ITEM 3. LEGAL PROCEEDINGS
The Company, its subsidiaries and other related companies are named defendants in several lawsuits and named parties in certain governmental proceedings arising in the ordinary course of business. For a description of certain proceedings in which the Company is involved, see Items 1 and 2 "Business and Properties -- Other Business Matters -- Environmental Regulation" and Note 12 to the Consolidated Financial Statements. While the outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position or results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF SANTA FE
Listed below are the names, ages (as of January 1, 1995) and positions of all executive officers of Santa Fe (excluding executive officers who are also directors of Santa Fe) and their business experience during the past five years. Unless otherwise stated, all offices were held with Santa Fe
Energy Company prior to its merger with Santa Fe. Each executive officer holds office until his successor is elected or appointed or until his earlier death, resignation or removal.
HUGH L BOYT, 49 Senior Vice President -- Production since March 1, 1990. From 1989 until March 1990, Mr. Boyt served as Corporate Production Manager. From 1983, when Mr. Boyt joined Santa Fe, until 1989 he served as District Production Manager -- Permian Basin.
JERRY L BRIDWELL, 51 Senior Vice President -- Exploration and Land since 1986. Mr. Bridwell served in various other capacities, including Vice President -- Exploration, Central Division, since joining Santa Fe in 1974.
KEITH P. HENSLER, 63 Senior Vice President -- Marketing since January, 1990. From 1980 when Mr. Hensler joined Santa Fe, until January 1990, he served as Vice President -- Marketing.
MICHAEL J. ROSINSKI, 49 Senior Vice President -- Administration since January 1995. From September 1992 until January 1995 Mr. Rosinski served as Vice President and Chief Financial Officer. Prior to joining Santa Fe, Mr. Rosinski was with Tenneco Inc. and its subsidiaries for 24 years. From 1988 until 1990 he served as Deputy Project Executive for the Colombian Crude Oil Pipeline Project and from 1990 until August 1992 he was Executive Director of Investor Relations. Mr. Rosinski is also a director of Hadson Corporation.
R. GRAHAM WHALING, 40 Senior Vice President and Chief Financial Officer since January 1995. Mr. Whaling was with First Boston Corporation from 1989 until he joined Santa Fe. While with First Boston Corporation Mr. Whaling served in various capacities including Vice President, Corporate Finance from 1991 to 1994 and Director, Corporate Finance from 1994 to 1995.
E. EVERETT DESCHNER, 54 Vice President -- Engineering and Evaluation since April 1990. From 1982, when Mr. Deschner joined Santa Fe, until 1990, he served as Manager -- Engineering and Evaluation.
C. ED HALL, 52 Vice President -- Public Affairs since March 1991. Prior to such time Mr. Hall served as Director -- Public Affairs since joining Santa Fe in 1984.
CHARLES G. HAIN, JR., 48 Vice President -- Human and Data Resources since 1994. Vice President -- Employee Relations from 1988 until 1994. From 1981, when Mr. Hain joined Santa Fe, until 1988, Mr. Hain served as Director -- Employee Relations.
DAVID L HICKS, 45 Vice President -- Law and General Counsel since March 1991. From 1988 until March 1991 Mr. Hicks was General Counsel and prior to that time was General Attorney for SFP.
JOHN R. WOMACK, 56 Vice President -- Business Development since 1987. From 1982, when Mr. Womack joined Santa Fe, until 1987, Mr. Womack served as Vice President -- Land.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Santa Fe's common stock is listed on the New York Stock Exchange and trades under the symbol SFR. The following table sets forth information as to the last sales price per share of Santa Fe's common stock as quoted on the Consolidated Tape System and cash dividends paid per share for each calendar quarter in 1994 and 1993. CASH LOW HIGH DIVIDENDS ----- ----- --------- 1st Quarter...................... 8 1/2 9 7/8 -- 2nd Quarter...................... 7 5/8 9 3/4 -- 3rd Quarter...................... 8 3/4 9 7/8 -- 4th Quarter...................... 7 7/8 9 1/4 -- 1st Quarter...................... 7 7/8 10 7/8 0.04 2nd Quarter...................... 9 7/8 11 3/4 0.04 3rd Quarter...................... 9 1/4 10 5/8 0.04 4th Quarter...................... 8 1/2 10 3/4 --
As discussed in Items 1 and 2, Business and Properties -- Corporate Restructuring Program, the Company has eliminated the payment of its $0.04 per share quarterly dividend on its common stock. The determination of the amount of future cash dividends, if any, to be declared and paid is in the sole discretion of Santa Fe's board of directors and will depend on dividend requirements with respect to the Company's convertible preferred stock, the Company's financial condition, earnings and funds from operations, the level of its capital and exploration expenditures, dividend restrictions in its financing agreements, its future business prospects and other matters as the Company's board of directors deems relevant. For a discussion of certain restrictions on Santa Fe's ability to pay dividends, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financing Activities.
At December 31, 1994 the Company had approximately 50,200 shareholders of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the year 1994 the Company reported income to common shares of $5.4 million, or $0.06 per share. The reported income is after recognition of a $7.0 million restructuring charge related to a cost reduction program implemented by the Company. At December 31, 1994 the Company's long-term debt totalled $354.3 million, $95.4 million lower than at December 31, 1993, after the refinancing in the second quarter of 1994 which reduced required debt amortization in the near-term and provided additional financial flexibility. See -- Liquidity and Capital Resources.
GENERAL
As an independent oil and gas producer, the Company's results of operations are dependent upon the difference between the prices received for oil and gas and the costs of finding and producing such resources. A substantial portion of the Company's crude oil production is from long-lived fields where EOR methods are being utilized. The market price of the heavy (i.e., low gravity, high viscosity) and sour (i.e., high sulfur content) crude oils produced in these fields is lower than sweeter, light (i.e., low sulfur and low viscosity) crude oils, reflecting higher transportation and refining costs. In addition, the lifting costs of heavy crude oils are generally higher than the lifting costs of light crude oils. As a result of these narrower margins, even relatively modest changes in crude oil prices may significantly affect the Company's revenues, results of operations, cash flows and proved reserves. In addition, prolonged periods of high or low oil prices may have a material effect on the Company's financial position.
The lower price received for the Company's domestic heavy and sour crude oil is reflected in the average sales price of the Company's domestic crude oil and liquids (excluding the effect of hedging transactions) for 1994 of $12.11 per barrel, compared to $15.63 per barrel for West Texas Intermediate ("WTI") crude oil (an industry posted price generally indicative of spot prices for sweeter light crude oil). In 1994 the Company's average sales price for California heavy crude oil was $11.31 per barrel, approximately 72% of the average annual posted price for WTI. This ratio is considered positive since historically heavy crude oil has sold for an average of approximately 66% of WTI.
Crude oil prices are subject to significant changes in response to fluctuations in the domestic and world supply and demand and other market conditions as well as the world political situation as it affects OPEC, the Middle East and other producing countries. During 1994 the actual average sales price (unhedged) received by the Company ranged from a high of $13.75 per barrel in the third quarter to a low of $10.00 per barrel for the first quarter. Based on operating results for the year 1994, the Company estimates that a $1.00 per barrel increase or decrease in its average domestic crude oil sales prices would result in a corresponding $20.6 million change in income from operations and a $15.5 million change in cash flow from operating activities. The foregoing estimates do not give effect to changes in any other factors, such as the effect of the Company's hedging program or depreciation and depletion, that would result from a change in oil prices.
The price of natural gas fluctuates due to weather conditions, the level of natural gas in storage, the relative balance between supply and demand and other economic factors. The actual average sales price (unhedged) received by the Company in 1994 for its natural gas ranged from a high of $2.07 per Mcf in the second quarter to a low of $1.43 per Mcf in the fourth quarter. In response to low prices, the Company curtailed its natural gas production by approximately 1.9 Bcf in September through October 1994. Based on operating results for the year 1994, the Company estimates that a $0.10 per Mcf increase or decrease in its average domestic natural gas sales price would result in a corresponding $4.8 million change in income from operations and a $3.6 million change in cash flow from operating activities. The foregoing estimates do not give effect to changes in any other factors, such as the effect of the Company's hedging program or depletion and depreciation, that would result from a change in natural gas prices. RESULTS OF OPERATIONS
The Adobe Merger was accounted for as a purchase and the results of operations of the Adobe Properties are included in the Company's results of operations with effect from June 1, 1992.
REVENUES
The following table reflects the components of the Company's crude oil and liquids and natural gas revenues: YEAR ENDED DECEMBER 31, ------------------------------- 1994 1993 1992 --------- --------- --------- Crude Oil and Liquids Revenues ($/Millions) Sales Domestic California Heavy............. 158.2 151.7 165.7 Other........................ 96.4 127.4 141.0 --------- --------- --------- 254.6 279.1 306.7 Argentina...................... 11.6 12.5 13.9 Indonesia...................... 31.3 23.1 11.8 Hedging.......................... -- -- 9.7 Net Profits Payments............. (3.8) (7.4) (8.5) --------- --------- --------- 293.7 307.3 333.6 ========= ========= ========= Volumes (MBbls/day) Domestic California Heavy............... 38.3 37.0 35.6 Other.......................... 19.3 23.2 22.7 --------- --------- --------- 57.6 60.2 58.3 Argentina........................ 2.4 2.4 2.4 Indonesia........................ 5.7 4.1 1.8 --------- --------- --------- 65.7 66.7 62.5 ========= ========= ========= Sales Prices ($/Bbl) Domestic California Heavy............... 11.31 11.24 12.74 Other.......................... 13.72 15.03 16.96 Total.......................... 12.11 12.70 14.38 Argentina........................ 13.23 14.07 15.99 Indonesia........................ 15.09 15.50 17.51 Total............................ 12.41 12.93 14.54 Total Hedged..................... 12.41 12.93 14.96
Natural Gas Revenues ($/Millions) Sales............................ 87.3 122.3 79.1 Hedging.......................... (1.0) (8.2) (0.5) Net Profits Payments............. (2.9) (6.3) (3.8) --------- --------- --------- 83.4 107.8 74.8 ========= ========= ========= Volumes (MMcf/day)................. 136.6 165.4 126.3 Sales Prices ($/Mcf) Unhedged......................... 1.75 2.03 1.71 Hedged........................... 1.73 1.89 1.70
Total revenues declined 12% from $436.9 million in 1993 to $391.4 million in 1994. Crude oil and liquids revenues declined $13.6 million. The sale of certain domestic properties to Vintage in the fourth quarter of 1993 and to Bridge in the second quarter of 1994 resulted in a decrease in oil
revenues of approximately $20.4 million. The effect of increased volumes of California heavy and Indonesian crude, approximately $14.4 million, and lower net profits payments were partially offset by the effect of lower sales prices. The reduction in net profits payments results from the payout in 1993 of a net profits agreement with respect to certain of the Company's domestic properties. Daily average oil production in 1994 decreased approximately 1,000 barrels per day from 1993. The 3,800 barrel per day decrease in oil production resulting from the sale of properties to Vintage and Bridge was partially offset by a 1,300 barrel per day increase in California heavy crude and a 1,600 barrel per day increase in Indonesian production.
Natural gas revenues declined from $107.8 million in 1993 to $83.4 million in 1994. The sales of properties to Vintage and Bridge resulted in a decrease in natural gas revenues of approximately $13.1 million and lower sales prices resulted in a reduction in revenues of approximately $7.6 million. In addition, revenues for 1993 included a positive adjustment of $3.2 million related to production in prior periods from certain nonoperated properties. Net profits payments in 1994 were $3.3 million lower than in 1993, reflecting the previously discussed payout in 1993 of a net profits agreement. Natural gas sales volumes decreased from 165.4 MMcf per day in 1993 to 136.6 MMcf per day in 1994 with the property sales to Vintage and Bridge accounting for approximately 18.6 MMcf per day of the decrease. The Company's curtailment program (see -- General) resulted in a reduction of approximately 5.1 MMcf per day and the prior period adjustment included in 1993 represented volumes of approximately 4.0 MMcf per day.
Total revenues increased approximately 2% from $427.5 million in 1992 to $436.9 million in 1993. Crude oil and liquids revenues decreased from $333.6 million in 1992 to $307.3 million in 1993 as the effect of lower sales prices more than offset the effect of increased sales volumes. In addition, revenues for 1992 included gains on hedging transactions of $9.7 million. Crude oil and liquids sales volumes increased from 62.5 MBbls per day in 1992 to 66.7 MBbls per day in 1993, reflecting increased sales of California heavy crude as well as a full year of volumes from the Adobe Properties. Natural gas revenues increased from $74.8 million in 1992 to $107.8 million in 1993. Sales volumes increased from 126.3 MMcf per day in 1992 to 165.4 MMcf per day in 1993, primarily reflecting a full year of volumes from Adobe Properties. In addition, natural gas revenues for 1993 were reduced by losses on hedging transactions of $8.2 million compared to losses of $0.5 million in 1992.
COSTS AND EXPENSES
Costs and expenses for 1994 totalled $343.2 million compared to $549.9 million for 1993. Costs and expenses for 1993 included impairments of oil and gas properties of $99.3 million and restructuring charges of $38.6 million and costs and expenses for 1994 included restructuring charges of $7.0 million (see -- Liquidity and Capital Resources). The property sales to Vintage and Bridge resulted in reductions in production and operating costs and depletion, depreciation and amortization ("DD&A") of $12.4 million and $11.5 million, respectively. The remainder of the decrease in DD&A is primarily attributable to the effect of the property impairments taken in the fourth quarter of 1993. Exploration expenses were down $10.6 million primarily reflecting lower geological and geophysical costs with respect to foreign operations and lower overhead.
On a per barrel of oil equivalent ("BOE") produced basis, the Company's costs and expenses were generally lower in 1994. Asset sales and increased operating efficiencies resulted in a $0.11 per BOE reduction in production and operating costs and the asset impairments taken in the fourth quarter of 1993 were the primary factor contributing to the $0.68 per BOE reduction in DD&A. General and administrative expenses were down 10% and exploration costs were down 30% per BOE. The following table sets forth, on a BOE basis, certain of the Company's costs and expenses (in dollars):
1994 1993 1992 ---- ---- ---- Production and operating costs per BOE (a).............................. 4.65 4.76 5.02 Exploration, including dry hole costs per BOE............................ 0.63 0.90 0.84 Depletion, depreciation and amortization per BOE............... 3.76 4.44 4.79 General and administrative costs per BOE................................ 0.85 0.94 1.01 Taxes other than income per BOE (b).. 0.80 0.79 0.80 Interest, net, per BOE (c)(d)........ 1.08 1.30 1.58
(a) Excluding related production, severance and ad valorem taxes.
(b) Includes production, severance and ad valorem taxes.
(c) Reflects interest expense less amounts capitalized and interest income.
(d) Excludes effects of (i) benefit of adjustments to provisions for potential state income tax obligations of $0.36 per BOE in 1994; (ii) benefit of adjustment to provisions made in prior periods with respect to interest on certain federal income tax audit adjustments of $0.07 per BOE in 1994; and (iii) benefit of Federal income tax audit refund and revised tax sharing agreement with the Company's former parent of $0.36 per BOE in 1993.
Costs and expenses increased from $370.0 million in 1992 to $549.9 million in 1993. Costs and expenses for 1993 included impairments of oil and gas properties of $99.3 million and restructuring charges of $38.6 million (see -- Liquidity and Capital Resources). The increase in 1993 in production and operating costs and taxes (other than income) primarily reflects a full year's costs for the Adobe Properties. Exploration costs were $5.5 million higher, primarily reflecting higher geological and geophysical and dry hole costs. DD&A increased $6.4 million reflecting a full year's costs for the Adobe Properties, partially offset by reduced amortization rates with respect to certain unproved properties. General and administrative costs for 1993 include a $1.8 million charge related to the adoption of Statement of Financial Accounting Standards No. 112 -- "Employer's Accounting for Postemployment Benefits".
Interest income for 1993 includes $6.8 million related to a $10.0 million refund received as a result of the completion of the audit of the Company's federal income tax returns for 1971 through 1980.
Interest expense for 1994 includes a credit of $2.4 million reflecting adjustments to provisions made in prior periods with respect to interest on certain potential federal income tax audit adjustments and a credit of $11.5 million reflecting adjustments to provisions made in prior periods for potential state income tax obligations. Interest expense for 1993 includes a third quarter credit of $5.7 million related to a revision to a tax sharing agreement with the Company's former parent.
Other income (expense) for 1994 includes: (i) a $2.4 million gain on the sale of the Company's interest in a company which was acquired in the Adobe merger in 1992; (ii) a net $1.6 million charge with respect to the Company's investment in Hadson; and (iii) a $5.0 million charge with respect to certain litigation. Other income (expense) for 1993 includes a $4.0 million charge related to the accrual of a contingent loss with respect to a former affiliate of Adobe.
Income taxes for 1994 includes a $3.0 million credit reflecting the benefit of adjustments to provisions made in prior periods with respect to certain potential federal income tax audit adjustments and a $2.6 million credit reflecting the benefit of adjustments to provisions made in prior periods for potential state income tax obligations. Income taxes for 1993 includes: (i) a $3.0 million
charge to reflect the increase in the Company's deferred income tax liability as a result of the increase in the federal income tax rate; (ii) a $3.2 million benefit related to the previously discussed federal tax audit refund; (iii) a $1.8 million benefit related to the previously discussed revision to a tax sharing agreement with the Company's former parent; and (iv) a $1.0 million benefit relating to prior periods resulting from the restructuring of certain of the Company's foreign operations which were conducted through foreign incorporated subsidiaries.
The increase in the Company's preferred dividend requirement reflects the issuance of 10.7 million shares of $0.732 Series A Convertible Preferred Stock in the second quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operating activities is a function of the volumes of oil and gas produced from the Company's properties and the sales prices received therefor. Since crude oil and natural gas are depleting assets, unless the Company replaces the oil and gas produced from its properties, the Company's assets will be depleted over time and its ability to incur debt at constant or declining prices will be reduced. The Company increased its proved reserves (net of production and sales) by approximately 19% over the five years ended December 31, 1994; however, no assurances can be given that such increase will occur in the future. Historically, the Company has generally funded capital and exploration expenditures and working capital requirements from cash provided by operating activities. Depending upon the future levels of operating cash flows, which are significantly affected by oil and gas prices, the restrictions on additional borrowings included in certain of the Company's debt agreements, together with debt service requirements and dividends, may limit the cash available for future exploration, development and acquisition activities. Net cash provided by operating activities totalled $124.5 million in 1994; net cash used in investing activities (excluding proceeds from the sales of properties) in such period totalled $138.8 million.
The decrease in accounts receivable from $87.4 million at December 31, 1993 to $76.2 million at December 31, 1994 primarily reflects lower receivables with respect to natural gas sales due to lower prices and an acceleration of the collection of such receivables resulting from the marketing arrangement with Hadson and the collection of certain amounts with respect to the property sale to Vintage which had been held in escrow, partially offset by an increase in receivables for oil sales, primarily due to higher sales prices. The decrease in accounts payable from $93.5 million at December 31, 1993 to $84.1 million at December 31, 1994 primarily reflects the payment in 1994 of certain restructuring charges which were accrued in 1993. The decrease in other long-term obligations from $48.8 million at December 31, 1993 to $28.0 million at December 31, 1994 primarily relates to the adjustments made to provisions for potential federal income tax audit adjustments and potential state income tax obligations discussed in Results of Operations.
In the fourth quarter of 1993 the Company adopted a corporate restructuring program which included (i) the concentration of capital spending in the Company's core operating areas, (ii) the disposition of non-core assets, (iii) the elimination of the $0.04 per share quarterly Common Stock dividend and (iv) an evaluation of the Company's capital and cost structures to examine ways to increase flexibility and strengthen the Company's financial performance. The restructuring program has resulted in improved liquidity, reduced required debt amortization in the near-term and additional financial flexibility. See Items 1 and 2. Business and Properties -- Corporate Restructuring Program.
The Company's 1994 capital program totalled approximately $130 million, a level which allowed the Company to more than replace its 1994 production. The Company expects to expend approximately $190 million on its 1995 program. However, the actual amount expended by the Company in 1995 will be based upon numerous factors, the majority of which are outside its control, including, without limitation, prevailing oil and natural gas prices and the outlook therefor and the availability of funds.
Effective March 16, 1994 the Company entered into an Amended and Restated Revolving Credit Agreement (the "Bank Facility") which consists of a five year secured revolving credit agreement maturing December 31, 1998 ("Facility A") and a three year unsecured revolving credit facility maturing December 31, 1996 ("Facility B"). The aggregate borrowing limits under the terms of the Bank Facility are $125.0 million (up to $90.0 million under Facility A and up to $35.0 million under Facility B). Interest rates under the Bank Facility are tied to LIBOR or the bank's prime rate with the actual interest rate reflecting certain ratios based upon the Company's ability to repay its outstanding debt and the value and projected timing of production of the Company's oil and gas reserves. These and other similar ratios will also affect the Company's ability to borrow under the Bank Facility and the timing and amount of any required repayments and corresponding commitment reductions. At December 31, 1994, no amounts were outstanding under the terms of Facility A and $6.3 million in letters of credit were outstanding under the terms of Facility B.
The Company has three short-term uncommitted lines of credit totalling $50.0 million which are used to meet short-term cash needs. Interest rates on borrowings under these lines of credit are typically lower than rates paid under the Bank Facility. At December 31, 1994 no amounts were outstanding under these lines of credit.
Certain of the Company's credit agreements and the indenture for the Debentures restrict the Company's ability to take certain actions, including covenants that restrict the Company's ability to incur additional indebtedness and to pay dividends on its capital stock. Under the most restrictive of these covenants, at December 31, 1994 the Company could incur up to $188.1 million of additional indebtedness and pay dividends of up to $114.5 million on its aggregate capital stock (including its common stock, 7% Convertible Preferred Stock and Series A Preferred) with the amount payable on its common stock limited to $52.7 million.
ENVIRONMENTAL MATTERS
Almost all phases of the Company's oil and gas operations are subject to stringent environmental regulation by governmental authorities. Such regulation has increased the costs of planning, designing, drilling, installing, operating and abandoning oil and gas wells and other facilities. The Company has expended significant financial and managerial resources to comply with such regulations. Although the Company believes its operations and facilities are in general compliance with applicable environmental regulations, risks of substantial costs and liabilities are inherent in oil and gas operations. It is possible that other developments, such as increasingly strict environmental laws, regulations and enforcement policies or claims for damages to property, employees, other persons and the environment resulting from the Company's operations, could result in significant costs and liabilities in the future. As it has done in the past, the Company intends to fund its cost of environmental compliance from operating cash flows. See Note 12 to the Consolidated Financial Statements.
DIVIDENDS
Dividends on the Company's 7% Convertible Preferred Stock and Series A Preferred are cumulative at an annual rate of $1.40 per share and $0.732 per share, respectively. No dividends may be declared or paid with respect to the Company's common stock if any dividends with respect to the convertible preferred stock or Series A Preferred are in arrears. As part of the 1993 restructuring program, the Company eliminated the payment of its $0.04 per share quarterly dividend on its common stock. The determination of the amount of future cash dividends, if any, to be declared and paid on the Company's common stock is in the sole discretion of the Company's Board of Directors and will depend on dividend requirements with respect to the preferred stock, the Company's financial condition, earnings and funds from operations, the level of capital and exploration expenditures, dividend restrictions in financing agreements, future business prospects and other matters the Board of Directors deems relevant.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE ---- Audited Financial Statements Report of Independent Accountants ................................. 32 Consolidated Statement of Operations for the years ended December 31, 1994, 1993 and 1992 ................................ 33 Consolidated Balance Sheet -- December 31, 1994 and 1993 .......... 34 Consolidated Statement of Cash Flows for the years ended December 31, 1994, 1993 and 1992 ................................ 35 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992 ...................... 36 Notes to Consolidated Financial Statements ........................ 37 Unaudited Financial Information Supplemental Information to Consolidated Financial Statements ...................................................... 58
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
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except for the portion of Item 10 relating to Executive Officers of the Registrant which is included in Part I of this Report, the information called for by Items 10 through 13 is incorporated by reference from the Company's Notice of Annual Meeting and Proxy Statement dated March 21, 1995, which meeting involves the election of directors, in accordance with General Instruction G to the Annual Report on Form 10-K.
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: PAGE ---- 1. Financial Statements: Report of Independent Accountants ................................. 32 Consolidated Statement of Operations for the years ended December 31, 1994, 1993 and 1992 .................................. 33 Consolidated Balance Sheet -- December 31, 1994 and 1993 .......... 34 Consolidated Statement of Cash Flows for the years ended December 31, 1994, 1993 and 1992 .................................. 35 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992 ...................... 36 Notes to Consolidated Financial Statements ........................ 37
2. Financial Statement Schedules: Schedule VIII -- Valuation and Qualifying Accounts ................ 68 All other schedules have been omitted because they are not applicable or the required information is presented in the financial statements or the notes to financial statements.
3. Exhibits: See Index to Exhibits on page 69 for a description of the exhibits filed as a part of this report.
(b) Reports on Form 8-K
None
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Santa Fe Energy Resources, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) on page 31 present fairly, in all material respects, the financial position of Santa Fe Energy Resources, Inc. and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas March 10, 1995
SANTA FE ENERGY RESOURCES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1993 1992 --------- --------- --------- Revenues Crude oil and liquids............ $ 293.7 $ 307.3 $ 333.6 Natural gas...................... 83.4 107.8 74.8 Natural gas systems.............. -- 8.2 7.3 Crude oil marketing and trading........................ 11.3 9.9 5.9 Other............................ 3.0 3.7 5.9 --------- --------- --------- 391.4 436.9 427.5 --------- --------- --------- Costs and Expenses Production and operating......... 150.0 163.8 153.4 Oil and gas systems and pipelines...................... -- 4.2 3.2 Exploration, including dry hole costs.......................... 20.4 31.0 25.5 Depletion, depreciation and amortization................... 121.3 152.7 146.3 Impairment of oil and gas properties..................... -- 99.3 -- General and administrative....... 27.3 32.3 30.9 Taxes (other than income)........ 25.8 27.3 24.3 Restructuring charges............ 7.0 38.6 -- Loss (gain) on disposition of assets......................... (8.6) 0.7 (13.6) --------- --------- --------- 343.2 549.9 370.0 --------- --------- --------- Income (Loss) from Operations........ 48.2 (113.0) 57.5 Interest income.................. 2.8 9.1 2.3 Interest expense................. (27.5) (45.8) (55.6) Interest capitalized............. 3.6 4.3 4.9 Other income (expense)........... (4.0) (4.8) (10.0) --------- --------- --------- Income (Loss) Before Income Taxes.... 23.1 (150.2) (0.9) Income taxes..................... (6.0) 73.1 (0.5) --------- --------- --------- Net Income (Loss).................... 17.1 (77.1) (1.4) Preferred dividend requirement....... (11.7) (7.0) (4.3) --------- --------- --------- Earnings (Loss) Attributable to Common Shares...................... $ 5.4 $ (84.1) $ (5.7) ========= ========= ========= Earnings (Loss) Attributable to Common Shares Per Share............ $ 0.06 $ (0.94) $ (0.07) ========= ========= ========= Weighted Average Number of Shares Outstanding (in millions).......... 89.9 89.7 79.0 ========= ========= =========
The accompanying notes are an integral part of these financial statements.
SANTA FE ENERGY RESOURCES, INC. CONSOLIDATED BALANCE SHEET (IN MILLIONS OF DOLLARS)
DECEMBER 31, -------------------------- 1994 1993 ------------ ------------ ASSETS Current Assets Cash and cash equivalents........ $ 53.7 $ 4.8 Accounts receivable.............. 76.2 87.4 Inventories...................... 9.2 8.7 Assets held for sale............. -- 59.5 Other current assets............. 18.1 12.2 ------------ ------------ 157.2 172.6 ------------ ------------ Investment in Hadson Corporation..... 57.0 56.2 ------------ ------------ Properties and Equipment, at cost Oil and gas (on the basis of successful efforts accounting).................... 2,145.9 2,064.3 Other............................ 32.7 27.3 ------------ ------------ 2,178.6 2,091.6 Accumulated depletion, depreciation, amortization and impairment..................... (1,335.6) (1,258.9) ------------ ------------ 843.0 832.7 ------------ ------------ Other Assets Receivable under gas balancing arrangements................... 4.6 3.9 Other............................ 9.6 11.5 ------------ ------------ 14.2 15.4 ------------ ------------ $ 1,071.4 $ 1,076.9 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable................. $ 84.1 $ 93.5 Interest payable................. 8.5 10.2 Current portion of long-term debt........................... 3.9 44.3 Other current liabilities........ 29.5 18.1 ------------ ------------ 126.0 166.1 ------------ ------------ Long-Term Debt....................... 350.4 405.4 ------------ ------------ Deferred Revenues.................... 7.4 8.6 ------------ ------------ Other Long-Term Obligations.......... 28.0 48.8 ------------ ------------ Deferred Income Taxes................ 56.3 44.4 ------------ ------------ Commitments and Contingencies (Note 12)................................ -- -- ------------ ------------ Convertible Preferred Stock, $0.01 par value, 5.0 million shares authorized, issued and outstanding........................ 80.0 80.0 ------------ ------------ Shareholders' Equity Preferred stock, $0.01 par value, 34.3 million shares authorized, none issued.................... -- -- $.732 Series A preferred stock, $0.01 par value, 10.7 million shares authorized, issued and outstanding.................... 91.4 -- Common stock, $0.01 par value, 200.0 million shares authorized..................... 0.9 0.9 Paid-in capital.................. 498.9 496.9 Unamortized restricted stock awards......................... -- (0.1) Accumulated deficit.............. (167.5) (173.8) Foreign currency translation adjustment..................... (0.4) (0.3) ------------ ------------ 423.3 323.6 ------------ ------------ $ 1,071.4 $ 1,076.9 ============ ============
The accompanying notes are an integral part of these financial statements.
SANTA FE ENERGY RESOURCES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- Operating Activities: Net income (loss)................ $ 17.1 $ (77.1) $ (1.4) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion, depreciation and amortization............... 121.3 152.7 146.3 Impairment of oil and gas properties................. -- 99.3 -- Restructuring charges........ 1.0 27.8 -- Deferred income taxes........ 11.3 (71.9) (6.3) Net loss (gain) on disposition of assets...... (8.6) 0.7 (13.6) Exploratory dry hole costs... 6.5 8.9 4.7 Equity in losses and adjustment to valuation of investment in Hadson Corporation................ 6.1 -- -- Hadson Corporation preferred dividends received in-kind.................... (4.5) -- -- Expenses related to acquisition of Adobe Resources Corporation...... -- -- 10.9 Other........................ 3.0 4.2 2.0 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable........ 1.3 12.4 (8.3) Decrease (increase) in inventories................ (0.5) (3.8) 0.3 Increase (decrease) in accounts payable........... (8.6) (2.6) 5.9 Increase (decrease) in interest payable........... (1.7) (0.8) 0.4 Increase (decrease) in income taxes payable.............. 0.2 (0.6) (0.4) Net change in other assets and liabilities............ (19.4) 11.0 1.0 ---------- ---------- ---------- Net Cash Provided by Operating Activities......................... 124.5 160.2 141.5 ---------- ---------- ---------- Investing Activities: Capital expenditures, including exploratory dry hole costs..... (136.6) (127.0) (76.8) Acquisitions of producing properties, net of related debt........................... (2.2) (4.4) (14.2) Acquisition of Adobe Resources Corporation.................... -- -- (11.9) Acquisition of Santa Fe Energy Partners, L.P.................. -- (28.3) -- Net proceeds from sales of properties..................... 81.1 39.9 89.1 Increase in partnership interest due to reinvestment............ -- (1.6) (2.1) ---------- ---------- ---------- Net Cash Used in Investing Activities......................... (57.7) (121.4) (15.9) ---------- ---------- ---------- Financing Activities: Net change in short-term debt.... -- -- (4.6) Net proceeds from issuance of 11% senior subordinated debentures due 2004....................... 96.1 -- -- Net proceeds from issuance of $.732 Series A convertible preferred stock................ 91.4 -- -- Proceeds from long-term borrowings..................... -- -- 5.0 Principal payments on long-term borrowings..................... (144.7) (41.5) (55.5) Net change in revolving credit agreement...................... (50.0) (55.0) -- Cash dividends paid to others.... (10.7) (21.3) (14.9) ---------- ---------- ---------- Net Cash Used in Financing Activities......................... (17.9) (117.8) (70.0) ---------- ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents................... 48.9 (79.0) 55.6 Cash and Cash Equivalents at Beginning of Year.................. 4.8 83.8 28.2 ---------- ---------- ---------- Cash and Cash Equivalents at End of Year............................... $ 53.7 $ 4.8 $ 83.8 ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
SANTA FE ENERGY RESOURCES, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (SHARES AND DOLLARS IN MILLIONS)
TOTAL SHAREHOLDERS' EQUITY ------------- Balance at December 31, 1991......... $ 225.1 Issuance of common stock Acquisition of Adobe Resources Corporation........... 205.6 Employee stock compensation and savings plans................... 3.6 Amortization of restricted stock awards............................ 1.5 Foreign currency translation adjustments....................... (0.2) Net loss........................... (1.4) Dividends declared................. (17.6) ------------- Balance at December 31, 1992......... 416.6 Issuance of common stock Employee stock compensation and savings plans................... 2.5 Amortization of restricted stock awards...................... 0.4 Pension liability adjustment....... (0.9) Foreign currency transaction adjustments....................... (0.1) Net loss........................... (77.1) Dividends declared................. (17.8) ------------- Balance December 31, 1993............ 323.6 Issuance of common stock Employee stock compensation and savings plans................... 2.0 Issuance of preferred stock........ 91.4 Amortization of restricted stock awards............................ 0.1 Pension liability adjustment....... 0.9 Foreign currency transaction adjustments....................... (0.1) Net income......................... 17.1 Dividends declared................. (11.7) ------------- Balance December 31, 1994............ $ 423.3 =============
The accompanying notes are an integral part of these financial statements.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Santa Fe Energy Resources, Inc. ("Santa Fe" or the "Company") and its subsidiaries include the accounts of all wholly owned subsidiaries. The accounts of Santa Fe Energy Partners, L.P., (the "Partnership") are included on a proportional basis until September 1993 when Santa Fe purchased all the Partnership's outstanding Depositary Units and undeposited LP Units other than those units held by Santa Fe and its affiliates.
On September 27, 1993 the Company exercised its right under the Agreement of Limited Partnership to purchase all of the Partnership's outstanding Depositary Units and undeposited LP Units, other than those units held by the Company and its affiliates, at a redemption price of $4.9225 per unit. Consideration for the 5,749,500 outstanding units totalled $28.3 million. The acquisition of the units has been accounted for as a purchase and the results of operations of the Partnership attributable to the units acquired is included in the Company's results of operations with effect from October 1, 1993. The purchase price has been allocated primarily to oil and gas properties.
References herein to the "Company" or "Santa Fe" relate to Santa Fe Energy Resources, Inc., individually or together with its consolidated subsidiaries; references to the "Partnership" relate to Santa Fe Energy Partners, L.P.
All significant intercompany accounts and transactions have been eliminated.
OIL AND GAS OPERATIONS
The Company follows the successful efforts method of accounting for its oil and gas exploration and production activities. Costs (both tangible and intangible) of productive wells and development dry holes, as well as the cost of prospective acreage, are capitalized. The costs of drilling and equipping exploratory wells which do not find proved reserves are expensed upon determination that the well does not justify commercial development. Other exploratory costs, including geological and geophysical costs and delay rentals, are charged to expense as incurred.
Depletion and depreciation of proved properties are computed on an individual field basis using the unit-of-production method based upon proved oil and gas reserves attributable to the field. Certain other oil and gas properties are depreciated on a straight-line basis. Individual proved properties are reviewed periodically to determine if the carrying value of the field exceeds the estimated undiscounted future net revenues from proved oil and gas reserves attributable to the field. Based on this review and the continuing evaluation of development plans, economics and other factors, if appropriate, the Company records impairments (additional depletion and depreciation) to the extent that the carrying value exceeds the estimated undiscounted future net revenues. Such impairments totaled $99.3 million in 1993 and there were none in 1994 or 1992.
The Company provides for future abandonment and site restoration costs with respect to certain of its oil and gas properties. The Company estimates that with respect to these properties such future costs total approximately $15.2 million and such amount is being accrued over the expected life of the properties. At December 31, 1994 Accumulated Depletion, Depreciation, Amortization and Impairment includes $15.0 million with respect to such costs.
The value of undeveloped acreage is aggregated and the portion of such costs estimated to be nonproductive, based on historical experience, is amortized to expense over the average holding period. Additional amortization may be recognized based upon periodic assessment of prospect evaluation results. The cost of properties determined to be productive is transferred to proved properties; the cost of properties determined to be nonproductive is charged to accumulated amortization.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maintenance and repairs are expensed as incurred; major renewals and improvements are capitalized. Gains and losses arising from sales of properties are included in income currently.
REVENUE RECOGNITION
Revenues from the sale of petroleum produced are generally recognized upon the passage of title, net of royalties and net profits interests. Crude oil revenues include the value of crude oil consumed in operations with an equal amount charged to operating expenses. Such amounts totalled $4.8 million in 1992, $1.2 million in 1993 and $1.9 million in 1994.
In 1990 the Company initiated a hedging program designed to provide a certain minimum level of cash flow from its sales of crude oil. Settlements were included in oil revenues in the period the oil is sold. In the year ended December 31, 1992 hedges resulted in an increase in oil revenues of $9.7 million. The Company had no open crude oil hedging contracts during 1993 or 1994.
Revenues from natural gas production are generally recorded using the entitlement method, net of royalties and net profits interests. Sales proceeds in excess of the Company's entitlement are included in Deferred Revenues and the Company's share of sales taken by others is included in Other Assets. At December 31, 1994 the Company's deferred revenues for sales proceeds received in excess of the Company's entitlement was $5.1 million with respect to 4.1 MMcf and the asset related to the Company's share of sales taken by others was $4.6 million with respect to 3.3 MMcf.
In the third quarter of 1992 the Company initiated a hedging program with respect to its sales of natural gas. The Company has used various instruments whereby monthly settlements are based on the differences between the price or range of prices specified in the instruments and the settlement price of certain natural gas futures contracts quoted on the New York Mercantile Exchange. In instances where the applicable settlement price is less than the price specified in the contract, the Company receives a settlement based on the difference; in instances where the applicable settlement price is higher than the specified prices the Company pays an amount based on the difference. The instruments utilized by the Company differ from futures contracts in that there is no contractual obligation which requires or allows for the future delivery of the product. In 1992, 1993 and 1994 hedges resulted in a reduction in natural gas revenues of $0.5 million, $8.2 million and $1.0 million, respectively. The Company had no open natural gas hedging contracts at December 31, 1994.
Revenues from crude oil marketing and trading represent the gross margin resulting from such activities. Revenues from such activities are net of costs of sales of $247.3 million in 1992, $225.9 million in 1993 and $204.7 million in 1994.
Revenues from natural gas systems are net of the cost of natural gas purchased and resold. Such costs totalled $43.8 million in 1992, and $49.9 million in 1993.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common shares outstanding during the year.
ACCOUNTS RECEIVABLE
Accounts Receivable relates primarily to sales of oil and gas and amounts due from joint interest partners for expenditures made by the Company on behalf of such partners. The Company reviews the financial condition of potential purchasers and partners prior to signing sales or joint interest agreements. At December 31, 1994 and 1993 the Company's allowance for doubtful accounts receivable, which is reflected in the consolidated balance sheet as a reduction in accounts receivable, totaled $3.1 million and $6.3 million, respectively. Accounts receivable totalling $3.8 million, $0.1 million and $1.1 million were written off as uncollectible in 1994, 1993 and 1992, respectively.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost (average price or first-in, first-out) or market. Crude oil inventories at December 31, 1994 and 1993 were $1.6 million and $1.1 million, respectively, and materials and supplies inventories at such dates were $7.6 million and $7.6 million, respectively.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures relating to current operations are expensed or capitalized, as appropriate, depending on whether such expenditures provide future economic benefits. Liabilities are recognized when the expenditures are considered probable and can be reasonably estimated. Measurement of liabilities is based on currently enacted laws and regulations, existing technology and undiscounted site-specific costs. Generally, such recognition coincides with the Company's commitment to a formal plan of action.
INCOME TAXES
The Company follows the asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities are determined using the tax rate for the period in which those amounts are expected to be received or paid, based on a scheduling of temporary differences between the tax bases of assets and liabilities and their reported amounts. Under this method of accounting for income taxes, any future changes in income tax rates will affect deferred income tax balances and financial results.
(2) CORPORATE RESTRUCTURING PROGRAM
In the fourth quarter of 1993 the Company adopted a corporate restructuring program which included (i) the concentration of capital spending in the Company's core operating areas; (ii) the disposition of non-core assets; (iii) the elimination of the $0.04 per share quarterly common stock dividend; and (iv) an evaluation of the Company's capital and cost structures.
The Company's non-core asset disposition program included the sale of its natural gas gathering and processing assets to Hadson Corporation ("Hadson") (see Note 3), the sale to Vintage Petroleum, Inc. ("Vintage") of certain southern California and Gulf Coast oil and gas producing properties and the sale to Bridge Oil (U.S.A.) Inc. ("Bridge") of certain mid-Continent and Rocky Mountain oil and gas producing properties and undeveloped acreage. Based on the evaluation of its capital and cost structures, the Company (i) implemented a cost reduction program which included the reduction of its salaried work force by approximately 20%, an improvement in the efficiency of its information systems and reductions in other general and administrative and production and operating costs and (ii) issued $100 million of 11% Senior Subordinated Debentures and 10,700,000 shares of $.732 Series A Convertible Preferred Stock (the "Series A Preferred") and used a portion of the proceeds to retire certain of its long-term debt (see Note 7).
In implementing the corporate restructuring program, in 1993 the Company recorded restructuring charges of $38.6 million comprised of (i) losses on property dispositions of $27.8 million; (ii) long-term debt repayment penalties and interest of $8.6 million; and (iii) accruals for certain personnel benefits and related costs of $2.2 million. In the first quarter of 1994 the Company recorded additional restructuring charges of $7.0 million comprised of severance, benefits and relocation expenses associated with the cost reduction program.
SALE TO VINTAGE. In November 1993 the Company completed the sale of certain southern California and Gulf Coast producing properties for net proceeds totalling $42.0 million in cash, $31.5 million of which was collected in 1993. The Company's income from operations for 1993 includes $2.7 million attributable to the assets sold to Vintage.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SALE TO BRIDGE. In April 1994 the Company completed the sale to Bridge of certain Mid-Continent and Rocky Mountain producing and nonproducing oil and gas properties for net proceeds totalling $46.7 million in cash. The net book value of these assets was included in Assets Held for Sale at December 31, 1993. The Company's income from operations for 1994 and 1993 includes $2.2 million and $5.8 million, respectively, attributable to the assets sold to Bridge.
OTHER DISPOSITIONS. The estimated realizable value of certain oil and gas properties which the Company disposed of in 1994, $1.0 million, is included in Assets Held for Sale at December 31, 1993. In the first quarter of 1994 the Company sold its interest in certain other oil and gas properties, in which it had no remaining basis, for $8.3 million.
(3) INVESTMENT IN HADSON
In December 1993 the Company completed a transaction with Hadson under the terms of which the Company sold the common stock of Adobe Gas Pipeline Company ("AGPC"), a wholly-owned subsidiary which held the Company's natural gas gathering and processing assets, to Hadson in exchange for Hadson 11.25% preferred stock with a face value of $52.0 million and 40% of Hadson's common stock. The Company accounted for the sale as a non-monetary transaction and the investment in Hadson was valued at $56.2 million, the carrying value of the Company's investment in AGPC. The Company's investment in Hadson is being accounted for on the equity basis. The Company's income from operations for 1993 includes $1.6 million attributable to the assets sold to Hadson.
Also in December 1993 the Company signed a seven-year gas sales contract with Hadson under the terms of which Hadson markets substantially all of the Company's domestic natural gas production at market prices as defined by published monthly indices for relevant production locations. In the fourth quarter of 1994 the Company and Hadson amended the gas sales agreement whereby the Company advanced Hadson $5.0 million, which advance may be renewed monthly through April 1995, and bears interest at one percent above the prime rate and is payable monthly.
In November 1994 the Company and Hadson settled a lawsuit related to certain of the assets sold to Hadson by the Company in December 1993. The settlement totalled $5.7 million and the Company's share, approximately $3.3 million, is included in Other Income (Expense) in the income statement. The Company paid the full amount of the settlement and Hadson gave the Company a $2.4 million ten-year note for its share. The note bears interest at 9%, payable annually, and the principal amount is due at maturity.
The following table summarizes the Company's investment in Hadson and the changes in such investment during the year ended December 31, 1994 (in millions of dollars):
Investment at December 31, 1993...... 56.2 Preferred dividends, paid in-kind.... 4.5 Equity in losses and valuation adjustments........................ (6.1) Note receivable...................... 2.4 ----- Investment at December 31, 1994...... 57.0 =====
The Company's investment in Hadson represents management's best estimate of the realizable value of the investment at December 31, 1994, based on a proposed sale of Hadson.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize pertinent financial information with respect to Hadson (in millions of dollars):
DECEMBER 31, -------------------- 1994 1993 --------- --------- Current assets....................... 94.1 101.3 Property, plant and equipment, net... 101.2 99.4 Other assets......................... 10.1 9.6 --------- --------- 205.4 210.3 ========= ========= Current liabilities.................. 107.2 97.2 Long-term debt....................... 57.4 55.8 Other long-term obligations.......... 2.4 17.8 Shareholders' equity................. 38.4 39.5 --------- --------- 205.4 210.3 ========= =========
YEAR ENDED DECEMBER 31, 1994 ----------------- Revenues............................. 754.0 Expenses............................. (757.0) ------- Loss before income taxes............. (3.0) Income tax benefit................... 2.0 ------- Net loss............................. (1.0) Preferred dividend requirement....... (5.8) ------- Loss attributable to common shares... (6.8) =======
During 1994 and 1993, sales of natural gas to Hadson (which with respect to certain properties included royalty and working interest owners' share of production) totalled $99.2 million and $29.6 million, respectively. In addition, in 1994 and 1993 the Company made purchases of natural gas from Hadson totalling $18.6 million and $0.5 million, respectively. At December 31, 1994 and 1993, the Company's accounts receivable included $14.6 million and $18.8 million, respectively, due from Hadson and accounts payable included $1.6 million and $0.3 million, respectively, due to Hadson.
(4) MERGER WITH ADOBE RESOURCES CORPORATION
On May 19, 1992 Adobe Resources Corporation ("Adobe"), an oil and gas exploration and production company, was merged with and into Santa Fe (the "Merger"). The acquisition has been accounted for as a purchase and the results of operations of the properties acquired (the "Adobe Properties") are included in Santa Fe's results of operations effective June 1, 1992.
To consummate the Merger, the Company issued 24.9 million shares of common stock valued at $205.5 million, 5.0 million shares of convertible preferred stock valued at $80.0 million, assumed long-term bank debt and other liabilities of $140.0 million and $35.0 million, respectively, and incurred $13.8 million in related costs. The Company also recorded a $19.7 million deferred tax liability with respect to the difference between the book and tax basis in the assets acquired. Certain merger-related costs incurred by Adobe and paid by Santa Fe totaling $10.9 million were charged to income in the second quarter of 1992.
The Merger constituted a "change of control" as defined in certain of the Company's employee benefit plans and employment agreements (see Notes 10 and 12).
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In a separate transaction in January 1992, the Company purchased three producing properties from Adobe for $14.2 million.
(5) SANTA FE ENERGY TRUST
In November 1992 5,725,000 Depository Units ("Trust Units"), each consisting of beneficial ownership of one unit of undivided beneficial interest in the Santa Fe Energy Trust (the "Trust") and a $20 face amount beneficial ownership interest in a $1,000 face amount zero coupon United States Treasury obligation maturing on or about February 15, 2008, were sold in a public offering. The Trust consists of certain oil and gas properties conveyed by Santa Fe. A total of $114.5 million was received from public investors, of which $38.7 million was used to purchase the Treasury obligations and $5.7 million was used to pay underwriting commissions and discounts. Santa Fe received the remaining $70.1 million and 575,000 Trust Units. A portion of the proceeds received by the Company was used to retire $30.0 million of the debt incurred in connection with the Merger and the remainder was used for general corporate purposes including possible acquisitions.
For any calendar quarter ending on or prior to December 31, 2002, the Trust will receive additional royalty payments to the extent that it needs such payments to distribute $0.40 per Depository Unit per quarter. The source of such additional royalty payments, if needed, will be limited to the Company's remaining royalty interest in certain of the properties conveyed to the Trust. If such additional payments are made, certain proceeds otherwise payable to the Trust in subsequent quarters may be reduced to recoup the amount of such additional payments. The aggregate amount of the additional royalty payments (net of any amounts recouped) will be limited to $20.0 million on a revolving basis. For operations from the inception of the Trust through December 31, 1994 the Company has been required to make additional royalty payments totalling $0.4 million in 1993 and $1.1 million in 1994.
At December 31, 1993 the Company held 575,000 Trust Units. In the first quarter of 1994 the Company sold the Trust Units for $11.3 million. The Company's investment in the Trust Units at December 31, 1993, $10.4 million, is included in Assets Held for Sale in the Balance Sheet. At December 31, 1994 Accounts Payable included $2.7 million due to the Trust and at December 31, 1993 Accounts Receivable included $0.2 million due from the Trust and Accounts Payable included $1.9 million due to the Trust.
(6) CASH FLOWS
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
The Merger included certain non-cash investing and financing activities not reflected in the Statement of Cash Flows as follows (in millions of dollars):
Common stock issued.................. 205.5 Convertible preferred stock issued... 80.0 Deferred tax liability............... 19.7 Long-term debt....................... 140.0 Assets acquired, other than cash, net of liabilities assumed............. (457.1) --------- Cash paid............................ (11.9) =========
The Company made interest payments of $49.0 million, $48.0 million and $47.9 million in 1992, 1993 and 1994, respectively. In 1992, 1993 and 1994, the Company made tax payments of $4.4 million, $5.0 million and $1.8 million, respectively, and in 1993 received tax refunds of $4.1 million, primarily related to the audit of prior years' returns.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) FINANCING AND DEBT
Long-term debt at December 31, 1994 and 1993 consisted of (in millions of dollars):
Aggregate total maturities of long-term debt during the next five years are as follows: 1995 -- $3.9 million; 1996 -- $6.1 million; 1997 -- $35.0 million; 1998 -- $35.0 million; and 1999 -- $25.0 million.
Effective March 16, 1994 the Company entered into an Amended and Restated Revolving Credit Agreement (the "Bank Facility") which replaced the Revolving and Term Credit Agreement the Company had executed in 1992. The Bank Facility, consists of a five year secured revolving credit agreement maturing December 31, 1998 ("Facility A") and a three year unsecured revolving credit facility maturing December 31, 1996 ("Facility B"). The aggregate borrowing limits under the terms of the Bank Facility are $125.0 million (up to $90.0 million under Facility A and up to $35.0 million under Facility B). Interest rates under the Bank Facility are tied to LIBOR or the bank's prime rate with the actual interest rate reflecting certain ratios based upon the Company's ability to repay its outstanding debt and the value and projected timing of production of the Company's oil and gas reserves. These and other similar ratios will also affect the Company's ability to borrow under the Bank Facility and the timing and amount of any required repayments and corresponding commitment reductions. At December 31, 1994, no amounts were outstanding under the terms of Facility A and $6.3 million in letters of credit were outstanding under the terms of Facility B.
In a public offering in May 1994 the Company issued $100.0 million of 11% Senior Subordinated Debentures due 2004 (the "Debentures"). The Debentures were issued for 99.266% of face value and the Company received proceeds of $96.1 million, after deducting related costs and expenses of $3.2 million. The Debentures, which mature May 15, 2004, are not redeemable prior to May 15, 1999 and may be redeemed after such date at the option of the Company at prices set forth in the indenture for the Debentures. Under certain circumstances, the Company may be required to redeem the Debentures for 101% of the principal amount. The Debentures are general unsecured subordinated obligations of the Company.
The Company used the proceeds from the issuance of the Debentures, together with a portion of the proceeds from the issuance of the Series A Preferred (see Note 10), to retire certain of its then outstanding long-term debt. The Company retired $65.0 million of Senior Notes, the $12.3 million outstanding balance of a term loan agreement which the Company had executed in 1991 in connection with the purchase of certain producing properties, the $30.0 million outstanding balance of the Partnership's credit agreement and the $25.0 million outstanding balance of the Bank Facility.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On April 11, 1990 SFER issued $365.0 million of serial unsecured Senior Notes with interest rates averaging 10.35%. At December 31, 1994, $245.0 million in Senior Notes were outstanding and are to be repaid, $35.0 million in 1997 and 1998 and $25.0 million per year in 1999 through 2005.
In 1991 the Company borrowed a total of $18.2 million from an Argentine bank in connection with the purchase of an interest in a producing oil field in Argentina. The loan bears interest at the higher of 13.06% or LIBOR plus 2%.
The Company has three short-term uncommitted lines of credit totalling $50.0 million which are used to meet short-term cash needs. Interest rates on borrowings under these lines of credit are typically lower than rates paid under the Bank Facility. At December 31, 1994 no amounts were outstanding under these lines of credit.
Certain of the Company's credit agreements and the indenture for the Debentures restrict the Company's ability to take certain actions, including covenants that restrict the Company's ability to incur additional indebtedness and to pay dividends on its capital stock. Under the most restrictive of these covenants, at December 31, 1994 the Company could incur up to $188.1 million of additional indebtedness and pay dividends of up to $114.5 million on its aggregate capital stock (including its common stock, 7% Convertible Preferred Stock and Series A Preferred) with the amount payable on its common stock limited to $52.7 million.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) SEGMENT INFORMATION
The principal business of the Company is oil and gas, which consists of the acquisition, exploration and development of oil and gas properties and the production and sale of crude oil and liquids and natural gas. Pertinent information with respect to the Company's oil and gas business is presented in the following table (in millions of dollars):
Crude oil and liquids and natural gas accounted for more than 95% of revenues in 1992, 1993 and 1994. The following table (which with respect to certain properties includes royalty and working interest owners' share of production) reflects sales to crude oil purchasers who accounted for more than 10% of the Company's crude oil and liquids revenues (in millions of dollars):
YEAR ENDED DECEMBER 31, -------------------------- 1994 1993 1992 ---- ---- ---- Texaco Trading and Transportation, Inc................................ -- -- 46.8 Celeron Corporation.................. 58.7 56.8 56.3 Shell Oil Company.................... 94.5 86.3 --
None of the Company's purchasers of natural gas accounted for more than 10% of revenues in 1992 or 1993. In 1994 substantially all of the Company's domestic natural gas production was sold to Hadson under the terms of an agreement signed in December 1993 (see Note 3).
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) CONVERTIBLE PREFERRED STOCK
The convertible preferred stock issued in connection with the Merger is non-voting and entitled to receive cumulative cash dividends at an annual rate equivalent to $1.40 per share. The holders of the convertible preferred shares may, at their option, convert any or all such shares into 1.3913 shares of the Company's common stock. The Company may, at any time after the fifth anniversary of the effective date of the Merger and upon the occurrence of a "Special Conversion Event", convert all outstanding shares of convertible preferred stock into common stock at the initial conversion rate of 1.3913 shares of common stock, subject to certain adjustments, plus additional shares in respect to accrued and unpaid dividends. A Special Conversion Event is deemed to have occurred when the average daily closing price for a share of the Company's common stock for 20 of 30 consecutive trading days equals or exceeds 125% of the quotient of $20.00 divided by the then applicable conversion rate (approximately $18.00 per share at a conversion rate of 1.3913).
Upon the occurrence of the "First Ownership Change" of Santa Fe, each holder of shares of convertible preferred stock shall have the right, at the holder's option, to elect to have all of such holder's shares redeemed for $20.00 per share plus accrued and unpaid interest and dividends. The First Ownership Change shall be deemed to have occurred when any person or group, together with any affiliates or associates, becomes the beneficial owner of 50% or more of the outstanding common stock of Santa Fe.
(10) SHAREHOLDERS' EQUITY
COMMON STOCK
In 1992, 1993 and 1994 the Company issued a total of 1.0 million previously unissued shares of common stock in connection with certain employee benefit and compensation plans. Also in 1992, the Company issued 24.9 million previously unissued shares of common stock in connection with the Merger.
The Company declared dividends to common shares of $0.16 per share in 1992 and $0.12 per share in 1993. No dividends were declared in 1994 (see Note 2).
$.732 SERIES A CONVERTIBLE PREFERRED STOCK
In a public offering in May 1994 the Company issued 10,700,000 shares of $.732 Series A Convertible Preferred Stock. The Series A Preferred was issued at $8.875 per share and the Company received total proceeds of $91.4 million after deducting related costs and expenses of $3.6 million. Each share of Series A Preferred mandatorily converts into one share of common stock on May 15, 1998 and the Company has the option to redeem the shares, in whole or in part, on or after May 15, 1997 and prior to May 15, 1998 at prices set forth in the certificate of designation for the Series A Preferred, payable in common stock. Each share of Series A Preferred is convertible at the option of the holder into 0.8474 shares of common stock at any time prior to May 15, 1998.
The Series A Preferred ranks prior to common stock both as to payment of dividends and distribution of assets upon liquidation. The holders of Series A Preferred are entitled to receive cumulative preferential dividends, accruing at the rate per share of $0.732 per annum ($0.183 per quarter) payable quarterly in arrears.
PREFERRED STOCK
The Board of Directors of the Company is empowered, without approval of the shareholders, to cause shares of preferred stock to be issued in one or more series, and to determine the number of shares in each series and the rights, preferences and limitations of each series. Among the specific matters which may be determined by the Board of Directors are: the annual rate of dividends; the
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
redemption price, if any; the terms of a sinking or purchase fund, if any; the amount payable in the event of any voluntary liquidation, dissolution or winding up of the affairs of the Company; conversion rights, if any; and voting powers, if any.
ACCUMULATED DEFICIT
At December 31, 1994 and 1993 Accumulated Deficit included dividends in excess of retained earnings of $89.8 million.
1990 INCENTIVE STOCK COMPENSATION PLAN
The Company has adopted the Santa Fe Energy Resources 1990 Incentive Stock Compensation Plan (the "Plan") under the terms of which the Company may grant options and awards with respect to no more than 5,000,000 shares of common stock to officers and key employees.
Options granted in 1991 and prior are fully vested and expire in 2000. Options granted in 1992 have a ten year term and vest as to 33.33 percent one year after grant, as to a cumulative 66.67 percent two years after grant and as to the entire amount three years after grant. The options granted in 1993 have a ten year term and vest as to 50 percent 5 years after grant, as to a cumulative 75 percent 6 years after grant and as to the entire amount 7 years after grant. The options are exercisable on an accelerated basis beginning one year and ending three years after grant in certain circumstances. If the market value per share of the Company's common stock (sustained in all events for at least 60 days) exceeds $15, 25 percent of the options shall become exercisable; in the event the market value per share exceeds $20, 50 percent of the options shall become exercisable; and in the event the market value exceeds $25, 100 percent shall become exercisable. Unexercised options would be forfeited in the event of voluntary or involuntary termination. Vested options are exercisable for a period of one year following termination due to death, disability or retirement. In the event of termination by the Company for any reason there is no prorata vesting of unvested options.
The following table reflects activity with respect to Non-Qualified Stock Options during 1992 through 1994: OPTION OPTIONS PRICE OUTSTANDING PER SHARE ----------- ------------------ Outstanding at December 31, 1991..... 1,763,091 $14.4375 to $24.24 Grants............................... 1,099,000 $ 9.5625 Cancellations........................ (50,163) $14.4375 to $24.24 ------------ Outstanding at December 31, 1992..... 2,811,928 $ 9.5625 to $24.24 Grants............................... 800,000 $ 9.5625 Cancellations........................ (95,398) $ 9.5625 to $24.24 Exercises............................ (6,945) $ 9.5625 ------------ Outstanding at December 31, 1993..... 3,509,585 $ 9.5625 to $24.24 Cancellations........................ (206,063) $ 9.5625 to $24.24 ------------ Outstanding at December 31, 1994..... 3,303,522 $ 9.5625 to $24.24 ============
At December 31, 1994 options on 885,430 shares were available for future grants.
The consummation of the Merger resulted in a "change of control" as defined in the Plan and resulted in the vesting of 313,262 shares of restricted stock which had been awarded in prior periods. The Company recognized compensation expense totaling $1.4 million as a result of the vesting.
In 1994 the Company issued 8,168 shares of restricted stock to certain employees and 93,255 common shares in accordance with the terms of certain other employee compensation plans.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) PENSION AND OTHER EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has a defined benefit retirement plan (the "SFER Plan") covering substantially all salaried employees not covered by collective bargaining agreements and a nonqualified supplemental retirement plan (the "Supplemental Plan"). The Supplemental Plan will pay benefits to participants in the SFER Plan in those instances where the SFER Plan formula produces a benefit in excess of limits established by ERISA and the Tax Reform Act of 1986. Benefits payable under the SFER Plan are based on years of service and compensation during the five highest paid years of service during the ten years immediately preceding retirement. Benefits accruing to the Company's employees under the SFP Plan have been assumed by the SFER Plan. The Company's funding policy is to contribute annually not less than the minimum required by ERISA and not more than the maximum amount deductible for income tax purposes. In the fourth quarter of 1993 the Company established a new pension plan with respect to certain persons employed in foreign locations.
The following table sets forth the funded status of the SFER Plan and the Supplemental Plan at December 31, 1994 and 1993 (in millions of dollars):
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the components of pension expense for the SFER Plan and Supplemental Plan for 1994, 1993 and 1992 (in millions of dollars):
The Company also sponsors a pension plan covering certain hourly-rated employees in California (the "Hourly Plan"). The Hourly Plan provides benefits that are based on a stated amount for each year of service. The Company annually contributes amounts which are actuarially determined to provide the Hourly Plan with sufficient assets to meet future benefit payment requirements.
The following table sets forth the funded status of the Hourly Plan at December 31, 1994 and 1993 (in millions of dollars):
1994 1993 --------- --------- Plan assets at fair value, primarily invested in fixed-rate securities.... 7.5 7.7 Actuarial present value of projected benefit obligations Accumulated benefit obligations Vested....................... (9.3) (11.2) Nonvested.................... (0.3) (0.4) --------- --------- Excess of projected benefit obligation over plan assets........ (2.1) (3.9) Unrecognized net (gain) loss from past experience different from that assumed and effects of changes in assumptions........................ (0.4) 1.5 Unrecognized prior service cost...... 0.5 0.5 Unrecognized net obligation.......... 1.3 1.5 Additional minimum liability......... (1.3) (3.5) --------- --------- Accrued pension liability........ (2.0) (3.9) ========= ========= Major assumptions at year-end Discount rate.................... 8.25% 7.0% Expected long-term rate of return on plan assets................. 8.5% 8.5%
At December 31, 1993 the Company's additional minimum liability exceeded the total of its unrecognized prior service cost and unrecognized net obligation by $1.5 million. Accordingly, at December 31, 1993 the Company's retained earnings have been reduced by such amount, net of related taxes of $0.6 million. At December 31, 1994 the total of unrecognized prior service cost and unrecognized net obligation exceeded the Company's additional minimum liability. Accordingly, the retained earnings reduction recognized in 1993, net of related taxes, was reversed.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the components of pension expense for the Hourly Plan for the years 1994, 1993 and 1992 (in millions of dollars):
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1993 1992 ---- ---- ---- Service cost..................... 0.2 0.2 0.2 Interest cost.................... 0.8 0.7 0.7 Return on plan assets............ (0.4) (0.8) (0.1) Net amortization and deferral.... -- 0.4 (0.4) --- --- --- 0.6 0.5 0.4 === === ===
In the fourth quarter of 1993 the Company established a pension plan for certain persons employed in foreign locations (the "Foreign Plan"). The following table sets forth the funded status of the Foreign Plan at December 31, 1994 (in millions of dollars):
Plan assets.......................... -- Actuarial present value of projected benefit obligations: Accumulated benefit obligations -- nonvested....... (0.1) Effect of projected future salary increases...................... -- --- Excess of projected benefit obligations over plan assets....... (0.1) Unrecognized prior service costs..... 0.1 --- Accrued pension liability............ -- --- --- Major assumptions at year-end: Discount rate.................... 8.25% Rate of increase in future compensation..................... 5.25%
The following table sets forth the components of pension expense for the Foreign Plan for 1994:
Service cost......................... -- Interest cost........................ -- Net amortization and deferral........ -- --- -- ===
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health care and life insurance benefits for substantially all employees who retire under the provisions of a Company-sponsored retirement plan and their dependents. Participation in the plans is voluntary and requires a monthly contribution by the employee. Effective January 1, 1993 the Company adopted the provisions of SFAS No. 106 -- "Employers' Accounting for Postretirement Benefits Other Than Pensions". The Statement requires the accrual, during the years the employee renders service, of the expected cost of providing postretirement benefits to the employee and the employee's beneficiaries and covered dependents. The following table sets forth the plan's funded status at December 31, 1994 and 1993 (in millions of dollars): DECEMBER 31, ----------------- 1994 1993 ---- ---- Plan assets, at fair value........... -- -- Accumulated postretirement benefit obligation Retirees........................... (4.2) (3.6) Eligible active participants....... (0.9) (1.2) Other active participants.......... (0.9) (1.4) ---- ---- Accumulated postretirement benefit obligation in excess of plan assets............................. (6.0) (6.2) Unrecognized transition obligation... 4.1 5.0 Unrecognized net loss (gain) from past experience different from that assumed and from changes in assumptions........................ (0.4) 0.5 ---- ---- Accrued postretirement benefit cost............................... (2.3) (0.7) ==== ==== Assumed discount rate................ 8.5% 7.5% Assumed rate of compensation increase........................... 5.25% 5.25%
The Company's net periodic postretirement benefit cost for 1994 and 1993 includes the following components (in millions of dollars):
YEAR ENDED DECEMBER 31, ----------------- 1994 1993 ---- ---- Service costs........................ 0.4 0.3 Interest costs....................... 0.5 0.4 Amortization of unrecognized transition obligation.............. 0.3 0.3 ---- ---- 1.2 1.0 ==== ====
In periods prior to 1993 the cost to the Company of providing health care and life insurance benefits for qualified retired employees was recognized as expenses when claims were paid. Such amounts totalled $0.3 million in 1992.
Estimated costs and liabilities have been developed assuming trend rates for growth in future health care costs beginning with 8.0% for 1994 graded to 6.0% (5.5% for post age 65) by the year 2000 and remaining constant thereafter. Increasing the assumed health care cost trend rate by one percent each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by $0.8 million and the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for 1995 by $0.2 million.
SAVINGS PLAN
The Company has a savings plan, which became effective November 1, 1990, available to substantially all salaried employees and intended to qualify as a deferred compensation plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). The Company will match employee
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contributions for an amount up to 4% of each employee's base salary. In addition, if at the end of each fiscal year the Company's performance for such year has exceeded certain predetermined criteria, each participant will receive an additional matching contribution equal to 50% of the regular matching contribution. The Company's contributions to the 401(k) Plan, which are charged to expense, totaled $1.3 million in 1992, $1.5 million in 1993 and $1.2 million in 1994.
In the fourth quarter of 1993 the Company established a new savings plan with respect to certain personnel employed in foreign locations. The plan is an unsecured creditor of the Company and at December 31, 1994 the Company's liability with respect to the plan totalled $0.1 million.
OTHER POSTEMPLOYMENT BENEFITS
In the fourth quarter of 1993 the Company adopted SFAS No. 112 -- "Employers' Accounting for Postemployment Benefits". The Statement requires the accrual of the estimated costs of benefits provided by an employer to former or inactive employees after employment but before retirement. Such benefits include salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits, job training and counseling and continuation of benefits such as health care and life insurance coverage. The adoption of SFAS No. 112 resulted in a charge to earnings of $1.8 million in 1993.
(12) COMMITMENTS AND CONTINGENCIES
INDEMNITY AGREEMENT WITH SFP
At the time of the Spin-Off, the Company and SFP entered into an agreement to protect SFP from federal and state income taxes, penalties and interest that would be incurred by SFP if the Spin-off were determined to be a taxable event resulting primarily from actions taken by the Company during a one-year period that ended December 4, 1991. If the Company were required to make payments pursuant to the agreement, such payments could have a material adverse effect on its financial condition; however, the Company does not believe that it took any actions during such one-year period that would have such an effect on the Spin-Off.
ENVIRONMENTAL REGULATION
Federal, state and local laws and regulations relating to environmental quality control affect the Company in all of its oil and gas operations. The Company has been identified as one of over 250 potentially responsible parties ("PRPs") at a superfund site in Los Angeles County, California. The site was operated by a third party as a waste disposal facility from 1948 until 1983. The Environmental Protection Agency ("EPA") is requiring the PRPs to undertake remediation of the site in several phases, which include site monitoring and leachate control, gas control and final remediation.
In 1989 the EPA and a group of PRPs that includes the Company entered into a consent decree covering the site monitoring and leachate control phases of remediation. The Company is a member of the group Coalition Undertaking Remediation Efforts ("CURE") which is responsible for constructing and operating the leachate treatment plant. Treatment tests will begin shortly. Site monitoring and maintenance will continue throughout the life of the facility. The Company's share of costs with respect to this phase are expected to total approximately $2.4 million ($1.3 million after recoveries from working interest participants in the unit in which the wastes were generated).
Another consent decree provides for the predesign, design and construction of a gas plant to harness and market methane gas emissions. The Company is a member of the New CURE group which is responsible for the gas plant construction and operation and landfill cover. Currently, New CURE is in the design stage of the gas plant. The liability with respect to this phase has not been capped but is estimated to be approximately $130.0 million. The Company's share of costs of this
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
phase is expected to be of approximately the same magnitude as that of the first phase and such costs have been provided for in the financial statements.
As previously discussed, the Company has provided for its share of costs with respect to the site monitoring, leachate control and gas control phases; however, it cannot currently estimate the cost of any subsequent phases of work or final remediation which may be required by the EPA.
Another consent decree is currently being executed by the PRPs and will be logged with the court for approval. This consent decree allows for the settlement of the pending lawsuits against the municipalities and transporters not named by the EPA. The settlement totals approximately $70.0 million of which approximately $55.0 million will be credited against future expenses.
The Company has entered into a Joint Defense Agreement with the other PRPs to defend against a lawsuit filed September 7, 1994 by ninety-five homeowners alleging, among other things, nuisance, trespass, strict liability and infliction of emotional distress. At this stage of the lawsuit the Company is not able to estimate costs or potential liability but the defendants intend to aggressively pursue the defense and discovery once all defendants have been served and answers have been filed.
In 1989, Adobe received requests from the EPA for information pursuant to Section 104(e) of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to the D. L. Mud and Gulf Coast Vacuum Services superfund sites located in Abbeville, Louisiana. With respect to the Gulf Coast Site the Company has entered into a sharing agreement with other PRP'S to participate in the final remediation and a design plan has been submitted and is awaiting approval by the EPA. The Company's share of the remediation, which has been provided for in the financial statements, is approximately $600,000 and includes its proportionate share of those PRPs who do not have the financial resources to provide their share of the work at the site. A former site owner has already conducted remedial activities at the D. L. Mud Site under a state agency agreement.
On April 4, 1994, the Company received a request from the EPA for information pursuant to Section 104(e) of CERCLA and a letter ordering the Company and seven other PRPs to negotiate with the EPA regarding implementation of a remedial plan for a site located in Santa Fe Springs, California. The Company owned the property on which the site is located from 1921 to 1932. During that time the property was leased to another company and in 1932 the property was sold to that company. During the time the other company leased or owned the property, hazardous wastes were allegedly disposed at the site. The EPA estimates that the total past and future costs for remediation will approximate $9.4 million. The Company filed its response to the Section 104(e) order setting forth its position and defenses based on the fact that the other company was the lessee and operator of the site during the time the Company was the owner of the property. However, the Company has also given its Notice of Intent to comply with the EPA's order to prepare a remediation design plan. Six of the other PRPs have also notified the EPA of their intent to comply. The cost of such a remediation design plan is estimated to be approximately $1.0 million. To date there has been no agreement on how to allocate costs among the PRPs.
On January 23, 1995 the Company received a request from the EPA for information pursuant to Section 401(e) of CERCLA, seeking information relating to the number and contents of drums, barrels and other materials that were sent to the Hansen Container Site, located in Grand Junction, Colorado, for reconditioning, disposal or storage. The EPA provided documentation evidencing two transactions in which the Company sold drums, which the Company believes to have been empty, which may have been reconditioned or stored at the site. The Company has responded to the inquiry, indicating that it has no documentation or knowledge with respect to any other transactions related to the site, and is awaiting further correspondence from the EPA. The Company is not able to estimate its exposure with respect to this site at this time.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain key employees. The initial term of each agreement expired on December 31, 1990 and, on January 1, 1991 and beginning on each January 1 thereafter, is automatically extended for one-year periods, unless by September 30 of any year the Company gives notice that the agreement will not be extended. The term of the agreements is automatically extended for a minimum of 24 months following a change of control. The consummation of the Merger constituted a change of control as defined in the agreements.
In the event that following a change of control employment is terminated for reasons specified in the agreements, the employee would receive: (i) a lump sum payment equal to two years' base salary; (ii) the maximum possible bonus under the terms of the Company's incentive compensation plan; (iii) a lapse of restrictions on any outstanding restricted stock grants and full payout of any outstanding Phantom Units; (iv) cash payment for each outstanding stock option equal to the amount by which the fair market value of the common stock exceeds the exercise price of the option; and, (v) life, disability and health benefits for a period of up to two years. In addition, payments and benefits under certain employment agreements are subject to further limitations based on certain provisions of the Internal Revenue Code.
INTEREST RATE SWAPS
Prior to the Merger, Adobe had entered into two interest rate swaps with a bank with notional principal amounts of $15.0 million and $20.0 million. The $15.0 million swap expired in December 1992 and the $20.0 million swap expired in April 1994. For the period from the effective date of the Merger to December 31, 1992 the amount due the bank in accordance with the terms of the $20.0 million swap totalled $0.6 million and the amount due the bank in 1993 and 1994 totalled $0.9 million and $0.2 million, respectively. For the period subsequent to the Merger, the amount due the bank in accordance with the terms of the $15.0 million swap totaled $0.5 million.
OPERATING LEASES
The Company has noncancellable agreements with terms ranging from one to ten years to lease office space and equipment. Minimum rental payments due under the terms of these agreements are: 1995 -- $6.2 million, 1996 -- $5.8 million, 1997 -- $5.4 million, 1998 -- $4.6 million, 1999 -- $2.8 million and $2.0 million thereafter. Rental payments made under the terms of noncancellable agreements totaled $4.5 million in 1992, $5.5 million in 1993 and $6.2 million in 1994.
OTHER MATTERS
The Company has certain long-term contracts, which are being administered by Hadson, ranging up to twelve years for the supply and transportation of approximately 20 million cubic feet per day of natural gas to the Company's operations in Kern County, California. In the aggregate, these contracts involve a minimum commitment on the part of the Company of approximately $11.2 million per year (based on prices and transportation charges in effect for December 1994). In connection with the development of a gas field in Argentina in which the Company has a 19.9% working interest, a gas contract for 106 million cubic feet of gas per day with "take-or-pay" and "delivery-or-pay" obligations was executed in 1994 with a gas distribution company.
There are other claims and actions, including certain other environmental matters, pending against the Company. In the opinion of management, the amounts, if any, which may be awarded in connection with any of these claims and actions could be significant to the results of operations of any period but would not be material to the Company's consolidated financial position.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) INCOME TAXES
Effective January 1, 1993 the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 -- "Accounting for Income Taxes". The adoption of SFAS No. 109 had no significant impact on the Company's provision for income taxes.
Through the date of the Spin-Off the taxable income or loss of the Company was included in the consolidated federal income tax return filed by SFP. The consolidated federal income tax returns of SFP have been examined through 1990 and all years prior to 1981 are closed. Issues relating to the open years are being contested through various stages of administrative appeal. The Company has filed separate consolidated federal income tax returns for periods subsequent to the Spin-Off. The consolidated returns of the Company through 1990 have been audited and the year 1991 is currently under audit.
During 1989, the Company received a notice of deficiency for certain state franchise tax returns filed for the years 1978 through 1983 as part of the consolidated tax returns of SFP. The matter was contested by the Company and resolved in 1994. The years 1984 through 1990 are currently being audited. The Company believes adequate provision has been made for any adjustments which might be assessed with respect to all open years.
With the Merger of Adobe the Company succeeded to a net operating loss carryforward that is subject to Internal Revenue Code Section 382 limitations which annually limit taxable income that can be offset by such losses. Certain changes in the Company's shareholders may impose additional limitations as well. Losses carrying forward of $134.5 million which expire beginning in 1998 are subject to the Section 382 limitations. The Company has total loss carryforwards of $163.9 million.
Pretax income from continuing operations for the years ended December 31, 1994, 1993 and 1992 was taxed under the following jurisdictions (in millions of dollars): 1994 1993 1992 ---- ------ ---- Domestic............................. 22.0 (120.9) 2.7 Foreign.............................. 1.1 (29.3) (3.6) ---- ------ ---- 23.1 (150.2) (0.9) ==== ====== ====
The Company's income tax expense (benefit) for the years ended December 31, 1994, 1993 and 1992 consisted of (in millions of dollars):
1994 1993 1992 ---- ------ ---- Current U.S. federal..................... (3.5) (1.3) 3.5 State............................ (3.2) (1.2) 1.4 Foreign.......................... 1.4 1.3 1.9 ---- ------ ---- (5.3) (1.2) 6.8 ---- ------ ---- Deferred U.S. federal..................... 8.6 (65.6) (3.5) U.S. federal tax rate change..... -- 2.6 -- State............................ 2.4 (8.0) (2.5) Foreign.......................... 0.3 (0.9) (0.3) ---- ------ ---- 11.3 (71.9) (6.3) ---- ------ ---- 6.0 (73.1) 0.5 ==== ====== ====
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's deferred income tax liabilities (assets) at December 31, 1994 and 1993 are composed of the following differences between financial and tax reporting (in millions of dollars): 1994 1993 ------ ------ Capitalized costs and write-offs..... 113.8 83.0 Differences in Partnership basis..... 3.9 15.1 State deferred liability............. 8.2 5.8 Foreign deferred liability........... 14.1 13.7 ------ ------ Gross deferred liabilities........... 140.0 117.6 ------ ------ Accruals not currently deductible for tax purposes....................... (14.1) (17.7) Alternative minimum tax carryforwards...................... (11.7) (8.3) Net operating loss carryforwards..... (57.4) (46.7) Other................................ (0.5) (0.5) ------ ------ Gross deferred assets................ (83.7) (73.2) ------ ------ Deferred tax liability............... 56.3 44.4 ====== ======
The Company had no deferred tax asset valuation allowance at December 31, 1994 or 1993.
A reconciliation of the Company's U.S. income tax expense (benefit) computed by applying the statutory U.S. federal income tax rate to the Company's income (loss) before income taxes for the years ended December 31, 1994, 1993 and 1992 is presented in the following table (in millions of dollars): 1994 1993 1992 ------ ------ ---- U.S. federal income taxes (benefit) at statutory rate.................. 8.1 (52.6) (0.3) Increase (reduction) resulting from: State income taxes, net of federal effect........................... 0.9 (1.0) 1.4 Foreign income taxes in excess of U.S. rate........................ 1.4 (0.8) 0.3 U.S. tax on foreign reinvested earnings......................... 1.2 -- -- Effect of increase in statutory rate on deferred taxes........... -- 2.6 -- Benefit of tax losses.............. (4.3) (11.2) -- Prior period adjustments........... (1.6) (9.9) -- Other.............................. 0.3 (0.2) (0.9) ------ ------ ---- 6.0 (73.1) 0.5 ====== ====== ====
The Company increased its deferred tax liability in 1993 as a result of legislation enacted during 1993 increasing the corporate tax rate from 34% to 35% commencing in 1993.
SANTA FE ENERGY RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosure About Fair Value of Financial Instruments" requires the disclosure, to the extent practicable, of the fair value of financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences, if any, of realization or settlement. The following table reflects the financial instruments for which the fair value differs from the carrying amount of such financial instrument in the Company's December 31, 1994 and 1993 balance sheets (in millions of dollars):
The fair value of the Trust Units and convertible preferred stock is based on market prices. The fair value of the Company's fixed-rate long-term debt is based on current borrowing rates available for financings with similar terms and maturities. With respect to the Company's floating-rate debt and the note receivable from Hadson, the carrying amount approximates fair value. The fair value of the interest rate swap represents the estimated cost to the Company over the remaining life of the contract.
(15) SUBSEQUENT EVENT
In February 1995 the Company sold its interest in Cherokee Resources Incorporated ("Cherokee"), a privately-held oil and gas company, for approximately $4.3 million (subject to certain adjustments). The Company's basis in its investment in Cherokee at December 31, 1994 was approximately $1.8 million.
SANTA FE ENERGY RESOURCES, INC. SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OIL AND GAS RESERVES AND RELATED FINANCIAL DATA
Information with respect to the Company's oil and gas producing activities is presented in the following tables. Reserve quantities as well as certain information regarding future production and discounted cash flows were determined by independent petroleum consultants, Ryder Scott Company.
OIL AND GAS RESERVES
The following table sets forth the Company's net proved oil and gas reserves at December 31, 1991, 1992, 1993 and 1994 and the changes in net proved oil and gas reserves for the years ended December 31, 1992, 1993 and 1994.
SANTA FE ENERGY RESOURCES, INC. SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Proved reserves are estimated quantities of crude oil and natural gas which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves which can be expected to be recovered through existing wells with existing equipment and operating methods.
Indonesian reserves represent an entitlement to gross reserves in accordance with a production sharing contract. These reserves include estimated quantities allocable to the Company for recovery of operating costs as well as quantities related to the Company's net equity share after recovery of costs. Accordingly, these quantities are subject to fluctuations with an inverse relationship to the price of oil. If oil prices increase, the reserve quantities attributable to the recovery of operating costs decline. Although this reduction would be offset partially by an increase in the net equity share, the overall effect would be a reduction of reserves attributable to the Company. At December 31, 1994, the quantities include 0.5 million barrels which the Company is contractually obligated to sell for $.20 per barrel.
At December 31, 1993 the Company's reserves were 6.9 million barrels of crude oil and liquids and 14.5 Bcf of natural gas lower than at December 31, 1992, reflecting the sale in 1993 of properties with reserves totalling 8.7 million barrels of crude oil and liquids and 47.4 Bcf of natural gas.
The Company has certain commitments with respect to the delivery of natural gas (see Note 12) which the Company believes it can fulfill from its proved reserves and supply contracts with other companies.
At December 31, 1994, 1.8 million barrels of crude oil reserves and 17.1 billion cubic feet of natural gas reserves were subject to a 90% net profits interest held by Santa Fe Energy Trust.
SANTA FE ENERGY RESOURCES, INC. SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
ESTIMATED PRESENT VALUE OF FUTURE NET CASH FLOWS
Estimated future net cash flows from the Company's proved oil and gas reserves at December 31, 1994, 1993 and 1992 are presented in the following table (in millions of dollars, except as noted):
SANTA FE ENERGY RESOURCES, INC. SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The following tables sets forth the changes in the present value of estimated future net cash flows from proved reserves during 1994, 1993 and 1992 (in millions of dollars):
SANTA FE ENERGY RESOURCES, INC. SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Estimated future cash flows represent an estimate of future net cash flows from the production of proved reserves using estimated sales prices and estimates of the production costs, ad valorem and production taxes, and future development costs necessary to produce such reserves. No deduction has been made for depletion, depreciation or any indirect costs such as general corporate overhead or interest expense.
The sales prices used in the calculation of estimated future net cash flows are based on the prices in effect at year end. Such prices have been held constant except for known and determinable escalations.
Operating costs and ad valorem and production taxes are estimated based on current costs with respect to producing oil and gas properties. Future development costs are based on the best estimate of such costs assuming current economic and operating conditions.
Income tax expense is computed based on applying the appropriate statutory tax rate to the excess of future cash inflows less future production and development costs over the current tax basis of the properties involved. While applicable investment tax credits and other permanent differences are considered in computing taxes, no recognition is given to tax benefits applicable to future exploration costs or the activities of the Company that are unrelated to oil and gas producing activities.
The information presented with respect to estimated future net revenues and cash flows and the present value thereof is not intended to represent the fair value of oil and gas reserves. Actual future sales prices and production and development costs may vary significantly from those in effect at year-end and actual future production may not occur in the periods or amounts projected. This information is presented to allow a reasonable comparison of reserve values prepared using standardized measurement criteria and should be used only for that purpose.
SANTA FE ENERGY RESOURCES, INC. SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
The following table includes all costs incurred, whether capitalized or charged to expense at the time incurred (in millions of dollars):
SANTA FE ENERGY RESOURCES, INC. SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
The following table sets forth information concerning capitalized costs at December 31, 1994 and 1993 related to the Company's oil and gas operations (in millions of dollars):
------------------------------- OTHER INDONESIA FOREIGN TOTAL --------- ------- --------- Oil and gas properties Unproved......................... 12.0 10.7 64.3 Proved........................... 68.0 -- 1,986.8 Other............................ -- -- 13.2 Accumulated amortization of unproved properties......................... (2.8) (9.9) (28.5) Accumulated depletion, depreciation and impairment of proved properties......................... (22.4) -- (1,212.2) Accumulated depreciation of other oil and gas properties -- -- (4.3) --------- ------- --------- 54.8 0.8 819.3 ========= ======= =========
SANTA FE ENERGY RESOURCES, INC. SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
The following table sets forth the Company's results of operations from oil and gas producing activities for the years ended December 31, 1994, 1993 and 1992 (in millions of dollars):
Income taxes are computed by applying the appropriate statutory rate to the results of operations before income taxes. Applicable tax credits and allowances related to oil and gas producing activities have been taken into account in computing income tax expenses. No deduction has been made for indirect cost such as corporate overhead or interest expense.
SANTA FE ENERGY RESOURCES, INC. SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SUMMARIZED QUARTERLY FINANCIAL DATA
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.
SANTA FE ENERGY RESOURCES, INC.
By /s/ R. GRAHAM WHALING R. GRAHAM WHALING SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) Dated: March 13, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE AND TITLE
JAMES L. PAYNE, Chairman of the Board, President and Chief Executive Officer and Director (PRINCIPAL EXECUTIVE OFFICER)
R. GRAHAM WHALING, Senior Vice President and Chief Financial Officer (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
DIRECTORS Rod F. Dammeyer William E. Greehey Melvyn N. Klein Robert D. Krebs Allan V. Martini Michael A. Morphy Reuben F. Richards By: /s/R. GRAHAM WHALING David M. Schulte R. GRAHAM WHALING Marc J. Shapiro SENIOR VICE PRESIDENT AND Robert F. Vagt CHIEF FINANCIAL OFFICER Kathryn D. Wriston ATTORNEY IN FACT
Dated: March 13, 1995
SANTA FE ENERGY RESOURCES, INC. SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1994 (IN MILLIONS OF DOLLARS)
1994 1993 1992 ---- ---- ---- Accounts receivable Balance at the beginning of period ........... 6.3 5.0 2.6 Charge (credit) to income ................ 0.6 -- -- Net amounts written off .................. (3.8) (0.1) (1.1) Other(a) ................................. -- 1.4 3.5 ---- ---- ---- Balance at the end of period ................. 3.1 6.3 5.0 ==== ==== ====
(a) Represents valuation accounts related to accounts receivable acquired in merger with Adobe Resources Corporation.
INDEX OF EXHIBITS A. EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3(a) -- Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Form S-2 Registration Statement of Santa Fe Energy Resources, Inc. ("SFER, Inc.") Commission File No. 33-32831).
3(b) -- Bylaws, as amended (incorporated by reference to Exhibit 3(b) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1992).
4(a) -- Form of Certificate of Designation, Rights and Preferences of the 7% Convertible Preferred Stock of Santa Fe Energy Resources, Inc. (incorporated by reference to Exhibit 3(b) of the Form S-4 Registration Statement of SFER, Inc., Commission File No. 33-45043).
4(b) -- Note Agreement dated as of March 31, 1990, by and among Santa Fe Energy Resources, Inc. and various institutional investors relating to the issuance of $365,000,000 of Senior Notes maturing 1993-2005, as amended (incorporated by reference to Exhibit 4(b) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1990).
4(c) -- Amendment dated as of November 1, 1992, to Note Agreement dated as of March 30, 1990, by and among Santa Fe Energy Resources, Inc. and various institutional investors, relating to the issuance of $365,000,000 of Senior Notes maturing 1993 to 2005, as amended (incorporated by reference to Exhibit 4(c) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1992).
4(d) -- Amendment dated as of December 31, 1993, to Note Agreement dated as of March 30, 1990, by and among Santa Fe Energy Resources, Inc. and various institutional investors, relating to the issuance of $365,000,000 of Senior Notes maturing 1993 to 2005, as amended (incorporated by reference to Exhibit 4(d) to SFER Inc.'s Annual Report on Form 10-K for the year ended December 31, 1993).
4(e) -- Form of Certificate of Designation of the Dividend Enhanced Convertible Stock, $.732 Series A Convertible Preferred Stock of Santa Fe Energy Resources, Inc. (incorporated by reference to Exhibit 4.3 of the Form S-3 Registration Statement of SFER, Inc., Commission File No. 33-52849).
4(f) -- Form of Indenture dated as of May 25, 1994 and Form of Debenture relating to Santa Fe Energy Resources, Inc. 11% Senior Subordinated Debentures Due 2004 (incorporated by reference to Exhibit 4.1 of the Form S-3 Registration Statement of SFER, Inc., Commission File No. 33-52849).
10(a) -- Agreement for the Allocation of the Consolidated Federal Income Tax Liability Among the Members of the Santa Fe Pacific Corporation ("SFP") Affiliated Group, as amended, dated December 23, 1983 (incorporated by reference to Exhibit 10.8 of the Form S-2 Registration Statement of SFER, Inc. Commission File No. 33-32831).
10(b) -- Santa Fe Energy Resources, Inc. Incentive Compensation Plan (incorporated by reference to Exhibit 10(d) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1990).
10(c) -- Santa Fe Energy Resources, Inc. 1990 Incentive Stock Compensation Plan, as amended (incorporated by reference to Exhibit 10(h) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1992).
10(d) -- Example of employment agreements entered into with executive officers of SFER, Inc (incorporated by reference to Exhibit 10(f) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1990).
10(e) -- Example of Indemnification Agreement with SFER, Inc. directors and officers (incorporated by reference to Exhibit 10(g) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1990).
10(f) -- Spin Off Tax Indemnification Agreement between SFER, Inc. and SFP (incorporated by reference to Exhibit 10(h) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1990).
10(g) -- Agreement Concerning Taxes among the Company, certain subsidiaries of the Company and SFP (incorporated by reference to Exhibit 10(i) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1990).
10(h) -- Agreements for the Allocation of the Combined State Income Tax Liability Among the Members of the Santa Fe Pacific Corporation Affiliated Group for the States of Arizona, California, Illinois, Kansas, New Mexico, Oregon and Utah (incorporated by reference to Exhibit 10(j) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1990).
10(i) -- Agreement of Limited Partnership, South Belridge Limited Partnership, dated as of October 31, 1990, by and between Santa Fe Energy Resources, Inc. and the Prudential Insurance Company of America (incorporated by reference to Exhibit 10(k) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1990).
10(j) -- Santa Fe Energy Resources Supplemental Retirement Plan, effective as of December 4, 1990 (incorporated by reference to Exhibit 10(l) to SFER, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1990).
10(k) -- Santa Fe Energy Resources, Inc. Deferred Compensation Plan, effective as of January 1, 1991 as amended and restated, effective February 1, 1994 (incorporated by reference to Exhibit 10(p) to SFER Inc.'s Annual Report on Form 10-K for the year ended December 31, 1993).
10(l) -- Stock Ownership and Registration Rights Agreement dated December 10, 1991, by, between and among SFER, Inc., Minorco, and Minorco (U.S.A.) Inc. (incorporated by reference to Exhibit 10(r) of the Form S-4 Registration Statement of SFER, Inc., Commission File No. 33-45043).
10(m) -- Form of Net Profits Conveyance from Santa Fe Energy Resources, Inc. to Texas Commerce Bank, Trustee of the Santa Fe Energy Royalty Trust (incorporated by reference to Exhibit 10.1 of the Form S-1/S-3 Registration of Santa Fe Energy Resources, Inc. and Santa Fe Energy Trust, Commission File No. 33-51760).
10(n) -- Form of Wasson Conveyance from Santa Fe Energy Resources, Inc. to Texas Commerce Bank, Trustee of the Santa Fe Energy Royalty Trust (incorporated by reference to Exhibit 10.2 of the Form S-1/S-3 Registration of Santa Fe Energy Resources, Inc. and Santa Fe Energy Trust, Commission File No. 33-51760).
10(o) -- Gas Marketing Agreement, dated as of December 14, 1993, between Santa Fe Energy Resources, Inc., Santa Fe Energy Operating Partners, L.P. and Adobe Gas Pipeline Company (incorporated by reference to Exhibit 10(t) to SFER Inc.'s Annual Report on Form 10-K for the year ended December 31, 1993).
10(p) -- Agreement of Sale and Purchase by and among Santa Fe Energy Resources, Inc., Santa Fe Energy Operating Partners, L.P. and Bridge Oil (U.S.A.) Inc. dated December 2, 1993 (incorporated by reference to Exhibit 10(u) to SFER Inc.'s Annual Report on Form 10-K for the year ended December 31, 1993).
10(q) -- Amended and Restated Revolving Credit Agreement dated as of March 16, 1994 among Santa Fe Energy Resources, Inc., the banks signatory thereto, and Texas Commerce Bank National Association as Co-Agent and Administrative Agent and NationsBank of Texas, N.A. as Co-Agent (incorporated by reference to Exhibit 10(v) to SFER Inc.'s Annual Report on Form 10-K for the year ended December 31, 1993).
10(r) -- Letter of Credit Agreement dated as of March 16, 1994 among Santa Fe Energy Resources, Inc., the banks signatory thereto, and Texas Commerce Bank National Association as Co-Agent and Administrative Agent and NationsBank of Texas, N.A. as Co-Agent (incorporated by reference to Exhibit 10(w) to SFER Inc.'s Annual Report on Form 10-K for the year ended December 31, 1993).
*10(s) -- Securities Purchase Agreement among Santa Fe Energy Resources, Inc., as Seller, and LG&E Energy Corp. and Carousel Acquisition Corporation, as Buyers, dated February 10, 1995.
*21 -- Subsidiaries of the registrant.
*23(a) -- Consent of Independent Accountants with respect to Registration Statements on Form S-8 (Nos. 33-37175, 33-44541 and 33-44542).
*23(b) -- Consent of Ryder Scott Company with respect to Registration Statements on Form S-8 (Nos. 33-37175, 33-44541 and 33-44542).
*24 -- Powers of Attorney
* Included in this report.
B. REPORTS ON FORM 8-K.
None