Financing Arrangements and Debt

9 Months Ended

Sep. 30, 2016

Financing Arrangements and Debt [Abstract]

Financing Arrangements and Debt

Note D – Financing Arrangements and Debt

In August 2016 the Company reduced its existing $2.0 billion unsecured revolving credit facility (“2011 facility”) to $630 million and entered into a separate $1.2 billion senior unsecured guaranteed credit facility (“2016 facility”) with a major banking consortium that expires in August 2019.  Facility fees of 0.5% are charged annually on the full $1.2 billion commitment.  The Company incurred transaction costs of approximately $14.0 million to place the 2016 facility which are included in financing activities in the Consolidated Statement of Cash Flows.  At September 30, 2016, the Company had nooutstanding borrowings under either credit facility, however, there was approximately $88 million of issued letters of credit under the 2016 facility.  The 2016 facility is unsecured, with guarantees from certain domestic and foreign subsidiaries.  Should the Company make substantial asset sales, the facility size would be automatically reduced to a minimum of $1.0 billion.  Borrowings under the 2016 facility are subject to varying interest rates ranging from LIBOR plus 250 basis points to LIBOR plus 450 basis points.  The terms of the 2016 facility include covenants that impose certain restrictions on the Company.  These financial covenants include a minimum adjusted EBITDAX of 2.5 times consolidated interest expense, consolidated debt not to exceed 3.75 times adjusted EBITDAX and minimum liquidity from U.S. and Canadian entities equal to or greater than $500 million.  Also beginning March 31, 2017, if the Company’s total leverage ratio exceeds 3.25 times the Company’s trailing twelve month consolidated adjusted EBITDAX, as defined in the 2016 facility, the facility will become secured, subject to limitations set forth in the Company’s existing notes.  The existing unsecured 2011 facility, which expires in June 2017, includes a financial covenant under which the Company may not have total debt in excess of 60% of its total capital employed (debt borrowed plus stockholders’ equity).  As of September 30, 2016, the Company was in compliance with all financial covenants contained in both credit facilities.  The Company also has a shelf registration statement on file with the U.S. Securities and Exchange Commission that permits the offer and sale of debt and/or equity securities through October 2018.

In August 2016, the Company sold $550 million of new notes that bear interest at the rate of 6.875% and mature on August 15, 2024.  The new notes pay interest semi-annually on February 15 and August 15 of each year.  The initial interest payment is to be made on February 15, 2017.  The proceeds of the $550 million notes were used for general corporate purposes.

The Company and its partners are parties to a 25-year lease of production equipment at the Kakap field offshore Malaysia.  The lease has been accounted for as a capital lease, and payments under the agreement are to be made over a 15-year period through September 2028.  Current maturities and long-term debt on the Consolidated Balance Sheet included $20.4 million and $202.7 million, respectively, associated with this lease at September 30, 2016.