1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): N/A
NEWFIELD EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-12534 72-1133047
(State of other jurisdiction (Commission file (I.R.S employer
of incorporation of organization) number) identification number)
363 N. Sam Houston Parkway E.
Suite 2020
Houston, Texas 77060
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (281) 847-6000
2
ITEM 7. Financial Statements and Exhibits
On January 23, 2001, the registrant, Newfield Exploration Company (the
"Company"), acquired all of the outstanding capital stock of Lariat Petroleum,
Inc. ("Lariat") by merging Lariat with a wholly owned subsidiary of the Company.
Via an amended Current Report on Form 8-K/A, on February 13, 2001 the Company
filed with the SEC Lariat's audited consolidated financial statements as of and
for the year ended December 31, 1999 and unaudited interim financial statements
as of and for the nine months ended September 30, 2000, together with pro forma
combined financial statements of the Company as of September 30, 2000 and for
the year ended December 31, 1999 and the nine months ended September 30, 2000
that give effect to the acquisition of Lariat and an earlier separate
significant acquisition as if the acquisitions had occurred as of the dates
specified in the financial statements.
Pursuant to a Form S-3 registration statement (Registration No.
333-59391) filed with the SEC under the Securities Act of 1933 by the Company,
Newfield Financial Trust I and Newfield Financial Trust II, a wholly owned
finance subsidiary of the Company ("Trust II"), the Company registered the
offering and sale of a variety of its debt and equity securities and the
guarantee of trust preferred securities and Trust II registered the offer and
sale of its trust preferred securities.
In order for the Company and Trust II to offer and sell any further
securities pursuant to the above described registration statement, certain
additional financial information must be filed with the SEC.
Pursuant to Rule 3-10 of Regulation S-X, financial information
regarding Trust II is not required to be filed with the SEC if several
conditions are met, including the inclusion of a footnote containing certain
required disclosures about Trust II and its trust preferred securities. In order
to comply with this exemption, the Company is herewith re-filing its audited
consolidated financial statements as of December 31, 2000 and 1999 and for each
of the three years in the period ended December 31, 2000 for the sole purpose of
adding a new Note 16 that contains the required disclosures. No other changes
have been made to the Company's consolidated financial statements.
Pursuant to Rules 3-05 and 3-11 of Regulation S-X, the Company is
herewith filing Lariat's audited consolidated financial statements as of and for
the year ended December 31, 2000, together with pro forma combined income
statements of the Company for the year ended December 31, 2000 and the six
months ended June 30, 2001 that give effect to the acquisition of Lariat and an
earlier separate significant acquisition as if the acquisitions had occurred as
of January 1, 2000. The Company's historical balance sheet as of June 30, 2001
reflects the acquisition of Lariat and therefore, no pro forma balance sheet has
been provided.
(a) Financial Statements of Business Acquired
See "Index to Financial Statements" on page F-1.
(b) Pro Forma Financial Information
See "Index to Financial Statements" on page F-1.
(c) Exhibits
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Arthur Andersen LLP
1
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 8-K to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWFIELD EXPLORATION COMPANY
Date: October 3, 2001 By: /s/ Terry W. Rathert
---------------------------
Terry W. Rathert
Vice President, Chief Financial
Officer and Secretary
(Authorized Officer and Principal
Financial Officer)
2
4
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants ............................................................................ F-2
Consolidated Balance Sheet of Newfield Exploration Company as of the fiscal years
ended December 31, 2000 and 1999 ........................................................................ F-3
Consolidated Statement of Income of Newfield Exploration Company for each of the
three years in the period ended December 31, 2000 ....................................................... F-4
Consolidated Statement of Stockholders' Equity of Newfield Exploration Company for
each of the three years in the period ended December 31, 2000 ........................................... F-5
Consolidated Statement of Cash Flows of Newfield Exploration Company for each of the
three years in the period ended December 31, 2000 ....................................................... F-6
Notes to Consolidated Financial Statements of Newfield Exploration Company ................................... F-7
Supplementary Oil and Gas Disclosures of Newfield Exploration Company ........................................ F-29
Report of Independent Accountants ............................................................................ F-36
Consolidated Balance Sheet of Lariat Petroleum, Inc. as of December 31, 2000 ................................. F-37
Consolidated Statement of Operations of Lariat Petroleum, Inc. for the year ended December 31, 2000 .......... F-38
Consolidated Statement of Changes in Stockholders' Equity of Lariat Petroleum, Inc. for the year
ended December 31, 2000 ................................................................................. F-39
Consolidated Statement of Cash Flows of Lariat Petroleum, Inc. for the year ended December 31, 2000 .......... F-40
Notes to Consolidated Financial Statements of Lariat Petroleum, Inc. for the year ended
December 31, 2000 ....................................................................................... F-41
Supplementary Oil and Gas Disclosures of Lariat Petroleum, Inc. for the year ended
December 31, 2000 (Unaudited) ........................................................................... F-51
Pro Forma Combined Financial Statements (Unaudited) .......................................................... F-54
Pro Forma Combined Supplementary Oil and Gas Disclosures as of December 31, 2000 (Unaudited) ................. F-59
F-1
5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Newfield Exploration Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Newfield Exploration
Company and its subsidiaries at December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for its crude oil inventories in
connection with its adoption of SEC Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements" effective January 1, 2000.
PRICEWATERHOUSECOOPERS LLP
--------------------------------------
/s/ PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 20, 2001, except for Note 16,
as to which the date is September 18, 2001
F-2
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NEWFIELD EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------------
2000 1999
------------ ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 18,451 $ 41,841
Accounts receivable -- oil and gas........................ 147,643 67,744
Inventories............................................... 7,164 9,962
Other current assets...................................... 5,891 6,382
---------- ----------
Total current assets............................... 179,149 125,929
---------- ----------
Oil and gas properties (full cost method, of which $106,783
at December 31, 2000 and $77,732 at December 31, 1999 were
excluded from amortization)............................... 1,589,558 1,210,895
Less -- accumulated depreciation, depletion and
amortization.............................................. (756,243) (566,053)
---------- ----------
833,315 644,842
---------- ----------
Furniture, fixtures and equipment, net...................... 4,028 3,369
Other assets................................................ 6,758 7,421
---------- ----------
Total assets....................................... $1,023,250 $ 781,561
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 10,209 $ 7,035
Accrued liabilities....................................... 128,190 81,635
Advances from joint owners................................ 2,661 2,057
---------- ----------
Total current liabilities.......................... 141,060 90,727
---------- ----------
Other liabilities........................................... 6,030 10,586
Long-term debt.............................................. 133,711 124,679
Deferred taxes.............................................. 79,244 36,801
---------- ----------
Total long-term liabilities........................ 218,985 172,066
---------- ----------
Company-obligated, mandatorily redeemable, convertible
preferred securities of Newfield Financial Trust I........ 143,750 143,750
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock ($0.01 par value, 5,000,000 shares
authorized; no shares issued)........................... -- --
Common stock ($0.01 par value, 100,000,000 shares
authorized; 42,607,301 and 41,734,884 shares issued and
outstanding at December 31, 2000 and December 31, 1999,
respectively)........................................... 426 417
Additional paid-in capital................................ 286,412 267,352
Unearned compensation..................................... (6,201) (3,685)
Accumulated other comprehensive loss -- foreign currency
translation adjustment.................................. (4,644) (179)
Retained earnings......................................... 243,462 111,113
---------- ----------
Total stockholders' equity......................... 519,455 375,018
---------- ----------
Total liabilities and stockholders' equity......... $1,023,250 $ 781,561
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
7
NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Oil and gas revenues.................................. $ 526,642 $ 287,889 $ 199,474
----------- ----------- -----------
Operating expenses:
Lease operating..................................... 65,372 45,561 35,345
Production and other taxes.......................... 10,288 2,215 --
Transportation...................................... 5,984 5,922 3,789
Depreciation, depletion and amortization............ 191,182 152,644 123,147
Ceiling test writedown.............................. 503 -- 104,955
General and administrative (includes non-cash stock
compensation of $3,047, $1,999 and $2,222 for
2000, 1999 and 1998, respectively)............... 32,084 16,404 12,070
----------- ----------- -----------
Total operating expenses.................... 305,413 222,746 279,306
----------- ----------- -----------
Income (loss) from operations......................... 221,229 65,143 (79,832)
Other income (expenses):
Interest income..................................... 2,124 1,616 964
Interest expense, net............................... (9,320) (11,188) (9,508)
Dividends on convertible preferred securities of
Newfield Financial Trust I.......................... (9,344) (3,556) --
----------- ----------- -----------
(16,540) (13,128) (8,544)
----------- ----------- -----------
Income (loss) before income taxes..................... 204,689 52,015 (88,376)
Income tax provision (benefit):
Current............................................. 15,897 1,105 --
Deferred............................................ 54,083 17,706 (30,677)
----------- ----------- -----------
69,980 18,811 (30,677)
----------- ----------- -----------
Income (loss) before cumulative effect of change in
accounting principle................................ 134,709 33,204 (57,699)
Cumulative effect of change in accounting principle,
net of tax.......................................... (2,360) -- --
----------- ----------- -----------
Net income (loss)........................... $ 132,349 $ 33,204 $ (57,699)
=========== =========== ===========
Earnings (loss) per share:
Basic --
Income (loss) before cumulative effect of change in
accounting principle............................. $ 3.18 $ 0.81 $ (1.55)
Cumulative effect of change in accounting principle,
net of tax....................................... (0.05) -- --
----------- ----------- -----------
Net income (loss)........................... $ 3.13 $ 0.81 $ (1.55)
=========== =========== ===========
Diluted --
Income (loss) before cumulative effect of change in
accounting principle............................. $ 2.98 $ 0.79 $ (1.55)
Cumulative effect of change in accounting principle,
net of tax....................................... (0.05) -- --
----------- ----------- -----------
Net income (loss)........................... $ 2.93 $ 0.79 $ (1.55)
=========== =========== ===========
Weighted average number of shares outstanding for
basic earnings per share............................ 42,332,835 41,194,021 37,311,928
=========== =========== ===========
Weighted average number of shares outstanding for
diluted earnings per share.......................... 47,227,708 42,293,865 37,311,928
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
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NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------- PAID-IN UNEARNED RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS LOSS EQUITY
---------- ------ ---------- ------------ -------- ------------- -------------
BALANCE, DECEMBER 31, 1997...... 35,975,777 $360 $160,672 $(4,592) $135,608 $ -- $292,048
Issuance of common stock...... 4,341,620 43 85,472 85,515
Issuance of restricted stock,
less amortization of $583... 115,668 1 2,706 (2,124) 583
Cancellation of restricted
stock....................... (3,336) (70) 50 (20)
Amortization of stock
compensation................ 1,659 1,659
Tax benefit from exercise of
stock options............... 1,862 1,862
Net loss...................... (57,699) (57,699)
---------- ---- -------- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1998...... 40,429,729 404 250,642 (5,007) 77,909 -- 323,948
Issuance of common stock...... 1,283,544 13 7,995 8,008
Issuance of restricted stock,
less amortization of $218... 37,211 1,048 (830) 218
Cancellation of restricted
stock....................... (15,600) (371) 312 (59)
Amortization of stock
compensation................ 1,840 1,840
Tax benefit from exercise of
stock options............... 8,038 8,038
Comprehensive Income:
Net income.................... 33,204 33,204
Foreign currency translation
adjustment, net of tax of
$96......................... (179) (179)
--------
Total comprehensive
income................ 33,025
---------- ---- -------- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1999...... 41,734,884 417 267,352 (3,685) 111,113 (179) 375,018
Issuance of common stock...... 776,161 8 6,925 6,933
Issuance of restricted stock,
less amortization of $646... 96,256 1 5,562 (4,917) 646
Amortization of stock
compensation................ 2,401 2,401
Tax benefit from exercise of
stock options............... 6,573 6,573
Comprehensive Income:
Net income.................... 132,349 132,349
Foreign currency translation
adjustment, net of tax of
$2,404...................... (4,465) (4,465)
--------
Total comprehensive
income................ 127,884
---------- ---- -------- ------- -------- ------- --------
BALANCE, DECEMBER 31, 2000...... 42,607,301 $426 $286,412 $(6,201) $243,462 $(4,644) $519,455
========== ==== ======== ======= ======== ======= ========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
9
NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss)....................................... $ 132,349 $ 33,204 $ (57,699)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization................ 191,182 152,644 123,147
Ceiling test writedown.................................. 503 -- 104,955
Deferred taxes.......................................... 54,083 17,706 (30,677)
Stock compensation...................................... 3,047 1,999 2,222
Cumulative effect of change in accounting principle..... 2,360 -- --
--------- --------- ---------
383,524 205,553 141,948
Changes in assets and liabilities:
(Increase) decrease in accounts receivable -- oil and
gas.................................................. (81,854) (23,382) 11,028
(Increase) decrease in inventories...................... (2,143) 775 --
(Increase) decrease in other current assets............. (1,442) (2,780) 344
(Increase) decrease in other assets..................... 663 (4,010) (130)
Increase (decrease) in accounts payable and accrued
liabilities.......................................... 21,405 12,020 (4,652)
Increase in advances from joint owners.................. 604 105 1,392
Decrease in other liabilities........................... (4,313) (3,378) (3,355)
--------- --------- ---------
Net cash provided by operating activities....... 316,444 184,903 146,575
--------- --------- ---------
Cash flows from investing activities:
Acquisition of Gulf Australia, net of cash acquired of
$12,064.............................................. -- (10,977) --
Additions to oil and gas properties..................... (353,856) (197,882) (317,831)
Additions to furniture, fixtures and equipment.......... (1,691) (1,958) (1,160)
--------- --------- ---------
Net cash used in investing activities........... (355,547) (210,817) (318,991)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings................................ 219,000 443,000 795,750
Repayments of borrowings................................ (210,000) (527,000) (716,750)
Proceeds from issuance of convertible preferred
securities........................................... -- 143,750 --
Proceeds from issuances of common stock, net............ 6,933 8,008 85,291
--------- --------- ---------
Net cash provided by financing activities....... 15,933 67,758 164,291
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................. (220) (95) --
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.......... (23,390) 41,749 (8,125)
Cash and cash equivalents, beginning of period............ 41,841 92 8,217
--------- --------- ---------
Cash and cash equivalents, end of period.................. $ 18,451 $ 41,841 $ 92
========= ========= =========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
10
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Principles of Consolidation
These financial statements include the accounts of Newfield Exploration
Company, a Delaware corporation, and its subsidiaries (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated. As an independent oil and gas producer, the Company's revenue,
profitability and future rate of growth are substantially dependent upon
prevailing prices for natural gas, oil and condensate, which are dependent upon
numerous factors beyond the Company's control, such as economic, political and
regulatory developments and competition from other sources of energy. The energy
markets have historically been very volatile, and there can be no assurance that
oil and gas prices will not be subject to wide fluctuations in the future. A
substantial or extended decline in oil and gas prices could have a material
adverse effect on the Company's financial position, results of operations, cash
flows and access to capital and on the quantities of oil and gas reserves that
may be economically produced.
Use of Estimates and Reclassifications
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results could differ from these estimates. The
Company's most significant financial estimates are based on remaining proved oil
and gas reserves. Certain reclassifications have been made to prior years
reported amounts in order to conform with the current year presentation. As a
result of the adoption of Emerging Issues Task Force (EITF) No. 00-10,
"Accounting for Shipping and Handling Fees and Costs," the Company has
reclassified to operating expenses, for all periods presented, third party costs
incurred to transport production to the Company's respective sales point instead
of as a reduction of the related revenues as previously reported.
Accounting Change
The Company adopted SEC Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," effective January 1, 2000. The adoption of
SAB No. 101 requires the Company to report crude oil inventory associated with
its Australian offshore operations at lower of cost or market, which is a change
from the historical policy of recording such inventory at market value on the
balance sheet date, net of estimated costs to sell. The cumulative effect of the
change from the acquisition date of the Company's Australian operations in July
1999 through December 31, 1999 is a reduction in net income of $2.36 million, or
$0.05 per diluted share, and is shown as the cumulative effect of change in
accounting principle on the consolidated statement of income for the year ended
December 31, 2000. The pro forma effect had SAB No. 101 been applied
retroactively in 1999 would have been as follows:
AS REPORTED PRO FORMA
----------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income........................................... $33,204 $30,844
Earnings per share:
Basic.............................................. $ 0.81 $ 0.75
Diluted............................................ $ 0.79 $ 0.73
SAB No. 101 would not have effected periods prior to the acquisition of the
Company's Australian operations in July 1999.
F-7
11
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenues are recorded when title passes to the customer. Revenues from the
production of oil and gas properties in which the Company has an interest with
other companies are recorded on the basis of sales to customers. Differences
between these sales and the Company's share of production are not significant.
Inventories
Inventories consist of international oil produced but not sold. Crude oil
from the Company's operations located offshore Australia is produced into a
floating production, storage and off-loading vessel (FPSO) and sold periodically
as a barge quantity is accumulated. The product inventory at December 31, 2000
consisted of approximately 252,450 barrels of crude oil, valued at $3.3 million
net to the Company's interest, and is carried at lower of average cost or
market. Also included in inventories are materials and supplies, stated at lower
of average cost or market.
Foreign Currency
The functional currency for all foreign operations, except Australia, is
the U.S. dollar. Translation adjustments resulting from translating the
Australian subsidiary's Australian dollar financial statements into U.S. dollars
are included as other comprehensive income in the consolidated statement of
stockholders' equity. Gains and losses incurred on currency transactions in
other than a country's functional currency are included in the consolidated
statement of income.
Earnings Per Share
Basic earnings (loss) per common share (EPS) is computed by dividing net
income (loss) by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
outstanding stock options and convertible securities were exercised for or
converted into common stock.
F-8
12
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a calculation of basic and diluted weighted average shares
outstanding for each of the three years in the period ended December 31, 2000:
2000 1999 1998
-------------- -------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Income (loss) (numerator):
Income (loss) before cumulative effect
change in accounting principle........... $ 134,709 $ 33,204 $ (57,699)
Cumulative effect change in accounting
principle, net of tax.................... (2,360) -- --
----------- ----------- -----------
Income (loss) -- basic...................... 132,349 33,204 (57,699)
After tax dividends on convertible trust
preferred securities..................... 6,074 -- --
----------- ----------- -----------
Income (loss) -- diluted.................... $ 138,423 $ 33,204 $ (57,699)
=========== =========== ===========
Shares (denominator):
Shares -- basic............................. 42,332,835 41,194,021 37,311,928
Dilution effect of stock options outstanding
at end of period......................... 971,648 1,099,844 --
Dilution effect of convertible trust
preferred securities..................... 3,923,225 -- --
----------- ----------- -----------
Shares -- diluted........................... 47,227,708 42,293,865 37,311,928
=========== =========== ===========
Earnings (loss) per share:
Basic before change in accounting
principle................................ $ 3.18 $ 0.81 $ (1.55)
Basic....................................... $ 3.13 $ 0.81 $ (1.55)
Diluted before change in accounting
principle................................ $ 2.98 $ 0.79 $ (1.55)
Diluted..................................... $ 2.93 $ 0.79 $ (1.55)
The calculation of diluted EPS for 1999 does not include the effect of
3,923,225 shares underlying the 6.5% quarterly income convertible trust
preferred securities because to do so would have been antidilutive.
Additionally, the calculation of shares outstanding for diluted EPS for each of
the three years in the period ended December 31, 2000 does not include the
effect of outstanding stock options to purchase 127,000, 270,000 and 3,921,420
shares, respectively, because to do so would have been antidilutive.
Financial Instruments
Cash equivalents include highly-liquid investments with a maturity of three
months or less when acquired. The Company invests cash in excess of operating
requirements in U.S. Treasury Notes, Eurodollar bonds and investment grade
commercial paper. Cash equivalents are stated at cost, which approximates fair
market value.
The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different from
the book value. The book value of those financial instruments that are
classified as current assets or liabilities approximate fair value because of
the short maturity of those instruments.
The Company enters into various commodity price hedging contracts with
respect to its oil and gas production. While the use of these hedging
arrangements limits the downside risk of adverse price movements, they may also
limit future revenues from favorable price movements. The use of hedging
transactions also involves the risk that the counterparties will be unable to
meet the financial terms of such
F-9
13
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions. Such contracts are accounted for as hedges, in accordance with
SFAS No. 80. Gains and losses on these contracts are recognized in revenue in
the period in which the underlying production is delivered. These instruments
are measured for correlation at both the inception of the contract and on an
ongoing basis. If these instruments cease to meet the criteria for deferral
accounting, any subsequent gains or losses are recognized in revenue. If these
instruments are terminated prior to maturity, resulting gains and losses
continue to be deferred until the hedged item is recognized in revenue. Neither
the hedging contracts nor the unrealized gains or losses on these contracts are
recognized in the financial statements.
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires
enterprises to recognize all derivatives as either assets or liabilities on
their balance sheet and measure those instruments at fair value. See Note
3 -- "Recent Adoption of SFAS No. 133."
Oil and Gas Properties
The Company uses the full cost method of accounting. Under this method, all
costs incurred in the acquisition, exploration and development of oil and gas
properties are capitalized into cost centers that are established on a
country-by-country basis. Such capitalized costs and estimated future
development and dismantlement costs are amortized on a unit-of-production method
based on proved reserves. For each cost center, the net capitalized costs of oil
and gas properties are limited to the lower of unamortized cost or the cost
center ceiling, defined as the sum of the present value (10% per annum discount
rate) of estimated future net revenues from proved reserves, based on year-end
oil and gas prices; plus the cost of properties not being amortized, if any;
plus the lower of cost or estimated fair value of unproved properties included
in the costs being amortized, if any; less related income tax effects. In
accordance with full cost accounting rules, the Company recorded a charge of
$0.5 million in 2000 related to abandoned prospect costs in foreign locations
other than Australia or China. Additionally, a writedown of domestic oil and gas
properties of $105.0 million (resulting in a charge to earnings of $68.3 million
after-tax) was recorded at December 31, 1998. The writedown was primarily
attributable to the lower prices for both oil and natural gas at December 31,
1998.
Proceeds from the sale of oil and gas properties are applied to reduce the
costs in the cost center unless the sale involves a significant quantity of
reserves in relation to the cost center, in which case a gain or loss is
recognized.
Unevaluated properties and associated costs relating to domestic and
Australian operations not currently being amortized and included in oil and gas
properties were $90.5 million and $67.3 million at December 31, 2000 and 1999,
respectively. The properties associated with these costs were at such dates
undergoing exploration activities or are properties on which the Company intends
to commence such activities in the future. The Company believes that these
unevaluated properties at December 31, 2000 will be substantially evaluated and
therefore subject to amortization within 12 to 24 months. Additionally, at
December 31, 2000 and 1999, there were $16.2 million and $10.4 million,
respectively, of unproved property costs associated with the Company's
investment in international activities other than in Australia. While the
Company will continue to evaluate these properties and costs, the timing of the
completion of such evaluations is uncertain because of the substantial time
period required to establish the commerciality of projects or commence
operations in some foreign countries.
Other property and equipment are recorded at cost and are depreciated over
their estimated useful lives of five to seven years using the straight-line
method. At December 31, 2000 and 1999, furniture, fixtures and equipment is net
of accumulated depreciation of $3.5 million and $2.6 million, respectively.
F-10
14
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Abandonment and Dismantlement Costs
Future abandonment and dismantlement costs include costs to dismantle and
relocate or dispose of the Company's offshore production platforms, FPSOs,
gathering systems, wells and related structures. The Company develops estimates
of its future abandonment and dismantlement costs for each of its offshore
properties based upon the type of production structure, depth of water,
currently available abandonment procedures and consultations with construction
and engineering consultants. The Company does not currently anticipate
additional abandonment and dismantlement costs will be incurred beyond such
estimates. Such estimates are re-evaluated at least annually by the Company's
engineers.
Total estimated future abandonment and dismantlement costs associated with
the Company's developed and acquired properties were $120.4 million, $133.1
million and $69.1 million as of December 31, 2000, 1999 and 1998, respectively.
Estimated future abandonment and dismantlement costs are accrued on a
unit-of-production method based on proved reserves. The portion of future
abandonment and dismantlement costs that has been accrued is included in
accumulated depreciation, depletion and amortization and was $56.9 million,
$43.1 million and $29.7 million as of December 31, 2000, 1999 and 1998,
respectively.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined by applying tax
regulations existing at the end of a reporting period to the cumulative
temporary differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements.
A valuation allowance is established to reduce deferred tax assets if it is
more likely than not that the related tax benefits will not be realized.
Concentration of Credit Risk
The Company maintains cash balances with several banks that frequently
exceed federally insured limits and invests its cash in investment grade
commercial and U.S. Government-backed securities. The Company's joint interest
partners consist primarily of independent oil and gas producers. The Company's
oil and gas production purchasers consist primarily of independent marketers and
major gas pipeline companies. The Company performs credit evaluations of its
customers' financial condition and obtains letters of credit and parental
guarantees from selected customers. The Company has not experienced any
significant losses from uncollectible accounts. All of the Company's hedging
transactions have been carried out in the over-the-counter market.
Major Customers
The Company sold oil and gas production representing more than 10% of its
oil and gas revenues for the year ended December 31, 2000 to Conoco Inc. (35%)
and Superior Natural Gas Corporation (16%); for the year ended December 31, 1999
to Conoco Inc. (18%) and Superior Natural Gas Corporation (10%); and for the
year ended December 31, 1998 to Conoco Inc. (13%) and Coast Energy Group (10%).
Because alternative purchasers of oil and gas are readily available, the Company
believes that the loss of any of these purchasers would not have a material
adverse effect on the Company.
2. HEDGING TRANSACTIONS:
During 2000, approximately 47% of the Company's equivalent production was
subject to hedge positions as compared to 55% in 1999 and 61% in 1998.
F-11
15
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2000, the Company had entered into commodity price
hedging contracts with respect to its natural gas production for 2001 and 2002
as follows:
NYMEX CONTRACT PRICE PER MMBTU
--------------------------------------------------
COLLARS
VOLUME IN SWAPS -------------------------- FLOOR FAIR MARKET
PERIOD MMMBTUS (AVERAGE) FLOORS CEILINGS CONTRACTS VALUE(1)
----------------------------- --------- --------- ----------- ------------ --------- ---------------
January 2001 -- March 2001
Price Swap Contracts....... 10,510 $3.29 -- -- -- $ (64.5 Million)
Collar Contracts........... 5,980 -- $2.75-$7.00 $3.21-$10.80 -- $ (20.5 Million)
April 2001 -- June 2001
Price Swap Contracts....... 7,380 $3.42 -- -- -- $ (17.8 Million)
Collar Contracts........... 9,080 -- $2.75-$4.50 $3.21-$6.15 -- $ (9.3 Million)
July 2001 -- September 2001
Price Swap Contracts....... 2,780 $5.17 -- -- -- $ (0.5 Million)
Collar Contracts........... 9,400 -- $3.50-$4.50 $3.85-$6.00 -- $ (6.4 Million)
October 2001 -- December 2001
Price Swap Contracts....... 1,770 $5.23 -- -- -- $ (0.3 Million)
Collar Contracts........... 900 -- $4.00-$4.50 $5.75-$6.00 -- $ (0.3 Million)
Floor Contracts............ 900 -- -- -- $4.54 $ 0.2 Million
January 2002 -- December 2002
Collar Contracts........... 4,800 -- $4.00 $4.80-$5.15 -- $ (0.4 Million)
---------------
(1) Except for January 2001 hedging contracts, fair market value is calculated
using prices derived from NYMEX futures contract prices existing at December
31, 2000. Because January 2001 NYMEX futures contracts expired on December
27, 2000, the fair market value of January 2001 hedging contracts represents
the actual settlement value of such contracts.
As of December 31, 1999, the Company had entered into commodity price
hedging contracts with respect to its natural gas production for 2000 as
follows:
NYMEX CONTRACT PRICE PER MMBTU
-----------------------------------------
COLLARS
VOLUME IN SWAPS ----------------- FLOOR FAIR MARKET
PERIOD MMMBTUS (AVERAGE) FLOORS CEILINGS CONTRACTS VALUE(1)
---------------------------------- --------- --------- ------ -------- --------- ------------
January 2000
Price Swap Contracts............ 750 $2.74 -- -- -- $0.9 Million
Collar Contracts................ 250 -- $2.63 $ 3.25 -- $0.1 Million
Floor Contracts................. 100 -- -- -- $2.63 --
---------------
(1) Because January 2000 NYMEX futures contracts expired on December 28, 1999,
the fair market value of these hedging contracts represents the actual
settlement value of such contracts.
These hedging transactions are settled based upon the average of the
reported settlement prices on the NYMEX for the last three trading days or,
occasionally, the penultimate trading day of a particular contract month. With
respect to any particular swap transaction, the counterparty is required to make
a payment to the Company in the event that the settlement price for any
settlement period is less than the swap price for such transaction, and the
Company is required to make payment to the counterparty in the event that the
settlement price for any settlement period is greater than the swap price for
such transaction. For any particular collar transaction, the counterparty is
required to make a payment to the Company if the settlement price for any
settlement period is below the floor price for such transaction, and the Company
is required to make payment to the counterparty if the settlement price for any
settlement period is above the ceiling price of such transaction. For any
particular floor transaction, the counterparty
F-12
16
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is required to make a payment to the Company if the settlement price for any
settlement period is below the floor price for such transaction. The Company is
not required to make any payment in connection with the settlement of a floor
transaction.
The Company believes that it has no material basis risk with respect to gas
swaps because substantially all of the Company's natural gas production is sold
under spot contracts that have historically correlated with the settlement
price.
As of December 31, 2000, the Company had entered into commodity price
hedging contracts with respect to its oil production for 2001 and 2002 as
follows:
NYMEX CONTRACT PRICE PER BBL
---------------------------------------------------------
COLLARS
VOLUME IN SWAPS ----------------------------- FLOOR FAIR MARKET
PERIOD BBLS (AVERAGE) FLOORS CEILINGS CONTRACTS VALUE(1)
----------------------------- --------- --------- ------------- ------------- ------------- -------------
January 2001 -- March 2001
Price Swap Contracts....... 540,000 $21.99 -- -- -- $(2.9 Million)
Collar Contracts........... 270,000 -- $25.00 $30.05-$30.75 -- $ 0.2 Million
Floor Contracts............ 238,500 -- -- -- $22.17-$29.58 $ 0.6 Million
April 2001 -- June 2001
Price Swap Contracts....... 436,800 $22.80 -- -- -- $(1.1 Million)
Collar Contracts........... 364,000 -- $25.00-$27.25 $30.05-$30.75 -- $ 0.6 Million
Floor Contracts............ 186,550 -- -- -- $22.17-$28.28 $ 0.5 Million
July 2001 -- September 2001
Price Swap Contracts....... 391,000 $23.88 -- -- -- $(0.3 Million)
Collar Contracts........... 414,000 -- $24.00-$26.25 $27.30-$32.45 -- $ 0.6 Million
Floor Contracts............ 207,000 -- -- -- $22.17-$27.04 $ 0.6 Million
October 2001 -- December 2001
Price Swap Contracts....... 386,400 $23.24 -- -- -- $(0.3 Million)
Collar Contracts........... 345,000 -- $24.00-$25.25 $27.30-$30.75 -- $ 0.3 Million
Floor Contracts............ 262,200 -- -- -- $22.17-$26.00 $ 0.9 Million
January 2002 -- March 2002
Collar Contracts........... 517,500 -- $22.00-$25.00 $25.75-$30.75 -- $ 0.2 Million
April 2002 -- June 2002
Collar Contracts........... 455,000 -- $22.00-$25.00 $25.75-$30.75 -- $ 0.1 Million
July 2002 -- September 2002
Collar Contracts........... 345,000 -- $23.00-$25.00 $26.75-$30.75 -- $ 0.3 Million
October 2002 -- December 2002
Collar Contracts........... 184,000 -- $25.00 $28.00-$30.75 -- $ 0.2 Million
---------------
(1) Except for January 2001 hedging contracts, fair market value is calculated
using prices derived from NYMEX futures contract prices existing at December
31, 2000. Because January 2001 NYMEX futures contracts expired on December
19, 2000, the fair market value of January 2001 hedging contracts represents
the actual settlement value of such contracts.
F-13
17
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, the Company had entered into commodity price
hedging contracts with respect to its oil production for 1999 as follows:
NYMEX CONTRACT PRICE PER BBL
---------------------------------------------------------
COLLARS
VOLUME IN SWAPS ----------------------------- FLOOR FAIR MARKET
PERIOD BBLS (AVERAGE) FLOORS CEILINGS CONTRACTS VALUE(1)
----------------------------- --------- --------- ------------- ------------- ------------- -------------
January 2000-March 2000
Price Swap Contracts....... 455,000 $21.63 -- -- -- $(1.6 Million)
Collar Contracts........... 182,000 -- $18.28-$19.50 $20.10-$21.00 -- $(0.2 Million)
Floor Contracts............ 91,000 -- -- -- $19.32 $(0.8 Million)
April 2000-June 2000
Price Swap Contracts....... 455,000 $21.70 -- -- -- $(0.3 Million)
Collar Contracts........... 182,000 -- $18.28-$19.50 $20.10-$21.00 -- $(0.3 Million)
July 2000-September 2000
Price Swap Contracts....... 460,000 $21.70 -- -- -- $ 0.3 Million
Collar Contracts........... 92,000 -- $18.28 $21.00 -- $(0.1 Million)
October 2000-December 2000
Price Swap Contracts....... 460,000 $21.70 -- -- -- $ 0.7 Million
January 2001-March 2001
Price Swap Contracts....... 180,000 $21.25 -- -- -- $ 0.3 Million
---------------
(1) Except for January 2000 hedging contracts, fair market value is calculated
using prices derived from NYMEX futures contract prices existing at December
31, 1999. Because January 2000 NYMEX futures contracts expired on December
20, 1999, the fair market value of January 2000 hedging contracts represents
the actual settlement value of such contracts.
Because substantially all of the Company's domestic oil production is sold
under spot contracts that have historically correlated to the NYMEX West Texas
Intermediate price, the Company believes that it has no material basis risk with
respect to these transactions. The actual cash price the Company receives in the
U.S., however, generally is about $2.00 per barrel less than the NYMEX West
Texas Intermediate price when adjusted for location and quality differences.
See Note 3 -- "Recent Adoption of SFAS No. 133" for a discussion of the
Company's adoption of SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities."
3. RECENT ADOPTION OF SFAS NO. 133:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
FASB has subsequently issued SFAS Nos. 137 and 138, which are amendments to SFAS
No. 133. SFAS No. 133 is effective for fiscal years beginning after June 30,
2000. We adopted SFAS No. 133 on January 1, 2001.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. All derivatives will be recorded on the
balance sheet at fair value and changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of transaction. The Company's derivative
contracts consist primarily of cash flow hedge transactions in which it hedges
the variability of cash flows related to a forecasted transaction. Changes in
the fair value of these derivative instruments will be recorded in other
comprehensive income and will be reclassified as earnings in the periods in
which earnings are impacted by the variability of the cash flows of the hedged
item. The ineffective portion related to basis changes and time value of all
hedges will be recognized in current period earnings.
F-14
18
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the transition provisions of SFAS No. 133, on January 1,
2001, in connection with its hedging activities, the Company recorded as
cumulative effect adjustments a loss of $74.2 million (net of tax of $40.0
million) in accumulated other comprehensive loss and a loss of $4.8 million (net
of tax of $2.6 million) in 2001 earnings. In addition, the adoption resulted in
the recognition of $17.7 million of derivative assets and $139.3 million of
derivative liabilities on the balance sheet on January 1, 2001. Based on fair
values at January 1, 2001 and the settlement dates of such derivatives, the
Company expects to reclassify approximately $75.3 million (net of tax of $40.5
million) of the transition adjustment recorded in accumulated other
comprehensive loss to earnings in 2001.
The Company is not in violation of any debt covenants or other contracts as
a result of implementing SFAS No. 133.
4. DEBT:
Long-term debt consisted of the following:
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
(IN THOUSANDS)
Senior Unsecured Debt:
Bank revolving credit facility:
Prime rate based loans................................. $ -- $ --
LIBOR based loans...................................... 4,000 --
-------- --------
Total bank revolving credit facility.............. 4,000 --
-------- --------
7.45% Senior Notes due 2007............................... 124,711 124,679
-------- --------
Money market credit lines................................. 5,000 --
-------- --------
Long-term debt.................................... $133,711 $124,679
======== ========
At December 31, 2000, the interest rate was 7.22% for LIBOR based loans and
for the loans outstanding under the money market credit lines was 7.31%.
The estimated fair market value of the 7.45% Senior Notes due 2007, based
on quoted market prices at December 31, 2000 and 1999, was $114.0 million and
$115.2 million, respectively. Debt outstanding under the bank revolving credit
facility is stated at cost, which approximates fair market value.
At December 31, 2000, the Company maintained its reserve-based revolving
credit facility with Chase Bank of Texas, National Association, as agent. As
discussed in Note 14 -- "Subsequent Events," the Company obtained a new
reserved-based revolving credit facility as of January 23, 2001. The old
facility provided a $225 million revolving credit maturing on October 31, 2002.
The amount available under the facility was subject to a calculated borrowing
base determined by a majority of the banks participating in the facility, which
was reduced by the aggregate principal outstanding on the Company's senior notes
($125 million at December 31, 2000). The borrowing base was $380 million at
December 31, 2000. At December 31, 2000, there was $4 million outstanding under
the facility.
Borrowings under the old facility bore interest, at the Company's option,
at (i) the higher of (a) the federal fund rate plus 50 basis points and (b) the
bank's prime rate or (ii) LIBOR plus a variable margin, which was based upon the
loan amount outstanding relative to the borrowing base and the Company's
corporate credit ratings.
The facility also provided for the payment of a commitment fee and a
standby fee. The Company paid fees of approximately $315,000, $336,000 and
$178,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
F-15
19
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. CONVERTIBLE PREFERRED SECURITIES OF NEWFIELD FINANCIAL TRUST I:
In August 1999, Newfield Financial Trust I, a Delaware business trust and
wholly owned subsidiary of the Company (the "Trust"), issued, in an underwritten
public offering, $143,750,000 (2,875,000 securities having a liquidation
preference of $50 each) of 6.5% Cumulative Quarterly Income Convertible
Securities, Series A (the "Trust Preferred Securities"). The proceeds of the
issuance of the Trust Preferred Securities were used to purchase $143,750,000 of
the Company's 6.5% Junior Subordinated Convertible Debentures, due 2029 (the
"Debentures"). The interest terms and payment dates of the Debentures correspond
to those of the Trust Preferred Securities. The Company's obligations under the
Debentures and related agreements, when taken together, constitute a full and
unconditional guarantee of payments due on the Trust Preferred Securities. The
sole asset of the Trust is the Debentures. The Trust has no independent
operations. The Debentures are eliminated in the consolidated financial
statements.
The Trust Preferred Securities accrue and pay distributions quarterly in
arrears at a rate of 6.5% per annum on the stated liquidation amount of $50 per
Trust Preferred Security on February 15, May 15, August 15, and November 15 of
each year to holders of record 15 business days immediately preceding the
distribution payment date. The Company may on one or more occasions defer the
payment of interest on the Debentures for up to 20 consecutive quarterly periods
unless an event of default on the Debentures has occurred and is continuing.
During any such deferral period, the Trust will defer the payment of
distributions, but accrued distributions on the Trust Preferred Securities will
compound quarterly and the Company will generally not be permitted to declare or
pay any dividends or distributions on, or redeem or acquire, any of its capital
stock or make any payment of principal or interest on any debt securities that
rank equal or junior to the Debentures.
The Trust Preferred Securities are convertible at the option of the holder
at any time into common stock of the Company at the rate of 1.3646 shares of
Company common stock per Trust Preferred Security. This conversion rate is
subject to adjustment to prevent dilution and is currently equivalent to a
conversion price of $36.64 per share of Company common stock. The Trust
Preferred Securities are mandatorily redeemable upon maturity of the Debentures
on August 15, 2029, and on a proportionate basis to the extent of any earlier
redemption of any Debenture by the Company. The Debentures are redeemable by the
Company at any time after August 15, 2002.
The estimated fair market value of the Trust Preferred Securities at
December 31, 2000 and 1999, based on quoted market prices, was $207.0 million
and $134.8 million, respectively.
6. INCOME TAXES:
Income (loss) before income taxes is composed of the following:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
--------- -------- ---------
(IN THOUSANDS)
U.S. federal.......................................... $180,741 $41,178 $(88,376)
Foreign............................................... 23,948 10,837 --
-------- ------- --------
Total....................................... $204,689 $52,015 $(88,376)
======== ======= ========
F-16
20
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total provision for income taxes consists of the following:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
-------- -------- ---------
(IN THOUSANDS)
Current taxes:
U.S. federal......................................... $15,897 $ 1,105 $ --
Deferred taxes:
U.S. federal......................................... 47,442 13,668 (30,677)
Foreign.............................................. 6,641 4,038 --
------- ------- --------
$69,980 $18,811 $(30,677)
======= ======= ========
The components of deferred tax assets and liabilities are as follows:
DECEMBER 31, 2000 DECEMBER 31, 1999
-------------------- --------------------
U.S. AUSTRALIA U.S. AUSTRALIA
-------- --------- -------- ---------
(IN THOUSANDS)
Deferred tax assets:
Alternative minimum tax credit............. $ -- $ -- $ 2,953 $ --
Net operating loss carry forwards.......... 1,750 190 23,961 4,646
Other, net................................. 2,609 284 1,834 --
-------- ------- -------- -------
Gross deferred tax asset........... 4,359 474 28,748 4,646
Valuation allowance........................ -- -- -- (2,326)
-------- ------- -------- -------
Net deferred tax asset............. 4,359 474 28,748 2,320
-------- ------- -------- -------
Deferred tax liability:
Oil and gas properties..................... (82,175) (1,902) (65,549) --
-------- ------- -------- -------
Net deferred tax asset (liability)........... (77,816) (1,902) (36,801) 2,320
Less current deferred tax asset.............. -- -- -- 2,320
-------- ------- -------- -------
Noncurrent deferred tax liability............ $(77,816) $(1,428) $(36,801) $ --
======== ======= ======== =======
U.S. deferred taxes have not been provided on foreign income of $32.1
million that is permanently reinvested in Australia. The Company currently does
not have any foreign tax credits available to reduce U.S. taxes on such income
if it was repatriated.
In connection with its acquisition of Gulf Australia in July 1999, the
Company recorded a valuation allowance of $2.3 million to reduce acquired NOL
carryforwards to an amount that, more likely than not, would be realized. During
2000, primarily as a result of a substantial increase in estimated taxable
income resulting from increased commodity prices, the valuation allowance was
reversed and a majority of the remaining Australian NOL carryforwards were
realized.
F-17
21
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
The Company has entered into a non-cancellable operating lease agreement
for office space in Houston, Texas. The lease term expires in October 2005,
subject to two options to renew for five years each. In addition, the Company
enters into various other equipment leases as part of its operations.
Future minimum lease payments required as of December 31, 2000 related to
these operating leases are as follows:
YEAR ENDING DECEMBER 31,
------------------------ (IN THOUSANDS)
2001................................................... $ 3,279
2002................................................... 3,360
2003................................................... 2,320
2004................................................... 1,762
2005................................................... 1,525
-------
Total minimum lease payments................. $12,246
=======
Rent expense for the years ended December 31, 2000, 1999 and 1998 was $3.2
million, $2.8 million and $1.9 million, respectively.
The Company has been named as a defendant in certain lawsuits arising in
the ordinary course of business. While the outcome of these lawsuits cannot be
predicted with certainty, management does not expect that these matters will
have a material adverse effect on the financial position, cash flows or results
of operations of the Company.
F-18
22
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK-BASED COMPENSATION:
The Company has several stock-based compensation plans, each of which is
described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans.
Stock Option Plans
The Company has granted options pursuant to its 1989, 1990, 1991, 1993,
1995, 1998 and 2000 stock option plans (collectively, the "Stock Option Plans").
Options that have been granted and are outstanding generally expire 10 years
from the date of grant and become exercisable at the rate of 20% per year.
The following is a summary of all stock option activity for 1998, 1999 and
2000:
NUMBER OF WEIGHTED
SHARES AVERAGE
UNDERLYING EXERCISE
OPTIONS PRICE
---------- --------
Outstanding at December 31, 1997............................ 3,391,990 $ 7.84
Granted................................................... 959,900 20.81
Exercised................................................. (296,570) 5.13
Forfeited................................................. (133,900) 21.22
---------- ------
Outstanding at December 31, 1998............................ 3,921,420 10.76
Granted................................................... 308,000 27.38
Exercised................................................. (1,243,960) 5.80
Forfeited................................................. (83,800) 18.68
---------- ------
Outstanding at December 31, 1999............................ 2,901,660 14.43
Granted................................................... 827,000 31.74
Exercised................................................. (738,170) 8.14
Forfeited................................................. (70,330) 25.01
---------- ------
Outstanding at December 31, 2000............................ 2,920,160 $20.67
========== ======
Exercisable at December 31, 1998............................ 2,442,030 $ 5.52
========== ======
Exercisable at December 31, 1999............................ 1,534,420 $ 8.16
========== ======
Exercisable at December 31, 2000............................ 1,106,550 $11.81
========== ======
At December 31, 2000, the Company had an additional 1,680,464 options
available for grant. If granted, these additional options will be exercisable at
a price not less than the fair market value per share of the Company's common
stock on the date of grant. The weighted average fair value of options granted
during 2000, 1999 and 1998 was $15.41, $12.68 and $8.92, respectively.
The fair value of each stock option granted is estimated as of the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 2000, 1999 and 1998: no dividend yield for all
years; expected volatility of 34.78%, 33.77% and 30.57%, respectively; risk-free
interest rates of 6.76%, 5.97% and 5.55%, respectively; and an expected option
life of 6.50 years for all years.
F-19
23
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
$ 3.50 to $ 5.62 552,450 2.0 years $ 3.88 552,450 $ 3.88
10.94 to 14.78 254,460 5.0 years 13.87 195,140 13.85
15.04 to 20.94 426,800 7.3 years 17.12 64,100 18.82
21.06 to 46.38 1,686,450 8.3 years 28.09 294,860 23.78
---------------- --------- --------- ------ --------- ------
$ 3.50 to $46.38 2,920,160 6.7 years $20.67 1,106,550 $11.81
Common stock issued through the exercise of stock options results in a tax
deduction for the Company equivalent to the taxable gain recognized by the
optionee. For financial reporting purposes, the tax effect of this deduction is
accounted for as a credit to additional paid-in capital rather than as a
reduction of income tax expense. The exercise of stock options during 2000, 1999
and 1998 resulted in a deferred tax benefit to the Company of approximately $6.6
million, $8.0 million and $1.9 million, respectively.
Employee Stock Purchase Plan
Pursuant to the Company's employee stock purchase plan, for each six month
period beginning on January 1 or July 1 during the term of the plan, each
eligible employee has the opportunity to purchase common stock for a purchase
price equal to 85% of the lesser of the fair market value of the common stock on
(i) the first day of the period or (ii) the last day of the period. No employee
may purchase common stock under the plan valued at more than $25,000 in any
calendar year.
At December 31, 2000, 200,000 shares of common stock were available for
issuance pursuant to the stock purchase plan. Under the plan, the Company has
sold 22,180 shares, 24,945 shares and 25,369 shares to employees in 2000, 1999
and 1998, respectively, which had weighted average prices of $26.75, $19.73 and
$18.72, respectively. In accordance with APB Opinion No. 25 and related
interpretations, the Company has not recognized any compensation expense with
respect to the plan.
The weighted average fair value of the option to purchase stock during
2000, 1999 and 1998 was $8.87, $6.34 and $5.92, respectively. The fair value of
each option granted under the stock purchase plan is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 2000, 1999 and 1998: no dividend yield for all
years; expected volatility of 37.86%, 33.77% and 30.57%, respectively; risk-free
interest rates of 5.73%, 4.78% and 5.01%, respectively; and an expected option
life of six months for all years.
F-20
24
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Net Income and Net Income Per Common Share
If the fair value based method of accounting in SFAS No. 123, "Accounting
for Stock-Based Compensation" had been applied, the Company's net income and
earnings per common share for 2000, 1999 and 1998 would have approximated the
pro forma amounts below:
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
----------- ---------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net income (loss):
As reported........................................ $132,349 $33,204 $(57,699)
Pro forma.......................................... 128,702 31,242 (59,275)
Basic earnings (loss) per common share --
As reported........................................ $ 3.13 $ 0.81 $ (1.55)
Pro forma.......................................... 3.04 0.76 (1.59)
Diluted earnings (loss) per common share --
As reported........................................ $ 2.93 $ 0.79 $ (1.55)
Pro forma.......................................... 2.85 0.74 (1.59)
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. The Company anticipates making awards in the
future under its stock-based compensation plans.
Restricted Stock
The Company has adopted four plans pursuant to which restricted shares of
common stock may be granted.
Under the Newfield Exploration Company 1995 Omnibus Stock Plan (the "1995
Omnibus Plan"), the Company may grant to employees (including an officer or a
director who is also an employee) as restricted common stock all or a portion of
400,000 shares of common stock reserved under the 1995 Omnibus Plan. In 1999 and
1998 the Company issued 29,000 and 107,100 shares, respectively, of restricted
common stock that fully vest after nine years. Vesting may, however, be
accelerated if certain performance-based criteria are met.
Under the Newfield Exploration Company 2000 Non-Employee Director
Restricted Stock Plan (the "Non-Employee Director Plan"), subject to a maximum
of 50,000 shares, each non-employee director who is in office immediately after
each annual meeting of stockholders of the Company shall, unless electing to not
participate, receive a number of restricted shares determined by dividing
$30,000 by the fair market value on the date of the annual meeting of
stockholders, subject to the terms of the plan. The forfeiture restrictions with
respect to all restricted shares granted since the last annual meeting of
stockholders lapse on the day before the first annual meeting of stockholders
following the date of issuance of such shares, provided that the holder remains
a director until such time. The Company issued 5,250 shares to seven
non-employee directors in 2000 pursuant the Non-Employee Director Plan. The
Company issued 8,211 shares to seven non-employee directors in 1999 and 8,568
shares to seven non-employee directors in 1998 pursuant to a predecessor plan
with terms substantially similar to the current plan.
Under the Newfield Exploration Company 1998 Omnibus Stock Plan (the "1998
Omnibus Plan"), the Company may, subject to certain restrictions, grant to
employees (including an officer or director who is also an employee) as
restricted common stock all or a portion of 250,000 shares of common stock
reserved under the 1998 Omnibus Plan. In 2000 the Company issued 91,006 shares
of restricted stock that fully vest after nine years. Vesting may, however, be
accelerated if certain performance-based criteria are met.
F-21
25
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the Newfield Exploration Company 2000 Omnibus Stock Plan (the "2000
Omnibus Plan"), the Company may, subject to certain restrictions, grant to
employees (including an officer or director who is also an employee) as
restricted common stock all or a portion of 200,000 shares of common stock
reserved under the 2000 Omnibus Plan.
In accordance with APB Opinion No. 25, the Company recognized unearned
compensation for the fair value of the restricted common stock in the amount of
$2.9 million for 2000, $1.0 million for 1999 and $2.7 million for 1998. This
amount is charged to stockholders' equity and recognized as compensation expense
over the applicable vesting period, in the amount of $1.8 million for 2000, $0.9
million for 1999 and $2.0 million for 1998. The weighted average price for
96,256 shares of restricted common stock issued in 2000 is $30.37. The weighted
average price for 37,211 shares of restricted common stock issued in 1999 is
$27.75. The weighted average price for 115,668 shares of restricted common stock
issued in 1998 is $23.40.
9. EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) Profit Sharing Plan (the "401(k) Plan") under
Section 401(k) of the Internal Revenue Code. This plan covers all employees of
the Company other than employees of the Company's Australian subsidiaries. The
Company matches $1.00 for each $1.00 of employee deferral, with the Company's
contribution not to exceed 8% of an employee's salary, subject to limitations
imposed by the Internal Revenue Service. The Company's contributions to the
401(k) Plan totaled $714,000, $605,000 and $546,000 for the years ended December
31, 2000, 1999 and 1998, respectively.
The Company also sponsors the Newfield Employee 1993 Incentive Compensation
Plan (the "Incentive Plan"), which is a non-qualified plan funded by amounts
equal to revenues that would be attributable to a 1% overriding royalty interest
on acquired proved properties and a 2% overriding royalty interest from
exploration properties. Such amounts are attributable to both the Company's
interest and the interest of certain working interest owners in these
properties. Amounts available for distribution under the Incentive Plan and
attributable to the overriding royalty interests bearing against the Company are
limited to 5% of the Company's adjusted net income as defined in the Incentive
Plan. The Incentive Plan is administered by the Compensation Committee of the
Board of Directors with award amounts recommended by the Chief Executive Officer
of the Company, based on the performance of the Company and the eligible
employees during the performance period. All employees of the Company are
eligible for awards if employed on both October 1 and December 31 of the
performance period. Awards may have both a current and a deferred component of
compensation. Eligible employees may elect for deferred amounts to be paid in
common stock instead of cash. If the eligible employee elects for a deferred
amount to be paid in common stock, the number of shares of common stock to be
awarded is determined by using the fair market value of common stock on the date
of the award. Total expense under the Incentive Plan for the years ended
December 31, 2000, 1999 and 1998 were $12.8 million, $3.9 million and $1.9
million, respectively.
During 1997, the Company implemented a highly compensated employee Deferred
Compensation Plan (the "Deferred Plan"). This non-qualified plan allows an
eligible employee to defer a portion of the employee's salary or bonus on an
annual basis. The Company matches $1.00 for each $1.00 of employee deferral,
with the Company's contribution not to exceed 8% of an employee's salary,
subject to limitations imposed by the Deferred Plan. The Company's contribution
is reduced by the amount of contribution made by the Company to the 401(k) Plan
for each participant. The Company's contributions to the Deferred Plan totaled
$29,000, $34,000 and $30,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
F-22
26
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDER RIGHTS PLAN:
In 1999, the Company adopted a stockholder rights plan. The plan is
designed to ensure that all stockholders of the Company receive fair and equal
treatment in the event of a proposed takeover of the Company. It includes
safeguards against partial or two-tiered tender offers, squeeze-out mergers and
other abusive takeover tactics.
The plan provides for the issuance of one right for each outstanding share
of the Company's common stock. The rights will become exercisable only if a
person or group acquires 20% or more of the Company's outstanding voting stock
or announces a tender or exchange offer that would result in ownership of 20% or
more of the Company's voting stock.
Each right will entitle the holder to buy one one-thousandth (1/1000) of a
share of a new series of junior participating preferred stock at an exercise
price of $85 per right, subject to antidilution adjustments. Each one
one-thousandth of a share of this new preferred stock has the dividend and
voting rights of, and is designed to be substantially equivalent to, one share
of common stock. The Company's Board of Directors may, at its option, redeem all
rights for $0.01 per right at any time prior to the acquisition of 20% or more
of the Company's stock by a person or group.
If a person or group acquires 20% or more of the Company's outstanding
voting stock, each right will entitle holders, other than the acquiring party,
to purchase common stock of the Company having a market value of $170 for a
purchase price of $85, subject to antidilution adjustments.
The plan also includes an exchange option. If a person or group acquires
20% or more, but less than 50% of the outstanding voting stock, the Board of
Directors may at its option exchange the rights in whole or part for shares of
common stock of the Company. Under this option, the Company would issue one
share of common stock, or one one-thousandth of a share of new preferred stock,
for each two shares of common stock for which a right is then exercisable. This
exchange would not apply to rights held by the person or group holding 20% or
more of the Company's voting stock.
If, after the rights have become exercisable, the Company merges or
otherwise combines with another entity, or sells assets constituting more than
50% of its assets or producing more than 50% of its earning power or cash flow,
each right then outstanding will entitle its holder to purchase for $85, subject
to antidilution adjustments, a number of the acquiring party's common shares
having a market value of twice that amount.
This plan will not prevent, nor is it intended to prevent, a takeover of
the Company. Since the rights may be redeemed by the Board under certain
circumstances, they should not interfere with any merger or other business
combination approved by the Board. The issuance of the rights does not in any
way diminish the financial strength of the Company or interfere with its
business plans. The issuance of the rights has no dilutive effect, does not
affect reported earnings per share or change the way the common stock of the
Company is currently traded.
F-23
27
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PROPERTY ACQUISITIONS:
In February 2000, the Company acquired interests in three producing gas
fields in South Texas for approximately $139 million in cash. The acquisition
has been accounted for as a purchase and, accordingly, income and expenses from
the properties have been included in the Company's statement of income from the
date of purchase.
The unaudited pro forma results of operations assuming that such
acquisition occurred on January 1 of the respective periods are as follow (in
thousands, except per share amounts):
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Proforma:
Revenue................................................... $532,142 $317,333
Income from operations.................................... 223,771 72,846
Net income................................................ 133,379 34,220
Basic earnings per common share........................... $ 3.15 $ 0.83
Diluted earnings per common share......................... $ 2.95 $ 0.81
The pro forma financial information does not purport to be indicative of
the results of operations that would have occurred had the acquisition taken
place at the beginning of the periods presented or future results of operations.
On July 15,1999, the Company completed the purchase of Gulf Australia
Resources Limited for $23 million in cash. Included in the purchase price was a
substantial amount of working capital, including an inventory of 479 MBbls of
oil. The acquisition was accounted for as a purchase and included an interest in
two producing oil fields in the Timor Sea, offshore Australia.
F-24
28
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. GEOGRAPHIC INFORMATION:
OTHER
UNITED STATES AUSTRALIA INTERNATIONAL TOTAL
------------- --------- ------------- --------
(IN THOUSANDS)
2000
----------------------------------------
Oil and gas revenues.................... $476,301 $50,341 $ -- $526,642
Operating expenses:
Lease operating....................... 51,509 13,863 -- 65,372
Production and other taxes............ 5,643 4,645 -- 10,288
Transportation........................ 5,984 -- -- 5,984
Ceiling test writedown................ -- -- 503 503
Depreciation, depletion and
amortization....................... 183,739 7,443 -- 191,182
Allocated income taxes................ 80,299 8,537 --
-------- ------- -------
Net income (loss) from oil and
gas operations.............. $149,127 $15,853 $ (503)
======== ======= =======
General and administrative (inclusive
of stock compensation)(1).......... 32,084
--------
Total operating expenses...... 299,429
--------
Income from operations.................. 221,229
Interest expense and dividends, net... (16,540)
--------
Income before income taxes.............. $204,689
========
Total long-lived assets................. $806,457 $10,634 $16,244 $833,315
======== ======= ======= ========
Additions to long-lived assets.......... $358,936 $13,913 $ 6,317 $379,166
======== ======= ======= ========
1999
----------------------------------------
Oil and gas revenues.................... $265,603 $22,286 $ -- $287,889
Operating expenses:
Lease operating....................... 38,562 6,999 -- 45,561
Production and other taxes............ 699 1,516 -- 2,215
Transportation........................ 5,922 -- -- 5,922
Depreciation, depletion and
amortization....................... 149,350 3,294 -- 152,644
Allocated income taxes................ 24,875 3,772 --
-------- ------- -------
Net income from oil and gas
operations.................. $ 46,195 $ 6,705 $ --
======== ======= =======
General and administrative (inclusive
of stock compensation)(1).......... 16,404
--------
Total operating expenses...... 216,824
--------
Income from operations.................. 65,143
Interest expense and dividends, net... (13,128)
--------
Income before income taxes.............. $ 52,015
========
Total long-lived assets................. $630,316 $ 4,096 $10,430 $644,842
======== ======= ======= ========
Additions to long-lived assets.......... $201,143 $ 7,390 $ 1,266 $209,799
======== ======= ======= ========
F-25
29
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
UNITED STATES AUSTRALIA INTERNATIONAL TOTAL
------------- --------- ------------- --------
(IN THOUSANDS)
1998
----------------------------------------
Oil and gas revenues.................... $199,474 $ -- $ -- $199,474
Operating expenses:
Lease operating....................... 35,345 -- -- 35,345
Production and other taxes............ -- -- -- --
Transportation........................ 3,789 -- -- 3,789
Depreciation, depletion and
amortization....................... 123,147 -- -- 123,147
Ceiling test writedown................ 104,955 -- -- 104,955
Allocated income taxes................ (23,717) -- --
-------- ------- -------
Net loss from oil and gas
operations.................. $(44,405) $ -- $ --
======== ======= =======
General and administrative (inclusive
of stock compensation)(1).......... 12,070
--------
Total operating expenses...... 275,517
--------
Loss from operations.................... (79,832)
Interest expense, net................. (8,544)
--------
Loss before income taxes................ $(88,376)
========
Total long-lived assets................. $569,259 $ -- $ 9,164 $578,423
======== ======= ======= ========
Additions to long-lived assets.......... $309,260 $ -- $ 1,512 $310,772
======== ======= ======= ========
---------------
(1) General and administrative expense includes non-cash stock compensation
charges of $3,047, $1,999 and $2,222 for 2000, 1999 and 1998, respectively.
13. SUPPLEMENTAL CASH FLOW INFORMATION:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Cash payments:
Interest and dividend payments (includes interest on
the senior notes and dividends on the convertible
trust preferred securities, net of interest
capitalized of $5,353, $2,376 and $4,369 during
2000, 1999 and 1998, respectively)................. $16,999 $11,598 $ 7,478
Income tax payments................................... 14,015 -- --
Non-cash items excluded from the statement of cash
flows:
Increase (decrease) in accrued capital expenditures... $26,712 $ 9,261 $(7,059)
Other................................................. (121) (179) (23)
F-26
30
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS:
On January 23, 2001, the Company acquired all of the outstanding capital
stock of Lariat Petroleum, Inc. ("Lariat") by merging Lariat with and into
Newfield Exploration Mid-Continent Inc., a wholly owned subsidiary of the
Company. The total consideration for the acquisition was approximately $333
million, inclusive of the assumption of debt and certain other obligations of
Lariat. The transaction will be accounted for as a purchase.
The consideration included 1.9 million shares of the Company's common
stock. The Company financed the cash portion of the consideration under a new
reserve-based revolving credit facility obtained on January 23, 2001 with The
Chase Manhattan Bank, as Agent. The banks participating in the new facility have
committed to lend the Company up to $425 million. The amount available under the
facility is subject to a calculated borrowing base determined by banks holding
75% of the aggregate commitments, which is reduced by the aggregate outstanding
principal amount of any senior notes issued by the Company ($125 million at
January 31, 2001). The borrowing base will be redetermined at least semi-
annually and, after reduction for then outstanding senior notes, was $385
million at January 31, 2001. No assurances can be given that the banks will not
elect to redetermine the borrowing base in the future. The new facility contains
restrictions on the payment of dividends and the incurrence of debt as well as
other customary covenants and restrictions. The new facility matures on January
23, 2004.
On February 22, 2001 the Company placed $175 million of 7 5/8% Senior Notes
due 2011. The offering was done under an existing shelf registration statement.
Net proceeds from the sale of the senior notes were used to repay outstanding
indebtedness under the Company's revolving credit facility. The notes were
issued at 99.931% of par to yield 7.635%, with interest payable on each March 1
and September 1, commencing September 1, 2001.
F-27
31
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The results of operations by quarter for the years ended December 31, 2000
and 1999 are as follows:
2000 QUARTER ENDED
--------------------------------------------------------------------------------------------------
MARCH 31(1) JUNE 30(1) SEPTEMBER 30(1) DECEMBER 31
-------------------------- -------------------------- -------------------------- -----------
AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
------------- ---------- ------------- ---------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Oil and gas
revenues(2)........... $95,039 $97,822 $118,878 $114,704 $151,263 $150,431 $163,685
Income from
operations............ 30,348 30,984 49,004 45,209 70,177 68,986 76,050
Net income.............. 17,123 15,183 29,561 27,056 44,338 43,552 46,558
Basic earnings per
common share.......... $ 0.41 $ 0.36 $ 0.70 $ 0.64 $ 1.04 $ 1.02 $ 1.09
Diluted earnings per
common share.......... $ 0.40 $ 0.35 $ 0.66 $ 0.60 $ 0.97 $ 0.95 $ 1.01
1999 QUARTER ENDED
-----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31(3)
-------- ------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Oil and gas revenues(2).......... $54,562 $61,688 $80,044 $91,595
Income from operations........... 3,236 9,886 22,699 29,322
Net income (loss)................ (170) 4,375 12,405 16,594
Basic earnings per common
share.......................... $ 0.00 $ 0.11 $ 0.30 $ 0.40
Diluted earnings per common
share.......................... $ 0.00 $ 0.10 $ 0.29 $ 0.39
---------------
(1) The first through third quarters of 2000 are restated to reflect the
adoption of SAB No. 101, "Revenue Recognition in Financial Statements." The
adoption of SAB No. 101 requires the Company to report crude oil inventory
associated with its Australian operations at the lower of cost or market,
which is a change from its historical policy of recording such inventory at
market value on the balance sheet, net of estimated costs to sell.
(2) As a result of the adoption of EITF No. 00-10, "Accounting for Shipping and
Handling Fees and Costs," the Company has reclassified to operating
expenses, for all periods presented, third party costs incurred to transport
production to the Company's respective sales point, instead of as a
reduction of the related revenues as previously reported. The effect of EITF
No. 00-10 reduced previously reported oil and gas revenues by $1.5 million,
$1.6 million and $1.6 million for the quarters ended March 31, June 30 and
September 30, 2000, respectively and by $1.7 million, $1.5 million, $1.4
million and $1.3 million for the quarters ended March 31, June 30, September
30 and December 31, 1999, respectively. The reclassification had no effect
on previously reported net income.
(3) Prior period financial statements have not been restated to apply SAB No.
101. However, the pro forma effect of retroactively applying SAB No. 101 to
the fourth quarter of 1999 would have reduced net income by $0.2 million, or
$0.01 per diluted share.
16. NEWFIELD FINANCIAL TRUST II:
Pursuant to a Form S-3 registration statement filed with the SEC under the
Securities Act of 1933, Newfield Financial Trust II, a "100% owned,""finance
subsidiary" (in each case, as defined in Rule 3-10 of Regulation S-X) of the
Company ("Trust II"), may offer and sell its preferred securities to the public.
If issued and sold, the holders of the trust preferred securities would be
entitled to receive periodic payments that are cumulative if unpaid, would be
entitled to receive a fixed liquidation amount and the backup undertakings will
provide a bundle of rights that together place the holder in the same position
as if the Company had fully and unconditionally guaranteed Trust II's payment
obligations on the trust preferred securities.
F-28
32
NEWFIELD EXPLORATION COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED
See Note 12 to the consolidated financial statements for disclosure of the
Company's results of operations from oil and gas producing activities. Costs
incurred for oil and gas property acquisition, exploration and development
activities for each of the three years in the period ended December 31, 2000 are
as follows:
UNITED OTHER
STATES AUSTRALIA CHINA FOREIGN TOTAL
-------- --------- ------ ------- --------
(IN THOUSANDS)
2000
------------------------------------------
Property acquisition:
Unproved................................ $ 23,621 $ -- $ 375 $ 153 $ 24,149
Proved.................................. 115,567 (295) -- -- 115,272
Exploration............................... 91,177 3,760 5,286 -- 100,223
Development............................... 128,571 10,448 -- -- 139,019
-------- ------- ------ ------ --------
Total costs incurred............ $358,936 $13,913 $5,661 $ 153 $378,663
======== ======= ====== ====== ========
1999
------------------------------------------
Property acquisition:
Unproved................................ $ 5,849 $ -- $ -- $ -- $ 5,849
Proved.................................. 77,673 2,490 -- -- 80,163
Exploration............................... 46,343 3,852 641 625 51,461
Development............................... 71,278 1,048 -- -- 72,326
-------- ------- ------ ------ --------
Total costs incurred............ $201,143 $ 7,390 $ 641 $ 625 $209,799
======== ======= ====== ====== ========
1998
------------------------------------------
Property acquisition:
Unproved................................ $ 3,400 $ -- $ -- $ -- $ 3,400
Proved.................................. 86,219 -- -- -- 86,219
Exploration............................... 63,802 -- 510 1,002 65,314
Development............................... 155,839 -- -- -- 155,839
-------- ------- ------ ------ --------
Total costs incurred............ $309,260 $ -- $ 510 $1,002 $310,772
======== ======= ====== ====== ========
F-29
33
NEWFIELD EXPLORATION COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)
Capitalized costs for oil and gas producing activities consist of the
following at the end of each of the three years in the period ended December 31,
2000:
UNITED OTHER
STATES AUSTRALIA CHINA FOREIGN TOTAL
---------- --------- ------- ------- ----------
(IN THOUSANDS)
2000
---------------------------------------------
Proved properties............................ $1,474,925 $ 21,304 $ -- $ -- $1,496,229
Unproved properties.......................... 77,085 -- 14,236 2,008 93,329
---------- -------- ------- ------ ----------
1,552,010 21,304 14,236 2,008 1,589,558
Accumulated depreciation, depletion and
amortization............................... (745,573) (10,670) -- -- (756,243)
---------- -------- ------- ------ ----------
Net capitalized cost......................... $ 806,437 $ 10,634 $14,236 $2,008 $ 833,315
========== ======== ======= ====== ==========
1999
---------------------------------------------
Proved properties............................ $1,135,225 $ 3,538 $ -- $ -- $1,138,763
Unproved properties.......................... 57,850 3,852 8,575 1,855 72,132
---------- -------- ------- ------ ----------
1,193,075 7,390 8,575 1,855 1,210,895
Accumulated depreciation, depletion and
amortization............................... (562,759) (3,294) -- -- (566,053)
---------- -------- ------- ------ ----------
Net capitalized cost......................... $ 630,316 $ 4,096 $ 8,575 $1,855 $ 644,842
========== ======== ======= ====== ==========
1998
---------------------------------------------
Proved properties............................ $ 960,127 $ -- $ -- $ -- $ 960,127
Unproved properties.......................... 23,338 -- 7,934 1,230 32,502
---------- -------- ------- ------ ----------
983,465 -- 7,934 1,230 992,629
Accumulated depreciation, depletion and
amortization............................... (414,206) -- -- -- (414,206)
---------- -------- ------- ------ ----------
Net capitalized cost......................... $ 569,259 $ -- $ 7,934 $1,230 $ 578,423
========== ======== ======= ====== ==========
F-30
34
NEWFIELD EXPLORATION COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)
Users of this information should be aware that the process of estimating
quantities of "proved" and "proved developed" natural gas and crude oil reserves
is very complex, requiring significant subjective decisions in the evaluation of
all available geological, engineering and economic data for each reservoir. The
data for a given reservoir may also change substantially over time as a result
of numerous factors including additional development activity, evolving
production history and continual reassessment of the viability of production
under varying economic conditions. Consequently, material revisions to existing
reserve estimates occur from time to time. Although every reasonable effort is
made to ensure that reported reserve estimates represent the most accurate
assessments possible, the significance of the subjective decisions required and
variances in available data for various reservoirs make these estimates
generally less precise than other estimates presented in connection with
financial statement disclosures.
F-31
35
NEWFIELD EXPLORATION COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)
ESTIMATED NET QUANTITIES OF OIL AND GAS RESERVES
The following table sets forth the Company's net proved reserves (at 14.73
pounds per square inch absolute), including the changes therein, and proved
developed reserves at the end of each of the three years in the period ended
December 31, 2000, as estimated by the Company's petroleum engineering staff:
OIL, CONDENSATE AND
NATURAL GAS LIQUIDS
(MBBLS) NATURAL GAS (MMCF) TOTAL (BCFE)
--------------------------- ------------------------------- -------------------------------
U.S. AUSTRALIA TOTAL U.S. AUSTRALIA TOTAL U.S. AUSTRALIA TOTAL
------ --------- ------ -------- --------- -------- -------- --------- --------
Proved developed and
undeveloped reserves:
DECEMBER 31, 1997...... 16,307 -- 16,307 337,481 -- 337,481 435,323 -- 435,323
Revisions of previous
estimates............ (246) -- (246) 1,981 -- 1,981 505 -- 505
Extensions, discoveries
and other
additions............ 1,635 -- 1,635 83,777 -- 83,777 93,589 -- 93,589
Purchases of
properties........... 1,118 -- 1,118 65,672 -- 65,672 72,381 -- 72,381
Sales of properties.... -- -- -- -- -- -- -- -- --
Production............. (3,643) -- (3,643) (66,634) -- (66,634) (88,494) -- (88,494)
------ ------ ------ -------- -- -------- -------- ------ --------
DECEMBER 31, 1998...... 15,171 -- 15,171 422,277 -- 422,277 513,304 -- 513,304
Revisions of previous
estimates............ 499 -- 499 (4,359) -- (4,359) (1,365) -- (1,365)
Extensions, discoveries
and other
additions............ 1,600 -- 1,600 52,210 -- 52,210 61,808 -- 61,808
Purchases of
properties........... 6,780 7,000 13,780 60,517 -- 60,517 101,195 42,000 143,195
Sales of properties.... (926) -- (926) (3,112) -- (3,112) (8,668) -- (8,668)
Production............. (3,487) (867) (4,354) (87,360) -- (87,360) (108,282) (5,202) (113,484)
------ ------ ------ -------- -- -------- -------- ------ --------
DECEMBER 31, 1999...... 19,637 6,133 25,770 440,173 -- 440,173 557,992 36,798 594,790
Revisions of previous
estimates............ 1,264 866 2,130 (4,531) -- (4,531) 3,054 5,196 8,250
Extensions, discoveries
and other
additions............ 4,501 -- 4,501 91,096 -- 91,096 118,103 -- 118,103
Purchases of
properties........... 1,487 -- 1,487 99,531 -- 99,531 108,454 -- 108,454
Sales of properties.... (248) -- (248) (1,100) -- (1,100) (2,588) -- (2,588)
Production............. (4,090) (1,616) (5,706) (105,446) -- (105,446) (129,986) (9,696) (139,682)
------ ------ ------ -------- -- -------- -------- ------ --------
DECEMBER 31, 2000...... 22,551 5,383 27,934 519,723 -- 519,723 655,029 32,298 687,327
====== ====== ====== ======== == ======== ======== ====== ========
Proved developed
reserves:
December 31, 1997.... 15,712 -- 15,712 252,018 -- 252,018 346,290 -- 346,290
December 31, 1998.... 14,648 -- 14,648 388,040 -- 388,040 475,927 -- 475,927
December 31, 1999.... 17,123 6,133 23,256 376,820 -- 376,820 479,558 36,798 516,356
December 31, 2000.... 18,657 5,383 24,040 416,368 -- 416,368 528,310 32,298 560,608
F-32
36
NEWFIELD EXPLORATION COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The following information has been developed utilizing procedures
prescribed by SFAS No. 69 "Disclosures about Oil and Gas Producing Activities"
and based on natural gas and crude oil reserve and production volumes estimated
by the Company's petroleum engineering staff. It may be useful for certain
comparative purposes, but should not be solely relied upon in evaluating the
Company or its performance. Further, information contained in the following
table should not be considered as representative of realistic assessments of
future cash flows, nor should the Standardized Measure of Discounted Future Net
Cash Flows be viewed as representative of the current value of the Company.
The Company believes that the following factors should be taken into
account in reviewing the following information: (1) future costs and selling
prices will probably differ from those required to be used in these
calculations; (2) due to future market conditions and governmental regulations,
actual rates of production achieved in future years may vary significantly from
the rate of production assumed in the calculations; (3) a 10% discount rate may
not be reasonable as a measure of the relative risk inherent in realizing future
net oil and gas revenues; and (4) future net revenues may be subject to
different rates of income taxation.
Under the Standardized Measure, future cash inflows were estimated by
applying year-end oil and gas prices to the estimated future production of
year-end proved reserves. Future cash inflows were reduced by estimated future
development, abandonment and production costs based on year-end costs in order
to arrive at net cash flow before tax. Future income tax expense has been
computed by applying year-end statutory tax rates to aggregate future pre-tax
net cash flows, for each year reduced by the tax basis of the properties
involved and tax carryforwards. Use of a 10% discount rate is required by SFAS
69.
Management does not rely solely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as proved reserves and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.
F-33
37
NEWFIELD EXPLORATION COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves is as follows:
U.S. AUSTRALIA TOTAL
---------- --------- ----------
(IN THOUSANDS)
2000
--------------------------------------------------
Future cash inflows............................... $5,709,166 $135,192 $5,844,358
Less related future:
Production costs................................ (426,987) (89,326) (516,313)
Development and abandonment costs............... (244,139) (16,320) (260,459)
---------- -------- ----------
Future net cash flows before income taxes......... 5,038,040 29,546 5,067,586
Future income tax expense......................... (1,564,431) (8,864) (1,573,295)
---------- -------- ----------
Standardized measure of future net cash flows
before discount................................. 3,473,609 20,682 3,494,291
10% annual discount for estimating timing of cash
flows........................................... (820,256) (3,777) (824,033)
---------- -------- ----------
Standardized measure of discounted future net cash
flows........................................... $2,653,353 $ 16,905 $2,670,258
========== ======== ==========
1999
--------------------------------------------------
Future cash inflows............................... $1,552,273 $156,247 $1,708,520
Less related future:
Production costs................................ (239,010) (95,252) (334,262)
Development and abandonment costs............... (205,402) (31,324) (236,726)
---------- -------- ----------
Future net cash flows before income taxes......... 1,107,861 29,671 1,137,532
Future income tax expense......................... (214,365) (9,871) (224,236)
---------- -------- ----------
Standardized measure of future net cash flows
before discount................................. 893,496 19,800 913,296
10% annual discount for estimating timing of cash
flows........................................... (180,431) (346) (180,777)
---------- -------- ----------
Standardized measure of discounted future net cash
flows........................................... $ 713,065 $ 19,454 $ 732,519
========== ======== ==========
1998
--------------------------------------------------
Future cash inflows............................... $1,047,290 $ -- $1,047,290
Less related future:
Production costs................................ (203,717) -- (203,717)
Development and abandonment costs............... (162,005) -- (162,005)
---------- -------- ----------
Future net cash flows before income taxes......... 681,568 -- 681,568
Future income tax expense......................... (122,304) -- (122,304)
---------- -------- ----------
Standardized measure of future net cash flows
before discount................................. 559,264 -- 559,264
10% annual discount for estimating timing of cash
flows........................................... (108,108) -- (108,108)
---------- -------- ----------
Standardized measure of discounted future net cash
flows........................................... $ 451,156 $ -- $ 451,156
========== ======== ==========
F-34
38
NEWFIELD EXPLORATION COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)
A summary of the changes in the standardized measure of discounted future
net cash flows applicable to proved oil and gas reserves is as follows:
U.S. AUSTRALIA TOTAL
----------- --------- -----------
(IN THOUSANDS)
2000
---------------------------------------------------------
Beginning of the period.................................. $ 713,065 $19,454 $ 732,519
Revisions of previous estimates:
Changes in prices and costs............................ 1,866,958 (5,791) 1,861,167
Changes in quantities.................................. 18,849 6,680 25,529
Changes in future development costs.................... -- 15,004 15,004
Development costs incurred during the period............. 69,232 3,260 72,492
Additions to proved reserves resulting from extensions,
discoveries and improved recovery, less related
costs.................................................. 611,719 -- 611,719
Purchases of reserves in place........................... 524,675 -- 524,675
Accretion of discount.................................... 88,414 2,915 91,329
Sales of oil and gas, net of production costs............ (413,165) (28,193) (441,358)
Net change in income taxes............................... (1,023,931) 834 (1,023,097)
Production timing and other.............................. 197,537 2,742 200,279
----------- ------- -----------
Net increase (decrease).................................. 1,940,288 (2,549) 1,937,739
----------- ------- -----------
End of the period........................................ $ 2,653,353 $16,905 $ 2,670,258
=========== ======= ===========
1999
---------------------------------------------------------
Beginning of the period.................................. $ 451,156 $ -- $ 451,156
Revisions of previous estimates:
Changes in prices and costs............................ 229,539 -- 229,539
Changes in quantities.................................. (2,553) -- (2,553)
Changes in future development costs.................... (4,069) -- (4,069)
Development costs incurred during the period............. 21,658 -- 21,658
Additions to proved reserves resulting from extensions,
discoveries and improved recovery, less related
costs.................................................. 100,907 -- 100,907
Purchases of reserves in place........................... 145,515 33,225 178,740
Accretion of discount.................................... 54,982 -- 54,982
Sales of oil and gas, net of production costs............ (220,420) (13,771) (234,191)
Net change in income taxes............................... (72,414) -- (72,414)
Production timing and other.............................. 8,764 -- 8,764
----------- ------- -----------
Net increase............................................. 261,909 19,454 281,363
----------- ------- -----------
End of the period........................................ $ 713,065 $19,454 $ 732,519
=========== ======= ===========
1998
---------------------------------------------------------
Beginning of the period.................................. $ 502,948 $ -- $ 502,948
Revisions of previous estimates:
Changes in prices and costs............................ (226,749) -- (226,749)
Changes in quantities.................................. 662 -- 662
Changes in future development costs.................... 5,401 -- 5,401
Development costs incurred during the period............. 55,153 -- 55,153
Additions to proved reserves resulting from extensions,
discoveries and improved recovery, less related
costs.................................................. 117,837 -- 117,837
Purchases of reserves in place........................... 48,889 -- 48,889
Accretion of discount.................................... 65,467 -- 65,467
Sales of oil and gas, net of production costs............ (160,340) -- (160,340)
Net change in income taxes............................... 53,059 -- 53,059
Production timing and other.............................. (11,171) -- (11,171)
----------- ------- -----------
Net decrease............................................. (51,792) -- (51,792)
----------- ------- -----------
End of the period........................................ $ 451,156 $ -- $ 451,156
=========== ======= ===========
F-35
39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Newfield Exploration Company:
We have audited the accompanying consolidated balance sheet of Lariat
Petroleum, Inc. (a Delaware corporation) and subsidiary (the "Company") as of
December 31, 2000, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lariat Petroleum, Inc. and
subsidiary as of December 31, 2000, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 2, 2001
F-36
40
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
(in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 1,190
Accounts receivable -
Oil and gas sales............................................... 17,495
Joint operations and other...................................... 5,414
Prepaid expenses and other current assets......................... 2,096
--------
Total current assets...................................... 26,195
--------
Property and equipment, at cost:
Oil and gas properties, full cost method.......................... 233,552
Other............................................................. 3,541
--------
237,093
Less - accumulated depreciation, depletion and amortization....... 34,315
--------
202,778
Other assets........................................................ 460
--------
Total assets.............................................. $229,433
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revenue payable................................................... $ 6,123
Accounts payable - trade.......................................... 734
Accrued interest.................................................. 604
Natural gas imbalance............................................. 1,022
Other accrued liabilities......................................... 8,380
--------
Total current liabilities................................. 16,863
--------
Long-term debt to banks............................................. 117,292
--------
Stockholder subordinated notes payable.............................. 39,654
--------
Deferred income taxes............................................... 6,192
--------
Commitments and contingencies
Stockholders' equity:
Common stock -
Series A, $0.01 par value, 370,000 shares authorized,
368,070 shares issued and outstanding......................... 4
Series B, $0.01 par value, 463,250 shares authorized,
1,035 shares issued and outstanding........................... --
Additional paid-in capital........................................ 40,456
Retained earnings ............................................... 8,972
--------
Total stockholders' equity................................ 49,432
--------
Total liabilities and stockholders' equity................ $229,433
========
The accompanying notes are an integral part of this balance sheet.
F-37
41
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(in thousands, except share and per share amounts)
Oil and gas sales............................................ $66,841
-------
Operating expenses:
Lease operating............................................ 7,788
Production taxes........................................... 5,356
Depreciation, depletion and amortization................... 17,998
General and administrative................................. 7,070
-------
Total operating expenses........................... 38,212
-------
Income from operations....................................... 28,629
-------
Other income(expense):
Interest and other income.................................. 211
Interest expense........................................... (11,811)
-------
(11,600)
-------
Income before income taxes................................... 17,029
-------
Income taxes:
Current.................................................... --
Deferred................................................... 6,192
-------
6,192
-------
Net income................................................... $10,837
=======
Earnings per common share:
Basic...................................................... $ 29.45
=======
Diluted.................................................... $ 27.48
=======
Weighted average common shares outstanding:
Basic...................................................... 367,998
=======
Diluted.................................................... 394,313
=======
The accompanying notes are an integral part of this statement.
F-38
42
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2000
(in thousands, except share amounts)
SERIES A SERIES B RETAINED
COMMON STOCK COMMON STOCK ADDITIONAL EARNINGS /
-------------- -------------- PAID-IN (ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL DEFICIT) TOTAL
------- ----- ------- ----- ---------- ------------ -------
BALANCE, December 31,
1999............... 367,870 $ 4 -- $-- $40,205 $(1,263) $38,946
Exercise of stock
options........ 200 -- 2,900 -- 455 -- 455
Repurchase and
cancellation
of shares...... -- -- (1,865) -- (204) (602) (806)
Net income....... -- -- -- -- -- 10,837 10,837
------- --- ------ --- ------- ------- -------
BALANCE, December 31,
2000............... 368,070 $ 4 1,035 $-- $40,456 $ 8,972 $49,432
======= === ====== === ======= ======= =======
The accompanying notes are an integral part of this statement.
F-39
43
LARIAT PETROLEUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(in thousands)
Cash flows from operating activities:
Net income............................................... $ 10,837
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation, depletion and amortization............. 17,998
Deferred income taxes................................ 6,192
Interest on stockholder subordinated notes........... 3,355
Gain on sale of non-oil and gas property............. (19)
Other non-cash charges............................... 115
---------
38,478
Changes in assets and liabilities -
Increase in receivables............................ (15,978)
Increase in prepaid expenses....................... (49)
Increase in payables and accruals.................. 6,272
---------
Net cash provided by operating activities........ 28,723
---------
Cash flows from investing activities:
Capital expenditures -
Oil and gas properties................................. (79,212)
Other.................................................. (1,783)
Prepayment of drilling costs............................. (1,504)
Proceeds from sales of non-oil and gas property.......... 717
---------
Net cash used in investing activities............ (81,782)
---------
Cash flows from financing activities:
Proceeds from exercise of stock options.................. 455
Repurchase and cancellation of common stock.............. (806)
Advances on credit facility.............................. 51,800
Payments on credit facility.............................. (2,000)
---------
Net cash provided by financing activities........ 49,449
---------
Decrease in cash and cash equivalents...................... (3,610)
Cash and cash equivalents, beginning of period............. 4,800
---------
Cash and cash equivalents, end of period................... $ 1,190
=========
Supplemental information of cash paid during the year for:
Interest................................................. $ 8,304
=========
Income taxes............................................. $ --
=========
The accompanying notes are an integral part of this statement.
F-40
44
LARIAT PETROLEUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000
1. ORGANIZATION AND BASIS OF PRESENTATION:
Lariat Petroleum, Inc. is an independent energy company engaged in the
exploration for and the development and production of natural gas and oil in the
continental United States, with a particular emphasis in the Mid-Continent
region. The Company's operations currently focus on the Anadarko and Arkoma
Basins of Oklahoma and the Permian Basin of Texas and New Mexico.
The consolidated financial statements include the accounts of Lariat
Petroleum, Inc. and its wholly owned subsidiary, Anadarko Geophysical
Exploration, L.L.C. (collectively, the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Oil and Gas Properties
The Company uses the full cost method of accounting for its oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including certain related employee costs, incurred for the purpose of
finding oil and gas are capitalized. Such amounts include the cost of drilling
and equipping productive wells, dry hole costs, lease acquisition costs, delay
rentals and costs related to such activities. Exclusive of field-level costs,
the Company capitalized approximately $2,288,000 of internal costs in 2000.
Costs, including related employee costs, associated with production and general
corporate activities are expensed in the period incurred. Sales of natural gas
and oil properties, whether or not being amortized currently, are accounted for
as adjustments of capitalized costs, with no gain or loss recognized unless such
adjustments would significantly alter the relationship between capitalized costs
and proved reserves of oil and gas.
The Company computes the provision for depreciation, depletion and
amortization ("DD&A") of oil and gas properties using the units of production
method based upon production and estimates of proved reserve quantities.
Unevaluated costs and related carrying costs are excluded from the amortization
base until the properties associated with these costs are evaluated. The
amortization base includes estimated future development costs and dismantlement,
restoration and abandonment costs, net of estimated salvage values. DD&A per
equivalent Mcf of the Company's oil and gas properties was $0.85 for the year
ended December 31, 2000.
F-41
45
The Company excludes the costs directly associated with acquisition and
evaluation of unproved properties from the DD&A calculation until it is
determined whether or not proved reserves can be assigned to the properties.
These properties are assessed at least annually to ascertain whether an
impairment has occurred. Such costs are transferred into the amortization base
on an ongoing basis as projects are evaluated and proved reserves established or
impairment determined. As of December 31, 2000, the Company excluded
approximately $22,285,000 of costs related to unproved properties from the
amortization base, of which approximately $11,667,000, $6,976,000, $2,016,000
and $1,626,000 were incurred in 2000, 1999, 1998 and 1997, respectively. The
majority of the costs will be evaluated over the next two years.
The Company's unamortized costs of oil and gas properties are limited to the
sum of the future net revenues attributable to proved oil and gas reserves using
unescalated prices in effect at year end, discounted at ten percent, plus the
lower of cost or fair value of any unproved properties, as adjusted for related
income tax effects (the "Full Cost Ceiling"). If the Company's unamortized costs
of oil and gas properties exceed the Full Cost Ceiling, the excess must be
charged to expense. The Company's capitalized costs were not in excess of the
Full Cost Ceiling at December 31, 2000.
Other Property and Equipment
Other property and equipment consists of automobiles, office furniture,
computer hardware and software and leasehold improvements. Depreciation of other
property and equipment is determined using the straight-line method based on
estimated useful lives ranging from three to seven years.
Revenue Payable
Amounts payable to royalty and working interest owners resulting from sales of
oil and gas from jointly owned properties are classified as revenue payable in
the accompanying financial statements.
Revenue Recognition
Natural gas revenues are recorded using the sales method. Under this method,
the Company recognizes revenues based on actual volumes of gas sold to
purchasers. The Company and other joint interest owners may sell more or less
than their entitlement share of the natural gas volumes produced. A liability is
recorded and revenue is deferred if the Company's excess sales of natural gas
volumes exceed its estimated remaining recoverable reserves.
F-42
46
Hedging
The Company uses hedges (swaps, floors, collars and forward sales) to reduce
the impact of oil and natural gas price fluctuations and the impact of interest
rate fluctuation. Gains or losses from commodity swaps, floors and collars are
recognized as an adjustment to sales revenue when the related transactions being
hedged are finalized. Gains or losses from interest rate swaps are recognized as
an adjustment to interest expense when the interest from the period being hedged
is recognized. The cash flows from such agreements are included in operating
activities in the statements of cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended in June 1999 by Statement No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 and in June 2000 by Statement No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an amendment
of FASB Statement No. 133 ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the statement of operations.
Companies must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
SFAS 133 was originally effective for fiscal years beginning after June 15,
1999; however, Statement of Financial Accounting Standards No. 137, Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133--An Amendment of FASB Statement No. 133 extended
implementation to fiscal years beginning after June 15, 2000. SFAS 133 cannot be
applied retroactively and must be applied to (a) derivative instruments and (b)
certain derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantially modified after December 31, 1997.
SFAS 133, in part, allows special hedge accounting for "fair value" and "cash
flow" hedges. SFAS 133 provides that the gain or loss on a derivative instrument
designated and qualifying as a "fair value" hedging instrument as well as the
offsetting gain or loss on the hedged item attributable to the hedged risk be
recognized currently in earnings in the same accounting period. SFAS 133
provides that the effective portion of the gain or loss on a derivative
instrument designated and qualifying as a "cash flow" hedging instrument be
reported as a component of other comprehensive income and be reclassified into
earnings in the same period or periods during which the hedged forecasted
transaction affects earnings. The remaining gain or loss on the derivative
instrument, if any, must be recognized currently in earnings. SFAS 133 could
increase volatility in earnings and other comprehensive income.
F-43
47
Note 6 presents the fair value of the derivatives held or issued by the
Company. SFAS 133 will require that those derivative instruments be recognized
in the Company's balance sheet at their fair value. The Company adopted SFAS 133
as of January 1, 2001. Upon adoption of SFAS 133, the Company recognized the
fair value of these instruments on the balance sheet through other comprehensive
income. The Company will then reclassify into earnings the gain or loss that is
recorded in accumulated other comprehensive income as the related physical
transactions occur. Had the Company adopted SFAS 133 as of December 31, 2000, a
loss of approximately $19,281,000 would have been recorded to other
comprehensive income.
Income Taxes
Deferred income taxes are provided on transactions which are recognized in
different periods for financial and tax reporting purposes. Such temporary
differences arise primarily from the deduction of certain oil and gas
exploration and development costs, which are capitalized for financial reporting
purposes, and differences in the methods of depreciation. Deferred tax assets
may be reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
General and Administrative Expense
The Company receives fees for operation of jointly owned oil and gas
properties and records such reimbursements as reductions of general and
administrative expense. Such fees totaled approximately $671,000 in 2000.
Earnings Per Share
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted
earnings per common share were computed assuming the exercise of all dilutive
options, as determined by applying the treasury stock method.
Concentration of Credit Risk
The Company's oil and gas sales are to a variety of purchasers, including
intrastate and interstate pipelines or their marketing affiliates, independent
marketing companies and major oil companies. In 2000, sales to three customers
accounted for approximately 22%, 19% and 13%, respectively, of total sales.
Management believes that the credit risk imposed by this concentration is offset
by the creditworthiness of the Company's customer base. The Company's joint
operations accounts receivable are from a large number of major and independent
oil and gas companies, partnerships, individuals and others who own interests in
the properties operated by the Company.
The counterparty to the financial hedge discussed in Note 6 is a large
commercial bank. The counterparties to the Company's physical hedges discussed
in Note 6 are large national marketing companies. The Company does not believe
that any of these counterparties represent a significant credit risk.
F-44
48
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates include depreciation, depletion and amortization of proved
oil and gas properties. Oil and gas reserve estimates, which are the basis for
units of production DD&A and the Full Cost Ceiling, are inherently imprecise and
are expected to change as future information becomes available.
3. LONG-TERM DEBT:
Long-term Debt to Banks
The Company had a credit agreement with certain banks (the "Syndicated Credit
Agreement"). Total outstanding advances at December 31, 2000 were $117,292,000
at an average interest rate of 9.04%, considering the interest rate hedge
discussed in Note 6.
In connection with the transaction discussed in Note 12, on January 23, 2001,
all outstanding borrowings under the Syndicated Credit Agreement were repaid and
the Syndicated Credit Agreement was terminated.
Stockholder Subordinated Notes Payable
On March 31, 1999, the Company entered into an agreement with its principal
stockholder for the issuance of subordinated notes in an amount up to
$38,500,000 (the "Note Purchase Agreement"). As of December 31, 2000, the
Company had issued subordinated notes totaling $34,000,000 under the Note
Purchase Agreement. The subordinated notes bore interest at an annual rate of 9%
through March 31, 2000 and bore interest at an annual rate of 10% thereafter.
Interest was payable at maturity.
In connection with the transaction discussed in Note 12, on January 23, 2001,
all outstanding principal and interest related to the stockholder subordinated
notes payable were repaid and the Note Purchase Agreement was terminated.
F-45
49
4. CAPITAL STOCK:
The Company's common stock consisted of Series A and Series B shares. In the
event of liquidation, Series A stockholders had a preference of $100 per share
over Series B shareholders. Dividends were required to be declared and paid at
the same rate per share for both Series A and Series B common stock. The Series
A and Series B stockholders voted together as a single class, with each
receiving one vote per share. Each share of Series A common stock was
convertible into one share of Series B common stock at the option of the holder.
No Series A common shares were converted into Series B common shares.
Effective April 1, 1997, the Company adopted the Lariat Petroleum, Inc. 1997
Stock Option Plan (the "1997 Plan"). Under the 1997 Plan, up to 89,500 shares of
Series B common stock were available for issuance to key employees of the
Company.
The 1997 Plan was administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee"). Subject to the terms of the 1997
Plan, the Committee had the authority to determine plan participants, the amount
of the awards to be granted and the terms, conditions and provisions of awards.
Options granted pursuant to the 1997 Plan could be, at the discretion of the
Committee, either incentive stock options or non-qualified stock options.
Options granted under the 1997 Plan had a ten-year term and provided for vesting
over five years.
In 1999, non-qualified stock options were granted to two non-management
directors of the Company to purchase 500 shares each of Series B common stock
under terms identical to those granted under the 1997 Plan.
The following is an analysis of all Series B option activity for 2000:
Weighted Average
Shares Exercise Price
------- ----------------
Options outstanding, December 31, 1999..... 65,933 $168.66
Granted.................................. 4,100 250.00
Exercised................................ (2,900) 150.00
Cancelled................................ (600) 168.75
------ -------
Options outstanding, December 31, 2000..... 66,533 $181.02
====== =======
Options exercisable, December 31, 2000..... 30,455 $169.15
====== =======
The exercise price of all options granted in 2000 was greater than the fair
market value of the stock on the date of grant. The weighted average fair value
of the options granted in 2000, based on the estimated value of the Company's
stock on the date of grant, was $0. The options outstanding at December 31,
2000, had exercise prices ranging from $150 to $250 and a weighted average
remaining contractual life of eight years.
F-46
50
In 1997, the Company granted non-qualified options to two non-management
directors of the Company for the purchase of shares of Series A common stock.
Each of these outside directors received options to purchase 500 shares each of
Series A common stock at a price of $0.01 per share. A total of 800 of these
options were exercised, including 200 in 2000. Since the exercise price of these
options was less than the fair market value of the common stock on the date of
grant, the Company has recorded total compensation expense of approximately
$80,000, including $20,000 in 2000.
The Company accounts for stock options under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS 123"). Accordingly, the
compensation cost of $20,000 discussed above is the only compensation cost that
has been recognized by the Company in 2000 related to stock options. Had
compensation cost for these options been determined consistent with the
provisions of SFAS 123, the Company's net income for the year ended December 31,
2000, would have been reduced by approximately $169,000 and basic and diluted
earnings per share would have been reduced by $0.46 and $0.43, respectively.
Under SFAS 123, the fair value of each option granted is estimated on the date
of grant based on the difference between the fair market value of the common
stock and the present value of the exercise price. For purposes of the foregoing
calculation, a risk-free interest rate of approximately 5.8% and expected lives
of ten years.
On December 28, 2000, one option holder exercised 2,900 fully vested Series B
options with an exercise price of $150.00. The Company immediately repurchased
1,865 of these Series B common shares at a price of $432 per share and the
repurchased shares were cancelled.
In connection with the transaction discussed in Note 12, on January 23, 2001,
all of the Series B options outstanding became immediately vested and all of the
Series B options were exercised. The remaining 200 unvested Class A options
granted to the two non-management directors of the Company expired.
5. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses under an operating lease for its office space of
approximately $314,000 in 2000. The Company's future minimum commitments under
this lease at December 31, 2000 were approximately $389,000 in 2001, $418,000
in 2002 and $139,000 in 2003.
The Company is, from time to time, a party to certain legal actions and claims
arising in the ordinary course of business. While the outcome of these events
cannot be predicted with certainty, management does not expect these matters to
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
F-47
51
6. FINANCIAL INSTRUMENTS AND OTHER COMMODITY CONTRACTS:
Price Risk Management
The Company periodically uses hedges to reduce the impact of oil and natural
gas price fluctuations on its operating results and cash flows. All of the
prices quoted below are net prices to the Company before the costs of gathering,
transportation, compression and fuel.
The Company has a fixed price natural gas sales contract in place under which
it has agreed to sell 9,000 MMBtu per day through May 31, 2001 at prices that
are fixed for each month of the contract. The prices that the Company will
receive under this contract range from $2.34 per MMBtu to $2.74 per MMBtu. The
Company also has a physical crude oil collar in place. Through April 30, 2001,
the Company will pay a purchaser a premium of $0.70 per Bbl for 1,000 Bbls per
day and is guaranteed a minimum price of $16.30 per Bbl and the purchaser is
guaranteed a maximum price of $20.85 per Bbl.
The Company also has three financial hedging arrangements in place. A
commercial bank is the counterparty to all of these arrangements. The Company
has entered into a costless collar agreement covering production of 10,000 MMBtu
of natural gas per day through May 31, 2001. The Company is guaranteed to
receive a minimum price of $2.27 per MMBtu and will receive no greater than
$2.685 per MMBtu. The Company has a natural gas price swap in place covering
10,000 MMBtu per day of natural gas production through March 2003. Under this
price swap agreement, the Company will receive a fixed price of $2.78 per MMBtu
through March 2001, $2.64 per MMBtu through March 2002 and $2.61 per MMBtu
through March 2003. In December 2000, the Company entered into another natural
gas price swap covering a total of 5 million MMBtu at various monthly volumes
from January 2001 through December 2001. The prices that the Company will
receive under this arrangement are fixed for each month and range from $5.00 per
MMBtu to $9.70 per MMBtu.
Interest Rate Risk Management
In May 2000, the Company entered into an interest rate swap with a bank to
reduce the impact of interest rate fluctuations on its operating results and
cash flows. Under the terms of this agreement, the Company receives a LIBOR rate
of 7.43% (before applicable margins) on $50,000,000 of its bank debt. This swap
expires on May 6, 2002.
Fair Value of Financial Instruments
The Company values financial instruments as required by Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of Financial
Instruments. The Company's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable and debt. The carrying amount
of cash and cash equivalents, accounts receivable and accounts payable
approximates fair value because of the short-term nature of these items. The
carrying amount of long-term debt to banks approximates fair value because the
terms of the debt are at market rates.
F-48
52
The Company estimates the value of its subordinated notes payable based on the
estimated borrowing rates currently available to the Company for long-term loans
with similar terms and remaining maturities. The estimated fair value of the
Company's subordinated notes payable at December 31, 2000, was approximately
$42,134,000 compared with a carrying value of $39,654,000.
The fair value of commodity hedges are the amount which the Company would
receive or be required to pay to terminate the hedge contract. At December 31,
2000, the fair value of the physical crude oil collar was a liability of
approximately $637,000, the fair value of the fixed price natural gas sales
contract was a liability of approximately $7,363,000 and the fair value of the
financial natural gas price hedges was a liability of approximately $30,940,000.
The fair value of the interest rate hedge is the amount by which the fixed
interest rate differs from the quoted market rate. At December 31, 2000, the
fair value of the interest rate swap was a liability of approximately $616,000.
7. INCOME TAXES:
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109"). SFAS 109 requires
an asset and liability approach to accounting for income taxes. Under SFAS 109,
deferred income taxes reflect the net tax effects of (1) temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (2) operating loss
and tax credit carryforwards.
The significant items giving rise to the deferred income tax assets and
liabilities at December 31, 2000, are as follows (in thousands):
Deferred Tax Liabilities:
Differences between book and tax basis of property..... $21,407
-------
Deferred Tax Assets:
Net operating loss carryforwards ("NOLs").............. 13,018
Accrued interest on stockholder subordinated notes..... 2,150
Other.................................................. 47
-------
15,215
-------
Net Deferred Tax Liability............................... $ 6,192
=======
F-49
53
A reconciliation of the Federal statutory income tax rate to the effective
rate is as follows:
Statutory income tax rate.................................. 35.0 %
State income tax........................................... 3.9
Permanent differences...................................... 0.2
Utilization of NOLs not previously benefited.............. (2.7)
-------
36.4 %
=======
At December 31, 2000, the Company had an estimated net operating loss
carryforward of approximately $33,465,000, which is available to offset taxable
income in future years. The net operating loss carryforward will begin to expire
in 2011.
8. SIGNIFICANT ACQUISITIONS:
On March 31, 2000, the Company acquired certain oil and gas properties in
Oklahoma, Texas, New Mexico, Kansas and Colorado for approximately $31,500,000
in cash. If this acquisition had been consummated as of January 1, 2000, the
Company's unaudited pro forma revenues and net income for the year ended
December 31, 2000, would have been as shown below; however, such pro forma
information is not necessarily indicative of what actually would have occurred
had the transaction occurred on such date.
(unaudited)
Revenues (in thousands).................................. $68,832
Net income (in thousands)................................ 10,833
Earnings per share
Basic.................................................. 29.44
Diluted................................................ 27.47
9. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consisted of the following at December 31, 2000 (in
thousands):
Lease operating expenses................................... $1,416
Compensation and benefits.................................. 1,844
Capital expenditures....................................... 4,777
Other...................................................... 343
------
$8,380
======
F-50
54
10. QUARTERLY RESULTS (UNAUDITED):
The following is a summary of the quarterly results of operations for the year
ended December 31, 2000 (in thousands):
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Revenues.................. $11,945 $15,551 $16,691 $22,654
Operating income.......... 4,703 6,276 6,668 10,982
Net income................ 2,062 2,053 2,136 4,586
Earnings per share
Basic................... 5.60 5.58 5.80 12.46
Diluted................. 5.24 5.22 5.41 11.59
11. SUPPLEMENTAL FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES:
Capitalized Costs and Costs Incurred Relating to Oil and Gas Producing
Activities
The Company's net investment in oil and gas properties at December 31, 2000,
was as follows (in thousands):
Proved properties being amortized........................ $211,267
Unproved properties not being amortized.................. 22,285
--------
Total capitalized costs................................ 233,552
--------
Less - accumulated depreciation, depletion and
amortization........................................... 32,892
--------
Net capitalized costs.................................... $200,660
========
The following sets forth certain information with respect to costs incurred
(exclusive of general support facilities) in the Company's oil and gas
activities during 2000 (in thousands):
Acquisitions:
Proved properties...................................... $32,891
Unproved properties.................................... 8,089
Exploratory.............................................. 3,868
Development.............................................. 38,772
--------
Total costs incurred............................... $83,620
========
F-51
55
Estimated Quantities of Proved Oil and Gas Reserves (unaudited)
Proved reserves are estimated quantities of crude oil, natural gas and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those which are
expected to be recovered through existing wells with existing equipment and
operating methods. The following is an analysis of the Company's proved oil and
gas reserves, all of which are located in the United States:
Oil Gas
(MBbls) (MMcf)
-------- --------
Proved reserves at December 31, 1999............ 8,271 125,031
Revisions of previous estimates................. (1,201) 17,224
Extensions, discoveries and other additions..... 1,742 36,922
Production...................................... (701) (16,138)
Purchase of reserves in place................... 1,613 36,263
Sales of reserves in place...................... (14) (165)
----- -------
Proved reserves at December 31, 2000............ 9,710 199,137
===== =======
Proved developed reserves at December 31, 2000... 7,414 166,192
===== =======
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves (unaudited)
The Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves ("Standardized Measure") is a disclosure requirement
under Statement of Financial Accounting Standards No. 69, Disclosures About Oil
and Gas Producing Activities ("SFAS 69"). The Standardized Measure does not
purport to present the fair market value of proved oil and gas reserves. This
would require consideration of expected future economic and operating conditions
which are not taken into account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by applying
year end prices, adjusted for fixed and determinable escalations, to the
estimated future production of year end proved reserves. Future cash inflows
were reduced by estimated future production, development and abandonment costs
based on year end costs to determine pre-tax cash inflows. Future income taxes
were computed by applying the statutory tax rate to the excess of pre-tax cash
inflows over the Company's tax basis in the associated proved oil and gas
properties. Future net cash inflows after income taxes were discounted using a
10 percent annual discount rate to arrive at the Standardized Measure.
F-52
56
Set forth below is the Standardized Measure relating to proved oil and gas
reserves at December 31, 2000 (in thousands):
Future cash inflows...................................... $2,044,766
Future production costs.................................. 349,913
Future development and abandonment costs................. 42,503
----------
Future net cash inflows before income tax expense........ 1,652,350
Future income tax expense................................ 581,872
----------
Future net cash flows.................................... 1,070,478
10 percent annual discount for estimated timing of
cash flows............................................. 532,784
----------
Standardized Measure of discounted future net cash
flows.................................................. $ 537,694
==========
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves (unaudited)
The following is an analysis of the changes in the Standardized Measure during
2000 (in thousands):
Standardized Measure, December 31, 1999................... $125,339
Increases (decreases) -
Sales, net of production costs.......................... (52,269)
Net change in sales price, net of production costs...... 382,075
Discoveries and extensions, net of related future
development and production costs...................... 179,279
Changes in estimated future development costs........... 6,473
Development costs incurred.............................. 7,658
Revisions of previous quantity estimates................ 31,834
Accretion of discount................................... 16,059
Net change in income taxes.............................. (232,047)
Purchase of reserves in place........................... 148,521
Sales of reserves in place.............................. (102)
Timing of production of reserves and other.............. (75,126)
--------
Standardized Measure, December 31, 2000................... $537,694
========
12. SUBSEQUENT EVENT:
On January 23, 2001, Newfield Exploration Company ("Newfield") acquired all of
the capital stock of the Company by merging the Company with and into Newfield
Exploration Mid-Continent Inc., a wholly owned subsidiary of Newfield. The total
consideration for the acquisition was approximately $333 million, including the
assumption of debt and certain other obligations of the Company. The total
consideration consisted of approximately 1.9 million shares of Newfield's stock
with a value, based on the closing price on January 22, 2001, of approximately
$68 million and approximately $265 million in cash.
F-53
57
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited)
The following unaudited pro forma combined statements of income of Newfield
Exploration Company ("Newfield") for the six months ended June 30, 2001 and the
year ended December 31, 2000 give effect to the acquisition of Lariat Petroleum,
Inc. ("Lariat Petroleum") on January 23, 2001 in a transaction accounted for as
a purchase, as if the acquisition had occurred on January 1, 2000. Newfield's
historical balance sheet as of June 30, 2001 reflects the acquisition of Lariat
Petroleum and therefore, no pro forma balance sheet has been provided. Such
allocation resulted in $438 million recorded to oil and gas properties (an
increase of $235 million compared to the historical book value of Lariat
Petroleum's oil and gas properties at December 31, 2000).
Also included in the unaudited pro forma combined statement of income for the
year ended December 31, 2000 are adjustments that give effect to the acquisition
of three producing properties in South Texas from Headington Oil Company L.P. in
a transaction accounted for as a purchase (the "Headington Properties"). The
Headington acquisition closed on February 25, 2000. The purchase price of the
Headington Properties is included in the historical balance sheet of Newfield in
the accompanying unaudited pro forma combined balance sheet as of December 31,
2000 and its results of operations from February 25, 2000 through December 31,
2000 are included in the historical results for Newfield in the accompanying
unaudited pro forma combined statement of operations for the period ended
December 31, 2000.
These unaudited pro forma financial statements should be read in conjunction
with the historical financial statements and notes thereto of Newfield and
Lariat Petroleum included in this Current Report on Form 8-K and are not
necessarily indicative of the results that actually would have occurred had the
transaction been in effect on the dates or for the periods indicated, or of
results that may occur in the future.
F-54
58
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME (Unaudited)
(In thousands, except share and per share data)
Six Months Ended June 30, 2001
--------------------------------------------------
Newfield Lariat Pro Forma
Historical Petroleum(A) Adjustments Pro Forma
----------- ------------ ----------- ---------
Oil and gas revenues. . . . . . . . . . . . . . $410,073 $ 5,642 $415,715
Operating expenses:
Lease operating . . . . . . . . . . . . . . . . 43,574 1,417 44,991
Production and other taxes. . . . . . . . . . . 12,581 12,581
Transportation. . . . . . . . . . . . . . . . . 2,825 2,825
Depreciation, depletion and amortization. . . . 132,723 1,271 $1,007 (B) 135,001
General and administrative (includes non-cash
stock compensation of $1,298) . . . . . . . . 23,224 806 24,030
-------- ------ --------
Total operating expenses. . . . . . . . . . . . 214,927 3,494 219,428
-------- ------ --------
Income from operations. . . . . . . . . . . . . 195,146 2,148 196,287
Other income (expenses) . . . . . . . . . . . . (8,838) (447) (989)(C) (10,274)
-------- ------ --------
Income before income taxes. . . . . . . . . . . 186,308 1,701 186,013
Income tax provision. . . . . . . . . . . . . . 66,426 622 (699)(D) 66,349
-------- ------ --------
Income from operations before cumulative
effect of change in accounting principle. . . $119,882 $1,079 $119,664
======== ====== ========
Basic earning per common share before
cumulative effect of change in
accounting principle. . . . . . . . . . . . . $2.70 $2.68
===== =====
Diluted earning per common share before
cumulative effect of change in
accounting principle. . . . . . . . . . . . . $2.50 $2.49
===== =====
Weighted average number of shares
outstanding for basic earnings per share . . . 44,387,863 247,849 (E) 44,635,712
========== ==========
Weighted average number of shares
outstanding for diluted earnings per share . . 49,098,805 247,849 (E) 49,346,654
========== ==========
The accompanying notes are an integral part of the unaudited pro forma
combined financial statements.
F-55
59
NEWFIELD EXPLORATION COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited)
The pro forma adjustments for the pro forma combined statement of income for the
six months ended June 30, 2001 are described as follows:
(A) Reflects the historical revenues and expenses of Lariat Petroleum from
January 1, 2001 through January 23, 2001.
(B) Reflects incremental depreciation, depletion and amortization based on the
step-up to estimated fair value of the producing oil and gas properties
acquired. Depreciation, depletion and amortization was calculated on the
unit-of-production method based on pro forma capitalized costs and
estimated future development, dismantlement and abandonment costs and
estimates of total pro form proved reserves.
(C) Reflects incremental interest expense on approximately $265 million of
borrowings under Newfield's credit facility for the period from January 1,
2001 through January 23, 2001 that were used to fund a portion of the
Lariat Petroleum purchase price. The calculation reflects the impact of
using a portion of the proceeds to retire approximately $157 million in
long-term obligations of Lariat Petroleum as if the retirement had occurred
on January 1, 2000 and assumes interest is capitalized on $45.3 million of
unproved properties.
A 1/8 percent variance in the assumed interest rate would change total pro
forma interest expense by approximately $17,000.
(D) Reflects pro forma adjustments to the income tax provision, assuming a 35
percent rate, based on the change in net pre-tax income.
(E) Reflects the weighted average impact of the issuance of 1,906,350 shares of
Newfield stock to fund a portion of the purchase price of Lariat Petroleum
on January 23, 2001 as if the acquisition had occurred on January 1, 2000.
F-56
60
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME (Unaudited)
(In thousands, except share and per share data)
Year Ended December 31, 2000
----------------------------------------------------------------------------------
Newfield Headington Pro Forma Lariat Pro Forma
Historical Properties Adjustments Pro Forma Petroleum(A) Adjustments Pro Forma
----------- ---------- ----------- --------- ------------ ----------- ---------
Oil and gas revenues. . . . . . . . . . . . . $526,642 $5,500 (F) $532,142 $66,841 $598,983
Operating expenses:
Lease operating . . . . . . . . . . . . . . . 65,372 506 (F) 65,878 7,788 73,666
Production and other taxes. . . . . . . . . . 10,288 10,288 5,356 15,644
Transportation. . . . . . . . . . . . . . . . 5,984 5,984 5,984
Depreciation, depletion and amortization. . . 191,182 2,452 (B) 193,634 17,998 $17,873 (B) 229,505
General and administrative (includes non-cash
stock compensation of $3,047) . . . . . . . 32,587 32,587 7,070 39,657
Stock compensation. . . . . . . . . . . . . .
-------- ------ -------- ------- --------
Total operating expenses. . . . . . . . . . . 305,413 506 308,371 38,212 364,456
-------- ------ -------- ------- --------
Income from operations. . . . . . . . . . . . 221,229 4,994 223,771 28,629 234,527
Other income (expenses) . . . . . . . . . . . (16,540) (958)(G) (17,498) (11,600) (4,249)(C) (33,347)
-------- -------- ------- --------
Income before income taxes. . . . . . . . . . 204,689 206,273 17,029 201,180
Income tax provision. . . . . . . . . . . . . 69,980 554 (D) 70,534 6,192 (7,743)(D) 68,983
-------- -------- ------- --------
Income from operations before cumulative
effect of change in accounting principle. . $134,709 $135,739 $10,837 $132,197
======== ======== ======= ========
Basic earning per common share before
cumulative effect of change in
accounting principle. . . . . . . . . . . . $3.18 $3.21 $2.99
===== ===== =====
Diluted earning per common share before
cumulative effect of change in
accounting principle. . . . . . . . . . . . $2.98 $3.00 $2.81
===== ===== =====
Weighted average number of shares
outstanding for basic earnings per share . . 42,332,835 42,332,835 1,906,530(E) 44,239,365
========== ========== ========= ==========
Weighted average number of shares
outstanding for diluted earnings per share . 47,227,708 47,227,708 1,906,530(E) 49,134,238
========== ========== ========= ==========
The accompanying notes are an integral part of the unaudited pro forma
combined financial statements.
F-57
61
NEWFIELD EXPLORATION COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited)
The pro forma adjustments for the pro forma combined statement of income for
the year ended December 31, 2000 are described as follows:
(A) Reflects the historical revenues and expenses of Lariat Petroleum for the
year ended December 31, 2000.
(B) Reflects incremental depreciation, depletion and amortization based on the
step-up to estimated fair value of the producing oil and gas properties
acquired. Depreciation, depletion and amortization was calculated on the
unit-of-production method based on pro forma capitalized costs and
estimated future development, dismantlement and abandonment costs and
estimates of total pro forma proved reserves.
(C) Reflects incremental interest expense on approximately $265 million of
borrowings under Newfield's credit facility that were used to fund a
portion of the Lariat Petroleum purchase price. The calculation reflects
the impact of using a portion of the proceeds to retire approximately $157
million in long-term obligations of Lariat Petroleum as if the retirement
had occurred on January 1, 2000 and assumes interest is capitalized on
$45.3 million of unproved properties. The applicable interest rate on the
credit facility was 7.31% at December 31, 2000.
A 1/8 percent variance in the assumed interest rate would change total pro
forma interest expense by approximately $275,000.
(D) Reflects pro forma adjustments to the income tax provision, assuming a 35
percent rate, based on the change in net pre-tax income.
(E) Reflects the issuance of 1,906,530 shares of Newfield stock to fund a
portion of the purchase price of Lariat Petroleum as if the acquisition
had occurred on January 1, 2000.
(F) Reflects the historical revenues and operating expenses of the Headington
Properties for January 1, 2000 through February 25, 2000.
(G) Reflects additional interest expense for the period from January 1, 2000
through February 25, 2000, the closing date of the Headington Properties
acquisition, of $1.2 million (less capitalized interest of $0.2 million for
the portion of the purchase price allocated to unproved properties) as if
the Company incurred borrowings of approximately $110 million under its
credit facility to fund a portion of the Headington Properties purchase
price. The applicable interest rate on the credit facility was 7.31% at
December 31, 2000.
A 1/8 percent variance in the assumed interest rate would change total pro
forma interest expense by approximately $21,000.
F-58
62
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED SUPPLEMENTARY OIL AND GAS DISCLOSURES (Unaudited)
The following pro forma estimated reserve quantities show the effect of the
acquisition of Lariat Petroleum as of December 31, 2000:
Lariat
Historical Petroleum Pro Forma
---------- ---------- ---------
December 31, 2000:
Proved:
Oil and condensate (MBbls). . . . . 27,934 9,710 37,644
Gas (MMcf). . . . . . . . . . . . . 519,723 199,137 718,860
Proved developed:
Oil and condensate (MBbls). . . . . 24,040 7,414 31,454
Gas (MMcf). . . . . . . . . . . . . 416,368 166,192 582,560
F-59
63
NEWFIELD EXPLORATION COMPANY
PRO FORMA COMBINED SUPPLEMENTARY OIL AND GAS DISCLOSURES (Unaudited)
The following pro forma estimated standardized measure of discounted future
net cash flows shows the effect of the acquisition of Lariat Petroleum as of
December 31, 2000:
Lariat
Historical Petroleum Pro Forma
----------- ---------- ---------
(in thousands of dollars)
December 31, 2000:
Future cash inflows. . . . . . . . . . . . . . . . $5,844,358 $2,044,766 $7,889,124
Less related future:
Production costs . . . . . . . . . . . . . . . (516,313) (349,913) (866,226)
Development and abandonment costs. . . . . . . (260,459) (42,503) (302,962)
---------- -------- ----------
Future net cash flows before income taxes. . . . . 5,067,586 1,652,350 6,719,936
Future income tax expense. . . . . . . . . . . . . (1,573,295) (581,872) (2,155,167)
---------- -------- ----------
Standardized measure of discounted future
net cash flows before income taxes. . . . . . . . 3,494,291 1,070,478 4,564,769
10% annual discount for estimating timing of
cash flows. . . . . . . . . . . . . . . . . . . . (824,033) (532,784) (1,356,817)
---------- -------- ----------
Standardized measure of discounted future
net cash flows. . . . . . . . . . . . . . . . . . $2,670,258 $537,694 $3,207,952
========== ======== ==========
F-60
64
EXHIBIT INDEX
Exhibit No.
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23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Arthur Andersen LLP