5 million from Texneft and a total of 5.2 million rubles and $16.5 million from Tatneft. As of December 31, 1994, 1993, and 1992, outstanding dollar advances from Texneft were approximately $7.2 million, $2.8 million, and $1.8 million, respectively. As of December 31, 1994, outstanding advances from Tatneft were approximately $2.6 million.
The impact the Russian joint venture has had on the Company's financial statements for the last three years is summarized in thousands in the following table. The revenue and expense information presented is the Company's pro-rata share of Texneft's consolidated financial statements which includes 50% of Tatex activities.
The balance sheet information, presented in thousands, in the following table is the Company's pro-rata share of Texneft's consolidated assets and liabilities which includes 50% of Tatex's assets and liabilities.
The Internal Revenue Service has ruled that Tatex will be treated as a partnership for U.S. federal tax purposes and that Texneft will be treated as a partner of the partnership. For financial statement purposes, the Company accounts for its investment in Texneft on the equity method.
In January 1992, the Russian Federation imposed a tax of 30 European Currency Units per ton, currently approximately $5.22 per barrel, on crude oil exported from Russia. Although the Company applied for exemption from the tax in accordance with the procedure stipulated by Regulation 1375-r for enterprises which were registered before January 1, 1992, no exemption was received in 1994 and Tatex continued to pay the tax on crude oil shipments throughout 1994. The Company's pro-rata share of export taxes recorded by Tatex are $3.4 million, $1.4 million and $.3 million in 1994, 1993 and 1992, respectively.
Subsequent Event (Unaudited)
On March 3, 1995, the Company was notified that Tatex has received an exemption from paying tax on exported oil. The exemption received was for one year and was effective January 1, 1995. The exemption is subject to an annual review by the government and subject to its approval, can be renewed for two additional years.
Risks Applicable to Russian Operations
The Company's activities in Russia are subject to the usual risks associated with foreign operations, including political and economic uncertainties, risks of cancellation or unilateral modification of agreements, operating restrictions, currency repatriation restrictions, expropriation, export restrictions, the imposition of new taxes and the increase of existing taxes, inflation and other risks arising out of foreign government sovereignty over areas in which the operations are conducted. The Company has endeavored to protect itself against certain political and commercial risks inherent in the venture. There is no certainty that the steps taken by the Company will provide adequate protection.
(4) REDEEMABLE BEARER SHARES
Global Natural Resources Inc. became the successor issuer to Global Natural Resources PLC, a United Kingdom company ("U.K. Company"), on July 26, 1983 pursuant to the terms of a Scheme of Arrangement (the "Arrangement") under Section 206 of the English Companies Act. The effect of the Arrangement was to move the domicile of the parent company to the United States from the United Kingdom.
Under the terms of the Arrangement, 24,270,876 registered common shares of the Company were registered in the name of Hambros Trust ("Trust Shares"). The Trust Shares were held for the owners of share warrants to bearer issued by the U.K. Company. Holders of bearer shares were entitled to receive at their election either cash or Company shares on a share-for-share basis until July 1993. After July 1993, holders of bearer shares are entitled to receive only cash.
The Arrangement provided that Trust Shares not claimed by July 26, 1988 could be sold by the Trust and the proceeds from such sale together with earned interest be used to satisfy future claims by the holders of share warrants to bearer. Prior to August, 1993 the Company was obligated to maintain a sufficient number of treasury shares or unissued shares to be issued in case the Trust determined that it held an insufficient number of Company shares to effect an exchange. The Company was also obligated to maintain a letter of credit in favor of the Trust equal to the number of Company shares held by the Trust multiplied by the escalated price. This obligation was accounted for as common
stock subject to put. Prior to August 1993, unclaimed Trust Shares were included in the total common shares issued and outstanding.
In August 1993, the Company received $19.2 million, the remaining cash held by the Trust, in the form of an interest-free loan. The loan is repayable on demand only to the extent necessary to redeem bearer shares presented for exchange until July 2008. Each bearer share presented during this period will be redeemed for $6.66. As of December 31, 1994 and 1993, there were 2,685,487 and 2,803,022 outstanding bearer shares, respectively. The loan is secured by a letter of credit from a bank. The letter of credit is secured by certain of the Company's short-term liquid investments. Drawings under the letter of credit will revert to a term loan due more than one year from the date drawn. Therefore the loan, except that portion estimated to be needed for the redemption of bearer shares during the next twelve months, is classified as non-current in the accompanying balance sheet. During 1994 and 1993, there were no drawings under the letter of credit.
During July 2008, the obligation of the Company to holders of bearer shares will cease, the interest-free loan will terminate, and any remaining cash will revert to the Company and will be accounted for as an increase to capital in excess of par value.
(5) SHAREHOLDERS' EQUITY
Preferred Share Purchase Rights Plan
In October 1988, the Board of Directors of the Company adopted a preferred share rights plan (the "Rights Plan") pursuant to which holders of the Company's common stock were issued rights ("Rights") to purchase shares of a series of the Company's preferred stock. Generally, the Rights are exercisable only if a person or group acquires 20% or more of the Company's outstanding voting stock. The Rights Certificates are exercisable on the tenth business day after the shares acquisition date, as defined, or such later date as determined by the Board of Directors. Each Right entitles the holder thereof to buy one one-hundredth of a share of Series B Junior Preferred Stock ("Preferred Stock") at an exercise price of $20.00 per Right, subject to anti-dilution provisions. The Rights, under certain circumstances are redeemable at the option of the Company's Board of Directors at a price of $.01 per Right and expire on October 20, 1998.
In addition to the right to purchase Preferred Stock, in the event that the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. In the event that the Company is the surviving corporation in a merger and the Company's common stock is not changed or exchanged, each holder of a Right, other than Rights that are beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of shares of the Company's common stock having a market value of two times the exercise price of the Right.
In the event that a person or group acquires 20% or more of the outstanding Voting Shares, then each Right (other than Rights owned by the Acquiring Person and its affiliates and associates and all transferees thereof) will entitle the holder to purchase, for the exercise price, a number of shares of the Company's common stock having a then current market value of two times the exercise price of the Right. If this provision becomes effective and the Acquiring Person owns less than 50% of the Company's Voting Shares then outstanding, the Board of Directors would have the option to redeem the Rights in exchange for Common Shares at the rate of one share for each two shares for which the Rights are then exercisable.
Stock Activity
The following table reflects the activity in shares of the Company's Common Stock, Convertible Preferred Stock and Treasury Stock during the three years ended December 31, 1994.
On May 31, 1994, the Company purchased in a private transaction 705,196 shares of its common stock from Noel Group Inc. ("Noel"). The purchase price was $7.50 per share or approximately $5.3 million. In connection with the repurchase of the shares, two of the four representatives of Noel on the Company's Board of Directors resigned.
Preferred Stock
In 1987, the Board of Directors authorized the issuance of 6,153,847 shares of $1.00 par value Series A Preferred Stock (the "Preferred Stock"). All such Preferred Stock was issued to Prudential Insurance Company of America ("Prudential") in 1991 in exchange for $50 million of convertible subordinated notes ("Notes"). Accrued long-term interest of $5.5 million that would have been paid at the end of the term of the Notes, net of unamortized deferred debt costs, was credited to convertible preferred stock. In March 1993, Prudential converted the Preferred Stock into 6,311,537 shares of the Company's common stock. These shares are not registered and Prudential will be unable to sell these shares in the public market without registration with the SEC or an exemption from such registration.
In 1988, the Board of Directors of the Company authorized the issuance of 750,000 shares of $1.00 par value Series B Junior Preferred Stock for the purpose of issuance upon the exercise of Rights under the Rights Plan as described above. Each share of such preferred stock issuable upon exercise of the Rights will bear quarterly dividends of $2.50, a liquidation preference of $2,000 and will be redeemable by the Company.
Stock Option Plans
The Key Employees Stock Option Plan was approved by the Company's shareholders in June 1989. This plan reserved 1,500,000 shares of the Company's common stock for issuance to employees at a price not less than the greater of par value or fifty percent of the fair market value of such shares. Options granted vest as determined by the Board of Directors and expire ten years after grant. All options granted as of December 31, 1994 were granted at the fair market value of the Company's common stock on the date of grant. At December 31, 1994, 70,950 shares of common stock were available for grant.
Information related to the options granted under the Key Employee's Stock Option Plan is summarized as follows:
The 1992 Stock Option Plan ("1992 Plan") was approved by the Company's shareholders in June 1992. This plan reserved 1,000,000 shares of the Company's common stock for issuance to employees, directors and other persons who perform services for or on behalf of the Company. Options granted under the 1992 Plan may be either incentive stock options, ("ISO") within the meaning of the Internal Revenue Code or options which do not constitute incentive stock options ("NQSO"). The price at which the Company can issue the options shall not be less than the fair market value of such shares at the date of the grant for ISO options and shall not be less than 50% of the fair market value of such shares at the date of the grant for NQSO options. As of December 31, 1994, all options granted were NQSO options and all except 50,000 options were granted at the fair market value of the Company's common stock on the date of the grant. On May 3, 1993, 50,000 options were granted to a member of the Board of Directors at an option price of $5.875. The fair market value of the Company's common stock on that date was $8.50. At December 31, 1994, 340,000 shares of common stock were available for grant.
Information related to the options granted under the 1992 Plan is summarized as follows:
Dividends
No dividends have been paid or declared.
(6) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement No. 109. The cumulative effect of this accounting change as of January 1, 1993 had no impact on 1993 net income.
Income before income taxes and the components of income tax expense for each of the three years ended December 31, 1994 stated in thousands, consisted of the following:
---------------- (1) Includes 1994, 1993 and 1992 losses related to Argentina, Canada, Russia, Malaysia, Ivory Coast, Egypt and Turkey of $4,406, $3,834, and $2,798, respectively.
The tax effects of temporary differences that gave rise to the significant portions of the deferred tax liability and the deferred tax asset as of December 31, 1993 and 1994 stated in thousands were as follows:
The Company's operating loss carry forwards expire in various amounts from 1997-2009, and the investment tax credit carry forwards expire in various amounts from 1995-2000. The statutory depletion carry forward may be carried forward indefinitely. Utilization of these carry forwards may be limited because these tax attributes were generated in separate return limitation years. In management's judgement, it is unlikely that the majority of the deferred tax assets in the preceding table can be realized as reductions in future taxable income or by utilizing available tax planning strategies. Therefore, an appropriate valuation allowance has been established to recognize this uncertainty. The Company will periodically review the likelihood of realizing these assets and adjust the valuation allowance as needed.
The effective tax rate in the accompanying consolidated statements of operations was more than the computed expected tax expense at the federal statutory rate of 35% for the years ended December 31, 1994 and 1993 and 34% for the year ended December 31, 1992. Sources of these differences for each of the three years ended December 31, 1994 stated in thousands are as follows:
Deferred federal income tax provisions result from timing differences in the recognition of revenue and expense for tax and financial reporting purposes. The sources of these differences and the tax effect of each for the year ended December 31, 1992 stated in thousands were as follows:
(7) EMPLOYEES' PENSION AND RETIREMENT BENEFITS
Pension Plan
The Company sponsors a defined benefit pension plan which covers substantially all employees. The plan provides benefits based on the employee's years of service and compensation during the years immediately preceding retirement. The Company makes annual contributions to the plan to comply with the minimum funding provisions of the Employee Retirement Income Security Act. The plan investments consist primarily of common equities and fixed income securities.
The following tables detail (I) the components of pension income and expenses, (ii) the funded status of the plan and amounts recognized in the Company's consolidated balance sheets and (iii) major assumptions used to determine these projected benefit obligations (amounts stated in thousands).
Employee Savings Plan
On October 1, 1993, the Company adopted the Employees 401(k) Savings Plan ("ESP"), a defined contribution plan, which covers substantially all employees. The Company matches a portion of the employees' contributions with treasury shares of the Company's common stock. The Company recorded expense of approximately $104,000 and $35,000 relating to its contributions to the ESP during 1994 and 1993, respectively.
(8) COMMITMENTS AND CONTINGENCIES
Commitments
In the normal course of business, the Company undertakes commitments for purchases of leases and delay rentals under oil, gas and mineral leases, all of which are not expected to be material.
The Company leases office space and pipeline equipment under operating leases that expire over the next several years. Minimum annual rental payments stated in thousands for each of the next four years are:
During 1994, 1993 and 1992, the Company's rent expense was $321,000, $362,000 and $433,000, respectively.
Contingencies
The Company has pending litigation incidental to its operations. Management believes none of the litigation is expected to have a material adverse effect on the Company's financial position or the results of operations.
(9) MAJOR BUSINESS SEGMENTS AND MAJOR CUSTOMERS
The Company operates in two industry segments, oil and gas exploration, development and production and the transportation of natural gas and crude oil. Oil and gas production is marketed with numerous purchasers under long-term, short-term and spot-market contracts. In 1994, 1993 and 1992, sales to El Paso Natural Gas Company represented 12.8%, 14.8% and 15% of the Company's consolidated oil and gas revenues, respectively. Beginning January 1, 1994, the Company entered into a long-term contract with Midcon Texas Pipeline ("Midcon") for gas sales from the Taylor Lake field. During 1994, 17.7% of the Company's consolidated oil and gas revenues were attributable to sales to Midcon.
The pipeline segment's customers are primarily located in the Southwest and Midwest states. During 1994, the pipeline segment's sales were concentrated with six customers accounting for 69% of its total sales.
Financial information by segment is stated in thousands and summarized as follows:
---------------- (1) See Note 1 for discussion of the 1994 change in method of accounting for natural gas revenues.
Financial information by geographic area is stated in thousands and summarized as follows:
----------
(1) Other International includes Turkey, Malaysia, Ivory Coast, Egypt, Argentina and Canada. During 1993, the Company sold its Argentinean and Canadian properties.
(2) Amounts presented represent the Company's investment discussed in Note 3.
(10) RELATED PARTY TRANSACTIONS
In 1990, the Company issued 1,100,000 shares of common stock from its treasury to Noel in exchange for Noel's 10% subordinated convertible debenture in the principal amount of $6.6 million (the "Noel Debenture"). On December 31, 1990, the Noel Debenture was surrendered to Noel in exchange for 789,946 shares of Noel common stock, such number of shares having been determined by a formula based upon the net value of Noel's assets. Noel conducts its principal operations through small and medium sized operating companies in which Noel holds controlling or other significant equity interests. Two members of Noel's Board of Directors currently serve on the Company's Board of Directors.
On September 21, 1992, Noel distributed shares of certain companies owned by Noel to Noel shareholders. The Company received 46,468 shares of Garnet, 53,907 shares of VISX Incorporated ("VISX") and 203,098 shares of the Company's stock as a result of the distribution. During February 1993, the Company disposed of its entire investment in VISX for an average net sales proceeds of $11.76 per share. The distribution by Noel of shares of common stock of the Company reduced Noel's ownership of the Company from approximately 25% to approximately 3%.
On November 29, 1993, Noel distributed shares of Sylvan Foods Holdings, Inc. ("Sylvan") owned by Noel to Noel shareholders. The Company received 54,860 shares of Sylvan as the result of the distribution. During December 1993, the Company disposed of 25,000 shares of Sylvan stock for an average net sales proceeds of $8.37 per share. During January 1994, the Company disposed of its remaining investment in Sylvan for an average net sales proceeds of $7.89 per share.
On December 22, 1993, the Company sold 710,000 shares of Noel common stock for an average net sales proceeds of $6.625 per share. On January 10, 1994, the Company sold its remaining 79,946 shares of Noel common stock for an average net sales proceeds of $7.00 per share.
See Note 5 for discussion of additional related party transactions.
GLOBAL NATURAL RESOURCES INC. SUPPLEMENTARY TABLES ON RESERVE DATA AND OIL AND GAS OPERATIONS (UNAUDITED)
TABLE 1
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES AND COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION EXPLORATION AND DEVELOPMENT ACTIVITIES FOR THE THREE YEARS ENDED DECEMBER 31, 1994 AND CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES AT DECEMBER 31, 1994, 1993 AND 1992 (AMOUNTS IN THOUSANDS) (UNAUDITED)
The following table reflects activity relating to oil and gas producing activities by geographic area:
------------------------ (1) Other International includes Malaysia, Egypt, Ivory Coast, Turkey, Argentina and Canada. During 1993, the Company sold its Argentinean and Canadian properties.
See accompanying Notes to Supplementary Tables
TABLE 1 CONTINUED.
The following table reflects activity relating to costs incurred in oil and gas property acquisition, exploration and development activities by geographic area:
------------------------ (1) Other International includes Malaysia, Turkey, Argentina and Canada. During 1993, the Company sold its Argentinean and Canadian properties.
See accompanying Notes to Supplementary Tables
TABLE 1 CONTINUED.
The following table reflects the capitalized costs relating to oil and gas producing activities by geographic area:
------------------------ (1) Other International includes Malaysia, Turkey, Argentina and Canada. During 1993, the Company sold its Argentinean and Canadian properties.
See accompanying Notes to Supplementary Tables
TABLE 2
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES RESERVE QUANTITY INFORMATION NATURAL GAS (MMCF) FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (UNAUDITED)
------------------------ (1) All Indonesia Mmcf amounts appearing in this table are for dry gas. (2) Other International includes Argentina and Canada. During 1993, the Company sold its Argentinean and Canadian reserves.
See accompanying Notes to Supplementary Tables
TABLE 2 CONTINUED.
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES RESERVE QUANTITY INFORMATION OIL/CONDENSATE (MBBL) FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (UNAUDITED)
------------------------ (1) Other International includes Argentina and Canada. During 1993, the Company sold its Argentinean and Canadian reserves.
See accompanying Notes to Supplementary Tables
TABLE 3 GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AMOUNTS IN THOUSANDS) (UNAUDITED)
------------------------ (1) Other International includes Argentina and Canada. During 1993, the Company sold its Argentinean and Canadian reserves.
See accompanying Notes to Supplementary Tables TABLE 3 CONTINUED.
The following table shows changes in the Standardized Measure of Discounted Future Net Cash Flows for the three years ended December 31, 1994:
Notes to Supplementary Tables
The estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development and other factors.
At December 31, 1994, 1993 and 1992, the Company's gross oil and gas reserve estimates for properties located in the United States, Russia and Argentina were prepared by Ryder Scott Company Petroleum Engineers. At December 31, 1994, Ivory Coast and Egypt gross oil and gas reserves estimates were prepared by Netherland, Sewell & Associates, Inc. At December 31, 1992, Canadian gross oil and gas reserve estimates were reviewed by Coles Gilbert Associates, Ltd. Indonesian reserves are based on information obtained by the Company from public sources.
Income tax expense (benefit) in Table 1 for United States and Canada is alternative minimum tax. There are no other income taxes for this geographic area because of net operating loss carry forwards (see Note 6 to consolidated financial statements). The income tax expense in Table 1 for Indonesia reflects actual taxes paid in Indonesia.
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 Company will file with the Securities and Exchange Commission pursuant to Regulation 14A a definitive Proxy Statement involving the election of directors not later than 120 days after December 31, 1994. The information required by this item with respect to officers and directors will appear in such definitive Proxy Statement and is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The Company will file with the Securities and Exchange Commission pursuant to Regulation 14A a definitive Proxy Statement involving the election of directors not later than 120 days after December 31, 1994. The information required by this item with respect to executive compensation will appear in such definitive Proxy Statement and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company will file with the Securities and Exchange Commission pursuant to Regulation 14A a definitive Proxy Statement involving the election of directors not later than 120 days after December 31, 1994. The information required by this item with respect to security ownership will appear in such definitive Proxy Statement and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company will file with the Securities and Exchange Commission pursuant to Regulation 14A a definitive Proxy Statement involving the election of directors not later than 120 days after December 31, 1994. The information required by this item with respect to certain relationships and related transactions will appear in such definitive Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements listed below are included as Part II, Item 8 hereof:
(a)(2) Financial Statement Schedules
None
(a)(3) A list of Exhibits has been omitted from this document. A copy of such list is available without charge upon written request to:
Global Natural Resources Inc. P. O. Box 4682 Houston, Texas 77210 Attention: Eric Lynn Hill Senior Vice President, Finance and Administration
(b) Reports on Form 8-K for the quarter ended December 31, 1994.
None
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.
GLOBAL NATURAL RESOURCES INC.
Date: March 29, 1995 By /s/ ROBERT F. VAGT ------------------------- Robert F. Vagt Chairman of the Board President and Chief Executive Officer
Date: March 29, 1995 By /s/ ERIC LYNN HILL ------------------------- Eric Lynn Hill Senior Vice President, Finance and Administration (Principal Financial and Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED AS OF MARCH 31, 1994.
/s/ WILLIAM L. BENNETT * ------------------------------------------ Director William L. Bennett
/s/ JOHN A. BROCK * ------------------------------------------ Director John A. Brock
/s/ PAUL E. CARLTON * ------------------------------------------ Director Paul E. Carlton
/s/ J. CHARLES HOLLIMON * ------------------------------------------ Director J. Charles Hollimon
/s/ PATRICK L. MACDOUGALL * ------------------------------------------ Director Patrick L. MacDougall
/s/ JOHN E. MCFARLANE * ------------------------------------------ Director John E. McFarlane
/s/ JAMES G. NIVEN * ------------------------------------------ Director James G. Niven
/s/ SIDNEY R. PETERSEN * ------------------------------------------ Director Sidney R. Petersen
/s/ ROBERT F. VAGT ------------------------------------------ Chairman of the Board Robert F. Vagt
* Signed via Power of Attorney
EXHIBIT INDEX
(a)3. Exhibits:
The following documents are included as Exhibits to this report. Those Exhibits listed below as "incorporated herein by reference" are indicated as such by the information supplied in the parenthetical thereafter. If no parenthetical appears after an Exhibit in the list, copies of the document have been filed with this Report.
3.1 Restated Certificate of Incorporation of the Company dated May 10, 1983. (Incorporated herein by reference to Exhibit 3.1 to the Company's Form 10-K for the year ended December 31, 1992.)
3.2 Amendment to Restated Certificate of Incorporation of the Company dated July 31, 1987. (Incorporated herein by reference to Exhibit 3.2 to the Company's Form 10-K for the year ended December 31, 1992.)
3.3 Amendment to Restated Certificate of Incorporation of the Company dated August 20, 1987. (Incorporated herein by reference to Exhibit 3.3 to the Company's Form 10-K for the year ended December 31, 1992.)
3.4 Correction to Amendment to Restated Certificate of Incorporation of the Company dated September 9, 1988. (Incorporated herein by reference to Exhibit 3.4 to the Company's Form 10-K for the year ended December 31, 1992.)
3.5 Amendment to Restated Certificate of Incorporation of the Company dated October 5, 1988. (Incorporated herein by reference to Exhibit 3.5 to the Company's Form 10-K for the year ended December 31, 1992.)
3.6 Amendment to Restated Certificate of Incorporation of the Company dated October 17, 1990. (Incorporated herein by reference to Exhibit 3.6 to the Company's Form 10-K for the year ended December 31, 1992.)
3.7 Bylaws of the Company, as amended June 7, 1990. (Incorporated herein by reference to Exhibit 3.7 to the Company's Form 10-K for the year ended December 31, 1992.)
3.8 Amendment to Restated Certificate of Incorporation of the Company dated May 26, 1993. (Incorporated herein by reference to Exhibit 3.8 to the Company's Form 10-K for the year ended December 31, 1993.)
3.9 Bylaws of the Company, as amended May 25, 1993. (Incorporated herein by reference to Exhibit 3.9 to the Company's Form 10-K for the year ended December 31, 1993.)
4.1 Rights Agreement dated as of October 5, 1988 between Global Natural Resources Inc. and Registrar and Transfer Company, which includes the form of Certificate of Amendment of Restated Certificate of Incorporation setting forth the terms of the Series B Junior Preferred Stock, par value $1.00 per share, as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C incorporated by reference to Exhibit A to the Company's Registration Statement on Form 8-A, dated October 11, 1988. (Incorporated herein by reference to Exhibit A to the Form 10-Q for the quarter ended September 30, 1988.)
4.2 First Amendment to Rights Agreement dated as of July 19, 1989 between Global Natural Resources Inc. and Registrar and Transfer Company (Incorporated herein by reference to Exhibit 1.1 to Form 8 dated August 9, 1989.)
4.3 Second Amendment to Rights Agreement dated as of February 5, 1993 between Global Natural Resources Inc. and Registrar and Transfer Company (Incorporated herein by reference to Exhibit 7.2 to Form 8 dated February 16, 1993)
4.4 Amended and Restated Rights Agreement dated as of September 28, 1993 between Global Natural Resources Inc. and Registrar and Transfer Company (Incorporated herein by reference to Exhibit 1.1
to Form 8-K dated October 20, 1993)
10.1 Joint Venture Agreement dated August 8, 1968, between Huffington, Virginia International Company, Austral Petroleum Gas Corporation, Golden Eagle Indonesia, Limited and Union Texas Far East Corporation, as amended. (Incorporated herein by reference to Exhibit 6.6 to Registration Statement No. 2-58834.)
10.2 Agreement dated as of October 1, 1979 among the parties to the Joint Venture Agreement referred to in Exhibit 10.1 above. (Incorporated herein by reference to Exhibit 5.2 to Registration Statement No. 2-66661.)
10.3 Production Sharing Contract, dated August 8, 1968, between Pertamina, Huffington, and Virginia International Company, as amended. (Incorporated herein by reference to Exhibit 6.5 to Registration Statement No. 2-58834.)
10.4 Amendment dated as of January 1, 1978, to Production Sharing Contract referred to in Exhibit 10.3 above. (Incorporated herein by reference to Exhibit 5.4 to Registration Statement No. 2-66661.)
10.5 LNG Sales Contract, dated November 3, 1973, between Pertamina, The Chubu Electric Power Co., Inc., The Kansan Electric Power Co., Inc., Kyushu Electric Power Co., Inc., Nippon Steel Corporation and Osaka Gas Company, Ltd., as amended. (Incorporated herein by reference to Exhibit 6.8 to Registration Statement No. 2-58834.)
10.6 Form of Agreement for Sale of Additional Cargoes, draft of November 19, 1979, between the parties to the LNG Sales Contract referred to in Exhibit 10.5 above. (Incorporated herein by reference to Exhibit 5.6 to Registration Statement No. 2-66661.)
10.7 Supply Agreement, dated as of December 3, 1974, between Pertamina and the parties to the Joint Venture Agreement referred to in Exhibit 10.1 above. (Incorporated herein by reference to Exhibit 6.7 to Registration Statement No. 2-58834.)
10.8 Amendment, dated as of August 15, 1977, to Supply Agreement, dated as of December 3, 1974, between Pertamina and the parties to the Joint Venture Agreement referred to in Exhibit 10.1 above. (Incorporated herein by reference to Exhibit 5.5.1 to Registration Statement No. 2-64347.)
10.9 Form of Supply Agreement for Additional Sales of Liquefied Natural Gas from Badak Liquefaction Facility, draft of November 16, 1979, between the parties to the Supply Agreement referred to in Exhibit 10.7 above. (Incorporated herein by reference to Exhibit 5.9 to Registration Statement No. 2-66661.)
10.10 Transportation Agreement dated as of September 23, 1973, between Burmast East Shipping Corporation and Pertamina, as ended. (Incorporated herein by reference to Exhibit 6.11 to Registration Statement No. 2-58834.)
10.11 Amendment No. 1 to Transportation Agreement referred to in Exhibit 10.10 above, dated as of August 31, 1976, between Burmah Gas Transport Limited and Pertamina. (Incorporated herein by reference to Exhibit 5.11 to the Annual Report on Form 20-F for the year ending December 31, 1979 (the "1979 20-F"), of the U.K. Company.)
10.12 Badak LNG Sales Contract, dated April 14, 1981, between Perusahaan Pertambangan Minyak Dan Gas Bumi Negara ("Pertamina") as "Seller" and the Chubu Electric Power Co., Inc., The Kansan Electric Power Co., Inc., Osaka Gas Company, Ltd., and Toho Gas Company, Ltd. as "Buyers." (Incorporated herein by reference to Exhibit (10)-23 to the Annual Report on Form 20-F for the year ending December 31, 1981, of Virginia International Company.)
10.13 Royalty Incentive Plan, as amended. (Incorporated herein by reference to Exhibit 1.4 to the Annual Report on Form 20-F for the year ending December 31, 1981 (the "1981 20-F"), of the U.K.
Company.)
10.14 Natural Resources Corporation Supplemental Retirement Plan, as amended by the Board of Directors effective December 12, 1985. (Incorporated herein by reference to Exhibit 10.17 to the 1985 10-K.)
10.15 Arctic Lands Farm Out Agreement made as of the 29th day of November, 1983, between Global Natural Resources Canada Limited and Thomson-Jensen Energy. (Incorporated herein by reference to Exhibit 2 to Global's report on Form 8-K dated December 8, 1983.)
10.16 Global-TJE Agency Agreement made as of the 29th day of November, 1983, between Global Natural Resources Canada Limited and Thomson-Jensen Energy. (Incorporated herein by reference to Exhibit 3 to Global's Report on Form 8-K dated December 8, 1983.)
10.17 Settlement Agreement dated July 13, 1986 between Amoco Production Company, Douglas Energy Company, Inc. and Global Natural Resources Corporation. (Incorporated by reference to Exhibit 10.25 to the 1986 10-K.)
10.18 Farm Out Contract dated July 1, 1986 between Amoco Production Company, Douglas Energy Company, Inc. and Global Natural Resources Corporation. (Incorporated herein by reference to Exhibit 10.26 to the 1986 10-K.)
10.19 Joint Exploration and Development Agreement dated November 5, 1986 between Barnes Hugoton Corporation and Global Natural Resources Corporation. (Incorporated herein by reference to Exhibit 10.27 to the 1986 10-K.)
10.20 Global/Smith Participation Agreement (with exhibit). (Incorporated herein by reference to Exhibit 2 to the September 30, 1987 Form 10-Q.)
10.21 First Amendment to Claims Purchase Agreement. (Incorporated herein by reference to Exhibit 3 to the September 30, 1987 Form 10-Q.)
10.22 San Pedro Ranch Venture Agreement (with exhibits) dated July 1, 1984 between Scicomp Inc., Galaxy Oil Company and SPR Energy Corporation. (Incorporated herein by reference to Exhibits to the December 31, 1987 Form 10-K.)
10.23 San Pedro Ranch Agreement (with exhibits) dated April 1, 1988 between Global Natural Resources Corporation of Nevada and Global Nevada-Galaxy I, Ltd. (Incorporated herein by reference to Exhibits to the December 31, 1987 Form 10-K.)
10.24 Trust Agreement (with exhibits) dated March 31, 1988 between Galaxy Oil Company, Global Natural Resources Corporation of Nevada and MTrust Corp., N.A. (Incorporated herein by reference to Exhibits to the December 31, 1987 Form 10-K.)
10.25 Agreement of Limited Partnership (with exhibits) dated April 1, 1988 between Global Nevada-Galaxy I, Ltd. and the Partners. (Incorporated herein by reference to Exhibits to the December 31, 1987 Form 10-K.)
10.27 Settlement Agreement between Global Natural Resources Corporation of Nevada, Global Nevada-Galaxy, Inc., Global Nevada-Galaxy I, Ltd., SPR Energy Corporation and Valero Transmission, L.P. (Incorporated herein by reference to Exhibit 3 to the June 30, 1989 Form 10-Q.)
10.28 Indemnification Agreement and Agreement to Keep Registration Statement Effective dated July 19, 1989 between Noel Group, Inc. and Global Natural Resources Inc. (Incorporated herein by reference to Exhibit 4.6 to Registration Statement No. 33-31536.)
*10.29 Global Natural Resources Inc. Key Employees Stock Option Plan (1989) (Incorporated herein by reference to Exhibit 4.1 to Registration Statement No. 33-31537).
*10.30 Form of Stock Option Agreement (Incorporated herein by reference to Exhibit 4.2 to Registration Statement No. 33-31537.)
10.31 Amendment to Agreement of Limited Partnership of Global Nevada-Galaxy I, Ltd. (Incorporated herein by reference to Exhibit 10.41 to the 1989 Form 10-K.)
10.32 Concession Purchase Agreement between Global Natural Resources Corporation of Nevada and Chuska Energy Company. (Incorporated herein by reference to Exhibit 10.43 to the 1989 Form 10-K.)
10.33 Stock Exchange Agreement by and between Noel Group, Inc. and Global Natural Resources Inc. (Incorporated herein by reference to Exhibit 2 to the September 30, 1990 Form 10-Q.)
10.34 USAgas Pipeline Company General Partnership Agreement. (Incorporated herein by reference to Exhibit 1 to the September 30, 1990 Form 10-Q.)
10.35 San Pedro Ranch Purchase and Sale Agreement. (Incorporated herein by reference to Exhibit 10.51 to the Company's Form 10-K for the year ended December 31, 1991.)
10.36 Alabama Ferry Field Purchase and Sale Agreement. (Incorporated herein by reference to Exhibit 10.52 to the Company's Form 10-K for the year ended December 31, 1991.)
*10.37 Global Natural Resources Inc. 1992 Stock Option Plan (Incorporated herein by reference to Exhibit 10.47 to the June 30, 1992 Form 10-Q).
*10.38 Form of Stock Option Agreement (Incorporated herein by reference to Exhibit 10.48 to the June 30, 1992 Form 10-Q).
10.39 Assignment of Partnership Interests and Mutual Release Agreement (Incorporated herein by reference to Exhibit 10.50 to the September 30, 1992 Form 10-Q).
10.40 Acquisition Agreement dated May 17, 1993 between UMIC Cote D'Ivoire Corporation and G.N.R. (Cote D'Ivoire) Ltd. Ivory Coast Production Sharing Contract - Block CI-11.
10.41 Farmout Agreement dated July 25, 1994 between GNR (Egypt) Ltd. And Apache Oil Egypt, Inc. Qarun Concession Egypt.
11.1 Computation of Per Share Earnings
18 Letter of KPMG Peat Marwick LLP Regarding a Change in Accounting method. (Incorporated herein by reference to Exhibit 18 to the Company's Form 10-Q for the quarter ended June 30, 1994.)
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Ryder Scott Company Petroleum Engineers
23.3 Consent of Netherland, Sewell & Associates, Inc.
24.1 Powers of Attorney of certain directors of the Company.
27 Financial Data Schedule for the year ended December 31, 1994.
-------------------
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report.