-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EhYApBG34Ddy25XKDbVQX/c45MqGouympxTYsOOrRILOKS8/pnwF8KBVb5O5wIFw minDP1qH7gaFbCeFXBoP0w== 0000860713-98-000001.txt : 19980309 0000860713-98-000001.hdr.sgml : 19980309 ACCESSION NUMBER: 0000860713-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980306 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SNYDER OIL CORP CENTRAL INDEX KEY: 0000860713 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752306158 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10509 FILM NUMBER: 98558588 BUSINESS ADDRESS: STREET 1: 777 MAIN ST STE 2500 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173384043 MAIL ADDRESS: STREET 1: 777 MAIN STREET SUITE 2500 CITY: FORT WORTH STATE: TX ZIP: 76102 10-K 1 SNYDER OIL CORPORATION FORM 10-K ================================================================================ 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 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transaction period from ________ to ________ Commission file number 1-10509 ----------------------- Snyder Oil Corporation (Exact name of registrant as specified in its charter) Delaware 75-2306158 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 777 Main Street 76102 Fort Worth, Texas (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (817) 338-4043 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------------------- ------------------------------- Common Stock New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of class) 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 days. Yes X No ---- ---- Indicate by check mark if disclosure 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. [ ] Aggregate market value of the common stock held by non-affiliates of the registrant as of February 27, 1998.................................$571,824,508 Number of shares of common stock outstanding as of February 27, 1998..33,392,696 DOCUMENTS INCORPORATED BY REFERENCE Part III of this Report is incorporated by reference to the Registrant's definitive Proxy Statement relating to its Annual Meeting of Stockholders, which will be filed with the Commission no later than April 30, 1998. ================================================================================ SNYDER OIL CORPORATION Annual Report on Form 10-K December 31, 1997 PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES General Snyder Oil Corporation (the "Company") is an independent energy company engaged in the production, development, acquisition and exploration of domestic oil and gas properties, primarily in the Gulf of Mexico, the Rocky Mountains and northern Louisiana. During 1997, the Company's revenues were $255.7 million and cash flow provided by operations was $122.0 million. At December 31, 1997, the Company's proved reserves totaled 77.3 million barrels of oil equivalent ("BOE"), having a pretax present value, discounted at 10% based on constant prices and costs ("Pretax PW 10% Value") of $375.3 million. Approximately 78% of these reserves are natural gas. During 1997, the Company undertook efforts to simplify its corporate structure. The simplification and repositioning resulted in the bulk of the Company's asset value being concentrated in properties the Company owns and operates directly. Three primary initiatives were completed in 1997 towards reaching this goal. Patina Oil & Gas Corporation. In October 1997, the Company sold its entire 74% stake, or 14 million shares of the common stock, of Patina Oil & Gas Corporation ("Patina"). The Company sold 10.9 million shares of Patina stock in a secondary offering, with the remainder repurchased by Patina. This transaction generated $127 million in cash while removing approximately $170 million of Patina debt from the Company's consolidated balance sheet. SOCO International, Inc. In May 1997, SOCO International, Inc. ("SOCO International") transferred its 90% interest in SOCO International Operations, Inc. ("Operations"), which held the Company's investments in Mongolia, Russia and Thailand, to SOCO International plc ("SOCI plc"), a recently formed United Kingdom company, in exchange for shares of SOCI plc stock. SOCI plc also acquired the interests of a number of minority investors in Operations' ventures and assets in Yemen, Tunisia and onshore England from Cairn Energy plc ("Cairn"). At the time of the acquisitions, SOCI plc, which is listed on the London Stock Exchange, completed a public offering of its common shares that raised approximately $75 million of new equity capital to fund its continuing exploration and development expenditures. The 7.8 million shares of SOCI plc acquired by the Company represent approximately 15.9% of SOCI plc and had a market value of $45.1 million at February 27, 1998. Under London Stock Exchange rules, the Company will not be permitted to sell these shares prior to May 1999. Edward T. Story, a director and former Vice President - International of the Company, is the chief executive officer of SOCI plc. Capital Structure. The Company completed a series of transactions in 1997 to simplify its capital structure and eliminate the potential dilution to common shareholders. At January 1, 1997, the Company had 42.0 million common shares on a fully diluted basis. By December 31, 1997, the Company had 33.3 million common shares outstanding with no convertible securities outstanding. These transactions consisted of the following: * In first quarter 1997, the Company sold 4.5 million shares, or 28% of its holdings in Cairn. Net proceeds from the sales were $39.2 million resulting in a $13.0 million gain. The Company continues to hold 11.7 million shares of Cairn with a market value of $80.1 million at February 27, 1998. The Company may maintain its investment, sell all or part of it, either in one transaction or gradually, or pursue other courses of action. Any decision, when made, will be made in light of strategic, financial and other factors deemed appropriate by management. * The Company redeployed the cash from the Cairn transactions into its securities repurchase program, underscoring management's belief that the Company's common stock has been undervalued in the market. During the year, the Company repurchased 2.6 million common shares for $45.6 million or an average of $17.24 per share. * In June 1997, the Company issued $175 million of 8.75% senior subordinated notes due 2007. Following the issuance, the Company redeemed its convertible subordinated notes due 2001. The notes were redeemed for a price of 103.51% of principal plus accrued interest. These transactions extended the maturity of the indebtedness by six years and eliminated the potential issuance of 3.6 million shares of common stock on conversion of the old notes. * In October 1997, the Company issued 300,000 shares of its common stock in exchange for warrants held by Union Pacific Resources to purchase 2.1 million of the Company's common shares. * In the fourth quarter 1997, the Company called all of the depositary shares representing interests in the Company's $6.00 Convertible Exchangeable Preferred Stock. The calls resulted in the Company converting a portion of the preferred shares into approximately 3.6 million shares of common stock. The Company redeemed the remaining preferred shares for $30.1 million in cash. The calls of the preferred shares eliminated 1.4 million common shares of potential dilution and over $6 million a year in dividend payments. As a result of the capital restructuring, all of the Company's growth potential will benefit its common shareholders. Redeployment of the cash and marketable securities held by the Company into an acquisition or series of acquisitions is a strategic objective of the Company. Operations The Company's operations are focused on three core areas, each with the potential to contribute significantly to future growth: * Offshore. The Company had proved reserves in the Gulf of Mexico of 19.3 million BOE with a Pretax PW 10% Value of $170.5 million at December 31, 1997. These reserves are concentrated in the Pabst, Busch and Ingrid Fields of the Main Pass area offshore Louisiana and Alabama. Through the end of 1997, production from the Pabst and Busch Fields had often been restricted to 100 MMcf (42 MMcf net) of gas per day but increased to more than 150 MMcf (63 MMcf net) per day following the expansion of pipeline capacity serving these fields in January 1998. The Company intends to complete installation of a platform and production facilities with total initial capacity of 150 MMcf per day on its 50%-owned Ingrid Field, with production commencing by April 1998. The Company plans to expand its activities in the Gulf of Mexico significantly and has budgeted up to $50 million for development and exploration in this area in 1998. * North Louisiana. The Company owns over 330,000 net mineral acres, with leases and lease options covering more than 150,000 additional net acres, in North Louisiana. The Company has identified a number of exploration prospects as a result of two 3-D seismic surveys covering approximately 166 square miles. Two partners earned a one-third interest each in these prospects by paying all of the costs of these seismic surveys. Based on these surveys, the Company expects to begin drilling activities in North Louisiana in the first half of 1998. The Company expects its expenditures in North Louisiana to total approximately $15 million in 1998. * Rocky Mountains. The Company had proved reserves in Wyoming, western Colorado and Utah of 56.5 million BOE with a Pretax PW 10% Value of $193.3 million at December 31, 1997. These reserves are concentrated in gas development programs in the Washakie, Green River and Piceance Basins, and in two large, mature non-operated oil fields in northern Wyoming. The Company has also initiated gas projects in the Wind River and Big Horn Basins in Wyoming and an oil project in Utah. The Company formed a gas marketing joint venture with Coastal Corporation, one of the largest gas marketers in North America, effective January 1, 1997. The Company has budgeted up to $70 million for continued development and exploration in the western Rocky Mountains during 1998. 2 Summary information at December 31, 1997 regarding the Company's projects is set forth in the following table.
Proved Reserve Quantities Gross Net --------------------------------------- Pretax PW 10% Value Producing Undeveloped Crude Oil Natural Oil ------------------------- Wells Acres & Liquids Gas Equivalent Amount Percent --------- ----------- ---------- ------- ---------- ---------- ----------- (MBbl) (MMcf) (MBOE) (000) Offshore Main Pass Area 18 9,167 1,094 96,433 17,167 $ 161,783 43% Other 23 - 285 10,994 2,117 8,734 2 ------- --------- -------- --------- -------- ---------- ------ Total Offshore 41 9,167 1,379 107,427 19,284 170,517 45 North Louisiana 14(a) 346,773(b) 57 2,041 397 3,313 1 Other 86 1,533 104 6,099 1,120 8,177 2 -------- --------- -------- --------- -------- ---------- ------ Southern Region 141 357,473 1,540 115,567 20,801 182,007 48 -------- --------- -------- --------- -------- ---------- ------ Washakie (WY) 174 75,174 1,341 139,307 24,559 95,766 26 Piceance (CO) 87 42,641 150 33,669 5,761 21,597 6 Deep Green River (WY) 30 41,555 373 48,661 8,483 32,619 9 Wind River (WY) 26 38,626 447 20,999 3,947 13,726 4 Big Horn (WY) - 77,955 - - - - - Northern Wyoming 902 - 12,313 566 12,407 24,655 6 Uinta (UT) 126 71,244 596 4,399 1,330 4,904 1 -------- --------- -------- --------- -------- ---------- ------ Rocky Mountain Region 1,345 347,195 15,220 247,601 56,487 193,267 52 -------- --------- -------- --------- -------- ---------- ------ Total Company 1,486 704,668 16,760 363,168 77,288 $ 375,274 100% ======== ========= ======== ========= ======== ========== ====== (a) Excludes royalty interests in 101 wells. (b) Excludes 130,000 net acres under option as of February 27, 1998.
Offshore - Gulf of Mexico The Company believes many areas in the Gulf of Mexico are under-exploited and, while having greater risks, the potential benefits and exposure to additional markets complement the Company's onshore activities. The Company began developing an asset base in the offshore Gulf of Mexico in 1994, and currently operates 10 platforms accounting for substantially all of the production from this core area. During 1997, the Company spudded 9 wells, a 28% increase over the 7 wells drilled in 1996. Since inception, the Company has recorded a 60% success ratio in its exploratory program (3 out of 5 wells) and a success ratio of 94% in its development program (17 out of 18 wells). At year end, total offshore proved reserves were 19.3 million BOE (1.4 million barrels of oil and 107.4 Bcf of gas), up from 17.4 million BOE (2.4 million barrels of oil and 90.0 Bcf of gas) at year end 1996. This represents approximately 25% of year end reserve quantities, but 45% of Pretax PW 10% Value. The Company has interests in 41 (17.5 net) wells, 38 (17.2 net) of which are operated, and 83,000 gross (47,000 net) acres. Production in 1997 was 3.9 million BOE compared to 1.6 million BOE in 1996. Fourth quarter 1997 production totaled 960 thousand BOE. In the fourth quarter of 1997, the Company made a major purchase of seismic data covering approximately 250 offshore blocks, or 2,250 square miles, in the Main Pass/Viosca Knoll area. The offshore staff of exploration professionals has doubled in the last six months to facilitate new exploration and exploitation of existing fields. The Gulf of Mexico will continue to be a major focus area for the Company. Estimated 1998 capital expenditures are expected to total $50 million, including $12 million to install or upgrade platforms and related facilities and to complete three development wells. The remainder is for the purchase of additional seismic data and to drill up to twelve exploratory wells. The Company will continue its acquisition efforts in the area and the evaluation of existing properties for additional exploratory or development potential. 3 Pabst/Busch Fields. The Pabst (Main Pass 259) and Busch (Main Pass 255) Fields are located in the Main Pass/Viosca Knoll area offshore Louisiana and Alabama. The Company continued development and exploration on and around the Pabst and Busch fields during 1997. Three development wells were drilled at the Busch field to the 7,900 foot Miocene sand bringing the total to six wells producing from this field. Two development wells were drilled from the Pabst platform and one recompletion and one workover were also conducted during the year. The 12 wells at the Pabst field produce from a series of Miocene zones ranging from 7,700 to 11,500 feet. The Company drilled a dry hole in Main Pass 248 during 1997 which is northwest of the Pabst platform. The Company had firm transportation on Viosca Knoll Gathering System for 100 MMcf per day gross (41 MMcf per day net) covering both platforms during 1997. The Pabst platform facilities are capable of production rates of 110 MMcf per day and the Busch platform facilities were capable of 60 MMcf per day before the upgrade in 1998. As of year end, the 12 wells producing from the Pabst platform had a combined gross well deliverability of 175 MMcf per day and the six wells producing from the Busch platform had a combined gross well deliverability of 120 MMcf per day. During 1997, the Company's production from the two platforms was limited by both the take away capacity and platform facilities constraints. During 1997, the Company generally produced the wells at Main Pass 259 in favor of the wells at Main Pass 255 due to the greater condensate yield at Main Pass 259, except when additional interruptible space was available on the Viosca Knoll system. Net production from the two fields averaged 56.2 MMcfe per day in 1997 compared to 19.7 MMcfe per day in 1996. The increase in net production was primarily the result of including prior year acquisitions of additional interests for the full year. The pipeline take away constraints were improved for existing deliverability when Viosca Knoll system looped its 20 inch line in December 1997. Effective January 1998, the Company's take away capacity increased to 175 MMcf per day gross (72 MMcf per day net) for the two platforms. In addition, the Main Pass 255 facilities were upgraded by the installation of compression increasing the platform production capabilities from 55 MMcf per day to 90 MMcf per day. At the end of 1997, proved reserves totaled 62.0 Bcf of gas and 297,000 barrels of oil or 10.6 million BOE, as compared to 52.1 Bcf of gas and 932,000 barrels of oil, or 9.6 million BOE at year end 1996. The Pretax PW 10% Value at December 31, 1997 was $109.4 million. This increase in reserves is primarily attributable to better than expected performance and extensions of the fields resulting from further development work. Two exploratory wells are scheduled to be drilled during 1998. Ingrid Field. The Ingrid Field (Main Pass 261) was discovered in 1996, with a second confirmation well also drilled in the same year. The Company has a 50% working interest and a 37% net revenue interest. Proved reserves from both wells were discovered in the Tex W sands series at approximately 11,000 to 13,000 feet. During 1997, the Company focused on the installation of a platform for production operations and arranging for transportation and marketing. The Main Pass 261 platform facilities are under construction with 150 MMcf per day capacity. The platform jacket was installed in August 1997 and the deck in February 1998. Tie in of the facilities is underway and production from the first two wells is expected to commence in April 1998. Initial transportation has been arranged on Viosca Knoll system at 75 MMcf per day gross to the Company's working interest (56 MMcf per day net) until a second pipeline is available in the second half of 1998. The new pipeline system will connect onshore Alabama directly to the Main Pass 261 platform. An extension of the line will then connect the Main Pass 261 platform to the Main Pass 259 platform at the Pabst field. The Company has firm transport in the new system to cover projected production volumes from the Main Pass area and will retain 60 MMcf per day gross of firm transport to the Company's working interest (41 MMcf per day net) on the Viosca Knoll system. In the fourth quarter of 1997, two additional wells were spudded and in progress at year end. Pipe was set on both wells and the Company expects to complete and further test the wells after initial production begins from the Ingrid platform. Two additional wells are planned for 1998 at Main Pass 261. Total proved reserves in the field for the Company's interest were 6.5 million BOE (34.4 Bcf of gas and 798,000 barrels of oil) at year end, with a Pretax PW 10% Value of $52 million. Other Gulf of Mexico. The Company has interests and operates in several other areas in the Gulf of Mexico, with working interests ranging from 14% to 100%. During 1998, the Company will continue to evaluate these blocks for 4 additional exploratory or development potential using 3-D seismic data. The Company plans to drill up to four exploratory wells to test these prospects during 1998 and 1999. The Company also intends to subsea complete the South Timbalier 231 #1 well and tie it back to an adjacent platform. Production is expected to begin in third quarter of 1998. North Louisiana The Company's focus in North Louisiana in 1998 is to drill and test several different reef settings that were identified with the 3-D seismic program. During 1996 and 1997, the Company and its partners conducted two 3-D seismic surveys covering 166 square miles in three acreage blocks out of the Company's over 560,000 acres controlled in the area. Merging and interpreting the two data sets was completed in 1997. The Company is preparing to drill four exploratory wells targeting different types of reef anomalies at depths between 15,000 and 17,000 feet. The first well is scheduled for second quarter 1998, and a second rig is expected to begin drilling shortly thereafter. These wells require approximately 90 to 100 days to drill and an additional 30 to 60 days to complete and test. Results from the first two wells are expected in late third or early fourth quarter 1998. If successful, the Company has mapped sufficient reef anomalies to support a multi-rig drilling program beginning in 1999. The Company retains a 33% working interest in the current prospects within the area of the seismic surveys and is the operator of drilling and production activities. The Company has over 6,000 miles of 2-D seismic data over its mineral holdings in North Louisiana and has mapped numerous reef anomalies as well as untested salt domes and associated drilling prospects in the Cotton Valley Sands, Hosston Sands and Cretaceous Limes. Additional 3-D surveys to extend the play are expected to commence late in 1998 pending drilling results. In addition, the Company retains the option to increase its working interest from 33% to 50% in subsequent 3-D surveys and associated prospects. Rocky Mountains The Company's Rocky Mountain Region continues to focus on several growth areas in the western Rockies. The Company increased its drilling activity in 1997 by 65%, drilling a total of 71 wells and positioning itself for continued future growth. The Company's core development projects are in the Washakie, Green River, and Piceance Basins. These projects continue as the main thrust of the Region's activity; however, drilling success in the Wind River and Big Horn Basins in 1997 and additional drilling in 1998 provides the potential for these areas to add significant future growth in production and reserves. Washakie Basin. Since the mid-1980's, the Company's properties in the Barrel Springs Unit, the Blue Gap Field and the North Standard Draw area of the Washakie Basin in southern Wyoming, together with its gas gathering and transportation facilities there, have been one of its most significant assets. During 1997, the Company continued to develop Mesaverde sands in the Washakie Basin near its existing properties. Nineteen wells were put on sales in 1997 at depths ranging from 8,000 to 11,500 feet. Five wells were in progress at year end. Net production of gas, which accounts for approximately 95% of the reserves, during the year averaged 29.5 MMcf per day, as compared to average 1996 production of 25.4 MMcf per day. Proved reserves at year end totaled 1.3 million barrels of oil and 139.3 Bcf of gas, or 24.6 million BOE, as compared to 1.1 million barrels and 133.1 Bcf, or 23.3 million BOE, at the end of 1996. This increase in reserves is primarily attributable to better than expected performance and extensions of the field. The Company expects to accelerate its activity in this area in 1998, with plans to drill 32 to 36 wells at net costs expected to range from $500,000 to $775,000 per well. Significant portions of this area are the subject of a currently pending environmental impact statement. Pending approval of the statement, which is not expected until 1999, drilling in the affected areas will be limited. The Company currently operates 146 wells in the Washakie Basin and holds hundreds of potential drilling locations, 40 of which were classified as proved undeveloped at year end 1997. The Company holds interests in approximately 95,000 gross (75,000 net) undeveloped acres in this area. Deep Green River. Through the year, the Company continued development of the fluvial Lance sands in the deep portion of the Green River Basin. The Company participated in 19 wells during 1997, with five wells in progress at year end. Year end proved reserves totaled 373,000 barrels of oil and 48.7 Bcf of gas, or 8.5 million BOE, as compared to 175,000 barrels of oil and 21.7 Bcf of gas, or 3.8 million BOE, at year end 1996. This increase in reserves is 5 primarily attributable to better than expected performance and extensions of the field. With 30 wells, 19 of which are operated by the Company, on sales at year end, net production averaged 1,733 BOE per day during 1997. This more than doubled 1996's average production of 829 BOE per day, despite the Company's sale of 50% of its interest in the project to an industry partner in July 1996. The Company holds interests in approximately 92,000 gross (42,000 net) undeveloped acres in this project. At the end of 1997, proved undeveloped reserves were assigned to 20 locations. The Company expects to participate in drilling 25 to 30 wells in 1998. Further expansion of drilling in this area is awaiting approval of an environmental impact statement, which if approved as expected in April 1998, will allow the Company to participate in drilling 30 to 40 wells per year after 1998. Piceance Basin. The Company operates the 53,000 acre Hunter Mesa Unit, the 9,000 acre Grass Mesa Unit and the 26,000 acre Divide Creek Unit in the southeast portion of the Piceance Basin. At year end, the Company owned approximately 97,000 gross (43,000 net) undeveloped acres in this area. During 1997, the Company participated in 23 new wells to develop and further delineate the fields. Twenty-two wells (including one in progress at the beginning of 1997) were put on sales, and two were in progress at year end. Net gas production averaged 8.8 MMcf per day in 1997. This is down slightly from 9.5 MMcf per day in 1996 reflecting the Company's sale of 45% of its interest in this project in May 1996. At year end 1997, there were 87 producing wells, 72 of which are operated by the Company. Proved reserves at year end were 33.7 Bcf of gas and 150,000 barrels of oil, or 5.8 million BOE, as compared with 32.2 Bcf and 118,000 barrels, or 5.5 million BOE, at year end 1996. Proved undeveloped reserves were assigned to 11 locations at year end 1997. During 1998, the Company plans to drill 30 to 33 wells to further develop the Company's acreage positions and evaluate the fields. The primary objective of drilling is the fluvial sands of the Mesaverde formation at depths of 4,500 to 8,500 feet. Wind River Basin. The Company owns the Riverton Dome field, a 33,000 acre option on Tribal lands north and east of the field, and a 64,000 acre primarily undeveloped lease block east of the option lands. The Company acquired a 3-D seismic survey over the option lands in 1997 and plans to acquire one over the Riverton Dome field and another on the option lands in 1998. The Company has a 50% working interest in the option lands and in the eastern lease block. In late 1997, a new Frontier well was completed on the Tribal block with initial production over 2,000 Mcf per day. The Company plans to drill four 50% owned Frontier wells in 1998. The Riverton Dome field produces approximately 5,000 Mcf per day from the Frontier and Phosphoria formations and 160 BOE per day from the Tensleep formation. The Company owns 100% working interest in the 26 wells in this field. Year end reserves total 447,000 barrels of oil and 21.0 Bcf or 3.9 million BOE. There is one proved, undeveloped location in the field. Sweet gas is processed at a Company owned plant; sour gas is processed at a third party plant. In late 1997, a new Tensleep well was completed at an initial rate of 100 barrels of oil per day. The Company plans to drill 3 Frontier wells and one Tensleep well in 1998. The Tensleep/Phosphoria well is on a portion of the lease lands in which the Company has a 100% interest. The Frontier is located at 8,000 to 10,500 feet and the Tensleep around 12,000 feet. Frontier wells cost approximately $1.2 million and Tensleep wells cost approximately $1.5 million each. Big Horn Basin. The Company has assembled a 156,000 gross (78,000 net) acre undeveloped lease block which is prospective for Frontier, Muddy, and Lance/Mesaverde formations. The initial well, completed at the beginning of 1998, tested at 550 Mcf per day and 20 barrels of oil per day from the Frontier, a rate at which the Company believes can be improved with different frac techniques. In January 1998, casing was set on the second well located 2.5 miles northeast of the initial well and testing should commence in the first quarter 1998. Two additional wells are planned for 1998 at net costs of approximately $1.2 million each. Uinta Basin. In the Uinta Basin, the Company holds interests in approximately 94,000 gross (71,000 net) acres. During 1997, the Company participated in drilling one operated and two non-operated wells in the basin. A pilot waterflood in the Leland Bench field commenced during the third quarter of 1996. The initial response was observed in 1997 and production continues to improve. Depending on the level of oil prices, development may begin in the second half of 1998. A second pilot project, in the Horseshoe Bend Field, received all necessary regulatory approvals, and injection commenced in December 1997. The response of the pilot projects and the ability to select locations and enhance waterflood efforts through the use of 3-D seismic data will influence the ultimate success of these projects. The projects are also sensitive to oil prices. During the last half of 1996, local oil prices, which had historically been at a premium to West Texas Intermediate prices, deteriorated and now trade at a significant discount to such prices. Throughout 1997, black wax crude oil 6 prices remained relatively low with little improvement expected in the near term. As a result, additional development drilling will likely be curtailed until oil prices in the area improve. During 1997, net production from the Uinta Basin averaged 267 barrels of oil and approximately 1,401 Mcf of gas per day, as compared to 291 barrels and 1,255 Mcf per day during 1996. At year end, the Company had interests in 126 producing wells, 74 of which were operated by the Company. Proved reserves at year end were 596,000 barrels of oil and 4.4 Bcf of gas, or 1.3 million BOE, as compared to 1.2 million barrels and 3.9 Bcf, or 1.8 million BOE, at the end of 1996. The decrease in oil reserves is primarily due to normal field production decline coupled with significantly lower year end oil prices. Gas reserves increased primarily due to improved performance following work programs to increase production during 1997. Northern Wyoming. The Company holds significant interests in two large, mature oil fields undergoing waterflood in Northern Wyoming, the Hamilton Dome and Salt Creek fields. The Company's 1997 production from these fields averaged 3,183 BOE per day. At year end, net proved reserves at these fields totaled 12.4 million BOE, including 12.3 million barrels of oil and 566 MMcf of gas, compared to 12.2 million BOE (12.1 million barrels of oil and 531 MMcf of gas) at the end of 1996. In Hamilton Dome, the operator has reduced the production decline in the field through an accelerated workover program throughout 1997. This work has replaced the production in 1997 and kept the reserves virtually unchanged. Hamilton Dome produces sour crude oil primarily from the Tensleep, Madison and Phosphoria formations at depths of 2,500 to 5,500 feet. Salt Creek produces sweet crude oil from the Wall Creek formation at depths of 2,000 to 2,900 feet. 7 Proved Reserves The following table sets forth estimated year end proved reserves for each of the years in the three year period ended December 31, 1997 for the Company and the Company, excluding Patina, as of December 31, 1997 and 1996.
Consolidated Excluding Patina December 31, December 31, ----------------------------------- --------------------- 1997 1996 1995 1997 1996 -------- -------- -------- -------- -------- Crude oil and liquids (MBbl) Developed 16,101 31,869 21,637 16,101 16,070 Undeveloped 659 8,628 2,610 659 1,952 -------- -------- -------- -------- -------- Total 16,760 40,497 24,247 16,760 18,022 ======== ======== ======== ======== ======== Natural gas (MMcf) Developed 297,490 443,441 330,524 297,490 200,664 Undeveloped 65,678 162,195 65,194 65,678 108,313 -------- -------- -------- -------- -------- Total 363,168 605,636 395,718 363,168 308,977 ======== ======== ======== ======== ======== Total MBOE 77,288 141,436 90,200 77,288 69,518 ======== ======== ======== ======== ========
The following table sets forth the estimated pretax future net revenues from the production of proved reserves and the Pretax PW 10% Value of such revenues.
December 31, 1997 -------------------------------------------------------- Developed Undeveloped (a) Total --------- --------------- --------- (In thousands) 1998 $ 98,710 $ (6,143) $ 92,567 1999 76,583 1,472 78,055 2000 56,211 5,967 62,178 Remainder 319,208 61,204 380,412 --------- --------- --------- Total $ 550,712 $ 62,500 $ 613,212 ========= ========= ========= Pretax PW 10% Value (b) $ 351,955 $ 23,318 $ 375,273 ========= ========= ========= (a) Net of estimated capital costs, including estimated costs of $11.8 million during 1998. (b) The after tax PW 10% value of proved reserves totaled $291.8 million at year end 1997.
The quantities and values shown in the preceding tables are based on realized prices in effect at December 31, 1997, averaging $14.42 per barrel of oil and $2.12 per Mcf of gas. References prices as of December 31, 1997 were NYMEX oil of $15.50 per barrel, Henry Hub gas of $2.55 per Mcf and CIG index gas of $1.94 per Mcf. Price reductions decrease reserve values by lowering the future net revenues attributable to the reserves and also by reducing the quantities of reserves that are recoverable on an economic basis. Price increases have the opposite effect. Any significant decline or increase in prices of oil or gas could have a material effect on the Company's financial condition and results of operations. Proved developed reserves are proved reserves that are expected to be recovered from existing wells with existing equipment and operating methods. Proved undeveloped reserves are proved reserves that are expected to be recovered from new wells drilled to known reservoirs on undrilled acreage for which the existence and recoverability of such reserves can be estimated with reasonable certainty, or from existing wells where a relatively major expenditure is required to establish production. 8 Future prices received for production and future production costs may vary, perhaps significantly, from the prices and costs assumed for purposes of these estimates. There can be no assurance that the proved reserves will be developed within the periods indicated or that prices and costs will remain constant. With respect to certain properties that historically have experienced seasonal curtailment, the reserve estimates assume that the seasonal pattern of such curtailment will continue in the future. There can be no assurance that actual production will equal the estimated amounts used in the preparation of reserve projections. See "Risk Factors and Investment Considerations." Netherland, Sewell & Associates, Inc. ("NSAI"), independent petroleum consultants, prepared estimates of the Company's proved reserves which collectively represent 87% of Pretax PW 10% Value as of December 31, 1997. No estimates of the Company's reserves comparable to those included herein have been included in reports to any federal agency other than the SEC. 9 Production, Revenue and Price History The following table sets forth information regarding net production of crude oil, liquids and natural gas, revenues and expenses attributable to such production and to natural gas transportation, processing and marketing and certain price and cost information for each of the years in the five year period ended December 31, 1997 for the Company. Also set forth is 1997 and 1996 data for the Company, excluding Patina.
Consolidated Excluding Patina -------------------------------------------------------------- ----------------------- 1997 1996 1995 1994 1993 1997 1996 --------- --------- --------- ---------- --------- --------- --------- (Dollars in thousands, except prices and per barrel equivalent information) Production Oil (MBbl) 3,490 3,884 4,278 4,366 3,451 2,050 2,196 Gas (MMcf) 61,638 55,840 53,227 43,809 35,080 41,377 31,893 MBOE (a) 13,763 13,191 13,149 11,668 9,297 8,946 7,512 Revenues Oil $ 65,886 $ 79,201 $ 72,550 $ 64,625 $ 53,174 $ 37,397 $ 44,661 Gas (b) 141,330 110,126 72,058 73,233 71,467 96,454 62,482 --------- --------- --------- --------- --------- -------- --------- Subtotal 207,216 189,327 144,608 137,858 124,641 133,851 107,143 Transportation, processing and marketing 7,004 17,655 38,256 107,247 94,839 7,004 17,655 --------- --------- --------- --------- --------- -------- --------- Total $ 214,220 $ 206,982 $ 182,864 $ 245,105 $ 219,480 $140,855 $ 124,798 --------- --------- --------- --------- --------- -------- --------- Operating expenses Production $ 48,523 $ 49,638 $ 52,486 $ 46,267 $ 41,401 $ 35,016 $ 35,118 Transportation, processing and marketing 6,692 15,020 29,374 94,177 85,640 6,692 15,020 --------- --------- --------- --------- --------- -------- --------- $ 55,215 $ 64,658 $ 81,860 $ 140,444 $ 127,041 $ 41,708 $ 50,138 --------- --------- --------- --------- --------- -------- --------- Direct operating margin $ 159,005 $ 142,324 $ 101,004 $ 104,661 $ 92,439 $ 99,147 $ 74,660 ========= ========= ========= ========= ========= ======== ========= Production data Average sales price (c) Oil (Bbl) $ 18.88 $ 20.39 $ 16.96 $ 14.80 $ 15.41 $ 18.24 $ 20.34 Gas (Mcf) (b) 2.29 1.97 1.35 1.67 1.94 2.33 1.96 BOE (a) 15.06 14.35 11.00 11.82 13.41 14.96 14.26 Avg. production expense/BOE $ 3.53 $ 3.76 $ 3.99 $ 3.97 $ 4.45 $ 3.91 $ 4.67 Avg. production margin/BOE $ 11.53 $ 10.59 $ 7.01 $ 7.85 $ 8.96 $ 11.05 $ 9.59 (a) Gas production is converted to oil equivalents at the rate of 6 Mcf per barrel. (b) Sales of natural gas liquids are included in gas revenues. (c) The Company estimates that its composite net wellhead prices at December 31, 1997 were approximately $2.12 per Mcf of gas and $14.42 per barrel of oil.
10 Producing Wells The following table sets forth certain information at December 31, 1997 relating to the producing wells in which the Company owned a working interest. The Company also held royalty interests in 101 producing wells. Wells are classified as oil or gas wells according to their predominant production stream.
Predominant Gross Net Product Stream Wells Wells -------------- ----- ----- Crude oil and liquids 1,023 334 Natural gas 463 223 ----- ----- 1,486 557 ===== =====
Acreage The following table sets forth certain information at December 31, 1997 relating to domestic acreage held by the Company. Developed acreage is acreage assigned to producing wells. For offshore blocks, in the Gulf of Mexico, the entire block is classified as developed if a producing well has been drilled within its boundries. Such blocks could contain up to 5,000 gross acres. In most instances, the Company does not consider such blocks to be fully developed. Undeveloped acreage is acreage held under lease, permit, contract or option that is not in a spacing unit for a producing well, including leasehold interests identified for development or exploratory drilling.
Gross Net --------- --------- Developed 176,190 106,015 Undeveloped (a) 1,131,657 704,668 --------- --------- 1,307,847 810,683 ========= ========= (a) The Company also holds 130,000 net undeveloped acres under option in North Louisiana as of February 27, 1998.
Drilling Results The following table sets forth information with respect to wells drilled during the past three years. The information should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number of productive wells drilled, quantities of reserves found or economic value. Productive wells are those that produce commercial quantities of hydrocarbons whether or not they produce a reasonable rate of return.
1997 1996 1995 ------ ------ ------ Development wells Productive Gross 66.0 69.0 223.0 Net 33.3 38.9 133.1 Dry Gross 3.0 2.0 5.0 Net 1.3 .5 3.8 Exploratory wells Productive Gross 2.0 3.0 - Net .7 .5 - Dry Gross 2.0 2.0 - Net 1.7 1.6 -
At December 31, 1997, the Company had 15 gross (7.1 net) development wells and 3 gross (1.5 net) exploratory wells in progress. 11 Customers and Marketing The Company's oil and gas production is principally sold to end users, marketers and other purchasers having access to pipeline facilities near its properties. Where there is no access to pipelines, crude oil is trucked to storage facilities. In 1997, Sonat Marketing Company accounted for approximately 17% of revenues, Engage Energy accounted for approximately 14%, and Duke Power and Energy, which purchases a significant portion of Patina's gas production, accounted for approximately 12%. In 1996, Duke Power and Energy accounted for approximately 11% of revenues. In 1995, Amoco Production Company accounted for approximately 10% of revenues. The marketing of oil and gas by the Company can be affected by a number of factors that are beyond its control and whose future effect cannot be accurately predicted. The Company does not believe, however, that the loss of any of its customers would have a material adverse effect on its operations. The Company's gas marketing strategy focuses on aligning the Company with substantial marketers that are active in key ares of operation. The Company also continues to participate in the midstream gas facilities business through ownership of pipelines and alliances with other companies. In the Rocky Mountain region, essentially all of the Company's gas is marketed through contracts with Engage Energy (a partnership between the Coastal Corporation and Westcoast Energy, Inc.). Under the arrangements, the Company receives market value for its gas as it is delivered into mainline pipeline receipt points. The Company also participates in downstream marketing margins realized by Engage, after recovery of costs, for a broad spectrum of Engage's marketing activities in Wyoming, Colorado and Utah. The agreements with Engage extend through March 1999. Beginning in 1997, the Company pooled its gas transportation facilities in Wyoming and Colorado with facilities owned by Coastal Field Services to form Great Divide Gas Services. Great Divide is owned 73% by Coastal Field Services and 27% by the Company, and encompases over 600 miles of pipeline connected to more than 650 wells. In addition to expanding existing pipelines in the Uinta, Piceance and Washakie Basins, Great Divide is working to develop new Rocky Mountain pipeline and processing opportunities. In 1997, Great Divide was responsible for the development of a new 16 mile pipeline linking the Company's gas production in the Piceance Basin directly to Colorado Interstate Gas. In the Gulf of Mexico, the Company has entered into a new contract with Williams Energy Services Company ("WESCO") to increase the market access for gas in this area. In conjunction with the WESCO contract, Transcontinental Gas Pipeline Corporation ("Transco") and Williams Field Services ("WFS") will be extending new pipelines into the Main Pass area, with construction expected to be completed by mid-1998. As described in "Operations - Offshore - Gulf of Mexico," during 1997 the Company also upgraded its facilities and made arrangements with the major gathering system in the Main Pass/Viosca Knoll area to remove historical restraints on production in that area. Since the beginning of 1998, capacity constraints have increased on pipelines downstream of the gathering system in southeastern Louisiana. Although the Company cannot predict the extent or duration of these constraints, it is possible the constraints will depress realized prices, reduce production, or both. At the present time, the Company believes that the completion of the new Transco and WFS facilities will allow the Company's Main Pass gas production to be delivered to markets in the Mobile Bay area of Alabama, avoiding the pipeline capacity constraints that have recently developed in southeastern Louisiana. Title to Properties Title to the properties is subject to royalty, overriding royalty, carried and other similar interests and contractual arrangements customary in the oil and gas industry, to liens incident to operating agreements and for current taxes not yet due and other comparatively minor encumbrances. As is customary in the oil and gas industry, only a limited investigation as to ownership is conducted at the time undeveloped properties believed to be suitable for drilling are acquired. Prior to the commencement of drilling on a tract, a detailed title examination is conducted and curative work is performed with respect to known significant title defects. 12 Regulation Regulation of Drilling and Production. The Company's operations are affected by political developments and federal and state laws and regulations. Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic and other reasons. Numerous departments and agencies, federal, state, local and Indian, issue rules and regulations binding on the oil and gas industry, some of which carry substantial penalties for failure to comply. The regulatory burden on the oil and gas industry increases the Company's cost of doing business, decreases flexibility in the timing of operations and may adversely affect the economics of capital projects. A substantial portion of the Company's oil and gas leases in the Gulf of Mexico and in the Rocky Mountain area were granted by the U.S. Government and are administered by two federal agencies, the Bureau of Land Management ("BLM") and the Minerals Management Service ("MMS"). These leases are issued through competitive bidding, contain relatively standard terms and require compliance with detailed BLM and MMS regulations and orders (which are subject to change by the BLM and MMS). For offshore operations, lessees must obtain MMS approval for exploration plans and development and production plans before commencement of operations. In addition to permits required from other agencies (such as the Coast Guard, the Army Corps of Engineers and the Environmental Protection Agency), lessees must obtain a permit from the BLM or MMS prior to the commencement of onshore or offshore drilling. State regulatory authorities have also established rules and regulations requiring permits for drilling, reclamation and plugging bonds and reports concerning operations, among other matters. Many states also have statutes and regulations governing a number of environmental and conservation matters. In the past, the federal government has regulated the prices at which oil and gas could be sold. Prices of oil and gas sold by the Company are not currently regulated. In recent years, the Federal Energy Regulatory Commission ("FERC") has taken significant steps to increase competition in the sale, purchase, storage and transportation of natural gas. Under these orders, FERC has caused pipelines to open up access to transportation, essentially eliminating pipelines from the role of natural gas merchant and "unbundled" transportation services so that a buyer can purchase just those services it needs. FERC's regulatory programs generally allow more accurate and timely price signals from the consumer to the producer and, on the whole, have helped gas become more responsive to changing market conditions. To date, the Company believes it has not experienced any material adverse effect as the result of these programs. Nonetheless, increased competition in gas markets can and does add to price volatility and inter-fuel competition, which increases the pressure on the Company to manage its exposure to changing conditions and position itself to take advantage of changing market forces. Environmental Regulations. The operations of the Company are subject to numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of a permit before drilling commences, prohibit drilling activities on certain lands lying within wilderness and other protected areas and impose remediation obligations and substantial liabilities for pollution resulting from drilling operations. Such laws and regulations also restrict air or other pollution and disposal of wastes resulting from the operation of gas processing plants, pipeline systems and other facilities owned directly or indirectly by the Company. Drilling and other projects on federal leases may also require preparation of an environmental assessment or environmental impact statement, which could delay the commencement of operations and could limit the extent to which the leases may be developed. See "Risk Factors and Investment Considerations - Environmental and Other Government Regulation." The Company currently owns or leases numerous properties that have been used for many years for natural gas and crude oil production. Although the Company believes that it and other previous owners have utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by the Company. In connection with its most significant acquisitions, the Company has performed environmental assessments and found no material environmental noncompliance or clean-up liabilities requiring action in the near or intermediate future, although some matters identified in the environmental assessments are subject to ongoing review. The Company has assumed responsibility for some of the matters identified. Some of the Company's properties, particularly larger units that have been in operation for several decades, may require significant costs for reclamation and restoration when they 13 are divested or when operations eventually cease. Environmental assessments have not been performed on all of the Company's properties. To date, expenditures for environmental control facilities and for remediation have not been material to the Company, and the Company does not expect that, under current regulations, future expenditures will have a material adverse impact on the Company. Under the Oil Pollution Act of 1990 ("OPA"), owners and operators of onshore facilities and pipelines and lessees or permittees of an area in which an offshore facility is located ("Responsible Parties") are strictly liable on a joint and several basis for removal costs and damages that result from a discharge of oil into United States waters. These damages include natural resource damages, real and personal property damages and economic losses. OPA limits the strict liability of Responsible Parties for removal costs and damages that result from a discharge of oil to $350 million in the case of onshore facilities and $75 million plus removal costs in the case of offshore facilities, except that no limits apply if the discharge was caused by gross negligence or willful misconduct, or by the violation of an applicable federal safety, construction or operating regulation by the Responsible Party, its agent or subcontractor. States in which the Company operates have also adopted regulations to implement the Federal Clean Air Act. These new regulations are not expected to have a significant impact on the Company or its operations. In the longer term, regulations under the Federal Clean Air Act may increase the number and type of the Company's facilities that require permits, which could increase the Company's cost of operations and restrict its activities in certain areas. Risk Factors and Investment Considerations Price Fluctuations and Markets. The Company's results of operations are highly dependent upon the prices received for the Company's oil and natural gas production. The majority of the Company's sales of oil and natural gas are made in the spot market, or pursuant to contracts based on spot market prices, and not pursuant to long-term, fixed-price contracts. Accordingly, the prices received by the Company for its oil and natural gas production are dependent upon numerous factors beyond the control of the Company. These factors include, but are not limited to, the level of consumer product demand, governmental regulations and taxes, the price and availability of alternative fuels, the level of foreign imports of oil and natural gas, and the overall economic environment. Significant declines in prices for oil and natural gas could have a material adverse effect on the Company's financial condition, results of operations and quantities of reserves recoverable on an economic basis. Should the industry experience significant price declines from current levels or other adverse market conditions, the Company may not be able to generate sufficient cash flow from operations to meet its obligations and make planned capital expenditures. Price reductions decrease reserve values by lowering the future net revenues attributable to the reserves and also by reducing the quantities of reserves that are recoverable on an economic basis. Price increases have the opposite effect. Prices in effect at December 31, 1997 averaged $14.42 per barrel of oil and $2.12 per Mcf of gas. Reference prices as of December 31, 1997 were NYMEX oil of $15.50 per barrel, Henry Hub gas of $2.55 per Mcf and CIG index gas of $1.94 per Mcf. Any significant decline in prices of oil or gas could have a material adverse effect on the Company's financial condition and results of operations. The availability of a ready market for the Company's oil and natural gas production also depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to, and the capacity of, oil and gas gathering systems, pipelines or trucking and terminal facilities. Wells may be shut-in or constrained for lack of a market or due to inadequacy or unavailability of pipeline or gathering system capacity. See "Customers and Marketing." Replacement of Reserves. In general, the volume of production from oil and natural gas properties declines as reserves are depleted. Except to the extent the Company acquires properties containing proved reserves or conducts successful development and exploration activities, or both, the proved reserves of the Company will decline as reserves are produced. The Company's future oil and gas production is, therefore, highly dependent upon its level of success in finding or acquiring additional reserves at attractive rates of return. In order to increase reserves and production, the Company must continue its development drilling and recompletion programs, pursue its exploration drilling programs or undertake other replacement activities. The Company's current strategy includes increasing its reserve base by continuing to exploit its existing properties, by pursuing exploration opportunities and acquiring producing properties. There can be no assurance, however, that the Company's planned development and exploration 14 projects and acquisition activities will result in significant additional reserves or that the Company will have continuing success drilling productive wells at favorable finding costs. Substantial Capital Requirements. The Company makes, and will continue to make, substantial capital expenditures for the acquisition, development, exploration, production and abandonment of oil and natural gas reserves. The Company intends to finance such capital expenditures primarily with funds provided by operations and borrowings under its bank credit facility. During 1997, the Company's capital expenditures totaled $116.0 million, including $106.7 million for development, exploration and gas transportation facilities and $9.3 million for acquisitions. During 1998, the Company expects to increase its capital expenditures, excluding acquisitions, to $130 to $140 million. The Company believes that, after debt service, it will have sufficient cash provided by operating activities and capital resources to fund planned capital expenditures for exploration and development activities for the foreseeable future. However, if revenues decrease as a result of lower oil or gas prices or otherwise or if the Company incurs substantial additional indebtedness to finance acquisitions or for other purposes, the Company may have limited ability to expend the capital necessary to replace its reserves or to maintain production at current levels, resulting in a decrease in production over time. If the Company's cash flow from operations is not sufficient to satisfy its capital expenditure requirements, there can be no assurance that additional debt or equity financing will be available to meet these requirements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition and Capital Resources." Acquisition Risks. The Company continually evaluates acquisition opportunities and frequently engages in bidding and negotiation for acquisitions, many of which are substantial. If successful in this process, the Company may be required to alter or increase substantially its capitalization to finance these acquisitions through the issuance of additional debt or equity securities, the sale of production payments or otherwise (although the Company's credit facility and the Indenture for its subordinated notes include covenants that limit the Company's ability to incur additional indebtedness). Changes in capitalization may significantly affect the risk profile of the Company. Significant acquisitions can change the nature of the operations and business of the Company depending upon the character of the acquired properties, which may be substantially different in operating or geologic characteristics or geographic location from existing properties. While the Company intends to concentrate on acquiring producing properties with development and exploration potential located in its current areas of operation, the Company may decide to pursue acquisitions of properties located in other geographic regions. There can be no assurance that the Company will be successful in the acquisition of any material property interests. Drilling Risks. Drilling activities are subject to many risks, including the risk that no commercially productive reservoirs will be encountered. There can be no assurance that new wells drilled by the Company will be productive or that the Company will recover all or any portion of its investment. Drilling for oil and natural gas may involve unprofitable efforts, not only from dry wells, but from wells that are productive but that do not produce sufficient net revenues to return a profit after drilling, operating and other costs. The cost of drilling, completing and operating wells is often uncertain. The Company's drilling operations may be curtailed, delayed or canceled as a result of numerous factors, many of which are beyond the Company's control, including title problems, weather conditions, compliance with environmental and other governmental requirements and shortages or delays in the delivery of equipment and services. Operating Hazards and Uninsured Risks. The Company's operations are subject to hazards and risks inherent in drilling for, producing and transporting oil and natural gas, such as fires, natural disasters, explosions, formations with abnormal pressures, blowouts, cratering, pipeline ruptures and spills, any of which can result in loss of hydrocarbons, environmental pollution, personal injury claims and other damage to properties of the Company and others. As protection against operating hazards, the Company maintains insurance coverage against some, but not all, potential losses. The Company's coverages include, but are not limited to, operator's extra expense, physical damage on certain assets, comprehensive general liability, automobile and workers' compensation insurance. The Company believes that its insurance is adequate and customary for companies of a similar size engaged in operations similar to those of the Company, but losses could occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. The occurrence of an event that is not fully covered by insurance could have a material and adverse impact on the Company's financial condition and results of operations. 15 Uncertainty of Estimates of Reserves and Future Net Revenues. There are numerous uncertainties inherent in estimating quantities of proved reserves, including many factors beyond the control of the Company. The reserve information included in this annual report represents estimates based on reports prepared by the Company's independent petroleum engineers. Petroleum engineering is not an exact science. Estimates of economically recoverable oil and natural gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulation by governmental agencies and assumptions concerning future oil and natural gas prices, future operating costs, severance and excise taxes, capital expenditures and workover and remedial costs, all of which may in fact vary considerably from actual results. For these reasons, estimates of classifications of such reserves based on risk of recovery and estimates of expected future net cash flows prepared by different engineers or by the same engineers at different times may vary substantially. Actual production, revenues and expenditures with respect to the Company's reserves will likely vary from estimates, and the variances may be material. The present values of future net cash flows referred to in this annual report should not be construed as either the current market value of the estimated oil and gas reserves attributable to the Company's properties or a prediction of the future net cash flows from those properties. In accordance with applicable requirements of the Securities and Exchange Commission (the "Commission"), the discounted future net cash flows from proved reserves are determined in accordance with certain rules designed to facilitate uniform presentation by different companies. The present values and future cash flows are generally based on prices and costs as of the date of the estimate, whereas actual future prices and costs may be materially higher or lower. Future net cash flows also will be affected by factors such as the amount and timing of actual production and expenses, supply and demand for oil and gas, curtailments or increases in consumption by gas purchasers and changes in governmental regulations or taxation. In addition, the 10% discount factor, which is required by the Commission to be used to calculate discounted future net cash flows for reporting purposes, is not necessarily the most appropriate discount factor based on interest rates in effect from time to time and risks associated with the Company or the oil and gas industry in general. Environmental and Other Governmental Regulation. The Company's operations are affected by extensive regulation pursuant to various federal, state and local laws and regulations relating to the exploration for, and the development, production, transportation and marketing of, oil and natural gas and the release of materials into the environment or otherwise relating to protection of the environment. In particular, the Company's oil and natural gas exploration, development and production, and its activities in connection with the storage and transportation of liquid hydrocarbons, are subject to stringent environmental regulations by governmental authorities. Such regulations have increased the costs of planning, designing, drilling, installing, operating and abandoning oil and natural gas wells and other related facilities. The Company is required to expend significant resources, both financial and managerial, to comply with environmental regulations and permitting requirements. Although the Company believes that its operations are in general compliance with all such laws and regulations, risks of substantial costs and liabilities are inherent in oil and natural gas operations, and there can be no assurance that significant costs and liabilities will not be incurred in the future. Moreover, it is possible that other developments, such as increasingly strict environmental laws and regulations and enforcement policies thereunder, and claims for damages to property, employees, other persons and the environment resulting from the Company's operations, could result in substantial costs and liabilities in the future. The Company expects to maintain customary insurance coverage for its operations, including coverage for sudden environmental damages, but does not believe that insurance coverage that explicitly covers environmental damages that occur over time will be available at a reasonable cost. The Company does not believe that insurance coverage against the full potential liability that could be caused by environmental damages is currently available at a reasonable cost. Accordingly, the Company might be subject to uninsured or only partially insured liability because of the prohibitive premium costs of insuring against certain hazards. Drilling and other projects on federal leases may also require preparation of an environmental assessment or environmental impact statement, which could delay the commencement of operations and could limit the extent to which the leases may be developed. Environmental impact statements are currently pending in two significant areas of the Company's operations, the Deep Green River Basin and the northern part of the Washakie Basin. Approval of new drilling in these areas is limited until the statements receive final approval. While the timing of final approval, and terms of conditions placed on development in the affected areas, is uncertain, the Company currently does not 16 expect the statements to significantly impact plans to develop these two areas. However, delays in approving the statements or the inclusion of unexpected conditions, could limit or delay development plans in these areas in 1998, and possibly beyond. Competition. The oil and gas industry is highly competitive. The Company will compete in the acquisition, development, production and marketing of oil and natural gas with major oil companies, other independent oil and natural gas concerns and individual producers and operators. There is also competition in the hiring of experienced personnel. Many of the Company's competitors have substantially greater financial and other resources than the Company. Furthermore, the oil and natural gas industry competes with other industries in supplying the energy and fuel needs of industrial, commercial and other consumers. Forward-looking Information All statements other than statements of historical fact contained in this Annual Report on Form 10-K and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contain or will contain or include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be or may concern, among other things, capital expenditures, drilling activity, acquisitions and dispositions, development or exploratory activities, cost savings efforts, production activities and volumes, hydrocarbon reserves, hydrocarbon prices, hedging activities and the results thereof, financing plans, liquidity, regulatory matters, competition and the Company's ability to realize efficiencies related to certain transactions or organizational changes. Forward-looking statements generally are accompanied by words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "potential" or similar statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements include the risks described under "Risk Factors and Investment Considerations," such as the fluctuations of the prices received or demand for the Company's oil and gas, the ability to replace depleting reserves, potential additional indebtedness, the requirements for capital, drilling risks, operating hazards, the cost and availability of drilling rigs, acquisition risks, the uncertainty of reserve estimates, competition and the effects of governmental and environmental regulation. All forward-looking statements are expressly qualified in their entirety by the cautionary statements in this section. Officers Listed below are the officers of the Company and a summary of their business experience.
Name Position - ------------------------ ------------------------------------------------- John C. Snyder Chairman William G. Hargett President and Chief Operating Officer Charles A. Brown Senior Vice President - Rocky Mountain Region Mark A. Jackson Senior Vice President and Chief Financial Officer Jay H. Smith Senior Vice President - Southern Region Steven M. Burr Vice President - Engineering and Planning Peter E. Lorenzen Vice President - General Counsel H. Richard Pate Vice President - Rocky Mountain Region, Operations and Engineering David M. Posner Vice President - Gas Management Roger B. Rice Vice President - Human Resources Rodney L. Waller Vice President - Treasurer
John C. Snyder (55), Chairman and a director, founded a predecessor of the Company in 1978. From 1973 to 1977, Mr. Snyder was an independent oil operator in Texas and Oklahoma. Previously, he was a director and the Executive Vice President of May Petroleum, Inc. where he served from 1971 to 1973. From 1969 to 1971, Mr. Snyder was with Canadian-American Resources Fund, Inc., which he founded. From 1964 to 1966, Mr. Snyder was employed by Humble Oil and 17 Refining Company (currently Exxon Co., USA) as a petroleum engineer. Mr. Snyder received his Bachelor of Science degree in Petroleum Engineering from the University of Oklahoma and his Masters degree in Business Administration from the Harvard University Graduate School of Business Administration. In 1995, Mr. Snyder was named Wildcatter of the Year by the Independent Petroleum Association of Mountain States. He currently serves as a director of SOCI plc and is a member of the National Petroleum Council. William G. Hargett (48), President, Chief Operating Officer and a director, has been with the Company since April 1997. Prior to joining the Company, Mr. Hargett served as President of Greenhill Petroleum Corporation from 1994 to 1997, Amax Oil & Gas, Inc. from 1993 to 1994 and North Central Oil Corporation from 1988 to 1993 and in various exploration capacities at Tenneco Oil Company from 1974 to 1988 and Amoco Production Company from 1973 to 1974. Mr. Hargett earned Bachelor of Science and Master of Science degrees from the University of Alabama. Charles A. Brown (50), Senior Vice President - Rocky Mountain Region, joined the Company in 1987. He was a petroleum engineering consultant from 1986 to 1987. He served as President of CBW Services, Inc., a petroleum engineering consulting firm, from 1979 to 1986 and was employed by Kansas Nebraska Natural Gas Company from 1971 to 1979 and Amerada Hess Corporation from 1969 to 1971. Mr. Brown received his Bachelor of Science degree in Petroleum Engineering from the Colorado School of Mines. Mark A. Jackson (42), Senior Vice President and Chief Financial Officer, joined the Company in August, 1997. Prior to joining the Company, Mr. Jackson served in various executive capacities at Apache Corporation including Vice President and Controller from 1988, Vice President, Finance from 1994 and Chief Financial Officer from 1996. From 1984 until 1988, Mr. Jackson served as Assistant Controller of Diamond Shamrock and Maxus Energy Company. Mr. Jackson began his career with the certified public accounting firm of Ernst & Ernst, specializing in the oil and gas industry. Mr. Jackson received his Bachelor of Science degree in Accounting from Oklahoma Christian University. Jay H. Smith (51), Senior Vice President - Southern Region, joined the Company in February 1998. From 1993 until he joined the Company, Mr. Smith served as Executive Vice President of Sonat Exploration Company. From 1983 until 1993, Mr. Smith served in a variety of positions with BP Exploration and Sohio Petroleum Company, most recently as Chief of Staff, Western Hemisphere North. From 1981 to 1983, Mr. Smith was Vice President - Operations of Spectrum Oil and Gas Company. Mr. Smith began his career with Shell Oil Company in 1968. Mr. Smith received his Bachelor of Science degree from Syracuse University. Steven M. Burr (41), Vice President - Engineering and Planning, joined the Company in 1987. From 1982 to 1987, he was a Vice President with the petroleum engineering consulting firm of Netherland, Sewell & Associates, Inc. From 1978 to 1982, Mr. Burr was employed by Exxon Company, USA in the Production Department. Mr. Burr received his Bachelor of Science degree in Civil Engineering from Tulane University and attended the Program for Management Development at the Harvard University School of Business Administration. Peter E. Lorenzen (48), Vice President - General Counsel and Secretary, joined the Company in 1991. From 1983 through 1991, he was a shareholder in the Dallas law firm of Johnson & Gibbs, P.C. Prior to that, Mr. Lorenzen was an associate with Cravath, Swaine & Moore. Mr. Lorenzen received his law degree from New York University School of Law and his Bachelor of Arts degree from The Johns Hopkins University. H. Richard Pate (44), Vice President - Rocky Mountain Region, Operations and Engineering, joined the Company in 1988. From 1981 to 1988, Mr. Pate held various positions with Mitchell Energy Corporation, including Region Engineer and Production Manager. He was employed by Champlin Petroleum Company from 1979 to 1981 and Atlantic Richfield Corporation from 1975 to 1979. Mr. Pate received his Bachelor of Science degree in Chemical Engineering from the University of Wyoming. David M. Posner (44), Vice President - Gas Management, joined the Company in 1991. From 1980 to 1991 he held various positions with Ladd Petroleum Corporation (a subsidiary of the General Electric Company) including Vice President of Gas Gathering, Processing and Marketing. Mr. Posner received his Bachelor of Arts degree from Brown University and his Master of Science in Mineral Economics from the Colorado School of Mines. Roger B. Rice (53), Vice President - Human Resources, joined the Company in 1997. From 1992 to 1997, Mr. Rice was Vice President Human Resources 18 and Administration with Apache Corporation. From 1989 to 1992, he was Managing Consultant with Barton Raben, Inc., an executive search and consulting firm specializing in the energy industry. Previously, Mr. Rice was Vice President Administration for The Superior Oil Company and held various management positions with Shell Oil Company. He earned his Bachelor of Arts degree and Masters Degree in Business Administration from Texas Technological University. Rodney L. Waller (48), Vice President - Treasurer, joined the Company in 1977 as an officer. Since that time, Mr. Waller has performed various corporate, operational and finance functions. Previously, Mr. Waller was employed by Arthur Andersen & Co. Mr. Waller received his Bachelor of Arts degree from Harding University. ITEM 3. LEGAL PROCEEDINGS In September 1996, the Company and other interest owners in a lease in southern Texas were sued by the royalty owners in Texas state court in Brooks County, Texas. The Company's working interest in the lease is approximately 20%. The complaint alleges, among other things, that the defendants have failed to pay proper royalties under the lease, have unlawfully comingled production with production from other leases and have breached their duties to reasonably develop the lease. The plaintiffs also claim damages for fraud, trespass and similar matters, and demand actual and punitive damages. Although the complaint does not specify the amount of damages claimed, plaintiffs have submitted calculations showing total damages against all owners in excess of $100 million. The Company and the other interest owners have filed an answer denying the claims and intend to contest the suit vigorously. The suit is currently in discovery. At this time, the Company is unable to estimate the range of potential loss, if any, from the foregoing uncertainty. However, the Company believes that resolution should not have a material adverse effect on the Company's financial position, although an unfavorable outcome in any reporting period could have a material impact on the Company's results of operations for that period. The Company and its subsidiaries and affiliates are named defendants in lawsuits and involved from time to time in governmental proceedings, all arising in the ordinary course of business. Although the outcome of these lawsuits and proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matters were submitted for a vote of security holders during the fourth quarter of 1997. 19 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS The Company's stock is listed on the New York Stock Exchange and trades under the symbol "SNY." The following table sets forth, for 1997 and 1996, the high and low closing prices for the Company's securities for New York Stock Exchange composite transactions, as reported by The Wall Street Journal. -----------------------
1997 1996 --------------------- --------------------- High Low High Low ------- ------- ------- ------- First Quarter $19-1/8 $14-5/8 $12-1/8 $ 7-1/4 Second Quarter 19 15-1/4 10-1/4 7-5/8 Third Quarter 23-5/8 18-3/16 12 9-3/8 Fourth Quarter 24-7/8 16-3/4 17-3/4 11-3/4
On February 27, 1998, the closing price of the common stock was $18-5/8. Quarterly dividends were paid at the rate of $.065 per share during 1997 and 1996. For federal income tax purposes, 100% of common dividends paid during 1996 were a non-taxable return of capital. The Company's dividend payments in 1997 were taxable for federal income tax purposes. Shares of common stock receive dividends as, if and when declared by the Board of Directors. The amount of future dividends will depend on debt service requirements, capital expenditures and other factors. On December 31, 1997, there were approximately 2,300 holders of record of the common stock and 33.3 million shares outstanding. ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial and operating information for each of the years in the five year period ended December 31, 1997. Share and per share amounts refer to common shares. The following information should be read in conjunction with the consolidated financial statements presented elsewhere herein.
(In thousands, except per share data) As of or for the Year Ended December 31, ----------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- Income Statement Revenues $ 255,728 $ 285,111 $ 197,301 $ 262,328 $ 228,852 Income (loss) before extraordinary items 35,465 62,950 (39,831) 12,372 22,538 Per share .96 1.81 (1.53) .07 .58 Net income (loss) 32,617 62,950 (39,831) 12,372 19,545 Per share .87 1.81 (1.53) .07 .45 Dividends per share .26 .26 .26 .25 .22 Weighted average shares outstanding 30,588 31,308 30,186 23,704 23,096 Cash Flow Net cash provided by operations $ 122,041 $ 101,730 $ 69,121 $ 86,397 $ 68,728 Net cash realized (used) by investing 31,808 (62,356) 32,421 (245,503) (207,933) Net cash realized (used) by financing (92,328) (38,715) (96,012) 169,926 129,633 Balance Sheet Working capital $ 56,326 $ 9,168 $ 5,842 $ 708 $ 491 Oil and gas properties, net 274,304 635,387 435,217 472,239 316,406 Total assets 546,088 879,459 555,493 673,259 453,301 Senior debt 1 188,231(a) 150,001 234,857 114,952 Subordinated notes 173,635 183,842(b) 84,058 83,650 - Stockholders' equity 263,756 294,668 235,368 274,086 274,734 (a) Includes $93.7 million of SOCO senior debt and $94.5 million of Patina senior debt. (b) Includes $80.7 million of SOCO convertible subordinated notes and $103.1 million of Patina subordinated notes.
20 The following table sets forth unaudited summary financial results on a quarterly basis for the two most recent years.
(In thousands, except per share data) 1997 ----------------------------------------------- First Second Third Fourth -------- --------- --------- -------- Revenues $ 87,664 $ 73,187 $ 56,299 $ 38,578 Depletion, depreciation and amortization and property impairments 23,208 23,389 26,802 13,738 Gross profit 30,637 13,960 16,791 17,755 Income before extraordinary items 19,926 5,992 3,633 5,914 Per share .59 .15 .07 .14 Net income 19,926 3,144 3,633 5,914 Per share .59 .05 .07 .14
(In thousands, except per share data) 1996 ----------------------------------------------- First Second Third Fourth -------- --------- -------- -------- Revenues $ 40,960 $ 54,604 $ 59,960 $129,587 Depletion, depreciation and amortization and property impairments 16,771 22,745 24,673 23,111 Gross profit 9,376 11,099 10,835 26,467 Income (loss) before extraordinary items 1,777 (9,983) 5,560 65,596 Per share .01 (.37) .13 2.06 Net income (loss) 1,777 (9,983) 5,560 65,596 Per share .01 (.37) .13 2.06
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Snyder Oil Corporation (the "Company") is engaged in the production, development, acquisition and exploration of domestic oil and gas properties, primarily in the Gulf of Mexico, the Rocky Mountains and northern Louisiana. The Company also has investments in two international exploration and production companies, SOCO International plc ("SOCI plc") and Cairn Energy plc ("Cairn"), both listed on the London Stock Exchange. During 1997, the Company consummated several transactions to simplify its operating and capital structure. * The Company exchanged its international operational holdings for stock in SOCI plc, which simultaneously completed an initial public offering of its stock on the London Stock Exchange to raise capital to fund its ongoing exploration and development efforts. This transaction effectively replaced the Company's equity investments in various international ventures with one marketable security. * The Company issued $175 million in ten-year, 8.75% subordinated debt and used the proceeds to redeem the outstanding 7% convertible subordinated debt and to pay down its revolving credit facility. These transactions provided the capacity for the Company to enter into a large acquisition from existing credit sources, extended the maturity of subordinated debt at an attractive rate for the next ten years and eliminated the potential dilution of common shareholders from the convertible subordinated debt. * The Company sold its 74% interest in Patina Oil and Gas Corporation ("Patina") for approximately $127 million in cash and the elimination of approximately $170 million in debt. This transaction provided cash and additional acquisition capacity while simplifying the capital structure of the Company. Patina was restricted by its debt covenants from paying dividends to its shareholders; thus the Company did not directly benefit from the cash flow of Patina. * The Company issued 300,000 common shares in exchange for 2.1 million outstanding warrants, which also reduced the potential dilution of the common shareholders of the Company. * The Company called its preferred stock for redemption with 72% converting to common (3.6 million shares issued) and the remainder being redeemed for $30.1 million of cash. This transaction eliminated 1.4 million shares of additional potential dilution to the common shareholders of the Company and over $6 million per year in dividend payments. 21 The aforementioned transactions simplified the Company's capital structure and, together with the sale of nonstrategic assets during 1995 and 1996, positioned the Company to focus on its core growth areas with all future increases in value going to the common shareholders of the Company. Unless indicated otherwise, amounts in this discussion reflect the consolidated results of the Company, including Patina. References to the Company "excluding Patina" refer to the Company on a consolidated basis but after excluding amounts attributable to Patina. Results of Operations Comparison of 1997 results to 1996. Net income for 1997 was $32.6 million as compared to $63.0 million in 1996. During 1997, the Company recognized a $13.0 million gain on the sale of 4.5 million shares of Cairn stock and a $19.8 million gain on the formation of SOCI plc. Net income in 1996 benefited from a $65.5 million gain on the exchange of the Company's stock held in Command Petroleum Limited ("Command"), for stock in Cairn, a United Kingdom based company. The following table sets forth certain operating information of the Company for the periods presented.
Excluding Patina Consolidated ----------------------- Increase ----------------------- Increase 1997 1996 (Decrease) 1997 1996 (Decrease) -------- -------- ---------- --------- -------- ---------- Oil and gas sales (in thousands) $133,851 $107,143 25% $207,216 $189,327 9% Production margin (in thousands) $ 98,835 $ 72,025 37% $158,693 $139,689 14% Daily production: Oil (Bbls) 5,617 6,000 (6%) 9,561 10,611 (10%) Gas (Mcf) 113,361 87,139 30% 168,873 152,570 11% Equivalent barrels (BOE) 24,510 20,525 19% 37,707 36,040 5% Average Prices: Oil ($/Bbl) $ 18.24 $ 20.34 (10%) $ 18.88 $ 20.39 (7%) Gas ($/Mcf) $ 2.33 $ 1.96 19% $ 2.29 $ 1.97 16% Equivalent barrel ($/BOE) $ 14.96 $ 14.26 5% $ 15.06 $ 14.35 5% DD&A per BOE $ 4.87 $ 5.29 (10%) $ 5.80 $ 6.41 (10%)
Oil and gas sales, excluding Patina, increased 25% due to a significant increase in gas production along with higher gas prices. Production in the Gulf of Mexico more than doubled due to two fourth quarter 1996 acquisitions and the Company's drilling efforts beginning to come on stream. The Rocky Mountain Region also increased production due to successful development drilling primarily in the second and third quarters of 1997, but the increase was partially offset by sales of nonstrategic properties during 1996. The Company expects increasing production from exploratory and development drilling during 1997 and 1998 to largely replace Patina's 1997 production contribution by the end of 1998. The largest contributor to increased production in 1998 is expected to be the commencement of production from the Ingrid Field in the Gulf of Mexico by April 1998. Production margin (oil and gas sales less direct operating expenses) for 1997, excluding Patina, increased 37% compared to 1996 as direct operating expenses decreased in spite of the significant increase in production. This is primarily due to the sale of noncore properties which had high operating costs, increased production in the Gulf of Mexico which has much lower operating costs per BOE produced, and an increased emphasis on operating efficiencies. Operating costs per BOE, excluding Patina, were $3.91 compared to $4.67 in 1996. Gains on sales of properties of $8.7 million in 1997 and $8.8 million in 1996 were a result of the Company's ongoing plan to divest of nonstrategic assets. The most significant items in 1997 were the sales of two noncore properties in the Gulf of Mexico for a $5.1 million gain. The most significant item during 1996 was a $7.4 million gain on the sale of a 50% interest in the Green River Basin holdings. General and administrative expenses, net of reimbursements, for 1997 were $20.4 million, a $3.2 million increase compared to 1996 as several of the 22 properties sold during 1996, while having high operating costs and depletion, depreciation and amortization rates, provided significant general and administrative expense reimbursements. Net general and administrative costs have declined three to six percent each quarter since the fourth quarter of 1996. There was a 16% decrease in the fourth quarter of 1997 attributable to the disposition of Patina. Interest expense, net of interest income, was $23.0 million in 1997, $12.5 million of which was incurred by Patina. In 1996, interest expense, net of interest income, was $22.9 million, $14.3 million of which was incurred by Patina. The majority of the increase was the result of higher average interest rates, as subordinated notes represented a higher percentage of total debt. Interest income in 1997 was $2.4 million compared to $664,000 in 1996 as the Company had a higher average cash balance, particularly in the fourth quarter of 1997, due to the proceeds from the disposition of Patina. Depletion, depreciation and amortization expense for 1997 decreased $4.7 million to $79.9 million in spite of higher production levels. The decrease is primarily due to higher 1996 amortization costs on a noncompete agreement at Patina, but was also the result of lower production depletion, depreciation and amortization rates. Production depletion, depreciation and amortization per BOE, excluding Patina, was $4.44 in 1997 compared to $4.70 in 1996. The lower rates were the result of upward revisions in reserve quantities at year end 1996 primarily in proved undeveloped reserves which became economic at year end 1996 prices. Property impairments in 1997 included a $4.5 million impairment recorded on the Uinta Field. At the end of 1996, Uinta prices benefited from a tight local oil supply and very high Rocky Mountain area oil prices. Since then, new supplies have depressed the oil market and prices in the area have returned to more normal levels. Additionally, a $2.2 million impairment was recorded on a Gulf of Mexico oil well after it did not respond to workover attempts. Comparison of 1996 results to 1995. Total revenues for 1996 were $285.1 million, a $87.8 million increase from 1995. The increase was in large part due to a $67.2 million increase in gains on sales of investments which was primarily due to a $65.5 million gain recognized in the fourth quarter related to an exchange of the Company's stock held in Command for stock in Cairn. An increase in oil and gas sales of $44.7 million was also experienced in 1996 as a result of a 31% rise in the price received per BOE while production remained relatively stable compared to 1995. Natural gas prices rebounded in 1996 to $1.97 per Mcf from $1.35 per Mcf in 1995, a 46% increase. Oil prices improved 20% to average $20.39 per barrel during 1996. Partially offsetting these increases was a decrease in gas transportation, processing and marketing revenues of $20.6 million primarily as a result of the sale of the Company's Wattenberg gas facilities in 1995. Net income for 1996 was $63.0 million, compared to a net loss in 1995 of $39.8 million. The 1996 income was boosted by the net effect of the Command transaction ($57.2 million after minority interest expense and deferred tax expense). However, the Company also recorded a noncash charge of $15.5 million in the second quarter related to the contribution of the Company's Wattenberg oil and gas properties to a newly formed public company, Patina, in return for a 70% stake in Patina. The 1995 loss was primarily due to $27.4 million in noncash property impairment charges and almost $11 million in combined losses resulting from a litigation settlement, losses on marketable securities, as well as severance and restructuring costs. Absent these special non-recurring items, there was an increase in net income from 1995 to 1996 of approximately $23 million. This increase can be attributed primarily to the 31% increase in average price received per BOE which increased revenues $44.7 million offset partially by a decrease in gas management margin of $6.2 million and an increase in depreciation, depletion and amortization expense of $8.2 million. Revenues from production operations, less direct operating expenses, for 1996 were $139.7 million, an increase of 52% from 1995 net revenue. Average daily production during 1996 was 36,040 BOE, almost exactly what it was in 1995 (36,024 BOE). However, the average product price received increased by 31% to $14.35 per BOE. Production remained relatively constant from 1995 to 1996 which can be attributed to additional interests acquired in four Gulf of Mexico acquisitions in late 1995 and during 1996 and the properties acquired in the Patina transaction offset by decreased production related to numerous sales of noncore properties in 1995 and 1996 and the reduction of development drilling. Total operating expenses for 1996 decreased by $2.8 million in line with the Company's efforts of divesting of marginal properties with high operating costs and acquiring incremental interests in offshore properties which have historically had lower operating costs per BOE. Operating costs per BOE were $3.76 compared to $3.99 in 1995. 23 Direct operating margin from gas transportation, processing and marketing for 1996 was $2.6 million compared to $8.9 million in 1995. The decrease resulted primarily from a reduction in processing margins due to the sale of the Company's Wattenberg gas processing facilities which was completed in the third quarter of 1995. The Company realized almost $80 million in sales proceeds during 1995 on these facilities and recognized a total of $8.7 million in gains. Gains on sales of investments were $69.3 million in 1996, compared to $2.2 million in 1995. The $65.5 million gain on the Command exchange accounted for the bulk of the increase. The remaining gains are primarily due to sales of a portion of the Company's interests in Russia and Mongolia. In January 1997, the Company's interest in Mongolia was further reduced. Gains on sales of properties were $8.8 million in 1996, compared to $12.3 million in 1995. The most significant gain during 1996 was a $7.4 million gain on the sale of a 50% interest in the Green River Basin holdings for $16.9 million. The most significant gain during 1995 was the $8.7 million gain recognized as part of the sale of the Company's Wattenberg gas processing facilities for almost $80 million. Other income, net of other expense, increased $1.8 million from 1995. The increase can be primarily attributed to equity in earnings of Command increasing $1.9 million from the equity in losses recorded in 1995. Exploration expenses for 1996 were $4.2 million, down $3.8 million from 1995. The decrease was due primarily to a writeoff of $4.1 million of acreage costs in 1995 that was not incurred in 1996. Included in the 1996 expenditures of $4.2 million was a $1.2 million dry hole drilled in the Gulf of Mexico in the third quarter on an unexplored block adjacent to one of the Company's current producing blocks. General and administrative expenses, net of reimbursements, for 1996 were $17.1 million as compared to $17.7 million in 1995. The slight decrease is the result of ongoing expense reduction efforts and reductions in personnel due to the property divestitures that have taken place over the past two years offset somewhat by increased expenses related to the Patina transaction. Net financing costs were $22.9 million compared to $21.7 million in 1995. The majority of the increase is the result of a higher average interest rate primarily due to Patina's subordinated notes which have an effective interest rate of 11.1%. Depletion, depreciation and amortization expense in 1996 increased to $84.5 million from $76.4 million in 1995. The increase reflects an increase in the overall depletion, depreciation and amortization rate per equivalent barrel from $5.80 to $6.41. This increase can be attributed to downward revisions in reserve quantities at year end 1995 primarily in proved undeveloped reserves which became uneconomic at year end 1995 prices and the growing impact of the Gulf of Mexico operations which are typically more capital intensive thus having a higher depletion rate. Acquisition, Exploration and Development During 1997, the Company, excluding Patina incurred $103.9 million in capital expenditures, including $74.7 million for development, $17.2 million for exploration, $8.9 million for property acquisitions, $2.2 million for field and office equipment and $900,000 for gas facility expansion. Of the total development expenditures, $36.4 million was concentrated in the Gulf of Mexico where five wells were placed on sales with two in progress at year end. The Company expended $13.0 million in the East Washakie Basin of southern Wyoming to place 19 wells on sales with five in progress at year end. In the Green River Basin of southern Wyoming, $10.1 million was incurred to place 16 wells on sales with five in progress at year end. The Company expended $6.2 million in the Piceance Basin of western Colorado to place 22 wells on sales with two in progress at year end. Exploration expenditures for 1997 totaled $17.2 million, including $8.0 million for two exploratory dry holes drilled in the Gulf of Mexico. The Company has been successful on two of four exploratory wells in the Gulf of Mexico. The balance is primarily the cost of 3-D seismic in the Gulf of Mexico ($4.5 million), in northern Louisiana ($2.3 million) and in the Rocky Mountain region ($2.2 million). 24 The Company, excluding Patina, expended $8.9 million relating to property acquisitions during 1997. Of this amount, $3.3 million was for producing properties and $5.6 million was for unevaluated properties. Financial Condition and Capital Resources During 1997, net cash provided by operations was $122.0 million, an increase of 20% compared to 1996. As of December 31, 1997, commitments for capital expenditures totaled $10.3 million. The Company anticipates that 1998 expenditures for exploration and development will approximate $130 to $140 million. The level of these and other future expenditures is largely discretionary, and the amount of funds devoted to any particular activity may increase or decrease significantly, depending on available opportunities and market conditions. The Company plans to finance its ongoing development, acquisition and exploration expenditures using internally generated cash flow, available cash, marketable securities and existing credit facilities. At December 31, 1997, the Company had total assets of $546.1 million. Total capitalization was $437.4 million, of which 60% was represented by stockholders' equity and 40% by subordinated debt. At December 31, 1997, the Company had $89.4 million in cash, and marketable securities with a market value of $143.1 million for its shares of Cairn and SOCI plc. The Patina disposition generated cash proceeds of approximately $127 million, of which $30.1 million was used in the fourth quarter to redeem the preferred stock. The Company maintains a $500 million revolving credit facility (the "SOCO Facility"). The SOCO Facility is divided into a $100 million short-term portion and a $400 million long-term portion that expires on December 31, 2000. Management's policy is to renew the facility on a regular basis. Credit availability is adjusted semiannually to reflect changes in reserves and asset values. The borrowing base available under the facility at December 31, 1997 was $120 million. During 1997, the average interest rate under the facility was 6.5%. At December 31, 1997, the Company had $1,000 outstanding under the facility. Covenants, in addition to other requirements, require maintenance of a current working capital ratio of 1 to 1 as defined, limit the incurrence of additional debt and restrict dividends, stock repurchases, certain investments, other indebtedness and unrelated business activities. Such restricted payments are limited by a formula that includes proceeds from certain securities, cash flow and other items. Based on such limitations, more than $120 million was available for the payment of dividends and other restricted payments at December 31, 1997. In June 1997, SOCO issued $175.0 million of 8.75% Senior Subordinated Notes ("Notes") due June 15, 2007. The net proceeds of the offering were $168.3 million which were used to redeem the Company's convertible subordinated notes due May 15, 2001, and reduce the balance outstanding under the SOCO Facility. Through the issuance of the new Notes and the redemption of the old notes, the Company has effectively extended its debt maturity by over six years. The Notes contain covenants that, among other things, limit the ability of SOCO to incur additional indebtedness, pay dividends, engage in transactions with shareholders and affiliates, create liens, sell assets, engage in mergers and consolidations and make investments in unrestricred subsidiaries. Such restricted payments are limited by a formula that includes proceeds from certain securities, cash flow and other items. Based on such limitations, more than $100 million was available for the payment of dividends and other restricted payments at December 31, 1997. The Company seeks to diversify its exploration and development risks by attracting partners for its significant development projects and maintaining a program to divest of marginal properties and assets which do not fit its long range plans. During 1997, the Company received $10.7 million in proceeds from sales of properties which were used primarily to fund development expenditures. None of the sales were individually significant. The Board has authorized, at management's discretion, the repurchase of up to $70 million of the Company's securities. During 1996 and 1997, the Company repurchased 3.4 million common shares for $52.6 million under this plan. During 1997, the Company redeemed its preferred depositary shares by issuing 3.6 million shares of common stock and paying $30.1 million in cash. As a result, a $1.0 million redemption premium is included in preferred dividends in the 1997 consolidated statement of operations. The Company has developed a plan to ensure its systems are compliant with the requirements to process transactions in the year 2000 and beyond. The 25 majority of the Company's systems are already compliant, with a detailed plan for the remaining systems scheduled to be modified or replaced within one year. The costs associated with final compliance are not considered material. The Company believes that its capital resources are adequate to meet the requirements of its business. However, future cash flows are subject to a number of variables including the level of production and oil and gas prices, and there can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned levels of capital expenditures or that increased capital expenditures will not be undertaken. Inflation and Changes in Prices While certain of the Company's costs are affected by the general level of inflation, factors unique to the petroleum industry result in independent price fluctuations. Over the past five years, significant fluctuations have occurred in oil and gas prices. In addition, changing prices often cause costs of equipment and supplies to vary as industry activity levels increase and decrease to reflect perceptions of future price levels. Although it is difficult to estimate future prices of oil and gas, price fluctuations have had, and will continue to have, a material effect on the Company. The following table indicates the average oil and gas prices received over the last five years and highlights the price fluctuations by quarter for 1997 and 1996. Average gas prices for 1997 and 1996 were increased by $.05 and $.08 per Mcf, respectively, by the benefit of the Company's hedging activities. Average price computations exclude contract settlements and other nonrecurring items to provide comparability. Average prices per equivalent barrel indicate the composite impact of changes in oil and gas prices. Natural gas production is converted to oil equivalents at the rate of 6 Mcf per barrel.
Average Prices -------------------------------------------- Crude Oil and Natural Equivalent Liquids Gas Barrels --------- --------- --------- (Per Bbl) (Per Mcf) (Per BOE) Annual ------ 1997 $ 18.88 $ 2.29 $ 15.06 1996 20.39 1.97 14.35 1995 16.96 1.35 11.00 1994 14.80 1.67 11.82 1993 15.41 1.94 13.41 Quarterly --------- 1997 ---- First $ 21.18 $ 2.83 $ 18.10 Second 18.33 1.85 13.09 Third 18.09 1.97 13.38 Fourth 16.86 2.65 16.09 1996 ---- First $ 17.95 $ 1.78 $ 12.80 Second 20.52 1.62 12.90 Third 20.25 1.78 13.60 Fourth 22.26 2.64 17.69
In December 1997, the Company received an average of $15.37 per barrel and $2.43 per Mcf for its production. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Reference is made to the Index to Consolidated Financial Statements on page 28 for the Company's consolidated financial statements and notes thereto. Quarterly financial data for the Company is presented on page 21 of this Form 10-K. Supplementary schedules for the Company have been omitted as not required or not applicable because the information required to be presented is included in the financial statements and related notes. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 27 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Report of Independent Public Accountants......................................29 Consolidated Balance Sheets as of December 31, 1997 and 1996..................30 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995.....................31 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995.....................32 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.....................33 Notes to Consolidated Financial Statements....................................34 28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Stockholders of Snyder Oil Corporation: We have audited the accompanying consolidated balance sheets of Snyder Oil Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Snyder Oil Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As explained in Note 2 to the financial statements, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in 1995. ARTHUR ANDERSEN LLP Fort Worth, Texas, February 10, 1998 29 SNYDER OIL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, -------------------------------- 1997 1996 ---------- ----------- ASSETS Current assets Cash and equivalents $ 89,443 $ 27,922 Accounts receivable 21,521 58,944 Inventory and other 2,911 11,212 ---------- ----------- 113,875 98,078 ---------- ----------- Investments 143,066 129,681 ---------- ----------- Oil and gas properties, successful efforts method 410,973 887,721 Accumulated depletion, depreciation and amortization (136,669) (252,334) ---------- ----------- 274,304 635,387 ---------- ----------- Gas facilities and other 21,317 28,111 Accumulated depreciation and amortization (6,474) (11,798) ---------- ----------- 14,843 16,313 ---------- ----------- $ 546,088 $ 879,459 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 23,278 $ 51,867 Accrued liabilities 34,271 37,043 ---------- ----------- 57,549 88,910 ---------- ----------- Senior debt 1 188,231 Subordinated notes 173,635 103,094 Convertible subordinated notes - 80,748 Deferred taxes payable 31,649 9,034 Other noncurrent liabilities 19,498 28,064 Minority interest - 86,710 Commitments and contingencies Stockholders' equity Preferred stock, $.01 par, 10,000,000 shares authorized, 6% Convertible preferred stock, zero and 1,033,500 shares issued and outstanding - 10 Common stock, $.01 par, 75,000,000 shares authorized, 35,696,213 and 31,456,027 issued 357 315 Capital in excess of par value 234,118 260,221 Retained earnings 44,390 25,711 Common stock held in treasury, 2,366,891 and 250,000 shares at cost (40,461) (3,510) Unrealized gain on investments 25,352 11,921 ---------- ----------- 263,756 294,668 ---------- ----------- $ 546,088 $ 879,459 ========== =========== The accompanying notes are an integral part of these statements.
30 SNYDER OIL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data)
Year Ended December 31, -------------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Revenues Oil and gas sales $ 207,216 $ 189,327 $ 144,608 Gas transportation, processing and marketing 7,004 17,655 38,256 Gains on sales of equity interests in investees 32,800 69,343 2,183 Gains on sales of properties 8,708 8,786 12,254 ---------- ----------- ----------- 255,728 285,111 197,301 ---------- ----------- ----------- Expenses Direct operating 48,523 49,638 52,486 Cost of gas and transportation 6,692 15,020 29,374 Exploration 17,046 4,232 8,033 General and administrative 20,363 17,143 17,680 Financing costs, net 23,029 22,923 21,679 Other expense (income) 935 (1,327) 463 Litigation settlement - - 4,400 (Gain) loss on sale of subsidiary interest (5,437) 15,481 - Depletion, depreciation and amortization 79,862 84,547 76,378 Property impairments 7,275 2,753 27,412 ---------- ----------- ----------- Income (loss) before income taxes, minority interest and extraordinary item 57,440 74,701 (40,604) ---------- ----------- ----------- Provision (benefit) for income taxes Current 975 33 25 Deferred 16,881 4,313 (1,370) ---------- ----------- ----------- 17,856 4,346 (1,345) ---------- ----------- ----------- Minority interest in subsidiaries 4,119 7,405 572 ---------- ----------- ----------- Income (loss) before extraordinary item 35,465 62,950 (39,831) Extraordinary item - loss on early extinguishment of debt, net of income tax benefit of $1,533 2,848 - - ---------- ----------- ----------- Net income (loss) 32,617 62,950 (39,831) ---------- ----------- ----------- Preferred dividends 5,978 6,210 6,210 ---------- ----------- ----------- Income (loss) applicable to common $ 26,639 $ 56,740 $ (46,041) ========== =========== =========== Income (loss) per common share before extraordinary item $ .96 $ 1.81 $ (1.53) ========== =========== =========== Net income (loss) per common share $ .87 $ 1.81 $ (1.53) ========== =========== =========== Income (loss) per common share before extraordinary item - assuming dilution $ .95 $ 1.72 $ (1.53) ========== =========== =========== Net income (loss) per common share - assuming dilution $ .86 $ 1.72 $ (1.53) ========== =========== =========== Weighted average shares outstanding 30,588 31,308 30,186 ========== =========== =========== The accompanying notes are an integral part of these statements.
31 SNYDER OIL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands)
Preferred Stock Common Stock Capital in Retained ------------------ ------------------- Excess of Earnings Treasury Shares Amount Shares Amount Par Value (Deficit) Stock ------ ------ ------ -------- --------- --------- -------- Balance, December 31, 1994 1,035 $ 10 30,209 $ 302 $ 255,961 $ 20,959 $ (2,288) Common stock grants and exercise of options - - 138 1 856 - (169) Issuance of common - - 1,083 11 13,021 - - Dividends - - - - (3,927) (10,129) - Net loss - - - - - (39,831) - ------- -------- ------- -------- --------- --------- --------- Balance, December 31, 1995 1,035 10 31,430 314 265,911 (29,001) (2,457) Common stock grants and exercise of options - - 267 3 3,179 - (258) Issuance of common - - 399 4 3,689 - - Repurchase of common - - (640) (6) (6,243) - (795) Repurchase of preferred (1) - - - (142) - - Dividends - - - - (6,173) (8,238) - Net income - - - - - 62,950 - ------- -------- ------- -------- --------- --------- --------- Balance, December 31, 1996 1,034 10 31,456 315 260,221 25,711 (3,510) Common stock grants and exercise of options - - 607 6 2,951 - - Issuance of treasury - - - - - - 8,655 Conversion of subordinated notes into common - - 1 - 25 - - Repurchase of common - - - - - - (45,606) Redemption of preferred (291) (3) - - (29,050) (1,049) - Conversion of preferred (743) (7) 3,632 36 (29) - - Dividends - - - - - (12,889) - Net income - - - - - 32,617 - ------- -------- ------- -------- --------- --------- --------- Balance, December 31, 1997 - - 35,696 $ 357 $ 234,118 $ 44,390 $ (40,461) ======= ======== ======= ======== ========= ========= ========= The accompanying notes are an integral part of these statements. 32
SNYDER OIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, --------------------------------------------- 1997 1996 1995 ------------ ----------- ---------- Operating activities Net income (loss) $ 32,617 $ 62,950 $ (39,831) Adjustments to reconcile net income (loss) to net cash provided by operations Amortization of deferred credits - (1,052) (2,511) Gains on sales of investments (32,800) (68,343) (809) Gains on sales of properties (8,708) (8,786) (12,254) Exploration expense 17,046 4,232 8,033 Equity in (earnings) losses of unconsolidated subsidiaries (760) (421) 1,319 (Gain) loss on sale of subsidiary interest (5,437) 15,481 - Depletion, depreciation and amortization 79,862 84,547 76,378 Property impairments 7,275 2,753 27,412 Deferred taxes 15,348 4,313 (1,370) Minority interest 4,119 7,405 572 Loss on early extinguishment of debt 4,381 - - Changes in current and other assets and liabilities Decrease (increase) in Accounts receivable 24,612 (15,869) 7,142 Inventory and other 426 5,175 3,617 Increase (decrease) in Accounts payable (8,688) 2,771 (8,521) Accrued liabilities (9,497) (316) 5,165 Other liabilities 2,245 6,890 4,779 ----------- ----------- ---------- Net cash provided by operations 122,041 101,730 69,121 ----------- ----------- ---------- Investing activities Acquisition, development and exploration (135,901) (128,598) (92,353) Proceeds from sales of investments 156,969 1,635 14,786 Outlays for investments - (9,013) - Proceeds from sales of properties 10,740 73,620 109,988 ----------- ----------- ---------- Net cash realized (used) by investing 31,808 (62,356) 32,421 ----------- ----------- ---------- Financing activities Issuance of common 2,982 1,523 688 Issuance of subordinated notes 168,261 - - Increase (decrease) in senior indebtedness (89,775) (13,289) (86,193) Early extinguishment of convertible subordinated notes (85,199) - - Dividends (12,889) (14,411) (14,056) Deferred credits - (120) 3,549 Redemption of preferred (30,102) - - Repurchase of stock (45,606) (7,186) - Repurchase of subordinated notes - (5,232) - ----------- ----------- ---------- Net cash used by financing (92,328) (38,715) (96,012) ----------- ----------- ---------- Increase in cash 61,521 659 5,530 Cash and equivalents, beginning of year 27,922 27,263 21,733 ----------- ----------- ---------- Cash and equivalents, end of year $ 89,443 $ 27,922 $ 27,263 =========== =========== ========== Noncash investing and financing activities Acquisition of properties and stock via stock issuances $ 8,655 $ 3,693 $ 13,032 Acquisition of properties recorded as senior debt - 31,730 - Acquisition via subsidiary stock issuance - 115,067 - Exchange of subsidiary stock for stock of investee 30,923 - - The accompanying notes are an integral part of these statements.
33 SNYDER OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND NATURE OF BUSINESS Snyder Oil Corporation ("SOCO") and its subsidiaries (collectively, the "Company") are engaged in the production, development, acquisition and exploration of domestic oil and gas properties, primarily in the Gulf of Mexico, the Rocky Mountains and northern Louisiana. The Company also has investments in two international exploration and production companies, SOCO International plc ("SOCI plc") and Cairn Energy plc ("Cairn"). The Company, a Delaware corporation, is the successor to a company formed in 1978. In October 1997, the Company sold its 74% interest in Patina Oil and Gas Corporation ("Patina"). Net proceeds from the sale were approximately $127 million resulting in a $2.8 million gain, net of tax. The following table represents the Company's condensed statements of operations, excluding Patina. Had the disposition of Patina been consummated on January 1, 1997 and 1996, financing costs, net of tax, would have been reduced by $3.3 million in 1997, and $4.5 million in 1996, from the amounts shown in the following schedule. Future results may differ substantially from these condensed statements or pro forma results due to changes in oil and gas prices, production declines and other factors. Therefore, such statements cannot be considered indicative of future operations.
(In thousands, except per share and production data) For the Year Ended December 31, ----------------------------------- 1997 1996 ----------- ----------- Unaudited Revenues Oil and gas sales $ 133,851 $ 107,143 Other 48,512 95,784 ----------- ----------- 182,363 202,927 Expenses Direct operating 35,016 35,118 Exploration 16,926 4,008 General and administrative 16,566 10,993 Financing costs, net 10,556 8,619 Depletion, depreciation and amortization 43,599 39,725 Other 10,143 32,930 ----------- ----------- Income before taxes, minority interest and extraordinary item 49,557 71,534 Provision for income taxes 17,856 4,740 Minority interest 616 4,866 Extraordinary item, net of tax 2,848 - ----------- ----------- Net income $ 28,237 $ 61,928 =========== =========== Net income per common share $ .73 $ 1.78 =========== =========== Weighted average shares outstanding 30,588 31,308 =========== =========== Daily Production Oil (Bbls) 5,617 6,000 Gas (Mcf) 113,361 87,139
34 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company. Affiliates in which the Company owns more than 50% but less than 100% are fully consolidated, with the related minority interest being deducted from subsidiary earnings and stockholders' equity. Affiliates in which the Company owns between 20% and 50% are accounted for using the equity method. Affiliates in which the Company owns less than 20% are accounted for using the cost method. At December 31, 1997, affiliates accounted for under this method included Cairn and SOCI plc. The Company accounts for its interest in joint ventures and partnerships using the proportionate consolidation method, whereby its proportionate share of assets, liabilities, revenues and expenses are consolidated. Risks and Uncertainties Historically, the market for oil and gas has experienced significant price fluctuations. Prices for gas in the Rocky Mountain region, where the Company produces a substantial portion of its natural gas, have traditionally been particularly volatile. Prices are significantly impacted by the local weather, supply in the area, seasonal variations in local demand and limited transportation capacity to other regions of the country. Increases or decreases in prices received, particularly in the Rocky Mountains, could have a significant impact on the Company's future results of operations. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Producing Activities The Company utilizes the successful efforts method of accounting for its oil and gas properties. Consequently, leasehold costs are capitalized when incurred. Unproved properties are assessed periodically within specific geographic areas and impairments in value are charged to expense. During 1997 and 1996, the Company provided unproved property impairments of $700,000 and $2.8 million, respectively. Exploratory expenses, including geological and geophysical expenses and delay rentals, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined to be unsuccessful. Costs of productive wells, unsuccessful developmental wells and productive leases are capitalized and amortized on a unit-of-production basis over the life of the remaining proved or proved developed reserves, as applicable. Gas is converted to equivalent barrels at the rate of 6 Mcf to 1 barrel. Amortization of capitalized costs is generally provided on a property-by-property basis. Estimated future abandonment costs (net of salvage values) are accrued at unit-of-production rates and taken into account in determining depletion, depreciation and amortization. The Company follows Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires the Company to assess the need for an impairment of capitalized costs of oil and gas properties and other assets. Oil and gas properties are generally assessed on a property-by-property basis. If an impairment is indicated based on undiscounted expected future net cash flows, then it is recognized to the extent that net capitalized costs exceed discounted expected future net cash flows. Accordingly, during 1997 and 1995, the Company provided for $6.6 million and $27.4 million, respectively, for such impairments. During 1996, the Company did not provide for any such impairments. Section 29 Tax Credits The Company from time to time enters into arrangements to monetize its Section 29 tax credits. These arrangements result in revenue increases of approximately $.40 per Mcf on production volumes from qualified Section 29 properties. As a result of such arrangements, the Company recognized additional gas revenues of $2.4 million during 1997 and $2.5 million during each of 1996 and 1995. Of these amounts, $1.3 million in 1997 and $1.5 million in 1996 were 35 recognized by Patina. These arrangements, excluding Patina, are expected to continue through 2002. Gas Imbalances The Company uses the sales method to account for gas imbalances. Under this method, revenue is recognized based on the cash received rather than the proportionate share of gas produced. Gas imbalances at December 31, 1997 and 1996 were not significant. Financial Instruments The following table sets forth the book value and estimated fair values of financial instruments:
December 31, December 31, 1997 1996 ---------------------- ---------------------- Book Fair Book Fair Value Value Value Value --------- --------- --------- --------- (In thousands) SOCO Cash and equivalents $ 89,443 $ 89,443 $ 21,769 $ 21,769 Investments 143,066 143,066 129,681 163,477 Senior debt (1) (1) (93,731) (93,731) Subordinated notes (173,635) (178,063) - - Convertible subordinated notes - - (80,748) (82,866) Long-term commodity contracts - 7,318 - 5,040 Interest rate swap - - - (19) Patina Cash and equivalents - - 6,153 6,153 Senior debt - - (94,500) (94,500) Subordinated notes - - (103,094) (105,650)
The book value of cash and equivalents approximates fair value because of the short maturity of those instruments. See Note (3) for a discussion of the Company's investments. The fair value of senior debt is presented at face value given its floating rate structure. The fair value of the subordinated notes and convertible subordinated notes are estimated based on their December 31, 1997 and 1996 closing prices on the New York Stock Exchange. From time to time, the Company enters into commodity contracts to hedge the price risk of a portion of its production. Gains and losses on such contracts are deferred and recognized in income as an adjustment to oil and gas sales in the period to which the contracts relate. In 1994, the Company entered into a long-term gas swap arrangement in order to lock in the price differential between the Rocky Mountain and Henry Hub prices on a portion of its Rocky Mountain gas production. The contract covers 20,000 MMBtu's per day through 2004. At December 31, 1997, that volume represented approximately 30% of the Company's Rocky Mountain gas production. The fair value of the contract was based on the market price quoted for a similar instrument. At December 31, 1997, the Company had entered into various swap sales contracts with a weighted average price (NYMEX based) of $2.62 for contract volumes of 4,205,000 MMBtu's of natural gas for January 1998 through May 1998. Also, the Company had entered into various swap sales contracts with a weighted average price (CIG-Inside FERC based) of $2.14 for contract volumes of 2,250,000 MMBtu's of natural gas for January 1998 through March 1998. The unrecognized gain on these contracts totaled $2.4 million based on December 31, 1997 market values. Subsequent to December 31, 1997, the Company has entered into additional swap sales contracts with a weighted average price (NYMEX based) of $2.30 for contract volumes of 17,120,000 MMBtu's of natural gas for April 1998 36 through October 1998. Also, the Company has entered into additional swap sales contracts with a weighted average price (CIG-Inside FERC based) of $1.71 for contract volumes of 3,638,000 MMBtu's of natural gas for April 1998 through October 1998. In September 1995, the Company entered into an interest rate swap covering $50 million of its bank debt. The agreement required payment to a counterparty based on a fixed rate of 5.585% and required the counterparty to pay the Company interest at the then current 30 day LIBOR rate. Accounts receivable or payable under this agreement were recorded as adjustments to financing costs and settled on a monthly basis. The agreement matured in September 1997. At December 31, 1996, the fair value of the agreement was estimated at the net present value discounted at 10%. Other All liquid investments with an original maturity of three months or less are considered to be cash equivalents. Certain amounts in prior years consolidated financial statements have been reclassified to conform with current classification. (3) INVESTMENTS The Company has investments in foreign energy companies and long-term notes receivable. The following table sets forth the book values and estimated fair values of these investments:
December 31, 1997 December 31, 1996 -------------------------- -------------------------- Book Fair Book Fair Value Value Value Value ----------- ----------- ----------- ----------- (In thousands) Marketable securities $ 143,066 $ 143,066 $ 115,558 $ 115,558 Equity method investments - - 8,789 42,585 Long-term notes receivable - - 5,334 5,334 ----------- ----------- ----------- ----------- $ 143,066 $ 143,066 $ 129,681 $ 163,477 =========== =========== =========== ===========
The Company follows SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires that investments in marketable securities accounted for using the cost method and long-term notes receivable be adjusted to their market value with a corresponding increase or decrease to stockholders' equity. The pronouncement does not apply to investments accounted for using the equity method. Cairn From May 1993 to November 1996, the Company had an investment in Command Petroleum Limited ("Command"), an Australian oil company, which was accounted for using the equity method. In November 1996, the Company exchanged its interest in Command for 16.2 million shares of freely marketable common stock of Cairn, an international independent oil company based in Edinburgh, Scotland whose shares are listed on the London Stock Exchange. The Company recognized a gain of $65.5 million in 1996 as a result of this exchange. SOCI plc In 1993, SOCO Perm Russia, Inc. ("SOCO Perm"), was organized by the Company and a U.S. industry participant. SOCO Perm and a Russian partner formed the Permtex joint venture to develop proven oil fields in the Volga-Urals Basin of Russia. A private placement in April 1996 reduced the Company's interest to 34.91%. The Company recognized a gain of $2.6 million as a result of this transaction. In 1994, the Company formed a consortium to explore the Tamtsag Basin of eastern Mongolia, SOCO Tamtsag Mongolia, Inc. ("SOCO Tamtsag"). In 1996, the Company completed the exchange of a portion of its interest to an industry participant for consulting services valued at $1.5 million. As a result of this transaction, the Company's ownership was reduced to 42% and an $832,000 gain was recognized. 37 In May 1997, a newly formed entity, SOCI plc, completed an initial public offering of its shares on the London Stock Exchange. Simultaneously with the offering, the Company exchanged its shares of SOCO International Operations, Inc., which included the Company's interests in SOCO Perm, SOCO Tamtsag and certain Thailand properties, for shares of SOCI plc. Certain minority interest owners in these ventures also contributed their interests. As part of the listing, SOCI plc acquired Cairn's UK onshore company as well as certain assets in Yemen and Tunisia that were formerly owned by Command. The offering raised approximately $75 million of new equity capital for SOCI plc. The Company received 7.8 million shares (15.9% of the total) of SOCI plc, which it has agreed not to sell for the two-year period following the listing. The Company recognized a gain of $19.8 million as a result of this exchange. Marketable Securities As a result of the transactions described above, the Company has investments in equity securities of two publicly traded foreign energy companies, Cairn and SOCI plc. Both investments are accounted for using the cost method. In the first quarter of 1997, the Company sold 4.5 million Cairn shares at an average price of $8.81 per share realizing $39.2 million in proceeds resulting in a gain of $13.0 million. The Company's carrying cost in the Cairn and SOCI plc shares was $73.1 million and $30.9 million, respectively, at December 31, 1997. The market value of the Cairn and SOCI plc shares approximated $96.1 million and $47.0 million, respectively, at December 31, 1997. In accordance with SFAS 115, at December 31, 1997 and 1996, respectively, investments were increased by $39.0 million and $20.4 million in gross unrealized holding gains, stockholders' equity was increased by $25.3 million and $11.9 million and deferred taxes payable were increased by $13.7 million and $7.2 million. In addition, minority interest liability was increased by $1.3 million at December 31, 1996. Notes Receivable The Company held notes receivable due from a director at December 31, 1997 and 1996. At December 31, 1996, the Company also held a long-term note receivable due from SOCO Tamtsag, a Mongolian affiliate, with a book value of $4.7 million which was contributed to SOCI plc along with the Company's interest in SOCO Tamtsag in May 1997. The notes from a director, which originated in connection with an option to purchase 10% of the Company's international affiliates are due April 10, 1998, and are secured by shares of the Company which are owned by the director. At December 31, 1997, the notes were classified as current assets in the accompanying financial statements and had a book value of $647,000. At December 31, 1997 and 1996, the fair value of the notes receivable, based on existing market conditions and the anticipated future net cash flow related to the notes, approximated their carrying cost. 38 (4) OIL AND GAS PROPERTIES AND GAS FACILITIES The cost of oil and gas properties at December 31, 1997 and 1996 includes $21.3 million and $32.7 million of unevaluated leasehold. Such properties are held for exploration, development or resale. The following table sets forth costs incurred related to oil and gas properties and gas processing and transportation facilities:
Excluding Patina -------------------------------------------------- 1997 1996 1995 ----------- ------------ ----------- (In thousands) Proved acquisitions $ 3,338 $ 54,708 $ 13,025 Acreage acquisitions 5,609 24,589 7,388 Development 74,676 34,774 50,437 Exploration 17,217 4,364 7,798 Gas processing, transportation and other 3,096 3,612 7,873 ----------- ------------ ----------- $ 103,936 $ 122,047 $ 86,521 =========== ============ ===========
Patina -------------------------------------------------- 1997 1996 1995 ------------ ------------ ----------- (In thousands) Proved acquisitions $ 338 $ 218,380 $ 650 Development 11,322 8,301 12,141 Exploration 121 224 416 Gas processing, transportation and other 329 - 13 ------------ ------------ ----------- $ 12,110 $ 226,905 $ 13,220 ============ ============ ===========
Excluding Patina, the 1997 development expenditures of $74.7 million were concentrated in the Gulf of Mexico and Rocky Mountains. During 1997, the Company placed 72 wells on sales with 24 wells in progress at year end. 1997 exploration costs include the costs of two exploratory dry holes in the Gulf of Mexico and continuing seismic programs in the Gulf of Mexico, northern Louisiana and the Rocky Mountains. Proved acquisitions during 1996 included $218.4 million related to the formation of Patina including the acquisition of Gerrity Oil & Gas Corporation ("GOG"). In October 1997, the Company sold its interest in Patina. Net proceeds from the sale were approximately $127 million. (5) INDEBTEDNESS The following indebtedness was outstanding on the respective dates:
December 31, December 31, 1997 1996 ------------ ------------ (In thousands) SOCO subordinated notes $ 173,635 $ - SOCO bank facility 1 93,731 SOCO convertible subordinated notes - 80,748 ----------- --------- 173,636 174,479 Patina subordinated notes - 103,094 Patina bank facilities - 94,500 ----------- --------- $ 173,636 $ 372,073 =========== =========
SOCO maintains a $500 million revolving credit facility ("SOCO Facility"). The SOCO Facility is divided into a $400 million long-term portion and a $100 million short-term portion. Credit availability is adjusted semiannually to reflect changes in reserves and asset values. The borrowing base available under the facility was $120 million at December 31, 1997. Borrowings under the facility generally bear interest at prime, with an option to select 39 LIBOR plus .75% or CD plus .75%. The margin on LIBOR or CD increases to 1% when the Company's consolidated senior debt becomes greater than 80% of its consolidated tangible net worth, as defined. During 1997, the average interest rate under the facility was 6.5%. The Company pays certain fees based on the unused portion of the borrowing base. Covenants, in addition to other requirements, require maintenance of a current working capital ratio of 1 to 1 as defined, limit the incurrence of additional debt and restrict dividends, stock repurchases, certain investments, other indebtedness and unrelated business activities. Such restricted payments are limited by a formula that includes proceeds from certain securities, cash flow and other items. Based on such limitations, more than $120 million was available for the payment of dividends and other restricted payments at December 31, 1997. In June 1997, SOCO issued $175.0 million of 8.75% Senior Subordinated Notes ("Notes") due June 15, 2007. The Notes were sold at a discount resulting in an 8.875% effective interest rate. The net proceeds of the offering were $168.3 million which were used to redeem convertible subordinated notes and pay down the balance outstanding under the credit facility. The Notes are redeemable at the option of the Company on or after June 15, 2002, initially at 104.375% of principal, and at prices declining to 100% of principal on or after June 15, 2005. Upon the occurrence of a change of control, as defined in the Notes, SOCO would be obligated to make an offer to purchase all outstanding Notes at a price of 101% of the principal amount thereof. In addition, SOCO would be obligated, subject to certain conditions, to make offers to purchase the Notes with the net cash proceeds of certain asset sales or other dispositions of assets at a price of 100% of the principal amount thereof. The Notes are unsecured general obligations of SOCO and are subordinated to the SOCO Facility and to any existing and future indebtedness of SOCO's subsidiaries. The Notes contain covenants that, among other things, limit the ability of SOCO to incur additional indebtedness, pay dividends, engage in transactions with shareholders and affiliates, create liens, sell assets, engage in mergers and consolidations and make investments in unrestricted subsidiaries. Such restricted payments are limited by a formula that includes proceeds from certain securities, cash flow and other items. Based on such limitations, more than $100 million was available for the payment of dividends and other restricted payments at December 31, 1997. The Company's international subsidiaries and Patina are considered unrestricted subsidiaries. As such, their activities and the proceeds realized from any disposition of these interests are not restricted by the Note convenants. In 1994, SOCO issued $86.3 million of 7% convertible subordinated notes due May 15, 2001. The net proceeds were $83.4 million. The notes were convertible into common stock at $22.57 per share. During 1996 and the first six months of 1997, the Company repurchased $3.8 million and $824,000, respectively, of these notes in accordance with a repurchase program. The notes were redeemed by the Company in June 1997 at 103.51% of principal. As a result of the note redemption, the Company incurred a loss of $4.4 million or $2.8 million net of tax ($.09 per common share) which has been recorded as an extraordinary item in the accompanying financial statements. As a result of the disposition of Patina in October 1997, Patina's indebtedness is no longer included in the Company's consolidated financial statements. Scheduled maturities of indebtedness for the next five years are zero in 1998 and 1999, $1,000 in 2000 and zero in 2001 and 2002. The long-term portion of the SOCO Facility is scheduled to expire in 2000. However, it is management's policy to renew both the short-term and long-term facilities and extend their maturities on a regular basis. Consolidated cash payments for interest were $28.6 million, $21.9 million and $22.1 million, respectively, for 1997, 1996 and 1995. 40 (6) FEDERAL INCOME TAXES At December 31, 1997, the Company had no liability for foreign taxes. A reconciliation of the United States federal statutory rate to the Company's effective income tax rate for 1997, 1996 and 1995 follows:
1997 1996 1995 ---------- ----------- ---------- Federal statutory rate 35% 35% (35%) Net change in valuation allowance (3%) (29%) - Tax effect of cumulative earnings of subsidiary 1% - - Loss in excess of net deferred tax liability - - 32% ---------- ---------- --------- Effective income tax rate 33% 6% (3%) ========== ========== =========
For book purposes, the components of the net deferred tax asset and liability at December 31, 1997 and 1996, respectively, were:
1997 1996 ----------- ----------- (In thousands) Deferred tax assets NOL and capital loss carryforwards $ 27,307 $ 65,126 AMT credit carryforwards 1,401 644 Production payment receivables 5,557 32,654 Reserves and other 6,031 5,613 ----------- ----------- 40,296 104,037 ----------- ----------- Deferred tax liabilities Depreciable and depletable property (30,964) (59,865) Investments and other (25,884) (42,252) Unrealized investments gains (15,097) (7,131) ------------ ----------- (71,945) (109,248) ----------- ----------- Deferred tax liability (31,649) (5,211) Valuation allowance - (3,823) ----------- ----------- Net deferred tax liability $ (31,649) $ (9,034) =========== ===========
The Company had regular net operating loss carryforwards of $78.0 million at December 31, 1997. The majority of these carryforwards expire between 2006 and 2010 with a minimal amount expiring between 1998 and 2005. At December 31, 1997, the Company also had alternative minimum tax credit carryforwards of $1.4 million which are available indefinitely. Cash payments for income taxes were $500,000 in 1997 and $245,000 in 1995. No cash payments were made for income taxes in 1996. (7) STOCKHOLDERS' EQUITY A total of 75 million common shares, $.01 par value, are authorized of which 35.7 million were issued and 33.3 million were outstanding at December 31, 1997. In 1997, the Company issued a total of 4.2 million shares of common stock as follows: 3.6 million for the conversion of preferred shares, 300,000 in exchange for 2.1 million of outstanding warrants and 308,000 primarily for the exercise of stock options. The Company also issued 530,000 shares of treasury stock in exchange for a director's 10% interest in SOCO International Holdings, Inc. During 1997, the Company repurchased 2.6 million shares of common stock for $45.6 million. In 1996, the Company issued 666,000 shares of common stock, with 399,000 shares issued in exchange for the remaining outstanding stock of SOCO Offshore, Inc. (formerly DelMar Operating, Inc.) and 267,000 shares issued primarily for the exercise of stock options and repurchased 725,000 shares of common stock for $7.0 million. Quarterly dividends of $.065 per share were paid in 1997 and 1996. For book purposes, for the period between June 1995 and September 1996, common stock dividends were in excess of retained earnings and, as such, were treated as distributions of capital. 41 A total of 10 million preferred shares, $.01 par value, have been authorized. In 1993, 4.1 million depositary shares (each representing a quarter interest in a share of $100 liquidation value stock) of 6% preferred stock were sold through an underwriting. The net proceeds were $99.3 million. During 1996, the Company repurchased 6,000 shares for $142,000. During 1997, the Company called the preferred stock for redemption. The preferred stock was convertible into common stock at $20.46 per share or the liquidation preference was $25.00 per depositary share, plus accrued and unpaid dividends. As a result of the call, 72% of the preferred shares were converted into 3.6 million shares of common stock. The remaining preferred shares were redeemed for $29.1 million before accrued dividends and a redemption premium. The Company paid $5.0 million and $6.2 million ($1.50 per 6% convertible depositary share per annum) in preferred dividends during 1997 and 1996, respectively. A $1.0 million redemption premium for the preferred shares is also included in the 1997 preferred dividend amount in the statement of operations. Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" which prescribes standards for computing and presenting earnings per share and supersedes APB Opinion No. 15, "Earnings per Share." In accordance with SFAS 128, income applicable to common has been calculated based on the weighted average shares outstanding during the year and income applicable to common-assuming dilution has been calculated assuming the exercise or conversion of all dilutive securities as of January 1, 1997 and 1996, or as of the date of issuance if later. The following table illustrates the calculation of earnings per share for income from continuing operations.
Income Shares Per-Share ------------ -------- ------------ For the Year Ended December 31, 1997 ------------------------------------ Income before extraordinary item $ 35,465 Preferred dividends (5,978) ----------- Income applicable to common Income available to common shareholders 29,487 30,588 $ .96 Effect of Dilutive Securities Stock options 513 ----------- ----------- Income applicable to common-assuming dilution Income available to common shareholders + assumed conversions $ 29,487 31,101 $ .95 =========== =========== =========== For the Year Ended December 31, 1996 ------------------------------------ Income before extraordinary item $ 62,950 Preferred dividends (6,210) ----------- Income applicable to common Income available to common shareholders 56,740 31,308 $ 1.81 Effect of Dilutive Securities Stock options 153 Convertible preferred stock 6,210 5,052 ----------- ----------- Income applicable to common-assuming dilution Income available to common shareholders + assumed conversions $ 62,950 36,513 $ 1.72 =========== =========== ===========
As of December 31, 1997, the only potentially dilutive securities outstanding were stock options that have yet to be exercised. The Company maintains a stock option plan for certain employees providing for the issuance of options at prices not less than fair market value. Options to acquire up to three million shares of common stock may be outstanding at any given time. The specific terms of grant and exercise are determined by a 42 committee of independent members of the Board. A stock grant and option plan is also maintained by the Company whereby each nonemployee Director receives 500 common shares quarterly in payment of their annual retainer. It also provides for 2,500 options to be granted annually to each nonemployee Director. The majority of currently outstanding options vest over a three year period (30%, 60%, 100%) and expire five years from the date of grant. At December 31, 1997, the Company has two fixed stock option compensation plans, which are described above. The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for the plans. Accordingly, no compensation cost has been recognized for these fixed stock option plans. Had compensation cost for the Company's fixed stock option compensation plans been determined consistent with the method established by SFAS 123, "Accounting for Stock-Based Compensation," the Company's net income (in thousands) and earnings per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 --------- -------- --------- Net income (loss) As Reported $ 32,617 $ 62,950 $(39,831) Pro forma $ 29,260 $ 61,936 $(40,567) Net income (loss) per common As Reported $ .87 $ 1.81 $(1.53) share Pro forma $ .76 $ 1.78 $(1.55)
The fair value of each option grant is estimated on the date of grant using the Black-Sholes option-pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield of 1.6%, 2.8% and 1.9%; expected volatility of 41%, 44% and 46%; risk-free interest rates of 6.1%, 5.7% and 7.2%; and an expected life of 4.5 years. A summary of the status of the Company's two fixed stock option plans as of December 31, 1997, 1996 and 1995 and changes during the years ended on those dates is presented below (shares are in thousands):
1997 1996 1995 -------------------- ------------------- --------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----------- ------ --------- ------ --------- Outstanding at beginning of year 1,674 $12.72 1,711 $13.21 1,484 $12.96 Granted 1,013 16.82 519 9.50 610 14.06 Exercised (295) 11.27 (255) 6.69 (124) 7.34 Forfeited (65) 14.88 (301) 14.71 (259) 16.62 ------ ------ ------- Outstanding at end of year 2,327 14.64 1,674 12.72 1,711 13.21 ====== ====== ======= Options exercisable at year end 1,105 772 743 Weighted-average fair value of options granted during the year $5.96 $3.27 $5.78
43 The following table summarizes information about fixed stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable ---------------------------------------------------- -------------------------------- Weighted- Number Average Number Range Outstanding at Remaining Weighted- Exercisable at Weighted- of December 31, Contractual Life Average December 31, Average Exercise Prices 1997 (in years) Exercise Price 1997 Exercise Price - ----------------- -------------- ---------------- -------------- --------------- -------------- $ 6.00 to 9.75 443,000 3.0 $ 8.64 232,000 $ 7.96 10.63 to 14.13 585,000 2.1 13.58 427,000 13.55 16.13 to 17.50 858,000 4.0 16.24 176,000 16.37 18.13 to 23.81 441,000 2.9 18.93 270,000 18.27 ------------- ------------- $ 6.00 to 23.81 2,327,000 3.1 $14.64 1,105,000 $13.97 ------------- -------------
(8) MAJOR CUSTOMERS In 1997, Sonat Marketing Company accounted for approximately 17% of revenues, Engage Energy accounted for approximately 14%, and Duke Power and Energy accounted for approximately 12%. In 1996, Duke Power and Energy accounted for approximately 11% of revenues. In 1995, Amoco Production Company accounted for approximately 10% of revenues. Management believes that the loss of any individual purchaser would not have a material adverse impact on the financial position or results of operations of the Company. (9) EMPLOYEE RETIREMENT PLAN The Company has a defined contribution plan pursuant to Section 401(k) of the Internal Revenue Code. Substantially all employees are eligible to participate after the completion of four months of service and may contribute up to 15% of their compensation. The Board of Directors elected to contribute an amount equal to at least 7% of each employee's pretax salary for the years ended December 31, 1997, 1996 and 1995 resulting in total Company contributions of $766,000, $1.2 million and $1.0 million, respectively. (10) GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION Pursuant to the Notes, all of the Company's subsidiaries except Patina and SOCO International (the "Unrestricted Subsidiaries") would be guarantors of the Notes (the "Restricted Group"). The condensed consolidating financial information below shows the impact of the guarantors and the Unrestricted Subsidiaries to the Company's consolidated position as of and for the year ended December 31, 1997. "SOCO" includes all subsidiaries other than SOCO Offshore and the Unrestricted Subsidiaries. In the aggregate, the subsidiaries other than SOCO Offshore and the Unrestricted Subsidiaries hold less than 10% of the total assets and revenues included in SOCO. 44 CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 1997 (In thousands)
Restricted Group ---------------------------- SOCO Unrestricted SOCO Offshore Subsidiaries Eliminations Consolidated ----------- ----------- ------------ ------------ ------------ Current assets $ 87,843 $ 21,671 $ 4,361 $ - $ 113,875 Investments 141,501 - 143,066 (141,501) 143,066 Oil and gas properties, net 174,160 100,144 - - 274,304 Gas facilities and other, net 14,843 - - - 14,843 ----------- ----------- ----------- ----------- ----------- Total assets $ 418,347 $ 121,815 $ 147,427 $ (141,501) $ 546,088 =========== =========== =========== =========== =========== Current liabilities $ 52,201 $ 5,348 $ - $ - $ 57,549 Senior debt 1 - - - 1 Subordinated notes 173,635 - - - 173,635 Deferred taxes payable (15,832) - 47,481 - 31,649 Other noncurrent liabilities 7,413 12,085 - - 19,498 Total stockholders' equity 200,929 104,382 99,946 (141,501) 263,756 ----------- ----------- ----------- ----------- ----------- Liabilities and stockholders' equity $ 418,347 $ 121,815 $ 147,427 $ (141,501) $ 546,088 =========== =========== =========== =========== ===========
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Year Ended December 31, 1997 (In thousands)
Restricted Group ----------------------------- SOCO Unrestricted SOCO Offshore Subsidiaries Consolidated ----------- ------------ ------------ ------------ Revenues $ 90,015 $ 59,549 $ 106,164 $ 255,728 Expenses 86,029 44,117 68,142 198,288 ----------- ------------ ----------- ------------ Income before taxes, minority interest and extraordinary item 3,986 15,432 38,022 57,440 Income taxes 5,504 - 12,352 17,856 Minority interest - - 4,119 4,119 Extraordinary item 2,848 - - 2,848 ----------- ----------- ----------- ----------- Net income $ (4,366) $ 15,432 $ 21,551 $ 32,617 =========== =========== =========== ===========
45 (11) COMMITMENTS AND CONTINGENCIES The Company rents offices at various locations under noncancelable operating leases. Minimum future payments under such leases approximate $2.4 million for 1998, $2.6 million for 1999 and 2000, $1.7 million for 2001 and $153,000 for 2002. In September 1996, the Company and other interest owners in a lease in southern Texas were sued by the royalty owners in Texas state court in Brooks County, Texas. The Company's working interest in the lease is approximately 20%. The complaint alleges, among other things, that the defendants have failed to pay proper royalties under the lease, have unlawfully comingled production with production from other leases and have breached their duties to reasonably develop the lease. The plaintiffs also claim damages for fraud, co-mingling, trespass and similar matters, and demand actual and punitive damages. Although the complaint does not specify the amount of damages claimed, plaintiffs have submitted calculations showing total damages against all owners in excess of $100 million. The Company and the other interest owners have filed an answer denying the claims and intend to contest the suit vigorously. The suit is currently in discovery. At this time, the Company is unable to estimate the range of potential loss, if any, from the foregoing uncertainty. However, the Company believes that resolution should not have a material adverse effect on the Company's financial position, although an unfavorable outcome in any reporting period could have a material impact on the Company's results of operations for that period. The Company and its subsidiaries and affiliates are named defendants in lawsuits and involved from time to time in governmental proceedings, all arising in the ordinary course of business. Although the outcome of these lawsuits and proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position of the Company. In April 1995, the Company settled a lawsuit in Harris County, Texas filed by certain landowners relating to certain alleged problems at a Company well site. The Company recorded a charge of $4.4 million during 1995 to reflect the cost of the settlement. A primary insurer honored its commitments in full and participated in the settlement. The Company's excess carriers have declined, to date, to honor indemnification for the loss. Based on the advice of counsel, the Company has brought suit against the non-participating carriers for the great majority of the cost of settlement. In the second quarter of 1996, the Company received $1.5 million in proceeds related to a judgment involving a pipeline dispute. The Company's operations are affected by political developments and federal and state laws and regulations. Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic and other reasons. Numerous departments and agencies, federal, state, local and Indian, issue rules and regulations binding on the oil and gas industry, some of which carry substantial penalties for failure to comply. The regulatory burden on the oil and gas industry increases the Company's cost of doing business, decreases flexibility in the timing of operations and may adversely affect the economics of capital projects. The financial statements reflect favorable legal proceedings only upon receipt of cash, final judicial determination or execution of a settlement agreement. The Company is a party to various other lawsuits incidental to its business, none of which are anticipated to have a material adverse impact on its financial position or results of operations. (12) UNAUDITED SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION Independent petroleum consultants directly evaluated 87%, 99%, and 81% of proved reserves at December 31, 1997, 1996 and 1995, respectively. All reserve estimates are based on economic and operating conditions at that time. Future net cash flows as of each year end were computed by applying then current prices to estimated future production less estimated future expenditures (based on current costs) to be incurred in producing and developing the reserves. 46 Future prices received for production and future production costs may vary, perhaps significantly, from the prices and costs assumed for purposes of these estimates. There can be no assurance that the proved reserves will be developed within the periods indicated or that prices and costs will remain constant. With respect to certain properties that historically have experienced seasonal curtailment, the reserve estimates assume that the seasonal pattern of such curtailment will continue in the future. There can be no assurance that actual production will equal the estimated amounts used in the preparation of reserve projections. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures. The data in the tables below represent estimates only. Oil and gas reserve engineering must be recognized as a process of estimating underground accumulations of oil and gas that cannot be measured in an exact way, and estimates of other engineers might differ materially from those shown below. The accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment. Results of drilling, testing and production after the date of the estimate may justify revisions. Accordingly, reserve estimates are often materially different from the quantities of oil and gas that are ultimately recovered. All reserves included in the tables below are located onshore in the United States and in the waters of the Gulf of Mexico. The first set of tables reflects the Company, excluding Patina (including Wattenberg area reserves of the Company prior to formation of Patina in May 1996), and the second set of tables shows consolidated Company totals. 47 EXCLUDING PATINA
Quantities of Proved Reserves - Crude Oil Natural Gas --------- ----------- (MBbl) (MMcf) Balance, December 31, 1995 16,826 256,861 Revisions 3,407 42,699 Extensions, discoveries and additions 845 60,479 Production (2,196) (31,893) Purchases 891 41,606 Sales (1,751) (60,775) --------- --------- Balance, December 31, 1996 18,022 308,977 Revisions (266) (6,649) Extensions, discoveries and additions 1,790 100,874 Production (2,049) (41,377) Purchases 11 1,568 Sales (748) (225) --------- --------- Balance, December 31, 1997 16,760 363,168 ========= =========
Proved Developed Reserves - Crude Oil Natural Gas --------- ----------- (MBbl) (MMcf) December 31, 1995 14,682 197,436 ========= ========== December 31, 1996 16,070 200,664 ========= ========== December 31, 1997 16,101 297,490 ========= ==========
48 EXCLUDING PATINA
Standardized Measure - December 31, -------------------------------- 1997 1996 ------------ ------------ (In thousands) Future cash inflows $ 1,016,597 $ 1,476,338 Future costs: Production (339,147) (442,798) Development (64,237) (72,761) ------------ ------------ Future net cash flows 613,213 960,779 Undiscounted income taxes (148,049) (246,113) ------------ ------------ After tax net cash flows 465,164 714,666 10% discount factor (173,346) (276,010) ------------ ------------ Standardized measure $ 291,818 $ 438,656 ============ ============
Changes in Standardized Measure - Year Ended December 31, ------------------------------- 1997 1996 ----------- ------------ (In thousands) Standardized measure, beginning of year $ 438,656 $ 203,590 Revisions: Prices and costs (284,824) 176,801 Quantities 2,676 10,414 Development costs (9,241) (2,003) Accretion of discount 43,866 18,426 Income taxes 70,050 (112,924) Production rates and other (31,871) 14,758 ----------- ------------ Net revisions (209,344) 105,472 Extensions, discoveries and additions 142,209 108,006 Production (104,465) (78,591) Future development costs incurred 21,250 10,494 Purchases 2,374 136,227 Sales 1,138 (46,542) ----------- ------------ Standardized measure, end of year $ 291,818 $ 438,656 =========== ============
49 CONSOLIDATED
Quantities of Proved Reserves - Crude Oil Natural Gas --------- ----------- (MBbl) (MMcf) Balance, December 31, 1994 34,977 511,251 Revisions (3,633) (89,455) Extensions, discoveries and additions 782 32,835 Production (4,278) (53,227) Purchases 2,002 13,449 Sales (5,603) (19,135) ----------- ----------- Balance, December 31, 1995 24,247 395,718 Revisions 4,127 41,385 Extensions, discoveries and additions 1,039 61,821 Production (3,884) (55,840) Purchases 16,725 225,335 Sales (1,757) (62,783) ----------- ----------- Balance, December 31, 1996 40,497 605,636 Revisions (3,829) (34,334) Extensions, discoveries and additions 1,790 100,874 Production (3,490) (61,638) Purchases 11 1,568 Sales (18,219) (248,938) ----------- ----------- Balance, December 31, 1997 16,760 363,168 =========== ===========
The quantities of proved reserves above at December 31, 1996 include 5.8 MBbl and 77.1 MMcf related to the minority interest owners of Patina which was sold in October 1997.
Proved Developed Reserves - Crude Oil Natural Gas --------- ----------- (MBbl) (MMcf) December 31, 1994 26,104 353,930 =========== =========== December 31, 1995 21,637 330,524 =========== =========== December 31, 1996 31,869 443,441 =========== =========== December 31, 1997 16,101 297,490 =========== ===========
50 CONSOLIDATED
Standardized Measure - December 31, ------------------------------ 1997 1996 ------------- ------------- (In thousands) Future cash inflows $ 1,016,597 $ 3,144,813 Future costs: Production (339,147) (781,550) Development (64,237) (233,617) ------------ ------------ Future net cash flows 613,213 2,129,646 Undiscounted income taxes (148,049) (540,520) ------------ ------------ After tax net cash flows 465,164 1,589,126 10% discount factor (173,346) (650,534) ------------ ------------ Standardized measure $ 291,818 $ 938,592 ============ ============
The table above includes standardized measure attributable to minority interests of $129.5 million at December 31, 1996. Changes in Standardized Measure -
Year Ended December 31, ------------------------------------------------- 1997 1996 1995 ------------ ----------- ----------- (In thousands) Standardized measure, beginning of year $ 938,592 $ 331,106 $ 361,682 Revisions: Prices and costs (609,467) 528,525 18,975 Quantities 2,676 10,915 (30,495) Development costs (9,241) (13,027) (2,806) Accretion of discount 81,361 (a) 46,045 (b) 36,168 Income taxes 230,075 (242,536) 16,249 Production rates and other (31,871) 11,052 (29,991) ----------- ----------- ----------- Net revisions (336,467) 340,974 8,100 Extensions, discoveries and additions 142,209 111,797 18,171 Production (164,330) (146,257) (96,232) Future development costs incurred 21,250 18,400 43,551 Purchases 2,374 330,225 (b) 31,142 Sales (311,810) (a) (47,653) (35,308) ----------- ----------- ----------- Standardized measure, end of year $ 291,818 $ 938,592 $ 331,106 =========== =========== =========== (a) In 1997, $12.5 million in "Accretion of Discount" was included in "Sales" due to the sale of Patina in October 1997. (b) In 1996, $12.9 million in "Purchases" were included in "Accretion of Discount" due to the significance of the accretion related to the reserves purchased in the acquisition of GOG.
51 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Reference is made to Item 8 on page 27. 2. Schedules otherwise required by Item 8 have been omitted as not required or not applicable. 3. Exhibits. 3.1 - Certificate of Incorporation of Registrant -- incorporated by reference from Exhibit 3.1 to the Registrant's Registration Statement on Form S-4(Registration No.33-33455). 3.1.1 - Certificate of Amendment to Certificate of Incorporation of Registrant filed February 9, 1990 --incorporated by reference from Exhibit 3.1.1 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-33455). 3.1.2 - Certificate of Amendment to Certificate of Incorporation of Registrant filed May 22, 1991 -- incorporated by reference from Exhibit 3.1.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-43106). 3.1.3 - Certificate of Amendment to Certificate of Incorporation of Registrant filed May 24, 1993 -- incorporated by reference from Exhibit 3.1.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter-ended June 30, 1993 (File No. 1-10509). 3.2 - By-laws of the Registrant, as amended.* 4.1 - Indenture dated as of June 10, 1997 between the Registrant and Texas Commerce Bank National Association relating to Registrant's 8 3/4% Senior Subordinated Notes due 2007 -- incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated June 10, 1997 (File No. 1-10509). 4.1.1 - First Supplemental Indenture dated as of June 10, 1997 to Exhibit 4.1.5 -- incorporated by reference from Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated June 10, 1997 (File No. 1-10509). 4.1.2 - Second Supplemental Indenture dated as of June 10, 1997 to Exhibit 4.1.5 -- incorporated by reference from Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated June 10, 1997 (File No. 1-10509). 4.2 - Rights Agreement, dated as of May 27, 1997, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, specifying the terms of the Rights, which includes the form of Certificate of Designation of Junior Participating Preferred Stock as Exhibit A and the form of Right Certificate as Exhibit B -- incorporated by reference from Exhibit 1 to the Registrant's Current Report on Form 8-K dated June 2, 1997 (File No. 1-10509). 4.3 - Form of Certificate of Designation of Junior Participating Preferred Stock setting forth the terms of the Junior Participating Preferred Stock, par value $.01 per share -- incorporated by reference from Exhibit A to Exhibit 1 to the Registrant's Current Report on Form 8-K dated June 2, 1997 (File No.1-10509). 52 10.1 - Snyder Oil Corporation 1990 Stock Option Plan for Non-Employee Directors -- incorporated by reference from Exhibit 10.4 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-33455). 10.1.1 - Amendment dated May 20, 1992 to the Registrant's 1990 Stock Plan for Non-Employee Directors -- incorporated by reference from Exhibit 10.1.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter-ended June 30, 1993 (File No. 1-10509). 10.2 - Registrant's Amended and Restated 1989 Stock Option Plan.* 10.3 - Registrant's Deferred Compensation Plan for Select Employees, adopted effective June 1, 1994, as amended.* 10.4 - Registrant's Profit Sharing & Savings Plan and Trust as amended and restated effective October 1, 1993 --incorporated by reference from Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q for the quarter-ended September 30, 1993 (File No. 1-10509). 10.5 - Form of Indemnification Agreement --incorporated by reference from Exhibit 10.15 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-33455). 10.6 - Form of Change in Control Protection Agreement --incorporated by reference from Exhibit 10.11 to the Registrant's Registration Statement on Form S-1(Registration No.33-43106). 10.7 - Long-term Retention and Incentive Plan and Agreement between the Registrant and Charles A. Brown --incorporated by reference from Exhibit 10.1.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter-ended June 30, 1993 (File No. 1-10509). 10.8 - Agreement dated as of April 30, 1993 between the Registrant and Edward T. Story --incorporated by reference from Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-10509). 10.9 - Formation and Capitalization Agreement dated as of December 30, 1996 among Registrant, SOCO International, Inc., SOCO International Holdings, Inc., SOCO International Operations, Inc. and Edward T. Story. -- incorporated by reference from Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-10509). 10.9.1 - Promissory Note dated December 30, 1996 from Edward T. Story payable to the order of SOCO International Holdings, Inc. -- incorporated by reference from Exhibit 10.9.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-10509). 10.9.2 - Promissory Note dated December 30, 1996 from Edward T. Story payable to the order of SOCO International Operations, Inc. -- incorporated by reference from Exhibit 10.9.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-10509). 10.9.3 - Exchange Agreement dated July 10, 1997 between SOCO International, Inc. and Edward T. Story, Jr. * 10.10 - Amended and Restated Stock Repurchase Agreement dated as of July 31, 1997 and amended and restated as of September 18, 1997 among the Registrant and Patina Oil & Gas Corporation -- incorporated by reference to Exhibit 10.12 to Amendment No. 2 to the Registration Statement on Form S-3 of Patina Oil & Gas Corporation (Commission File No. 333-32671). 10.11 - Fifth Restated Credit Agreement dated as of June 30, 1994 among the Registrant and the banks party thereto -- incorporated by reference from Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter-ended June 30, 1994 (File No. 1-10509). 53 10.11.1 - First Amendment dated as of May 1, 1995 to Fifth Restated Credit Agreement -- incorporated by reference from Exhibit 10.11.1 to Registrant's Quarterly Report on Form 10-Q for the quarter-ended June 30, 1995 (File No. 1-10509). 10.11.2 - Second Amendment dated as of June 30, 1995 to Fifth Restated Credit Agreement -- incorporated by reference from Exhibit 10.12.2 to Registrant's Quarterly Report on Form 10-Q for the quarter-ended June 30, 1995 (File No. 1-10509). 10.11.3 - Third Amendment dated as of November 1, 1995 to Fifth Restated Credit Agreement -- incorporated by reference from Exhibit 10.11.3 to Registrant's Annual Report on Form 10-K of the year ended December 31, 1995 (File No. 1-10509). 10.11.4 - Fourth Amendment dated as of April 4, 1996 to Fifth Restated Credit Agreement -- incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter-ended March 31, 1996 (File No. 1-10509). 10.11.5 - Fifth Amendment dated as of November 1, 1996 to Fifth Restated Credit Agreement -- incorporated by reference from Exhibit 10.11.5 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-10509). 10.11.6 - Sixth Amendment dated as of May 19, 1997 to Fifth Restated Credit Agreement -- incorporated by reference from Exhibit 10.11.6 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 1-10509). 10.11.7 - Seventh Amendment dated as of October 13, 1997 to Fifth Restated Credit Agreement. * 10.12 - Directors Deferral Plan for Independent Directors of the Registrant. * 10.13 - Amended and Restated Agreement and Plan of Merger dated as of March 20, 1996 among Registrant, Patina Oil & Gas Corporation, Patina Merger Corporation and Gerrity Oil & Gas Corporation -- incorporated by reference from Exhibit 2.1 to Amendment No. 1 to the Registration Statement on Form S-4 of Patina Oil & Gas Corporation (Registration No. 333-572). 10.14 - Employment Agreement effective as of May 2, 1997 between Snyder Oil Corporation and William G. Hargett -- incorporated by reference from Exhibit 1 to the Registrant's Current Report on Form 8-K dated April 24, 1997 (File No. 1-10509). 10.15 - Indemnification Agreement dated as of May 2, 1997 between Snyder Oil Corporation and William G. Hargett -- incorporated by reference from Exhibit 2 to the Registrant's Current Report on Form 8-K dated April 24, 1997 (File No. 1-10509). 10.16 - Severance Agreement dated as of April 17, 1997 between Snyder Oil Corporation and Thomas J. Edelman -- incorporated by reference from Exhibit 3 to the Registrant's Current Report on Form 8-K dated April 24, 1997 (File No. 1-10509). 10.17 - Advisory Agreement entered into effective as of May 1, 1997 between Snyder Oil Corporation and Thomas J. Edelman -- incorporated by reference from Exhibit 4 to the Registrant's Current Report on Form 8-K dated April 24, 1997 (File No. 1-10509). 11.1 - Computation of Per Share Earnings.* 12 - Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.* 22.1 - Subsidiaries of the Registrant.* 54 23.1 - Consent of Arthur Andersen LLP.* 23.2 - Consent of Netherland, Sewell & Associates, Inc.* 27 - Financial Data Schedule.* 99.1 - Reserve letter from Netherland, Sewell & Associates, Inc. dated February 5, 1998 to the Snyder Oil Corporation interest as of December 31, 1997.* (b) The following report on Form 8-K was filed during the quarter ended December 31, 1997: October 22, 1997 - Item 2. Acquisition or Disposition of Assets; Item 5. Other Events; Item 7. * Filed herewith. 55 SIGNATURE 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. /s/ John C. Snyder Director and Chairman of the Board February 27, 1998 - ---------------------- (Principal Executive Officer) John C. Snyder /s/ William G. Hargett Director, President and Chief February 27, 1998 - ---------------------- Operating Officer William G. Hargett /s/ Roger W. Brittain Director February 27, 1998 - ---------------------- Roger W. Brittain /s/ John A. Hill Director February 27, 1998 - ---------------------- John A. Hill /s/ William J. Johnson Director February 27, 1998 - ---------------------- William J. Johnson /s/ B. J. Kellenberger Director February 27, 1998 - ---------------------- B. J. Kellenberger /s/ Harold R.Logan, Jr. Director February 27, 1998 - ---------------------- Harold R. Logan, Jr. /s/ James E. McCormick Director February 27, 1998 - ---------------------- James E. McCormick /s/ Edward T. Story Director February 27, 1998 - ---------------------- Edward T. Story /s/ Mark A. Jackson Senior Vice President and Chief February 27, 1998 - ---------------------- Financial Officer (Principal Financial Mark A. Jackson and Accounting Officer) 56 EX-3.(II) 2 SOCO AMENDED SEPT 16, 1997 EXHIBIT 3.2 SNYDER OIL CORPORATION Incorporated under the laws of the State of Delaware BY LAWS As amended through September 16, 1997. - -------------------------------------------------------------------------------- SNYDER OIL CORPORATION - BY-LAWS -1- BY-LAWS OF SNYDER OIL CORPORATION ARTICLE I OFFICES 1.01. Registered Office. The registered office of Snyder Oil Corporation (hereinafter called the Corporation) in the State of Delaware shall be at 1013 Centre Road, City of Wilmington, County of New Castle, and the registered agent in charge thereof shall be The Corporation Service Company. 1.02. Other Offices. The Corporation may also have an office or offices at any other place or places within or without the State of Delaware. ARTICLE II MEETINGS OF STOCKHOLDERS: STOCKHOLDERS' CONSENT IN LIEU OF MEETING 2.01. Annual Meeting. The annual meeting of the stockholders for the election of directors, and for the transaction of such other business as may, subject to the provisions of Section 2.04, properly come before the meeting, shall be held at such place, date and hour as shall be fixed by the Board of Directors (hereinafter called the Board) and designated in the notice or waiver of notice thereof; except that no annual meeting need be held if all actions, including the election of directors, required by the General Corporation Law of the State of Delaware to be taken at a stockholders' annual meeting are taken by written consent in lieu of meeting pursuant to Section 2.03. 2.02. Special Meetings. A special meeting of the stockholders for any purpose or purposes may be called by the Board, the Chairman, the Vice Chairman, the President or the Secretary of the Corporation or the recordholders of at least a majority of the shares of Common Stock of the Corporation issued and outstanding, to be held at such place, date and hour as shall be designated in the notice or waiver of notice thereof. 2.03. Stockholders' Consent in Lieu of Meeting. Any action required by the General Corporation Law of the State of Delaware to be taken at any annual or special meeting of the stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be required to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of such action by less than unanimous consent shall be given to those stockholders who have not consented in writing. 2.04 Business to be Brought Before the Annual Meeting. To be properly brought before the annual meeting of stockholders, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 2.04, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 2.04. In addition to any other applicable requirements, for business to be brought before an annual SNYDER OIL CORPORATION - BY-LAWS -2- meeting by a stockholder of the Corporation, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days prior to the anniversary date of the proxy statement for the preceding annual meeting of stockholders of the Corporation. A stockholder's notice to the Secretary shall set forth as to each matter (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the acquisition date, the class and the number of shares of voting stock of the Corporation which are owned beneficially by the stockholder, (iv) any material interest of the stockholder in such business, and (v) a representation that the stockholder intends to appear in person or by proxy at the meeting to bring the proposed business before the meeting. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.04. The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.04, and if the chairman should so determine, the chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.04, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 12. Notwithstanding any provision to the contrary set forth above, the provisions of this Section 2.04 shall be effective only with respect to meetings of stockholders held after December 31, 1997. ARTICLE III BOARD OF DIRECTORS 3.01. General Powers. The business and affairs of the Corporation shall be managed by the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation directed or required to be exercised or done by the stockholders. 3.02. Number and Term of Office. The number of directors shall be one or such other number as shall be fixed from time to time by the Board. The Board may designate alternate directors. Such alternate directors shall be given notice of all meetings of the Board, but will be entitled to vote only in the absence of the director for whom they are an alternate. Directors need not be stockholders. Each director shall hold office until his successor is elected and qualified, or until his earlier death or resignation or removal in the manner hereinafter provided. 3.03. Resignation. Removal and Vacancies. Any director may resign at any time by giving written notice to the Board, the Chief Executive Officer or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any director or the entire Board may be removed, with or without cause, at any time by vote of the holders of a majority of the shares then entitled to vote at an election of directors, or by written consent of the stockholders pursuant to Section 2.03. SNYDER OIL CORPORATION - BY-LAWS -3- Other vacancies occurring in the Board for any reason may be filled by vote of the stockholders or by their written consent pursuant to Section 2.03 or by vote of the Board or by the directors' written consent pursuant to Section 3.06. If the number of directors then in office is less than a quorum, such other vacancies may be filled by vote of a majority of the directors then in office. 3.04. Special Board Designation.. (a) Chairman of the Board. There shall be a Chairman of the Board, who shall be a director and who shall serve as chairman of any meeting of the Board. The Chairman of the Board shall be elected by the Board at its annual meeting or by written consent pursuant to Section 3.06, and shall serve until his successor is elected and qualified, or until his earlier death or resignation or removal as Chairman of the Board or his ceasing to be a director. The Chairman of the Board may resign at any time by giving written notice to the Board or the Secretary. Such resignation shall take effect at the time specified therein or, if the time is not specified, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The Chairman of the Board may be removed at any time as Chairman of the Board by the Board. (b) Vice Chairman of the Board. There shall be elected at the Board's discretion a Vice Chairman of the Board, who shall be a director and who shall serve as chairman of any meeting of the Board when the Chairman of the Board is unable to attend. The Vice Chairman of the Board shall be elected by the Board at its annual meeting or by written consent pursuant to Section 3.06, and shall serve until his successor is elected and qualified, or until his earlier death or resignation or removal as Vice Chairman of the Board or his ceasing to be a director. The Vice Chairman of the Board may resign at any time by giving written notice to the Chairman of the Board or the Secretary. Such resignation shall take effect at the time specified therein or, if the time is not specified, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The Vice Chairman of the Board may be removed at any time as Vice Chairman of the Board by the Board. 3.05. Meetings. (a) Annual Meetings. As soon as practicable after each annual election of directors, the Board shall meet for the purpose of organization and the transaction of other business, unless it shall have transacted ail such business by written consent pursuant to Section 3.06. (b) Other Meetings. Other meetings of the Board shall be held at such times and places as -the Board or the Chairman of the Board shall from time to time determine. (c) Notice of Meetings. The Secretary shall give notice to each director of each meeting, including the time, place and purpose of such meeting. Notice of each such meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least two days before the day on which such meeting is to be held, or shall be sent to him at such place by telegraph, cable, wireless or other form of recorded communication, or be delivered personally or by telephone not later than the day before the day on which such meeting is to be held, but notice need not be given to any director who shall attend such meeting. A written waiver of notice, signed by the person entitled thereto, whether before or after the time of the meeting stated therein, shall be deemed equivalent to notice. (d) Place of Meetings. The Board may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine, or as shall be designated in the respective SNYDER OIL CORPORATION - BY-LAWS -4- notices or waivers of notice thereof. (e) Quorum and Manner of Acting. One-third of the total number of directors then in office (but not less two if the number of directors is greater than one) shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and the vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board, except as otherwise expressly required by law or these By-laws. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present. (f) Organization. At each meeting of the Board, the Chairman of the Board shall act as chairman of the meeting or, in his absence, any director chosen by a majority of the directors present. The Secretary or, in his absence, any person (who shall be an Assistant Secretary, if an Assistant Secretary is present) whom the chairman of the meeting shall appoint shall act as secretary of such meeting and keep the minutes thereof. 3.06. Directors' Consent In Lieu of Meeting. Any action required or permitted to be taken at any meeting of the Board may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all the directors and such consent is filed with the minutes of the proceedings of the Board. 3.07. Action by Means of Conference Telephone or Similar Communications Equipment. Any one or more members of the Board, or of any committee designated by the Board, may participate in a meeting of the Board or any such committee by means of conference telephone or similar communications equipment by means of which ail persons participating in the meeting can bear each other, and anticipation in a meeting by such means shall constitute presence in person at such meeting. 3.08. Committees. (a) There shall be an Executive Committee, and Audit Committee and a Compensation Committee. The Board shall elect by the affirmative vote of a majority of the whole Board the members of each committee, who shall be directors of the Corporation, and shall designate for each committee a Chairman who shall continue at the pleasure of the Board. The number of members of each committee shall be determined from time to time by the Board. (b) Each committee shall fix its own rules of procedure and shall meet where and as provided by such rules. A majority of a committee shall constitute a quorum. (c) In the absence or disqualification of a member of any committee, the members of such committee present at any meeting, and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. (d) All completed actions by each committee shall be reported to the Board at the next succeeding Board meeting and shall be subject to revision or alteration by the Board; provided, however, that no acts or rights of third parties shall be affected by any such revision or alteration. 3.09. Executive Committee. Between the meetings of the Board, the Executive Committee shall possess and may exercise all the powers of the Board in the management and direction of all the business and affairs SNYDER OIL CORPORATION - BY-LAWS -5- of the Corporation (except the matters reserved by law to the whole Board and matters hereinafter assigned to the Compensation Committee), in such manner as the Executive Committee shall deem best for the interests of the Corporation in all cases in which specific directions shall not have been given by the Board. 3.10. Audit Committee. A majority of the members of the Audit Committee shall be independent directors. The Audit Committee shall have the power (I) to review the financial affairs and controls of the Corporation, (ii) to recommend each year to the Board of Directors independent auditor to audit the annual financial statements of the Corporation and its subsidiaries, (iii) to meet with the Corporation's auditors, (iv) to review the scope of the audit plan, (v) to discuss with the auditors the results of the Corporation's annual audit and any related matters, (vi) to review transactions posing a potential conflict of interest among the Corporation and its directors, officers and affiliates, and (vii) to perform any other functions delegated to it by the Board of Directors in compliance with the By-laws of the Corporation. 3.11. Compensation Committee. The Compensation Committee shall have the power to fix and determine the compensation of officers, directors and employees and create any compensation or benefit plan for officers, directors and employees, and shall have the power and authority vested in it by any compensation or benefit plan of the Corporation. 3.12. Other Committees. The Board of Directors may, on resolution adopted by the affirmative vote of a majority of the number of directors constituting the entire Board of Directors, designate one or more directors (with such alternatives, if any, as may be deemed desirable) to constitute a committee or committees (in addition to the Executive, Audit and Compensation Committees) for any purpose and with such authority (except the matters reserved by law to the whole Board) as may be determined from time to time by resolution adopted by the Board of Directors. Actions by and meetings of any such committee shall be governed by Section 3.08 of these by-laws. 3.13. Special Meetings. Special meetings of the executive committee may be called by the chairman of the executive committee or any member thereof at any time provided that a good faith effort has been made to give notice to each member, either personally or by mail, telephone or telegram. 3.14 Nominations for Election as a Director. Only persons who are nominated in accordance with the procedures set forth in these bylaws and qualify for nomination pursuant to Section 3.01 shall be eligible for election by stockholders as, and to serve as, directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 3.14, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 3.14. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to an election to be held at the annual meeting of the stockholders of the Corporation, not less than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Corporation, and (ii) with respect to an election to be held at a special meeting of stockholders of the Corporation for the election of directors not later than the close of business on the tenth day following the day on which notice of the date of the special meeting was mailed to stockholders of the Corporation as provided in Section 3.14 or public disclosure of the date of the special meeting was made, whichever first occurs. SNYDER OIL CORPORATION - BY-LAWS -6- Such stockholder's notice to the Secretary shall set forth: (x) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serve as a director if elected), and (y) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of voting stock of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination that pertains to the nominee. In the event that a person is validly designated as a nominee to the Board of Directors in accordance with the procedures set forth in this Section 3.14 and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee. Other than directors chosen pursuant to the provisions of Section 3.03, no person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.14. The presiding officer of the meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 3.14, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 3.14. Notwithstanding any provision to the contrary set forth above, the provisions of this Section 3.14 shall be effective only with respect to meetings of stockholders held after December 31, 1997. ARTICLE IV OFFICERS 4.01. Number; Title; Term of Office. The officers of the Corporation shall be a Chairman, a Vice Chairman, a Chief Executive Officer and a Chief Operating Officer (if the Board of Directors shall determine the election of any of the preceding four officers to be appropriate), a President, one or more Vice Presidents (and, in the case of each Vice President, with such descriptive title, if any, as the Board shall determine), a Secretary, one or more Assistant Secretaries, a Treasurer and such other officers as the Board may from time to time elect or appoint. Each officer shall hold office until his successor shall have been duly elected and shall have qualified, until his death, or until he shall resign or shall have been removed in the manner hereinafter provided. Any two or more offices may be held by the same person. None of the officers need be a stockholder or a director of the Corporation, or a resident of the State of Delaware. 4.02. Authority and Duties. All officers, as between themselves and the Corporation, shall have such authority and perform such duties in the management of the Corporation as may be provided in these By-laws or, to the extent not so provided, by the Board. SNYDER OIL CORPORATION - BY-LAWS -7- 4.03. Term of Office, Resignation and Removal. All officers shall be elected or appointed by the Board and shall hold office for such term Is may be prescribed by the Board. Each officer shall hold office until his successor has been elected or appointed and qualified or his earlier death or resignation in the manner hereinafter provided. The Board may require any officer to give security for the faithful performance of his dudes. Any officer may resign at any time by giving written notice to the Board or to the President or the Secretary of the Corporation, and such resignation shall take effect at the time specified therein or, if the time when it shall become effective is not specified therein, at the time it is accepted by action of the Board. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective. All officers and agents elected or appointed by the Board shall be subject to removal at any tame by the Board or by the stockholders of the Corporation with or without cause. 4.04. Vacancies. If the office of President, Secretary or Treasurer becomes vacant for any reason, the Board shall fill such vacancy, and if any other office becomes vacant, the Board may fill such vacancy. Any officer so appointed or elected by the Board shall serve only until such time as the unexpired term of his predecessor shall have expired unless reelected or reappointed by the Board. 4.05. Chairman, Vice Chairman, Chief Executive Officer and Chief Operating Officer. The Chairman, if one is elected by the Board, shall have charge of the actual day to day operations and management of the Corporation and its property with all such powers with respect to such properties and operations as may be reasonably incident to such responsibilities, subject to the Board. He shall also have such further authority and powers as may be prescribed by the Board or these By-laws. The Vice Chairman, if one is elected by the Board, shall have such powers and duties as may be assigned to him by the Board or the Chairman and shall exercise the powers of the Chairman during that officer's absence or inability to act. As between the Corporation and third parties, any action taken by the Vice Chairman in the performance of the duties of the Chairman shall be conclusive evidence of the absence or inability to act of the Chairman at the time such action was taken. The Chief Executive Officer and Chief Operating Officer, if either is elected by the Board, shall have such powers and duties as may be assigned to him by the Board or the Chairman. The Chairman and the Vice Chairman shall have the authority to assign any of their powers to any other officers of the Corporation with respect to such matters as the Chairman or Vice Chairman may deem appropriate. Any such assignment may be oral or written and may be specific or general. 4.06. President. The President shall have such authority, powers and duties as may be prescribed by the Board, or the Chairman or these By-laws. If the Board has not elected a Chairman, the President shall exercise all of the powers and discharge all of the duties of the Chairman, including any power of the Chairman to assign any of his powers. As between the Corporation and third parties, any action taken by the President in the performance of the duties of the Chairman shall be conclusive evidence that there is no Chairman. 4.07. Vice Presidents. (a) Executive Vice President. The Executive Vice President shall have such authority, powers and duties as may be prescribed by the Board, the Chairman or the President or these By-laws, and shall exercise the powers of the President during that officer's absence or inability to act. As between the Corporation and third parties, any action taken by the Executive Vice President in the performance of the duties of the President shall be conclusive evidence of the absence or inability to act of the President at the time such action was taken. (b) Senior Vice Presidents. Each Senior Vice President shall have such power and duties as may be assigned to him by the Board, the Chairman, the Vice Chairman, the President or the Executive Vice President, SNYDER OIL CORPORATION - BY-LAWS -8- and (in order of their seniority as determined by the length of time they have held the office of Senior Vice President) shall exercise the powers of the Executive Vice President during that officer's absence or inability to act. As between the Corporation and third parties, any action taken by a Senior Vice President in the performance of the duties of the Executive Vice President shall be conclusive evidence of the absence or inability to act of the Executive Vice President at the time such action was taken. (c) Vice President. Each Vice President shall have such powers and duties as may be assigned to him by the Board, the Chairman, the Vice Chairman, the President, the Executive Vice President or a Senior Vice President. 4.08. Treasurer. The Treasurer shall have custody of the Corporation's funds and securities, shall keep full and accurate account of receipts and disbursements, shall deposit all monies and valuable effects in the name and to the credit of the Corporation in such depository or depositories as may be designated by the Board, and shall perform such other duties as may be prescribed by the Board, the Chairman, the President or the Executive Vice President. 4.09. Assistant Treasurers. Each Assistant Treasurer shall have such powers and duties as may be assigned to him by the Board, the Chairman, the President or the Executive Vice President. The Assistant Treasurers (in the order of their seniority as determined by the Board or, in the absence of such a determination, as determined by the length of time they have held the office of Assistant Treasurer) shall exercise the powers of the Treasurer during that officer's absence or inability to act. 4.10. Secretary. The Secretary shall keep the minutes of all meetings of the Board and of the shareholders in books provided for that purpose, and he shall attend to the giving and service of all notices..He may sign with the Chairman or the President, in the name of the Corporation, all contracts of the Corporation and affix the seal of the Corporation thereto. He may sign with the President all certificates for shares of stock of the Corporation, and he shall have charge of the certificate books, transfer books, and stock papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection by any director upon application at the office of the Corporation during business hours. He shall in general perform all duties incident to the office of the Secretary, subject to the control of the Board. 4.11. Assistant Secretaries. Each Assistant Secretary shall have such powers and duties as may be assigned to him by the Board, the Chairman, the President or the Executive Vice President. The Assistant Secretaries (in the order of their seniority as determined by the Board or, in the absence of such a determination, as determined by the length of time they have held the office of Assistant Secretary) shall exercise the powers of the Secretary during that officer's absence or inability to act. ARTICLE V CONTRACTS. CHECKS. DRAFTS. BANK ACCOUNTS. ETC. 5.01. Execution of Documents. The Board shall designate the officers, employees and agents of the Corporation who shall have power to execute and deliver deeds, contracts, mortgages, bonds, debentures, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation, and may authorize such officers, employees and agents to delegate such power (including authority to redelegate) by written instrument to other officers, employees of agents of the Corporation; and, unless so designated or expressly authorized by these By-laws, no officer or agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable pecuniarily for any SNYDER OIL CORPORATION - BY-LAWS -9- purpose or to any amount. 5.02. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise as the Board or Treasurer, or any other officer of the Corporation to whom power in this respect shall have been given by the Board, shall select. ARTICLE VI SHARES AND THEIR TRANSFER FIXING RECORD DATE 6.01. Certificates for Shares. Every owner of stock of the Corporation shall be entitled to have a certificate certifying the number and class of shares owned by him in the Corporation, which shall otherwise be in such form as shall be prescribed by the Board. Certificates shall be issued in consecutive order and shall be numbered in the order of their issue, and shall be signed by, or in the name of, the Corporation by the Chief Executive Officer, the President or a Senior Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. 6.02. Record. A record (herein called the stock record) in one or more counterparts shall be kept of the name of the person, firm or corporation owning the shares represented by each certificate for stock of the Corporation issued, the number of shares represented by each such certificate, the date thereof and, in the case of cancellation, the date of cancellation. Except as otherwise expressly required by law, the person in whose name shares of stock stand on the stock record of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. 6.03. Transfer and Registration of Stock. (a) The transfer of stock and certificates of stock which represent the stock of the Corporation shall be governed by Article 8 of Subtitle I of Title 6 of the Delaware Code (the Uniform Commercial Code), as amended from time to time. (b) Registration of transfers of shares of the Corporation shall be made only on the books of the Corporation upon request of the registered holder thereof, or of his attorney "hereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and upon the surrender of the certificate or certificates for such shares properly endorsed or accompanied by a stock power duly executed. 6.04. Addresses of Stockholders. Each stockholder shall designate to the Secretary of the Corporation an address at which notices of meetings and all other corporate notices may be served or mailed to him, and, if any stockholder shall fail to designate such address, corporate notices may be served upon him by mail directed to him at his post office address, if any, as the same appears on the stock record books of the Corporation or at his last known post office address. 6.05. Lost, Destroyed and Mutilated Certificates. The holder of any shares of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate therefor, and the Board may, in its discretion, cause to be issued to him a new certificate or certificates for shares, upon the surrender of the mutilated certificates or, in the case of loss or destruction of the certificate, upon satisfactory proof of such loss or destruction, and the Board may, in its discretion, require the owner of the lost or destroyed certificate or his legal representation to give the Corporation a bond in such sum and with such surety or sureties as it may direct to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate. SNYDER OIL CORPORATION - BY-LAWS -10- 6.06. Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificates for stock of the Corporation. 6.07. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders' or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor, in the case of consent to corporate action in writing, more than 10 days after the date upon which the resolution fixing the record date was adopted by the Board, not more than 60 days prior to any other action. A determination of stockholders entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided. however. that the Board may fix a new record date for the adjourned meeting. ARTICLE VII SEAL 7.01. Seal. The Board may provide a corporate seal, which shall be in the form of a circle and shall bear the full name of the Corporation and the words and figures "Corporate Seal 1989 Delaware". ARTICLE VIII FISCAL YEAR 8.01. Fiscal Year. The fiscal year of the Corporation shall end on the thirty-first day of December in each year unless changed by resolution of the Board. ARTICLE IX INDEMNIFICATION AND INSURANCE 9.01. Indemnification (a) Any person made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigate, by the reason of the fact that he, his testator or intestate is or was a director, officer, employee or agent of the Corporation shall be indemnified by the Corporation against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, or in connection with any appeal therein; provided, that such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, or with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct unlawful; except, in the case of an action, suit or SNYDER OIL CORPORATION - BY-LAWS -11- proceeding by or in the right of the Corporation in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director, officer, employee or agent is liable for negligence or misconduct in the performance of his duties, unless a court having jurisdiction shall determine that, despite such adjudication, such person is fairly and reasonably entitled to indemnification. (b) Without limitation of any right conferred by paragraph (a) of this Section, any person made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer, employee or agent of the Corporation, and is or was serving as a fiduciary of, or otherwise rendering services to, any employee benefit plan of or relating to the Corporation, shall be indemnified by the Corporation against expenses (including attorney's fees), judgments, fines, excise taxes and amounts paid in settlement actually and reasonably incurred by him in connection with which action, suit or proceeding, or in connection with any appeal therein; provided, that such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, or with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; except in the case of an action, suit or proceeding by or in the right of the Corporation in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director, officer, employee or agent is liable for negligence or misconduct in the performance of his duties, unless a court having jurisdiction shall determine that, despite such adjudication, such person is fairly and reasonably entitled to indemnification. (c) The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any director, officer, employee or agent may be entitled or of any power of the Corporation apart from the provisions of this Section. 9.02. Insurance for Indemnification. The Corporation may purchase and maintain insurance for the indemnification of the Corporation and the directors, officers, employees and agents of the Corporation to the full extent and in the manner permitted by the applicable laws of the United States and the State of Delaware from time to time in effect. ARTICLE X AMENDMENTS 10.01. Amendments. Any by-law (including these By-laws) may be adopted, amended or repealed by the vote of the holders of a majority of the shares then entitled to vote at an election of directors or by consent of the stockholders pursuant to Section 2.03, or by vote of the Board or by the directors' written consent pursuant to Section 3.06. SNYDER OIL CORPORATION - BY-LAWS -12- EX-10 3 AMENDED AND RESTATED 1989 STOCK OPTION PLAN EXHIBIT 10.2 Snyder Oil Corporation AMENDED AND RESTATED 1989 STOCK OPTION PLAN (as amended through September 16, 1997) This Snyder Oil Corporation 1989 Stock Option Plan (the "Plan") provides for the granting of (a) Incentive Options (hereinafter defined) to certain key employees of Snyder Oil Corporation, a Delaware corporation (the "Corporation"), or of its Affiliates (hereinafter defined), and (b) Nonstatutory Stock Options (hereinafter defined) to certain key employees of the Corporation or of its Affiliates and to certain individuals who are not employees of the Corporation or of its Affiliates. The purpose of the Plan is to provide an incentive for key employees and directors of the Corporation or its Affiliates and for individuals who are not employees or directors of the Corporation of its Affiliates, but who from time to time provide substantial advice or other assistance or services to the Corporation or its Affiliates, to remain in the service of the Corporation or its Affiliates, to extend to them the opportunity to acquire a proprietary interest in the Corporation so that they will apply their best efforts for the benefit of the Corporation, and to aid the Corporation in attracting able persons to enter the service of the Corporation and its Affiliates. SECTION 1. Definitions. 1.1. "Act" shall mean the Securities Exchange Act of 1934, as amended. 1.2. "Affiliates" shall mean (a) any corporation, other than the Corporation, in an unbroken chain of corporations ending with the Corporation if each of the corporations, other than the Corporation, owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain and (b) any corporation, other than the Corporation, in an unbroken chain of corporations beginning with the Corporation if each of the corporations, other than the last corporation in the unbroken chain, owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 1.3. "Agreement" shall mean the written agreement between the Corporation and a Holder evidencing the Option granted by the Company and the understanding of the parties with respect thereto. 1 1.4. "Board of Directors" shall mean the board of directors of the Corporation. 1.5. "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.6. "Committee" shall mean the committee appointed pursuant to Section 3 hereof by the Board of Directors to administer this Plan. 1.7. "Disinterested Person" means a person who qualifies as both (i) a "non-employee director" under Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and (ii) an "outside director" under Treasury Regulations Section 1.162-27 promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended, or any successor provision. 1.8. "Eligible Individuals" shall mean (a) key employees, including officers and directors who are also employees of the Corporation or of any of its Affiliates, and (b) individuals who are not employees or directors of the Corporation of its Affiliates, but who from time to time provide substantial advice or other assistance or services to the Corporation or its Affiliates. 1.7. "Fair Market Value" shall mean the closing price of the Stock reported on the composite tape or other reporting medium (for securities listed on the New York Stock Exchange or other primary market or exchange on which the Stock is traded) as of the date the Fair Market Value is to be determined, provided that if no such sales were made on such date, such price as reported for the next preceding date on which such sales occurred. For purposes of valuing Incentive Options, the Fair Market Value of Stock shall be determined without regard to any restriction other than one which, by its terms, will never lapse. 1.8. "Holder" shall mean an Eligible Individual to whom an Option has been granted. 1.9. "Incentive Options" shall mean stock options that are intended to satisfy the requirements of section 422A of the Code. 1.10."Nonstatutory Options" shall mean stock options that are not intended to be or are not denominated as Incentive Options. 1.11."Options" shall mean either Incentive Options or Nonstatutory Options, or both. 1.12. "Stock" shall mean the Corporation's authorized $.01 par value common stock together with any other securities with respect to which Options granted hereunder may become exercisable. SECTION 2. Stock and Maximum Number of Shares Subject to the Plan. 2 2.1. Description of Stock and Maximum Shares Allocated. The Stock which Options granted hereunder give a Holder the right to purchase may be unissued or reacquired shares of Stock, as the Board of Directors may, in its sole and absolute discretion, from time to time determine. Subject to the adjustments in Paragraph 6.6 hereof, the aggregate number of shares of Stock to be issued pursuant to the exercise of all Options granted hereunder may equal, but shall not exceed, 3,000,000 shares of Snyder Oil Corporation Stock. 2.2. Restoration of Shares. If an Option hereunder expires, terminates, or is exercised for any reason during the term of this Plan, the shares of Stock which were subject to such Option shall be "restored" to the Plan by again being available for Options granted after the shares' restoration, effective as of the first day of the calendar quarter following such expiration, termination, or exercise. 2.3. Maximum Number of Options Granted to One Person. Subject to the adjustments in Paragraph 6.6 hereof, the maximum number of Options that may be granted to any one person hereunder during any calendar year is 450,000. SECTION 3. Administration of the Plan. 3.1. Stock Option Committee. The Plan shall be administered by the Committee. The Committee shall consist of not less than three (3) members of the Board of Directors. Only Disinterested Persons shall be eligible to serve as members of the Committee. 3.2 Duration, Removal, Etc. The members of the Committee shall serve at the pleasure of the Board of Directors, which shall have the power, at any time and from time to time, to remove members from the Committee or to add members thereto. Vacancies on the Committee, however caused, shall be filled by action of the Board of Directors. 3.3 Meetings and Actions of Committee. The Committee shall elect one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. All decisions and determinations of the Committee shall be made by the majority vote or decision of all of its members present at a meeting; provided, however, that any decision or determination reduced to writing and signed by all of the members of the Committee shall be as fully effective as if it had been made at a meeting duly called and held. The Committee may make any rules and regulations for the conduct of its business that are not inconsistent with the provisions hereof and with the bylaws of the Corporation as it may deem advisable. 3.4 Committee's Powers. Subject to the express provisions hereof, the Committee shall have the authority, in its sole and absolute discretion, (a) to adopt, amend, and rescind administrative and interpretive rules and regulations relating to the Plan; (b) to determine the terms and provisions of the respective Agreements (which need not be identical), including provisions defining or otherwise relating to (i) subject to Section 6 of the Plan, the term 3 and the period or periods and extent of exercisability of the Options, (ii) the extent to which the transferability of shares of Stock issued upon exercise of Options is restricted, (iii) the effect of termination of employment upon the exercisability of the Options, and (iv) the effect of approved leaves of absence (consistent with any applicable regulations of the Internal Revenue Service); (c) to accelerate the time of exercisability of any Option that has been granted; (d) to construe the respective Option Agreements and the Plan; and (e) to make all other determinations and perform all other acts necessary or advisable for administering the Plan, including the delegation of such ministerial acts and responsibilities as the Committee deems appropriate. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Agreement in the manner and to the extent it shall deem expedient to carry it into effect, and it shall be the sole and final judge of such expediency. The determinations of the Committee on the matters referred to in this Paragraph 3.4 shall be final and conclusive. SECTION 4. Eligibility and Participation. 4.1. Eligible Individuals. Options may be granted hereunder only to persons who are Eligible Individuals at the time of the grant thereof. Notwithstanding any provision contained herein to the contrary, a person shall not be eligible to receive an Incentive Option hereunder unless he is an employee of the Corporation or an Affiliate, nor shall a person be eligible to receive an Incentive Option hereunder if he, at the time such Option is granted, would own (within the meaning of sections 422A and 425 of the Code) stock possessing more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Corporation or an Affiliate unless at the time such Incentive Option is granted the exercise price per share of Stock is at least one hundred and ten percent (110%) of the Fair Market Value of each share of Stock to which the Incentive Option relates and the Incentive Option is not exercisable after the expiration of five (5) years from the date it is granted. 4.2. No Right to Option. The adoption of the Plan shall not be deemed to give any person a right to be granted an Option. SECTION 5. Grant of Options and Certain Terms of the Agreements. Subject to the express provisions hereof, the Committee shall determine which Eligible Individuals shall be granted Options hereunder from time to time. In making grants, the Committee shall take into consideration the contribution the potential Holder has made or may make to the success of the Company or its Affiliates and such other considerations as the Board of Directors may from time to time specify. The Committee shall also determine the number of shares subject to each of such Options, and shall authorize and cause the Corporation to grant Options in accordance with such determinations. The date on which the Committee completes all action constituting an offer of an Option to an individual, including the specification of the number of shares of Stock to be subject to the Option, shall be the date on which the Option covered by an Agreement is granted, even though certain terms of the 4 Agreement may not be at such time determined and even though the Agreement may not be executed until a later time. For purposes of the preceding sentence, an offer shall be deemed made if the Committee has completed all such action and has communicated the grant thereof to the potential Holder. In no event, however, shall an Optionee gain any rights in addition to those specified by the Committee in its grant, regardless of the time that may pass between the grant of the Option and the actual execution of the Agreement by the Company and the Optionee. Each option granted hereunder shall be evidenced by an Agreement, executed by the Corporation and the Eligible Individual to whom the Option is granted, incorporating such terms as the Committee shall deem necessary or desirable. More than one Option may be granted hereunder to the same Eligible Individual and be outstanding concurrently hereunder. In the event an Eligible Individual is granted both one or more Incentive Options and one or more Nonstatutory Options, such grants shall be evidenced by separate Agreements, one for each of the Incentive Option grants and one for each of the Nonstatutory Option grants. Each Agreement may contain or otherwise provide for conditions giving rise to the forfeiture of the Stock acquired pursuant to an Option granted hereunder or otherwise and such restrictions on the transferability of shares of the Stock acquired pursuant to an Option granted hereunder or otherwise as the Committee in its sole and absolute discretion shall deem proper or advisable. Such conditions giving rise to forfeiture may include, but need not be limited to, the requirement that the Holder render substantial services to the Corporation or its Affiliates for a specified period of time. Such restrictions on transferability may include, but need not be limited to, options and rights of first refusal in favor of the Corporation and shareholders of the Corporation other than the Holder of such share of Stock who is a party to the particular Agreement or a subsequent holder of the shares of Stock who is bound by such Agreement. In addition, the Board of Directors may authorize the Committee to grant cash awards payable in connection with the exercise of an Option, upon such terms and conditions as are specified by the Board of Directors; provided that no such cash award shall be effective unless it can comply and does comply with any applicable requirements for exemption from liability pursuant to Rule 16b-3 promulgated under the Act. SECTION 6. Terms and Conditions of Options. All Options granted hereunder shall comply with, be deemed to include, and shall be subject to the following terms and conditions: 6.1. Number of Shares. Each Agreement shall state the number of shares of Stock to which it relates. 6.2. Exercise Price. Each Agreement shall state the exercise price per share of Stock. The exercise price per share of Stock subject to an Incentive Option shall not be less than the greater of (a) the par value per share of the 5 Stock or (b) 100% of the Fair Market Value per share of the Stock on the date of the grant of the Option. The exercise price per share of Stock subject to a Nonstatutory Option shall not be less than fifty percent (50%) of the Fair Market Value per share of the Stock on the date of the grant of the Option. 6.3. Medium and Time of Payment, Method of Exercise, and Withholding Taxes. The exercise price of an Option shall be payable upon the exercise of the Option in cash, by certified or cashier's check, or, with the consent of the Committee, with shares of Stock of the Corporation owned by the Holder which have been held by the Holder for at least six (6) months prior to the date of exercise, or with the consent of the Committee, by a combination of cash and such shares. Exercise of an Option shall not be effective until the Corporation has received written notice of exercise. Such notice must specify the number of whole shares to be purchased and be accompanied by payment in full of the aggregate Option price of the number of shares purchased. The Corporation shall not in any case be required to sell, issue, or deliver a fractional share with respect to any Option. In the event that a Holder pays the exercise price of his Option, in whole or in part, with previously owned shares of Stock, pursuant to the rules specified above, then, if and to the extent approved by the Committee, in addition to the shares of Stock purchased pursuant to the Option exercise, such Holder shall also receive a new Option, subject to the terms and conditions set forth below and in the Holder's individual Stock Option Agreement. Upon exercise of the Option with payment in the form of either shares of Stock or a combination of cash and shares of Stock, the Committee may, at its sole and absolute discretion, grant the Holder a new Option for shares of Stock equal to the number of shares that were delivered by the Holder to the Corporation to pay, in whole or in part, the exercise price of the previous Option. The exercise price of the new Option shall be equal to at least 100% of the Fair Market Value per share of the Stock on the date of the exercise of the previous Option. Provided, however, the new Option cannot be exercised by the Holder until the later of (a) the exercisability dates specified in the individual Option Agreement, or (b) six (6) months after the date of grant. As a further condition on the exercisability of the new Option, the shares of Stock received by the Holder upon exercise of his previous Option must be held by the Holder for at least six (6) months prior to any sale of such shares by the Holder. Any sale of such shares by a Holder prior to the expiration of the six (6) month holding period shall render the new Option non-exercisable. Nothing in this paragraph shall prevent the Committee from granting a Holder another new Option in the future when the previous new Option is exercised by the Holder with the payment of previously owned shares of Stock. The Committee may, in its discretion, require a Holder to pay to the Corporation at the time of exercise of an Option or portion thereof the amount that the Corporation deems necessary to 6 satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise. Upon the exercise of an Option requiring tax withholding a Holder may make a written request to have shares of Stock withheld by the Corporation from the shares otherwise to be received. The number of shares so withheld shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. The acceptance of any such request by a Holder shall be at the sole discretion of the Committee, including, if deemed necessary by the Committee, approval by the Securities and Exchange Commission and the satisfaction of any additional requirements necessary to obtain such approval. Where the exercise of an Option does not give rise to an obligation to withhold Federal income or other taxes on the date of exercise, the Corporation may, in its discretion, require a Holder to place shares of Stock purchased under the Option in escrow for the benefit of the Corporation until such time as Federal income or other tax withholding is no longer required with respect to such shares or until such withholding is required on amounts included in the gross income of the Holder as a result of the exercise of an Option or the disposition of shares of Stock acquired pursuant thereto. At such later time, the Corporation in its discretion, may require a Holder to pay to the Corporation the amount that the Corporation deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option or the disposition of shares of Stock, in which case the shares of Stock shall be released from escrow to the Holder. Alternatively, subject to acceptance by the Committee, in its sole discretion, a Holder may make a written request to have shares of Stock held in escrow applied toward the Corporation's obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option or the disposition of shares of Stock, based on the Fair Market Value of the shares on the date of the termination of the escrow arrangement. Upon application of such shares toward the Corporation's withholding obligation, any shares of Stock held in escrow and not, in the judgment of the Committee, necessary to satisfy such obligation shall be released from escrow to the Holder. 6.4. Term, Time of Exercise, and Transferability of Options. In addition to such other terms and conditions as may be included in a particular Agreement granting an Option, an Option shall be exercisable during a Holder's lifetime only by him or by his guardian or legal representative. An Option shall not be transferrable other than by will or the laws of descent and distribution. Each Option shall also be subject to the following terms and conditions: (a) Termination of Employment or Directorship. The provisions of this Paragraph ----------------------------------------- 6.4(a) shall apply to the extent a Holder's Agreement does not expressly provide otherwise. If a Holder ceases to be employed by at least one of the employers in the group of employers consisting of the Corporation and its Affiliates because the Holder voluntarily terminates employment with such group of employers and the Holder does not remain or thereupon become a director of the Corporation or one or more of it's Affiliates, or if a Holder ceases to be a director of at least one of the corporations in the group of corporations consisting of the Corporation and its Affiliates and the Holder does not remain or thereupon become an employee of the Corporation or one or more of it's Affiliates, the portion, if any, of an Option 7 that remains unexercised, including that portion, if any, that pursuant to the Agreement is not yet exercisable, on the date of the Holder's termination of employment or ceasing to be a director, whichever occurs later, shall terminate and cease to be exercisable as of such date. If a Holder ceases to be employed by at least one of the employers in the group of employers consisting of the Corporation and its Affiliate because any of such entities terminates the Holder's employment for cause, the portion, if any, of an Option that remains unexercised, including that portion, if any, that pursuant to the Agreement is not yet exercisable, at the time of the Holder's termination of employment, shall terminate and cease to be exercisable immediately upon his termination of employment. A Holder's employment shall be deemed terminated "for cause" if terminated by the Board of Directors of the Corporation or the board of directors of an Affiliate because of incompetence, insubordination, dishonesty, other acts detrimental to the interest of the Corporation or its Affiliates, or any material breach by the Holder of any employment, nondisclosure, noncompetition, or other contract with the Corporation or one of its Affiliates. Whether cause exists shall be determined by such board of directors in its sole discretion and in good faith. If a Holder ceases to be employed by at least one of the employers in the group of employers consisting of the Corporation and its Affiliates because one or more of such entities terminates the employment of the Holder but not for cause, and the Holder does not remain or thereupon become a director of the Corporation or one or more of it's Affiliates, the Holder shall have the right for thirty (30) days after such termination of employment to exercise the Option with respect to that portion thereof that has become exercisable pursuant to Holder's Agreement as of the date of the Holder's termination of employment, and thereafter the Option shall terminate and cease to be exercisable. (b) Disability. The provisions of this Paragraph 6.4(b) shall apply to the extent a ---------- Holder's Agreement does not expressly provide otherwise. If a Holder ceases to be employed by at least one of the employers in the group of employers consisting of the Corporation and its Affiliates by reason of disability (as defined in section 22(e)(3) of the Code) and does not remain or thereupon become a director of the Corporation or one or more of it's Affiliates, or if the Holder ceases by reason of such disability to be a director of at least one of the corporations in the group of corporations consisting of the Corporation and its Affiliates, the Holder shall have the right for ninety (90) days after the date of termination of employment with or cessation of directorship of such group of employers by reason of disability, whichever occurs later, to exercise an Option to the extent such Option is exercisable on the date of his termination of employment, and thereafter the Option shall terminate and cease to be exercisable. (c) Death. The provisions of this Paragraph 6.4(c) shall apply to the extent a Holder's Agreement does not expressly provide otherwise. If a Holder dies while in the 8 employ of the Corporation or an Affiliate or dies while a director of the Corporation or an Affiliate, an Option shall be exercisable by the Holder's legal representatives, legatees, or distributees for ninety (90) days following the date of the Holder's death to the extent such Option is exercisable on the Holder's date of death, and thereafter the Option shall terminate and cease to be exercisable. Notwithstanding any other provision of this Plan, including the provisions of items (a), (b), and (c) of this Paragraph 6.4, no Incentive Option shall be exercisable after the expiration of ten (10) years from the date it is granted, or the period specified in Paragraph 4.1, if applicable. The Committee shall have authority to prescribe in any Agreement that the Option evidenced thereby may be exercised in full or in part as to any number of shares subject thereto at any time or from time to time during the term of the Option, or in such installments at such times during said term as the Committee may prescribe. Except as provided above and unless otherwise provided in any Agreement, an Option may be exercised at any time or from time to time during the term of the Option. Such exercise may be as to any or all whole (but no fractional) shares which have become purchasable under the Option. Within a reasonable time or such time as may be permitted by law after the Corporation receives written notice that the Holder has elected to exercise all or a portion of an Option, such notice to be accompanied by payment in full of the aggregate Option price of the number of shares purchased, the Corporation shall issue and deliver a certificate representing the shares acquired in consequence of the exercise and any other amounts payable in consequence of such exercise. In the event that a Holder exercises both an Incentive Option, or portion thereof, and a Nonstatutory Stock Option, or a portion thereof, separate Stock certificates shall be issued, one for the Stock subject to the Incentive Option and one for the Stock subject to the Nonstatutory Stock Option. The number of the shares of Stock transferrable due to an exercise of an Option under this Plan shall not be increased due to the passage of time, except as may be provided in an Agreement. Nothing herein or in any Option granted hereunder shall require the Corporation to issue any shares upon exercise of any Option if such issuance would, in the opinion of counsel for the Corporation, constitute a violation of the Securities Act of 1933, as amended, or any similar or superseding statute or statutes, or any other applicable statute or regulation, as then in effect. At the time of any exercise of an Option, the Corporation may, as a condition precedent to the exercise of such Option, require from the Holder of the Option (or in the event of his death, his legal representatives, legatees, or distributees) such written representations, if any, concerning his intentions with regard to the retention or disposition of the shares being acquired by exercise of such Option and such written covenants and agreements, if any, as to the manner of disposal of such shares as, in the opinion of counsel to the Corporation, may be necessary to ensure that any disposition by such Holder (or in the event of his death, his legal representatives, legatees, or distributees), will not involve a violation of the Securities Act of 1933, as amended, or any similar or superseding statute or statutes, or any other applicable state or federal statute or regulation, as then in effect. Certificates for shares of Stock, when issued, may have the following legend, or statements of other applicable restrictions, endorsed thereon, and may not be immediately transferable: 9 The shares of Stock evidenced by this certificate have been issued to the registered owner in reliance upon written representations that these shares have been purchased for investment. These shares may not be sold, transferred, or assigned unless, in the opinion of the Corporation and its legal counsel, such sale, transfer, or assignment will not be in violation of the Securities Act of 1933, as amended, applicable rules and regulations of the Securities and Exchange Commission, and any applicable state securities laws. 6.5. Limitation on Aggregate Value of Shares That May Become First Exercisable During Any Calendar Year Under an Incentive Option. With respect to any Incentive Option granted under this Plan, to the extent that the aggregate Fair Market Value of shares of Stock subject to such Incentive Option (determined as of the date the Incentive Option is granted), and the aggregate Fair Market Value of shares of Stock or stock of any Affiliate (or a predecessor of the Corporation or an Affiliate) subject to any other incentive stock option (within the meaning of section 422A of the Code) of the Corporation or its Affiliates (or a predecessor corporation of any such corporation), that first become purchasable in any calendar year under such Option (with respect to any Holder), exceed $100,000, then such excess over $100,000 shall not be considered as subject to an Incentive Option, but rather shall be considered as subject to a Nonstatutory Option. This rule shall be applied by taking shares of Stock subject to Incentive Options that are purchaseable for the first time in the calendar year into account in the order in which such Incentive Options were granted. For purposes of this Paragraph 6.5, "predecessor corporation" means a corporation that was a party to a transaction described in section 425(a) of the Code (or which would be so described if a substitution or assumption under such section had been effected) with the Corporation, or a corporation which, at the time the new incentive stock option (within the meaning of section 422A of the Code) is granted, is an Affiliate of the Corporation or a predecessor corporation of any such corporations, or a predecessor corporation of any such corporations. 6.6. Adjustments Upon Changes in Capitalization, Merger, Etc. The Committee, in its discretion, may make such adjustments in the option price and the number of shares covered by outstanding options which are required to prevent any dilution or enlargement of the rights of holders of such options that would otherwise result from any reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, issuance of rights or any other change in the capital structure of the Corporation. The Committee, in its discretion, may also make such adjustments in the aggregate number of options which are appropriate to reflect any transaction or event described in the preceding sentence. The following provisions of this Paragraph 6.6 shall apply unless a Holder's Agreement provides otherwise. A dissolution or liquidation of the Corporation; a sale of all or substantially all of the assets of the Corporation where it is contemplated that within a reasonable period of time thereafter the Corporation will either be liquidated or converted into a nonoperating company or an extraordinary dividend will be declared resulting in a partial liquidation of the Corporation (but in all cases only with respect to those employees whom it is anticipated will lose their employment with 10 the Corporation and its Affiliates as a result of such sale of assets); a merger or consolidation (other than a merger effecting a reincorporation of the Corporation in another state or any other merger or a consolidation in which the shareholders of the surviving corporation and their proportionate interests therein immediately after the merger or consolidation are substantially identical to the shareholders of the Corporation and their proportionate interests therein immediately prior to the merger or consolidation) in which the Corporation is not the surviving corporation (or survives only as a subsidiary of another corporation in a transaction in which the shareholders of the parent of the Corporation and their proportionate interests therein immediately after the transaction are not substantially identical to the shareholders of the Corporation and their proportionate interests therein immediately prior to the transaction; provided that the Board of Directors may at any time prior to such a merger or consolidation provide by resolution that the foregoing provisions of this parenthetical shall not apply if a majority of the board of directors of such parent immediately after the transaction consists of individuals who constituted a majority of the Board of Directors immediately prior to the transaction); or a transaction in which another corporation becomes the owner of 50% or more of the total combined voting power of all classes of stock of the Corporation (provided that the Board of Directors may at any time prior to such transaction provide by resolution that the provision immediately preceding this parenthetical and following the immediately preceding semi-colon shall not apply if a majority of the board of directors of the acquiring corporation immediately after the transaction consists of individuals who constituted a majority of the Board of Directors immediately prior to the acquisition of such 50% or more total combined voting power) shall cause every Option then outstanding to terminate, but the Holders of each such then outstanding Options shall, in any event, have the right, immediately prior to such dissolution, liquidation, sale of assets, merger, consolidation, or transaction, to exercise such Options, to the extent not theretofore exercised, without regard to the determination as to the periods and installments of exercisability made pursuant to a Holder's Agreement if (and only if) such Options have not at that time expired or been terminated. 6.7. Rights as a Shareholder. A Holder shall have no right as a shareholder with respect to any shares covered by his Option until a certificate representing such shares is issued to him. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or other property) or distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Paragraph 6.6 hereof. 6.8. Modification, Extension and Renewal of Options. Subject to the terms and conditions of and within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options granted under the Plan, or accept the surrender of Options outstanding hereunder (to the extent not theretofore exercised) and authorize the granting of new Options hereunder in substitution therefor (to the extent not theretofore exercised). The Committee may not, however, without the consent of the Holder, modify any outstanding Incentive Options so as to specify a lower exercise price or accept the surrender of outstanding Incentive Options and authorize the granting of new Options in substitution therefor specifying a lower option price. In addition, no modification of an Option granted hereunder shall, without the consent of the Holder, alter or impair any rights or obligations under any Option theretofore granted hereunder to such Holder under the 11 Plan, except as may be necessary, with respect to Incentive Options, to satisfy the requirements of section 422A of the Code. 6.9. Furnish Information. Each Holder shall furnish to the Corporation all information requested by the Corporation to enable it to comply with any reporting or other requirement imposed upon the Corporation by or under any applicable statute or regulation. 6.10. Obligation to Exercise; Termination of Employment. The granting of an Option hereunder shall impose no obligation upon the Holder to exercise the same or any part thereof. In the event of a Holder's termination of employment with the Corporation or an Affiliate, the unexercised portion of an Option granted hereunder shall terminate in accordance with Paragraph 6.4 hereof. 6.11. Agreement Provisions. The Agreements authorized under the Plan shall contain such provisions in addition to those required by the Plan (including, without limitation, restrictions or the removal of restrictions upon the exercise of the Option and the retention or transfer of shares thereby acquired) as the Committee shall deem advisable. Each Agreement shall identify the Option evidenced thereby as an Incentive Option or Nonstatutory Option, as the case may be, and no Agreement shall cover both an Incentive Option and Nonstatutory Option. Except as provided by the second paragraph of Section 6.6, each Agreement relating to an Incentive Option granted hereunder shall contain such limitations and restrictions upon the exercise of the Incentive Option to which it relates as shall be necessary for the Incentive Option to which such Agreement relates to constitute an incentive stock option, as defined in section 422A of the Code. 6.12. Redemption. At such time that the Stock is not registered under section 12 of the Act, if a Holder or any other holder of the Stock received upon exercise of an Option proposes to sell, give, pledge, exchange or otherwise transfer or dispose of any of the Stock received upon exercise of an Option, or of any interests therein owned by him, whether for cash or other consideration, the Holder or such other holder shall promptly give notice (the "Redemption Notice") to the Committee setting forth in detail the circumstances of such event. The Redemption Notice shall state the name and address of the proposed transferee and the proposed consideration for and terms of the transfer. The Corporation shall have an option to purchase such Stock within ten (10) days after receipt by the Committee of the Redemption Notice, on the terms hereinafter set forth and as may be set forth in the Agreement. The Corporation shall exercise such option by giving the Holder or such other holder notice thereof. Such option may be exercised by the Corporation as to all, but not less than all, of such Stock, and such option shall expire to the extent not exercised by the Corporation within ten (10) days after receipt by the Committee of the Redemption Notice. The price per share for the Stock purchased by the Corporation pursuant to this Paragraph 6.12 shall be: (a) the Fair Market Value per share of such Stock on the date the Committee receives the Redemption Notice, if the proposed transfer is a gift, or 12 (b) the price per share for which the Holder has received a bona fide offer, as described in the Redemption Notice, if the proposed transfer is other than a gift. The value of any noncash consideration included in such bona fide offer shall be determined in good faith by the Board of Directors, with the assistance of a third party to the extent the Board of Directors deems appropriate. Upon exercise of its option pursuant to this Paragraph 6.12, the Corporation shall pay the Holder or such other holder the purchase price (i) within 60 days after receipt of the Redemption Notice by the Committee in the manner provided in the Agreement between Corporation and the Holder or (ii) at the election of the Corporation, in accordance with the terms embodied in any bona fide offer received by the Holder or such other holder and described in the Redemption Notice. Any Stock that the Corporation does not purchase as herein provided may be transferred by the Holder or such other holder to the persons and upon terms and conditions no more favorable to the purchasers than those set forth in the Redemption Notice, such transfer to be consummated within ninety (90) days after receipt of the Redemption Notice by the Committee, and not otherwise. SECTION 7. Remedies and Legend 7.1. Remedies. The Corporation shall be entitled to recover from a Holder reasonable attorneys' fees incurred in connection with the enforcement of the terms and provisions of the Plan and any Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise. 7.2. Legend. Each certificate representing shares issued to a Holder upon exercise of an Option granted under the Plan may, if such share is subject to any transfer restriction, including a right of first refusal, provided for under this Plan or an Agreement, bear a legend that complies with applicable law with respect to the restrictions on transferability referenced in this Paragraph 7.2, such as: The shares represented by this certificate are subject to restrictions on transferability imposed by that certain instrument entitled "Snyder Oil Corporation 1989 Stock Option Plan" dated _______________, 19__, and an agreement thereunder between and [Holder] dated _______________, 19__, which grants to the Corporation an option to purchase such shares in certain instances. A copy of such plan and agreement is on file at the principal office of the Corporation, and is subject to the same right of examination by a shareholder of the Corporation (in person or by agent, attorney, or accountant) as are the books and records of the Corporation. 13 SECTION 8. Duration of Plan. No Incentive Options may be granted hereunder after the date that is ten (10) years from the earlier of (i) the date the Plan is adopted by the Board of Directors or (ii) the date the Plan is approved by the shareholders of the Corporation. In addition, with respect to shares of Stock not currently covered by an outstanding Option, this Plan may be terminated at any time by the Board of Directors. SECTION 9. Amendment of Plan. The Board of Directors may, insofar as permitted by law, with respect to any shares at the time are not subject to Options, suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that, without the approval of the holders of a majority of the outstanding shares of voting stock of all classes of the Corporation, no such revision or amendment shall (a) change the number of shares of the Stock subject to the Plan, (b) change the designation of the class of employees eligible to receive Options, (c) decrease the price at which Incentive Options may be granted, (d) remove the administration of the Plan from the Committee, (e) render the members of the Committee eligible to receive Options under the Plan while serving as such, or (f) without the consent of the affected Holder, cause the Incentive Options granted hereunder and outstanding at such time that satisfied the requirements of section 422A of the Code to no longer satisfy such requirements. SECTION 10. General. 10.1. Application of Funds. The proceeds received by the Corporation from the sale of shares pursuant to Options shall be used for general corporate purposes. 10.2. Right of the Corporation and Affiliates to Terminate Employment. Nothing contained in the Plan, or in any Agreement, shall confer upon any Holder the right to continue in the employ of the Corporation or any Affiliate, or interfere in any way with the rights of the Corporation or any Affiliate to terminate his employment at any time. 10.3. No Liability for Good Faith Determinations. Neither the members of the Board of Directors nor any member of the Committee shall be liable for any act, omission, or determination taken or made in good faith with respect to the Plan or any Option granted under it, and members of the Board of Directors and the Committee shall be entitled to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage, or expense (including attorneys' fees, the costs of settling any suit, provided such settlement is approved by independent legal counsel selected by the Corporation, and amounts paid in satisfaction of a judgment, except a judgment based on a finding of bad faith) arising therefrom to the full extent permitted by law and under any directors and officers liability or similar insurance coverage that may from time to time be in effect. 14 10.4. Information Confidential. As partial consideration for the granting of each Option hereunder, the Holder shall agree with the Corporation that he will keep confidential all information and knowledge that he has relating to the manner and amount of his participation in the Plan; provided, however, that such information may be disclosed as required by law and may be given in confidence to the Holder's spouse, tax and financial advisors, or to a financial institution to the extent that such information is necessary to secure a loan. In the event any breach of this promise comes to the attention of the Committee, it shall take into consideration such breach, in determining whether to recommend the grant of any future Option to such Holder, as a factor militating against the advisability of granting any such future Option to such individual. 10.5. Other Benefits. Participation in the Plan shall not preclude the Holder from eligibility in any other stock option plan of the Corporation or any Affiliate or any old age benefit, insurance, pension, profit sharing retirement, bonus, or other extra compensation plans which the Corporation or any Affiliate has adopted, or may, at any time, adopt for the benefit of its employees. 10.6. Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of shares of Stock to the Holder, or to his legal representative, heir, legatee, or distributee, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder. The Committee may require any Holder, legal representative, heir, legatee, or distributee, as a condition precedent to such payment, issuance, or transfer, to execute a release and receipt therefor in such form as it shall determine. 10.7. No Guarantee of Interests. Neither the Committee nor the Corporation guarantees the Stock of the Corporation from loss or depreciation. 10.8. Payment of Expenses. All expenses incident to the administration, termination, or protection of the Plan, including, but not limited to, legal and accounting fees, shall be paid by the Corporation or its Affiliates; provided, however, the Corporation or an Affiliate may recover any and all damages, fees, expenses, and/or costs arising out of any actions taken by the Corporation to enforce its right to purchase Stock under Paragraph 6.12 hereof. 10.9. Corporation Records. Records of the Corporation or its Affiliates regarding the Holder's period of employment, termination of employment and the reason therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Committee to be incorrect. 10.10. Information. The Corporation and its Affiliates shall, upon request or as may be specifically required hereunder, furnish or cause to be furnished, all of the information or documentation which is necessary or required by the Committee to perform its duties and functions under the Plan. 15 10.11. No Liability of Corporation. The Corporation assumes no obligation or responsibility to the Holder or his personal representatives, heirs, legatees, or distributees for any act of, or failure to act on the part of, the Committee. 10.12. Corporation Action. Any action required of the Corporation shall be by resolution of its Board of Directors or by a person authorized to act by resolution of the Board of Directors. 10.13. Severability. If any provision of this Plan is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included herein. 10.14. Notices. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date on which it is personally delivered, or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address which such person has theretofore specified by written notice delivered in accordance herewith. The Corporation or a Holder may change, at any time and from time to time, by written notice to the other, the address which it or he had theretofore specified for receiving notices. Until changed in accordance herewith, the Corporation and each Holder shall specify as its and his address for receiving notices the address set forth in the Agreement pertaining to the shares to which such notice relates. 10.15. Waiver of Notice. Any person entitled to notice hereunder may waive such notice. 10.16. Successors. The Plan shall be binding upon the Holder, his heirs, legatees, and legal representatives, upon the Corporation, its successors, and assigns, and upon the Committee, and its successors. 10.17. Headings. The titles and headings of Sections and Paragraphs are included for convenience of reference only and are not to be considered in construction of the provisions hereof. 10.18. Governing Law. All questions arising with respect to the provisions of the Plan shall be determined by application of the laws of the State of Delaware except to the extent Delaware law is preempted by federal law. Questions arising with respect to the provisions of an Agreement that are matters of contract law shall be governed by the laws of the state specified in the Agreement, except to the e{went Delaware corporate law conflicts with the contract law of such state, in which event Delaware corporate law shall govern. The obligation of the Corporation to sell and deliver Stock hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Stock. 16 10.19. Word Usage. Words used in the masculine shall apply to the feminine where applicable, and wherever the context of this Plan dictates, the plural shall be read as the singular and the singular as the plural. SECTION 11. Approval of Shareholders. The Plan shall take effect on the date it is adopted by the Board of Directors. However, if this Plan is not approved by the holders of a majority of the outstanding shares of common stock, par value $.01 per share, of the Corporation, within the period beginning on the date the Board of Directors adopts the Plan and ending twelve (12) months after the date the Plan is adopted by the Board of Directors, none of the Options granted hereunder shall constitute Incentive Options; and in the event that the Plan is not so approved on or before the first annual meeting of stockholders of the Corporation following the date the Board of Directors adopts the Plan, if any Options are granted under the Plan before the date such stockholders do approve the Plan to individuals subject to suit under Section 16b of the Act at the time of grant, such Options shall be null, void, and of no force and effect as of their grant date. 17 EX-10 4 DEFERRED COMPENSATION PLAN FOR SELECT EMPLOYEES EXHIBIT 10.3 SNYDER OIL CORPORATION DEFERRED COMPENSATION PLAN FOR SELECT EMPLOYEES AS ADOPTED FEBRUARY 23, 1994, AS AMENDED THROUGH APRIL 2, 1997 ARTICLE 1 -- INTRODUCTION 1.1 PURPOSE OF THE PLAN The Employer has adopted the Plan set forth herein to provide a means by which certain employees may elect to defer receipt of designated percentages or amounts of their Compensation and to provide a means for certain other deferrals of compensation. 1.2 STATUS OF PLAN The Plan is intended to be a "plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2) and 301(a)(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), and shall be interpreted and administered to the extent possible in a manner consistent with that intent. ARTICLE 2 -- DEFINITIONS Whenever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context: 2.1 ACCOUNT means, for each Participant, the account established for his or her benefit under Section 5.1. 2.2 CHANGE OF CONTROL means (a) the purchase or other acquisition in one or more transactions other than from the Employer, by any individual, entity or group of persons within the meaning of Section 13(d)(3) or 14(d) of the Securities Exchange Act of 1934 or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d- 3 of the Securities Exchange Act) of 50 percent or more of either that outstanding shares of common stock or the combined voting power of Employer's then outstanding voting securities entitled to vote generally or (b) in connection or as a result of any tender offer, exchange offer, merger or other business combination or proxy contest the directors prior to such event no longer constitute a majority of the directors of Employer, or (c) the approval by stockholders of the Employer of a reorganization, merger, consolidation or other business combination, in each case, with respect to which persons who were stockholders of the Employer immediately prior to such event do not immediately thereafter own more than 50% of the combined voting power of the reorganized, merged, consolidated or combined Employer's then outstanding securities that are entitled to vote generally in the election of directors or (d) the liquidiation or dissolution of Employer or sale of all or substantially all of the Employer's assets. 2.3 CODE means the Internal Revenue Code of 1986, as amended, from time to time. Reference to any section or subsection of the Code included reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.4 COMPENSATION means the regular or base salary and cash bonuses payable by the Employer or an Affiliate to an individual. For purposes of the Plan, Compensation will be determined before giving effect to Elective Deferrals and other salary reduction amounts which are not included in the Participant's gross income under Sections 125, 401(k), 402(h) or 403(b) of the Code. For purposes of the Plan, bonuses shall be deemed to have been earned during the Plan Year in which the Employer accrues such bonuses for federal income tax reporting purposes. Under the Employer's present method of federal income tax reporting, regular bonuses paid in March of a given year are accrued ratably during the prior year. Regular salary and special bonuses, as designated by the Board of Directors or the Compensation Committee of the Board of Directors of 1 Employer, are included in Compensation at the time paid to the employee. Thus, for example, Compensation for the Plan Year ending December 31, 1995 includes regular salary paid during 1995 and any regular bonus paid during March 1996. As a result an Elective Deferral to defer, say, 10% of a Participant's 1995 Compensation will result in the deferral hereunder of 10% of the Participant's 1995 salary and 10% of any regular bonus paid to the Participant in March 1996 (any regular bonus payable in March 1995 would not be affected to an election to defer a portion of 1995 Compensation, since such bonus would be included in 1994 Compensation). 2.5 DISABILITY means a Participant's total and permanent mental or physical disability resulting in termination of employment as evidenced by presentation of medical evidence satisfactory to the Administrator. 2.6 EFFECTIVE DATE means June 1, 1994. 2.7 ELECTION FORM means the participation election form as approved and prescribed by the Plan Administrator. 2.8 ELECTIVE DEFERRAL means the portion of Compensation during a Plan Year which is deferred by a Participant under Section 4.1. 2.9 ELIGIBLE EMPLOYEE means, on the Effective Date or on any Entry Date thereafter, those employees of the Employer selected by the Compensation Committee of the Board of Directors of Employer or by such persons as the Compensation Committee may authorize to select employees entitled to participate in the Plan. 2.10 ENTRY DATE means, for each Participant, the date deferrals commence in accordance with Section 4.1. 2.11 EMPLOYER means Snyder Oil Corporation, any successor to all or a major portion of its assets or business which assumes the obligations of Employer, and each other entity that is affiliated with the Employer that adopts the Plan with the consent of the Employer, provided that Snyder Oil Corporation shall have the sole power to amend this Plan and shall be the Plan Administrator if no other person or entity is so serving at any time. 2.12 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to any section or subsection of ERISA includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.13 INCENTIVE CONTRIBUTION means a discretionary additional contribution made by Employer as described in Section 4.3. 2.14 INSOLVENT means either (1) the Employer is unable to pay its debts as they become due or (2) the Employer is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 2.15 MATCHING DEFERRAL means a deferral for the benefit of a Participant as described in Section 4.2. 2.16 MATCHING DEFERRAL LIMITATION means, with respect to Elective Deferrals of Compensation for any Plan Year made by any Participant, $75,000 multiplied by the Matching Deferral Rate applicable to that Participant for such Plan Year. The Compensation Committee may change the Matching Deferral Limitation for any Participant or all Participants at any time, provided that the Matching Deferral Limitation applicable to Elective Deferrals of Compensation for any Plan Year made by any Participant may not be reduced unless the Plan Administrator has given written notice of such reduction to the Participant not less than 10 days prior to the commencement of such Plan Year. 2.17 MATCHING DEFERRAL RATE means, with respect to Elective Deferrals of Compensation for any Plan Year made by any Participant, 33-1/3%. The Compensation Committee may change the Matching Deferral Rate for any Participant or all Participants at any time, provided that the Matching Deferral Rate applicable to Elective Deferrals of Compensation for any Plan Year made by any Participant may not be reduced unless the Plan Administrator has given written notice of such reduction to the Participant not less than 10 days prior to the commencement of such Plan Year. 2 2.18 PARTICIPANT means any individual who participates in the Plan in accordance with Article 3. 2.19 PLAN means the Snyder Oil Corporation Deferred Compensation Plan for Select Employees as amended from time to time. 2.20 PLAN ADMINISTRATOR means the person, persons or entity designated by the Employer to administer the Plan and to serve as agent for the Employer with respect to the Trust. If no such person or entity is serving as Plan Administrator at any time, the Employer shall be Plan Administrator. 2.21 PLAN YEAR means, in the case of the first Plan Year, the period from the Effective Date through December 31, 1994 and, for each Plan Year thereafter, the 12-month period ending December 31. 2.22 RETIREMENT AGE means the age of 55 or such other age as shall be determined as the normal retirement age for purposes of the Employer's welfare and retirement plans as determined by the Employer's Board of Directors or the Compensation Committee thereof. No determination to increase the Retirement Age shall be effective with respect to amounts credited to the Account of a Participant with respect to Plan Years commencing prior to the time of such determination. 2.23 TRUST means the rabbi trust or trusts established by the Employer that identifies the Plan as a plan with respect to which assets are to be held by the Trustee. 2.24 TRUSTEE means the trustee or trustees under the Trust. ARTICLE 3 -- PARTICIPATION 3.1 COMMENCEMENT OF PARTICIPATION Any Eligible Employee who elects to defer part of his or her Compensation in accordance with Section 4.1 shall become a participant in the Plan as of the date such deferrals commence in accordance with Section 4.1. Any individual who is not already a Participant and whose account is credited with an Incentive Contribution shall become a Participant as of the date such amount is credited. 3.2 CONTINUED PARTICIPATION A Participant in the Plan shall continue to be a Participant so long as any amount remains credited to his or her Account. 3.3 CERTAIN TERMINATED PARTICIPANTS. At the sole and continuing discretion of the Compensation Committee, an employee of Employer who is an Eligible Employee at the time such employee's employment by Employer is terminated and who, as a result of such termination, becomes entitled to receive severance payments shall continue as a Participant and shall be permitted to defer all or a portion of such severance payments as Elective Deferrals by completing an Election Form and filing it with the Plan Administrator prior to the time Employer finally determines that the employee will receive the severance payments. Section 4.2 (relating to "Matching Deferrals") will not apply to Elective Deferrals under this Section. In lieu of an Election Form, the election by the employee may be reflected in the severance or similar agreement providing for such severance payments. For purposes of this Section, "severance payments" shall mean cash payments which, in accordance with federal tax regulations, would, but for any election hereunder, be reported by Employer as compensation income and which are subject to withholding for federal income tax purposes. ARTICLE 4 -- DEFERRALS AND INCENTIVE CONTRIBUTIONS 4.1 ELECTIVE DEFERRALS. 3 Any Eligible Employee may elect to defer a percentage or dollar amount of one or more payments of Compensation for the next succeeding Plan Year, on such terms as the Plan Administrator may permit, by completing an Election Form and filing it with the Plan Administrator prior to the first day of such succeeding Plan Year (or any such earlier date as the Plan Administrator may prescribe), provided that (1) an individual who is an Eligible Employee on the Effective Date may, by completing an Election Form and filing it with the Plan Administrator within 30 days following the Effective Date, elect to defer a percentage or dollar amount of one or more payments of Compensation for the 1994 Plan Year, on such terms as the Plan Administrator may permit, which are payable to the Participant after the date on which the Eligible Employee files the Election Form and (2) an Eligible Employee who is a new employee of Employer may, by completing an Election Form and filing it with the Plan Administrator within 30 days of the date such employment commences, elect to defer a percentage or dollar amount of one or more payments of Compensation for the Plan Year in which such employment commences, on such terms as the Plan Administrator may permit, which are payable to the Participant after the date on which the Eligible Employee files the Election Form. An election to defer a percentage or dollar amount of Compensation for any Plan Year shall apply only to that Plan Year, unless the Participant elects otherwise on the Election Form. In addition, a Participant may elect to defer all or part of the amount of any elective deferral contributions that were made on his or her behalf to the Employer's 401(k) plan for the prior Plan Year but which were treated as an excess deferral, an excess contribution or otherwise limited by the application of the limitations of Sections 401(k), 401(m), 415 or 402(q) of the Code, so long as the Participant so indicates on an Election Form. A Participant's Compensation shall be reduced in accordance with the Participant's election hereunder and amounts deferred hereunder shall be paid by the Employer to the Trust as soon as administratively feasible and credited to the Participant's Accounts as of the date the amounts are received by the Trustee. 4.2 MATCHING DEFERRALS After each payroll period, the Employer shall contribute to the Trust Matching Deferrals equal to the Matching Deferral Rate multiplied by the amount of the Elective Deferrals credited to the Participants' Accounts for such period under Section 4.1. Each Matching Deferral will be credited as of the date it is received by the Trustee pro rata in accordance with the amount of Elective Deferrals of each Participant which are taken into account in calculating the Matching Deferral. The amount of Matching Contributions credited to the Account of any Participant with respect to Elective Deferrals of Compensation for any Plan Year may not exceed the Matching Deferral Limitation applicable to that Participant for such Plan Year. Notwithstanding the foregoing or anything in Section 7.1, if the amount of "Employee Deferral Contributions" (as defined in the Employer's 401(k) Plan) made by a Participant during a Plan Year is less than the maximum amount of Employee Elective Deferrals the Participant is permitted to make to the Employer's 401(k) Plan (after taking into account the employer's contribution allocated to the Participant's account and any limitations imposed by the 401(k) Plan or the Code), all Matching Deferrals, and any income and gain thereon, credited to the Account of the Participant with respect to Elective Deferrals of Compensation for such Plan Year shall be forfeited and applied as provided in Section 7.7, unless the Plan Administrator, in its sole discretion determines that the failure to contribute such maximum amount to the Employer's 401(k) Plan is the result of an administrative error by the Employer or other reasons beyond the Control of the Participant. 4.3 INCENTIVE CONTRIBUTIONS In addition to other contributions provided for under the Plan, the Employer may, in its sole discretion, select one or more Eligible Employees to receive an Incentive Contribution to his or her account on such terms as the Employer shall specify at the time it makes the contribution. For example, the Employer may contribute an amount to the Participant's Account and condition the payment of such amount and accrued earnings thereon upon the Participant's remaining employed by the Employer for an additional specified period of time. The terms specified by the Employer shall supersede any other 4 provision of this Plan as regards Incentive Contributions and earnings with respect thereto, provided that if the Employer does not specify (a) the terms on which such Incentive Contribution will vest, the Incentive Contribution and earnings thereon will vest in the same manner as Matching Deferrals or (b) a method of distribution, the Incentive Contribution and earnings thereon will be distributed in a manner consistent with the election last made by the Participant prior to the Plan Year in which the Incentive Contribution is made. The Employer, in its discretion, may permit the Participant to designate a distribution schedule for a particular Incentive Contribution provided the designation is made before the Employer finally determines that the Participant will receive the Incentive Contribution. ARTICLE 5 -- ACCOUNTS 5.1 ACCOUNTS The Plan Administrator shall establish an Account for each Participant reflecting Elective Deferrals, Matching Deferrals and Incentive Contributions made for the Participant's benefit together with any adjustments for income, gain or loss and any payments from the Account. The Plan Administrator shall establish sub-accounts for each Participant that has more than one election in effect under Section 7.1 and such other sub-accounts as are necessary for the proper administration of the Plan. As of the last business day of each calendar quarter, the Plan Administrator shall provide the Participant with a statement of his or her Account reflecting the income, gains and losses (realized and unrealized), amounts of deferrals and distributions of such Account since the prior statement. 5.2 INVESTMENTS a. Each Participant shall designate, in accordance with the procedures established from time to time by the Plan Administrator, the manner in which the amounts allocated to his or her Account shall be deemed to be invested from among the Funds (as such term is hereinafter defined) made available from time to time for such purpose by the Plan Administrator. Such Participant may designate one of such Funds for the deemed investment of all the amounts allocated to his or her account or such Participant may split the deemed investment of the amounts allocated to his or her Account between such Funds in such increments as the Plan administrator may prescribe. If a Participant fails to make a proper designation, then his or her Account shall be deemed to be invested in the Fund or Funds designated by the Plan Administrator from time to time in a uniform and nondiscriminatory manner. For purposes of the Section 5.2 and Section 7.9 the term "Funds" shall mean the investment funds designated from time to time by the Plan Administrator for the deemed investment of Accounts pursuant to this Section 5.2 b. A Participant may change his or her deemed investment designation for future amounts to be allocated to such Participant's Account. Any such change shall be made in accordance with the procedures established by the Plan Administrator, and the frequency of such changes may be limited by the Plan Administrator. c. A Participant may elect to convert his or her deemed investment designation with respect to the amounts already allocated to such Participant's Account. Any such conversion shall be made in accordance with the procedures established by the Plan Administrator, and the frequency of such conversions may be limited by the Plan Administrator. d. The preceding provisions of the Section 5.2 notwithstanding, the Plan Administrator may, in its sole discretion, permit a Participant to designate that all or a portion of his or her Account (with such portion to be determined by the Plan Administrator) shall be deemed to be invested in assets other than the Funds; provided, however, that no portion of Trust assets may be invested in securities issued by the Employer. If a portion of a Participant's Account is deemed to be invested in an asset other than the Funds (a "Deemed Asset"), than such Participant may at any time request, in accordance with the procedures prescribed by the Plan Administrator, that such deemed investment in such Deemed Asset be converted into a deemed investment in one or more of the Funds; provided, however, that if the Deemed Asset is an asset actually held by the Trust at the time such conversion request is made, then such conversion shall be permitted only at the times and to the extent that such Deemed Asset may be sold or otherwise disposed of by the Trust in compliance with all applicable laws. The Accounts that are deemed to be invested in a Deemed Asset shall be reduced by the aggregate amount of the costs and expenses incurred by the Plan, the Employer, the Plan 5 Administrator, the Trust, and/or the Trustee in connection with such Deemed Asset, including, without limitation, the costs and expenses associated with the acquisition, maintenance, and sale or exchange of such Deemed Asset. e. All deemed investments under the Plan shall be valued at the times and in the manner determined by the Plan Administrator in its sole discretion. The Plan Administrator may at any time and for any reason, without any liability to any Participant, determine in its sole discretion that a particular Fund (or asset under paragraph d. above) shall no longer be available for the deemed investment of an Account under the Plan. In such case, the deemed investment in such Fund (or asset) shall be deemed to have been liquidated on the date selected by the Plan Administrator in its sole discretion. None of the Plan, the Employer, the Plan Administrator, the Trust, or the Trustee shall be responsible or liable for any loss resulting form (1) a Participant's exercise of any control or discretion over the deemed investment or his or her Account and/or (2) any actions taken by the Plan Administrator pursuant to this Section 5.2. Actions by the Plan Administrator pursuant to this Section 5.2 may vary among Participants. ARTICLE 6 -- VESTING 6.1 GENERAL A Participant will be immediately vested in, i.e., shall have a nonforfeitable right to, all Elective Deferrals, and to all income and gain attributable thereto, credited to his or her Account. Subject to earlier vesting in accordance with this Article 6, a Participant shall become vested in the portion of his or her Account attributable to Matching Deferrals made with respect to Elective Deferrals of Compensation for a given Plan Year as follows: (a) 33-1/3% at the end of the Plan Year with respect to which the Matching Deferrals are made; (b) 33-1/3% at the end of the first Plan Year following the Plan Year with respect to which the Matching Deferrals are made; and (c) 33-1/3% at the end of the second Plan Year following the Plan Year with respect to which the Matching Deferrals are made, or in such other manner as the Compensation Committee shall provide prospectively with respect to any Plan Year. Any portion of a Participant's Account that have not vested on the date that a Participant's employment with Employer terminates shall, except as provided in this Article 6, shall be forfeited and applied as provided in Section 7.7. 6.2 CHANGE OF CONTROL A Participant shall become fully vested in his or her Account immediately prior to a Change of Control of the Employer. 6.3 DEATH, RETIREMENT OR DISABILITY A Participant shall become fully vested in his or her Account immediately prior to termination of the Participant's employment by reason of Participant's death, retirement at or after the attainment of the Retirement Age or Disability. Whether a Participant's termination of employment is by reason of Participant's Disability or retirement shall be determined by the Plan Administrator in its sole discretion. 6.4 DISCRETIONARY VESTING The Employer may, in its sole discretion, accelerate the vesting of all or any portion of the Accounts of any Participant or all Participants. 6 6.5 INSOLVENCY A Participant shall become fully vested in his or her Account immediately prior to the Employer's becoming Insolvent, in which case the Participant will have the same rights as a general creditor of the Employer with respect to his or her Account Balance. ARTICLE 7 - PAYMENTS 7.1 ELECTION AS TO TIME AND FORM OF PAYMENT A Participant shall elect (on the Election Form used to elect to defer Compensation under Section 4.1) the date at which the Elective Deferrals and vested Matching Deferrals (including any earnings attributable thereto) will commence to be paid to the Participant. The Participant shall also elect thereon for payments to be paid in either: a: a single lump-sum payment; or b. annual or monthly installments over a period elected by the Participant up to 10 years, the amount of each installment to equal the balance of his or her Account immediately prior to the installment divided by the number of installments remaining to be paid. Each such election will be effective for the Plan Year for which it is made and succeeding Plan Years, unless changed by the Participant. Any change will be effective only for Elective Deferrals and Matching Deferrals made for the first Plan Year beginning after the date on which the Election Form containing the change is filed with the Plan Administrator. Except as provided in Sections 7.2, 7.3, 7.4, or 7.5, payment of a Participant's Account shall be made in accordance with the Participant's elections under this Section 7.1. 7.2 CHANGE OF CONTROL A Participant may elect on the Election Form that, in the event of a Change of Control, the Participant's entire Account balance (including any amount vested pursuant to Section 6.2) will either (a) be paid to the Participant in a single lump sum as soon as possible following any Change of Control of the Employer or (b) be paid to the Participant in a single lump sum as soon as possible following a Change of Control of the Employer unless, prior to the Change of Control, a majority of the members of the Board of Directors of the Employer who are not Participants in the Plan determines that the Change of Control would not reasonably be expected to increase materially the economic risk of Participants who remain in the Plan or (c) be paid in accordance with the other provisions of the Plan without regard to any Change of Control. Unless the Participant shall have elected otherwise on the Election Form, as soon as possible following a Change of Control of the Employer, each Participant shall be paid his or her entire Account balance (including any amount vested pursuant to Section 6.2) in a single lump sum. 7.3 TERMINATION OF EMPLOYMENT 7 Unless the Plan Administrator, in its sole discretion, determines otherwise, upon termination of a Participant's employment for any reason other than death, Disability and retirement after attainment of the Retirement Age, the vested portion of the Participant's Account shall be paid to the Participant in a single lump sum as soon as practicable following the date of such termination. If the Plan Administrator does determine not to make a lump sum payment to a Participant under this Section, the Plan Administrator may, in its sole discretion, determine to pay the vested portion of such Participant's Account in a single lump sum at any time thereafter. 7.4 DISABILITY If the Participant's employment terminates by the reason of the Participant's Disability, the amounts credited to a Participant's Account with respect to any Plan Year shall be paid out in accordance with the election made in accordance with Section 7.1 unless the Plan Administrator, in its sole discretion, determines to pay such amounts in one lump sum or the Participant shall have elected in such Election Form to receive payment of the remaining balance of such amounts in one lump sum if his or her employment terminates by reason of Disability. 7.5 DEATH If a Participant dies prior to the complete distribution of his or her Account, the balance of the Account shall be paid as soon as practicable to the Participant's designated beneficiary or beneficiaries, in the form elected by the Participant under either of the following options: a. a single lump-sum payment; or b. annual or monthly installments over a period elected by the Participant up to 10 years, the amount of each installment to equal the balance of the Account immediately prior to the installment divided by the number of installments remaining to be paid. Any designation of beneficiary and form of payment to such beneficiary shall be made by the Participant on an Election Form filed with the Plan Administrator and may be changed by the Participant at any time by filing another Election Form containing the revised instructions. If no beneficiary is designated or no designated beneficiary survives the Participant, payment shall be made to the Participant's surviving spouse or, if none, to his or her issue per stirpes, in a single payment. If no spouse or issue survives the Participant, payment shall be made in a single lump sum to the Participant's estate. 7.6 UNFORESEEN EMERGENCY If a Participant suffers an unforeseen emergency, as defined herein, the Plan Administrator, in its sole discretion, may pay to the Participant only that portion, if any, of the vested portion of his or her Account which the Plan Administrator determines is necessary to satisfy the emergency need, including any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the distribution. A Participant requesting an emergency payment shall apply for the payment in writing in a form approved by the Plan Administrator and shall provide such additional information as the Plan Administrator may require. For purposes of this paragraph, "unforeseen emergency" means an immediate and heavy financial need resulting from either of the following: a. expenses which are not covered by insurance and which the Participant or his or her spouse or dependent has incurred as a result of, or is required to incur in order to receive, medical care; or b. any circumstance that is determined by the Plan Administrator in its sole discretion to constitute an unforeseen emergency which is not covered by insurance and which cannot reasonably be relieved by the liquidation of the Participant's assets. 7.7 FORFEITURE OF NON-VESTED AMOUNTS 8 To the extent that any amounts credited to a Participant's Account are not vested at the time such amounts are otherwise payable under Sections 7.1 or 7.3, such amounts shall be forfeited and shall, at the option of the Employer, either be paid to the Employer or used to satisfy the Employer's obligation to make contributions to the Trust under the Plan. 7.8 TAXES All federal, state or local taxes that the Plan Administrator determines are required to be withheld from any payments made pursuant to this Article 7 shall be withheld. 7.9 FORM OF DISTRIBUTIONS The Plan Administrator shall determine in its sole discretion the extent to which any distribution under the Plan (whether payable in a single lump sum or installments) shall be paid in cash, in kind, or both in cash and in kind. Without limiting the scope of the Plan Administrator's discretion pursuant to the preceding sentence, the Plan Administrator may in its sole discretion direct that all or any portion of a Participant's Account be distributed in kind to such Participant or such Participant's designated beneficiaries based upon the Funds and/or assets in which such Account is deemed to be invested pursuant to Section 5.2 immediately prior to the date of such distribution. No participant or beneficiary of a Participant shall have the right to demand a distribution in cash, in kind, or any combination thereof. ARTICLE 8 - PLAN ADMINISTRATOR 8.1 PLAN ADMINISTRATION AND INTERPRETATION The Plan Administrator shall oversee the administration of the Plan. The Plan Administrator shall have complete control and authority to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, beneficiary, deceased Participant, or other person having or claiming to have any interest under the Plan. The Plan Administrator shall have complete discretion to interpret the Plan to decide all matters under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Plan Administrator acted arbitrarily and capriciously. Any individual(s) serving as Plan Administrator who is a Participant will not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Plan Administrator shall be entitled to rely on information furnished by a Participant, a beneficiary, the Employer or the Trustee. The Plan Administrator shall have the responsibility for complying with any reporting and disclosure requirements or ERISA. 8.2 POWERS, DUTIES, PROCEDURES, ETC. The Plan Administrator shall have such powers and duties, may adopt such rules and tables, may act in accordance with such procedures, may appoint such officers or agents, may delegate such powers and duties, may receive such reimbursements and compensation, and shall follow such claims and appeal procedures with respect to the Plan as it may establish. 8.3 INFORMATION To enable the Plan Administrator to perform its functions, the Employer shall supply full and timely information to the Plan Administrator on all matters relating to the compensation of Participants, their employment, retirement, death, termination or employment, and such other pertinent facts as the Plan Administrator may require. 8.4 INDEMNIFICATION OF PLAN ADMINISTRATOR 9 The Employer agrees to indemnify and to defend to the fullest extent permitted by law any officer(s) or employee(s) who serve as Plan Administrator (including any such individual who formerly served as Plan Administrator) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by the Employer) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. ARTICLE 9 - AMENDMENT AND TERMINATION 9.1 AMENDMENTS The Employer, upon action of its Board of Directors or an authorized committee thereof, shall have the right to amend the Plan from time to time, subject to Section 9.3, by an instrument in writing which has been executed on the Employer's behalf by its duly authorized officer. 9.2 TERMINATION OF PLAN This Plan is strictly a voluntary undertaking on the part of the Employer and shall not be deemed to constitute a contract between the Employer and any Eligible Employee (or any other employee) or a consideration for, or an inducement or condition of employment for, the performance of the services by any Eligible Employee (or other employee). The Employer reserves the right to terminate the Plan at any time, subject to Section 9.3, by an instrument in writing which has been executed on the Employer's behalf by its duly authorized officer. Upon termination, the Employer may (a) elect to continue to maintain the Trust to pay benefits hereunder as they become due as if the Plan had not terminated or (b) direct the Trustee to pay promptly to Participants (or their beneficiaries) the vested balance of their Accounts. For purposes of the preceding sentence, in the event the Employer chooses to implement clause (b), the Account balances of all Participants who are in the employ of the Employer at the time the Trustee is directed to pay such balances shall become fully vested and nonforfeitable. After Participants and their beneficiaries are paid all Plan benefits to which they are entitled, all remaining assets of the Trust attributable to Participants who terminated employment with the Employer prior to termination of the Plan who were not fully vested in their Accounts under Article 6 at that time, shall be returned to the Employer. 9.3 EXISTING RIGHTS No amendment or termination of the Plan shall adversely affect the rights of any Participant with respect to amounts that have been credited to his or her Account prior to the date of such amendment or termination. ARTICLE 10 - MISCELLANEOUS 10.1 NO FUNDING The Plan constitutes a mere promise by the Employer to make payments in accordance with the terms of the Plan and Participants and beneficiaries shall have the status of general unsecured creditors of the Employer. Nothing in the Plan will be construed to give any employee or any other person rights to any specific assets of the Employer or of any other person. In all events, it is the intent of the Employer that the Plan be treated as unfunded for tax purposes and for purposes of Title 1 of ERISA. 10.2 NON-ASSIGNABILITY None of the benefits, payments, proceeds or claims of any Participant or beneficiary shall be subject to any claim of any creditor of any Participant or beneficiary and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any creditor of such Participant or beneficiary, nor shall any Participant or beneficiary have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds which he or she may expect to receive, contingently or otherwise, under the Plan. 10 10.3 LIMITATION OF PARTICIPANTS' RIGHTS Nothing contained in the Plan shall confer upon any person a right to be employed or to continue in the employ of the Employer, or interfere in any way with the right of the Employer to terminate the employment of an Participant in the Plan any time, with or without cause. 10.4 PARTICIPANTS BOUND Any action with respect to the Plan taken by the Plan Administrator or the Employer or the Trustee or any action authorized by or taken at the direction of the Plan Administrator, the Employer or the Trustee shall be conclusive upon all Participants and beneficiaries entitled to benefits under the Plan. 10.5 RECEIPT AND RELEASE Any payment to any Participant or beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Employer, the Plan Administrator and the Trustee under the Plan, and the Plan Administrator amy require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or beneficiary is determined by the Plan Administrator to be incompetent by reason or physical or mental disability (including minority) to give a valid receipt and release, the Plan Administrator may cause the payment or payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Plan Administrator, the Employer or the Trustee to follow the application of such funds. 10.6 PLAN DOES NOT AFFECT EMPLOYMENT RIGHTS The Plan does not provide any employment rights to any Eligible Employee or Participant. The Employer expressly reserves the right to discharge an Employee at any time, with or without cause and with or without prior notice, without regard to the effect such discharge would have on the Employee's interest in the Plan. 10.7 GOVERNING LAW The Plan shall be construed, administered, and governed in all respects under and by the laws of the state of Texas. If any provision shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 10.8 HEADINGS AND SUBHEADINGS Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof. 11 EX-10 5 EXCHANGE AGREEMENT (SOCO-SOCO INT'L EXHIBIT 10.9.3 EXCHANGE AGREEMENT THIS AGREEMENT, dated as of July 10, 1997, is made by SOCO INTERNATIONAL, INC., a Delaware corporation ("Purchaser"), and EDWARD T. STORY, JR. ("Seller"). Purchaser and Seller own 900 shares and 100 shares, respectively, or the common stock of SOCO International Holdings, Inc., a Delaware corporation ("Holdings"), such shares constituting all the outstanding shares of capital stock of Holdings. Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, the 100 shares of common stock owned by Seller ("Seller's Shares") on the terms and conditions set forth in this Agreement. This Agreement contemplates a nontaxable exchange of Seller's Shares by the Seller for shares of common stock, par value $.01 per share, of Snyder Oil Corporation, a Delaware corporation, ("SOCO Stock"), the sole stockholder of the Purchaser, currently owned by Purchaser. Therefore, for and in consideration of the agreements set forth herein, Purchaser and Seller agree to the provisions hereof. ARTICLE I PURCHASE AND SALE 1.01 Purchase and Sale. Seller agrees to sell and and Purchaser agrees to purchase, for the consideration hereinafter set forth, and subject to the terms and provisions herein contained, the Seller's Shares. 1.02 Purchase Price. The Purchase Price for the Seller's Shares shall be 530,000 shares of SOCO Stock, which shares are currrently outstanding and owned by Purchaser. 1.03 Closing. The closing of the transactions contemplated in this Agreement (the "Closing") shall be held on a date agreed upon by the parties that shall be as soon as the appropriate documentation can be prepared, agreed to by the parties, and finalized, and all appropriate consents are obtained (such date referred to herein as the "Closing Date") and shall be held at the offices of Purchaser, 777 Main Street, Fort Worth, Texas. 1.04 Delivery of the Purchase Price. Purchaser shall deliver to Seller two certificates, registered in the name of Seller, representing the SOCO Stock. One certificate shall be in the amount of 480,000 shares and shall be delivered to Purchaser. The second certificate will be in the amount of 50,000 shares and will be delivered directly to Holdings as provided in Section 1.08. All SOCO Stock so delivered shall bear the legend specified in Section 1.06. 1.05 Delivery of the Seller's Shares. At the Closing Seller shall deliver to the Purchaser certificates representing the Seller's Shares, duly endorsed in blank for transfer or accompanied by appropriate stock powers in blank. 1.06. Transfer of SOCO Stock. Unless a registration statement is effective with respect thereto, the shares of SOCO Stock delivered to Seller pursuant to Article I will not have been registered under the Securities Act of 1933, as amended (the "Securities Act"). The certificates for shares of SOCO Stock issued pursuant to this Agreement (other than shares which are at the time the subject of an effective registration statement under the Securities Act) shall bear a legend applicable to the 1 disposition of those shares, provided that forthwith upon any disposition pursuant to the registration statement filed under the Securities Act of 1933, Purchaser and/or SOCO shall substitute therefor, at its expense, new certificates not bearing that legend. The legend shall read substantially as follows: "The shares represented by this certificate have not been registered under the Securities Act of 1933 and such shares cannot be sold or transferred unless they are so registered or an exemption from registration is then available." 1.07. Registration Rights Agreement. At the Closing SOCO and Seller shall enter into the Registration Rights Agreement (the "Registration Rights Agreement") in the form of Exhibit A hereto. 1.08 Pledge Agreement At the Closing Seller shall enter into the Pledge Agreement with Holdings (the "Pledge Agrement") in the form of Exhibit B hereto and shall have delivered to Holdings 50,000 shares of SOCO Stock, together with duly executed stock powers in blank, to hold as security thereunder as provided in the Pledge Agreement. 1.09. Resignation. At the Closing, and without any further action on the part of Seller, Seller shall resign as an officer and director of SOCO International Holdings, Inc. ARTICLE II REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represent and warrants to Seller that: 2.01 Organization, Existence and Qualification. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite corporate power and authority to own and lease the assets it currently owns and leases and to carry on its business as such business is currently conducted. 2.02 Authority. Purchaser has all requisite corporate power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by it. The execution and delivery of this Agreement by Purchaser, the performance by it of its obligations hereunder and the consummation of the transactions contemplated hereby (a) have been duly authorized by all necessary corporate action on the part of Purchaser and do not require the consent or approval of any governmental or other regulatory body and (b) do not violate any provision of any federal or state law or regulation or any judgment, order or decree of any federal or state court or governmental agency applicable to or binding on Purchaser. This Agreement constitutes the valid and binding obligation of Purchaser enforceable in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency or other laws relating to or affecting generally creditors' rights, (ii) by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and (iii) by the power of a court to deny enforcement of remedies generally based upon public policy. 2.03 SOCO Stock. The SOCO Stock to be delivered to Seller pursuant hereto is in due and proper form, is duly authorized and outstanding, fully paid and non-assessable and listed on the New York Stock Exchange. When delivered by Purchaser pursuant to this Agreement against payment of 2 the consideration therefor set forth herein, Seller will receive good and marketable title to such SOCO Stock free and clear of all liabilities, liens, charges, security interests or encumbrances of any nature whatsoever. 2.04 No Representation as to Tax Treatment. Purchaser makes no representation or warranty to Seller as to the federal income or other tax treatment of the transaction contemplated hereby. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser that: 3.01 Authority. Seller has the requisite power to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by it. The execution and delivery of this Agreement by Seller, the performance by it of all the terms and conditions hereof to be performed by it and the consummation of the transactions contemplated hereby do not violate any provision of any federal or state law or regulation or any judgment, order or decree of any federal or state court or governmental agency applicable to or binding on Seller. This Agreement and the instruments to be delivered at the Closing constitute the valid and binding obligation of Seller, enforceable in accordance with their terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency or other laws relating to or affecting generally creditors' rights, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and (iii) the power of a court to deny enforcement of remedies generally based upon public policy. 3.02 Title. Upon delivery to Purchaser of the certificates representing the shares of Seller's Stock to Purchaser hereunder and delivery of the consideration therefore set forth herein, Purchaser will receive good and marketable title to such Seller's Stock free and clear of all liabilities, liens, charges, security interests or encumbrances of any nature whatsoever. ARTICLE IV CONDITIONS TO CLOSING 4.01 Conditions to the Obligations of Each Party. The obligations of Purchaser and Seller to consummate the Closing are subject to the satisfaction of the condition that no judgment, injunction, order or decree of any court, arbitrator or governmental entity shall restrain or prohibit the consummation of the Closing. 4.02 Conditions to Obligation of Purchaser. The obligation of Purchaser to consummate the Closing is subject, at the option of Purchaser, to the satisfaction of the following further conditions: (a) Each of the representations and warranties of Seller in this Agreement shall be true and correct in all respects material to the transactions contemplated by this Agreement as of the date hereof and as of the Closing Date with the same effect as though such representations and warranties had been made on the Closing Date. 3 (b) Seller shall have performed in all material respects all obligations and complied in all material respects with all covenants required to be performed or complied with by it under this Agreement and the Pledge Agreement at or prior to the Closing. 4.03 Conditions to Obligation of Seller. The obligation of Seller to consummate the Closing is subject, at the option of Seller, to the satisfaction of the following further conditions: (a) The representations and warranties of Purchaser in this Agreement shall be true and correct as of the date hereof and as of the Closing Date with the same effect as though such representations and warranties had been made on the Closing Date. (b) Purchaser shall have performed in all material respects all obligations and complied in all material respects with all covenants required to be performed or complied with by it under this Agreement at or prior to the Closing. (c) SOCO shall have executed and delivered the Registration Rights Agreement to Seller. ARTICLE V MISCELLANEOUS 5.01 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when received by a party at the address set forth below the name of that party on the signature page hereof or at such subsequent address as is provided by one party to the other in writing. 5.02 Exclusive Agreement. This Agreement supersedes all prior agreements between the parties relating to the subject matter hereof (written or oral) and is intended as a complete and exclusive statement of the terms of the agreement between the parties. 5.03 Choice of Law; Amendments; Headings. This agreement shall be governed by and construed and enforced in accordance with the laws of the state of Texas. This agreement may not be changed or amended orally. The headings contained in this agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this agreement. 5.04 Assignments and Third Parties. No party hereto shall assign this Agreement or any part hereof without the prior written consent of the other party, except that (a) Purchaser may assign any or all its rights hereunder to SOCO or to any subsidiary of Purchaser or SOCO, provided that no assignment by Purchaser (whether before or after the Closing in whole or in part) shall release Purchaser from any obligation under this Agreement, and (b) Seller and its successors and assigns may assign any or all rights and obligations hereunder to any Affiliate of Seller (as defined below) to which Seller or any such successor or assignee of Seller also transfers, assigns, or sells by liquidation or otherwise some or all of the SOCO Stock acquired by Seller under this Agreement. For these purposes, the term "Affiliate of Seller" means any member of the immediate family of Seller, and trust solely for the benefit of one or more members of Seller's immediate family or any entity currently existing or to be formed that is Controlled by, Seller and/or one or more members of Seller's immediate family. The term "Control" means the power to determine, direct, or decide matters relating to an entity, whether by direct or indirect ownership of voting securities, contractual arrangement, or otherwise. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the 4 benefit of the parties hereto and their successors and assigns. Nothing in this Agreement shall entitle any person other than the parties hereto, or their successors and assigns permitted hereby to any claim, cause of action, remedy or right of any kind. 5.05 Counterparts. This agreement may be executed in counterparts, each of which shall be deemed to be an original, but both of which together shall constitute but one and the same agreement. 5.06 Good Faith. The obligation to act in good faith is an integral term of this Agreement and each party hereto covenants to the other that it will in good faith carry out each and all terms, provisions and conditions of this Agreement applicable to or binding on such party. The parties hereto agree that the exercise of any option, right or privilege as provided for in this Agreement or as permitted by applicable regulations or statutes or other agreement(s) between the parties regardless of the effect, economic or otherwise, on the other party or parties is deemed, for purposes of this Agreement, as "acting in good faith". 5.07 Expenses. Except as otherwise expressly provided in this Agreement, all costs and expenses incurred by each party hereto in connection with all things required to be done by it hereunder, including attorney's fees and accountant fees, shall be borne by the party incurring same. 5.08 Attorneys' Fees. The prevailing party in any legal proceeding brought under or to enforce this Agreement shall be additionally entitled to recover court costs and reasonable attorneys' fees from the nonprevailing party. 5.09 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 5.10 Survival. The representations, warranties, covenants, and agreements set forth in this Agreement and in any certificate or instrument delivered in connection herewith shall survive Closing. 5.11 Public Announcements. Each party agrees not to issue any press release or make any other public announcement relating to this Agreement or the transactions described in this Agreement, or to permit any agent or affiliate of it to issue any such press release or make any such announcement, without the prior written consent of the other party, except where such release or statement is deemed in good faith by the releasing party to be required by law or any national securities exchange, in which case the releasing party will provide a copy to the other party at least three full business days prior to any release or statement. 5 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. SOCO INTERNATIONAL, INC. EDWARD T. STORY, JR. /s/ John C. Snyder /s/ Edward T. Story, JR. By __________________________ _________________________ John C. Snyder, Chairman Address: Address: 777 Main Street P.O. Box 1523 Fort Worth, Texas 76102 Centerpoint, Texas 78010 Attn: General Counsel 6 EXHIBIT A REGISTRATION RIGHTS AGREEMENT THIS AGREEMENT, dated as of July 10, 1997, is made by SNYDER OIL CORPORATION, a Delaware corporation ("SOCO") and EDWARD T.STORY, JR. ("Holder"). Pursuant to that certain Exchange Agreement dated as of July 10, 1997 (the "Exchange Agreement") between SOCO International, Inc. ("SOCO Inc.") and Holder, Holder has transferred to SOCO Inc. 100 shares of common stock, par value $.01 per share, in exchange for 530,000 shares of common stock, par value $.01 per share, of SOCO (the "Registrable Stock"). Pursuant to the Exchange Agreement, SOCO is entering into this Agreement providing for the registration of the Registrable Stock with such stockholder. Therefore, for and in consideration of the agreements set forth herein, SOCO and Holder agree to the provisions hereof. 1. Transfer of SOCO Stock. Unless a registration statement is effective with respect thereto, the shares of Registrable Stock delivered to Holder pursuant to the Exchange Agreement will not have been registered under the Securities Act of 1933, as amended (the "Securities Act"). SOCO shall cause to be placed upon certificates for shares of Registrable Stock issued pursuant to the Exchange Agreement (other than shares which are at the time the subject of an effective registration statement under the Securities Act) a legend applicable to the disposition of those shares, provided that forthwith upon any disposition pursuant to the registration statement filed under this Agreement or otherwise, SOCO shall substitute therefor, at its expense, new certificates not bearing that legend. The legend shall read substantially as follows: The securities represented by this certificate have not been registered under the securities act of 1933 and may not be sold or transferred unless they are so registered or an exemption from registration is then available. 2. Registration on Request. Upon written notice of Holder requesting that SOCO effect the registration under the Securities Act of 1933, as amended (the "Securities Act"), of all or part of the shares of Registrable Stock, which notice shall specify the intended method or methods of disposition of such Registrable Stock, SOCO will file a registration statement with the Securities and Exchange Commission ("SEC") (at the earliest possible date and, except as provided herein, no later than 30 days following receipt of such notice) and use its reasonable best efforts to effect the registration, under the Securities Act, of such Registrable Stock for disposition in accordance with the intended method or methods of disposition stated in such request, provided that: (1) if, upon receipt of a registration request pursuant to this Section 2.01, SOCO is advised in writing (with a copy to Holder) by a recognized independent investment banking firm selected by the Board of Directors of SOCO that, in such firm's opinion, a registration at the time and on the terms requested would adversely affect any public offering of securities by SOCO (other than in connection with employee benefit and similar plans) (a "Public Offering") for which a registration statement had been filed by SOCO prior to receiving such registration request, 1 SOCO shall not be required to effect a registration pursuant to this Section 2 until the earlier of (i) three months after the completion of such Public Offering, (ii) the termination of any "black out" period required by the underwriters, if any, to be applicable to such Holder in connection with such Public Offering, (iii) promptly after abandonment of such Public Offering or (iv) 135 days after the date of written notice of Holder requesting registration; and (2) if a registration request is made while a merger, consolidation, acquisition, disposition or other material development involving SOCO is pending, and the general counsel of SOCO determines in writing that the filing of a registration statement would require the disclosure of information that is material to such transaction or material development which SOCO has a bona fide business purpose for preserving as confidential, and SOCO promptly provides Holder a copy of such determination, SOCO shall not be required to effect a registration pursuant to this Section 2.02 until the earlier of (i) the date upon which such material information is disclosed to the public or ceases to be material or (ii) 135 days after the date of written notice by Holder requesting registration. 3. Registration Expenses. SOCO shall be responsible for the payment of all Registration Expenses (as defined below) in connection with the registration pursuant to this Agreement. With respect to such registration Holder shall bear its own legal costs and any underwriting commissions or discounts charged to the Holder. "Registration Expenses," means all expenses incident to SOCO's performance of or compliance with the registration requirements set forth in this Section 2 including, without limitation, the following: (i) the fees, disbursements and expenses of SOCO's counsel(s) (United States and foreign) and accountants in connection with any such registration; (ii) all costs and expenses in connection with the preparation, printing and filing of the registration statement, each prospectus, and all amendments and supplements thereto; (iii) the costs incurred in connection with the qualification of the securities under the laws of various jurisdictions (including fees and disbursements of counsel); (iv) the cost of furnishing to the Holder copies of any such registration statement, each preliminary prospectus, the final prospectus and each amendment and supplement thereof; and (v) all fees and expenses incurred in listing the Registrable Stock on any stock exchange and any transfer agent or registrar fees. 4. Registration Procedures. If and whenever SOCO is required to use its reasonable best efforts to effect the registration of any Registrable Stock under the Securities Act as provided in Section 2, SOCO will as promptly as is practicable: (a) prepare, file and use its reasonable best efforts to cause to become effective a registration statement on Form S-3 or such other form as SOCO reasonably selects under the Securities Act or update by amendment or supplement a previously filed registration statement regarding the Registrable Stock to be offered; (b) prepare and file with the SEC such amendments and supplements to the registration statement and the prospectus used in connection therewith as may be necessary to keep the registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Stock until the earlier of such time as all Registrable Stock has been disposed of in accordance with the intended methods of disposition by Holder set forth in the registration statement or until the earlier of three years after the registration statement becomes 2 effective or such earlier date upon which the Registrable Stock may be sold under Rule 144(k) under the Securities Act; (c) furnish to Holder the number of conformed copies of the registration statement and of each amendment and supplement thereto (in each case including all exhibits), the number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in each case the number to be in conformity with the requirements of the Securities Act, those documents incorporated by reference in the registration statement or prospectus, and such other documents as Holder may reasonably request; (d) use its reasonable best efforts to register or qualify all Registrable Stock covered by the registration statement under securities or blue sky laws of other jurisdictions as Holder shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable Holder to consummate the disposition in those jurisdictions of its Registrable Stock covered by the registration statement, except that SOCO shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction; and (e) immediately notify Holder at any time when a prospectus relating to a registration pursuant to this Agreement is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in the registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and at the request of Holder prepare and furnish to Holder and any underwriter of the Registrable Stock a reasonable number of copies of a supplement to or an amendment of the prospectus as may be necessary so that, as thereafter delivered to the purchasers of the Registrable Stock, the prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SOCO may require that Holder furnish such information regarding Holder and the distribution of such securities as SOCO may from time to time reasonably request in writing and as shall be required by law or by the SEC in connection with any registration. 5. Blackout Periods. Upon written notice from SOCO to Holder that either: (a) SOCO has determined to engage in a financing and has been advised in writing (with a copy to Holder) by a recognized independent investment banking firm selected by the Board of Directors of SOCO that, in that firm's opinion, SOCO's sale of Registrable Stock pursuant to the registration statement would adversely affect SOCO's own immediately planned financing (a "Transaction Blackout"); or (b) the general counsel of SOCO determines in good faith in writing (with a copy to Holder) that Seller's sale of Registrable Stock pursuant to the registration statement would require disclosure of material information which SOCO has a bona fide business purpose for preserving as 3 confidential as a result of a pending merger, consolidation, acquisition, disposition or other material development involving SOCO (an "Information Blackout"); Holder shall suspend sales of Registrable Stock pursuant to such registration statement until the earlier of (X)(i) in the case of a Transaction Blackout, the earliest of (A) three months after the completion of the financing, (B) the termination of any "blackout" period required by the underwriters to be applicable to SOCO, if any, in connection with the financing, (C) abandonment of such financing and (D) 135 days after the date of SOCO's written notice of a Transaction Blackout, or (ii) in the case of an Information Blackout, the earlier of (A) the date upon which the material information is disclosed to the public or ceases to be material or (B) 135 days after SOCO's written notice of an Information Blackout, and (Y) such time as SOCO notifies Holder that sales pursuant to such registration statement may be resumed. 6. Preparation; Reasonable Investigation. In connection with the preparation and filing of the registration statement registering Registrable Stock under the Securities Act, SOCO shall give Holder and its counsel reasonable and customary access to its books and records and opportunities to discuss the business of SOCO with its officers and the independent public accountants who have audited its financial statements. 7. Indemnification and Contribution. (a) SOCO hereby indemnifies and agrees to hold harmless Holder, its directors and officers, and each person, if any, who controls Holder within the meaning of the Securities Act against any losses, claims, damages, liabilities and expenses, joint or several, to which that person may be subject under the Securities Act or otherwise, insofar as those losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which the Registrable Stock is registered under the Securities Act, any preliminary prospectus or final prospectus included therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and SOCO shall reimburse each such person for any legal or any other expenses reasonably incurred by that person in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that SOCO shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished by the indemnified person to SOCO. This indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of SOCO or any director, officer or controlling person and shall survive the transfer of the registered securities by Holder. (b) Holder hereby indemnifies and agrees to hold harmless (in the same manner and to the same extent as set forth in Subsection 7(a)) each director of SOCO, each officer of SOCO who shall sign the registration statement, and each person, if any, who controls SOCO within the meaning of the Securities Act, with respect to any statement in or omission from the registration statement, any preliminary prospectus or final prospectus included therein, or any amendment or supplement thereto, if the statement or omission was made in reliance upon and in conformity with written information furnished by it to SOCO. This indemnity shall remain in full force and effect 4 regardless of any investigation made by or on behalf of SOCO or any director, officer or controlling person and shall survive the transfer of the registered securities by Holder. (c) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for as set forth in this Section 7 is for any reason held to be unenforceable by the indemnified parties, although applicable in accordance with its terms, SOCO and Holder shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by SOCO and Holder, as incurred, as between SOCO on the one hand and Holder on the other, in such proportion as is appropriate to reflect the relative fault of SOCO on the one hand and of Holder on the other in connection with the statements or omissions which result in the losses, liabilities, claims, damages or expenses, as well as any other relative equitable considerations. The relative fault of SOCO on the one hand and of Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state material fact relates to information supplied by SOCO or by Holder. 8. Miscellaneous. (a) Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when received by a party at the address set forth below the name of that party on the signature page hereof or at such subsequent address as is provided by one party to the other in writing. (b) Exclusive Agreement. This Agreement supersedes all prior agreements between the parties relating to the subject matter hereof (written or oral) and is intended as a complete and exclusive statement of the terms of the agreement between the parties. (c) Choice of Law; Amendments; Headings. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas. This Agreement may not be changed or amended orally. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (d) Assignments and Third Parties. No party hereto shall assign this Agreement or any part hereof without the prior written consent of the other party, except that Holder and its successors and assigns may assign any or all rights and obligations hereunder to any Affiliate of Holder (as defined below) to which Holder or any such successor or assignee of Holder also transfers, assigns, or sells by liquidation or otherwise some or all of the Registrable Stock acquired by Holder pursuant to the Exchange Agreement. For these purposes, the term "Affiliate of Holder" means any member of the immediate family of Holder, and trust solely for the benefit of one or more members of Holder's immediate family or any entity currently existing or to be formed that is Controlled by, Holder and/or one or more members of Holder's immediate family. The term "Control" means the power to determine, direct, or decide matters relating to an entity, whether by direct or indirect ownership of voting securities, contractual arrangement, or otherwise. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. Except as specified in Section 7, which is intended to benefit and to be enforceable by any of the Indemnified Parties, nothing in this Agreement shall entitle any person other than the parties hereto, 5 or their successors and assigns permitted hereby to any claim, cause of action, remedy or right of any kind. (e) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but both of which together shall constitute but one and the same agreement. (f) Expenses. Except as otherwise expressly provided in this Agreement, all costs and expenses incurred by each party hereto in connection with all things required to be done by it hereunder, including attorney's fees and accountant fees, shall be borne by the party incurring same. (g) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. SNYDER OIL CORPORATION EDWARD T. STORY, JR. /s/ John C. Snyder /s/ Edward T. Story, JR. By __________________________ ________________________ John C. Snyder Chairman Address: Address: 777 Main Street P.O. Box 1523 Fort Worth, Texas 76102 Centerpoint, Texas 78010 Attn: General Counsel 6 EXHIBIT B PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (this "Pledge Agreement") is executed and effective as of the 10th day of July, 1997, by and between EDWARD T. STORY,JR. ("Pledgor") and SOCO INTERNATIONAL HOLDINGS, INC., a Delaware corporation ("Pledgee"). Pursuant to an Exchange Agreement dated as of July 10, 1997 between Pledgor and Snyder Oil Corporation ("SOCO"), Pledgor has on this day transferred 100 shares of common stock of Pledgee to SOCO in exchange for 530,000 shares of common stock, par value $.01 per share, of SOCO. In addition, Pledgor has as of this day resigned as a director and officer of Pledgee. Pledgee is the holder of two Notes (the "Notes") of Pledgor, each dated December 30, 1996 and in the principal amounts of $269,563.25 and $320,936.74. Pledgor and Pledgee wish to secure the obligations of Pledgor under the Notes. Effective March 15, 1997 the interest notes of the Notes was reduced from 1% per month to a floating rate equal to the average rate paid by SOCO on borrowings under ist bank credit agreement. NOW, THEREFORE, for valuable consideration, receipt of which is hereby acknowledged and confessed, Pledgor agrees with Pledgee as follows: 1. Pledge. Upon the terms hereof, Pledgor hereby grants to Pledgee a security interest in and to the rights, titles and interests of Pledgor in and to all of the following rights, interests and property (all of the following being herein sometimes called the "Pledged Shares"): (a) 50,000 shares of common stock, par value $.01 per share, of SOCO; (b) any and all proceeds or other sums arising from or by virtue of, and all dividends and distributions (cash or otherwise) payable and/or distributable with respect to, all or any of the Pledged Shares described in clause (a) preceding; and (c) all cash, securities, dividends, and other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares described in clause (a) hereof and any other property substituted or exchanged therefor. 2. Secured Obligation. The security interest herein granted (the "Security Interest") shall secure payment and performance of Pledgor's obligations under the Notes (the "Obligations"). 3. Representations and Warranties: Related Covenants. Pledgor represents, warrants, covenants and agrees to and with Pledgee that: (a) Pledgor is the legal and beneficial owner of the Pledged Shares; (b) no dispute right of setoff, counterclaim or defense exists with respect to all or any part of the Pledged Shares; (c) the Pledged Shares are free and clear of all liens, options, warrants, puts, calls or other rights of third persons, and restrictions (collectively, "Liens"), other than (I) those Liens arising under this Pledge Agreement and (ii) restrictions on transferability imposed by applicable state and federal securities laws; (d) Pledgor has full right and authority to pledge the Pledged Shares for the purposes and upon the terms set out herein; and (e) certificates representing the Pledged Shares have been delivered to Pledgee, together with a duly executed blank stock power with signatures guaranteed, for each certificate. 4. Covenants. (a) Pledgor covenants and agrees to from time to time promptly execute and deliver to Pledgee all such other assignments, certificates, supplemental writings and financing statements as Pledgee reasonably requests in order to perfect or evidence the Security Interest. Pledgor further agrees that if Pledgor shall at any time acquire any additional shares of the capital stock of any class of SOCO by reclassification of or dividend on the Pledged Shares, Pledgor shall forthwith (and without the necessity for 1 any request or demand by Pledgee) deliver the certificates representing such shares to Pledgee. Upon delivery, such shares shall thereupon constitute "Pledged Shares" and shall be subject to the Liens herein created, for the purposes and upon the terms and conditions set forth in this Pledge Agreement. Pledgor further covenants and agrees that, without the prior written consent of Pledgee, Pledgor shall not (I) transfer any of Pledgor's rights, titles or interests in and to the Pledged Shares; or (ii) create any other Lien or otherwise encumber any of the Pledged Shares, or permit any of the Pledged Shares to ever be or become subject to any Lien, attachment, execution, sequestration, other legal or equitable process or any Lien or encumbrance of any kind, except the Security Interest. (b) Pledgor will promptly execute and deliver or cause the execution and delivery of, all applications, certificates, instruments, registration statements, and all other documents and papers Pledgee may reasonably request in connection with the obtaining of any consent, approval, registration, qualification, or authorization of any other Person necessary or appropriate for the effective exercise of any rights under this Pledge Agreement. Without limiting the generality of the foregoing, Pledgor agrees that in the event Pledgee shall exercise any rights to sell, transfer, or otherwise dispose of, or vote, consent, or take any other action in connection with any of the Pledged Shares pursuant to this Pledge Agreement, Pledgor shall execute and deliver all applications, certificates, and other documents as Pledgee may reasonably request and shall otherwise promptly, fully and diligently cooperate with Pledgee and any other necessary persons, in making any application for the prior consent or approval of any other person to the exercise by Pledgee of any rights relating to all or any of the Pledged Shares. Furthermore, because Pledgor agrees that Pledgee's remedies at law for failure of Pledgor to comply with the provisions of this Paragraph 4(b) would be inadequate and that such failure would not be adequately compensable in damages, Pledgor agrees that the covenants of this Paragraph 4(b) may be specifically enforced. (c) Pledgor will preserve, warrant, and defend the Liens created hereby in the Pledged Shares against the claims of all Persons whomsoever; will maintain and preserve such Liens; will not at any time assign, transfer, or otherwise dispose of its right, title and interest in and to any of the Pledged Shares; will not at any time directly or indirectly create, assume, or suffer to exist any Lien, warrant, put, option, or other rights of third persons and restrictions, other than the Liens created by this Pledge Agreement in and to the Pledged Shares or any part thereof; and will not do or suffer any matter or thing whereby the Liens created by this Pledge Agreement in and to the Pledged Shares might or could be impaired. 5. Conversions: etc. Should the Pledged Shares, or any part thereof, ever be in any manner converted into another property of the same or another type or any money or other proceeds ever be paid or delivered to Pledgor as a result of Pledgor's rights in the Pledged Shares, then in any such event (except as otherwise provided herein), all such property, money and other proceeds shall be and/or become part of the Pledged Shares, and Pledgor covenants forthwith to pay or deliver to Pledgee all of the same which is susceptible of delivery; and at the same time, if Pledgee so requests, Pledgor will properly endorse or assign the same to Pledgee. Without limiting the generality of the foregoing, Pledgor hereby agrees that the shares of capital stock of the surviving corporation in any merger or consolidation involving SOCO shall be deemed to constitute the same property as the Pledged Shares. With respect to any such property of a kind requiring an additional security agreement, financing statement or other writing to perfect a security interest therein in favor of Pledge, Pledgor will forthwith execute and deliver to Pledgee whatever Pledgee shall deem necessary or proper for such purpose. 6. No Duty to Fix or Preserve Rights. Pledgee shall not have any duty to fix or preserve rights against prior parties to the Pledged Shares and shall not be liable for failure to use diligence to collect any 2 amount payable with respect to the Pledged Shares, or any part thereof, but shall be liable only to account to Pledgor for what Pledgee may actually collect or receive thereon. 7. Rights of Parties Before and After the Occurrence of an Event of Default. (a) Exercising Shareholder Rights Prior to an Event of Default. Unless and until an Event of Default (as defined in the Notes) shall occur, (I) Pledgor shall be entitled to receive all cash dividends paid to Pledgor in respect of or attributable to the Pledged Shares. Notwithstanding the foregoing, Pledgee shall be entitled to receive, whether or not an Event of Default has occurred, (A) any and all other Distributions, including, but not limited to, stock dividends or Distributions in property made on or with respect to the Pledged Shares and any proceeds of Pledged Shares, whether resulting from subdivision, combination, or reclassification of the outstanding capital stock of SOCO or a result of any merger, consolidation, acquisition, or other exchange of assets to which SOCO is a party, and (B) all sums paid on any Pledged Shares upon liquidation or dissolution or reduction of capital, repurchase, retirement, or redemption. All such sums, dividends, distributions, proceeds, or other property described in clauses (A) and (B) preceding shall if received by any entity other than Pledgee, be held in trust for the benefit of Pledgee and shall forthwith be delivered to Pledgee (accompanied by proper instruments of assignment and/or stock and/or bond powers executed by Pledgor in accordance with Pledgee's instructions) to be held subject to the terms of this Pledge Agreement. Any cash proceeds of the Pledged Shares, other than cash dividends which Pledgor is then permitted to receive and retain hereunder, which come into the possession of Pledgee may, at Pledgee's option, be applied in whole or in part to the Obligations (to the extent then due), be released in whole or in part to or on the written instructions of Pledgor, or be retained in whole or in part by Pledgee as additional security for the payment and performance of the Obligations. Any cash proceeds in the possession of Pledgee shall be invested by Pledgee in securities or obligations issued or guaranteed by the United States of America or any agency thereof. Pledgee shall never be obligated to make any such investment and shall never have any liability to Pledgor for any loss which may result therefrom. All interest and other amounts earned from any investment of such proceeds may be dealt with by Pledgee in the same manner as other cash proceeds. (ii) Pledgor shall have the right to vote and give consents with respect to all of the Pledged Shares and to consent to, ratify, or waive notice of any and all meetings; provided that such right shall in no case be exercised for any purpose contrary to, or in violation of, any of the terms or the provisions of this Pledge Agreement. (b) Exercising Shareholder Rights After the Occurrence of an Event of Default. Upon the occurrence and during the continuance of an Event of Default, Pledgee, without the consent of Pledgor, may: (I) At any time vote or consent in respect of any of the Pledged Shares and authorize any Pledged Shares to be voted and such consents to be given, ratify and waive notice of any and all meetings, and take such other action as shall seem desirable to Pledgee, in its discretion, to protect or further the interests of Pledgee in respect of any of the Pledged Shares as though it were the outright owner thereof, and, Pledgor hereby irrevocably constitutes and appoints Pledgee its sole proxy and attorney-in-fact, with full power of substitution to vote and act with respect to any and all Pledged Shares standing in the name of Pledgor or with respect to which Pledgor is entitled to vote and act. The proxy and power of 3 attorney herein granted are coupled with interests, are irrevocable, and shall continue throughout the term of this Pledge Agreement; (ii) In respect of any Pledged Shares, join in and become a party to any plan of recapitalization, reorganization, or readjustment (whether voluntary or involuntary) as shall seem desirable to Pledgee in respect of any such Pledged Shares, and deposit any such Pledged Shares under any such plan; make any exchange, substitution, cancellation, or surrender of such Pledged Shares required by any such plan and take such action with respect to any such Pledged Shares as may be required by any such plan or for the accomplishment thereof; and no such disposition, exchange, substitution, cancellation, or surrender shall be deemed to constitute a release of Pledged Shares from the Lien of this Pledge Agreement; (iii) Receive all payments of whatever kind made upon or with respect to any Pledged Shares; and (vi) Transfer into its name, or into the name or names of its nominee or nominees, all or any of the Pledged Shares. (c) Right of Sale After the Occurrence of an Event of Default. Upon the occurrence and during the continuance of an Event of Default, Pledgee may sell, without recourse to judicial proceedings, with the right (except at private sale) to bid for and buy, free from any right of redemption, the Pledged Shares or any part thereof, upon five days' notice (which notice is agreed to be reasonable notice for the purposes hereof) to Pledgor of the time and place of sale, for cash, upon credit or for future delivery, at Pledgee's option and in Pledgee's complete discretion: (I) At public sale, including a sale at any broker's board or exchange; and (ii) At private sale in any manner which will not require the Pledged Shares, or any part thereof, to be registered in accordance with The Securities Act of 1933, as amended (the "Act"), or the rules and regulations promulgated thereunder, or any other law or regulation, at the best price reasonably obtainable by Pledgee at any such private sale or other disposition in the manner mentioned above. Pledgee is also hereby authorized, but not obligated, to take such actions, give such notices, obtain such consents, and do such other things as Pledgee may deem required or appropriate in the event of sale or disposition of any of the Pledged Shares. Pledgor understands that Pledgee may in its discretion approach a restricted number of potential purchasers and that a sale under such circumstances may yield a lower price for the Pledged Shares, or any portion thereof, than would otherwise be obtainable if the same were registered and sold in the open market. Pledgor agrees (a) that in the event Pledgee shall so sell the Pledged Shares, or any portion thereof, at such private sale or sales, Pledgee shall have the right to rely upon the advice and opinion of any member firm of a national securities exchange as to the best price reasonably obtainable upon such a private sale thereof (any expense borne by Pledgee in obtaining such advise to be paid by Pledgor as an expense related to the exercise by Pledgee of its rights hereunder), and (b) that such reliance shall be conclusive evidence that Pledgee handled such matter in a commercially reasonable manner. In case of any sale by the Pledgee of the Pledged Shares on credit or for future delivery, the Pledged Shares sold may be retained by Pledgee until the selling price is paid by the purchaser, but Pledgee shall incur no liability in case of failure of the purchaser to take up and pay for the Pledged Shares so sold. In case of any such failure, such Pledged Shares so sold may be again similarly sold. 4 In connection with the sale of the Pledged Shares, Pledgee is authorized, but not obligated, to limit prospective purchasers to the extent deemed necessary or desirable by Pledgee to render such sale exempt from the registration requirements of the Act and any applicable state securities laws, and no sale so made in good faith by Pledgee shall be deemed not to be "commercially reasonable" because so made. If Pledgee determines to exercise its right to sell all or any of the Pledged Shares, and if in the opinion of any reputable law firm selected by Pledgee ("Law Firm"), it is necessary or advisable to have such securities registered under the provisions of such Act, or any similar law relating to the registration of securities, Pledgor agrees, at its own expense, to (I) execute and deliver all such instruments and documents, and to do or cause to be done other such acts and things as may be necessary or, in the opinion of Law Firm, advisable to register such securities under the provisions of such Act or any applicable similar law relating to the registration of securities, and Pledgor will use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for such period as Pledgee shall reasonably request, and to make all amendments thereof and/or to the related prospectus which, in the opinion of Law Firm, are necessary or desirable, all in conformity with the requirements of such Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) use its best efforts to qualify such securities under state "blue sky" or securities laws and to obtain the necessary approval of any tribunal to the sale of such securities, all as reasonably requested by Pledge; (iii) at the request of Pledgee, indemnify and hold harmless, and to cause the Issuers to agree to indemnify and hold harmless, Pledgee, any underwriters (and any person controlling any of the foregoing), and their respective employees, officers, agents, attorneys, and accountants (collectively, the "Indemnified Parties") from and against any loss, liability, claim, damage and expense (including without limitation, reasonable fees of counsel incurred in connection therewith) under such Act or otherwise, insofar as such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under such Act or other securities laws, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon any omission or any alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, such indemnification to remain operative regardless of any investigation made by or on behalf of any Indemnified Party; provided that Pledgor shall not be liable in any case to the extent that any such loss, liability, claim, damage, or expense arises out of or is based upon any untrue statement or alleged untrue statement or an omission or an alleged omission made in reliance upon and in conformity with written information furnished to Pledgor and/or SOCO or, with respect to any particular Indemnified Party, by such Indemnified Party. (d) Other Rights After a Default. Upon the occurrence and during the continuance of an Event of Default, Pledgee, at its election may exercise any and all rights available to a secured party under the Uniform Commercial Code as enacted in the State of Texas or other applicable jurisdiction, as amended in addition to any and all other rights afforded by the Loan Papers, at law, in equity, or otherwise. (e) Application of Proceeds. Pledgee shall apply the proceeds of any sale or other disposition of the Pledged Shares, first, to reimburse Pledgee for any expenses incurred in enforcing the Obligations and in selling the Pledged Shares, second, to accrued but unpaid interest on the Notes and, third, to principal of the Notes. 8. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when received by a party at the address set forth below the name of that party on the signature page hereof or at such subsequent address as is provided by one party to the other in writing. 5 9. Right to File as Financing Statement. Agent shall have the right at any time to execute and file this Pledge Agreement as a financing statement, but the failure of Pledgee to do so shall not impair the validity or enforceability of this agreement. 10. Waiver of Certain Rights. (a) To the full extent that it may lawfully so agree Pledgor agrees that it will not at any time plead, claim or take the benefit of any appraisement, valuation, stay, extension, moratorium or redemption law nor or hereafter in force in order to prevent or delay the enforcement of this Pledge Agreement, or the absolute sale of all or any part of the Pledges Shares or the possession thereof by any purchaser at any sale hereunder, and Pledgor hereby waives the benefit of all such laws to the extent it lawfully may. Each right, power and remedy of Pledgee provided for in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Pledgee of any one or more of such rights, power or remedies shall not preclude the simultaneous or later exercise by Pledgee of any or all such other rights, powers or remedies. No failure or delay on the part of Pledgee to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by Pledgee with respect to any such remedies shall operate as a waiver thereof, or limit or impair Pledgee's right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect. (b) Pledgor hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever in respect of the Notes, as well as any requirement that the Pledgee or any holder of any of the Notes exhaust any right or remedy or take any action in connection with the Notes before exercising any right or remedy under this Pledge Agreement. The obligations of Pledgor hereunder shall not be affected or impaired by reason of the happening from time to time of any of the following, although without notice to or the consent of Pledgor: (I) the waiver by Pledgee or any of the holders of Notes of the performance or observance by Pledgor of any of its agreements, covenants, terms or conditions contained in any Note; (ii) the voluntary of involuntary liquidation, dissolution, sale of all or substantially all of the assets, marshalling of assets and liabilities, receivership, conservatorship, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, winding up, or other similar proceedings affecting Pledgor or SOCO; or (iii) the release of any security for the Notes. 11. Amendments. This Pledge Agreement may be amended only by an instrument in writing executed jointly by Pledgor and Pledgee and supplemented only by documents delivered or to be delivered in accordance with the express terms hereof. 12. Multiple Counterparts. This Pledge Agreement may be executed in a number of identical counterparts, each of which shall be deemed an original for all purposes and all of which shall constitute, collectively, one agreement; but, in making proof of this agreement, it shall not be necessary to produce or account for more than one such counterpart. 13. Parties Bound. This Pledge Agreement shall be binding on Pledgor and Pledgor's successors and assigns and shall inure to the benefit of Pledgee and Pledgee's successor and assigns. 6 14. Invalid Provisions. If any provision of this Pledge Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term thereof, such provision shall be fully severable, this Pledge Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part thereof, and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Pledge Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable. 15. Consent to Jurisdiction. (a) Except to the extent required for e exercise of the remedies provided in the other security instruments, Pledgor hereby irrevocably submits to the jurisdiction of any Texas State or Federal court sitting in the Northern District of Texas over any action or proceeding arising out o or relating to this Pledge Agreement or the Notes, and Pledgor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined such Texas State or Federal court. Pledgor hereby irrevocably appoints Prentice-Hall Corporation System, Inc. (the "Process Agent"), with an office on the date hereof at 400 N. St. Paul, Dallas, Texas 75201, as its agent to receive on behalf of Pledgor proper service of copies of the sermons and complaint and any other process which may be made by mailing or delivering a copy of such process to Pledgor (as applicable) in care of the Process Agent at the Process Agent's above address, and Pledgor hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf. Such appointment and authorization shall be automatically and immediately effective without the necessity of any further action on the part of Pledgor or the Pledge in the event Pledgor ceases to maintain his principal residence in the Comfort, Texas area. As an alternative method of service, Pledgor also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Pledgor's residence at P.O. Box 1523, Centerpoint, Texas 78010. Pledgor agrees that a final judgment on any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner; provided by law. (b) Nothing in this Paragraph 15 shall affect arty right of the Pledgee to serve legal process in any other manner permitted by law or affect the right of Pledgee to bring any action or proceeding against Pledgor in the courts of any other jurisdictions. 16. Complete Agreement. This Pledge Agreement and the Notes collectively represent the final agreement by and among Pledgee and Pledgor and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of Pledgor and the Pledgee. There are no unwritten oral agreements relating to this Pledge Agreement or the Notes between Pledgor and Pledgee. 7 17. Texas Law. This Pledge Agreement shall be construed in accordance with and governed by the laws of the State of Texas. EXECUTED effective as of July 10, 1997. PLEDGOR: /s/ Edward T. Story - ------------------------------ Edward T. Story ACCEPTED AND AGREED as of July 10, 1997, PLEDGEE: SOCO INTERNATIONAL HOLDINGS, INC. /s/ Peter E. Lorenzen By ___________________________ Vice President 8 EX-10 6 7TH AMENDMENT TO FIFTH RESTATED CREDIT AGREEMENT EXHIBIT 10.11.7 SEVENTH AMENDMENT TO FIFTH RESTATED CREDIT AGREEMENT This Seventh Amendment to Fifth Restated Credit Agreement (this "Seventh Amendment") is entered into as of the 13th day of October, 1997, by and among Snyder Oil Corporation ("Borrower"), NationsBank of Texas, N.A., as Agent ("Agent"), and NationsBank of Texas, N.A. ("NationsBank"), Bank One, Texas, N.A. ("Bank One"), Wells Fargo Bank, N.A. ("Wells Fargo"), Texas Commerce Bank National Association ("TCB," and together with NationsBank, Bank One and Wells Fargo, collectively referred to herein as the "Original Banks") and Credit Lyonnais New York Branch, as Banks (the "Banks"). W I T N E S E T H: WHEREAS, the Banks, Borrower and Agent are parties to that certain Fifth Restated Credit Agreement dated as of June 30, 1994, as amended by that certain (i) letter agreement by and among Borrower and the Original Banks dated as of May 1, 1995, (ii) Second Amendment to Fifth Restated Credit Agreement by and among Borrower, Agent and the Original Banks dated as of June 30, 1995, (iii) Third Amendment to Fifth Restated Credit Agreement by and among Borrower, Agent and the Original Banks dated as of November 1, 1995, (iv) Fourth Amendment to Fifth Restated Credit Agreement by and among Borrower, Agent and Original Banks dated as of April 4, 1996, (v) Fifth Amendment to Fifth Restated Credit Agreement by and among Borrower, Agent and the Original Banks dated as of November 1, 1996, and (vi) Sixth Amendment to Fifth Restated Credit Agreement by and among Borrower, Agent and Banks dated as of May 19, 1997 (as amended, the "Credit Agreement") (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement); and WHEREAS, pursuant to the Credit Agreement, the Banks have made certain Loans to Borrower, and Agent has issued certain Letters of Credit on behalf of Borrower; and WHEREAS, Borrower has advised the Banks that Borrower intends, pursuant to a series of transactions, to sell all of the 14,000,000 shares of common stock of Patina Oil & Gas Corporation, a Delaware corporation, held by Borrower (the "Patina Stock Sale"); and WHEREAS, Borrower has requested that (i) the Credit Agreement be amended in certain respects in connection with the Patina Stock Sale, and (ii) the November 1, 1997 Determination Date be postponed until December 1, 1997; and WHEREAS, subject to the terms and conditions herein contained, the Banks have agreed to Borrower's request. NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Borrower, Agent and each Bank hereby agree as follows: 1 SECTION 1. Amendments. Subject to the satisfaction of each condition precedent set forth in Section 4 hereof and in reliance on the representations, warranties, covenants and agreements contained in this Seventh Amendment, the Credit Agreement shall be amended effective upon the consummation of the sale of at least 10,000,000 shares of common stock of Patina Oil & Gas Corporation held by Borrower as provided in Section 2 hereof (the "Effective Date") in the manner provided in this Section 1. 1.1. Amendment to Definition. The definition of "Loan Papers" contained in Section 1.1 of the Credit Agreement shall be amended to read in full as follows: "Loan Papers" means this Agreement, the Letter Agreement, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the Notes, the Mortgages, the Restricted Subsidiary Guarantees and all other certificates, documents or instruments delivered in connection with this Agreement, as the foregoing may be amended from time to time. 1.2. Additional Definitions. Section 1.1 of the Credit Agreement shall be amended to add the following definition to such Section: "Seventh Amendment" means that certain Seventh Amendment to Fifth Restated Credit Agreement dated as of October 13, 1997, by and among Borrower, Agent and the Banks. 1.3. Restricted Payments Covenant. Section 9.2 of the Credit Agreement shall be amended to read in full as follows: "SECTION 9.2. Restricted Payments. Neither Borrower nor any Restricted Subsidiary will declare or make any Restricted Payment; provided, that, so long as no Default or Event of Default, Borrowing Base Deficiency or non-compliance with Section 10.4 exists (without giving effect to the cure periods provided by Section 4.4 or 10.4), and provided further that no Default or Event of Default, Borrowing Base Deficiency or non-compliance with Section 10.4 would result from such Restricted Payment (without giving effect to the cure periods provided by Section 4.4 or 10.4), Borrower and Restricted Subsidiaries may (a) make Restricted Payments in an aggregate amount (measured, cumulatively from January 1, 1996) not to exceed the sum of the following (i) $75,000,000, plus (ii) the net cash proceeds to Borrower from all equity offerings completed by Borrower of Borrower's equity securities after January 1, 1996, plus (iii) all cash Distributions actually received by Borrower or any Restricted Subsidiary from Unrestricted Subsidiaries after January 1, 1996, plus (iv) the net cash proceeds to Borrower from the sale or other disposition of Borrower's Investment in any Unrestricted Subsidiary after January 1, 1996, plus (v) fifty percent (50%) of Borrower's Consolidated Cash Flow 2 earned on or after January 1, 1996 to the date of determination, (b) declare and make a Qualified Redemption of the Second Issue, (c) issue the Second Convertible Debentures in exchange for the Second Preferred Stock, and (d) redeem the Third Convertible Debentures with the proceeds of the issuance of the Fourth Debentures. SECTION 2. Amendments Effective Upon Consummation of Sale of Stock. Subject to the satisfaction of each condition precedent set forth in Section 4 hereof, upon the consummation of the sale of at least 10,000,000 shares of common stock of Patina Oil & Gas Corporation held by Borrower, and provided that such sale or series of sales is consummated on or before November 1, 1997, the Credit Agreement shall be automatically amended without the necessity of any further act by Borrower, Agent or any Bank to (a) delete the following definitions (the "Patina Defined Terms") from Section 1.1 of the Credit Agreement: "Patina," "Patina Ancillary Agreements" and "Patina Transaction Documents," and (b) delete each reference in the Credit Agreement and the other Loan Papers to each Patina Defined Term, such that, from and after the consummation of the sale of at least 10,000,000 shares of common stock of Patina Oil & Gas Corporation held by Borrower, each provision of the Credit Agreement shall be read and interpreted without giving effect to the Patina Defined Terms. SECTION 3. Determination of Borrowing Base. Agent and Banks hereby waive the Periodic Determination of the Total Borrowing Base scheduled to occur on November 1, 1997, and Borrower, Agent and Banks agree that, subject to Required Banks' rights under Section 4.3 of the Credit Agreement to make a Special Determination of the Total Borrowing Base at any time prior to December 1, 1997, the Total Borrowing Base shall be redetermined in accordance with Article IV of the Credit Agreement on or about December 1, 1997. Borrower, Agent and Banks further agree that (a) such Determination on or about December 1, 1997 shall not be deemed a Special Determination, and accordingly, shall not reduce the number of Special Determinations Required Banks are permitted under Section 4.3 of the Credit Agreement, and (b) after December 1, 1997, the dates for Periodic Determinations shall continue to be each May 1 and November 1, commencing May 1, 1998. SECTION 4. Conditions Precedent to Effectiveness of Amendments. The amendments to the Credit Agreement contained in Section 1 and Section 2 of this Seventh Amendment shall be effective only upon, and are conditioned upon, the delivery to Agent and each Bank of such resolutions, certificates and other documents as Agent or any Bank shall request relative to the Patina Stock Sale and the authorization, execution and delivery by Borrower of this Seventh Amendment (and, in the case of the amendments set forth in Section 2, the further condition that the sale of at least 10,000,000 shares of common stock of Patina Oil & Gas Corporation held by Borrower shall have been consummated on or before November 1, 1997). If the foregoing conditions have not been satisfied by the Effective Date, this Seventh Amendment and all obligations of the Banks and Agent contained herein shall, at the option of Majority Banks, terminate. SECTION 5. Representations and Warranties of Borrower. To induce the Banks and Agent to enter into this Seventh Amendment, Borrower hereby represents and warrants to Agent as follows: 3 5.1 Each representation and warranty of Borrower and each Restricted Subsidiary contained in the Credit Agreement and the other Loan Papers is true and correct on the date hereof and will be true and correct after giving effect to the amendments set forth in Section 1 and Section 2 hereof. 5.2 The execution, delivery and performance by Borrower of this Seventh Amendment are within the Borrower's corporate powers, have been duly authorized by necessary action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not violate or constitute a default under any provision of applicable law or any Material Agreement binding upon Borrower or the Subsidiaries of Borrower or result in the creation or imposition of any Lien upon any of the assets of Borrower or the Subsidiaries of Borrower except Permitted Encumbrances. 5.3 This Seventh Amendment constitutes the valid and binding obligation of Borrower enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor's rights generally, and (ii) the availability of equitable remedies may be limited by equitable principles of general application. SECTION 6. Miscellaneous. 6.1 No Defenses. Borrower hereby represents and warrants to the Banks that there are no defenses to payment, counterclaims or rights of set-off with respect to the Loans existing on the date hereof. 6.2 Reaffirmation of Loan Papers; Extension of Liens. Any and all of the terms and provisions of the Credit Agreement and the Loan Papers shall, except as amended and modified hereby, remain in full force and effect. Borrower hereby extends the Liens securing the Obligations until the Obligations have been paid in full, and agrees that the amendments and modifications herein contained shall in no manner affect or impair the Obligations or the Liens securing payment and performance thereof. 6.3 Parties in Interest. All of the terms and provisions of this Seventh Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. 6.4 Legal Expenses. Borrower hereby agrees to pay on demand all reasonable fees and expenses of counsel to Agent incurred by Agent, in connection with the preparation, negotiation and execution of this Seventh Amendment and all related documents. 6.5 Counterparts. This Seventh Amendment may be executed in counterparts, and all parties need not execute the same counterpart; however, no party shall be bound by this Seventh Amendment until all parties have executed a counterpart. Facsimiles shall be effective as originals. 4 6.6 Complete Agreement. THIS SEVENTH AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 6.7 Headings. The headings, captions and arrangements used in this Seventh Amendment are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this Seventh Amendment, nor affect the meaning thereof. IN WITNESS WHEREOF, the parties hereto have caused this Seventh Amendment to be duly executed by their respective authorized officers on the date and year first above written. BORROWER: SNYDER OIL CORPORATION, a Delaware corporation By:/s/Peter E. Lorenzen Name:Peter E. Lorenzen Title:Vice President AGENT: NATIONSBANK OF TEXAS, N.A. By: /s/ J. Scott Fowler J. Scott Fowler, Vice President BANKS: NATIONSBANK OF TEXAS, N.A. By:/s/ J. Scott Fowler J. Scott Fowler, Vice President 5 TEXAS COMMERCE BANK NATIONAL ASSOCIATION By:/s/ Lee E. Beckelman Name: Lee E. Beckelman Title: BANK ONE, TEXAS, N.A. By: /s/ Bradley D. Bartek Name:Bradley D. Bartek Title:Senior Vice President WELLS FARGO BANK, N.A. By:/s/Charles P. Kirkham Name:Charles P. Kirkham Title:Vice President CREDIT LYONNAIS NEW YORK BRANCH By:/s/Pascal Poupelle Name:Pascal Poupelle Title:Executive Vice President 6 EX-10 7 DIRECTORS DEFERRAL PLAN EXHIBIT 10.12 SNYDER OIL CORPORATION DIRECTORS DEFERRAL PLAN 1. PURPOSES OF THE PLAN. The purposes of this Plan are to attract and retain qualified Directors and to provide incentives to these Directors through the ability to defer their receipt of Director Fees. 2. DEFINITIONS. (a) "Board" means the Board of Directors of the Company. (b) "Change of Control" means (i) the purchase or other acquisition in one or more transactions other than from the Company, by any individual, entity or group of persons within the meaning of Section 13(d)(3) or 14(d) of the Securities Exchange Act of 1934 or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act) of 50 percent or more of either that outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally or (ii) in connection or as a result of any tender offer, exchange offer, merger or other business combination or proxy contest the directors prior to such event no longer constitute a majority of the directors of the Company, or (iii) the approval by stockholders of the Company of a reorganization, merger, consolidation or other business combination, in each case, with respect to which persons who were stockholders of the Company immediately prior to such event do not immediately thereafter own more than 50% of the combined voting power of the reorganized, merged, consolidated or combined Company's then outstanding securities that are entitled to vote generally in the election of directors or (iv) the liquidation or dissolution of the Company or sale of all or substantially all of the Company's assets. (c) "Common Shares" means units equivalent in value and dividend rights to Common Shares, $ 0.01 par value, of the Company. (d) "Company" means Snyder Oil Corporation, a Delaware corporation. (e) "Deferred Account" means the account established by the Company for each Director who elects to defer the Fees payable to him as a Director. (f) "Director" means any director of the Company who is not an employee of the Company or any subsidiary of the Company. (g) "Election Agreement" means the written election to defer Fees signed by the Director and in the form provided by the Plan Administrator. (h) "Fees" means the fees payable to a Director by reason of his serving on the Board either (i) as a retainer (without regard to attendance at meetings) or (ii) on a per meeting basis. "Retainer Fees" means those Fees which are payable to a Director by reason of his serving on the Board as a retainer (without regard to attendance at meetings). Fees do not include reimbursement of expenses. 1 (i) "Market Price" means the average of the high and low price at which a share of the Company's Common Stock, $ 0.01 par value, is traded on the New York Stock Exchange on a given date. (j) "Member" means any Director who has at any time deferred the receipt of Fees in accordance with this Plan. (k) "Plan" means The Snyder Oil Corporation Directors Deferral Plan. (l) "Plan Administrator" means the person, persons or entity designated by the Company to administer the Plan and to serve as agent for the Company with respect to the Trust. If no such person or entity is serving as Plan Administrator at any time, the Company shall be Plan Administrator. (m) "Trust" means the rabbi trust or trusts established by the Company that identifies the Plan as a plan with respect to which assets are to be held by the Trustee. (n) "Trustee" means the trustee or trustees under the Trust. (o) "Year" means the calendar year. 3. ELECTION TO DEFER DIRECTOR FEES. (a) ELIGIBILITY. A Director may elect to defer receipt of all or a portion of his Fees for any Year in accordance with Paragraph 3(b) hereof. (b) TIME OF ELECTION. A Director desiring to defer all or a portion of his Fees for the upcoming Year must submit an Election Agreement to the Plan Administrator no later than the last day of the Year prior to the Year for which the election is to be effective; provided, however, that for 1997, each Director shall be permitted to elect to defer all or a portion of the Fees earned after the Company's adoption of the Plan and before December 31, 1997, provided such Director delivers an Election Agreement to the Plan Administrator within ten (10) days after adoption of the Plan. Any Director who was not a Director during the previous Year may make an election to defer all or a portion of the Fees for the Year in which the Director is elected to the Board by delivering an Election Agreement to the Plan Administrator within thirty (30) days of such election to the Board. A Director fulfilling the above requirements shall be considered a "Member" for purposes of this Plan. (c) DURATION AND NATURE OF ELECTION. A Member's election to defer Fees shall continue in effect from Year to Year unless modified or revoked by the Member through written notice to the Plan Administrator prior to the 2 beginning of the Year for which the revocation or modification is to apply. Modifications or revocations shall not apply retroactively, and once a Member has made, or is deemed to have made, an election to defer all or a portion of his Fees for a given Year, such election may not be modified or revoked. 4. DEFERRAL ACCOUNTS. (a) ACCOUNTS. The Company shall establish one or more Deferred Accounts for each Member reflecting deferrals made for the Member's benefit together with any adjustments for income, gain or loss and any payments from the Deferred Account. If a Member elects to defer all or part of a Retainer Fee (otherwise payable in the form of Company Common Shares), there shall be credited to a Member's Deferred Account, on each day on which the Retainer Fee would otherwise be paid in the form of Common Shares, units of Common Shares equal to the portion of the number of Common Shares payable as the Retainer Fee on such day which the Member elected to defer. The Plan Administrator shall establish sub-accounts for each Member that has more than one election in effect under Section 6 and such other sub-accounts as are necessary for the proper administration of the Plan. A sub-account valued on the basis of the Company's Common Shares shall be known as a "Stock Account." As of the last day of each Year, the Plan Administrator shall provide the Member with a statement of his or her Deferred Account reflecting the income, gains and losses (realized and unrealized), amounts of deferrals and distributions of such Deferred Account since the prior statement. 5. INVESTMENTS (a) Deferral Accounts arising from a Member's election to defer all or a portion of a Retainer Fee payable in the form of Common Stock shall be held and invested in a Stock Account, and valued on the basis of the Company's Common Shares. Any dividends paid in cash on such Common Shares in the Stock Account shall be invested at the direction of the Member from among a selection of Funds, as described in paragraph (b) hereof. A Member may direct that all or a portion of the Common Shares held in his or her Stock Account shall be sold, in which case the proceeds of the sale shall then be invested in accordance with the Member's direction under paragraph (b) hereof. (b) Each Member shall designate, in accordance with the procedures established from time to time by the Plan Administrator, the manner in which the amounts allocated to his or her Deferred Account (other than the Stock Account) shall be deemed to be invested from among the Funds (as such term is hereinafter defined) made available from time to time for such purpose by the Plan Administrator. Such Member may designate one of such Funds for the deemed investment of the amounts allocated to his or her account or such Member may split the deemed investment of the amounts allocated to his or her Deferred Account between such Funds in such increments as the Plan Administrator may prescribe. If a Member fails to make a proper designation, then his or her Deferred Account shall be deemed to be invested in the Fund or Funds designated by the Plan Administrator from time to time in a uniform and nondiscriminatory manner. The term "Funds" shall mean the investment funds designated from time to time by the Plan Administrator for the deemed investment of Deferred Accounts pursuant to this Section 5. (c) A Member may change his or her deemed investment designation for future amounts to be allocated to such Member's Deferred Account (other than the Stock Account). Any such change shall be 3 made in accordance with the procedures established by the Plan Administrator, and the frequency of such changes may be limited by the Plan Administrator. (d) A Member may elect to convert his or her deemed investment designation with respect to the amounts already allocated to such Member's Deferred Account (other than the Stock Account). Any such conversion shall be made in accordance with the procedures established by the Plan Administrator, and the frequency of such conversions may be limited by the Plan Administrator. (e) All deemed investments under the Plan shall be valued at the times and in the manner determined by the Plan Administrator in its sole discretion. The Plan Administrator may at any time and for any reason, without liability to any Member, determine in its sole discretion that a particular Fund (or asset under paragraph d. above) shall no longer be available for the deemed investment of an Deferred Account under the Plan. In such case, the deemed investment in such Fund (or asset) shall be deemed to have been liquidated on the date selected by the Plan Administrator in its sole discretion. None of the Plan, the Company, the Plan Administrator, the Trust, or the Trustee shall be responsible or liable for any loss resulting from (i) a Member's exercise of any control or discretion over the deemed investment of his or her Deferred Account and/or (ii) any actions taken by the Plan Administrator pursuant to this Section 5. Actions by the Plan Administrator pursuant to this Section 5 may vary among Members. 6. CLAIMS OF GENERAL CREDITORS. All compensation deferred and amounts credited to the Deferred Accounts under this Plan shall remain a part of the general assets of the Company. Accordingly, the compensation deferred under this Plan is subject to the claims of the Company's general creditors. 7. PAYMENT OF DEFERRED ACCOUNTS. A Member shall elect (in the Election Agreement used to elect to defer Fees under Section 3) the date at which the Deferral Accounts (including any earnings attributable thereto) will commence to be paid to the Member. The Member shall also elect thereon for payments to be paid in either: (a) a single lump-sum payment; or (b) annual or monthly installments over a period elected by the Member up to 10 years, the amount of each installment to equal the balance of his or her Deferred Account immediately prior to the installment divided by the number of installments remaining to be paid. Each such election will be effective for the Year for which it is made and succeeding Years, unless changed by the Member. Any change will be effective only for Deferrals made for the first Year beginning after the date on which the Election Agreement containing the change is filed with the Plan Administrator. Except as provided in Section 8, payment of a Member's Account shall be made in accordance with the Member's elections under this Section 7. With respect to all distributions to be made under the Plan, the following rules shall apply: 4 (i) All distributions from a Stock Account shall be paid in the form of Common Shares, and all other distributions from Deferral Accounts shall be paid in cash, subject to withholding or deduction by the Company of any taxes, contributions, payments and assessments which the Company is now or may hereafter be required or authorized by law to withhold or deduct from distributions; and (ii) The amount of the distribution from the Deferred Account shall be valued at the times and in the manner determined by the Plan Administrator in its sole discretion. 8. CHANGE OF CONTROL In the event of a Change of Control, the Member's entire Deferred Account balance will be paid to the Member in a single lump sum as soon as possible following any Change of Control of the Company, unless provision is otherwise made in writing by the Board incident to the transaction. 9. DEATH OF MEMBER. If a Member dies prior to the complete distribution of his or her Deferred Account, the balance of the Deferred Account shall be paid as soon as practicable to the Member's designated beneficiary or beneficiaries, in the form elected by the Member under either of the following options: (a) a single lump-sum payment; or (b) annual or monthly installments over a period elected by the Member up to 10 years, the amount of each installment to equal the balance of the Account immediately prior to the installment divided by the number of installments remaining to be paid. Any designation of beneficiary and form of payment to such beneficiary shall be made by the Member on an Election Agreement filed with the Plan Administrator and may be changed by the Member at any time by filing another Election Agreement containing the revised instructions. If no beneficiary is designated or no designated beneficiary survives the Member, payment shall be made to the Member's surviving spouse or, if none, to his or her issue per stirpes, in a single payment. If no spouse or issue survives the Member, payment shall be made in a single lump sum to the Member's estate. 10. ADMINISTRATION. (a) PLAN ADMINISTRATION AND INTERPRETATION. The Plan Administrator shall oversee the administration of the Plan. The Plan Administrator shall have complete control and authority to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Member, beneficiary, deceased Member, or other person having or claiming to have any interest under the Plan. The Plan Administrator shall have complete discretion to interpret the Plan to decide all matters under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Members and any person claiming under or through any Member, in the absence of clear and convincing evidence that the Plan Administrator acted arbitrarily and capriciously. Any individual(s) serving as Plan Administrator who is a Member will not vote or act on any matter relating solely to himself or herself. When making a determination or 5 calculation, the Plan Administrator shall be entitled to rely on information furnished by a Member, a beneficiary, the Company or the Trustee. (b) POWERS, DUTIES, PROCEDURES, ETC. The Plan Administrator shall have such powers and duties, may adopt such rules, may act in accordance with such procedures, may appoint such officers or agents, may delegate such powers and duties, may receive such reimbursements and compensation, and shall follow such claims and appeal procedures with respect to the Plan as it may establish. (c) INFORMATION To enable the Plan Administrator to perform its functions, the Company shall supply full and timely information to the Plan Administrator on all matters relating to Members' Fees and such other pertinent facts as the Plan Administrator may require. (d) INDEMNIFICATION OF PLAN ADMINISTRATOR The Company agrees to indemnify and to defend to the fullest extent permitted by law any officer(s) or employee(s) who serve as Plan Administrator (including any such individual who formerly served as Plan Administrator) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. 11. TERMINATION OR MODIFICATION OF PLAN. This Plan may be terminated, modified, or amended at the sole discretion of the Board. If this Plan is terminated, the remaining Deferred Account balances will be distributed pursuant to the terms of this Plan and no additional deferrals will be permitted. 12. NON-ALIENATION. The amounts credited to any Deferred Accounts maintained under the Plan may not be pledged, assigned, or transferred by the Director for whom such Account is maintained or by any other individual, and any purported pledge, assignment, or transfer shall be void and unenforceable. 13. CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no event be construed as giving any person, firm or corporation any legal or equitable right as against the Company or any subsidiary, or the officers, employees, or directors of the Company or any subsidiary, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 14. SEVERABILITY. The invalidity and unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if each invalid or unenforceable provisions were omitted herefrom. 6 15. GOVERNING LAW. The provisions of the Plan shall be governed by and construed in accordance with the laws of the State of Texas. 7 EX-11 8 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 SNYDER OIL CORPORATION COMPUTATION OF PER SHARE EARNINGS (Unaudited)
Year Ended December 31, --------------------------------------- 1997 1996 1995 ------------ ------------ ------------ (In thousands, except share data) Income (loss) applicable to common before extraordinary item $29,487 $56,740 ($46,041) Extraordinary item (2,848) - - ------------ ----------- ------------ Net income (loss) applicable to common 26,639 56,740 (46,041) ------------ ----------- ------------ Effect of dilutive securities assuming conversion - 6,210 - ------------ ----------- ------------ Net income (loss) applicable to common - assuming conversion $26,639 $62,950 ($46,041) ============ =========== =========== Weighted average shares outstanding 30,588 31,308 30,186 Assumed exercise of vested common stock options net of treasury shares repurchased 513 153 - Assumed conversion of 6% preferred stock - 5,052 - ------------ ----------- ------------ Weighted average shares outstanding - assuming dilution 31,101 36,513 30,186 ============ =========== ============ Basic earnings per share: Income (loss) per common share before extraordinary item $.96 $1.81 ($1.53) Extraordinary item (.09) - - ------------ ----------- ------------ Net income (loss) per common share $.87 $1.81 ($1.53) ============ =========== ============ Diluted earnings per share: Income (loss) per common share before extraordinary item - assuming dilution $.95 $1.72 ($1.53) Extraordinary item (.09) - - ------------ ----------- ------------ Net income (loss) per common share - assuming dilution $.86 $1.72 ($1.53) ============ =========== ============
EX-12 9 COMPUTATION OF RATIOS EXHIBIT 12 SNYDER OIL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
Year Ended December 31, --------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------- ------------- ------------ ------------ ------------- (In thousands, except share data) Income (loss) before taxes, minority interest and extraordinary item $57,440 $74,701 ($40,604) $13,510 $22,538 Interest expense 25,472 23,587 21,679 10,337 5,315 ------------- ------------- ------------ ------------ ------------- Earnings before taxes, minority interest, extraordinary item and interest expense $82,912 $98,288 ($18,925) $23,847 $27,853 ============= ============= ============ ============ ============= Interest expense $25,472 $23,587 $21,679 $10,337 $5,315 Preferred stock dividends of majority owned subsidiary 1,474 1,520 - - - ------------- ------------- ------------ ------------ ------------- Total fixed charges $26,946 $25,107 $21,679 $10,337 $5,315 ============= ============= ============ ============ ============= Ratio of earnings to fixed charges 3.08 3.91 N/A(1) 2.31 5.24 ============= ============= ============ ============ ============= (1) Earnings were inadequate to cover fixed charges by $40.6 million.
EXHIBIT 12 SNYDER OIL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS (Unaudited)
Year Ended December 31, --------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------- ------------- ------------ ------------ ------------- (In thousands, except share data) Income (loss) before taxes, minority interest and extraordinary item $57,440 $74,701 ($40,604) $13,510 $22,538 Interest expense 25,472 23,587 21,679 10,337 5,315 ------------- ------------- ------------ ------------ ------------- Earnings before taxes, minority interest, extraordinary item and interest expense $82,912 $98,288 ($18,925) $23,847 $27,853 ============= ============= ============ ============ ============= Interest expense $25,472 $23,587 $21,679 $10,337 $5,315 Preferred stock dividends 4,929(2) 6,210 6,210 10,806 9,100 Adjustment to tax effect preferred stock dividends 2,428 429 - - - Preferred stock dividends of majority owned subsidiary 1,474 1,520 - - - ------------- ------------- ------------ ------------ ------------- Total fixed charges $34,303 $31,746 $27,889 $21,143 $14,415 ============= ============= ============ ============ ============= Ratio of earnings to combined fixed charges and preferred dividends 2.42 3.10 N/A(1) 1.13 1.93 ============= ============= ============ ============ ============= (1) Earnings were inadequate to cover combined fixed charges and preferred dividends by $46.8 million. (2) Excludes redemption premium of $1.0 million.
EX-22 10 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 22.1 SNYDER OIL CORPORATION Subsidiaries as of February 27, 1998 State of Name of Subsidiary Organization ------------------ ------------- SOCO Offshore, Inc. Delaware The names of other subsidiaries are omitted in accordance with Item 601(b)(22)(ii) of Regulation S-K. EX-23 11 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 10,1998 on the financial statements of Snyder Oil Corporation included in this Form 10-K, into Snyder Oil Corporation's previously filed Registration Statement File Nos. 33-34446, 33-45213, 33-54809, 33-64219 and 333-09877. ARTHUR ANDERSEN LLP Fort Worth, Texas, February 27, 1998 EX-23 12 CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC. EXHIBIT 23.2 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS As independent petroleum consultants, we hereby consent to the incorporation of our Reports included in this Form 10-K into Snyder Oil Corporation's Registration Statements Nos. 33-34446, 33-45213, 33-54809, 33-64219, and 33-09877. NETHERLAND, SEWELL & ASSOCIATES, Inc. BY /s/ Clarence M. Netherland ---------------------------- Clarence M. Netherland President Dallas, Texas February 27, 1998 EX-27 13 FDS --
5 0000860713 Snyder Oil Corporation 1,000 YEAR Dec-31-1997 Jan-01-1997 Dec-31-1997 89,443 0 21,521 0 1,775 113,875 426,981 142,846 546,088 57,549 173,636 0 0 357 263,399 546,088 214,220 255,728 122,209 162,715 12,544 0 23,029 57,440 17,856 35,465 0 2,848 0 32,617 .87 .86
EX-99 14 NETHERLAND SEWELL RESERVE LETTER EXHIBIT 99.1 February 3, 1998 Snyder Oil Corporation Suite 2500 777 Main Street Fort Worth, Texas 76102 Gentlemen: In accordance with your request, we have estimated the proved reserves and future revenue, as of December 31, 1997, to the Snyder Oil Corporation (SOCO) interest in certain oil and gas properties located in the United States and in federal waters offshore Louisiana and Texas as listed in the accompanying tabulations. As requested, lease and well operating costs do not include the per-well overhead expenses allowed under joint operating agreements for those properties operated by SOCO. This report has been prepared using constant prices and costs and conforms to the guidelines of the Securities and Exchange Commission (SEC). As presented in the accompanying summary projections, Tables I through IV, we estimate the net reserves and future net revenue to the SOCO interest, as of December 31, 1997, to be:
Net Reserves Future Net Revenue -------------------------- --------------------------------- Oil Gas Present Worth Category (Barrels) (MCF) Total at 10% - --------------------------------- ----------- ----------- ------------- ------------- Proved Developed Producing 6,485,719 198,844,328 $329,204,500 $212,339,000 Non-Producing 1,027,884 55,469,307 126,347,000 81,955,500 Proved Undeveloped 512,747 64,668,474 60,158,600 23,454,100 ---------- ----------- ------------ ------------ Total Proved 8,026,350 318,982,109 $515,710,100 $317,748,600
The oil reserves shown include crude oil and condensate. Oil volumes are expressed in barrels which are equivalent to 42 United States gallons. Gas volumes are expressed in thousands of standard cubic feet (MCF) at the contract temperature and pressure bases. As shown in the Table of Contents, the properties in this report have been subdivided into significant property groups and project areas behind the appropriate division tabs. Included for each significant property group are summary projections of reserves and revenue by reserve category. Included for each project area are summary projections of reserves and revenue by reserve category along with one-line summaries of reserves, economics, and basic data by lease. For the purposes of this report, the term "lease" refers to a single economic projection. The estimated reserves and future revenue shown in this report are for proved developed producing, proved developed non-producing, and proved undeveloped reserves. In accordance with SEC guidelines, our estimates do not include any value for probable or possible reserves which may exist for these properties. This report does not include any value which could be attributed to interests in undeveloped acreage beyond those tracts for which undeveloped reserves have been estimated. Future gross revenue to the SOCO interest is prior to deducting state production taxes and ad valorem taxes. Future net revenue is after deducting these taxes, future capital costs, and operating expenses, but before consideration of federal income taxes; future net revenue for the offshore properties is also after deducting abandonment costs. In accordance with SEC guidelines, the future net revenue has been discounted at an annual rate of 10 percent to determine its "present worth. " The present worth is shown to indicate the effect of time on the value of money and should not be construed as being the fair market value of the properties. For the purposes of this report, a field inspection of the properties has not been performed nor has the mechanical operation or condition of the wells and their related facilities been examined. We have not investigated possible environmental liability related to the properties; therefore, our estimates do not include any costs which may be incurred due to such possible liability. Our estimates of future revenue do not include any salvage value for the lease and well equipment nor the cost of abandoning the onshore properties. Future revenue estimates for offshore properties also do not include any salvage value for the lease and well equipment, but do include our estimates of the costs to abandon the wells, platforms, and production facilities. Abandonment costs for offshore properties are included with other capital investments. Oil prices used in this report are based on a December 31, 1997 West Texas Intermediate posted price of $15.50 per barrel, adjusted by significant property group for regional posted price differentials. Gas prices used in this report are based on average December 1997 prices by pipeline for each significant property group. Oil and gas prices are held constant in accordance with SEC guidelines. Lease and well operating costs are based on operating expense records of SOCO. For non- operated properties, these costs include the per-well overhead expenses allowed under joint operating agreements along with costs estimated to be incurred at and below the district and field levels. As requested, lease and well operating costs for the operated properties include only direct lease and field level costs. Headquarters general and administrative overhead expenses of SOCO are not included. Lease and well operating costs are held constant in accordance with SEC guidelines. Capital costs are included as required for workovers, new development wells, and production equipment. We have made no investigation of potential gas volume and value imbalances which may have resulted from overdelivery or underdelivery to the SOCO interest. Therefore, our estimates of reserves and future revenue do not include adjustments for the settlement of any such imbalances; our projections are based on SOCO receiving its net revenue interest share of estimated future gross gas production. The reserves included in this report are estimates only and should not be construed as exact quantities. They may or may not be recovered; if recovered, the revenues therefrom and the costs related thereto could be more or less than the estimated amounts. The sales rates, prices received for the reserves, and costs incurred in recovering such reserves may vary from assumptions included in this report due to governmental policies and uncertainties of supply and demand. Also, estimates of reserves may increase or decrease as a result of future operations. In evaluating the information at our disposal concerning this report, we have excluded from our consideration all matters as to which legal or accounting, rather than engineering and geological, interpretation may be controlling. As in all aspects of oil and gas evaluation, there are uncertainties inherent in the interpretation of engineering and geological data; therefore, our conclusions necessarily represent only informed professional judgments. The titles to the properties have not been examined by Netherland, Sewell & Associates, Inc., nor has the actual degree or type of interest owned been independently confirmed. The data used in our estimates were obtained from Snyder Oil Corporation and the nonconfidential files of Netherland, Sewell & Associates, Inc. and were accepted as accurate. We are independent petroleum engineers, geologists, and geophysicists; we do not own an interest in these properties and are not employed on a contingent basis. Basic geologic and field performance data together with our engineering work sheets are maintained on file in our office. Very truly yours, /s/ Frederic D. Sewell RKG:AKC -----END PRIVACY-ENHANCED MESSAGE-----