10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 (NO FEE REQUIRED) Commission File Number 1-8094 SEAGULL ENERGY CORPOATION (Exact name of registrant as specified in its charter) Texas 74-1764876 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1001 Fannin,Suite 1700 Houston, Texas 77002-6714 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area Code: (713) 951-4700 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, par value $.10 per share New York Stock Exchange Preferred Stock, par value $1.00 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 day. YES X NO 2 Indicate by check mark if disclosuere of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 20, 1995, the aggregate market value of the outstanding shares of Common Stock of the Company held by non-affiliates (based on the closing price of these shares on the New York Stock Exchange) was approximatley $640,491,550. Indicate the number of shares outstanding of each of the registrant's classes of Common Stock, as of the latest practicable date. Class Outstanding at March 20, 1995 Common Stock, par value $.10 per share 36,123,702 DOCUMENTS INCORPORATED BY REFERENCE Document (1) Annual Report to Shareholders for Part of Form 10-K year ended December 31, 1994 PARTS I and II (2) Proxy Statement for Annual Meeting PART III of Shareholders to be held on May 15, 1995 3 PART I ITEM 1. BUSINESS Seagull Energy Corporation (the "Company" or "Seagull") is an independent energy company primarily engaged in natural gas exploration, development and production. The Company's operations are focused offshore Texas and Louisiana in the Gulf of Mexico and onshore in three principal geographic regions: (i) the Mid-Continent Region located in western Oklahoma and the Texas Panhandle; (ii) the Mid-South Region, primarily in the Arklatex area in eastern Texas and northern Louisiana and the Arkoma Basin in eastern Oklahoma and western Arkansas; and (iii) western Canada. Seagull's two other business segments are also natural gas related: (i) pipeline and marketing, which include natural gas supply, marketing and transportation, principally in the southwestern United States; pipeline transportation of hydrocarbon products and petrochemicals in Texas and Louisiana; pipeline engineering, design, construction and operation; and natural gas processing in Texas; and (ii) natural gas transmission and distribution in Alaska. The Company was incorporated in Texas in 1973 as a wholly owned subsidiary of Houston Oil & Minerals Corporation ("HO&M"). In March 1981, the Company became an independent entity as a result of the spin-off of its shares to the stockholders of HO&M. The "Company" or "Seagull" refers to Seagull and its consolidated subsidiaries, unless otherwise indicated or the context otherwise suggests. For financial information relating to industry segments, see Note 13 of Notes to Consolidated Financial Statements of Seagull Energy Corporation and Subsidiaries. The Consolidated Financial Statements of Seagull Energy Corporation and Subsidiaries and the Notes related thereto (the "Consolidated Financial Statements") are included in the Company's 1994 Annual Report to Shareholders and as part of Exhibit 99.1 attached hereto. Prior to 1994, the Company derived no revenues and had no material assets outside the United States. See discussions below regarding the Seagull Canada Acquisition and interests in production licenses acquired in United Kingdom waters. EXPLORATION AND PRODUCTION Seagull's exploration and production ("E&P") segment is the Company's primary growth area and is comprised of the following material direct and indirect wholly owned subsidiaries of the Company: Seagull Energy E&P Inc.; HO&M; Wacker Oil Inc.; Seagull Midcon Inc.; Seagull Mid-South Inc., formerly Arkla Exploration Company; Seagull Energy Canada Ltd. and Seagull Energy Canada Holding Company. On January 4, 1994, an indirect wholly owned subsidiary of Seagull acquired all of the outstanding shares of stock of Novalta Resources Inc. ("Novalta") from Novacor Petrochemicals Ltd. (the "Seagull Canada Acquisition"). Effective as of the January 4, 1994 Closing Date, Novalta was amalgamated with Seagull Energy Canada Ltd., the indirect subsidiary of Seagull that acquired Novalta. The resulting amalgamated company was named Seagull Energy Canada Ltd. ("Seagull Canada"). Seagull Canada's assets (the "Seagull Canada Properties") consist primarily of natural gas and oil reserves and developed and undeveloped lease acreage concentrated principally in a small number of fields located in Alberta, Canada. According to reserve estimates prepared as of December 31, 1993 by the independent petroleum engineering firm, DeGolyer and MacNaughton, the Seagull Canada Properties had proved reserves totaling 257.4 billion cubic feet ("Bcf") of natural gas and 2.8 million barrels ("MMbbl") of oil, condensate and natural gas liquids. 1 4 In 1993, a four-company exploration group including Seagull was awarded four production licenses in United Kingdom waters. Those awards, together with the purchase of additional interests, gave Seagull interests in four licenses in U.K. waters totaling 458,798 gross (97,854 net) acres. Seismic studies and other evaluation activities on the licensed blocks have been ongoing since mid-1993. During 1994, one well was successfully tested for hydrocarbons, a second unsuccessful well was completed and a third well was in progress at year-end. The 1995 drilling program calls for three additional wells to be drilled in the United Kingdom waters. Seagull's ongoing exploration program has been concentrated in the Gulf of Mexico, primarily in shallow waters off the central Texas Gulf Coast. The Company has in the past financed its gas and oil exploration and development activities through internally generated funds, bank borrowings and participation by industry partners on a prospect-by-prospect basis. The Company believes that its gas and oil exploration and development activities in the foreseeable future will be financed by internally generated funds. In 1995, the Company expects E&P capital expenditures to total approximately $112 million. Of this amount, about $48 million will be devoted to exploration, primarily in the Gulf of Mexico, $49 million to development and $15 million to leasehold acquisition. Of the expected development capital expenditures, about $13 million is targeted for the Mid-South Region, $13 million for the Gulf of Mexico, $10 million for the Mid-Continent Region and $13 million for Western Canada. By comparison, 1994 capital expenditures for E&P activities totaled $136 million. The Company expects to fund these capital expenditures from internally generated funds but may reduce capital expenditure levels if economic conditions dictate. Revenues from the sale of gas and liquids production accounted for 64%, 60% and 38% of the Company's consolidated revenues for 1994, 1993 and 1992, respectively. As used in this Annual Report on Form 10-K, liquids means oil, condensate and natural gas liquids, unless otherwise indicated or the context otherwise suggests. Gas production in 1994 increased primarily as a result of contributions attributable to the Seagull Canada Properties acquired in January 1994 and to production flowing for the first time in late 1993 and early 1994 from certain of the Company's discoveries. Production of gas and liquids for 1994 averaged 355.2 million cubic feet ("MMcf") per day ("MMcf/d") and 5,063 barrels ("Bbl") per day ("Bbl/d"), respectively, compared to 279.5 MMcf/d and 4,641 Bbl/d, respectively, in 1993. 2 5 Seagull's principal gas and oil properties include the following:
Average Net Daily Production for the Year Ended At December 31, 1994 December 31, 1994 ____________________ ____________________________ Proved Number of Reserves Natural Gas Liquids Field State Gross Wells (Bcfe)(1) (MMcf) (Bbl) ________________________________________________________________________________________________________ UNITED STATES: Mid-South Region: Arklatex Area: Carthage Texas 233 174 24.8 487 Oak Hill Texas 49 21 4.8 28 Waskom Texas 73 60 17.8 164 Ruston Louisiana 39 49 15.8 126 Sligo Louisiana 50 15 4.9 41 Arkoma Basin: Cecil Arkansas 208 68 21.6 - Aetna Arkansas 110 35 12.4 - Wilburton Oklahoma 59 24 12.0 - Other 464 105 43.5 485 Mid-Continent Region: Panhandle West Texas 68 49 14.6 6 Panhandle Gray Texas 133 28 0.2 651 Watonga-Chickasha Oklahoma 156 39 13.8 98 Strong City Oklahoma 110 32 14.2 122 Other 316 73 22.4 388 Offshore Texas 44 53 53.8 240 Offshore Louisiana 12 37 18.3 443 Gulf Coast Onshore 17 19 6.2 614 _________________________________________________________ 2,141 881 301.1 3,893 CANADA (2) 787 292 54.1 1,170 _________________________________________________________ 2,928 1,173 355.2 5,063 =========================================================
(1) The equivalent of one billion cubic feet ("Bcfe") of natural gas. Liquids are converted to gas at a ratio of one barrel of liquids per six Mcf ("Mcf" represents one thousand cubic feet) of gas, based on relative energy content. (2) The Seagull Canada Properties were acquired on January 4, 1994 in connection with the Seagull Canada Acquisition. Average net daily production amounts assume the Seagull Canada Acquisition occurred on December 31, 1993. For additional information relating to the Company's gas and oil reserves, based substantially upon reports of Netherland, Sewell & Associates, Inc., DeGolyer and MacNaughton and Ryder Scott Company, independent petroleum engineers (collectively the "Engineers"), see Note 4 of the Consolidated Financial Statements included in the Company's 1994 Annual Report to Shareholders and as part of Exhibit 99.1 attached hereto. The Engineers provided the estimates of "proved developed and undeveloped reserves" and "proved developed reserves" at the beginning and end of each of the three years included in Note 4. Under "Standardized Measure of Discounted Future Net Cash Flows" in Note 4, the Engineers provided all information except "discounted income taxes" and "standardized measure of discounted future net cash flows". All information in Note 4 not provided by the Engineers was supplied by the Company. As required, Seagull also files estimates of gas and oil reserve data with various governmental regulatory authorities and agencies. The basis for reporting reserves to these authorities and agencies, in some cases, may not be comparable. However, the difference in estimates does not exceed 5%. 3 6 The future results of this segment will be affected by the market prices of natural gas and liquids. The availability of a ready market for gas and liquids products in the future will depend on numerous factors beyond the control of the Company, including weather, production of other natural gas and liquids products, imports, marketing of competitive fuels, proximity and capacity of gas and liquids pipelines and other transportation facilities, any oversupply or undersupply of gas and liquids products, the regulatory environment and other regional and political events, none of which can be predicted with certainty. As in the past, the Company would expect to continue curtailing a portion of its gas production whenever prices are deemed to be below acceptable levels. Gas prices declined steadily throughout the year after hitting levels of $2.19 per Mcf domestically and $1.89 per Mcf in Canada during the first quarter. The low point was in the fourth quarter, when gas prices averaged $1.59 per Mcf in the U.S. and $1.33 per Mcf in Canada. Average prices for the full year came to $1.88 per Mcf domestically and $1.55 per Mcf in Canada. GAS AND OIL DRILLING ACTIVITIES Seagull's gas and oil exploratory and developmental drilling activities are as follows for the periods indicated. Totals shown in each category include wells completed as productive wells and wells abandoned as dry holes. A well is considered productive for purposes of the following table if it justifies the installation of permanent equipment for the production of gas or oil. A well is deemed to be a dry hole if it is determined to be incapable of commercial production. The term "gross wells" means the total number of wells in which Seagull owns an interest, while the term "net wells" means the sum of the fractional working interests Seagull owns in gross wells.
Year Ended December 31, ------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------- Gross Net Gross Net Gross Net UNITED STATES: Exploratory Drilling: Productive Wells 5 3.23 8 5.19 3 1.28 Dry Holes 10 6.48 19 9.20 12 5.51 Development Drilling: Productive Wells 119 69.34 100 54.62 24 16.11 Dry Holes 11 5.11 22 13.71 2 0.73 CANADA: Exploratory Drilling: Productive Wells 5 1.67 - - - - Dry Holes 1 0.33 - - - - Development Drilling: Productive Wells 110 54.95 - - - - Dry Holes 1 0.50 - - - - OTHER INTERNATIONAL: Exploratory Drilling: Dry Holes 2 0.53 - - - -
From January 1, 1995 through February 28, 1995, the Company drilled 2 gross (2.00 net) successful exploratory wells and 4 gross (1.52 net) dry exploratory wells. In addition, the Company drilled 17 gross (10.00 net) successful development wells. The Company has 5 gross (2.38 net) exploratory wells and 16 gross (6.48 net) development wells in progress or being evaluated. As of the beginning of 1995, the Company had an inventory of approximately 85 exploratory prospects, including about 20 in Canada. 4 7 PRODUCTION The following table summarizes the Company's production, average sales prices and lifting costs for the periods indicated:
Year Ended December 31, ---------------------------------- 1994 1993 1992 -------- -------- -------- UNITED STATES: Net Production: Gas (MMcf) 109,900 102,025 38,137 Oil and condensate (Mbbl)(1) 1,204 1,412 1,014 Natural gas liquids (Mbbl) 217 282 265 Combined (MMcfe)(2) 118,427 112,188 45,809 Average sales price (3): Gas (per Mcf) $ 1.88 $ 1.99 $ 1.85 Oil and condensate (per Bbl) $15.98 $ 16.72 $18.60 Natural gas liquids (per Bbl) $ 9.45 $ 11.10 $10.20 Combined (per Mcfe) (2) $ 1.90 $ 2.03 $ 2.01 Average lifting costs of gas and liquids (per Mcfe) (4) $ 0.44 $ 0.47 $ 0.57 CANADA(5): Net Production: Gas (MMcf) 19,755 -- -- Oil and condensate (Mbbl) 324 -- -- Natural gas liquids (Mbbl) 103 -- -- Combined (MMcfe) 22,317 -- -- Average sales price : Gas (per Mcf) $ 1.55 -- -- Oil and condensate (per Bbl) $ 12.67 -- -- Natural gas liquids (per Bbl) $ 8.12 -- -- Combined (per Mcfe) $ 1.66 -- -- Average lifting costs of gas and liquids (per Mcfe) $ 0.51 -- --
(1) Thousands of Bbl ("Mbbl"). (2) The equivalent of one thousand cubic feet ("Mcfe") and one million cubic feet ("MMcfe") of natural gas. (3) Average sales prices are before deduction of production, severance, and other taxes. (4) Lifting costs represent costs incurred to operate and maintain wells and related equipment and facilities. These costs include, among other things, repairs and maintenance, workover expenses, labor, materials, supplies, property taxes, insurance, severance taxes and transportation costs. (5) The Seagull Canada properties were acquired on January 4, 1994 in connection with the Seagull Canada Acquisition. 5 8 The following table sets forth information regarding the number of productive wells in which the Company held a working interest at December 31, 1994. Productive wells are either producing wells or wells capable of commercial production although currently shut in. One or more completions in the same borehole are counted as one well.
Gross Net --------------------- ---------------------- United United States Canada States Canada ------ ------- ------ ------- Gas (*) 1,885 772 940.86 407.54 Oil 256 15 179.44 10.32 ----- ----- -------- ------ Total 2,141 787 1,120.30 417.86 ===== ===== ======== ======
(*) Includes 328 gross (162.76 net) and 439 gross (296.50 net) gas wells with multiple completions for the United States and Canada, respectively. For additional information relating to gas and oil producing activities, see Note 4 of the Consolidated Financial Statements included in the Company's 1994 Annual Report to Shareholders and as part of Exhibit 99.1 attached hereto. DEVELOPED AND UNDEVELOPED GAS AND OIL ACREAGE As of December 31, 1994, the Company owned working interests in the following developed and undeveloped gas and oil acreage:
Developed Undeveloped --------------------------- --------------------------- Gross Net (1) Gross Net (1) ---------- ---------- ---------- ---------- UNITED STATES: Onshore: Oklahoma 312,748 128,517 92,827 45,079 Arkansas 225,651 68,875 29,453 20,870 Texas 160,642 84,092 22,606 8,908 Louisiana 51,339 22,897 10,968 3,032 Mississippi 17,370 7,837 16,652 7,284 Other 18,151 11,907 6,721 4,720 Bays and State Waters 1,694 846 6,999 6,011 Federal Offshore: Texas 145,144 64,557 176,590 140,015 Louisiana 49,658 26,269 78,942 55,409 CANADA 399,171 202,410 462,578 273,792 UNITED KINGDOM - - 458,798 97,854 --------- ------- --------- ------- 1,381,568 618,207 1,363,134 662,974 ========= ======= ========= =======
(1) When describing acreage on drilling locations, the term "net" refers to the total acres on drilling locations in which the Company has a working interest, multiplied by the percentage working interest owned by the Company. Additionally, as of December 31, 1994, the Company owned mineral and/or royalty interests in 222,768 gross (31,568 net) developed and 297,508 gross (45,789 net) undeveloped gas and oil acreage. 6 9 COMPETITION The Company's competitors in gas and oil exploration, development, production and marketing include major oil companies, as well as numerous independent oil and gas companies, individuals and drilling programs. Some of these competitors have financial and personnel resources substantially in excess of those available to the Company and, therefore, the Company may be placed at a competitive disadvantage. The Company's success in discovering reserves will depend on its ability to select suitable prospects for future exploration in today's competitive environment. MARKETS Most industry observers believe there currently exists a very delicate balance between supply and demand of natural gas in North America. Since mid-1994, however, the average market price for natural gas has been significantly weakened due to a real or perceived oversupply situation caused by many factors such as (i) reduced demand due to milder than normal weather, (ii) new deliverability from wells recently drilled in the favoring price environment of the last two years, (iii) additional volumes imported from Canada, and (iv) more "efficiency" in the nation's pipeline and storage grid stimulated by open-access competition under FERC Order 636. The Company believes that while the current conditions in the market may persist for a while, the long-term fundamentals still favor natural gas as the "fuel of choice" for an increasing share of the market. REGULATION UNITED STATES Aspects of the production, sale and transportation of natural gas and crude oil in federal Outer Continental Shelf waters are regulated pursuant to various federal statutes, including the Outer Continental Shelf Lands Act. The interstate transportation of natural gas is regulated under the Natural Gas Act ("NGA") or the Natural Gas Policy Act of 1978 ("NGPA"). Operations conducted by the Company on federal gas and oil leases must comply with numerous statutory and regulatory restrictions. Additionally, certain operations must be conducted pursuant to appropriate permits issued by government agencies, such as the Bureau of Land Management and the Minerals Management Service of the Department of Interior and, in regard to certain federal leases, prior approval of drill site locations must be obtained from the Environmental Protection Agency. In all states in which the Company engages in gas and oil exploration and production, its activities are subject to regulation. These regulations generally require permits for the drilling, the prevention of waste of gas and oil reserves, the prevention and cleanup of pollution and other matters. Government agencies in various states regulate, among other things, the amount and rate of gas and oil production. The states of Texas and Oklahoma have recently revised their regulations regarding production allowables. The regulations imposed by state agencies affect deliverability under certain of the Company's gas purchase contracts and thereby affect the purchasers' volumetric purchase obligations. In addition to changing the allowables, Oklahoma has promulgated regulations pursuant to Senate Bill 168, which govern sharing of gas markets among working interest owners and disbursement of royalty proceeds. Over the past several years, the Federal Energy Regulatory Commission (the "FERC") has issued certain orders that have brought sweeping changes to the regulatory structure governing interstate sales and 7 10 transportation of natural gas. Collectively, these orders have changed the gas pricing structure and altered the traditional relationship among producers, pipelines and end-use markets. Most pipelines are in the process of transforming themselves from their strictly-merchant role to a combination of merchant and open-access transporter. Producers frequently contract directly with end-users or other gas buyers and transportation services can be arranged by either the buyer, the seller or a broker on a first-come, first-serve basis. These FERC orders therefore provide the Company with greater marketing options. CANADA Seagull Canada has exploration and development operations in Alberta and Saskatchewan. The natural gas and oil industry is subject to extensive controls and regulations imposed by various government entities in Canada. Natural Gas Pricing Prior to deregulation of natural gas markets, prices in Canada were legislated by the government. In the current deregulated environment, the price of natural gas is determined by negotiations between buyers and sellers. Exports of natural gas require approvals similar to those required for exports of oil, as described below. Crude Oil Pricing Since June 1, 1985, producers of oil have been entitled to negotiate sales contracts directly with oil purchasers. Oil exporters are entitled to export oil pursuant to contracts, the terms of which do not exceed one year in the case of light crude and two years in the case of heavy crude, provided that an order approving the export has been obtained from the Natural Energy Board ("NEB"). Any export to be made pursuant to a contract of a longer duration requires the exporter to obtain a license from the NEB, and the issuance of such a license requires the approval of the Governor General in Council. Provincial Royalties and Incentives The royalty regime is a significant factor in the profitability of gas and oil production. Royalties payable on production from lands other than Crown lands are determined by negotiations between the mineral owner and the lessee. Crown royalties are determined by government regulation and are generally calculated as a percentage of the value of the gross production; the rate of royalties payable depends in part on well productivity and field discovery date. From time to time the governments of Canada, Alberta and Saskatchewan have established incentive programs which have included royalty rate reductions, royalty holidays and tax credits for the purpose of encouraging gas and oil exploration. In November 1991, the Government of Alberta announced temporary royalty incentives for oil exploration and development. The relief program provides for: (i) a two year royalty holiday for exploratory oil wells drilled between November 1, 1991 and March 31, 1992 and a one year royalty holiday for exploratory wells drilled between April 1, 1992 and March 31, 1993 and an extra one year royalty holiday for exploratory wells drilled in the foothills and northern regions of the Province, with a cap of $1 million per well; (ii) a one year royalty holiday on development oil wells drilled between November 1, 1991 and March 31, 1993 with a cap of $400,000 per well; (iii) a five year royalty holiday for reactivated oil wells which obtained a well license prior to July 30, 1993 and which have been continuously inactive since August 31, 1990, with a 25,000 barrel cap which was raised to 50,000 barrels pursuant to the October 13, 1992 announcement; and (iv) new oil royalty rates for reactivated wells. 8 11 On October 13, 1992, the Government of Alberta announced major changes to its royalty structure and permanent incentives for exploring and developing gas and oil reserves. The regulations incorporating these changes were adopted on January 20, 1993. The significant changes announced include the following: (i) new oil discovered after September 30, 1992 will have a permanent one year oil royalty holiday, subject to a maximum of $1 million and a reduced royalty rate thereafter; (ii) reduction of royalties on existing production of gas and oil; (iii) incentives by way of royalty holidays and reduced royalties on reactivated and horizontal wells; (iv) introduction of separate par pricing for light, medium and heavy oil; and (v) modification of the royalty formula structure to provide for sensitivity to price fluctuations. Effective January, 1994 the Government of Alberta introduced administrative changes to the Gas Royalty System. The intent of this change is to reduce administrative costs incurred by industry and government. A price and productivity sensitive royalty structure for natural gas and crude oil in the Province of Saskatchewan has been in effect since 1987. The royalty structure provides for royalty holidays for certain categories of wells drilled in the Province of Saskatchewan and royalties which vary with the price of a particular commodity. For a description of regulation of environmental matters affecting Seagull Canada, see Environmental Matters below. PIPELINE AND MARKETING Seagull is involved in the pipeline transportation of natural gas, hydrocarbon products and petrochemicals in Texas, Louisiana and Mississippi. In addition, the Company is engaged in pipeline engineering, design, construction and operation, natural gas processing, third-party natural gas marketing and the marketing of Seagull's natural gas and liquids production. Revenue from the pipeline and marketing segment accounted for 10%, 11% and 16% of the Company's consolidated revenues for 1994, 1993 and 1992, respectively. GAS PIPELINES The Company owns and operates short and medium length gathering pipelines that carry gas from producing fields to other pipelines which are owned by utility companies, large gas transmission companies, or others, and to industrial customers (referred to herein collectively as "Gas Purchasers"). The Company owns and operates 21 onshore and offshore natural gas gathering systems having an aggregate length of approximately 396 miles. Seagull's gas pipelines, which do not form an interconnected system, are principally located in Texas, Louisiana and offshore along the Texas coast. In addition, the Company owns partial interests in and operates two other offshore gas pipelines. Seagull transports gas under arrangements where customers are charged a fee for gas carried through Seagull's pipelines. Seagull also delivers gas through its pipelines pursuant to contracts whereby it purchases and resells gas. In the case of purchase and sales contracts, the margin between Seagull's cost of gas and its resale revenues constitutes, in effect, a transportation fee. 9 12 Natural gas producers prefer flexibility in commitment of gas reserves both as to term and pricing. Some of the wells connected to the Company's pipelines are not dedicated to those pipelines. It is probable that most gas wells currently connected to the Seagull gas gathering systems will remain connected from year-to-year with deliverability of reserves declining until depleted. In many situations, it is no longer practical for a major pipeline company to consider gas reserves to be firmly committed to its facilities. Several systems are located in good prospective gas development areas where some new gas wells have been drilled, and more development may occur. In areas of active drilling, it is likely that new wells and additional gas volumes can be added to the systems. The following table shows the volumes of gas transported for the periods shown:
Year Ended December 31, ----------------------------------------- 1994 1993 1992 ------- ------- ------- Volume (MMcf): Sales Contracts 634 1,419 2,290 Transportation Fee Arrangements 100,416 112,081 69,660 ------- ------- ------ Total 101,050 113,500 71,950 ======= ======= ======
HYDROCARBON PRODUCTS AND PETROCHEMICAL PIPELINES The Company owns and/or operates pipelines for the transportation of liquid hydrocarbon products and petrochemicals. Seagull operates seven such pipelines, three of which it owns and all of which are located in Texas or Louisiana. GAS MARKETING The Company actively provides marketing services geared toward matching gas supplies available in the major producing areas with attractive markets available in the Midwest, Northeast, Mid-Atlantic, Appalachian and Texas/Louisiana Gulf Coast areas. The matching process includes arranging transportation on a network of open-access pipelines on a firm or interruptible basis. Marketing profit margins are often small due to competition, and results can vary significantly from month to month. Large amounts of working capital are involved for relatively small net margins, which makes working capital management critical. The Company has policies and procedures in place that are designed to minimize any potential risk of loss from these transactions. These policies and procedures are reviewed and updated periodically by the Company's management. PIPELINE OPERATIONS AND CONSTRUCTION Seagull operates certain pipelines owned by other companies. In some cases the operating agreements provide for reimbursement of expenses incurred in connection with operation plus a profit margin. In other cases the Company receives a negotiated annual fee. The Company also builds pipelines for other companies for which it receives construction fees that are fixed, cost plus or a combination of both. The Company recognized operating profit in 1994 and 1993 on a gas pipeline construction project. The project was completed in the first quarter of 1994. 10 13 Historically, the Company has not been engaged in pipeline construction projects on a regularly recurring basis. Seagull had no other new construction projects in 1994; however, Seagull is currently conducting marketing efforts and anticipates it will generate new projects. GAS PROCESSING The Company owns interests in a number of gas processing plants. The largest of the plants is located in Matagorda County, Texas (the "Matagorda Plant"), and has been in operation since March 1981. Seagull owns a 65% undivided interest in and operates the Matagorda Plant, and the other 35% interest is owned by a subsidiary of Enron Corp. The Matagorda Plant processes natural gas, producing a full-range demethanized raw mix products stream. The actual throughput at the Matagorda Plant varies depending upon gas sales demand and production-related mechanical factors. For the year ended December 31, 1994, throughput averaged approximately 252 MMcf/d, which was slightly lower than the prior year. Throughput volumes are expected to remain at the same level for the foreseeable future. Profitability will depend largely on the relative prices of products and natural gas. COMPETITION The Company actively competes with numerous other companies for the construction and operation of short and medium length pipelines. The Company's competitors include oil companies, other pipeline companies, natural gas gatherers and petrochemical transporters, many of which have financial resources, staffs and facilities substantially larger than those of the Company. In addition, many of the Company's Gas Purchasers are also competitors or potential competitors in the sense that they have extensive pipeline-building capabilities and experience and generally operate large pipeline systems of their own. Seagull believes that its ability to compete will depend primarily on its ability to complete pipeline projects quickly and cost effectively, and to operate pipelines efficiently. The Company's gas marketing activities are in competition with numerous other companies offering the same services. Some of these competitors are affiliates of companies with extensive pipeline systems that are used for transportation from producers to end-users. The Company believes its ability to compete depends upon building strong relationships with producers and end-users by consistently purchasing and supplying gas at competitive prices. REGULATION Government regulation has a significant effect on various segments of the Company's pipeline operations. Its pipeline systems are regulated by state and federal regulatory agencies with respect to safety, location and other matters. The FERC has jurisdiction over, among other things, the construction and operation of pipelines and related facilities used in the transportation, storage and sale of natural gas in interstate commerce. The FERC also has jurisdiction over the rates and charges levied by companies subject to the NGA for the transportation of natural gas in interstate commerce and for the sale of natural gas for resale in interstate commerce. At the Company's request, FERC has decertified the Company's former interstate facility and it is no longer subject to NGA jurisdiction. 11 14 Sales of natural gas by the Company's marketing subsidiary are generally not regulated by the FERC. Transportation and sales for resale of gas in interstate commerce by some of the Company's intrastate pipelines are regulated by the FERC pursuant to Section 311 of the NGPA. Section 311 permits intrastate pipelines to engage in certain transactions with interstate pipelines and their customers without being regulated as interstate pipelines under the NGA, thus allowing more flexibility in operations between intrastate and interstate gas pipeline companies. The FERC has revised its Section 311 regulations to allow intrastate pipelines to transport gas destined for interstate commerce under self-implementing blanket certificates. In April 1992, the FERC issued its Order No. 636 (and related orders), which basically requires interstate pipelines to "unbundle" or separate their transportation services from their merchant sales of gas. This permits end-users of gas to contract directly with producers to purchase gas and to contract separately with pipelines for transportation services. As the interstate pipelines began operating under Order No. 636 during 1993, new opportunities were created throughout the industry. While it remains difficult to predict the ultimate impact Order No. 636 will have on the Company, new opportunities to market and transport natural gas are being explored by the Company. The extensive regulatory proceedings required under this order have not directly affected the Company's pipelines significantly to date. With regard to pipeline design, construction, operation and maintenance, state regulatory commissions generally have the authority to take all steps necessary to ensure compliance by intrastate pipeline and gathering companies with applicable safety regulations. The FERC also regulates certain aspects of intrastate pipeline construction related to Section 311 transportation or storage services. The Company is also subject to safety regulations imposed by the Office of Pipeline Safety of the Department of Transportation (the "DOT"), promulgated pursuant to the Natural Gas Pipeline Safety Act of 1968 and enforced by the Texas Railroad Commission. Pursuant to regulations regarding drug abuse enacted by the DOT and adopted by the Texas Railroad Commission, the Company has implemented a drug abuse prevention program that strives for a safe and drug-free workplace for its employees. ALASKA TRANSMISSION AND DISTRIBUTION The Company operates in Alaska through ENSTAR Natural Gas Company ("ENG"), a division of the Company, and Alaska Pipeline Company ("APC"), an Alaska corporation and a wholly owned subsidiary of the Company. ENG and APC are currently operated as a single business unit, ENSTAR Alaska ("ENSTAR Alaska"), and are regulated as a single operating unit by the Alaska Public Utilities Commission (the "APUC"). APC engages in the intrastate transmission of natural gas in South-Central Alaska. ENG engages in the distribution of natural gas in Anchorage and other nearby communities in Alaska and is APC's only customer. Revenues from the natural gas transmission and distribution segment accounted for 26%, 29% and 46% of the Company's consolidated revenues for 1994, 1993 and 1992, respectively. ENSTAR Alaska's predecessor was formed in 1959 and began serving the Anchorage area with natural gas in 1961. Five years later, in 1966, the predecessor became one of the original entities that formed Alaska Interstate Company, a newly organized public company the shares of which were traded on the New York Stock Exchange. Alaska Interstate Company changed its name to ENSTAR Corporation in 1982. 12 15 In 1985, the Company purchased ENSTAR Alaska for $55 million in cash plus $10 million in the form of a seven-year unsecured, 10% subordinated note. At the time of the acquisition, APC had outstanding debt of approximately $65 million. The transaction received the final approval of the APUC in June 1985. GAS TRANSMISSION SYSTEM APC owns and operates the only natural gas transmission lines in its service area that are operated for utility purposes. The pipeline transmission system is composed of approximately 277 miles of 12- to 20-inch diameter pipeline and approximately 71 miles of smaller diameter pipeline. The system's present design delivery capacity is approximately 410 MMcf/d. The average throughput of the system in 1994, 1993 and 1992 was 121, 110 and 112 MMcf/d, respectively. GAS DISTRIBUTION SYSTEM ENG distributes natural gas through approximately 1,962 miles of gas mains to approximately 90,100 residential, commercial, industrial and electric power generation customers within the cities and environs of Anchorage, Eagle River, Palmer, Wasilla, Soldotna, Kenai and the Nikiski area of the Kenai Peninsula, Alaska. During the year ended December 31, 1994, ENG added approximately 46 miles of new gas distribution mains, installed 1,886 new service lines and added approximately 1,900 net customers. ENG anticipates relatively modest growth in its residential customer base and will install additional main and service lines to accommodate this growth. ENG distributes gas to its customers under tariffs which provide for varying delivery priorities. ENG's business is seasonal with approximately 65% of its sales made in the first and fourth quarters of each year. In 1994, purchase/resale volumes represented 71% of ENG's throughput. The remaining volumes are transported for power and industrial customers for a transportation fee. Purchase/resale volumes accounted for 91% of ENG's operating margin in 1994. ENG's five largest customers are Municipal Light and Power ("ML&P"), an electric utility; the U. S. Air Force; the U. S. Army; the State of Alaska; and Unocal Corporation. Together, they account for about $7.3 million in annual operating margin and about 16 Bcf per year in volumes, which represent about 14% and 37%, respectively, of ENG totals. GAS SUPPLY In May 1988, APC entered into a gas purchase contract (the "Marathon Contract") with Marathon Oil Company ("Marathon") providing for the delivery of approximately 450 Bcf of gas in the aggregate. The Marathon Contract is a "requirements" contract with no specified daily deliverability or annual take-or-pay quantities. APC has agreed to purchase and Marathon has agreed to deliver all of APC's gas requirements in excess of those provided for in other presently existing gas supply contracts, subject to certain exceptions, until the commitment has been exhausted and without limit as to time; however, Marathon's delivery obligations are subject to certain specified annual limitations after 2001. The contract has a base price of $1.55 per Mcf plus reimbursements for any severance taxes and other charges. The base price is subject to annual adjustment based on changes in the price of certain traded oil futures contracts. During 1994, the cost of gas purchased under the Marathon Contract averaged $1.67 per Mcf, including reimbursements for severance taxes. The Marathon Contract, as amended in 1991, has been approved by the APUC. 13 16 Effective January 1, 1992, APC amended a gas purchase contract with Shell Oil Company and ARCO Alaska, Inc. (the "Shell Contract") to extend the term of the contract through the year 2009, modify the price, delivery and the deliverability provisions and provide procedures for reducing take-or-pay volumes for the effect of APC sales volumes that are displaced by gas sales made by others. The Shell Contract provides for the delivery of up to approximately 220 Bcf of gas. The amendments revised the price to a base price of $1.971 per Mcf plus reimbursements for any severance taxes and an annual adjustment based on changes in the price of certain traded oil futures contracts from the relevant base price. Certain portions of the gas purchased under the amendments may be priced under a pricing term similar to the Marathon Contract. The 1994 price under the Shell Contract, after application of contractual adjustments, averaged $1.71 per Mcf, including reimbursements for severance taxes. The amendments provide for varying deliverability, before displaced gas sales adjustments, up to a maximum of 110 MMcf/d through 1995, and take-or-pay quantities, before displaced gas sales adjustments, up to a maximum of 15.4 Bcf per year through 1994 (15 Bcf per year thereafter). The Shell Contract, as amended, has been approved by the APUC. Combined, the Marathon and Shell Contracts will supply all of ENSTAR Alaska's gas supply requirements through the year 2001. After that time supplies will still be available under these contracts in accordance with their terms, but the annual limitations contained in the Marathon Contract will begin to take effect. As a result, after 2001, at least a portion of ENSTAR Alaska's requirements are expected to be satisfied outside the terms of those contracts, as currently in effect. Based on gas purchases during the twelve months ended December 31, 1994, which are not necessarily indicative of the volume of future purchases, gas reserves committed to APC under the Marathon and Shell Contracts would have a current reserve life index of approximately 14 years. ENSTAR Alaska's average cost of gas sold in 1994, 1993 and 1992 was $1.74, $2.07 and $1.94 per Mcf, respectively. The average price of gas sold by ENSTAR Alaska in 1994, 1993 and 1992 was $3.23, $3.56 and $3.41 per Mcf, respectively. As stated above, ENSTAR Alaska purchases all of its natural gas under long-term contracts in which the price is indexed to changes in the price of crude oil futures contracts. However, because ENSTAR Alaska's sales prices are adjusted to include the projected cost of its natural gas, there has been and is expected to be little or no impact on margins derived from ENSTAR Alaska's gas sales as a result of fluctuations in oil prices due to worldwide political events and changing market conditions. ENSTAR Alaska has no material take-or-pay obligations and does not anticipate any such obligations in the foreseeable future. COMPETITION ENSTAR Alaska competes primarily with municipal and cooperative electric power distributors and with various suppliers of fuel oil and propane for the available energy market. There are also extensive coal reserves proximate to ENSTAR Alaska's operating area; however, such reserves are not presently being produced. During the last six years, ENSTAR Alaska's natural gas volumes delivered on a purchase/resale basis have declined primarily due to three of its major customers electing to purchase gas directly from gas producers. During 1988, Chugach Electric Association, the smallest of the three customers, entered into a contract to purchase gas directly from a producer. The contract became effective on April 1, 1989, resulting in a 14 17 displacement of gas sales at that time of approximately 2.6 Bcf per year. ENSTAR Alaska currently continues to transport approximately 1.3 Bcf per year of Chugach Electric Association's gas volumes, although at a lower fee than the margin earned on sales volumes because of the proximity of the customer's facility to a producing field and a producer-owned pipeline. The remaining 1.3 Bcf of natural gas required by Chugach Electric Association in 1989 was displaced by a 90-megawatt hydroelectric facility at Bradley Lake, completed in September 1991. During the fourth quarter of 1991, ML&P, the largest of the three customers, began purchasing gas directly from three gas producers, which displaced gas sales of approximately 8.0 Bcf per year. However, the APUC approved a tariff allowing ENSTAR Alaska to transport these volumes from ML&P's purchase points to the ML&P electric generation facilities for a transportation fee that approximates the margin that would have been earned had ML&P remained a sales customer rather than becoming a transportation customer. Deliveries of gas to ML&P during 1994, 1993 and 1992 amounted to approximately 17%, 18% and 19%, respectively, of the total deliveries of gas by ENSTAR Alaska. In December 1994, the Department of Defense awarded a one-year contract to a gas producer to supply natural gas to the power plants located on two military bases that were then gas sales customers of ENSTAR Alaska. The contract became effective February 1, 1995 and displaced gas sales of approximately 4.7 Bcf per year. However, ENSTAR Alaska and the gas producer have entered into an agreement whereby ENSTAR Alaska transports these volumes from the producer's facilities to the military power plants for a transportation fee equal to the margin that would have been earned had the military power plants remained a sales customer. Consequently, ENSTAR Alaska anticipates no significant adverse economic impact to result from this matter. The transportation agreement between ENSTAR Alaska and the gas producer has been approved by the APUC. If any other existing large customer of ENSTAR Alaska chooses to purchase gas directly from producers, ENSTAR Alaska would expect to collect a fee for transporting that gas equivalent to the margin earned on sales volumes for those customers because the large distance of remaining user facilities from producing fields would preclude the by-pass of ENSTAR Alaska's pipelines. ENSTAR Alaska supplies natural gas to its customers at prices that at the present time economically preclude substitution of alternative fuels. Since the Shell Contract and the Marathon Contract include prices that fluctuate based on oil indices, a competitive margin favoring natural gas over oil-based energy sources is expected to continue. However, there is no assurance that the competitive advantage over other alternative fuels will not be reduced or eliminated by the development of new energy technology or by changes in the price of oil or refined products. REGULATION The APUC has jurisdiction as to rates and charges for gas sales, construction of new facilities, extensions and abandonments of service and certain other matters. Rates are generally designed to permit the recovery of the cost of providing service, including purchased gas costs, and a return on investment in plant. APC and ENG are regulated by the APUC on a combined basis as though they were a single entity. Because ENSTAR Alaska's operations are wholly intrastate, ENSTAR Alaska is not subject to or affected by Order 636 or any other economic regulation by the FERC. As a result of a proceeding filed in 1984, which was concluded in May 1986, the APUC granted ENSTAR Alaska an aggregate rate increase of 20.27% and authorized a regulatory rate of return on common 15 18 equity of 15.65%. ENSTAR Alaska has no significant regulatory issues pending before the APUC. Since its inception in 1961, ENSTAR Alaska has participated in only three formal rate proceedings. The Company is a "public utility company" within the meaning of the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"). Accordingly, if any "company" (as defined for purposes of the 1935 Act and therefore including so-called "organized groups") becomes the owner of 10% or more of the Company's outstanding voting stock, that company would be required to register as a "holding company" under the 1935 Act, in the absence of an exemption of the type described below. Section 9(a)(2) also requires a person (including both individuals and "companies") to obtain prior approval from the Securities and Exchange Commission (the "SEC") in connection with the acquisition of 5% or more of the outstanding voting stock of a public utility if that person is also the owner of 5% or more of the outstanding voting stock of another public utility. In March 1991, the Company filed in good faith with the SEC an application pursuant to Section 2(a)(8) of the 1935 Act, seeking a determination that Seagull was not subject to regulation as a "subsidiary company" of FMR Corp. (the "FMR Application"), which was then the owner of 2,805,624 shares (approximately 12.5% at such time) (shares adjusted for a 2-for-1 stock split of all the issued shares of the Company's common stock (the "Common Stock"), effected June 4, 1993) of the outstanding Common Stock. Under the 1935 Act, a company is a "subsidiary company" of a "holding company" if the "holding company" owns 10% or more of the total voting power of the "subsidiary company", unless the SEC determines otherwise. Based upon the most recent information furnished to the Company by FMR Corp., FMR Corp. was the beneficial owner (albeit within the meaning of Section 13(d) of the Securities Exchange Act of 1934) of 2,760,074 shares, which is approximately 8% of the Common Stock as of February 13, 1995. However, although FMR Corp.'s ownership and control, within the meaning of the 1935 Act, has fallen below 10% of the outstanding voting stock of the Company, the Company does not currently intend to withdraw the FMR Application. In December 1993, Seagull filed in good faith with the SEC an additional application pursuant to Section 2(a)(8) of the 1935 Act, seeking a determination that the Company was not subject to regulation as a "subsidiary company" of AXA Assurances I. A. R. D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances I. A. R. D. Mutuelle, Alpha Assurances Vie Mutuelle, Uni Europe Assurance Mutuelle and AXA (collectively, the "Mutuelles AXA") and The Equitable Companies Incorporated ("Equitable") and their respective affiliates (collectively, the "Equitable Entities"), (the "Equitable Application"). At such time, the Equitable Entities beneficially owned 4,495,600 shares (approximately 12.5%) of Common Stock. Based upon the most recent information furnished to the Company by the Equitable Entities, the Equitable Entities were the beneficial owners (albeit within the meaning of Section 13(d) of the Securities Exchange Act of 1934) of 2,721,800 shares, which represents approximately 8% of the Common Stock as of February 10, 1995. However, although the Equitable Entities' ownership and control has fallen below 10% of the outstanding voting stock of the Company, the Company does not currently intend to withdraw the Equitable Application. Even if FMR Corp. or the Equitable Entities held 10% or more of the outstanding voting stock of the Company, as a result of its good faith filing of the two applications, the Company currently would not be subject to any obligation, duty or liability imposed by the 1935 Act, unless and until the SEC enters an order denying or otherwise adversely disposing of the applications. To date, no such order has been issued. The Company believes that the FMR Application and the Equitable Application ultimately should be granted. 16 19 ENVIRONMENTAL MATTERS Seagull, as an owner and operator of gas and oil properties, is subject to various federal, state, local and foreign country laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an gas and oil lease for the cost of pollution clean-up resulting from operations, subject the lessee to liability for pollution damages, require suspension or cessation of operations in affected areas and impose restrictions on the injection of liquids into subsurface aquifers that may contaminate groundwater. For a discussion of the Gulf Coast Vacuum Site matter, see Legal Proceedings below. Seagull Canada's gas and oil operations are largely regulated by the Energy Resources Conservation Board for the province of Alberta and the Department of Energy and Mines for the province of Saskatchewan. These bodies enforce legislation which regulates all aspects of exploration, development and production, including the licensing of wells, pipelines and facilities. Environmental legislation provides for restrictions and prohibitions on releases or emissions of various substances produced in association with certain gas and oil industry operations. In addition, legislation requires that well and facility sites must be abandoned and reclaimed to the satisfaction of provincial authorities, typically to pre-disturbance quality. A breach of such legislation may result in the imposition of fines and penalties. Seagull has made and will continue to make expenditures in its efforts to comply with these requirements, which it believes are necessary business costs in the gas and oil industry. Although environmental requirements do have a substantial impact upon the energy industry, generally these requirements do not appear to affect Seagull any differently or to any greater or lesser extent than other companies in the industry. Seagull maintains insurance coverages which it believes are customary in the industry, although it is not fully insured against all environmental risks. The Company is not aware of any environmental claims existing as of December 31, 1994, which would have a material impact upon the Company's financial position or results of operations. Seagull does not believe that compliance with federal, state, local or foreign country provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material adverse effect upon the capital expenditures, earnings or competitive position of the Company or its subsidiaries, but there is no assurance that changes in or additions to laws or regulations regarding the protection of the environment will not have such an impact. Seagull has established policies that provide for continuing compliance with environmental laws and regulations, as well as operational procedures designed to limit the environmental impact of its field facilities. EMPLOYEES As of February 28, 1995, the Company had 759 full time employees. In addition to the services of its full time employees, the Company employs, as needed, the services of consulting geologists, engineers, regulatory consultants, contract pumpers and certain other temporary employees. ENSTAR Alaska operates under collective bargaining agreements with separate bargaining units for operating and clerical employees. These units represent approximately 70% of ENSTAR Alaska's work force. Contracts effective April 1, 1992 were negotiated that set wages and work relationships extending to April 1, 1995 for the clerical bargaining unit and until April 1, 1996 for the operating bargaining unit. The Company is not a party to any other collective bargaining agreements. The Company has never had a work stoppage. 17 20 The Company considers its relations with its employees to be satisfactory. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company, each of whom has been elected to serve until his or her successor is elected and qualified, are as follows:
Years Served Years in As Executive Current Name Age Officer Position Positions ----------------------------------------------------------------------------------------------------------------------------- Barry J. Galt 61 11 11 Chairman of the Board, President and Chief Executive Officer John W. Elias 54 2 - Executive Vice President and Chief Operating Officer Robert W. Shower 57 3 1 Executive Vice President and Chief Financial Officer Richard F. Barnes 51 7 7 President of ENSTAR Natural Gas Company (a division of the Company) and Alaska Pipeline Company (a subsidiary of the Company) John N. Goodpasture 46 13 2 President, Seagull Pipeline & Marketing Company (a subsidiary of the Company) and Senior Vice President, Pipelines T. P. McConn 61 6 2 President, Seagull Energy E&P Inc. (a subsidiary of the Company) and Senior Vice President, Exploration and Production Rodney W. Bridges 45 5 2 Vice President and Controller Janice K. Hartrick 42 2 2 Chief Counsel and Vice President, Environmental Affairs Robert M. King 34 5 2 Vice President, Corporate Development and Treasurer
The business experience of each of the executive officers named above who has held the position(s) set forth opposite his or her name for less than five years, is as follows: Mr. Elias joined the Company as Executive Vice President in April 1993 and was named Executive Vice President and Chief Operating Officer in January 1995. For the previous 30 years, he served in a variety of positions for Amoco Production Company and its parent, Amoco Corporation, most recently as Group Vice President of Worldwide Natural Gas for Amoco Production Company. 18 21 Mr. Shower joined the Company as Senior Vice President and Chief Financial Officer in March 1992 and was named Executive Vice President of the Company in December 1993. He served as Senior Vice President, Corporate Development for Albert Fisher, Inc. from 1991 to February 1992. From 1990 to 1991, he was Vice President and Chief Financial Officer with AmeriServ Food Company. From 1986 to 1990, he served as a Managing Director, Corporate Finance, for Lehman Brothers Inc., formerly Shearson Lehman Hutton Inc. Mr. Goodpasture joined the Company and has been an executive officer since 1981 and was named President of Seagull Pipeline Company in March 1990 and Senior Vice President, Pipelines, in December 1992. Most recently, he was named President of Seagull Pipeline & Marketing Company in June 1994. Mr. McConn was named Vice President, Exploration and Production of the Company in January 1990 and President of Seagull Energy E&P Inc. in March 1991. In December 1992, he was named Senior Vice President, Exploration and Production. Mr. Bridges joined the Company as Corporate Controller in August 1990, and was named Vice President and Controller in December 1992. From 1988 to 1990, he was Corporate Controller for TransAmerican Natural Gas Corporation. Ms. Hartrick joined Seagull as Staff Counsel in 1987 and became Chief Counsel in 1989. She was named Chief Counsel and Vice President, Environmental Affairs in December 1992. Mr. King joined the Company as Treasurer in August 1990, and was named Vice President, Corporate Development and Treasurer in December 1992. From 1986 to 1990, he was with Mellon Bank, where he served as Vice President in the Energy Division. ITEM 2. PROPERTIES Incorporated herein by reference to Item 1 of this Annual Report on Form 10-K. ITEM 3. LEGAL PROCEEDINGS Gulf Coast Vacuum Site. On March 19, 1993, Franks Petroleum, Inc. ("Franks") submitted a claim to Seagull Mid-South Inc., a subsidiary of the Company ("Seagull Mid-South"), for a portion of Franks' costs incurred in connection with the Gulf Coast Vacuum Services Superfund Site (the "GCV Site") in Vermilion Parish, Louisiana. The United States Environmental Protection Agency Region 6 (the "EPA") currently is seeking the cleanup of the GCV Site under the authority of the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). Franks previously has been identified as a potentially responsible party at the GCV Site as a result of Franks' arrangements with the former operator of the GCV Site to transport wastes from various oil and gas leases owned or operated by Franks in trucks owned by the GCV Site operator. Franks' claim against Seagull Mid-South asserts that some of the wastes hauled by the GCV Site operator on behalf of Franks came from a gas well owned by Seagull Mid-South. On February 9, 1993, the EPA also sent a notice to Houston Oil & Minerals Corporation, a subsidiary of the Company, indicating that HO&M may be a potentially responsible party at the GCV Site. Based upon the Company's investigation of this claim, the Company believes that the basis for HO&M's alleged liability is a 19 22 series of transactions between HO&M and the operator of the GCV Site that occurred during 1979 and 1980, long before Seagull acquired HO&M. The EPA's cleanup cost estimate of the GCV Site is in the range of $17 million, although other unofficial estimates indicate the cost may be higher. Under certain circumstances, liability under CERCLA is joint and several, although parties whose liability is joint and several have contribution rights against each other under CERCLA. Nevertheless, if Seagull Mid-South and/or HO&M is found to be a responsible party at the GCV Site, the Company believes that its liability is unlikely to be material to its financial condition or its results of operations because of the large number of potentially responsible parties at the GCV Site and the relative amount of contamination, if any, that may have been caused at the GCV Site by the disposal of wastes arising from the wells identified in the claims. Other. The Company is a party to ongoing litigation in the normal course of business or other litigation with respect to which the Company is indemnified pursuant to various purchase agreements or other contractual arrangements. Management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. While the outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management believes that the effect on its financial condition or results of operations, if any, will not be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 20 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS A. The Company's Common Stock (the "Common Stock") is traded on the New York Stock Exchange under the ticker symbol SGO. The high and low sales prices on the New York Stock Exchange Composite Tape for each quarterly period during the last two fiscal years were as follows:
---------------------------------------------------------------------------- High(*) Low(*) ---------------------------------------------------------------------------- 1993 First Quarter 24 1/2 14 7/8 Second Quarter 30 22 7/8 Third Quarter 32 7/8 24 Fourth Quarter 31 1/4 21 ----------------------------------------------------------------------------
High Low ---------------------------------------------------------------------------- 1994 First Quarter 28 5/8 23 5/8 Second Quarter 29 3/4 23 Third Quarter 28 5/8 22 3/4 Fourth Quarter 26 17 5/8 ----------------------------------------------------------------------------
(*) Prices have been adjusted to reflect a two-for-one split of Common Stock effected June 4, 1993. B. As of March 10, 1995, there were approximately 2,830 holders of record of Common Stock. C. Seagull has not declared any cash dividends on its Common Stock since it became a public entity in 1981. The decision to pay Common Stock dividends in the future will depend upon the Company's earnings and financial condition and such other factors as the Company's Board of Directors deems relevant. The Company's credit agreement (the "Credit Agreement") restricts the Company's declaration or payment of dividends on and repurchases of Common Stock unless each of the following tests have been met and after making such dividend payment such tests continue to be met: (i) aggregate dividend payments attributable to ENSTAR Alaska Stock must not exceed $20 million plus 100% of the net income of ENSTAR Alaska on a cumulative basis from January 1, 1994, (ii) aggregate dividend payments, other than those permitted under (i) above or on up to $150 million in preferred stock, must not exceed $20 million plus 33 1/3% of the net income of the Company (excluding net income of ENSTAR Alaska) on a cumulative basis from January 1, 1994 plus 100% of the net income of ENSTAR Alaska on a cumulative basis for such period less any dividend payments allowed under (i) above, (iii) the aggregate amount of outstanding loans under the Credit Agreement, together with all other senior indebtedness of Seagull and its subsidiaries (excluding Alaska Pipeline Company ("APC")) then outstanding, must not exceed the Borrowing Base and (iv) no Default or Event of Default shall have occurred and be continuing. The foregoing restrictions do not apply to dividends payable solely in the form of additional shares of Common Stock or to dividends payable on up to $150 21 24 million of preferred stock. The capitalized terms used herein to describe the restrictions contained in the Credit Agreement have the meanings assigned to them in the Credit Agreement. Under the most restrictive of these tests, as of December 31, 1994, approximately $27.5 million was available for payment of dividends (other than the stock dividends described above) or repurchase of Common Stock. In addition, certain debt instruments of APC restrict the ability of APC to transfer funds to the Company in the form of cash dividends, loans or advances. For a description of such restrictions, reference is made to Note 6 of the Consolidated Financial Statements included in the Company's 1994 Annual Report to Shareholders and as part of Exhibit 99.1 attached hereto. ITEM 6. SELECTED FINANCIAL DATA Incorporated herein by reference to the Selected Financial Data included in the Company's 1994 Annual Report to Shareholders and as part of Exhibit 99.1 attached hereto. 22 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated herein by reference to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 1994 Annual Report to Shareholders and as part of Exhibit 99.1 attached hereto. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated herein by reference to the Consolidated Financial Statements and Supplementary Data included in the Company's 1994 Annual Report to Shareholders and as part of Exhibit 99.1 attached hereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 23 26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to "Election of Directors" included in the Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 15, 1995 (the "Proxy Statement"). See also "Executive Officers of the Company" included in Part I of this Annual Report on Form 10-K, which is incorporated by reference herein. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to "Election of Directors--Executive Compensation--Summary Compensation Table", "--Compensation Arrangements," "--Option Exercises and Fiscal Year-End Values," "--Option Grants," "--Executive Supplemental Retirement Plan," "--ENSTAR Natural Gas Company Supplemental Retirement Plan" and "--ENSTAR Natural Gas Company Retirement Plan"; and "Election of Directors-Compensation of Directors" included in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to "Principal Shareholders" and "Election of Directors--Security Ownership of Directors and Management" included in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to "Election of Directors--Certain Transactions" included in the Proxy Statement. 24 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS: The following Consolidated Financial Statements and Independent Auditors' Report thereon are included in the Company's 1994 Annual Report to Shareholders and as part of Exhibit 99.1 attached hereto, and are incorporated herein by reference: Consolidated Financial Statements Notes to Consolidated Financial Statements Independent Auditors' Report 2. SCHEDULES: All schedules have been omitted because the required information is insignificant or not applicable. 3. EXHIBITS: 3.1 Articles of Incorporation of the Company, as amended, including Articles of Amendment filed May 12, 1988, May 21, 1991, and May 21, 1993 with the Secretary of State of the State of Texas, that certain Statement of Relative Rights and Preferences related to the designation and issuance of the Company's $2.25 Convertible Exchangeable Preferred Stock, Series A, filed August 6, 1986 with the Secretary of State of the State of Texas and that certain Statement of Resolution Establishing Series of Shares of Series B Junior Participating Preferred Stock of Seagull Energy Corporation filed March 21, 1989 with the Secretary of State of the State of Texas (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 3.2 Bylaws of the Company, as amended through January 30, 1990 (incorporated by reference to Exhibit 3.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 4.1 Note Agreement dated June 17, 1985 by and among APC and The Travelers Insurance Company, The Travelers Life Insurance Company, and the Equitable Life Assurance Society of the United States (collectively, the "Insurance Companies") (including forms of notes and other exhibits thereto) and Inducement Agreement of even date therewith by and among Seagull and the Insurance Companies (including exhibits thereto) (incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 1990). 4.2 Form of Consent and Agreement dated April 15, 1991 by and among APC and the Insurance Companies (including exhibits thereto) (incorporated by reference to Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 1992). 25 28 4.3 Rights Agreement dated as of March 17, 1989 between the Company and NCNB Texas National Bank, as Rights Agent, which includes the form of Statement of Resolution setting forth the terms of the Series B Junior Participating Preferred Stock, par value $1.00 per share, as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C (incorporated by reference to Exhibit 4.8 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 4.4 First Amendment to Rights Agreement by and between the Company and NationsBank of Texas, N. A. (formerly NCNB Texas National Bank) dated as of June 18, 1992 (incorporated by reference to Exhibit 3.4 to Registration Statement on Form S-3 (File No. 33-55426)). 4.5 Senior Indenture dated as of July 15, 1993 by and between the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K dated August 4, 1993). 4.6 Senior Subordinated Indenture dated as of July 15, 1993 by and between the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K dated August 4, 1993). 4.7 Specimen of 7 7/8% Senior Note due 2003 and resolutions adopted by the Chairman of the Board of Directors (incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K dated August 4, 1993). 4.8 Specimen of 8 5/8% Senior Subordinated Note due 2005 and resolutions adopted by the Chairman of the Board of Directors (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K dated August 4, 1993). 4.9 Note Agreement dated May 14, 1992 by and among Alaska Pipeline Company and each of the purchasers thereto (including forms of notes and other exhibits thereto) and Inducement Agreement of even date therewith by and among Seagull and Aid Association for Lutherans, The Equitable Life Assurance Society of the United States, Equitable Variable Life Insurance Company, Provident Life & Accident Insurance Company and Teachers Insurance & Annuity Association of America (including exhibits thereto) (incorporated by reference to Exhibit 4.7 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1992). 4.10 Credit Agreement, U. S. $175 Million Reducing Revolving Credit Facility, dated December 30, 1993 by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents (without exhibits) (incorporated by reference to Exhibit 2.4 to Current Report on Form 8-K filed January 19, 1994). 4.11 Intercreditor Agreement executed in connection with the Credit Agreement included as Exhibit 4.10 hereto (incorporated by reference to Exhibit 2.7 to Current Report on Form 8-K filed January 19, 1994). 26 29 4.12 First Amendment to Intercreditor Agreement executed in connection with the First Amendment to Credit Agreement included as Exhibit 4.15 hereto (incorporated by reference to Exhibit 4.8 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.13 Form of Bankers' Acceptance executed in connection with the Credit Agreement included as Exhibit 4.10 hereto (incorporated by reference to Exhibit 2.8 to Current Report on Form 8-K filed January 19, 1994). 4.14 Guarantee executed in connection with the Credit Agreement included as Exhibit 4.11 hereto (incorporated by reference to Exhibit 2.9 to Current Report on Form 8-K filed January 19, 1994). 4.15 First Amendment to Credit Agreement, U. S. $175 million Reducing Revolving Credit Facility by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents, dated May 24, 1994 (without exhibits) (incorporated by reference to Exhibit 4.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *4.16 Second Amendment to Credit Agreement, U. S. $175 million Reducing Revolving Credit Facility by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents, dated June 30, 1994. *4.17 Third Amendment to Credit Agreement, U. S. $175 million Reducing Revolving Credit Facility by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents, dated March 10, 1995. 4.18 Form of Note (U. S. Dollars) executed in connection with the First Amendment to Credit Agreement included as Exhibit 4.15 hereto (incorporated by reference to Exhibit 4.6 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.19 Form of Note (Canadian Dollars) executed in connection with the First Amendment to Credit Agreement included as Exhibit 4.15 hereto (incorporated by reference to Exhibit 4.7 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.20 Credit Agreement, $725 million Reducing Revolving Credit and Competitive Bid Facility, dated May 24, 1994 by and among Seagull, each of the banks signatory thereto and Texas Commerce Bank National Association and Chemical Bank, as co-agents (without exhibits and schedules) (incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *4.21 First Amendment to Credit Agreement, $725 million Reducing Revolving Credit and Competitive Bid Facility, dated June 30, 1994 by and among Seagull, each of the 27 30 banks signatory thereto and Texas Commerce Bank National Association and Chemical Bank, as co-agents. *4.22 Second Amendment to Credit Agreement, $725 million Reducing Revolving Credit and Competitive Bid Facility, dated March 10, 1995 by and among Seagull, each of the banks signatory thereto and Texas Commerce Bank National Association and Chemical Bank, as co-agents. 4.23 Form of Committed Note executed in connection with the Credit Agreement included as Exhibit 4.20 hereto (incorporated by reference to Exhibit 4.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.24 Form of Competitive Note executed in connection with the Credit Agreement included as Exhibit 4.20 hereto (incorporated by reference to Exhibit 4.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.25 Form of Assignment and Acceptance executed in connection with the Credit Agreement included as Exhibit 4.20 hereto (incorporated by reference to Exhibit 4.4 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). # 10.1 Seagull Thrift Plan, as amended and restated (the amended and restated plan is incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the year ended December 31, 1990; the First and Second Amendments thereto are incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K for the year ended December 31, 1991; the Third Amendment thereto is incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K for the year ended December 31, 1992). # 10.2 Employment Agreement dated December 30, 1983 by and between the Company and Barry J. Galt, Chairman of the Board, President and Chief Executive Officer of the Company (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). # 10.3 Outside Directors Deferred Fee Plan of the Company, as amended and restated (incorporated by reference to Exhibit 10.3 to Annual Report on Form 10-K for the year ended December 31, 1991). # 10.4 Seagull Energy Corporation Executive Supplemental Retirement Plan, as amended (incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for the year ended December 31, 1991). # 10.5 Executive Supplemental Retirement Plan Membership Agreement between the Company and Barry J. Galt dated as of February 3, 1986, as amended (incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K for the year ended December 31, 1991). #*10.6 ENSTAR Natural Gas Company Thrift Investment Plan, as amended and restated (the amended and restated plan is incorporated by reference to Exhibit 10.6 to Annual 28 31 Report on Form 10-K for the year ended December 31, 1992; the First and Second Amendments are incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K for the year ended December 31, 1993; the Third Amendment thereto is filed herewith). #*10.7 ENSTAR Natural Gas Company Retirement Plan for Salaried Employees, as renamed, amended and restated (incorporated by reference to Exhibit 10.7 to Annual Report on Form 10-K for the year ended December 31, 1992; the First Amendment thereto is filed herewith). #*10.8 ENSTAR Natural Gas Company Retirement Plan for Operating Unit Employees, as amended and restated (incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the year ended December 31, 1992; the First Amendment thereto is filed herewith). #*10.9 ENSTAR Natural Gas Company Profit by Service Plan for Salaried Employees, as amended and restated (the amended and restated plan is incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 1992; the First Amendment thereto is incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 1993; the Second Amendment thereto is filed herewith). #*10.10 ENSTAR Natural Gas Company Profit by Service Plan for Classified Employees, as amended and restated (the amended and restated plan is incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K for the year ended December 31, 1992; the First and Second Amendments thereto are incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K for the year ended December 31, 1993; the Third Amendment thereto is filed herewith). # 10.11 Seagull Energy Corporation Supplemental Benefit Plan, as amended (the original plan is incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-K for the year ended December 31, 1990; the First Amendment thereto is incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 1991). 10.12 Gas Purchase Agreement among Alaska Pipeline Company and Marathon Oil Company dated as of May 1, 1988, as amended (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.13 Agreement to terminate Gas Purchase Contract among Alaska Pipeline Company and Union Oil Company of California (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). # 10.14 Seagull Energy Corporation 1981 Stock Option Plan (Restated), including forms of agreements, as amended (incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 29 32 # 10.15 Seagull Energy Corporation 1983 Stock Option Plan (Restated), including forms of agreements, as amended (the amended and restated plan is incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for the year ended December 31, 1993). # 10.16 Seagull Energy Corporation 1986 Stock Option Plan (Restated), including forms of agreements, as amended (the amended and restated plan is incorporated by reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993; the amended form of Nonstatutory Stock Option Agreement is filed incorporated by reference to Exhibit 10.16 to Annual Report on Form 10-K for the year ended December 31, 1993). # 10.17 Seagull Employee Stock Ownership Plan (the "Plan") as amended, including the First through Fourth Amendments thereto (incorporated by reference to Exhibit 10.9 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.18 Non-Recourse Promissory Note from the Plan to the Company, dated November 15, 1989 (incorporated by reference to Exhibit 10.10 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.19 Security (Pledge) Agreement dated November 15, 1989 by and between the Plan and the Company (incorporated by reference to Exhibit 10.11 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.20 Sale Agreement made and entered into as of November 19, 1993 between Novacor Petrochemicals Ltd. and Seagull Energy Corporation (including Appendix J, "Tax Provisions") (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed January 19, 1994). 10.21 Guarantee executed in connection with Sale Agreement included as Exhibit 10.20 hereto (incorporated by reference to Exhibit 2.2 to Current Report on Form 8-K filed January 19, 1994). # 10.22 Seagull Energy Corporation 1990 Stock Option Plan, including forms of agreements (the Plan is incorporated by reference to Exhibit 10.42 to Annual Report on Form 10-K for the year ended December 31, 1990; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.23 to Annual Report on Form 10-K for the year ended December 31, 1993). 10.23 Gas Purchase Contract among Alaska Pipeline Company and Shell Oil Company dated as of December 20, 1982, as amended (incorporated by reference to Exhibit 10.29 to Annual Report on Form 10-K for the year ended December 31, 1991). # 10.24 Seagull Energy Corporation 1992 Executive Incentive Plan (incorporated by reference to Exhibit 10.32 to Annual Report on Form 10-K for the year ended December 31, 1991). 30 33 # 10.25 Seagull Energy Corporation 1993 Executive Incentive Plan (incorporated by reference to Exhibit 10.35 to Annual Report on Form 10-K for the year ended December 31, 1992). # 10.26 Seagull Energy Corporation 1994 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.27 Stock Purchase Agreement made and entered into as of November 16, 1992 between Arkla, Inc. and Seagull (not including disclosure schedules) (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K dated December 4, 1992, as amended). # 10.28 Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan, including forms of agreements (the Plan is incorporated by reference to Exhibit 10.37 to Annual Report on Form 10-K for the year ended December 31, 1992; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.29 to Annual Report on Form 10-K for the year ended December 31, 1993). # 10.29 Seagull Energy Corporation 1993 Stock Option Plan, including forms of agreements (the Plan is incorporated by reference to Exhibit 10.38 to Annual Report on Form 10-K for the year ended December 31, 1992; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.30 to Annual Report on Form 10-K for the year ended December 31, 1993). #*10.30 Seagull Energy Canada Ltd. Retirement Plan. #*10.31 Seagull Energy Canada Ltd. Capital Accumulation Plan. #*10.32 Restricted Stock Agreement made and entered into as of March 17, 1995 between Seagull Energy Corporation and Barry J. Galt. #*10.33 Form of Restricted Stock Agreement made and entered into as of March 17, 1995 between Seagull Energy Corporation and Richard F. Barnes (granted 2,000 shares of restricted Common Stock), John W. Elias (granted 3,000 shares of restricted Common Stock), Thomas P. McConn (granted 2,000 shares of restricted Common Stock) and Robert W. Shower (granted 3,000 shares of restricted Common Stock). #*10.34 Form of Severance Agreement between Seagull Energy Corporation and John W. Elias, Thomas P. McConn and Robert W. Shower. #*10.35 Seagull Energy Corporation Management Stability Plan. *21. Subsidiaries of Seagull Energy Corporation. *23.1 Consent of KPMG Peat Marwick LLP. 31 34 *23.2 Consent of Ryder Scott Company, independent petrolelum engineers. *23.3 Consent of DeGolyer and MacNaughton independent petroleum engineers. *24.4 Consent of Netherland, Sewell and Associates, Inc., independent petroleum engineers. *27.1 Financial Data Schedule. *99.1 Portions of the Seagull Energy Corporation and Subsidiaries Annual Report to Shareholders for the year ended December 31, 1994 which are incorporated by reference herein to this Annual Report on Form 10-K of Seagull Energy Corporation and Subsidiaries for the year ended December 31, 1994. ____________________________ * Filed herewith. # Identifies management contracts and compensatory plans or arrangements. (B) REPORTS ON FORM 8-K There were no Reports on Form 8-K filed during the three months ended December 31, 1994. 32 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SEAGULL ENERGY CORPORATION By: /s/ Barry J. Galt ---------------------------------------------------- Date: March 29, 1995 Barry J. Galt, Chairman of the Board, ------------------------------------------------- President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Barry J. Galt By: /s/ J. Evans Attwell -------------------------------------------------- ------------------------------------------------- Barry J. Galt, Chairman of the Board, President and J. Evans, Attwell, Director Chief Executive Officer and Director (Principal Executive Officer) Date: March 29, 1995 ------------------------------------------------- Date: March 29, 1995 By: /s/ Peter J. Fluor ------------------------------------------------- ------------------------------------------------- Peter J. Fluor, Director By: /s/ John W. Elias Date: March 29, 1995 -------------------------------------------------- ------------------------------------------------- John W. Elias, Executive Vice President, Chief Operating Officer and Director Date: March 29, 1995 By: /s/ William R. Grant -------------------------------------------------- ------------------------------------------------- William R. Grant, Director By: /s/ Robert W. Shower Date: March 29, 1995 -------------------------------------------------- ------------------------------------------------- Robert W. Shower, Executive Vice President and Chief Financial Officer and Director By: /s/ Dean P. Guerin (Principal Financial Officer) ------------------------------------------------- Dean P. Guerin, Director Date: March 29, 1995 Date: March 29, 1995 -------------------------------------------------- ------------------------------------------------- By: /s/ Rodney W. Bridges By: /s/ Richard M. Morrow -------------------------------------------------- ------------------------------------------------- Rodney W. Bridges, Vice President and Controller Richard M. Morrow, Director (Principal Accounting Officer) Date: March 29, 1995 Date: March 29, 1995 -------------------------------------------------- ------------------------------------------------- By: /s/ Dee S. Osborne ------------------------------------------------- Dee S. Osborne, Director Date: March 29, 1995 -------------------------------------------------- By: /s/ Sam F. Segnar ------------------------------------------------- Sam F. Segnar, Director Date: March 29, 1995 --------------------------------------------------- By: /s/ George M. Sullivan --------------------------------------------------- George M. Sullivan, Director Date: March 29, 1995 ---------------------------------------------------
36 EXHIBIT INDEX EXHIBITS:
Page 3.1 Articles of Incorporation of the Company, as amended, including Articles of Amendment filed May 12, 1988, May 21, 1991, and May 21, 1993 with the Secretary of State of the State of Texas, that certain Statement of Relative Rights and Preferences related to the designation and issuance of the Company's $2.25 Convertible Exchangeable Preferred Stock, Series A, filed August 6, 1986 with the Secretary of State of the State of Texas and that certain Statement of Resolution Establishing Series of Shares of Series B Junior Participating Preferred Stock of Seagull Energy Corporation filed March 21, 1989 with the Secretary of State of the State of Texas (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 3.2 Bylaws of the Company, as amended through January 30, 1990 (incorporated by reference to Exhibit 3.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 4.1 Note Agreement dated June 17, 1985 by and among APC and The Travelers Insurance Company, The Travelers Life Insurance Company, and the Equitable Life Assurance Society of the United States (collectively, the "Insurance Companies") (including forms of notes and other exhibits thereto) and Inducement Agreement of even date therewith by and among Seagull and the Insurance Companies (including exhibits thereto) (incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 1990). 4.2 Form of Consent and Agreement dated April 15, 1991 by and among APC and the Insurance Companies (including exhibits thereto) (incorporated by reference to Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 1992). 4.3 Rights Agreement dated as of March 17, 1989 between the Company and NCNB Texas National Bank, as Rights Agent, which includes the form of Statement of Resolution setting forth the terms of the Series B Junior Participating Preferred Stock, par value $1.00 per share, as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C (incorporated by reference to Exhibit 4.8 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 37 4.4 First Amendment to Rights Agreement by and between the Company and NationsBank of Texas, N. A. (formerly NCNB Texas National Bank) dated as of June 18, 1992 (incorporated by reference to Exhibit 3.4 to Registration Statement on Form S-3 (File No. 33-55426)). 4.5 Senior Indenture dated as of July 15, 1993 by and between the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K dated August 4, 1993). 4.6 Senior Subordinated Indenture dated as of July 15, 1993 by and between the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K dated August 4, 1993). 4.7 Specimen of 7 7/8% Senior Note due 2003 and resolutions adopted by the Chairman of the Board of Directors (incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K dated August 4, 1993). 4.8 Specimen of 8 5/8% Senior Subordinated Note due 2005 and resolutions adopted by the Chairman of the Board of Directors (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K dated August 4, 1993). 4.9 Note Agreement dated May 14, 1992 by and among Alaska Pipeline Company and each of the purchasers thereto (including forms of notes and other exhibits thereto) and Inducement Agreement of even date therewith by and among Seagull and Aid Association for Lutherans, The Equitable Life Assurance Society of the United States, Equitable Variable Life Insurance Company, Provident Life & Accident Insurance Company and Teachers Insurance & Annuity Association of America (including exhibits thereto) (incorporated by reference to Exhibit 4.7 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1992). 4.10 Credit Agreement, U.S. $175 Million Reducing Revolving Credit Facility, dated December 30, 1993 by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents (without exhibits) (incorporated by reference to Exhibit 2.4 to Current Report on Form 8-K filed January 19, 1994). 4.11 Intercreditor Agreement executed in connection with the Credit Agreement included as Exhibit 4.10 hereto (incorporated by 38 reference to Exhibit 2.7 to Current Report on Form 8-K filed January 19, 1994). 4.12 First Amendment to Intercreditor Agreement executed in connection with the First Amendment to Credit Agreement included as Exhibit 4.15 hereto (incorporated by reference to Exhibit 4.8 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.13 Form of Bankers' Acceptance executed in connection with the Credit Agreement included as Exhibit 4.10 hereto (incorporated by reference to Exhibit 2.8 to Current Report on Form 8-K filed January 19, 1994). 4.14 Guarantee executed in connection with the Credit Agreement included as Exhibit 4.11 hereto (incorporated by reference to Exhibit 2.9 to Current Report on Form 8-K filed January 19, 1994). 4.15 First Amendment to Credit Agreement, U.S. $175 million Reducing Revolving Credit Facility by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents, dated May 24, 1994 (without exhibits) (incorporated by reference to Exhibit 4.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *4.16 Second Amendment to Credit Agreement, U. S. $175 million Reducing Revolving Credit Facility by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents, dated June 30, 1994. *4.17 Third Amendment to Credit Agreement, U. S. $175 million Reducing Revolving Credit Facility by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents, dated March 10, 1995. 4.18 Form of Note (U.S. Dollars) executed in connection with the First Amendment to Credit Agreement included as Exhibit 4.15 hereto (incorporated by reference to Exhibit 4.6 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.19 Form of Note (Canadian Dollars) executed in connection with the First Amendment to Credit Agreement included as Exhibit 4.15 hereto (incorporated by reference to Exhibit 4.7 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 39 4.20 Credit Agreement, $725 million Reducing Revolving Credit and Competitive Bid Facility, dated May 24, 1994 by and among Seagull, each of the banks signatory thereto and Texas Commerce Bank National Association and Chemical Bank, as co-agents (without exhibits and schedules) (incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). *4.21 First Amendment to Credit Agreement, $725 million Reducing Revolving Credit and Competitive Bid Facility, dated June 30, 1994 by and among Seagull, each of the banks signatory thereto and Texas Commerce Bank National Association and Chemical Bank, as co-agents. *4.22 Second Amendment to Credit Agreement, $725 million Reducing Revolving Credit and Competitive Bid Facility, dated March 10, 1995 by and among Seagull, each of the banks signatory thereto and Texas Commerce Bank National Association and Chemical Bank, as co-agents. 4.23 Form of Committed Note executed in connection with the Credit Agreement included as Exhibit 4.20 hereto (incorporated by reference to Exhibit 4.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.24 Form of Competitive Note executed in connection with the Credit Agreement included as Exhibit 4.20 hereto (incorporated by reference to Exhibit 4.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 4.25 Form of Assignment and Acceptance executed in connection with the Credit Agreement included as Exhibit 4.20 hereto (incorporated by reference to Exhibit 4.4 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). #10.1 Seagull Thrift Plan, as amended and restated (the amended and restated plan is incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the year ended December 31, 1990; the First and Second Amendments thereto are incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K for the year ended December 31, 1991; the Third Amendment thereto is incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K for the year ended December 31, 1992). #10.2 Employment Agreement dated December 30, 1983 by and between the Company and Barry J. Galt, Chairman of the Board, President and Chief Executive Officer of the Company (incorporated by 40 reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). #10.3 Outside Directors Deferred Fee Plan of the Company, as amended and restated (incorporated by reference to Exhibit 10.3 to Annual Report on Form 10-K for the year ended December 31, 1991). #10.4 Seagull Energy Corporation Executive Supplemental Retirement Plan, as amended (incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for the year ended December 31, 1991). #10.5 Executive Supplemental Retirement Plan Membership Agreement between the Company and Barry J. Galt dated as of February 3, 1986, as amended (incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K for the year ended December 31, 1991). #*10.6 ENSTAR Natural Gas Company Thrift Investment Plan, as amended and restated (the amended and restated plan is incorporated by reference to Exhibit 10.6 to Annual Report on Form 10-K for the year ended December 31, 1992; the First and Second Amendments are incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K for the year ended December 31, 1993; the Third Amendment thereto is filed herewith). #*10.7 ENSTAR Natural Gas Company Retirement Plan for Salaried Employees, as renamed, amended and restated (incorporated by reference to Exhibit 10.7 to Annual Report on Form 10-K for the year ended December 31, 1992; the First Amendment thereto is filed herewith). #*10.8 ENSTAR Natural Gas Company Retirement Plan for Operating Unit Employees, as amended and restated (incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the year ended December 31, 1992; the First Amendment thereto is filed herewith). #*10.9 ENSTAR Natural Gas Company Profit by Service Plan for Salaried Employees, as amended and restated (the amended and restated plan is incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 1992; the First Amendment thereto is incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 1993; the Second Amendment thereto is filed herewith). 41 #*10.10 ENSTAR Natural Gas Company Profit by Service Plan for Classified Employees, as amended and restated (the amended and restated plan is incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K for the year ended December 31, 1992; the First and Second Amendments thereto are incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K for the year ended December 31, 1993; the Third Amendment thereto is filed herewith). #10.11 Seagull Energy Corporation Supplemental Benefit Plan, as amended (the original plan is incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-K for the year ended December 31, 1990; the First Amendment thereto is incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 1991). 10.12 Gas Purchase Agreement among Alaska Pipeline Company and Marathon Oil Company dated as of May 1, 1988, as amended (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.13 Agreement to terminate Gas Purchase Contract among Alaska Pipeline Company and Union Oil Company of California (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). #10.14 Seagull Energy Corporation 1981 Stock Option Plan (Restated), including forms of agreements, as amended (incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). #10.15 Seagull Energy Corporation 1983 Stock Option Plan (Restated), including forms of agreements, as amended (the amended and restated plan is incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for the year ended December 31, 1993). #10.16 Seagull Energy Corporation 1986 Stock Option Plan (Restated), including forms of agreements, as amended (the amended and restated plan is incorporated by reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993; the amended form of Nonstatutory Stock Option Agreement is filed incorporated by reference to Exhibit 10.16 to Annual Report on Form 10-K for the year ended December 31, 1993). 42 #10.17 Seagull Employee Stock Ownership Plan (the "Plan") as amended, including the First through Fourth Amendments thereto (incorporated by reference to Exhibit 10.9 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.18 Non-Recourse Promissory Note from the Plan to the Company, dated November 15, 1989 (incorporated by reference to Exhibit 10.10 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.19 Security (Pledge) Agreement dated November 15, 1989 by and between the Plan and the Company (incorporated by reference to Exhibit 10.11 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.20 Sale Agreement made and entered into as of November 19, 1993 between Novacor Petrochemicals Ltd. and Seagull Energy Corporation (including Appendix J, "Tax Provisions") (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed January 19, 1994). 10.21 Guarantee executed in connection with Sale Agreement included as Exhibit 10.20 hereto (incorporated by reference to Exhibit 2.2 to Current Report on Form 8-K filed January 19, 1994). #10.22 Seagull Energy Corporation 1990 Stock Option Plan, including forms of agreements (the Plan is incorporated by reference to Exhibit 10.42 to Annual Report on Form 10-K for the year ended December 31, 1990; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.23 to Annual Report on Form 10-K for the year ended December 31, 1993). 10.23 Gas Purchase Contract among Alaska Pipeline Company and Shell Oil Company dated as of December 20, 1982, as amended (incorporated by reference to Exhibit 10.29 to Annual Report on Form 10-K for the year ended December 31, 1991). #10.24 Seagull Energy Corporation 1992 Executive Incentive Plan (incorporated by reference to Exhibit 10.32 to Annual Report on Form 10-K for the year ended December 31, 1991). #10.25 Seagull Energy Corporation 1993 Executive Incentive Plan (incorporated by reference to Exhibit 10.35 to Annual Report on Form 10-K for the year ended December 31, 1992). 43 #10.26 Seagull Energy Corporation 1994 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.27 Stock Purchase Agreement made and entered into as of November 16, 1992 between Arkla, Inc. and Seagull (not including disclosure schedules) (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K dated December 4, 1992, as amended). #10.28 Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan, including forms of agreements (the Plan is incorporated by reference to Exhibit 10.37 to Annual Report on Form 10-K for the year ended December 31, 1992; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.29 to Annual Report on Form 10-K for the year ended December 31, 1993). #10.29 Seagull Energy Corporation 1993 Stock Option Plan, including forms of agreements (the Plan is incorporated by reference to Exhibit 10.38 to Annual Report on Form 10-K for the year ended December 31, 1992; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.30 to Annual Report on Form 10-K for the year ended December 31, 1993). #*10.30 Seagull Energy Canada Ltd. Retirement Plan. #*10.31 Seagull Energy Canada Ltd. Capital Accumulation Plan. #*10.32 Restricted Stock Agreement made and entered into as of March 17, 1995 between Seagull Energy Corporation and Barry J. Galt. #*10.33 Form of Restricted Stock Agreement made and entered into as of March 17, 1995 between Seagull Energy Corporation and Richard F. Barnes (granted 2,000 shares of restricted Common Stock), John W. Elias (granted 3,000 shares of restricted Common Stock), Thomas P. McConn (granted 2,000 shares of restricted Common Stock) and Robert W. Shower (granted 3,000 shares of restricted Common Stock). #*10.34 Form of Severance Agreement between Seagull Energy Corporation and John W. Elias, Thomas P. McConn and Robert W. Shower. #*10.35 Seagull Energy Corporation Management Stability Plan. *21. Subsidiaries of Seagull Energy Corporation. 44 *23.1 Consent of KPMG Peat Marwick LLP. *23.3 Consent of Ryder Scott Company, independent petroleum engineers. *23.3 Consent of DeGolyer and MacNaughton, independent petroleum engineers. *23.4 Consent of Netherland, Sewell and Associates, Inc., independent petroleum engineers. *27.1 Financial Data Schedule. *99.1 Portions of the Seagull Energy Corporation and Subsidiaries Annual Report to Shareholders for the year ended December 31, 1994 which are incorporated by reference herein to this Annual Report on Form 10-K of Seagull Energy Corporation and Subsidiaries for the year ended December 31, 1994. ____________________ * Filed herewith. # Identifies management contracts and compensatory plans or arrangements.
EX-4.16 2 SECOND AMENDMENT TO CREDIT AGREEMENT 1 Exhibit 4.16 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Second Amendment") effective as of June 30, 1994 (the "Second Amendment Effective Date") is made and entered into by and among SEAGULL ENERGY CANADA LTD. (the "Borrower"), a corporation duly organized and validly existing under the laws of the Province of Alberta, Canada, the banking institutions from time to time a party to the Credit Agreement (as hereinafter defined) as amended by this Second Amendment (each, together with its successors and assigns, a "Bank" and collectively, the "Banks"), CHEMICAL BANK OF CANADA, as arranger and as administrative agent for the Banks (in such capacity, the "Administrative Agent"), THE BANK OF NOVA SCOTIA, as paying agent and co-agent for the Banks (in such capacity, the "Paying Agent"), and CANADIAN IMPERIAL BANK OF COMMERCE (in such capacity, the "Co-Agent"), as co-agent for the Banks. RECITALS WHEREAS, the Borrower, the Administrative Agent, the Paying Agent, the Co-Agent and the Banks are parties to a Credit Agreement dated as of December 30, 1993, as amended by the First Amendment to Credit Agreement dated as of May 24, 1994 (the "Credit Agreement"); and WHEREAS, the Borrower, the Administrative Agent, the Paying Agent, the Co-Agent and the Banks have agreed, on the terms and conditions herein set forth, that the Credit Agreement be amended in certain respects; NOW, THEREFORE, IT IS AGREED: Section 1. Definitions. Terms used herein which are defined in the Credit Agreement shall have the same meanings when used herein unless otherwise provided herein. Section 2. Amendments to the Credit Agreement. On and after the Second Amendment Effective Date, the Credit Agreement shall be amended as follows: (a) Section 10.15 of the Credit Agreement is hereby amended by changing the period (.) at the end of clause (iv) to a semi-colon (;) and by adding a new clause, such clause to read in its entirety as follows: provided, however, nothing in this Section 10.15 shall restrict the existence of negative covenants otherwise prohibited by this Section in documentation evidencing or related to Indebtedness permitted by Subsection 10.1(w) and, to the extent that the applicable Subsidiary does not own any property included in the Borrowing Base, Subsections 10.1(o), (p) and (u). (b) Section 10.3(g) of the Credit Agreement is hereby amended in its entirety as follows: (g) intercompany loans, advances or investments by the Parent to or in any Subsidiary of the Parent (other than a Subsidiary that is obligated to pay Funded Indebtedness for borrowed money payable solely by recourse to properties not included 2 in the Borrowing Base) or, to the extent permitted under Section 10.1(h) hereof, by any Subsidiary of the Parent to or in the Parent or to or in any other Subsidiary of the Parent, provided, however, that APC may not make any intercompany loans, advances or investments in any Subsidiary of the Parent pursuant to this clause (g); Section 3. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Loan Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Banks may now have or may have in the future under or in connection with the Credit Agreement, the Loan Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Credit Agreement, the Notes, and any other Loan Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this Second Amendment and any of the foregoing documents, the terms of this Second Amendment shall be controlling. Section 4. Payment of Expenses. The Borrower agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Agents harmless from and against liability for the payment of all reasonable substantiated out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this Second Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Credit Agreement and the other Loan Documents. The provisions of this Section shall survive the termination of the Credit Agreement and the repayment of the Loans. Section 5. Governing Law. THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE PROVINCE OF ALBERTA AND OF CANADA FROM TIME TO TIME IN EFFECT. Section 6. Descriptive Headings, etc. The descriptive headings of the several Sections of this Second Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 7. Entire Agreement. This Second Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this Second Amendment. Section 8. Counterparts. This Second Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. Section 9. Amended Definitions. As used in the Credit agreement (including all Exhibits thereto) and all other instruments and documents executed in connection therewith, on and subsequent 2 3 to the Second Amendment Effective Date the term "Agreement" shall mean the Credit Agreement as amended by this Second Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed and delivered by their respective duly authorized offices as of July , 1994, and effective as of the date first above written. SEAGULL ENERGY CORPORATION, a Texas corporation By: -------------------------------------- Robert M. King, Vice President, Corporate Development and Treasurer 3 4 CHEMICAL BANK OF CANADA individually and as Arranger and as Administrative Agent By: ---------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA, as Paying Agent, as Co-Agent and as a Bank By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE, as Co-Agent and as a Bank By: ---------------------------------------- Name: Title: 4 5 ABN AMRO BANK CANADA By: ----------------------- Name: Title: By: ----------------------- Name: Title: PARIBAS BANK OF CANADA By: ----------------------- Name: Title: By: ----------------------- Name: Title: MELLON BANK CANADA By: ----------------------- Name: Title: 5 6 NBD BANK, CANADA By: ----------------------- Name: Title: SOCIETE GENERALE (CANADA) By: ----------------------- Name: Title: THE BANK OF TOKYO CANADA By: ----------------------- Name: Title: CREDIT LYONNAIS CANADA By: ----------------------- Name: Title: 6 7 The undersigned hereby joins in the execution of this Second Amendment to evidence its consent hereto and its acknowledgment that the Guarantee shall continue to apply to the Credit Agreement, as amended hereby. SEAGULL ENERGY CORPORATION By: ------------------------------------ Robert M. King, Vice President, Corporate Development and Treasurer 7 EX-4.17 3 THIRD AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 4.17 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Third Amendment") effective as of March 10, 1995 (the "Third Amendment Effective Date") is made and entered into by and among SEAGULL ENERGY CANADA LTD. (the "Borrower"), a corporation duly organized and validly existing under the laws of the Province of Alberta, Canada, the banking institutions from time to time a party to the Credit Agreement (as hereinafter defined) as amended by this Third Amendment (each, together with its successors and assigns, a "Bank" and collectively, the "Banks"), CHEMICAL BANK OF CANADA, as arranger and as administrative agent for the Banks (in such capacity, the "Administrative Agent"), THE BANK OF NOVA SCOTIA, as paying agent and co-agent for the Banks (in such capacity, the "Paying Agent"), and CANADIAN IMPERIAL BANK OF COMMERCE (in such capacity, the "Co-Agent"), as co-agent for the Banks. RECITALS WHEREAS, the Borrower, the Administrative Agent, the Paying Agent, the Co-Agent and the Banks are parties to a Credit Agreement dated as of December 30, 1993, as amended by the First Amendment to Credit Agreement dated as of May 24, 1994 and the Second Amendment to Credit Agreement dated as of June 30, 1994 (collectively, the "Credit Agreement"); and WHEREAS, the Borrower, the Administrative Agent, the Paying Agent, the Co-Agent and the Banks have agreed, on the terms and conditions herein set forth, that the Credit Agreement be amended in certain respects; NOW, THEREFORE, IT IS AGREED: Section 1. Definitions. Terms used herein which are defined in the Credit Agreement shall have the same meanings when used herein unless otherwise provided herein. Section 2. Amendments to the Credit Agreement. On and after the Third Amendment Effective Date, the Credit Agreement shall be amended as follows: (a) The definition of "EBITDA" set forth in Section 1 of the Credit Agreement is hereby amended to read in its entirety as follows: "EBITDA" shall mean net earnings (excluding gains and losses on sales and retirement of assets, non-cash write downs, charges resulting from accounting convention changes and deductions for dry hole expenses) before deduction for federal, provincial, municipal and state taxes, interest expense (including capitalized interest), operating lease rentals or depreciation, depletion and amortization expense, all determined in accordance with GAAP. (b) The definition of "EBITDA/Interest Ratio" set forth in Section 1 of the Credit Agreement is hereby amended to read in its entirety as follows: 2 "EBITDA/Interest Ratio" shall mean the ratio of (a) EBITDA of the Parent and its Subsidiaries on a consolidated basis to (b) operating lease rentals and interest expense (including capitalized interest but excluding non-cash amortization of deferred financing costs) on all Indebtedness of the Parent and its Subsidiaries on a consolidated basis for any twelve-month period ending on the last day of every calendar quarter during the period with respect to which the EBITDA/Interest Ratio is to be calculated. (c) Section 10.12 of the Credit Agreement is hereby amended in its entirety as follows: 10.12 EBITDA/Interest Ratio. The Parent will not permit the EBITDA/Interest Ratio to be, at any time, less than (a) 2.50:1.00 for any twelve month period ending on the last day of any calendar quarter prior to and including September 30, 1995; (b) 2.75:1.00 for any twelve month period ending on the last day of any calendar quarter for the period from October 1, 1995 through and including March 31, 1996; (c) 3.00:1.00 for any twelve month period ending on the last day of any calendar quarter for the period from April 1, 1996 through and including March 31, 1997; and (d) 3.50:1.00 for any twelve month period ending on the last day of any calendar quarter thereafter. Section 3. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Loan Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Banks may now have or may have in the future under or in connection with the Credit Agreement, the Loan Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Credit Agreement, the Notes, and any other Loan Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this Third Amendment and any of the foregoing documents, the terms of this Third Amendment shall be controlling. Section 4. Payment of Expenses. The Borrower agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Agents harmless from and against liability for the payment of all reasonable substantiated out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this Third Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Credit Agreement and the other Loan Documents. The provisions of this Section shall survive the termination of the Credit Agreement and the repayment of the Loans. 2 3 Section 5. Governing Law. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE PROVINCE OF ALBERTA AND OF CANADA FROM TIME TO TIME IN EFFECT. Section 6. Descriptive Headings, etc. The descriptive headings of the several Sections of this Third Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 7. Entire Agreement. This Third Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this Third Amendment. Section 8. Counterparts. This Third Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. Section 9. Amended Definitions. As used in the Credit agreement (including all Exhibits thereto) and all other instruments and documents executed in connection therewith, on and subsequent to the Third Amendment Effective Date the term "Agreement" shall mean the Credit Agreement as amended by this Third Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed and delivered by their respective duly authorized offices and effective as of the date first above written. SEAGULL ENERGY CORPORATION, a Texas corporation By:______________________________ Robert M. King, Vice President, Corporate Development and Treasurer 3 4 CHEMICAL BANK OF CANADA individually and as Arranger and as Administrative Agent By:_____________________________ Name: Title: THE BANK OF NOVA SCOTIA, as Paying Agent, as Co-Agent and as a Bank By:_____________________________ Name: Title: By:_____________________________ Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE, as Co-Agent and as a Bank By:_____________________________ Name: Title: 4 5 ABN AMRO BANK CANADA By:_____________________________ Name: Title: By:_____________________________ Name: Title: PARIBAS BANK OF CANADA By:_____________________________ Name: Title: By:_____________________________ Name: Title: MELLON BANK CANADA By:_____________________________ Name: Title: 5 6 NBD BANK, CANADA By:_____________________________ Name: Title: SOCIETE GENERALE (CANADA) By:_____________________________ Name: Title: THE BANK OF TOKYO CANADA By:_____________________________ Name: Title: CREDIT LYONNAIS CANADA By:_____________________________ Name: Title: 6 7 The undersigned hereby joins in the execution of this Third Amendment to evidence its consent hereto and its acknowledgment that the Guarantee shall continue to apply to the Credit Agreement, as amended hereby. SEAGULL ENERGY CORPORATION By:_______________________________ Robert M. King, Vice President, Corporate Development and Treasurer 7 EX-4.21 4 FIRST AMENDMENT TO CREDIT AGREEMENT 1 Exhibit 4.21 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment") effective as of June 30, 1994 (the "First Amendment Effective Date") is made and entered into by and among SEAGULL ENERGY CORPORATION (the "Borrower"), a Texas corporation, the banking institutions from time to time a party to the Credit Agreement (as hereinafter defined) as amended by this First Amendment (each, together with its successors and assigns, a "Bank" and collectively, the "Banks"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually and as administrative agent for the Banks (in such capacity, the "Administrative Agent") and CHEMICAL BANK, as auction agent. RECITALS WHEREAS, the Borrower, the Administrative Agent and the Banks are parties to a Credit Agreement dated as of May 24, 1994 (the "Credit Agreement"); and WHEREAS, the Borrower, the Administrative Agent and the Banks have agreed, on the terms and conditions herein set forth, that the Credit Agreement be amended in certain respects; NOW, THEREFORE, IT IS AGREED: Section 1. Definitions. Terms used herein which are defined in the Credit Agreement shall have the same meanings when used herein unless otherwise provided herein. Section 2. Amendments to the Credit Agreement. On and after the First Amendment Effective Date, the Credit Agreement shall be amended as follows: (a) Section 10.15 of the Credit Agreement is hereby amended by changing the period (.) at the end of clause (iv) to a semi-colon (;) and by adding a new clause, such clause to read in its entirety as follows: provided, however, nothing in this Section 10.15 shall restrict the existence of negative covenants otherwise prohibited by this Section in documentation evidencing or related to Indebtedness permitted by Subsection 10.1(t) and, to the extent that the applicable Subsidiary does not own any property included in the Borrowing Base, Subsections 10.1(m), (n) and (s). (b) Section 10.3(g) of the Credit Agreement is hereby amended in its entirety as follows: (g) intercompany loans, advances or investments by the Company to or in any Subsidiary of the Company (other than a Subsidiary that is obligated to pay Funded Indebtedness for borrowed money payable solely by recourse to properties not included in the Borrowing Base) or, to the extent permitted under Section 10.1(h) hereof, by any Subsidiary of the Company to or in the Company or to or in any other Subsidiary of the Company, provided, however, that APC may not make any intercompany loans, advances or investments in any Subsidiary of the Company pursuant to this clause (g); 2 Section 3. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Loan Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Banks may now have or may have in the future under or in connection with the Credit Agreement, the Loan Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Credit Agreement, the Notes, and any other Loan Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this First Amendment and any of the foregoing documents, the terms of this First Amendment shall be controlling. Section 4. Payment of Expenses. The Borrower agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Administrative Agent harmless from and against liability for the payment of all reasonable substantiated out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this First Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Credit Agreement and the other Loan Documents. The provisions of this Section shall survive the termination of the Credit Agreement and the repayment of the Loans. Section 5. Governing Law. This First Amendment and the rights and obligations of the parties hereunder and under the Credit Agreement shall be construed in accordance with and be governed by the laws of the State of Texas and the United States of America. Section 6. Descriptive Headings, etc. The descriptive headings of the several Sections of this First Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 7. Entire Agreement. This First Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this First Amendment. Section 8. Counterparts. This First Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. Section 9. Amended Definitions. As used in the Credit agreement (including all Exhibits thereto) and all other instruments and documents executed in connection therewith, on and subsequent to the First Amendment Effective Date the term "Agreement" shall mean the Credit Agreement as amended by this First Amendment. 2 3 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective duly authorized offices as of July , 1994, and effective as of the date first above written. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE Section 26.02 THIS FIRST AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NOT UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES. SEAGULL ENERGY CORPORATION, a Texas corporation By: ------------------------------------ Robert M. King, Vice President, Corporate Development and Treasurer 3 4 CHEMICAL BANK, as Auction Agent By: --------------------------------- Name: Title: Address for Notices: 140 East 45th 29th Floor New York, New York 10017 Attention: Ms. Terri Reilly 4 5 TEXAS COMMERCE BANK NATIONAL ASSOCIATION as Administrative Agent and as a Bank By: -------------------------------------- Name: Title: Address for Notices: 712 Main Street Houston, Texas 77002 Attention: Manager, Energy Division 5 6 THE CHASE MANHATTAN BANK, N.A. By: ----------------------------------------- Name: Title: Address for Notices: 1221 McKinney, Suite 3000 Houston, Texas 77010 Attention: Scott Porter Vice President 6 7 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ------------------------------------ Name: Title: Address for Notices: 60 Wall Street New York, New York, 10260-0060 Attention: Loan Department 7 8 NATIONSBANK OF TEXAS, N.A. By: -------------------------------------- Name: Title: Address for Notices: 700 Louisiana Street Houston, Texas 77002 Attention: Jo A. Tamalis Senior Vice President 8 9 THE FIRST NATIONAL BANK OF BOSTON By: ------------------------------------- Name: Title: Address for Notices: 100 Federal Street Energy & Utilities 01-15-04 Boston, Massachusetts 02110 Attention: George W. Passela Managing Director 9 10 ABN AMRO BANK N.V., HOUSTON AGENCY By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: Address for Notices: Three Riverway, Suite 1600 Houston, Texas 70056 Attention: Ms. Cheryl I. Lipshutz 10 11 THE BANK OF NEW YORK By: --------------------------------- Name: Title: Address for Notices: One Wall Street New York, New York 10296 Attention: Mr. Andrew G. Mathews Vice President 11 12 BANQUE PARIBAS HOUSTON AGENCY By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: Address for Notices: 1200 Smith Street, Suite 3100 Houston, Texas 77002 Attention: Barton D. Schouest Group Vice President 12 13 CREDIT LYONNAIS NEW YORK BRANCH By: ------------------------------------------ Name: Title: Address for Notices: c/o Credit Lyonnais Representative Office 1000 Louisiana, Suite 5360 Houston, Texas 77002 Attention: Mr. A. David Dodd 13 14 THE FUJI BANK, LIMITED HOUSTON AGENCY By: ---------------------------------------- Name: Title: Address for Notices: 909 Fannin, Suite 2800 Houston, Texas 77010 Attention: Mr. Jacques Azagury Assistant Vice President 14 15 NBD BANK, N.A. By: ----------------------------------- Name: Title: Address for Notices: 611 Woodward Avenue Detroit, Michigan 48226 Attention: Mr. Douglas R. Liftman Second Vice President 15 16 SOCIETE GENERALE, SOUTHWEST AGENCY By: ---------------------------------- Name: Title: Address for Notices: 4800 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Mr. Ralph Saheb Vice President With a copy to: 1111 Bagby, Suite 2020 Houston, Texas 77002 Attention: Mr. Richard Erbert Vice President 16 17 THE BANK OF TOKYO, LTD., DALLAS AGENCY By: ----------------------------------- Name: Title: Address for Notices: 909 Fannin, Suite 1104 Two Houston Center Houston, Texas 77010 Attention: Mr. John M. McIntyre Vice President 17 18 BANK OF SCOTLAND By: ---------------------------------- Name: Title: Address for Notices: 380 Madison Avenue New York, New York 10017 Attention: Mr. Joseph Fratus 18 19 CAISSE NATIONALE DE CREDIT AGRICOLE By: -------------------------------------- Name: Title: Address for Notices: 55 East Monroe Street Chicago, Illinois 60603-5702 Attention: Mr. Joseph Kunze Vice President 19 20 CHRISTIANIA BANK OG KREDITKASSE By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: Address for Notices: 11 West 42nd Street, 7th Floor New York, New York 10036 Attention: Mr. Jahn Roising First Vice President 20 21 DEN NORSKE BANK AS By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: Address for Notices: 333 Clay Street Suite 4890 Houston, Texas 77002 Attention: Mr. Byron L. Cooley First Vice President 21 22 MIDLAND BANK PLC, NEW YORK BRANCH By: --------------------------------- Name: Title: Address for Notices: 140 Broadway New York, New York 10005 Attention: Mr. Gregory B. Jansen Director 22 23 FIRST INTERSTATE BANK OF TEXAS, N.A. By: ----------------------------------- Name: Title: Address for Notices: 1000 Louisiana 3rd Floor/MS #156 Houston, Texas 77002 Attention: Ms. Collie Michaels Vice President 23 24 THE BANK OF NOVA SCOTIA By: --------------------------------- Name: Title: Address for Notices: Suite 3000, 1100 Louisiana Houston, Texas 77002 Attention: Mr. Mark Ammerman With copies to: 600 Peachtree Street, N.E. Suite 2700 Atlanta, Georgia 30308 Attention: Ms. Lauren Bianchi 24 25 CIBC INC. By: ------------------------------- Name: Title: Address for Notices: Two Paces West 2727 Paces Ferry Road Suite 1200 Atlanta, Georgia 30339 Attention: Loan Operations With a copy to: Canadian Imperial Bank of Commerce Two Houston Center 909 Fannin Street Houston, Texas 77010 Attention: Mr. Brian Swinford Vice President 25 26 CITIBANK, N.A. By: ------------------------------ Name: Title: Address for Notices: 1200 Smith Street 20th Floor Houston, Texas 77002 Attention: Ms. Lydia Junek 26 27 MELLON BANK By: ------------------------------ Name: Title: Address for Notices: Mellon Bank One Mellon Bank Center Room 151-4425 Pittsburgh, Pennsylvania 15258-0001 Attention: Mr. A. Gary Chace Senior Vice President Energy & Utilities Group With a copy to: Mellon Financial Services 1100 Louisiana, 36th Floor Houston, Texas 77002-5210 Attention: Mr. Richard Gould 27 28 FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: First Union Corporation of North Carolina By: ---------------------------------------- Name: Title: Address for Notices: First Union Corporation of North Carolina 1001 Fannin, Suite 2255 Houston, Texas 77002 Attention: Mr. Jay M. Chernosky Vice President 28 29 BANK OF MONTREAL By: -------------------------------------- Name: Title: Address for Notices: 700 Louisiana, Suite 4400 Houston, Texas 77002 Attention: Mr. Robert L. Roberts Director, U.S. Corporate Banking 29 EX-4.22 5 SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 4.22 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Second Amendment") effective as of March 10, 1995 (the "Second Amendment Effective Date") is made and entered into by and among SEAGULL ENERGY CORPORATION (the "Borrower"), a Texas corporation, the banking institutions from time to time a party to the Credit Agreement (as hereinafter defined) as amended by this Second Amendment (each, together with its successors and assigns, a "Bank" and collectively, the "Banks"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually and as administrative agent for the Banks (in such capacity, the "Administrative Agent") and CHEMICAL BANK, as auction agent. RECITALS WHEREAS, the Borrower, the Administrative Agent and the Banks are parties to a Credit Agreement dated as of May 24, 1994 as amended by the First Amendment to Credit Agreement dated as of June 30, 1994 (the "Credit Agreement"); and WHEREAS, the Borrower, the Administrative Agent and the Banks have agreed, on the terms and conditions herein set forth, that the Credit Agreement be amended in certain respects; NOW, THEREFORE, IT IS AGREED: Section 1. Definitions. Terms used herein which are defined in the Credit Agreement shall have the same meanings when used herein unless otherwise provided herein. Section 2. Amendments to the Credit Agreement. On and after the Second Amendment Effective Date, the Credit Agreement shall be amended as follows: (a) The definition of "EBITDA" set forth in Section 1 of the Credit Agreement is hereby amended to read in its entirety as follows: "EBITDA" shall mean net earnings (excluding gains and losses on sales and retirement of assets, non-cash write downs, charges resulting from accounting convention changes and deductions for dry hole expenses) before deduction for federal and state taxes, interest expense (including capitalized interest), operating lease rentals or depreciation, depletion and amortization expense, all determined in accordance with GAAP. (b) The definition of "EBITDA/Interest Ratio" set forth in Section 1 of the Credit Agreement is hereby amended to read in its entirety as follows: "EBITDA/Interest Ratio" shall mean the ratio of (a) EBITDA of the Company and its Subsidiaries on a consolidated basis to (b) operating lease rentals and interest expense (including capitalized interest but excluding non-cash amortization of deferred financing costs) on all Indebtedness of the Company and its Subsidiaries on a consolidated basis for any twelve-month period ending on the last day of every calendar quarter during the period with respect to which the EBITDA/Interest Ratio is to be calculated. 2 (c) Section 10.12 of the Credit Agreement is hereby amended in its entirety as follows: 10.12 EBITDA/Interest Ratio. The Company will not permit the EBITDA/Interest Ratio to be, at any time, less than (a) 2.50:1.00 for any twelve month period ending on the last day of any calendar quarter prior to and including September 30, 1995; (b) 2.75:1.00 for any twelve month period ending on the last day of any calendar quarter for the period from October 1, 1995 through and including March 31, 1996; (c) 3.00:1.00 for any twelve month period ending on the last day of any calendar quarter for the period from April 1, 1996 through and including March 31, 1997; and (d) 3.50:1.00 for any twelve month period ending on the last day of any calendar quarter thereafter. Section 3. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Loan Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Banks may now have or may have in the future under or in connection with the Credit Agreement, the Loan Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Credit Agreement, the Notes, and any other Loan Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this Second Amendment and any of the foregoing documents, the terms of this Second Amendment shall be controlling. Section 4. Payment of Expenses. The Borrower agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Administrative Agent harmless from and against liability for the payment of all reasonable substantiated out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this Second Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Credit Agreement and the other Loan Documents. The provisions of this Section shall survive the termination of the Credit Agreement and the repayment of the Loans. Section 5. Governing Law. This Second Amendment and the rights and obligations of the parties hereunder and under the Credit Agreement shall be construed in accordance with and be governed by the laws of the State of Texas and the United States of America. 2 3 Section 6. Descriptive Headings, etc. The descriptive headings of the several Sections of this Second Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 7. Entire Agreement. This Second Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this Second Amendment. Section 8. Counterparts. This Second Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. Section 9. Amended Definitions. As used in the Credit Agreement (including all Exhibits thereto) and all other instruments and documents executed in connection therewith, on and subsequent to the Second Amendment Effective Date the term "Agreement" shall mean the Credit Agreement as amended by this Second Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed and delivered by their respective duly authorized offices and effective as of the date first above written. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE Section 26.02 THIS SECOND AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES. SEAGULL ENERGY CORPORATION, a Texas corporation By: ____________________________ Robert M. King, Vice President, Corporate Development and Treasurer 3 4 CHEMICAL BANK, as Auction Agent By:____________________________ Name: Title: Address for Notices: 140 East 45th 29th Floor New York, New York 10017 Attention: Ms. Terri Reilly 4 5 TEXAS COMMERCE BANK NATIONAL ASSOCIATION as Administrative Agent and as a Bank By:____________________________ Name: Title: Address for Notices: 712 Main Street Houston, Texas 77002 Attention: Manager, Energy Division 5 6 THE CHASE MANHATTAN BANK, N.A. By:____________________________ Name: Title: Address for Notices: 1221 McKinney, Suite 3000 Houston, Texas 77010 Attention: Scott Porter Vice President 6 7 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:____________________________ Name: Title: Address for Notices: 60 Wall Street New York, New York, 10260-0060 Attention: Loan Department 7 8 NATIONSBANK OF TEXAS, N.A. By:____________________________ Name: Title: Address for Notices: 700 Louisiana Street Houston, Texas 77002 Attention: Jo A. Tamalis Senior Vice President 8 9 THE FIRST NATIONAL BANK OF BOSTON By:____________________________ Name: Title: Address for Notices: 100 Federal Street Energy & Utilities 01-15-04 Boston, Massachusetts 02110 Attention: George W. Passela Managing Director 9 10 ABN AMRO BANK N.V., HOUSTON AGENCY By:____________________________ Name: Title: By:____________________________ Name: Title: Address for Notices: Three Riverway, Suite 1600 Houston, Texas 70056 Attention: Ms. Cheryl I. Lipshutz 10 11 THE BANK OF NEW YORK By:____________________________ Name: Title: Address for Notices: One Wall Street New York, New York 10296 Attention: Mr. Andrew G. Mathews Vice President 11 12 BANQUE PARIBAS HOUSTON AGENCY By:____________________________ Name: Title: By:____________________________ Name: Title: Address for Notices: 1200 Smith Street, Suite 3100 Houston, Texas 77002 Attention: Barton D. Schouest Group Vice President 12 13 CREDIT LYONNAIS NEW YORK BRANCH By:____________________________ Name: Title: Address for Notices: c/o Credit Lyonnais Representative Office 1000 Louisiana, Suite 5360 Houston, Texas 77002 Attention: Mr. A. David Dodd 13 14 THE FUJI BANK, LIMITED HOUSTON AGENCY By:____________________________ Name: Title: Address for Notices: 909 Fannin, Suite 2800 Houston, Texas 77010 Attention: Mr. Jacques Azagury Assistant Vice President 14 15 NBD BANK, N.A. By:____________________________ Name: Title: Address for Notices: 611 Woodward Avenue Detroit, Michigan 48226 Attention: Mr. Douglas R. Liftman Second Vice President 15 16 SOCIETE GENERALE, SOUTHWEST AGENCY By:____________________________ Name: Title: Address for Notices: 4800 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Mr. Ralph Saheb Vice President With a copy to: 1111 Bagby, Suite 2020 Houston, Texas 77002 Attention: Mr. Richard Erbert Vice President 16 17 THE BANK OF TOKYO, LTD., DALLAS AGENCY By:____________________________ Name: Title: Address for Notices: 909 Fannin, Suite 1104 Two Houston Center Houston, Texas 77010 Attention: Mr. John M. McIntyre Vice President 17 18 BANK OF SCOTLAND By:____________________________ Name: Title: Address for Notices: 380 Madison Avenue New York, New York 10017 Attention: Mr. Joseph Fratus 18 19 CAISSE NATIONALE DE CREDIT AGRICOLE By:____________________________ Name: Title: Address for Notices: 55 East Monroe Street Chicago, Illinois 60603-5702 Attention: Mr. Joseph Kunze Vice President 19 20 CHRISTIANIA BANK OG KREDITKASSE By:____________________________ Name: Title: By:____________________________ Name: Title: Address for Notices: 11 West 42nd Street, 7th Floor New York, New York 10036 Attention: Mr. Jahn Roising First Vice President 20 21 DEN NORSKE BANK AS By:____________________________ Name: Title: By:____________________________ Name: Title: Address for Notices: 333 Clay Street Suite 4890 Houston, Texas 77002 Attention: Mr. Byron L. Cooley First Vice President 21 22 MIDLAND BANK PLC, NEW YORK BRANCH By:____________________________ Name: Title: Address for Notices: 140 Broadway New York, New York 10005 Attention: Mr. Gregory B. Jansen Director 22 23 FIRST INTERSTATE BANK OF TEXAS, N.A. By:____________________________ Name: Title: Address for Notices: 1000 Louisiana 3rd Floor/MS #156 Houston, Texas 77002 Attention: Ms. Collie Michaels Vice President 23 24 THE BANK OF NOVA SCOTIA By:____________________________ Name: Title: Address for Notices: Suite 3000, 1100 Louisiana Houston, Texas 77002 Attention: Mr. Mark Ammerman With copies to: 600 Peachtree Street, N.E. Suite 2700 Atlanta, Georgia 30308 Attention: Ms. Lauren Bianchi 24 25 CIBC INC. By:____________________________ Name: Title: Address for Notices: Two Paces West 2727 Paces Ferry Road Suite 1200 Atlanta, Georgia 30339 Attention: Loan Operations With a copy to: Canadian Imperial Bank of Commerce Two Houston Center 909 Fannin Street Houston, Texas 77010 Attention: Mr. Brian Swinford Vice President 25 26 CITIBANK, N.A. By:____________________________ Name: Title: Address for Notices: 1200 Smith Street 20th Floor Houston, Texas 77002 Attention: Ms. Lydia Junek 26 27 MELLON BANK By:____________________________ Name: Title: Address for Notices: Mellon Bank One Mellon Bank Center Room 151-4425 Pittsburgh, Pennsylvania 15258-0001 Attention: Mr. A. Gary Chace Senior Vice President Energy & Utilities Group With a copy to: Mellon Financial Services 1100 Louisiana, 36th Floor Houston, Texas 77002-5210 Attention: Mr. Richard Gould 27 28 FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: First Union Corporation of North Carolina By:____________________________ Name: Title: Address for Notices: First Union Corporation of North Carolina 1001 Fannin, Suite 2255 Houston, Texas 77002 Attention: Mr. Jay M. Chernosky Vice President 28 29 BANK OF MONTREAL By:____________________________ Name: Title: Address for Notices: 700 Louisiana, Suite 4400 Houston, Texas 77002 Attention: Mr. Robert L. Roberts Director, U.S. Corporate Banking 29 EX-10.6 6 ENSTAR THRIFT INVESTMENT PLAN 1 EXHIBIT 10.6 THIRD AMENDMENT TO ENSTAR NATURAL GAS COMPANY THRIFT INVESTMENT PLAN WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore adopted and maintains the ENSTAR NATURAL GAS COMPANY THRIFT INVESTMENT PLAN (the "Plan"); and WHEREAS, Section 13.1 of the Plan provides the Administrative Committee appointed by the Chief Executive Officer of the Company to administer the Plan (the "Committee") shall have the authority to amend the Plan to comply with applicable statutory or regulatory requirements; and WHEREAS, the Committee desires to amend the Plan for this purpose; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1993: 1. The following new Paragraphs (16A), (17A), (19A) and (19B) shall be added to Section 1.1 of the Plan: "(16A) DIRECT ROLLOVER: A payment by the Plan to an Eligible Retirement Plan designated by a Distributee. (17A) DISTRIBUTEE: Each (A) Member entitled to an Eligible Rollover Distribution, (B) Member's surviving spouse with respect to the interest of such surviving spouse in an Eligible Rollover Distribution, and (C) former spouse of a Member who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, with regard to the interest of such former spouse in an Eligible Rollover Distribution. (19A) ELIGIBLE RETIREMENT PLAN: (A) With respect to a Distributee other than a surviving spouse, an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified plan described in section 401(a) of the Code, which under its provisions accepts such Distributee's Eligible Rollover Distribution and (B) with respect to a Distributee who is a surviving spouse, an individual retirement account described in section 2 408(a) of the Code or an individual retirement annuity described in section 408(b) of the Code. (19B) ELIGIBLE ROLLOVER DISTRIBUTION: Any distribution of all or any portion of the Accounts of a Distributee other than (A) a distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary or for a specified period of ten years or more, (B) a distribution to the extent such distribution is required under section 401(a)(9) of the Code, (C) the portion of a distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities), (D) a loan treated as a distribution under section 72(p) of the Code and not excepted by section 72(p)(2), (E) a loan in default that is a deemed distribution, (F) any corrective distributions provided in Sections 3.8 and 4.4(b), and (G) any other distribution so designated by the Internal Revenue Service in revenue rulings, notices, and other guidance of general applicability." 2. Paragraph 3.1(g) of the Plan shall be deleted and the following shall be substituted therefor: "(g) As soon as administratively feasible following each payroll period, the Company shall contribute, as Cash or Deferred Contributions with respect to each Member, an amount equal to the amount of Compensation elected to be deferred, pursuant to Paragraphs (a) and (b) above (as adjusted pursuant to Paragraph (f) above), by such Member during such payroll period. Such contributions, as well as the contributions pursuant to Sections 3.3 and 3.4, shall be made without regard to current or accumulated profits of the Company. Notwithstanding the foregoing, the Plan is intended to qualify as a profit sharing plan for purposes of sections 401(a), 402, 412 and 417 of the Code." 3. The following new Paragraph 3.2(e) shall be added to Section 3.2 of the Plan: "(e) As soon as administratively feasible following the end of each payroll period, the Company shall contribute, as Member Contributions with respect to each Member, an amount equal to the amount of Compensation elected to be contributed, pursuant to Paragraphs (a) and (b) above (as adjusted pursuant to Paragraph (d) above), by such Member during such payroll period." -2- 3 4. Section 3.3 of the Plan shall be deleted and the following shall be substituted therefor: "3.3 COMPANY MATCHING CONTRIBUTIONS. As soon as administratively feasible following the end of each payroll period, the Company shall contribute on behalf of each Member, as Company Matching Contributions, an amount which equals 50% of the Cash or Deferred Contributions and/or Member Contributions which were made pursuant to Sections 3.1 and 3.2 on behalf of and by such Member during such payroll period and which were designated as Basic Contributions by such Member." 5. Paragraphs (a), (b) and (c) of Section 4.2 of the Plan shall be deleted and the following shall be substituted therefor: "(a) Cash or Deferred Contributions made by the Company on a Member's behalf pursuant to Section 3.1 shall be allocated to such Member's Cash or Deferred Account as of the last day of each payroll period; provided, however, that for purposes of Section 4.3 only, such contributions shall be allocated to the Cash or Deferred Account of such Member as soon as administratively feasible after such contributions are received by the Trustee. (b) Member Contributions made by a Member pursuant to Section 3.2 shall be allocated to the Member Contribution Account of such Member as of the last day of each payroll period; provided, however, that for purposes of Section 4.3 only, such contributions shall be allocated to the Member Contribution Account of such Member as soon as administratively feasible after such contributions are received by the Trustee. (c) The Company Matching Contributions made on a Member's behalf for a month pursuant to Section 3.3 shall be allocated to the Company Contribution Account of the Member as of the last day of each payroll period; provided, however, that for purposes of Section 4.3 only, such contributions shall be allocated to the Company Contribution Account of such Member as soon as administratively feasible after such contributions are received by the Trustee." 6. The last sentence of Section 7.1(b) of the Plan shall be deleted and the following shall be substituted therefor: "The Committee shall furnish information pertinent to his consent to each Member no less than thirty days and no more than ninety days before his Benefit Commencement Date, and the furnished information shall include a general description of the material features of, and an explanation of the relative values of, the alternative forms of benefit available under the Plan and must inform the Member of his right to defer his Benefit Commencement Date and of his Direct Rollover right pursuant to Section 7.10 below, if -3- 4 applicable. If a distribution is one to which sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than thirty days after the notice required under section 1.411(a)-11(c) of the Treasury regulations is given, provided that (i) the Committee clearly informs the Member that the Member has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option) and (ii) the Member, after receiving the notice, affirmatively elects a distribution." 7. The third sentence of Section 7.3 of the Plan shall be deleted and the following shall be substituted therefor: "Benefits paid in a lump sum shall be paid (or transferred pursuant to Section 7.10) in cash except that a Member (or his designated beneficiary or legal representative in the case of a deceased Member) may elect to have the portion of his Accounts invested in the Company Stock Fund distributed (or transferred pursuant to Section 7.10) in full shares of Company Stock to the extent of the Member's pro rata portion of the shares of Company Stock held in such Fund with any balance of the Member's interest in such Fund (including fractional shares) to be paid or transferred in cash." 8. The following shall be added to the end of Section 7.5 of the Plan: "No less than thirty days and no more than ninety days before his Benefit Commencement Date, the Committee shall inform the Member of his Direct Rollover rights pursuant to Section 7.10 below. A distribution or Direct Rollover of the Member's benefit may commence less than thirty days after such notice is given, provided that (1) the Committee clearly informs the Member that the Member has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to elect a Direct Rollover pursuant to Section 7.10 below, and (2) the Member, after receiving the notice, affirmatively elects either a distribution or a Direct Rollover or a combination thereof." 9. The following new Section 7.10 shall be added to Article VII of the Plan: "7.10 DIRECT ROLLOVER ELECTION. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have all or any portion of an Eligible Rollover Distribution (other than any portion attributable to the offset of an outstanding loan balance of such Member pursuant to the Plan's loan procedure) paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. The preceding sentence notwithstanding, a Distributee may elect a Direct Rollover pursuant to this Section only if such Distributee's Distributions during the -4- 5 Plan Year are reasonably expected to total $200 or more. Furthermore, if less than 100% of the Member's Eligible Rollover Distribution is to be a Direct Rollover, the amount of the Direct Rollover must be $500 or more. Prior to any Direct Rollover pursuant to this Section, the Distributee shall furnish the Committee with a statement from the plan, account, or annuity to which the benefit is to be transferred verifying that such plan, account, or annuity is, or is intended to be, an Eligible Retirement Plan. (b) No less than thirty days and no more than ninety days before his Benefit Commencement Date, the Committee shall inform the Distributee of his Direct Rollover right pursuant to this Section. A distribution or Direct Rollover of the Distributee's benefit may commence less than thirty days after such notice is given, provided that (1) the Committee clearly informs the Distributee that the Distributee has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to elect a Direct Rollover and (2) the Distributee, after receiving the notice, affirmatively elects either a distribution or a Direct Rollover or a combination thereof." 10. The following sentence shall be added to the end Section 8.5(a) of the Plan: "Any withdrawal pursuant to this Article VIII shall be subject to the Direct Rollover election described in Section 7.10." II. Effective August 5, 1993, the following shall be added to the end of Section 1.1(23) of the Plan: "Hours of Service shall also include any hours required to be credited by federal law other than the Act or the Code, but only under the conditions and to the extent so required by such federal law." III. Effective August 1, 1994, Section 7.5 of the Plan shall be deleted. IV. Effective January 1, 1997, the last sentence of Section 1.1(15) of the Plan shall be deleted and the following shall be substituted therefor: "The above notwithstanding, the Compensation of any Member taken into account for purposes of the Plan shall be limited to $150,000 for any Plan Year with such amount to be (i) adjusted automatically to reflect any amendments to section 401(a)(17) of the Code and any cost-of-living increases authorized by section 401(a)(17) of the Code, (ii) prorated for a Plan Year of less than twelve months and to the extent otherwise required by applicable law, and (iii) in the case of a Member who is either a five-percent owner of the Company (within the meaning of section 416(i)(1)(A)(iii) of the Code) or is one of the ten most Highly Compensated Employees for the Plan Year and who has a spouse and/or lineal descendants who are under the age of -5- 6 nineteen as of the end of a Plan Year who receive Compensation during such Plan Year, prorated and allocated among such Member, his spouse, and/or lineal descendants under the age of nineteen based on the Compensation for such Plan Year of each such individual." V. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED this 1st day of September, 1994. ADMINISTRATIVE COMMITTEE ENSTAR NATURAL GAS COMPANY THRIFT INVESTMENT PLAN /s/ R. F. BARNES By __________________________ -6- EX-10.7 7 ENSTAR RETIREMENT PLAN FOR SALARIED EMPLOYEES 1 EXHIBIT 10.7 FIRST AMENDMENT TO ENSTAR NATURAL GAS COMPANY RETIREMENT PLAN FOR SALARIED EMPLOYEES WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore adopted and maintains the ENSTAR NATURAL GAS COMPANY RETIREMENT PLAN FOR SALARIED EMPLOYEES (the "Plan"); and WHEREAS, Section 17.1 of the Plan provides the Administrative Committee appointed by the Chief Executive Officer of the Company to administer the Plan (the "Committee") shall have the authority to amend the Plan to comply with applicable statutory or regulatory requirements; and WHEREAS, the Committee desires to amend the Plan for this purpose; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1989: 1. Section 2.2(c) of the Plan shall be deleted and the following shall be substituted therefor: "(c) Except as otherwise provided in the Plan, the terms of this restated Plan shall not affect the Accrued Benefit of Members who are not credited with any Accrual Service on or after the Effective Date or the Vested Interest of Members who do not complete an Hour of Service on or after the Effective Date." 2. The term "permanent" shall be deleted wherever it appears in Section 9.6 of the Plan and shall be replaced with the term "regular." II. Effective January 1, 1993: 1. The following new Paragraphs (13A), (14A), (17A) and (17B) shall be added to Section 1.1 of the Plan: "(13A) DIRECT ROLLOVER: A payment by the Plan to an Eligible Retirement Plan designated by a Distributee. 2 (14A) DISTRIBUTEE: Each (A) Member entitled to an Eligible Rollover Distribution, (B) Member's surviving spouse with respect to the interest of such surviving spouse in an Eligible Rollover Distribution, and (C) former spouse of a Member who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, with regard to the interest of such former spouse in an Eligible Rollover Distribution. (17A) ELIGIBLE RETIREMENT PLAN: (A) With respect to a Distributee other than a surviving spouse, an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified plan described in section 401(a) of the Code, which under its provisions accepts such Distributee's Eligible Rollover Distribution and (B) with respect to a Distributee who is a surviving spouse, an individual retirement account described in section 408(a) of the Code or an individual retirement annuity described in section 408(b) of the Code. (17B) ELIGIBLE ROLLOVER DISTRIBUTION: Any distribution of all or any portion of the Accrued Benefit of a Distributee other than (A) a distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary or for a specified period of ten years or more, (B) a distribution to the extent such distribution is required under section 401(a)(9) of the Code, (C) the portion of a distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities), and (D) any other distribution so designated by the Internal Revenue Service in revenue rulings, notices, and other guidance of general applicability." 2. The second sentence of Section 9.1(c) of the Plan shall be deleted and the following shall be substituted therefor: "The Committee shall furnish certain information pertinent to a Member's consent under Paragraph (b)(1) to each Member within a reasonable time (no less than thirty days and no more than ninety days) before his Annuity Starting Date, and the furnished information shall include a general description of the material features of, -2- 3 and an explanation of the relative values of, the alternative forms of benefit available under the Plan and must inform the Member of his right to defer his Annuity Starting Date and of his Direct Rollover right pursuant to Section 9.11 below, if applicable." 3. The following new Section 9.11 shall be added to Article IX of the Plan: "9.11 DIRECT ROLLOVER ELECTION. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have all or any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. The preceding sentence notwithstanding, a Distributee may elect a Direct Rollover pursuant to this Section only if such Distributee's Eligible Rollover Distributions during the Plan Year are reasonably expected to total $200 or more. Furthermore, if less than 100% of the Member's Eligible Rollover Distribution is to be a Direct Rollover, the amount of the Direct Rollover must be $500 or more. Prior to any Direct Rollover pursuant to this Section, the Distributee shall furnish the Committee with a statement from the plan, account, or annuity to which the benefit is to be transferred verifying that such plan, account, or annuity is, or is intended to be, an Eligible Retirement Plan. (b) No less than thirty days and no more than ninety days before his Annuity Starting Date, the Committee shall inform the Distributee of his Direct Rollover right pursuant to this Section. A distribution or Direct Rollover of the Distributee's benefit may commence less than thirty days after such notice is given, provided that (1) the Committee clearly informs the Distributee that the Distributee has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to elect a Direct Rollover and (2) the Distributee, after receiving the notice, affirmatively elects either a distribution or a Direct Rollover or a combination thereof." III. Effective August 5, 1993: 1. The following shall be added to the end of Section 1.1(20) of the Plan: "Hours of Service shall also include any hours required to be credited by federal law other than the Act or the Code, but only under the conditions and to the extent so required by such federal law." -3- 4 2. The following shall be added to the end of Section 1.1(26) of the Plan: "A Period of Service shall also include any period required to be credited as a Period of Service by federal law, other than the Act or the Code, but only under the conditions and the extent so required by such federal law." IV. Effective January 1, 1994: 1. The last sentence of Section 1.1(12) of the Plan shall be deleted and the following shall be substituted therefor: "The above notwithstanding, the Compensation of any Member taking into account for purposes of the Plan shall be limited to $150,000 for any Plan Year with such limitation to be (i) adjusted automatically to reflect any cost-of-living increases authorized by section 401(a)(17) of the Code (with the adjustment for a calendar year being applicable to any period, not exceeding twelve months, over which Average Monthly Compensation is determined which begins in such calendar year), (ii) prorated to the extent required by applicable law, and (iii) in the case of a Member who is either a five-percent owner of the Company (within the meaning of section 416(i)(1)(A)(iii) of the Code) or is one of the ten highly compensated employees of the Company (within the meaning of section 414(q) of the Code) paid the greatest Compensation during the applicable year and who has a spouse and/or lineal descendants who are under the age of nineteen as of the end of an applicable year who receive Compensation during such applicable year, prorated and allocated among such Member, his spouse, and/or lineal descendants under the age of nineteen based on the Compensation for such applicable year of each such individual. If, in determining a Member's benefits accruing in a Plan Year commencing on or after January 1, 1994, Compensation for any period preceding such Plan Year is taken into account, the Compensation for such prior period shall be subject to the Compensation limitation in the preceding sentence as in effect for that prior period. For this purpose, for periods prior to January 1, 1994, the annual limit on Compensation shall be $150,000." 2. The following new Paragraph (31A) shall be added to Section 1.1 of the Plan: "(31A) SECTION 401(A)(17) MEMBER: A Member whose current Accrued Benefit as of a date on or after January 1, 1994, is based on Compensation for a year beginning prior to January 1, 1994, that exceeded $150,000." -4- 5 3. The following new subsections (d) and (e) shall be added to Section 2.2 of the Plan: "(d) Notwithstanding any other provisions of the Plan, each Section 401(a)(17) Member's Accrued Benefit under the Plan will be the greater of the Accrued Benefit determined for such Member under Paragraph (1) or Paragraph (2) below: (1) Such Member's Accrued Benefit determined under the benefit formula applicable for Plan Years beginning on or after January 1, 1994, and applied to such Member's total years of Accrual Service, or (2) the sum of: (A) Such Member's Accrued Benefit as of December 31, 1993, frozen in accordance with Treasury regulation section 1.401(a)(4)-13, and (B) Such Member's Accrued Benefit determined under the benefit formula applicable for Plan Years beginning on or after January 1, 1994, and applied to the years of Accrual Service credited to such Member for Plan Years beginning on or after January 1, 1994. (e) In determining a Member's Accrued Benefit as of December 31, 1993, for purposes of Paragraph (b) above, increases in the annual Compensation limit pursuant to section 401(a)(17) of the Code for 1990, 1991, 1992, and 1993 shall be applied in determining the limits on Compensation for any prior year." V. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED this 1st day of September, 1994. ADMINISTRATIVE COMMITTEE ENSTAR NATURAL GAS COMPANY RETIREMENT PLAN FOR SALARIED EMPLOYEES /s/ R. F. BARNES By __________________________ -5- EX-10.8 8 ENSTAR RETIREMENT PLAN FOR OPERATING UNIT 1 EXHIBIT 10.8 FIRST AMENDMENT TO ENSTAR NATURAL GAS COMPANY RETIREMENT PLAN FOR OPERATING UNIT EMPLOYEES WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore adopted and maintains the ENSTAR NATURAL GAS COMPANY RETIREMENT PLAN FOR OPERATING UNIT EMPLOYEES (the "Plan"); and WHEREAS, Section 16.1 of the Plan provides the Administrative Committee appointed by the Chief Executive Officer of the Company to administer the Plan (the "Committee") shall have the authority to amend the Plan to comply with applicable statutory or regulatory requirements; and WHEREAS, the Committee desires to amend the Plan for this purpose; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1989, the term "permanent" shall be deleted wherever it appears in Section 8.5 of the Plan and shall be replaced with the term "regular." II. Effective January 1, 1993: 1. The following new Paragraphs (11A), (12A), (15A) and (15B) shall be added to Section 1.1 of the Plan: "(11A) DIRECT ROLLOVER: A payment by the Plan to an Eligible Retirement Plan designated by a Distributee. (12A) DISTRIBUTEE: Each (A) Member entitled to an Eligible Rollover Distribution, (B) Member's surviving spouse with respect to the interest of such surviving spouse in an Eligible Rollover Distribution, and (C) former spouse of a Member who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, with regard to the interest of such former spouse in an Eligible Rollover Distribution. (15A) ELIGIBLE RETIREMENT PLAN: (A) With respect to a Distributee other than a surviving spouse, an individual retire- 2 ment account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified plan described in section 401(a) of the Code, which under its provisions accepts such Distributee's Eligible Rollover Distribution and (B) with respect to a Distributee who is a surviving spouse, an individual retirement account described in section 408(a) of the Code or an individual retirement annuity described in section 408(b) of the Code. (15B) ELIGIBLE ROLLOVER DISTRIBUTION: Any distribution of all or any portion of the Accrued Benefit of a Distributee other than (A) a distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary or for a specified period of ten years or more, (B) a distribution to the extent such distribution is required under section 401(a)(9) of the Code, (C) the portion of a distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities), and (D) any other distribution so designated by the Internal Revenue Service in revenue rulings, notices, and other guidance of general applicability." 2. The second sentence of Section 8.1(c) of the Plan shall be deleted and the following shall be substituted therefor: "The Committee shall furnish certain information pertinent to a Member's consent under Paragraph (b)(1) to each Member within a reasonable time (no less than thirty days and no more than ninety days) before his Annuity Starting Date, and the furnished information shall include a general description of the material features of, and an explanation of the relative values of, the alternative forms of benefit available under the Plan and must inform the Member of his right to defer his Annuity Starting Date and of his Direct Rollover right pursuant to Section 8.10 below, if applicable." 3. The following new Section 8.10 shall be added to Article VIII of the Plan: "8.10 DIRECT ROLLOVER ELECTION. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee -2- 3 may elect, at the time and in the manner prescribed by the Committee, to have all or any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. The preceding sentence notwithstanding, a Distributee may elect a Direct Rollover pursuant to this Section only if such Distributee's Eligible Rollover Distributions during the Plan Year are reasonably expected to total $200 or more. Furthermore, if less than 100% of the Member's Eligible Rollover Distribution is to be a Direct Rollover, the amount of the Direct Rollover must be $500 or more. Prior to any Direct Rollover pursuant to this Section, the Distributee shall furnish the Committee with a statement from the plan, account, or annuity to which the benefit is to be transferred verifying that such plan, account, or annuity is, or is intended to be, an Eligible Retirement Plan. (b) No less than thirty days and no more than ninety days before his Annuity Starting Date, the Committee shall inform the Distributee of his Direct Rollover right pursuant to this Section. A distribution or Direct Rollover of the Distributee's benefit, if payable pursuant to Section 7.3 or Section 8.3, may commence less than thirty days after such notice is given, provided that (1) the Committee clearly informs the Distributee that the Distributee has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to elect a Direct Rollover and (2) the Distributee, after receiving the notice, affirmatively elects either a distribution or a Direct Rollover or a combination thereof." III. Effective August 5, 1993, the following shall be added to the end of Section 1.1(18) of the Plan: "Hours of Service shall also include any hours required to be credited by federal law other than the Act or the Code, but only under the conditions and to the extent so required by such federal law." IV. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED this 1st day of September, 1994. ADMINISTRATIVE COMMITTEE ENSTAR NATURAL GAS COMPANY RETIREMENT PLAN FOR OPERATING UNIT EMPLOYEES By /s/ R.F. BARNES __________________________ -3- EX-10.9 9 ENSTAR PROFIT BY SERVICE PLAN FOR SALARIED 1 EXHIBIT 10.9 SECOND AMENDMENT TO ENSTAR NATURAL GAS COMPANY PROFIT BY SERVICE PLAN FOR SALARIED EMPLOYEES WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore adopted and maintains the ENSTAR NATURAL GAS COMPANY PROFIT BY SERVICE PLAN FOR SALARIED EMPLOYEES (the "Plan"); and WHEREAS, Section 15.1 of the Plan provides the Administrative Committee appointed by the Chief Executive Officer of the Company to administer the Plan (the "Committee") shall have the authority to amend the Plan to comply with applicable statutory or regulatory requirements; and WHEREAS, the Committee desires to amend the Plan for this purpose; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1993: 1. The following new Paragraphs (8A), (9A), (11A) and (11B) shall be added to Section 1.1 of the Plan: "(8A) DIRECT ROLLOVER: A payment by the Plan to an Eligible Retirement Plan designated by a Distributee. (9A) DISTRIBUTEE: Each (A) Member entitled to an Eligible Rollover Distribution, (B) Member's surviving spouse with respect to the interest of such surviving spouse in an Eligible Rollover Distribution, and (C) former spouse of a Member who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, with regard to the interest of such former spouse in an Eligible Rollover Distribution. (11A) ELIGIBLE RETIREMENT PLAN: (A) With respect to a Distributee other than a surviving spouse, an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified plan described in section 401(a) of the Code, which under its provisions accepts such Distributee's Eligible Rollover Distribution and (B) with respect to a Distributee who is a surviving spouse, an individual retirement account described in section 2 408(a) of the Code or an individual retirement annuity described in section 408(b) of the Code. (11B) ELIGIBLE ROLLOVER DISTRIBUTION: Any distribution of all or any portion of the Accounts of a Distributee other than (A) a distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary or for a specified period of ten years or more, (B) a distribution to the extent such distribution is required under section 401(a)(9) of the Code, (C) the portion of a distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities), and (D) any other distribution so designated by the Internal Revenue Service in revenue rulings, notices, and other guidance of general applicability." 2. The last sentence of Section 9.1(b) of the Plan shall be deleted and the following shall be substituted therefor: "The Committee shall furnish information pertinent to his consent to each Member no less than thirty days and no more than ninety days before his Benefit Commencement Date, and the furnished information shall include a general description of the material features of, and an explanation of the relative values of, the alternative forms of benefit available under the Plan and must inform the Member of his right to defer his Benefit Commencement Date and of his Direct Rollover right pursuant to Section 9.9 below, if applicable. If a distribution is one to which sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than thirty days after the notice required under section 1.411(a)-(11)(c) of the Treasury regulations is given, provided that (i) the Committee clearly informs the Member that the Member has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to select a distribution (and, if applicable, a particular distribution option) and (ii) the Member, after receiving the notice, affirmatively elects a distribution." 3. The first sentence of Section 9.5 of the Plan shall be deleted and the following shall be substituted therefor: "The Trustee shall pay any benefit provided hereunder other than a lump sum payment or a Direct Rollover pursuant to Section 9.9 by the purchase of a commercial annuity contract and the distribution of such contract to the Member or beneficiary." -2- 3 4. The following new Section 9.9 shall be added to Article IX of the Plan: "9.9 DIRECT ROLLOVER ELECTION. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have all or any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. The preceding sentence notwithstanding, a Distributee may elect a Direct Rollover pursuant to this Section only if such Distributee's Eligible Rollover Distributions during the Plan Year are reasonably expected to total $200 or more. Furthermore, if less than 100% of the Member's Eligible Rollover Distribution is to be a Direct Rollover, the amount of the Direct Rollover must be $500 or more. Prior to any Direct Rollover pursuant to this Section, the Distributee shall furnish the Committee with a statement from the plan, account, or annuity to which the benefit is to be transferred verifying that such plan, account, or annuity is, or is intended to be, an Eligible Retirement Plan. (b) No less than thirty days and no more than ninety days before his Benefit Commencement Date, the Committee shall inform the Distributee of his Direct Rollover right pursuant to this Section. A distribution or Direct Rollover of the Distributee's benefit may commence less than thirty days after such notice is given, provided that (1) the Committee clearly informs the Distributee that the Distributee has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to elect a Direct Rollover and (2) the Distributee, after receiving the notice, affirmatively elects either a distribution or a Direct Rollover or a combination thereof." II. Effective August 5, 1993, the following shall be added to the end of Section 1.1(14) of the Plan: "Hours of Service shall also include any hours required to be credited by federal law other than the Act or the Code, but only under the conditions and to the extent so required by such federal law." III. Effective January 1, 1994, the last sentence of Section 1.1(7) of the Plan shall be deleted and the following shall be substituted therefor: "The above notwithstanding, the Compensation of any Member taking into account for purposes of the Plan shall be limited to $150,000 for any Plan Year with such limitation to be (i) adjusted automatically to reflect any amendment to section 401(a)(17) of the Code and any cost-of-living increases authorized by section 401(a)(17) of the Code, (ii) prorated for a Plan Year -3- 4 of less than twelve months and to the extent otherwise required by applicable law, and (iii) in the case of a Member who is either a five-percent owner of the Company (within the meaning of section 416(i)(1)(A)(iii) of the Code) or is one of the ten most Highly Compensated Employees for the Plan Year and who has a spouse and/or lineal descendants who are under the age of nineteen as of the end of a Plan Year who receive Compensation during such Plan Year, prorated and allocated among such Member, his spouse, and/or lineal descendants under the age of nineteen based on the Compensation for such Plan Year of each such individual." IV. Effective December 31, 1994, the following sentence shall be added at the end of Section 1.1(26) of the Plan: "In addition to the foregoing, with respect to a Member or beneficiary entitled to a benefit hereunder pursuant to the Member's termination of employment for any reason whatsoever, the last day of the month next preceding the date on which such Member or beneficiary elects to receive such benefit shall be a Valuation Date." V. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED this 1st day of September, 1994. ADMINISTRATIVE COMMITTEE ENSTAR NATURAL GAS COMPANY PROFIT BY SERVICE PLAN FOR SALARIED EMPLOYEES By /s/ R.F. BARNES ______________________________________ R.F. BARNES -4- EX-10.10 10 ENSTAR PROFIT BY SERVICE PLAN FOR CLASSIFIED 1 EXHIBIT 10.10 THIRD AMENDMENT TO ENSTAR NATURAL GAS COMPANY PROFIT BY SERVICE PLAN FOR CLASSIFIED EMPLOYEES WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore adopted and maintains the ENSTAR NATURAL GAS COMPANY PROFIT BY SERVICE PLAN FOR CLASSIFIED EMPLOYEES (the "Plan"); and WHEREAS, Section 15.1 of the Plan provides the Administrative Committee appointed by the Chief Executive Officer of the Company to administer the Plan (the "Committee") shall have the authority to amend the Plan to comply with applicable statutory or regulatory requirements; and WHEREAS, the Committee desires to amend the Plan for this purpose; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1993: 1. The following new Paragraphs (8A), (9A), (11A) and (11B) shall be added to Section 1.1 of the Plan: "(8A) DIRECT ROLLOVER: A payment by the Plan to an Eligible Retirement Plan designated by a Distributee. (9A) DISTRIBUTEE: Each (A) Member entitled to an Eligible Rollover Distribution, (B) Member's surviving spouse with respect to the interest of such surviving spouse in an Eligible Rollover Distribution, and (C) former spouse of a Member who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, with regard to the interest of such former spouse in an Eligible Rollover Distribution. (11A) ELIGIBLE RETIREMENT PLAN: (A) With respect to a Distributee other than a surviving spouse, an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified plan described in section 401(a) of the Code, which under its provisions accepts such Distributee's Eligible Rollover Distribution and (B) with respect to a Distributee who is a surviving spouse, an individual retirement account described in section 2 408(a) of the Code or an individual retirement annuity described in section 408(b) of the Code. (11B) ELIGIBLE ROLLOVER DISTRIBUTION: Any distribution of all or any portion of the Accounts of a Distributee other than (A) a distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary or for a specified period of ten years or more, (B) a distribution to the extent such distribution is required under section 401(a)(9) of the Code, (C) the portion of a distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities), and (D) any other distribution so designated by the Internal Revenue Service in revenue rulings, notices, and other guidance of general applicability." 2. The last sentence of Section 9.1(b) of the Plan shall be deleted and the following shall be substituted therefor: "The Committee shall furnish information pertinent to his consent to each Member no less than thirty days and no more than ninety days before his Benefit Commencement Date, and the furnished information shall include a general description of the material features of, and an explanation of the relative values of, the alternative forms of benefit available under the Plan and must inform the Member of his right to defer his Benefit Commencement Date and of his Direct Rollover right pursuant to Section 9.9 below, if applicable. If a distribution is one to which sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than thirty days after the notice required under section 1.411(a)-(11)(c) of the Treasury regulations is given, provided that (i) the Committee clearly informs the Member that the Member has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to select a distribution (and, if applicable, a particular distribution option) and (ii) the Member, after receiving the notice, affirmatively elects a distribution." 3. The first sentence of Section 9.5 of the Plan shall be deleted and the following shall be substituted therefor: "The Trustee shall pay any benefit provided hereunder other than a lump sum payment or a Direct Rollover pursuant to Section 9.9 by the purchase of a commercial annuity contract and the distribution of such contract to the Member or beneficiary." -2- 3 4. The following new Section 9.9 shall be added to Article IX of the Plan: "9.9 DIRECT ROLLOVER ELECTION. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have all or any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. The preceding sentence notwithstanding, a Distributee may elect a Direct Rollover pursuant to this Section only if such Distributee's Eligible Rollover Distributions during the Plan Year are reasonably expected to total $200 or more. Furthermore, if less than 100% of the Member's Eligible Rollover Distribution is to be a Direct Rollover, the amount of the Direct Rollover must be $500 or more. Prior to any Direct Rollover pursuant to this Section, the Distributee shall furnish the Committee with a statement from the plan, account, or annuity to which the benefit is to be transferred verifying that such plan, account, or annuity is, or is intended to be, an Eligible Retirement Plan. (b) No less than thirty days and no more than ninety days before his Benefit Commencement Date, the Committee shall inform the Distributee of his Direct Rollover right pursuant to this Section. A distribution or Direct Rollover of the Distributee's benefit may commence less than thirty days after such notice is given, provided that (1) the Committee clearly informs the Distributee that the Distributee has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to elect a Direct Rollover and (2) the Distributee, after receiving the notice, affirmatively elects either a distribution or a Direct Rollover or a combination thereof." II. Effective August 5, 1993, the following shall be added to the end of Section 1.1(14) of the Plan: "Hours of Service shall also include any hours required to be credited by federal law other than the Act or the Code, but only under the conditions and to the extent so required by such federal law." III. Effective December 31, 1994, the following sentence shall be added at the end of Section 1.1(26) of the Plan: "In addition to the foregoing, with respect to a Member or beneficiary entitled to a benefit hereunder pursuant to the Member's termination of employment for any reason whatsoever, the last day of the month next preceding the date on which such Member or beneficiary elects to receive such benefit shall be a Valuation Date." -3- 4 IV. Effective January 1, 1997, the last sentence of Section 1.1(7) of the Plan shall be deleted and the following shall be substituted therefor: "The above notwithstanding, the Compensation of any Member taking into account for purposes of the Plan shall be limited to $150,000 for any Plan Year with such limitation to be (i) adjusted automatically to reflect any amendment to section 401(a)(17) of the Code and any cost-of-living increases authorized by section 401(a)(17) of the Code, (ii) prorated for a Plan Year of less than twelve months and to the extent otherwise required by applicable law, and (iii) in the case of a Member who is either a five-percent owner of the Company (within the meaning of section 416(i)(1)(A)(iii) of the Code) or is one of the ten most Highly Compensated Employees for the Plan Year and who has a spouse and/or lineal descendants who are under the age of nineteen as of the end of a Plan Year who receive Compensation during such Plan Year, prorated and allocated among such Member, his spouse, and/or lineal descendants under the age of nineteen based on the Compensation for such Plan Year of each such individual." V. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED this 1st day of September, 1994. ADMINISTRATIVE COMMITTEE ENSTAR NATURAL GAS COMPANY PROFIT BY SERVICE PLAN FOR CLASSIFIED EMPLOYEES /s/ R.F. BARNES By ________________________ -4- EX-10.30 11 SEAGULL ENERGY CANADA RETIREMENT PLAN 1 EXHIBIT 10.30 SEAGULL ENERGY CANADA LTD. RETIREMENT PLAN JANUARY 1994 2 Table Of Contents Section 1 - Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2 - Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 3 - Eligibility and Participation . . . . . . . . . . . . . . . . . . . . . . . 8 Section 4 - Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 5 - Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 6 - Retirement Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 7 - Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 8 - Forms of Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . 17 Section 9 - Disability of a Participant . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 10 - Death of a Participant . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 11 - Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 12 - Termination of Service . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 13 - Administration of The Plan . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 14 - Funding Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 15 - Amendment or Termination of the Plan . . . . . . . . . . . . . . . . . . . 30 Section 16 - Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 17 - General Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3 Section 1 - Introduction 1.01 The Seagull Energy Canada Ltd. Retirement Plan is hereby established by the Company effective January 4, 1994. 1.02 The establishment and maintenance of the Plan is conditional upon the Plan receiving and retaining such registration with the necessary regulatory authorities as may be required for the Company to deduct its contributions within the meaning of the Income Tax Act, and any other Applicable Legislation. - 1 - 4 Section 2 - Interpretation 2.01 TERMS For the purposes of this Plan, including this Section 2, the expressions set out below shall have the respective meaning attributed thereto. 2.02 ACCOUNT means the aggregate of all amounts constituting each Participant's holdings under the Plan. 2.03 ADMINISTRATOR means the incumbent President of Seagull Energy Canada Ltd. 2.04 APPLICABLE LEGISLATION means the Employment Pension Plans Act, the Income Tax Act, and any other legislation of Canada or a province or territory thereof, together with any regulations, rules, guidelines, or conditions established or prescribed from time to time affecting registered pension plans, to the extent such legislation is applicable with respect to the Plan or a Participant. 2.05 BENEFICIARY means a person designated under Section 11. 2.06 COMPANY means Seagull Energy Canada Ltd. and any affiliated company designated by Seagull Energy Canada Ltd. to be a participating employer in the Plan; provided that any reference herein to any action to be undertaken or discretion to be exercised by the Company hereunder means Seagull Energy Canada Ltd. acting through its Board of Directors or any person or group of persons authorized to do so, either directly or indirectly, by the Board of Directors of Seagull Energy Company Ltd. 2.07 COMPANY'S FORFEITURE ACCOUNT means the account to which is credited the amounts in the Account under Section 12.01(b). - 2 - 5 2.08 CONTINUOUS SERVICE means the period of uninterrupted active service by a Participant from the Participant's most recent date of employment with the Company and rendered to the date of his termination of his service with the Company, death, or retirement, whichever is the earliest. Continuous Service shall include (1) any educational leave of absence of an Employee from his duties which does not exceed two (2) years and is granted with the consent of the Company; (2) any absence of an Employee due to maternity leave, sick or accident leave which cause is certified by a medical practitioner as being a disabling illness or injury, or such other leave which does not exceed two (2) years and is recognized by the Company; (3) service with any predecessor company, provided the Company recognizes such service for purposes of the Plan; (4) any period of temporary absence or lay-off by the Company, provided such temporary absence or lay-off does not exceed a continuous twenty six (26) week period; and (5) for those Participants pursuant to Section 3.01, the period of continuous service under the Prior Plan. Service occurring before a break in Continuous Service shall not constitute Continuous Service. 2.09 CREDITED INTEREST means the interest or changes in value that can reasonably be attributed to the operation of the Fund as a result of interest, dividends, realized and unrealized capital gains or capital losses, net of expenses attributable thereto, with respect to investments under the Plan, as determined by the Funding Agency. Credited Interest shall be calculated and allocated by the Funding Agency to each Account at the end of each month. - 3 - 6 2.10 DISABLED means, with respect to a Participant, suffering from a physical or mental impairment that prevents the Participant from performing the duties of his employment in which he was engaged prior to the commencement of the impairment and which is certified, in writing, by a medical doctor licensed in Canada or, with the Company's consent, where the Participant resides. 2.11 EFFECTIVE DATE means January 4, 1994. 2.12 EMPLOYEE means any person employed by the Company on a permanent basis, plus any person employed by the Company on other than a permanent basis, provided such person has completed two consecutive calendar years of employment during which he earned not less than 35% of the YMPE. 2.13 EMPLOYMENT PENSION PLANS ACT means the Employment Pension Plans Act, S.A. 1986 c. E-10.05 and the Regulations thereunder, each as amended or replaced from time to time. 2.14 FUND means the corpus and all earnings, appreciations or additions therein and thereto held by the Funding Agency under the Funding Agreement for the purposes of the Plan. 2.15 FUND MANAGER means the individual or organization, and successors thereof as the Company may appoint from time to time to manage and make decisions regarding the investments of the Fund. 2.16 FUNDING AGENCY means the trust company, trustees, insurance company or successors thereof as the Company may appoint to hold the Fund pursuant to the Funding Agreement, provided such Agency is recognized for such purpose under the Employment Pension Plans Act. 2.17 FUNDING AGREEMENT means the agreement or contract entered into between the Company and the Funding Agency establishing the Fund. - 4 - 7 2.18 INCOME TAX ACT means the Income Tax Act, S.C. 1970-71-72, c. 63 and the Regulations thereunder, and where applicable includes the provisions of Information Circular 72-13R8 issued by the Department of National Revenue, each as amended or replaced from time to time. 2.19 LOCKED-IN RETIREMENT ACCOUNT means an RRSP which is eligible for receipt of locked-in retirement funds under the Employment Pension Plans Act and the Income Tax Act. 2.20 LONG TERM DISABILITY PLAN means any insured disability plan sponsored by the Company which provides for the continuation of income after the expiry of the Company's short term disability plan. 2.21 MONEY PURCHASE LIMIT means the maximum number of dollars permitted under the Income Tax Act to be contributed by or on behalf of a Participant to a Registered Pension Plan in any calendar year. 2.22 NORMAL RETIREMENT DATE means the first day of the month coinciding with or next following the date on which the Participant attains or would attain age sixty-five (65). 2.23 PARTICIPANT means any Employee who fulfils the eligibility requirements set forth in Section 3 hereof and whose application for participation has been accepted and recorded by the Company. A Participant shall include a former Employee who continues to be entitled to benefits or rights under the Plan. 2.24 PLAN means the Seagull Energy Canada Ltd. Retirement Plan as provided herein and as amended or replaced from time to time. 2.25 PLAN YEAR means the calendar year. 2.26 PRIOR PLAN means the pension plan that was provided for employees of Novalta Resources Inc., as it was in effect on January 3, 1994. 2.27 REGISTERED PENSION PLAN and REGISTERED RETIREMENT SAVINGS PLAN bear the respective meanings attributed thereto under the Income Tax Act. 2.28 REGULAR GROSS EARNINGS means the basic monthly remuneration received by the Participant, as determined by the Company. 2.29 SPOUSE means, in relation to a Participant, - 5 - 8 (a) a person of the opposite sex who at the relevant time was legally married to the Participant and was not living separate and apart from him, or (b) if there is no person to whom Section 2.29(a) applies, a person of the opposite sex who lived in a conjugal relationship with the Participant for the one (1) year period immediately preceding the relevant time and was, during that period, held out by the Participant in the community in which they live as his consort. 2.30 SUPERINTENDENT means the Superintendent of Pensions for the Province of Alberta, appointed under the Employment Pension Plans Act. 2.31 YMPE means the Year's Maximum Pensionable Earnings as applicable under the Canada Pension Plan or the Quebec Pension Plan, as the case may be. 2.32 NUMBER AND GENDER In this Plan, words importing the singular include the plural and vice versa; and words importing the masculine gender include the feminine and vice versa. - 6 - 9 2.33 HEADINGS Section headings are convenient references only and shall not be deemed to be a part of the substance of this instrument or in any way to enlarge or limit the contents of any section. - 7 - 10 Section 3 - Eligibility and Participation 3.01 PARTICIPANTS OF THE PRIOR PLAN Each Employee who was a participant of the Prior Plan shall become a Participant of the Plan on the Effective Date. 3.02 OTHER EMPLOYEES Any other Employee who is not referred to in Section 3.01 shall become a Participant of the Plan on the first day of his employment. 3.03 RE-EMPLOYMENT AFTER TERMINATION A Participant or any other Employee who terminates employment and is subsequently re-employed by the Employer shall be treated as a new Employee for all purposes of the Plan. This, however, shall not be construed as alienating any previously granted benefit in which the Participant had been vested as of his prior termination of employment. 3.04 RE-EMPLOYMENT AFTER RETIREMENT A former Participant who has retired under the provisions of the Plan and who is subsequently re-employed by the Employer shall be treated as a new Employee for all purposes of the Plan. This, however, shall not be construed as alienating any previously granted benefit in which the Participant had been vested as of his prior termination of employment. 3.05 TERMINATION OF PARTICIPATION NOT PERMITTED A Participant may not terminate his participation in the Plan while he remains an Employee. 3.06 NON-DUPLICATION OF PARTICIPATION An Employee who is participating in any other Registered Pension Plan of the Employer shall not participate in the Plan during his period of participation in the other plan. - 8 - 11 3.07 WAIVER OF ELIGIBILITY REQUIREMENTS The Company may, at its sole discretion, waive or modify any or all of the foregoing provisions of Section 3 with respect to any Employee, or group of Employees, for whom it deems it desirable and appropriate to do so, subject to the provisions of any Applicable Legislation. - 9 - 12 Section 4 - Contributions 4.01 EMPLOYEE CONTRIBUTIONS Each Employee who is a Participant is not permitted to make contributions to the Plan. 4.02 COMPANY CONTRIBUTIONS The Company shall contribute monthly to the Fund an amount equal to six and six tenths percent (6.6%) of the Participant's monthly Regular Gross Earnings. However, such contributions in any calendar year shall not exceed the Money Purchase Limit for such calendar year. Each participating employer shall contribute only on behalf of its own Employees who are Participants under the Plan. 4.03 DISABLED PARTICIPANT If a Participant is Disabled, the Company shall remit contributions pursuant to Section 4.02 to the Plan in respect of such Participant during the period in which the Participant is Disabled; provided that: (a) such contributions shall not exceed the amount which the Company would have contributed on behalf of the Participant had he not been Disabled, based upon his last full rate of Regular Gross Earnings; and (b) contributions under this Section 4.04 shall not be made for any period in excess of the waiting or eligibility period, if any, applicable to such Participant under the Company's Long Term Disability Plan. - 10 - 13 4.04 APPLICATION OF FORFEITURES The Company may apply all or any portion of the Company's Forfeiture Account to reduce the total Company contributions to the Plan for any month, or it may direct that the expenses of the Plan be paid from such account. 4.05 REFUND OF FORFEITURES (a) The Company may, subject to the advance approval of the Superintendent, receive a refund of all or a portion of the amount in the Company's Forfeiture Account. (b) Notwithstanding Section 4.05(a), any amount in the Company's Forfeiture Account which has not been used pursuant to Section 4.04 by the end of the calendar year following the year in which the amount was forfeited shall be refunded to the Company at that time, subject to the prior approval of the Superintendent. 4.06 TRANSFERS OF FUNDS FROM OTHER SOURCES The Company shall accept any transfer from the Prior Plan on behalf of a Participant. The Company may, in its absolute discretion, accept on behalf of a Participant a transfer to the Plan of funds held in another Registered Pension Plan, or Registered Retirement Savings Plan in the name of that Participant. Any transfer to the Plan shall be subject to all restrictions imposed on such transfers by any Applicable Legislation. 4.07 RETURN OF CONTRIBUTIONS Subject to the prior written approval of the Superintendent, an amount contributed by the Employer under Section 4.02 may be refunded at any time to the Employer as applicable where such action is required to avoid the revocation of registration of the Plan under the Income Tax Act. - 11 - 14 4.08 REMITTANCE OF COMPANY CONTRIBUTIONS The Company shall remit to the Funding Agent, for deposit to the Pension Fund, all contributions required to be made by the Employer pursuant to Section 4.02 and 4.03, subject to Section 4.04, within 30 days following the end of the month to which they relate. - 12 - 15 Section 5 - Accounts 5.01 ACCOUNTS An Account will be maintained for each Participant to which will be credited all contributions made on his behalf by the Employer in accordance with Sections 4.02, 4.03, 4.04 and 4.06. 5.02 INTEREST ON CONTRIBUTIONS At the end of each month Credited Interest will be added to all Accounts. Credited Interest shall not be applied at any other time. 5.03 ALLOCATIONS MADE MONTHLY All contributions shall be allocated by the Funding Agency to the Accounts of the Participants not later than the end of the month in which they are received by the Funding Agency. - 13 - 16 Section 6 - Retirement Dates 6.01 RETIREMENT OF A PARTICIPANT For purposes of this Plan, retirement shall commence on the first day of the calendar month coincident with or next following the cessation of the employment of a Participant who is retiring from the Plan. 6.02 NORMAL RETIREMENT DATE A Participant may retire on his Normal Retirement Date. 6.03 EARLY RETIREMENT DATE A Participant may elect to retire on the first day of any month which falls within the one hundred and twenty (120) months prior to his Normal Retirement Date. A Participant who is eligible to retire under this Section 6.03 and whose employment with the Company is terminated for any reason other than death may elect to be treated for the purposes of the Plan as if his employment has been terminated under Section 12 of the Plan. 6.04 POSTPONED RETIREMENT (a) Subject to Section 6.04(b), a Participant may postpone his normal retirement and remain in the service of the Company beyond his Normal Retirement Date, in which case he will continue to accrue benefits under the Plan. (b) A Participant's actual date of retirement for purposes of this Plan shall not be postponed beyond the first day of December in the year in which he attains age seventy-one (71). - 14 - 17 Section 7 - Retirement Benefits 7.01 BENEFITS ON RETIREMENT Upon retirement, a Participant may elect the following: (a) a life annuity in the form determined pursuant to Section 8 which may be purchased by the sum of the amount of his Account; (b) the transfer of the sum of the amount in his Account to a Locked-In Retirement Account; or (c) any other form of settlement permitted under Applicable Legislation at that time. 7.02 SMALL BENEFIT COMMUTATION If the value of the Participant's Account at his date of retirement is less than 4% of the YMPE for that year, or the resulting monthly pension is less than 1/12 of 2% of the YMPE for that year, or such other amount as may be prescribed under Applicable Legislation, the Participant shall receive a lump sum payment or a transfer to an unrestricted RRSP in the Participant's name, equal to the value of his Account in full discharge of all obligations under the Plan. 7.03 APPLICATION FOR PENSION A Participant eligible for retirement benefits under this Plan, or his legal representative, must make written application to the Company on the forms prescribed by the Company before any such benefits are payable. An application for payment for retirement benefits may be made at any time following sixty (60) days prior to the Participant's qualification to retire under the Plan, but not later than any date prescribed under the Income Tax Act. - 15 - 18 7.04 UNCLAIMED PENSION In the event a Participant, his legal representative or anyone else satisfactory to the Company does not give notice of his claim for retirement benefits, the Account of the Participant will be retained in the Fund until such advice is received. During such period the Account shall continue to earn Credited Interest. - 16 - 19 Section 8 - Forms of Retirement Benefits 8.01 NORMAL FORM OF PENSION FOR PARTICIPANTS WITHOUT A SPOUSE The normal form of pension for Participants without a Spouse shall be a life annuity payable in equal monthly instalments to and including the month in which the Participant dies, in arrears, provided that should the Participant die prior to having received sixty (60) monthly payments, the balance of the sixty (60) monthly payments shall be paid to the Participant's Beneficiary. 8.02 NORMAL FORM OF PENSION FOR PARTICIPANT WITH A SPOUSE The normal form of pension for a Participant with a Spouse shall be a joint and surviving spouse annuity such that: (a) if the Participant's Spouse survives the Participant, the Spouse shall, during the Spouse's lifetime, receive sixty percent (60%) of the monthly pension which had been payable to the Participant during his lifetime; and (b) the benefit shall be payable to the Participant or Spouse, as applicable, in equal monthly instalments, in arrears to and including the payment for the month in which the recipient dies. 8.03 OPTIONAL FORMS In lieu of the normal form of retirement benefit described in Sections 8.01 and 8.02, a Participant may elect any optional form of annuity which may be purchased by the sum in his Account provided that: (a) the Company agrees to such option; (b) such other optional form is permitted under the Employment Pension Plans Act; and (c) such optional form is permitted under the Income Tax Act. - 17 - 20 8.04 OPTIONAL FORM ELECTION DATE A Participant who wishes to make an election under Section 8.03 shall submit written election to the Company at least thirty (30) days prior to the date of commencement of his pension payments. Should a Participant fail to make such an election within the specified period, the benefit shall be payable in the normal form described in Section 8.01 or 8.02, as applicable. 8.05 LIMIT ON ELECTIONS A Participant who has a Spouse may not elect an optional form under Section 8.03 which would reduce the benefit entitlement of the Spouse without the written approval of the Spouse on a form and in the manner prescribed under the Employment Pension Plans Act. - 18 - 21 Section 9 - Disability of a Participant 9.01 PAYMENTS IN EVENT OF DISABILITY Subject to Section 9.02, if a Participant is Disabled and he is in receipt of benefits under any Long Term Disability Plan sponsored by the Company, the Participant may, subject to the approval of the Company, elect to receive the value of his Account in accordance with Section 7 and in such manner as may be approved by the Superintendent. 9.02 WAIVER OF SPOUSAL BENEFIT REQUIRED If a Disabled Participant who has a Spouse wishes to receive the value of his Account in accordance with Section 9.01 other than in the form of a joint and survivor annuity, or as a joint and survivor annuity which provides his Spouse with a monthly benefit of less than sixty per cent (60%) of the monthly benefit received by the Participant during his lifetime, the Participant's application for such benefit must include the written approval of the Spouse in the form and manner prescribed under the Employment Pension Plans Act. - 19 - 22 Section 10 - Death of a Participant 10.01 DEATH PRIOR TO RETIREMENT WITHOUT A SPOUSE If a Participant dies prior to commencement of his retirement benefits, provided the Participant does not have a Spouse on his date of death, the Beneficiary shall be entitled to a lump sum refund of the value of the Participant's Account. If the Beneficiary is eligible under the Income Tax Act to do so, he may elect to have the funds transferred to an RRSP in his name. The value of the Account shall include Credited Interest calculated to the end of the month immediately preceding the date of such refund. 10.02 DEATH PRIOR TO RETIREMENT WITH A SPOUSE If a Participant dies prior to the commencement of his retirement benefits and if the Participant has a Spouse on the date of his death, the Spouse may elect to receive the value of the Participant's Account as: (a) a lump sum payment, provided the Participant had not, at the date of death, completed five (5) years of Continuous Service; (b) a transfer to a Registered Retirement Savings Plan in the name of the Spouse, provided the Participant had not, at the date of death, completed five (5) years of Continuous Service; (c) a transfer to a Locked-In Retirement Account the name of the Spouse, if at the date of his death the Participant had completed five (5) years of Continuous Service; (d) a transfer to the Spouse's Registered Pension Plan, provided the administrator of that plan will accept the transfer; or (e) a transfer to a life insurance company to purchase a deferred or immediate life annuity for the Spouse; - 20 - 23 provided such payment or transfer is under any other terms and conditions prescribed under the Employment Pension Plans Act and the Income Tax Act and provided that, if a deferred annuity is selected under Section 10.02(e), the annuity will commence prior to: (f) the end of the year in which the Spouse will attain age seventy-one (71), or (g) if later, within one (1) year of the Participant's death. 10.03 DEADLINE FOR ELECTION OF OPTIONS Should the Spouse fail to advise the Company of his election within ninety (90) days of receipt of the election forms prescribed under the Plan, the Company shall cause the benefit to be paid as a lifetime pension pursuant to Section 10.02(1)(e), in which case the annuity shall commence payment: (a) upon the Participant's Normal Retirement Date; or (b) if the Participant was age sixty-five (65) or older on the date of his death, as soon as practicable, but in no event later the earlier of (i) one (1) year after the death of the Participant, and (ii) the end of the calendar year in which the Spouse attains age 71. 10.04 DEATH OF A PARTICIPANT AFTER RETIREMENT If a Participant dies after having commenced receipt of pension benefits, any benefit to which the Participant's Spouse or Beneficiary shall be entitled shall be in accordance the form of benefit being received under Section 8. - 21 - 24 10.05 DEATH OF A SPOUSE PRIOR TO BENEFIT TRANSFER If a Spouse dies after having become entitled to receive benefits under this Section 10 and prior to those benefits having been transferred to or on behalf of the Spouse, the benefits shall be paid to the Spouse's beneficiary or, if there is no such beneficiary, to the Spouse's estate. - 22 - 25 Section 11 - Designation of Beneficiary 11.01 DESIGNATION AND CHANGES OF BENEFICIARY Subject to Section 11.02, a Participant may upon making application for participation designate a Beneficiary to receive the benefits payable under the Plan in the event of the Participant's death, and may also, by written notice to the Company during such Participant's lifetime, alter or revoke such designation from time to time subject to any applicable law. Any such written notice shall be in such form and executed in such manner as the Company may require. If no Beneficiary has been validly designated or if the designated Beneficiary is not alive at the time of the Participant's death, the Participant's estate shall be the Beneficiary. 11.02 LIMITATION ON ELECTION If a Participant has a Spouse, the Spouse shall be the Beneficiary. 11.03 BURDEN OF PROOF ON CLAIMANT The Company may require the delivery of such documents as it deems necessary in order to be assured that the payment of benefits is properly made and is made to the proper party. - 23 - 26 Section 12 - Termination of Service 12.01 TERMINATION WITH LESS THAN FIVE YEARS OF CONTINUOUS SERVICE In the event that a Participant's employment terminates for any reason other than retirement or death prior to the completion of five (5) years of Continuous Service, (a) if such Participant's Continuous Service commenced prior to the Effective Date, then he shall be entitled to receive his Account balance, together with Credited Interest thereon to the date of withdrawal of such Account; or (b) if such Participant's Continuous Service commenced on or after the Effective Date, then no benefit is payable and the value of his Account shall be forfeited and credited to the Company's Forfeiture Account; however, should any part of his Account be derived from an amount transferred to the Plan pursuant to Section 4.06, then such portion of his Account shall not be forfeited and shall be payable to him, subject to any Applicable Legislation, together with Credited Interest thereon to the date of withdrawal of such portion of his Account. 12.02 TERMINATION WITH FIVE OR MORE YEARS OF CONTINUOUS SERVICE Upon completion of five (5) years of Continuous Service, a Participant whose employment with the Company terminates for any reason other than retirement or death shall be entitled to receive his Account balance, together with Credited Interest therein to the date of withdrawal of such Account. 12.03 OPTIONS ON SETTLEMENT Subject to Section 12.04, a Participant who terminates pursuant to Section 12.02 shall be entitled to receive the value of his Account as: (a) a transfer to a Locked-In Retirement Account in the name of the Participant, - 24 - 27 (b) a transfer to a Registered Pension Plan if the administrator of such plan agrees to accept such transfer; or (c) a transfer to a life insurance company to purchase an immediate or a deferred life annuity; provided that payments under such deferred annuity must commence prior to the end of the year in which the Participant attains age seventy-one (71), provided such transfer is in accordance with the Employment Pension Plans Act and the Income Tax Act. 12.04 SMALL BENEFIT COMMUTATION If the benefit payable under Section 12.02 is not more than 4% of the YMPE in the year of the Participant's termination of Continuous Service, or the resulting monthly pension is less than 1/12 of 2% of the YMPE for that year, or such other amount as may be prescribed under Applicable Legislation, the Participant shall receive a lump sum payment or a transfer to an unrestricted RRSP in the Participant's name, equal to the value of his Account in full discharge of all obligations under the Plan. 12.05 ADVICE OF BENEFITS UNDER PLAN Within sixty (60) days of the date of termination, the Company will advise the Participant of his benefits under the Plan. - 25 - 28 12.06 FAILURE TO ELECT Should a Participant fail to advise the Company of his election pursuant to Sections 12.01 and 12.02, as applicable, within ninety (90) days of his receipt of the election forms prescribed under the Plan, the Company shall provide that the value of the Account to which he is entitled be applied to provide a deferred life annuity in the normal form under Section 8.01 or 8.02, as applicable, commencing on the Participant's Normal Retirement Date. - 26 - 29 Section 13 - Administration of The Plan 13.01 POWERS OF THE ADMINISTRATOR The Administrator shall: (1) make and enforce such rules and regulations as it shall deem necessary or proper for the efficient administration of the Plan; (2) interpret the Plan, its interpretation thereof to be final and conclusive; (3) decide all questions concerning the Plan including the eligibility of any employees to participate in the Plan, such decisions to be final and conclusive; (4) compute the amount of payments of Participants and Beneficiaries in accordance with the provisions of the Plan and Applicable Legislation, and determine the person or persons to whom such payments shall be made, such computations and determinations to be final and conclusive; (5) authorize payments to be made under the Plan; and (6) prepare or arrange for preparation of all requisite accounts and records pertaining to the Plan. 13.02 UNIFORM APPLICATION Whenever, in the administration of the Plan, any action by the Company is required, such action shall be uniform in nature as applied to all persons similarly situated. - 27 - 30 13.03 LIMITATION OF LIABILITY In administering the Plan neither the Board of Directors nor any member thereof, nor the Company, nor any officer or employee thereof, shall be liable for any acts of omission or commission, except for his or its own individual, wilful and intentional malfeasance or misfeasance. The Company and its officers and directors shall be entitled to rely conclusively on all tables, valuations, certificates, opinions and reports which shall be furnished by any actuary, accountant, Fund Manager, Funding Agency, counsel or other expert who shall be employed or engaged by the Company. The Company shall indemnify and hold harmless the Administrator, and any person to whom the Administrator may delegate any task or function, against any and all expenses and liabilities arising out of his administrative functions or fiduciary responsibilities, including any expenses and liabilities that are caused by or result from an act or omission constituting negligence in the performance of such functions or responsibilities, but excluding expenses and liabilities that are caused by or result from his own gross negligence or wilful misconduct. Expenses against which such person shall be indemnified hereunder shall include, without limitation, the amounts of any settlement or judgement, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof. 13.04 APPLICATION AND ELECTIONS All applications and elections for any purpose of the Plan shall be made on such forms and shall be filed in such manner as may be prescribed by Applicable Legislation or otherwise, determined from time to time by the Company. - 28 - 31 Section 14 - Funding Benefits 14.01 ESTABLISHMENT OF THE FUND The Company will establish and maintain, during the term of this Plan, a Fund to be held and invested by the Funding Agency in accordance with the Funding Agreement and subject to Applicable Legislation. 14.02 CONTRIBUTIONS TO FUND All contributions in respect of the Plan shall be paid monthly into the Fund, which shall be held in trust and administered and invested by the Funding Agency in accordance with the Funding Agreement, the Income Tax Act, and the Employment Pension Plans Act. 14.03 RESTRICTION ON USE OF FUND No person shall have any interest in, nor right to, any part of the Fund except and to the extent provided in this Plan. 14.04 CHANGING FUNDING AGENCY The Company may remove the Funding Agency and upon such removal or upon resignation of the Funding Agency, the Company shall appoint a successor Funding Agency. 14.05 FISCAL YEAR The fiscal year of the Fund shall be the same as the Plan Year. - 29 - 32 Section 15 - Amendment or Termination of the Plan 15.01 COMPANY'S RIGHT TO AMEND OR TERMINATE THE PLAN The Company retains the right to amend or modify or terminate the Plan in whole or in part, at any time and from time to time, and in such manner and to such extent as it may deem advisable; provided that: (1) no amendment shall have the effect of reducing any Participant's then existing interest in the Fund; (2) no amendment shall have the effect of diverting any part of the Fund to purposes other than for the exclusive benefit of the Participants; and (3) if the Plan is discontinued, the Account of each Participant shall be fully vested and shall be distributed to the Participant in accordance with Section 12. 15.02 FORFEITURE ACCOUNT If, after provision for benefits payable to, or in respect of, Participants on the full termination and wind-up of the Plan, funds are retained in the Company's Forfeiture Account, the Company's Forfeiture Account shall be refunded to the Company. - 30 - 33 Section 16 - Disclosure 16.01 EXPLANATION OF THE PLAN The Administrator shall provide each Employee eligible to become a Participant of the Plan with a written explanation of the terms and conditions of the Plan and of any amendments to it which are applicable to him, together with an explanation of his rights and duties thereunder with reference to the benefits available. Such information shall be provided to the Employee on or before the later of: (1) his date of hire; and (2) 30 days prior to his eligibility date. 16.02 EXPLANATION OF AMENDMENTS The Administrator shall provide each Participant with an explanation of any amendment to the Plan applicable to him together with an explanation of his rights and duties thereunder with reference to the benefits available. Such information shall be provided to the Participant within 90 days after registration of the amendment. 16.03 ANNUAL STATEMENT The Administrator shall provide each Participant with an annual statement containing prescribed information within 180 days of the end of each fiscal year. 16.04 STATEMENT ON TERMINATION The Administrator shall provide a former Participant with a written statement of his entitlements, rights and obligations within 90 days after his termination of employment, and upon the written request of former Participant, but not more frequently than annually, the same information but updated. - 31 - 34 16.05 STATEMENT ON RETIREMENT The Administrator shall provide a Participant or former Participant, but not more frequently than annually, who is about to commence his pension with a written statement of his entitlements, rights and obligations within 90 days after receiving a completed application in the form required by the Administrator for commencement of pension. 16.06 STATEMENT ON DEATH The Administrator shall provide a surviving Spouse, Beneficiary or personal representative of a deceased Participant or former Participant who is entitled to a benefit with a written statement of the entitlements, rights and obligations within 90 days after proof of death is provided to the Administrator. 16.07 RELEVANT DATA The Administrator shall provide any person entitled to a statement in accordance with this Section with the data used to calculate any applicable prescribed benefit within 30 days after receiving a written request for such data. 16.08 NOTICE OF INTENT TO WIND UP THE PLAN The Administrator shall provide each Participant or former Participant where it is intended to terminate or windup the Plan, written notice of such intention at least 60 days before the proposed windup date. In the event that the decision is made to terminate or windup the Plan within 60 days, notice is to be provided immediately after such decision is made. 16.09 STATEMENT ON WIND UP In the event that the Plan is terminated or wound-up, the Administrator shall provide each Participant with a written statement of his entitlements, rights and obligations together with any other prescribed information, within 30 days after the approval of the Superintendent of Pensions of the windup report. 16.10 DISCLOSURE TO PARTICIPANTS A copy of the Plan documents and any other information prescribed by Applicable Legislation may be examined by a Participant at any reasonable time at the office of the Company. - 32 - 35 Section 17 - General Conditions 17.01 LIMITATION OF RIGHTS GIVEN EMPLOYEES (1) The adoption and maintenance of the Plan shall not be deemed to constitute a contract of employment between the Company and any Employee or Participant. (2) Nothing contained herein shall be deemed to give to any Employee the right to be retained in the service of the Company or to interfere with the right of the Company to terminate the employment of any Employee. 17.02 OBLIGATION OF COMPANY AND FUND All benefits payable under the Plan shall be provided for solely from the Fund and persons entitled to benefits hereunder shall look only to the assets of the Fund for payment. The Company's obligations hereunder are limited to the obligations expressly set forth herein. 17.03 PAYMENTS CANNOT BE ASSIGNED All benefits to which a person is, or may become, entitled pursuant to the Plan are for the support and maintenance of such person and may not in any manner, in whole or in part, be assigned, alienated, anticipated, sold, transferred, pledged, hypothecated, encumbered, charged, given as security or surrendered and except as otherwise required by law, shall not be subject to attachment or otherwise by, or on behalf of, the creditors of such person. 17.04 BREAKDOWN OF SPOUSAL RELATIONSHIP Subject to the Employment Pension Plans Act, the entitlement of a Member to receive a benefit under this Plan is subject to entitlements arising under a matrimonial property order, within the meaning of the Matrimonial Property Act, issued by a court of competent jurisdiction. The aggregate of payments made from the Plan to a Member of his Spouse or former Spouse pursuant to such an order shall not exceed the amount which would have been payable under the Plan to the Member in the absence of such an order. - 33 - 36 17.05 SOURCE OF BENEFIT PAYMENTS The Company reserves the right to provide for payment of benefits referred to in this Plan directly from the Fund in the case of lump sum payments only. In all other cases, monies will be transferred from the Fund to a Canadian trust company, to a life insurance company licensed to transact annuity business in Canada, or to another pension plan fund recognized as such under the Employment Pension Plans Act, for the benefit of the Participant, Spouse or Beneficiary as the case may be. Such transfer shall serve as a full discharge of the obligations of the Company, the Fund and the Plan. 17.06 PAYMENT OF BENEFITS Where a Participant or the Beneficiary of a Participant is entitled to receive a lump sum payment under the Plan, the Company shall cause the payment to be made within sixty (60) days of receipt by the Company of the election forms prescribed under the Plan. 17.07 WITHDRAWAL FROM PLAN A Participant in the Plan cannot withdraw from the Plan while he remains in the employment of the Company. 17.08 PAYMENT OF PENSION ON BEHALF OF PARTICIPANT If a person entitled to receive retirement benefits hereunder has been adjudged or declared mentally incompetent, the Company shall, upon receipt of lawful notice in respect thereof, thereafter pay the retirement benefits to which such person is entitled to his legal representative specified in such notice. Any payments made by the Company pursuant to this Section 17.08 shall operate as a complete release and discharge on the part of the Fund and the Company with respect to such payments and the Company shall be under no liability or obligation to follow the application of the funds so paid. - 34 - 37 17.09 PROOF OF AGE Proof, acceptable to the Company, of the date of birth of the any person to whom a life annuity is payable under this Plan must be submitted to the Company before benefits are payable to such person. 17.10 COST OF THE PLAN All fees or charges attributable to the operation of the Plan shall be paid by the Company to the extent such are not paid out of the Company's Forfeiture Account. 17.11 JURISDICTION The Plan shall be construed and administered in accordance with the law of the Province of Alberta. - 35 - 38 IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officers this day of , A.D. 1994. SEAGULL ENERGY CANADA LTD. - 36 - EX-10.31 12 SEAGULL ENERGY CANADA CAPITAL ACCUMULATION PLAN 1 EXHIBIT 10.31 SEAGULL ENERGY CANADA LTD. CAPITAL ACCUMULATION PLAN JANUARY 1994 2 Table Of Contents Section 1 - Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2 - Purpose Of The Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 3 - Eligibility And Participation . . . . . . . . . . . . . . . . . . . . . . . 6 Section 4 - Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 5 - Investment Of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 6 - Sale And Transfer Of Investments . . . . . . . . . . . . . . . . . . . . 12 Section 7 - Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 8 - Designation Of Beneficiary . . . . . . . . . . . . . . . . . . . . . . . 17 Section 9 - Administration Of The Plan . . . . . . . . . . . . . . . . . . . . . . . 18 Section 10 - General Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
i 3 Section 1 - Interpretations 1.01 TERMS For the purposes of this Plan, including this Section 1, the expressions set out below shall have the respective meaning attributed thereto. 1.02 BENEFICIARY means the person or persons, designated by the Participant as the Beneficiary pursuant to Section 8.01. 1.03 BOARD OF DIRECTORS means the Board of Directors of Seagull Energy Canada Ltd. 1.04 COMMITTEE means a committee appointed by the Company to provide the Trustee with assistance in respect of interpretations and elections assigned under the Plan to the Company. 1.05 CONTINUOUS SERVICE means the period of uninterrupted active service by a Participant from the Participant's most recent date of employment with the Company and rendered to the date of his termination of his service with the Company, death, or retirement, whichever is the earliest. Continuous service shall include (a) any educational leave of absence of an Employee from his duties which does not exceed two (2) years and is granted with the consent of the Company; (b) any absence of an Employee due to maternity leave, sick or accident leave which cause is certified by a medical practitioner as being a disabling illness or injury, or such other leave which does not exceed two (2) years and is recognized by the Company; - 1 - 4 (c) service with any predecessor company, provided the Company recognizes such service for purposes of the Plan; and (d) any period of temporary absence or lay-off by the Company, provided such temporary absence or lay-off does not exceed a continuous twenty six (26) week period. Service occurring before a break in Continuous Service shall not constitute Continuous Service. 1.06 COMPANY means Seagull Energy Canada Ltd. and any affiliated company designated by Seagull Energy Canada Ltd. to be a participating employer in the Plan; provided that any reference herein to any action to be undertaken or discretion to be exercised by the Company hereunder means Seagull Energy Canada Ltd. acting through its Board of Directors or any person or group of persons authorized to do so, either directly or indirectly, by the Board of Directors. 1.07 EFFECTIVE DATE means April 1, 1994. 1.08 EMPLOYEE means any person employed by the Company on a part-time or full-time basis, but does not include anyone employed on a contract or term basis. 1.09 EMPLOYEE ACCOUNT means the account to which the Participant's contributions pursuant to Sections 4.01 and 4.04 are made, including the Investment Earnings thereon. 1.10 EMPLOYER RRSP ACCOUNT means the account to which the Company's contributions pursuant to Section 4.03 herein are made on behalf of a Participant, including the Investment Earnings thereon. - 2 - 5 1.11 EMPLOYER STOCK ACCOUNT means the account to which the Company's contributions pursuant to Section 4.02 herein are made on behalf of a Participant, including the Investment Earnings thereon. 1.12 INCOME TAX ACT means the Income Tax Act, S.C. 1970-71-72, c. 63 and the Regulations thereunder. 1.13 INVESTMENT EARNINGS means the interest, dividends and realized capital gains or capital losses attributable to investments under the Plan, as determined by the Trustee. 1.14 INVESTMENT OPTIONS means investment funds and accounts selected by the Company for the Plan, including as applicable Seagull Common Stock as defined in Section 4.02 herein, and to which contributions under the Plan may be directed. 1.15 PARTICIPANT means any Employee who fulfils the eligibility requirements set forth in Section 3 hereof and whose application for participation has been accepted and recorded by the Company. A Participant shall include a former Employee who continues to be entitled to benefits or rights under the Plan. 1.16 PLAN means the plan set forth herein and as amended from time to time, which shall be known as the "Seagull Energy Canada Ltd. Capital Accumulation Plan". 1.17 PLAN YEAR means the calendar year. 1.18 REGULAR GROSS EARNINGS means the basic monthly remuneration received by the Participant, as determined by the Company. 1.19 REGISTERED RETIREMENT SAVINGS PLAN or RRSP means a Registered Retirement Savings Plan as defined under the Income Tax Act. 1.20 TRUST AGREEMENT means the agreement entered into between the Company and the Trustee establishing the Trust Fund for the purposes of the Plan. 1.21 TRUST FUND means the aggregate of the accounts to which contributions may be made by the Participants and by the Company in accordance with the terms of the Plan. 1.22 TRUSTEE means the trust company appointed by the Company to act as custodian and trustee of the Investment Options and Trust Fund including any successor trustee or trustees. - 3 - 6 1.23 HEADINGS. Section headings are convenient references only and shall not be deemed to be a part of the substance of this instrument or in any way to enlarge or limit the contents of any Section. 1.24 NUMBER AND GENDER. In this Plan words importing the singular include the plural and vice versa; words importing the masculine gender include the feminine and vice versa; and words importing persons include firms or corporations and vice versa. - 4 - 7 Section 2 - Purpose Of The Plan 2.01 ESTABLISHING PLAN The purpose of the Plan is to assist Employees in their savings goals by providing payroll deductions for Employees who enroll in the Plan. The Plan has been incorporated to comply with Section 144 of the Income Tax Act and the provisions thereunder. Participant contributions shall not be tax deductible, unless they are made to one of the Investment Options which qualify under the Income Tax Act as a Registered Retirement Savings Plan. Company contributions made on behalf of a Participant shall be considered remuneration of the Participant for the taxation year in which the contribution is deposited with the Trustee and shall be reported by the Company as income, unless provided otherwise under the Income Tax Act. Unless Investment Earnings are realized under an Investment Option which is a Registered Retirement Savings Plan, Investment Earnings will be subject to tax for the year in which such earnings were realized and shall be reported as such by the Trustee, subject to the Income Tax Act. - 5 - 8 Section 3 - Eligibility And Participation 3.01 ELIGIBILITY An Employee may, on a voluntary basis, become a Participant as of the first day of the month coincident with or next following his employment or the first day of any month thereafter. 3.02 ENROLLMENT To become a Participant, an Employee must complete and file with the Company application forms which shall (a) authorize the Company to deduct from his Regular Gross Earnings the amount of contributions designated by the Participant pursuant to Section 4.01 and 4.04; (b) designate the portion of the contributions made by the Participant which shall be directed to each Investment Option; and (c) if the Participant elects to participate in a Registered Retirement Savings Plan option, complete an enrollment form as prescribed by the Trustee. 3.03 WAIVING OF ELIGIBILITY REQUIREMENTS The provisions of Section 3.01 hereof notwithstanding, at its sole discretion, the Company may, in writing, waive or reduce the eligibility period otherwise applicable. 3.04 RE-EMPLOYMENT OF EMPLOYEE If an Employee terminates his service with the Company and is later re-employed, for all purposes of the Plan he shall be regarded as a new employee unless otherwise directed in writing by the Company. - 6 - 9 Section 4 - Contributions 4.01 PARTICIPANT CONTRIBUTIONS Commencing from the Effective Date, a Participant may make contributions to the Plan of any whole percentage from a minimum of 0% to a maximum of 5% of the Participant's Regular Gross Earnings. Such contributions shall be made monthly, shall be by payroll deduction only and shall be made to the Participant's Employee Account. 4.02 COMPANY MATCHING CONTRIBUTIONS The Company shall each month contribute out of profits to the Employer Stock Account of each Participant a matching amount equal to that contributed by the Participant pursuant to Section 4.01 to a maximum of 5% of the Participant's Regular Gross Earnings. Notwithstanding the foregoing, if, with respect to any fiscal year, the parent company of the Company (being Seagull Energy Corporation of Houston, Texas) fails to have net earnings attributable to Seagull Common Stock of at least $1.00 (U.S.) as determined in accordance with United States generally accepted accounting principles and reflected in the audited consolidated financial statements relating to the Seagull Common Stock for such fiscal year, the Company shall not make matching contributions to the Plan with respect to the next calendar year that commences after the conclusion of such fiscal year. With respect to any given fiscal year, the term "Seagull Common Stock" shall mean the class or series of common stock that has the greatest market capitalization at the end of such fiscal year. 4.03 COMPANY RRSP CONTRIBUTIONS The Company shall each month contribute to the Employer RRSP Account of each Participant an amount of 4% of the Participant's Regular Gross Earnings. In lieu thereof, the Participant may request that such contribution on his behalf be paid to him in cash, less applicable withholding tax. - 7 - 10 4.04 VOLUNTARY PARTICIPANT CONTRIBUTIONS Commencing from the Effective Date, a Participant may make additional contributions to the Plan of any whole percentage of the Participant's Regular Gross Earnings. Such contributions shall be made monthly, shall be by payroll deduction only and shall be made to the Participant's Employee Account. There shall be no Company contributions pursuant to Section 4.02 with respect to such additional contributions. 4.05 VESTING OF COMPANY CONTRIBUTIONS The Company's contributions made on behalf of a Participant shall be 100% vested in the Participant. 4.06 CHANGES IN PARTICIPANT'S CONTRIBUTION RATE By giving notice to the Company fifteen (15) days prior to the effective date of such change, a Participant may change his contribution rate effective any first day of the month. Changes by the Participant may be made not more frequently than twice each calendar year. 4.07 SUSPENSION OF CONTRIBUTIONS By giving fifteen (15) days written notice to the Company, a Participant may elect to suspend his contributions to the Plan and such suspension shall be effective the first day of the month next following acceptance by the Company of such notification. A Participant who elects to suspend his contributions shall be suspended from participating in the Plan for a minimum of six (6) calendar months. A Participant shall not be entitled to accumulate or carry forward for later payment the amounts he would otherwise have contributed had he not elected to suspend his contributions. - 8 - 11 If the period of suspension exceeds twenty-four (24) months, the Trustee may be so advised and all holdings in the accounts of the Participant shall be forwarded to the Participant in full satisfaction of the Participant's entitlement under the Plan. 4.08 RESUMPTION OF CONTRIBUTIONS By giving notice in writing, a Participant who has suspended his contributions to the Plan under Section 4.06 may resume making contributions to the Plan commencing the first day of the month next following fifteen (15) days notice. An employee wishing to resume contributions shall complete and file an enrollment form as provided in Section 3.02. 4.09 ALLOCATIONS MADE MONTHLY All amounts deposited with the Trustee and all Investment Earnings shall be allocated to the Employee Account and the Employer Stock Account and Employer RRSP Account, as applicable, of the Participant. Such allocation shall be made by the Trustee monthly and in any case not later than the end of the year in which such amounts are received by the Trustee. - 9 - 12 Section 5 - Investment Of Accounts 5.01 EMPLOYEE ACCOUNT The Participant contributions pursuant to Sections 4.01 and 4.04 will be deposited with the Trustee and invested in the Investment Options as selected by each Participant. The Trustee shall maintain records of the amounts invested for each Participant and for the Investment Earnings attributable thereto. 5.02 EMPLOYER STOCK ACCOUNT The Company matching contributions pursuant to Section 4.02 will be deposited with the Trustee and invested in Seagull Common Stock (as defined in Section 4.02 herein). The Trustee shall maintain records of the amounts invested for each Participant and the Investment Earnings attributable thereto. 5.03 EMPLOYER RRSP ACCOUNT The Company RRSP contributions pursuant to Section 4.03 shall be deposited with the Trustee and invested in the Investment Options selected by the Participant, provided such qualify for RRSP's. The Trustee shall maintain records of the amounts invested for each Participant and the Investment Earnings attributable thereto. 5.04 APPLICATION OF INVESTMENT EARNINGS All Investment Earnings shall be reinvested by the Trustee in the Investment Option to which the Investment Earnings are attributable. All dividends on investments in Seagull Common Stock shall be accumulated by the Trustee and applied to purchase further investments in Seagull Common Stock. - 10 - 13 5.05 CHANGES IN INVESTMENT INSTRUCTIONS A Participant may, effective any first day of the month, change the allocation of his contributions which shall henceforth be directed to any of the Investment Options. A Participant who wishes to change his Investment Options pursuant to this paragraph shall give notice in writing to the Company at least fifteen (15) days prior to the effective date of the change. Such request for change may be made not more frequently than twice each calendar year. 5.06 ISSUANCE OF QUARTERLY STATEMENT The Trustee shall, within sixty (60) days following the end of each quarter of each year, provide each Participant with a statement setting forth the details of his Employee Account and his Employer Stock Account and Employer RRSP Account. Further account statements shall be provided by the Trustee as requested by the Company. 5.07 SECURITIES ARE FULLY PAID All shares or other securities acquired by or for a Participant shall be fully paid and non-assessable when issued. - 11 - 14 Section 6 - Sale And Transfer Of Investments 6.01 SALE AND TRANSFER OF EMPLOYEE ACCOUNT AND EMPLOYER RRSP ACCOUNT INVESTMENTS A Participant may authorize the sale of one Investment Option from his Employee Account or his Employer RRSP Account and the transfer of proceeds therefrom to another Investment Option. Such transfer shall occur on the date established by the Trustee. Such authorization may be submitted not more frequently than twice each calendar year. 6.02 SALE AND TRANSFER OF EMPLOYER STOCK ACCOUNT INVESTMENTS Company investments are restricted to Seagull Common Stock (as defined in Section 4.02 herein) and sale and transfer of the Employer Stock Account balance is not permitted. 6.03 TIMELY NOTICE OF SALE AND TRANSFER A Participant who wishes to authorize the sale of any Investment Option from his Employee Account or his Employer RRSP Account pursuant to the preceding section shall give notice in writing to the Company at least fifteen (15) days prior to the date on which such Investment Option is to be sold. 6.04 LIMITATION TO NOTICE GIVEN Notice pursuant to the preceding paragraph authorizing the sale of any Investment Option shall not be deemed to constitute notice pursuant to Section 5 that the percentage of future contributions are to be directed to that Investment Option to which the assets are being transferred. - 12 - 15 Section 7 - Withdrawals 7.01 EMPLOYER STOCK ACCOUNT WITHDRAWALS DURING EMPLOYMENT Upon submission of written notice to the Company, a Participant may, under specific circumstances, apply to withdraw all or any portion of his Employer Stock Account. In the event that a Participant withdraws funds from his Employer Stock Account, the Company matching contributions pursuant to Section 4.02 herein with respect to such Participant shall be suspended for a period of six months following the date of such withdrawal unless the Participant provides evidence to the Company that such withdrawal was for: (a) expenses for medical or dental care previously incurred by the Participant, the Participant's spouse, children, or dependents or necessary for those persons to obtain medical or dental care that is not reimbursed or reimbursable by public or private insurance; (b) costs directly related to the purchase of a principal residence of the Participant; (c) payments towards the mortgage of the Participant's principal residence; (d) payment of tuition and related educational fees for the next twelve months of post-secondary education for the Participant or the Participant's spouse, children or dependents; (e) payment of funeral expenses of the Participant's spouse, children or dependents; or (f) payment of child support, adoption fees, divorce settlements or tax assessments. 7.02 EMPLOYEE ACCOUNT OR EMPLOYER RRSP ACCOUNT WITHDRAWALS DURING EMPLOYMENT Upon submission of written notice to the Company, a Participant may withdraw all or any portion of his Employee Account or of his Employer RRSP Account. 7.03 RESTRICTIONS ON WITHDRAWALS DURING EMPLOYMENT - 13 - 16 Requests for withdrawal pursuant to Sections 7.01 and 7.02 above may be made not more frequently than twice each calendar year. Contributions made in any given calendar year may not be withdrawn until January 1 of the following calendar year at the earliest. 7.04 WITHDRAWALS UPON TERMINATION A Participant whose employment with the Company has ceased other than by reason of death, disability or retirement shall, within ninety (90) days of his date of termination, be required to withdraw all of his Employee Account and his Employer Stock Account and Employer RRSP Account. 7.05 WITHDRAWALS UPON DEATH In the event of the death of a Participant, the entire value of his Employee Account and his Employer Stock Account and Employer RRSP Account shall be payable to his Beneficiary. 7.06 WITHDRAWALS UPON DISABILITY Should a Participant be in receipt of benefits from any long term disability plan sponsored by the Company, he shall be entitled during such period of disability to receive all or a portion of his Employee Account and his Employer Stock Account and Employer RRSP Account. Should he elect to withdraw less than all his entitled value, he shall continue to participate in the allocation of Investment Earnings as provided in Section 5.04. - 14 - 17 7.07 WITHDRAWAL UPON RETIREMENT In the event the Participant retires, the value of the Participant's holdings shall be determined, within ninety (90) days of his retirement, by the Trustee through a valuation of the Participant's Employee Account and his Employer Stock Account and Employer RRSP Account. 7.08 OPTIONS AVAILABLE A Participant or Beneficiary may elect to receive the proceeds to which he has been deemed entitled pursuant to this Section 7: (a) in cash in one lump sum; or (b) as a transfer to a Registered Retirement Savings Plan account of the Participant, provided the amounts so transferred had been invested in an Investment Option which qualifies as a Registered Retirement Savings Plan. Settlement in a manner herein provided shall be made within ninety (90) days of such notification of withdrawal and shall serve as a full discharge of the obligations of the Company and the Trustee under the Plan. Should a Participant or Beneficiary fail to make an election within the prescribed period the participant or beneficiary, as the case may be, shall receive the proceeds in cash in one lump sum. 7.09 DATE OF WITHDRAWALS The date of the withdrawal of the value of the accounts shall be the next date of valuation following receipt by the Trustee of notice. The manner of notification shall be as prescribed by the Company. - 15 - 18 7.10 VALUE OF INVESTMENT OPTIONS ON WITHDRAWAL The value of each Investment Option being disposed of on behalf of a Participant in the event of a partial or total withdrawal shall be its value on the date of the withdrawal, as established by the Trustee. - 16 - 19 Section 8 - Designation Of Beneficiary 8.01 DESIGNATION AND CHANGE OF BENEFICIARY A Participant may designate a Beneficiary to receive the benefits payable under the Plan in the event of the Participant's death, and may, by written notice given to the Company during such Participant's lifetime, alter or revoke such designation from time to time subject always to the provisions of any law or laws governing the designation of beneficiaries which may then apply to such Participant. Any such written notice shall be in such form and executed in such manner as the Company may require. 8.02 PROVISION FOR PAYMENT IN THE EVENT OF DEATH OF BENEFICIARY If at the death of a Participant, the person designated as the Beneficiary shall not then be living, such amount as may then be payable shall be paid to the estate of the Participant. 8.03 RELIANCE ON DOCUMENTS The Company and the Trustee shall be entitled to rely solely upon the designation of Beneficiary made pursuant to this Section 8 without further responsibility to enquire into any claim, possible claim or entitlement of any other person. The Company may require the execution and delivery of such documents, papers and receipts as it deems necessary or desirable in order to effect payment of benefits to the Beneficiary hereunder. - 17 - 20 Section 9 - Administration Of The Plan 9.01 RESPONSIBILITY FOR PLAN Administration of the Plan is the responsibility of the Company and all questions regarding the provisions of the Plan and application of the terms and conditions of the Plan shall be decided by the Company. The administrative responsibilities retained hereto to the Company may, at the discretion of the Company, be assigned to the Committee. 9.02 POWERS OF TRUSTEE The Trustee shall be responsible for, but not restricted to, asset valuation, accounting for the assets of the Plan, income determination and calculation of realized capital gains or losses. 9.03 INVESTMENTS Investments for the Plan shall be in securities which are Approved Securities within the meaning ascribed thereto under the Securities Act (Alberta). - 18 - 21 Section 10 - General Conditions 10.01 COMPANY'S RIGHT TO AMEND OR TERMINATE PLAN The Company retains the right to amend or terminate the Plan in whole or in part, at any time, and in such manner and to such extent as it may deem advisable. No amendment shall have the effect of reducing the value of any Participant's, Beneficiary's, or other survivor's then existing interest in the Plan or accounts thereunder, nor shall any amendment be made without the approval of the Trustee. 10.02 LIMITATION OF RIGHTS GIVEN EMPLOYEES (a) The adoption and maintenance of the Plan shall not be deemed to constitute a contract of employment between the Company and any Employee or Participant. (b) Nothing contained herein shall be deemed to give to an Employee the right to be retained in the service of the Company or to interfere with the right of the Company to terminate the employment of an Employee at any time. 10.03 TERMINATION OF PLAN Should the Plan be discontinued by the Company, all contributions on deposit for the Participants and the value of the Employee Accounts and Employer Stock Account and Employer RRSP Accounts being held in trust shall be paid to the Participant pursuant to the options available under Section 7.08. Such payment shall be made by the Trustee no later than ninety (90) days following termination of the Plan. - 19 - 22 10.04 OBLIGATION OF COMPANY AND FUND All benefits payable under the Plan shall be paid, or provided for, solely from the Trust Fund and persons entitled to benefits hereunder shall look only to the assets of the Trust Fund for payment. The Company's obligations hereunder are limited to the obligations expressly set forth herein. 10.05 INVESTMENT INCOME REPORTING The Trustee shall report to each Participant the Investment Earnings which are subject to income tax for each Participant on a quarterly basis. 10.06 COPY OF THE PLAN The Company shall furnish an explanation in writing to each Participant of the terms and conditions of the Plan and amendments thereto applicable to him, together with an explanation of the rights and duties of the said Participant with reference to the benefits available to him under the terms and conditions of the Plan. In the event of conflict between such explanation in writing and this Plan, the terms of this Plan shall prevail. 10.07 PREVAILING DOCUMENTS In the event of a conflict between any provision contained in the Plan and any provision contained in the Trust Agreement issued by the Trustee, the provisions of the Trust Agreement shall prevail. 10.08 JURISDICTION The Plan shall be construed and administered in accordance with the law of the Province of Alberta. - 20 - 23 IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officers this day of , A.D. 1994. SEAGULL ENERGY CANADA LTD. - 21 - EX-10.32 13 RESTRICTED STOCK AGREEMENT 1 EXHIBIT 10.32 RESTRICTED STOCK AGREEMENT THIS AGREEMENT is made as of the 17th day of March, 1995 between SEAGULL ENERGY CORPORATION, a Texas corporation (the "COMPANY"), and BARRY J. GALT ("EMPLOYEE"). For some time Employee has been serving as a key executive officer of the Company. In recognition of his past service and in order to encourage Employee to remain with the Company and devote his best efforts to its affairs, thereby advancing the interests of the Company and its shareholders, the Company and Employee agree as follows: 1. ISSUANCE OF STOCK. Upon the execution of this Agreement, the Company shall issue and/or dispose of 6,000 shares of the common stock of the Company ("Stock") to Employee. The shares of Stock issued and/or disposed of to Employee under this Agreement shall be subject to all the terms, conditions and restrictions set forth in this Agreement. 2. FORFEITURE RESTRICTIONS. The Stock issued and/or disposed of to Employee pursuant to this Agreement may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of to the extent then subject to the Forfeiture Restrictions (as hereinafter defined), and in the event of termination of Employee's employment with the Company for any reason (other than as described in (2) and (3) below), Employee shall, for no consideration, forfeit to the Company all Stock to the extent then subject to the Forfeiture Restrictions. The prohibition against transfer and the obligation to forfeit and surrender Stock to the Company upon termination of employment are herein referred to as "Forfeiture Restrictions," and the shares which are then subject to the Forfeiture Restrictions are herein sometimes referred to as "Restricted Shares." The Forfeiture Restrictions shall be binding upon and enforceable against any transferee of the Stock. The Forfeiture Restrictions shall lapse as to all Stock issued to Employee pursuant to this Agreement on the earlier of (1) the third anniversary of the date of this Agreement, (2) the date Employee's employment with the Company is terminated by reason of death, disability under circumstances entitling him to benefits under the Company's long-term disability plan, or Involuntary Termination within two years after a Change of Control (as such terms are defined in the Company's Management Stability Plan), or (3) if Employee's employment with the Company is terminated for any other reason, the date, if any, the Compensation Committee of the Board of Directors of the Company (the "Committee") in its sole discretion waives the Forfeiture Restrictions. 3. CERTIFICATES. A certificate evidencing the Restricted Shares shall be issued by the Company in Employee's name, pursuant to which Employee shall have voting rights and shall be entitled to receive dividends and other distributions (provided, however, that dividends or other distributions paid in the form of the Company's securities shall be subject to the Forfeiture Restrictions). The certificate shall bear the following legend: 2 RESTRICTED STOCK AGREEMENT The shares evidenced by this certificate have been issued pursuant to an agreement dated March 17, 1995, a copy of which is attached hereto and incorporated herein, between the Company and the registered holder of the shares, and are subject to forfeiture to the Company under certain circumstances described in such agreement. The sale, assignment, pledge or other transfer of the shares of stock evidenced by this certificate is prohibited under the terms and conditions of such agreement, and such shares may not be sold, assigned, pledged or otherwise transferred except as provided in such agreement. The Company may cause the certificate to be delivered upon issuance to the Secretary of the Company as a depository for safekeeping until the forfeiture occurs or the Forfeiture Restrictions lapse pursuant to the terms of this Agreement. Upon request of the Company, Employee shall deliver to the Company a stock power, endorsed in blank, relating to the Restricted Shares then subject to the Forfeiture Restrictions. Upon the lapse of the Forfeiture Restrictions without forfeiture, the Company shall cause a new certificate or certificates to be issued without legend in the name of Employee in exchange for the certificate evidencing the Restricted Shares. 4. CONSIDERATION. It is understood that the consideration for the issuance of Restricted Shares shall be past services of Employee rendered to the Company prior to the date of issuance of the Restricted Shares, having a value not less than the par value of such Restricted Shares. 5. WITHHOLDING OF TAX. To the extent that the receipt of the Restricted Shares or the lapse of any Forfeiture Restrictions results in income to Employee for federal or state income tax purposes, Employee shall deliver to the Company at the time of such receipt or lapse, as the case may be, such amount of money or shares of unrestricted Stock as the Company may require to meet its obligation under applicable tax laws or regulations, and, if Employee fails to do so, the Company is authorized to withhold from any cash or Stock remuneration then or thereafter payable to Employee any tax required to be withheld by reason of such resulting compensation income. 6. TAX ELECTION. If Employee makes the election authorized by section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), Employee shall submit to the Company a copy of the statement filed by Employee to make such election. 7. STATUS OF STOCK. Employee agrees that the Restricted Shares will not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws. Employee also agrees (i) that the certificates representing the Restricted Shares may bear such legend or legends as the Committee deems appropriate in order to ensure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the Restricted Shares on the stock transfer records of the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of any Page 2 of 4 3 RESTRICTED STOCK AGREEMENT applicable securities law and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the Restricted Shares. 8. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shall be considered to be in the employment of the Company as long as Employee remains an employee of either the Company, any successor corporation or a parent or subsidiary corporation (as defined in section 424 of the Code) of the Company or any successor corporation. Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee, and its determination shall be final. 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding anything in this Agreement to the contrary, if the lapse of the Forfeiture Restrictions in Paragraph 2, together with any other payments which Employee has the right to receive from the Company, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), the lapse of the Forfeiture Restrictions shall be coordinated with such other payments and, after taking into account all permitted reductions in cash payments to Employee, the Forfeiture Restrictions shall lapse with respect to that number of shares of Stock (a) that would result in the present value of such total amounts received by Employee from the Company being one dollar ($1.00) less than three times Employee's base amount (as defined in Section 280G of the Code) and so that no portion of such amounts received by Employee shall be subject to the excise tax imposed by Section 4999 of the Code or (b) all shares of Stock, whichever produces the better net after-tax position to Employee (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The Company and Employee shall make the determination as to the number of shares of Stock as to which the Forfeiture Restrictions should lapse. Employee shall notify the Company immediately in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to reduce the number of shares with respect to which the Forfeiture Restrictions lapse within five days of the receipt of such claim. The Company shall notify Employee in writing at least five days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Employee shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action. If, as a result of the Company's action with respect to a claim, after taking into account all permitted increases in cash payments to Employee, the number shares of Stock as to which the Forfeiture Restrictions lapsed is found to have been less than the correct number of shares of Stock, the Forfeiture Restrictions shall immediately lapse with respect to such additional shares of Stock. 10. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under Employee. Page 3 of 4 4 RESTRICTED STOCK AGREEMENT 11. NON-ALIENATION. Employee shall not have any right to pledge, hypothecate, anticipate or assign this Agreement or the rights hereunder, except by will or the laws of descent and distribution. 12. NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be deemed to constitute a contract of employment, nor shall any provision hereof affect (a) the right of the Company (or its subsidiaries) to discharge Employee at will or (b) the terms and conditions of any other agreement between the Company and Employee except as provided herein. 13. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and Employee has executed this Agreement, all effective as of the date first above written. SEAGULL ENERGY CORPORATION By:___________________________ Executive Vice-President and Chief Operating Officer ____________________________ Barry J. Galt Page 4 of 4 EX-10.33 14 FORM OF RESTRICTED STOCK AGREEMENT 1 EXHIBIT 10.33 RESTRICTED STOCK AGREEMENT THIS AGREEMENT is made as of the 17th day of March, 1995 between SEAGULL ENERGY CORPORATION, a Texas corporation (the "COMPANY"), and ___________________ ("EMPLOYEE"). For some time Employee has been serving as a key executive officer of the Company. In recognition of his past service and in order to encourage Employee to remain with the Company and devote his best efforts to its affairs, thereby advancing the interests of the Company and its shareholders, the Company and Employee agree as follows: 1. ISSUANCE OF STOCK. Upon the execution of this Agreement, the Company shall issue and/or dispose of ______ shares of the common stock of the Company ("Stock") to Employee. The shares of Stock issued and/or disposed of to Employee under this Agreement shall be subject to all the terms, conditions and restrictions set forth in this Agreement. 2. FORFEITURE RESTRICTIONS. The Stock issued and/or disposed of to Employee pursuant to this Agreement may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of to the extent then subject to the Forfeiture Restrictions (as hereinafter defined), and in the event of termination of Employee's employment with the Company for any reason (other than as described in (2) and (3) below), Employee shall, for no consideration, forfeit to the Company all Stock to the extent then subject to the Forfeiture Restrictions. The prohibition against transfer and the obligation to forfeit and surrender Stock to the Company upon termination of employment are herein referred to as "Forfeiture Restrictions," and the shares which are then subject to the Forfeiture Restrictions are herein sometimes referred to as "Restricted Shares." The Forfeiture Restrictions shall be binding upon and enforceable against any transferee of the Stock. The Forfeiture Restrictions shall lapse as to all Stock issued to Employee pursuant to this Agreement on the earlier of (1) the third anniversary of the date of this Agreement, (2) the date Employee's employment with the Company is terminated by reason of death, disability under circumstances entitling him to benefits under the Company's long-term disability plan, or Involuntary Termination within two years after a Change of Control (as such terms are defined in the Severance Agreement effective March 17, 1995 between the Company and Employee), or (3) if Employee's employment with the Company is terminated for any other reason, the date, if any, the Compensation Committee of the Board of Directors of the Company (the "Committee") in its sole discretion waives the Forfeiture Restrictions. 3. CERTIFICATES. A certificate evidencing the Restricted Shares shall be issued by the Company in Employee's name, pursuant to which Employee shall have voting rights and shall be entitled to receive dividends and other distributions (provided, however, that dividends or other distributions paid in the form of the Company's securities shall be subject to the Forfeiture Restrictions). The certificate shall bear the following legend: 2 RESTRICTED STOCK AGREEMENT The shares evidenced by this certificate have been issued pursuant to an agreement dated March 17, 1995, a copy of which is attached hereto and incorporated herein, between the Company and the registered holder of the shares, and are subject to forfeiture to the Company under certain circumstances described in such agreement. The sale, assignment, pledge or other transfer of the shares of stock evidenced by this certificate is prohibited under the terms and conditions of such agreement, and such shares may not be sold, assigned, pledged or otherwise transferred except as provided in such agreement. The Company may cause the certificate to be delivered upon issuance to the Secretary of the Company as a depository for safekeeping until the forfeiture occurs or the Forfeiture Restrictions lapse pursuant to the terms of this Agreement. Upon request of the Company, Employee shall deliver to the Company a stock power, endorsed in blank, relating to the Restricted Shares then subject to the Forfeiture Restrictions. Upon the lapse of the Forfeiture Restrictions without forfeiture, the Company shall cause a new certificate or certificates to be issued without legend in the name of Employee in exchange for the certificate evidencing the Restricted Shares. 4. CONSIDERATION. It is understood that the consideration for the issuance of Restricted Shares shall be past services of Employee rendered to the Company prior to the date of issuance of the Restricted Shares, having a value not less than the par value of such Restricted Shares. 5. WITHHOLDING OF TAX. To the extent that the receipt of the Restricted Shares or the lapse of any Forfeiture Restrictions results in income to Employee for federal or state income tax purposes, Employee shall deliver to the Company at the time of such receipt or lapse, as the case may be, such amount of money or shares of unrestricted Stock as the Company may require to meet its obligation under applicable tax laws or regulations, and, if Employee fails to do so, the Company is authorized to withhold from any cash or Stock remuneration then or thereafter payable to Employee any tax required to be withheld by reason of such resulting compensation income. 6. TAX ELECTION. If Employee makes the election authorized by section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), Employee shall submit to the Company a copy of the statement filed by Employee to make such election. 7. STATUS OF STOCK. Employee agrees that the Restricted Shares will not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws. Employee also agrees (i) that the certificates representing the Restricted Shares may bear such legend or legends as the Committee deems appropriate in order to ensure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the Restricted Shares on the stock transfer records of the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of any Page 2 of 4 3 RESTRICTED STOCK AGREEMENT applicable securities law and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the Restricted Shares. 8. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shall be considered to be in the employment of the Company as long as Employee remains an employee of either the Company, any successor corporation or a parent or subsidiary corporation (as defined in section 424 of the Code) of the Company or any successor corporation. Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee, and its determination shall be final. 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding anything in this Agreement to the contrary, if the lapse of the Forfeiture Restrictions in Paragraph 2, together with any other payments which Employee has the right to receive from the Company, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), the lapse of the Forfeiture Restrictions shall be coordinated with such other payments and, after taking into account all permitted reductions in cash payments to Employee, the Forfeiture Restrictions shall lapse with respect to that number of shares of Stock (a) that would result in the present value of such total amounts received by Employee from the Company being one dollar ($1.00) less than three times Employee's base amount (as defined in Section 280G of the Code) and so that no portion of such amounts received by Employee shall be subject to the excise tax imposed by Section 4999 of the Code or (b) all shares of Stock, whichever produces the better net after-tax position to Employee (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The Company and Employee shall make the determination as to the number of shares of Stock as to which the Forfeiture Restrictions should lapse. Employee shall notify the Company immediately in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to reduce the number of shares with respect to which the Forfeiture Restrictions lapse within five days of the receipt of such claim. The Company shall notify Employee in writing at least five days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Employee shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action. If, as a result of the Company's action with respect to a claim, after taking into account all permitted increases in cash payments to Employee, the number shares of Stock as to which the Forfeiture Restrictions lapsed is found to have been less than the correct number of shares of Stock, the Forfeiture Restrictions shall immediately lapse with respect to such additional shares of Stock. 10. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under Employee. Page 3 of 4 4 RESTRICTED STOCK AGREEMENT 11. NON-ALIENATION. Employee shall not have any right to pledge, hypothecate, anticipate or assign this Agreement or the rights hereunder, except by will or the laws of descent and distribution. 12. NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be deemed to constitute a contract of employment, nor shall any provision hereof affect (a) the right of the Company (or its subsidiaries) to discharge Employee at will or (b) the terms and conditions of any other agreement between the Company and Employee except as provided herein. 13. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and Employee has executed this Agreement, all effective as of the date first above written. SEAGULL ENERGY CORPORATION By:___________________________ Chairman, President and Chief Executive Officer ___________________________ Page 4 of 4 EX-10.34 15 FORM OF SEVERANCE AGREEMENT 1 EXHIBIT 10.34 SEVERANCE AGREEMENT AGREEMENT between SEAGULL ENERGY CORPORATION, a Texas corporation (the "COMPANY"), and ___________________________________________ ("EXECUTIVE"), W I T N E S S E T H : WHEREAS, the Company desires to retain certain key employee personnel and, accordingly, the Board of Directors of the Company (the "BOARD") has approved the Company entering into a severance agreement with Executive in order to encourage his continued service to the Company; and WHEREAS, Executive is prepared to commit such services in return for specific arrangements with respect to severance compensation and other benefits; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the Company and Executive agree as follows: 1. DEFINITIONS. (a) "CHANGE IN DUTIES" shall mean the occurrence, within two years after the date upon which a Change of Control occurs, of any one or more of the following: (i) A significant reduction in the duties of Executive from those applicable to him immediately prior to the date on which a Change of Control occurs; (ii) A reduction in Executive's annual salary or target opportunity under any applicable bonus or incentive compensation plan from that provided to him immediately prior to the date on which a Change of Control occurs; (iii) Receipt of employee benefits (including but not limited to medical, dental, life insurance, accidental, death, and dismemberment, and long-term disability plans) and perquisites by Executive that are materially inconsistent with the employee benefits and perquisites provided by the Company to executives with comparable duties; or (iv) A change in the location of Executive's principal place of employment by the Company by more than 50 miles from the location where he was principally employed immediately prior to the date on which a Change of Control occurs. (b) "CHANGE OF CONTROL" means the occurrence of either of the following events: (i) The Company (A) shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an 2 entity other than a previously wholly-owned subsidiary of the Company) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; or (ii) Any person or entity, including a "GROUP" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board. (c) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (d) "COMPENSATION" shall mean the greater of: (i) Executive's annual salary plus his Targeted EIP Award immediately prior to the date on which a Change of Control occurs, or (ii) Executive's annual salary plus his Targeted EIP Award at the time of his Involuntary Termination. (e) "EIP" shall mean the Seagull Energy Corporation Executive Incentive Plan or any successor thereto. (f) "INVOLUNTARY TERMINATION" shall mean any termination of Executive's employment with the Company which: (i) does not result from a resignation by Executive (other than a resignation pursuant to clause (ii) of this subparagraph (f)); or (ii) results from a resignation by Executive on or before the date which is sixty days after the date upon which Executive receives notice of a Change in Duties; provided, however, the term "INVOLUNTARY TERMINATION" shall not include a Termination for Cause or any termination as a result of death, disability under circumstances entitling him to benefits under the Company's long-term disability plan, or Retirement. (g) "OBJECTIVE EIP AWARD" shall mean, with respect to Executive, the amount, if any, earned under the objective criterion of the EIP in effect for the calendar year preceding such Employee's Involuntary Termination. (h) "RETIREMENT" shall mean Executive's resignation on or after the date he reaches age sixty-five. -2- 3 (i) "SEVERANCE AMOUNT" shall mean an amount equal to 2.99 times Executive's Compensation. (j) "TARGETED EIP AWARD" shall mean Executive's Incentive Target as set forth under the EIP in effect for the year with respect to which such award is being determined, if any, or for the last preceding year in which an EIP was in effect, expressed as a dollar amount based on such Executive's annual salary for such year. (k) "TERMINATION FOR CAUSE" shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's (i) gross negligence in the performance of his duties, (ii) willful and continued failure to perform his duties, (iii) willful engagement in conduct which is materially injurious to the Company or its subsidiaries (monetarily or otherwise) or (iv) conviction of a felony or a misdemeanor involving moral turpitude. (l) "WELFARE BENEFIT COVERAGES" shall mean the medical, dental, life insurance, accidental death and dismemberment and long-term disability coverages provided by the Company to its active employees. 2. SERVICES. Executive agrees that he will render services to the Company (as well as any subsidiary thereof or successor thereto) during the period of his employment to the best of his ability and in a prudent and businesslike manner and that he will devote substantially the same time, efforts and dedication to his duties as heretofore devoted. 3. SEVERANCE BENEFITS. If Executive's employment by the Company or any subsidiary thereof or successor thereto shall be subject to an Involuntary Termination which occurs within two years after the date upon which a Change of Control occurs, then Executive shall be entitled to receive, as additional compensation for services rendered to the Company (including its subsidiaries), the following severance benefits: (a) A lump sum cash payment in an amount equal to Executive's Severance Amount. (b) A lump sum cash payment in an amount equal to the remaining portion of any award to Executive under any prior years' EIP. Further, if Executive's Involuntary Termination occurs on or after the date an award has been earned under the EIP, but prior to the date such award is paid, Executive shall receive an additional lump sum cash payment in an amount equal to two times his Objective EIP Award. (c) Executive shall be entitled to continue the Welfare Benefit Coverages for himself and, where applicable, his eligible dependents following his Involuntary Termination for up to thirty-six months, as long as Executive continues either to pay the premiums paid by active employees of the Company for such coverages or to pay the actual (nonsubsidized) cost of such coverages for which the Company does not subsidize for active employees. Such benefit rights shall apply only to those Welfare Benefit Coverages which the Company has in effect from time to time for active employees, and the applicable -3- 4 payments shall adjust as premiums for active employees of the Company or actual costs, whichever is applicable, change. Welfare Benefit Coverage(s) shall immediately end upon Executive's obtainment of new employment and eligibility for similar Welfare Benefit Coverage(s) (with Executive being obligated hereunder to promptly report such eligibility to the Company). Nothing herein shall be deemed to adversely affect in any way the additional rights, after consideration of this extension period, of Executive and his eligible dependents to health care continuation coverage as required pursuant to Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended. (d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000. (e) The severance benefits payable under this Agreement shall be paid to an Executive on or before the fifth day after the last day of Executive's employment with the Company. Any severance benefits paid pursuant to this Paragraph will be deemed to be a severance payment and not compensation for purposes of determining benefits under the Company's qualified plans and shall be subject to any required tax withholding. 4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at the prime or base rate of interest announced by Texas Commerce Bank N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank. 5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding anything in this Agreement to the contrary, if the severance benefits provided for in Paragraph 3, together with any other payments which Executive has the right to receive from the Company, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), the severance benefits provided hereunder shall be either (a) reduced (but not below zero) so that the present value of such total amounts received by Executive from the Company will be one dollar ($1.00) less than three times Executive's base amount (as defined in Section 280G of the Code) and so that no portion of such amounts received by Executive shall be subject to the excise tax imposed by Section 4999 of the Code or (b) paid in full, whichever produces the better net after-tax position to Executive (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The Company and Executive shall make an initial determination as to whether a reduction is required and, if so required, the amount of any such reduction. Executive shall notify the Company immediately in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a reduction (or a further reduction in excess of that, if any, initially determined by the Company and Executive) within five days of the receipt of such claim. The Company shall notify Executive in writing at least five days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay -4- 5 directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action. If, as a result of the Company's action with respect to a claim, the amount of the reduction is found to have been in excess of the correct reduction amount, the Company shall promptly pay to Executive the difference between such amounts with respect to such claim. 6. GENERAL. (a) TERM. The effective date of this Agreement is ____________________. Within sixty days from and after the expiration of two years after said effective date and within sixty days after each successive two-year period of time thereafter that this Agreement is in effect, the Company shall have the right to review this Agreement, and in its sole discretion either continue and extend this Agreement, terminate this Agreement, and/or offer Executive a different agreement. The Board (excluding any member of the Board who is covered by this Agreement or by a similar agreement with the Company) will vote on whether to so extend, terminate, and/or offer Executive a different agreement and will notify Executive of such action within said sixty-day time period mentioned above. This Agreement shall remain in effect until so terminated and/or modified by the Company. Failure of the Board to take any action within said sixty days shall be considered as an extension of this Agreement for an additional two-year period of time. Notwithstanding anything to the contrary contained in this "SUNSET PROVISION," it is agreed that if a Change of Control occurs while this Agreement is in effect, then this Agreement shall not be subject to termination or modification under this "SUNSET PROVISION," and shall remain in force for a period of two years after such Change of Control, and if within said two years the contingency factors occur which would entitle Executive to the benefits as provided herein, this Agreement shall remain in effect in accordance with its terms. If, within such two years after a Change of Control, the contingency factors that would entitle Executive to said benefits do not occur, thereupon this two-year "SUNSET PROVISION" shall again be applicable with the sixty-day time period for Board action to thereafter commence at the expiration of said two years after such Change of Control and on each two-year anniversary date thereafter. (b) INDEMNIFICATION. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at the prime or base rate of interest announced by Texas Commerce Bank N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank. (c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to pay (or cause one of its subsidiaries to pay) Executive the amounts and to make the arrangements -5- 6 provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company (including its subsidiaries) may have against him or anyone else. All amounts payable by the Company (including its subsidiaries hereunder) shall be paid without notice or demand. Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and, except as provided in Paragraph 3(c) hereof, the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make (or cause to be made) the payments and arrangements required to be made under this Agreement. (d) SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, by merger or otherwise. This Agreement shall also be binding upon and inure to the benefit of Executive and his estate. If Executive shall die prior to full payment of amounts due pursuant to this Agreement, such amounts shall be payable pursuant to the terms of this Agreement to his estate. (e) SEVERABILITY. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction by reason of applicable law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) NON-ALIENATION. Executive shall not have any right to pledge, hypothecate, anticipate or assign this Agreement or the rights hereunder, except by will or the laws of descent and distribution. (g) NOTICES. Any notices or other communications provided for in this Agreement shall be sufficient if in writing. In the case of Executive, such notices or communications shall be effectively delivered if hand delivered to Executive at his principal place of employment or if sent by registered or certified mail to Executive at the last address he has filed with the Company. In the case of the Company, such notices or communications shall be effectively delivered if sent by registered or certified mail to the Company at its principal executive offices. (h) CONTROLLING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. Further, Executive agrees that any legal proceeding to enforce the provisions of this Agreement shall be brought in Houston, Harris County, Texas, and hereby waives his right to any pleas regarding subject matter or personal jurisdiction and venue. (i) RELEASE. As a condition to the receipt of any benefit under Paragraph 3 hereof, Executive shall first execute a release, in the form established by the Company, releasing the Company, its shareholders, partners, officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Executive's employment with the Company or the termination of such employment. -6- 7 (j) FULL SETTLEMENT. If Executive is entitled to and receives the benefits provided hereunder, performance of the obligations of the Company hereunder will constitute full settlement of all claims that Executive might otherwise assert against the Company on account of his termination of employment. (k) UNFUNDED OBLIGATION. The obligation to pay amounts under this Agreement is an unfunded obligation of the Company (including its subsidiaries), and no such obligation shall create a trust or be deemed to be secured by any pledge or encumbrance on any property of the Company (including its subsidiaries). (l) NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be deemed to constitute a contract of employment, nor shall any provision hereof affect (a) the right of the Company (or its subsidiaries) to discharge Executive at will or (b) the terms and conditions of any other agreement between the Company and Executive except as provided herein. (m) NUMBER AND GENDER. Wherever appropriate herein, words used in the singular shall include the plural and the plural shall include the singular. The masculine gender where appearing herein shall be deemed to include the feminine gender. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the ______ day of __________________, 1995. "EXECUTIVE" __________________________________ "COMPANY" SEAGULL ENERGY CORPORATION By: ______________________________ Name:_________________________ Title:________________________ -7- EX-10.35 16 MANAGEMENT STABILITY PLAN 1 Exhibit 10.35 SEAGULL ENERGY CORPORATION MANAGEMENT STABILITY PLAN The SEAGULL ENERGY CORPORATION MANAGEMENT STABILITY PLAN (the "PLAN") is hereby adopted pursuant to the authorization of the Board of Directors of SEAGULL ENERGY CORPORATION (the "COMPANY") for its eligible employees as follows: I. DEFINITIONS AND CONSTRUCTION 1.1 DEFINITIONS. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary. (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CHANGE IN DUTIES" shall mean the occurrence, within two years after the date upon which a Change of Control occurs, of any one or more of the following: (1) with respect to a Covered Employee of Grade 16 or higher, a significant reduction in the duties of such Covered Employee from those applicable to him immediately prior to the date on which a Change of Control occurs; (2) a reduction in a Covered Employee's annual salary or target opportunity under any applicable bonus or incentive compensation plan from that provided to him immediately prior to the date on which a Change of Control occurs; (3) receipt of employee benefits (including but not limited to medical, dental, life insurance, accidental, death, and dismemberment, and long-term disability plans) and perquisites by a Covered Employee after the date on which a Change of Control occurs that are materially inconsistent with the employee benefits and perquisites provided by the Employer to other employees of the same grade; or (4) a change in the location of a Covered Employee's principal place of employment by the Employer by more than 50 miles from the location where he was principally employed immediately prior to the date on which a Change of Control occurs. 2 (c) "CHANGE OF CONTROL" shall mean the occurrence of either of the following events: (1) the Company (A) shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company) or (B) is to be dissolved and liquidated, and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction cease to constitute a majority of the Board; or (2) any person or entity, including a "GROUP" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction cease to constitute a majority of the Board. (d) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" shall mean the Compensation Committee of the Board. (f) "COMPANY" shall mean Seagull Energy Corporation. (g) "COMPENSATION" shall mean the greater of (1) a Covered Employee's annual salary plus his Targeted EIP Award, if any, immediately prior to the date on which a Change of Control occurs or (2) a Covered Employee's annual salary plus his Targeted EIP Award, if any, at the time of his Involuntary Termination. "SIX MONTHS' COMPENSATION" shall mean Compensation divided by 2. "THREE MONTHS' COMPENSATION" shall mean Compensation divided by 4. "SEMI-MONTHLY COMPENSATION" shall mean Compensation divided by 24. (h) "COVERED EMPLOYEE" shall mean any individual who, on the date upon which a Change of Control occurs, is a regular, full-time salaried employee of the Employer or an hourly employee of the Employer who is normally scheduled to work 550 or more hours per year, other than (1) any individual whose terms of employment are governed by a collective bargaining agreement between a collective bargaining unit and the Employer unless such agreement provides for coverage of such individual under the Plan, (2) any individual who is a party to a written agreement with the Employer providing for severance payments or benefits upon such individual's termination of employment with the Employer, and (3) an employee who is classified as a temporary, casual, or an independent contractor under the Employer's employment policies. (i) "EFFECTIVE DATE" shall mean the date the Board approves the Plan. (j) "EIP" shall mean the Seagull Energy Corporation Executive Incentive Plan or any successor thereto. -2- 3 (k) "EMPLOYER" shall mean the Company and each eligible organization designated as an Employer in accordance with the provisions of Section 4.4 of the Plan. (l) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. (m) "GRADE" shall mean the greater of (1) a Covered Employee's salary classification by the Employer immediately prior to the date on which a Change of Control occurs or (2) a Covered Employee's salary classification by the Employer at the time of his Involuntary Termination. (n) "INVOLUNTARY TERMINATION" shall mean any termination of a Covered Employee's employment with the Employer which: (1) does not result from a voluntary resignation by the Covered Employee (other than a resignation pursuant to Clause (2) of this Section 1.1(n)); or (2) results from a resignation by a Covered Employee on or before the date which is sixty days after the date the Covered Employee receives notice of a Change in Duties; provided, however, that the term "INVOLUNTARY TERMINATION" shall not include a Termination for Cause or any termination as a result of a Covered Employee's death, disability under circumstances entitling him to benefits under the Employer's long-term disability plan or Retirement. (o) "OBJECTIVE EIP AWARD" shall mean, with respect to any Covered Employee, the amount, if any, earned under the objective criterion of the EIP in effect for the calendar year preceding such Employee's Involuntary Termination. (p) "RETIREMENT" shall mean the Covered Employee's resignation on or after the date he reaches age sixty-five. (q) "TARGETED EIP AWARD" shall mean the Covered Employee's Incentive Target as set forth under the EIP in effect for the year with respect to which such award is being determined, if any, or for the last preceding year in which an EIP was in effect, expressed as a dollar amount based on such Covered Employee's annual salary for such year. (r) "TERMINATION FOR CAUSE" shall mean any termination of a Covered Employee's employment with the Employer by reason of the Covered Employee's (1) conviction of a felony or a misdemeanor involving moral turpitude, (2) engagement in conduct which is injurious (monetarily or otherwise) to the Employer or any of its affiliates (including, without limitation, misuse of the Employer's or an affiliate's funds or other property), (3) engagement in business activities which are in conflict with the business -3- 4 interests of the Employer, (4) insubordination or (5) engagement in conduct which is in violation of the Employer's safety rules or standards or which otherwise may cause or causes injury to another employee or any other person. (s) "WELFARE BENEFIT COVERAGES" shall mean the medical, dental, life insurance, accidental death and dismemberment and long-term disability coverages provided by the Employer to its active employees. 1.2 NUMBER AND GENDER. Wherever appropriate herein, word used in the singular shall be considered to include the plural and the plural to include the singular. The masculine gender, where appearing in this Plan, shall be deemed to include the feminine gender. 1.3 HEADINGS. The headings of Articles and Sections herein are included solely for convenience and if there is any conflict between such headings and the text of the Plan, the text shall control. II. SEVERANCE BENEFITS 2.1 SEVERANCE BENEFITS. Subject to the provisions of Section 2.2 hereof, if a Covered Employee's employment by the Employer or successor thereto shall be subject to an Involuntary Termination which occurs within two years after the date upon which a Change of Control occurs, then the Covered Employee shall be entitled to the following severance benefits: (a) A lump sum cash payment in accordance with the following schedule: GRADE BENEFIT AMOUNT 16 - 18 2 x Compensation 15 1.5 x Compensation 14 1.25 x Compensation 12 - 13 1 x Compensation 0 - 11 Lesser of: (1) the sum of (A) Semi-Monthly Compensation as of his Involuntary Termination for each full year and fraction thereof of continuous employment with the Employer as a Covered Employee from his most recent date of hire, and (B) Semi-Monthly Compensation for each full -4- 5 $10,000 increment of such Covered Employee's annual salary at the time of his Involuntary Termination; provided, however, that in no event shall any Covered Employee receive less than Three Months' Compensation; or (2) 1 x Compensation. (b) A lump sum cash payment in an amount equal to the remaining portion of any award to the Covered Employee under any prior years' EIP. Further, if a Covered Employee's Involuntary Termination occurs on or after the date an award has been earned under the EIP, but prior to the date such award is paid, the Covered Employee shall receive an additional lump sum cash payment in an amount equal to two times his Objective EIP Award. (c) A Covered Employee shall be entitled to continue the Welfare Benefit Coverages for himself and, where applicable, his eligible dependents following his Involuntary Termination for a number of months determined in accordance with the following schedule: GRADE NUMBER OF MONTHS 16 - 18 24 15 18 14 15 12 - 13 12 0 - 11 The number of months for which cash payments are made under Paragraph (a) above (rounded to the nearest whole month if necessary); provided however, the Covered Employee must continue either to pay the premiums paid by active employees of the Employer for such coverages or to pay the actual (nonsubsidized) cost of such coverages for which the Employer does not subsidize for active employees. Such benefit rights shall apply only to those Welfare Benefit Coverages which the Employer has in effect from time to time for active employees, and the applicable payments shall adjust as premiums for active employees of the Employer or actual costs, whichever is applicable, change. Welfare Benefit Coverage(s) shall immediately end upon the Covered Employee's obtainment of new employment and eligibility for similar Welfare Benefit Coverage(s) (with the Covered Employee being obligated hereunder to promptly report such eligibility to the Employer). Nothing herein shall be deemed to adversely affect in any way the additional rights, after consideration of this extension period, of Covered Employees -5- 6 and their eligible dependents to health care continuation coverage as required pursuant to Part 6 of Title I of ERISA. (d) A Covered Employee of Grade 16 or higher shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000. (e) The severance benefits payable under this Plan shall be paid to a Covered Employee at the time he receives his final termination pay, or as soon as administratively practicable thereafter, subject to the conditions set forth in Section 2.2 of the Plan. Any severance benefits paid pursuant to this Section will be deemed to be a severance payment and not "Compensation" for purposes of determining benefits under the Employer's qualified plans and shall be subject to any required tax withholding. 2.2 RELEASE AND FULL SETTLEMENT. Anything to the contrary herein notwithstanding, as a condition to the receipt of any severance payment hereunder, a Covered Employee whose employment by the Employer has been subject to an Involuntary Termination shall first execute a release, in the form established by the Committee, releasing the Committee, the Employer, and the Employer's shareholders, partners, officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of such Covered Employee's employment with the Employer or the termination of such employment, and the performance of the Employer's obligations hereunder and the receipt of any benefits provided hereunder by such Covered Employee shall constitute full settlement of all such claims and causes of action. 2.3 MITIGATION. A Covered Employee shall not be required to mitigate the amount of any payment provided for in this Article II by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Article II be reduced by any compensation or benefit earned by the Covered Employee as the result of employment by another employer or by retirement benefits. The benefits under the Plan are in addition to any other benefits to which a Covered Employee is otherwise entitled. 2.4 SEVERANCE PAY PLAN LIMITATION. This Plan is intended to be an employee welfare benefit plan within the meaning of section 3(1) of ERISA and the Labor Department regulations promulgated thereunder. Therefore, anything to the contrary herein notwithstanding, in no event shall any Covered Employee receive total payments under the Plan that exceed the equivalent of twice such Covered Employee's "annual compensation" (as such term is defined in 29 CFR Section 2510.3-2(b)(2)) during the year immediately preceding his Involuntary Termination. If total payments under the Plan to a Covered Employee would otherwise exceed the limitation in the preceding sentence, the amount payable to such Covered Employee pursuant to Section 2.1(b) and, if necessary, the amount payable to such Covered Employee pursuant Section 2.1(a), shall be reduced in order to satisfy such limitation. -6- 7 2.5 PARACHUTE PAYMENTS. Anything to the contrary herein notwithstanding, if the Covered Employee is a "disqualified individual" (as defined in Section 280G(c) of the Code), and the severance benefits provided for in Section 2.1, together with any other payments which the Covered Employee has the right to receive from the Employer, would constitute a "parachute payment " (as defined in Section 280G(b)(2) of the Code), the severance benefits provided hereunder shall be either (a) reduced (but not below zero) so that the present value of such total amounts received by the Covered Employee from the Employer will be one dollar ($1.00) less than three times the Covered Employee's base amount (as defined in Section 280G of the Code) and so that no portion of such amounts received by the Covered Employee shall be subject to the excise tax imposed by Section 4999 of the Code or (b) paid in full, whichever produces the better net after-tax position to the Covered Employee (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The determination as to whether any such reduction in the amount of the severance benefits is necessary shall be made by the Employer in good faith, and such determination shall be conclusive and binding on the Covered Employee. If a reduced cash payment is made and through error or otherwise that payment, when aggregated with other payments from the Employer (or its affiliates) used in determining if a "parachute payment" exists, exceeds one dollar ($1.00) less than three times the Covered Employee's base amount, the Covered Employee shall immediately repay such excess to the Employer upon notification that an overpayment has been made. III. ADMINISTRATION OF PLAN 3.1 COMMITTEE'S POWERS AND DUTIES. It shall be a principal duty of the Committee to see that the Plan is carried out, in accordance with its terms, for the exclusive benefit of persons entitled to participate in the Plan. The Committee shall be the named fiduciary and shall have full power to administer the Plan in all of its details, subject to applicable requirements of law. For this purpose, the Committee's powers shall include, but not be limited to, the following authority, in addition to all other powers provided by this Plan: (a) to make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (b) to interpret the Plan, its interpretation thereof to be final and conclusive on all persons claiming benefits under the Plan; (c) to decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (d) to make a determination as to the right of any person to a benefit under the Plan (including, without limitation, to determine whether and when there has been a termination of a Covered Employee's employment and the cause of such termination); -7- 8 (e) to appoint such agents, counsel, accountants, consultants, claims administrator and other persons as may be required to assist in administering the Plan; (f) to allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be in writing; (g) to sue or cause suit to be brought in the name of the Plan; and (h) to obtain from the Employer and from Covered Employees such information as is necessary for the proper administration of the Plan. 3.2 MEMBER'S OWN PARTICIPATION. No Covered Employee or agent of the Committee may act, vote, or otherwise influence a decision of the Committee specifically relating to himself as a participant in the Plan. 3.3 INDEMNIFICATION. The Company shall indemnify and hold harmless each member of the Committee against any and all expenses and liabilities arising out of his administrative functions or fiduciary responsibilities, including any expenses and liabilities that are caused by or result from an act or omission constituting the negligence of such member in the performance of such functions or responsibilities, but excluding expenses and liabilities that are caused by or result from such member's own gross negligence or willful misconduct. Expenses against which such member shall be indemnified hereunder shall include, without limitation, the amounts of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof. 3.4 COMPENSATION, BOND AND EXPENSES. The members of the Committee shall not receive compensation with respect to their services for the Committee. To the extent required by applicable law, but not otherwise, Committee members shall furnish bond or security for the performance of their duties hereunder. Any expenses properly incurred by the Committee incident to the administration, termination or protection of the Plan, including the cost of furnishing bond, shall be paid by the Company. 3.5 CLAIMS PROCEDURE. Any employee that the Committee determines is entitled to a benefit under the Plan is not required to file a claim for benefits. Any employee who is not paid a benefit and who believes that he is entitled to a benefit or who has been paid a benefit and who believes that he is entitled to a greater benefit may file a claim for benefits under the Plan in writing with the Committee. In any case in which a claim for Plan benefits by a Covered Employee is denied or modified, the Committee shall furnish written notice to the claimant within ninety days (or within 180 days if additional information requested by the Committee necessitates an extension of the ninety-day period), which notice shall: (a) state the specific reason or reasons for the denial or modification; -8- 9 (b) provide specific reference to pertinent Plan provisions on which the denial or modification is based; (c) provide a description of any additional material or information necessary for the Covered Employee or his representative to perfect the claim, and an explanation of why such material or information is necessary; and (d) explain the Plan's claim review procedure as contained herein. In the event a claim for Plan benefits is denied or modified, if the Covered Employee or his representative desires to have such denial or modification reviewed, he must, within sixty days following receipt of the notice of such denial or modification, submit a written request for review by the Committee of its initial decision. In connection with such request, the Covered Employee or his representative may review any pertinent documents upon which such denial or modification was based and may submit issues and comments in writing. Within sixty days following such request for review the Committee shall, after providing a full and fair review, render its final decision in writing to the Covered Employee and his representative, if any, stating specific reasons for such decision and making specific references to pertinent Plan provisions upon which the decision is based. If special circumstances require an extension of such sixty-day period, the Committee's decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If an extension of time for review is required, written notice of the extension shall be furnished to the Covered Employee and his representative, if any, prior to the commencement of the extension period. 3.6 MANDATORY ARBITRATION. If a Covered Employee or his representative is not satisfied with the decision of the Committee pursuant to the Plan's claims review procedure, such Covered Employee or his representative may, within sixty days of receipt of the written decision of the Committee, request by written notice to the Committee, that his claim be submitted to arbitration pursuant to the labor arbitration rules of the American Arbitration Association. Such arbitration shall be the sole and exclusive procedure available to a Covered Employee or his representative for review of a decision of the Committee. In reviewing the decision of the Committee, the arbitrator shall use the standard of review which would be used by a Federal court in reviewing such decision under the provisions of ERISA. The Covered Employee or his representative and the Plan shall share equally the cost of such arbitration. The arbitrator's decision shall be final and legally binding on both parties. This Section shall be governed by the provisions of the Federal Arbitration Act. IV. GENERAL PROVISIONS 4.1 FUNDING. The benefits provided herein shall be unfunded and shall be provided from the Employer's general assets. -9- 10 4.2 COST OF PLAN. The entire cost of the Plan shall be borne by the Employer and no contributions shall be required of the Covered Employees. 4.3 PLAN YEAR. The Plan shall operate on a plan year consisting of the twelve consecutive month period commencing on January 1 of each year with a short plan year commencing on the Effective Date and ending on December 31, 1995. 4.4 OTHER PARTICIPATING EMPLOYERS. The Committee may designate any entity or organization eligible by law to participate in this Plan as an Employer by written instrument delivered to the Secretary of the Company and the designated Employer. Such written instrument shall specify the effective date of such designated participation, may incorporate specific provisions relating to the operation of the Plan which apply to the designated Employer only and shall become, as to such designated Employer and its employees, a part of the Plan. Each designated Employer shall be conclusively presumed to have consented to its designation and to have agreed to be bound by the terms of the Plan and any and all amendments thereto upon its submission of information to the Committee required by the terms of or with respect to the Plan; provided, however, that the terms of the Plan may be modified so as to increase the obligations of an Employer only with the consent of such Employer, which consent shall be conclusively presumed to have been given by such Employer upon its submission of any information to the Committee required by the terms of or with respect to the Plan. Except as modified by the Committee in its written instrument, the provisions of this Plan shall be applicable with respect to each Employer separately, and amounts payable hereunder shall be paid by the Employer which employs the particular Covered Employee. 4.5 AMENDMENT AND TERMINATION. The Plan may be amended from time to time, or terminated and discontinued, at any time, in each case at the discretion of the Board. Notwithstanding the foregoing, this Plan may not be amended to reduce benefits or rights to benefits or terminated within two years following a Change of Control. For purposes of this Section, a change in the designation by the Committee of Participating Employers pursuant to Section 4.4 shall be deemed to be an amendment to the Plan. 4.6 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of the Plan shall not be deemed to be a contract of employment between the Employer and any person or to be consideration for the employment of any person. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Employer or to restrict the right of the Employer to discharge any person at any time nor shall the Plan be deemed to give the Employer the right to require any person to remain in the employ of the Employer or to restrict any person's right to terminate his employment at any time. 4.7 SEVERABILITY. Any provision in the Plan that is prohibited or unenforceable in any jurisdiction by reason of applicable law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. -10- 11 4.8 NONALIENATION. Covered Employees shall not have any right to pledge, hypothecate, anticipate or assign benefits or rights under the Plan, except by will or the laws of descent and distribution. 4.9 EFFECT OF PLAN. This Plan is intended to supersede all prior oral or written policies of the Employer and all prior oral or written communications to Covered Employees with respect to the subject matter hereof, and all such prior policies or communications are hereby null and void and of no further force and effect. Further, this Plan shall be binding upon the Employer and any successor of the Employer, by merger or otherwise, and shall inure to the benefit of and be enforceable by the Employer's Covered Employees. 4.10 GOVERNING LAW. The Plan shall be interpreted and construed in accordance with the laws of the State of Texas, except to the extent preempted by federal law. EXECUTED this 17th day of March, 1995. SEAGULL ENERGY CORPORATION BY: /s/ ROBERT W. SHOWER ----------------------------------- NAME: Robert W. Shower ----------------------------- TITLE: Exec. Vice President & CFO ----------------------------- -11- EX-21 17 SUBSIDIARIES OF SEAGULL ENERGY 1 EXHIBIT 21 SUBSIDIARIES The Company was incorporated in Texas in 1973. The following is a listing of significant subsidiaries of the Company as of March 10, 1995:
% Voting Securities Jurisdiction of or Beneficial Name of Subsidiary Incorporation Interest Owned or Organization by the Company ----------------------------------------------------------------------------------------------------------------------------- Alaska Pipeline Company Alaska 100% Cavallo Pipeline Company Texas 50% (partnership) Houston Oil & Minerals Corporation Nevada 100% Seagull Energy Canada Holding Company Wyoming 100% Seagull Energy Canada Ltd. Alberta, Canada 100% Seagull Energy E&P Inc. Delaware 100% Seagull Industrial Pipeline Company Texas 100% Seagull Marketing Services, Inc. Texas 100% Seagull Midcon Inc. Delaware 100% Seagull Mid-South Inc. Delaware 100% Seagull Natural Gas Company Delaware 100% Seagull Pipeline & Marketing Delaware 100% Seagull Processing Company Delaware 100% Wacker Oil Inc. Delaware 100% =============================================================================================================================
EX-23.1 18 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Seagull Energy Corporation: We consent to the incorporation by reference in the following Registration Statements of Seagull Energy Corporation of our report dated January 27, 1995, relating to the consolidated balance sheets of Seagull Energy Corporation and Subsidiaries as of December 31, 1994 and 1993 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994, which report appears or is incorporated by reference in the December 31, 1994 Annual Report on Form 10-K of Seagull Energy Corporation: a. Form S-8, Seagull Thrift Plan (2-72014). b. Form S-8, Seagull Energy Corporation 1981 Non-Qualified and Incentive Stock Option Plan (2-80834). c. Form S-8, ENSTAR Natural Gas Company Thrift Plan (33-14463). d. Forms S-8 and S-3, Seagull Energy Corporation 1983 Stock Option Plan (2-93087). e. Forms S-8 and S-3, Seagull Energy Corporation 1986 Stock Option Plan (33-22475). f. Form S-8, Seagull Energy Corporation 1990 Stock Option Plan (33-43483). g. Form S-8, Seagull Energy Corporation 1993 Stock Option Plan (33-50643). h. Form S-8, Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan (33-50645). i. Form S-3, $350,000,000 Debt Securities of Seagull Energy Corporation (33-65118). j. Form S-3, ENSTAR Alaska Group of Common Stock of Seagull Energy Corporation (33-53729). Our report refers to a change in accounting principle for the adoption of the Financial Accounting Standards Board Statement of Financial Accounting Standard No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions and No. 109, Accounting for Income Taxes. KPMG Peat Marwick LLP Houston, Texas March 28, 1995 EX-23.2 19 CONSENT OF RYDER SCOTT COMPANY 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS We hereby consent to the use of our name in the Annual Report on Form 10-K of Seagull Energy Corporation and Subsidiaries (the "Company") for the year ended December 31, 1994, and the incorporation by reference thereof into the Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834, 33-14463, 33-43483, 33-50643 and 33-50645), Forms S-8 and S-3 (Nos. 2-93087 and 33-22475) and Forms S-3 (No. 33-53729 and 33-65118). RYDER SCOTT COMPANY PETROLEUM ENGINEERS Houston, Texas March 23, 1995
EX-23.3 20 CONSENT OF DEGOLYER AND MCNAUGHTON 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS We hereby consent to the use of our name in the Annual Report to Shareholders of Seagull Energy Corporation and Subsidiaries (the "Company") for the year ended December 31, 1994 (the "Annual Report") in Note 4, Supplemental Gas and Oil Producing Activities, of Notes to Consolidated Financial Statements; provided, however, since the Annual Report contains only aggregate reserve information that combines the reserve and discounted present worth estimates prepared by DeGolyer and MacNaughton with the reserve and discounted present worth estimates of other petroleum consultants, in providing our consent we have necessarily relied on a letter dated March 10, 1995, from the Company with respect to the estimates of such other petroleum consultants to verify that the Annual Report correctly reflects our estimates. The Company's Annual Report on Form 10-K for the year ended December 31, 1994 (the "Form 10-K") incorporates by reference the Annual Report. We further consent to the use of our name under the heading "Exploration and Production" of Item 1 in the Form 10-K and the incorporation by reference of the Form 10-K into the Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834, 33-14463, 33-43483, 33-50643 and 33-50645), Forms S-8 and S-3 (Nos. 2-93087 and 33-22475) and Forms S-3 (No. 33-53729 and 33-65118). DeGOLYER AND MacNAUGHTON PETROLEUM ENGINEERS Dallas, Texas March 23, 1995
EX-23.4 21 CONSENT OF NETHERLAND, SEWELL AND ASSOCIATES 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS We hereby consent to the use of our name in the Annual Report on Form 10-K of Seagull Energy Corporation and Subsidiaries (the "Company") for the year ended December 31, 1994, and the incorporation by reference thereof into the Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834, 33-14463, 33-43483, 33-50643 and 33-50645), Forms S-8 and S-3 (Nos. 2-93087 and 33-22475) and Forms S-3 (No. 33-53729 and 33-65118). NETHERLAND, SEWELL & ASSOCIATES, INC. PETROLEUM ENGINEERS Houston, Texas March 28, 1995
EX-27.1 22 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1994 DEC-31-1994 6,432 0 101,346 0 4,530 119,363 1,592,152 467,845 1,299,550 133,194 0 3,643 0 0 437,458 1,299,550 408,104 408,104 54,465 346,037 9,585 0 51,550 932 (2,314) 3,246 0 0 0 3,246 .09 .09
EX-99.1 23 ANNUAL REPORT 1 EXHIBIT 99.1 CONSOLIDATED FINANCIAL STATEMENTS CONTENTS
PAGE Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Consolidated Statements of Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Report of Management to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 -------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA(1)(2) (Dollars in Thousands Except Per Share Amounts) ------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------------------------------------- Revenues . . . . . . . . . . . . . . $ 408,104 $ 377,165 $ 238,829 $ 248,537 $ 219,908 Earnings applicable to common stock(3) . . . . . . . . . 3,246 27,198 6,688 5,107 20,564 Earnings per share(3)(4) . . . . . . 0.09 0.76 0.26 0.23 1.11 Net cash provided by operating activities before changes in operating assets and liabilities . 166,765 160,762 81,368 66,654 64,822 Net cash provided by operating activities . . . . . . . 170,925 119,761 72,187 69,773 87,321 Total assets . . . . . . . . . . . . 1,299,550 1,118,251 1,102,964 618,552 389,619 Long-term portion of debt . . . . . . 620,805 459,787 608,011 219,154 49,239 Shareholders' equity(5) . . . . . . . 441,101 439,379 243,673 235,797 192,516 Capital expenditures . . . . . . . . 150,252 112,042 43,651 71,709 50,293 Acquisitions, net of cash acquired . 193,859 29,470 401,888 201,767 54,320 ===================================================================================================================
(1) Reference is made to the Consolidated Financial Statements of Seagull Energy Corporation and Subsidiaries and Notes thereto, appearing on pages 31 through 62 of this Annual Report. (2) Includes Wacker Oil Inc. since June 28, 1990, certain gas and oil assets purchased from Mesa Limited Partnership since March 8, 1991, Seagull Mid-South Inc. since December 31, 1992, and Seagull Energy Canada Ltd. since January 4, 1994. (3) 1992 includes the cumulative effect of two changes in accounting principles representing an increase in earnings of approximately $2.3 million, or $0.09 per share. (4) Per share data have been restated to reflect a two-for-one split of the Company's common shares effected June 4, 1993. (5) The Company has not declared any cash dividends on its common stock since it became a public entity in 1981. SEAGULL ENERGY CORPORATION 19 2 CONSOLIDATED FINANCIAL STATEMENTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) RESULTS OF OPERATIONS
CONSOLIDATED HIGHLIGHTS (Dollars in Thousands Except Per Share Amounts) ------------------------------------------------------------------------------------------------------------------- Percent Change 1994 1993 1992 1993-'94 1992-'93 ------------------------------------------------------------------------------------------------------------------- Revenues: Exploration and production . . . . . . . . $ 262,543 $ 227,437 $ 91,991 + 15 + 147 Pipeline and marketing . . . . . . . . . . . 39,963 42,484 37,240 - 6 + 14 Alaska transmission and distribution . . . . 105,598 107,244 109,598 - 2 - 2 ------------------------------------------------------------------------------------------------------------------- $ 408,104 $ 377,165 $ 238,829 + 8 + 58 =================================================================================================================== Operating profit (loss): Exploration and production . . . . . . . . . $ 28,266 $ 42,969 $ (1,613) - 34 + 2,764 Pipeline and marketing . . . . . . . . . . . 11,936 14,065 9,057 - 15 + 55 Alaska transmission and distribution . . . . 21,865 18,955 22,439 + 15 - 16 ------------------------------------------------------------------------------------------------------------------- $ 62,067 $ 75,989 $ 29,883 - 18 + 154 =================================================================================================================== Net earnings(*) . . . . . . . . . . . . . . . . $ 3,246 $ 27,198 $ 6,688 - 88 + 307 Net cash provided by operating activities before changes in operating assets and liabilities 166,765 160,762 81,368 + 4 + 98 Net cash provided by operating activities . . . 170,925 119,761 72,187 + 43 + 66 Earnings per share(*) . . . . . . . . . . . . . 0.09 0.76 0.26 - 88 + 192 =================================================================================================================== Weighted average number of common shares outstanding (in thousands) . . . . . . . . . 36,904 35,790 25,583 + 3 + 40 ===================================================================================================================
(*) 1992 includes the cumulative effect of two changes in accounting principles representing an increase in earnings of approximately $2.3 million, or $0.09 per share. Revenues and Operating profit (loss) are discussed in the respective segment sections. ================================================================================ 1994 RESULTS COMPARED TO 1993 -------------------------------------------------------------------------------- Seagull Energy Corporation and Subsidiaries ("Seagull" or the "Company") recorded a decrease in net earnings for the year ended December 31, 1994 as compared to 1993 due to a decrease in operating profit and an increase in interest expense partially offset by a decrease in income taxes. Operating profit decreased from 1993 to 1994 primarily due to a 34% decrease in the operating profit of the exploration and production segment. The 40% increase in interest expense was a result of a higher level of debt outstanding due to debt incurred to finance the acquisition of Seagull Canada discussed below, and an increase in interest rates. Net earnings in 1994 include a pre-tax expense of approximately $2.0 million relating to costs incurred in obtaining shareholder approval to create a new class of common stock of the Company intended to reflect separately the performance of the Company's Alaska transmission and distribution segment (the "ENSTAR Alaska Stock"). The 1993 results included a pre-tax gain of approximately $3.8 million ($2.8 million after taxes) relating to sales of non-strategic producing properties. Net cash provided by operating activities before changes in operating assets and liabilities for 1994 increased in comparison to 1993 primarily due to the acquisition of Novalta Resources Inc. (the "Seagull Canada Acquisition") and to production beginning in late 1993 and early 1994 from certain of the Company's discoveries SEAGULL ENERGY CORPORATION 20 3 CONSOLIDATED FINANCIAL STATEMENTS partially offset by lower natural gas prices and higher interest expense. Net cash provided by operating activities after changes in operating assets and liabilities for 1994 increased substantially in comparison to 1993 primarily due to significant decreases during 1993 in both accounts payable and prepaid gas and oil sales. Accounts payable recorded in connection with the Mid-South Acquisition, discussed below, at December 31, 1992 decreased substantially during the first year of operations by the Company. ================================================================================ 1993 RESULTS COMPARED TO 1992 -------------------------------------------------------------------------------- The Company's net earnings increased significantly for the year ended December 31, 1993 versus the prior year due to an increase in operating profit, partially offset by increases in interest and general and administrative expenses. Net earnings for 1993 include a pre-tax gain of approximately $3.8 million relating to sales of non-strategic producing properties. Seagull's 1993 net earnings also benefited from a reduction in the Company's income tax provision due to utilization of approximately $4.8 million in tax credits allowed under Section 29 of the Internal Revenue Code of 1986, as amended, (the "Section 29 Credits"), which more than offset a 1% increase in the federal corporate tax rate from 34% to 35%. In addition, net earnings for 1992 included a $4.6 million pre-tax settlement of litigation (the "Seismic Litigation Settlement") and the cumulative effect of two changes in accounting principles described below. See "Other (Income) Expense" and "Income Taxes" sections below. Effective January 1, 1992, Seagull adopted two Statements of Financial Accounting Standards ("SFAS"), SFAS No. 109, Accounting for Income Taxes, and SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. The cumulative effect of these accounting changes as of January 1, 1992 resulted in an increase in net earnings of approximately $2.3 million, or $0.09 per share, as reflected in the Company's consolidated statement of earnings for the year ended December 31, 1992. Net cash provided by operating activities before and after changes in operating assets and liabilities for 1993 increased substantially in comparison to 1992 primarily as a result of significant increases in the Company's natural gas production primarily due to Seagull's acquisition of Arkla Exploration Company from NorAm, Inc., formerly Arkla, Inc., (the "Mid-South Acquisition") on December 31, 1992. On June 4, 1993, the Company effected, in the form of a 100% stock dividend, a two-for-one stock split (the "Stock Split") of all the issued shares of Seagull common stock ("Common Stock"). The weighted average number of common shares outstanding and per share amounts for all periods have been restated to reflect the Stock Split. All share amounts included in the consolidated statements of shareholders' equity as of dates prior to June 4, 1993 were not adjusted to reflect the Stock Split. The increase in the weighted average number of common shares outstanding in 1993 over 1992 was due to the February 1993 sale of 5,060,000 shares (10,120,000 shares after the Stock Split) of Common Stock pursuant to an underwritten public offering. SEAGULL ENERGY CORPORATION 21 4 CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------------------------- EXPLORATION AND PRODUCTION (Dollars in Thousands Except Per Unit Amounts) ------------------------------------------------------------------------------------------------------------------- Percent Change 1994 1993 1992 1993-'94 1992-'93 ------------------------------------------------------------------------------------------------------------------- Revenues: Natural gas . . . . . . . . . . . . . . . . . $ 237,269 $ 203,137 $ 70,689 + 17 + 187 Oil and condensate . . . . . . . . . . . . . 23,346 23,597 18,849 - 1 + 25 Natural gas liquids . . . . . . . . . . . . . 2,889 3,132 2,706 - 8 + 16 Other . . . . . . . . . . . . . . . . . . . . (961) (2,429) (253) + 60 - 860 ------------------------------------------------------------------------------------------------------------------- 262,543 227,437 91,991 + 15 + 147 Lifting costs . . . . . . . . . . . . . . . . . 63,989 53,243 26,230 + 20 + 103 General operating expense . . . . . . . . . . . 11,353 10,408 4,614 + 9 + 126 Exploration charges . . . . . . . . . . . . . . 26,888 17,265 9,905 + 56 + 74 Depreciation, depletion and amortization . . . 132,047 103,552 52,855 + 28 + 96 ------------------------------------------------------------------------------------------------------------------- Operating profit (loss) . . . . . . . . . . . . $ 28,266 $ 42,969 $ (1,613) - 34 + 2,764 =================================================================================================================== OPERATING DATA: Net daily production(1): Natural gas (MMcf) . . . . . . . . . . . . . 355.2 279.5 104.2 + 27 + 168 Oil and condensate (Bbl) . . . . . . . . . . 4,186 3,868 2,769 + 8 + 40 Natural gas liquids (Bbl) . . . . . . . . . . 877 773 725 + 13 + 7 Combined (MMcfe)(2) . . . . . . . . . . . . . 385.6 307.4 125.2 + 25 + 146 Average sales prices: Natural gas ($ per Mcf) . . . . . . . . . . . 1.83 1.99 1.85 - 8 + 8 Oil and condensate ($ per Bbl) . . . . . . . 15.28 16.72 18.60 - 9 - 10 Natural gas liquids ($ per Bbl) . . . . . . . 9.03 11.10 10.20 - 19 + 9 Combined ($ per Mcfe)(2) . . . . . . . . . . 1.87 2.03 2.01 - 8 + 1 Lifting costs ($ per Mcfe): Lease operating expense . . . . . . . . . . . 0.26 0.25 0.33 + 4 - 24 Workover expense . . . . . . . . . . . . . . 0.02 0.04 0.05 - 50 - 20 Production taxes . . . . . . . . . . . . . . 0.06 0.08 0.09 - 25 - 11 Transportation expense . . . . . . . . . . . 0.08 0.07 0.06 + 14 + 17 Ad valorem taxes . . . . . . . . . . . . . . 0.03 0.03 0.04 -- - 25 Total . . . . . . . . . . . . . . . . . . . . 0.45 0.47 0.57 - 4 - 18 DD&A rate ($ per Mcfe) . . . . . . . . . . . . 0.94 0.92 1.15 + 2 - 20 ===================================================================================================================
(1) Natural gas stated in million cubic feet ("MMcf") or thousand cubic feet ("Mcf"); oil and condensate and natural gas liquids stated in barrels ("Bbl"). (2) Mcfe and MMcfe represent the equivalent of one thousand cubic feet and one million cubic feet of natural gas, respectively. Oil and condensate and natural gas liquids are converted to gas at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy content. ================================================================================ 1994 RESULTS COMPARED TO 1993 -------------------------------------------------------------------------------- Operating profit for the exploration and production ("E&P") segment for the year ended December 31, 1994 as compared to 1993 decreased, despite higher natural gas production, due to lower natural gas prices and increased depreciation, depletion and amortization ("DD&A") expense, lifting costs and exploration charges. The natural gas production increases were primarily due to production contributed from properties acquired in connection with the Seagull Canada Acquisition on January 4, 1994, which averaged 54.1 MMcf per day for the year ended December 31, 1994, and to production beginning in late 1993 and early 1994 from certain of the Company's discoveries. The increases in production would have been higher but for voluntary curtailments for approximately one-third of the SEAGULL ENERGY CORPORATION 22 5 CONSOLIDATED FINANCIAL STATEMENTS year during 1994 when natural gas prices were below acceptable levels. DD&A expense and lifting costs increased as a result of the significant increases in production. DD&A expense per equivalent unit of production also increased from 1993 to 1994 primarily as a result of the change in the mix of the properties being produced. While total lifting costs increased from 1993 to 1994, lifting costs per equivalent unit of production declined 4% due primarily to a decrease in workover expenses and production taxes. Exploration charges increased primarily due to higher dry hole costs and the increased use of 3-D seismic surveys on offshore exploratory blocks. During 1994 Seagull was successful on 10 gross exploratory wells in 23 attempts, compared with eight successes out of 27 wells drilled in 1993. The 1994 results include five successful gross exploratory wells in six attempts in Canada. The increased dry hole expense per well is primarily due to Seagull retaining larger working interests in 1994 in the wells drilled offshore Texas and Louisiana and costs associated with deepening successful exploratory wells to deeper zones which proved to be dry. ================================================================================ 1993 RESULTS COMPARED TO 1992 -------------------------------------------------------------------------------- The increase in operating profit of the E&P segment for the year ended December 31, 1993 as compared to 1992 was due to a significant increase in revenues as a result of increased natural gas production and higher natural gas prices, which more than offset increases in DD&A expense, exploration charges and lifting costs. DD&A expense and lifting costs increased as a result of the significant increase in production. However, both DD&A expense and lifting costs per equivalent unit of production declined in 1993. Exploration charges also increased in 1993 due to higher dry hole costs as a result of increased exploratory activity. In 1993, Seagull was successful on eight gross exploratory wells in 27 attempts, compared with three successes out of 15 wells drilled during 1992. The increase in natural gas production was primarily due to contributions from properties acquired in connection with the Mid-South Acquisition, which more than doubled the Company's proved natural gas reserves. In addition, because of the improvement in natural gas prices, Seagull had substantially no price-related curtailments of gas production in 1993 compared with significant curtailments in prior years. ================================================================================ OUTLOOK -------------------------------------------------------------------------------- The E&P segment is the Company's primary growth area. That growth has been achieved over the past seven years primarily through acquisitions: Houston Oil & Minerals Corporation ("HO&M") in 1988; the assets of Houston Oil Trust in 1989; Wacker Oil Inc. in 1990; certain gas and oil assets from Mesa Limited Partnership in 1991; Seagull Mid-South Inc., formerly Arkla Exploration Company, in 1992 and Seagull Energy Canada Ltd. ("Seagull Canada"), formerly Novalta Resources Inc. ("Novalta") in 1994. See Note 2 of Notes to Consolidated Financial Statements beginning on page 35 of this Annual Report. The future results of the E&P segment will be affected by the market prices of natural gas and oil. The availability of a ready market for oil, natural gas and liquid products in the future will depend on numerous factors beyond the control of the Company, including weather, production of other crude oil, natural gas and liquid products, imports, marketing of competitive fuels, proximity and capacity of oil and gas pipelines and other transportation facilities, any oversupply or undersupply of oil, gas and liquid products, the regulatory environment, and other regional and political events, none of which can be predicted with certainty. During 1994 several of these factors (warm weather, low demand for storage refills, new gas supply, utilization of competitive fuels) combined to drive natural gas prices lower. Gas prices declined steadily throughout the year after hitting levels of $2.19 per Mcf domestically and $1.89 per Mcf in Canada during the first quarter. The low point was in the fourth quarter, when gas prices averaged $1.59 per Mcf in the U.S. and $1.33 per Mcf in Canada. Average prices for the full year came to $1.88 per Mcf domestically and $1.55 per Mcf in Canada. As a result of the factors mentioned above, the SEAGULL ENERGY CORPORATION 23 6 CONSOLIDATED FINANCIAL STATEMENTS Company's average natural gas price for the month ended January 31, 1995 continued to decline to $1.62 per Mcf domestically and $1.01 per Mcf in Canada. E&P operating profit for the first quarter of 1995 is expected to be significantly lower than the first quarter of 1994 as a result of the lower natural gas prices the Company is receiving in early 1995 and the higher number of exploratory wells that will be drilled in the quarter that could result in an increase in dry hole costs. If natural gas prices remain low throughout 1995, E&P operating profit is expected to be substantially lower for the year ended December 31, 1995 versus 1994. As in the past, the Company expects to continue curtailing a portion of its gas production whenever prices are deemed to be below acceptable levels. As E&P operating profit represented nearly half of the Company's total operating profit in 1994, a substantial decrease in E&P operating profit will have a significant impact on the Company's total operating profit. Operating profit for the Company's other two business segments, pipeline and marketing and Alaska transmission and distribution, is not expected to change significantly in 1995. However, Seagull expects its interest costs to increase again in 1995 due to the effect of higher interest rates for the entire year.
------------------------------------------------------------------------------------------------------------------- PIPELINE AND MARKETING (Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Percent Change 1994 1993 1992 1993-'94 1992-'93 ------------------------------------------------------------------------------------------------------------------- OPERATING PROFIT: Pipelines . . . . . . . . . . . . . . . . . . . $ 6,334 $ 8,561 $ 5,671 - 26 + 51 Marketing and supply . . . . . . . . . . . . . 3,772 2,862 784 + 32 + 265 Gas processing . . . . . . . . . . . . . . . . 784 518 2,157 + 51 - 76 Operating and construction services . . . . . . 1,046 2,124 445 - 51 + 377 ------------------------------------------------------------------------------------------------------------------- $ 11,936 $ 14,065 $ 9,057 - 15 + 55 =================================================================================================================== OPERATING DATA: Average daily volumes (MMcf): Gas gathering . . . . . . . . . . . . . . . 277 311 196 - 11 + 59 Partnership systems (net) . . . . . . . . . 112 117 102 - 4 + 15 Marketing and supply . . . . . . . . . . . . 552 446 290 + 24 + 54 Gas processing(*): Average daily inlet volumes (MMcf) . . . . . 278 273 243 + 2 + 12 Average daily net production (Bbl) . . . . . 4,140 3,305 3,198 + 25 + 3 ===================================================================================================================
(*) 1994 and 1993 include contributions from two small onshore plants. SEAGULL ENERGY CORPORATION 24 7 CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1994 RESULTS COMPARED TO 1993 -------------------------------------------------------------------------------- In the pipeline and marketing segment, operating profit decreased for the year ended December 31, 1994 as compared to 1993 primarily due to declines in the pipelines and operating and construction services areas, partially offset by an increase in the marketing and supply area. Operating profit in the pipelines area, which includes the Company's gas gathering and product pipeline systems as well as the Company's interests in two partnership systems, decreased in 1994 from 1993 primarily as a result of reduced volumes delivered due to the natural depletion of the reserves serviced by the systems. This trend is expected to continue, at least until pricing improvement causes producers to increase drilling activity. In the marketing and supply area, operating profit improved in 1994 over 1993 due to a 24% increase in sales volumes due primarily to increases in the E&P segment's domestic natural gas production. If weak prices cause Seagull and other producers to curtail gas production for large parts of 1995, it will be difficult for marketing and supply's profit contribution to match that of 1994. The operating profit for the operating and construction services area declined in 1994 because of the first quarter completion of a gas pipeline construction project the Company began in mid-1993. ================================================================================ 1993 RESULTS COMPARED TO 1992 -------------------------------------------------------------------------------- Operating profit increased in 1993 over 1992 primarily due to improvements in the pipelines and gas marketing areas and as a result of profits recognized from the pipeline construction project discussed above. These contributions more than offset a decline in operating profit in the gas processing area. Operating profit in the pipelines area improved in 1993 over 1992 primarily due to a full year of transportation through four new gas gathering systems, two acquired in June 1992 and two acquired as part of the Mid-South Acquisition in December 1992. An increase in volumes delivered by the Company's partnership systems also contributed to the improvement. In the marketing and supply area, operating profit improved in 1993 over 1992 due to a 54% increase in sales volumes primarily as a result of increases in the E&P segment's natural gas production discussed earlier and a 13% increase in margins. Operating profit in the gas processing area declined in 1993 from 1992 primarily due to increases in natural gas costs and significant declines in prices received for extracted products. The profitability of the gas processing area is largely determined by the relative strengths and weaknesses in gas and liquids prices. Historically, the Company has not been engaged in pipeline construction projects on a consistently recurring basis. Seagull is currently conducting marketing efforts and anticipates it will generate new projects. SEAGULL ENERGY CORPORATION 25 8 CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------------------------- ALASKA TRANSMISSION AND DISTRIBUTION (Dollars in Thousands Except Per Unit Amounts) ------------------------------------------------------------------------------------------------------------------- Percent Change 1994 1993 1992 1993-'94 1992-'93 ------------------------------------------------------------------------------------------------------------------- Revenues . . . . . . . . . . . . . . . . . . . $ 105,598 $ 107,244 $ 109,598 - 2 - 2 Cost of gas sold . . . . . . . . . . . . . . . 54,465 59,898 59,999 - 9 -- Operations and maintenance expense . . . . . . 21,516 20,880 19,976 + 3 + 5 Depreciation and amortization . . . . . . . . . 7,752 7,511 7,184 + 3 + 5 ------------------------------------------------------------------------------------------------------------------- Operating profit . . . . . . . . . . . . . . . $ 21,865 $ 18,955 $ 22,439 + 15 - 16 =================================================================================================================== OPERATING DATA: Degree days (*) . . . . . . . . . . . . . . . . 10,291 9,382 10,653 + 10 - 12 Volumes (Bcf): Gas sold . . . . . . . . . . . . . . . . . . 31.3 28.9 30.9 + 8 - 6 Gas transported . . . . . . . . . . . . . . 12.8 11.3 10.2 + 13 + 11 Combined . . . . . . . . . . . . . . . . . . 44.1 40.2 41.1 + 10 - 2 Margins ($ per Mcf): Gas sold . . . . . . . . . . . . . . . . . . 1.49 1.49 1.47 -- + 1 Gas transported . . . . . . . . . . . . . . 0.35 0.36 0.40 - 3 - 10 Combined . . . . . . . . . . . . . . . . . . 1.16 1.17 1.20 - 1 - 2 Year-end customers . . . . . . . . . . . . . . 90,100 88,200 86,400 + 2 + 2 ===================================================================================================================
(*) A measure of weather severity calculated by subtracting the mean temperature for each day from 65 degrees Fahrenheit. More degree days equate to colder weather. ================================================================================ 1994 RESULTS COMPARED TO 1993 -------------------------------------------------------------------------------- Operating profit of the Alaska transmission and distribution segment (ENSTAR Natural Gas Company, a division of the Company, and Alaska Pipeline Company, a wholly owned subsidiary, (collectively referred to herein as "ENSTAR Alaska")) for the year ended December 31, 1994 increased from 1993 primarily due to higher non-power customer demand due to an increase in customers for the period and colder weather during 1994. ================================================================================ 1993 RESULTS COMPARED TO 1992 -------------------------------------------------------------------------------- Operating profit of ENSTAR Alaska for the year ended December 31, 1993 declined from 1992 primarily due to unusually warm weather in the utility's market area. Future operating profit for this segment will be affected by weather, regulatory action and customer growth in ENSTAR Alaska's service area. The Company expects customer growth to continue to be relatively modest. During the 1994 summer construction season, approximately 46 miles of new distribution pipeline were installed to connect some 1,900 new customers.
------------------------------------------------------------------------------------------------------------------- OTHER (INCOME) EXPENSE (Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Percent Change 1994 1993 1992 1993-'94 1992-'93 ------------------------------------------------------------------------------------------------------------------- General and administrative . . . . . . . . . . . $ 10,252 $ 11,666 $ 10,099 - 12 + 16 Interest expense . . . . . . . . . . . . . . . . 51,550 36,753 17,574 + 40 + 109 Interest income and other . . . . . . . . . . . (667) (5,708) (4,705) - 88 + 21 ------------------------------------------------------------------------------------------------------------------- $ 61,135 $ 42,711 $ 22,968 + 43 + 86 ===================================================================================================================
SEAGULL ENERGY CORPORATION 26 9 CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1994 RESULTS COMPARED TO 1993 -------------------------------------------------------------------------------- General and administrative expenses represent various overhead costs of corporate departments. All overhead expenses directly related to the operations of the Company's business segments are included in operations and maintenance costs and exploration charges. General and administrative expenses decreased 12% from 1993 to 1994 primarily as a result of costs associated with three compensation plans, one for outside directors, one for key managers, and the other for all Seagull employees, that are tied directly to the price of the Common Stock, partially offset by increases in costs related to potential acquisitions which were not consummated. The closing price of the Common Stock decreased from $25.375 at December 31, 1993 to $19.125 at December 31, 1994. Interest expense increased for the year ended December 31, 1994 compared to 1993 as a result of an increase in the level of debt outstanding due primarily to new debt incurred in early 1994 to finance the Seagull Canada Acquisition and secondarily to the steady increase in the short-term interest rates during the year. Seagull expects its interest costs to increase again in 1995 due to the effect of these higher interest rates for the entire year. Interest income and other for 1994 includes approximately $2.0 million relating to costs incurred in gaining shareholder approval to create the ENSTAR Alaska Stock. Interest income and other for 1993 includes a pre-tax gain of approximately $3.8 million relating to sales of non-strategic oil and gas producing properties. Net proceeds from the sales totaled approximately $13.0 million, resulting in an after-tax gain of approximately $2.8 million, or $0.08 per share. ================================================================================ 1993 RESULTS COMPARED TO 1992 -------------------------------------------------------------------------------- General and administrative expenses increased 16% for the year ended December 31, 1993 in comparison to 1992 due to costs associated with the three compensation plans discussed above as well as other payroll related expenses. The closing price of Common Stock increased from $15.563 (adjusted for Stock Split) at December 31, 1992 to $25.375 at December 31, 1993. These increases in 1993 versus 1992 were partially offset by a decline in costs related to potential acquisitions which were not consummated. During the first quarter of 1992, Seagull incurred approximately $400,000 in severance expenses (included in general and administrative expenses and operations and maintenance costs) when the Company reduced its non-Alaskan workforce by more than 10%. The workforce reduction was primarily a result of the depressed state of natural gas demand and prices in early 1992, coupled with a decrease in planned capital spending for 1992. On December 31, 1992, Seagull incurred additional debt to finance the Mid-South Acquisition. In addition, a large portion of the Company's outstanding floating rate debt was refinanced in July 1993 with longer term debt bearing interest at fixed rates which were somewhat higher than the floating rates in effect for the debt being replaced. As a result of these transactions, Seagull's interest expense and overall average interest rate increased for 1993 compared to 1992. Interest income and other for the year ended December 31, 1992 includes $4.6 million relating to the Seismic Litigation Settlement resulting from a claim made by the Company that certain of the seismic data acquired by it in connection with its acquisition of HO&M was actually delivered to other purchasers. In accordance with the settlement agreement, Seagull received a cash payment in July 1992 of $2.6 million and will receive up to $5 million in pipeline business accommodations through December 31, 1995. If less than $3 million of business accommodations are realized, the Company will receive a cash payment in early 1996 equal to the difference between $3 million and the sum of the business accommodations realized. The $4.6 million in 1992 income includes the $2.6 million cash payment plus the present value of the $3 million guaranteed minimum payment for business accommodations less certain expenses. SEAGULL ENERGY CORPORATION 27 10 CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- INCOME TAXES ================================================================================ 1994 RESULTS COMPARED TO 1993 -------------------------------------------------------------------------------- The decrease in income taxes for the year ended December 31, 1994 versus the prior year was primarily the result of lower earnings before income taxes. Seagull incurred an income tax benefit of $2.3 million for 1994 versus the income tax expense of $0.3 million that would have resulted using the statutory federal tax rate of 35% primarily due to the utilization of approximately $5.5 million in Section 29 Credits to reduce its 1994 regular income tax liability. The Section 29 Credits are allowed for production of fuels derived from nonconventional sources that are sold to nonrelated parties. ================================================================================ 1993 RESULTS COMPARED TO 1992 -------------------------------------------------------------------------------- The Company's effective tax rate of 18.3% for the year ended December 31, 1993 was substantially lower than the statutory federal tax rate of 35% primarily because Seagull utilized approximately $4.8 million in Section 29 Credits. The effect of utilizing the Section 29 Credits more than offset the effect of a 1% increase in the federal corporate tax rate from 34% to 35%. The effect of this rate change was an increase in the Company's 1993 provision for federal income taxes of approximately $1.3 million. LIQUIDITY AND CAPITAL RESOURCES ================================================================================ CAPITAL EXPENDITURES -------------------------------------------------------------------------------- Capital expenditures for the year ended December 31, 1994 as compared to 1993 increased substantially due to the acquisition of Seagull Canada and significant increases in Seagull's exploration and exploitation activities. Capital expenditures for 1993 were substantially higher than those for 1992 due to significant increases in Seagull's exploitative activities, primarily resulting from the large number of prospects acquired in connection with the Mid-South Acquisition, and the Company's exploratory activities in response to improvements in prices received and demand for natural gas. The Company's E&P activities and related capital expenditures were dramatically reduced in 1992 as a result of unacceptable natural gas prices early in the year. Capital expenditures for 1994, 1993 and 1992 were as follows:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Percent Change 1994 1993 1992 1993-'94 1992-'93 ------------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES: Exploration and production: Lease acquisitions . . . . . . . . . . . . . . $ 17,144 $ 7,396 $ 5,396 + 132 + 37 Exploration . . . . . . . . . . . . . . . . . . 35,107 26,824 8,378 + 31 + 220 Development . . . . . . . . . . . . . . . . . . 83,839 63,598 18,341 + 32 + 247 ------------------------------------------------------------------------------------------------------------------- 136,090 97,818 32,115 + 39 + 205 Pipeline and marketing . . . . . . . . . . . . . 2,026 2,115 1,622 - 4 + 30 Alaska transmission and distribution . . . . . . 7,626 10,094 9,024 - 24 + 12 Corporate . . . . . . . . . . . . . . . . . . . . 4,510 2,015 890 + 124 + 126 ------------------------------------------------------------------------------------------------------------------- $ 150,252 $ 112,042 $ 43,651 + 34 + 157 =================================================================================================================== ACQUISITIONS, NET OF CASH ACQUIRED: Exploration and production . . . . . . . . . . . $ 193,859 $ 29,470 $ 391,531 +558 - 92 Pipeline and marketing . . . . . . . . . . . . . - - 10,357 - N/A ------------------------------------------------------------------------------------------------------------------- $ 193,859 $ 29,470 $ 401,888 + 558 - 93 ===================================================================================================================
SEAGULL ENERGY CORPORATION 28 11 CONSOLIDATED FINANCIAL STATEMENTS In 1993, a four-company exploration group including Seagull was awarded four production licenses in United Kingdom waters. Those awards, together with the subsequent purchase of additional interests, gave Seagull interests in four licenses in U.K. waters totaling 458,798 acres. Seismic studies and other evaluation activities on the licensed blocks have been ongoing since mid-1993. During 1994, one well was successfully tested for hydrocarbons, a second unsuccessful well was completed and a third well was in progress at year-end. The 1995 drilling program calls for three additional wells to be drilled in the United Kingdom waters. Plans for 1995 call for capital expenditures of approximately $122 million, including about $112 million in E&P. Seagull anticipates spending approximately $49 million for development, $15 million for lease acquisitions and $48 million will be devoted to exploration. The Company expects to fund these capital expenditures from internally generated funds but may reduce capital expenditure levels if economic conditions dictate. ================================================================================ CAPITAL RESOURCES -------------------------------------------------------------------------------- The growth in the E&P segment over the past seven years has been accomplished primarily through acquisitions financed initially by bank borrowings; however, since August 1990, the Company has reduced borrowings under existing bank facilities by $520 million with net proceeds received from three separate Common Stock offerings and the July 1993 sale of Senior and Senior Subordinated Notes, all in underwritten public offerings. See Notes 6 and 9 of Notes to Consolidated Financial Statements beginning on page 35 of this Annual Report. In connection with the Mid-South Acquisition, the Company entered into a credit agreement (the "Credit Agreement") with a group of major U.S. and international banks (the "Banks"). The Credit Agreement provided for a $150 million term loan, which was repaid in full in February 1993 with the net proceeds of approximately $164 million from the sale of 5,060,000 shares (10,120,000 shares after the Stock Split) of Common Stock, and a $475 million revolving credit line (the "Revolver"). See Notes 2, 6 and 9 of Notes to Consolidated Financial Statements beginning on page 35 of this Annual Report. In May 1994, the Company amended the Revolver to, among other things, (i) increase the maximum commitment from $475 million to $725 million, (ii) extend the maturity date to December 31, 2000, (iii) adjust certain financial covenants relating to dividend limitations and permitted leverage ratios and (iv) adjust the pricing features of the facility. Under the terms of the Revolver, the commitments thereunder begin to decline on March 31, 1997 in equal quarterly reductions of $45 million and a final reduction of $50 million on December 31, 2000. The amount of senior indebtedness available to the Company under the provisions of the Revolver is subject to a borrowing base (the "Borrowing Base") based upon the proved reserves of the Company's E&P segment and the financial performance of the Company's other business segments. The Borrowing Base is generally determined annually, but may be redetermined, at the option of either Seagull or the Banks, one additional time each year, and will be redetermined upon the sale of certain assets included in the Borrowing Base. At December 31, 1994, the Borrowing Base was $625 million. As of February 28, 1995, borrowings outstanding under the Revolver were $175.0 million, leaving immediately available unused commitments of approximately $179.5 million, net of outstanding letters of credit of $2.9 million, $100 million of borrowings under the Senior Notes discussed below, the nominated maximum borrowing availability of $160 million under the Canadian Credit Agreement discussed below, and $7.6 million in borrowings outstanding under Seagull's money market facilities discussed below. In connection with the Seagull Canada Acquisition, Seagull Canada, the indirect wholly owned subsidiary of Seagull which acquired Novalta, entered into a new $175 million reducing revolving credit facility (the "Canadian Credit SEAGULL ENERGY CORPORATION 29 12 CONSOLIDATED FINANCIAL STATEMENTS Agreement") with a group of the Banks or their affiliates. The Canadian Credit Agreement provides for dual currency borrowings in U.S. and Canadian dollars with a nominated maximum borrowing availability of $160 million, which may be increased or decreased by the Company at any time pursuant to provisions of the Canadian Credit Agreement, up to a maximum commitment of $175 million. The Canadian Credit Agreement matures on December 31, 2000 and commitments thereunder begin to decline on March 31, 1997 in equal quarterly reductions of $10,937,500. The Company also amended the Canadian Credit Agreement in May 1994 for items similar to amendments (ii), (iii) and (iv) to the Revolver noted above. Among the restrictive covenants in the Revolver and the Canadian Credit Agreement, the Company is required to maintain certain financial ratios. At December 31, 1994, the Company is in compliance with all covenants contained in these two bank agreements. Subsequent to December 31, 1994, the Company obtained an amendment from the Banks which modifies one of the financial ratios that would make it probable that the Company will remain in compliance with this covenant. In July 1993, Seagull sold $100 million of senior notes (the "Senior Notes") and $150 million of senior subordinated notes (the "Senior Subordinated Notes") (collectively the "Notes"). The Senior Notes bear interest at 7 7/8% per annum, are not redeemable prior to maturity or subject to any sinking fund and mature on August 1, 2003. The Senior Subordinated Notes bear interest at 8 5/8% per annum, are not subject to any sinking fund and mature on August 1, 2005. On or after August 1, 2000, the Senior Subordinated Notes are redeemable at the option of the Company, in whole or in part, at redemption prices declining from 102.59% in 2000 to 100.00% in 2003 and thereafter. The Notes were issued at par and interest is paid semi-annually. Net proceeds from the offering, totaling approximately $245.0 million, were used to repay borrowings outstanding under the Revolver. In addition to the facilities discussed above, Seagull has money market facilities with two major U.S. banks with a combined maximum commitment of $70 million. These lines of credit bear interest at rates made available by the banks at their discretion and may be canceled at either Seagull's or the banks' discretion. The lines are subject to annual renewal. Management believes that the Company's capital resources will be sufficient to finance current and forecasted operations. However, the Company continues to actively pursue potential acquisitions and, depending upon the size and terms of any such acquisition, additional financing may be required. ================================================================================ ENVIRONMENTAL -------------------------------------------------------------------------------- To date, compliance with applicable environmental and safety regulations by the Company has not required any significant capital expenditures or materially affected its business or earnings. The Company believes it is in substantial compliance with environmental and safety regulations and foresees no material expenditures in the future; however, the Company is unable to predict the impact that compliance with future regulations may have on capital expenditures, earnings and competitive position. SEAGULL ENERGY CORPORATION 30 13 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in Thousands Except Per Share Amounts) ------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Revenues: Exploration and production . . . . . . . . . . . . . . . . . . $ 262,543 $ 227,437 $ 91,991 Pipeline and marketing . . . . . . . . . . . . . . . . . . . . 39,963 42,484 37,240 Alaska transmission and distribution . . . . . . . . . . . . . 105,598 107,244 109,598 ------------------------------------------------------------------------------------------------------------------- 408,104 377,165 238,829 ------------------------------------------------------------------------------------------------------------------- Costs of Operations: Alaska transmission and distribution cost of gas sold . . . . 54,465 59,898 59,999 Operations and maintenance . . . . . . . . . . . . . . . . . 119,987 107,457 75,811 Exploration charges . . . . . . . . . . . . . . . . . . . . . 26,888 17,265 9,905 Depreciation, depletion and amortization . . . . . . . . . . 144,697 116,556 63,231 ------------------------------------------------------------------------------------------------------------------- 346,037 301,176 208,946 ------------------------------------------------------------------------------------------------------------------- Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . 62,067 75,989 29,883 Other (Income) Expense: General and administrative . . . . . . . . . . . . . . . . . 10,252 11,666 10,099 Interest expense . . . . . . . . . . . . . . . . . . . . . . 51,550 36,753 17,574 Interest income and other . . . . . . . . . . . . . . . . . . (667) (5,708) (4,705) ------------------------------------------------------------------------------------------------------------------- 61,135 42,711 22,968 ------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes and Cumulative Effect of Changes in Accounting Principles . . . . . . . . . . . . . . 932 33,278 6,915 Income Tax Expense (Benefit) . . . . . . . . . . . . . . . . . . . (2,314) 6,080 2,500 ------------------------------------------------------------------------------------------------------------------- Earnings Before Cumulative Effect of Changes in Accounting Principles . . . . . . . . . . . . . . . . . . . . 3,246 27,198 4,415 Cumulative Effect of Changes in Accounting Principles . . . . . . . - - 2,273 ------------------------------------------------------------------------------------------------------------------- Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,246 $ 27,198 $ 6,688 =================================================================================================================== Earnings Per Share: Earnings before cumulative effect of changes in accounting principles . . . . . . . . . . . . . . . . . . . $ 0.09 $ 0.76 $ 0.17 Cumulative effect of changes in accounting principles . . . . - - 0.09 ------------------------------------------------------------------------------------------------------------------- Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.09 $ 0.76 $ 0.26 =================================================================================================================== Weighted Average Number of Common Shares Outstanding (in thousands) . . . . . . . . . . . . . . . . . 36,904 35,790 25,583 ===================================================================================================================
See Accompanying Notes to Consolidated Financial Statements. SEAGULL ENERGY CORPORATION 31 14 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- December 31, 1994 1993 ------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,432 $ 5,572 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . 101,346 98,734 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,530 4,382 Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . 7,055 6,520 ------------------------------------------------------------------------------------------------------------------- Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,363 115,208 Property, Plant and Equipment - at cost (successful efforts method for gas and oil properties) . . . . . . . . . . . . . . . . . . . . . 1,592,152 1,278,701 Accumulated Depreciation, Depletion and Amortization . . . . . . . . . . . . . 467,845 345,512 ------------------------------------------------------------------------------------------------------------------- 1,124,307 933,189 Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,880 69,854 ------------------------------------------------------------------------------------------------------------------- Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,299,550 $ 1,118,251 =================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,315 $ 84,904 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,598 30,134 Prepaid gas and oil sales . . . . . . . . . . . . . . . . . . . . . . . . . . 2,732 7,590 Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . 1,549 1,538 ------------------------------------------------------------------------------------------------------------------- Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 133,194 124,166 Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620,805 459,787 Other Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 57,737 66,785 Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,713 28,134 Shareholders' Equity: Common Stock, $.10 par value; authorized 100,000,000 shares; issued 36,432,514 shares (1994) and 36,378,659 shares (1993) . . . . . . . 3,643 3,638 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 324,820 324,192 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,959 120,713 Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . (2,684) - Less - note receivable from employee stock ownership plan . . . . . . . . . . (5,502) (6,029) Less - 326,812 shares of Common Stock held in Treasury, at cost . . . . . . . (3,135) (3,135) ------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . 441,101 439,379 Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . ------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity . . . . . . . . . . . . . . . . . . $ 1,299,550 $ 1,118,251 ===================================================================================================================
See Accompanying Notes to Consolidated Financial Statements. SEAGULL ENERGY CORPORATION 32 15
CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 3,246 $ 27,198 $ 6,688 Adjustments to reconcile net earnings to net cash provided by operating activities: Cumulative effect of changes in accounting principles . . - - (2,273) Depreciation, depletion and amortization . . . . . . . . . 147,713 119,544 65,238 Amortization of deferred financing costs . . . . . . . . . 3,841 4,261 2,927 Deferred income taxes . . . . . . . . . . . . . . . . . . (5,689) 1,050 2,305 Dry hole expense . . . . . . . . . . . . . . . . . . . . . 15,931 10,534 5,232 Gain on sales of property, plant and equipment, net . . . (413) (3,929) (177) Distributions in excess of earnings from equity investments 1,609 1,506 872 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 527 598 556 ------------------------------------------------------------------------------------------------------------------- 166,765 160,762 81,368 Changes in operating assets and liabilities, net of acquisitions: Decrease (Increase) in accounts receivable . . . . . . 8,204 (7,029) 5,039 Decrease (Increase) in inventories, prepaid expenses and other . . . . . . . . . . . . . . . . . . 5,217 757 (457) Increase (Decrease) in accounts payable . . . . . . . . 5,360 (16,292) (11,334) Decrease in prepaid gas and oil sales . . . . . . . . . (7,591) (27,933) - Increase (Decrease) in accrued expenses and other . . . (7,030) 9,496 (2,429) ------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities . . . . . . 170,925 119,761 72,187 INVESTING ACTIVITIES Capital expenditures . . . . . . . . . . . . . . . . . . . . (150,252) (112,042) (43,651) Acquisitions, net of cash acquired . . . . . . . . . . . . . (193,859) (29,470) (401,888) Proceeds from sales of property, plant and equipment . . . . 762 13,428 1,347 ------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities . . . . . . . . (343,349) (128,084) (444,192) FINANCING ACTIVITIES Proceeds from revolving lines of credit and other borrowings. 753,138 599,490 756,500 Principal payments on revolving lines of credit and other borrowings . . . . . . . . . . . . . . . . . . . (582,827) (750,039) (369,877) Fees paid to acquire financing . . . . . . . . . . . . . . . (52) (6,535) (18,282) Proceeds from sales of common stock . . . . . . . . . . . . . 473 166,140 794 Purchase of treasury stock . . . . . . . . . . . . . . . . . - - (210) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 957 765 ------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Financing Activities . . . . . . 171,643 10,013 369,690 ------------------------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash . . . . . . . . . . . . . . 1,641 - - ------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents . . . 860 1,690 (2,315) Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . 5,572 3,882 6,197 ------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . $ 6,432 $ 5,572 $ 3,882 ===================================================================================================================
See Accompanying Notes to Consolidated Financial Statements. SEAGULL ENERGY CORPORATION 33 16 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Foreign Additional Currency Note Common Paid-in Retained Translation Receivable Treasury Stock Capital Earnings Adjustment From ESOP Stock Total ------------------------------------------------------------------------------------------------------------------- January 1, 1992 . . . . . . . . . $ 1,293 $157,546 $ 86,827 $ - $ (6,944) $ (2,925) $235,797 Net earnings . . . . . . . - - 6,688 - - - 6,688 Purchase of treasury stock, 9,438 shares . . . . . . - - - - - (210) (210) Exercise of stock options, 50,235 shares . 5 789 - - - - 794 Repayment of note receivable by ESOP . . . - - - - 436 - 436 Other . . . . . . . . . . - 168 - - - - 168 ------------------------------------------------------------------------------------------------------------------- December 31, 1992 . . . . . . . . 1,298 158,503 93,515 - (6,508) (3,135) 243,673 Net earnings . . . . . . . - - 27,198 - - - 27,198 Issuance of common stock, 5,060,000 shares . . . . 506 163,131 - - - - 163,637 Two-for-one stock split . . 1,807 (1,807) - - - - - Exercise of stock options, 271,645 shares . 27 2,476 - - - - 2,503 Repayment of note receivable by ESOP . . . - - - - 479 - 479 Other . . . . . . . . . . - 1,889 - - - - 1,889 ------------------------------------------------------------------------------------------------------------------- December 31, 1993 . . . . . . . . 3,638 324,192 120,713 - (6,029) (3,135) 439,379 Net earnings . . . . . . . - - 3,246 - - - 3,246 Exercise of stock options, 53,855 shares . 5 468 - - - - 473 Foreign currency translation adjustment . - - - (2,684) - - (2,684) Repayment of note receivable by ESOP . . . - - - - 527 - 527 Other . . . . . . . . . . - 160 - - - - 160 ------------------------------------------------------------------------------------------------------------------- December 31, 1994 . . . . . . . . $ 3,643 $324,820 $ 123,959 $ (2,684) $ (5,502) $ (3,135) $441,101 ===================================================================================================================
See Accompanying Notes to Consolidated Financial Statements. SEAGULL ENERGY CORPORATION 34 17 CONSOLIDATED FINANCIAL STATEMENTS
INDEX PAGE 1. Summary of Significant Accounting Policies . . . . . . . . . . 35 2. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 37 3. Property, Plant and Equipment . . . . . . . . . . . . . . . . 39 4. Supplemental Gas and Oil Producing Activities (Unaudited) . . 40 5. Other Noncurrent Assets . . . . . . . . . . . . . . . . . . . 44 6. Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . 46 7. Other Noncurrent Liabilities . . . . . . . . . . . . . . . . . 49 8. Fair Value of Financial Instruments . . . . . . . . . . . . . 50 9. Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . 51 10. Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 52 11. Interest Income and Other . . . . . . . . . . . . . . . . . . 55 12. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 56 13. Business Segments . . . . . . . . . . . . . . . . . . . . . . 59 14. Selected Quarterly Financial Data (Unaudited) . . . . . . . . 60 15. Commitments and Contingencies . . . . . . . . . . . . . . . . 60
-------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ================================================================================ CONSOLIDATION. -------------------------------------------------------------------------------- The accompanying consolidated financial statements include the accounts of Seagull Energy Corporation and Subsidiaries (the "Company" or "Seagull"), all of which are wholly owned. All significant intercompany transactions have been eliminated. The results of operations of Seagull Energy Canada Ltd. ("Seagull Canada"), formerly Novalta Resources Inc. ("Novalta"), have been included with those of the Company since January 4, 1994 and the results of operations of Seagull Mid-South Inc. ("Seagull Mid-South"), formerly Arkla Exploration Company ("Arkla Exploration"), have been included with those of the Company since December 31, 1992, the respective acquisition dates (See Note 2). Partnerships in which Seagull holds a 50% interest or less are accounted for using the equity method. ================================================================================ REGULATION. -------------------------------------------------------------------------------- The Company operates in Alaska through ENSTAR Natural Gas Company ("ENG"), a division of the Company, and Alaska Pipeline Company ("APC"), a wholly owned subsidiary (collectively referred to herein as "ENSTAR Alaska"). ENSTAR Alaska is subject to regulation by the Alaska Public Utilities Commission ("APUC"), which has jurisdiction over, among other things, rates, accounting procedures and standards of service. ================================================================================ CASH EQUIVALENTS. -------------------------------------------------------------------------------- The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Supplemental disclosures of cash flow information are shown below:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------ Cash paid during the year for: Interest, net of amount capitalized . . . . . . . . . . . . . . . . . $ 44,914 $ 26,753 $ 19,079 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,621 7,140 878 ==================================================================================================================
SEAGULL ENERGY CORPORATION 35 18 CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ INVENTORIES. -------------------------------------------------------------------------------- Materials and supplies are valued at the lower of average cost or market value (net realizable value). Inventories of hydrocarbon products are valued on a first-in, first-out (FIFO) basis at the lower of cost or market value. ================================================================================ GAS AND OIL PROPERTIES. -------------------------------------------------------------------------------- The Company uses the successful efforts method of accounting for its gas and oil operations. The costs of unproved leaseholds are capitalized pending the results of exploration efforts. Unproved leaseholds with significant acquisition costs are assessed periodically, on a property-by-property basis, and a loss is recognized to the extent, if any, that the cost of the property has been impaired. Unproved leaseholds whose acquisition costs are not individually significant are aggregated, and the portion of such costs estimated to ultimately prove nonproductive, based on experience, is amortized over an average holding period. As unproved leaseholds are determined to be productive, the related costs are transferred to proved leaseholds. Exploratory dry holes and geological and geophysical charges are expensed. Depletion of proved leaseholds and amortization and depreciation of the costs of all development and successful exploratory drilling are provided by the unit-of-production method based upon estimates of proved gas and oil reserves on a depletable unit basis. Estimated costs (net of salvage value) of dismantling and abandoning gas and oil production facilities are computed and included in depreciation and depletion using the unit-of-production method. The total estimated future dismantlement and abandonment cost being amortized as of December 31, 1994 was approximately $23.8 million. On a world-wide basis, should the net capitalized costs exceed the estimated future undiscounted after tax net cash flows from proved gas and oil reserves, such excess costs would be charged to expense. The estimates of future undiscounted after tax net cash flows are computed by applying appropriate year-end prices for gas and oil to estimated future production of proved gas and oil reserves over the economic lives of the reserves and assuming continuation of existing economic conditions. ================================================================================ OTHER PROPERTY, PLANT AND EQUIPMENT. -------------------------------------------------------------------------------- Depreciation of gas gathering pipeline facilities is computed principally using the unit-of-production method based on the estimated proved reserves to be transported through the pipeline facility. Depreciation of the utility plant, gas processing plants and other property is computed using the straight-line method over their estimated useful lives, which vary from 3 to 33 years. Utility plant facilities are subject to APUC regulation. When utility properties are disposed of or otherwise retired, the original cost of the property, plus cost of retirement, less salvage value, is charged to accumulated depreciation. Gain or loss on sale or disposition of non-utility property is credited or charged to interest income and other. Maintenance, repairs and renewals are charged to operations and maintenance expense except that renewals which extend the life of the property are capitalized. ================================================================================ TREASURY STOCK. -------------------------------------------------------------------------------- The Company follows the cost method of accounting for treasury stock transactions. ================================================================================ REVENUE RECOGNITION. -------------------------------------------------------------------------------- The Company records revenue following the entitlement method of accounting for production gas imbalances. Seagull constructs pipeline systems for third parties and recognizes profits on construction under the percentage-of-completion method. ENSTAR Alaska's operating revenues are based on rates authorized by the APUC which are applied to customers' consumption of natural gas. ENSTAR Alaska records unbilled revenue, including amounts to be billed under a purchased gas adjustment clause, at the end of each accounting period. ================================================================================ GENERAL AND ADMINISTRATIVE EXPENSE. -------------------------------------------------------------------------------- General and administrative expenses represent various overhead costs of corporate departments. All overhead expenses directly related to the operations of the Company's business segments are included in operations and maintenance expenses and exploration charges. ================================================================================ INTEREST RATE SWAP AGREEMENTS. -------------------------------------------------------------------------------- The Company has entered into interest rate swap agreements to manage the impact of changes SEAGULL ENERGY CORPORATION 36 19 CONSOLIDATED FINANCIAL STATEMENTS in interest rates. The differential interest to be paid or received is accrued as interest rates change and is recognized over the life of the agreements as a component of interest expense. ================================================================================ INCOME TAXES. -------------------------------------------------------------------------------- The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes the enactment date. ================================================================================ FOREIGN CURRENCY TRANSLATION. -------------------------------------------------------------------------------- The functional currency for the Company's foreign operations is the applicable local currency. Translation from applicable foreign currencies to U. S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using primarily a weighted average exchange rate during the period. Adjustments resulting from such translation are included as a separate component of shareholders' equity. Deferred income taxes have not been provided on translation adjustments because the unremitted earnings from Seagull's foreign operations are considered to be permanently invested. ================================================================================ EARNINGS PER SHARE. -------------------------------------------------------------------------------- The weighted average number of common shares outstanding for the computation of earnings per share for the years ended December 31, 1994 and 1993 gives effect to the assumed exercise of dilutive stock options as of the beginning of the year. The effect of dilutive stock options is insignificant on the earnings per share computation for the year ended December 31, 1992. On June 4, 1993, Seagull effected, in the form of a 100 percent stock dividend, a two-for-one stock split (the "Stock Split") of all the issued shares of the Company's common stock ("Common Stock"). The weighted average number of common shares outstanding and per share amounts for all periods have been restated to reflect the Stock Split. All share amounts included in the consolidated statements of shareholders' equity as of dates prior to June 4, 1993 were not adjusted to reflect the Stock Split. ================================================================================ CHANGES IN FINANCIAL PRESENTATION. -------------------------------------------------------------------------------- Certain reclassifications have been made in the 1993 and 1992 financial statements to conform to the presentation used in 1994. -------------------------------------------------------------------------------- 2. ACQUISITIONS ================================================================================ SEAGULL CANADA. -------------------------------------------------------------------------------- On January 4, 1994, an indirect wholly owned subsidiary of Seagull acquired all of the outstanding shares of stock of Novalta and an intercompany note from Novalta to its parent, Novacor Petrochemicals Ltd. for a purchase price of approximately $202 million in cash (the "Seagull Canada Acquisition"). Effective as of the January 4, 1994 closing date, Novalta was amalgamated with Seagull Canada, the indirect subsidiary of Seagull that acquired Novalta. As a result of the amalgamation, the intercompany note was extinguished. The acquisition was accounted for as a purchase. Seagull Canada's assets (the "Seagull Canada Properties") consist primarily of natural gas and oil reserves and developed and undeveloped lease acreage concentrated principally in a small number of fields located in Alberta, Canada. According to reserve estimates prepared as of December 31, 1993 by an independent petroleum engineering firm, the Seagull Canada Properties had proved reserves totaling 257.4 billion cubic feet ("Bcf") of natural gas and 2.8 million barrels ("MMbbl") of oil, condensate and natural gas liquids. SEAGULL ENERGY CORPORATION 37 20 CONSOLIDATED FINANCIAL STATEMENTS Approximately 80 percent of these reserves and 75 percent of Seagull Canada's total producing wells were concentrated in 16 of 95 total fields. As of December 31, 1993, the Seagull Canada Properties consisted of lease acreage holdings including approximately 200,000 net developed acres and approximately 250,000 net undeveloped acres. In connection with the Seagull Canada Acquisition, the Company entered into the Canadian Credit Agreement (See Note 6). The following table presents the unaudited pro forma results of the combined operations of Seagull and Novalta for the year ended December 31, 1993 as though the acquisition of Novalta had occurred on January 1, 1993, financed primarily with borrowings under the Canadian Credit Agreement as well as borrowings under the Revolver (See Note 6). Actual results of Seagull Canada's operations for the year ended December 31, 1994 are reflected in the accompanying consolidated financial statements.
(Dollars in Thousands Except Per Share Amount) --------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1993 Pro Forma (Unaudited) --------------------------------------------------------------------------------------------------------------- Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $409,523 Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,162 Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.62 ===============================================================================================================
================================================================================ SEAGULL MID-SOUTH. -------------------------------------------------------------------------------- On December 31, 1992, Seagull purchased all of the outstanding capital stock of Arkla Exploration from NorAm, Inc., formerly Arkla, Inc., for approximately $393 million in cash. The acquisition was accounted for as a purchase. Seagull Mid-South's assets consist almost exclusively of natural gas and oil reserves and developed and undeveloped lease acreage concentrated principally in a small number of fields located in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. Arkla Exploration entered into prepaid gas and oil sales contracts prior to its acquisition by Seagull. As of December 31, 1992, Seagull Mid-South was obligated to deliver for no future consideration approximately 13 Bcf of gas and approximately one MMbbl of oil and condensate pursuant to these contracts over periods expiring January 31, 1994 and June 30, 1995, respectively. As of December 31, 1994, approximately 154 Mbbl ("Mbbl" represents one thousand barrels of oil) remain to be delivered under these contracts. SEAGULL ENERGY CORPORATION 38 21 CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 3. PROPERTY, PLANT AND EQUIPMENT The major classes of the Company's property, plant and equipment are shown below:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- December 31, 1994 1993 ------------------------------------------------------------------------------------------------------------------- Gas and oil properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,289,540 $ 972,460 Pipeline facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,264 63,019 Gas processing plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,128 15,808 Utility plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,335 216,883 Equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,885 10,531 ------------------------------------------------------------------------------------------------------------------- $ 1,592,152 $1,278,701 ===================================================================================================================
Interest cost capitalized as property, plant and equipment amounted to approximately $0.6 million in 1994 and $0.9 million in both 1993 and 1992. Total depreciation, depletion and amortization related to property, plant and equipment amounted to approximately $147.7 million, $119.5 million and $65.2 million in 1994, 1993 and 1992, respectively. SEAGULL ENERGY CORPORATION 39 22 CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 4. SUPPLEMENTAL GAS AND OIL PRODUCING ACTIVITIES (Unaudited)
CAPITALIZED COSTS RELATING TO GAS AND OIL PRODUCING ACTIVITIES (Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- United Other States Canada(*) International Total ------------------------------------------------------------------------------------------------------------------- December 31, 1994: Proved properties . . . . . . . . . . . . . . . . . . $ 1,036,494 $ 225,365 $ - $ 1,261,859 Unproved properties . . . . . . . . . . . . . . . . . 19,376 3,216 5,090 27,682 ------------------------------------------------------------------------------------------------------------------- 1,055,870 228,581 5,090 1,289,541 Accumulated depreciation, depletion and amortization 332,108 16,098 497 348,703 ------------------------------------------------------------------------------------------------------------------- $ 723,762 $ 212,483 $ 4,593 $ 940,838 =================================================================================================================== December 31, 1993: Proved properties . . . . . . . . . . . . . . . . . . $ 956,604 $ - $ - $ 956,604 Unproved properties . . . . . . . . . . . . . . . . . 15,178 - 678 15,856 ------------------------------------------------------------------------------------------------------------------- 971,782 - 678 972,460 Accumulated depreciation, depletion and amortization 224,437 - 14 224,451 ------------------------------------------------------------------------------------------------------------------- $ 747,345 $ - $ 664 $ 748,009 ===================================================================================================================
COSTS INCURRED IN GAS AND OIL PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES (Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- United Other States Canada(*) International Total ------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1994: Acquisition of properties: Proved . . . . . . . . . . . . . . . . . . . . . . . $ 4,144 $ 218,871 $ - $ 223,015 Unproved . . . . . . . . . . . . . . . . . . . . . . 5,581 3,216 2,426 11,223 Exploration costs . . . . . . . . . . . . . . . . . . . 28,728 801 5,578 35,107 Development costs . . . . . . . . . . . . . . . . . . . 65,009 18,830 - 83,839 ------------------------------------------------------------------------------------------------------------------- $ 103,462 $ 241,718 $ 8,004 $ 353,184 =================================================================================================================== Year Ended December 31, 1993: Acquisition of properties: Proved . . . . . . . . . . . . . . . . . . . . . . . $ 22,568 $ - $ - $ 22,568 Unproved . . . . . . . . . . . . . . . . . . . . . . 7,657 - 93 7,750 Exploration costs . . . . . . . . . . . . . . . . . . . 26,824 - - 26,824 Development costs . . . . . . . . . . . . . . . . . . . 63,598 - - 63,598 ------------------------------------------------------------------------------------------------------------------- $ 120,647 $ - $ 93 $120,740 =================================================================================================================== Year Ended December 31, 1992: Acquisition of properties: Proved . . . . . . . . . . . . . . . . . . . . . . . $ 455,970 $ - $ - $455,970 Unproved . . . . . . . . . . . . . . . . . . . . . . 3,078 - - 3,078 Exploration costs . . . . . . . . . . . . . . . . . . . 8,378 - - 8,378 Development costs . . . . . . . . . . . . . . . . . . . 18,341 - - 18,341 ------------------------------------------------------------------------------------------------------------------- $ 485,767 $ - $ - $485,767 ===================================================================================================================
(*) Includes Seagull Canada since January 4, 1994. SEAGULL ENERGY CORPORATION 40 23 CONSOLIDATED FINANCIAL STATEMENTS RESULTS OF OPERATIONS FOR GAS AND OIL PRODUCING ACTIVITIES
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- United Other States Canada(1) International Total ------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1994: Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 225,475 $ 37,068 $ - $ 262,543 Lifting costs: Lease operating expense . . . . . . . . . . . . . . . 27,948 9,003 - 36,951 Workover expense . . . . . . . . . . . . . . . . . . 2,593 725 - 3,318 Production taxes . . . . . . . . . . . . . . . . . . 8,712 - - 8,712 Transportation expense . . . . . . . . . . . . . . . 9,967 1,712 - 11,679 Ad valorem taxes . . . . . . . . . . . . . . . . . . 3,329 - - 3,329 ------------------------------------------------------------------------------------------------------------------- 52,549 11,440 - 63,989 General operating expense . . . . . . . . . . . . . . . 9,779 1,574 - 11,353 Exploration charges . . . . . . . . . . . . . . . . . . 19,617 2,308 4,963 26,888 Depreciation, depletion and amortization . . . . . . . 114,738 16,558 751 132,047 ------------------------------------------------------------------------------------------------------------------- Operating profit (loss) . . . . . . . . . . . . . . . . 28,792 5,188 (5,714) 28,266 Income tax expense(2) . . . . . . . . . . . . . . . . 2,761 2,300 - 5,061 ------------------------------------------------------------------------------------------------------------------- Results of operations from producing activities . . . . $ 26,031 $ 2,888 $ (5,714) $ 23,205 =================================================================================================================== Year Ended December 31, 1993: Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 227,437 $ - $ - $ 227,437 Lifting costs: Lease operating expense . . . . . . . . . . . . . . . 28,806 - - 28,806 Workover expense . . . . . . . . . . . . . . . . . . 4,249 - - 4,249 Production taxes . . . . . . . . . . . . . . . . . . 9,133 - - 9,133 Transportation expense . . . . . . . . . . . . . . . 7,764 - - 7,764 Ad valorem taxes . . . . . . . . . . . . . . . . . . 3,291 - - 3,291 ------------------------------------------------------------------------------------------------------------------- 53,243 - - 53,243 General operating expense . . . . . . . . . . . . . . . 10,408 - - 10,408 Exploration charges . . . . . . . . . . . . . . . . . . 16,579 - 686 17,265 Depreciation, depletion and amortization . . . . . . . 103,537 - 15 103,552 ------------------------------------------------------------------------------------------------------------------- Operating profit (loss) . . . . . . . . . . . . . . . . 43,670 - (701) 42,969 Income tax expense(2) . . . . . . . . . . . . . . . . . 9,241 - - 9,241 ------------------------------------------------------------------------------------------------------------------- Results of operations from producing activities . . . . $ 34,429 $ - $ (701) $ 33,728 =================================================================================================================== Year Ended December 31, 1992: Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 91,991 $ - $ - $ 91,991 Lifting costs: Lease operating expense. . . . . . . . . . . . . . . 15,334 - - 15,334 Workover expense . . . . . . . . . . . . . . . . . . 2,449 - - 2,449 Production taxes . . . . . . . . . . . . . . . . . . 4,045 - - 4,045 Transportation expense . . . . . . . . . . . . . . . 2,757 - - 2,757 Ad valorem taxes . . . . . . . . . . . . . . . . . . 1,645 - - 1,645 ------------------------------------------------------------------------------------------------------------------- 26,230 - - 26,230 General operating expense . . . . . . . . . . . . . . . 4,614 - - 4,614 Exploration charges . . . . . . . . . . . . . . . . . . 9,905 - - 9,905 Depreciation, depletion and amortization. . . . . . . . 52,855 - - 52,855 ------------------------------------------------------------------------------------------------------------------- Operating loss . . . . . . . . . . . . . . . . . . . . . (1,613) - - (1,613) Income tax benefit(2) . . . . . . . . . . . . . . . . . (584) - - (584) ------------------------------------------------------------------------------------------------------------------- Results of operations from producing activities . . . $ (1,029) $ - $ - $ (1,029) ===================================================================================================================
(1) Includes Seagull Canada since January 4, 1994. (2) Income tax expense (benefit) for United States operations is calculated by applying the current U.S. effective income tax rate, before the Internal Revenue Code Section 29 Tax Credits, to operating profit and reducing the resulting income tax expense by the Section 29 Tax Credits. Income tax expense for Canada is calculated by applying the current statutory rate to operating profit. No income tax expense (benefit) is applied to Other International operations as these operations currently have no impact on the Company's consolidated tax return. SEAGULL ENERGY CORPORATION 41 24 CONSOLIDATED FINANCIAL STATEMENTS
RESERVE QUANTITY INFORMATION ------------------------------------------------------------------------------------------------------------------- United States Canada(1) Total Gas Oil Gas Oil Gas Oil (MMcf) (Mbbl) (MMcf) (Mbbl) (MMcf) (Mbbl) ------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1992: Proved developed and undeveloped reserves: Beginning of year . . . . . . . . . . 335,121 11,014 - - 335,121 11,014 Purchases of reserves in place . . . 573,526 6,691 - - 573,526 6,691 Sales of reserves in place . . . . . (181) (24) - - (181) (24) Revisions of previous estimates . . . (5,503) 1,548 - - (5,503) 1,548 Extensions and discoveries . . . . . 19,501 199 - - 19,501 199 Production . . . . . . . . . . . . . (38,137) (1,279) - - (38,137) (1,279) ------------------------------------------------------------------------------------------------------------------- End of year(2) . . . . . . . . . . . 884,327 18,149 - - 884,327 18,149 =================================================================================================================== Year Ended December 31, 1993: Proved developed and undeveloped reserves: Beginning of year . . . . . . . . . . 884,327 18,149 - - 884,327 18,149 Purchases of reserves in place . . . 34,350 198 - - 34,350 198 Sales of reserves in place . . . . . (9,587) (1,554) - - (9,587) (1,554) Revisions of previous estimates . . . 24,924 (1,281) - - 24,924 (1,281) Extensions and discoveries . . . . . 83,158 972 - - 83,158 972 Production . . . . . . . . . . . . . (102,025) (1,694) - - (102,025) (1,694) ------------------------------------------------------------------------------------------------------------------- End of year(2) . . . . . . . . . . . 915,147 14,790 - - 915,147 14,790 =================================================================================================================== Year Ended December 31, 1994: Proved developed and undeveloped reserves: Beginning of year . . . . . . . . . . 915,147 14,790 - - 915,147 14,790 Purchases of reserves in place . . . 7,168 67 261,785 2,923 268,953 2,990 Sales of reserves in place . . . . . (923) (17) (2,711) (8) (3,634) (25) Revisions of previous estimates . . . (61,357) (442) 449 685 (60,908) 243 Extensions and discoveries . . . . . 50,576 331 28,212 878 78,788 1,209 Production . . . . . . . . . . . . . (109,900) (1,421) (19,755) (427) (129,655) (1,848) ------------------------------------------------------------------------------------------------------------------- End of year(2) . . . . . . . . . . . 800,711 13,308 267,980 4,051 1,068,691 17,359 =================================================================================================================== Proved developed reserves: December 31, 1991 . . . . . . . . . . 265,987 7,213 - - 265,987 7,213 December 31, 1992 . . . . . . . . . . 675,861 11,552 - - 675,861 11,552 December 31, 1993 . . . . . . . . . . 693,610 9,362 - - 693,610 9,362 December 31, 1994 . . . . . . . . . . 650,371 7,882 243,042 3,587 893,413 11,469 ===================================================================================================================
(1) Includes Seagull Canada since January 4, 1994. (2) At December 31, 1994, includes approximately 154 Mbbl of oil related to prepaid oil sales. At December 31, 1993 and 1992, includes approximately 620 MMcf of gas and 529 Mbbl of oil and 13 Bcf of gas and 1,000 Mbbl of oil, respectively, related to prepaid gas and oil sales. The reserve volumes are provided by independent petroleum engineers and are estimates only and should not be construed as being exact quantities. These reserves may or may not be recovered and may increase or decrease as a result of future operations of the Company and changes in market conditions. The Company's standardized measure of discounted future net cash flows and changes therein as of December 31, 1994, 1993 and 1992 are provided based on the present value of future net revenues from proved gas and oil reserves also estimated by the independent petroleum engineers in accordance with SEAGULL ENERGY CORPORATION 42 25 CONSOLIDATED FINANCIAL STATEMENTS guidelines established by the Securities and Exchange Commission. These estimates were computed by applying appropriate year-end prices for gas and oil to estimated future production of proved gas and oil reserves over the economic lives of the reserves and assuming continuation of existing economic conditions. Year-end 1994 calculations were made utilizing average prices for natural gas and oil, condensate and natural gas liquids that existed at December 31, 1994 of $1.68 per Mcf and $14.19 per barrel ("Bbl"), respectively, for the United States and $1.19 per Mcf and $16.61 per Bbl, respectively, for Canada. The Company's average prices for natural gas and oil, condensate and natural gas liquids for the month ended January 31, 1995 were $1.62 per Mcf and $14.63 per Bbl, respectively, for the United States and $1.01 per Mcf and $12.96 per Bbl, respectively, for Canada. Income taxes are computed by applying the statutory federal income tax rate to the net cash inflows relating to proved gas and oil reserves less the tax bases of the properties involved and giving effect to any net operating loss carryforwards, tax credits and allowances relating to such properties.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- United States Canada(*) Total ------------------------------------------------------------------------------------------------------------------- December 31, 1994: Future cash inflows . . . . . . . . . . . . . . . . . . . . . . . . $ 1,537,172 $ 386,249 $1,923,421 Future development costs . . . . . . . . . . . . . . . . . . . . . . (175,394) (20,863) (196,257) Future production costs . . . . . . . . . . . . . . . . . . . . . . (474,545) (114,831) (589,376) ------------------------------------------------------------------------------------------------------------------- Future net cash flows before income taxes . . . . . . . . . . . . . 887,233 250,555 1,137,788 10% annual discount . . . . . . . . . . . . . . . . . . . . . . . . (354,360) (119,168) (473,528) ------------------------------------------------------------------------------------------------------------------- Discounted future net cash flows before income taxes . . . . . . . . 532,873 131,387 664,260 Discounted income taxes . . . . . . . . . . . . . . . . . . . . . . (37,348) (41,224) (78,572) ------------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows . . . . . . $ 495,525 $ 90,163 $ 585,688 =================================================================================================================== ------------------------------------------------------------------------------------------------------------------- December 31, 1993: Future cash inflows . . . . . . . . . . . . . . . . . . . . . . . . $ 2,318,243 $ - $2,318,243 Future development costs . . . . . . . . . . . . . . . . . . . . . . (234,494) - (234,494) Future production costs . . . . . . . . . . . . . . . . . . . . . . (564,915) - (564,915) ------------------------------------------------------------------------------------------------------------------- Future net cash flows before income taxes . . . . . . . . . . . . . 1,518,834 - 1,518,834 10% annual discount . . . . . . . . . . . . . . . . . . . . . . . . (625,504) - (625,504) ------------------------------------------------------------------------------------------------------------------- Discounted future net cash flows before income taxes . . . . . . . . 893,330 - 893,330 Discounted income taxes . . . . . . . . . . . . . . . . . . . . . . (165,682) - (165,682) ------------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows . . . . . . $ 727,648 $ - $ 727,648 ===================================================================================================================
(*) Includes Seagull Canada since January 4, 1994. SEAGULL ENERGY CORPORATION 43 26 CONSOLIDATED FINANCIAL STATEMENTS
PRINCIPAL SOURCES OF CHANGE IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows, beginning of year . $ 727,648 $ 694,448 $ 289,881 Purchases of reserves in place . . . . . . . . . . . . . . . . . . . . 197,301 28,871 486,048 Sales of reserves in place . . . . . . . . . . . . . . . . . . . . . . (2,932) (13,679) (259) Revisions of previous quantity estimates less related costs . . . . . . (51,622) 16,660 (4,155) Extensions and discoveries less related costs . . . . . . . . . . . . . 50,062 87,345 13,760 Net changes in prices and production costs . . . . . . . . . . . . . . (348,609) 28,393 15,790 Development costs incurred during period and changes in estimated future development costs . . . . . . . . . . . . 66,991 22,248 8,595 Sales of gas and oil produced during period, net of lifting costs . . . (198,554) (174,194) (65,761) Accretion of discount . . . . . . . . . . . . . . . . . . . . . . . . . 89,333 83,454 35,407 Net change in income taxes . . . . . . . . . . . . . . . . . . . . . . 87,109 (25,591) (75,900) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,039) (20,307) (8,958) ------------------------------------------------------------------------------------------------------------------- (141,960) 33,200 404,567 ------------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows, end of year . . . . $ 585,688 $ 727,648 $ 694,448 ===================================================================================================================
-------------------------------------------------------------------------------- 5. OTHER NONCURRENT ASSETS Other assets include the following:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- December 31, 1994 1993 ------------------------------------------------------------------------------------------------------------------- Natural gas imbalances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,350 $ 31,271 Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,066 19,007 Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,837 7,377 Acquisition costs - Seagull Canada Acquisition . . . . . . . . . . . . . . . . . . . . - 7,745 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,627 4,454 ------------------------------------------------------------------------------------------------------------------- $ 55,880 $ 69,854 ===================================================================================================================
================================================================================ NATURAL GAS IMBALANCES. -------------------------------------------------------------------------------- The Company records revenue following the entitlement method of accounting for production imbalances, in which any excess amount received above the Company's share is treated as a liability. If less than the Company's entitlement is received, the underproduction is recorded as an asset. The Company records revenue from gas marketing sales net of the cost of gas and third-party delivery fees, with any resulting transportation imbalances recorded as a current receivable or payable. SEAGULL ENERGY CORPORATION 44 27 CONSOLIDATED FINANCIAL STATEMENTS The Company's natural gas and transportation imbalance assets and liabilities were as follows:
(Dollars in Thousands and Volumes in Bcf) ------------------------------------------------------------------------------------------------------------------- December 31, 1994 1993 AMOUNT VOLUME Amount Volume ------------------------------------------------------------------------------------------------------------------- ASSETS: Current . . . . . . . . . . . . . . . . . . . . . . . . $ 8,970 5.7 $ 5,808 3.6 Noncurrent . . . . . . . . . . . . . . . . . . . . . . 26,350 17.5 31,271 20.9 ------------------------------------------------------------------------------------------------------------------- $ 35,320 23.2 $ 37,079 24.5 =================================================================================================================== LIABILITIES: Current . . . . . . . . . . . . . . . . . . . . . . . . $ 10,130 6.0 $ 7,546 4.5 Noncurrent . . . . . . . . . . . . . . . . . . . . . . 25,607 16.4 31,693 20.7 ------------------------------------------------------------------------------------------------------------------- $ 35,737 22.4 $ 39,239 25.2 ===================================================================================================================
================================================================================ DEFERRED FINANCING COSTS. -------------------------------------------------------------------------------- Deferred financing costs represent financing costs incurred in connection with the execution of various facilities entered into or securities issued by the Company. These costs are capitalized and amortized to interest expense over the life of the related debt. As discussed in Note 6, the Company has a $725 million revolving credit line which matures in 2000. Financing costs initially incurred in 1992 of approximately $16.7 million were capitalized in connection with this facility and will be amortized to interest expense over periods ending December 31, 2000. Approximately $5.0 million in financing costs incurred in connection with the Company's July 1993 issuance of $250 million in senior and senior subordinated notes were capitalized and will be amortized to interest expense over periods ending August 1, 2005 (See Note 6). ================================================================================ EQUITY INVESTMENTS. -------------------------------------------------------------------------------- CAVALLO PIPELINE COMPANY. A wholly owned subsidiary of Seagull owns a 50% interest in, and operates, Cavallo Pipeline Company ("Cavallo"). The Cavallo system consists of an offshore pipeline system. At December 31, 1994, the Company's investment in Cavallo amounted to approximately $4.4 million. The financial position and results of operations of Cavallo are summarized below. The amounts in the table include interests that are not 100% attributable to Seagull:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Cavallo 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA (for the year): Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,561 $ 4,737 $ 4,061 Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . 3,107 2,624 2,061 BALANCE SHEET DATA (at December 31): Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,059 $ 982 $ 1,175 Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,884 10,148 11,412 Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 278 163 118 ===================================================================================================================
SEAGULL ENERGY CORPORATION 45 28 CONSOLIDATED FINANCIAL STATEMENTS Seagull's interest in the earnings of Cavallo for the years ended December 31, 1994, 1993 and 1992 was $1.6 million, $1.9 million and $1.5 million, respectively. SEAGULL SHORELINE SYSTEM. The Company, through one of its wholly owned subsidiaries, serves as operator and at December 31, 1994 held approximately a 19% interest in the Seagull Shoreline System ("SSS"), a partnership that owns an offshore gas pipeline. At December 31, 1994, the Company's investment in SSS amounted to $1.2 million. The Company also has a small interest in a corporation engaged in the exploration for natural gas and oil in Canada acquired in connection with the Seagull Canada Acquisition. ================================================================================ ACQUISITION COSTS - SEAGULL CANADA ACQUISITION. -------------------------------------------------------------------------------- Acquisition costs represent costs incurred in connection with the Seagull Canada Acquisition, including a deposit of approximately $7.5 million paid in November 1993 which was applied as part of the cash purchase price paid in January 1994 (See Note 2). -------------------------------------------------------------------------------- 6. LONG-TERM DEBT Long-term debt for 1994 and 1993 was as follows:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- December 31, 1994 1993 ------------------------------------------------------------------------------------------------------------------- Seagull Energy Corporation: Money market facilities, variable rates (7% and 3.875%-4.75% at December 31, 1994 and 1993, respectively) due in 1995 . . . . . . . . . . . . . . . . . . . . . . $ 6,173 $ 70,000 Revolving credit, variable rates (6.09%-7.4% and 6% at December 31, 1994 and 1993, respectively) due in 1997-2000 . . . . . . . . . . . . . . . . . . . 155,000 77,000 Senior notes, 7.875%, due August 1, 2003 . . . . . . . . . . . . . . . . . . . . . 100,000 100,000 Senior subordinated notes, 8.625%, due August 1, 2005 . . . . . . . . . . . . . . . 150,000 150,000 Seagull Energy Canada Ltd.: Revolving credit, variable rates (6.94%-8.25% at December 31, 1994) due in 1997-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,275 - Alaska Pipeline Company: Unsecured industrial development bonds: 7.75%-8.00% due in 1994-2008 . . . . . . . . . . . . . . . . . . . . . . . . . 12,035 12,915 Other unsecured indebtedness: 9.95%-12.80% notes, due in 1994-2000 . . . . . . . . . . . . . . . . . . . . . 2,100 2,750 8.15%-8.81% notes, due in 1997-2009 . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000 Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 26 ------------------------------------------------------------------------------------------------------------------- 623,601 462,691 Less: Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,549 1,538 Unamortized debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,247 1,366 ------------------------------------------------------------------------------------------------------------------- $ 620,805 $ 459,787 ===================================================================================================================
SEAGULL ENERGY CORPORATION 46 29 CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ SEAGULL ENERGY CORPORATION. -------------------------------------------------------------------------------- MONEY MARKET FACILITIES. Seagull has money market facilities with two major U. S. banks with a combined maximum commitment of $70 million. These lines of credit bear interest at rates made available by the banks at their discretion and may be canceled at either Seagull's or the banks' discretion. The lines are subject to annual renewal. SEAGULL ENERGY CORPORATION REVOLVING CREDIT. During 1994, the Company amended its revolving credit facility (the "Revolver") with a group of major U. S. and international banks (the "Banks") to, among other things (i) increase the maximum commitment from $475 million to $725 million, (ii) extend the maturity date to December 31, 2000, (iii) adjust certain financial covenants relating to dividend limitations and permitted leverage ratios and (iv) adjust the pricing features of the credit facility. Under the terms of the Revolver, the commitments thereunder begin to decline on March 31, 1997 in equal quarterly reductions of $45 million and a final reduction of $50 million on December 31, 2000. The Revolver is an unsecured credit facility that contains restrictive provisions regarding the incurrence of additional debt, the making of investments outside existing lines of business, the maintenance of certain financial ratios (based upon Seagull's consolidated financial condition and results of operations), the incurrence of additional liens, the declaration or payment of dividends (other than dividends payable on up to $150 million of preferred stock or dividends payable solely in the form of additional shares of Common Stock) and the repurchase or redemption of capital stock. Under the most restrictive of these provisions, approximately $27.5 million was available for payment of cash dividends on Common Stock or to repurchase Common Stock as of December 31, 1994. Subsequent to December 31, 1994, the Company has obtained an amendment from the Banks which modifies certain of the financial ratios discussed above. The Revolver also includes restrictive provisions whereby a change in control of the Company would constitute an Event of Default thereby accelerating all amounts due under the Revolver. The Revolver bears interest, at Seagull's option, at a rate equal to (i) either one, two, three or six month Adjusted LIBOR, plus a margin (the "LIBOR Margin"), (ii) the Reference Rate, plus a margin (the "Prime Margin") or (iii) a competitive bid rate. The "Reference Rate" is the greater of (i) 0.5% per annum above the daily federal funds rate or (ii) the prime rate of the agent bank. The LIBOR Margin ranges from 0.625% to 1.5% per annum, depending upon Seagull's credit rating and consolidated Debt to Capitalization Ratio (as defined under the Revolver), and the Prime Margin ranges from 0% to 0.5% per annum, depending upon the same factors. Under provisions included in the Revolver, the amount of senior indebtedness available to the Company is subject to a borrowing base (the "Borrowing Base"), based upon the proved reserves of the Company's exploration and production segment and the financial performance of the Company's other business segments. The Borrowing Base is generally determined annually, but may be redetermined, at the option of either Seagull or the Banks, one additional time each year, and will be redetermined upon the sale of certain assets included in the Borrowing Base. If the Borrowing Base is redetermined in such a manner that the amount outstanding under the Revolver (together with any other permitted senior debt facility) exceeds the new Borrowing Base, then the Company must repay the Revolver or such other indebtedness in an amount necessary to cure the deficiency. If such deficiency has not been cured within 30 days, such deficiency must be cured in three equal quarterly installments. As of December 31, 1994, the available commitment under the Revolver is subject to a $625 million Borrowing Base and is determined after consideration of outstanding borrowings under Seagull's other senior debt facilities. On that date, borrowings outstanding under the Revolver were $155 million, leaving immediately available unused commitments of approximately $201.6 million, net of outstanding SEAGULL ENERGY CORPORATION 47 30 CONSOLIDATED FINANCIAL STATEMENTS letters of credit of $2.2 million, $100 million of borrowings outstanding under the Senior Notes (defined below), the nominated maximum borrowing availability of $160 million under the Canadian Credit Agreement (defined below), and $6.2 million in borrowings outstanding under Seagull's money market facilities. SENIOR AND SENIOR SUBORDINATED NOTES. In July 1993, Seagull sold $100 million of senior notes (the "Senior Notes") and $150 million of senior subordinated notes (the "Senior Subordinated Notes") (collectively the "Notes") in an underwritten public offering. The Senior Notes bear interest at 7 7/8% per annum, are not redeemable prior to maturity or subject to any sinking fund and mature on August 1, 2003. The Senior Subordinated Notes bear interest at 8 5/8% per annum, are not subject to any sinking fund and mature on August 1, 2005. On or after August 1, 2000, the Senior Subordinated Notes are redeemable at the option of the Company, in whole or in part, at redemption prices declining from 102.59% in 2000 to 100.00% in 2003 and thereafter (expressed as a percentage of principal amount), plus accrued interest to the redemption date. The Notes were issued at par and interest is paid semiannually. The Notes represent unsecured obligations of the Company. The Senior Notes rank pari passu with senior indebtedness of the Company while the Senior Subordinated Notes are subordinate in right of payment to all existing and future senior indebtedness of the Company. The Notes contain conditions and restrictive provisions including, among other things, restrictions on additional indebtedness by the Company and by its subsidiaries, the right of each note holder to have the notes repurchased by the Company at 101% of the principal amount upon a change in control, as well as restrictions on the incurrence of secured debt and entering into sale and leaseback transactions. Net proceeds from the offering, totaling approximately $245.0 million, were used to repay borrowings outstanding under the Revolver. INTEREST RATE SWAP AGREEMENTS. The Company enters into interest rate swap agreements to manage the impact of changes in interest rates. During 1994, the following interest rate swap agreements were in effect:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Notional Effective Maturity Interest Rate Amount Date Date Receive Pay ------------------------------------------------------------------------------------------------------------------- $40,000 9/11/92 9/11/95 Floating 6.76% 20,000 9/16/92 9/16/94 Floating 6.265% 25,000 9/11/92 9/11/94 Floating 6.265% 50,000 8/2/93 7/31/98 5.635% Floating 50,000 8/2/93 7/31/97 5.43% Floating 50,000 8/2/93 7/31/96 5.199% Floating ===================================================================================================================
While notional amounts are used to express the volume of the interest rate swap transactions discussed above, the amount potentially subject to credit risk, in the event of nonperformance by Seagull's counterparties, is significantly smaller. For the year ended December 31, 1994, interest expense included approximately $2.3 million net expense relating to these agreements. ================================================================================ SEAGULL ENERGY CANADA LTD. -------------------------------------------------------------------------------- In connection with the Seagull Canada Acquisition (See Note 2), Seagull Canada entered into a $175 million reducing revolving credit facility (the "Canadian Credit Agreement") with a group of the Banks or their affiliates. The Canadian Credit Agreement provides for dual currency borrowings in U. S. and Canadian dollars with a nominated maximum borrowing availability of $160 million, which may be increased or decreased by the Company at any time pursuant to provisions of the Canadian Credit Agreement, up to a maximum commitment of $175 SEAGULL ENERGY CORPORATION 48 31 CONSOLIDATED FINANCIAL STATEMENTS million. The Canadian Credit Agreement matures on December 31, 2000 and commitments thereunder begin to decline on March 31, 1997 in equal quarterly reductions of $10,937,500. Borrowings outstanding in Canadian dollars bear interest, at Seagull Canada's option, at a rate equal to (i) either one, two, three or six month Bankers' Acceptance Rate plus the LIBOR Margin or (ii) the Paying Agent's prime rate plus the Prime Margin. Borrowings outstanding under the Canadian Credit Agreement funded in U. S. dollars bear interest, at Seagull Canada's option, in a manner similar to borrowings outstanding under the Revolver as described above. The Canadian Credit Agreement is an unsecured credit facility guaranteed by Seagull and contains restrictive provisions similar to those included in the Revolver. ================================================================================ ALASKA PIPELINE COMPANY. -------------------------------------------------------------------------------- All long-term debt of ENSTAR Alaska is issued by APC. The majority of the capital requirements of ENG are met by loans from APC pursuant to intercompany notes secured by a mortgage on the properties, rights and franchises (other than certain excepted properties) of ENG. The senior unsecured notes of APC provide for restrictions on dividends, additional borrowings and purchases, redemptions or retirements of shares of capital stock, other than in stock of APC. Under the most restrictive provisions of these financing arrangements, approximately $10.4 million was available for the making of restricted investments, restricted stock payments and restricted subordinated debt payments as of December 31, 1994. ================================================================================ ANNUAL MATURITIES. -------------------------------------------------------------------------------- At December 31, 1994, the Company's aggregate annual maturities of long-term debt are as follows:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Year Ending December 31, ------------------------------------------------------------------------------------------------------------------- 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,549 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,564 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,602 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,847 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,897 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494,142 ===================================================================================================================
For purposes of the above table, the required payments related to the money market facilities are considered to be funded with amounts available under the Revolver. -------------------------------------------------------------------------------- 7. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities include the following:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- December 31, 1994 1993 ------------------------------------------------------------------------------------------------------------------- Natural gas imbalances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,607 $ 31,693 Refundable customer advances for construction . . . . . . . . . . . . . . . . . . . . . 12,668 11,623 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,462 23,469 ------------------------------------------------------------------------------------------------------------------- $ 57,737 $ 66,785 ===================================================================================================================
SEAGULL ENERGY CORPORATION 49 32 CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NATURAL GAS IMBALANCES. -------------------------------------------------------------------------------- This represents revenues for natural gas production received and sold by the Company in excess of the Company's ownership percentage of total gas production (See Note 5). ================================================================================ REFUNDABLE CUSTOMER ADVANCES FOR CONSTRUCTION. -------------------------------------------------------------------------------- This represents customer deposits received by ENSTAR Alaska for construction of main extensions refundable either wholly or in part over a period not to exceed 10 years. -------------------------------------------------------------------------------- 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are summarized as follows:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- December 31, 1994 1993 CARRYING ESTIMATED Carrying Estimated AMOUNT FAIR VALUE Amount Fair Value ------------------------------------------------------------------------------------------------------------------- Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . $ 6,432 $ 6,432 $ 5,572 $ 5,572 Liabilities: Customer deposits . . . . . . . . . . . . . . . . . . . . (1,639) (1,513) (1,672) (1,571) Refundable customer advances for construction . . . . . . (12,927) (10,144) (11,983) (9,858) Long-term debt: Revolver and money market facilities . . . . . . . . (161,173) (161,173) (147,000) (147,000) Senior Notes . . . . . . . . . . . . . . . . . . . . (100,000) (89,000) (100,000) (99,500) Senior Subordinated Notes . . . . . . . . . . . . . (150,000) (130,500) (150,000) (149,250) Seagull Energy Canada Ltd. Revolver . . . . . . . . (148,275) (148,275) - - Alaska Pipeline Company, including current maturities (62,906) (63,700) (64,325) (75,800) Interest rate swap agreements: In a receivable position . . . . . . . . . . . . . . . . - 138 - 1,986 In a payable position . . . . . . . . . . . . . . . . . . - (11,541) - (2,709) ===================================================================================================================
================================================================================ CASH AND CASH EQUIVALENTS. -------------------------------------------------------------------------------- The carrying amount approximates fair value because of the short maturity of these instruments. ================================================================================ CUSTOMER DEPOSITS AND REFUNDABLE CUSTOMER ADVANCES FOR CONSTRUCTION. -------------------------------------------------------------------------------- The fair value is based on discounted cash flow analyses utilizing a discount rate of 7.75% and 6% at December 31, 1994 and 1993, respectively, with monthly payments ratably over the estimated period of deposit or advance refunding. ================================================================================ LONG-TERM DEBT. -------------------------------------------------------------------------------- SEAGULL ENERGY CORPORATION: The carrying amount of borrowings outstanding under the Company's Revolver and money market facilities approximates fair value because these instruments bear interest at rates tied to current market rates. The fair value of Seagull's Senior and Senior Subordinated Notes is estimated based on quoted market prices for the same issues. SEAGULL ENERGY CANADA LTD.: The carrying amount of borrowings outstanding under the Canadian Credit Agreement approximates fair value because this instrument bears interest at rates tied to current market rates. ALASKA PIPELINE COMPANY: The fair value of APC's long-term debt is estimated based on quoted market prices for the same or similar issues. ================================================================================ INTEREST RATE SWAP AGREEMENTS. -------------------------------------------------------------------------------- The fair values are obtained from the financial institutions that are counterparties to the transac- SEAGULL ENERGY CORPORATION 50 33 CONSOLIDATED FINANCIAL STATEMENTS tions. These values represent the estimated amount the Company would pay or receive to terminate the agreements, taking into consideration current interest rates and the current creditworthiness of the counterparties. Seagull's interest rate swap agreements are off balance sheet transactions and, accordingly, there are no respective carrying amounts for these transactions included in the accompanying consolidated balance sheets as of December 31, 1994 and 1993. Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions. Also potential taxes and other expenses that would be incurred in an actual sale or settlement are not reflected in amounts disclosed. -------------------------------------------------------------------------------- 9. SHAREHOLDERS' EQUITY ================================================================================ COMMON STOCK. -------------------------------------------------------------------------------- In February 1993, Seagull sold 5,060,000 shares (10,120,000 shares after the Stock Split) of Common Stock in an underwritten public offering. Net proceeds from the offering, totaling approximately $163.6 million, were used to retire debt. See Note 6 for information concerning restrictions imposed by the Revolver on the Company's future purchases of Common Stock. ================================================================================ PREFERRED STOCK. -------------------------------------------------------------------------------- The Company is authorized to issue 5,000,000 shares of preferred stock, par value $1.00 per share, in one or more series. There were no shares issued or outstanding as of December 31, 1994 and 1993. ================================================================================ PREFERRED SHARE PURCHASE RIGHTS. -------------------------------------------------------------------------------- In 1989, Seagull adopted a Share Purchase Rights Plan to protect the Company's shareholders from coercive or unfair takeover tactics. Under the Plan, each share of Common Stock outstanding or subsequently issued has attached to it one Right, exercisable at $32.75 (adjusted for Stock Split), subject to certain adjustments. Generally, in the event a person or group acquires 20% or more of the outstanding Common Stock other than pursuant to a cash tender offer for all shares of such Common Stock (provided that the tender offer increases the acquiring person's or group's ownership to at least 85% of the outstanding Common Stock), or in the event the Company is acquired in a merger or other business combination or 50% or more of the Company's consolidated assets or earning power is sold, each Right entitles the holder to purchase shares of Common Stock of the Company or of the acquiring company, having a value of twice the exercise price. The Rights, under certain circumstances, are redeemable at the option of Seagull's Board of Directors at a price of $0.01 per Right, within 10 days (subject to extension) following the day on which the acquiring person or group exceeds the 20% threshold. The Rights expire on March 22, 1999. ================================================================================ ENSTAR ALASKA STOCK PROPOSAL. -------------------------------------------------------------------------------- On June 1, 1994, shareholders approved an amendment to the Company's articles of incorporation (the "ENSTAR Alaska Stock Proposal") to create and issue a new class of common stock of the Company intended to reflect separately the performance of ENSTAR Alaska (the "ENSTAR Alaska Stock"). Subject to prevailing market and other conditions, the Company is authorized to proceed at any time with a public offering (the "ENSTAR Alaska Stock Offering") for cash of shares of ENSTAR Alaska Stock. The Company has not implemented the ENSTAR Alaska Stock Offering but continues to monitor market conditions. As part of the ENSTAR Alaska Stock Proposal, and following the issuance of the ENSTAR Alaska Stock, Seagull's currently outstanding Common Stock would reflect separately the performance of the Company's exploration and production and pipeline and marketing segments. SEAGULL ENERGY CORPORATION 51 34 CONSOLIDATED FINANCIAL STATEMENTS Net proceeds from the ENSTAR Alaska Stock Offering would be used to repay amounts borrowed under the Revolver, none of which is attributable to ENSTAR Alaska. -------------------------------------------------------------------------------- 10. BENEFIT PLANS ================================================================================ STOCK OPTION PLANS. -------------------------------------------------------------------------------- The Company currently has six stock option plans: the 1981 Stock Option Plan; the 1983 Stock Option Plan; the 1986 Stock Option Plan; the 1990 Stock Option Plan; the 1993 Stock Option Plan and the 1993 Nonemployee Directors' Stock Option Plan. Twenty percent of (i) all options granted through December 31, 1992, (ii) 100,000 options granted in May 1993, and (iii) all options granted under the 1993 Nonemployee Directors' Stock Option Plan become exercisable on a cumulative basis in each of the first five years and expire 10 years after the date of grant. Forty percent of all other options granted after 1992 become exercisable after three years and twenty percent become exercisable on a cumulative basis in each of the next three years, and the options expire 10 years after the date of grant. The options are granted at the quoted market value of Seagull's Common Stock on the New York Stock Exchange on the date of grant. Accordingly, no compensation expense is recognized in the Company's results of operations relating to these options. Information relating to stock options is summarized as follows (adjusted for Stock Split):
------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 OPTION Option Option PRICE Price Price SHARES PER SHARE Shares Per Share Shares Per Share ------------------------------------------------------------------------------------------------------------------- Balance outstanding - Beginning of year . . . . . . . . 2,159,892 1,862,872 1,366,736 Granted . . . . . . . . . . . 628,500 $ 25.50 615,000 $26.38 711,000 $ 11.94 Exercised . . . . . . . . . . (55,388) $ 6.31 - (304,952) $ 6.31 - (100,664) $ 3.25 - $ 14.88 $ 14.88 $ 14.88 Canceled . . . . . . . . . . . (40,500) (13,028) (114,200) ------------------------------------------------------------------------------------------------------------------- Balance outstanding - End of year . . . 2,692,504 $ 6.31 - 2,159,892 $ 6.31 - 1,862,872 $ 6.31 - $ 26.38 $ 26.38 $ 14.88 ------------------------------------------------------------------------------------------------------------------- Options exercisable - End of year . . . 1,003,970 763,892 764,736 ------------------------------------------------------------------------------------------------------------------- Options available for grant - End of year . . . . . . . . . . . 842,060 1,430,060 242,104 ===================================================================================================================
SEAGULL ENERGY CORPORATION 52 35 CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ DEFINED BENEFIT PLANS. -------------------------------------------------------------------------------- The Company has an unfunded retirement plan which provides for supplemental benefits to certain officers and key employees. As of December 31, 1994, only one person was designated to participate in such plan. Total expenses of the plan were approximately $0.3 million for 1994 and $0.2 million for both 1993 and 1992. The retirement plan's costs are included in general and administrative expenses. ENSTAR Alaska has two defined benefit retirement plans which cover salaried employees (the "Salaried Retirement Plan") and operating employees (the "Operating Unit Plan"). Clerical unit personnel, which constitute approximately 25% of total ENSTAR Alaska personnel, are not covered under a retirement plan. Determination of benefits for the salaried employees is based upon a combination of years of service and final monthly compensation. Benefits for operating employees are based solely on years of service. ENSTAR Alaska's policy is to fund the minimum contributions required by applicable regulations. The net pension costs are included in operations and maintenance expenses. The following table sets forth the ENSTAR Alaska plans' funded status and the amounts recognized in the consolidated financial statements at December 31, 1994 and 1993:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- 1994 1993 SALARIED OPERATING Salaried Operating EMPLOYEES EMPLOYEES Employees Employees ------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . . . . . . . . $ (4,517) $ (2,405) $ (4,756) $ (2,753) =================================================================================================================== Accumulated benefit obligation . . . . . . . . . . . . . $ (4,582) $ (2,416) $ (4,866) $ (2,773) =================================================================================================================== Projected benefit obligation for services rendered to date . $ (5,415) $ (2,416) $ (5,921) $ (2,773) Plan assets at fair value, primarily listed stocks and corporate and U. S. bonds . . . . . . . . . . 3,818 2,513 4,094 2,790 ------------------------------------------------------------------------------------------------------------------- Plan assets at fair value in excess of (less than) projected benefit obligation . . . . . . . . . . . . . . (1,597) 97 (1,827) 17 Unrecognized prior service cost . . . . . . . . . . . . . . . 96 17 90 19 Unrecognized net loss . . . . . . . . . . . . . . . . . . . . 121 432 417 632 Unrecognized net obligation (asset) arising out of the initial application of SFAS No. 87, amortized over 15 years (salaried) and 18 years (operating) . . . . . . . . 655 (92) 748 (101) Additional minimum liability . . . . . . . . . . . . . . . . (38) - (200) - ------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) pension cost . . . . . . . . . . . . . . . $ (763) $ 454 $ (772) $ 567 =================================================================================================================== Net pension cost includes the following components: Service cost - benefits earned during the period . . . . $ 226 $ 111 $ 232 $ 110 Interest cost on projected benefit obligation . . . . . . 440 206 413 190 Actual return on plan assets . . . . . . . . . . . . . . 331 198 (333) (224) Net amortization and deferral . . . . . . . . . . . . . . (559) (402) 147 40 ------------------------------------------------------------------------------------------------------------------- Net periodic pension cost . . . . . . . . . . . . . . . . . . $ 438 $ 113 $ 459 $ 116 ===================================================================================================================
SEAGULL ENERGY CORPORATION 53 36 CONSOLIDATED FINANCIAL STATEMENTS The assumed weighted average discount rate for both ENSTAR Alaska plans was 8.5% and 7.25% for 1994 and 1993, respectively, and the rate of increase in future compensation for the Salaried Retirement Plan used in determining the projected benefit obligation was 5% for 1994 and 1993. The expected long-term rate of return on plan assets for both ENSTAR Alaska plans was 8% for both 1994 and 1993. ================================================================================ PROFIT SHARING PLANS. -------------------------------------------------------------------------------- ENSTAR Alaska has trusteed profit sharing plans for salaried employees and union employees. Annual contributions for each plan are determined by the Company's Board of Directors pursuant to formulae which contain minimum contribution requirements. Profit sharing expense was approximately $0.3 million for each of the years 1994, 1993 and 1992, and is included in operations and maintenance expenses. ================================================================================ THRIFT PLANS. -------------------------------------------------------------------------------- The Seagull Thrift Plan and the ENSTAR Natural Gas Company Thrift Plan are qualified employee savings plans in accordance with the provisions of Section 401(k) of the Internal Revenue Code of 1986, as amended. Seagull Canada's Retirement Plan and Capital Accumulation Plan are qualified employee savings plans in accordance with the provisions of the Income Tax Act of Canada. Company contributions to these four plans (collectively, the "Thrift Plans") were approximately $1.8 million, $1.3 million and $0.9 million for the years 1994, 1993 and 1992, respectively. The Thrift Plans' costs are included in operations and maintenance expenses and general and administrative expenses. ================================================================================ EMPLOYEE STOCK OWNERSHIP PLAN. -------------------------------------------------------------------------------- On November 15, 1989, the Company formed the Seagull Employee Stock Ownership Plan (the "ESOP") for the benefit of the non-Alaskan employees of the Company. The ESOP borrowed from the Company $7.7 million at an interest rate of 10 percent per annum to be repaid in twelve equal annual installments of principal and interest. The ESOP used the borrowed funds and the 1989 contributions from the Company to purchase 948,150 shares (adjusted for Stock Split) of Common Stock at $8.438 per share (adjusted for Stock Split) from Seagull's treasury. The purchase price was based upon the closing price of the Common Stock on the New York Stock Exchange on the date the ESOP was formed. The promissory note has been and will be funded entirely by contributions from Seagull. Company contributions of approximately $0.5 million in 1994 and 1993 and $0.4 million in 1992 are included in operations and maintenance expenses and general and administrative expenses. ================================================================================ POSTRETIREMENT MEDICAL PLAN. -------------------------------------------------------------------------------- ENSTAR Alaska has a postretirement medical plan which covers all of its salaried employees. Determination of benefits is based upon the combined age of the retiree and years of service at retirement. Prior to January 1, 1992, ENSTAR Alaska accounted for these obligations on a pay-as-you-go basis. Effective January 1, 1992, the Company adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. This SFAS changes the accounting treatment for such benefits from a "pay-as-you-go" basis to a method where the expected costs for these benefits are accrued during the years the plan participants render service. Seagull recognized the cumulative effect of this change in accounting principle in the line item entitled "Cumulative Effect of Changes in Accounting Principles" in the accompanying consolidated statement of earnings for the year ended December 31, 1992. Accordingly, periods prior to January 1, 1992 were not restated to reflect this change. The cumulative effect of this accounting change as of January 1, 1992, resulted in a reduction in earnings of $0.7 million (after income taxes of $0.4 million), or $0.03 per share. The effect of this change on earnings before the cumulative effect for the year ended December 31, 1992 was not material. Expenses related to the postretirement medical plan of $0.2 million for each of the years ended December 31, 1994 and 1993 and $0.1 million for 1992 are included in operations and maintenance expenses. SEAGULL ENERGY CORPORATION 54 37 CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 11. INTEREST INCOME AND OTHER Interest income and other includes the following:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 425 $ 454 $ 413 ENSTAR Alaska Stock Proposal costs . . . . . . . . . . . . . . . . . . . . (2,031) - - Seismic Litigation Settlement . . . . . . . . . . . . . . . . . . . . . . . - - 4,606 Gain on sales of property, plant and equipment, net . . . . . . . . . . . . 413 3,929 177 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,860 1,325 (491) ------------------------------------------------------------------------------------------------------------------- $ 667 $ 5,708 $ 4,705 ===================================================================================================================
================================================================================ ENSTAR ALASKA STOCK PROPOSAL COSTS. -------------------------------------------------------------------------------- This represents transaction costs related to the ENSTAR Alaska Stock Proposal (See Note 9). ================================================================================ SEISMIC LITIGATION SETTLEMENT. -------------------------------------------------------------------------------- The Seismic Litigation Settlement resulted from a claim made by the Company that certain of the seismic data acquired by it in connection with its 1988 acquisition of Houston Oil & Minerals Corporation was actually delivered to other purchasers. In accordance with the settlement agreement, Seagull received a cash payment in July 1992 of $2.6 million and will receive up to $5 million in pipeline business accommodations through December 31, 1995. If less than $3 million of business accommodations are realized, the Company will receive a cash payment in early 1996 equal to the difference between $3 million and the sum of the business accommodations realized. The $4.6 million in 1992 income includes the $2.6 million cash payment plus the present value of the $3 million guaranteed minimum payment for business accommodations less certain expenses. ================================================================================ GAIN ON SALES OF PROPERTY, PLANT AND EQUIPMENT, NET. -------------------------------------------------------------------------------- In 1993, a pre-tax gain of approximately $3.8 million resulted from the sales of non-strategic gas and oil producing properties. Net proceeds from the sales totaled approximately $13.0 million, resulting in an after-tax gain of $2.8 million, or $0.08 per share. The parcels sold had proven reserves estimated at approximately 19 Bcf of natural gas equivalents. SEAGULL ENERGY CORPORATION 55 38 CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 12. INCOME TAXES Total income tax expense (benefit) for the years ended December 31, 1994, 1993 and 1992 was allocated as follows:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Income tax expense (benefit) before cumulative effect of changes in accounting principles . . . . . . . . . . . . . . . . . . . . $ (2,314) $ 6,080 $ 2,500 Adjustments for certain changes in accounting principles . . . . . . . . . - - (3,473) Additional paid-in capital for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes . . . . . (160) (1,966) (214) ------------------------------------------------------------------------------------------------------------------- $ (2,474) $ 4,114 $ (1,187) ===================================================================================================================
The income tax expense (benefit) for each of the years ended December 31, 1994, 1993 and 1992 was as follows:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,651 $ 3,667 $ 131 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399 - - State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,325 1,363 64 ------------------------------------------------------------------------------------------------------------------- Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,375 5,030 195 ------------------------------------------------------------------------------------------------------------------- Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,655) 1,128 (212) Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,256 - - State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (290) (78) 2,517 ------------------------------------------------------------------------------------------------------------------- Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,689) 1,050 2,305 ------------------------------------------------------------------------------------------------------------------- Income tax expense (benefit) before cumulative effect of changes in accounting principles . . . . . . . . . . . . . . . . . . . . $ (2,314) $ 6,080 $ 2,500 ===================================================================================================================
SEAGULL ENERGY CORPORATION 56 39 CONSOLIDATED FINANCIAL STATEMENTS The Company adopted SFAS No. 109, Accounting for Income Taxes, effective January 1, 1992. Seagull recognized the cumulative effect of this change in accounting principle in the line item entitled "Cumulative Effect of Changes in Accounting Principles" in the accompanying consolidated statement of earnings for the year ended December 31, 1992. Accordingly, periods prior to January 1, 1992 were not restated to reflect this change. The cumulative effect of this accounting change as of January 1, 1992 resulted in an increase in earnings of approximately $3.0 million, or $0.12 per share. The effect of this change on earnings before income taxes for the year ended December 31, 1992 was not material. The provision for income taxes before cumulative effect of changes in accounting principles for each of the years ended December 31, 1994, 1993 and 1992 was different than the amount computed using the federal statutory rate (35% for 1994 and 1993, 34% for 1992) for the following reasons:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Amount computed using the statutory rate . . . . . . . . . . . . . . . . . $ 326 $ 11,647 $ 2,351 Increase (Reduction) in taxes resulting from: Utilization of Internal Revenue Code Section 29 Credits . . . . . . . . (5,534) (4,773) - State income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . 673 835 1,703 Deferred tax asset valuation allowance . . . . . . . . . . . . . . . . (380) (859) 1,119 Foreign tax effect - Canada . . . . . . . . . . . . . . . . . . . . . . 2,961 - - Adjustments to beginning-of-the-year tax bases per the 1992 and 1991 tax returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (657) (1,828) Increase in the beginning-of-the-year balance of the deferred tax liabilities due to the increase in the corporate federal income tax rate - 960 - Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (360) (1,073) (845) ------------------------------------------------------------------------------------------------------------------- Income tax expense (benefit) before cumulative effect of changes in accounting principles . . . . . . . . . . . . . . . . . . . $ (2,314) $ 6,080 $ 2,500 ===================================================================================================================
The significant components of deferred income tax expense (benefit) attributable to income from continuing operations for the years ended December 31, 1994, 1993 and 1992 are as follows:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Deferred tax expense (benefit) (exclusive of the effects of other components listed below) . . . . . . . . . . . . . . . . . . . . . . . . $ (5,309) $ 949 $ 1,186 Increase (Decrease) in deferred tax asset valuation allowance . . . . . . . (380) (859) 1,119 Increase in the beginning-of-the-year balance of the deferred tax liabilities due to the increase in the corporate federal income tax rate - 960 - ------------------------------------------------------------------------------------------------------------------- $ (5,689) $ 1,050 $ 2,305 ===================================================================================================================
SEAGULL ENERGY CORPORATION 57 40 CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences that gave rise to significant portions of the deferred tax liabilities and deferred tax assets as of December 31, 1994, 1993 and 1992 were as follows:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Property, plant and equipment, due to differences in depreciation, depletion and amortization . . . . . . . $ 63,303 $ 45,296 $ 38,619 Investments in partnership, due to difference in depreciation . . . . . 564 606 1,307 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513 509 546 ------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 64,380 46,411 40,472 ------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Minimum tax credit carryforwards . . . . . . . . . . . . . . . . . . . . (14,367) (12,221) (9,065) Investment tax credit carryforwards . . . . . . . . . . . . . . . . . . (2,274) (2,771) (3,334) Deferred compensation/retirement related items accrued for financial reporting purposes . . . . . . . . . . . (3,965) (3,269) (2,263) Contingent consideration related to acquisitions/dispositions . . . . . (1,052) (604) (1,975) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,690) (3,134) (1,332) ------------------------------------------------------------------------------------------------------------------- Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,348) (21,999) (17,969) Less - valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . 1,563 1,943 2,802 ------------------------------------------------------------------------------------------------------------------- Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . (21,785) (20,056) (15,167) ------------------------------------------------------------------------------------------------------------------- Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . $ 42,595 $ 26,355 $ 25,305 ===================================================================================================================
For federal income tax purposes, as of December 31, 1994, the Company has unused investment tax credits of approximately $2.3 million which will expire in the years 1999 and 2000, and unused minimum tax credits of approximately $14.4 million which are available over an indefinite period. SEAGULL ENERGY CORPORATION 58 41 CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 13. BUSINESS SEGMENTS Information on the Company's operations by business segment is as follows for the year ended December 31:
(Dollars in Thousands) ------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- REVENUES: Exploration and production . . . . . . . . . . . . . . . . . . . . . $ 262,543 $ 227,437 $ 91,991 Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . . 39,963 42,484 37,240 Alaska transmission and distribution . . . . . . . . . . . . . . . . 105,598 107,244 109,598 ------------------------------------------------------------------------------------------------------------------- $ 408,104 $ 377,165 $ 238,829 =================================================================================================================== OPERATING PROFIT (LOSS): Exploration and production . . . . . . . . . . . . . . . . . . . . . $ 28,266 $ 42,969 $ (1,613) Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . . 11,936 14,065 9,057 Alaska transmission and distribution . . . . . . . . . . . . . . . . 21,865 18,955 22,439 ------------------------------------------------------------------------------------------------------------------- 62,067 75,989 29,883 ------------------------------------------------------------------------------------------------------------------- General and administrative expense . . . . . . . . . . . . . . . . . (10,252) (11,666) (10,099) Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . (51,550) (36,753) (17,574) Interest income and other . . . . . . . . . . . . . . . . . . . . . 667 5,708 4,705 ------------------------------------------------------------------------------------------------------------------- Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . $ 932 $ 33,278 $ 6,915 =================================================================================================================== OPERATIONS AND MAINTENANCE EXPENSE: Exploration and production . . . . . . . . . . . . . . . . . . . . . $ 75,342 $ 63,651 $ 30,844 Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . . 23,129 22,926 24,991 Alaska transmission and distribution . . . . . . . . . . . . . . . . 21,516 20,880 19,976 ------------------------------------------------------------------------------------------------------------------- $ 119,987 $ 107,457 $ 75,811 =================================================================================================================== DEPRECIATION, DEPLETION AND AMORTIZATION: Exploration and production . . . . . . . . . . . . . . . . . . . . . $ 132,047 $ 103,552 $ 52,855 Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . . 4,898 5,493 3,192 Alaska transmission and distribution . . . . . . . . . . . . . . . . 7,752 7,511 7,184 ------------------------------------------------------------------------------------------------------------------- $ 144,697 $ 116,556 $ 63,231 =================================================================================================================== IDENTIFIABLE ASSETS: Exploration and production(*) . . . . . . . . . . . . . . . . . . . $ 1,001,263 $ 816,812 $ 831,222 Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . . 72,377 70,675 65,378 Alaska transmission and distribution . . . . . . . . . . . . . . . . 190,087 185,701 186,519 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,823 45,063 19,845 ------------------------------------------------------------------------------------------------------------------- $ 1,299,550 $ 1,118,251 $ 1,102,964 =================================================================================================================== CAPITAL EXPENDITURES: Exploration and production . . . . . . . . . . . . . . . . . . . . . $ 136,090 $ 97,818 $ 32,115 Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . . 2,026 2,115 1,622 Alaska transmission and distribution . . . . . . . . . . . . . . . . 7,626 10,094 9,024 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,510 2,015 890 ------------------------------------------------------------------------------------------------------------------- $ 150,252 $ 112,042 $ 43,651 =================================================================================================================== ACQUISITIONS, NET OF CASH ACQUIRED: Exploration and production . . . . . . . . . . . . . . . . . . . . . $ 193,859 $ 29,470 $ 391,531 Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . . - - 10,357 ------------------------------------------------------------------------------------------------------------------- $ 193,859 $ 29,470 $ 401,888 ===================================================================================================================
(*) Includes identifiable assets related to Canadian operations of $224,655 at December 31, 1994. SEAGULL ENERGY CORPORATION 59 42 CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 14. SELECTED QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data is as follows:
(Dollars in Thousands Except Per Share Amounts) ------------------------------------------------------------------------------------------------------------------- Earnings (Loss) Revenues Operating Profit Net Earnings (Loss) Per Share(1) 1994 1993 1994 1993 1994 1993 1994 1993 ------------------------------------------------------------------------------------------------------------------- March 31, . . . . . . . $ 127,063 $ 103,192 $ 34,829 $ 19,421 $ 12,915 $ 3,853 $ 0.35 $ 0.12 June 30, . . . . . . . 99,559 86,973 17,246 15,201 2,581 3,624 0.07 0.10 September 30, . . . . . 81,044 81,790 3,418 17,077 (6,291) 7,273(2) (0.17) 0.20(2) December 31, . . . . . 100,438 105,210 6,574 24,290 (5,959) 12,448 (0.16) 0.34 ------------------------------------------------------------------------------------------------------------------- Total . . . . . . . . . $ 408,104 $ 377,165 $ 62,067 $ 75,989 $ 3,246 $ 27,198 $ 0.09 $ 0.76 ===================================================================================================================
(1) Adjusted for the Stock Split effected June 4, 1993. (See Note 1). (2) Includes an after-tax gain in the third quarter of 1993 of approximately $2.7 million, or $0.08 per share, relating to sales of non-strategic gas and oil producing properties. (See Note 11). -------------------------------------------------------------------------------- 15. COMMITMENTS AND CONTINGENCIES ================================================================================ LEASE COMMITMENTS. -------------------------------------------------------------------------------- The Company leases certain office space and equipment under operating lease arrangements which contain renewal options and escalation clauses. Future minimum rental payments under these leases range between $1.6 million and $2.6 million in each of the years 1995-1999, and total $8.7 million for all subsequent years. Total rental expense under operating leases for 1994, 1993 and 1992 was approximately $2.8 million, $2.5 million and $2.0 million, respectively. ================================================================================ CONCENTRATIONS OF CREDIT RISK. -------------------------------------------------------------------------------- The Company operates in all phases of the natural gas industry with sales to resellers such as pipeline companies and local distribution companies as well as to end-users such as commercial businesses, industrial concerns and residential consumers. While certain of these customers are affected by periodic downturns in the economy in general or in their specific segment of the natural gas industry, the Company believes that its level of credit-related losses due to such economic fluctuations has been immaterial and will continue to be immaterial to the Company's results of operations in the long term. ================================================================================ LITIGATION. -------------------------------------------------------------------------------- The Company is a party to ongoing litigation in the normal course of business or other litigation with respect to which the Company is indemnified pursuant to various purchase agreements or other contractual arrangements. Management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. While the outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management believes that the effect on its financial condition or results of operations, if any, will not be material. SEAGULL ENERGY CORPORATION 60 43 CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- REPORT OF MANAGEMENT TO SHAREHOLDERS The management of Seagull Energy Corporation is responsible for the preparation and integrity of financial statements and related data in this Annual Report, whether audited or unaudited. The financial statements were prepared in conformity with generally accepted accounting principles and are not misstated due to material fraud or error. The financial statements include certain estimates and judgments which management believes are reasonable under the circumstances. The other information in the Annual Report is consistent with that in the financial statements. Management is responsible for and maintains a system of internal accounting controls that is functioning as intended as of the end of the fiscal year. Management believes the system of internal controls is sufficient to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and that financial records are reliable for preparing financial statements, as well as to prevent and detect fraudulent financial reporting. The internal control system is supported by written policies and procedures and the employment of trained, qualified personnel. The Company has an internal auditing staff which reviews the adequacy of the internal accounting controls and compliance with them. Management has considered the recommendations of the internal auditing staff and KPMG Peat Marwick LLP concerning the Company's system of internal controls and has responded appropriately to those recommendations. The accompanying consolidated financial statements of Seagull Energy Corporation and Subsidiaries as of December 31, 1994 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Their audits were made in accordance with generally accepted auditing standards and included a review of the system of internal controls to the extent considered necessary to determine the audit procedures required to support their opinion on the consolidated financial statements. The Auditors' Report appears on page 62. The Board of Directors, through its Audit Committee composed exclusively of outside directors, meets periodically with representatives of management, the internal auditing staff and the independent auditors to ensure the existence of effective internal accounting controls and to ensure that financial information is reported accurately and timely with all appropriate disclosures included. The independent auditors and the internal auditing staff have full and free access to, and meet with, the Audit Committee, with and without management present. s/Barry J. Galt Chairman, President and Chief Executive Officer s/Robert W. Shower Executive Vice President and Chief Financial Officer s/Rodney W. Bridges Vice President and Controller SEAGULL ENERGY CORPORATION 61 44 CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Seagull Energy Corporation: We have audited the accompanying consolidated balance sheets of Seagull Energy Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seagull Energy Corporation and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 10 and 12 to the consolidated financial statements, respectively, the Company adopted the provisions of the Financial Accounting Standards Board Statements of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, and No. 109, Accounting for Income Taxes, in 1992. /s/ KPMG Peat Marwick LLP Houston, Texas January 27, 1995 SEAGULL ENERGY CORPORATION 62