10-K 1 ================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1994 OR (_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission file number 1-11413 ENSERCH EXPLORATION, INC. Texas 75-2556975 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4849 Greenville Avenue Suite 1500 Dallas, Texas 75206 (Address of principal executive office) (Zip Code) Registrant's Telephone Number, Including Area Code - (214) 987-7878 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of Each Exchange Title of Each Class on which Registered ------------------- --------------------- Common Stock ($1.00 par value) New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether 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 twelve 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 (_) Aggregate market value of the voting stock held by nonaffiliates of the Registrant as of March 10, 1995: $8,048,140 Shares of the Registrant's Common Stock outstanding as of March 10, 1995: 104,609,242 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. (X) DOCUMENTS INCORPORATED BY REFERENCE: NONE ================================================================== FORM 10-K ANNUAL REPORT For the Fiscal Year Ended December 31, 1994 TABLE OF CONTENTS Page PART I ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Gulf of Mexico. . . . . . . . . . . . . . . . . . . . . . .1 Onshore . . . . . . . . . . . . . . . . . . . . . . . . . .2 Competition . . . . . . . . . . . . . . . . . . . . . . . .3 Regulation. . . . . . . . . . . . . . . . . . . . . . . . .3 ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . .4 ITEM 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . .7 ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . .7 PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . 7 ITEM 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . 7 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . 7 ITEM 8. Financial Statements and Supplementary Data. . . . . . . . . . 7 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . 7 PART III ITEM 10. Directors and Executive Officers of the Registrant . . . . . . 8 Committees of the Board of Directors. . . . . . . . . . . 9 Director Compensation . . . . . . . . . . . . . . . . . . 9 ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 9 Employee Benefit Plans. . . . . . . . . . . . . . . . . .. 9 ITEM 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . 10 Stock Ownership of Certain Beneficial Owners. . . . . . . 10 Stock Ownership of Management and Board of Directors. . . 11 ITEM 13. Certain Relationships and Related Transactions . . . . . . . . 11 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 13 APPENDIX A Financial Information. . . . . . . . . . . . . . . . . . . .A-1 PART I ITEM 1. Business Enserch Exploration, Inc. ("EEX" or the "Company") is a newly formed publicly traded Texas corporation engaged in the exploration for and the development, production and marketing of natural gas and crude oil throughout Texas, offshore in the Gulf of Mexico, onshore in the Gulf Coast and Rocky Mountain areas and in various other areas in the United States. Activities include geological and geophysical studies; acquisition of gas, oil and mineral leases; drilling of exploratory wells; development and operation of producing properties; acquisition of interests in developed or partially developed properties; and the marketing of natural gas, crude oil and condensate. EEX's gas and oil operations represent the domestic gas and oil business of ENSERCH Corporation ("ENSERCH"). During 1994, these operations were conducted primarily through Enserch Exploration Partners, Ltd. ("EP"), a limited partnership in which a minority interest (less than 1%) was held by the public. At year-end 1994, pursuant to a plan for the reorganization of EP ("Reorganization"), EEX, through a series of transactions, acquired all of the operating properties of EP from EP's 99%-owned operating partnership, EP Operating Limited Partnership ("EPO"), in exchange for shares of EEX common stock. On December 30, 1994, the Reorganization was consummated, EP was dissolved, and the EEX common stock held by EP was distributed to EP's limited and general partners in accordance with their partnership interests. In this report, "EEX" or the "Company" is used to refer to either EEX or EP, or both, when a distinction is not required. In connection with the Reorganization, Enserch Exploration Holdings, Inc. ("EEH")(named Enserch Exploration, Inc. and the Managing General Partner of EP prior to the Reorganization), received EP's interests in and assumed EP's obligations under certain equipment lease arrangements relative to the Garden Banks Block 388 project and the Mississippi Canyon Block 441 project, with the equipment being simultaneously subleased to EEX. ENSERCH affiliates also assumed approximately $395 million principal amount of EP's indebtedness, plus accrued interest. Upon the liquidation of EP and distribution of EEX common stock, public unitholders of EP received 805,914 shares of EEX common stock (.77%) and ENSERCH and its affiliates received 103,775,328 shares (99.23%) of EEX's 104,581,242 shares then outstanding. EEX common stock is listed on the New York Stock Exchange under the symbol "EEX". Production offices are maintained in Dallas, Houston, Athens, Bridgeport, Longview and Midland, Texas. At December 31, 1994, EEX had 373 employees, including 34 geologists, 20 geophysicists and 18 land representatives who investigate prospective areas, generate drilling prospects, review submitted prospects and acquire leasehold acreage in prospective areas. In addition, EEX maintains a staff of 55 engineers and 45 technologists who plan and supervise the drilling and completion of wells, evaluate prospective gas and oil reservoirs, plan the development and management of fields and manage the daily production of gas and oil. Variable-priced natural-gas sales, which include monthly and long-term sales contracts, covered about 75% of 1994 natural-gas sales. Approximately 80% of EEX's natural-gas sales volumes (75% of gas revenues) for the year ended December 31, 1994 was sold to affiliated companies. Effective March 1, 1993, Enserch Gas Company, an ENSERCH subsidiary, began marketing gas for EEX for all gas not covered under existing contracts. In 1994, approximately 14% of EEX's natural gas sales volumes (approximately 14% of total revenues) was sold to Lone Star Gas Company, a division of ENSERCH, under a fixed-price service contract. A loss of sales under this contract could have an adverse financial impact on the earnings of EEX to the extent that the price in effect under the contract at such time exceeds the price at which the gas may be sold by EEX to others. Affiliated purchasers do not have a preferential right to purchase natural gas produced by EEX other than under existing contracts. Sales data are set forth under "Selected Financial and Operating Data" included in Appendix A to this report. Following is a summary of EEX's exploration and development activity during 1994: Gulf of Mexico. Exploration in the Gulf of Mexico is an important part of EEX's exploratory program. A total of 14 leases (over 37,000 acres) were acquired in the Gulf of Mexico, primarily the result of the Central Gulf lease sale in April 1994. These leases were purchased based on prospects principally defined by three-dimensional ("3-D") seismic acquired before the lease sale. Typically, successful wells in the Gulf produce at high rates compared with onshore wells, which is important in increasing cash flow and improving the ratio of production to reserves. State-of- the-art technology, including specialized 3-D seismic processing and innovative production techniques, is being utilized to help achieve this objective. Mississippi Canyon Block 441, the first development project in the Gulf of Mexico that EEX has operated, is indicative of this approach. A 3-D seismic program, prior to field development, confirmed that the majority of the reservoir lies beneath a shipping fairway. A production program was developed that involved drilling highly deviated wells under the shipping fairway, subsea completing the deep-water wells and tying the wells back to a conventional shallow-water production platform using bundled flowlines. The high-angle wells required special gravel-pack completion techniques. After two years of production, the field has been essentially maintenance free. Production from the field, which declined from initial levels due to expected water encroachment, has stabilized and is expected to remain at current levels of some 35 million cubic feet ("MMcf") of natural gas and more than 150 barrels ("Bbls") of condensate per day for the foreseeable future. The 3-D seismic on Mississippi Canyon Block 441 is being reprocessed, using depth migration and other state-of-the-art techniques to aid in the identification of deeper exploratory targets, which, if successfully drilled, could add to the field reserves. EEX has a 37.5% working interest in this project. Throughout 1994, work progressed on the conversion of a semisubmersible rig to a floating production facility for the development of the Garden Banks Block 388 unit. The majority of the modification work on the major structural components has been completed. The 24-slot subsea template has been installed, and the two 12-inch gas and oil gathering lines have been installed and connected to the shallow-water production facility located 54 miles away. Completion operations on the two pre-drilled wells commenced in early 1995 and should enable these wells to be brought on-stream when the floating facility is moored on location and the production riser is installed. The initial well was completed in mid-March and tested at rates which indicate that the well will likely flow at an initial daily rate of 6,000 barrels. The second well should be completed in mid-1995, followed by additional development drilling, with one such well expected to be completed in late 1995. Initial daily oil production rates from the second pre-drilled well is anticipated to be between 2,500 and 6,000 barrels. Under an agreement with Mobil Producing Texas and New Mexico Inc. ("Mobil"), an exploratory well was drilled in the third quarter of 1994 in EEX's Garden Banks unit on Block 387, approximately four miles from the discovery on Block 388. The well, drilled in 2,200 feet of water to a depth of 11,893 feet, encountered a total of 150 feet of oil pay in the two reservoirs and added significant incremental reserve potential to the development project. A delineation well will be drilled on Block 386 or 387 early in 1995. Subsea completions tied into the production facility on Block 388 will be utilized to produce these wells. Mobil has an option to acquire a 40% interest in the entire Garden Banks unit consisting of six blocks and in the unit's production system. To obtain that option, Mobil drilled the exploratory well on Block 387 and has conducted a new 3-D seismic survey over the unit to further assess the deeper horizons correlative to nearby prolific reserves and, to extend the original option, Mobil has paid additional consideration. EEX, which currently owns 100% of the project, will remain the operator. EEX has a 100% working interest in a successful exploratory sidetrack well on Green Canyon Block 254, which encountered more than 400 feet of net gas and oil pay below 12,000 feet. The well was an appraisal to a discovery well drilled in 1991 that encountered multiple sands with a combined thickness of more than 300 feet of net pay. Additional drilling is planned for the first half of 1995. EEX had a 25% working interest in prior work on this project before assuming operations and a 100% working interest in the sidetrack well. EEX also has a 25% working interest in three adjacent blocks. Efforts are underway to acquire additional interests in Block 254 and the adjacent blocks to raise EEX's interest. Onshore. In 1994, the majority of developmental drilling activity was focused in the Freestone, Boonsville and Fashing fields, all in Texas, where some new reserves were added by establishing production in zones that had not produced in the past. In Freestone, 12 successful wells were drilled. Initial potential tests have ranged from 1.4 to 2.6 MMcf of gas per day. In the Boonsville area, 13 wells were drilled and completed in 1994. These include nine gas wells that had initial potentials averaging 0.8 MMcf of gas per day and four oil wells initially delivering an average of 76 barrels per day. In Fashing field, five wells were drilled in 1994, four of which have been completed, with initial deliveries averaging 1.7 MMcf of gas per day. Completion operations are in progress on the fifth well. A large portion of the development drilling and recompletion activity during the past several years has been in six major gas fields in East Texas. To offset the decline rate of hundreds of older wells, reworks, recompletions and development drilling are required, all of which are sensitive to product prices. In East Texas, the goal is to accelerate production while preserving or increasing reserves and net present value of the fields. EEX's East Texas proved reserves are currently estimated to be some 784 Bcf. In 1994, EEX and the Los Alamos National Laboratory joined in a first-time effort to use technology developed for energy and national defense in the field of natural-gas exploration. Joint goals are to employ more effective and efficient methods of recovery of resources, to increase reserves and to develop applied science that will be available to the entire natural-gas industry. The EEX/Los Alamos team is testing the extent to which producing formations have been drained by hydraulic fracturing in the Opelika gas field located in East Texas. Los Alamos scientists are deploying instrumentation to verify the extent of hydraulic fracturing in the producing Travis Peak formation. It may then be determined where additional fracturing can be used to release trapped gas, thereby maximizing the recovery of gas reserves. The data acquisition phase from the Opelika field has been completed, with significant microseismic activity detected in surrounding observation wells when the test well was hydraulically fractured. The computation phase of the project generated encouraging preliminary results regarding fracture orientation. Currently, Los Alamos' instrumentation is being modified to enhance the quality of acquired data to define fracture extent. Competition. Competition in the natural gas and oil exploration and production business is intense and present from a large number of firms of varying sizes and financial resources, some of which are much larger than EEX. Competition involves all aspects of marketing products (including terms, prices, volumes and length of contracts), terms relating to lease bonus and royalty arrangements, and the schedule of future development activity. Regulation. Environmental Protection Agency ("EPA") rules, regulations and orders affect the operations of EEX. EPA regulations promulgated under the Superfund Amendments and Reauthorization Act of 1986 require EEX to report on locations and estimates of quantities of hazardous chemicals used in EEX's operations. The EPA has determined that most gas and oil exploration and production wastes are exempt from the hazardous waste management requirements of the Resource Conservation Recovery Act. However, the EPA determined that certain exploration and production wastes resulting from the maintenance of production equipment and transportation are not exempt and must be managed and disposed of as hazardous waste. Also, regulations issued by the EPA under the Clean Water Act require a permit for "contaminated" stormwater discharges from exploration and production facilities. Many states have issued new regulations under authority of the Clean Air Act Amendments of 1990, and such regulations are in the process of being implemented. These regulations may require certain gas and oil related installations to obtain federally enforceable operating permits and may require the monitoring of emissions; however, the impact of these regulations on EEX is expected to be minor. Several states have adopted regulations on the handling, transportation, storage and disposal of naturally occurring radioactive materials that are found in gas and oil operations. Although applicable to certain EEX facilities, it is not believed that such regulations will materially impact current or future operations. The Oil Pollution Act of 1990 ("OPA 90") requires responsible parties to provide evidence of financial responsibility in the amount of $150 million to clean up oil spills into the navigable waters of the United States. The financial responsibility requirements apply to offshore facilities and possibly to onshore facilities in, on or under navigable waters. The Mineral Management Service ("MMS") is the agency charged with the administration and enforcement of OPA 90. The ultimate impact of the financial responsibility requirements cannot be determined until final regulations are issued by the MMS. Further Congressional action on these requirements is also possible, and the final MMS regulations could be challenged in court. The $150 million requirement will not become effective until regulations under OPA 90 are issued, probably in 1996. The insurance industry has indicated that insurance will not be available to evidence financial responsibility under OPA 90 as currently written. However, EEX has qualified as a self-insurer using the "identified assets" test under the current $35 million financial responsibility requirement using EEX's interest in Tri-Cities field as the identified assets. It is believed that EEX has sufficient assets to qualify as a self-insurer for $150 million under the identified assets test if the current self-insurance test is included in the OPA 90 regulations. It is unclear whether the new regulations will allow EEX to qualify as a self-insurer. Alternatively, EEX believes it could meet the current OPA 90 financial responsibility requirements by the purchase of a surety bond, although the cost of such bonds is generally much higher than insurance. The availability of surety bonds generally could also be affected by the requirements of the final MMS regulations. In the aggregate, compliance with federal and state environmental rules and regulations is not expected to have a material adverse effect on EEX's operations. The Railroad Commission of Texas regulates the production of natural gas and oil by EEX in Texas. Similar regulations are in effect in all states in which EEX explores for and produces natural gas and oil. These regulations generally require permits for the drilling of gas and oil wells and regulate the spacing of the wells, the prevention of waste, the rate of production and the prevention and cleanup of pollution and other materials. ITEM 2. Properties The following table sets forth a summary of certain information relating to EEX's gas and oil properties:
At December 31 -------------------------------------------- 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Total Proved Developed and Undeveloped Reserves: Gas (Bcf)(1) . . . . . 1,041.7 1,085.5 1,100.4 1,167.3 1,223.2 Oil (MMBbl)(1)(2). . . 46.1 38.2 37.9 38.0 28.7 Estimated Future Net Cash Flows from Proved Reserves (in millions). . . . . $1,961.9 $1,988.8 $2,017.1 $2,061.1 $2,606.8 Present Value of Future Net Cash Flows from Proved Reserves (before income taxes and discounted at 10% per annum) (in millions). . . . . $1,140.7 $1,102.4 $1,108.4 $1,060.4 $1,229.3 ------------- Note: Billion cubic feet ("Bcf"), million barrels ("MMBbl"). (1) Estimated by DeGolyer and MacNaughton, independent petroleum consultants. (2) Includes oil, condensate and natural gas liquids attributable to leasehold interests.
See "Financial Review - Capital Budget" included in Appendix A to this report for a discussion of EEX's 1995 capital spending program. In light of the recent lack of heating weather and lower gas prices, EEX is proceeding cautiously in implementing its capital spending program until the amount of future cash flows can be better ascertained. Announced 1995 capital expenditures of $155 million could be reduced by up to $25 million if cash flows fail to reach budgeted levels. During 1994, EEX filed Form EIA-23 with the Department of Energy reflecting reserve estimates for the year 1993. Such reserve estimates were not materially different from the 1993 reserve estimates reported in Note 7 of the Notes to Financial Statements included in Appendix A to this report. As of December 31, 1994, EEX owned leasehold interests or licenses in 17 states and offshore Texas and Louisiana as follows:
Gross Acres Net Acres (1) ----------------------------- --------------------------- Developed Undeveloped Total Developed Undeveloped Total --------- ----------- ----- --------- ----------- ----- Alabama. . . . . . 75 13,409 13,484 37 2,916 2,953 Arkansas . . . . . 19,607 19,607 11,338 11,338 Colorado . . . . . 10,349 15,866 26,215 3,257 10,711 13,968 Idaho. . . . . . . 14,730 14,730 14,730 14,730 Kansas . . . . . . 400 8,717 9,117 200 4,512 4,712 Louisiana. . . . . 1,861 31,009 32,870 681 17,941 18,622 Mississippi. . . . 4,355 31,339 35,694 2,323 12,203 14,526 Montana. . . . . . 6,415 44,903 51,318 3,201 22,372 25,573 Nebraska . . . . . 160 480 640 160 480 640 Nevada . . . . . . 90,160 90,160 39,403 39,403 New Mexico . . . . 2,600 7,827 10,427 1,862 4,301 6,163 North Dakota . . . 1,560 6,776 8,336 1,246 4,005 5,251 Ohio . . . . . . . 102 14,950 15,052 Oklahoma . . . . . 32,366 18,280 50,646 17,730 9,396 27,126 Texas. . . . . . . 262,674 590,110 852,784 197,984 356,546 554,530 Utah . . . . . . . 3,719 109,742 113,461 533 54,081 54,614 Wyoming. . . . . . 3,558 54,559 58,117 1,641 43,565 45,206 U.S. Offshore. . . 56,800 272,632 329,432 12,860 133,720 146,580 ------- --------- --------- ------- ------- ------- Total. . . . . . . 386,994 1,345,096 1,732,090 243,715 742,220 985,935 ======= ========= ========= ======= ======= ======= ---------------- (1) Represents the proportionate interest of EEX in the gross acres under lease.
EEX purchased about 191,000 net acres of leasehold interests in 1994, 37,000 of which were in the Gulf of Mexico. EEX's Gulf of Mexico holdings totaled some 147,000 net acres, with an average working interest of 46% in 61 blocks and an overriding royalty interest in three other blocks. EEX operates 28 offshore blocks. EEX also canceled or allowed to expire 21 Gulf of Mexico leases during the year, which had been condemned following drilling on or near them or after geophysical and geological findings. EEX plans further drilling on undeveloped acreage but at this time cannot specify the extent of the drilling or predict how successful it will be in establishing commercial reserves sufficient to justify retention of the acreage. The primary terms under which the undeveloped acreage can be retained by the payment of delay rentals without the establishment of gas and oil reserves expire as to 20% of undeveloped acreage in 1995, 36% in 1996, 21% in 1997, 5% in 1998, 11% in 1999, 2% in 2000 and 5% thereafter. A portion of the undeveloped acreage may be allowed to expire prior to the expiration of primary terms specified in this schedule by nonpayment of delay rentals. Aside from Texas and the Gulf of Mexico, EEX has no material concentration of undeveloped acreage in single areas at this time. EEX participated in 108 wells (74 net) during 1994. Of these wells, 58 wells (44 net) were successfully completed, resulting in a net success rate of 59%. Of the successful wells, 13 wells (10 net) were exploratory and 45 wells (34 net) were development. At December 31, 1994, EEX was participating in 41 wells (23 net), which were either being drilled or in some stage of completion. In the 1994 drilling program, 5 wells (1.5 net) were offshore. Of these wells, 2 gas wells (.4 net) and 1 oil well (.4 net) were successfully completed. During 1993, 16 offshore wells (4.9 net) were drilled, of which 9 gas wells (2.6 net) and 1 oil well (.1 net) were successfully completed. At December 31, 1994, EEX owned interests in 1,314 gas wells (1,008 net) and 1,043 oil wells (286 net). Of these, 173 gas wells (141 net) and 37 oil wells (32 net) were dual completions in single boreholes. Drilling activity during the three years ended December 31, 1994 is set forth below:
Exploratory Development Drilling Drilling ----------- ----------- Productive Wells 1994: Gross Wells . . . . . 13.0 45.0 Net Wells . . . . . . 9.8 34.3 1993: Gross Wells . . . . . 7.0 76.0 Net Wells . . . . . . 3.8 60.1 1992: Gross Wells . . . . . 3.0 12.0 Net Wells . . . . . . 2.2 6.3 Nonproductive Wells 1994: Gross Wells . . . . . 43.0 7.0 Net Wells . . . . . . 25.3 4.6 1993: Gross Wells . . . . . 24.0 2.0 Net Wells . . . . . . 13.0 1.8 1992: Gross Wells . . . . . 13.0 5.0 Net Wells . . . . . . 8.1 2.6 ------------------- Note: Productive wells are either producing wells or wells capable of commercial production, although currently shut-in. The term "gross" refers to the wells in which a working interest is owned, and the term "net" refers to gross wells multiplied by the percentage of EEX's working interest owned therein.
The number of wells drilled is not a significant measure or indicator of the relative success or value of a drilling program because the significance of the reserves and economic potential may vary widely for each project. It is also important to recognize that reported completions may not necessarily track capital expenditures, since Securities and Exchange Commission guidelines do not allow a well to be reported as complete until it is ready for production. In the case of offshore wells, this may be several years following initial drilling because of the timing of construction of platforms, pipelines and other necessary facilities. Additional information relating to the gas and oil activities of EEX is set forth in Note 7 of the Notes to Financial Statements included in Appendix A to this report. EEX leases approximately 91,000 square feet of office space for its executive offices in Dallas, Texas, under a lease expiring in December 1998. ITEM 3. Legal Proceedings On December 26, 1989, a lawsuit was filed against EEH and EPO in the 130th Judicial District Court of Matagorda County, Texas. EPO was merged into the Company in December 1994. The Plaintiff claims that the defendants breached an alleged contract to sell a working interest and net revenue interest in two leases located in Matagorda County. Trial of the case resulted in a jury verdict in favor of the plaintiff. Judgement was entered by the trial court on October 8, 1992, ordering EEH and EPO to convey the leases to the plaintiff and to pay damages of $3.1 million, which includes principal, prejudgment interest, attorneys' fees and costs. In an opinion issued June 23, 1994, the Corpus Christi Court of Appeals reversed the decision of the trial court. The plaintiff's application for writ of error was denied by the Texas Supreme Court on December 8, 1994. See Note 6 of the Notes to Financial Statements included in Appendix A to this report for information on additional legal proceedings. In addition, EEX is a party to lawsuits arising in the ordinary course of its business. EEX believes, based on its current knowledge and the advice of counsel, that all lawsuits and claims would not have a material adverse effect on its financial condition. ITEM 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters EEX common stock began trading on the New York Stock Exchange on January 3, 1995 under the symbol "EEX". There were no trades in EEX common stock in any market prior to that date. ITEM 6. Selected Financial Data The information required hereunder is set forth under "Selected Financial and Operating Data" included in Appendix A to this report. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required hereunder is set forth under "Financial Review" included in Appendix A to this report. ITEM 8. Financial Statements and Supplementary Data The information required hereunder is set forth under "Pro Forma Statements of Operations," "Notes to Pro Forma Statements of Operations," "Management Report on Responsibility for Financial Reporting," "Independent Auditors' Report," "Balance Sheet" "Statements of Changes in Partners' Capital and Common Shareholders' Equity," "Statements of Operations of Predecessor," "Statements of Cash Flows of Predecessor," and "Notes to Financial Statements" included in Appendix A to this report. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III ITEM 10. Directors and Executive Officers of the Registrant Set forth below is information concerning the directors and executive officers of EEX:
Name Age Title and Business Experience ---- --- ----------------------------- D. W. Biegler 48 Chairman, Chief Executive Officer and Director since September 1994. He also served EEH as Chairman since January 1992 and a Director since September 1991. Since May 1993, Mr. Biegler has been Chairman and President, Chief Executive Officer of ENSERCH. He served Lone Star Gas Company, the utility division of ENSERCH, as President from 1985 and as Chairman from 1989 and was elected President and Chief Operating Officer of ENSERCH in 1991. Mr. Biegler is a Director of ENSERCH, Texas Commerce Bancshares National Association and Trinity Industries, Inc. Gary J. Junco 45 President, Chief Operating Officer and Director since September 1994. He also served EEH as President, Chief Operating Officer since January 1991 and Director since 1985 and was Senior Vice President, Land and Marketing Division, from July 1985 to December 1990. Frederick S. Addy 63 Director since January 1995. He is the retired Executive Vice President and Chief Financial Officer, and Director of Amoco Corporation, an international integrated oil and gas company. Mr. Addy was elected to such position with Amoco in 1990 and retired as an officer and Director effective April 1, 1994. He is a Director of ENSERCH; Baker, Fentress & Company; and The Pierpont Funds. B. A. Bridgewater, Jr. 61 Director since January 1995. He is Chairman, President and Chief Executive Officer, and a Director of Brown Group, Inc., a consumer products company with operations in footwear. He is a Director of ENSERCH, Boatmen's Bancshares, Inc., FMC Corporation and McDonnell Douglas Corporation. R. L. Kincheloe 64 Senior Vice President, Offshore and International, since September 1994. He also served EEH as Senior Vice President, Offshore and International since January 1992 and was Senior Vice President, Drilling and Production Operations, from April 1985 to January 1992. S. R. Singer 64 Senior Vice President, Chief Financial Officer, since September 1994. He also served EEH as a Director since April 1985 and has been Senior Vice President, Finance and Corporate Development, Chief Financial Officer of ENSERCH since 1968. B. K. Irani 43 Vice President, Production and Engineering Division, since September 1994. He also served as Vice President, Production and Engineering of EEH since September 1988 and a Vice President of EEI since August 1984.
Committees of the Board of Directors. The functions of the Audit Committee include meeting periodically with the independent and internal auditors; reviewing annual financial statements and the independent auditors' work and report thereon; reviewing the independent auditors' report on internal controls and related matters; selecting and recommending to the Board of Directors the appointment of the independent auditors; reviewing the letter of engagement and statement of fees that pertain to the scope of the annual audit and certain special audit and non-audit work, which may be required or suggested by the independent auditors; receiving and reviewing information pertaining to internal audits; directing and supervising special investigations; authorizing and reviewing transactions between EEX and ENSERCH, its subsidiaries and affiliates (the "EC Companies"); and performing any other function deemed appropriate by the Board of Directors. Mr. Bridgewater is the Chairman and Mr. Addy is a member of the Audit Committee. The Compensation Committee establishes, approves or recommends to the Board of Directors, in those instances where their approval is required, the compensation and major items related to compensation of directors and of officers. The Committee also administers the EEX 1994 Stock Incentive Plan ("Plan"). Mr. Addy is the Chairman and Mr. Bridgewater is a member of the Compensation Committee. Director Compensation. Directors are compensated by an annual retainer fee of $16,000 plus $1,000 for each board or committee meeting attended, with a maximum of $1,500 if more than one meeting is held on the same day. In addition, a $1,500 per annum fee is paid for services on a committee of the Board of Directors, with an additional $750 per annum paid to the chairman of a committee. Directors who are also officers of EEX do not receive any fees. ITEM 11. Executive Compensation EEX paid no compensation to any person in 1994. The total amount of compensation paid by EEH to all of the current executive officers of EEX for their services to EP for the year ended December 31, 1994 was $876,703 (3 persons). The amounts paid include base salary, bonuses and other miscellaneous earnings categories that were charged to EP. The following table sets forth the annual salary as of January 1, 1995 of the Chief Operating Officer and the other executive officers of EEX who devote substantially their full time to EEX and whose annual compensation exceeds $100,000.
Name Salary ---- ------ G. J. Junco $275,000 R. L. Kincheloe 240,000 B. K. Irani 177,000
Any bonus, stock option, long-term compensation or other compensation to be paid by EEX to its executive officers is determined by the Compensation Committee of the Board of Directors. D. W. Biegler, Chairman and Chief Executive Officer of EEX, and S. R. Singer, Senior Vice President, Chief Financial Officer of EEX, each are employed and will continue to be employed in identical positions with ENSERCH, and each are directly paid all of their compensation by ENSERCH. It is not presently anticipated that D. W. Biegler or S. R. Singer will receive any direct compensation from EEX in 1995. The salaries of D. W. Biegler and S. R. Singer at January 1, 1995 were $550,000 and $347,000, respectively. All other cash compensation (including bonuses) paid by ENSERCH during 1994 under plans currently in effect for services rendered in 1994 for D. W. Biegler and S. R. Singer totaled $322,994 and $151,172, respectively. It is anticipated that in 1995 none of D. W. Biegler's compensation and less than $100,000 of S. R. Singer's compensation will be allocated from ENSERCH to EEX under the management cost allocation or under any other arrangement. Employee Benefit Plans. Executive officers of EEX are included in employee benefit plans of ENSERCH. EEX does not currently have any employee benefit plans, other than the Plan, which is described below. The Plan provides for the granting of stock options ("Options") to officers and other key employees to purchase shares of Common Stock and has provisions for the awarding of restricted stock to officers, which are subject to vesting based on the achievement of certain performance criteria ("Restricted Stock"). Options granted under the Plan, (a) shall have an option price not less than the fair market value of the shares on the date of grant, (b) become exercisable in stages of 25% after one year to 100% after four years and (c) expire ten years from the date of grant. The Plan covers a maximum of 2 million shares of EEX Common Stock, subject to adjustment in the event of certain changes in the capital structure of EEX. Such shares may be authorized but unissued shares or shares held in EEX's treasury. If an Option or an award of Restricted Stock is forfeited (where the forfeiting participant received no benefits of ownership), expires or terminates before being exercised, the shares covered thereby will be available for subsequent Option or Restricted Stock grants or awards within the maximum number stated above. An award of Restricted Stock may be granted under the Plan, either at no cost to the recipient or for such cost as may be required by law or otherwise as determined by the Compensation Committee of the Board of Directors. The terms and conditions of the Restricted Stock will be specified at the time of the grant. Restricted Stock may not be disposed of by the recipient until the restrictions specified in the award expire. The Compensation Committee will determine at the time of the award what rights, if any, the person to whom an award of Restricted Stock is made will have with respect to Restricted Stock during the restriction period, including the right to vote the shares and the right to receive any dividends or other distributions applicable to the shares. ITEM 12. Security Ownership of Certain Beneficial Owners and Management Stock Ownership of Certain Beneficial Owners. The Company is aware of the following beneficial owners, as of December 31, 1994, of more than 5% of the Company's Common Stock:
Amount and Name and Address Nature of Title of Beneficial Percent of Class Beneficial Owner Ownership of Class --------- ----------------- ---------- -------- Common Stock ENS Holdings Limited 53,336,434 51.00% Partnership (1) 300 S. St. Paul Street Dallas, TX 75201 Common Stock Enserch Exploration 13,883,529 13.28% Holdings, Inc. (2) 300 S. St. Paul Street Dallas, TX 75201 Common Stock ENSERCH Corporation 36,555,365 34.95% 300 S. St. Paul Street Dallas, TX 75201 ----------- ----- Total 103,775,328(3) 99.23% --------------------- (1) ENS Holdings Limited Partnership, a Texas limited partnership, is trustee (the "Trustee") of the ENS Holdings Trust, a Texas trust (the "Trust") of which ENSERCH is the beneficiary. ENS Holdings I, Inc., the general partner (the "Trustee GP") of the Trustee and ENS Holdings II, Inc., the sole limited partner of the Trustee, are each wholly owned subsidiaries of ENSERCH. The Trustee has voting and dispositive power with respect to the 53,336,434 shares (51.00%) of the outstanding Common Stock owned by the Trust and may be deemed to beneficially own those shares. ENSERCH has the power to revoke the Trust by giving not less than 90 days' prior notice of revocation. Upon termination of the Trust, the assets in the Trust (including any shares of Common Stock in the Trust at that time) would be distributed to ENSERCH. Actions of the Trustee are effected by the Trustee GP in its capacity as general partner of the Trustee. (2) EEH is a wholly owned subsidiary of ENSERCH. (3) ENSERCH has sole voting and dispositive power of 36,555,365 shares (34.95%) of the outstanding Common Stock and, by virtue of its ownership of the securities of EEH, the Trustee and the Trustee GP may be deemed to share the voting and dispositive power with respect to the 67,219,963 shares (64.28%) of the outstanding Common Stock shown as owned by EEH and the Trust. ENSERCH, therefore, may be deemed to own beneficially, directly or indirectly, all of the 103,775,328 shares (99.23%) of the outstanding Common Stock shown in the table.
Stock Ownership of Management and Board of Directors: Each director, the named executive officers, and all directors and executive officers as a group, reported beneficial ownership of Common Stock of the Company and ENSERCH Corporation as of March 10, 1995 as follows:
EEX ENSERCH ---------------------- ---------------------- Number of Number of Shares Shares Beneficially Percent Beneficially Percent Name Owned (1) of Class Owned (2) of Class ---- ------------ -------- ------------ -------- D. W. Biegler 11,000 * 230,161 (3) * G. J. Junco 15,100 * 78,670 (3) * Frederick S. Addy 2,000 * 2,500 * B. A. Bridgewater, Jr. 1,000 * 3,000 * S. R. Singer 0 120,804 (3) * R. L. Kincheloe 0 52,853 (3) * B. K. Irani 0 19,909 (3) * All Directors and Executive Officers as a Group 29,100 (3) * 507,897 (3) * --------------------- *Less than 1% (1) The number of shares owned includes restricted shares awarded under the EEX 1994 Stock Incentive Plan, where applicable. (2) The number of shares owned includes shares held in ENSERCH Corporation's Employee Stock Purchase and Savings Plan and restricted shares awarded under ENSERCH's 1991 Stock Incentive Plan, where applicable. (3) Includes shares subject to stock options exercisable within 60 days of March 10, 1995: D. W. Biegler 168,750 shares, G. J. Junco 60,500 shares, S. R. Singer 105,556 shares, R. L. Kincheloe 52,853 shares and B. K. Irani 19,909 shares.
ITEM 13. Certain Relationships and Related Transactions For information concerning the Reorganization of EP at yearend 1994, see "Business," "Financial Review," "Statements of Changes in Partner's Capital and Common Shareholders' Equity" and Note 1 of the Notes to Financial Statements included in Appendix A to this report. The equipment and facilities used in developing and producing reserves in the Mississippi Canyon Block 441 project ("MC 441") and Garden Banks Block 388 project ("GB 388") were financed under lease agreements between certain financial institutions and EPO. In connection with the Reorganization of EP, all rights and obligations under the leases were assigned to and assumed by EEH, with EEX entering into sublease arrangements with EEH for such equipment and facilities. The MC 441 sublease has a term of five years, with EEX having an option to purchase the subleased equipment at the end of the term. The GB 388 equipment is subleased under two subleases: one covers the floating production facility, which has a term of 20 years, and the other covers the subsea equipment, pipelines and shallow-water production facility, which has an initial term of 12 years. For additional information concerning the sublease agreements, see Note 6 of the Notes to Financial Statements included in Appendix A to this report. In March 1995, EEX purchased ENSERCH's interest in the SACROC unit Kelly Snyder Field, Scurry County, Texas, which represented the remainder of ENSERCH's domestic gas and oil properties. The purchase price of approximately $1.65 million included $1.25 million for the fair market value of the properties, as determined by DeGolyer and MacNaughton, independent petroleum consultants, and the remainder for the net book value of related assets acquired and liabilities assumed. A number of transactions and relationships between EEX and the EC Companies are contemplated and specifically authorized by Article Eleven of the Restated Articles of Incorporation of EEX, including the following: - Any EC Company may lend funds to EEX at interest rates not greater than the lesser of the EC Company's actual interest cost of the funds or the rate that EEX would be charged by unrelated lenders on comparable loans. EEX may lend funds to EC Companies at rates not less than would be charged by unrelated lenders on comparable loans. - Officers, directors, employees, attorneys and agents of the Company may also serve as officers, directors, employees, attorneys and agents of EC Companies. In those situations, each party using the services will be responsible for compensation in respect of the services performed for it. - An EC Company may provide EEX with certain services such as: accounting and treasury, internal audit, human resources (such as training, employment and salary and benefit plan administration), tax planning and compliance, legal, financial management, corporate development and planning, investor relations, information systems, materials management, risk and claims management, office services and the management of these functions. EEX will reimburse each EC Company for the direct and indirect costs incurred with such costs to be determined on a basis that reasonably reflects the actual costs of the services performed. - EC Companies may sell gas, oil, goods and services to, and may purchase gas, oil, goods and services from, EEX in conformity with the provisions of Article Eleven. EC Companies are authorized to effect sales to and purchases from EEX on terms that have not been determined to be fair as long as the transaction is authorized or ratified by the EEX Board of Directors. Other transactions not specifically provided for above may occur if authorized or ratified by the Audit Committee of the EEX Board of Directors or the shareholders acting pursuant to the provisions of Article Eleven. For a discussion of related-party transactions during 1994 prior to the Reorganization, see Note 5 of the Notes to the Financial Statements included in Exhibit A to this report. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)-1 Financial Statements The following items appear in the Financial Information section included in Appendix A to this report:
Item Page ---- ---- Selected Financial and Operating Data . . . . . . . . . . . . . . .A-2 Financial Review. . . . . . . . . . . . . . . . . . . . . . . . . .A-3 Pro Forma Financial Statements (Unaudited) of Enserch Exploration, Inc.: Pro Forma Statements of Operations . . . . . . . . . . . . . .A-6 Note to Pro Forma Statements of Operations . . . . . . . . . .A-7 Management Report on Responsibility for Financial Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-8 Independent Auditors' Report. . . . . . . . . . . . . . . . . . . .A-9 Historical Financial Statements of Enserch Exploration, Inc. and Predecessor: Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . .A-10 Statements of Changes in Partners' Capital and Common Shareholders' Equity . . . . . . . . . . . . . . .A-11 Statements of Operations of Predecessor. . . . . . . . . . . .A-12 Statements of Cash Flows of Predecessor. . . . . . . . . . . .A-13 Notes to Financial Statements. . . . . . . . . . . . . . . . .A-14
(a)-2 Financial Statement Schedules The financial statement schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto. (a)-3 Exhibits 2.1* EPO Plan of Complete Liquidation [(included as Appendix "EPO-1" to Exhibit B to the Prospectus/Information Statement that forms a part of Registration Statement on Form S-4 (No. 33-56792)]. 2.2* EP Plan of Complete Liquidation [(included as Appendix "EP-1" to Exhibit C to the Prospectus/Information Statement that forms a part of Registration Statement on Form S-4 (No. 33-56792)]. 3.1* Restated Articles of Incorporation of the Company included as Exhibit 3 to the Company's report on Form 8-K dated December 30, 1994. 3.2* Bylaws of the Company included as Exhibit 3.2 to the Company's Registration Statement on Form S-4 (No. 33- 56792). 4.1* Form of Common Stock Certificate included as Exhibit 4.1 to the Company's Registration Statement on Form S-4 (No. 33-56792). 10.1* Lease Agreement for Garden Banks 388-1 between the Company and Enserch Exploration, Inc. included as Exhibit 10.3 to the Company's Registration Statement on Form S-4 (No. 33-56792). 10.2* Lease Agreement for Garden Banks 388-2 between the Company and Enserch Exploration, Inc. included as Exhibit 10.4 to the Company's Registration Statement on Form S-4 (No. 33-56792). 10.3* Lease Agreement for Mississippi Canyon 441 between the Company and Enserch Exploration, Inc. included as Exhibit 10.5 to the Company's Registration Statement on Form S-4 (No. 33-56792). 10.4* Participation Agreement between EP Operating Limited Partnership and Mobil Producing Texas and New Mexico Inc. included as Exhibit 10.6 to the Company's Registration Statement on Form S-4 (No. 33-56792). 10.5 Gas Purchase Contract between EP Operating Company and Lone Star Gas Company, a division of ENSERCH Corporation, dated January 1, 1988, Amendatory Agreement dated June 1, 1990, Amendatory Agreement dated July 1, 1992 and Letter Amendment dated August 30, 1993. Executive Compensation Plan and Arrangements (Exhibits 10.6 through 10.11) 10.6* Enserch Exploration, Inc. 1994 Stock Incentive Plan included as Exhibit 10.1 to the Company's Registration Statement on Form S-4 (No. 33-56792). 10.7 Performance Incentive Plan - Calendar Year 1995. 10.8 ENSERCH Corporation Deferred Compensation Plan and Amendment No. 1 dated March 28, 1995. 10.9 ENSERCH Corporation Deferred Compensation Trust. 10.10 ENSERCH Corporation Retirement Income Restoration Plan and Amendment No. 1 thereto dated September 30, 1994. 10.11 ENSERCH Corporation Retirement Income Restoration Trust. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of DeGolyer and MacNaughton. 24 Powers of Attorney. 27 Financial Data Schedule. -------------------- * Incorporated herein by reference and made a part hereof. (b) Report on Form 8-K dated December 30, 1994 was filed on January 6, 1995 (Reorganization of Enserch Exploration Partners, Ltd. into a new corporation, Enserch Exploration, Inc.) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized: ENSERCH EXPLORATION, INC. March 30 , 1995 By /s/ D. W. Biegler ----- -------------------------- D. W. Biegler, Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated. Signature and Title Date ------------------- ---- D. W. Biegler, Chairman, Chief Executive Officer and Director; Gary J. Junco, President, Chief Operating Officer and Director; Frederick S. Addy, Director; B. A. Bridgewater, Jr., Director; S. R. March 30 , 1995 Singer, Senior Vice President, ----- Chief Financial Officer; and J. W. Pinkerton, Vice President and Controller, Chief Accounting Officer By: /s/ D. W. Biegler ----------------------- D. W. Biegler As Attorney-in-Fact APPENDIX A ENSERCH EXPLORATION, INC. INDEX TO FINANCIAL INFORMATION December 31, 1994 Page Selected Financial and Operating Data . . . . . . . . . . . . . . . . . A-2 Financial Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3 Pro Forma Financial Statements (Unaudited) of Enserch Exploration, Inc.: Pro Forma Statements of Operations . . . . . . . . . . . . . . . . . . A-6 Note to Pro Forma Statements of Operations . . . . . . . . . . . . . . A-7 Management Report on Responsibility for Financial Reporting . . . . . . . A-8 Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . A-9 Historical Financial Statements of Enserch Exploration, Inc. and Predecessor: Balance Sheet at December 31, 1994 . . . . . . . . . . . . . . . . . . A-10 Statements of Changes in Partners' Capital and Common Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . A-11 Statements of Operations of Predecessor. . . . . . . . . . . . . . . . A-12 Statements of Cash Flows of Predecessor. . . . . . . . . . . . . . . . A-13 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . A-14 SELECTED FINANCIAL AND OPERATING DATA The historical selected financial information of Enserch Exploration Partners, Ltd. (EP) set forth below is derived from the historical financial statements of EP, the predecessor operating entity to Enserch Exploration, Inc. (EEX). The pro forma Statement of Operations data of EEX includes adjustments as explained in the Financial Review.
As of or for Year Ended December 31 --------------------------------------------------------------------- 1994 1993 1992 1991 1990 ---------- --------- ---------- ---------- ---------- (Financial data in thousands except per unit and per share amounts) HISTORICAL STATEMENT OF OPERATIONS DATA OF EP Revenues Natural gas . . . . . . . . . . . . . . . . $ 143,099 $ 144,889 $ 117,418 $ 122,164 $ 141,287 Oil and condensate . . . . . . . . . . . . 28,578 33,920 41,179 49,344 58,721 Natural gas liquids . . . . . . . . . . . . 2,106 3,790 6,037 1,503 1,695 Other . . . . . . . . . . . . . . . . . . . 1,319 2,393 1,274 1,479 332 ---------- ---------- ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . $ 175,102 $ 184,992 $ 165,908 $ 174,490 $ 202,035 ========== ========== ========== ========== ========== Operating Income (Loss) . . . . . . . . . . . .$ 32,836 $ 26,386 $ (70) $ (30,185) $ 36,457 Net Income (Loss) . . . . . . . . . . . . . . . 11,966 (3,881) (20,265) (49,644) 25,993 Net Income (Loss) per Unit. . . . . . . . . . . .12 (.04) (.20) (.48) .25 Distributions Declared per Unit . . . . . . . . .30 .30 .30 .30 Weighted Average Units Outstanding. . . . . . . 102,500 102,500 102,500 102,500 102,500 HISTORICAL CASH FLOW DATA OF EP Net Cash Provided by Operating Activities . . .$ 62,130 $ 76,061 $ 76,790 $ 75,702 $ 81,294 Net Cash Used for Investing Activities. . . . . (105,309) (123,837) (57,155) (105,175) (116,905) Distributions . . . . . . . . . . . . . . . . . (7,765) (31,061) (31,061) (31,061) (31,061) HISTORICAL BALANCE SHEET DATA OF EP Property, Plant and Equipment - Net . . . . . . $1,030,311 $ 993,038 $1,030,653 $1,043,673 Total Assets. . . . . . . . . . . . . . . . . . 1,086,303 1,039,185 1,077,619 1,109,203 Capitalization Long-term debt - affiliated companies. . . . $ 298,000 $ 266,000 $ 234,000 $ 202,000 General and limited partners' equity General partners . . . . . . . . . . . . . 14,532 14,882 15,396 16,203 Limited partners . . . . . . . . . . . . . 595,705 630,297 681,109 761,007 ---------- ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . $ 908,237 $ 911,179 $ 930,505 $ 979,210 ========== ========== ========== ========== PRO FORMA STATEMENT OF OPERATIONS DATA OF EEX Revenues . . . . . . . . . . . . . . . . . $ 176,870 $ 186,861 $ 167,584 $ 176,253 $ 204,076 Operating Income (Loss). . . . . . . . . . . . 33,886 27,094 (1,065) (31,484) 35,834 Net Income (Loss). . . . . . . . . . . . . . . 26,362 16,274 1,061 (23,042) 18,137 Net Income (Loss) per Share of Common Stock. . .25 .16 .01 (.22) .17 Average Common Shares Outstanding. . . . . . . 104,581 104,581 104,581 104,581 104,581 HISTORICAL BALANCE SHEET DATA OF EEX Property, Plant and Equipment - Net . . . . . $1,246,310 Total Assets . . . . . . . . . . . . . . . . . 1,370,012 Capital Lease Obligations. . . . . . . . . . . 155,855 Common Shareholders' Equity. . . . . . . . . . . 725,881 Common Shareholders' Equity per Share. . . . . . 6.94
As of or for Year Ended December 31 ------------------------------------------------------------- 1994 1993 1992 1991 1990 --------- -------- -------- -------- --------- HISTORICAL OPERATING DATA OF EP Sales Volumes (a) Natural gas (Bcf). . . . . . . . . . . . . . 67.1 70.0 65.2 70.0 76.8 Oil and condensate (MMBbl) . . . . . . . . . 1.9 2.0 2.2 2.4 2.7 Natural gas liquids (MMBbl). . . . . . . . . .2 .3 .5 .1 .1 Average Sales Price Natural gas (per Mcf) . . . . . . . . . . . . $ 2.15 $ 2.09 $ 1.82 $ 1.76 $ 1.86 Oil and condensate (per Bbl). . . . . . . . . 15.30 17.20 19.18 20.36 22.29 Natural gas liquids (per Bbl) . . . . . . . . 10.91 12.11 13.36 18.79 17.84 Net Wells Drilled . . . . . . . . . . . . . . . . . 74 79 19 66 53 Productive . . . . . . . . . . . . . . . . . 44 64 8 52 42 Proved Reserves (at December 31) Gas (Bcf). . . . . . . . . . . . . . . . . . 1,041.7 1,085.5 1,100.4 1,167.3 1,223.2 Oil and condensate (MMBbl) . . . . . . . . . 46.1 38.2 37.9 38.0 28.7 Standardized Measure of Discounted Future Net Cash Flows Before Income Taxes (in millions). . . . . . . . . $1,140.7 $1,102.4 $1,108.4 $1,060.4 $1,229.3 Data in Equivalent Energy Content (MMBtu) (b) Average sales price. . . . . . . . . . . . . .$ 2.14 $ 2.14 $ 2.02 $ 2.00 $ 2.12 Average production costs . . . . . . . . . . . .53 .54 .53 .56 .50 Amortization . . . . . . . . . . . . . . . . . .96 .91 .91 .83 .75 ---------------------------- (a) Sales volumes include the 1% interest of EP's general partner. (b) For purposes of providing a common unit of measure, natural gas, oil and natural gas liquids are converted to an approximate equivalent unit on the basis of relative energy content: one Mcf of natural gas equals 1.05 MMBtu, one barrel of oil equals 5.6 MMBtu and one barrel of natural gas liquids equals 4.2 MMBtu.
ENSERCH EXPLORATION, INC. FINANCIAL REVIEW On December 30, 1994, through a series of transactions, Enserch Exploration, Inc. (EEX) acquired all of the operating properties of Enserch Exploration Partners, Ltd. (EP), and EP received common stock of EEX. EP was then liquidated, and its partners received one share of EEX common stock for each limited and general partnership interest held. The ENSERCH companies also received EP's interests in and assumed EP's obligations under certain equipment lease arrangements (the equipment was simultaneously subleased to EEX) and assumed approximately $395 million principal amount of EP's indebtedness, plus accrued interest. Upon the liquidation of EP and distribution of EEX common stock, public unitholders of EP received 805,914 shares of EEX common stock (.77%) and the ENSERCH companies received 103,775,328 shares (99.23%) of EEX's 104,581,242 shares outstanding. PRO FORMA RESULTS OF OPERATIONS OF EEX - EEX was formed on December 30, 1994, and it had no operations for 1994. Pro forma results for EEX represent EP's results adjusted to reflect (1) the assumption by ENSERCH companies of $395 million of EP's debt, (2) the 1% general partner interest previously not included in EP's results, (3) the changes in offshore facilities and equipment lease terms, (4) the cost allocation for management of certain corporate services, and (5) a provision for corporate income taxes that were not payable by EP as a partnership. The 1994 results included a $4.9 million after-tax ($7.6 million pretax) gain from the sale of an inactive offshore pipeline that was written-down by $11 million after-tax ($17 million pretax) in 1992. Excluding these unusual items, operating income for 1994 was $26 million versus $27 million in 1993 and $15 million in 1992. EP's historical results of operations are discussed in the Financial Review. A reconciliation of EP's historical operating results to the pro forma net income of EEX is presented below.
Year Ended December 31 ---------------------------------------------------- 1994 1993 1992 1991 1990 -------- -------- ------- ------- ------ (In thousands) Net income (loss) of EP $ 11,966 $ (3,881) $(20,265) $(49,644) $25,993 Pro forma adjustments: Decrease in interest costs due to assumption of debt by ENSERCH companies 20,919 24,825 20,650 15,630 2,044 Interest income on note receivable from an ENSERCH affiliate 6,211 4,209 2,213 440 120 1% General partner interest 389 216 10 (338) 323 Changes in offshore facilities and equipment lease terms 1,572 668 Cost allocation for management services (500) (1,000) (1,000) (1,000) (1,000) Less provision for income taxes (benefit) 14,195 8,763 547 (11,870) 9,343 -------- ------- ------- -------- ------- Pro forma net income (loss) of EEX $ 26,362 $16,274 $ 1,061 $(23,042) $18,137 ======== ======= ======= ======== =======
RESERVES - Natural-gas reserves at January 1, 1995, were 1.04 trillion cubic feet (Tcf), compared with 1.09 Tcf the year earlier, as estimated by DeGolyer and MacNaughton, independent petroleum consultants. Oil and condensate reserves, including natural gas liquids attributable to leasehold interests, were 46 million barrels (MMBbls), compared with the year-earlier level of 38 MMBbls. The increase is associated with Garden Banks Block 388. OFFSHORE DEVELOPMENT - Throughout 1994, work progressed on the conversion of a semisubmersible rig to a floating production facility for the development of the Garden Banks Block 388 unit. The majority of the modification work on the major structural components has been completed. The 24-slot subsea template has been installed, and the two 12-inch oil and gas gathering lines have been installed and connected to the shallow-water production facility located 54 miles away. Completion operations on two pre-drilled wells commenced in early 1995 and should enable these wells to be brought on-stream when the floating facility is moored on location and the production riser is installed. These activities should be completed in mid-1995, followed by additional development drilling, with one such well expected to be completed in late 1995. Initial daily oil production rates from the pre-drilled wells are anticipated to be between 2,500 and 5,000 barrels of oil per well. Mobil Producing Texas and New Mexico Inc. (Mobil) has an option to acquire, for consideration, a 40% interest in the entire Garden Banks unit consisting of six blocks and in the units production system. If Mobil exercises its option, EEX, which currently owns 100% of the project, will remain the operator. Operating results for 1995 are expected to be negatively impacted by the midyear commencement of production from the two pre-drilled wells on Garden Banks Block 388. Revenues from the early levels of production are not expected to be sufficient to cover operating costs, amortization and the equipment lease costs on the floating production platform and related facilities. Some operating costs and amortization vary with production; however, other costs and the equipment lease costs are essentially fixed. Results are expected to improve significantly for 1996 as production begins from several development wells and equipment lease and other fixed costs are spread over significantly more production. CAPITAL BUDGET - Planned property, plant and equipment additions for 1995 total $155 million, compared with expenditures of $131 million in 1994 and $115 million in 1993. The planned expenditures exclude costs of the floating production platform and related facilities of the Garden Banks project, which are being provided under lease arrangements with an ENSERCH affiliate. The leases were based on an estimated cost of $300 million, including some $20 million of capitalized financing costs. The cost of the facilities is expected to increase to $350 million, including capitalized financing costs, primarily due to the recent discovery on Block 387. It is anticipated that the lease arrangements will be modified for the additional costs. LIQUIDITY AND FINANCIAL RESOURCES - Total capitalization at December 31, 1994 was $882 million, with common shareholders' equity representing 82% of the total. EEX intends to utilize substantially all of its internally generated cash flow in connection with the growth of the company. However, internally generated cash flow may be supplemented by borrowings to fund temporary cash deficiencies. EEX has a temporary credit arrangement with ENSERCH pending the expected establishment of a $200 million independent facility. GAS AND OIL MARKET VOLATILITY - Results of operations are dependent upon the difference between the prices received for gas and oil produced and the costs of finding and producing such resources. On an energy equivalent basis, gas reserves at January 1, 1995 constituted approximately 80% of total reserves and gas production accounted for approximately 85% of total production for 1994. Accordingly, variations in gas prices have a more significant impact on operations than variations in oil prices. The average gas prices received for production ranged from a quarterly high of $2.32 per Mcf to a low of $1.63 per Mcf over the past three years. Gas and oil swaps, collars and futures agreements are used to hedge volatile product prices for a portion (normally 30 to 70 percent) of anticipated future gas and oil production. At December 31, 1994, EEX had outstanding swaps, collars and futures agreements extending through December 1995 to exchange payments on some 17.8 Bcf of gas and 1.2 MMBbls of oil on which EEX had $4.1 million of net unrealized gains. At December 31, 1994, realized gains on hedging activities of $.9 million were deferred. The full-cost method of accounting is followed for gas and oil properties. Product prices are subject to seasonal and other fluctuations. A decline in prices from year-end 1994 or other factors, without mitigating circumstances, could cause a future write-down of capitalized costs and a noncash charge against earnings. RESULTS OF OPERATIONS OF PREDECESSOR - EP's net income for 1994 was $12 million, compared with a loss of $3.9 million in 1993 and a loss of $20 million in 1992. The 1994 results included a $7.5 million gain from the sale of an inactive offshore pipeline that was written-down by $16 million in 1992. Operating income closely follows fluctuations in product prices and volumes, as shown in the table of Selected Financial and Operating Data. Excluding effects of the previously mentioned unusual items, operating income was $25 million for 1994, $26 million for 1993 and $16 million for 1992. Revenues for 1994 of $175 million were 5% lower than 1993, which was 12% above 1992. In 1994, natural-gas revenues decreased slightly to $143 million, with the average natural-gas price per thousand cubic feet of $2.15 up from $2.09 in 1993 and $1.82 in 1992. Natural-gas sales volumes were 66 Bcf in 1994, 69 Bcf in 1993 and 65 Bcf in 1992. The decrease in volumes in 1994 was principally due to reduced production from several high-volume fields in South Texas and offshore Louisiana. The increase in volumes from 1992 to 1993 was principally due to accelerated natural-gas development drilling in East Texas and offshore production from Mississippi Canyon Block 441 in the Gulf of Mexico, which went on-stream in the second quarter of 1993. Oil revenues declined $5 million to $29 million in 1994 due to a 5% production decline and an 11% decrease in the average sales price to $15.30 per barrel. Oil revenues decreased to $34 million in 1993 from $41 million in 1992, as production declined 8% and the average sales price dropped 10%. The lower volumes were primarily the result of declining production from several North Texas reservoirs. Hedges of product prices resulted in a net increase in gas revenues of $5.0 million in 1994, compared with a decrease of $4.0 million in 1993. Hedges reduced oil revenues $.7 million in 1994 but added $.4 million in 1993. Excluding the 1994 credit from the sale of the inactive pipeline and the 1992 write-down of that pipeline, costs and expenses for 1994 were $150 million, $9 million less than 1993 and virtually the same as 1992. Expenses for 1994 reflected a $2.0 million credit associated with litigation settlements, while 1993 included provisions totaling $7.1 million relating to litigation. Depreciation and amortization increased 3% in 1994 due to a higher-per-unit amortization of capitalized costs, partially offset by the effects of lower production. The overall rate of amortization was $.96 per million British thermal units produced for 1994, compared with $.91 for both 1993 and 1992. The Mississippi Canyon capital lease and higher onshore exploratory costs largely account for the increase in 1994. Interest expense for 1994 of $21 million was $10 million less than 1993 as a result of refinancing affiliated debt at a lower interest rate. Interest expense for 1993 included a $6 million provision for interest due royalty owners. FOURTH-QUARTER RESULTS OF PREDECESSOR - Net income for the fourth quarter of 1994 was $3.9 million, compared with a loss of $6.5 million for the fourth quarter of 1993. Fourth-quarter results for 1994 included the $7.5 million gain on the sale of the inactive offshore pipeline. Excluding the gain, operating income for the 1994 fourth quarter was $2.3 million versus $4.8 million for the year-earlier quarter. Revenues in the fourth quarter of 1994 of $42 million were 17% lower than 1993, reflecting a 17% decrease in natural-gas sales volumes and a 5% lower average sales price for natural gas. Operating expenses and interest expense were both lower than in the prior fourth quarter, which included the previously mentioned provisions for litigation and interest due royalty owners. CASH FLOWS OF PREDECESSOR - Net cash flows from operating activities were $62 million in 1994, $76 million in 1993 and $77 million in 1992, after payment of affiliated interest charges of $20 million, $23 million and $20 million, respectively. Investing activities required net cash flows of $105 million, compared with $124 million in 1993 and $57 million in 1992, with variances due to differing levels of capital spending. The financing requirements of $43 million in 1994 and $47 million in 1993 were provided by borrowings from affiliated companies. ENSERCH EXPLORATION, INC. PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED) The pro forma statements of operations of Enserch Exploration, Inc. (EEX) are presented based on the historical results of operations of Enserch Exploration Partners, Ltd. (EP), after certain eliminations and adjustments. These statements should be read in conjunction with the historical financial statements of EP.
Year Ended December 31 -------------------------------- 1994 1993 1992 -------- ------- ------- (In thousands except per share amounts) Revenues Natural gas . . . . . . . . . . . . . . . . . . $144,544 $146,352 $118,604 Oil and condensate. . . . . . . . . . . . . . . 28,867 34,263 41,595 Natural gas liquids . . . . . . . . . . . . . . 2,127 3,828 6,098 Other . . . . . . . . . . . . . . . . . . . . . 1,332 2,418 1,287 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . 176,870 186,861 167,584 -------- -------- -------- Costs and Expenses Operating expenses. . . . . . . . . . . . . . . 37,839 35,273 37,436 Revenue related taxes . . . . . . . . . . . . . 7,503 9,710 9,223 Depreciation and amortization . . . . . . . . . 79,395 78,163 75,824 (Sale) write-down of inactive pipeline. . . . . (7,551) 16,500 General, administrative and other . . . . . . . 25,798 36,621 29,666 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . 142,984 159,767 168,649 -------- -------- -------- Operating Income (Loss) . . . . . . . . . . . . . 33,886 27,094 (1,065) Other Income (Expense) - Net. . . . . . . . . . . (314) (3) Interest Income . . . . . . . . . . . . . . . . . 6,985 6,147 2,795 Interest Expense. . . . . . . . . . . . . . . . . (8,204) (119) -------- -------- -------- Income Before Income Taxes. . . . . . . . . . . . 40,557 25,037 1,608 Income Taxes . . . . . . . . . . . . . . . . . . 14,195 8,763 547 -------- -------- -------- Net Income. . . . . . . . . . . . . . . . . . . . $ 26,362 $ 16,274 $ 1,061 ======== ======== ======== Net Income Per Share of Common Stock. . . . . . . $ .25 $ .16 $ .01 ======== ======== ======== Average Common Shares Outstanding . . . . . . . . 104,581 104,581 104,581 ======== ======== ======== ENSERCH EXPLORATION, INC. NOTE TO PRO FORMA STATEMENTS OF OPERATIONS
The following table reconciles net income (loss) of EP to pro forma net income of EEX.
Year Ended December 31 ------------------------------------------ 1994 1993 1992 -------- ------- ------- (In thousands) Net income (loss) reported by EP. . . . . . . . . . . . . . . . . . . . . $11,966 $(3,881) $(20,265) Add 1% minority interest in EPO (1): Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,768 1,869 1,676 Cost and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,433 1,597 1,671 ------- ------- -------- Operating income adjustment . . . . . . . . . . . . . . . . . . . . . 335 272 5 Other income (expense) - net . . . . . . . . . . . . . . . . . . . . . (3) (56) 5 Interest income - net. . . . . . . . . . . . . . . . . . . . . . . . . 57 Effect of change in lease terms (2) . . . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 704 2,123 Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 511 (687) Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 357 (768) Management cost allocation from ENSERCH (3) . . . . . . . . . . . . . . . (500) (1,000) (1,000) Interest income on notes receivable - affiliated companies (4). . . . . . . . . . . . . . . . . . . . . . . . 6,211 4,209 2,213 Eliminate interest expense on debt of EP (5). . . . . . . . . . . . . . . 20,919 24,825 20,650 ------- ------- -------- Pro forma income before income taxes. . . . . . . . . . . . . . . . . . . 40,557 25,037 1,608 Pro forma provision for income taxes (6). . . . . . . . . . . . . . . . . 14,195 8,763 547 ------- ------- -------- Pro forma net income of EEX . . . . . . . . . . . . . . . . . . . . . . . $26,362 $16,274 $ 1,061 ======= ======= ======== (1) To include revenues and costs attributable to the 1% general partner interest in EP Operating Limited Partnership (EPO). (2) The ENSERCH companies assumed EPO's interests in and liabilities of certain offshore equipment and facilities lease arrangements, and EEX entered into sublease arrangements for the equipment and facilities with the ENSERCH companies. (3) To provide for the management cost allocation to be charged by ENSERCH for management of certain corporate services. EP was charged and EEX will be charged for indirect costs (principally general and administrative costs) applicable to gas and oil operations. Prior to July 1, 1994, EP was not charged for management by ENSERCH of its operations, including supervision of finance, accounting, tax and legal functions. As a separate company, EEX will be charged approximately $1 million annually to cover the cost of those functions. (4) To include interest income on the notes receivable-affiliated companies at average balances at 7.5% interest per annum. (5) To eliminate interest expense on long-term borrowings from affiliated companies that were not assumed by EEX. (6) To provide for income taxes on pro forma income before taxes at the applicable statutory federal rate. MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of Enserch Exploration, Inc. is responsible for the preparation and integrity of the financial statements and other information contained in this report. The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts that represent management's best estimates and judgments. Management has established practices and procedures designed to support the reliability of the estimates and minimize the possibility of a material misstatement. Management has established and maintains internal accounting controls that provide reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. The system of internal control is supported by written policies and procedures and the control environment is regularly evaluated by both Deloitte & Touche LLP, the independent auditors, and ENSERCH Corporation's internal auditors. The Board of Directors of ENSERCH maintains an Audit Committee composed of Directors who are not employees. The Audit Committee met periodically with management, the independent auditors and the internal auditors to discuss significant accounting, auditing, internal accounting control and financial reporting matters related to Enserch Exploration Partners, Ltd. Upon its formation, the company formed an Audit Committee. The independent auditors and the internal auditors have free access to the Audit Committee. Management believes that, as of December 31, 1994, the overall system of internal accounting controls is sufficient to accomplish the objectives discussed herein. /s/ David W. Bidgler /s/ Gary J. Junco /s/ J. W. Pinkerton ------------------------ ----------------- ------------------ David W. Biegler Gary J. Junco J. W. Pinkerton Chairman, and President, Chief Vice President and Chief Executive Officer Operating Officer Controller February 10, 1995 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Enserch Exploration, Inc. We have audited the accompanying balance sheet of Enserch Exploration, Inc. (the Company) as of December 31, 1994, and the related statements of operations, cash flows, and changes in partners' capital and common shareholders' equity of the Company and its predecessor (See Note 1) for each of the three years in the period ended December 31, 1994. 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, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1994, and the results of operations and cash flows of the Company and its predecessor for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Dallas, Texas February 10, 1995
ENSERCH EXPLORATION, INC. BALANCE SHEET December 31, 1994 (In thousands) ASSETS Current Assets Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 227 Accounts receivable - trade (net of allowance for possible losses of $670). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,667 Accounts receivable - affiliated companies. . . . . . . . . . . . . . . . . . . . . . . . 11,587 Notes receivable - affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . 86,077 Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . . . . . . . 1,819 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691 ---------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,068 ---------- Property, Plant and Equipment (at cost) Gas and oil properties (full-cost method, $172,604 excluded from amortization base) . . . . . . . . . . . . . . . . . . . . . . . 2,070,051 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,346 ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,085,397 Less accumulated depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . 839,087 ---------- Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 1,246,310 ---------- Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,634 ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,370,012 ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,758 Accounts payable - affiliated companies. . . . . . . . . . . . . . . . . . . . . . . . . 5,042 Temporary advances - affiliated companies (net). . . . . . . . . . . . . . . . . . . . . 87,405 Current portion of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . 4,760 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,725 ---------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,690 ---------- Capital Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,095 ---------- Other Liabilities Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,123 Deferred royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,536 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,687 ---------- Total other liabilities 322,346 ---------- Commitments and Contingent Liabilities (Note 6) . . . . . . . . . . . . . . . . . . . . . . Common Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725,881 ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,370,012 ========== See Notes to Financial Statements.
ENSERCH EXPLORATION,INC. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND COMMON SHAREHOLDERS' EQUITY
Enserch Exploration Partners, Ltd. ------------------------------------- Enserch General Limited Exploration, Partners Partners Total Inc. --------- --------- --------- ----------- (In thousands) Balance, December 31, 1991 $ 15,396 $ 681,109 $ 696,505 Net loss (203) (20,062) (20,265) Distributions declared (311) (30,750) (31,061) -------- --------- --------- Balance, December 31, 1992 14,882 630,297 645,179 Net loss (39) (3,842) (3,881) Distributions declared (311) (30,750) (31,061) -------- --------- --------- Balance, December 31, 1993 14,532 595,705 610,237 Net income 120 11,846 11,966 Liquidation of partnership (14,652) (607,551) (622,203) $622,203 -------- --------- --------- Balance, December 31, 1994 $ - $ - $ - ======== ========= ========= Reorganization Adjustments: Assumption by ENSERCH Companies: Assets and obligations of offshore facilities and leases (24,418) EP's notes payable to other ENSERCH companies and EPO 395,077 Accrued interest on notes payable 12,566 General Partners' 1% interest in EPO 10,156 Assumption of deferred income taxes by EEX (289,703) -------- Common Shareholders' Equity at December 31, 1994 $725,881 ======== Common Stock - $1.00 par value, authorized 200 million shares, issued and outstanding 104,581 shares $104,581 Paid in Capital Excess of predecessor's capital over par value of common stock issued 621,300 -------- Common Shareholders' Equity at December 31, 1994 $725,881 ======== See Notes to Financial Statements.
ENSERCH EXPLORATION, INC. STATEMENTS OF OPERATIONS OF PREDECESSOR
Year Ended December 31 ----------------------------------- 1994 1993 1992 ----------- ------- -------- (In thousands except per unit amounts) Revenues Natural gas . . . . . . . . . . . . . . . . . $143,099 $144,889 $117,418 Oil and condensate. . . . . . . . . . . . . . 28,578 33,920 41,179 Natural gas liquids . . . . . . . . . . . . . 2,106 3,790 6,037 Other . . . . . . . . . . . . . . . . . . . . 1,319 2,393 1,274 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . 175,102 184,992 165,908 -------- -------- -------- Costs and Expenses Operating expenses. . . . . . . . . . . . . . 38,157 37,022 37,062 Revenue related taxes . . . . . . . . . . . . 7,428 9,613 9,131 Depreciation and amortization . . . . . . . . 79,107 76,700 75,066 (Sale) write-down of inactive pipeline. . . . (7,475) 16,335 General, administrative and other . . . . . . 25,049 35,271 28,384 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . 142,266 158,606 165,978 -------- -------- -------- Operating Income (Loss) . . . . . . . . . . . . 32,836 26,386 (70) Other Income (Expense) - Net. . . . . . . . . . (311) (3) Interest Expense. . . . . . . . . . . . . . . . (20,559) (30,267) (20,192) -------- -------- -------- Net Income (Loss) . . . . . . . . . . . . . . . 11,966 (3,881) (20,265) Less 1% General Partners' Interest. . . . . . . 120 (39) (203) -------- -------- -------- Income (Loss) Applicable to Limited Partners' Interest. . . . . . . . . . $ 11,846 $ (3,842) $(20,062) ======== ======== ======== Net Income (Loss) Per Unit. . . . . . . . . . . $ .12 $ (.04) $ (.20) ======== ========= ======== Weighted Average Units Outstanding. . . . . . . 102,500 102,500 102,500 ======== ========= ======== Distributions Declared Per Unit . . . . . . . . $ $ .30 $ .30 ======== ========= ======== See Notes to Financial Statements.
ENSERCH EXPLORATION, INC. STATEMENTS OF CASH FLOWS OF PREDECESSOR
Year Ended December 31 ---------------------------------- 1994 1993 1992 -------- ------- --------- (In thousands) OPERATING ACTIVITIES Net income (loss). . . . . . . . . . . . . . . $ 11,966 $ (3,881) $(20,265) Depreciation and amortization. . . . . . . . . 79,107 76,700 75,066 (Sale) write-down of inactive pipeline . . . . (7,475) 16,335 Other. . . . . . . . . . . . . . . . . . . . . (10,846) 9,882 (9,822) Changes in current operating assets and liabilities Accounts receivable. . . . . . . . . . . . . 3,655 (2,382) 10,737 Other current assets . . . . . . . . . . . . (25,889) (15,890) (165) Accounts payable . . . . . . . . . . . . . . 12,596 14,768 5,437 Other current liabilities. . . . . . . . . . (984) (3,136) (533) -------- -------- -------- Net cash flows from operating activities. . 62,130 76,061 76,790 -------- -------- -------- INVESTING ACTIVITIES Additions of property, plant and equipment . . (128,885) (113,380) (63,223) Retirements of property, plant and equipment . 12,929 (593) 9,437 Other. . . . . . . . . . . . . . . . . . . . . 10,647 (9,864) (3,369) -------- -------- -------- Net cash flows used for investing activities. . . . . . . . . . . (105,309) (123,837) (57,155) -------- -------- -------- FINANCING ACTIVITIES Change in temporary advances with affiliated companies . . . . . . . . . . . . . 72,305 32,756 (37,201) Proceeds from long-term notes payable to affiliated companies . . . . . . . . . . . . . 11,000 32,000 32,000 (Decrease) increase in advances under leasing arrangements - net . . . . . . . . . . . . . . (32,443) 13,453 17,475 Cash distributions paid. . . . . . . . . . . . . (7,765) (31,061) (31,061) -------- -------- ------- Net cash flows from (used for) financing activities. . . . . . . . . . . . 43,097 47,148 (18,787) -------- -------- ------- Net (Decrease) Increase in Cash and Equivalents . (82) (628) 848 Cash and Equivalents at Beginning of Year . . . . 309 937 89 -------- -------- -------- Cash and Equivalents at End of Year . . . . . . . $ 227 $ 309 $ 937 ======== ======== ======== Interest Paid (Net of amounts capitalized). . . $ 20,559 $ 24,791 $ 20,192 ======== ======== ======== See Notes to Financial Statements.
ENSERCH EXPLORATION, INC. NOTES TO FINANCIAL STATEMENTS All dollar amounts, except per share and per unit amounts, in the notes to financial statements are stated in thousands unless otherwise indicated. 1. ORGANIZATION AND BASIS OF PRESENTATION On December 30, 1994, Enserch Exploration Inc. (EEX) acquired all of the partnership interests of EP Operating Limited Partnership (EPO), the 99% owned operating partnership of Enserch Exploration Partners, Ltd. (EP), and EP received common stock of EEX. EPO was then merged into EEX and thereafter, EP was liquidated, and its partners received one share of EEX common stock for each limited and general partnership interest held. The ENSERCH companies also received EP's interest in and assumed EP's obligations under certain equipment lease arrangements (the equipment was simultaneously subleased to EEX) and assumed approximately $395 million principal amount of EP's indebtedness, plus accrued interest. The financial statements presented herein represent the historical balance sheet of EEX, after the acquisition of the EP operating properties and the transactions described above, and the historical financial statements of EP as the predecessor operating entity to EEX. Prior to the acquisition, EEX had no operations. In the notes that follow, "the Company" is used to refer to either EEX or EP, or both, when a distinction is not required. EP followed the proportional consolidation method whereby the financial statements reflected EP's 99% interest in EPO's assets, liabilities and operations. Certain prior year amounts in the statements of cash flows have been reclassified to conform with the 1994 presentation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Gas and Oil Properties - The full-cost accounting method prescribed by the Securities and Exchange Commission (SEC), is followed for gas and oil properties. Costs directly associated with the acquisition and evaluation of unproved gas and oil properties are excluded from the amortization base until the related properties are evaluated. Such unproved properties are assessed periodically and a provision for impairment is made to the full-cost amortization base when appropriate. Amortization of evaluated gas and oil properties is computed on the unit-of-production method using estimated proved gas and oil reserves quantified on the basis of their equivalent energy content. Amortization of gas and oil properties was approximately 5.7% in 1994, 6.0% in 1993 and 5.7% in 1992. Depreciation of other property, plant and equipment is provided principally by the straight-line method over the estimated service lives of the related assets. At December 31, 1994, estimates of future site restoration, dismantlement and abandonment costs, as assessed on an overall cost center basis, were less than estimates of future salvage values. Therefore, no accruals were required. Natural Gas and Oil Hedging Contracts - Gas and oil swaps, collars and futures agreements are used to hedge volatile product prices for a portion (normally 30 to 70 percent) of anticipated future gas and oil production. The purpose of these hedging activities is to fix the prices to be received. Under these agreements, payments are received or made based on the differential between a fixed and a variable product price. These agreements are settled in cash at or prior to expiration or exchanged for physical delivery contracts. Realized gains and losses on hedging activities are deferred and included in revenues during the month that the related physical sale occurs. In the event of nonperformance by counterparties, the Company is exposed to price risk. The Company does not obtain collateral to support the agreements but monitors the financial viability of counterparties. The Company has no off-balance sheet risk of accounting loss. Income Taxes - EP was a partnership and, as a result, the income or loss of the partnership, which reflected differences in the timing of the deduction of certain gas and oil drilling and development costs for federal income-tax purposes, was includable in the tax returns of the individual partners. Accordingly, no recognition was given to income taxes in the financial statements of EP. EEX, as a corporation, is a taxable entity. Accordingly, the deferred tax effect of the difference in financial accounting basis and income tax basis of EEX's assets and liabilities was recorded upon the formation of EEX as follows:
1994 ------------------------------------- Total Current Noncurrent -------- --------- ---------- Deferred tax assets: Reserves for injury and damage claims. . . . . . . . $ 663 $ $ 663 All other. . . . . . . . . . . . . 1,190 420 770 -------- ------- ------- Total . . . . . . . . . . . . . 1,853 420 1,433 -------- ------- ------- Deferred tax liabilities: Property-related differences. . . . . . . . . . . 56,919 56,919 Exploration and intangible development costs. . . . . . . . 234,637 234,637 -------- ------- -------- Total. . . . . . . . . . . . . . 291,556 291,556 -------- ------- -------- Net deferred tax liability (asset) $289,703 $ (420)(a) $290,123 ======== ======= ======== (a) Included in other current assets in the balance sheet.
Fair Value of Financial Instruments - The fair value of financial instruments, consisting primarily of cash, accounts receivable, investments, accounts payable, temporary advances payable and other accrued liabilities, approximates carrying value. 3. SHAREHOLDERS' EQUITY EEX is authorized to issue 200 million shares of common stock at $1.00 par value and 2 million shares of preferred stock. The Company has a stock option plan that provides for the granting of stock options to officers and key employees to purchase shares of EEX common stock and has provisions for awarding restricted stock to officers, which are subject to vesting based on the achievement of certain performance criteria. Options granted under the plan have an exercise price of not less than the fair market value of the common stock on the grant date. Options become exercisable in stages of 25% after one year to 100% after four years and expire after ten years. The plan covers a maximum of 2 million shares of EEX common stock. No options or restricted stock were granted or awarded in 1994. 4. EMPLOYEE BENEFIT PLANS Substantially all personnel associated with the Company are covered by an ENSERCH Corporation pension plan and some retirees are eligible for varying levels of health care and life insurance benefits. Employees hired after July 1, 1989 are not eligible for medical benefits when they retire. The allocation of the costs of these plans is actuarially determined. Total pension costs allocated to the Company were $1,208, $867 and $1,054 in 1994, 1993 and 1992, respectively. Postretirement health care and life insurance benefit costs allocated to the Company were $816, $821 and $550 in 1994, 1993 and 1992, respectively. ENSERCH Corporation pension plan information:
1994 ------ Valuation Assumptions: Discount rate . . . . . . . . . . . . . . . . . . . . . . 9.0% Rate of increase in compensation levels . . . . . . . . . 4.0% Expected long-term rate of return on assets . . . . . . . 9.5% Amounts Recognized (in millions): Actuarial present value of pension benefit obligation: Vested benefit obligation . . . . . . . . . . . . . . . $(237.4) ======= Accumulated benefit obligation. . . . . . . . . . . . . $(249.6) ======= Projected pension benefit obligation. . . . . . . . . . $(271.4) Plan assets at fair value . . . . . . . . . . . . . . . . 231.7 ------- Projected benefit obligation in excess of plan assets (39.7) Unrecognized net asset at transition. . . . . . . . . . . (8.0) Unrecognized prior service credit . . . . . . . . . . . . (2.2) Unrecognized net actuarial gain . . . . . . . . . . . . . (3.7) ------- ENSERCH accrued pension cost. . . . . . . . . . . . . . . $ (53.6) ======= EEX accrued pension cost. . . . . . . . . . . . . . . . . $ (3.9) ======= ENSERCH Corporation postretirement benefit information: Valuation Assumptions: Discount rate . . . . . . . . . . . . . . . . . . . . . . 9.0% Medical cost trend rate . . . . . . . . . . . . . . . . . 12.0% Amounts Recognized (in millions): Accumulated postretirement benefit obligation . . . . . . $ (82.9) Unrecognized obligation at transition . . . . . . . . . . 62.1 Unrecognized net actuarial loss . . . . . . . . . . . . . 15.1 ------- ENSERCH accrued postretirement benefit cost . . . . . . . $ (5.7) ======= EEX accrued postretirement benefit cost . . . . . . . . . $ (.5) ======
The assumed health care cost trend rate is 12.0% for 1994, declining gradually to 6.0% in 2003, and remaining at that level thereafter. If the health care cost trend rate were increased by 1%, the accumulated postretirement benefit obligation of ENSERCH as of December 31, 1994 would be increased by $4.8 million and the net periodic postretirement benefit cost for 1994 by $.4 million. Investment Plan - ENSERCH provides a voluntary contributory investment plan that is available to substantially all employees and matches a portion of employee's contribution with ENSERCH common stock. The Company's share of costs under the plan was $236, $254 and $260 in 1994, 1993 and 1992, respectively. 5. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Company engages in various transactions with ENSERCH and its affiliates. The Company was charged for direct costs incurred by ENSERCH and affiliates that were associated with managing the Company's business and operations. Additionally, ENSERCH charged EP and will charge EEX for indirect costs. Prior to July 1, 1994, EP was charged for the general and administrative staff costs incurred by ENSERCH in performing accounting, treasury, internal audit, income tax planning and compliance, legal and other functions, but was not charged for the cost of higher level management (i.e. all of the elected officers of ENSERCH) of these functions. Effective July 1, 1994, ENSERCH began charging all of its affiliates, including EP, for the cost of management by higher level ENSERCH personnel of these functions. ENSERCH charges for all indirect costs amounted to $2,032, $2,026 and $1,927 in 1994, 1993 and 1992, respectively. The Company had sales to affiliated companies (Enserch Gas Company, Lone Star Gas Company and Enserch Processing) of $108,936, $108,916 and $32,508 in 1994, 1993 and 1992, respectively. In March 1993, the Company entered into new contracts to sell essentially all gas production not committed under existing contracts to Enserch Gas Company. The notes receivable from affiliated companies had an interest rate of 7.5%. Interest on the temporary advance from affiliated companies was based on the 30-day commercial paper rate available to ENSERCH and was 6.1% at December 31, 1994. In February 1995, the receivable and the obligation were settled. Net interest costs incurred on affiliated borrowings were $24,266, $27,120 and $25,336 in 1994, 1993 and 1992, respectively. See Note 6 for information concerning lease commitments with affiliates. 6. COMMITMENTS AND CONTINGENT LIABILITIES Legal Proceedings - On March 23, 1994, a lawsuit was brought in the 299th District Court of Harris County, Texas against EPO (the Company's predecessor) and five other defendants by 19 royalty owners under leases contained within the Corby Gas Unit in Leon County, Texas. Defendants are working interest owners and lessees under the leases. The Company owned a 7.1% interest in these leases. The plaintiffs allege causes of action involving breach of express and implied obligations under the leases, drainage, failure to explore and develop for gas and oil under the leases, civil conspiracy, tortious interference with contractual relationships, specific performance, negligence and conversion. The plaintiffs seek to recover alleged actual damages in excess of $5.4 million, punitive damages of at least ten times the actual damages, if any, found by a jury, interest and attorneys' fees. A lawsuit was filed against ENSERCH, its utility division, EPO (the Company's predecessor) and EPO's managing general partner in the 348th Judicial District Court of Tarrant County in May 1989. Plaintiffs seek unspecified actual damages and punitive damages in the amount of $5 million. Plaintiffs allege royalties were not fully paid, certain expenses were improperly charged against the amount of royalties due, negligence in the venting of gas and liquid hydrocarbons into the air, and breach of duty of good faith and fair dealing by wrongfully concealing certain material facts concerning sales of gas from the subject leases to the utility division. A lawsuit was filed on February 24, 1987, in the 112th Judicial District of Sutton County, Texas, against subsidiaries and affiliates of ENSERCH, as well as its utility division. The plaintiffs have claimed that defendants failed to make certain production and minimum-purchase payments under a gas-purchase contract. In this connection, the plaintiffs have alleged a conspiracy to violate purchase obligations, improper accounting of amounts due, fraud, misrepresentation, duress, failure to properly market gas and failure to act in good faith. Plaintiffs seek actual damages in excess of $5 million and punitive damages in an amount equal to 0.5% of the consolidated gross revenues of ENSERCH for the years 1982 through 1986 (approximately $85 million), interest, costs and attorneys' fees. Management believes that the named defendants have meritorious defenses to the claims made in these and other actions brought in the ordinary course of business. In the opinion of management, the Company will incur no liability from these and all other pending claims and suits that would be considered material for financial reporting purposes. Leases - The equipment and facilities used in developing and producing reserves in the Mississippi Canyon Block 441 Project (MC 441) and Garden Banks Block 388 Project (GB 388) were financed under lease agreements between certain financial institutions and EPO. In connection with the merger of EPO into EEX, the leases were assigned to and assumed by Enserch Exploration Holdings, Inc. (EEH). EEX entered into three sublease arrangements with EEH for such offshore facilities. For accounting purposes, one of the lease agreements is an operating lease, and two are capital leases, with the lease obligations and related assets totaling approximately $156 million. The operating lease is for twelve years, with an option to purchase the equipment under lease at the end of the lease term at a fixed price equal to its estimated fair value. A component of the payments to be made by EEX under the subleases is based on a floating interest rate of LIBOR plus 1.75% per annum. Estimated future minimum lease payments for the leases, based on a LIBOR rate at December 31, 1994 of 5.625% for GB 388 and 5.9375% for MC 441, are as follows:
Operating Capital Leases Leases ---------- --------- 1995 $ 15,784 $ 14,667 1996 18,793 17,021 1997 18,794 17,021 1998 18,794 17,021 1999 18,794 17,021 Thereafter 136,044 199,528 -------- -------- Total $227,003 282,279 Less interest factor ======== 126,424 -------- Capital lease obligations $155,855 ========
The cost for the Garden Banks facilities and equipment will exceed the $300 million cost that is the basis for current lease obligations, primarily due to the recent discovery on Block 387. The total cost of these facilities and equipment is expected to be approximately $350 million, including $20 million of capitalized financing costs. The Company anticipates that the lease arrangements will be modified for the additional costs. The Company bears an allocated share of rental expenses incurred by ENSERCH affiliates under noncancelable long-term operating leases, principally for office space. The Company's allocated share of rental expenses totaled $3,071, $4,985 and $3,547 in 1994, 1993 and 1992, respectively. Environmental Matters - The Company is subject to federal, state and local environmental laws and regulations that regulate the discharge of materials into the environment. Environmental expenditures are expensed or capitalized depending on their future economic benefit. The level of future expenditures for environmental matters, including costs of obtaining operating permits, enhanced equipment monitoring and modifications under the Clean Air Act and cleanup obligations, cannot be fully ascertained until the regulations that implement the applicable laws have been approved and adopted. However, the capital expenditures required to achieve compliances with the Clean Air Act regulations, in their current form, have been estimated to be less than $1 million. It is management's opinion that all such costs, when finally determined, will not have a material adverse effect on the financial position or results of operations of the Company. 7. SUPPLEMENTARY GAS AND OIL INFORMATION Gas and Oil Producing Activities - The following tables set forth information relating to gas and oil producing activities. Reserve data for natural gas liquids attributable to leasehold interests owned by the Company are included in oil and condensate.
1994 1993 ---------- ---------- Capitalized Costs: Proved gas and oil properties . . . . . . . . . . . . . . . . . . $1,897,447 $1,721,345 Unproved gas and oil properties . . . . . . . . . . . . . . . . . 172,604 82,236 ---------- ---------- Total. . . . . . . . . . . . . . . . $2,070,051 $1,803,581 ========== ========== Accumulated depreciation and amortization . . . . . . . . . . . . . $ 829,188 $ 775,570 ========== ==========
1994 1993 1992 -------- ------- ------- Costs Incurred: Property acquisition costs: Proved. . . . . . . . . . . . . . . . . . . . $ 1,546 $ 8,179 $ 886 Unproved. . . . . . . . . . . . . . . . . . . 20,386 12,429 8,969 Exploration costs . . . . . . . . . . . . . . . 58,163 36,397 35,030 Development costs . . . . . . . . . . . . . . . 83,346 62,401 16,355 -------- -------- ------- Total . . . . . . . . . . . . . . . . . . . .. $163,441 $119,406 $61,240 ======== ======== ======= Amortization (per MMBtu)(a) . . . . . . . . . .. $ .96 $ .91 $ .91 ======== ======== ======= (a) Amortization expense per unit of production converted to a common unit of measure, millions of British thermal units (MMBtu).
Costs excluded from the amortizable base as of December 31, 1994: Total at
Prior December 31, Year Incurred 1994 1993 1992 Years 1994 -------- ------- ------- ------- ----------- Property acquisition costs. . . . . . . . . . . . . $ 20,591 $11,369 $ 4,178 $10,506 $ 46,644 Exploration costs . . . . . . . . . . . . . . . . . 16,991 3,797 6,794 9,021 36,603 Development costs . . . . . . . . . . . . . . . . . 77,380 77,380 Interest capitalized. . . . . . . . . . . . . . . . 4,530 3,394 3,062 991 11,977 -------- ------- ------- ------- -------- Total . . . . . . . . . . . . . . . . . . . . . . $119,492 $18,560 $14,034 $20,518 $172,604 ======== ======= ======= ======= ========
Approximately 65% of excluded costs relates to offshore activities in the Gulf of Mexico and the remainder relates to domestic onshore exploration activities. The anticipated timing of the inclusion of these costs in the amortization computation will be determined by the rate at which exploratory and development activities continue, which are expected to be accomplished within ten years. The following information is required and defined by the Financial Accounting Standards Board. The disclosure does not represent the results of operations based on historical financial statements. In addition to requiring different determinations of revenues and costs, the disclosure excludes the impact of interest expense and corporate overheads.
Results of operations: 1994 1993 1992 -------- -------- -------- Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $169,487 $186,224 $164,634 Less: Production costs. . . . . . . . . . . . . . . . . . . . . . . . 43,282 45,684 43,132 Exploration costs (a) . . . . . . . . . . . . . . . . . . . . . 6,942 6,276 8,128 Depreciation and amortization . . . . . . . . . . . . . . . . . 78,123 75,917 74,378 -------- -------- -------- Net producing activities . . . . . . . . . . . . . . . . . . . $ 41,140 $ 58,347 $ 38,996 ======== ======== ======== (a) Includes internal costs that cannot be directly identified with acquisition, exploration or development activities.
Hedging Activities - At December 31, 1994, the Company had outstanding swaps, collars and futures agreements extending through December 31, 1995 to exchange payments on 17.8 Bcf of natural gas and 1.2 MMBbls of oil on which the Company had $4.1 million of net unrealized gains based on the difference between the strike price and the NYMEX futures price for the applicable trading month. At December 31, 1994, realized gains on hedging activities of $.9 million were deferred. The weighted average strike price and market price per Mcf of natural gas was $2.06 and $1.84, respectively, and the weighted average strike price and market price per barrel of oil was $17.98 and $17.82, respectively. Gas and Oil Reserves (Unaudited) - The following table of estimated proved and proved developed reserves of gas and oil has been prepared utilizing estimates of year-end reserve quantities provided by DeGolyer and MacNaughton, independent petroleum consultants. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing gas and oil properties. Accordingly, the reserve estimates are expected to change as additional performance data become available. All reserves are located in the United States.
Gas (MMcf) Oil (MBbl)(a) --------------------------------- ------------------------- 1994 1993 1992 1994 1993 1992 --------- --------- --------- ------- ------ ------ At January 1. . . . . . . . . . . . . 1,085,466 1,100,419 1,167,284 38,218 37,939 38,037 Changes in reserves Revisions of previous estimates . . . . . . . . . . . . (24,104) 20,179 (7,054) 141 1,331 1,023 Extension, discoveries and additions . . . . . . . . . . 47,580 34,549 20,817 9,877 1,292 1,444 Purchase of minerals in place . . . . . . . . . . . . . . 787 4,379 198 14 3 102 Sales of minerals in place. . . . . (894) (4,042) (15,665) (28) (40) (42) Production. . . . . . . . . . . . . . (67,102) (70,018) (65,161) (2,081) (2,307) (2,625) --------- --------- --------- ------ ------ ------ At December 31. . . . . . . . . . . . 1,041,733 1,085,466 1,100,419 46,141 38,218 37,939 ========= ========= ========= ====== ====== ====== Proved Developed Reserves: At January 1. . . . . . . . . . . . 734,077 675,844 974,031 14,249 13,552 17,763 At December 31. . . . . . . . . . . 698,640 734,077 675,844 14,092 14,249 13,552 (a) Includes condensate and natural gas liquids attributable to leasehold interests of 854 MBbl for 1994, 931 MBbl for 1993 and 789 MBbl for 1992.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Gas and Oil Reserve Quantities (Unaudited) - has been prepared using estimated future production rates and associated production and development costs. Continuation of economic conditions existing at the balance sheet date was assumed. Accordingly, estimated future net cash flows were computed by applying prices and contracts in effect in December to estimated future production of proved gas and oil reserves, estimating future expenditures to develop proved reserves and estimating costs to produce the proved reserves based on average costs for the year. Average prices used in the computations were: Gas (per Mcf) $2.29 in 1994, $2.38 in 1993 and $2.18 in 1992; Oil (per barrel) $14.05 in 1994, $11.68 in 1993 and $18.16 in 1992. Because reserve estimates are imprecise and changes in the other variables are unpredictable, the standardized measure should be interpreted as indicative of the order of magnitude only and not as precise amounts.
Standardized Measure (in millions): 1994 1993 1992 -------- -------- -------- Future cash inflows . . . . . . . . . . . . . . . . . . $3,006.9 $3,031.6 $3,056.4 Future production and development costs . . . . . . . . 1,045.0 1,042.8 1,039.3 -------- -------- -------- Future net cash flows . . . . . . . . . . . . . . . . . 1,961.9 1,988.8 2,017.1 Less 10% annual discount. . . . . . . . . . . . . . . . 821.2 886.4 908.7 -------- -------- -------- Discounted future net cash flows before income tax. . . 1,140.7 $1,102.4 $1,108.4 ======== ======== Future income-tax expense (524.6) Plus 10% annual discount on income taxes. . . . . . . . 240.4 -------- Standardized measure of discounted future net cash flows. . . . . . . . . . . . . . . . . . . . . $ 856.5 ======== Change in Standardized Measure (in millions): Sales and transfers of gas and oil produced, net of production costs . . . . . . . . . . . . . . . . . $(120.5) $ (135.6) $ (114.5) Changes in prices, net of production and future development costs. . . . . . . . . . . . . . . . . (33.9) 3.6 20.7 Extensions, discoveries and improved recovery, less related costs . . . . . . . . . . . . . . . . 125.4 41.4 22.3 Other purchases of minerals in place. . . . . . . . . . 1.6 9.4 .9 Revisions of previous quantity estimates. . . . . . . . (26.5) (29.6) 16.4 Sale of minerals in place.. . . . . . . . . . . . . . . (1.3) (4.9) Accretion of discount . . . . . . . . . . . . . . . . . 102.7 105.1 102.4 Net change in income taxes. . . . . . . . . . . . . . . (284.2) Other . . . . . . . . . . . . . . . . . . . . . . . . . (9.2) (.3) 4.7 ------- --------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . $(245.9) $ (6.0) $ 48.0 ======= ========= ========
8. SUPPLEMENTAL FINANCIAL INFORMATION Quarterly Results (Unaudited) - The results of operations by quarters for EP are summarized below. In the opinion of the Company's management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been made. The historical financial statements of EP include interest charges on the debt now assumed by ENSERCH and do not include provisions for income taxes as discussed in Note 2.
Quarter Ended ------------------------------------------------------- March 31 June 30 September 30 December 31 -------- -------- ------------ ------------ 1994: Revenues. . . . . . . . . . . . . . . . $49,709 $43,427 $40,404 $41,562 Operating Income . . . . . . . . . . . 11,122 8,692 3,268 9,754 Net Income (Loss) . . . . . . . . . . . 4,917 5,185 (2,082) 3,946 Net Income (Loss) Per Unit. . . . . . . .05 .05 (.02) .04 1993: Revenues. . . . . . . . . . . . . . . . $39,755 $47,709 $47,638 $49,890 Operating Income . . . . . . . . . . . 5,118 9,160 7,267 4,841 Net Income (Loss) . . . . . . . . . . . (640) 2,743 548 (6,532) Net Income (Loss) Per Unit. . . . . . . (.01) .03 .01 (.06)
Interest Costs - are summarized below: 1994 1993 1992 ------ -------- -------- Interest costs incurred . . . . . . . . . . $25,270 $34,481(a) $25,454 Interest capitalized. . . . . . . . . . . . (4,711) (4,214) (5,262) ------- -------- -------- Interest charged to expense . . . . . . . . . $20,559 $30,267 $20,192 ======= ======= ======= (a) Includes $6 million provision for interest due royalty owners.
EX-10 2 EXHIBIT 10.5 LS-T-GP #6477 GAS PURCHASE CONTRACT BETWEEN EP OPERATING COMPANY "AS SELLER" AND LONE STAR GAS COMPANY A DIVISION OF ENSERCH CORPORATION "AS BUYER" GAS PURCHASE CONTRACT I N D E X DEFINITIONS..................................ARTICLE I Page 1 PROPERTIES COVERED...........................ARTICLE II Page 3 SUBJECT MATTER...............................ARTICLE III Page 3 RESERVATIONS BY SELLER.......................ARTICLE IV Page 4 QUALITY AND PRESSURE.........................ARTICLE V Page 5 PIPELINE CONNECTION..........................ARTICLE VI Page 7 DELIVERY POINT...............................ARTICLE VII Page 8 OPTION TO SELL TO ALTERNATIVE MARKET.........ARTICLE VIII Page 8 EQUIPMENT....................................ARTICLE IX Page 9 FIELD OPERATION..............................ARTICLE X Page 10 QUANTITY.....................................ARTICLE XI Page 11 MEASUREMENT..................................ARTICLE XII Page 13 PRICE........................................ARTICLE XIII Page 14 PAYMENT......................................ARTICLE XIV Page 16 TERM.........................................ARTICLE XV Page 18 FORCE MAJEURE................................ARTICLE XVI Page 18 TAXES........................................ARTICLE XVII Page 20 IN GENERAL...................................ARTICLE XVIII Page 21
GAS PURCHASE CONTRACT THIS AGREEMENT, made and entered into this 1st day of January, 1988, by and between EP OPERATING COMPANY, hereinafter referred to as "Seller" and LONE STAR GAS COMPANY, a Division of ENSERCH CORPORATION, a Texas Corporation, hereinafter referred to as "Buyer". W I T N E S S E T H : In consideration of the sum of One Dollar ($1.00) cash in hand paid to Seller by Buyer, the receipt of which is hereby acknowledged, and of the covenants and agreements herein contained, Seller and Buyer do hereby contract and agree with each other as follows: ARTICLE I DEFINITIONS: For the purposes hereof, the words, phrases, and terms used herein shall be used in the ordinary meaning unless the agreement clearly indicates otherwise or unless same is hereinafter defined, in which instance such word, phrase, or term shall have the meaning clearly attributable to it or as defined hereinafter below: l. The word "gas" shall mean natural gas produced from gas wells only and not gas produced in association with oil (Casinghead Gas). 2. The term "casinghead gas" shall mean gas produced from a well which is classified as an oil well under the law or by ruling of the Railroad Commission of Texas and in the absence of any classification under such law or ruling, such term means gas which is associated or blended with crude petroleum oil at the time of production from the well. 3. The word "day" shall mean a period of twenty-four (24) consecutive hours commencing at 7:00 a.m. on one calendar day and ending at 7:00 a.m. on the following calendar day. The reference date for any day shall be the time at the beginning of such day. 4. The word "month" shall mean the period beginning at 7:00 a.m. on the first day of a calendar month and ending at 7:00 a.m. on the first day of the next succeeding calendar month. 5. The term "accounting period" shall mean a period of twelve (12) consecutive months commencing on January 1, 1988 an each January 1 thereafter during the term of this Agreement. 6. The term "partial accounting period" shall mean any continuous period of time during the term hereof which is not a full accounting period. 7. The abbreviation "MCF" shall mean one thousand (l,000) cubic feet. 8. The abbreviation "BTU" shall mean British Thermal Unit. 9. The abbreviation "MMBTU" shall mean one million (l,000,000) BTUs. 10. The abbreviation "psia" shall mean pounds per square inch absolute. 11. The abbreviation "psig" shall mean pounds per square inch gauge. 12. The word "well" shall mean any well classified as a gas well or oil well by the Texas Railroad Commission or other governmental authority having jurisdiction. Each completion shall be deemed to be a separate well. 13. The term "total heating value" shall mean the number of BTU's produced by combustion at constant pressure of an amount of gas which would occupy one (l) cubic foot at a temperature of sixty degrees (60) Fahrenheit and a pressure of fourteen and sixty-five hundredths (14.65) psia and water vapor saturated. 14. The term "cubic foot of gas" shall mean the volume of gas contained in one (l) cubic foot of space at a pressure base of fourteen and sixty-five hundredths (14.65) psia and at a temperature of sixty degrees (60) Fahrenheit. ARTICLE II PROPERTIES COVERED: Seller covenants and represents that Seller owns, or owns an interest in, certain valid and subsisting oil and gas mining lease or leases and/or oil and gas rights covering lands in Gregg County, State of Texas. Subject to the provisions of Article IV, fifty percent (50%) of Seller's interest in said lands, lease or leases and/or rights are included within and covered by this contract in accordance with the terms, provisions and conditions hereof, and are more particularly described in Exhibit "A" attached hereto, and shown within the area outlined on the Exhibit "B" plat attached hereto. Exhibit's "A" and "B" are by reference made a part hereof as fully and effectually as though set out in full herein. This contract shall apply to lease extensions, renewals and reacquisition of leases and/or rights covering acreage described in and outlined on the Exhibits "A" and "B" by Seller, its successors or assigns for a period of ten (10) years from the date hereof. Waiver or release of this covenant shall be ineffective unless expressed in writing signed by Buyer. ARTICLE III SUBJECT MATTER: Subject to the terms and provisions herein set out and specifically Article IV, Seller hereby agrees to sell and deliver to Buyer at the point of delivery herein provided for, and Buyer hereby agrees to purchase and receive at such point of delivery fifty percent (50%) of Seller's interest in legally produced gas of whatsoever kind or character as produced (including all hydrocarbons therein contained), reasonably, practicably, economically and profitably usable and saveable by Buyer, collectively hereinafter referred to as the subject matter hereof, which may be produced from all of the wells now and hereafter drilled on the lands, leases and properties (sometimes referred to herein as "premises") included within the areas described in and outlined on the Exhibits "A" and "B" attached hereto, in accordance with the terms and conditions herein stipulated. ARTICLE IV RESERVATIONS BY SELLER: Seller reserves and excepts from the terms of this contract the following: 1. A volume of gas to fulfill its obligations and previous dedications under that certain Farmout Agreement between Seller and Chevron U.S.A. acting through its Division Warren Petroleum Company (or their predecessors in title) dated January 1, 1942 and the Gas Purchase Agreement between Seller and Western Gas Corporation dated September 1, 1987. 2. The right to use sufficient gas above ground for the requirements in the development and operation of the properties subject to this contract located in the field in which the premises covered hereby are located, including, but not limited to, use of gas for drilling, workover operations, gas lift, treating, dehydration, and compressing. 3. The right on behalf of lessors to such other gas as lessors are entitled to use under the terms of the leases covered hereby. 4. The right in the producers to pool and unitize the land, leases and properties covered by this Contract with other lands, leases and properties of others located in the field in which the premises covered hereby are located, and such premises included in any pool or unit, and all of Seller's gas produced therefrom, shall be covered by this Contract; provided that the exercise of such right by the producers shall not diminish Buyer's right nor increase its obligations with respect to the gas produced from the lands covered hereby. 5. The right in the producers to operate the lands, leases, and properties and in the Seller to operate the gathering system covered by this Contract in such manner as they deem advisable, including the right in the producers to drill new wells, to repair or rework old wells, to renew in whole or in part any of the leases covered by this Contract, and to abandon or elect not to connect any well or surrender, release or terminate any lease not deemed by Seller capable under normal methods of operation of producing gas in commercial quantities. ARTICLE V QUALITY AND PRESSURE: Buyer shall not be obligated to take or pay for (but shall pay for if taken) any gas tendered to it hereunder unless the same meets the following requirements as to quality and pressure. l. The gas delivered hereunder shall not contain more than five (5) grains of total sulphur, and shall not contain more than one-fourth (o grain of hydro gen sulphide, per one hundred (l00) cubic feet of gas. 2. The gas delivered hereunder shall not contain any oxygen and shall not contain more than three percent (3%) by volume of carbon dioxide, and shall be commercially free from liquid water, crude oil, mineral seal oil, distillate and other impurities, or noncombustible gases, which would adversely affect Buyer's service to its ultimate consumer. The gas delivered hereunder shall be at temperatures not in excess of one hundred twenty degrees (120) Fahrenheit and not less than forty degrees (40) Fahrenheit. 3. The gas delivered hereunder shall not contain more than seven pounds (7#) of water vapor per million cubic feet of gas. Seller agrees to dehydrate such gas or cause same to be dehydrated to meet this requirement and to install, maintain and operate or cause to be installed, maintained and operated dehydration facilities of sufficient capacity to do so at all times. 4. The gas delivered hereunder shall have a total heating value of not less than one thousand (l,000) BTU's per cubic foot. 5. The gas delivered hereunder shall be at a pressure which is sufficient to enter Buyer's pipeline at the point of delivery to Buyer against a varying working pressure maintained therein by Buyer up to a maximum of eleven hundred pounds (1100#) per square inch gauge pressure. Seller agrees to dehydrate, treat and compress such gas or cause same to meet the foregoing specifications and to install, maintain and operate or cause to be installed, maintained and operated the necessary facilities of sufficient capacity to do so at all times. Seller agrees that Buyer may furnish compression facilities upon Seller's failure to provide gas at the pressure level set out above. Buyer may charge a reasonable fee for such facilities. 6. The gas delivered hereunder shall have stable heating value and specific gravity within ranges that will permit efficient utilization thereof by Buyer in the usual conduct of its business and in the performance of Buyer's public service obligations, and Buyer shall not be obligated to take or pay for any gas tendered to it hereunder which, in the judgment of Buyer, is not interchangeable with the gas in that portion of Buyer's pipeline system to which Seller's delivery line is connected. Buyer's determination of such interchangeability shall be based upon a factor which is equivalent to the quotient obtained by dividing the total heating value of such gas, expressed in BTU's by the square root of the specific gravity of such gas. Such factor must be within +7% of the inter change factor established by Buyer for its system at the point or points of delivery of the gas covered hereunder. ARTICLE VI PIPELINE CONNECTION: Buyer and Seller shall arrange for pipeline connection, and within sixty (60) days after the date of the acknowledgement of the official signatory for Buyer, Seller shall commence, or cause to be commenced, procedure for the construction of the necessary gathering facilities from Seller's well or wells to the point of delivery and shall complete or cause such gathering facilities to be completed with due diligence, and Buyer shall commence, or cause to be commenced, procedure for the construction of any necessary pipeline from its existing pipeline system to the point of delivery and shall complete or cause the same to be completed with due diligence. Upon completion of the aforesaid pipelines by both Seller and Buyer, Buyer shall connect Seller's gathering facilities with Buyer's pipeline, and all wells then completed shall be properly equipped and promptly connected by Seller to Seller's gathering facilities, whereupon the delivery and reception of gas shall commence hereunder, and all wells thereafter drilled, and completed as producers shall be by Seller properly equipped and promptly connected to Seller's gathering facilities as Seller deems appropriate as a prudent operator and upon connection of such facilities Buyer shall commence taking the gas therefrom in accordance with the terms of this contract. If it is or becomes unprofitable to Buyer for it to do so, Buyer shall neither be required to connect or continue connection with Seller's gathering facilities, nor to continue operation and maintenance of its pipeline to the field in which said delivery line is located; provided however, such determination does not provide Buyer with the right to reduce the price pursuant to Article XIII of the Contract. If such determination is made by Buyer then Seller upon thirty (30) days written notice may terminate this agreement. ARTICLE VII DELIVERY POINT: The delivery point of the subject matter hereof, as aforesaid, shall be at the inlet flange of Buyer's pipeline facilities located at Seller's "Willow Springs Central facilities" which are located on that certain tract of twenty (20) acres approximately 600 feet from the West line and 1100 feet from the South line of the Marshall Mann Survey, A-256 in Gregg County, Texas. The title to and ownership of the gas delivered hereunder shall pass to and absolutely vest in Buyer at the point of delivery. ARTICLE VIII OPTION TO SELL GAS TO ALTERNATIVE MARKET: (1.) Notwithstanding anything to the contrary contained herein, Seller shall have the right to market to a third party buyer all or a portion of Seller's interest in gas production dedicated hereto which can be legally produced and which is temporarily surplus to Buyer's requirements. Such gas is hereinafter referred to as "Excess Available Gas". Seller shall have no further obligation to Buyer with respect to the excess available gas sold to Third Parties except as provided in paragraph (3) of this Article VIII. (2.) The term "Excess Available Gas" shall mean that volume of gas avail able under the terms hereunder which Buyer does not desire to purchase. The term "Purchase Gas" shall mean that volume of gas which Seller delivers and Buyer purchases hereunder. The amount of Excess Available Gas shall vary from time to time depending upon Buyer's purchase requirements and upon the delivery capacity of Seller's wells at the Point(s) of Delivery. The total amount of gas which Seller actually delivered at the end of each month shall be proportionately divided, based upon the dispatch orders of Buyer and Seller's third party buyer, to determine and distinguish Purchase Gas from Excess Available Gas as illustrated in the attached Exhibit "C" which is incorporated herein and made a part hereof. All gas which is not Purchase Gas hereunder shall be deemed Excess Available Gas. (3.) Notwithstanding the terms of this Article VIII, in the event of an emergency and/or market demand requirement as determined by Buyer's sole discretion Buyer shall have the right to receive all or part of the gas available under the Contract to satisfy its public service obligations. (4.) Subject to the terms and conditions of this Article VIII, Buyer hereby waives all of its rights hereunder to purchase gas which Buyer herein deems to be Excess Available Gas. (5.) This option to sell to a third party shall be in full force and effect commencing with initial delivery and shall continue for the term of this contract. (6.) During the term of this Contract Buyer agrees to transport such Excess Gas to a mutually agreeable point on Buyer's S-2 Intrastate Transmission Pipeline System east of Opelika Field in Henderson County, Texas. Such transportation shall be provided on a reasonable efforts basis and shall be subject to the availability of adequate excess capacity and be pursuant to a fully executed transportation agreement between the parties. ARTICLE IX EQUIPMENT: Seller agrees to furnish, install and maintain such equipment as may be necessary for the proper, safe and efficient operation and maintenance of Seller's well or wells and delivery line and to enable it to make delivery of gas as provided herein. Such equipment shall include the valves and fittings necessary to permit Buyer to make its connections at the point of delivery and to regulate the deliveries from Seller's delivery line according to Buyer's requirements, including chokes and other equipment that may be necessary to prevent freezing during the varying deliveries from Seller's well or wells and delivery line. All such equipment which may be required to withstand the closed-in pressures of the wells shall be constructed with a working pressure rating at least equal to the maximum closed-in pressures of the wells. Seller shall also furnish, install and maintain such drips, separators and other devices as may be necessary to prevent the admission of any objectionable liquids or solids into the pipeline of Buyer. Such drips, separators, delivery line and other devices shall be constructed with a working pressure rating at least equal to the working pressure at which lt is contemplated hereunder they will operate and they shall be equipped with suitable safety devices such as explosion heads to protect against excessive pressure. Seller shall furnish any information requested by Buyer regarding wells or equipment, and Seller shall maintain producing wells in good condition and at all times connected to Seller's delivery line except when disconnected for repairs. Any distillates, condensates and/or liquid hydrocarbons accumulating in the drips, lease separators and/or lines from the respective wells to Buyer's respective meters shall belong to and be owned by Seller, and all distillates, condensates and/or liquid hydrocarbons accumulating in drips and/or lines after the same shall have passed through Buyer's meters shall belong to and be owned by Buyer. ARTICLE X FIELD OPERATIONS: Seller shall regulate the flow of gas into Buyer's pipeline at the point of delivery in the quantities and at the times desired by Buyer to meet the fluctuating condition of Buyer's market, it being understood that Buyer may from time to time find it necessary to shut off entirely the flow of gas hereunder, and that in such event Buyer shall not be liable to Seller for the resulting effect thereof. Seller shall have agents or employees available at all times to whom Buyer may verbally or otherwise make known Buyer's current requirements for gas hereunder, and on whom Seller shall impose the responsibility of feeding gas into Buyer's pipeline at the point of delivery, in the amounts and at the times requested by Buyer to meet Buyer's fluctuating market demand. Buyer shall have the right at all reasonable times to inspect Seller's wells and delivery line. In the event of an emergency or failure of Seller to regulate the deliveries of gas or to shut off the flow of gas into Buyer's pipeline system in the amounts and at the times requested by Buyer, then Buyer shall have the right to regulate the deliveries of gas or to shut off the flow of gas into Buyer's pipeline system and Buyer shall not be liable for the resulting effect thereof. Seller retains full and continuing responsibility for the care and condition of all wells located on the premises and Seller's delivery line connected to Buyer's pipeline under this contract, and Buyer does not assume nor shall it have any responsibility or obligation with respect to the care or condition of such wells or delivery line. Seller agrees to operate such wells and gathering facilities in such a manner, consistent with prudent operating standards. Seller shall have the duty of apportioning deliveries of gas hereunder between the various wells connected to Seller's delivery line, and when requested by Buyer, Seller shall furnish Buyer statements of gas produced from each well. ARTICLE XI QUANTITY: Buyer will endeavor to purchase gas from lands covered by this Contract ratably on a yearly basis with its purchases of gas under other contracts covering other lands located in the same field. Nevertheless, Buyer undertakes no obligation to purchase gas solely from Seller or solely within the district in which the premises covered hereby are located, nor to purchase at all times Seller's full quantity of gas which is available for sale; but conversely, the amount of gas which Buyer will be able to purchase and receive hereunder will vary from time to time and will depend upon operating conditions of Buyer, the amount of gas purchased by Buyer in local and other fields and procured from other sources, pipeline and plant capacities and facilities, the requirements of the customers supplied by Buyer's pipeline system and other conditions and circumstances peculiar to the industry. Tests for the purpose of determining Seller's delivery capacity by actual measurement and calculation shall be conducted at the point of delivery at the instance or request of either Seller or Buyer, at intervals of approximately six (6) months or as often as Seller and Buyer mutually agree to be necessary and both parties shall have the right to witness any test. Seller's delivery capacity at the point of delivery on each day during the period between the dates of any two consecutive tests shall be determined by the first of such tests provided such tests shall be made only after a stabilized rate of flow for a twenty-four (24) hour period has been achieved at the point of delivery from all well(s) attached to Seller's delivery line by not less than seventy-two (72) hours' flow against a stabilized pressure maintained by Buyer as a normal operating pressure at the point of delivery. In the event Seller delivers gas to Buyer from wells subject to the pricing provisions of this contract which is commingled with other gas delivered by Seller to Buyer, or commingled with any other gas at the point of delivery, Seller agrees to allocate to each well its proportionate share of production in accordance with prudent accounting and engineering principles. Seller agrees to furnish to Buyer an allocation statement in form approved by Buyer, on or before the tenth (lOth) workday of each calendar month setting out the volumes attributable to each well for the preceding calendar month. If such statement is not furnished in a timely manner, payment to Seller shall be delayed until the next scheduled payment date following at least fifteen (15) days from Buyer's receipt of such statement. Further, Seller agrees to furnish Buyer, upon Buyer's request, copies of any of Seller's filings with the appropriate jurisdictional agency and the Federal Energy Regulatory Commission and copies of all administrative or judicial determinations, if any, as to the category of gas produced by Seller's well(s). ARTICLE XII MEASUREMENT: Whenever the conditions of pressure and temperature differ from those set out herein, the volume of gas delivered shall be converted to the pressure base of 14.65 psia and temperature base of sixty degrees (60) Fahrenheit and properly corrected for deviation from the Ideal Gas Laws. In gas measurement computations Buyer may use the findings and rules of the Railroad Commission or, with respect to flowing temperature, a flowing temperature obtained by periodic tests conducted by Buyer (provided, however, that either party may at its expense properly install and operate a recording thermometer of standard make, and in this event the flowing temperature as recorded shall be used). The total heating value of the gas shall be determined by Buyer taking samples of the gas at the delivery point at least semi-annually. Seller shall have the right to witness and verify Buyer's sample. All of the gas received hereunder shall be measured by means of meter or meters of standard type, which shall be installed, operated and maintained by Buyer and placed at the aforesaid point(s) of delivery or in as close proximity thereto as practicable. Such measurement instruments shall be at all reasonable times subject to joint check, test and inspection. When any test shall show an error of more than two percent (2%) in the measurement, correction shall be made for the period during which the measurement instruments were in error, first, by using the registration of Seller's check meter, if installed and registering accurately; if no check meter is installed and registering accurately or if this period cannot be ascertained, correction shall be made for one-half (1/2) of the period elapsed since the last date of test, and this measuring instrument shall be adjusted immediately to measure accurately. Seller may at its option and expense install and operate check meter to check Buyer's meters. Such meters shall be for check purposes only and shall not be used in the measurement of gas for the purposes of this agreement except as provided above. Check meters shall be subject at all reasonable times to inspection and examination by Buyer. The installation and operation thereof shall, however, be done entirely by Seller. ARTICLE XIII PRICE: 1. For a one year period commencing January 1, 1988, Buyer shall pay Seller a contract price of $1.75 per one million British thermal units for gas well gas delivered hereunder, subject to the requirements and limitations of the following paragraphs 2 and 3. 2(a). Seller recognizes that payment of any price during the term of the Contract which is higher than the price provided under Section 109 of the Natural Gas Policy Act of 1978 (NGPA) is subject to Seller making a filing for and receiving a category determination pursuant to Section 273.202 of the NGPA as provided herein. (b). If Seller elects to file or causes to be filed an application(s) for determination of well category with the Texas Railroad Commission as to "new natural gas" under Section 102 or "new onshore production well" under Section 103 for any gas, the contract price applicable to gas will be paid for volumes of gas received after the date of the Railroad Commission's receipt of such filing. Buyer's obligation to pay any rate in excess of the Section 109 rate for gas is expressly conditioned upon Seller furnishing Buyer a copy of the filed Form F-1 and FERC-121 within thirty (30) days after "the date of Seller's filing" (as hereinafter defined) with the Railroad Commission. If Buyer does not receive a copy of Seller's filing within thirty (30) days from the date of Seller's filing with the Railroad Commission, the price increase pursuant to such filing for gas shall be effective the first day of the month in which Buyer receives notice of "the date of Seller's filing". (c). The actual "date of Seller's filing" for a gas well category determination as used herein shall be defined to mean either (1) the receipt date affixed to Seller's application by an official representative of the Railroad Commission or (2) the date of application receipt shown on Railroad Commission correspondence assigning a docket number to the subject well determination. (d). Notwithstanding anything herein contained to the contrary, Buyer shall not pay a price in excess of the maximum lawful price established by the Natural Gas Policy Act of 1978 for like vintage, character and category of gas covered hereby: however, if the price herein is deemed unlawful by any final decree or order of any judicial or administrative body asserting jurisdiction over the premises hereof, then the price payable hereunder shall he reduced to such lawful rate and Seller agrees to refund to Buyer, in a reasonable period of time, with any applicable interest, any amounts collected by Seller in excess of any such lawful rate. 3(a). Seller or Buyer may request a renegotiation of the price payable hereunder to be effective January 1, 1989 and at twelve (12) months intervals thereafter; provided, however, the price renegotiation process shall be initiated only by either party giving the other party written notice of its desire for a price renegotiation at least thirty (30) days preceding the date the renegotiated price is to become effective. (b) In the event Buyer and Seller have not reached mutual agreement pursuant to paragraph 3(a) of this Article XIII as to the price to be paid during any accounting period prior to the commencement of such accounting period then either party may terminate the Contract by providing no less than ten (10) days prior written notice to the other party; provided, however, should the parties not agree on a renegotiated price and should Seller elect to terminate the Contract, Buyer will have the right to meet any third party offer (including terms relating to take obligations) for gas which Seller is willing to accept. Should Buyer and Seller not agree on a renegotiated price and should Buyer fail to meet such third party's offer, then this Contract shall terminate at 7:00 A. M. Central Standard Time of the first day of the applicable accounting period and shall have no further force and effect, except that Buyer shall pay Seller for any gas delivered hereunder prior to such day in accordance with the Contract. ARTICLE XIV PAYMENT: As soon as practicable following the end of each calendar month during the term hereof, Buyer shall furnish the Seller with a statement of gas delivered hereunder by Seller to Buyer during Buyer's preceding calendar month; and Seller hereby directs Buyer to pay EP Operating Company 1601 Elm Street Suite 1200 Dallas, Texas 75201-9990 who is hereby designated as Seller's representative to receive such payment, on or before the 25th day of each calendar month, 100% of the proceeds for all gas delivered to Buyer hereunder during the preceding fiscal month in accordance with each such statement and to so continue such payments until Buyer has received written notice to the contrary at its Dallas, Texas office. Payment shall be deemed to be delivered to Seller when addressed to Seller's representative designated in this Article and deposited in the United States mail, postage prepaid. Seller agrees to cause proper settlement and accounting to be made to all the owners of interest in the proceeds from the sale of gas delivered to Buyer hereunder; however, Buyer shall have the right but not the obligation at all times, or from time to time, as it may choose, to make settlement and accounting to such owners and deduct the amount thereof in making payment to Seller hereunder, and, in such event, Seller agrees to refund to Buyer any overpayments so made by Buyer. In any such case, Seller agrees to furnish Buyer, at Seller's expense, a title opinion to date specified by Buyer, written by an attorney acceptable to Buyer, showing ownership of the entire leasehold interest. Buyer shall be entitled to require an executed division order before payment. Seller agrees to indemnify and hold Buyer harmless from and against all loss, cost, expense or damages that Buyer may sustain as a result of having so made payments under the provisions of this Article. In the event of any dispute, concerning the identity of Seller's representative, or in the event of the filing of any lien(s) or lawsuit(s) at any time concerning Seller's title to the leases, or any of them, or the gas produced therefrom or proceeds of the sale thereof, Buyer shall be entitled at any time to suspend payment for gas purchased by it hereunder and withhold the proceeds payable therefor, without interest, until such dispute, defect or question of title is corrected or removed to Buyer's satisfaction, or until the Seller furnishes security conditioned to save Buyer harmless in form and with sureLy satisfactory to Buyer. If any overpayment or underpayment in any form whatsoever shall be found and the bill therefore has been paid, Seller shall refund the amount of the overpayment or the Buyer shall pay the amount of the underpayment within thirty (30) days after final determination thereof. Provided, however, any party receiving proceeds under this Contract may not request any adjustment or correction of any statement or payment unless written notice of such request for adjustment or correction is furnished within two (2) years of the date of the statement or payment. ARTICLE XV TERM: Subject to the other terms and provisions hereof, this agreement shall be effective from the date hereof and shall thereafter continue and remain in full force and effect for a period and primary term of ten (10) years from the date hereof and thereafter until cancelled by Buyer or Seller by giving the other party sixty (60) days written notice of its intention to do so. ARTICLE XVI FORCE MAJEURE: In the event of either party hereto being rendered unable wholly or in part by force majeure to carry out its obligations under this agreement, it is agreed that on such party giving notice and full particulars of such force majeure in writing or by telegraph to the other party after the occurrence of the cause relied on, then the obligations of the party giving such notice, so far as they are affected by such force majeure, from its inception, shall be suspended during the continuance of any inability so caused but for no longer period, and such cause shall be as far as possible remedied with all reasonable dispatch. The term "force majeure" as employed herein shall mean acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earth quakes, fires, storms, floods, washouts, arrests and restraints of rulers and people, arrests and restraints of the Government, either federal or state, inability of any party hereto to obtain necessary materials, supplies or permits due to existing or future rules, orders and laws of governmental authorities (both federal and state), interruptions by government or court orders, present and future order of any regulatory body having proper jurisdiction, civil disturbances, explosions, sabotage, breakage or accident to machinery or lines of pipe, the necessity for making repairs or alterations to machinery or lines of pipe, freezing of wells or lines of pipe, any act or omission (including failure to take gas) of a purchaser of gas from Buyer which is excused by any event or occurrence of the character herein defined as constituting force majeure, failure of gas supply or wholesale or retail gas markets, partial or entire failure of wells, and any other causes, whether of the kind herein enumerated or other wise not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to overcome. Such term shall also include the inability to acquire, or the delays in acquiring, at reasonable cost and after the exercise of reasonable diligence, any servitudes, right-of-way grants, permits or licenses required to be obtained to enable a party hereto to fulfill its obligation hereunder. It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty, and that the above requirement of the use of diligence in restoring normal operating conditions shall not require the settlement of strikes or lockouts by acceding to the terms of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. ARTICLE XVII TAXES: Subject to the following provisions of this Article XVII, Seller agrees to pay, or cause to be paid, all taxes and assessments lawfully levied and imposed upon Seller with respect to the gas delivered hereunder prior to its delivery to Buyer. Buyer agrees to pay, or cause to be paid, all taxes and assessments lawfully levied and imposed upon Buyer with respect to the gas delivered hereunder after its receipt by Buyer. Neither party shall be responsible or liable for any taxes or other statutory charges levied or assessed against any of the facilities of the other party used for the purpose of carrying out the pro visions of this contract. Seller shall be liable for all severance and production taxes applicable to said gas prior to delivery to Buyer. Seller shall make all reports and payments with respect to gross production taxes applicable to the gas purchased under the above referenced Gas Purchase Contract, all within the time and manner required by law. Seller agrees to make such reports and payments promptly and hereby agrees to indemnify and hold Buyer harmless from all loss, cost and expense, including tax payments, penalty and interest Buyer may suffer as a result of Seller's failure to pay taxes as required by the Comptroller. Buyer may deduct from any amounts due Seller under any contract between Buyer and Seller any payments, penalty and interest which Buyer is required to pay to the Comptroller because of Seller's failure to make payments promptly and correctly. Prior to Buyer's payment for December production each year, Buyer may require Seller to furnish Buyer documentation proving Seller has paid all applicable gross production taxes for the previous calendar year. ARTICLE XVIII IN GENERAL: 1. WARRANTY: Seller hereby warrants the title to the gas delivered here under, Seller's right to sell the same and that same is free from all liens and adverse claims. 2. RIGHT-OF-WAY: Seller hereby grants to Buyer, insofar as Seller has the right to do so, the right of ingress and egress, the right to lay and maintain pipelines, telephone and telegraph lines and to install any other necessary equipment on and across any lands covered by this agreement. All lines and other equipment placed by Buyer on said lands shall remain the personal property of Buyer, and subject to the terms of this contract, may be removed by Buyer at any time. 3. INDEMNITY: As between the parties hereto, Seller shall be in control and in possession of the gas deliverable hereunder and responsible for any damages or injuries caused thereby until the same shall have been delivered to Buyer at the point of delivery, except injuries and damages which shall be occasioned solely and proximately by the negligence of Buyer. After reception of gas, Buyer shall be deemed to be in exclusive control and possession thereof and responsible for any injuries or damages caused thereby, except injuries and damages which shall be occasioned solely and proximately by the negligence of Seller. 4. WAIVER OF BREACH: The waiver of either party of any breach of any of the provisions of this agreement shall not constitute a continuing waiver of other breaches of the same or other provisions of this agreement. 5. REGULATORY BODIES: This agreement and all operations hereunder are subject to the applicable federal and state laws and the applicable orders, rules and regulations of the Railroad Commission of Texas, the Federal Energy Regulatory Commission and of any other state or federal authority having or asserting jurisdiction; but nothing contained herein shall be construed as a waiver of any right to question or contest any such law, order, rule or regulation in any forum having jurisdiction in the premises. 6. INTRASTATE: Each party warrants to the other that its (or its agents) facilities utilized for the delivery and acceptance of gas hereunder are wholly intrastate facilities and are not subject to the Natural Gas Act of 1938, as heretofore amended. As a material representation, without which both parties would not have been willing to execute this agreement, each party warrants to the other party that it will take no action or commit an act of omission which will subject its facilities, this transaction, or the other party's facilities, to jurisdiction of the Federal Energy Regulatory Commission or its successor governmental agency under the terms o the Natural Gas Act of 1938, as amended. The gas delivered and accepted hereunder shall not have been nor shall be sold, transported or otherwise utilized in interstate commerce in a manner which will subject either party to the terms of the Natural Gas Act of 1938, as amended. In addition to and without excluding any remedy the aggrieved party may have at law or in equity, the party who breached the above warranties and representations shall be liable to the aggrieved party for all damages, injury and reason able expense the aggrieved party may sustain by reason of any breach hereof. Further, should either party perform any act, or cause any act to be performed, at any time, that results in any gas covered hereunder becoming regulated by or subject to the jurisdictional consequences of the FERC or successor governmental authority contrary to this Contract, this Contract shall be deemed of its own terms to terminate on the day before the date of such occurrence; provided, however, such termination shall never be construed to impair any right arising under this paragraph. 7. NOTICES: All notices provided for herein shall be in writing and shall be deemed to be delivered to Seller when addressed to EP Operating Company 1600 Elm Street Suite 1200 Dallas, Texas 75201-9990 and deposited in the United States mail, postage prepaid, and shall be deemed to be delivered to Buyer when addressed to Lone Star Gas Company, Contract Administration Department, 301 South Harwood Street, Dallas, Texas 75201, and deposited in the United States mail, postage prepaid; or to such other single name and address as either party may by like notice give to the other party. 8. CAPTIONS: The captions or headings preceding the various parts of this agreement are inserted and included solely for convenience and shall never be considered or given any effect in construing this contract or any part of this contract or in connection with the intent, duties, obligations or liabilities of the respective parties hereto. 9. ASSIGNMENT: All the covenants, stipulations, terms, conditions and provisions of this agreement shall extend to and be binding upon the respective successors, assigns, heirs, personal representatives and representatives in bankruptcy of the parties hereto, and shall be covenants running with the land for the full term herein set forth; provided, however, that no assignment of this contract by Seller, in whole or in part, shall affect or impair the rights of Buyer nor in any case increase Buyer's obligations under this contract. Any complete or partial assignment of these premises by Seller shall contain a provision obligating Seller's assignee to recognize and perform Seller's obligations under this contract. No conveyance or transfer of any interest of Seller or the owners of any royalty, overriding royalty or production payments shall be binding upon Buyer until Buyer has been furnished with written notice thereof including such conveyance or transfer, showing marketable title in any such transfer, all to the satisfaction of the attorneys for Buyer. 10. PROCESSING RIGHTS: Liquid hydrocarbons extracted by Seller from the gas covered hereby shall be limited to that which Seller may extract by the use of conventional mechanical lease separators, but not cryogenic lean oil units or any other type of extraction facility, prior to delivery of the gas covered hereby to Buyer. Any distillates, condensates and/or liquid hydrocarbons accumulating in the drips, lease separators and/or lines from the respective wells to Buyer's respective meters shall belong to and be owned by Seller, and all distillates, condensates and/or liquid hydrocarbons accumulating in drips and/or lines after the same shall have passed through Buyer's meters shall belong and and be owned by Buyer. 11. ENTIRE AGREEMENT: This agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof and contains all of the covenants and agreements between the parties with respect to said matter. Each party to this agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this agreement shall be valid or binding. IN WITNESS WHEREOF, the parties have executed this agreement in one or more copies or counterparts, each of which, when executed by Buyer and any Seller, shall constitute and be an original effective agreement between such Buyer and Seller(s) executing same as of the date first above written, whether or not this copy or any counterpart is signed by all the parties named herein. ATTEST: EP Operating Company a Texas limited partnership BY ENSERCH EXPLORATION, INC. MANAGING GENERAL PARTNER /s/ F. W. Fraley, III By /s/ G. Marc Lyons Assistant Corporate Secretary Vice President, Market "Seller" ATTEST: LONE STAR GAS COMPANY, a Division of ENSERCH CORPORATION /s/ M. K. Chapman By /s/ W. F. Weidler, Jr. Assistant Corporate Secretary Vice President "Buyer" STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on this the 26th day of April, 1988 by G. Marc Lyons, Vice President of Enserch Exploration, Inc., Managing General Partner on behalf of EP Operating Company, a Texas limited partnership. My Commission Expires 9/21/91 /s/ Paula Clifton Notary Public State of Texas STATE OF TEXAS COUNTY OF DALLAS BEFORE ME., the undersigned authority, a Notary Public in and for the State of Texas, on this day personally appeared W. F. Weidler, Jr., Vice President of LONE STAR GAS COMPANY, a Division of ENSERCH CORPORATION, a Texas corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 5th day of July, A.D. 1988. Commission Expires: May 27, 1990 /s/ Nancy J. Taylor Notary Public In and For the State of Texas LS-T-GP#6477 AMENDMENT OF GAS PURCHASE CONTRACT THIS AMENDATORY AGREEMENT, made and entered into on this 1st day of June, 1990, by and between EP Operating Company, hereinafter referred to as "Seller", and LONE STAR GAS COMPANY, a Division of Enserch Corporation, a Texas corporation, hereinafter referred to as "Buyer", WITNESSETH: WHEREAS, EP Operating Company, (Seller), and Lone Star Gas Company, a Division of Enserch Corporation, a Texas corporation (Buyer), made and entered into a Gas Purchase Contract (Subject Contract) dated January 1, 1988 as amended, providing for the sale and purchase of gas from certain lands and leases in Gregg County, Texas, to which contract, reference is hereby made for all purposes; and WHEREAS, Buyer and Seller had not mutually agreed to a price to be paid under the Subject Contract for the accounting period beginning January 1, 1990 and therefore, by letter dated December 21, 1989, Seller advised Buyer of its election to terminate the Subject Contract effective January 1, 1990; and WHEREAS, Buyer and Seller desire to reinstate the Subject Contract effective June 1, 1990 and to make certain modifications, changes, amendments and supplements thereto. NOW THEREFORE, for and in consideration of the sum of One Dollar ($1.00) to each in hand paid by the other party hereto, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and agreements herein contained, Seller and Buyer do hereby contract and agree, as follows: I. Effective June 1, 1990 paragraph (2) of Article I entitled DEFINITIONS, shall be deleted in its entirety. II. Effective June 1, 1990, in paragraph (5) of Article I entitled DEFINITIONS, the dates "January 1, 1988" and "January 1" shall be deleted and the dates "June 1, 1990" and "June 1" substituted therefore. III. Effective June 1, 1990 Article II entitled PROPERTIES COVERED shall be deleted in its entirety and the following substituted therefore: "Article II PROPERTIES COVERED Seller covenants and represents that Seller owns or has the right to market gas from various sources within the state of Texas under Seller's existing agreements. Such gas production will be made available to Buyer under the terms and provisions of this Contract at the point(s) of delivery hereunder." IV. Effective June 1, 1990, Article III entitled SUBJECT MATTER shall be deleted in its entirety and the following substituted therefore: "ARTICLE III SUBJECT MATTER: Subject to the terms and provisions herein set out Seller hereby agrees to sell and deliver to Buyer at the point(s) of delivery herein provided for, and Buyer hereby agrees to purchase and receive at such point(s) of delivery legally produced gas of whatsoever kind or character as produced (including all hydrocarbons therein contained), collectively hereinafter referred to as the subject matter hereof, in accordance with the terms and conditions herein stipulated." V. Effective June 1, 1990, Article IV entitled RESERVATIONS BY SELLER shall be deleted in its entirety. VI. Effective June 1, 1990, Article VI entitled PIPELINE CONNECTION shall be deleted in its entirety and the following substituted therefor: "ARTICLE VI PIPELINE CONNECTION: The parties hereto recognize that as of June 1, 1990, all facilities required in order to enable Seller to deliver and Buyer to receive gas from Seller at the point(s) of delivery hereunder are already constructed and in operation. The parties hereto agree that Seller shall complete or cause to be completed delivery lines which will be used by Seller to gather the gas covered by this Contract after June 1, 1990, and deliver said gas to Buyer at the point or points of delivery, as provided for hereunder. If it is or becomes unprofitable to Buyer for it to do so, Buyer shall neither be required to connect nor continue connection with Seller's delivery line, nor to continue operation or maintenance of its pipeline in the field in which said delivery line is located." VII. Effective June 1, 1990, Article VII entitled DELIVERY POINT shall he deleted in its entirety and the following substituted therefore: "ARTICLE VII DELIVERY POINT: The Point(s) of Delivery for all gas delivered hereunder shall be at mutual]y agreeable points on Lone Star Gas Company's pipeline within the State of Texas. Title to all gas delivered hereunder shall pass from Seller to Buyer at said Point(s) of Delivery." VIII. Effective June 1, 1990, Article IX entitled EQUIPMENT shall be deleted in its entirety and the following substituted therefore: "ARTICLE IX EQUIPMENT: Seller agrees to furnish, install and maintain such equipment as may be necessary for the proper, safe and efficient operation and maintenance of Seller's delivery line and to enable it to make delivery of gas as provided herein. Such equipment shall include the valves and fittings necessary to permit Buyer to make its connections at the point(s) of delivery and to regulate the deliveries from Seller's delivery line according to Buyer's requirements, including chokes and other equipment that may be necessary to prevent freezing during the varying deliveries from Seller's delivery line. Seller shall also furnish, install and maintain such drips, separators, and other devices as may be necessary to prevent the admission of any objectionable liquids or solids into the pipeline of Buyer. Such drips, separators, delivery line and other devises shall be constructed with a working pressure rating at least equal to the working pressure at which it Is contemplated hereunder they will operate and they shall be equipped with suitable safety devices such as explosion heads to protect against excessive pressure. Any distillates, condensates and/or liquid hydrocarbons accumulating in the drips, lease separators and/or lines of Seller prior to delivery hereunder shall belong to and be owned by Seller, and all distillates, condensates and/or liquid hydrocarbons accumulating in drips and/or lines after the same shall have passed through Buyer's meters shall belong to and be owned by Buyer." IX. Effective June 1, 1990, Article X entitled FIELD OPERATIONS shall be amended by deleting the word or words as shown below: (A) The words "wells and" located on the seventh line of the first paragraph on page 11 shall be deleted. (B) The words "all wells located on the premises and" located on the second line of the second paragraph shall be deleted. (C) The words "wells or" located on the fifth line of the second paragraph shall be deleted. (D) The words "wells and" also located on the fifth line of the second paragraph shall be deleted. (E) The entire last sentence of the second paragraph, such sentence beginning with the word "Seller" and ending with the word "well" shall be deleted in its entirety. X. Effective June 1, 1990, Article XI entitled QUANTITY shall be deleted in its entirety and the following substituted therefore: "ARTICLE XI QUANTITY: Buyer undertakes no obligation to purchase gas solely from Seller or solely within the district in which the premises covered hereby are located, nor to purchase at all times Seller' s full quantity of gas which is available for sale; but conversely, the amount of gas which Buyer will be able to purchase and receive hereunder will vary from time to time and will be dependent upon: operating conditions of Buyer, the amount of gas purchased by Buyer in local and other fields and procured from other sources, pipeline and plant capacities and facilities, laws and regulations governing gas production and purchases, the requirements of the customers supplied by Buyer's pipeline system, and other conditions and circumstances peculiar to the industry. This is not a take-or-pay contract; however, Buyer agrees, subject to the terms and provisions of this contract to purchase from Seller, if available for delivery hereunder in accordance with the terms and provisions hereof, during each annual period of the terms hereof, a quantity of 5475 MMCF at the point(s) of delivery or pay Seller a higher price in accordance with the terms hereof. Buyer shall have the right, but not the obligation to purchase up to fifty million cubic feet (50 MMCF) of gas per day. Buyer's purchase obligation under and pursuant to this contract is subject to Seller's delivery capacity and ability to deliver gas in accordance with the terms of this contract and with state and federal laws and in compliance with the rules and regulations of the Texas Railroad Commission or such other regulatory body as may have jurisdiction thereof. Tests for the purpose of determining Seller's delivery capacity by actual measurement and calculation shall be conducted, at the instance or request of either Seller or Buyer, at intervals of approximately six (6) months or as often as either Seller or Buyer may deem necessary, and Seller's delivery capacity on each day during the period between the dates of any two consecutive tests shall be determined by the first of such tests provided that such tests shall be made only after a stabilized rate of flow for a twenty-four (24) hour period has been achieved by not less than seventy-two (72) hours' flow against a stabilized pressure maintained by Buyer as a normal operating pressure at the point(s) of delivery. In the event Buyer should fail to purchase under this contract during any annual period of the term hereof a quantity of gas equal to or greater that 5475 MMCF subject to and pursuant to the provisions of this contract, then Seller shall within three (3) months following the end of such period notify Buyer regarding Buyer's failure to purchase its obligation of gas under this contract, accompanying such notice with an itemized statement giving full information with respect to such deficiency and Buyer shall then pay Seller an additional amount for gas actually taken; such amount to equal the product of (i) the volumes expressed in MMBTU identified as Buyer's deficiency for such annual period, multiplied by (ii) ten percent (10%) of the MMBTU discount price in effect under the contract during the annual period in which such deficiency occurred (additional price); provided, however, that the accuracy of Seller's invoice is subject to verification by Buyer. Seller's failure to timely submit such invoice to Buyer shall constitute a waiver by Seller of such additional price. For purposes of this Agreement, Buyer shall receive credit for all volumes reflected on Buyer's written dispatch orders, and should Buyer's written dispatch orders equal at least the Contract Volume (5475 MMCF) on an annual basis, then Buyer shall have been deemed to have purchased its minimum obligation hereunder at the discount price". In the event Buyer fails to order any gas under this contract during any annual period, then Buyer shall pay Seller a standby charge equal to 5475 MMCF multiplied by ten percent (10%) of the MMBTU discount price in effect under the contract during the annual period in which Buyer failed to order any gas, such amount in lieu of any damage Seller may suffer as a result of such failure by Buyer to order any gas hereunder. Seller's failure to submit a timely invoice shall constitute a waiver of such standby charge. XI. Effective June 1, 1990, Article XIV entitled PRICE shall be deleted in its entirety and the following substituted therefor: "ARTICLE XIII PRICE: 1. For the period commencing June 1, 1990 and extending through May 31, 1991, Buyer shall pay Seller and Seller agrees to accept a discount price of $2.75 per one million British thermal units for gas delivered hereunder. 2. (a) Effective June 1, 1991, Buyer agrees to pay Seller and Seller agrees to accept from Buyer a discount price of $2.75 per MMBTU; such $2.75 per MMBTU price to be adjusted by multiplying such price by a factor "A" (see below for determination of factor "A"). On the first day of each subsequent June thereafter during the term hereof the discount price shall be adjusted to be the price resulting by multiplying the discount price in effect immediately prior to such date by a factor "A", where: (the average of Buyer's monthly WACOG for the twelve (12) months ("the Last Twelve Months") commencing fourteen (14) months prior to the effective date of the price adjustment and continuing through the last day of the month which is two (2) months prior to the effective date of the price adjustment) A= ------------------------------------------------------- (the average of Buyer's monthly WACOG for the twelve (12) months (the "Preceding Twelve Months") immediately preceding the Last Twelve Months) The parties hereto agree, however, that the price payable hereunder during any accounting period shall not be less than $2.75 per MMBTU. For purposes of calculating the factor "A", the term "Buyer's monthly WACOG" shall mean the unit cost of gas reflected on Line 1 of Schedule B of the Statement of Gas Cost Adjustment and City Gate Rate for the month in question prepared by Buyer in accordance with the Order of the Texas Railroad Commission in Docket No. GUD-3543 dated November 22, 1982, as filed with the Gas Utilities Division of such Commission; or any similarly calculated monthly unit cost of gas if said Order is no longer in effect or such filing pursuant thereto is no longer required by such Commission. (b) Notwithstanding anything herein contained to the contrary, Buyer shall not pay a price in excess of the applicable maximum lawful price, if any, established by the Natural Gas Policy Act of 1978 for gas covered hereby; however, if the price herein is deemed unlawful by any final decree or order of any judicial or administrative body asserting jurisdiction over the premises hereof, then the price payable hereunder shall be reduced to such lawful rate and Seller agrees to refund to Buyer, with any applicable interest, any amount collected by Seller in excess of any such lawful rate." 3. The price payable hereunder shall be inclusive of taxes. XII. Effective June 1, 1990, Article XV entitled TERM shall be deleted in its entirety and the following substituted therefor: "ARTICLE XV TERM: Subject to the other terms and provisions hereof, this agreement shall be effective June 1, 1990 and shall thereafter continue and remain in full force and effect for a period and primary term of five (5) years; provided, however, either party may cancel at the end of any year by giving the other party written notice of its intention to do 60, at least sixty (60) days prior to the beginning of a new annual period (60 days prior to June 1)." XIII. Effective June 1, 1990, Exhibits "A" and "B" shall be deleted in their entirety. XIV. As hereby amended, the Subject Contract is reinstated effective June 1, 1990 and shall remain in full force and effect. The terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto, their heirs, representative, successors and assigns. IN WITNESS WHEREOF, this Amendment of Gas Purchase Contract has been executed in duplicate originals as of the day and year first herein written. BUYER: SELLER: Agreed to and Accepted this Agreed to and Accepted this 27th day of March, 1991 6th day of March, `991 LONE STAR GAS COMPANY EP OPERATING COMPANY, a limited Partnership, by ENSERCH EXPLORATION, INC., Managing General Partner By: /s/ W. F. Weidler, Jr. By: /s/ Gary J. Junco Printed Name: W. F. Weidler, Jr. Printed Name: Gary J. Junco Title: Vice President Title: President STATE OF TEXAS COUNTY OF DALLAS This instrument was acknowledged before me on the 6th day of March, 1991, by Gary J. Junco, President of EP OPERATING COMPANY, a limited Partnership, by ENSERCH EXPLORATION, INC., Managing General Partner, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said corporation. /s/ Phyllis Fowler-Pace Notary Public in and for the Commission Expires: State of Texas May 3, 1994 My commission expires: 5/3/94 Printed Name: Phyllis Fowler-Pace STATE OF TEXAS COUNTY OF DALLAS This instrument was acknowledged before me on the 27th day of March, 1991, by W. F. Weidler, Jr., Vice President of LONE STAR COMPANY, a Texas corporation, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said corporation. /s/ Nancy Taylor Notary Public in and for Commission Expires: the State of Texas May 27, 1994 LS-T-GP#6477 EEI-GS#00788 AMENDMENT OF GAS PURCHASE CONTRACT THIS AMENDATORY AGREEMENT, made and entered into to be effective the 1st day of July 1992, by and between EP OPERATING COMPANY, a Texas limited partnership, hereinafter referred to as "Seller", and LONE STAR GAS COMPANY, a Division of ENSERCH Corporation, a Texas corporation, hereinafter referred to as "Buyer", WITNESSETH: WHEREAS, Seller and Buyer made and entered into a Gas Purchase Contract (Subject Contract) dated January 1, 1988, as amended, reference to which is hereby made for all purposes; and WHEREAS, Buyer and Seller desire to further amend the Subject contract effective July 1, 1992 making certain modifications thereto. NOW THEREFORE, for and in consideration of the sum of One Dollar ($1.00) to each in hand paid by the other party hereto, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and agreements herein contained, Seller and Buyer do hereby contract and agree, as follows: I. Effective July 1, 1992, Article II entitled PROPERTIES COVERED, shall be deleted in its entirety and the following substituted therefor: "ARTICLE II PROPERTIES COVERED Seller covenants and represents that Seller owns Intrastate Gas Reserves underlying certain lands and leaseholds within the state of Texas and that such gas production will be made available to Buyer under the terms and provisions of this Contract at the point(s) of delivery hereunder." II. Effective July 1, 1992, Article XI entitled QUANTITY shall be deleted in its entirety and the following substituted therefore: "ARTICLE XI QUANTITY: Buyer undertakes no obligation to purchase gas solely from Seller or solely within the district in which the premises covered hereby are located, nor to purchase at all times Seller's full quantity of gas which is available for sale: but conversely, the amount of gas which Buyer will be able to purchase and receive hereunder will vary from time to time and will be in Buyers sole discretion. This is not a take-or-pay contract; however, Buyer agrees, subject to the terms and provisions of this Contract to purchase from Seller, if available for delivery hereunder in accordance with the terms and provisions hereof, during each annual period (July 1 thru June 30 of each calendar year) of the term hereof, a quantity of 9.75 BCF. Buyer shall have the right, but not the obligation to purchase up to eighty million cubic feet (80 MMcf) of gas per day; provided, however, the maximum quantity of gas which Seller is obligated to deliver during each annual period shall be one hundred fifty percent (150%) of the minimum quantity for such annual period as provided above. Buyer's purchase rights under and pursuant to this contract is subject to Seller's delivery capacity and ability to deliver gas in accordance with the terms of this contract and with state and federal laws and in compliance with the rules and regulations of the Texas Railroad Commission or such other regulatory body as may have jurisdiction thereof. III. Effective July 1, 1992, Article XIII entitled PRICE shall be deleted in its entirety and the following substituted therefor: "ARTICLE XIII PRICE: 1. For all of Seller's gas delivered to Buyer at the point(s) of delivery and purchased hereunder during each annual period during the term hereof, Buyer agrees to pay Seller and Seller agrees to accept the price(s) as shown hereunder:
ANNUAL PERIOD PRICE $(MMBTU) July 1, 1992 - June 30, 1993 $2.150 July 1, 1993 - June 30, 1994 $2.375 July 1, 1994 - June 30, 1995 $2.500 July 1, 1995 - June 30, 1996 $2.625 July 1, 1996 - June 30, 1997 $2.750
2. Notwithstanding anything herein contained to the contrary, Buyer shall not pay a price in excess of the applicable maximum lawful price, if any, established by the Natural Gas Policy Act of 1978 for gas covered hereby: however, if any portion of the price herein is deemed unlawful or is not approved for inclusion in Buyer's cost of purchased gas used in the calculation of Buyer's city gate rate as approved by the Texas Railroad Commission (the "Cost of Purchased Gas"), or by any final decree or order of any judicial or administrative body, then the price payable hereunder shall be reduced to such lawful rate or to the price which is approved by the Texas Railroad Commission for inclusion in the Cost of Purchased Gas. Seller agrees to refund to Buyer, with applicable interest, any amount collected by Seller in excess of the lower of (i) such lawful rate or (ii) that portion of such price which is approved by the Texas Railroad Commission for inclusion in the Cost of Purchased Gas. Should such a price reduction event occur then Seller shall have the option to be exercised within thirty (30) days following notification of such event to cancel this contract by giving Buyer sixty (60) days prior written notice of its intention to do so. 3. The price payable hereunder shall be inclusive of taxes." IV. Effective July 1, 1992, Article XV entitled TERM shall deleted in its entirety and the following substituted therefor: "ARTICLE XV TERM: Subject to the other terms and provisions hereof, this agreement shall be effective January 1, 1988 and shall extend and continue and remain in full force and effect for a period and primary term through June 30, 1997." V. As hereby amended, the Subject Contract shall remain in full force and effect. The terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto, their heirs, representative, successors and assigns. IN WITNESS WHEREOF, this Amendment of Gas Purchase Contract has been executed in duplicate originals as of the day and year first herein written. BUYER: SELLER: Agreed to and Accepted this Agreed to and Accepted this 23rd day of April, 1992. 24th day of April, 1992. LONE STAR GAS COMPANY, a Division EP OPERATING COMPANY, a of ENSERCH Corporation Texas limited partnership, by ENSERCH EXPLORATION, INC., Managing General Partner By /s/ G. R. Bryan By /s/ Jeffrey B. Camp Senior Vice President Senior Vice President STATE OF TEXAS COUNTY OF DALLAS BEFORE ME, the undersigned authority, a Notary Public in and for said State of Texas, on this day personally appeared JEFFREY B. CAMP, Senior Vice President, of ENSERCH EXPLORATION, INC., Managing General Partner of EP OPERATING COMPANY, a Texas limited partnership, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said partnership. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 24th day of April, A.D. 1992. /s/ Tammy Sue Anderson Commission Expires: Notary Public in and for June 11, 1993 the State of Texas STATE OF TEXAS COUNTY OF DALLAS BEFORE ME, the undersigned authority, a Notary Public in and for the State of Texas, on this day personally appeared G. R. BRYAN, Senior Vice President, of LONE STAR GAS COMPANY, a Division of ENSERCH Corporation, a Texas corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 24th day of April, A.D. 1992. /s/ Tammy Sue Anderson Commission Expires: Notary Public in and for June 11, 1993 the State of Texas ENSERCH EXPLORATION,INC. 1817 Wood Street Diane M. Fitch Dallas, Texas 75201-5699 Director 214-748-1110 Crude Oil Marketing Fax: 214-670-1549 and Contract Administration Mailing Address: P. 0. Box 2649 Dallas, Texas 75221-2649 August 30, 1993 Lone Star Gas Company 301 S. Harwood Street Dallas, Texas 75201 Attention: Mr. R. A. Boemer Re: Gas Purchase Contract Amendment Various Sources State of Texas LS-T-GP-#6477 EEI-GS-00788 Gentlemen: EP Operating Limited Partnership ("Seller") and Lone Star Gas Company ("Buyer") are parties to that certain Gas Purchase Contract dated January 1, 1988 (Contract) as further referred above. In Amendments to the Contract dated June 1, 1990, April 1, 1991, and July 1, 1992, Article XIII Price was replaced with an entirely new Article XIII which included the following paragraph 3: "3. The price payable hereunder shall be inclusive of taxes." Whereas, the parties intended and desire to clarify that the value of severance, production or similar tax levied, assessed or fixed in respect of or applicable to the sale of gas and imposed prior to the delivery of gas by Seller to Buyer, for which Seller is liable during any month, ("Taxes") is and has been included in the price provided for in the Contract beginning June 1, 1990; and Whereas, it is the mutual desire of both Buyer and Seller to further modify the Contract. Now Therefore, for and in consideration of the mutual covenants and agreements contained herein, the adequacy and sufficiency of which are hereby acknowledged, Seller and Buyer do hereby agree to clarify and further modify the contract as follows: 1. Effective June 1, 1990, Paragraph 3. Article XIII Price is hereby deleted in its entirety and the following substituted in place and in lieu thereof: "3. Buyer and Seller acknowledge that the price paid hereunder includes, as part of that price reimbursement for severance, production, gathering or similar taxes. Such taxes currently amount to seven and one-half percent (7-l/2 %) of the purchase price. " 2. Effective June 1, 1993, Paragraph 4, Article V Quality and Pressure is hereby deleted in its entirety and the following substituted in place and in lieu thereof: "4. The gas delivered hereunder shall have a total heating value of not less than nine hundred fifty (950) British Thermal Units (BTU) nor more than one thousand one hundred (1,100) BTU per cubic foot under the conditions of measurement contained herein; provided however, for gas transported through systems designated by Buyer as a gathering system the heat content of the gas shall not be less than one thousand (1,000) British Thermal Units per cubic foot (there shall not be a maximum heat content for gas transported through a gathering system). " 3. Effective June 1, 1993, Paragraph 9. Article XVIII Assignment is hereby deleted in its entirety and the following substituted in place and in lieu thereof: "9. ASSIGNMENT: All the covenants, stipulations, terms, conditions and provisions of this Contract shall extend to and be binding upon the parties hereto and their respective successors, assigns, heirs, personal representatives and representatives in bankruptcy. Neither party shall assign this Contract without the prior written consent of the non-assigning party, which consent shall not be unreasonably withheld. No assignment of this Contract, in whole or in part, shall affect or impair the rights of the non-assigning party nor in any case increase the non-assigning party's obligations under this Contract. Any complete or partial assignment of this Contract by either party shall contain a provision obligating the assignee to recognize and perform the assigning party's obligations under this Contract. No conveyance or transfer of any interest of Seller shall be binding upon Buyer until Buyer has been furnished with written notice thereof including a true copy of such conveyance or transfer or with other proof that the claimant is legally entitled to such interest, all to the satisfaction of Buyer's attorneys." The Contract, as amended, shall remain in full force and effect for the remainder of the term set forth therein. The terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto, their representatives, successors and assigns. Please acknowledge your agreement by signing both copies of this Letter Agreement in the space provided below and by returning one fully executed document. Yours very truly, SELLER EP OPERATING LIMITED PARTNERSHIP, BY ENSERCH EXPLORATION, INC. Managing General Partner /s/ Gary J. Junco Gary J. Junco President Agreed To and Accepted This 7th day of September 1993. Agreed To and Accepted This 28th day of October, 1993. BUYER Lone Star Gas Company By: /s/ W. F. Weidler, Jr. W. F. Weidler, Jr. Vice President STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a Notary Public in and for the State of Texas, on this day personally appeared Gary J. Junco, President, of ENSERCH EXPLORATION, INC., Managing General Partner of EP OPERATING LIMITED PARTNERSHIP, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said partnership. GIVEN UNDER MY HAND AND SEAL OF OFFICE, on this 8th day of September, 1993. /s/ Tammy Sue Anderson Commission Expires: Notary Public in and for the June 11, 1997 State of Texas Print Name: Tammy Sue Anderson My Commission Expires: 6/11/97 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a Notary Public in and for the State of Texas, on this day personally appeared W. F. Weidler, Jr., Vice President of LONE STAR GAS COMPANY, a division of ENSERCH Corporation, a Texas corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said partnership. GIVEN UNDER MY HAND AND SEAL OF OFFICE, on this 8th day of September, 1993. /s/ Dorothy L. Wagner Commission Expires: Notary Public in and for the May 12, 1997 State of Texas Print Name: Dorothy L. Wagner My Commission Expires: May 12, 1997 EX-10 3 EXHIBIT 10.7 ENSERCH EXPLORATION, INC. PERFORMANCE INCENTIVE PLAN CALENDAR YEAR 1995 I. Purposes The purposes of the Enserch Exploration, Inc. Performance Incentive Plan (the "Plan") are to: A. Encourage and reward improved performances by the segment. B. Provide reward incentives for the achievement of specific performance goals or objectives that may be periodically established. C. Provide an appropriate level of executive compensation commensurate with that of similar businesses. D. Provide an incentive for key management personnel to perform in a manner that ultimately benefits the Corporation's shareholders and the Company's customers. II. Eligibility Key managers as specifically designated shall be eligible for participation in the Plan. Participation in the Plan shall occur upon the recommendation of the Chairman of Enserch Exploration, Inc. and approval of the Compensation Committee of Enserch Exploration, Inc. The existence of this Plan does not prevent the existence of other bonus plans. However, Participants in this Plan may not participate in any other cash bonus or incentive plans or programs offered by ENSERCH, or any of its subsidiaries or affiliates, other than compensation and incentive plans made generally available to all executives of Enserch Exploration, Inc. The Compensation Committee of Enserch Exploration, Inc. may also award special bonuses on a discretionary basis to reward meritorious performance not compensated by this Plan. III. Definitions and Bonus Factors Subject to the conditions and limitations described herein, bonus award payments may be made to the Participants under the Plan as hereinafter set out. For purposes of the Plan, the following definitions apply: A. Participant Each of the key management personnel of the business segment recommended for participation by the Chairman of Enserch Exploration, Inc. and approved by the Compensa- tion Committee of Enserch Exploration, Inc. is a Partici- pant. Each Participant will be individually notified of his or her participation together with the applicable factors approved for the determination of each individual bonus opportunity. B. Base Salary The annual Base Salary designated for the Participant is that contained in the applicable payroll records and earned by the Participant, exclusive of any payment under any bonus plan, deferred compensation, salary deferral plan, expense reimbursement or fringe benefit, for the annual period covered by the bonus award. C. Target Bonus Factor A specified percentage of the Participant's Base Salary which would be the bonus payable to a Participant upon 100% goal achievement. The Target Bonus Factor applied to Base Salary is the Target Bonus. D. Performance Goals Expressed, measurable goals established as the basis for bonus awards for the annual bonus period, each having a corresponding weighting factor expressed as a percentage. No more than five Performance Goals will be used for any annual period. The weighting factors for all Performance Goals for an annual period aggregate 100%. E. Goal Achievement Factor A percentage representing the level of actual achievement of each Performance Goal, calculated at the end of each Plan year (calendar year). F. Performance Factor The sum of the individual weightings multiplied by the corresponding Goal Achievement Factor which is applied to the Target Bonus to derive the bonus. G. Bonus Calculation In summary: Target Bonus = Base Salary x Target Factor Bonus = Target Bonus Factor x Performance Factor Performance Factor = Weighting1 x Goal Achievement Factor1 + Weighting2 x Goal Achievement Factor2 + Weighting3 x Goal Achievement Factor3 + Weighting4 x Goal Achievement Factor4 + Weighting5 x Goal Achievement Factor5 The minimum bonus shall be zero. IV. Bonus Payments A. A Participant's bonus will be paid in cash to a Partici- pant as follows, provided the Participant continues to be eligible under the terms of the Plan. One-half of the bonus will be paid in cash, in a single lump sum, less applicable withholding taxes, as soon as practicable after the end of the calendar year to which the bonus relates, but in any event, not later than April 1 of the following year. The remaining one-half of the bonus will be divided into two equal payments, each in cash, less applicable withholding taxes, and paid not later than April 1 of each of the two years immediately following the year of the payment of the current award, provided the Participant remains eligible for payments. B. To be eligible for receipt of each payment of the bonus, a Participant must continue to be employed by the Company at the time each payment is to be paid, unless that Participant's employment terminates by reason of retire- ment, death or disability, or as described in D below. Participants who terminate their employment voluntarily or who are terminated by the Company, other than under circumstances described below, will not be eligible to receive any portion of any bonus award which has been granted for prior years but unpaid as of the date of termination. C. All bonus payments credited to a Participant under this Plan during his or her active employment shall be paid under the terms of the Plan to any Participant who retires at age 60 or above in accordance with his/her employer's approved retirement plan, or to any Partici- pant who becomes disabled and receives disability benefits in accordance with its long-term disability plan. In the event of a Participant's retirement at or above age 60 or death during a Plan year, assuming employee has worked for at least one-half of the Plan Year, to the extent practicable, any bonus awarded for achievement of goals to which the Participant contributed shall be prorated and the appropriate portion paid. A decision by the Chairman of Enserch Exploration, Inc. as to what may be an appropriate portion shall be final and binding on all parties. In the event of a Participant's death, all bonus awards resulting from a partial award for a prorated portion of the Plan Year or those which have been credited to such Participant prior to the date of death but remain unpaid and which would otherwise have been received will be paid to the designated beneficiary or, if no beneficiary is designated, to the employee's estate, in one lump sum as soon as practicable, but no later than six months following the death of the employee. In the event a Participant's employment terminates for any reason other than retirement, disability or death, or as described in D below, prior to the time a bonus payment is paid, no bonus shall be payable for either a portion of or for a full Plan year, or for any unpaid bonus awards credited in prior years. D. In the event that Enserch Exploration, Inc. shall, pursuant to action by its Board, at any time propose to merge into, consolidate with, or sell or otherwise transfer all or substantially all of the assets of the segment to another corporation, in which Enserch Explora- tion, Inc. would be in a minority position, all bonus awards which have been granted but remain unpaid, and a bonus award based on a 100% performance factor the Plan Year in which such action occurs, shall be immediately paid to Participant and the Participant shall not be required to be employed by the Corporation in order to receive the payment. V. Establishment of Performance Goals Performance Goals will be established annually by the Presi- dent of Enserch Exploration, Inc. after receiving requisite approval, with one to five certain expressed, specific, objective and measurable goals in such Plan defined as the Performance Goals for which bonus will be paid if achieved. A minimum of 50% of the weighting will be applied to the attainment of operating income goal achievement. VI. Operating Income Goal Achievement The Goal Achievement Factor pertaining to achievement of operating income goals is standardized as follows: If Operating Income Ratio is: Operating Income Goal Achievement Factor will be: less than 0.90 0% minus 0.5% for each 0.01 less than 0.90 between 0.90 and 1.00 20% plus 8% for each 0.01 greater than 0.90 above 1.00 100% plus 1% for each $1 million greater than budgeted operating income, as adjusted, up to a maximum of 150% Achievement Factors will be prorated between the amounts nearest percentages specified above. The following definitions apply: Operating Income Ratio The ratio of the applicable business unit's actual operating income for the Plan year to the budgeted operating income, which budgeted operating income is adjusted to take into account the effects of product price and severance tax variations when applicable. The accrual of expense for this Plan will be included as expense deducted for the determina- tion of actual operating income. Price Adjustment A factor used to adjust budgeted operating income such that the Participant will not benefit from or be penalized by oil, gas and NGL price fluctuations when measuring the attainment of budgeted operating income for the particular unit or for the Company. In summary: Operating Income Ratio = (Actual Operating Income)/(Budgeted Operating Income + Price Adjustment) Price Adjustment = (Actual Average Oil Price - Budgeted Oil Price) x Budgeted Net Interest Oil Sales Volume + (Actual Average Gas Price - Bud- geted Gas Price) x Budgeted Net Interest Gas Sales Volume + (Budgeted Severance Taxes - Actual Severance Taxes) VII. Reserve Addition Goal For the purposes of defining Performance Goals related to reserve additions, the following definitions and provisions apply. A. Finding Cost The cost of reserve additions utilizing the Company's methodologies, statistics, reserve values, and accounting and other data as calculated in the Company's sole judgment. B. Reserve Additions Reserve additions or reductions shall be based upon the estimates of DeGolyer and MacNaughton submitted in the final report for a calendar year. No adjustments will be made in future years for revisions or adjustments made in these estimates in subsequent years' reports. VIII. Conflict of Interest If at any time during the period the Participant is to receive or accrue payments hereunder, the Participant engages in the employment, consultation or representation of any corporation, partnership, individual, political subdivision, or any enterprise that is engaged in any action or proceeding that could be reasonably construed as being adverse to the interest of the Company, the Participant and his beneficiaries or heirs shall forfeit all rights to receive payments of bonus awards provided under this Plan regardless of whether or not such payments had been previously approved by the Company; except that before any such termination under this section of the Participant's right to receive payments, the Company shall notify the Participant in writing of its opinion about the adversary situation, after which time the Participant shall have a period of 15 days to correct the situation to the satisfaction of the Company as to preclude benefit termina- tion. This provision shall apply to full-time and part-time employ- ees of the Company and to retired or terminated employees. For purposes of this Plan, the Company shall determine within its sole discretion whether or not the Participant's actions can be reasonably construed as adverse to the Company's interests. IX. Administrative Provisions A. Discretion Notwithstanding any calculation of bonus in accordance with the foregoing provisions, the Chairman of Enserch Exploration, Inc. may within his sole discretion alter or eliminate any bonus award developed under this Plan in order to achieve equity in the administration of the Plan within Enserch Exploration, Inc. as a whole. B. Termination This Plan may be terminated at any time by the Company. Notification of termination will be given to the then Participants. A Plan termination will not prevent payment of bonuses where goal achievement has been completed in a calendar year for which Performance Goals had been approved. If the Plan is terminated during a Plan year in which Performance Goals have been estab- lished under the Plan, performance will be prorated and bonuses paid proportionally. The Company's decision relative to such payment shall be final and binding on all parties. Such termination will be applicable to new bonus awards and will not affect credited but unpaid bonus amounts from prior bonus years. C. Effective Date This Plan is effective with the calendar year commencing January 1, 1995 and for the ensuing calendar years until terminated. D. No Contract Nothing in this Performance Incentive Plan shall be deemed by implication, action or otherwise to constitute a contract of employment or otherwise to impose any limitation on any right of the Corporation nor any of its operating units to terminate a Participant's employment at any time. E. Under provisions of the ENSERCH Retirement and Death Benefit Program of 1969, this bonus program qualifies as an "annual performance based incentive plan" and is to be included in "final average pay" for purposes of pension calculations. EX-10 4 EXHIBIT 10.8 ENSERCH CORPORATION DEFERRED COMPENSATION PLAN THIS PLAN, made and executed at Dallas, Texas by ENSERCH Corporation, a Texas corporation (the "Company"), is being established primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Company and its participating affiliates. ARTICLE I. DEFINITIONS Section 1.1 Definitions. Unless the context clearly indicates otherwise, when used in this Plan: (a) "Adjustment Date" means the last day of each calendar quarter and such other dates as the Administrative Committee in its discretion may prescribe. (b) "Affiliated Company" means any corporation or organization which together with the Company would be treated as a single employer under Section 414 of the Code. (c) "Administrative Committee" means the committee designated pursuant to Section 2.1 to administer this Plan. (d) "Board" means the Board of Directors of ENSERCH Corporation. (e) "Change of Control" means a change in control of a nature that would be required to be reported in response to Item 1(a) of the Securities and Exchange Commission Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), or would have been required to be so reported but for the fact that such event had been "previously reported" as that term is defined Rule 12b-2 of Regulation 12B under the Exchange Act; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities ordinarily (apart from rights accruing under special circumstances) having the right to vote at elections of directors ("Voting Securities"), or (ii) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (ii), considered as though such person were a member of the Incumbent Board, or (iii) a recapitalization of the Company occurs which results in either a decrease by 33% or more in the aggregate percentage ownership of Voting Securities held by Independent Shareholders (on a primary basis or on a fully diluted basis after giving effect to the exercise of stock options and warrants) or an increase in the aggregate percentage ownership of Voting Securities held by non-Independent Shareholders (on a primary basis or on a fully diluted basis after giving effect to the exercise of stock options and warrants) to greater than 50%. For purposes of this subsection (e), the term "Person" shall mean and include any individual, corporation, partnership, group, association or other "person", as such term is used in Section 14(d) of the Exchange Act, other than the Company, a subsidiary of the Company or any employee benefit plan(s) sponsored or maintained by the Company or any subsidiary thereof, and the term "Independent Shareholder" shall mean any shareholder of the Company except any employee(s) or director(s) of the Company or any employee benefit plan(s) sponsored or maintained by the Company or any subsidiary thereof. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Company" means ENSERCH Corporation and its successors. (h) "Compensation Committee" means the Compensation Committee of the Board. (i) "Deferral Account" means the account established and maintained on the books of an Employer to record a Participant's interest under this Plan attributable to amounts credited to such Participant pursuant to Plan Section 3.1 and Section 3.2. (j) "Disability" means total and permanent disability of the Participant as determined under the provisions of his or her Employer's group long-term disability plan. (k) "Election Period" means such period immediately prior to the beginning of a Plan Year (or, with respect to the Plan's first Plan Year, the period immediately prior to October 1, 1994) specified by the Administrative Committee for the making of deferral elections for such Plan Year pursuant to Plan Sections 3.1 and 3.2. (l) "Eligible Employee" means any employee of an Employer who is one of a select group of management or highly compensated employees and (i) whose annual base salary equals or exceeds $125,000 or (ii) whose annual base salary equals or exceeds $100,000 and whose position is of significant impact on the operations of his or her Employer as determined by the Administrative Committee in its absolute discretion. (m) "Employer" includes the Company and any Affiliated Company which adopts this Plan. (n) "Participant" means an Eligible Employee or former Eligible Employee for whom a Deferral Account is being maintained under this Plan. (o) "Plan" means this ENSERCH Corporation Deferred Compensation Plan as in effect from time to time on and after October 1, 1994. (p) "Plan Year" means the twelve-month period commencing January 1 and ending the following December 31. (q) "Retirement Age" means the age used as the retirement age for the Participant under Section 216(l) of the Social Security Act. ARTICLE II. PLAN ADMINISTRATION Section 2.1 Administrative Committee. This Plan shall be administered by an Administrative Committee composed of at least three individuals appointed by the Compensation Committee. Each member of the Administrative Committee so appointed shall serve in such office until his or her death, resignation or removal by the Compensation Committee. The Compensation Committee may remove any member of the Administrative Committee at any time by giving written notice thereof to the members of the Administrative Committee. Vacancies shall likewise be filled from time to time by the Compensation Committee. The Administrative Committee shall have discretionary and final authority to interpret and implement the provisions of the Plan, including without limitation, authority to determine eligibility for benefits under the Plan. The Administrative Committee shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. The Administrative Committee may adopt such rules and procedures for the administration of the Plan as are consistent with the terms hereof and shall keep adequate records of its proceedings and acts. Every interpretation, choice, determination or other exercise by the Administrative Committee of any power or discretion given either expressly or by implication to it shall be conclusive and binding upon all parties having or claiming to have an interest under the Plan or otherwise directly or indirectly affected by such action, without restriction, however, on the right of the Administrative Committee to reconsider and redetermine such action. ARTICLE III. DEFERRED COMPENSATION PROVISIONS Section 3.1 Compensation Deferral Election. During the Election Period prior to the beginning of each Plan Year, an Eligible Employee may elect to have the payment of an amount of up to 50% of the annual base salary otherwise payable by an Employer to such Eligible Employee for such Plan Year deferred for payment in the manner and at the time specified in Article IV; provided, however, that the minimum amount that may be deferred by an Eligible Employee for a Plan Year pursuant to this Section 3.1 is $5,000 (or such other amount as shall be determined by the Administrative Committee in its discretion). The amount of annual base salary a Participant elects to defer pursuant to this Section 3.1 shall be deducted from the Participant's pay in substantially equal amounts over all pay periods during the Plan Year. All elections made pursuant to this Plan Section 3.1 shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall be irrevocable; provided, however, that effective as of the first day of any calendar quarter during a Plan Year, an Eligible Employee may revoke his or her deferral election and thereby suspend further salary deferrals for the remainder of such Plan Year by providing written notice thereof to the Administrative Committee no later than 15 days prior to the effective date of such suspension. Any Eligible Employee who so suspends his or her salary deferrals pursuant to this Section shall not be permitted to elect future salary deferrals pursuant to this Section to be effective earlier than the first day of the next Plan Year. Section 3.2 Bonus Deferral Election. During the Election Period prior to the beginning of each Plan Year (other than the first Plan Year), an Eligible Employee may elect to have the payment of an amount up to 100% of the cash portion of any future bonus otherwise payable by an Employer with respect to services to be performed by such Eligible Employee during such Plan Year deferred for payment in the manner and at the time specified in Article IV; provided, however, that the minimum amount that may be deferred by an Eligible Employee pursuant to this Section 3.2 is $5,000 (or such other amount as shall be determined by the Administrative Committee in its discretion); provided, further, that there shall be no minimum deferral amount pursuant to this Section 3.2 with respect to an Eligible Employee who elects to defer in the same Plan Year at least $5,000 (or such other amount as shall be determined by the Administrative Committee in its discretion) pursuant to Section 3.1. All elections made pursuant to this Plan Section 3.2 shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall be irrevocable. Section 3.3 Participant Deferral Accounts. An Employer shall establish and maintain on its books a Deferral Account for each Eligible Employee employed by such Employer who elects to participate in this Plan. Each such Deferral Account shall be designated by the name of the Participant for whom it is established. The amount of any base salary and/or cash bonus from an Employer for a Plan Year that is deferred for a Participant pursuant to Section 3.1 and/or Section 3.2 shall be credited by such Employer to such Participant's Deferral Account as of the date such amount would otherwise have been paid to such Participant by such Employer. An Employer shall continue maintaining a Deferral Account as long as a positive balance remains credited to such Deferral Account. Section 3.4 Deferral Account Adjustments. As of each Adjustment Date, the amount credited to a Deferral Account shall be adjusted to reflect such gain, loss and/or expenses incurred based on the experience of the investments selected by the Participant prior to the date prescribed by the Administrative Committee for the investment of his or her Deferral Account and taking into account additional deferrals credited to and distributions made from such Deferral Account since the last Adjustment Date. The Administrative Committee shall have sole and absolute discretion with respect to the number and type of investment choices made available for selection by Participants pursuant to this Section, the timing of Participant elections and the method by which adjustments are made. The designation of investment choices by the Administrative Committee shall be for the sole purpose of adjusting Deferral Accounts pursuant to this Section and this provision shall not obligate the Employers to invest or set aside any assets for the payment of benefits hereunder; provided, however, that an Employer may invest a portion of its general assets in investments, including investments which are the same as or similar to the investment choices designated by the Administrative Committee and selected by Participants, but any such investments shall remain part of the general assets of such Employer and shall not be deemed or construed to grant a property interest of any kind to any Participant, designated beneficiary or estate. The Administrative Committee shall notify the Participants of the investment choices available and the procedures for making and changing investment elections. Section 3.5 Vesting. Subject to Section 4.6, all amounts credited to a Participant's Deferral Account shall be fully vested and nonforfeitable at all times. ARTICLE IV. BENEFITS Section 4.1 Source of Benefit Payments. Benefit payments to be made with respect to a Participant's Deferral Account maintained pursuant to the Plan will be paid in cash and will be the obligation solely of the Employer maintaining such Deferral Account; provided, however, that whenever a payment hereunder is to be made by an Employer, the Company may, in its discretion, satisfy such payment obligation on behalf of such Employer, and the Company will be obligated to satisfy any such payment obligation in the event the Employer otherwise liable therefor fails to pay such amount when due for any reason. Section 4.2 Amount of Benefit Payments. The amount payable from a Participant's Deferral Account shall be determined based upon the amount credited to such Deferral Account as of the Adjustment Date last preceding the date of payment plus any deferrals credited to and less any distributions made from such Deferral Account since such Adjustment Date. The amount of each payment made with respect to a Deferral Account and any forfeiture amounts applied pursuant to Section 4.6 shall be deducted from the balance credited to such Deferral Account at the time of payment or forfeiture. Section 4.3 Early Termination. Upon a Participant's termination of employment with an Employer or Affiliated Company prior to the date which is ten years prior to such Participant's Retirement Age for any reason other than death, Disability or transfer to employment with another Employer or Affiliated Company, the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to such Participant in a single lump sum as soon as practicable following such termination of employment. Section 4.4 Death. Upon a Participant's termination of employment by reason of death, the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to the beneficiary or beneficiaries designated by such Participant pursuant to Section 4.7 in one of the following forms as elected by the Participant during the Participant's initial Election Period: (a) a single lump sum to be paid as soon as practicable following the Participant's death; or (b) if the amount payable from a Deferral Account is $50,000 or more as of the date of the Participant's death, annual installments over the period certain selected by the Participant not to exceed 15 years commencing in payment as soon as practicable following the Participant's death with each annual installment equal to the Deferral Account balance multiplied by a fraction the numerator of which is one and the denominator of which is the number of payments remaining; provided, however, that if a beneficiary of a deceased Participant who is entitled to installment payments hereunder encounters an unforeseeable emergency (as determined in accordance with Section 4.8 hereof), the Administrative Committee, in its absolute discretion, may direct the Employer to accelerate such portion of the installment payments as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of the beneficiary caused by such unforeseeable emergency. Section 4.5 Retirement or Disability. Upon a Participant's termination of employment with an Employer or Affiliated Company (i) on or after the date which is ten years prior to such Participant's Retirement Age for any reason other than death or transfer to employment with another Employer or Affiliated Company or (ii) on account of his or her Disability, the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to such Participant (or, in the event of his or her subsequent death, to the beneficiary or beneficiaries designated by such Participant pursuant to Plan Section 4.7) in one of the following forms as elected by the Participant during the Participant's initial Election Period: (a) a single lump sum to be paid as soon as practicable following the Participant's termination of employment or, in the case of termination of employment on account of Disability or prior to Retirement Age and the Participant so elects, the Participant's Retirement Age; or (b) if the amount payable from a Deferral Account is $50,000 or more as of the date of the Participant's termination of employment, annual installments over the period certain selected by the Participant not to exceed 15 years commencing in payment as soon as practicable following the Participant's termination of employment or, in the case of termination of employment on account of Disability or prior to Retirement Age and the Participant so elects, the Participant's Retirement Age, with each annual installment equal to the Deferral Account balance multiplied by a fraction the numerator of which is one and the denominator of which is the number of payments remaining; provided, however, that if a Participant who is entitled to a delayed lump sum or installment payments hereunder encounters an unforeseeable emergency (as determined in accordance with Section 4.8 hereof), the Administrative Committee, in its absolute discretion, may direct the Employer to accelerate such portion of the lump sum or installment payments as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of the Participant caused by such unforeseeable emergency. Section 4.6 Option to Request Immediate Payout. In lieu of any other benefits or payments to be made pursuant to this Plan, each Participant (or beneficiary in the case of a deceased Participant) shall have the right at any time to elect a lump sum payment in an amount equal to: (a) the amount payable from the Participant's Deferral Account, determined in accordance with Section 4.2, minus (b) a forfeiture amount equal to 20% of (a) above, provided, however, that if the election is made on or within two years following the date a Change of Control occurs, such forfeiture amount shall be determined substituting 10% for 20%. A Participant's election for an immediate payout pursuant to this Section must be in the form of a written notice provided to the Administrative Committee. The Administrative Committee shall notify any Employer maintaining a Deferral Account with respect to such Participant of the election and the amount so determined shall be paid to the Participant (or, in the case of a deceased Participant, to the beneficiary or beneficiaries designated by such Participant pursuant to Plan Section 4.7) by the Employers no later than fifteen days following receipt of notice by the Administrative Committee. Any amount remaining credited to the Participant's Deferral Account shall be forfeited at the time payment is made. Section 4.7 Designation of Beneficiaries. Any amount payable under this Plan on account of the death of a Participant shall be paid when otherwise due hereunder to the beneficiary or beneficiaries designated by such Participant. Such designation of beneficiary or beneficiaries shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall remain in effect until changed by such Participant by the filing of a new beneficiary designation form with the Administrative Committee. If a Participant fails to so designate a beneficiary, or in the event all of the designated beneficiaries are individuals who either predecease the Participant or survive the Participant but die prior to receiving the full amount payable under this Plan, any remaining amount payable under this Plan shall be paid to such Participant's estate when otherwise due hereunder. Section 4.8 Hardship Distributions. If a Participant encounters an unforeseeable emergency, the Administrative Committee in its absolute discretion may direct the Employer maintaining such Deferral Account to pay to such Participant and deduct from such Deferral Account such portion of the amount then credited to such Deferral Account (including, if appropriate, the entire amount determined in accordance with Section 4.2) as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of such Participant caused by such unforeseeable emergency. For this purpose, an "unforeseeable emergency" shall be a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but in any case, payment may not be made to the extent that such hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant's assets, to the extent liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. No distribution shall be made to a Participant pursuant to this Section 4.8 unless such Participant requests such a distribution in writing and provides to the Administrative Committee such information and documentation with respect to his or her unforeseeable emergency as may be requested by the Administrative Committee. Section 4.9 Change of Distribution Form. Each Participant may elect at any time after a Participant's initial Election Period, but no more often than once during each calendar year, to change the distribution forms elected with respect to all amounts credited to such Participant's Deferral Account; provided, however, that such election shall not be effective unless made by the end of the second calendar year preceding the calendar year in which distributions are to be made or commence to such Participant pursuant to Sections 4.4 or 4.5 hereof. ARTICLE V. AMENDMENT AND TERMINATION Section 5.1 Amendment and Termination. The Compensation Committee shall have the right and power at any time and from time to time to amend this Plan, in whole or in part, on behalf of all Employers, and the Board shall have the right and power at any time to terminate this Plan or any Employer's participation hereunder. Any amendment to or termination of this Plan shall be made by or pursuant to a resolution duly adopted by the Compensation Committee or the Board, as the case may be, and shall be evidenced by such resolution or by a written instrument executed by such person as the Compensation Committee or the Board, as the case may be, shall authorize for such purpose. Any provision of this Plan to the contrary notwithstanding, no amendment to or termination of this Plan shall reduce the amounts actually credited to a Participant's Deferral Accounts as of the date of such amendment or termination, or further defer the dates for the payment of such amounts, without the consent of the affected Participant. Upon termination of this Plan, the Board, in its sole discretion, may require the Administrative Committee to calculate final Deferral Account balances as of such Adjustment Date as it may prescribe, and direct each Employer to make immediate lump sum payments to each Participant (or beneficiary in the case of a deceased Participant) with respect to which such Employer maintains a Deferral Account in the amount determined to be credited to such Participant's Deferral Account as of such final Adjustment Date. Section 5.2 Change of Control. The preceding provisions of this Article to the contrary notwithstanding, no action taken on or within two years following a Change of Control to amend or terminate this Plan shall be effective unless written consent thereto is obtained from a majority of the Participants. ARTICLE VI. MISCELLANEOUS PROVISIONS Section 6.1 Nature of Plan and Rights. This Plan is unfunded and maintained by the Employers primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Employers. The Deferral Accounts established and maintained under this Plan by an Employer are for its accounting purposes only and shall not be deemed or construed to create a trust fund or security interest of any kind for or to grant a property interest of any kind to any Participant, designated beneficiary or estate. The amounts credited by an Employer to Deferral Accounts maintained under this Plan are and for all purposes shall continue to be a part of the general assets and liabilities of such Employer, and to the extent that a Participant, designated beneficiary or estate acquires a right to receive a payment from such Employer pursuant to this Plan, such right shall be no greater than the right of any unsecured general creditor of such Employer. Section 6.2 Spendthrift Provision. No Deferral Account balance or other right or interest under this Plan of a Participant, designated beneficiary or estate may be assigned, transferred or alienated, in whole or in part, either directly or by operation of law, and no such balance, right or interest shall be liable for or subject to any debt, obligation or liability of such Participant, designated beneficiary or estate. Section 6.3 Employment Noncontractual. The establishment of this Plan shall not enlarge or otherwise affect the terms of any Participant's employment with an Employer, and such Employer may terminate the employment of such Participant as freely and with the same effect as if this Plan had not been established. Section 6.4 Adoption by Other Employers. With the consent of the Compensation Committee, this Plan may be adopted by any Affiliated Company, such adoption to be effective as of the date specified by such Affiliated Company at the time of adoption. Section 6.5 Claims Procedure. If any person (hereinafter called the "Claimant") feels that he or she is being denied a benefit to which he or she is entitled under this Plan, such Claimant may file a written claim for said benefit with the Administrative Committee. Within sixty days following the receipt of such claim the Administrative Committee shall determine and notify the Claimant as to whether he or she is entitled to such benefit. Such notification shall be in writing and, if denying the claim for benefit, shall set forth the specific reason or reasons for the denial, make specific reference to the pertinent provisions of this Plan, and advise the Claimant that he or she may, within sixty days following the receipt of such notice, in writing request to appear before the Administrative Committee or its designated representative for a hearing to review such denial. Any such hearing shall be scheduled at the mutual convenience of the Administrative Committee or its designated representative and the Claimant, and at any such hearing the Claimant and/or his or her duly authorized representative may examine any relevant documents and present evidence and arguments to support the granting of the benefit being claimed. The final decision of the Administrative Committee with respect to the claim being reviewed shall be made within sixty days following the hearing thereon, and Administrative Committee shall in writing notify the Claimant of said final decision, again specifying the reasons therefor and the pertinent provisions of this Plan upon which said final decision is based. The final decision of the Administrative Committee shall be conclusive and binding upon all parties having or claiming to have an interest in the matter being reviewed. Section 6.6 Reimbursement of Expenses. In the event that a dispute arises between a Participant or beneficiary and the Participant's Employer or the Company with respect to the payment of benefits hereunder and the Participant or beneficiary is successful in pursuing a benefit to which he or she is entitled under the terms of the Plan against the Participant's Employer, the Company or any other party in the course of litigation or otherwise and incurs attorneys' fees, expenses and costs in connection therewith, the Participant's Employer and the Company shall reimburse the Participant or beneficiary for the full amount of any such attorneys' fees, expenses and costs. Section 6.7 Withholding Tax. There shall be deducted from all amounts paid under this Plan any taxes required to be withheld by any Federal, state, local or other government. The Participant and/or his or her beneficiary (including his or her estate) shall bear all taxes on amounts paid under this Plan to the extent that no taxes are withheld, irrespective of whether withholding is required. Section 6.8 Applicable Law. This Plan shall be governed and construed in accordance with the internal laws (and not the principles relating to conflicts of laws) of the State of Texas, except where superseded by federal law. IN WITNESS WHEREOF, this Plan has been executed on this 30th day of September, 1994 to be effective as of October 1, 1994. ENSERCH CORPORATION By /s/ D. W. Biegler Title: Chairman, President and Chief Executive Officer AMENDMENT NO. 1 TO THE ENSERCH CORPORATION DEFERRED COMPENSATION PLAN Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation Deferred Compensation Plan (the "Plan") is hereby amended in the following respect only: Article III of the Plan is hereby amended effective as of January 1, 1995 by adding the following new Section to the end thereof: Section 3.6 Deferred Compensation Awards. Effective as of January 1, 1995, the President of ENSERCH Corporation may enter into "Deferred Compensation Award Agreements" with such Eligible Employees as may from time to time be approved by the Compensation Committee. Such Agreements shall provide for the grant of a deferred compensation award, either fixed as to amount or determinable pursuant to a formula, to the Eligible Employee subject to such vesting requirements, including performance criteria, as shall be approved by the Compensation Committee. The amount of any deferred compensation award which vests pursuant to the terms of a Deferred Compensation Award Agreement entered into with an Eligible Employee shall be credited to such Participant's Deferral Account as of the date of such vesting, if such individual is an Eligible Employee as of the date of vesting, and any such vested award so credited to a Deferral Account shall for all purposes be considered to be, and shall be treated in the same manner as, a deferral credited to such Deferral Account. The Administrative Committee may maintain separate subaccounts within a Participant's Deferral Account for amounts attributable to deferrals and deferred compensation awards if separate identification is desired, but the amounts credited to any subaccounts shall be treated the same for all purposes of this Plan. IN WITNESS WHEREOF, this Amendment has been executed this 28th day of March, 1995. ENSERCH CORPORATION By D. W. Biegler Title: Chairman and President EX-10 5 EXHIBIT 10.9 ENSERCH CORPORATION DEFERRED COMPENSATION TRUST This Trust Agreement made this 30th day of September, 1994, by and between ENSERCH Corporation, a Texas corporation (the "Company") and Texas Commerce Bank National Association, a national banking association ( the "Trustee"); WHEREAS, the Company and certain Affiliated Companies have adopted nonqualified deferred compensation plans known as the ENSERCH Corporation Deferred Compensation Plan (the "Executive Plan") and the ENSERCH Corporation Deferred Compensation Plan for Directors (the "Directors' Plan") (collectively hereinafter referred to as the "Plan" or "Plans"); and WHEREAS, the Company has incurred or expects to incur liability under the terms of such Plans with respect to the individuals participating in such Plans; and WHEREAS, the Company wishes to establish a trust (hereinafter called the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan Participants and their beneficiaries in such manner and at such times as specified in the Plans; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment Of Trust. (a) The Company hereby deposits with the Trustee in trust $1,000.00, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. (b) The Trust hereby established shall be irrevocable. (c) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan Participants and general creditors as herein set forth. Plan Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Plan Participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 4(a) herein. (e) The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement; provided, however, that the Company shall contribute to the Trust each calendar year an amount of cash or property at least equal in value to the total amount of deferrals credited to the Deferral Accounts of Participants pursuant to the Executive Plan and the Accounts of Participants pursuant to the Directors' Plan during such calendar year. (f) Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control, as defined in the Plans, the Company shall (i) as soon as possible, but in no event more than 30 days following the date of such Change of Control, make an irrevocable contribution to the Trust in an amount, as determined by an Independent Committee, as defined below, which when added to the total value of the assets of the Trust at such time equals the total amount credited to all Deferral Accounts under the Executive Plan and all Accounts under the Directors' Plan as of the date on which the Change of Control occurred, and (ii) during the two-year period following the date of the Change of Control, make monthly contributions to the Trust in amounts sufficient, as determined by the Independent Committee, to maintain the total value of the Trust assets at an amount equal to the total amount credited to all Deferral Accounts under the Executive Plan and all Accounts under the Directors' Plan. Section 2. Payments to Plan Participants and their Beneficiaries. (a) The Administrative Committee shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable with respect to each Plan Participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts, if known. An updated Payment Schedule shall be provided by the Administrative Committee to the Trustee periodically, but no less frequently than once each calendar year. Except as otherwise provided herein, the Trustee shall make payments to the Plan Participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by an Employer under the Executive Plan or by the Company under the Directors' Plan. (b) The entitlement of a Plan Participant or his or her beneficiaries to benefits under the Plan shall be determined by the Administrative Committee or such other party as may be designated under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. (c) Employers participating in the Executive Plan or the Company with respect to the Directors' Plan may make payments of benefits directly to Plan Participants or their beneficiaries as they become due under the terms of the Plan in lieu of payment from the Trust. The Administrative Committee shall notify the Trustee of an Employer's or the Company's decision to make payments of benefits directly prior to the time amounts are payable to Participants or their beneficiaries. In addition, if the Trust assets are not sufficient to make payments of benefits in accordance with the terms of the Plans, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company immediately when Trust assets are not sufficient to satisfy all payments due. (d) Any provision of this Section 2 to the contrary notwithstanding, upon and after a Change of Control, the Trustee shall make payments to Plan Participants or their beneficiaries in accordance with the direction of the Independent Committee rather than the Administrative Committee, regardless of whether the Trustee has received a Payment Schedule or any other form of direction from the Administrative Committee to make such payments. Section 3. Appointment of Independent Committee. Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control, an Independent Committee consisting of at least three members shall be appointed by the Compensation Committee of the Board of Directors of the Company subject to the approval of a majority of the Participants of the Plans on the date of such Change of Control. The Independent Committee shall: (a) determine the amount of the irrevocable contributions to be made by the Company pursuant to Section 1(f) hereof; (b) determine in accordance with the Plans the amounts payable with respect to each Plan Participant (and his or her beneficiaries), the form in which such amounts are to be paid, and the time of commencement for payment of such amounts pursuant to Section 2(a) hereof; (c) determine the entitlement of Plan Participants and beneficiaries to benefits under the terms of the Plans pursuant to Section 2(b) hereof; (d) direct the Trustee to make payments to Plan Participants and their beneficiaries pursuant to Section 2 hereof; and (e) select a successor Trustee for the Trust if a Trustee resigns or is removed on or within two years following the date of a Change of Control pursuant to Section 12. Section 4. Trustee Responsibility Regarding Payments to Trust Beneficiary when the Company Is Insolvent. (a) The Trustee shall cease payment of benefits to Plan Participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan Participants or their beneficiaries. (2) Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (3) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan Participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan Participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plan or otherwise. (4) The Trustee shall resume the payment of benefits to Plan Participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 4(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan Participants or their beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Plan Participants or their beneficiaries by the Employers participating in the Executive Plan or by the Company with respect to the Directors' Plan in lieu of the payments provided for hereunder during any such period of discontinuance. Section 5. Payments to the Company. (a) Except as provided in Sections 4 and 5(b) hereof, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before payment of all benefits have been made to Plan Participants and their beneficiaries pursuant to the terms of the Plans. (b) To the extent that the Administrative Committee determines that the value of the assets in the Trust based upon information provided to the Administrative Committee by the Trustee, at any time, exceeds 110% of the amounts credited to Participants' Deferral Accounts under the Executive Plan and Accounts under the Directors' Plan as of the most recent Adjustment Date plus any deferrals made since such date, the Trustee shall pay such excess to the Company upon receipt of written request therefor from the Company; provided, however, that no such payment of excess assets to the Company shall be made on or within two years following the date of a Change of Control. Section 6. Investment Authority. (a) The Trustee shall have full power and authority to invest and reinvest the Trust assets, or any part thereof, in such stocks (common or preferred), bonds, mortgages, notes, interest-bearing deposits (including such deposits with any corporate trustee acting hereunder), options and contracts for the future or immediate receipt or delivery of property of any kind, or other securities, producing or nonproducing oil and gas royalties and payments and other producing and nonproducing interests in minerals, or in commodities, life insurance policies, annuity contracts or other property of any kind or nature whatsoever, whether real, personal or mixed, as the Trustee, in the Trustee's absolute discretion and judgment, deems appropriate for the Trust, and to hold cash uninvested at any time and from time to time in such amounts and to such extent as the Trustee, in the Trustee's absolute discretion and judgment, deems appropriate for the Trust. The Trustee shall have full power and authority to manage, handle, invest, reinvest, sell for cash or credit, or for part cash or part credit, exchange, hold, dispose of, lease for any period of time (whether or not longer than the life of the Trust), improve, repair, maintain, work, develop, use, operate, mortgage, or pledge, all or any part of the assets and property from time to time constituting any part of the trust funds held in trust under the Trust; borrow or loan money or securities; write options and sell securities or other property short or for future delivery; engage in hedging procedures; buy and sell futures contracts; execute obligations, negotiable and nonnegotiable; vote shares of stock in person and by proxy, with or without power of substitution; register investments in the name of a nominee; sell, convey, lease and/or otherwise deal with any producing or nonproducing oil, gas and mineral leases or mineral rights, payments and royalties; pay all reasonable expenses; execute and deliver any deeds, conveyances, leases, contracts, or written instruments of any character appropriate to any of the powers or duties of the Trustee, and shall, in general, have as broad power respecting the management, operation and handling of the Trust assets and property as if the Trustee were the owner of such assets and property in the Trustee's own right. The preceding provisions of this paragraph to the contrary notwithstanding, the Company shall have the right and power at any time and from time to time to give the Trustee broad guidelines within which it shall invest the assets of the Trust; provided, however, that upon a Change of Control and continuing for two years thereafter, the Independent Committee, rather than the Company, shall have the sole authority to exercise such right. (b) All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Plan Participants. (c) The Company shall have the right, at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust; provided, however, that effective upon a Change in Control and for a period of two years thereafter, any assets transferred to the Trust in substitution for assets held by the Trust must consist of cash or marketable securities and the fair market value of the respective assets shall be determined by the Trustee. This right is exercisable by the Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity. Section 7. Disposition of Income. During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. Section 8. Accounting by Trustee. The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 30 days following the close of each calendar year and within 30 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 9. Responsibility of the Trustee. (a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that except as provided in Sections 5(b) and 6(c) hereof, if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 10. Compensation and Expenses of the Trustee. The Trustee shall be paid such reasonable compensation commensurate with the services and responsibilities involved hereunder as shall from time to time be agreed upon by the Trustee and the Company. The Company shall pay all administrative and the Trustee's fees and expenses, but, if not so paid, the fees and expenses shall be paid from the Trust. Section 11. Resignation and Removal of the Trustee. (a) The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. (b) The Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee; provided, however, that the Trustee may not be removed by the Company on or within two years following a Change of Control except with the written consent of a majority of the Participants entitled to payment of benefits pursuant to the terms of the Plans on the date of such Change of Control. (c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. (d) If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 12 hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 12. Appointment of Successor. (a) If the Trustee resigns or is removed in accordance with Section 11(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal; provided, however, that if the Trustee resigns or is removed on or within two years following the date of a Change of Control, the Independent Committee shall select a successor Trustee in accordance with this Section 12. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 8 and 9 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. Section 13. Amendment or Termination. (a) This Trust Agreement may be amended by a written instrument executed by the Trustee and a representative of the Company so authorized by the Compensation Committee of the Board of Directors of the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable. (b) The Trust shall not terminate until the date on which Plan Participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. (c) Upon written approval of at least two-thirds of the Participants and beneficiaries entitled to payment of benefits pursuant to the terms of the Plans, the Company may terminate this Trust prior to the time all benefit payments under the Plans have been made. All assets in the Trust at termination shall be returned to the Company. (d) This Trust Agreement may not be amended by the Company on or within two years following the date of a Change of Control, without the written consent of a majority of the Participants entitled to payment of benefits pursuant to the terms of the Plans on the date of such Change of Control. Section 14. Miscellaneous. (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan Participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed and construed in accordance with the internal laws (and not the principles relating to conflicts of laws) of the State of Texas, except where superseded by federal law. (d) Unless the context clearly indicates otherwise, when used in this Trust Agreement: (i) "Administrative Committee" shall mean the "Administrative Committee" appointed pursuant to each of the Plans. (ii) "Participant" shall mean each "Participant" as that term is defined in the Executive Plan and each Director who has an amount credited to his or her Account under the Directors' Plan or who has elected to have all or any portion of his or her Annual Fee deferred under the terms of that Plan. (e) Except where otherwise defined, capitalized terms used herein shall have the meaning given to them in the Plans. (f) In the event that a dispute arises between a Plan Participant or beneficiary and the Participant's Employer, the Company or the Trustee with respect to the payment of amounts from the Trust and the Participant or beneficiary is successful in pursuing a benefit to which he or she is entitled under the terms of the Plans and this Trust against the Participant's Employer, the Company, the Trustee or any other party in the course of litigation or otherwise and incurs attorneys' fees, expenses and costs in connection therewith, the Company shall reimburse the Plan Participant or beneficiary for the full amount of any such attorneys' fees, expenses and costs. IN WITNESS WHEREOF, this Agreement has been executed this 30th day of September, 1994, to be effective as of October 1, 1994. ENSERCH CORPORATION By /s/ D. W. Biegler Title: Chairman, President and Chief Executive Officer TEXAS COMMERCE BANK NATIONAL ASSOCIATION By /s/ Karen Epps Title: THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared Karen Epps, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that he/she executed the same as the act of such banking association for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of October, 1994. /s/ Barbara Betik Notary Public, State of Texas My Commission expires: January 30, 1997 EX-10 6 EXHIBIT 10.10 RETIREMENT INCOME RESTORATION PLAN OF ENSERCH CORPORATION AND PARTICIPATING SUBSIDIARY COMPANIES ENSERCH Corporation, a Texas corporation having its principal executive office in Dallas, Texas, and its subsidiary, Ebasco Services Incorporated, hereinafter referred to collectively as the "Companies," hereby adopt the Retirement Income Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies, hereinafter referred to as the "Plan," effective January 1, 1984, as follows: Article I Definitions Unless qualified by the context or otherwise defined herein, the terms used herein shall have the meanings assigned to them as applicable under the provisions of the Retirement and Death Benefit Program of 1969 of ENSERCH Corporation and Participating Subsidiary Companies and the Ebasco Services Incorporated Pension Plan for Salaried Employees, as now in effect and as may be amended hereafter from time to time, hereinafter referred to collectively as the "Basic Plans"' and individually as the "Basic P]an." "Limitations" shall mean the reductions imposed on the benefits provided under the Basic Plans in order to comply with Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986. A "Participating Employee" is an employee who is entitled to benefits under this Plan as a result of Limitations. The terms "Change in Control," "Cause," and "Good Reason" shall have the meanings assigned to them under the provisions of the change in control agreements dated December 13, 1988, between Messrs. R. G. Fowler, W. T. Satterwhite, et. al., and the Corporation. "Service" shall have the meaning assigned to the terms Benefit Service or Credited Service in and by the Basic Plans. Article II Purpose The purposes of this Plan are (a) to restore benefits to those employees and their designated beneficiaries who are entitled to receive benefits under the Basic Plans to the extent that those benefits are, or will be, reduced by Limitations, and (b) if a Participating Employee's employment is terminated by the Corporation without Cause or by the Participating Employee for Good Reason within three years of a Change in Control of the Corporation, to provide increased retirement benefits as set forth in Section 4.1. Article III Administration This Plan shall be administered by the Compensation Committee of the Board of Directors of ENSERCH Corporation, hereinafter referred to as the "Committee." Subject to the provisions of Article VI hereof, the Committee shall administer this Plan in a manner consistent with the administration of the 1969 Plan, as from time to time amended and in effect, except that this Plan shall be administered as a plan that is not intended to meet the requirements of Section 401(a) of the Internal Revenue Code of 1954. The Committee shall have full power and authority to interpret, construe, and administer this P]an, and the Committee's interpretations and constructions hereof, and its actions hereunder, including all determinations of the amounts and the recipients of payments to be made hereunder, shall be binding and conclusive with respect to all persons for all purposes. No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his own willful misconduct or lack of good faith. Article IV Benefits Section 4.1 Amount of Benefits. Subject to the provisions of Section 4.3 hereof any employee or beneficiary who is entitled to receive a benefit under a Basic Plan shall be entitled to receive a benefit hereunder equal to the excess, if any, of: (i) the amount of such employee's or beneficiary's benefit under the Basic Plan, determined without regard to the Limitations, plus the additional benefit that would be payable under the Basic Plan if an increase in his Service pursuant to Section 4.2 below is applicable, less (ii) the amount of the benefit actually payable to the employee or beneficiary under the Basic Plan and the amount of reduction of Plan payments described in the agreement or agreements between the Corporation and the employee relating to any individual annuity contracts purchased on behalf of the employee by the Corporation. Section 4.2 Additional Service. In the event a Participating Employee's employment is terminated within three (3) years after a Change in Control of the Corporation by the Corporation without Cause or by the Participating Employee for Good Reason, his years of Service for purposes of Section 4.1 shall mean his actual years of Service plus (a) in the case of the Chief Executive Officer of the Corporation and Participating Employees reporting directly to him, 3 additional years of Service; and (b) in the case of Participating Employees other than the Chief Executive Officer and Participating Employees reporting directly to him, 2 additional years of Service; provided further that (i) in no case shall any Participating Employee as a result of this Change in Control provision be deemed to have more years of Service than he would have had if his employment had terminated on the first of the month coinciding with or Next following his sixty-fifth (65) birthday, and (ii) the foregoing clauses (a) and (b) shall have no effect on the computation of a Participating Employee's Average Monthly Earnings or are for purposes of determining any amounts payable to him under the Basic Plan. Section 4. 3 Payment of Benefits. Payment of benefits to an employee or beneficiary under this Plan shall be coincident with the payment of benefits made to the employee or beneficiary under the Basic Plan. Section 4.4 Employee's Rights to Benefits. An employee's rights under this Plan, including his rights to vested benefits, shall be the same as his rights under the Basic Plan, except that no payments due under this Plan shall be paid from any fund maintained under the Basic Plan. In no event shall an individual who is not entitled to benefits under the Basic Plan be entitled to a benefit under this Plan. Benefits under this Plan shall be paid sole]y from the general assets of the Companies, and no employee or beneficiary shall have any title to or beneficial interest in any assets of the Companies as a result of this Plan. Article V Amendment and Termination While the Companies intend to maintain this Plan in conjunction with the Basic Plans for as long as necessary, the Board of Directors of ENSERCH Corporation reserves the right to amend or terminate this Plan if, in its sole judgment, amendment or termination is appropriate. However, if the Board should amend or discontinue this Plan, the Companies shall be liable for all benefits accrued under this Plan as of the date of such action (determined on the basis of the assumption that on such date each employee's employment terminated). Article XI Rights of Employees The Companies may, but are not required to, set aside funds for their convenience in order to facilitate the payment of any benefits that may be due hereunder. However, in the event that the Companies set aside funds, no employee or beneficiary shall have any right, title or interest in such funds while held by the Companies. Any employee or beneficiary who is entitled to receive a benefit under this Plan shall have the rights solely of a general and unsecured creditor. Article VII Miscellaneous Section 7.1 Assignment. The interest of an employee or beneficiary may not be sold, transferred, assigned, or encumbered in any manner, either voluntarily or involuntarily, and any attempt so to anticipate, alienate sell, transfer, assign, pledge, encumber, or charge the same shall be null and void; neither shall the benefits hereunder be liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person to whom such benefits or funds are payable, nor shall they be subject to garnishment, attachment, or other legal or equitable process nor shall they be an asset in bankruptcy, except that no amount shall be payable hereunder until and unless any and all amounts representing debts or other obligations owed to any Company by the individual to whom such amount would otherwise be payable shall have been fully paid and satisfied. Section 7.2 No Employment Rights. Nothing contained herein shall be construed as conferring upon any employee the right to continue in the employ of the Companies in any capacity. Section 7. Binding on Companies, Employees and Their Successors. The Plan shall be binding upon and inure to the benefit of the Companies, their successors and assigns and the employee and his heirs, executors, administrators, and legal representatives. The provisions of the Plan shall be applicable with respect to each Company separately, and amounts payable hereunder shall be paid by the Company that employed the individual employee in respect of whom benefits are due hereunder. Section 7.4 Arbitration. Any controversy arising out of, or relating to, the Plan or any modification thereof, including any claim for benefits, shall be settled by arbitration in Dallas, Texas (or, if applicable law requires some other forum, then such other forum) in accordance with the rules then obtaining of the American Arbitration Association. The District Court of Dallas County, Texas or, as the case may be, the United States District Court for the Northern District of Texas shall have jurisdiction for all purposes in connection with arbitration. Any process or notice of motion or other application to either of said courts, and any paper in connection with arbitration, may be served by certified mail, return receipt requested, or by personal service or in such other manner as may be permissible under the rules of the applicable court or arbitration tribunal, provided a reasonable time for appearance is allowed. Arbitration proceedings must be instituted within one year after the claimed breach occurred, and the failure to institute arbitration proceedings within such period shall constitute an absolute bar to the institution of any proceedings, and a waiver of all claims, with respect to such breach. Section 7. Withholding Tax. There shall be deducted from all amounts paid under this Plan any taxes required to be withheld by any Federal, state, local or other government. The employee and/or his beneficiary (including his estate) shall bear all taxes on amounts paid under this Plan to the extent that no taxes are withheld, irrespective of whether withholding is required. Section 7.6 Law Applicable. The Plan shall be construed in accordance with and governed by the laws of the State of Texas. Restated and adopted this 28th day of December, 1990. ENSERCH Corporation By /s/ W. C. McCord W. C. McCord Chairman and President AMENDMENT TO THE RETIREMENT INCOME RESTORATION PLAN OF ENSERCH CORPORATION AND PARTICIPATING SUBSIDIARY COMPANIES Pursuant to the provisions of Article V thereof, the Retirement Income Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies (the "Plan") is hereby amended in the following respect only: The definition of "Limitations" in the Plan is hereby amended effective as of October 1, 1994 by restatement in its entirety to read as follows: "Limitations" shall mean the reductions imposed on the benefits provided under the Basic Plans in order to comply with Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986, and the reduction in "compensation" considered for purposes of determining benefits under the Basic Plans on account of salary and bonuses deferred by an employee pursuant to the ENSERCH Corporation Deferred Compensation Plan. IN WITNESS WHEREOF, this Amendment has been executed this 30th day of September, 1994. ENSERCH CORPORATION By /s/ D. W. Biegler Title: Chairman, President and Chief Executive Officer EX-10 7 EXHIBIT 10.11 ENSERCH CORPORATION RETIREMENT INCOME RESTORATION TRUST This Trust Agreement made this 30th day of September, 1994, by and between ENSERCH Corporation, a Texas corporation (the "Company"), Enserch Exploration, Inc., a Delaware corporation, New Enserch Exploration, Inc., a Texas corporation, Enserch Development Corporation, a Texas corporation, Lone Star Energy Company, a Texas corporation, and Enserch Gas Company, a Texas Corporation, and Texas Commerce Bank National Association, a national banking association (the "Trustee"); WHEREAS, the Company and the participating subsidiaries enumerated on the attached Appendix A (the Company and such participating subsidiaries are hereinafter referred to as the "Employers") have adopted or may adopt a nonqualified deferred compensation plan known as the Retirement Income Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies (the "Plan"); and WHEREAS, the Employers have incurred or expect to incur liability under the terms of such Plan with respect to their respective eligible employees participating in such Plan and their beneficiaries; and WHEREAS, the Employers wish to establish a trust (hereinafter called "Trust"), pursuant to which each Employer will contribute assets that shall be held therein in a Separate Account, as herein defined, subject to the claims of such Employer's creditors in the event of the Employer's Insolvency, as herein defined, until paid to Plan Participants and their beneficiaries in such manner and at such times as specified in the Plan; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Employers to make contributions to the Trust to provide a source of funds to assist them in the meeting of their liabilities under the Plan; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment Of Trust. (a) The Employers hereby deposit with the Trustee in trust $1,000.00, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. (b) The Trust hereby established shall be irrevocable. (c) The Trust is intended to be a grantor trust, of which each Employer is the grantor with respect to its Separate Account, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Employers and shall be used exclusively for the uses and purposes of Plan Participants and general creditors as herein set forth. Plan Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan Participants and their beneficiaries against the Employers. Any assets held in an Employer's Separate Account under the Trust will be subject to the claims of such Employer's general creditors under federal and state law in the event of Insolvency, as defined in Section 4(a) herein. (e) The Employers, in their sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan Participant or beneficiary shall have any right to compel such additional deposits. (f) Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control of the Company, as defined in the Plan, each Employer shall (i) as soon as possible, but in no event more than 30 days following the date of such Change of Control, make an irrevocable contribution to the Trust in an amount, as determined by an Independent Committee, as defined below, which when added to the total value of the assets of the Employer's Separate Account under the Trust at such time equals the total present value of all benefits accrued under the Plan with respect to such Employer's respective Plan Participants and beneficiaries as of the date on which the Change of Control occurred, and (ii) during the two-year period following the date of the Change of Control, make monthly contributions to the Trust in amounts sufficient, as determined by the Independent Committee, to maintain the total value of the assets in the Employer's Separate Account under the Trust at an amount equal to the total present value of all benefits accrued under the Plan with respect to such Employer's respective Plan Participants and beneficiaries. (g) Any provision of this Trust Agreement to the contrary notwithstanding, in the event that a Participant transfers employment between Employers participating in this Trust, (i) the Employer from which the Participant is transferred shall as soon as possible, but in no event more than 30 days following the date of such transfer, make an irrevocable contribution to the Trust in an amount, as determined by the Company, which equals the total present value of the benefits accrued under the Plan with respect to such transferring Participant as of the date on which the transfer occurred or, if less, an amount equal to the total present value of all benefits accrued under the Plan with respect to such Employer's respective Plan Participants and beneficiaries, and (ii) immediately following the Employer's contribution described in (i), the Trustee shall transfer assets from the transferring Employer's Separate Account to the Separate Account of the Employer to which the Participant is being transferred in an amount equal to the total present value of the benefits accrued under the Plan with respect to such transferring Participant as of the date on which the transfer occurred. Section 2. Payments to Plan Participants and their Beneficiaries. (a) The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable with respect to each Plan Participant (and his or her beneficiaries) and the Separate Account of the Employer from which such amounts are payable, that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. An updated Payment Schedule shall be provided by the Company to the Trustee periodically, but no less frequently than once each calendar year. Except as otherwise provided herein, the Trustee shall make payments to the Plan Participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Employer. (b) The entitlement of a Plan Participant or his or her beneficiaries to benefits under the Plan shall be determined by the Company or such other party as may be designated under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. (c) The Employers may make payments of benefits directly to Plan Participants or their beneficiaries as they become due under the terms of the Plan in lieu of payment from the Trust. The Company shall notify the Trustee of an Employer's decision to make payments of benefits directly prior to the time amounts are payable to Participants or their beneficiaries. In addition, if the assets of an Employer's Separate Account under the Trust are not sufficient to make payments of benefits to its respective Plan Participants and beneficiaries in accordance with the terms of the Plan, such Employer shall make the balance of each such payment as it falls due, and the Separate Accounts of other Employers hereunder shall not be liable for the payment of such benefits. The Trustee shall notify the Company immediately when the assets in an Employer's Separate Account under the Trust are not sufficient to satisfy all payments due. (d) Any provision of this Section 2 to the contrary notwithstanding, upon and after a Change of Control of the Company, the Trustee shall make payments to Plan Participants or their beneficiaries in accordance with the direction of the Independent Committee rather than the Company, regardless of whether the Trustee has received a Payment Schedule or any other form of direction from the Company to make such payments. Section 3. Appointment of Independent Committee. Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control of the Company, an Independent Committee consisting of at least three members shall be appointed by the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee") subject to the approval of a majority of the Participants in the Plan on the date of such Change of Control. The Independent Committee shall: (a) determine the amount of the irrevocable contributions to be made by each Employer pursuant to Section 1(f) hereof; (b) determine in accordance with the Plan the amounts payable with respect to each Plan Participant (and his or her beneficiaries), the form in which such amounts are to be paid, and the time of commencement for payment of such amounts pursuant to Section 2(a) hereof; (c) determine the entitlement of Plan Participants and beneficiaries to benefits under the terms of the Plan pursuant to Section 2(b) hereof; (d) direct the Trustee to make payments to Plan Participants and their beneficiaries pursuant to Section 2 hereof; and (e) select a successor Trustee for the Trust if a Trustee resigns or is removed on or within two years following the date of a Change of Control of the Company pursuant to Section 12. Section 4. Trustee Responsibility Regarding Payments to Trust Beneficiary when an Employer Is Insolvent. (a) The Trustee shall cease payment of benefits to Plan Participants and their beneficiaries if the Participants' Employer is Insolvent. An Employer shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Employer is unable to pay its debts as they become due, or (ii) the Employer is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of each Employer's Separate Account under the Trust shall be subject to claims of general creditors of the Employer under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of an Employer shall have the duty to inform the Trustee in writing of the Employer's Insolvency. If a person claiming to be a creditor of an Employer alleges in writing to the Trustee that the Employer has become Insolvent, the Trustee shall determine whether the Employer is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to the Employer's respective Plan Participants or their beneficiaries. (2) Unless the Trustee has actual knowledge of an Employer's Insolvency, or has received notice from the Employer or a person claiming to be a creditor alleging that the Employer is Insolvent, the Trustee shall have no duty to inquire whether the Employer is Insolvent. The Trustee may in all events rely on such evidence concerning the Employer's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Employer's solvency. (3) If at any time the Trustee has determined that an Employer is Insolvent, the Trustee shall discontinue payments to the Employer's respective Plan Participants or their beneficiaries and shall hold the assets of the Employer's Separate Account under the Trust for the benefit of the Employer's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan Participants or their beneficiaries to pursue their rights as general creditors of an Employer with respect to benefits due under the Plan or otherwise. (4) The Trustee shall resume the payment of benefits to an Employer's respective Plan Participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Employer is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets in an Employer's Separate Account under the Trust, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 4(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan Participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan Participants or their beneficiaries by the Employer in lieu of the payments provided for hereunder during any such period of discontinuance. Section 5. Payments to the Employers. (a) Except as provided in Sections 4 and 5(b) hereof, the Employers shall have no right or power to direct the Trustee to return to the Employers or to divert to others any of the Trust assets before payment of all benefits have been made to Plan Participants and their beneficiaries pursuant to the terms of the Plan. (b) To the extent that an Employer determines that the value of the assets in its Separate Account under the Trust based upon information provided to the Employer by the Trustee, at any time, exceeds 110% of the present value of the benefits accrued under the Plan by the Employer's respective Plan Participants, the Trustee shall pay such excess to the Employer upon receipt of written request therefor from the Company; provided, however, that no such payment of excess assets to the Employer shall be made on or within two years following the date of a Change of Control of the Company. Section 6. Investment Authority. (a) The Trustee shall establish and maintain a separate account within the Trust for each Employer (the "Separate Account"). All amounts deposited with the Trustee by an Employer shall be allocated to such Employer's Separate Account. The Trustee shall invest, reinvest and administer the assets allocated to each Employer's Separate Account under the Trust as an individual, separate fund. At the end of each calendar year and at such other times as the Company may determine, the Trustee shall determine the fair market value of the assets of each Employer's Separate Account. The Separate Account of each Employer shall be adjusted to reflect the income collected, realized and unrealized profits and losses, expenses and all other transactions affecting such Separate Account for the valuation period then ended. (b) The Trustee shall have full power and authority to invest and reinvest the assets of each Employer's Separate Account, or any part thereof, in such stocks (common or preferred), bonds, mortgages, notes, interest-bearing deposits (including such deposits with any corporate trustee acting hereunder), options and contracts for the future or immediate receipt or delivery of property of any kind, or other securities, producing or nonproducing oil and gas royalties and payments and other producing and nonproducing interests in minerals, or in commodities, life insurance policies, annuity contracts or other property of any kind or nature whatsoever, whether real, personal or mixed, as the Trustee, in the Trustee's absolute discretion and judgment, deems appropriate for the Trust, and to hold cash uninvested at any time and from time to time in such amounts and to such extent as the Trustee, in the Trustee's absolute discretion and judgment, deems appropriate for the Trust. The Trustee shall have full power and authority to manage, handle, invest, reinvest, sell for cash or credit, or for part cash or part credit, exchange, hold, dispose of, lease for any period of time (whether or not longer than the life of the Trust), improve, repair, maintain, work, develop, use, operate, mortgage, or pledge, all or any part of the assets and property from time to time constituting any part of the trust funds held in trust under the Trust; borrow or loan money or securities; write options and sell securities or other property short or for future delivery; engage in hedging procedures; buy and sell futures contracts; execute obligations, negotiable and nonnegotiable; vote shares of stock in person and by proxy, with or without power of substitution; register investments in the name of a nominee; sell, convey, lease and/or otherwise deal with any producing or nonproducing oil, gas and mineral leases or mineral rights, payments and royalties; pay all reasonable expenses; execute and deliver any deeds, conveyances, leases, contracts, or written instruments of any character appropriate to any of the powers or duties of the Trustee, and shall, in general, have as broad power respecting the management, operation and handling of the Trust assets and property as if the Trustee were the owner of such assets and property in the Trustee's own right. The preceding provisions of this paragraph to the contrary notwithstanding, the Company shall have the right and power at any time and from time to time to give the Trustee broad guidelines within which it shall invest the assets of the Trust; provided, however, that upon a Change of Control of the Company and continuing for two years thereafter, the Independent Committee, rather than the Company, shall have the sole authority to exercise such right. (c) All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Plan Participants. (d) Each Employer shall have the right, at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held in its Separate Account under the Trust provided, however, that effective upon a Change of Control of the Company and for a period of two years thereafter, any assets transferred to the Trust in substitution for assets held in an Employer's Separate Account under the Trust must consist of cash or marketable securities and the fair market value of the respective assets shall be determined by the Trustee. This right is exercisable by the Employer in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity. Section 7. Disposition of Income. During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. Section 8. Accounting by Trustee. The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 30 days following the close of each calendar year and within 30 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust and to each Employer a written account of its administration of the Employer's Separate Account during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 9. Responsibility of the Trustee. (a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by an Employer which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by the Employer. In the event of a dispute between an Employer and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Employers agree to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Employers do not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) The Trustee may consult with legal counsel (who may also be counsel for the Employers generally) with respect to any of its duties or obligations hereunder. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that except as provided in Sections 5(b) and 6(d) hereof, if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 10. Compensation and Expenses of the Trustee. The Trustee shall be paid such reasonable compensation commensurate with the services and responsibilities involved hereunder as shall from time to time be agreed upon by the Trustee and the Company. The Employers shall pay all administrative and the Trustee's fees and expenses, but, if not so paid, the fees and expenses shall be paid from the Trust. Section 11. Resignation and Removal of the Trustee. (a) The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. (b) The Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee; provided, however, that the Trustee may not be removed by the Company on or within two years following a Change of Control of the Company except with the written consent of a majority of the Participants entitled to payment of benefits pursuant to the terms of the Plan on the date of such Change of Control. (c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. (d) If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 12 hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 12. Appointment of Successor. (a) If the Trustee resigns or is removed in accordance with Section 11(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal; provided, however, that if the Trustee resigns or is removed on or within two years following the date of a Change of Control of the Company, the Independent Committee shall select a successor Trustee in accordance with this Section 12. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 8 and 9 hereof. The successor Trustee shall not be responsible for and the Employers shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. Section 13. Amendment or Termination. (a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable. (b) The Trust shall not terminate until the date on which Plan Participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in an Employer's Separate Account under the Trust shall be returned to such Employer. (c) Upon written approval of at least two-thirds of the Participants and beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, the Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in an Employer's Separate Account under the Trust at termination shall be returned to such Employer. (d) The Company may terminate this Trust with respect to the Separate Account of any Employer with the written approval of at least two-thirds of the Employer's respective Plan Participants and beneficiaries who are entitled to payment of benefits pursuant to the terms of the Plan. All assets in an Employer's Separate Account under the Trust on the date of such termination shall be returned to such Employer. (e) This Trust Agreement may not be amended by the Company on or within two years following the date of a Change of Control of the Company, without the written consent of a majority of the Participants entitled to payment of benefits pursuant to the terms of the Plan on the date of such Change of Control. Section 14. Miscellaneous. (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan Participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed and construed in accordance with the internal laws (and not the principles relating to conflicts of laws) of the State of Texas, except where superseded by federal law. (d) Except where otherwise defined, capitalized terms used herein shall have the meaning given to them in the Plan. (e) In the event that a dispute arises between a Plan Participant or beneficiary and the Participant's Employer, the Company or the Trustee with respect to the payment of amounts from the Trust and the Participant or beneficiary is successful in pursuing a benefit to which he or she is entitled under the terms of the Plan and this Trust against the Participant's Employer, the Company, the Trustee or any other party in the course of litigation or otherwise and incurs attorneys' fees, expenses and costs in connection therewith, the Participant's Employer shall reimburse the Plan Participant or beneficiary for the full amount of any such attorneys' fees, expenses and costs. (f) Upon the written consent of the Company delivered to the Trustee, any other affiliate of the Company which adopts the Plan may become a party to this Trust by delivering to the Trustee a certified copy of a resolution of its board of directors or other governing authority adopting this Trust. For purposes of this Trust, any such affiliate which adopts this Trust with the written consent of the Company shall be an Employer hereunder. IN WITNESS WHEREOF, this Agreement has been executed this 30th day of September, 1994, to be effective as of October 1, 1994. ENSERCH CORPORATION By /s/ D. W. Biegler Title: Chairman, President and Chief Executive Officer ENSERCH EXPLORATION, INC. By /s/ D. W. Biegler Title: Chairman and Chief Executive Officer NEW ENSERCH EXPLORATION, INC. By /s/ D. W. Biegler Title: Chairman and Chief Executive Officer ENSERCH DEVELOPMENT CORPORATION By /s/ G. R. Bryan Title: Chairman LONE STAR ENERGY COMPANY By /s/ D. W. Biegler Title: Chairman and Chief Executive Officer ENSERCH GAS COMPANY By /s/ D. W. Biegler Title: Chairman and Chief Executive Officer TEXAS COMMERCE BANK NATIONAL ASSOCIATION By /s/ Karen Epps Title: THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH EXPLORATION, INC., a Delaware corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said NEW ENSERCH EXPLORATION, INC., a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared G. R. Bryan, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH DEVELOPMENT CORPORATION, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Glynnda S. Rice Notary Public, State of Texas My Commission expires: February 28, 1997 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said LONE STAR ENERGY COMPANY, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH GAS COMPANY, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared Karen Epps, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that he/she executed the same as the act of such banking association for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of October, 1994. /s/ Barbara Betik Notary Public, State of Texas My Commission expires: January 30, 1997 APPENDIX A TO THE ENSERCH CORPORATION RETIREMENT INCOME RESTORATION TRUST Participating Subsidiaries 1. Enserch Exploration, Inc., a Delaware corporation 2. New Enserch Exploration, Inc., a Texas corporation 3. Enserch Development Corporation, a Texas corporation 4. Lone Star Energy Company, a Texas corporation 5. Enserch Gas Company, a Texas Corporation EX-23 8 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT Enserch Exploration, Inc.: We consent to the incorporation by reference in Registration Statement No. 33-57715 of Enserch Exploration, Inc. on Form S-8 of our report dated February 10, 1995, appearing in this Annual Report on Form 10-K of Enserch Exploration, Inc. for the year ended December 31, 1994. DELOITTE & TOUCHE LLP Dallas, Texas March 29, 1995 EX-23 9 EXHIBIT 23.2 DeGolyer and MacNaughton One Energy Square Dallas, Texas 75206 March 29, 1995 Enserch Exploration, Inc. 4849 Greenville Avenue Dallas, Texas 75206 Gentlemen: We hereby consent to (a) the references to us in "Properties" and "Certain Relationships and Related Transactions" in Part I and in "Financial Review" and Note 7 of the Notes to Financial Statement in your Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and to the use of information contained in our "Report as of January 1, 1995 on Proved and Probable Reserves of Certain Properties owned by Enserch Exploration, Inc." and (b) the incorporation by reference in Registration Statement No. 33-57715 on Form S-8 of the references to us described in(a) above. Very truly yours, DeGOLYER and MacNAUGHTON EX-24 10 EXHIBIT 24 POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1994, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of EEI, does hereby appoint G. J. Junco or S. R. Singer, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as a director or officer or both, as the case may be, of EEI, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 14th day of February, 1995. /s/ D. W. Biegler ________________________________________ D. W. Biegler POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1994, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director or officer or both, as the case may be, of EEI, does hereby appoint D. W. Biegler or S. R. Singer, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as a director or officer or both, as the case may be, of EEI, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 14th day of February, 1995. /s/ Gary J. Junco ________________________________________ Gary J. Junco POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1994, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of EEI, does hereby appoint D. W. Biegler, G. J. Junco or S. R. Singer, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as a director of EEI, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 14th day of February, 1995. /s/ B. A. Bridgewater, Jr. _______________________________________ B. A. Bridgewater, Jr. POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1994, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of EEI, does hereby appoint D. W. Biegler, G. J. Junco or S. R. Singer, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as a director of EEI, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 14th day of February, 1995. /s/ Frederick S. Addy ________________________________________ Frederick S. Addy POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1994, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as an officer of EEI, does hereby appoint D. W. Biegler or G. J. Junco, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as an officer of EEI, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 14th day of February, 1995. /s/ S. R. Singer ________________________________________ S. R. Singer POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1994, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as an officer of EEI, does hereby appoint D. W. Biegler, G. J. Junco or S. R. Singer, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as an officer of EEI, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 14th day of February, 1995. /s/ J. W. Pinkerton ________________________________________ J. W. Pinkerton EX-27 11
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HISTORICAL FINANCIAL STATEMENTS OF ENSERCH EXPLORATION, INC. AND PREDECESSOR INCLUDED IN THE ENSERCH EXPLORATION, INC. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000931006 ENSERCH EXPLORATION, INC. 1,000 YEAR DEC-31-1994 DEC-31-1994 227 0 114,331 670 1,819 117,068 2,085,397 839,087 1,370,012 170,690 0 725,881 0 0 0 1,370,012 0 175,102 0 142,266 (311) 0 20,559 11,966 0 11,966 0 0 0 11,966 .12 .12