-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pdv38N/hCyS8HsRx7DMhVZCWm53UKLjepKH3ixxzJ3GTRqVUQ0kpsXyE1H03fclJ Kr3fhjmmiLmWIa09zMCSeg== 0001009404-00-000007.txt : 20000313 0001009404-00-000007.hdr.sgml : 20000313 ACCESSION NUMBER: 0001009404-00-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRITON ENERGY LTD CENTRAL INDEX KEY: 0001009404 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 000000000 STATE OF INCORPORATION: E9 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11675 FILM NUMBER: 565421 BUSINESS ADDRESS: STREET 1: CALEDONIAN HOUSE,JENNETT STREET STREET 2: P.O. BOX 1043, GEORGE TOWN,GRAND CAYMAN CITY: CAYMAN ISLANDS BUSINESS PHONE: (345)949-0 MAIL ADDRESS: STREET 1: CALEDONIAN HOUSE MARY ST PO BOX 1043 STREET 2: GEORGE TOWN GRAND CAYMAN CITY: CAYMAN ISLANDS STATE: E9 ZIP: 75206 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: December 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ______________ Commission File Number: 1-11675 TRITON ENERGY LIMITED (Exact name of registrant as specified in its charter) CAYMAN ISLANDS NONE (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) CALEDONIAN HOUSE JENNETT STREET, P.O. BOX 1043 GEORGE TOWN GRAND CAYMAN, CAYMAN ISLANDS NONE (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 345-949-0050 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ---------------------- ------------------- Ordinary Shares, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [ X ] NO [ -------- ] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K (SECTION 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] --------- THE AGGREGATE MARKET VALUE OF THE OUTSTANDING ORDINARY SHARES HELD BY NON-AFFILIATES OF THE REGISTRANT AT MARCH 7, 2000 (FOR SUCH PURPOSES ONLY, ALL DIRECTORS AND EXECUTIVE OFFICERS ARE PRESUMED TO BE AFFILIATES) WAS APPROXIMATELY $1.0 BILLION, BASED ON THE CLOSING SALES PRICE OF $30.25 ON THE NEW YORK STOCK EXCHANGE. AS OF MARCH 7, 2000, 35,944,174 ORDINARY SHARES OF THE REGISTRANT WERE OUTSTANDING. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE PROXY STATEMENT PERTAINING TO THE 2000 ANNUAL MEETING OF SHAREHOLDERS OF TRITON ENERGY LIMITED ARE INCORPORATED BY REFERENCE INTO PART III HEREOF. TRITON ENERGY LIMITED TABLE OF CONTENTS
Form 10-K Item Page - -------------- ---- PART I ITEMS 1. and 2. Business and Properties 2 ITEM 3. Legal Proceedings 20 ITEM 4. Submission of Matters to a Vote of Security Holders 22 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters 23 ITEM 6. Selected Financial Data 29 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 30 ITEM 7.A. Quantitative and Qualitative Disclosures about Market Risk 43 ITEM 8. Financial Statements and Supplementary Data 46 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 46 PART III ITEM 10. Directors and Executive Officers of the Registrant 47 ITEM 11. Executive Compensation 47 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 47 ITEM 13. Certain Relationships and Related Transactions 47 PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 48
PART I ITEMS 1. AND 2. BUSINESS AND PROPERTIES GENERAL Triton Energy Limited is an international oil and gas exploration and production company. The Company's principal properties, operations, and oil and gas reserves are located in Colombia, Malaysia-Thailand and Equatorial Guinea. The Company is exploring for oil and gas in these areas, as well as in southern Europe, Africa and the Middle East. The Company conducts substantially all of its exploration and production operations outside the United States. All of the Company's sales are currently derived from oil and gas production in Colombia. For a discussion of certain political, economic and other uncertainties associated with operations in foreign countries, particularly in the oil and gas business, see note 19 of Notes to Consolidated Financial Statements. Triton Energy Limited was incorporated in the Cayman Islands in 1995 to become the parent holding company of Triton Energy Corporation, a corporation formed in Texas in 1962 and reincorporated in Delaware in 1995. The terms "Company" and "Triton" when used in this report mean Triton Energy Limited and its subsidiaries and other affiliates through which Triton conducts its business, unless the context otherwise implies. The Company's principal executive offices are located at Caledonian House, Jennett Street, George Town, Grand Cayman, Cayman Islands, and its telephone number is (345) 949-0050. Information regarding the Company can be obtained by contacting the Company's Investor Relations department at Triton Energy, 6688 North Central Expressway, Suite 1400, Dallas, Texas 75206, telephone number (214) 691-5200, or at the Company's web site, www.tritonenergy.com. OIL AND GAS PROPERTIES Through various subsidiaries and affiliates, the Company has participating interests in exploration licenses in Latin America, Southeast Asia, Africa, Europe and the Middle East. The following is intended to describe the Company's interests in these licenses and recent operations over these licenses. Colombia - -------- Santiago de Las Atalayas, Tauramena and Rio Chitamena Contract Areas The Company holds a 12% interest in the Santiago de Las Atalayas ("SDLA"), Tauramena and Rio Chitamena contract areas, covering approximately 66,000, 36,300 and 6,700 acres, respectively, where an active development program is being carried out in the Cusiana and Cupiagua fields. The area is located approximately 160 kilometers (100 miles) northeast of Bogota in the Andean foothills of the Llanos Basin area in eastern Colombia. Triton's partners in these areas are Empresa Colombiana De Petroleos ("Ecopetrol"), the Colombian national oil company, with a 50% interest, and subsidiaries of BP/Amoco ("BP") and TotalFina SA ("TOTAL"), each with a 19% interest. BP is the operator. Triton's interest is 12%, and its net revenue interest is approximately 9.6% after governmental royalties. Triton's net revenue is reduced by up to 0.36% pursuant to an agreement with an original co-investor, subject to Triton being reimbursed for a proportionate share of related expenditures. Contract Terms. The Company and its private partners have secured the right --------------- to produce oil and gas from the SDLA and Tauramena contract areas through the years 2010 and 2016, respectively, and from the Rio Chitamena contract area through 2015 or 2019, depending on contract interpretation. In July 1994, Triton, BP, TOTAL and Ecopetrol entered into an Integral Plan for the Unified Exploitation of the Cusiana Oil Structure in the SDLA, Tauramena and Rio Chitamena Association Contract Areas to develop the Cusiana oil structure in a technically efficient and cooperative manner. The plan contemplates that the parties' interests will be determined over three consecutive periods of time. Until the expiration of the SDLA contract in 2010, petroleum produced from the unified area will be owned by the parties according to their interests in each contract area. In the first quarter of 2005, the parties will engage an independent party to determine the original barrels of oil equivalent ("BOE") of petroleum in place under the unified area and under each contract area. Then a "tract factor" will be calculated for each contract area. Each tract factor will be the amount of original BOEs of petroleum in place under the particular contract area as a percentage of the total original BOEs under the unified area. Each party's unified area interest during the second period (commencing from the expiration of the SDLA contract in 2010) and during the final period (commencing from the termination of the second contract to termination) will be the aggregate of that party's interest in each remaining contract area multiplied by the tract factor for each such contract area. Recent Operating Activity. In the Cusiana field, during 1999, Triton and --------------------------- its working interest partners completed an additional six wells, bringing the total completions to 43 producing wells, 13 gas injection wells and four water injection wells. The gas injection wells recycle to the Mirador formation most of the gas that is associated with the oil production to increase the oil recoverable during the life of the field. The water injection wells inject the field's produced water into the Barco and Guadalupe formations for disposal and pressure maintenance. There are currently four drilling rigs operating in the Cusiana field to drill production, water and gas injection wells. The Company expects that five wells will be completed during 2000. During 1999, in the Cupiagua field, including the Cupiagua South extension of the field discovered in January 1998, Triton and its working interest partners completed an additional eight wells, bringing the total completions to 24 producing wells and seven gas injection wells. There are currently three drilling rigs operating in the Cupiagua field on the SDLA contract area to drill production, water and gas injection wells. The Company expects that nine wells will be completed during 2000. Recetor Contract Area In 1999, the Company acquired a 20% interest in the Recetor contract area, covering approximately 70,215 acres. The area is located adjacent to and north of the SDLA contract area and includes an extension of the Cupiagua field. Triton's partners in these areas are BP, with a 63.3% interest, and, Inaquimicas, with a 16.7% interest. BP is the operator. The Company's interest is subject to certain government royalties and the right of Ecopetrol to acquire up to a 50% interest in the contract upon declaration of commerciality. The contract provides the Company and its private partners the right to produce oil and gas from the Recetor contract area through the year 2017. In January 2000, Triton and its working interest partners completed the Liria YD-2 well on the extension of the Cupiagua field in the Recetor contract area. The well reached total depth of 16,953 feet and will be tested into the Cupiagua Central Processing Facility (CPF). The Company expects that Ecopetrol will grant commerciality and the well will be put on production into the Cupiagua CPF provided the working interest partners reach agreement with the SDLA working interest partners. There is currently one drilling rig operating in the Recetor contract area. The Company expects that at least one additional well will be drilled in the Recetor contract area in 2000. Production Facilities and Pipelines The production facilities in the Cusiana and Cupiagua fields have been completed. The components of the Cusiana CPF consist of a long term test facility, four early production units, and two 80,000 barrels of oil per day ("BOPD") production trains, which brought the production capacity of the Cusiana CPF to approximately 320,000 BOPD. Currently, the production of the Cusiana field is limited by the gas handling capacity of the Cusiana CPF of about 1,400 million cubic feet of gas per day. The components of the Cupiagua CPF consist of two 100,000 BOPD production trains, which process the condensate and gas production from the Cupiagua producing wells. The gas handling capacity of the Cupiagua CPF is approximately 1,300 million cubic feet of gas per day. Crude oil and condensate produced from the Cusiana and Cupiagua fields, as well as crude oil from other third parties, are transported to the Caribbean port of Covenas through the 832-kilometer (520-mile) pipeline system operated by Oleoducto Central S. A. ("OCENSA"). OCENSA is a Colombian company formed by Triton Pipeline Colombia, Inc., a wholly owned subsidiary of the Company until its sale in February 1998, Ecopetrol, BP Colombia Pipelines Ltd., Total Pipeline Colombie, S.A., IPL Enterprises (Colombia) Inc. and TCPL International Investments Inc. Gross production from the Cusiana and Cupiagua fields has reached over 500 million barrels of oil since production commenced, and averaged approximately 430,000 BOPD during 1999. Based on estimates of the operator of the Cusiana and Cupiagua fields, the Company believes that combined Cusiana and Cupiagua oil production will be approximately 8% to 11% lower in 2000 than in 1999, although there can be no assurance that actual production will equal that amount. Other Contract Areas in Colombia Triton owns a 100% interest (before certain royalties and government participation) in the El Pinal license, which covers approximately 36,000 acres approximately 330 kilometers (205 miles) north of Bogota. In the southern part of El Pinal, Triton discovered and confirmed the Liebre field with two wells (the Liebre-1 and -2). Liebre-1 ceased production in June 1998 while Liebre-2 continues to produce approximately 160 BOPD. During 1999, in the Guayabo A and B licenses, the Company drilled an unsuccessful exploratory well and conducted a surface geology program in satisfaction of its commitments. The Company has relinquished its interest in these areas. Malaysia-Thailand ----------------- In Block A-18 of the Malaysia-Thailand Joint Development Area in the Gulf of Thailand, the Company and its partners have discovered eight natural gas fields - known as the Bulan, Bumi, Bumi East, Cakerawala, Samudra, Senja, Suriya, and Wira fields. The Company owns its interest through a company owned one half by Triton and one half by a subsidiary of Atlantic Richfield Company ("ARCO"). The operator is Carigali-Triton Operating Company Sdn. Bhd. ("CTOC"), a company owned by Triton and ARCO, through their jointly owned company, and Petronas Carigali (JDA) Sdn. Bhd. ("Carigali"), a subsidiary of the Malaysian national oil company. Block A-18 is located in the Gulf of Thailand in an area known as the Malaysia-Thailand Joint Development Area. The contract area in the Gulf of Thailand, which encompasses approximately 731,000 acres, had been the subject of overlapping claims between Malaysia and Thailand. The two countries established the Malaysia-Thailand Joint Authority (the "MTJA") to administer the development of the Joint Development Area. In April 1994, Triton entered into a production-sharing contract with the MTJA and Carigali. Triton previously held a license from Thailand that covered part of the Joint Development Area. Contract Terms The term of the production-sharing contract is 35 years, subject to possible relinquishment of certain areas and subject to the treaty between Malaysia and Thailand creating the MTJA remaining in effect. Triton and its partners have the right to explore for oil and gas for the first eight years of the contract. The contract provides that if there is a discovery of natural gas (not associated with crude oil), the contractors will submit to the MTJA a development plan for the field. If the MTJA accepts the plan, the contractors would have the right to hold that gas field without production for an additional five-year period, but not beyond the tenth anniversary of the contract. The contractors would then have a five-year period to develop the field, and have the right to produce gas from the field for 20 years plus a number of years equal to the number of years, if any, prior to the end of the holding period that gas production commenced (or until the termination of the contract, if earlier). The contract requires the contractors to drill two exploratory wells before April 2002. For a discovery of an oil field, the contract grants to the operators the right to produce oil from the field for 25 years (or until the termination of the contract, if earlier). Any areas not developed and producing within the periods provided will be relinquished. As oil and gas are produced, the MTJA is entitled to a 10% royalty. A portion of each unit of production is considered "cost oil" or "cost gas" and will be allocated to the contractors to the extent of their recoverable costs, with the balance considered "profit oil" or "profit gas" to be divided 50% to the MTJA and 50% to the contractors (i.e., 25% to Carigali and 25% to the company jointly owned with ARCO). The portion that will be considered "cost gas" for production from the Cakerawala and Bulan fields is a maximum of 60%. The Cakerawala and Bulan fields are the fields planned for first-phase development. The portion that will be considered "cost gas" for production from the other fields is a maximum of 50%. There is an additional royalty attributable to Triton's and ARCO's joint interest equal to 0.75% of Block A-18 production. Tax rates imposed by the MTJA on behalf of the governments of Malaysia and Thailand are 0% for the first eight years of production, 10% for the next seven years of production and 20% for any remaining production. The Company's agreements with ARCO require ARCO to pay the future exploration and development costs attributable to the Company's and ARCO's collective interest in Block A-18, up to $377 million or until first production from a gas field, after which the Company and ARCO would each pay 50% of such costs. The agreements provide that the Company will recover its investment in recoverable costs in the project, approximately $100 million, and that ARCO will recover its investment in recoverable costs, on a first-in, first-out basis from the cost recovery portion of future production. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and note 2 of Notes to Consolidated Financial Statements. Gas Sales Agreement In October 1999, the Company and the other parties to the production-sharing contract for Block A-18 executed a gas sales agreement providing for the sale of the first phase of gas. The sales agreement provides for gas deliveries over a term concurrent with the production-sharing contract and contemplates initial deliveries of 195 million cubic feet of gas (MMCF) per day for the first six months of the agreement, and 390 MMCF per day for a period of twenty years. The sales agreement includes a take-or-pay provision that specifies that the buyers must take a minimum of 90% of the annual daily contract quantity and the sellers must be able to deliver a maximum of 110% of the daily contract quantity. Delivery is made at the offshore production platform. The price for gas will be adjusted annually for changes in the US Consumer Price Index, the Producer Price Index for Oil Field and Gas Field Machinery and Tools, and medium fuel oil (180 CST) in Singapore. The price is calculated annually and will apply to sales over the succeeding twelve months. All calculations and payments are in U.S. dollars. The base price is $2.30 per mmbtu. To give the buyers incentive to accelerate the timing of the delivery of the gas, the sales agreement gives the buyers a discount of 5% after 500 billion cubic feet has been delivered and a discount of 10% after an aggregate of 1.3 trillion cubic feet has been delivered. The sales agreement provides that the initial delivery date will be a date to be agreed upon by the sellers and the buyers between April 1, 2002 and June 30, 2002. If the parties do not agree on a date for initial delivery, the agreement provides that the date will be deemed to be June 30, 2002. By the first delivery date, the sellers will be required to have completed the facilities necessary to meet its delivery obligations. The MTJA had previously approved the field development plan for the Cakerawala field in December 1997. CTOC has begun field development work and has awarded several contracts for long lead-time equipment, including CO2 removal, structural steel, refrigeration, power generation and gas compression. In March 2000, CTOC awarded the contract for engineering, procurement and construction (EPC) of three wellhead platforms, a production platform with living quarters platform, a riser platform and a floating storage and off-loading vessel for oil and condensate. The initial development plan calls for 35 development wells. The buyers currently do not have in place facilities necessary to transport and process the gas. While it is not a requirement of the sales agreement, the buyers anticipate constructing pipeline and processing facilities onshore Thailand to accept deliveries of the gas. The sales agreement does recognize that the buyers' downstream facilities will require that certain environmental approvals be obtained before the buyers' facilities can be constructed. The agreement provides that, if a delay in obtaining the necessary environmental approvals results in a delay of the completion of the buyers' downstream facilities, this will be treated as a force majeure event and will excuse the buyers from their take or pay obligations for the length of the delay. The Company can give no assurance as to when the environmental approvals will be obtained, and a lengthy approval process, or significant opposition to the project, could delay construction and the commencement of gas sales. Notwithstanding a possible future delay in the buyers' environmental approvals process, in order to meet the June 30, 2002 deadline, the sellers are committed to, or will be required to commit to, significant expenditures, including the EPC contract. Although ARCO is committed to pay all development costs associated with Block A-18 up to $377 million, the Company has agreed to provide some compensation to ARCO in the event that gas sales are delayed by agreeing to pay to ARCO $1.25 million per month for each month, if applicable, that first gas sales are delayed beyond 30 months following commitment to the EPC contract. The Company's obligation is capped at 24 months of these payments. Equatorial Guinea ------------------ The Company signed production-sharing contracts in March 1997 covering two contiguous blocks (Blocks F and G) with the Republic of Equatorial Guinea. The contracts became effective in April 1997. During 1999, the Company announced an oil discovery, the Ceiba field, in Block G, and confirmed the significance of the discovery with the Ceiba-2 appraisal well. The contracts give the Company the right to explore and develop an area covering approximately 1.3 million acres located offshore and southwest of the town of Bata in water depths of up to 5,200 feet. The Company is the operator and Energy Africa Equatorial Guinea Limited is the Company's partner. Currently, the Company's contract interest is 85% and Energy Africa's contract interest is 15%, but these interests are subject to the renegotiation of the contracts as discussed below. Contract Terms Currently, the Company's commitments under the production-sharing contracts for the contract year ending April 2001 are to drill at least one exploration well, and a second exploration well contingent upon the Company identifying an additional structure it believes is a drillable prospect. The Company can extend the exploration period of each contract for three additional one-year periods if it agrees to certain operational commitments for those periods, including the drilling of at least one exploration well, and a second exploration well contingent upon the Company identifying an additional structure it believes is a drillable prospect. The Company is required to relinquish 30% of each contract's original area by April 2000, and an additional 20% of the remaining contract area by the end of April, provided that the Company will not be required to surrender an area that includes a commercial field or a discovery that has not then been declared commercial. The area or areas to be surrendered is to be designated by the Company, provided that, where possible, each area is of sufficient size and convenient shape to permit petroleum operations. The contracts provide that if there is a commercial discovery of an oil or gas field on a block, the contract will remain in existence as to that field for a period of 30 years, in the case of oil, or 40 years, in the case of gas, from the date the Ministry of Mines and Energy approves the discovery as commercial. Any further discoveries of formations that underlie or overlie that field, or other deposits found within the extension of that field, will be included with that field and be subject to the original 30 or 40 year term, as applicable. The Ministry approved the Ceiba field as commercial in December 1999. Under the current terms of the Company's production-sharing contracts, the Republic of Equatorial Guinea is entitled to a royalty as to each field. The royalty is 10% for up to the first 100 million barrels of oil produced, 12.5% for greater than 100 million barrels of oil up to 300 million barrels of oil produced, and 15% for greater than 300 million barrels of oil produced. After making the royalty payments, the Company is entitled to receive the production until it recovers its costs, such capital costs to be depreciated and recovered over a four year period. After the Company recovers its costs, the Republic of Equatorial Guinea is entitled to receive a share of production based on the rate of return realized by the Company under the contract. The contracts provide that the government's share of production will vary from 0%, where the Company's rate of return is less than 18%, to 55% where the Company's rate of return is greater than or equal to 40%. At the request of the Republic of Equatorial Guinea, the Company and its partner are negotiating amendments to certain terms of the contracts with the government. The parties have signed a memorandum of understanding reflecting the revised terms, and negotiations of definitive amendments are continuing. The memorandum of understanding provides that the government would receive a 5% carried participating interest, and its royalty would vary based on average daily production, ranging from 11% to 16%. After making the royalty payments, the contractors would be entitled to receive up to 70% of the production until they recover their costs. Production not allocated to the contractors for cost recovery would be allocated between the contractors and the government based on cumulative production, with the government's share ranging from 20% to 60%, to the extent production exceeds certain levels. This share of production is in addition to the share the government would receive through its 5% carried participating interest. The implementation of the revised terms of the contract is subject to the negotiation and execution of definitive amendments, but there can be no assurance as to whether, or when, such definitive amendments will be executed. Recent Operating Activity During 1999, the Company announced an oil discovery, the Ceiba field, in Block G, and confirmed the significance of the discovery with the Ceiba-2 appraisal well. On test, the Ceiba-1 well flowed 12,401 barrels of oil per day (BOPD) of 30 degree oil from one zone over an interval of 160 feet with a flowing tubing pressure of 897 pounds per square inch. Test results were constrained by the capacity of surface testing equipment. Analysis of wireline logs and core data indicates a gross oil column of 742 feet in the well with net oil-bearing pay of 314 feet in four zones. The Ceiba-1 well was drilled to a total depth of approximately 9,700 feet in approximately 2,200 feet of water, located 22 miles off the continental coast. The Ceiba-2 well was drilled approximately one mile to the southwest and 342 feet down-dip of the Ceiba-1 discovery well. The well encountered net oil-bearing pay of 300 feet in a single, continuous column. In addition, the well confirmed the oil-water contact found in Ceiba-1, and demonstrated lateral reservoir continuity and connectivity. The well is located 22 miles off the continental coast and was drilled to a total depth of 8,744 feet in 2,347 feet of water. The Company elected not to flow test the well based on wireline logs, extensive coring and pressure data, as well as Ceiba-1 flow-test results. The Company intends to maintain both the Ceiba-1 and Ceiba-2 wells as potential future producers. The Company has acquired a 1,025,000-acre (4,200 square kilometer) 3D seismic survey, out of the total 1.3 million acres, to assist in delineating the extent of the Ceiba field, identify drilling locations for the appraisal/production wells, and better define other exploration prospects on the blocks. The Company is in the process of evaluating the data. The Company intends to accelerate its exploration, appraisal and development drilling activities through implementation of a two-rig drilling program. The drilling program provides for up to ten wells: four firm well commitments and six optional wells. The rigs will be used to: - - Complete the Ceiba-1 and -2 wells as oil producers. - - Drill and complete two Ceiba field appraisal/production wells, Ceiba-3 and Ceiba-4. - - Drill two exploration wells, one each on Blocks F and G. - - At the option of the Company, drill a combination of up to six additional development, appraisal and/or exploration wells. Plan of Development In January 2000, the Company received notice from the Ministry of Mines and Energy of the Republic of Equatorial Guinea that the Ministry had approved Triton's plan of development for the Ceiba field. The plan of development provides for initial or phase one production of 52,000 BOPD utilizing a floating production storage and offloading (FPSO) system, although there can be no assurance that actual production will be at this level. Selection of a FPSO-based development concept was designed to allow for accelerated development of the Ceiba field. Specifications call for the FPSO vessel to provide storage for two million barrels of oil and initial processing capacity of up to 60,000 barrels of oil per day. The FPSO vessel can also be expanded cost effectively through the addition of incremental processing capacity, to accommodate up to 240,000 barrels of oil per day. As part of this initial phase of development, four sub-sea production wells are scheduled to be completed and connected through flow lines to the FPSO, including the Ceiba-1 and Ceiba-2 wells. Based on discussions held to date with development contractors, the Company is targeting first oil production to occur by year end, although the Company can give no assurance that it will meet this target. The Company believes that due to transportation and preliminary assays of the quality of the crude oil, the oil from the Ceiba field will sell at a discount to Brent crude. Greece ------ The Company has signed two leases with Hellenic Petroleum, the national oil company of Greece, with the Company having an 88% interest in each lease and Hellenic Petroleum the remaining 12% interest. The Gulf of Patraikos contract area covers approximately 402,000 acres (after a contractually-required relinquishment in 1999) located offshore between the western coast of Greece and the offshore Ionian islands of Lefkas, Kefalonia and Zakynthos in water depths of up to 1,700 feet. The lease provides a primary exploration term expiring in September 2001 with a commitment of 1,000 kilometers (625 miles) of new 2D seismic and the drilling of one exploratory well for a total expenditure of not less than $13.5 million. The Company has reprocessed approximately 3,000 kilometers (1,900 miles) of existing 2D seismic and acquired approximately 1,000 kilometers (625 miles) of 2D seismic and gravity in January 2000. The Aitoloakarnania contract area covers approximately 658,000 acres (after a contractually-required relinquishment in 1999) located onshore in western Greece. The lease provides a primary exploration term expiring in June 2000 with a commitment of 200 kilometers of 2D seismic and the drilling of two exploratory wells for a total expenditure of not less than $13.25 million. The Company has reprocessed approximately 660 kilometers (410 miles) of existing 2D seismic and acquired approximately 200 kilometers (125 miles) of new 2D seismic. The Company plans to drill the commitment wells this year although the Company may attempt to negotiate amendments to these commitments. Italy ----- The Company holds interests in six licenses in Italy comprising three offshore blocks in the Adriatic Sea and three onshore blocks in the Southern Apennines. The Company has a 47% interest in each of the contiguous DR71 and DR72 licenses covering approximately 369,400 acres (after a contractually required relinquishment in 1999) in the Adriatic Sea located 45 kilometers (28 miles) offshore the city of Brindisi. Triton's partner in these licenses is Enterprise Oil Italiana, S.p.A. ("Enterprise"), the operator, with a 53% interest. During 1998, the Company and its working interest partners drilled the Giove-1 well. The well was drilled to a total depth of 3,458 feet but was prematurely abandoned due to a gas blowout and mechanical failure. A replacement well, Giove-2, was drilled to a total depth of 4,285 feet and encountered oil and gas. Additional work is required to evaluate the commercial potential of the licenses. During 1999, a subsidiary of ExxonMobil withdrew from its interest in the licenses and the Company and Enterprise each received its proportionate share of ExxonMobil's interest. In 1998, Triton acquired a 20% interest in the FR33AG offshore license. The license covers approximately 71,600 acres and is adjacent to the DR71 and DR72 licenses. Eni S.p.A. is operator, with a 50% interest, and Enterprise holds the remaining 30% interest. The license provides a primary exploration term expiring in September 2004 with a commitment of 250 kilometers (156 miles) of new 2D seismic and the drilling of one exploratory well. In the southern Apennine Mountains, the Company has an interest in three contiguous licenses, Fosso del Lupo, Valsinni and Masseria de Sole, covering approximately 58,000 acres in the Matera province. The Company is the operator, with a 50% interest, and a subsidiary of ARCO holds the remaining 50% interest. The licenses provide a primary exploration term expiring in August 2002 and were amended in 1999 to provide a combined work commitment of approximately 50 kilometers (31 miles) of new 2D seismic and the drilling of one exploratory well. In connection with the amendment, the Company relinquished approximately 40% of the acreage. The Company acquired the 50 kilometers of seismic data over the license area in 1999. Oman ---- In 1998, the Company signed a production-sharing contract for Block 40, covering approximately 1.3 million acres located offshore in the Straits of Hormuz. The contract provides an exploration term expiring in June 2001 with a commitment of the drilling of one exploratory well. The Company is the operator with a 50% contract interest and Atlantis Holding Norway AS is the Company's partner with a 50% interest. Triton has completed the reprocessing and interpretation of 4,083 kilometers (2,546 miles) of existing 2D seismic, and completed the acquisition of a 620 square kilometer 3D seismic survey in January 2000. The Company expects that it will process and interpret this data during 2000 and drill an exploratory well in early 2001. Madagascar ---------- The Company has signed a production-sharing contract with the Office of National Mines and Strategic Industries in Madagascar for the Ambilobe Block, covering approximately 4.3 million acres. The block is located directly offshore from Ambilobe in water depths of up to 11,500 feet. The Company has acquired approximately 3,000 kilometers (1,875 miles) of 2D seismic. Ecuador ------- In 1999, the Company assigned its 55% interest in Block 19 in the Oriente Basin to Vintage Petroleum Ecuador, Inc. The assignment is subject to approval of the Ministry of Energy and Mines. RESERVES The following table sets forth a summary of the Company's estimated proved oil and gas reserves at December 31, 1999, and is based on separate estimates of the Company's net proved reserves prepared by: - - the independent petroleum engineers, DeGolyer and MacNaughton, with respect to the proved reserves in the Cusiana and Cupiagua fields in Colombia, - - the independent petroleum engineers, Netherland, Sewell & Associates, Inc., with respect to the proved reserves in the Ceiba field in Equatorial Guinea, - - the internal petroleum engineers of the operating company, Carigali-Triton Operating Company (CTOC) with respect to the proved reserves in Malaysia-Thailand on Block A-18 in the Gulf of Thailand, and - - the Company's internal petroleum engineers with respect to the proved reserves in the Liebre field in Colombia. For additional information regarding the Company's reserves, including the standardized measure of future net cash flows, see note 23 of Notes to Consolidated Financial Statements. Oil reserves data include natural gas liquids and condensate. Net proved reserves at December 31, 1999, were:
PROVED PROVED TOTAL DEVELOPED UNDEVELOPED PROVED ------------------- ---------------------- ------------------ OIL GAS OIL GAS OIL GAS (MBBLS) (MMCF) (MBBLS) (MMCF) (MBBLS) (MMCF) ---------- ------- ------------ -------- -------- -------- Colombia (1) 91,859 11,566 33,712 --- 125,571 11,566 Malaysia-Thailand (2) --- --- 13,223 553,862 13,223 553,862 Equatorial Guinea --- --- 32,033 --- 32,033 --- ---------- ------- ------------ -------- -------- -------- Total 91,859 11,566 78,968 553,862 170,827 565,428 ========== ======= ============ ======== ======== ========
____________________ (1) Includes liquids to be recovered from Ecopetrol as reimbursement for precommerciality expenditures. (2) As of December 31, 1999, gas sales had not yet commenced. The proved gas reserves are calculated using the base price in the gas sales agreement of $2.30. The base price is subject to annual adjustments based on various indices. There can be no assurance as to what the actual price will be when gas sales commence. See "Item 1. Business and Properties - Malaysia-Thailand." Reserve quantities are estimates and there are a number of uncertainties. Reserve estimates are approximate and may be expected to change as additional information becomes available. In addition there are inherent uncertainties in making reserve estimates, such as the following: - - the Company, and if applicable the independent engineers, must make certain assumptions and projections based on engineering data; - - there are uncertainties inherent in interpreting engineering data; - - the Company, and if applicable the independent engineers, must project future rates of production and the timing of development expenditures; - - reservoir engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way; and - - the accuracy of reserve estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Accordingly, the Company cannot give any assurance that the Company will ultimately produce the quantity of reserves set forth in the table, and the Company cannot give any assurance that the proved undeveloped reserves will be developed within the periods anticipated. The Company has not filed any estimates of total proved net oil or gas reserves with, or included estimates of total proved net oil or gas reserves in any report to, any United States authority or agency since the beginning of the Company's last fiscal year. OIL AND GAS OPERATIONS Production and Sales ---------------------- During 1999, 1998 and 1997, the Company produced and sold oil and gas only from its property in Colombia. More details regarding the Company's revenues, assets and certain other data by geographical area is contained in note 21 of Notes to Consolidated Financial Statements. The following table sets forth the net quantities of oil and gas the Company produced during 1999, 1998 and 1997.
OIL PRODUCTION (1) GAS PRODUCTION --------------------------- -------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, , --------------------------- -------------------------- 1999 1998 1997 1999 1998 1997 ------ ------ ------ ------ ------ ------ (Mbbls) (MMcf) Colombia (2) 12,469 9,979 5,776 459 503 802
____________________ (1) Includes natural gas liquids and condensate. (2) Includes Ecopetrol reimbursement barrels and excludes 3.1 million, 3.1 million and 2.5 million barrels of oil produced and delivered for the years ended December 31, 1999, 1998 and 1997, respectively, in connection with the Company's forward oil sale in May 1995. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" and note 8 of Notes to Consolidated Financial Statements. The following tables summarize for 1999, 1998 and 1997: (i) the average sales price per barrel of oil and per Mcf of natural gas; (ii) the average sales price per equivalent barrel of production; (iii) the depletion cost per equivalent barrel of production; and (iv) the production cost per equivalent barrel of production:
AVERAGE SALES PRICE AVERAGE SALES PRICE PER BARREL OF OIL (1) PER MCF OF GAS YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------- ------------------------ 1999 1998 1997 1999 1998 1997 ------- ------ ------ ----- ----- ----- Colombia (4) $ 15.95 $12.31 $17.54 $0.88 $0.99 $1.15
PER EQUIVALENT BARREL (2) ---------------------------------------------------------------------------- AVERAGE SALES PRICE DEPLETION (3) PRODUCTION COST ------------------------- ------------------------ ----------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------- ------------------------ ----------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 ------ ------ ------ ------ ------ ------ ------ ------ ------ Colombia (4) $15.89 $12.27 $17.37 $ 3.80 $ 4.07 $ 3.67 $ 4.77 $ 5.97 $ 6.47
____________________ (1) Includes natural gas liquids and condensate. (2) Natural gas has been converted into equivalent barrels of oil based on six Mcf of natural gas per barrel of oil. (3) Includes depreciation calculated on the unit of production method for support equipment and facilities. (4) Includes barrels delivered under the forward oil sale which are recorded at $11.56 per barrel upon delivery. Excludes the full cost ceiling limitation writedown in 1998 totaling $241 million. Competition ----------- The Company encounters strong competition from major oil companies (including government-owned companies), independent operators and other companies for favorable oil and gas concessions, licenses, production-sharing contracts and leases, drilling rights and markets. Additionally, the governments of certain countries in which the Company operates may, from time to time, give preferential treatment to their nationals. The oil and gas industry as a whole also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. The Company believes that the principal means of competition in the sale of oil and gas are product availability, price and quality. Markets ------- Crude oil, natural gas, condensate and other oil and gas products generally are sold to other oil and gas companies, government agencies and other industries. The Company does not believe that the loss of any single customer or contract pursuant to which oil and gas are sold would have a long-term material, adverse effect on the revenues from the Company's oil and gas operations. In Colombia, crude oil is exported through the Caribbean port of Covenas where it is sold at prices based on United States prices, adjusted for quality and transportation. The oil produced from the Cusiana and Cupiagua fields is transported to the export terminal by pipeline. For a discussion of certain factors regarding the Company's markets and potential markets that could affect future operations, see note 19 of Notes to Consolidated Financial Statements. ACREAGE The following table shows the total gross and net developed and undeveloped oil and gas acreage held by Triton at December 31, 1999. "Gross" refers to the total number of acres in an area in which the Company holds an interest without adjustment to reflect the actual percentage interest held therein by the Company. "Net" refers to the gross acreage as adjusted for working interests owned by parties other than the Company. "Developed" acreage is acreage spaced or assignable to productive wells. "Undeveloped" acreage is acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas, regardless of whether such acreage contains proved reserves.
DEVELOPED UNDEVELOPED ACREAGE ACREAGE (1) ----------- -------------- GROSS NET GROSS NET ----- ----- ------- ----- (In thousands) Colombia 109 13 106 50 Malaysia-Thailand --- --- 731 183 Greece --- --- 1,060 933 Italy --- --- 499 217 Oman --- --- 1,322 661 Equatorial Guinea (2) --- --- 1,306 1,110 Madagascar --- --- 4,300 4,300 ----- ----- ------- ----- Total 109 13 9,324 7,454 ===== ===== ======= ===== ____________________
(1) Triton's interests in certain of this acreage may expire if not developed at various times in the future pursuant to the terms and provisions of the leases, licenses, concessions, contracts, permits or other agreements under which it was acquired. (2) The acreage listed does not take into account the 5% carried participating interest the Company expects to assign to the government of Equatorial Guinea in connection with the renegotiation of the production-sharing contract. PRODUCTIVE WELLS AND DRILLING ACTIVITY In this section, "gross" wells refers to the total number of wells drilled in an area in which the Company holds any interest without adjustment to reflect the actual ownership interest held. "Net" refers to the gross number of wells drilled adjusted for working interests owned by parties other than the Company. At December 31, 1999, in Colombia, Triton held gross and net working interests in 93 and 12.92 productive wells, respectively, which include 20 gross (2.4 net) gas-injection wells and four gross (.48 net) water-injection wells. The following tables set forth the results of the oil and gas well drilling activity on a gross basis for wells in which the Company held an interest during 1999, 1998 and 1997.
GROSS EXPLORATORY WELLS PRODUCTIVE (1) DRY TOTAL ------------------------ ----------------------- ----------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------ ----------------------- ----------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 ------ ------ ------ ------ ------ ------ ------ ------ ------ Colombia --- 1 1 1 --- 1 1 1 2 Malaysia-Thailand --- 2 5 --- --- --- --- 2 5 Equatorial Guinea 2 --- --- --- --- --- 2 --- --- Italy --- --- --- --- 2 --- --- 2 --- Guatemala --- --- --- --- --- 1 --- --- 1 China --- --- --- --- 1 --- --- 1 --- Ecuador --- --- --- --- --- 1 --- --- 1 Tunisia --- --- --- --- 1 --- --- 1 --- ------ ------ ------ ------ ------ ------ ------ ------ ------ Total 2 3 6 1 4 3 3 7 9 ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS DEVELOPMENT WELLS PRODUCTIVE (1) DRY TOTAL ------------------------ ----------------------- ----------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------ ----------------------- ----------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 ------ ------ ------ ------ ------ ------ ------ ------ ------ Colombia 14 13 18 --- --- --- 14 13 18 Malaysia-Thailand --- --- --- --- --- --- --- --- --- Equatorial Guinea --- --- --- --- --- --- --- --- --- ------ ------ ------ ------ ------ ------ ------ ------ ------ Total 14 13 18 --- --- --- 14 13 18 ====== ====== ====== ====== ====== ====== ====== ====== ======
___________________ (1) A productive well is producing or capable of producing oil and/or gas in commercial quantities. Multiple completions have been counted as one well. Any well in which one of the multiple completions is an oil completion is classified as an oil well. The following tables set forth the results of drilling activity on a net basis for wells in which the Company held an interest during 1999, 1998 and 1997 (those wells acquired or disposed of since January 1, 1997, are reflected in the following tables only since or up to the effective dates of their respective acquisitions or sales, as the case may be): NET EXPLORATORY WELLS
PRODUCTIVE (1) DRY TOTAL ------------------------ ----------------------- ----------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------ ----------------------- ----------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 ----- ----- ----- ----- ----- ----- ----- ----- ----- Colombia (2) --- 0.12 0.12 0.50 --- 0.50 0.50 0.12 0.62 Malaysia-Thailand (3) --- 1.00 2.50 --- --- --- --- 1.00 2.50 Equatorial Guinea 1.70 --- --- --- --- --- 1.70 --- --- Italy --- --- --- --- 0.80 --- --- 0.80 --- Guatemala --- --- --- --- --- 0.60 --- --- 0.60 China --- --- --- --- 0.50 --- --- 0.50 --- Ecuador --- --- --- --- --- 0.55 --- --- 0.55 Tunisia --- --- --- --- 0.50 --- --- 0.50 --- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total 1.70 1.12 2.62 0.50 1.80 1.65 2.20 2.92 4.27 ===== ===== ===== ===== ===== ===== ===== ===== =====
NET DEVELOPMENT WELLS
PRODUCTIVE (1) DRY TOTAL ------------------------ ----------------------- ----------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------ ----------------------- ----------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 ----- ----- ----- ----- ----- ----- ----- ----- ----- Colombia (2) 1.68 1.56 2.16 --- --- --- 1.68 1.56 2.16 Malaysia-Thailand --- --- --- --- --- --- --- --- --- Equatorial Guinea --- --- --- --- --- --- --- --- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total 1.68 1.56 2.16 --- --- --- 1.68 1.56 2.16 ===== ===== ===== ===== ===== ===== ===== ===== =====
__________________ (1) A productive well is producing or capable of producing oil and/or gas in commercial quantities. Multiple completions have been counted as one well. Any well in which one of the multiple completions is an oil completion is classified as an oil well. (2) Adjusted to reflect the national oil company participation at commerciality for the Cusiana and Cupiagua fields. (3) The interest in the wells drilled in 1998 was not reduced to take into account the sale of the Company's interest in Block A-18 to ARCO because such sale occurred after the drilling of the wells. OTHER PROPERTIES The Company leases or owns office space and other properties for its operations in various parts of the world. For additional information on the Company's leases, including its office leases, see note 20 of Notes to Consolidated Financial Statements. FORWARD-LOOKING INFORMATION Certain information contained in this report, as well as written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences, teleconferences or otherwise, may be deemed to be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and are subject to the "Safe Harbor" provisions of that section. Forward-looking statements include statements concerning the Company's and management's plans, objectives, goals, strategies and future operations and performance and the assumptions underlying such forward-looking statements. When used in this document, the words "anticipates," "estimates," "expects," "believes," "intends," "plans" and similar expressions are intended to identify such forward-looking statements. These statements include information regarding: - - drilling schedules; - - expected or planned production capacity; - - future production of the Cusiana and Cupiagua fields in Colombia, including from the Recetor license; - - the completion of development and commencement of production in Malaysia-Thailand; - - future production of the Ceiba field in Equatorial Guinea, including volumes and timing of first production; - - the acceleration of the Company's exploration, appraisal and development activities in Equatorial Guinea; - - the Company's capital budget and future capital requirements; - - the Company's meeting its future capital needs; - - the Company's utilization of net operating loss carryforwards and realization of its deferred tax asset; - - the level of future expenditures for environmental costs; - - the outcome of regulatory and litigation matters; - - the estimated fair value of derivative instruments, including the equity swap; and - - proven oil and gas reserves and discounted future net cash flows therefrom. These statements are based on current expectations and involve a number of risks and uncertainties, including those described in the context of such forward-looking statements and in notes 19 and 20 of Notes to Consolidated Financial Statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to these and other factors. EMPLOYEES At March 6, 2000, the Company employed approximately 126 full-time employees. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth certain information regarding the executive officers of the Company at March 6, 2000:
SERVED WITH ----------- THE COMPANY ----------- NAME AGE POSITION WITH THE COMPANY SINCE - ------------------ --- ---------------------------------- ----------- James C. Musselman 52 President and Chief Executive Officer 1998 A.E. Turner, III 51 Senior Vice President and Chief Operating Officer 1994 W. Greg Dunlevy 44 Vice President, Investor Relations and Treasurer 1993 Marvin Garrett 44 Vice President, Production 1994 Brian Maxted 42 Vice President, Exploration 1994
Mr. Musselman was elected director of the Company in May 1998, and was elected Chief Executive Officer in October 1998. Mr. Musselman has served as Chairman, President and Chief Executive Officer of Avia Energy Development, LLC, a private company engaged in gas processing and drilling, since September 1994. From June 1991 to September 1994, Mr. Musselman was the President and Chief Executive Officer of Lone Star Jockey Club, LLC, a company formed to organize a horse racetrack facility in Texas. Mr. Turner was elected Senior Vice President and Chief Operating Officer in March 1999, and prior to that served as Senior Vice President, Operations, of the Company since March 1994. From 1988 to February 1994, Mr. Turner served in various positions with British Gas Exploration & Production, Inc., including Vice President and General Manager of operations in Africa and the Western Hemisphere from October 1993. Mr. Dunlevy has served as Vice President, Investor Relations, of the Company since April 1993 and was elected Treasurer in July 1998. Mr. Garrett has served as Vice President, Production, of the Company since December 1999, and prior to that served in various capacities within the Company's Operations Department since August 1994, including most recently as Director, Operations. Prior to joining the Company in August 1994, Mr. Garrett served in various positions with British Gas Exploration and Production, Inc., including General Manager and Managing Director of Zaafarana Joint Operating Company in Cairo, Egypt. Mr. Maxted has served as Vice President, Exploration, of the Company since January 1998, and prior to that served as Exploration Manager of CTOC since June 1994. From 1979 to 1994, Mr. Maxted was employed by British Petroleum in various capacities, including Exploration Manager, Colombia from 1990 to 1992 and License Manager, Norway from 1992 to 1994. All executive officers of the Company are elected annually by the Board of Directors of the Company to serve in such capacities until removed or their successors are duly elected and qualified. There are no family relationships among the executive officers of the Company. ITEM 3. LEGAL PROCEEDINGS LITIGATION In July through October 1998, eight lawsuits were filed against the Company and Thomas G. Finck and Peter Rugg, in their capacities as Chairman and Chief Executive Officer and Chief Financial Officer, respectively. The lawsuits were filed in the United States District Court for the Eastern District of Texas, Texarkana Division, and have been consolidated and are styled In re: Triton Energy Limited Securities Litigation. In November 1999, the plaintiffs filed a consolidated complaint. It alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, in connection with disclosures concerning the Company's properties, operations, and value relating to a prospective sale of the Company or of all or a part of its assets. The lawsuits seek recovery of an unspecified amount of compensatory damages, fees and costs. In the consolidated complaint, the plaintiffs abandoned a claim for negligent misrepresentation and punitive damages that had previously been asserted in one of the eight individual suits. In September 1999, the court granted the plaintiffs' motion for appointment as lead plaintiffs and for approval of selection of lead counsel. In October 1999, the defendants filed a motion to dismiss the claims alleged in the eight individual suits, and in December 1999, the defendants filed a supplement to their motion to dismiss to address the plaintiffs' consolidated complaint. The Company's motion, as supplemented, is currently pending. The Company believes its disclosures have been accurate and intends to vigorously defend these actions. There can be no assurance that the litigation will be resolved in the Company's favor. An adverse result could have a material adverse effect on the Company's financial position or results of operations. In November 1999, a lawsuit was filed against the Company, one of its subsidiaries and Thomas G. Finck, Peter Rugg and Robert B. Holland, III, in their capacities as officers of the Company, in the District Court of the State of Texas for Dallas County. The lawsuit is styled Aaron Sherman, et al. vs. Triton Energy Corporation et al. and seeks an unspecified amount of compensatory and punitive damages and interest. The lawsuit alleges as causes of action fraud and negligent misrepresentation in connection with disclosures concerning the prospective sale by the Company of all or a substantial part of its assets announced in March 1998. The Company's date to answer has not yet run. Its subsidiary has filed various motions to dispose of the lawsuit on the grounds that the plaintiffs do not have standing. The Court has ordered the plaintiffs to replead and has stayed discovery pending its further orders. In August 1997, the Company was sued in the Superior Court of the State of California for the County of Los Angeles, by David A. Hite, Nordell International Resources Ltd., and International Veronex Resources, Ltd. The action has since been removed to the United States District Court for the Central District of California. The Company and the plaintiffs were adversaries in a 1990 arbitration proceeding in which the interest of Nordell International Resources Ltd. in the Enim oil field in Indonesia was awarded to the Company (subject to a 5% net profits interest for Nordell) and Nordell was ordered to pay the Company nearly $1 million. The arbitration award was followed by a series of legal actions by the parties in which the validity of the award and its enforcement were at issue. As a result of these proceedings, the award was ultimately upheld and enforced. The current suit alleges that the plaintiffs were damaged in amounts aggregating $13 million primarily because of the Company's prosecution of various claims against the plaintiffs as well as its alleged misrepresentations, infliction of emotional distress, and improper accounting practices. The suit seeks specific performance of the arbitration award, damages for alleged fraud and misrepresentation in accounting for Enim field operating results, an accounting for Nordell's 5% net profit interest, and damages for emotional distress and various other alleged torts. The suit seeks interest, punitive damages and attorneys fees in addition to the alleged actual damages. In August 1998, the district court dismissed all claims asserted by the plaintiffs other than claims for malicious prosecution and abuse of the legal process, which the court held could not be subject to a motion to dismiss. The abuse of process claim was later withdrawn, and the damages sought were reduced to approximately $700,000 (not including punitive damages). The lawsuit was tried and the jury found in favor of the plaintiffs and assessed compensatory damages against the Company in the amount of approximately $700,000 and punitive damages in the amount of approximately $11 million. The Company believes it has acted appropriately and intends to appeal the verdict. During the quarter ended September 30, 1995, the United States Environmental Protection Agency (the "EPA") and Justice Department advised the Company that one of its domestic oil and gas subsidiaries, as a potentially responsible party for the clean-up of the Monterey Park, California, Superfund site operated by Operating Industries, Inc., could agree to contribute approximately $2.8 million to settle its alleged liability for certain remedial tasks at the site. The offer did not address responsibility for any groundwater remediation. The subsidiary was advised that if it did not accept the settlement offer, it, together with other potentially responsible parties, may be ordered to perform or pay for various remedial tasks. After considering the cost of possible remedial tasks, its legal position relative to potentially responsible parties and insurers, possible legal defenses and other factors, the subsidiary declined to accept the offer. In October 1997, the EPA advised the Company that the estimated cost of the clean-up of the site would be approximately $217 million to be allocated among the 280 known operators. The subsidiary's share would be approximately $1 million based upon a volumetric allocation, but there can be no assurance that any allocation of liability to the subsidiary would be made on a volumetric basis. No proceeding has been brought in any court against the Company or the subsidiary in this matter. The Company is also subject to litigation that is incidental to its business. CERTAIN FACTORS None of the legal matters described above is expected to have a material adverse effect on the Company's consolidated financial position. However, this statement of the Company's expectation is a forward-looking statement that is dependent on certain events and uncertainties that may be outside of the Company's control. Actual results and developments could differ materially from the Company's expectation, for example, due to such uncertainties as jury verdicts, the application of laws to various factual situations, the actions that may or may not be taken by other parties and the availability of insurance. In addition, in certain situations, such as environmental claims, one defendant may be responsible for the liabilities of other parties. Moreover, circumstances could arise under which the Company may elect to settle claims at amounts that exceed the Company's expected liability for such claims in an attempt to avoid costly litigation. Judgments or settlements could, therefore, exceed any reserves. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted by the Company during the fourth quarter of the year ended December 31, 1999, to security holders, through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Ordinary Shares - ---------------- Triton's ordinary shares are listed on the New York Stock Exchange and are traded under the symbol OIL. Set forth below are the high and low sales prices of Triton's ordinary shares as reported on the New York Stock Exchange Composite Tape for the periods indicated:
CALENDAR PERIODS HIGH LOW - -------------------- ----- ----- 2000: First Quarter* 29.56 19.19 1999: Fourth Quarter 27.50 13.50 Third Quarter 14.69 10.00 Second Quarter 16.00 6.94 First Quarter 8.88 5.19 1998: Fourth Quarter 12.63 7.13 Third Quarter 37.75 9.75 Second Quarter 43.38 32.44 First Quarter 38.13 25.56 _____________ *Through March 6, 2000.
Triton has not declared any cash dividends on its ordinary shares since fiscal 1990. The holders of ordinary shares are entitled to receive such dividends as are declared by the Board of Directors. Under applicable corporate law, the Company may pay dividends or make other distributions to its shareholders in such amounts as appear to the directors to be justified by the profits of the Company or out of the Company's share premium account if the Company has the ability to pay its debts as they come due. The Company's current intent is to retain earnings for use in the Company's business and the financing of its capital requirements. The payment of any future cash dividends on the ordinary shares is necessarily dependent upon the earnings and financial needs of the Company, along with applicable legal and contractual restrictions. Triton is prohibited from paying cash dividends on the ordinary shares under its revolving credit facility. In addition, the Shareholders Agreement between the Company and HM4 Triton, L.P. provides that for so long as HM4 Triton, L.P. and its affiliates own a certain number of shares, Triton cannot pay a dividend on the ordinary shares without HM4 Triton, L.P.'s consent. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and note 12 of Notes to Consolidated Financial Statements. Finally, the terms of the 8% Convertible Preference Shares and the 5% Convertible Preference Shares prohibit the payment of dividends on the ordinary shares unless full cumulative dividends on all such outstanding preference shares have been paid in full or set aside for payment. There is no tax treaty between the United States and the Cayman Islands. At March 6, 2000, there were 4,061 record holders of the Company's ordinary shares. Preference Shares - ----------------- The Company has two series of preference shares outstanding, the 8% Convertible Preference Shares and the 5% Convertible Preference Shares. The following summary of certain provisions of the resolutions establishing the terms of the outstanding preference shares is not complete. Copies of the resolutions are filed as exhibits to this report. 8% Convertible Preference Shares As of March 6, 2000, the Company had outstanding 5,189,758 8% Convertible Preference Shares. Dividends. The Company is required to pay dividends on the 8% Convertible --------- Preference Shares semi-annually at the rate of 8% per year of the stated value per share (initially $70) for each semi-annual dividend period ending on June 30 and December 31 of each year. Dividends on the 8% Convertible Preference Shares are cumulative. The Company can choose to pay dividends in cash or in additional 8% Convertible Preference Shares. If the Company pays a dividend in additional shares, the number of additional shares to be issued will be determined by dividing the amount of the dividend by $70, with amounts in respect of any fractional shares to be paid in cash. The Company may not pay a dividend or other distribution on any ordinary shares or other shares ranking equal or junior to the 8% Convertible Preference Shares unless all dividends on the 8% Convertible Preference Shares have been paid. The Company may pay a partial dividend on shares ranking equal to the 8% Convertible Preference Shares as to dividends if the Company pays a partial to the holders of both the 8% Convertible Preference Shares and the equally-ranked shares in proportion to the accrued and unpaid dividends on each share. So long as the 8% Convertible Preference Shares are outstanding, the Company may not redeem or purchase any ordinary shares or any Triton shares ranking junior as to dividends to the 8% Convertible Preference Shares or any other Triton shares ranking junior to the 8% Convertible Preference Shares as to liquidation rights unless (1) full dividends on all outstanding 8% Convertible Preference Shares and any other shares ranking equal as to dividends to the 8% Convertible Preference Shares have been, or contemporaneously are, paid and (2) the Company pays or sets aside cash (or additional shares of 8% Convertible Preference Shares) in amounts sufficient to pay the dividend for the current dividend period. In any event, the Company may purchase or acquire such junior shares either (1) pursuant to any employee or director incentive or benefit plan or arrangement or (2) in exchange solely for junior shares. Conversion. Holders of 8% Convertible Preference Shares generally have the ---------- right to convert their 8% Convertible Preference Shares into ordinary shares at any time before redemption at the conversion price in effect at the time of conversion. The current conversion price is $17.50 per ordinary share so that each 8% Convertible Preference Share is convertible into four ordinary shares. The conversion price is subject to adjustment under certain circumstances. Upon the conversion of 8% Convertible Preference Shares, the holder is also entitled to receive an amount in cash equal to all accumulated and unpaid dividends on the 8% Convertible Preference Shares converted through the effective date of conversion. Redemption. The Company cannot redeem the 8% Convertible Preference Shares ---------- before September 30, 2001. Beginning September 30, 2001, the Company can redeem all, but not less than all, of the outstanding 8% Convertible Preference Shares at any time if the average market value of the ordinary shares is above certain prices. The redemption price is $70 per share, plus an amount equal to all accumulated but unpaid dividends, and is payable in cash. The average market value is determined by averaging the closing price of the ordinary shares for the 20 trading days preceding the notice of redemption. The Company may only redeem the 8% Convertible Preference Shares if this average price in a particular six-month period exceeds the price set forth below:
REDEMPTION NOTICE GIVEN ON THE SIX MONTHS ENDING: AVERAGE PRICE - ------------------------------------------------- -------------- March 31, 2002 $ 28.54 September 30, 2002 31.14 March 31, 2003 34.20 September 30, 2003 37.58 March 31, 2004 32.57 September 30, 2004 34.97 March 31, 2005 37.60
Beginning April 1, 2005, the minimum average price will be increased every six months to reflect an internal rate of return of 20% for a holder purchasing 8% Convertible Preference Shares as of the date the first 8% Convertible Preference Share was issued. The minimum average prices set forth above will be adjusted in the event of any combination, subdivision or reclassification of ordinary shares, or any similar event. Liquidation Rights. The liquidation preference of the 8% Convertible ------------------- Preference Shares is $70 per share, plus accumulated and unpaid dividends. Voting Rights. The holders of the 8% Convertible Preference Shares -------------- generally vote with the holders of the ordinary shares on all matters brought before the Company's shareholders. In addition, a class vote of the 8% Convertible Preference Shares is required in certain limited circumstances. The holders of the 8% Convertible Preference Shares will also be entitled to elect two directors if the Company does not pay dividends on the 8% Convertible Preference Shares under certain circumstances. When voting with the holders of the ordinary shares, the holders of the 8% Convertible Preference Shares have the number of votes for each share that they would have if they had converted their shares into ordinary shares on the related record date. When voting as a class, the holders of the 8% Convertible Preference Shares have one vote per share. The Shareholders Agreement between the Company and HM4 Triton, L.P. provides that, in general, for so long as the entire Board of Directors consists of ten members, HM4 Triton, L.P. (and its designated transferees, collectively) may designate four nominees for election to the Board of Directors. The right of HM4 Triton, L.P. (and its designated transferees) to designate nominees for election to the Board of Directors will be reduced if the number of ordinary shares held by HM4 Triton, L.P. and its affiliates (assuming conversion of 8% Convertible Preference Shares into ordinary shares) represents less than certain specified percentages of the number of ordinary shares (assuming conversion of 8% Convertible Preference Shares into ordinary shares) purchased by HM4 Triton, L.P. under the Stock Purchase Agreement between Triton and HM4 Triton, L.P. In the Shareholders Agreement, the Company also agreed that it would not take certain fundamental corporate actions without the consent of HM4 Triton, L.P. Some of the actions that would require HM4 Triton, L.P.'s consent are listed below: - - entering into a merger or similar business combination transaction, or effecting a reorganization, recapitalization or other transaction pursuant to which a majority of the outstanding ordinary shares or any 8% Convertible Preference Shares are exchanged for securities, cash or other property; - - authorizing, creating or modifying the terms of any securities that would rank equal to or senior to the 8% Convertible Preference Shares; - - selling assets comprising more than 50% of the market value of the Company; - - paying dividends on the Company's ordinary shares; - - incurring certain levels of debt; and - - commencing a tender offer or exchange offer for any of the Company's ordinary shares. 5% Convertible Preference Shares As of March 6, 2000, the Company had outstanding 209,558 5% Convertible Preference Shares. Dividends. The Company is required to pay dividends on the 5% Convertible --------- Preference Shares semi-annually at the rate of 5% per year of the redemption price per share (initially $34.41) for each semi-annual dividend period on September 30 and March 30 of each year. Dividends on the 5% Convertible Preference Shares are cumulative. The Company may not pay a dividend (other than dividends payable solely in shares ranking junior to the 5% Convertible Preference Shares) or other distribution on any ordinary shares or other shares ranking junior to the 5% Convertible Preference Shares unless all dividends on the 5% Convertible Preference Shares have been paid. The Company may not pay dividends on any class or series of shares ranking equal to the 5% Convertible Preference Shares unless the Company has paid, or concurrently pays, all accrued and unpaid dividends for all prior periods on the 5% Convertible Preference Shares. If any accrued dividends are not paid in full on the 5% Convertible Preference Shares and any shares ranking equal to the 5% Convertible Preference Shares as to dividends, the Company must pay any dividends on the 5% Convertible Preference Shares and such equally-ranked shares so that the amount of dividends declared per share on the 5% Convertible Preference Shares and such equally-ranked shares will bear the same ratio that accrued and unpaid dividends per share on the 5% Convertible Preference Shares and such equally-ranked shares bear to each other. Conversion. Holders of 5% Convertible Preference Shares generally have the ---------- right to convert their 5% Convertible Preference Shares into ordinary shares at any time before redemption. Currently, each 5% Convertible Preference Share is convertible into one ordinary share. The conversion price is subject to adjustment under certain circumstances. No payment or adjustment will be made in respect of accrued or unpaid dividends on the 5% Convertible Preference Shares upon conversion of 5% Convertible Preference Shares except as set forth below. Redemption. The Company can redeem the 5% Convertible Preference Shares at ---------- any time in whole or in part. The redemption price is $34.41 per share, plus an amount equal to all accumulated but unpaid dividends, and is payable in cash. If any 5% Convertible Preference Shares are outstanding on March 30, 2004, the Company is required to redeem the 5% Convertible Preference Shares. In this event, the Company may redeem the 5% Convertible Preference Shares by (1) paying cash at the $34.41 redemption price plus any accrued and unpaid dividends to the redemption date; (2) issuing to the holder a number of ordinary shares with a market value equal to the $34.41 redemption price plus any accrued and unpaid dividends to the redemption date; or (3) a combination of cash or ordinary shares equal to the $34.41 redemption price plus any accrued and unpaid dividends to the redemption date. Liquidation Rights. The liquidation preference of the 5% Convertible ------------------- Preference Shares is $34.41 per share, plus accumulated and unpaid dividends. Voting Rights. The holders of the 5% Convertible Preference Shares -------------- generally have no voting rights except as required under Cayman Islands law. So long as any 5% Convertible Preference Shares are outstanding, the consent of the holders of at least two-thirds of the outstanding 5% Convertible Preference Shares is required if the Company issues, other than wholly for cash consideration, any shares of any class of shares that would rank senior to the 5% Convertible Preference Shares in dividend or liquidation rights, or if the Company proposes to amend its articles of association in a manner adversely affecting the rights of the holders of the 5% Convertible Preference Shares. The Company's articles of association may be amended to increase the number of authorized preference shares without the vote of the holders of the outstanding 5% Convertible Preference Shares. When voting as a class, the holders of the 5% Convertible Preference Shares have one vote per share. Shareholder Rights Plan - ------------------------- The Company has adopted a Shareholder Rights Plan pursuant to which preference share rights attach to all ordinary shares at the rate of one right for each ordinary share. Each right entitles the registered holder to purchase from the Company one one-thousandth of a Series A Junior Participating Preference Share, par value $.01 per share ("Junior Preference Shares"), of the Company at a price of $120 per one one-thousandth of a share of such Junior Preference Shares, subject to adjustment. Generally, the rights only become distributable 10 days following public announcement that a person has acquired beneficial ownership of 15% or more of Triton's ordinary shares or 10 business days following commencement of a tender offer or exchange offer for 15% or more of the outstanding ordinary shares; provided that, pursuant to the terms of the plan, any acquisition of Triton shares by HM4 Triton, L.P. or its affiliates, including Hicks, Muse, Tate & Furst, Incorporated, will not result in the distribution of rights unless and until HM4 Triton, L.P.'s ownership of Triton shares is reduced below certain levels. If, among other events, any person becomes the beneficial owner of 15% or more of Triton's ordinary shares (except as provided with respect to HM4 Triton, L.P.), each right not owned by such person generally becomes the right to purchase a number of ordinary shares of the Company equal to the number obtained by dividing the right's exercise price (currently $120) by 50% of the market price of the ordinary shares on the date of the first occurrence. In addition, if the Company is subsequently merged or certain other extraordinary business transactions are consummated, each right generally becomes a right to purchase a number of shares of common stock of the acquiring person equal to the number obtained by dividing the right's exercise price by 50% of the market price of the common stock on the date of the first occurrence. Under certain circumstances, the Company's directors may determine that a tender offer or merger is fair to all shareholders and prevent the rights from being exercised. At any time after a person or group acquires 15% or more of the ordinary shares outstanding (other than with respect to HM4 Triton, L.P.) and prior to the acquisition by such person or group of 50% or more of the outstanding ordinary shares or the occurrence of an event described in the prior paragraph, the Board of Directors of the Company may exchange the rights (other than rights owned by such person or group which will become void), in whole or in part, at an exchange ratio of one ordinary share, or one one-thousandth of a Junior Preference Share, per right (subject to adjustment). The Company has the ability to amend the rights (except the redemption price) in any manner prior to the public announcement that a 15% position has been acquired or a tender offer has been commenced. The Company will be entitled to redeem the rights at $0.01 a right at any time prior to the time that a 15% position has been acquired. The rights will expire on May 22, 2005, unless earlier redeemed by the Company. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth certain financial and oil and gas data on a historical basis.
AS OF OR FOR YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1999 1998 1997 1996 1995 -------- ---------- ----------- -------- -------- OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE DATA): Oil and gas sales $247,878 $ 160,881 $ 145,419 $129,795 $106,844 Sales and other operating revenues 247,878 228,618 149,496 133,977 107,472 Earnings (loss) from continuing operations 47,557 (187,504) 5,595 23,805 6,541 Earnings (loss) before extraordinary items 47,557 (187,504) 5,595 23,805 2,720 Net earnings (loss) 47,557 (187,504) (8,896) 22,609 2,720 Average ordinary shares outstanding 36,135 36,609 36,471 35,929 35,147 Basic earnings (loss) per ordinary share: Continuing operations $ 0.52 $ (5.21) $ 0.14 $ 0.64 $ 0.16 Before extraordinary item 0.52 (5.21) 0.14 0.64 0.05 Net earnings (loss) 0.52 (5.21) (0.26) 0.61 0.05 Diluted earnings (loss) per ordinary share: Continuing operations $ 0.52 $ (5.21) $ 0.14 $ 0.62 $ 0.16 Before extraordinary item 0.52 (5.21) 0.14 0.62 0.05 Net earnings (loss) 0.52 (5.21) (0.25) 0.59 0.05 BALANCE SHEET DATA (IN THOUSANDS): Net property and equipment $524,152 $ 470,907 $ 835,506 $676,833 $524,381 Total assets 974,475 754,280 1,098,039 914,524 824,167 Long-term debt, including current maturities (1) 413,487 427,492 573,687 416,630 402,503 Shareholders' equity 463,052 223,807 296,620 300,644 246,025 CERTAIN OIL AND GAS DATA (2) : Production Sales volumes (Mbbls) (3) 12,469 9,979 5,776 5,987 6,303 Forward oil sale deliveries (Mbbls) 3,050 3,050 2,462 701 409 -------- ---------- ----------- -------- -------- Total revenue barrels (Mbbls) 15,519 13,029 8,238 6,688 6,712 ======== ========== =========== ======== ======== Gas (MMcf) 459 503 802 2,517 5,312 Average sales price Oil (per bbl) (4) $ 15.95 $ 12.31 $ 17.54 $ 19.61 $ 16.60 Gas (per Mcf) $ 0.88 $ 0.99 $ 1.15 $ 1.69 $ 1.64
__________________________ (1) Includes current maturities totaling $9.0 million, $14.0 million, $130.4 million, $199.6 million, and $1.3 million at December 31, 1999, 1998, 1997, 1996, and 1995, respectively. (2) Information presented includes the 49.9% equity investment in Crusader Limited until its sale in 1996. (3) Includes natural gas liquids and condensate. (4) Includes barrels delivered under the forward oil sale, which are recognized in oil and gas sales at $11.56 per barrel upon delivery. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL REQUIREMENTS ---------------------------------- Cash and equivalents totaled $186.3 million and $18.8 million at December 31, 1999 and 1998, respectively, and working capital (deficit) was $161.3 million and ($21.6 million) at December 31, 1999 and 1998, respectively. The following summary table reflects cash flows of the Company for the years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ---------- --------- ---------- Net cash provided (used) by operating activities $ 116,522 $ 1,466 $ (97,416) Net cash provided (used) by investing activities $(118,530) $ 84,191 $(212,700) Net cash provided (used) by financing activities $ 170,143 $(80,071) $ 313,368
Operating Activities - -------------------- Cash flows provided by operating activities for the year ended December 31, 1999, benefited from increased production from the Cusiana and Cupiagua fields in Colombia, and higher oil prices. Gross production from the Cusiana and Cupiagua fields averaged approximately 430,000 BOPD during 1999 compared with 350,000 BOPD during 1998 and 220,000 BOPD during 1997. During 1999, 1998 and 1997, the Company's average realized oil price was $15.95, $12.31 and $17.54, respectively. See "Results of Operations - Oil and Gas Sales" below. Based on estimates of the operator of the Cusiana and Cupiagua fields, the Company believes that combined Cusiana and Cupiagua oil production will be approximately 8% to 11% lower in 2000 than in 1999, although there can be no assurance that actual production will equal that amount. During 1999, the Company received substantially all of the remaining proceeds (approximately $31.9 million) from a forward oil sale in May 1995. Starting with the second quarter of 2000, 254,136 barrels per month, the amount currently delivered under the forward oil sale, will become available for sale. The Company's reported cash flows from operating activities for the year ended December 31, 1997, were reduced by $124.8 million, which was attributable to interest accreted with respect to the Company's Senior Subordinated Discount Notes due November 1, 1997 (the "1997 Notes"), and the 9 3/4% Senior Subordinated Discount Notes due December 31, 2000 (the "9 3/4% Notes"), through the dates of retirement in the second quarter of 1997. Investing Activities - --------------------- The Company's capital expenditures and other capital investments were $121.5 million, $180.2 million and $219.2 million during the years ended December 31, 1999, 1998 and 1997, respectively, primarily for exploration and development of the Cusiana and Cupiagua fields in Colombia, and for exploration within the Company's licenses in Equatorial Guinea, the Malaysia-Thailand Joint Development Area in the Gulf of Thailand and in other areas. Restructuring activities undertaken in 1998 contributed to lower capital spending in 1999. Proceeds from asset sales were $2.4 million, $267 million and $5.9 million during 1999, 1998 and 1997, respectively. See "Results of Operations" below and note 2 of Notes to Consolidated Financial Statements. Financing Activities - --------------------- In August 1998, the Company and HM4 Triton, L.P., an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), entered into a stock purchase agreement (the "Stock Purchase Agreement") that provided for a $350 million equity investment in the Company. The investment was effected in two stages. At the closing of the first stage in September 1998 (the "First Closing"), the Company issued to HM4 Triton, L.P. 1,822,500 shares of 8% Convertible Preference Shares for $70 per share (for proceeds of $116.8 million, net of transaction costs). Pursuant to the Stock Purchase Agreement, the second stage was effected through a rights offering for 3,177,500 shares of 8% Convertible Preference Shares at $70 per share, with HM4 Triton L.P. being obligated to purchase any shares not subscribed. At the closing of the second stage, which occurred on January 4, 1999 (the "Second Closing"), the Company issued an additional 3,177,500 8% Convertible Preference Shares for proceeds totaling $217.8 million, net of closing costs (of which, HM4 Triton L.P. purchased 3,114,863 shares). In April 1999, the Company's Board of Directors authorized a share repurchase program enabling the Company to repurchase up to ten percent of the Company's then outstanding 36.7 million ordinary shares. Purchases of ordinary shares by the Company began in April and may be made from time to time in the open market or through privately negotiated transactions at prevailing market prices depending on market conditions. The Company has no obligation to repurchase any of its outstanding shares and may discontinue the share repurchase program at management's discretion. As of December 31, 1999, the Company had purchased 948,300 ordinary shares for $11.3 million. Because of anticipated capital needs in Equatorial Guinea, the Company did not include in its capital budget for 2000 any amounts for share repurchases under the program. In addition, the Company's revolving credit facility, entered into in February 2000, generally does not permit the Company to repurchase its ordinary shares without the banks' consent. During 1999, the Company repaid borrowings totaling $19 million, including $10 million under unsecured credit facilities that were outstanding at December 31, 1998. By December 31, 1999, all of the Company's unsecured revolving credit facilities that were outstanding at December 31, 1998 had expired. In addition, the Company paid cash preference dividends totaling $17.6 million in 1999. During 1998, the Company borrowed $162.5 million and repaid $360.1 million under revolving lines of credit, notes payable and long-term debt. The Company terminated a $125 million revolving credit facility during 1998 upon the repayment of the amounts then outstanding. In April 1997, the Company issued $400 million aggregate face value of senior indebtedness to refinance other indebtedness. The senior indebtedness consisted of $200 million face amount of 8 3/4% Senior Notes due April 15, 2002 (the "2002 Notes"), at 99.942% of the principal amount (resulting in $199.9 million aggregate net proceeds) and $200 million face amount of 9 1/4% Senior Notes due April 15, 2005 (the "2005 Notes" and, together with the 2002 Notes, the "Senior Notes"), at 100% of the principal amount for total aggregate net proceeds of $399.9 million before deducting transaction costs of approximately $1 million. In May and June 1997, the Company offered to purchase all of its outstanding 1997 Notes and 9 3/4% Notes, which resulted in the retirement of the 1997 Notes and substantially all of the 9 3/4% Notes. The remainder of the 9 3/4% Notes were retired in 1998. During the year ended December 31, 1997, the Company borrowed $630 million and repaid $321.5 million under revolving lines of credit, notes payable and long-term debt (including the Senior Notes). FUTURE CAPITAL NEEDS The Company intends to implement an accelerated appraisal and development program to enable early production from the Ceiba field, with a target of first production by the end of 2000, and has contracted for a floating production storage and offloading (FPSO) system that is expected to provide storage for two million barrels of oil and initial processing capacity of up to 60,000 barrels of oil per day from a single production unit. Capacity can be cost-effectively increased through the addition of up to three similar units. In addition, the Company intends to accelerate its exploration, appraisal and development drilling activities through implementation of a two-rig drilling program that is intended to enable the Company to complete the Ceiba-1 and -2 wells as production wells, to drill and complete two additional appraisal/production wells in the Ceiba field, to drill two exploration wells and to provide the Company the option to drill up to six additional wells. The Company expects that its accelerated appraisal and development program for Equatorial Guinea will require significant capital outlays commencing in the year 2000. For internal planning purposes, the Company's capital spending program for the year ending December 31, 2000, is approximately $191 million, excluding capitalized interest and acquisitions, of which approximately $122 million relates to exploration and development activities in Equatorial Guinea, $58 million relates to the Cusiana and Cupiagua fields in Colombia, and $11 million relates to the Company's exploration activities in other parts of the world. The 2000 capital spending program does not include the six optional wells in Equatorial Guinea. In conjunction with the sale of Triton Pipeline Colombia, Inc. ("TPC") to an unrelated third party (the "Purchaser") in February 1998, the Company entered into a five year equity swap with a creditworthy financial institution (the "Counterparty"). The issuance to HM4 Triton, L.P. of the 8% Convertible Preference Shares resulted in the right of the Counterparty to terminate the equity swap prior to the end of its five year term. In January 1999, the Counterparty exercised its right and designated April 2000 as the termination date of the equity swap. Upon the expiration of the equity swap in April 2000, the Company expects that the Purchaser will sell the TPC shares. Under the terms of the equity swap with the Counterparty, upon any sale by the Purchaser of the TPC shares, the Company will receive from the Counterparty, or pay to the Counterparty, an amount equal to the excess or deficiency, as applicable, of the difference between 97% of the net proceeds from the Purchaser's sale of the TPC shares and the notional amount of $97 million. For example, if the Purchaser sold the TPC shares for an amount equal to the value the Company has estimated for purposes of preparing its balance sheet as of December 31, 1999, the Company would have to make a payment to the Counterparty under the equity swap of approximately $8.4 million. There can be no assurance that the value the Purchaser may realize in any sale of the TPC shares will equal the value of the shares estimated by the Company for purposes of valuing the equity swap. The Company has no right or obligation to repurchase the TPC shares at any time, but the Company is not prohibited from offering to purchase the shares if the Purchaser offers to sell them. The Company expects to make a bid for the acquisition of the TPC shares because the Company's pipeline tariffs can be lowered by electing to cancel the dividend to the holder of the OCENSA shares. See "Results of Operations - Other Income and Expenses" below, note 2 of Notes to Consolidated Financial Statements, and "Quantitative and Qualitative Disclosures about Market Risk" below. In February 2000, the Company entered into an unsecured two-year revolving credit facility with a group of banks, which matures in February 2002. The credit facility gives the Company the right to borrow from time to time up to the amount of the borrowing base determined by the banks, not to exceed $150 million. As of February 2000, the borrowing base was $150 million. The credit facility contains various restrictive covenants, including covenants that require the Company to maintain a ratio of earnings before interest, depreciation, depletion, amortization and income taxes to net interest expense of at least 2.5 to 1, and that prohibit the Company from permitting net debt to exceed the product of 3.75 times the Company's earnings before interest, depreciation, depletion, amortization and income taxes, in each case, on a trailing four quarters basis. As of March 6, 2000, the Company had not made a borrowing under the facility. The Company expects to fund 2000 capital spending with a combination of some or all of the following: cash flow from operations, cash, the Company's committed bank credit facility, and the issuance of debt or equity securities. To facilitate a possible future securities issuance or issuances, the Company has on file with the Securities and Exchange Commission ("SEC") a shelf registration statement under which the Company could issue up to an aggregate of $250 million debt or equity securities. At December 31, 1999, the Company had guaranteed the performance of a total of $16.4 million in future exploration expenditures to be incurred through September 2001 in various countries. A total of approximately $6 million of the exploration expenditures are included in the 2000 capital spending program related to a commitment for two onshore exploratory wells in Greece. These commitments are backed primarily by unsecured letters of credit. The Company also had guaranteed loans of approximately $1.4 million, which expire September 2000, for a Colombian pipeline company, Oleoducto de Colombia S.A., in which the Company has an ownership interest. On October 30, 1999, the Company and the other parties to the production-sharing contract for Block A-18 executed a gas sales agreement providing for the sale of the first phase of gas. Under the terms of the gas sales agreement, delivery of gas is scheduled to begin by the end of the second quarter of 2002, following timely completion and approval of an environmental impact assessment associated with the buyers' pipeline and processing facilities. No assurance can be given as to when such approval will be obtained. In connection with the sale to ARCO of one-half of the shares through which the Company owned its interest in Block A-18, ARCO agreed to pay the future exploration and development costs attributable to the Company's and ARCO's collective interest in Block A-18, up to $377 million or until first production from a gas field. There can be no assurance that the Company's and ARCO's collective share of the cost of developing the project will not exceed $377 million. See "Certain Factors Relating to Malaysia-Thailand" in note 19 of Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS --------------------- YEAR ENDED DECEMBER 31, 1999, COMPARED WITH YEAR ENDED DECEMBER 31, 1998 Oil and Gas Sales -------------------- Oil and gas sales in 1999 totaled $247.9 million, a 54% increase from 1998, due to higher average realized oil prices and higher production. The average realized oil price was $15.95 and $12.31 in 1999 and 1998, respectively, an increase of 30% for 1999, resulting in higher revenues of $56.4 million compared to 1998. Total revenue barrels, including production related to barrels delivered under the forward oil sale, totaled 15.5 million barrels in 1999, an increase of 19%, compared to the prior year, resulting in an increase in revenues of $30.7 million. The increased production was primarily due to the start-up during the second half of 1998 of two new 100,000 BOPD oil-production units at the Cupiagua central processing facility. As a result of financial and commodity market transactions settled during the year ended December 31, 1999, the Company's risk management program resulted in lower oil sales of approximately $19.8 million than if the Company had not entered into such transactions. Additionally, the Company has hedged its WTI price on a portion of its projected 2000 oil production. See "Quantitative and Qualitative Disclosures about Market Risk" below. The delivery requirement under the forward oil sale will be completed in March 2000. Starting with the second quarter of 2000, 254,136 barrels per month, the amount currently delivered under the forward oil sale and recognized in revenues at $11.56 per barrel, will become available for sale. Gain on Sale of Oil and Gas Assets ----------------------------------------- In August 1998, the Company sold to a subsidiary of ARCO for $150 million, one-half of the shares of the subsidiary through which the Company owned its 50% share of Block A-18 in the Malaysia-Thailand Joint Development Area. The sale resulted in a gain of $63.2 million. In December 1998, the Company sold its Bangladesh subsidiary for $4.5 million and recorded a gain of the same amount. Operating Expenses ------------------- Operating expenses, which include field operating expenses, pipeline tariffs and production taxes, decreased $5.4 million in 1999. On an oil equivalent-barrel basis, operating expenses were $4.50 and $5.97 in 1999 and 1998, respectively. The Company pays lifting costs, production taxes and transportation costs to the Colombian port of Covenas for barrels to be delivered under the forward oil sale. Operating expenses on a per equivalent-barrel basis were lower primarily due to higher production volumes. OCENSA pipeline tariffs totaled $42.1 million and $49.9 million in 1999 and 1998, respectively. Pipeline tariffs for 1999 were lower primarily due to a non-recurring credit issued by OCENSA in February 2000 totaling $4.2 million. The credit resulted from OCENSA's compliance with a Colombian government decree in December 1999 that reduced its 1999 noncash expenses. OCENSA imposes a tariff on shippers from the Cusiana and Cupiagua fields (the "Initial Shippers"), which is estimated to recoup: the total capital cost of the project over a 15-year period; its operating expenses, which include all Colombian taxes; interest expense; and the dividend to be paid by OCENSA to its shareholders. Any shippers of crude oil who are not Initial Shippers are assessed a premium tariff on a per-barrel basis, and OCENSA will use revenues from such tariffs to reduce the Initial Shippers' tariff. Depreciation, Depletion and Amortization ------------------------------------------- Depreciation, depletion and amortization increased $2.5 million, primarily due to higher production volumes, including barrels delivered under the forward oil sale. Off-setting the effect of higher production, full cost ceiling test writedowns taken during 1998 reduced the per barrel depletion in 1999. General and Administrative Expenses -------------------------------------- General and administrative expense before capitalization decreased $16.6 million from $47.2 million in 1998 to $30.6 million in 1999, while capitalized general and administrative costs were $6.9 million and $20.6 million in 1999 and 1998, respectively. General and administrative expenses, and the portion capitalized, decreased as a result of restructuring activities undertaken during the second half of 1998 and in March 1999. Writedown of Assets --------------------- In June and December 1998, the carrying amount of the Company's evaluated oil and gas properties in Colombia was written down by $105.4 million ($68.5 million, net of tax) and $135.6 million ($115.9 million, net of tax), respectively, through application of the full cost ceiling limitation as prescribed by the SEC, principally as a result of a decline in oil prices. No adjustments were made to the Company's reserves in Colombia as a result of the decline in prices. The SEC ceiling test was calculated using the June 30, and December 31, 1998, WTI oil prices of $14.18 per barrel and $12.05 per barrel, respectively, that, after a differential for Cusiana crude delivered at the port of Covenas in Colombia, resulted in a net price of approximately $13 per barrel and $11 per barrel, respectively. During 1998, the Company evaluated the recoverability of its approximate 6.6% investment in a Colombian pipeline company, Oleoducto de Colombia S.A. ("ODC"), which is accounted for under the cost method. Based on an analysis of the future cash flows expected to be received from ODC, the Company expensed the carrying value of its investment totaling $10.3 million. In July 1998, the Company commenced a plan to restructure the Company's operations, reduce overhead costs and substantially scale back exploration-related expenditures. The plan contemplated the closing of foreign offices in four countries, the elimination of approximately 105 positions, or 41% of the worldwide workforce, and the relinquishment or other disposal of several exploration licenses. In conjunction with the plan to restructure operations and scale back exploration-related expenditures in 1998, the Company assessed its investments in exploration licenses and determined that certain investments were impaired. As a result, unevaluated oil and gas properties and other assets totaling $77.3 million ($72.6 million, net of tax) were expensed. The writedown included $27.2 million and $22.5 million related to exploration activity in Guatemala and China, respectively. The remaining writedowns related to the Company's exploration projects in certain other areas of the world. Special Charges ---------------- As a result of the restructuring, the Company recognized special charges of $15 million during the third quarter of 1998 and $3.3 million during the fourth quarter of 1998 for a total of $18.3 million. Of the $18.3 million in special charges, $14.5 million related to the reduction in workforce, and represented the estimated costs for severance, benefit continuation and outplacement costs, which will be paid over a period of up to two years according to the severance formula. Since July 1998, the Company has paid $13.1 million in severance, benefit continuation and outplacement costs. A total of $2.1 million of special charges related to the closing of foreign offices, and represented the estimated costs of terminating office leases and the write-off of related assets. The remaining special charges of $1.7 million primarily related to the write-off of other surplus fixed assets resulting from the reduction in workforce. At December 31, 1999, all of the positions had been eliminated, all designated foreign offices had closed and all licenses had been relinquished, sold, or their commitments renegotiated. During the fourth quarter of 1999, the Company reversed $.7 million of the accrual associated with the completion of restructuring activities. The remaining liability related to the restructuring activities undertaken in 1998 was $1 million at December 31, 1999. In March 1999, the Company accrued special charges of $1.2 million related to an additional 15% reduction in the number of employees resulting from the Company's continuing efforts to reduce costs. The special charges consisted of $1 million for severance, benefit continuation and outplacement costs and $.2 million related to the write-off of surplus fixed assets. Since March 1999, the Company has paid $.9 million in severance, benefit continuation and outplacement costs. At December 31, 1999, the remaining liability related to the restructuring activities undertaken in 1999 was $.1 million. In September 1999, the Company recognized special charges totaling $2.4 million related to the transfer of its working interest in Ecuador to a third party. Gain on Sale of Triton Pipeline Colombia ---------------------------------------------- In February 1998, the Company sold TPC, a wholly owned subsidiary that held the Company's 9.6% equity interest in the Colombian pipeline company, OCENSA, to an unrelated third party (the "Purchaser") for $100 million. Net proceeds were approximately $97.7 million. The sale resulted in a gain of $50.2 million. Interest Expense ----------------- Gross interest expense for 1999 and 1998 totaled $37.2 million and $46.4 million, respectively, while capitalized interest for 1999 decreased $8.7 million to $14.5 million. The decrease in capitalized interest is primarily due to the writedown of unevaluated oil and gas properties in June 1998 and a sale of 50% of the Company's Block A-18 project in August 1998. Other Income (Expense), Net ------------------------------ Other income (expense), net, included a foreign exchange gain (loss) of ($2.7 million) and $2.1 million in 1999 and 1998, respectively. During 1999 and 1998, the Company recorded gains of $6.2 million and $.4 million, respectively, representing the change in the fair value of the call options purchased in anticipation of a forward oil sale. In addition, during 1999 and 1998, the Company recorded an expense of $6.9 million and $3.3 million, respectively, in other income (expense), net, related to the net payments made under and the change in the fair value of the equity swap entered into in conjunction with the sale of TPC. Net payments made (or received) under the equity swap, and any fluctuations in the fair values of the call options and the equity swap, in future periods will affect other income (expense), net in such periods. See "Quantitative and Qualitative Disclosures About Market Risk" below. In 1999 and 1998, the Company recorded loss provisions of $2.3 million and $.8 million, respectively, for certain legal matters. In 1998, the Company recognized gains of $7.6 million on the sale of corporate assets in addition to the ARCO and TPC transactions. Income Taxes ------------- Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," requires that the Company make projections about the timing and scope of certain future business transactions in order to estimate recoverability of deferred tax assets primarily resulting from the expected utilization of net operating loss carryforwards ("NOLs"). Changes in the timing or nature of actual or anticipated business transactions, projections and income tax laws can give rise to significant adjustments to the Company's deferred tax expense or benefit that may be reported from time to time. For these and other reasons, compliance with SFAS 109 may result in significant differences between tax expense for income statement purposes and taxes actually paid. Current taxes related to the Company's Colombian operations were $20.8 million and $4.4 million in 1999 and 1998, respectively. The income tax provision for 1999 included a foreign deferred tax expense totaling $9.2 million compared with a foreign deferred tax benefit of $57 million in 1998. The benefit recognized in 1998 primarily resulted from the writedown of oil and gas properties. Additionally, the income tax provision included a deferred tax benefit in the United States totaling $1.4 million, compared with an expense of $1.5 million in 1998. At December 31, 1999, the Company had U.S. NOLs of approximately $450.2 million compared with NOLs of approximately $415.6 million at December 31, 1998. The NOLs expire from 2000 to 2020. See note 10 of Notes to Consolidated Financial Statements. At December 31, 1999, the Company's Colombian operations and other foreign operations had NOLs and other credit carryforwards totaling $57.4 million and $40.7 million, respectively, that will expire between 2001 and 2004. During 1999, the Company acquired the Colombian entity of its former partner in the El Pinal field. In addition to the working interest in the El Pinal field, the acquired entity has tax basis and NOLs totaling approximately $40 million, included in total foreign NOLs above, which the Company expects to utilize in 2000. At December 31, 1999, the tax affected amount of the tax basis and NOLs ($14.2 million) has been included in current assets as a deferred tax asset. In addition, the Company recorded deferred income of $10.6 million, representing the difference between the value of the deferred tax asset and the purchase price. During 2000, the deferred tax asset and the deferred income will be reduced as the tax basis and NOLs are utilized. The Company recorded a U.S. deferred tax asset of $88.2 million, net of a valuation allowance of $72.9 million, at December 31, 1999. The valuation allowance was primarily attributable to management's assessment of the utilization of NOLs in the U.S., the expectation that other tax credits will expire without being utilized, and certain temporary differences will reverse without a benefit to the Company. The minimum amount of future taxable income necessary to realize the U.S. deferred tax asset is approximately $252 million. Although there can be no assurance the Company will achieve such levels of income, management believes the deferred tax asset will be realized through income from its operations. YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997 Oil and Gas Sales -------------------- Oil and gas sales in 1998 totaled $160.9 million, an 11% increase from 1997, due to higher production, which was partially offset by significantly lower average realized oil prices. Total revenue barrels, including production related to barrels delivered under the forward oil sale, totaled 13 million barrels in 1998, an increase of 58%, compared to the prior year, resulting in an increase in revenues of $84.2 million. The increased production was primarily due to the start-up in late 1997 of two new 80,000 BOPD oil-production units at the Cusiana central processing facility. In addition, two 100,000 BOPD oil-production units at the Cupiagua central processing facility began production during the second half of 1998. The average realized oil price was $12.31 and $17.54 in 1998 and 1997, respectively, a decrease of 30% for 1998, resulting in lower revenues of $68.3 million compared to 1997. The lower average realized oil price resulted from a significant decrease in the 1998 average WTI oil price. Gain on Sale of Oil and Gas Assets ----------------------------------------- In August 1998, the Company sold to a subsidiary of ARCO for $150 million, one-half of the shares of the subsidiary through which the Company owned its 50% share of Block A-18 in the Malaysia-Thailand Joint Development Area. The sale resulted in a gain of $63.2 million. In December 1998, the Company sold its Bangladesh subsidiary for $4.5 million and recorded a gain of the same amount. In June 1997, the Company sold its Argentine subsidiary for cash proceeds of $4.1 million and recognized a gain of $4.1 million. Operating Expenses and Depreciation, Depletion and Amortization --------------------------------------------------------------------- Operating expenses increased $22.2 million in 1998, and depreciation, depletion and amortization increased $22 million, primarily due to higher production volumes, including barrels delivered under the forward oil sale. The Company's operating costs per oil equivalent-barrel were $5.97 and $6.47 in 1998 and 1997, respectively. Operating expenses on a per equivalent-barrel basis were lower primarily due to higher production volumes and a decrease in production taxes of $7.8 million. Beginning in 1998, no production taxes were assessed on production from the Cusiana field. These improvements to operating costs were partially offset by an increase in OCENSA pipeline tariffs which totaled $49.9 million or $4.08 per barrel, and $28.7 million or $3.69 per barrel, in 1998 and 1997, respectively. The OCENSA pipeline expansion was completed at the end of 1997. At such time, the full cost of the pipeline was included in the tariff computation, which was the primary contributor to the higher 1998 tariffs. General and Administrative Expenses -------------------------------------- General and administrative expense before capitalization decreased $13.8 million to $47.2 million in 1998, while capitalized general and administrative costs were $20.6 million and $32.4 million in 1998 and 1997, respectively. General and administrative expenses, and the portion capitalized, decreased as a result of restructuring activities undertaken in the third quarter of 1998 to reduce overhead costs and exploration expenses. Interest Expense ----------------- Gross interest expense for 1998 and 1997 totaled $46.4 million and $49.7 million, respectively, while capitalized interest for 1998 decreased $2.6 million to $23.2 million. The decrease in capitalized interest is primarily due to the writedown of unevaluated property totaling $73.9 million in June 1998 and a sale of 50% of the Company's Block A-18 project in August 1998. Other Income (Expense), Net ------------------------------ Other income (expense), net, included foreign exchange gains of $2.1 million and $9.5 million in 1998 and 1997, respectively, primarily related to noncash adjustments to deferred tax liabilities in Colombia associated with devaluation of the Colombian peso versus the U.S. dollar. In 1998 and 1997, the Company recognized gains of $7.6 million and $1.4 million, respectively, on the sale of corporate assets. During 1998 and 1997, the Company recorded a gain (loss) of $.4 million and ($9.7 million), respectively, representing the change in the fair value of the call options purchased in anticipation of a forward oil sale. In addition, during 1998, the Company recorded an expense of $3.3 million in other income (expense), net, related to the net payments made under and the change in the fair value of the equity swap entered into in conjunction with the sale of TPC. Income Taxes ------------- The income tax provision for 1998 included a foreign deferred tax benefit totaling $57 million compared with a foreign deferred tax expense of $16 million in 1997. The benefit recognized in 1998 primarily resulted from the writedown of oil and gas properties. Additionally, the income tax provision included deferred tax expense in the United States totaling $1.5 million, compared with a benefit of $7.9 million in 1997. Current taxes related to the Company's Colombian operations were $4.4 million and $3.4 million in 1998 and 1997, respectively. Extraordinary Item ------------------- In May and June 1997, the Company completed a tender offer and consent solicitation with respect to its 1997 Notes and 9 3/4% Notes that resulted in the retirement of the 1997 Notes and substantially all of the 9 3/4% Notes. The Company's results of operations for 1997 included an extraordinary expense of $14.5 million, net of a $7.8 million tax benefit, associated with the extinguishment of the 1997 Notes and 9 3/4% Notes. The remainder of the 9 3/4% Notes were retired in 1998. EXPLORATION OPERATIONS ----------------------- Costs related to acquisition, holding and initial exploration of licenses in countries with no proved reserves are initially capitalized, including internal costs directly identified with acquisition, exploration and development activities. The Company's exploration licenses are periodically assessed for impairment on a country-by-country basis. If the Company's investment in exploration licenses within a country where no proved reserves are assigned is deemed to be impaired, the licenses are written down to estimated recoverable value. If the Company abandons all exploration efforts in a country where no proved reserves are assigned, all acquisition and exploration costs associated with the country are expensed. The Company's assessments of whether its investment within a country is impaired and whether exploration activities within a country will be abandoned are made from time to time based on its review and assessment of drilling results, seismic data and other information it deems relevant. Due to the unpredictable nature of exploration drilling activities, the amount and timing of impairment expense are difficult to predict with any certainty. For example, in the second quarter of 1998, the Company recorded a $77.3 million ($72.6 million, net of tax) writedown of unevaluated oil and gas properties relating to the Company's operations in China, Ecuador, Guatemala and other countries. There can be no assurance that, in the future, the Company will not incur writedowns or expense with respect to its exploration licenses. Financial information concerning the Company's assets at December 31, 1999, including capitalized costs by geographic area, is in note 21 of Notes to Consolidated Financial Statements. ENVIRONMENTAL MATTERS --------------------- The Company is subject to extensive environmental laws and regulations. These laws regulate the discharge of oil, gas or other materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of such materials at various sites. The Company believes that the level of future expenditures for environmental matters, including clean-up obligations, is impractical to determine with a precise and reliable degree of accuracy. Management believes that such costs, when finally determined, will not have a material adverse effect on the Company's operations or consolidated financial condition. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In June 1998, the Financial Accounting Standards Board issued Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires enterprises to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The requisite accounting for changes in the fair value of a derivative will depend on the intended use of the derivative and the resulting designation. The Company must adopt SFAS 133 effective January 1, 2001. Based on the Company's outstanding derivatives contracts, the Company believes that the impact of adopting this standard would not have a material adverse effect on the Company's operations or consolidated financial condition. However, no assurances can be given with regard to the level of the Company's derivatives activities at the time SFAS 133 is adopted or the resulting effect on the Company's operations or consolidated financial condition. YEAR 2000 UPDATE ---------------- In 1998, the Company began a formal process to prepare the Company's internal computerized systems for the Year 2000. From inception through December 31, 1999, the Company spent approximately $250,000 related to the Year 2000 readiness issue. These costs included external consultants, professional advisors, and software and hardware. No further material expenses are anticipated. To date, the Company has not experienced any significant problems related to Year 2000 compliance. Although the Company has not suffered any significant Year 2000 issues or related disruptions as a result of the roll over from 1999 to 2000, including through third parties with whom the Company has a business relationship, it is possible that certain Year 2000 issues may exist but have not yet materialized. While the Company believes that any future Year 2000 issues are of a much lower risk, there can be no assurance that these issues will not have a material effect on the Company's operations. CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS --------------------------------------------------- Certain information contained in this report, as well as written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences, teleconferences or otherwise, may be deemed to be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and are subject to the "Safe Harbor" provisions of that section. Forward-looking statements include statements concerning the Company's and management's plans, objectives, goals, strategies and future operations and performance and the assumptions underlying such forward-looking statements. When used in this document, the words "anticipates," "estimates," "expects," "believes," "intends," "plans" and similar expressions are intended to identify such forward-looking statements. These statements include information regarding: - - drilling schedules; - - expected or planned production capacity; - - future production from the Cusiana and Cupiagua fields in Colombia, including from the Recetor license; - - the completion of development and commencement of production in Malaysia-Thailand; - - future production of the Ceiba field in Equatorial Guinea, including volumes and timing of first production; - - the acceleration of the Company's exploration, appraisal and development activities in Equatorial Guinea; - - the Company's capital budget and future capital requirements; - - the Company's meeting its future capital needs; - - the Company's utilization of net operating loss carryforwards and realization of its deferred tax asset; - - the level of future expenditures for environmental costs; - - the outcome of regulatory and litigation matters; - - the estimated fair value of derivative instruments, including the equity swap; and - - proven oil and gas reserves and discounted future net cash flows therefrom. These statements are based on current expectations and involve a number of risks and uncertainties, including those described in the context of such forward-looking statements, and in notes 19 and 20 of Notes to Consolidated Financial Statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to these and other factors. ITEM 7. A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Commodity Risk - -------------- The Company's primary commodity market risk exposure is to changes in the pricing applicable to its oil production, which is normally priced with reference to a defined benchmark, such as light, sweet crude oil traded on the New York Mercantile Exchange (WTI). Actual prices received vary from the benchmark depending on quality and location differentials. The markets for crude oil historically have been volatile and are likely to continue to be volatile in the future. During the three year period ended December 31, 1999, WTI oil prices fluctuated between a low price of $11.37 per barrel and a high price of $27.07 per barrel. From time to time, it is the Company's policy to use financial market transactions, including swaps, collars and options, with creditworthy counterparties, primarily to reduce the risk associated with the pricing of a portion of the oil and natural gas that it sells. The policy is structured to underpin the Company's planned revenues and results of operations. The Company does not enter into financial market transactions for trading purposes. During the years ended December 31, 1999 and 1997, markets provided the Company the opportunity to realize WTI benchmark oil prices on average $6.37 per barrel and $2.35 per barrel, respectively, above the WTI benchmark oil price the Company set as part of its annual plan for the period. During the year ended December 31, 1998, the Company did not have any outstanding financial market transactions to hedge against oil price fluctuations. As a result of financial and commodity market transactions settled during the years ended December 31, 1999 and 1997, the Company's risk management program resulted in an average net realization of approximately $1.65 per barrel and $.11 per barrel, respectively, lower than if the Company had not entered into such transactions. Realized gains or losses from the Company's price risk management activities are recognized in oil and gas sales at the time of settlement of the underlying hedged transaction. With respect to the sale of oil to be produced by the Company, the Company has entered into oil price collars with creditworthy counterparties to establish a weighted average minimum WTI benchmark price of $18.92 per barrel and a maximum of $24.45 per barrel on an aggregate of 3.6 million barrels of production during the period from January through June 2000. As a result, to the extent the average monthly WTI price exceeds $24.45, the Company will pay the counterparties the difference between the average monthly WTI price and $24.45, and to the extent that the average monthly WTI price is below $18.92, the counterparties will pay the Company the difference between the average monthly WTI price and $18.92. In addition, the Company has entered into option contracts for an aggregate of 300,000 barrels of production during the period from July through September 2000. As a result, to the extent the monthly average WTI exceeds $28.43 per barrel, the Company will pay the counterparty the difference between the average WTI and $28.43, and to the extent WTI is at or below $22.00, the counterparty will pay the Company $2.00 per barrel. The Company used a sensitivity analysis technique to evaluate the hypothetical effect that changes in WTI oil prices may have on the fair value of these contracts. At December 31, 1999, the potential decrease in future earnings, assuming a ten percent movement in WTI oil prices, would not have a material adverse effect on the Company's consolidated financial position or results of operations. In anticipation of entering into the forward oil sale, in 1995 the Company purchased WTI benchmark call options to retain the ability to benefit from WTI price increases above a weighted average price of $20.42 per barrel. The volumes and expiration dates on the call options coincide with the volumes and delivery dates of the forward oil sale, which will be completed in March 2000. During the years ended December 31, 1999, 1998 and 1997, the Company recorded a gain (loss) of $6.1 million, $.4 million, and ($9.7 million), respectively, in other income (expense), net, related to the change in the fair market value of the call options. In November 1999, the Company sold WTI benchmark call options with the same notional quantities, strike price and contract period as the remaining call option contracts outstanding for a premium of $4.4 million for the purpose of realizing the fair value of the purchased call options. As a result, the Company has eliminated its exposure to future changes in value of the call options caused by fluctuating oil prices. Interest Rate Risk - -------------------- Equity Swap ------------ In conjunction with the sale of TPC, the Company entered into an equity swap with a creditworthy financial institution (the "Counterparty"). The equity swap has a notional amount of $97 million and requires the Company to make quarterly floating LIBOR-based payments on the notional amount to the Counterparty. In exchange, the Counterparty is required to make payments to the Company equivalent to 97% of the dividends TPC receives in respect of its equity interest in OCENSA. The Company's LIBOR-based payments commenced in March 1998, and OCENSA commenced paying dividends in September 1998. OCENSA's first dividend was attributable to the four month period ending June 1998. During the years ended December 31, 1999 and 1998, the Company made payments to the Counterparty totaling $6.2 million and $5.9 million, respectively, and received payments from the Counterparty totaling $7.8 million and $2.6 million, respectively. The equity swap is carried in the Company's financial statements at fair value during its term, which, as amended, will expire April 14, 2000. The value of the equity swap in the Company's financial statements is equal to 97% of the estimated fair value of the shares of OCENSA owned by TPC. Because there is no public market for the shares of OCENSA, the Company estimates their value using a discounted cash flow model applied to the distributions expected to be paid in respect of the OCENSA shares. The discount rate applied to the estimated cash flows from the OCENSA shares is based on a combination of current market rates of interest, a credit spread for OCENSA's debt, and a spread to reflect the preferred stock nature of the OCENSA shares. During the years ended December 31, 1999 and 1998, the Company recorded an expense of $6.9 million and $3.3 million in other income (expense), net, related to the net payments made under and the change in the fair market value of the equity swap. The Company also evaluated the potential effect that near-term changes in interest rates could have on the fair value of the equity swap. Based upon an analysis utilizing the actual discount rate in effect as of December 31, 1999, and assuming a ten percent adverse movement in the discount rate, the potential decrease in the fair value of the equity swap at December 31, 1999, would be approximately $6.3 million. Net payments made (or received) under the equity swap, and any fluctuations in the fair value of the equity swap, in future periods, will affect other income (expense), net in such periods. There can be no assurance that changes in interest rates, or in other factors that affect the value of the OCENSA shares and/or the equity swap, will not have a material adverse effect on the carrying value of the equity swap. Upon the expiration of the equity swap in April 2000, the Company expects that the Purchaser will sell the TPC shares. Under the terms of the equity swap with the Counterparty, upon any sale by the Purchaser of the TPC shares, the Company will receive from the Counterparty, or pay to the Counterparty, an amount equal to the excess or deficiency, as applicable, of the difference between 97% of the net proceeds from the Purchaser's sale of the TPC shares and the notional amount of $97 million. For example if the Purchaser sold the TPC shares for an amount equal to the value the Company has estimated for purposes of preparing its balance sheet as of December 31, 1999, the Company would have to make a payment to the Counterparty under the equity swap of approximately $8.4 million. There can be no assurance that the value the Purchaser may realize in any sale of the TPC shares will equal the value of the shares estimated by the Company for purposes of valuing the equity swap. The Company has no right or obligation to repurchase the TPC shares at any time, but the Company is not prohibited from offering to purchase the shares if the Purchaser offers to sell them. The Company expects to make a bid for the acquisition of the TPC shares because the Company's pipeline tariffs can be lowered by electing to cancel the dividend to the holder of the OCENSA shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Other Income and Expenses" and note 2 of Notes to Consolidated Financial Statements. Indebtedness of the Company ------------------------------ The Company believes its interest rate exposure on debt is not significant since only $13.5 million out of total debt of $413.5 million at December 31, 1999, has floating interest rate obligations. Foreign Currency Risk - ----------------------- The Company derives substantially all of its consolidated revenues from international operations. A risk inherent in international operations is the possibility of realizing economic currency-exchange losses when transactions are completed in currencies other than U.S. dollars. The Company's risk of realizing currency-exchange losses currently is largely mitigated because the Company receives U.S. dollars for sales of its petroleum products in Colombia. With respect to expenditures denominated in currencies other than the U.S. dollar, the Company generally converts U.S. dollars to the local currency near the applicable payment dates to minimize exposure to losses caused by holding foreign currency deposits. During the three-year period ended December 31, 1999, the Company did not realize any material foreign exchange losses from its international operations. The Company evaluated the potential effect that reasonably possible near-term changes in foreign exchange rates may have on the fair value of foreign currency denominated assets. Based on analysis utilizing the actual foreign currency exchange rates at December 31, 1999, and assuming a ten percent adverse movement in exchange rates, the potential decrease in fair value of foreign currency denominated assets does not have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this item begin at page F-1 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to the Company's directors and nominees for election as directors of the Company is incorporated herein by reference from the Proxy Statement for the 2000 Annual Meeting of Shareholders of the Company (the "Proxy Statement"), specifically the discussion under the heading "Election of Directors." The Company expects that the Proxy Statement will be publicly available and mailed in April 2000. Certain information as to executive officers is included herein under Items 1 and 2, "Business and Properties - Executive Officers." The discussion under "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The discussion under "Management Compensation" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The discussion under "Security Ownership of Management and Certain Shareholders" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The discussion under "Management Compensation - Compensation Committee Interlocks and Insider Participation and Certain Transactions" in the Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Financial Statements: The financial statements filed as part of this report are listed in the "Index to Financial Statements and Schedules" on page F-1 hereof. 2. Financial Statement Schedules: The financial statement schedules filed as part of this report are listed in the "Index to Financial Statements and Schedules" on page F-1 hereof. 3. Exhibits required to be filed by Item 601 of Regulation S-K. (Where the amount of securities authorized to be issued under any of Triton Energy Limited's and any of its subsidiaries' long-term debt agreements does not exceed 10% of the Company's assets, pursuant to paragraph (b)(4) of Item 601 of Regulation S-K, in lieu of filing such as exhibits, the Company hereby agrees to furnish to the Commission upon request a copy of any agreement with respect to such long-term debt.)
3.1 Memorandum of Association (previously filed as an exhibit to the Company's Registration Statement on Form S-3 (No 333-08005) and incorporated herein by reference) 3.2 Articles of Association (previously filed as an exhibit to the Company's Registration Statement on Form S-3 (No 333-08005) and incorporated herein by reference) 4.1 Specimen Share Certificate of Ordinary Shares, $.01 par value, of the Company (previously filed as an exhibit to the Company's Registration Statement on Form 8-A dated March 25, 1996, and incorporated herein by reference) 4.2 Rights Agreement dated as of March 25, 1996, between Triton and The Chase Manhattan Bank, as Rights Agent, including, as Exhibit A thereto, Resolutions establishing the Junior Preference Shares (previously filed as an exhibit to the Company's Registration Statement on Form S-3 (No 333-08005) and incorporated herein by reference) 4.3 Resolutions Authorizing the Company's 5% Convertible Preference Shares (previously filed as an exhibit to the Company's and Triton Energy Corporation's Registration Statement on Form S-4 (No. 333-923) and incorporated herein by reference) 4.4 Amendment No. 1 to Rights Agreement dated as of August 2, 1996, between Triton Energy Limited and The Chase Manhattan Bank, as Rights Agent (previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A (Amendment No. 1) dated August 14, 1996, and incorporated herein by reference) 4.5 Amendment No. 2 to Rights Agreement dated as of August 30, 1998, between Triton Energy Limited and The Chase Manhattan Bank, as Rights Agent (previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A (Amendment No. 2) dated October 2, 1998, and incorporated herein by reference) 4.6 Unanimous Written Consent of the Board of Directors authorizing a Series of Preference Shares (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference.) 4.7 Amendment No. 3 to Rights Agreement dated as of January 5, 1999, between Triton Energy Limited and The Chase Manhattan Bank, as Rights Agent (previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A (Amendment No. 3) dated January 31, 1999, and incorporated herein by reference) 10.1 Amended and Restated Retirement Income Plan (previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993, and incorporated by reference) (1) 10.2 Amendment to the Retirement Income Plan dated August 1, 1998. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference.) (1) 10.3 Amendment to Amended and Restated Retirement Income Plan dated December 31, 1996 (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and incorporated herein by reference) (1) 10.4 Amended and Restated Supplemental Executive Retirement Income Plan. (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference.) (1) 10.5 1981 Employee Non-Qualified Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1992 ,and incorporated herein by reference.) (1) 10.6 Amendment No. 1 to the 1981 Employee Non-Qualified Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1989, and incorporated herein by reference.) (1) 10.7 Amendment No. 2 to the 1981 Employee Non-Qualified Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1992, and incorporated herein by reference.) (1) 10.8 Amendment No. 3 to the 1981 Employee Non-Qualified Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993, and incorporated by reference.) (1) 10.9 1985 Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1990, and incorporated herein by reference.) (1) 10.10 Amendment No. 1 to the 1985 Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1992, and incorporated herein by reference) 10.11 Amendment No. 2 to the 1985 Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993, and incorporated by reference.) (1) 10.12 Amended and Restated 1986 Convertible Debenture Plan. (previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993, and incorporated herein by reference.) (1) 10.13 1988 Stock Appreciation Rights Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1993, and incorporated by reference herein.) (1) 10.14 1989 Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended November 30, 1988, and incorporated herein by reference.) (1) 10.15 Amendment No. 1 to 1989 Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1992, and incorporated herein by reference.) (1) 10.16 Amendment No. 2 to 1989 Stock Option Plan. (previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993, and incorporated herein by reference.) (1) 10.17 Second Amended and Restated 1992 Stock Option Plan.(previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated herein by reference.) (1) 10.18 Form of Amended and Restated Employment Agreement with Triton Energy Limited and certain officers, including Messrs. Dunlevy, Garrett and Maxted (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference.) (1) 10.19 Amended and Restated Employment Agreement among Triton Energy Limited, Triton Exploration Services, Inc. and Robert B. Holland, III. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference.) (1) 10.20 Form of Amended and Restated Employment Agreement among Triton Energy Limited, Triton Exploration Services, Inc. and each of Peter Rugg and Al E. Turner. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference.) (1) 10.21 Letter Agreement among Triton Energy Limited, Triton Exploration Services, Inc. and Robert B. Holland, III dated December 17, 1998. (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.) (1) 10.22 Letter Agreement among Triton Energy Limited, Triton Exploration Services, Inc. and Peter Rugg dated December 10, 1998. (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.) (1) 10.23 Form of Bonus Agreement between Triton Exploration Services, Inc. and each of Al E. Turner, Robert B. Holland, III, and Peter Rugg dated July 15, 1998. (previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.) (1) 10.24 Amended and Restated 1985 Restricted Stock Plan. (previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993, and incorporated herein by reference.) (1) 10.25 First Amendment to Amended and Restated 1985 Restricted Stock Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference.) (1) 10.26 Second Amendment to Amended and Restated 1985 Restricted Stock Plan. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated herein by reference.) (1) 10.27 Executive Life Insurance Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1991, and incorporated herein by reference.) (1) 10.28 Long Term Disability Income Plan. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1991, and incorporated herein by reference.) (1) 10.29 Amended and Restated Retirement Plan for Directors. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1990, and incorporated herein by reference.) (1) 10.30 Contract for Exploration and Exploitation for Santiago de Atalayas I with an effective date of July 1, 1982, between Triton Colombia, Inc., and Empresa Colombiana De Petroleos. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1990, and incorporated herein by reference.) 10.31 Contract for Exploration and Exploitation for Tauramena with an effective date of July 4, 1988, between Triton Colombia, Inc., and Empresa Colombiana De Petroleos. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1990, and incorporated herein by reference.) 10.32 Summary of Assignment legalized by Public Instrument No. 1255 dated September 15, 1987 (Assignment is in Spanish language). (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1993, and incorporated herein by reference.) 10.33 Summary of Assignment legalized by Public Instrument No. 1602 dated June 11, 1990 (Assignment is in Spanish language). (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1993, and incorporated herein by reference.) 10.34 Summary of Assignment legalized by Public Instrument No. 2586 dated September 9, 1992 (Assignment is in Spanish language). (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended May 31, 1993, and incorporated herein by reference.) 10.35 401(K) Savings Plan. (previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993, and incorporated herein by reference.) (1) 10.36 Amendment to the 401(k) Savings Plan dated August 1, 1998. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference.) (1) 10.37 Amendment to 401(k) Savings Plan dated December 31, 1996. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and incorporated herein by reference.) (1) 10.38 Contract between Malaysia-Thailand Joint Authority and Petronas Carigali SDN.BHD. and Triton Oil Company of Thailand relating to Exploration and Production of Petroleum for Malaysia-Thailand Joint Development Area Block A-18. (previously filed as an exhibit to Triton Energy Corporation's Current Report on Form 8-K dated April 21, 1994, and incorporated herein by reference.) 10.39 Triton Crude Purchase Agreement between Triton Colombia, Inc. and Oil Co., LTD. dated May 25, 1995. (previously filed as an exhibit to Triton Energy Corporation's Current Report on Form 8-K dated May 26, 1995, and incorporated herein by reference.) 10.40 Credit Agreement among Triton Colombia, Inc., Triton Energy Corporation, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United States (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference.) 10.41 Amendment No. 1 to Credit Agreement among Triton Colombia, Inc., Triton Energy Corporation, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United States. (previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference.) 10.42 Amendment No. 2 to Credit Agreement among Triton Colombia, Inc., Triton Energy Corporation, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United States. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated herein by reference) 10.43 Amendment No. 3 to Credit Agreement among Triton Colombia, Inc., Triton Energy Corporation, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United States. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and incorporated herein by reference) 10.44 Form of Indemnity Agreement entered into with each director and officer of the Company. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference) 10.45 Description of Performance Goals for Executive Bonus Compensation. (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference) (1) 10.46 Stock Purchase Agreement dated September 2, 1997, between The Strategic Transaction Company and Triton International Petroleum, Inc. (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference) 10.47 Fourth Amendment to Stock Purchase Agreement dated February 2, 1998, between The Strategic Transaction Company and Triton International Petroleum, Inc. (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference) 10.48 Amended and Restated 1997 Share Compensation Plan. (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and incorporated herein by reference) (1) 10.49 First Amendment to Amended and Restated Retirement Plan for Directors. (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference) (1) 10.50 First Amendment to Second Amended and Restated 1992 Stock Option Plan. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference) (1) 10.51 Second Amendment to Second Amended and Restated 1992 Stock Option Plan. (previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference) (1) 10.52 Amended and Restated Indenture dated July 25, 1997, between Triton Energy Limited and The Chase Manhattan Bank. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference) 10.53 Amended and Restated First Supplemental Indenture dated July 25, 1997, between Triton Energy Limited and The Chase Manhattan Bank relating to the 8 3/4% Senior Notes due 2002. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference) 10.54 Amended and Restated Second Supplemental Indenture dated July 25, 1997, between Triton Energy Limited and The Chase Manhattan Bank relating to the 9 1/4% Senior Notes due 2005. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference) 10.55 Share Purchase Agreement dated July 17, 1998, among Triton Energy Limited, Triton Asia Holdings, Inc., Atlantic Richfield Company and ARCO JDA Limited. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference) 10.56 Shareholders Agreement dated August 3, 1998, among Triton Energy Limited, Triton Asia Holdings, Inc., Atlantic Richfield Company, and ARCO JDA Limited. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference) 10.57 Stock Purchase Agreement dated as of August 31, 1998, between Triton Energy Limited and HM4 Triton, L.P. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference) 10.58 Shareholders Agreement dated as of September 30, 1998, between Triton Energy Limited and HM4 Triton, L.P. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference) 10.59 Financial Advisory Agreement dated as of September 30, 1998, between Triton Energy Limited and Hicks, Muse & Co. Partners, L.P. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference) 10.60 Monitoring and Oversight Agreement dated as of September 30, 1998, between Triton Energy Limited and Hicks, Muse & Co. Partners, L.P. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference) 10.61 Severance Agreement dated as of July 15, 1998, between Thomas G. Finck and Triton Energy Limited. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference) (1) 10.62 Severance Agreement dated April 9, 1999, made and entered into by and among Triton Energy Limited, Triton Exploration Services, Inc. and Peter Rugg. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, and incorporated herein by reference) (1) 10.63 Consulting and Non-Compete Agreement dated April 9, 1999, made and entered into by and between Triton Exploration Services, Inc. and Peter Rugg. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, and incorporated herein by reference) (1) 10.64 Third Amendment to Amended and Restated 1985 Restricted Stock Plan (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, and incorporated herein by reference) (1) 10.65 Amendment to Triton Exploration Services, Inc. Retirement Income Plan. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.66 Amendment to the Triton Exploration Services, Inc. Supplemental Executive Retirement Plan. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.67 Third Amendment to the Second Amended and Restated 1992 Stock Option Plan (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.68 First Amendment to the Amended and Restated 1997 Share Compensation Plan (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.69 Amendment dated May 11, 1999, to Amended and Restated Employment Agreement dated July 15, 1998 among Triton Exploration Services, Inc., Triton Energy Limited and A.E. Turner, III.(previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.70 Form of Amendment dated May 11, 1999, to Employment Agreement among Triton Exploration Services, Inc., Triton Energy Limited and certain officers, including Messrs. Dunlevy, Garrett and Maxted (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.71 Second Amendment to Retirement Plan for Directors. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.72 Amendment to Triton Exploration Services, Inc. 401 (k) Savings Plan. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.73 Amendment No. 1 to Shareholders Agreement between Triton Energy Limited and HM4 Triton, L.P. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.74 Amendment No. 4 to the 1981 Employee Nonqualified Stock Option Plan. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.75 Amendment No. 3 to the 1985 Stock Option Plan. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.76 Amendment No. 3 to the 1989 Stock Option Plan. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference) (1) 10.77 Supplemental Letter Agreement dated October 28, 1999, among Triton Energy Limited, Triton Asia Holdings, Inc., Atlantic Richfield Company, and ARCO JDA Limited (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by reference) 10.78 Gas Sales Agreement dated October 30, 1999 among the Malaysia-Thailand Joint Authority, and Petronas Carigali (JDA) Sdn Bhd, Triton Oil Company of Thailand, Triton Oil Company of Thailand (JDA) Limited, as Sellers, and with Petroleum Authority of Thailand and Petroliam Nasional Berhad, as Buyers. (previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by reference) 10.79* Form of Stock Option Agreement between Triton Energy Limited and its non-employee directors. (1) 10.80* Form of Stock Option Agreement between Triton Energy Limited and its employees, including its executive officers. (1) 10.81* Amendment to Stock Options dated as of January 3, 2000, between Triton Energy Limited and A.E. Turner. (1) 10.82* Form of Amendment to Stock Options dated as of January 3, 2000, between Triton Energy Limited and its non-employee directors. (1) 10.83* Production Sharing Contract between the Republic of Equatorial Guinea and Triton Equatorial Guinea, Inc. for Block F. 10.84* Production Sharing Contract between the Republic of Equatorial Guinea and Triton Equatorial Guinea, Inc. for Block G. 10.85* Supplementary Contract (No. 1) to the Production Sharing Contract for Block A-18 dated 21 April 1994 between Malaysia-Thailand Joint Authority and Petronas Carigali (JDA) SDN.BHD., Triton Oil Company of Thailand and Triton Oil Company of Thailand (JDA) Limited. 10.86* Supplementary Contract (No. 2) to the Production Sharing Contract for Block A-18 dated 21 April 1994 between Malaysia-Thailand Joint Authority and Petronas Carigali (JDA) SDN.BHD., Triton Oil Company of Thailand and Triton Oil Company of Thailand (JDA) Limited. 10.87* Credit Agreement dated as of February 29, 2000, among Triton Energy Limited, the Lenders party thereto and The Chase Manhattan bank, as Administrative Agent 12.1* Computation of Ratio of Earnings to Fixed Charges. 12.2* Computation of Ratio of Earnings to Combined Fixed Charges and Preference Dividends. 21.1* Subsidiaries of the Company. 23.1* Consent of PricewaterhouseCoopers LLP. 23.2* Consent of DeGolyer and MacNaughton. 23.3* Consent of Netherland, Sewell & Associates, Inc. 24.1* The power of attorney of officers and directors of the Company (set forth on the signature page hereof). 27.1* Financial Data Schedule. 99.1 Rio Chitamena Association Contract. (previously filed as an exhibit to Triton Energy Corporation's Current Report on Form 8-K/A dated July 15, 1994, and incorporated herein by reference) 99.2 Rio Chitamena Purchase and Sale Agreement. (previously filed as an exhibit to Triton Energy Corporation's Current Report on Form 8-K/A dated July 15, 1994, and incorporated herein by reference) 99.3 Integral Plan - Cusiana Oil Structure. (previously filed as an exhibit to Triton Energy Corporation's Current Report on Form 8-K/A dated July 15, 1994, and incorporated herein by reference) 99.4 Letter Agreements with co-investor in Colombia. (previously filed as an exhibit to Triton Energy Corporation's Current Report on Form 8-K/A dated July 15, 1994, and incorporated herein by reference) 99.5 Amended and Restated Oleoducto Central S.A. Agreement dated as of March 31, 1995. (previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference) - ------------------------- * Filed herewith.
(1) Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed by the undersigned thereunto duly authorized on the 7th day of March, 2000. TRITON ENERGY LIMITED By:/s/ James C. Musselman ------------------------------------- James C. Musselman President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of Triton Energy Limited (the "Company") hereby constitutes and appoints James C. Musselman, A. E. Turner, III, W. Greg Dunlevy and Kevin Wilcox, or any of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute, and file any and all documents relating to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, including any and all amendments and supplements thereto, with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 7th day of March, 2000. Signatures Title ---------- ----- /s/W. Greg Dunlevy Vice President - ----------------------- W. Greg Dunlevy (Principal Financial Officer) /s/Kevin B. Wilcox Controller - ---------------------- Kevin B. Wilcox /s/Thomas O. Hicks Chairman of the Board - ---------------------- Thomas O. Hicks /s/James C. Musselman President and Chief Executive Officer - ---------------------- (Principal Executive Officer) James C. Musselman /s/Sheldon R. Erikson Director - ---------------------- Sheldon R. Erikson /s/Jack D. Furst Director - ---------------------- Jack D. Furst /s/Fitzgerald S. Hudson Director - ---------------------- Fitzgerald Hudson /s/John R. Huff Director - ---------------------- John R. Huff /s/Michael E. McMahon Director - ---------------------- Michael E. McMahon /s/C. Lamar Norsworthy Director - ---------------------- C. Lamar Norsworthy /s/C. Richard Vermillion Director - ---------------------- C. Richard Vermillion /s/J. Otis Winters Director - ---------------------- J. Otis Winters TRITON ENERGY LIMITED AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE ----- TRITON ENERGY LIMITED AND SUBSIDIARIES: Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Statements of Operations - Years ended December 31, 1999, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Balance Sheets - December 31, 1999 and 1998 . . . . . . . . . . . . F-4 Consolidated Statements of Cash Flows - Years ended December 31, 1999, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Shareholders' Equity - Years ended December 31, 1999, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . F-7 SCHEDULE: II - Valuation and Qualifying Accounts - Years ended December 31, 1999, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-52
All other schedules are omitted as the required information is inapplicable or presented in the consolidated financial statements or related notes. REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Shareholders of Triton Energy Limited In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Triton Energy Limited and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 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 the opinion expressed above. PricewaterhouseCoopers LLP Dallas, Texas February 23, 2000 TRITON ENERGY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 --------- ---------- --------- SALES AND OTHER OPERATING REVENUES: Oil and gas sales $247,878 $ 160,881 $145,419 Gain on sale of oil and gas assets --- 67,737 4,077 --------- ---------- --------- 247,878 228,618 149,496 --------- ---------- --------- COSTS AND EXPENSES: Operating 68,130 73,546 51,357 General and administrative 23,636 26,653 28,607 Depreciation, depletion and amortization 61,343 58,811 36,828 Writedown of assets --- 328,630 --- Special charges 2,909 18,324 --- --------- ---------- --------- 156,018 505,964 116,792 --------- ---------- --------- OPERATING INCOME (LOSS) 91,860 (277,346) 32,704 Gain on sale of Triton Pipeline Colombia --- 50,227 --- Interest income 10,579 3,258 5,178 Interest expense, net (22,648) (23,228) (23,858) Other income (expense), net (3,614) 8,480 2,872 --------- ---------- --------- (15,683) 38,737 (15,808) --------- ---------- --------- EARNINGS (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 76,177 (238,609) 16,896 Income tax expense (benefit) 28,620 (51,105) 11,301 --------- ---------- --------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM 47,557 (187,504) 5,595 Extraordinary item - extinguishment of debt --- --- (14,491) --------- ---------- --------- NET EARNINGS (LOSS) 47,557 (187,504) (8,896) DIVIDENDS ON PREFERENCE SHARES 28,671 3,061 400 --------- ---------- --------- EARNINGS (LOSS) APPLICABLE TO ORDINARY SHARES $ 18,886 $(190,565) $ (9,296) ========= ========== ========= Average ordinary shares outstanding 36,135 36,609 36,471 ========= ========== ========= BASIC EARNINGS (LOSS) PER ORDINARY SHARE: Earnings (loss) before extraordinary item $ 0.52 $ (5.21) $ 0.14 Extraordinary item - extinguishment of debt --- --- (0.40) --------- ---------- --------- BASIC EARNINGS (LOSS) $ 0.52 $ (5.21) $ (0.26) ========= ========== ========= DILUTED EARNINGS (LOSS) PER ORDINARY SHARE: Earnings (loss) before extraordinary item $ 0.52 $ (5.21) $ 0.14 Extraordinary item - extinguishment of debt --- --- (0.39) --------- ---------- --------- DILUTED EARNINGS (LOSS) $ 0.52 $ (5.21) $ (0.25) ========= ========== =========
See accompanying Notes to Consolidated Financial Statements. TRITON ENERGY LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS DECEMBER 31, --------------------- 1999 1998 ---------- --------- CURRENT ASSETS: Cash and equivalents $ 186,323 $ 18,757 Trade receivables, net 17,246 9,514 Other receivables 23,814 47,756 Deferred income taxes 20,090 --- Inventories, prepaid expenses and other 7,806 1,639 ---------- --------- TOTAL CURRENT ASSETS 255,279 77,666 Property and equipment, at cost, net 524,152 470,907 Investment in affiliate 93,188 84,735 Deferred income taxes 88,228 100,916 Other assets 13,628 20,056 ---------- --------- $ 974,475 $754,280 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 9,027 $ 14,027 Short-term borrowings --- 5,000 Accounts payable and accrued liabilities 62,576 44,973 Deferred income and other 22,347 35,254 ---------- --------- TOTAL CURRENT LIABILITIES 93,950 99,254 Long-term debt, excluding current maturities 404,460 413,465 Deferred income taxes 6,677 3,235 Other liabilities 6,336 14,519 SHAREHOLDERS' EQUITY: 5% preference shares, par value $.01; authorized 420,000 shares; issued 209,639 shares at December 31, 1999 and 1998, respectively, stated value $34.41 7,214 7,214 8% preference shares, par value $.01; authorized 11,000,000 shares; issued 5,193,643 and 1,822,500 shares at December 31, 1999 and 1998, respectively, stated value $70 363,555 127,575 Ordinary shares, par value $.01; authorized 200,000,000 shares; issued 35,763,728 and 36,643,478 shares at December 31, 1999 and 1998, respectively 358 366 Additional paid-in capital 531,904 575,863 Accumulated deficit (437,528) (485,085) Accumulated other non-owner changes in shareholders' equity (2,451) (2,126) ---------- --------- TOTAL SHAREHOLDERS' EQUITY 463,052 223,807 Commitments and contingencies (note 20) --- --- ---------- --------- $ 974,475 $754,280 ========== =========
The Company uses the full cost method to account for its oil- and gas-producing activities. See accompanying Notes to Consolidated Financial Statements. TRITON ENERGY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 47,557 $(187,504) $ (8,896) Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation, depletion and amortization 61,343 58,811 36,828 Proceeds from forward oil sale 31,932 1,770 830 Amortization of deferred income (35,254) (35,254) (28,467) Gain on sale of oil and gas assets --- (67,737) (4,077) Gain on sale of Triton Pipeline Colombia --- (50,227) --- Writedown of assets --- 328,630 --- Payment of accreted interest on extinguishment of debt --- --- (124,794) Extraordinary loss on extinguishment of debt, net of tax --- --- 14,491 Amortization of debt discount --- --- 7,949 Deferred income taxes 7,827 (55,592) 8,078 Gain on sale of other assets (677) (7,590) (1,409) Other, net 8,921 3,962 6,100 Changes in working capital: Trade and other receivables (16,131) 6,300 (3,238) Inventories, prepaid expenses and other (3,577) 918 1,794 Accounts payable and accrued liabilities 14,581 4,979 (2,605) ---------- ---------- ---------- Net cash provided (used) by operating activities 116,522 1,466 (97,416) ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures and investments (121,483) (180,215) (219,216) Proceeds from sale of oil and gas assets --- 147,027 4,077 Proceeds from sale of Triton Pipeline Colombia --- 97,656 --- Proceeds from sales of other assets 2,353 22,353 1,822 Other 600 (2,630) 617 ---------- ---------- ---------- Net cash provided (used) by investing activities (118,530) 84,191 (212,700) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving lines of credit and long-term debt --- 162,530 620,413 Payments on revolving lines of credit and long-term debt (19,028) (350,511) (321,515) Short-term notes payable, net --- (9,600) 9,600 Issuance of 8% preference shares, net 217,805 115,329 --- Issuances of ordinary shares 419 2,544 5,260 Repurchase of ordinary shares (11,285) --- --- Dividends paid on preference shares (17,617) (368) (400) Other (151) 5 10 ---------- ---------- ---------- Net cash provided (used) by financing activities 170,143 (80,071) 313,368 ---------- ---------- ---------- Effect of exchange rate changes on cash and equivalents (569) (280) (849) ---------- ---------- ---------- Net increase in cash and equivalents 167,566 5,306 2,403 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 18,757 13,451 11,048 ---------- ---------- ---------- CASH AND EQUIVALENTS AT END OF YEAR $ 186,323 $ 18,757 $ 13,451 ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements. TRITON ENERGY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1999 1998 1997 -------------------- ---------------------- -------------------- OWNER SOURCES OF SHAREHOLDERS' EQUITY: 5% PREFERENCE SHARES: Balance at beginning of period $ 7,214 $ 7,511 $ 8,515 Conversion of 5% preference shares --- (297) (1,004) ---------- ---------- ---------- Balance at end of period 7,214 7,214 7,511 ---------- ---------- ---------- 8% PREFERENCE SHARES: Balance at beginning of period 127,575 --- --- Issuances of 8% preference shares at $70 per share 222,425 127,575 --- Conversion of 8% preference shares (192) --- --- Stock dividends, 8% preference shares 13,747 --- --- ---------- ---------- ---------- Balance at end of period 363,555 127,575 --- ---------- ---------- ---------- ORDINARY SHARES: Balance at beginning of period 366 365 363 Stock repurchase (9) --- --- Exercise of employee stock options and debentures 1 1 2 ---------- ---------- ---------- Balance at end of period 358 366 365 ---------- ---------- ---------- ADDITIONAL PAID-IN CAPITAL: Balance at beginning of period 575,863 588,454 582,581 Dividends, 5% preference shares (361) (368) (400) Dividends, 8% preference shares (28,310) (2,693) --- Exercise of employee stock options and debentures 418 2,548 3,831 Conversion of 5% preference shares --- 297 1,004 Conversion of 8% preference shares 192 --- --- Transaction costs for issuance of 8% preference shares (4,620) (12,370) --- Stock repurchase (11,276) --- --- Other, net (2) (5) 1,438 ---------- ---------- ---------- Balance at end of period 531,904 575,863 588,454 ---------- ---------- ---------- TREASURY SHARES: Balance at beginning of period --- (3) (2) Retirement and other, net --- 3 (1) ---------- ---------- ---------- Balance at end of period --- --- (3) ---------- ---------- ---------- TOTAL OWNER SOURCES OF SHAREHOLDERS' EQUITY 903,031 711,018 596,327 ---------- ---------- ---------- NON-OWNER SOURCES OF SHAREHOLDERS' EQUITY: ACCUMULATED DEFICIT: Balance at beginning of period (485,085) (297,581) (288,685) Net earnings (loss) 47,557 $47,557 (187,504) $(187,504) (8,896) $(8,896) ---------- ---------- ---------- Balance at end of period (437,528) (485,085) (297,581) ---------- ---------- ---------- ACCUMULATED OTHER NON-OWNER CHANGES IN SHAREHOLDERS' EQUITY: Balance at beginning of period (2,126) (2,126) (2,128) Valuation reserve on marketable securities --- --- 2 Adjustment for minimum pension liability (325) --- --- -------- ---------- -------- Other non-owner changes in shareholders' equity (325) (325) --- --- 2 2 ---------- -------- ---------- ---------- ---------- -------- Non-owner changes in shareholders' equity $47,232 $(187,504) $(8,894) ======== ========== ======== Balance at end of period (2,451) (2,126) (2,126) ---------- ---------- ---------- TOTAL NON-OWNER SOURCES OF SHAREHOLDERS' EQUITY (439,979) (487,211) (299,707) ---------- ---------- ---------- TOTAL SHAREHOLDERS' EQUITY $ 463,052 $ 223,807 $ 296,620 ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements. TRITON ENERGY LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN TABLES IN THOUSANDS, EXCEPT FOR SHARE, PER SHARE AND PER BARREL DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL Triton Energy Limited ("Triton") is an international oil and gas exploration and production company. The term "Company" when used herein means Triton and its subsidiaries and other affiliates through which the Company conducts its business. The Company's principal properties, operations, and oil and gas reserves are located in Colombia, Malaysia-Thailand and Equatorial Guinea. The Company is exploring for oil and gas in these areas, as well as in southern Europe, Africa, and the Middle East. All sales are currently derived from oil and gas production in Colombia. Triton, a Cayman Islands company, was incorporated in 1995 to become the parent holding company of Triton Energy Corporation, a Delaware corporation ("TEC"). On March 25, 1996, the stockholders of TEC approved the merger of a wholly owned subsidiary of Triton with and into TEC (the "Reorganization"). Pursuant to the Reorganization, Triton became the parent holding company of TEC and each share of common stock, par value $1.00, and 5% preferred stock of TEC outstanding on March 25, 1996, was converted into one Triton ordinary share, par value $.01, and one 5% Triton preference share, respectively. The Reorganization has been accounted for as a combination of entities under common control. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Triton and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Investments in 20%- to 50%-owned affiliates which the Company exercises significant influence over operating and financial policies are accounted for using the equity method. Investments in less than 20%-owned affiliates are accounted for using the cost method. CASH EQUIVALENTS Cash equivalents are highly liquid investments purchased with an original maturity of three months or less. INVENTORIES Inventories consist principally of oil produced but not sold, stated at market value, and materials and supplies, stated at the lower of cost or market. PROPERTY AND EQUIPMENT The Company follows the full cost method of accounting for exploration and development of oil and gas reserves, whereby all acquisition, exploration and development costs are capitalized. Individual countries are designated as separate cost centers. All capitalized costs plus the undiscounted estimated future development costs of proved reserves are depleted using the unit-of-production method based on total proved reserves applicable to each country. A gain or loss is recognized on sales of oil and gas properties only when the sale involves significant reserves. Costs related to acquisition, holding and initial exploration of licenses in countries with no proved reserves are initially capitalized, including internal costs directly identified with acquisition, exploration and development activities. Costs related to production, general overhead or similar activities are expensed. The Company's exploration licenses are periodically assessed for impairment on a country-by-country basis. If the Company's investment in exploration licenses within a country where no proved reserves are assigned is deemed to be impaired, the licenses are written down to estimated recoverable value. If the Company abandons all exploration efforts in a country where no proved reserves are assigned, all acquisition and exploration costs associated with the country are expensed. Due to the unpredictable nature of exploration drilling activities, the amount and timing of impairment expense are difficult to predict with any certainty. The net capitalized costs of oil and gas properties for each cost center, less related deferred income taxes, cannot exceed the sum of (i) the estimated future net revenues from the properties, discounted at 10%; (ii) unevaluated costs not being amortized; and (iii) the lower of cost or estimated fair value of unproved properties being amortized; less (iv) income tax effects related to differences between the financial statement basis and tax basis of oil and gas properties. The estimated costs, net of salvage value, of dismantling facilities or projects with limited lives or facilities that are required to be dismantled by contract, regulation or law, and the estimated costs of restoration and reclamation associated with oil and gas operations are included in estimated future development costs as part of the amortizable base. Support equipment and facilities are depreciated using the unit-of-production method based on total reserves of the field related to the support equipment and facilities. Other property and equipment, which includes furniture and fixtures, vehicles and leasehold improvements, are depreciated principally on a straight-line basis over estimated useful lives ranging from 3 to 20 years. Repairs and maintenance are expensed as incurred, and renewals and improvements are capitalized. ENVIRONMENTAL MATTERS Environmental costs are expensed or capitalized depending on their future economic benefit. Costs that relate to an existing condition caused by past operations and have no future economic benefit are expensed. Liabilities for future expenditures of a noncapital nature are recorded when future environmental expenditures and/or remediation is deemed probable, and the costs can be reasonably estimated. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. INCOME TAXES Deferred tax liabilities or assets are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company's assets and liabilities using the enacted tax rates in effect at year end. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized. REVENUE RECOGNITION Cost reimbursements arising from carried interests granted by the Company are revenues to the extent the reimbursements are contingent upon and derived from production. Obligations arising from net profit interest conveyances are recorded as operating expenses when the obligation is incurred. FOREIGN CURRENCY TRANSLATION The U.S. dollar is the designated functional currency for all of the Company's foreign operations. The cumulative translation adjustment represents the cumulative effect of translating the balance sheet accounts of Triton Colombia, Inc. from the functional currency into U.S. dollars during the period when the Colombian peso was the functional currency. RISK MANAGEMENT Oil and natural gas sold by the Company are normally priced with reference to a defined benchmark, such as light, sweet crude oil traded on the New York Merchantile Exchange (West Texas Intermediate or "WTI"). Actual prices received vary from the benchmark depending on quality and location differentials. From time to time, it is the Company's policy to use financial market transactions, including swaps, collars and options, with creditworthy counterparties, primarily to reduce risk associated with the pricing of a portion of the oil and natural gas that it sells. The Company does not enter into financial market transactions for trading purposes. Gains or losses on financial market transactions that qualify for hedge accounting are recognized in oil and gas sales at the time of settlement of the underlying hedged transactions. Premiums paid for financial market contracts are capitalized and amortized as operating expenses over the contract period. Changes in the fair market value of financial market transactions that do not qualify for hedge accounting are reflected as noncash adjustments to other income (expense), net in the period the change occurs. Realized gains or losses on financial market transactions that do not qualify for hedge accounting are recorded in oil and gas sales. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," encourages, but does not require, the adoption of a fair value-based method of accounting for employee stock-based compensation transactions. The Company has elected to apply the provisions of Accounting Principles Board Opinion No. 25 ("Opinion 25"), "Accounting for Stock Issued to Employees," and related interpretations, in accounting for its stock-based compensation plans. Under Opinion 25, compensation cost is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant above the amount an employee must pay to acquire the stock. EARNINGS PER ORDINARY SHARE Basic earnings (loss) per ordinary share amounts were computed by dividing net earnings (loss) after deduction of dividends on preference shares by the weighted average number of ordinary shares outstanding during the period. Diluted earnings (loss) per ordinary share assumes the conversion of all securities that are exercisable or convertible into ordinary shares that would dilute the basic earnings per ordinary share during the period. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," established standards for the reporting and display of comprehensive income and its components, specifically net income and all other changes in shareholders' equity except those resulting from investments by and distributions to shareholders. The Company, which adopted the standard beginning January 1, 1998, has elected to display comprehensive income (or non-owner changes in shareholders' equity) in the Consolidated Statement of Shareholders' Equity. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires enterprises to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The requisite accounting for changes in the fair value of a derivative will depend on the intended use of the derivative and the resulting designation. The Company must adopt SFAS 133 effective January 1, 2001. Based on the Company's outstanding derivatives contracts, the Company believes that the impact of adopting this standard would not have a material adverse effect on the Company's operations or consolidated financial condition. However, no assurances can be given with regard to the level of the Company's derivatives activities at the time SFAS 133 is adopted or the resulting effect on the Company's operations or consolidated financial condition. THE USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS 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, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. RECLASSIFICATIONS Certain previously reported financial information has been reclassified to conform to the current period's presentation. 2. ASSET DISPOSITIONS In December 1998, the Company sold its Bangladesh subsidiary for cash proceeds of $4.5 million and recognized a gain of $4.5 million in gain on sale of oil and gas assets. In July 1998, the Company and Atlantic Richfield Company ("ARCO") signed an agreement providing financing for the development of the Company's gas reserves on Block A-18 of the Malaysia-Thailand Joint Development Area. Under terms of the agreement, consummated in August 1998, the Company sold to a subsidiary of ARCO for $150 million one-half of the shares of the subsidiary through which the Company owned its 50% share of Block A-18. The Company received net proceeds of $142 million and recorded a gain of $63.2 million in gain on the sale of oil and gas assets. After the sale, which resulted in a 50% ownership in the previously wholly owned subsidiary, the Company's remaining ownership is accounted for using the equity method. This investment in Block A-18 is presented in investment in affiliate at December 31, 1999 and 1998. The agreements also require ARCO to pay the future exploration and development costs attributable to the Company's and ARCO's collective interest in Block A-18, up to $377 million or until first production from a gas field, after which the Company and ARCO would each pay 50% of such costs. There can be no assurance that the Company's and ARCO's collective share of the cost of developing the project will not exceed $377 million. Additionally, the agreements require ARCO to pay the Company an additional $65 million each at July 1, 2002, and July 1, 2005, if certain specific development objectives are met by such dates, or $40 million each if the objectives are met within one year thereafter. There can be no assurance that the Company will receive any incentive payments. The agreements provide that the Company will recover its investment in recoverable costs in the project, approximately $100 million, and that ARCO will recover its investment in recoverable costs, on a first-in, first-out basis from the cost-recovery portion of future production. In February 1998, the Company sold Triton Pipeline Colombia, Inc. ("TPC"), a wholly owned subsidiary that held the Company's 9.6% equity interest in the Colombian pipeline company, Oleoducto Central S.A. ("OCENSA"), to an unrelated third party (the "Purchaser") for $100 million. Net proceeds were approximately $97.7 million. The sale resulted in a gain of $50.2 million. In conjunction with the sale of TPC, the Company entered into an equity swap with a creditworthy financial institution (the "Counterparty"). The equity swap has a notional amount of $97 million and requires the Company to make quarterly floating LIBOR-based payments on the notional amount to the Counterparty. In exchange, the Counterparty is required to make payments to the Company equivalent to 97% of the dividends TPC receives in respect of its equity interest in OCENSA. The equity swap is carried in the Company's financial statements at fair value during its term, which, as amended, will expire April 14, 2000. The value of the equity swap in the Company's financial statements is equal to 97% of the estimated fair value of the shares of OCENSA owned by TPC. Because there is no public market for the shares of OCENSA, the Company estimates their value using a discounted cash flow model applied to the distributions expected to be paid in respect of the OCENSA shares. The discount rate applied to the estimated cash flows from the OCENSA shares is based on a combination of current market rates of interest, a credit spread for OCENSA's debt, and a spread to reflect the preferred stock nature of the OCENSA shares. During the years ended December 31, 1999 and 1998, the Company recorded an expense of $6.9 million and $3.3 million, respectively, in other income (expense), net, related to the net payments made under the equity swap and its change in fair value. Net payments made (or received) under the equity swap, and any fluctuations in the fair value of the equity swap, in future periods, will affect other income in such periods. There can be no assurance that changes in interest rates, or in other factors that affect the value of the OCENSA shares and/or the equity swap, will not have a material adverse effect on the carrying value of the equity swap. Upon the expiration of the equity swap in April 2000, the Company expects that the Purchaser will sell the TPC shares. Under the terms of the equity swap with the Counterparty, upon any sale by the Purchaser of the TPC shares, the Company will receive from the Counterparty, or pay to the Counterparty, an amount equal to the excess or deficiency, as applicable, of the difference between 97% of the net proceeds from the Purchaser's sale of the TPC shares and the notional amount of $97 million. For example, if the Purchaser sold the TPC shares for an amount equal to the value the Company has estimated for purposes of preparing its balance sheet as of December 31, 1999, the Company would have to make a payment to the Counterparty under the equity swap of approximately $8.4 million. There can be no assurance that the value the Purchaser may realize in any sale of the TPC shares will equal the value of the shares estimated by the Company for purposes of valuing the equity swap. The Company has no right or obligation to repurchase the TPC shares at any time, but the Company is not prohibited from offering to purchase the shares if the Purchaser offers to sell them. In June 1997, the Company sold its Argentine subsidiary for cash proceeds of $4.1 million and recognized a gain of $4.1 million in gain on sale of oil and gas assets. 3. WRITEDOWN OF ASSETS Writedown of assets in 1998 is summarized as follows:
YEAR ENDED DECEMBER 31, 1998 ----------- Evaluated oil and gas properties (SEC ceiling test) $ 241,005 Unevaluated oil and gas properties 73,890 Other assets 13,735 ----------- $ 328,630 ===========
In June and December 1998, the carrying amount of the Company's evaluated oil and gas properties in Colombia was written down by $105.4 million ($68.5 million, net of tax) and $135.6 million ($115.9 million, net of tax), respectively, through application of the full cost ceiling limitation as prescribed by the Securities and Exchange Commission ("SEC"), principally as a result of a decline in oil prices. No adjustments were made to the Company's reserves in Colombia as a result of the decline in prices. The SEC ceiling test was calculated using the June 30, and December 31, 1998, WTI oil prices of $14.18 per barrel and $12.05 per barrel, respectively, that, after a differential for Cusiana crude delivered at the port of Covenas in Colombia, resulted in a net price of approximately $13 per barrel and $11 per barrel, respectively. In conjunction with the plan to restructure operations and scale back exploration-related expenditures, the Company assessed its investments in exploration licenses and determined that certain investments were impaired. As a result, unevaluated oil and gas properties and other assets totaling $77.3 million ($72.6 million, net of tax) were expensed in June 1998. The writedown included $27.2 million and $22.5 million related to exploration activity in Guatemala and China, respectively. The remaining writedowns related to the Company's exploration projects in certain other areas of the world. During 1998, the Company evaluated the recoverability of its approximate 6.6% investment in a Colombian pipeline company, Oleoducto de Colombia S.A. ("ODC"), which is accounted for under the cost method. Based on an analysis of the future cash flows expected to be received from ODC, the Company expensed the carrying value of its investment totaling $10.3 million. 4. SPECIAL CHARGES In September 1999, the Company recognized special charges totaling $2.4 million related to the transfer of its working interest in Ecuador to a third party. In July 1998, the Company commenced a plan to restructure the Company's operations, reduce overhead costs and substantially scale back exploration-related expenditures. The plan contemplated the closing of foreign offices in four countries, the elimination of approximately 105 positions, or 41% of the worldwide workforce, and the relinquishment or other disposal of several exploration licenses. As a result of the restructuring, the Company recognized special charges of $15 million during the third quarter of 1998 and $3.3 million during the fourth quarter of 1998 for a total of $18.3 million. Of the $18.3 million in special charges, $14.5 million related to the reduction in workforce, and represented the estimated costs for severance, benefit continuation and outplacement costs, which will be paid over a period of up to two years according to the severance formula. Since July 1998, the Company has paid $13.1 million in severance, benefit continuation and outplacement costs. A total of $2.1 million of special charges related to the closing of foreign offices, and represented the estimated costs of terminating office leases and the write-off of related assets. The remaining special charges of $1.7 million primarily related to the write-off of other surplus fixed assets resulting from the reduction in workforce. At December 31, 1999, all of the positions had been eliminated, all designated foreign offices had closed and all licenses had been relinquished, sold or their commitments renegotiated. During the fourth quarter of 1999, the Company reversed $.7 million of the accrual associated with the completion of restructuring activities. The remaining liability related to the restructuring activities undertaken in 1998 was $1 million at December 31, 1999. In March 1999, the Company accrued special charges of $1.2 million related to an additional 15% reduction in the number of employees resulting from the Company's continuing efforts to reduce costs. The special charges consisted of $1 million for severance, benefit continuation and outplacement costs and $.2 million related to the write-off of surplus fixed assets. Since March 1999, the Company has paid $.9 million in severance, benefit continuation and outplacement costs. At December 31, 1999, the remaining liability related to the restructuring activities undertaken in 1999 was $.1 million. 5. OTHER RECEIVABLES Other receivables consisted of the following:
DECEMBER 31, ---------------- 1999 1998 ------- ------- Receivables from and advances to partners and others $10,684 $ 2,007 Receivable from financial market transactions 4,861 180 Receivable from insurance 2,300 7,800 Receivable from the forward oil sale 1,081 31,932 Other 4,888 5,837 ------- ------- $23,814 $47,756 ======= =======
6. PROPERTY AND EQUIPMENT Property and equipment, at cost, are summarized as follows:
DECEMBER 31, ------------------ 1999 1998 -------- -------- Oil and gas properties, full cost method: Evaluated $560,240 $543,514 Unevaluated 78,527 70,836 Support equipment and facilities 303,953 289,659 Other 17,535 18,790 -------- -------- 960,255 922,799 Less accumulated depreciation and depletion 436,103 451,892 -------- -------- $524,152 $470,907 ======== ========
The Company capitalized general and administrative expenses related to exploration and development activities of $6.9 million, $20.6 million and $32.4 million in the years ended December 31, 1999, 1998 and 1997, respectively. 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities are summarized as follows:
DECEMBER 31, ---------------- 1999 1998 ------- ------- Colombian income taxes $14,471 $ --- Accrued exploration and development 9,762 3,774 Equity swap 8,435 --- Accrued interest payable 7,864 8,160 Taxes other than income 7,713 2,970 Litigation and environmental matters 3,872 2,064 Accrued special charges 1,246 7,869 Accounts payable, principally trade 1,242 9,136 Dividends payable --- 2,693 Other 7,971 8,307 ------- ------- $62,576 $44,973 ======= =======
8. DEFERRED INCOME AND OTHER In May 1995, the Company sold 10.4 million barrels of oil from the Cusiana and Cupiagua fields in Colombia in a forward oil sale. Under the terms of the sale, the Company received approximately $87 million of the approximately $124 million net proceeds. In 1999, the Company received substantially all of the remaining proceeds totaling approximately $31.9 million. The Company has recorded the net proceeds as deferred income and recognizes such revenue when the barrels of oil are delivered during the five-year period that began in June 1995. Under the terms of the agreement, the Company must deliver to the buyer 58,425 barrels per month through March 1997 and 254,136 barrels per month from April 1997 to March 2000. At December 31, 1999 and 1998, $8.8 million and $35.3 million, respectively, were recorded as deferred income and included in current liabilities. During 1999, the Company acquired the Colombian entity of its former partner in the El Pinal field. In addition to the working interest in the El Pinal field, the acquired entity has tax basis and net operating loss carryforwards ("NOLs") totaling approximately $40 million, which the Company expects to utilize in 2000. At December 31, 1999, the tax affected amount of the tax basis and NOLs ($14.2 million) was included in current assets as a deferred tax asset. In addition, the Company recorded deferred income of $10.6 million, representing the difference between the value of the deferred tax asset and the purchase price. During 2000, the deferred tax asset and the deferred income will be reduced as the tax basis and NOLs are utilized. 9. DEBT A summary of long-term debt follows:
DECEMBER 31, ------------------ 1999 1998 -------- -------- Senior Notes due 2005 $200,000 $200,000 Senior Notes due 2002 199,947 199,924 Term credit facility maturing 2001 13,540 22,568 Revolving credit facility maturing 1999 --- 5,000 -------- -------- 413,487 427,492 Less current maturities 9,027 14,027 -------- -------- $404,460 $413,465 ======== ========
In April 1997, the Company issued $400 million aggregate face value of senior indebtedness to refinance other indebtedness. The senior indebtedness consisted of $200 million face amount of 8 3/4% Senior Notes due April 15, 2002 (the "2002 Notes"), at 99.942% of the principal amount (resulting in $199.9 million aggregate net proceeds) and $200 million face amount of 9 1/4% Senior Notes dueApril 15, 2005 (the "2005 Notes" and, together with the 2002 Notes, the "SeniorNotes"), at 100% of the principal amount, for total aggregate net proceeds of$399.9 million before deducting transaction costs of approximately $1 million. Interest on the Senior Notes is payable semi-annually on April 15 and October 15. The Senior Notes are redeemable at any time at the option of the Company, in whole or in part, and contain certain covenants limiting the incurrence of certain liens, sale/leaseback transactions, and mergers and consolidations. In November 1995, a subsidiary signed an unsecured term credit facility with a bank supported by a guarantee issued by the Export-Import Bank of the United States ("EXIM") for $45 million, which matures in January 2001. Principal and interest payments are due semi-annually on January 15 and July 15 and borrowings bear interest at LIBOR plus .25%, adjusted on a semi-annual basis. At December 31, 1999, the Company had outstanding borrowings of $13.5 million under the facility. In February 2000, the Company entered into an unsecured two-year revolving credit facility with a group of banks, which matures in February 2002. The credit facility gives the Company the right to borrow from time to time up to the amount of the borrowing base determined by the banks, not to exceed $150 million. As of February 2000, the borrowing base was $150 million. The credit facility contains various restrictive covenants, including covenants that require the Company to maintain a ratio of earnings before interest, depreciation, depletion, amortization and income taxes to net interest expense of at least 2.5 to 1, and that prohibit the Company from permitting net debt to exceed the product of 3.75 times the Company's earnings before interest, depreciation, depletion, amortization and income taxes, in each case, on a trailing four quarters basis. The Company capitalizes interest on qualifying assets, principally unevaluated oil and gas properties, major development projects in progress and investments accounted for by the equity method while the investee has activities in progress necessary to commence its principle operations. Capitalized interest amounted to $14.5 million, $23.2 million and $25.8 million in the years ended December 31, 1999, 1998 and 1997, respectively. The Company amortizes debt issue costs over the life of the borrowing using the interest method. Amortization related to the Company's debt issue costs was $.5 million, $2.9 million and $2 million in the years ended December 31, 1999, 1998 and 1997, respectively. The aggregate maturities of long-term debt for the five years during the period ending December 31, 2004, are as follows: 2000 -- $9 million; 2001 -- $4.5 million; 2002 -- $199.9 million; 2003 -- nil; and 2004 -- nil. 10. INCOME TAXES The components of earnings (loss) from continuing operations before income taxes and extraordinary item were as follows:
YEAR ENDED DECEMBER 31, -------------------------------------------- 1999 1998 1997 --------- ---------- --------- Cayman Islands $(35,907) $ 82,995 $(12,969) United States (7,810) (24,003) (31,694) Foreign - other 119,894 (297,601) 61,559 --------- ---------- --------- $ 76,177 $(238,609) $ 16,896 ========= ========== =========
Pursuant to the Reorganization in March 1996, Triton, a Cayman Islands company, became the parent holding company of TEC, a Delaware corporation. As a result, the Company's corporate domicile became the Cayman Islands. The components of the provision for income taxes on continuing operations were as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 -------- --------- -------- Current: Cayman Islands $ --- $ --- $ --- United States --- --- (7) Foreign - other 20,793 4,487 3,230 -------- --------- -------- Total current 20,793 4,487 3,223 -------- --------- -------- Deferred: Cayman Islands --- --- --- United States (1,410) 1,457 (7,929) Foreign - other 9,237 (57,049) 16,007 -------- --------- -------- Total deferred 7,827 (55,592) 8,078 -------- --------- -------- Total $28,620 $(51,105) $11,301 ======== ========= ========
A reconciliation of the differences between the Company's applicable statutory tax rate and the Company's effective income tax rate follows:
YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------- --------- Tax provision at statutory tax rate 0.0 % 0.0 % 0.0 % Increase (decrease) resulting from: Net change in valuation allowance (15.7)% 3.9 % 263.0 % Foreign items without tax benefit 18.9 % (34.9)% 77.8 % Income subject to tax in excess of statutory rate 36.6 % 32.6 % 36.9 % Current year change in NOL/credit carryforwards (7.6)% (4.8)% (356.7)% Temporary differences: Oil and gas basis adjustments 3.3 % 25.7 % 32.5 % Reimbursement of pre-commerciality costs 2.3 % (1.1)% 13.2 % Other (0.2)% --- % 0.2 % ------- ------- -------- 37.6% 21.4 % 66.9 % ======= ======= =========
The components of the net deferred tax asset and liability were as follows:
DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------------------ ------------------------------- OTHER OTHER U.S. COLOMBIA FOREIGN U.S. COLOMBIA FOREIGN --------- -------- --------- --------- --------- --------- Deferred tax asset: Net operating loss carryforwards $157,558 $20,090 $ 9,832 $145,475 $ 7,992 $ 7,219 Depreciable/depletable property 1,748 8,778 --- 1,252 27,730 --- Credit carryforwards 2,048 --- --- 1,731 6,813 --- Reserves 819 --- --- 2,502 --- --- Other 176 --- --- 1,505 --- --- --------- -------- --------- --------- --------- --------- Gross deferred tax asset 162,349 28,868 9,832 152,465 42,535 7,219 Valuation allowances (72,908) (8,778) --- (65,881) (27,730) --- --------- -------- --------- --------- --------- --------- Net deferred tax asset 89,441 20,090 9,832 86,584 14,805 7,219 --------- -------- --------- --------- --------- --------- Deferred tax liability: Depreciable/depletable property --- --- (16,509) --- --- (10,454) Other (1,213) --- --- (473) --- --- --------- -------- --------- --------- --------- --------- Net deferred tax asset (liability) 88,228 20,090 (6,677) 86,111 14,805 (3,235) Less current deferred tax asset (liability) --- 20,090 --- --- --- --- --------- -------- --------- --------- --------- --------- Noncurrent deferred tax asset (liability) $ 88,228 $ --- $ (6,677) $ 86,111 $ 14,805 $ (3,235) ========= ======== ========= ========= ========= =========
At December 31, 1999, the Company had NOLs and depletion carryforwards for U.S. tax purposes of $450.2 million and $20.3 million, respectively. The U.S. NOLs expire from 2000 through 2020 as follows:
NOLS EXPIRING BY YEAR --------- May 2000 $ 19,571 May 2001 30,389 May 2002 22,702 May 2003 20,566 May 2004 8,263 May 2005 - May 2020 348,675 --------- $ 450,166 =========
At December 31, 1999, the Company's Colombian operations and other foreign operations had NOLs and other credit carryforwards totaling $57.4 million and $40.7 million, respectively. The NOLs expire from 2001 through 2004. The deferred tax valuation allowance of $81.7 million at December 31, 1999, is primarily attributable to management's assessment of the utilization of NOLs in the U.S., the expectation that other tax credits will expire without being utilized, and certain temporary differences will reverse without a benefit to the Company. The minimum amount of future taxable income necessary to realize the deferred tax asset is approximately $252 million and $57 million in the U.S. and Colombia, respectively. Although there can be no assurance the Company will achieve such levels of income, management believes the deferred tax asset will be realized through income from its operations. If certain changes in the Company's ownership should occur, there would be an annual limitation on the amount of U.S. NOLs that can be utilized. To the extent a change in ownership does occur, the limitation is not expected to materially impact the utilization of such carryforwards. 11. EMPLOYEE BENEFITS PENSION PLANS The Company has a defined benefit pension plan covering substantially all employees in the United States. The benefits are based on years of service and the employee's final average monthly compensation. Contributions are intended to provide for benefits attributed to past and future services. The Company also has a Supplemental Executive Retirement Plan ("SERP") that is unfunded and provides supplemental pension benefits to a select group of management and key employees. The funding status of the plans follows:
DECEMBER 31, ---------------------------------------- 1999 1998 ------------------- ------------------- DEFINED DEFINED BENEFIT SERP BENEFIT SERP PLAN PLAN PLAN PLAN --------- -------- --------- -------- Change in benefit obligation: Benefit obligation at beginning of year $ 6,435 $ 6,579 $ 6,008 $ 6,621 Service cost 392 537 560 799 Interest cost 421 435 438 607 Amendments --- --- --- 434 Actuarial loss/(gain) (750) 1,465 472 913 Benefits paid (531) (1,385) (377) (1,617) Curtailment gain --- --- (666) (1,178) --------- -------- --------- -------- Benefit obligation at end of year 5,967 7,631 6,435 6,579 --------- -------- --------- -------- Change in plan assets: Fair value of plan assets at beginning of year 7,068 --- 5,531 --- Actual return on plan assets 1,971 --- 1,446 --- Company contribution 480 1,385 468 1,617 Benefits paid (531) (1,385) (377) (1,617) --------- -------- --------- -------- Fair value of plan assets at end of year 8,988 --- 7,068 --- --------- -------- --------- -------- Reconciliation: Funded status 3,021 (7,631) 633 (6,579) Unrecognized actuarial (gain)/loss (2,999) 1,945 (908) 480 Unrecognized transition (asset)/obligation (6) 527 (8) 695 Unrecognized prior service cost 317 226 373 253 --------- -------- --------- -------- Prepaid/(accrued) pension cost 333 (4,933) 90 (5,151) --------- -------- --------- -------- Adjustment for minimum liability --- (1,255) --- --- --------- -------- --------- -------- Adjusted prepaid/(accrued) pension cost $ 333 $(6,188) $ 90 $(5,151) ========= ======== ========= ========
The adjustment required to recognize the minimum liability for the SERP plan at December 31, 1999, resulted in the recognition of $.8 million as an intangible asset and $.5 million ($.3 million, net of tax) as a charge to accumulated other non-owner changes in shareholder's equity. A summary of the components of pension expense follows:
YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------- ------- ------- Components of net periodic pension cost: Service cost $ 929 $1,359 $ 832 Interest cost 856 1,045 783 Expected return on plan assets (618) (481) (416) Recognized net actuarial loss/(gain) (12) --- --- Amortization of transition obligation 166 591 166 Amortization of prior service cost 83 538 67 ------- ------- ------- Net periodic pension cost $1,404 $3,052 $1,432 ======= ======= =======
The projected benefit obligations at December 31, 1999 and 1998, assume a discount rate of 7.75% and 6.75%, respectively, and a rate of increase in compensation expense of 5%. The expected long-term rate of return on assets is 9% for the defined benefit plan. During 1998, work-force reductions resulted in the recognition of additional prior service cost of $.2 million each for the defined benefit plan and the SERP plan and additional transition obligation of $.4 million for the SERP plan. EMPLOYEE STOCK OWNERSHIP PLAN Effective January 1, 1994, the Company amended and restated the employee stock ownership plan to form a 401(k) plan (the "Plan"). The Company recognizes expense based on actual amounts contributed to the Plan. The cost recognized for the Plan was $.2 million, $.6 million and $.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. 12. SHAREHOLDERS' EQUITY 5% CONVERTIBLE PREFERENCE SHARES In connection with the acquisition of the minority interest in Triton Europe in 1994, the Company designated a series of 550,000 preferred shares (522,460 shares issued) as 5% Preferred Stock, no par value, with a stated value of $34.41 per share. Pursuant to the Reorganization, Triton converted each share of 5% Preferred Stock into one 5% Convertible Preference Share, par value $.01. Each share of the Company's 5% Convertible Preference Shares is convertible into one Triton ordinary share and bears a cash dividend, which has priority over dividends on Triton's ordinary shares, equal to 5% per annum on the redemption price of $34.41 per share, payable semi-annually on March 30 and September 30 of each year. The 5% Convertible Preference Shares have priority over Triton ordinary shares upon liquidation, and may be redeemed at Triton's option at any time on or after March 30, 1998, for cash equal to the redemption price. Any shares that remain outstanding on March 30, 2004, must be redeemed at the redemption price, either for cash or, at the Company's option, for Triton ordinary shares. At December 31, 1999 and 1998, there were 209,639 5% Convertible Preference Shares outstanding and at December 31, 1997, there were 218,285 shares outstanding. 8% CONVERTIBLE PREFERENCE SHARES In August 1998, the Company and HM4 Triton, L.P., an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), entered into a stock purchase agreement (the "Stock Purchase Agreement") that provided for a $350 million equity investment in the Company. The investment was effected in two stages. At the closing of the first stage in September 1998 (the "First Closing"), the Company issued to HM4 Triton, L.P. 1,822,500 shares of 8% Convertible Preference Shares for $70 per share (for proceeds of $116.8 million, net of transaction costs). Pursuant to the Stock Purchase Agreement, the second stage was effected through a rights offering for 3,177,500 shares of 8% Convertible Preference Shares at $70 per share, with HM4 Triton, L.P. being obligated to purchase any shares not subscribed. At the closing of the second stage, which occurred on January 4, 1999 (the "Second Closing"), the Company issued an additional 3,177,500 8% Convertible Preference Shares for proceeds totaling $217.8 million, net of closing costs (of which, HM4 Triton, L.P. purchased 3,114,863 shares). Each 8% Convertible Preference Share is convertible at any time at the option of the holder into four ordinary shares of the Company (subject to certain antidilution protections). Holders of 8% Convertible Preference Shares are entitled to receive, when and if declared by the Board of Directors, cumulative dividends at a rate per annum equal to 8% of the liquidation preference of $70 per share, payable for each semi-annual period ending June 30 and December 30 of each year. At the Company's option, dividends may be paid in cash or by the issuance of additional whole shares of 8% Convertible Preference Shares. If a dividend is to be paid in additional shares, the number of additional shares to be issued in payment of the dividend will be determined by dividing the amount of the dividend by $70, with amounts in respect of any fractional shares to be paid in cash. The first dividend period was the period from January 4, 1999, to June 30, 1999. The Company's Board of Directors elected to pay the dividend for that period in additional shares resulting in the issuance of 196,388 8% Convertible Preference Shares. The dividend for the period July 1, 1999 to December 31, 1999 was paid in cash. The declaration of a dividend in cash or additional shares for any period should not be considered an indication as to whether the Board will declare dividends in cash or additional shares in future periods. Holders of 8% Convertible Preference Shares are entitled to vote with the holders of ordinary shares on all matters submitted to the shareholders of the Company for a vote, with each 8% Convertible Preference Share entitling its holder to a number of votes equal to the number of ordinary shares into which it could be converted at that time. At December 31, 1999 and 1998, 5,193,643 and 1,822,500 8% Convertible Preference Shares were outstanding, respectively. ORDINARY SHARES Changes in issued ordinary shares were as follows:
YEAR ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 ----------- ----------- ---------- Balance at beginning of year 36,643,478 36,541,064 36,342,181 Share repurchase (948,300) --- --- Issuances under stock plans 49,367 46,648 35,961 Conversion of 8% preference shares 10,980 --- --- Exercise of employee stock options 8,213 47,238 83,736 Conversion of 5% preference shares --- 8,646 29,184 Other, net (10) (118) 50,002 ----------- ----------- ---------- Balance at end of year 35,763,728 36,643,478 36,541,064 =========== =========== ==========
Changes in ordinary shares held in treasury were as follows:
YEAR ENDED DECEMBER 31, ----------------------- 1998 1997 ------ ------ Balance at beginning of year 73 40 Purchase of treasury shares 64 33 Retirement of treasury shares (137) --- ----- --- Balance at end of year --- 73 ====== ======
SHARE REPURCHASE In April 1999, the Company's Board of Directors authorized a share repurchase program enabling the Company to repurchase up to ten percent of the Company's then outstanding 36.7 million ordinary shares. Purchases of ordinary shares by the Company began in April and may be made from time to time in the open market or through privately negotiated transactions at prevailing market prices depending on market conditions. The Company has no obligation to repurchase any of its outstanding shares and may discontinue the share repurchase program at management's discretion. As of December 31, 1999, the Company had purchased 948,300 ordinary shares for $11.3 million. The Company canceled and returned the repurchased ordinary shares to the status of authorized but unissued shares. The Company's revolving credit facility entered into in February 2000, generally does not permit the Company to repurchase its ordinary shares without the bank's consent. SHAREHOLDER RIGHTS PLAN The Company has adopted a Shareholder Rights Plan pursuant to which preference share rights attach to all ordinary shares at the rate of one right for each ordinary share. Each right entitles the registered holder to purchase from the Company one one-thousandth of a Series A Junior Participating Preference Share, par value $.01 per share ("Junior Preference Shares"), of the Company at a price of $120 per one one-thousandth of a share of such Junior Preference Shares, subject to adjustment. Generally, the rights only become distributable 10 days following public announcement that a person has acquired beneficial ownership of 15% or more of Triton's ordinary shares or 10 business days following commencement of a tender offer or exchange offer for 15% or more of the outstanding ordinary shares; provided that, pursuant to the terms of the plan, any acquisition of Triton shares by HM4 Triton, L.P. or its affiliates, including Hicks, Muse, Tate & Furst Incorporated, will not result in the distribution of rights unless and until HM4 Triton, L.P.'s ownership of Triton shares is reduced below certain levels. If, among other events, any person becomes the beneficial owner of 15% or more of Triton's ordinary shares (except as provided with respect to HM4 Triton, L.P.), each right not owned by such person generally becomes the right to purchase a number of ordinary shares of the Company equal to the number obtained by dividing the right's exercise price (currently $120) by 50% of the market price of the ordinary shares on the date of the first occurrence. In addition, if the Company is subsequently merged or certain other extraordinary business transactions are consummated, each right generally becomes a right to purchase a number of shares of common stock of the acquiring person equal to the number obtained by dividing the right's exercise price by 50% of the market price of the common stock on the date of the first occurrence. Under certain circumstances, the Company's directors may determine that a tender offer or merger is fair to all shareholders and prevent the rights from being exercised. At any time after a person or group acquires 15% or more of the ordinary shares outstanding (other than with respect to HM4 Triton, L.P.) and prior to the acquisition by such person or group of 50% or more of the outstanding ordinary shares or the occurrence of an event described in the prior paragraph, the Board of Directors of the Company may exchange the rights (other than rights owned by such person or group which will become void), in whole or in part, at an exchange ratio of one ordinary share, or one one-thousandth of a Junior Preference Share, per right (subject to adjustment). The Company has the ability to amend the rights (except the redemption price) in any manner prior to the public announcement that a 15% position has been acquired or a tender offer has been commenced. The Company will be entitled to redeem the rights at $0.01 a right at any time prior to the time that a 15% position has been acquired. The rights will expire on May 22, 2005, unless earlier redeemed by the Company. 13. STOCK COMPENSATION PLANS STOCK OPTION PLANS Options to purchase ordinary shares of the Company may be granted to officers and employees under various stock option plans. The exercise price of each option is equal to or greater than the market price of the Company's ordinary shares on the date of grant. Grants generally become exercisable in 25% or 33% cumulative annual increments beginning one year from the date of issuance and generally expire during a period from 5 to 10 years after the date of grant, depending on terms of the grant. In addition, each non-employee director receives an option to purchase 15,000 shares each year. These grants become exercisable at the date of the grant and expire at the end of 10 years. At December 31, 1999 and 1998, shares available for grant were 1,019,021 and 2,521,133, respectively. A summary of the status of the Company's stock option plans is presented below:
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 -------------------- --------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ----------- ------- ------------ ------- ---------- ------- Outstanding at beginning of year 4,057,207 $26.51 4,449,435 $39.05 3,854,046 $38.81 Granted 2,150,000 14.03 2,894,603 20.56 744,250 39.99 Exercised (8,213) 10.57 (47,238) 29.30 (83,736) 30.76 Canceled (351,138) 29.24 (3,239,593) 38.39 (65,125) 46.09 ----------- ------------ ----------- Outstanding at end of year 5,847,856 21.78 4,057,207 26.51 4,449,435 39.05 =========== ============ =========== Options exercisable at year-end 3,121,601 2,804,584 2,728,254 Weighted average fair value of options: Granted at market prices $ 2.71 $ 6.12 $ 16.37 Granted at greater than market prices 4.93 2.84 ---
On December 2, 1998, the Compensation Committee approved the grant of new stock options totaling 440,103 shares with an exercise price of $14.50 to substantially all of its employees. Each participating employee was granted options in an amount equal to one-half of any options then held by the employees with an exercise price greater than $30.00 per share and the options with an exercise price greater than $30.00 per share expired. The following table summarizes information about stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------- ------------------------- WEIGHTED RANGE AVERAGE WEIGHTED WEIGHTED OF NUMBER REMAINING AVERAGE NUMBER AVERAGE EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE PRICES DEC. 31, 1999 LIFE PRICE DEC. 31, 1999 PRICE - -------------- -------------- ----------- --------- -------------- --------- $ 6.94 - 14.50 2,904,852 4.9 years $ 14.10 657,773 $ 12.75 16.81 - 29.50 1,607,932 3.9 years 20.52 1,150,006 21.64 31.75 - 39.63 667,072 2.4 years 34.10 667,072 34.10 40.25 - 52.25 668,000 3.6 years 45.86 646,750 46.04 -------------- -------------- 5,847,856 3,121,601 ============== ==============
EMPLOYEE STOCK PURCHASE PLAN The Company has an employee stock purchase plan that provides for the award of ordinary shares to officers and employees. Under the terms of the plan, employees can choose each semi-annual period to have up to 15% of their annual gross or base compensation withheld to purchase the Company's ordinary shares. The purchase price of the stock is 85% of the lower of its beginning of period or end of period market price. Under the plan, the Company sold 49,367 shares and 46,648 shares to employees for the years ended December 31, 1999 and 1998, respectively. FAIR VALUE OF STOCK COMPENSATION The Company applies Opinion 25 in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans and stock purchase plan. Had the Company elected to recognize compensation expense consistent with the fair value-based methodology in SFAS 123, the Company's net income (loss) and earnings (loss) per share would have been as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 ------- ---------- --------- Net earnings (loss) applicable to ordinary shares: As reported $18,886 $(190,565) $ (9,296) Pro forma 12,579 (200,147) (16,802) Basic earnings (loss) per ordinary share: As reported $ 0.52 $ (5.21) $ (0.26) Pro forma 0.35 (5.47) (0.46) Diluted earnings (loss) per ordinary share: As reported $ 0.52 $ (5.21) $ (0.25) Pro forma 0.35 (5.47) (0.46)
The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999, 1998 and 1997: dividend yield of 0%; expected volatility of approximately 54%, 40% and 26%, respectively; risk-free interest rates of approximately 6%, 5% and 6%, respectively; and an expected life of approximately three to seven years. STOCK APPRECIATION RIGHTS PLAN The Company had a stock appreciation rights ("SARs") plan which granted SARs to non-employee directors of the Company. Upon exercise, SARs allow the holder to receive the difference between the SARs' exercise price and the fair market value of the ordinary shares covered by SARs on the exercise date and expire at the earlier of 10 years or a date based on the termination of the holder's membership on the board of directors. At December 31, 1999, SARs covering 20,000 ordinary shares, with an exercise price of $8.00 per share, were outstanding. 14. FAIR VALUE OF FINANCIAL INSTRUMENTS, RISK MANAGEMENT AND CREDIT RISK CONCENTRATIONS FAIR VALUE OF FINANCIAL INSTRUMENTS At December 31, 1999 and 1998, the Company's financial instruments included cash and equivalents, short-term receivables, long-term receivables, short-term and long-term debt, and financial market transactions. The fair value of cash, cash equivalents, short-term receivables and short-term debt approximated carrying values because of the short maturities of these instruments. The fair values of the Company's long-term receivables and financial market transactions, based on broker quotes and discounted cash flows, approximated the carrying values. The estimated fair value of long-term debt, based on quoted market prices and market data for similar instruments, was $416 million (carrying value - $413 million) and $397 million (carrying value - $428 million) at December 31, 1999 and 1998, respectively. RISK MANAGEMENT Oil and natural gas sold by the Company are normally priced with reference to a defined benchmark, such as light, sweet crude oil traded on the New York Mercantile Exchange (WTI). Actual prices received vary from the benchmark depending on quality and location differentials. From time to time, it is the Company's policy to use financial market transactions, including swaps, collars and options, with creditworthy counterparties primarily to reduce risk associated with the pricing of a portion of the oil and natural gas that it sells. The policy is structured to underpin the Company's planned revenues and results of operations. The Company does not enter into financial market transactions for trading purposes. There can be no assurance that the use of financial market transactions will not result in losses. During the years ended December 31, 1999 and 1997, markets provided the Company the opportunity to realize WTI benchmark oil prices on average $6.37 per barrel and $2.35 per barrel, respectively, above the WTI benchmark oil price the Company set as part of its annual plan for the period. During the year ended December 31, 1998, the Company did not have any outstanding financial market transactions to hedge against oil price fluctuations. As a result of financial and commodity market transactions settled during the years ended December 31, 1999 and 1997, the Company's risk management program resulted in an average net realization of approximately $1.65 per barrel and $.11 per barrel, respectively, lower than if the Company had not entered into such transactions. In anticipation of entering into the forward oil sale, in 1995 the Company purchased WTI benchmark call options to retain the ability to benefit from WTI price increases above a weighted average price of $20.42 per barrel. The volumes and expiration dates on the call options coincide with the volumes and delivery dates of the forward oil sale which will be completed in March 2000. During the years ended December 31, 1999, 1998 and 1997, the Company recorded a gain (loss) of $6.1 million, $.4 million, and ($9.7 million), respectively, in other income (expense), net, related to the change in the fair market value of the call options. In November 1999, the Company sold WTI benchmark call options with the same notional quantities, strike price and contract period as the remaining call option contracts outstanding for a premium of $4.4 million for the purpose of realizing the fair value of the purchased call options. As a result, the Company has eliminated its exposure to future changes in value of the call options caused by fluctuations in oil prices. CONCENTRATION OF CREDIT RISK Financial instruments that are potentially subject to concentrations of credit risk consist of cash equivalents, receivables and financial market transactions. The Company places its cash equivalents and financial market transactions with high credit-quality financial institutions. The Company believes the risk of incurring losses related to credit risk is remote. The Company sells its crude oil production from the Cusiana and Cupiagua fields through an agreement with a third party to approximately 10 to 15 buyers located primarily in the United States. The Company does not believe that the loss of any single customer or a termination of the agreement with the third party would have a long-term material, adverse effect on its operations. 15. OTHER INCOME (EXPENSE), NET Other income (expense), net is summarized as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 -------- -------- -------- Equity swap $(6,858) $(3,283) $--- Change in fair market value of WTI benchmark call options 6,150 366 (9,689) Foreign exchange gain (loss) (2,674) 2,113 9,549 Loss provisions (2,250) (750) --- Gain on sale of corporate assets 443 7,593 1,414 Other 1,575 2,441 1,598 -------- -------- -------- $(3,614) $ 8,480 $ 2,872 ======== ======== ========
In 1999, 1998 and 1997, the Company recognized a net foreign exchange gain (loss) of ($2.7 million), $2.1 million and $9.5 million, respectively, consisting primarily of noncash adjustments related to deferred taxes in Colombia associated with devaluation of the Colombian peso versus the U.S. dollar. 16. EARNINGS PER ORDINARY SHARE The following table reconciles the numerators and denominators of the basic and diluted earnings per ordinary share computation for earnings from continuing operations for the years ended December 31, 1999 and 1997.
INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ ------------ ------------ YEAR ENDED DECEMBER 31, 1999: Net earnings $ 47,557 Less: Preference share dividends (28,671) ------------ Earnings available to ordinary shareholders 18,886 Basic earnings per ordinary share 36,135 $ 0.52 ============ Effect of dilutive securities Stock options --- 62 ------------ ------------ Earnings available to ordinary shareholders and assumed conversions $ 18,886 ============ Diluted earnings per ordinary share 36,197 $ 0.52 ============ ============
INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- YEAR ENDED DECEMBER 31, 1997: Earnings before extraordinary item $ 5,595 Less: Preference share dividends (400) ----------- Earnings available to ordinary shareholders 5,195 Basic earnings per ordinary share 36,471 $ 0.14 ============= Effect of dilutive securities Stock options --- 457 Convertible debentures --- 80 ----------- ------------- Earnings available to ordinary shareholders and assumed conversions $ 5,195 =========== Diluted earnings per ordinary share 37,008 $ 0.14 ============= =========
For the year ended December 31, 1998, the computation of diluted net loss per ordinary share was antidilutive, and therefore, the amounts reported for basic and diluted net loss per ordinary share were the same. At December 31, 1999, 5,193,643 shares of 8% Convertible Preference Shares and 209,639 shares of 5% Convertible Preference Shares were outstanding. Each 8% Convertible Preference Share is convertible any time into four ordinary shares, subject to adjustment in certain events. Each 5% Convertible Preference Share is convertible any time into one ordinary share, subject to adjustment in certain events. The 8% Convertible Preference Shares and 5% Convertible Preference Shares were not included in the computation of diluted earnings per ordinary share because the effect of assuming conversion was antidilutive. 17. STATEMENTS OF CASH FLOWS Supplemental disclosures of cash payments and noncash investing and financing activities follow:
YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 1997 -------- ------- -------- Cash paid during the year for: Interest (net of amount capitalized) $22,810 $24,517 $133,265 Income taxes 5,564 4,339 4,666 Noncash financing activities: 8% Convertible preference shares issued in lieu of cash dividend $13,747 $ --- $ --- Conversion of preference shares into ordinary shares 192 297 1,004
Cash paid for interest in 1997 included $124.8 million of interest accreted with respect to the Senior Subordinated Discount Notes due November 1, 1997 and the 9 3/4% Senior Subordinated Discount Notes due September 15, 2000 through the dates of retirement. 18. RELATED PARTY TRANSACTIONS Pursuant to a financial advisory agreement (the "Financial Advisory Agreement") between Triton and Hicks, Muse & Co. Partners L.P. ("Hicks Muse Partners"), an affiliate of Hicks Muse, the Company paid Hicks Muse Partners transaction fees aggregating approximately $9.6 million and $4.4 million for services as financial advisor to the Company in connection with the First Closing and Second Closing, respectively, contemplated by the Stock Purchase Agreement. In accordance with the terms of the Financial Advisory Agreement, the Company has retained Hicks Muse Partners as its exclusive financial advisor in connection with any Sale Transaction (defined below) unless Hicks Muse Partners and the Company agree to retain an additional financial advisor in connection with any particular Sale Transaction. The Financial Advisory Agreement requires the Company to pay a fee to Hicks Muse Partners in connection with any Sale Transaction (unless the Chief Executive Officer of the Company elects not to retain a financial advisor) in an amount equal to the lesser of (i) the amount of fees then charged by first-tier investment banking firms for similar advisory services rendered in similar transactions or (ii) 1.5% of the Transaction Value (as defined in the Financial Advisory Agreement); provided that such fee will be divided equally between Hicks Muse Partners and any additional financial advisor which the Company and Hicks Muse Partners agree will be retained by the Company with respect to any such transaction. A "Sale Transaction" is defined as any merger, sale of securities representing a majority of the combined voting power of the Company, sale of assets of the Company representing more than 50% of the total market value of the assets of the Company and its subsidiaries or other similar transaction. The Company is also required to reimburse Hicks Muse Partners for reasonable disbursements and out-of-pocket expenses of Hicks Muse Partners incurred in connection with its advisory services. Pursuant to a monitoring agreement (the "Monitoring Agreement") between Triton and Hicks Muse Partners, Hicks Muse Partners will provide financial oversight and monitoring services as requested by the Company and the Company will pay to Hicks Muse Partners an annual fee of $.5 million. In addition, the Company will reimburse Hicks Muse Partners for reasonable disbursements and out-of-pocket expenses incurred by Hicks Muse Partners or its affiliates for the account of the Company or in connection with the performance of its services. During the years ended December 31, 1999 and 1998, the Company paid Hicks Muse Partners $.6 million and $.1 million, respectively, under the terms of the Monitoring Agreement. The Financial Advisory Agreement and the Monitoring Agreement will remain in effect until the earlier of (i) September 30, 2008, or (ii) the date on which HM4 Triton, L.P. and its affiliates cease to own beneficially, directly or indirectly, at least 5% of the Company's outstanding Ordinary Shares (determined after giving effect to the conversion of all 8% Convertible Preference Shares held by HM4 Triton, L.P. and its affiliates). The Company has agreed to indemnify Hicks Muse Partners with respect to liabilities incurred as a result of Hicks Muse Partners' performance of services for the Company pursuant to the Financial Advisory Agreement and the Monitoring Agreement. In 1999, the Company sold its hunting lease and related facilities to HMTF Operating, L.P., an affiliate of Hicks Muse, for proceeds of $.9 million and recognized a gain of $.4 million in other income (expense), net. 19. CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS Certain information contained in this report, as well as written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences, teleconferences, or otherwise, may be deemed to be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and are subject to the "Safe Harbor" provisions of that section. Forward-looking statements include statements concerning the Company's and management's plans, objectives, goals, strategies and future operations and performance and the assumptions underlying such forward-looking statements. When used in this document, the words "anticipates," "estimates," "expects," "believes," "intends," "plans," and similar expressions are intended to identify such forward-looking statements. These statements include information regarding: - - drilling schedules; - - expected or planned production capacity; - - future production from the Cusiana and Cupiagua fields in Colombia, including from the Recetor license; - - the completion of development and commencement of production in Malaysia-Thailand; - - future production of the Ceiba field in Equatorial Guinea, including volumes and timing of first production; - - the acceleration of the Company's exploration, appraisal and development activities in Equatorial Guinea; - - the Company's capital budget and future capital requirements; - - the Company's meeting its future capital needs; - - the Company's utilization of net operating loss carryforwards and realization of its deferred tax asset; - - the level of future expenditures for environmental costs; - - the outcome of regulatory and litigation matters; - - the estimated fair value of derivative instruments, including the equity swap; and - - proven oil and gas reserves and discounted future net cash flows therefrom. These statements are based on current expectations and involve a number of risks and uncertainties, including those described in the context of such forward-looking statements, as well as those presented below. Actual results and developments could differ materially from those expressed in or implied by such statements due to these and other factors. CERTAIN FACTORS RELATING TO THE OIL AND GAS INDUSTRY The markets for oil and natural gas historically have been volatile and are likely to continue to be volatile in the future. Oil and natural gas prices have been subject to significant fluctuations during the past several decades in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond the control of the Company. These factors include the level of consumer product demand, weather conditions, domestic and foreign government regulations, political conditions in the Middle East and other production areas, the foreign supply of oil and natural gas, the price and availability of alternative fuels, and overall economic conditions. It is impossible to predict future oil and gas price movements with any certainty. The Company follows the full cost method of accounting for exploration and development of oil and gas reserves, whereby all acquisition, exploration and development costs are capitalized. Costs related to acquisition, holding and initial exploration of licenses in countries with no proved reserves are initially capitalized, including internal costs directly identified with acquisition, exploration and development activities. The Company's exploration licenses are periodically assessed for impairment on a country-by-country basis. If the Company's investment in exploration licenses within a country where no proved reserves are assigned is deemed to be impaired, the licenses are written down to estimated recoverable value. If the Company abandons all exploration efforts in a country where no proved reserves are assigned, all acquisition and exploration costs associated with the country are expensed. The Company's assessments of whether its investment within a country is impaired and whether exploration activities within a country will be abandoned are made from time to time based on its review and assessment of drilling results, seismic data and other information it deems relevant. Due to the unpredictable nature of exploration drilling activities, the amount and timing of impairment expense are difficult to predict with any certainty. Financial information concerning the Company's assets at December 31, 1999, including capitalized costs by geographic area, is set forth in note 21. The Company's oil and gas business is also subject to all of the operating risks normally associated with the exploration for and production of oil and gas, including, without limitation, blowouts, explosion, uncontrollable flows of oil, gas or well fluids, pollution, earthquakes, formations with abnormal pressures, labor disruptions and fires, each of which could result in substantial losses to the Company due to injury or loss of life and damage to or destruction of oil and gas wells, formations, production facilities or other properties. In accordance with customary industry practices, the Company maintains insurance coverage limiting financial loss resulting from certain of these operating hazards. Losses and liabilities arising from uninsured or underinsured events would reduce revenues and increase costs to the Company. There can be no assurance that any insurance will be adequate to cover losses or liabilities. The Company cannot predict the continued availability of insurance, or its availability at premium levels that justify its purchase. The Company's oil and gas business is also subject to laws, rules and regulations in the countries where it operates, which generally pertain to production control, taxation, environmental and pricing concerns, and other matters relating to the petroleum industry. Many jurisdictions have at various times imposed limitations on the production of natural gas and oil by restricting the rate of flow for oil and natural gas wells below their actual capacity. There can be no assurance that present or future regulation will not adversely affect the operations of the Company. The Company is subject to extensive environmental laws and regulations. These laws regulate the discharge of oil, gas or other materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of such materials at various sites. In addition, the Company could be held liable for environmental damages caused by previous owners of its properties or its predecessors. The Company does not believe that its environmental risks are materially different from those of comparable companies in the oil and gas industry. Nevertheless, no assurance can be given that environmental laws and regulations will not, in the future, adversely affect the Company's consolidated results of operations, cash flows or financial position. Pollution and similar environmental risks generally are not fully insurable. CERTAIN FACTORS RELATING TO INTERNATIONAL OPERATIONS The Company derives substantially all of its consolidated revenues from international operations. Risks inherent in international operations include risk of expropriation, nationalization, war, revolution, border disputes, renegotiation or modification of existing contracts, import, export and transportation regulations and tariffs; taxation policies, including royalty and tax increases and retroactive tax claims; exchange controls, currency fluctuations and other uncertainties arising out of foreign government sovereignty over the Company's international operations; laws and policies of the United States affecting foreign trade, taxation and investment; and the possibility of having to be subject to the exclusive jurisdiction of foreign courts in connection with legal disputes and the possible inability to subject foreign persons to the jurisdiction of courts in the United States. To date, the Company's international operations have not been materially affected by these risks. CERTAIN FACTORS RELATING TO COLOMBIA The Company is a participant in significant oil and gas discoveries in the Cusiana and Cupiagua fields, located approximately 160 kilometers (100 miles) northeast of Bogota, Colombia. Development of reserves in the Cusiana and Cupiagua fields is ongoing and will require additional drilling. Pipelines connect the major producing fields in Colombia to export facilities and to refineries. From time to time, guerrilla activity in Colombia has disrupted the operation of oil and gas projects. Such activity increased over the last year and appears to be increasing as political negotiations among government and various rebel groups proceed. In one recent case, a bomb planted near the pipeline caused OCENSA to halt shipments, which in turn caused the operator of the fields to curtail production for approximately two days. Although the Colombian government, the Company and its partners have taken steps to maintain security and favorable relations with the local population, there can be no assurance that attempts to reduce or prevent guerrilla activity will be successful or that guerrilla activity will not disrupt operations in the future. Colombia is among several nations whose progress in stemming the production and transit of illegal drugs is subject to annual certification by the President of the United States. Although the President granted Colombia certification in 1999, Colombia was denied certification the last two years and only received a national interest waiver for one of those years. There can be no assurance that, in the future, Colombia will receive certification or a national interest waiver. The consequences of the failure to receive certification or a national interest waiver generally include the following: all bilateral aid, except anti-narcotics and humanitarian aid, would be suspended; the Export-Import Bank of the United States and the Overseas Private Investment Corporation would not approve financing for new projects in Colombia; U.S. representatives at multilateral lending institutions would be required to vote against all loan requests from Colombia, although such votes would not constitute vetoes; and the President of the United States and Congress would retain the right to apply future trade sanctions. Each of these consequences could result in adverse economic consequences in Colombia and could further heighten the political and economic risks associated with the Company's operations in Colombia. Any changes in the holders of significant government offices could have adverse consequences on the Company's relationship with the Colombian national oil company and the Colombian government's ability to control guerrilla activities and could exacerbate the factors relating to foreign operations discussed above. CERTAIN FACTORS RELATING TO MALAYSIA-THAILAND The Company is a partner in a significant gas exploration project located in the Gulf of Thailand approximately 450 kilometers (280 miles) northeast of Kuala Lumpur and 750 kilometers (470 miles) south of Bangkok as a contractor under a production-sharing contract covering Block A-18 of the Malaysia-Thailand Joint Development Area. On October 30, 1999, the Company and the other parties to the production-sharing contract for Block A-18 executed a gas sales agreement providing for the sale of the first phase of gas. Under terms of the gas sales agreement, delivery of gas is scheduled to begin by the end of the second quarter of 2002, following timely completion and approval of an environmental impact assessment associated with the buyers' pipeline and processing facilities. No assurance can be given as to when such approval will be obtained. A lengthy approval process, or significant opposition to the project, could delay construction and the commencement of gas sales. In connection with the sale to ARCO of one-half of the shares through which the Company owned its interest in Block A-18, ARCO agreed to pay the future exploration and development costs attributable to the Company's and ARCO's collective interest in Block A-18, up to $377 million or until first production from a gas field, after which the Company and ARCO would each pay 50% of such costs. There can be no assurance that the Company's and ARCO's collective share of the cost of developing the project will not exceed $377 million. ARCO also agreed to pay the Company certain incentive payments if certain criteria were met. The first $65 million in incentive payments is conditioned upon having the production facilities for the sale of gas from Block A-18 completed by June 30, 2002. If the facilities are completed after June 30, 2002 but before June 30, 2003, the incentive payment would be reduced to $40 million. A lengthy environmental approval process, or unanticipated delays in construction of the facilities, could result in the Company's receiving a reduced incentive payment or possibly the complete loss of the first incentive payment. In addition, the Company has agreed to share with ARCO some of the risk that the environmental approval might be delayed by agreeing to pay to ARCO $1.25 million per month for each month, if applicable, that first gas sales are delayed beyond 30 months following the commitment to an engineering, procurement and construction contract for the project. The Company's obligation is capped at 24 months of these payments. INFLUENCE OF HICKS MUSE In connection with the issuance of 8% Convertible Preference Shares to HM4 Triton, L.P., the Company and HM4 Triton, L.P. entered into a shareholders agreement (the "Shareholders Agreement") pursuant to which, among other things, the size of the Company's Board of Directors was set at ten, and HM4 Triton, L.P. exercised its right to designate four out of such ten directors. The Shareholders Agreement provides that, in general, for so long as the entire Board of Directors consists of ten members, HM4 Triton, L.P. (and its designated transferees, collectively) may designate four nominees for election to the Board of Directors. The right of HM4 Triton, L.P. (and its designated transferees) to designate nominees for election to the Board will be reduced if the number of ordinary shares held by HM4 Triton, L.P. and its affiliates (assuming conversion of 8% Convertible Preference Shares into ordinary shares) represents less than certain specified percentages of the number of ordinary shares (assuming conversion of 8% Convertible Preference Shares into ordinary shares) purchased by HM4 Triton, L.P. pursuant to the Stock Purchase Agreement. The Shareholders Agreement provides that, for so long as HM4 Triton, L.P. and its affiliates continue to hold a certain minimum number of ordinary shares (assuming conversion of 8% Convertible Preference Shares into ordinary shares), the Company may not take certain actions without the consent of HM4 Triton, L.P., including (i) amending its Articles of Association or the terms of the 8% Convertible Preference Shares with respect to the voting powers, rights or preferences of the holders of 8% Convertible Preference Shares, (ii) entering into a merger or similar business combination transaction, or effecting a reorganization, recapitalization or other transaction pursuant to which a majority of the outstanding ordinary shares or any 8% Convertible Preference Shares are exchanged for securities, cash or other property, (iii) authorizing, creating or modifying the terms of any series of securities that would rank equal to or senior to the 8% Convertible Preference Shares, (iv) selling or otherwise disposing of assets comprising in excess of 50% of the market value of the Company, (v) paying dividends on ordinary shares or other shares ranking junior to the 8% Convertible Preference Shares, other than regular dividends on the Company's 5% Convertible Preference Shares, (vi) incurring or guaranteeing indebtedness (other than certain permitted indebtedness), or issuing preference shares, unless the Company's leverage ratio at the time, after giving pro forma effect to such incurrence or issuance and to the use of the proceeds, is less than 2.5 to 1, (vii) issuing additional shares of 8% Convertible Preference Shares, other than in payment of accumulated dividends on the outstanding 8% Convertible Preference Shares, (viii) issuing any shares of a class ranking equal or senior to the 8% Convertible Preference Shares, (ix) commencing a tender offer or exchange offer for all or any portion of the ordinary shares or (x) decreasing the number of shares designated as 8% Convertible Preference Shares. As a result of HM4 Triton, L.P.'s ownership of 8% Convertible Preference Shares and ordinary shares and the rights conferred upon HM4 Triton, L.P. and its designees pursuant to the Shareholder Agreement, HM4 Triton, L.P. has significant influence over the actions of the Company and will be able to influence, and in some cases determine, the outcome of matters submitted for approval of the shareholders. The existence of HM4 Triton, L.P. as a shareholder of the Company may make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, a majority of the outstanding ordinary shares. A third party would be required to negotiate any such transaction with HM4 Triton, L.P. and the interests of HM4 Triton, L.P. as a shareholder may be different from the interests of the other shareholders of the Company. POSSIBLE FUTURE ACQUISITIONS The Company's strategy includes the possible acquisition of additional reserves, including through possible future business combination transactions. There can be no assurance as to the terms upon which any such acquisitions would be consummated or as to the affect any such transactions would have on the Company's financial condition or results of operations. Such acquisitions, if any, could involve the use of the Company's cash, or the issuance of the Company's debt or equity securities, which could have a dilutive effect on the current shareholders. COMPETITION The Company encounters strong competition from major oil companies (including government-owned companies), independent operators and other companies for favorable oil and gas concessions, licenses, production-sharing contracts and leases, drilling rights and markets. Additionally, the governments of certain countries in which the Company operates may, from time to time, give preferential treatment to their nationals. The oil and gas industry as a whole also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. The Company believes that the principal means of competition in the sale of oil and gas are product availability, price and quality. MARKETS Crude oil, natural gas, condensate, and other oil and gas products generally are sold to other oil and gas companies, government agencies and other industries. The availability of ready markets for oil and gas that might be discovered by the Company and the prices obtained for such oil and gas depend on many factors beyond the Company's control, including the extent of local production and imports of oil and gas, the proximity and capacity of pipelines and other transportation facilities, fluctuating demands for oil and gas, the marketing of competitive fuels, and the effects of governmental regulation of oil and gas production and sales. Pipeline facilities do not exist in certain areas of exploration and, therefore, any actual sales of discovered oil or gas might be delayed for extended periods until such facilities are constructed. LITIGATION The outcome of litigation and its impact on the Company are difficult to predict due to many uncertainties, such as jury verdicts, the application of laws to various factual situations, the actions that may or may not be taken by other parties and the availability of insurance. In addition, in certain situations, such as environmental claims, one defendant may be responsible for the liabilities of other parties. Moreover, circumstances could arise under which the Company may elect to settle claims at amounts that exceed the Company's expected liability for such claims in an attempt to avoid costly litigation. Judgments or settlements could, therefore, exceed any reserves. 20. COMMITMENTS AND CONTINGENCIES For internal planning purposes, the Company's capital spending program for the year ending December 31, 2000, is approximately $191 million, excluding capitalized interest and acquisitions, of which approximately $122 million relates to exploration and development activities in Equatorial Guinea, $58 million relates to the Cusiana and Cupiagua fields in Colombia and $11 million relates to the Company's exploration activities in other parts of the world. During the normal course of business, the Company is subject to the terms of various operating agreements and capital commitments associated with the exploration and development of its oil and gas properties. It is management's belief that such commitments, including the capital requirements in Colombia, Equatorial Guinea and other parts of the world discussed above, will be met without any material adverse effect on the Company's operations or consolidated financial condition. The Company leases office space, other facilities and equipment under various operating leases expiring through 2005. Total rental expense was $1.3 million, $2.1 million and $2 million for the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, the minimum payments required under terms of the leases are as follows 2000 -- $1.5 million; 2001 -- $1.6 million; 2002 -- $1.6 million; 2003 -- $1.6 million; 2004 -- $1.6 million; and thereafter $1 million. GUARANTEES At December 31, 1999, the Company had guaranteed the performance of a total of $16.4 million in future exploration expenditures to be incurred through September 2001 in various countries. A total of approximately $6 million of the exploration expentitures are included in the 2000 capital spending program related to a commitment for two onshore exploratory wells in Greece. These commitments are backed primarily by unsecured letters of credit. The Company also had guaranteed loans of approximately $1.4 million, which expire September 2000, for a Colombian pipeline company, ODC, in which the Company has an ownership interest. ENVIRONMENTAL MATTERS The Company is subject to extensive environmental laws and regulations. These laws regulate the discharge of oil, gas or other materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of such materials at various sites. The Company believes that the level of future expenditures for environmental matters, including clean-up obligations, is impracticable to determine with a precise and reliable degree of accuracy. Management believes that such costs, when finally determined, will not have a material adverse effect on the Company's operations or consolidated financial condition. LITIGATION In July through October 1998, eight lawsuits were filed against the Company and Thomas G. Finck and Peter Rugg, in their capacities as Chairman and Chief Executive Officer and Chief Financial Officer, respectively. The lawsuits were filed in the United States District Court for the Eastern District of Texas, Texarkana Division, and have been consolidated and are styled In re: Triton Energy Limited Securities Litigation. In November 1999, the plaintiffs filed a consolidated complaint. It alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, in connection with disclosures concerning the Company's properties, operations, and value relating to a prospective sale of the Company or of all or a part of its assets. The lawsuits seek recovery of an unspecified amount of compensatory damages, fees and costs. In the consolidated complaint, the plaintiffs abandoned a claim for negligent misrepresentation and punitive damages that had previously been asserted in one of the eight individual suits. In September 1999, the court granted the plaintiffs' motion for appointment as lead plaintiffs and for approval of selection of lead counsel. In October 1999, the defendants filed a motion to dismiss the claims alleged in the eight individual suits, and in December 1999, the defendants filed a supplement to their motion to dismiss to address the plaintiffs' consolidated complaint. The Company's motion, as supplemented, is currently pending. The Company believes its disclosures have been accurate and intends to vigorously defend these actions. There can be no assurance that the litigation will be resolved in the Company's favor. An adverse result could have a material adverse effect on the Company's financial position or results of operations. In November 1999, a lawsuit was filed against the Company, and one of its subsidiaries and Thomas G. Finck, Peter Rugg and Robert B. Holland, III, in their capacities as officers of the Company, in the District Court of the State of Texas for Dallas County. The lawsuit is styled Aaron Sherman, et al. vs. Triton Energy Corporation et al. and seeks an unspecified amount of compensatory and punitive damages and interest. The lawsuit alleges as causes of action fraud and negligent misrepresentation in connection with disclosures concerning the prospective sale by the Company of all or a substantial part of its assets announced in March 1998. The Company's date to answer has not yet run. Its subsidiary has filed various motions to dispose of the lawsuit on the grounds that the plantiffs do not have standing. The Court has ordered the plantiffs to replead and has stayed discovery pending its further orders. In August 1997, the Company was sued in the Superior Court of the State of California for the County of Los Angeles, by David A. Hite, Nordell International Resources Ltd., and International Veronex Resources, Ltd. The action has since been removed to the United States District Court for the Central District of California. The Company and the plaintiffs were adversaries in a 1990 arbitration proceeding in which the interest of Nordell International Resources Ltd. in the Enim oil field in Indonesia was awarded to the Company (subject to a 5% net profits interest for Nordell) and Nordell was ordered to pay the Company nearly $1 million. The arbitration award was followed by a series of legal actions by the parties in which the validity of the award and its enforcement were at issue. As a result of these proceedings, the award was ultimately upheld and enforced. The current suit alleges that the plaintiffs were damaged in amounts aggregating $13 million primarily because of the Company's prosecution of various claims against the plaintiffs as well as its alleged misrepresentations, infliction of emotional distress, and improper accounting practices. The suit seeks specific performance of the arbitration award, damages for alleged fraud and misrepresentation in accounting for Enim field operating results, an accounting for Nordell's 5% net profit interest, and damages for emotional distress and various other alleged torts. The suit seeks interest, punitive damages and attorneys fees in addition to the alleged actual damages. In August 1998, the district court dismissed all claims asserted by the plaintiffs other than claims for malicious prosecution and abuse of the legal process, which the court held could not be subject to a motion to dismiss. The abuse of process claim was later withdrawn, and the damages sought were reduced to approximately $700,000 (not including punitive damages). The lawsuit was tried and the jury found in favor of the plaintiffs and assessed compensatory damages against the Company in the amount of approximately $700,000 and punitive damages in the amount of approximately $11 million. The Company believes it has acted appropriately and intends to appeal the verdict. The Company is subject to certain other litigation matters, none of which is expected to have a material, adverse effect on the Company's operations or consolidated financial condition. 21. GEOGRAPHIC INFORMATION Triton's operations are primarily related to crude oil and natural gas exploration and production. The Company's principal properties, operations and oil and gas reserves are located in Colombia, Malaysia-Thailand and Equatorial Guinea. The Company is exploring for oil and gas in these areas, as well as in southern Europe, Africa and the Middle East. All sales are currently derived from oil and gas production in Colombia. Financial information about the Company's operations by geographic area is presented below:
CORPORATE MALAYSIA- EQUATORIAL AND COLOMBIA THAILAND GUINEA EXPLORATION OTHER TOTAL --------- --------- ---------- ----------- --------- ---------- YEAR ENDED DECEMBER 31, 1999: Sales and other operating revenues $ 247,878 $ --- $ --- $ --- $ --- $ 247,878 Operating income (loss) 115,877 --- (469) (7,214) (16,334) 91,860 Depreciation, depletion and amortization 59,728 --- 16 144 1,455 61,343 Capital expenditures and investments 79,889 8,453 19,968 12,419 754 121,483 Assets 476,543 93,188 37,229 85,250 282,265 974,475 YEAR ENDED DECEMBER 31, 1998: Sales and other operating revenues $ 160,881 $ 63,237 $ --- $ 4,500 $ --- $ 228,618 Operating income (loss) (220,697) 62,538 (124) (79,703) (39,360) (277,346) Depreciation, depletion and amortization 53,641 49 1 175 4,945 58,811 Writedown of assets 251,312 --- --- 76,664 654 328,630 Capital expenditures and investments 106,624 25,319 5,913 41,603 756 180,215 Assets 468,533 84,735 10,766 78,086 112,160 754,280 YEAR ENDED DECEMBER 31, 1997: Sales and other operating revenues $ 145,419 $ --- $ --- $ 4,077 $ --- $ 149,496 Operating income (loss) 59,719 (536) (42) (6,270) (20,167) 32,704 Depreciation, depletion and amortization 31,186 60 --- 505 5,077 36,828 Capital expenditures and investments 129,589 37,328 4,471 43,371 4,457 219,216 Assets 712,512 148,780 4,841 105,720 126,186 1,098,039
During 1998, the Company sold one-half of the shares of the subsidiary through which the Company owned its 50% share of Block A-18 resulting in a gain of $63.2 million which is included in Malaysia-Thailand sales and other operating revenues and operating income (loss). See note 2 - Asset Dispositions. After the sale, which resulted in a 50% ownership in the previously wholly owned subsidiary, the Company's remaining ownership is accounted for using the equity method. This investment in Block A-18 is presented in Malaysia-Thailand assets at December 31, 1999 and 1998. Colombia operating income (loss) for the year ended December 31, 1998, included a SEC full cost ceiling limitation writedown of $241 million. Additionally, Exploration operating income (loss) included writedowns of oil and gas properties and other assets totaling $76.7 million for the year ended December 31, 1998. At December 31, 1999, corporate assets were principally cash and equivalents and the U.S. deferred tax asset. Exploration assets included $41.6 million, $17.6 million, $16.5 million and $8.4 million in Italy, Greece, Oman and Madagascar, respectively. 22. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ------------------------------------------- FIRST SECOND THIRD FOURTH --------- ---------- -------- ---------- YEAR ENDED DECEMBER 31, 1999: Sales and other operating revenues $ 49,170 $ 59,622 $ 67,295 $ 71,791 Gross profit 14,823 25,151 32,349 46,082 Net earnings 1,887 10,883 11,762 23,025 Basic earnings (loss) per ordinary share 0.05 (0.08) 0.32 0.24 Diluted earnings (loss) per ordinary share 0.03 (0.08) 0.20 0.23 Investment in affiliate 86,704 88,179 91,008 93,188 YEAR ENDED DECEMBER 31, 1998: Sales and other operating revenues $ 36,175 $ 36,378 $105,862 $ 50,203 Gross profit (loss) 8,409 (180,179) 73,751 (134,350) Net earnings (loss) 42,912 (150,062) 47,208 (127,562) Basic earnings (loss) per ordinary share 1.17 (4.10) 1.28 (3.55) Diluted earnings (loss) per ordinary share 1.16 (4.10) 1.28 (3.55) Investment in affiliate --- --- 82,511 84,735
Gross profit (loss) is comprised of sales and other operating revenues less operating expenses, depreciation, depletion and amortization, and writedowns pertaining to operating assets. Gross profit for the fourth quarter of 1999 included a non-recurring credit issued by OCENSA in February 2000 totaling $4.2 million. The credit to pipeline tariffs resulted from OCENSA's compliance with a Colombian government decree in December 1999 that reduced its 1999 noncash expenses. 23. OIL AND GAS DATA (UNAUDITED) The following tables provide additional information about the Company's oil and gas exploration and production activities. The oil and gas data reflect the Company's proportionate interest in Block A-18 on an equity investment basis since the sale of one-half of the subsidiary through which the Company owned its 50% share of Block A-18 in August 1998. RESULTS OF OPERATIONS The results of operations for oil- and gas-producing activities, considering direct costs only, follow:
COLOMBIA -------- YEAR ENDED DECEMBER 31, 1999: Revenues $247,878 Costs: Production costs 68,130 General operating expenses 3,954 Depletion 59,512 Income tax expense 42,083 -------- Results of operations $ 74,199 ========
MALAYSIA- TOTAL COLOMBIA THAILAND OTHER WORLDWIDE --------- --------- --------- --------- YEAR ENDED DECEMBER 31, 1998: Revenues $ 160,881 $ 63,237 $ 4,500 $ 228,618 Costs: Production costs 73,546 --- --- 73,546 General operating expenses 2,460 --- --- 2,460 Depletion 53,304 --- --- 53,304 Writedown of assets 251,312 --- 76,664 327,976 Income tax benefit (76,048) --- (22,527) (98,575) ---------- --------- ---------- ---------- Results of operations $(143,693) $ 63,237 $ (49,637) $(130,093) ========== ========= ========== ==========
TOTAL COLOMBIA OTHER WORLDWIDE -------- ------- --------- YEAR ENDED DECEMBER 31, 1997: Revenues $145,419 $ 4,077 $ 149,496 Costs: Production costs 51,357 --- 51,357 General operating expenses 2,886 --- 2,886 Depletion 30,729 --- 30,729 Income tax expense 22,167 1,223 23,390 -------- ------- --------- Results of operations $ 38,280 $ 2,854 $ 41,134
======== ======= ========= Malaysia-Thailand revenues for the year ended December 31, 1998, included a gain of $63.2 million from the sale of one-half of the shares of the subsidiary through which the Company owned its 50% share of Block A-18. Other revenues for the years ended December 31, 1998 and 1997, included gains of $4.5 million, and $4.1 million from the sale of the Company's Bangladesh subsidiary and Argentine subsidiary, respectively. Depletion includes depreciation on support equipment and facilities calculated on the unit-of-production method. COSTS INCURRED AND CAPITALIZED COSTS The costs incurred in oil and gas acquisition, exploration and development activities and related capitalized costs follow:
EQUATORIAL TOTAL COLOMBIA GUINEA OTHER WORLDWIDE -------- ------- ------ --------- DECEMBER 31, 1999: Costs incurred: Property acquisition $ 6,400 $ --- $ 20 $ 6,420 Exploration 155 23,631 13,051 36,837 Development 80,782 --- --- 80,782 Depletion per equivalent barrel of production 3.80 --- --- 3.80 Cost of properties at year-end: Unevaluated $ --- $ 5,772 $72,755 $ 78,527 ======== ======= ======= ======== Evaluated $530,947 $28,613 $ 680 $560,240 ======== ======= ======= ======== Support equipment and facilities $303,244 $ 709 $ --- $303,953 ======== ======= ======= ======== Accumulated depletion and depreciation at year-end $419,651 $ --- $ 680 $420,331 ======== ======= ======= ========
MALAYSIA- EQUATORIAL TOTAL COLOMBIA THAILAND GUINEA OTHER WORLDWIDE -------- --------- ---------- ------- --------- DECEMBER 31, 1998: Costs incurred: Property acquisition $ --- $ --- $ --- $ 500 $ 500 Exploration 2,886 17,739 5,913 43,153 69,691 Development 83,088 1,026 --- --- 84,114 Depletion per equivalent barrel of production 4.07 --- --- --- 4.07 Cost of properties at year-end: Unevaluated $ --- $ --- $ 10,754 $60,082 $ 70,836 ======== ========= ========== ======= ======== Evaluated $467,147 $ --- $ --- $76,367 $543,514 ======== ========= ========== ======= ======== Support equipment and facilities $289,659 $ --- $ --- $ --- $289,659 ======== ========= ========== ======= ======== Accumulated depletion and depreciation at year-end $360,324 $ --- $ --- $76,367 $436,691 ======== ========= ========== ======= ========
MALAYSIA- EQUATORIAL TOTAL COLOMBIA THAILAND GUINEA OTHER WORLDWIDE -------- --------- ---------- ------ --------- DECEMBER 31, 1997: Costs incurred: Property acquisition $ --- $ --- $ 1,500 $ 1,628 $ 3,128 Exploration 7,583 36,373 2,971 44,893 91,820 Development 62,251 187 --- --- 62,438 Depletion per equivalent barrel of production 3.67 --- --- --- 3.67 Cost of properties at year-end: Unevaluated $ 2,172 $ 30,327 $ 4,841 $93,286 $130,626 ======== ========= ========== ======= ======== Evaluated $396,774 $ 114,243 $ --- $ 7,563 $518,580 ======== ========= ========== ======= ======== Support equipment and facilities $250,193 $ --- $ --- $ --- $250,193 ======== ========= ========== ======= ======== Accumulated depletion and depreciation at year-end $ 66,250 $ --- $ --- $ 7,563 $ 73,813 ======== ========= ========== ======= ========
A summary of costs excluded from depletion at December 31, 1999, by year incurred follows:
DECEMBER 31, ---------------------------------------- TOTAL 1999 1998 1997 1996 AND PRIOR -------- ------- ------- ------- -------------- Property acquisition $ 2,820 $ 20 $ 500 $ 1,700 $ 600 Exploration 93,258 29,697 34,394 16,008 13,159 Capitalized interest 11,062 6,587 2,971 1,383 121 -------- ------- ------- ------- ------------ Total worldwide $107,140 $36,304 $37,865 $19,091 $ 13,880 ======== ======= ======= ======= ============
The Company excludes from its depletion computation property acquisition and exploration costs of unevaluated properties and major development projects in progress. The excluded costs include $34.4 million ($28.6 million and $5.8 million classified as evaluated and unevaluated, respectively) which relate primarily to the Ceiba field in Equatorial Guinea that will become depletable once production begins, currently estimated for year end 2000. Additionally, excluded costs include exploration costs of $34.6 million, $16.8 million, $11.8 million and $8.4 million in Italy, Greece, Oman and Madagascar, respectively, where there are no proved reserves at December 31, 1999. At this time, the Company is unable to predict either the timing of the inclusion of these costs and any related oil and gas reserves in its depletion computation or their potential future impact on depletion rates. Drilling or other exploration activities are being conducted in each of these cost centers. The Company's share of costs incurred for Block A-18 were $8.2 million and $3.2 million for the years ended December 31, 1999 and 1998, respectively. Net capitalized costs were $90.2 million and $85.2 million at December 31, 1999 and 1998, respectively. OIL AND GAS RESERVE DATA (OIL RESERVES ARE STATED IN THOUSANDS OF BARRELS AND GAS RESERVES ARE STATED IN MILLIONS OF CUBIC FEET.) The following tables present the Company's estimates of its proved oil and gas reserves. The estimates for the proved reserves in the Cusiana and Cupiagua fields in Colombia and the Ceiba field in Equatorial Guinea were prepared by the Company's independent petroleum engineers, DeGolyer and MacNaughton and Netherland, Sewell & Associates, Inc., respectively. The estimates for proved reserves in Malaysia-Thailand were prepared by the internal petroleum engineers of the operating company, Carigali-Triton Operating Company (CTOC). The estimates for the proved reserves in the Liebre field in Colombia were prepared by the Company's internal petroleum reservoir engineers. The Company emphasizes that reserve estimates are approximate and are expected to change as additional information becomes available. Reservoir engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Accordingly, there can be no assurance that the reserves set forth herein will ultimately be produced, and there can be no assurance that the proved undeveloped reserves will be developed within the periods anticipated. As of December 31, 1999, gas sales had not yet commenced from the Company's interest in the Malaysia-Thailand Joint Development Area. In estimating its reserves attributable to such interest, the Company assumed that production from the interest would be sold at the base price in the gas sales agreement of $2.30. The base price is subject to annual adjustments based on various indices. There can be no assurance as to what the actual price will be when gas sales commence.
EQUITY INVESTMENT COLOMBIA EQUATORIAL GUINEA TOTAL WORLDWIDE MALAYSIA-THAILAND ----------------- ----------------- ---------------- ----------------- OIL GAS OIL GAS OIL GAS OIL GAS -------- ------- ------ ------- ------- ------ ------ --------- PROVED DEVELOPED AND UNDEVELOPED RESERVES AS OF DECEMBER 31, 1998 135,327 12,284 --- --- 135,327 12,284 8,017 570,312 Revisions (567) (259) --- --- (567) (259) 5,206 (16,450) Purchases 3,280 --- --- --- 3,280 --- --- --- Extensions and discoveries --- --- 32,033 --- 32,033 --- --- --- Production (12,469) (459) --- --- (12,469) (459) --- --- -------- ------- ------ -------- -------- ------- ------ --------- AS OF DECEMBER 31, 1999 125,571 11,566 32,033 --- 157,604 11,566 13,223 553,862 ======== ======= ====== ======== ======== ======= ====== ========= PROVED DEVELOPED RESERVES AT DECEMBER 31, 1999 91,859 11,566 --- --- 91,859 11,566 --- --- ======== ======= ====== ======== ======== ======= ====== =========
EQUITY INVESTMENT COLOMBIA MALAYSIA-THAILAND TOTAL WORLDWIDE MALAYSIA-THAILAND ----------------- -------------------- -------------------- ----------------- OIL GAS OIL GAS OIL GAS OIL GAS -------- ------- -------- ---------- -------- ---------- ----- ---------- PROVED DEVELOPED AND UNDEVELOPED RESERVES AS OF DECEMBER 31, 1997 145,999 14,619 29,800 1,223,800 175,799 1,238,419 --- --- Revisions (693) (1,832) (6,583) (41,588) (7,276) (43,420) --- --- Sales --- --- (15,200) (625,400) (15,200) (625,400) --- --- Equity investment --- --- (8,017) (570,312) (8,017) (570,312) 8,017 570,312 Extensions and discoveries --- --- --- 13,500 --- 13,500 --- --- Production (9,979) (503) --- --- (9,979) (503) --- --- -------- ------- -------- ---------- -------- ---------- ----- --------- AS OF DECEMBER 31, 1998 135,327 12,284 --- --- 135,327 12,284 8,017 570,312 ======== ======= ======== ========== ======== ========== ===== ========= PROVED DEVELOPED RESERVES AT DECEMBER 31, 1998 86,039 12,284 --- --- 86,039 12,284 --- --- ======== ======= ======== ========== ======== ========== ===== =========
COLOMBIA MALAYSIA-THAILAND TOTAL WORLDWIDE ----------------- ------------------- -------------------- OIL GAS OIL GAS OIL GAS -------- ------- ------- ---------- -------- ---------- PROVED DEVELOPED AND UNDEVELOPED RESERVES AS OF DECEMBER 31, 1996 135,310 14,651 24,700 871,100 160,010 885,751 Revisions 14,157 770 (2,000) (7,600) 12,157 (6,830) Extensions and discoveries 2,308 --- 7,100 360,300 9,408 360,300 Production (5,776) (802) --- --- (5,776) (802) -------- ------- ------- ---------- -------- ---------- AS OF DECEMBER 31, 1997 145,999 14,619 29,800 1,223,800 175,799 1,238,419 ======== ======= ======= ========== ======== ========== PROVED DEVELOPED RESERVES AT DECEMBER 31, 1997 81,931 14,619 --- --- 81,931 14,619 ======== ======= ======= ========== ======== ==========
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH INFLOWS AND CHANGES THEREIN The following table presents for the net quantities of proved oil and gas reserves a standardized measure of discounted future net cash inflows discounted at an annual rate of 10%. The future net cash inflows were calculated in accordance with Securities and Exchange Commission guidelines. Future cash inflows were computed by applying year-end prices of oil and gas relating to the Company's proved reserves to the estimated year-end quantities of those reserves. The future cash inflow estimates for 1999 attributable to oil reserves were based on the year end WTI crude oil price of $25.60 per barrel for the Company's reserves in Colombia and Malaysia-Thailand, and the year end Brent crude oil price of $24.89 per barrel for the Company's reserves in Equatorial Guinea, in each case before adjustments for oil quality and transportation costs. In 1999, the Company and the other parties to the production-sharing contract for Block A-18 executed a gas sales agreement providing for the sale of the first phase of gas. In estimating discounted future net cash inflows attributable to such interest, the Company assumed that production from the interest would be sold at the base price in the gas sales agreement of $2.30. The base price is subject to annual adjustments based on various indices. There can be no assurance as to what the actual price will be when gas sales commence. Future production and development costs were computed by estimating those expenditures expected to occur in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs. The Company emphasizes that the future net cash inflows should not be construed as representative of the fair market value of the Company's proved reserves. The meaningfulness of the estimates is highly dependent upon the accuracy of the assumptions upon which they were based. Actual future cash inflows may vary materially. In connection with the sale to ARCO of one-half of the shares through which the Company owned its interest in Block A-18, ARCO agreed to pay the Company an additional $65 million each at July 1, 2002, and July 1, 2005, if certain specific development objectives are met by such dates, or $40 million each if the objectives are met within one year thereafter. For purposes of calculating future cash inflows for Malaysia-Thailand at December 31, 1999, the Company assumed that it would receive an incentive payment of $65 million in July 2002. There can be no assurances that the Company will receive any incentive payments. See note 19, "Certain Factors that Could Affect Future Operations - Certain Factors Related to Malaysia-Thailand."
EQUITY INVESTMENT EQUATORIAL TOTAL MALAYSIA- COLOMBIA GUINEA WORLDWIDE THAILAND ---------- ---------- ---------- ---------- DECEMBER 31, 1999: Future cash inflows $3,152,352 $1,078,275 $4,230,627 $1,649,881 Future production and development costs 817,065 712,365 1,529,430 703,419 ---------- ---------- ---------- ---------- Future net cash inflows before income taxes $2,335,287 $ 365,910 $2,701,197 $ 946,462 ========== ========== ========== ========== Future net cash inflows before income taxes discounted at 10% per annum $1,414,433 $ 263,849 $1,678,282 $ 266,631 Future income taxes discounted at 10% per annum 391,796 57,589 449,385 15,845 ---------- ---------- ---------- ---------- Standardized measure of discounted future net cash inflows $1,022,637 $ 206,260 $1,228,897 $ 250,786 ========== ========== ========== ==========
EQUITY INVESTMENT MALAYSIA- COLOMBIA THAILAND ---------- ---------- DECEMBER 31, 1998: Future cash inflows $1,481,065 $1,555,929 Future production and development costs 734,025 695,575 ---------- ---------- Future net cash inflows before income taxes $ 747,040 $ 860,354 ========== ========== Future net cash inflows before income taxes discounted at 10% per annum $ 415,127 $ 253,535 Future income taxes discounted at 10% per annum 3,909 8,917 ---------- ---------- Standardized measure of discounted future net cash inflows $ 411,218 $ 244,618 ========== ==========
MALAYSIA- TOTAL COLOMBIA THAILAND WORLDWIDE ---------- ---------- ---------- DECEMBER 31, 1997: Future cash inflows $2,524,291 $4,078,609 $6,602,900 Future production and development costs 1,142,382 1,883,881 3,026,263 ---------- ---------- ---------- Future net cash inflows before income taxes $1,381,909 $2,194,728 $3,576,637 ========== ========== ========== Future net cash inflows before income taxes discounted at 10% per annum $ 852,421 $ 427,463 $1,279,884 Future income taxes discounted at 10% per annum 173,785 36,756 210,541 ---------- ---------- ---------- Standardized measure of discounted future net cash inflows $ 678,636 $ 390,707 $1,069,343 ========== ========== ==========
Changes in the standardized measure of discounted future net cash inflows follow:
DECEMBER 31, ------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Total worldwide: Beginning of year $ 411,218 $1,069,343 $1,292,195 Sales, net of production costs (179,748) (87,335) (94,062) Sales of reserves --- (70,543) --- Equity investment --- (244,618) --- Revisions of quantity estimates (6,546) (29,321) 75,253 Net change in prices and production costs 1,105,963 (579,212) (552,863) Extensions, discoveries and improved recovery 206,260 6,516 42,918 Change in future development costs (61,728) (46,633) (5,936) Purchases of reserves 6,400 --- --- Development and facilities costs incurred 70,828 105,808 53,199 Accretion of discount 74,704 120,270 160,406 Changes in production rates and other (10,567) (30,772) (3,089) Net change in income taxes (387,887) 197,715 101,322 ----------- ----------- ----------- End of year $1,228,897 $ 411,218 $1,069,343 =========== =========== ===========
SCHEDULE II TRITON ENERGY LIMITED AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS) ADDITIONS ---------
BALANCE AT CHARGED TO BALANCE BEGINNING CHARGED TO OTHER AT CLOSE CLASSIFICATIONS OF YEAR EARNINGS ACCOUNTS DEDUCTIONS OF YEAR - ------------------------- ----------- ------------ ----------- ------------ --------- Year ended Dec. 31, 1997: Allowance for doubtful receivables $ 76 $ --- $ --- $ (35) $ 41 =========== ============ =========== ============ ========= Allowance for deferred tax asset $ 30,657 $ 44,435 $ --- $ --- $ 75,092 =========== ============ =========== ============ ========= Year ended Dec. 31, 1998: Allowance for doubtful receivables $ 41 $ --- $ --- $ (41) $ --- =========== ============ =========== ============ ========= Allowance for deferred tax asset $ 75,092 $ 18,519 $ --- $ --- $ 93,611 =========== ============ =========== ============ ========= Year ended Dec. 31, 1999: Allowance for deferred tax asset $ 93,611 $ (11,925) $ --- $ --- $ 81,686 =========== ============ =========== ============ =========
EX-10.79 2 EXHIBIT 10.79 TRITON ENERGY LIMITED --------------------- 1997 SHARE COMPENSATION PLAN ---------------------------- NON-EMPLOYEE DIRECTOR'S NON-QUALIFIED ------------------------------------- STOCK OPTION AGREEMENT ---------------------- 1. Grant of Option. Pursuant to the Triton Energy Limited 1997 Share ----------------- Compensation Plan (as restated and/or amended, the "Plan"), for employees and directors of Triton Energy Limited, a Cayman Islands company (the "Company"), or any of its Subsidiaries, the Company grants to (Name of Option Holder) an option to purchase from the Company a total of FIFTEEN THOUSAND (15,000) full Ordinary Shares ("Optioned Shares"), $.01 par value ("Ordinary Shares"), of the Company at $________ per share (being the fair market value per share of the Ordinary Shares on this Date of Grant), in the amounts, during the periods and upon the terms and conditions set forth in this Agreement. The Date of Grant of this Stock Option is ___________________. 2. Time of Exercise. This Stock Option is fully exercisable as to 100% ----------------- of the total optioned shares at any time on and after the Date of Grant. No part of this Stock Option may be exercised after the expiration of ten (10) years from the Date of Grant. 3. Subject to Plan. This Stock Option and its exercise are subject to ---------------- the terms and conditions of the Plan. The Option Holder acknowledges receipt of a copy of the Plan and the Plan is incorporated herein by reference. The defined terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan. In addition, this Stock Option is subject to any rules promulgated pursuant to the Plan by the Board or the Committee. 4. Term. Subject to Article VIII of the Plan (including regarding ---- termination for Cause), this Stock Option, or applicable portions thereof, will terminate upon the earliest to occur of the following: (a) 5 p.m., Dallas, Texas time, on ______________________; or (b) 5 p.m., Dallas, Texas time, on the date which is five years following the date that the Option Holder's service as a director of the Company terminates for any reason other than Cause. 5. Who May Exercise. During the lifetime of the Option Holder, this ------------------ Stock Option may be exercised only by the Option Holder, or by the Option Holder's guardian or by any permitted transferee. If the Option Holder's service as a director of the Company terminates as a result of death, Disability or Retirement prior to the termination date specified in Section 4(a) hereof and the Option Holder has not exercised this Stock Option as to the percentage of Optioned Shares set forth in Section 2 hereof as of the date of death, Disability or Retirement, the following persons (in addition to any permitted transferee) may exercise the exercisable portion of this Stock Option as set forth in Section 2 hereof on behalf of the Option Holder at any time prior to the earlier of the dates specified in Sections 4(a) and (b) hereof: (i) if the Option Holder is disabled or has retired, the Option Holder or his guardian; or (ii) if the Option Holder dies, the personal representative of his estate, or the person who acquired the right to exercise this Stock Option by bequest or inheritance or by reason of the death of the Option Holder; provided that this Stock Option shall remain subject to the other terms of this Agreement, the Plan, and applicable laws, rules, and regulations. 6. Restrictions on Exercise. This Stock Option may be exercised only -------------------------- with respect to full shares, and no fractional share of stock shall be issued. 7. Manner of Exercise. Subject to such administrative regulations as -------------------- the Board or the Committee may from time to time adopt, this Stock Option may be exercised only upon written notice to the Company of the number of shares being purchased accompanied by the following: (a) Full payment of the option price for the shares of stock being purchased; and (b) Such other documents as the Company in its discretion deems necessary to evidence the exercise, in whole or in part, of this Stock Option. Full payment for shares purchased upon exercise of a Stock Option shall be made either in (i) cash, (ii) by certified or cashier's check, (iii) by Ordinary Shares, (iv) if permitted by the Committee, and if permitted under applicable law, by cash or certified or cashier's check for the par value of the shares plus a promissory note for the balance of the purchase price, which note shall provide for full personal liability of the maker and shall contain such other terms and provisions as the Committee may determine, including without limitation the right to repay the note partially or wholly with Ordinary Shares, (v) by delivery of a copy of irrevocable instructions from the Option Holder to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares purchased upon exercise of the Stock Option or to pledge them as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price or (vi) any combination of the foregoing. If any portion of the purchase price or a note given at the time of exercise is paid in Ordinary Shares, those shares shall be valued at the then Fair Market Value. 8. Assignability. This Stock Option shall not be transferable by the ------------- Option Holder, except (i) by will or by the laws of descent and distribution, (ii) pursuant to the terms of a domestic relations order (as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder), or (iii) to members of the Option Holder's immediate family (i.e., parents, children, grandchildren or spouse), trusts for the benefit of such immediate family members, and partnerships in which such immediate family members are partners; provided that any such transfer shall be in accordance with all applicable laws, rules and regulations; and provided further that the provisions of this Stock Option Agreement and the Plan that are governed by the Option Holder's status as an Employee or Director of the Company shall continue in effect notwithstanding any such transfer. 9. Rights as Shareholder. The Option Holder will have no rights as a ----------------------- shareholder with respect to any shares covered by this Stock Option until the issuance of a certificate or certificates to the Option Holder for the shares. Except as otherwise provided in Section 10 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. 10. Adjustment of Number of Shares and Related Matters. The Option ------------------------------------------------------ Holder understands that in the event of a Change of Control, merger, consolidation, reorganization, recapitalization of the Company, or the declaration of a stock dividend, the number of shares which may be purchased upon exercise of this Stock Option granted hereunder, the time at which any Stock Option may be exercisable, and the exercise price thereof may be adjusted in accordance with the Plan. 11. Option Holder's Representations. Notwithstanding any of the --------------------------------- provisions hereof, the Option Holder hereby agrees that he will not exercise the Stock Option granted hereby, and that the Company will not be obligated to issue any shares to the Option Holder hereunder, if the exercise thereof or the issuance of such shares shall constitute a violation by the Option Holder or the Company of any provision of any law or regulation of any governmental authority or shall not be in compliance with the listing requirements of a stock exchange. Any determination in this connection by the Board shall be final, binding, and conclusive. The obligations of the Company and the rights of the Option Holder are subject to all applicable laws, rules and regulations including, without limitation, the 1934 Act, the Code, any successors thereto, and any other applicable laws. 12. Investment Representation. Unless the Ordinary Shares are issued -------------------------- to him in a transaction registered under applicable federal and State securities laws, by his or her execution hereof, the Option Holder represents and warrants to the Company that all Ordinary Shares which may be purchased hereunder will be acquired by the Option Holder for investment purposes for his or her own account and not with any intent for resale or distribution in violation of Federal or state securities laws. Unless the Ordinary Shares are issued to him in a transaction registered under applicable federal and State securities laws, all certificates issued with respect to the Ordinary Shares shall bear an appropriate restrictive investment legend. 13. Law Governing. This Agreement is intended to be performed in the -------------- State of Texas and shall be construed and enforced in accordance with and governed by the laws of Texas. 14. Invalidity of Provision. The invalidity or unenforceability of any ----------------------- provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction. If any provision of this Agreement shall be adjudged unreasonable in any judicial or administrative proceeding, then the court or administrative body shall have the power to reform such provision and, in its changed form, such provision shall then be enforceable and shall be enforced. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Option Holder, to evidence his or her consent and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof. TRITON ENERGY LIMITED By:___________________________________ OPTION HOLDER: ______________________________________ EX-10.80 3 EXHIBIT 10.80 TRITON ENERGY LIMITED --------------------- EMPLOYEE'S NON-QUALIFIED STOCK OPTION AGREEMENT ----------------------------------------------- 1. Grant of Option. Pursuant to the Triton Energy Limited ----------------- _______________________ Plan (as amended, the "Plan"), for employees and directors of Triton Energy Limited, a Cayman Islands company (the "Company"), or any of its Subsidiaries, the Company grants to _____________________________ (Name of Option Holder) an option to purchase from the Company a total of _________ full Ordinary Shares ("Optioned Shares"), $.01 par value ("Ordinary Shares"), of the Company at $__________ per share (being at least the fair market value per share of the Ordinary Shares on this Date of Grant), in the amounts, during the periods and upon the terms and conditions set forth in this Agreement. The Date of Grant of this Stock Option is __________________. 2. Time of Exercise. ------------------ (a) Except only as specifically provided elsewhere in this Agreement, this Stock Option is exercisable in the following cumulative installments: First installment. Up to 33-1/3% of the total Optioned Shares at any time ------------------ on and after the first anniversary of the Date of Grant. Second installment. Up to an additional 33 1/3% of the total Optioned ------------------- Shares at any time on and after the second anniversary of the Date of Grant. Third installment. Up to an additional 33 1/3% of the total Optioned ------------------ Shares at any time on and after the third anniversary of the Date of Grant. No part of this Stock Option may be exercised after 5:00 p.m., Dallas, Texas time, on _______________________. (b) Notwithstanding the foregoing paragraph (a), in the event of the Option Holder's death while employed or termination of employment as a result of Retirement or Disability, all unmatured installments of Stock Options outstanding shall automatically be accelerated and exercisable in full by the Option Holder or his representative as set forth in Section 5 hereof. 3. Subject to Plan. This Stock Option and its exercise are subject to ---------------- the terms and conditions of the Plan. The Option Holder acknowledges receipt of a copy of the Plan and the Plan is incorporated herein by reference. The defined terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan. In addition, this Stock Option is subject to any rules promulgated pursuant to the Plan by the Board or the Committee and communicated to the Option Holder in writing. 4. Term. Subject to Articles VII and VIII of the Plan (including ---- regarding termination for Cause), this Stock Option, or applicable portions thereof, will terminate as follows: (a) This Stock Option will terminate at 5:00 p.m., Dallas, Texas time, on _______________. (b) Notwithstanding the foregoing paragraph (a), this Stock Option shall terminate at 5:00 p.m., Dallas, Texas time, on the date indicated below: (i) the date which is twelve (12) months following the date that the Option Holder's employment with the Company and its Subsidiaries terminates due to Disability or Retirement; (ii) the date which is three (3) months following the date that the Option Holder's employment with the Company and its Subsidiaries terminates for any reason other than death, Disability or Retirement; or (iii) the date which is three (3) years following the date that the Option Holder's employment with the Company and its Subsidiaries terminates due to the Option Holder's death; provided that in no event may this Stock Option be exercised after 5:00 p.m., Dallas, Texas time, on _______________________. 5. Who May Exercise. During the lifetime of the Option Holder, this ------------------ Stock Option may be exercised only by the Option Holder, or by the Option Holder's guardian, or by any permitted transferee. If the Option Holder's employment terminates as a result of death, Disability or Retirement prior to the termination dates specified in Section 4(a) hereof and this Stock Option has not theretofore been exercised as to the percentage of Optioned Shares set forth in Section 2 hereof as of the date of death, Disability or Retirement, the following persons may exercise the exercisable portion of this Stock Option as set forth in Section 2 hereof on behalf of the Option Holder at any time prior to the earlier of the dates specified in Sections 4(a) and (b) hereof: (i) if the Option Holder is disabled or has retired, the Option Holder or his guardian; or (ii) if the Option Holder dies, the personal representative of his estate, or the person who acquired the right to exercise this Stock Option by bequest or inheritance or by reason of the death of the Option Holder, or by permitted assignment; provided that this Stock Option shall remain subject to the other terms of this Agreement, the Plan, and applicable laws, rules, and regulations. 6. Restrictions on Exercise. This Stock Option may be exercised only -------------------------- with respect to full shares, and no fractional share shall be issued. 7. Manner of Exercise. Subject to such administrative regulations as -------------------- the Board or the Committee may from time to time adopt, this Stock Option may be exercised only upon written notice to the Company of the number of shares being purchased accompanied by the following: (a) Full payment of the option price for the shares being purchased; (b) Such other documents as the Company in its discretion deems necessary to evidence the exercise, in whole or in part, of this Stock Option. Full payment for shares purchased upon exercise of a Stock Option shall be made either in (i) cash, (ii) by certified or cashier's check, (iii) if permitted by the Committee, by Ordinary Shares, (iv) if permitted by the Committee, and if permitted under applicable law, by cash or certified or cashier's check for the par value of the shares plus a promissory note for the balance of the purchase price, which note shall provide for full personal liability of the maker and shall contain such other terms and provisions as the Committee may determine, including without limitation the right to repay the note partially or wholly with Ordinary Shares, or (v) by delivery of a copy of irrevocable instructions from the Option Holder to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares purchased upon exercise of the Stock Option or to pledge them as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price. If any portion of the purchase price or a note given at the time of exercise is paid in Ordinary Shares, those shares shall be valued at the then Fair Market Value. 8. Assignability. This Stock Option shall not be assignable or ------------- transferable by the Option Holder, except (i) by will or by the laws of descent and distribution, (ii) pursuant to the terms of a domestic relations order (as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder), or (iii) to members of the Option Holder's immediate family (i.e., parents, children, grandchildren or spouse), trusts for the benefit of such immediate family members, and partnerships in which such immediate family members are partners; provided that any such transfer shall be in accordance with all applicable laws, rules and regulations; and provided further that the provisions of this Stock Option Agreement and the Plan that are governed by the Option Holder's employment status with the Company shall continue in effect notwithstanding any such transfer. 9. Rights as Shareholder. The Option Holder will have no rights as a ----------------------- shareholder with respect to any shares covered by this Stock Option until the issuance of a certificate or certificates to the Option Holder for the shares. Except as otherwise provided in Section 10 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. 10. Adjustment of Number of Shares and Related Matters. The Option ------------------------------------------------------ Holder understands that in the event of a Change of Control, merger, consolidation, reorganization, recapitalization of the Company, or the declaration of a stock dividend, the number of shares which may be purchased upon exercise of this Stock Option granted hereunder, the time at which any Stock Option may be exercisable, and the exercise price thereof may be adjusted in accordance with the Plan. 11. Option Holder's Representations. Notwithstanding any of the --------------------------------- provisions hereof, the Option Holder hereby agrees that he will not exercise the Stock Option granted hereby, and that the Company will not be obligated to issue any shares to the Option Holder hereunder, if the exercise thereof or the issuance of such shares shall constitute a violation by the Option Holder or the Company of any provision of any law or regulation of any governmental authority or shall not be in compliance with the listing requirements of a stock exchange. Any determination in this connection by the Board shall be final, binding, and conclusive. The obligations of the Company and the rights of the Option Holder are subject to all applicable laws, rules and regulations including, without limitation, the 1934 Act, the Code, any successors thereto, and any other applicable laws. 12. Investment Representation. Unless the Ordinary Shares are issued to ------------------------- him in a transaction registered under applicable Federal and State securities laws, by his or her execution hereof, the Option Holder represents and warrants to the Company that all Ordinary Shares which may be purchased hereunder will be acquired by the Option Holder for investment purposes for his or her own account and not with any intent for resale or distribution in violation of Federal or State securities laws. Unless the Ordinary Shares are issued to him in a transaction registered under applicable Federal and State securities laws, all certificates issued with respect to the Ordinary Shares shall bear an appropriate restrictive investment legend. 13. Law Governing. This Agreement is intended to be performed in the -------------- State of Texas and shall be construed and enforced in accordance with and governed by the laws of Texas. 14. No Right to Continue Employment. Nothing in this Agreement confers -------------------------------- upon the Option Holder the right to continue in the employ of the Company or any Subsidiary or interferes with or restricts in any way the right of the Company or any Subsidiary to discharge the Option Holder at any time (subject to any contract rights of the Option Holder). 15. Invalidity of Provision. The invalidity or unenforceability of ------------------------- any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction. If any provision of this Agreement shall be adjudged unreasonable in any judicial or administrative proceeding, then the court or administrative body shall have the power to reform such provision and, in its changed form, such provision shall then be enforceable and shall be enforced. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Option Holder, to evidence his or her consent and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof. TRITON ENERGY LIMITED By: ____________________________________ OPTION HOLDER: __________________________________________ EX-10.81 4 EXHIBIT 10.81 AMENDMENT TO STOCK OPTIONS This agreement ("Agreement") is entered into as of January 3, 2000, between Triton Energy Limited, a Cayman Islands company (the "Company"), and the undersigned holder of stock options of the Company ("Holder"). WHEREAS, Holder and the Company are parties to that certain Stock Option Agreement dated as of January 12, 1998 pursuant to which the Holder was granted a stock option (the "Option") to purchase 75,000 ordinary shares of the Company under the Company's 1997 Share Compensation Plan (as amended, the "Plan"), and the Company and Holder desire that the Option should be amended in certain respects; NOW THEREFORE, in consideration of the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The Option is hereby amended so that it shall terminate and cease to be exercisable on January 12, 2005, subject to the remaining terms of the Plan. 2. This Agreement is intended to be performed in the State of Texas and shall be construed and enforced in accordance with and governed by the laws of Texas. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. TRITON ENERGY LIMITED By:____________________________________ James C. Musselman, President and Chief Executive Officer OPTION HOLDER: __________________________________________ A. E. Turner, III EX-10.82 5 EXHIBIT 10.82 AMENDMENT TO STOCK OPTIONS This agreement ("Agreement") is entered into as of January 3, 2000, between Triton Energy Limited, a Cayman Islands company (the "Company"), and the undersigned holder of stock options of the Company ("Holder"). WHEREAS, Holder and the Company are parties to that certain Stock Option Agreement dated as of January 13, 1998 (the "Option Agreement") pursuant to which the Holder was granted a stock option to purchase 15,000 ordinary shares of the Company under the Company's 1997 Share Compensation Plan (as amended, the "Plan"), and the Company and Holder desire that the Option Agreement should be amended in certain respects; NOW THEREFORE, in consideration of the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Section 4 of the Option Agreement is hereby amended to read n its entirety as follows: "4. Term. Subject to Article VIII of the Plan (including regarding ---- termination for Cause), this Stock Option, or applicable portions thereof, will terminate upon the earliest to occur of the following: (a) 5 p.m., Dallas, Texas time, on January 13, 2008; or (b) 5 p.m., Dallas, Texas time, on the date which is five years following the date that the Option Holder's service as a director of the Company terminates for any reason other than Cause." 2. This Agreement is intended to be performed in the State of Texas and shall be construed and enforced in accordance with and governed by the laws of Texas. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. TRITON ENERGY LIMITED By:____________________________________ A. E. Turner, III, Senior Vice President and Chief Operating Officer OPTION HOLDER: __________________________________________ EX-10.83 6 EXHIBIT 10.83 PRODUCTION SHARING CONTRACT BETWEEN THE REPUBLIC OF EQUATORIAL GUINEA AND TRITON EQUATORIAL GUINEA, INC. FOR BLOCK F TABLE OF CONTENTS ----------------- PAGE SECTION I SCOPE AND DEFINITIONS 1 SECTION II TERM, TERMINATION, AND CANCELLATION 5 SECTION III SURRENDER OF AREAS 9 SECTION IV WORK PROGRAM AND EXPENDITURES 10 SECTION V CONDUCT OF PETROLEUM OPERATIONS BY CONTRACTOR 13 SECTION VI RIGHTS AND OBLIGATIONS OF THE PARTIES, DETERMINATION OF PRODUCTION LEVELS 15 SECTION VII - RECOVERY OF PETROLEUM OPERATING COSTS, SHARING OF PRODUCTION, AND DISTRIBUTION OF PRODUCTION 19 SECTION VIII VALUATION OF CRUDE OIL 23 SECTION IX BONUSES AND SURFACE RENTALS 25 SECTION X PAYMENTS 26 SECTION XI TITLE TO EQUIPMENT 26 SECTION XII UNITIZATION 26 SECTION XIII CONSULTATION AND ARBITRATION 27 SECTION XIV BOOKS AND ACCOUNTS AND AUDITS 28 SECTION XV ADDITIONAL PROVISIONS 30 SECTION XVI LAWS AND REGULATIONS 30 SECTION XVII FORCE MAJEURE 30 SECTION XVIII TEXT 31 SECTION XIX EFFECTIVENESS 31 ANNEX "A" MAP OF CONTRACT AREA ANNEX "B" CONTRACT AREA COORDINATES ANNEX "C" ACCOUNTING PROCEDURE ANNEX "D" LETTER OF PERFORMANCE GUARANTY BY PARENT FOR CONTRACT AREA F, THE REPUBLIC OF EQUATORIAL GUINEA ANNEX "E" COORDINATES FOR THE 200M ISOBATH PRODUCTION SHARING CONTRACT BETWEEN THE REPUBLIC OF EQUATORIAL GUINEA AND TRITON EQUATORIAL GUINEA, INC. FOR BLOCK F THIS CONTRACT, made and entered into on this ___th day of March, 199_ by and between the REPUBLIC OF EQUATORIAL GUINEA (hereinafter referred to as the "STATE"), represented for purposes of this Contract by the MINISTRY OF MINES AND ENERGY of the REPUBLIC OF EQUATORIAL GUINEA (hereinafter referred to as the "MINISTRY"), and TRITON EQUATORIAL GUINEA, INC., a corporation organized and existing under the laws of the Cayman Islands (hereinafter referred to as "CONTRACTOR"), represented for purposes of this Contract by Thomas F. Finck, its President. STATE and CONTRACTOR hereinafter are referred to either individually as "Party" or collectively as "Parties." W I T N E S S E T H: WHEREAS, all Hydrocarbons existing within the territory of the Republic of Equatorial Guinea, including adjacent submerged lands, are national resources owned by the Republic of Equatorial Guinea; and WHEREAS, the STATE wishes to promote the development of hydrocarbon deposits in and throughout the Contract Area and CONTRACTOR desires to join and assist the STATE in accelerating the exploration and development of the potential resources within the Contract Area; and WHEREAS, CONTRACTOR, has the financial ability, technical competence and professional skills necessary to carry out the Petroleum Operations hereinafter described; and WHEREAS, in accordance with the Hydrocarbons Law of the Republic of Equatorial Guinea, agreements in the form of Production Sharing Contracts may be entered into between the STATE and foreign investors; THEREFORE, in consideration of the undertakings and covenants herein contained, the Parties hereby agree as follows: I. SCOPE AND DEFINITIONS ----------------------- 1.1 Scope ----- This Contract is a Production Sharing Contract. In accordance with the provisions herein contained, the MINISTRY shall be responsible for the supervision of the Petroleum Operations contemplated in this Contract. CONTRACTOR shall: - ---------- (a) be responsible to the STATE for the execution of the Petroleum Operations in accordance with the provisions of this Contract, and is hereby appointed and constituted the exclusive company to conduct Petroleum Operations in the Contract Area for the term hereof; (b) provide all necessary capital, machinery, equipment, technology and personnel necessary for the efficient conduct of Petroleum Operations; (c) bear the risk of Petroleum Operations Expenditures required in carrying out Petroleum Operations and shall therefore have an economic interest in the rapid development of any commercial hydrocarbon deposits in the Contract Area. Such costs shall be included in Petroleum Expenditures as recoverable or not recoverable as provided in Section VII and Annex "C" of this Contract. During the term of this Contract, the total production achieved in the conduct of the Petroleum Operations shall be divided between the Parties in accordance with the provisions of Section VII of this Contract. 1.2 DEFINITIONS In this Contract, words importing the singular include the plural and vice versa, and except where the context otherwise indicates, shall have the meanings set forth in this Section. Words that are not defined herein, but are defined in the Hydrocarbons Law, shall have the meanings set forth in the Hydrocarbons Law. (a) Person means any individual, corporation, partnership, joint venture, ------ association, trust, estate, unincorporated organization of government or any agency or political subdivision thereof. (b) Affiliated Company or Affiliate of any specified Person means any other -------------------------------- Person directly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct, administer and dictate policies of such Person, through the ownership of fifty percent (50%) or more of such Person's voting rights; and the terms "control" and "controlled" have meanings correlative to the foregoing. (c) Crude Oil - means Hydrocarbons which are produced at the wellhead in ---------- liquid state at atmospheric pressure and asphalt and ozokerites and the liquid Hydrocarbons known as condensate obtained from Natural Gas by condensation or extraction by means of field separation units. (d) Natural Gas - means all Hydrocarbons that at atmospheric conditions of ------------ temperature and pressure are in a gaseous state. Included in this definition are wet mineral gas, dry mineral gas, wet gas and residue gas remaining after the extraction processing or separation of liquid Hydrocarbons from wet gas. (e) Exploration Operations means works to include without limitation ----------------------- geological studies; geophysical studies; aerial mapping; investigations relating to the subsurface geology; stratigraphic test drilling; exploratory and appraisal wells; and related activities such as drillsite preparation, surveying, and all work necessarily connected therewith, that is conducted in connection with exploration for and commercial assessment of Crude Oil and/or Natural Gas. (f) Development and Production Operations means all operations other than ---------------------------------------- Exploration Operations, including those to facilitate extraction, production, local transportation and storage of Crude Oil and Natural Gas produced as part of the offshore operations. (g) Petroleum Operations means all Exploration Operations and Development --------------------- and Production Operations. (h) Exploration Expenditures means direct expenditures on Exploration ------------------------- Operations and overhead expenses made in connection with exploration and commercial assessment within the Contract Area. These expenditures shall be determined in accordance with the Accounting Procedure attached hereto as Annex "C," but expenditures made within the area of a Field after Commercial Discovery has been declared shall be excluded. (i) Development and Production Expenditures means direct expenditures on ------------------------------------------ Development and Production Operations and general expenses made in connection with the development of a Field, excluding expenditures made within the area of a Field before Commercial Discovery has been declared. These expenditures shall be determined in accordance with the Accounting Procedure attached hereto as Annex "C." (j) Petroleum Operations Expenditures means expenditures made and ----------------------------------- obligations incurred in carrying out Petroleum Operations hereunder, determined -- in accordance with the Accounting Procedure attached hereto as Annex "C" and made a part hereof. (k) Barrel means a quantity or unit of Crude Oil equal to 158.9874 liters ------ (forty-two (42) United States gallons) at a temperature of 15.56 degrees Centigrade (sixty (60) degrees Fahrenheit) under one atmosphere of pressure. (l) Field means an area within the Contract Area, as determined in ----- accordance with Section 2.6. (m) Well means any opening in the ground or seabed made or being made by ---- drilling or boring, or in any other manner, for the purpose of discovering, and delineating and/or producing Crude Oil or Natural Gas, or for the injection of any fluid into an underground deposit, other than a seismic hole or a structure test hole or stratigraphic test hole. (n) Commercial Discovery means a discovery of Hydrocarbons that, in the --------------------- judgment of CONTRACTOR, can be produced commercially, based on its consideration of all pertinent operating and financial data. (o) Work Program means an itemized statement of the Petroleum Operations to ------------- be carried out in the Contract Area as set forth in Section IV. (p) Budget of Petroleum Operations Expenditures means the estimate of the ---------------------------------------------- costs of all items included in the Work Program. (q) Calendar Year or Years means a period of twelve (12) months commencing ------------------------ January 1 and ending on the following December 31, according to the Gregorian Calendar. (r) Contract Year means a period of twelve (12) consecutive months according ------------- to the Gregorian Calendar, starting from the Effective Date of this Contract or from the anniversary of such Effective Date. (s) Gross Receipts means the sum of all sales proceeds and the monetary --------------- equivalent value of other Hydrocarbons dispositions from the Contract Area in any given calendar year. (t) Income Tax means the tax levied on CONTRACTOR's net income pursuant to ----------- the Tax Law of the Republic of Equatorial Guinea. (u) Calendar Quarter means a period of three (3) consecutive months ----------------- beginning January 1, April 1, July 1 or October 1 and ending March 31, June 30, September 30 or December 31, respectively. (v) Effective Date means the approval date of this Contract by the STATE in --------------- accordance with the provisions of the Hydrocarbons Law as evidenced by publication of this Contract in the Official Bulletin of the Republic of Equatorial Guinea or in the national information media (whichever publication occurs first), after approval of this Contract by the Supreme Court of Justice of the Republic of Equatorial Guinea and ratification by the President of the Republic of Equatorial Guinea. (w) Foreign Exchange means currency acceptable to the Parties other than ----------------- that of the Republic of Equatorial Guinea. (x) Hydrocarbons Law means Decree-Law No. 7/1981 of 16 June, as amended. ---------------- (y) Contract Area means the geographic territory of the Republic of -------------- Equatorial Guinea the subject of this Contract. Such Contract Area is described in Annex "B" and delineated in Annex "A" attached hereto and incorporated herein. (z) Royalty means for each Field, the percentages listed below corresponding ------- to the cumulative production of all the Crude Oil produced, saved and sold from the said Field and not otherwise utilized in Petroleum Operations: CUMULATIVE FIELD PRODUCTION ROYALTY ------- The first 100 million barrels 10% Greater than 100 million barrels to 300 million barrels 12.5% Greater than 300 million barrels 15% and ten percent (10%) of all the Natural Gas produced, saved and sold from the Contract Area and not otherwise utilized in Petroleum Operations. (ab) Maximum Efficient Rate means the maximum rate of Hydrocarbons ------------------------ production in a Field, without excessive decline or loss of reservoir pressure, and in accordance with the norms and practices of the petroleum industry and Section 6.3 of this Contract. (ab) Semester, as used in Section 7.8 means a period of six (6) consecutive -------- months, commencing the first of January and the first of July of each Calendar Year. (ac) Hydrocarbons means all natural, organic substances composed of CARBON ------------ and HYDROGEN including crude oil and natural gas and all other mineral substances, products, subproducts and by-products encountered in association therewith. (ad) Area of Provisional Discovery is defined in Section 2.4 -------------------------------- (ae) Tax Law means Decree Law No. 1/1986 of February 10, of the Republic of -------- Equatorial Guinea, as amended prior to the Effective Date. (af) Exploration Well means a Well that is not a development, evaluation or ----------------- injection well, and its only objective is to determine the existence of Hydrocarbons in a structure. (ag) Evaluation Well means a Well drilled following a discovery of ---------------- Hydrocarbons to delineate and locate the reservoir and to estimate the quantity of recoverable Hydrocarbons. II. TERM, TERMINATION, AND CANCELLATION -------------------------------------- 2.1 CONTRACTOR is authorized to conduct Exploration Operations during an initial exploration period of five (5) years, starting from the Effective Date. When CONTRACTOR has fulfilled its obligations hereunder for the initial exploration period, then upon application of CONTRACTOR made not later than ninety (90) calendar days prior to the fifth, sixth, and seventh anniversary of the Effective Date, as the case may be, the MINISTRY shall extend the period when Petroleum Operations may be conducted as follows: (a) after the fifth (5th) Contract Year for an additional period of one (1) Contract Year during which year CONTRACTOR shall drill in areas covered by waters less than two hundred (200) meters deep at least one (1) Exploration Well; (b) after the sixth (6th) Contract Year for an additional period of one (1) Contract Year during which year CONTRACTOR shall drill in areas covered by waters less than two hundred (200) meters deep at least one (1) Exploration Well; (c) if after the fifth (5th) Contract Year CONTRACTOR commits to drill at least one (1) Exploration Well in an area covered by water deeper than two hundred (200) meters, for an additional period of two (2) Contract Years; and (d) if during the seventh (7th) Contract Year CONTRACTOR encounters a show of Hydrocarbons that CONTRACTOR believes is sufficient to warrant further evaluation drilling, for a period of one (1) Contract Year during which year CONTRACTOR shall drill one (1) Evaluation Well in an area designated by mutual agreement of MINISTRY and CONTRACTOR. 2.2 Notwithstanding anything contained herein, CONTRACTOR, at its sole discretion, after fulfilling its minimum Work Program for the first two (2) Contract Years pursuant to 4.3(a), may terminate this Contract in its entirety without further obligation except with respect to any obligation under this Contract due and owing at the time of said termination. Furthermore, CONTRACTOR shall have the option to extend the exploration period and to conduct Petroleum Operations beyond the first two (2) Contract Years as indicated below: (a) After the second Contract Year, CONTRACTOR may elect to continue this Contract for an additional period of one (1) year, during which year CONTRACTOR will fulfill the minimum Work Program under Section 4.3(b)(i); (b) After the third Contract Year, CONTRACTOR may elect to continue this Contract for an additional period of one (1) year, during which year CONTRACTOR will fulfill the minimum Work Program under Section 4.3(b)(ii); (c) After the fourth Contract Year, CONTRACTOR, may elect to continue this Contract for an additional period of one (1) year, during which year CONTRACTOR will fulfill the minimum Work Program under Section 4.3(b)(iii); After fulfilling the minimum Work Program for each of the extension periods above, CONTRACTOR shall have the right to terminate this Contract in its entirety without further obligation except with respect to any obligations under this Contract due and owing at the time of said termination. CONTRACTOR shall make its election, if any, to extend the exploration period as provided in Sections 2.2(a), (b) and (c) above not later than ninety (90) calendar days prior to the second, third and fourth anniversary of the Effective Date, as the case may be. 2.3 If CONTRACTOR has not elected to terminate this Contract pursuant to Section 2.2 and no Commercial Discovery has been made, and if CONTRACTOR does elect to extend the Contract beyond the fifth (5th) Contract Year pursuant to Section 2.1, then this Contract shall terminate automatically in its entirety except with respect to Areas of Provisional Discovery, which shall remain part of the Contract Area pending final determination by the CONTRACTOR as to whether said Area of Provisional Discovery will be declared a Commercial Discovery. However, an extension of one (1) year may be granted by the MINISTRY so CONTRACTOR may finish drilling and testing any Well actually being drilled or tested at the end of the fifth (5th), sixth (6th), seventh (7th) or eight (8th) Contract Year. 2.4 Upon encountering indications of a substantial accumulation of Hydrocarbons in the Contract Area, the CONTRACTOR as soon as possible will notify the MINISTRY of this fact, indicating in the notice the particular details of the location, nature and size of the accumulation. After giving such notification to the MINISTRY, the CONTRACTOR as soon as practicable will submit to the MINISTRY a report showing the results of any preliminary production tests carried out, including, when necessary, the estimate of the oil or gas in place and the recoverable reserves of the accumulation and the approximate extension of said discovery in the Contract Area (hereinafter referred to as the "Area of Provisional Discovery"). The decision to delineate the Area of Provisional Discovery shall be at CONTRACTOR's discretion taking into account a reasonable interpretation of the data and shall be in accordance with normal petroleum industry practices. 2.5 Within each Area of Provisional Discovery CONTRACTOR shall carry out evaluation work, including, as appropriate, seismic work and drilling. As soon as possible, CONTRACTOR shall determine whether the discovery is a Commercial Discovery. Provided that if there is insufficient time to properly evaluate the discovery within the then current exploration period, upon CONTRACTOR's request, the MINISTRY shall grant CONTRACTOR a reasonable extension to fully evaluate such discovery. 2.6 When it is determined that the discovery of Hydrocarbons is a Commercial Discovery in accordance with Section 2.5, CONTRACTOR shall notify the MINISTRY, and CONTRACTOR shall submit to the MINISTRY, in writing, for its written approval, which approval will not be unreasonably withheld the following: (a) a report including a map showing the extension of the area of Commercial Discovery within the Contract Area; the area when said report is accepted by MINISTRY will constitute a Field; (b) a Work Program for development of the Field, including an estimate of the costs of Development and Production Expenditures necessary for the development of the Field; (c) the estimated Maximum Efficient Rate of production (that shall be established in accordance with Section 6.3) that CONTRACTOR intends to produce the Field; and (d) the schedule of the most accelerated program consistent with good international petroleum industry practice for implementation of CONTRACTOR's Work Program. Any report submitted by CONTRACTOR to the MINISTRY will be deemed accepted by the MINISTRY ninety (90) calendar days after CONTRACTOR's submittal unless CONTRACTOR is notified otherwise in such time period by the MINISTRY. 2.7 This Contract will continue in existence with respect to each Field for a period of thirty (30) years with respect to Crude Oil and for forty (40) years with respect to Natural Gas starting from the date CONTRACTOR, in accordance with the provisions of Section 2.6, receives approval from the MINISTRY that the discovery of Hydrocarbons in such Field is a Commercial Discovery. In case of new Commercial Discoveries as a result of new exploratory drilling on formations that underlie or overlie each other or other deposits found within the extension of the area of the original Commercial Discovery, such formations will constitute only one Field; and the Field will be defined or redefined as may be necessary, to incorporate all of the underlying and overlying formations and all deposits located within the extension of the area of the original Commercial Discovery, and the provisions of Section 2.6 shall apply mutatis mutandis to any ------- -------- such new Commercial Discovery. 2.8 CONTRACTOR shall have the right to terminate this Contract totally or partially; (a) with respect to any part of the Contract Area other than a Field then producing or that prior thereto had produced Crude Oil or Natural Gas upon giving ninety (90) calendar days written notice of its intention to do so; and (b) with respect to any field then producing or that prior thereto had produced Crude Oil or Natural Gas, upon giving one hundred eighty (180) calendar days written notice of its intention to do so. 2.9 Subject to Section 2.10, the STATE shall have the right to cancel this Contract upon giving sixty (60) calendar days written notice of its intention to do so, if CONTRACTOR: (a) fails to make any monetary payment required by law or under this Contract for a period of thirty (30) days after the due date for such payment; (b) fails to comply with any other material obligation that it has assumed under this Contract; (c) fails to comply with any regulations issued in accordance with this Contract by the MINISTRY, or any governmental department or agency of the Republic of Equatorial Guinea materially affecting the Petroleum Operations or the interests of the STATE referred to in this Contract; (d) suspends its payments under this Contract, because of insolvency or makes a settlement with its creditors; or (e) has not commenced production from a Field within the period of time specified in the development plan according to the terms and conditions specified in Section 2.5 without reasonable justification; provided that CONTRACTOR's actions or inactions, as the case may be, have a material impact on the petroleum Operations and are not in accordance with industry standards. 2.10 If the circumstance or circumstances that would otherwise result in cancellation under Sections 2.9(a), (b), (c) or (d) are remedied by CONTRACTOR or CONTRACTOR begins to remedy the circumstance and proceeds with such remedy with due diligence within the sixty (60) calendar day period following the notice of termination as aforesaid, then such termination shall not become effective. If CONTRACTOR cannot completely rectify or remedy the cause or causes within the sixty (60) day period, the CONTRACTOR may request from the MINISTRY an extension or extensions to complete the remedies and the MINISTRY, according to the criteria generally accepted in the industry, shall not unreasonably withhold the approval of such extensions if CONTRACTOR is diligently pursuing the remedies. 2.11 The termination or cancellation of this Contract, for whatever reason, shall be without prejudice to the obligations incurred and not carried out by the STATE or CONTRACTOR before the termination of this Contract. 2.12 In the event of cancellation pursuant to Section 2.9, the MINISTRY may require CONTRACTOR to continue for the account of the STATE Crude Oil or Natural Gas production activities until the right to continue such production has been transferred by the MINISTRY to another Person. In this case, all provisions relevant to CONTRACTOR's entitlement under this Contract will remain in force. In no event shall CONTRACTOR have any obligations under this Section for more than ninety (90) calendar days after such termination, unless otherwise agreed to by the Parties. 2.13 Within ninety (90) calendar days after the termination of this Contract, unless the MINISTRY has required an extension of this period, CONTRACTOR shall have the obligation to take any reasonably necessary action as directed by the MINISTRY, including the cessation or continuation of Petroleum Operations to prevent pollution, environmental damage or a hazard to human life or third party property. III. SURRENDER OF AREAS -------------------- 3.1 Subject to Section 3.3, CONTRACTOR shall surrender thirty percent (30%) of the original Contract Area no later than the end of the third Contract Year. 3.2 Subject to Section 3.3, if CONTRACTOR elects to extend the exploration period pursuant to Section 2.1 above, CONTRACTOR shall surrender an additional area equal to twenty percent (20%) of the remaining Contract Area no later than the end of the fifth Contract Year. 3.3 CONTRACTOR shall not be obligated to surrender any portion of the original Contract Area declared an Area of Provisional Discovery or a Field. CONTRACTOR's surrender obligations under Sections 3.1 and 3.2 shall apply to the area remaining after excluding from the original Contract Area areas declared to be an Area of Provisional Discovery or a Field and areas previously surrendered by CONTRACTOR. 3.4 After the mandatory surrenders as set forth in this Section III, CONTRACTOR shall maintain a reasonable exploration effort with regard to the remaining portion of the Contract Area. 3.5 Upon at least thirty (30) calendar days written notice to the MINISTRY prior to the end of the first Contract Year and similarly prior to the end of any succeeding Contract Year, CONTRACTOR may surrender any portion of the Contract Area, and such portion shall then be credited against that portion of the Contract Area CONTRACTOR is next required to surrender under the provisions of Sections 3.1 and 3.2 hereof. 3.6 CONTRACTOR shall notify the MINISTRY sixty (60) calendar days prior to the date of surrender, the description of the portion of the area to be surrendered. The individual portions being surrendered, whenever possible, shall be of sufficient size and convenient shape, taking into account contiguous areas already relinquished and not the subject of a further contract, to enable Petroleum Operations to be carried out thereon and the boundaries of such areas shall be delineated in exact degrees, minutes and seconds of longitude and latitude. 3.7 CONTRACTOR shall plug and abandon all Wells drilled by Contractor on the area to be surrendered in accordance with generally accepted oilfield practices. 3.8 No surrender made in accordance with this Section III shall relieve CONTRACTOR or its surety of the obligation to pay surface rentals accrued, or making payments due and payable as a result of exploration and development activities conducted through the date of surrender. IV. WORK PROGRAM AND EXPENDITURES -------------------------------- 4.1 CONTRACTOR shall commence Petroleum Operations hereunder not later than ninety (90) calendar days after the Effective Date. 4.2 CONTRACTOR shall be entitled to employ any person qualified, in the judgment of CONTRACTOR, to undertake on its behalf such geological and geophysical surveys, drillings or similar investigations as it may decide. Any subcontractor retained by CONTRACTOR shall have the necessary professional experience to perform the task assigned and shall be required, by written agreement with CONTRACTOR, to abide by all relevant terms of this Contract and all applicable laws and regulations of the Republic of Equatorial Guinea. CONTRACTOR within thirty (30) calendar years and shall advise the MINISTRY of the name and address of any subcontractor retained. 4.3 During the first five (5) Contract Years, CONTRACTOR agrees to perform the following minimum Work Program: (a) FIRST TWO CONTRACT YEARS: --------------------------- (i) Reprocess approximately one-thousand eight-hundred (1,800) kilometers of existing seismic data; (ii) Acquire one-thousand (1,000) kilometers of new seismic data; (iii) Drill one (1) Well contingent upon the identification of a structure which, in CONTRACTOR's opinion, is a drillable prospect; (b) THIRD, FOURTH AND FIFTH CONTRACT YEARS: ------------------------------------------- CONTRACTOR shall perform the following work in the event it exercises the option to extend pursuant to Sections 2.2(a), 2.2(b) or 2.2(c): (i) Drill one (1) Well in third Contract Year and conduct additional complementary work and associated analyses of technical data as CONTRACTOR deems appropriate; (ii) Drill one (1) Well in the fourth Contract Year contingent upon the identification of a structure that, in CONTRACTOR's opinion, is a drillable prospect, and conduct additional complementary work and associated analyses of technical data as CONTRACTOR deems appropriate; (iii) Drill one (1) Well in the fifth Contract Year and conduct additional complementary work and associated analyses of technical data, as CONTRACTOR deems appropriate. 4.4 In case the work completed by CONTRACTOR during any phase referred to in Section 4.3 exceeds the minimum work for that phase, the excess work may be carried forward and credited against the minimum work obligation in the next succeeding phase. 4.5 As a condition precedent to the effectiveness of this Contract, CONTRACTOR shall provide a security by means of a parent company performance guarantee to the MINISTRY substantially in the form of the guaranty set forth in ANNEX "D" and corresponding to Four Million United States Dollars (U.S. $4,000,000) for each Well CONTRACTOR commits to drill and One Million United States Dollars (U.S. $1,000,000) for other Petroleum Operations CONTRACTOR commits to conduct during the first two (2) Contract Years. If CONTRACTOR extends the period for Exploration Operations pursuant to Section 2.1 or 2.2, then CONTRACTOR on or before the date any such extension becomes effective shall provide an additional parent company performance guarantee as security substantially in the form of the guaranty set forth in Annex "D" and corresponding to an amount to be determined at the time of the extension by the MINISTRY and CONTRACTOR for Petroleum Operations CONTRACTOR commits to conduct during the period of any such extension. If at the end of the period of the phases for Exploration Operations, including any extension thereof made pursuant to Sections 2.1 and 2.2 hereof, or upon the date of termination of this Contract, whichever first occurs, CONTRACTOR has not performed the obligations described in the minimum Work Program, the balance of the security corresponding to the minimum expenditures for Petroleum Operations and the entirety of the security corresponding to the Well shall be paid automatically to the STATE in accordance with the provisions of Annex "D." 4.6 One hundred twenty (120) calendar days prior to the beginning of each Calendar Year or at such other time as otherwise mutually agreed by the parties, CONTRACTOR shall prepare and submit for approval to the MINISTRY a Work Program and Budget of Petroleum Operations Expenditures for the Contract Area setting forth the Petroleum Operations CONTRACTOR proposes to carry out during the ensuing Calendar Year. After thirty (30) calendar days and within a period of ninety (90) calendar days of its submission, the MINISTRY may ask for clarification of the Work Program and Budget of Petroleum Operations Expenditures and/or submit proposals for consideration by the Contractor for the revision of specific features thereof relating to the type and cost of the works and operations. In the absence of such proposals or a request for clarification, the Work Program and Budget of Petroleum Operations Expenditures shall be deemed to have been approved by the Ministry. Approval by the MINISTRY of the proposed Work Program and Budget of Petroleum Operations Expenditures will not be unreasonably withheld or delayed. If the Parties cannot agree on the Work Program and Budget of Petroleum Operations Expenditures, CONTRACTOR is hereby authorized to begin work necessary to carry out its proposed Work Program in a timely and practical manner until the Parties reach a mutually acceptable Work Program and Budget of Petroleum Operations Expenditures. The MINISTRY shall give a letter to CONTRACTOR authorizing in a provisional manner the beginning of said provisional Work Program and Budget of Petroleum Operations Expenditures until the MINISTRY approves the final Work Program and Budget of Petroleum Operations Expenditures. The Parties shall meet within a period of fifteen (15) days from date of issuance of the provisional Work Program and Budget of Petroleum Operations Expenditures from the MINISTRY and use all diligence to reach a mutually acceptable agreement. 4.7 It is recognized by the Parties that the details of a Work Program may require changes in the light of unforeseen circumstances and nothing herein contained shall limit the right of CONTRACTOR to make such changes, provided such changes do not alter the general objectives of the Work Program. 4.8 The Parties further recognize that in the event of an emergency or extraordinary circumstances requiring immediate action, either Party may take actions it deems proper or advisable to protect its interests and those of its employees and any costs so incurred by CONTRACTOR shall be included in the Petroleum Operations Expenditures. Costs incurred by CONTRACTOR related to measures of prevention and protection related to the environment shall be included as costs of Petroleum Operations Expenditures as cost recoverable. Costs incurred by CONTRACTOR related to cleaning up pollution or damage to the environment caused by CONTRACTOR shall not be included in Petroleum Operations Expenditures and shall not be cost recoverable except the first Two Hundred Thousand United State Dollars (U.S. $200,000) per occurrence related to such cleanup or damages per incident shall be included as costs of Petroleum Operations Expenditures and shall be cost recoverable. 4.9 Within ninety (90) calendar days after the expiration of a Calendar Year, CONTRACTOR shall submit to the MINISTRY detailed accounts showing the Exploration and/or Development and Production Expenditures CONTRACTOR has incurred during the past Calendar Year. The accounts shall be certified by an independent outside accountant acceptable to both Parties. It is understood that the MINISTRY retains the authority to review and audit occasionally CONTRACTOR's books with respect to Petroleum Operations conducted hereunder. Such audit right will terminate two (2) years after closure of the subject year's accounts. Any exceptions to Contractor's accounts must be officially communicated to the CONTRACTOR within three (3) years of the closure of the subject year's accounts. 4.10 During the term of this Contract, CONTRACTOR in accordance with good petroleum industry practice shall be responsible for carrying out all the necessary work in connection with abandonment (which includes the removal, proper disposal, alternative innovative recycling or salvage) of any Petroleum Operations Facilities, including, but not limited to, platforms, artificial structures, wellhead equipment, tubulars, and flowlines deemed by the MINISTRY to be unusable or no longer required for future operations. CONTRACTOR shall submit for the MINISTRY's approval detailed work plans for such removal, disposal or salvage. All costs incurred by CONTRACTOR to remove, dispose or salvage such facilities shall be cost recoverable. For the purpose of setting up a financial mechanism to recover such costs earlier in the life of a Field, CONTRACTOR and the MINISTRY shall agree on a mechanism and modality for setting aside a reserve on CONTRACTOR's books as part of Petroleum Operations Expenditures, subject to cost recovery, to be used for such removal, disposal or salvage operations, no later than two years after commencement of the first commercial production. V. CONDUCT OF PETROLEUM OPERATIONS BY CONTRACTOR -------------------------------------------------- 5.1 CONTRACTOR shall conduct the Petroleum Operations diligently and in accordance with generally accepted standards of the petroleum industry designed to enable production at the Maximum Efficient Rate of Crude Oil and at the level of production of Natural Gas specified in Section 6.3. CONTRACTOR shall ensure that all equipment, plant and installations used by CONTRACTOR or its subcontractors comply with generally accepted engineering norms and are of proper and accepted construction and are kept in optimal working order. 5.2 CONTRACTOR shall in particular take all reasonable steps necessary in accordance with generally accepted standards of the petroleum industry to: (a) without prejudice to Section 5.3, ensure that Crude Oil or Natural Gas discovered and produced within the Contract Area does not escape or is not in any other way wasted; (b) prevent damage to under or over Crude Oil or Natural Gas-bearing strata; (c) prevent the nonintentional entrance of water through Wells to Crude Oil or Natural Gas-bearing strata; (d) Prevent damage to under or over water-bearing strata; (e) Conduct all Petroleum Operations under this Contract in accordance with applicable law and regulations and in a manner that does not conflict with obligations imposed on the Republic of Equatorial Guinea by international law; (f) Take necessary precautions for protection of navigation and fishing and to prevent pollution of the sea or rivers; (g) Indemnify, defend and save the STATE harmless against all claims, losses and damage of any nature, whatever, including without limitation, claims for loss or damage to property or injury to persons caused by, or resulting from, any operation conducted by or on behalf of CONTRACTOR; provided that the CONTRACTOR shall not be held responsible to the STATE under this subsection for any loss, claim, damage, or injury caused by, or resulting from any negligent action of personnel of the STATE including, but not limited to, subcontractors of the STATE, other than CONTRACTOR, and employees of the State; (h) Subject to Section 2.4, drill and produce a Field without regard to CONTRACTOR's contractual interest, if any, in an adjacent contract area. 5.3 The Natural Gas CONTRACTOR does not utilize in its own operations in the Contract Area, or sell, shall be reinjected into the subsurface structure. When the existing technical and financial circumstances require the flaring of Natural Gas, the MINISTRY may authorize such flaring. The MINISTRY shall, nevertheless, authorize the flaring of Natural Gas for periods of relatively short duration during production tests, and in cases when the flaring of relatively small quantities of Natural Gas is a necessary part of Crude Oil production and is in accordance with good practice within the petroleum industry. 5.4 If any works or installations erected by CONTRACTOR or any operations undertaken by CONTRACTOR endanger Persons or third-party property or cause pollution or harm marine life to an unacceptable degree, the CONTRACTOR, in consensus with the MINISTRY, shall take opportune remedial measures within a reasonable period established by the MINISTRY and the CONTRACTOR to repair any damage to the environment. CONTRACTOR shall, if required by the nature and severity of the damage, suspend the Petroleum Operations in whole or in part, until CONTRACTOR has taken such remedial measures or has repaired the damage. 5.5 To ensure that CONTRACTOR shall meet its obligations to third parties or to government agencies that might arise in the event of damage or injury (including environmental damage or injury ) caused by Petroleum Operations, notwithstanding its accidental nature, CONTRACTOR shall maintain in force a third party liability insurance policy covering its Petroleum Operations. CONTRACTOR shall provide to the MINISTRY, within thirty (30) calendar days after the Effective Date, documents that prove the effectiveness of CONTRACTOR's third party liability insurance covering its Petroleum Operations. To the extent such third party liability insurance is unavailable, or is not obtained, or does not cover part or all of any claim or damage caused by or resulting from Petroleum Operations, including damage to the environment as mentioned in Section 4.8, CONTRACTOR shall remain wholly responsible and shall defend, indemnify and hold harmless the MINISTRY and the State against all claims or loss, except for claims arising from the negligence of the MINISTRY or STATE to their employees or their subcontractors other than CONTRACTOR. 5.6 If, after the Effective Date of this Contract, others are granted permits or licenses within the Contract Area for exploration/production of any minerals other than Crude Oil or Natural Gas, CONTRACTOR shall use his best efforts to avoid obstruction or interference with such licensees' operations within the Contract Area. The MINISTRY shall use its best efforts to ensure that operations of third parties do not obstruct CONTRACTOR's Petroleum Operations within the Contract Area. 5.7 CONTRACTOR shall provide acceptable working conditions, living accommodations on offshore installations, and access to medical attention and an infirmary for all personnel employed by CONTRACTOR or its subcontractors in its Petroleum Operations. 5.8 CONTRACTOR's Well design and drilling, including, but not limited to, CONTRACTOR's casing, cementing and drilling programs shall be in accordance with generally accepted industry practice. 5.9 Every Well shall be identified by a number, and shall be shown on maps, plans and similar records CONTRACTOR is required to keep. The MINISTRY shall at once be notified of any change on the identification numbers. 5.10 No Well shall be drilled through any vertical boundary of the Contract Area. A directional Well drilled to an objective under the Contract Area from a nearby surface location not covered by the Contract shall be deemed to have the same effect for all purposes of the Contract as a Well drilled from a surface location on the Contract Area. In such circumstances and for purposes of this Contract, production of Crude Oil or Natural Gas from the Contract Area through a directional Well surfaced nearby, or drilling or reworking of any such directional Well, shall be considered production or drilling or reworking operations (as the case may be) on the Contract Area for all purposes of this Contract. Nothing contained in this paragraph is intended or shall be construed as granting to the CONTRACTOR any leasehold interests, licenses, easements, or other rights the CONTRACTOR may have to acquire lawfully under the Hydrocarbons Law or from the MINISTRY or third parties. 5.11 Before commencing any work on drilling of any Well covered by a Work Program and Budget of Operating Expenditures or recommencing work on any Well on which work has been discontinued for more than six (6) months, CONTRACTOR shall give the MINISTRY seven (7) calendar days written notice; however, if the estimated amount to be spent on said work is less than One Hundred Thousand United States Dollars (U.S. $100,000), notice shall not be required. 5.12 Before abandoning any Field, CONTRACTOR shall give ninety (90) calendar days notice to the MINISTRY of its intention to abandon. Upon receipt of such notice, the MINISTRY may elect to assume operation of the Well or Wells proposed for abandonment; however, MINISTRY's operations shall not interfere with those of CONTRACTOR. The MINISTRY's failure to so elect, by notice to the CONTRACTOR in writing within the aforementioned ninety (90) day period, shall be deemed approval of the CONTRACTOR's proposal to abandon. 5.13 CONTRACTOR shall securely plug any Well that it intends to abandon to prevent pollution, damage to the environment, and possible damages to the reservoir. VI. RIGHTS AND OBLIGATIONS OF THE PARTIES, DETERMINATION OF PRODUCTION ------------------------------------------------------------------------ LEVELS ------ 6.1 Subject to the provisions of paragraphs (e) and (f) of this Section 6.1, CONTRACTOR shall have the following rights and obligations: (a) advance all necessary funds and purchase or lease all material, equipment and supplies required in connection with the Petroleum Operations; (b) furnish all technical aid, including foreign personnel, required for the performance of the Petroleum Operations; (c) furnish all such other funds for the performance of the Petroleum Operations as may be required, including payment to foreign entities performing services as subcontractors; (d) retain control to all leased property paid for with Foreign Exchange and brought into the Republic of Equatorial Guinea under the rules of temporary importation, and as such, shall have the right to freely export same from the Republic of Equatorial Guinea in accordance with the Hydrocarbons Law; (e) have the right prior notification to the Ministry to sell, assign, transfer, convey or otherwise dispose of any part or all of the rights and interests and obligations under this Contract to any Affiliated Company; (f) have the right to sell, assign, transfer, convey or otherwise dispose of all or any part of its rights and interests and obligations under this Contract to parties other than Affiliated Companies with the prior written consent of the MINISTRY, such consent shall not be unreasonably withheld, and shall be deemed granted if the MINISTRY does not respond to CONTRACTOR within sixty (60) calendar days of CONTRACTOR's written request for consent; (g) have the right at all times to enter and exit the Contract Area and any facilities used in the Petroleum Operations, wherever located; (h) have the right to use and have access to all geological, geophysical, drilling, Well, production and other information held by the MINISTRY or by any other governmental agency or enterprise, or enterprise in which the STATE participates, relating to the Contract Area, including Well location maps. The MINISTRY must supply the same to the CONTRACTOR; (i) submit in an appropriate form to the MINISTRY copies of all such geological, geophysical, drilling, Well, production and other data, reports, interpretations and maps, and cuttings of all samples that have been obtained or compiled during the term hereof; (j) include in the Work Program and Budget of Petroleum Operations Expenditures the following sums to be spent on training personnel of the MINISTRY and citizens of the Republic of Equatorial Guinea for professional, skilled and technical jobs in CONTRACTOR's Petroleum Operations. In conjunction with the preparation of the annual Budget of Petroleum Operations Expenditures, CONTRACTOR and MINISTRY will jointly agree on a training program where these sums will be expended. CONTRACTOR agrees to be responsible for the implementation and direct funding of the referenced training programs, and the expenditures will be included as cost recoverable in its Petroleum Operations Expenditures: (i) Fifty Thousand United States Dollars (U.S. $50,000) in each of the first and second Contract Years; (ii) Seventy-Five Thousand United States Dollars (U.S. $75,000) in the third Contract Year and in every year thereafter until a Commercial Discovery is determined in accordance with Section 2.5. For the year when Commercial Discovery is determined, the training obligation to be spent under this Section 6.1(j)(ii) will be prorated from January 1 of that year through the date on which Commercial Delivery is determined; (iii) One Hundred Thousand United States Dollars (U.S. $100,000) per year from the time of determination of Commercial Discovery to the date of first commercial production. For the year when the training obligation under this Section 6.1(j)(iii) takes effect, the amount to be spent will be prorated from the date of determination of Commercial Discovery through December 31 of that year; and (iv) Two Hundred Thousand United States Dollars (U.S. $200,000) per year from the time of first commercial production and for each year thereafter until termination of the Contract. For the year when the training obligation under this Section 6.1(j)(iv) takes effect, the amount to be spent will be prorated from the date of first commercial production through December 31 of that year. CONTRACTOR shall make all reasonable efforts to employ and train citizens of the Republic of Equatorial Guinea in Petroleum Operations. CONTRACTOR may employ non-citizens, if in the opinion of CONTRACTOR and not contested by the MINISTRY, no Equatorial Guinean citizens can be found with sufficient skill and technical qualifications. CONTRACTOR shall make similar requirements of any subcontractor. At intervals of not more than one year CONTRACTOR shall submit to the MINISTRY reports detailing the personnel employed and their residence when employed. CONTRACTOR shall provide, as CONTRACTOR deems necessary, on-the-job training for citizens of the Republic of Equatorial Guinea to undertake skilled and technical jobs in the Petroleum Operations. Costs and expenses of training citizens of Equatorial Guinea as well as costs and expenses for a program of training for the MINISTRY's personnel, shall be included in Petroleum Operation Expenditures; (k) appoint an authorized representative for the Republic of Equatorial Guinea with respect to this Contract, who shall have an office in Equatorial Guinea; (l) give preference to goods and services that are produced in the Republic of Equatorial Guinea or rendered by citizens of the Republic of Equatorial Guinea, provided such goods and services are offered at equally advantageous conditions with regard to quality, price, and immediate availability in the quantities and to the specifications required; (m) pay to the STATE the corresponding taxes in accordance with the Tax Law; (n) pay to the STATE the corresponding Royalty pursuant to the terms and conditions of this Contract; (o) except as provided in Section 7.10 hereof, have the right during the term hereof to freely lift, dispose of and export its share of Crude Oil, and retain abroad the Foreign Exchange proceeds obtained therefrom; (p) notify the MINISTRY at least forty-eight (48) hours before the abandonment of any Well. 6.2 THE MINISTRY SHALL: -------------------- (a) except with respect to CONTRACTOR's obligations to pay the taxes set forth at paragraph 6.1(m) of this Section VI, assume and discharge all other taxes CONTRACTOR would otherwise be subject, including transfer tax, import and export duties on materials, equipment and supplies brought into the Republic of Equatorial Guinea by CONTRACTOR, its contractors and subcontractors; likewise, it will comply with all taxes required with regard to property, capital, net worth, operations, remittances or transactions (whether exacted directly or by the requirement of stamp taxes on documents or the use of sealed paper), including any tax or levy on or in connection with operations performed hereunder by CONTRACTOR in accordance with this Contract. The MINISTRY shall not be obligated to pay CONTRACTOR's Royalty, Income Tax, nor taxes on tobaccos, liquor and personal income tax; nor shall it be obligated to pay the Income Tax and other taxes not listed in the preceding sentence payable by contractors and subcontractors. The obligations of the MINISTRY hereunder shall be deemed to have been complied with by the delivery to CONTRACTOR within one hundred and twenty (120) calendar days after the end of each Calendar Year, of documentary proof in accordance with fiscal laws of the Republic of Equatorial Guinea that liability for the above-mentioned taxes has been satisfied, except that with respect to any of such liabilities that CONTRACTOR may be obligated to pay directly, the MINISTRY shall reimburse it within sixty (60) calendar days after receipt of invoice. The MINISTRY shall be consulted prior to payment of such taxes by CONTRACTOR or by any other party on CONTRACTOR's behalf; (b) otherwise assist and expedite CONTRACTOR's execution of the Work Program by supplying or otherwise making available all necessary visas, work permits, import licenses, and rights of way and easements as may be required by CONTRACTOR or its subcontractors and made available from the resources under the MINISTRY's control; (c) have title to all original data resulting from the Petroleum Operations including, but not limited to, geological, geophysical, petrophysical, engineering, well logs and completion, status reports, samples and any other data CONTRACTOR may compile or obtain during the term of this Contract; provided, however, that CONTRACTOR may retain copies of such data and further provided that such data shall not be disclosed to third parties by the MINISTRY without the consent of CONTRACTOR while this Contract remains in effect. However, for the purpose of obtaining new offers, the MINISTRY may show any third party geophysical and geological data with respect to that part or parts of the Contract Area acquired by CONTRACTOR and adjacent to the area of such new offers, provided that no such data shall be disclosed that was in the possession of the MINISTRY for less than eleven (11) months. Notwithstanding the foregoing, the MINISTRY may show data to advisors and consultants of the MINISTRY that agree to keep the data confidential; (d) have the right at all reasonable times to inspect CONTRACTOR's Petroleum Operations, Hydrocarbon measuring devices, logs, plans, maps, and records relating to Petroleum Operations and surveys or investigations on or with regard to the Contract Area. MINISTRY shall make every effort to coordinate inspection activities to avoid interference with Petroleum Operations. 6.3 CONTRACTOR shall produce Crude Oil from the Contract Area at the Maximum Efficient Rate. CONTRACTOR and MINISTRY shall conduct a review of CONTRACTOR's production programs prior to the commencement of production from any Field and establish at that time by agreement the Maximum Efficient Rate and the production rate for Natural Gas and the dates the Maximum Efficient Rate and the production rate for Natural Gas will be reviewed and established in the future. In the case of Natural Gas, the production rate shall not be less than that required to satisfy any contracts then in existence for the sale of Natural Gas. 6.4 Subject to Section 5.2(b), the Crude Oil production rate shall not be less than that required to satisfy any contract in existence for the sale of Crude Oil. In no case the production rate shall damage the reservoir or reservoirs. VII. RECOVERY OF PETROLEUM OPERATING COSTS, SHARING OF PRODUCTION, AND ----------------------------------------------------------------------- DISTRIBUTION OF PRODUCTION ----------------------- CRUDE OIL: - ---------- 7.1 The respective production shares of the STATE and the CONTRACTOR of Crude Oil produced and saved shall be determined in accordance with the definitions and procedures set forth in this Section VII. 7.2 After making Royalty payments to the STATE, CONTRACTOR shall be entitled to recover all Petroleum Operations Expenditures out of the sales proceeds or other disposition of Crude Oil produced and saved hereunder and not used in Petroleum Operations. Any Crude Oil remaining after making the Royalty payments to the STATE and after all Petroleum Operations Expenditures are recovered by CONTRACTOR shall be referred hereinafter as "Net Crude Oil." Net Crude Oil shall be shared between the STATE and the CONTRACTOR in accordance with the procedures outlined below, designed to ensure total cost recovery by CONTRACTOR, followed by an escalation of the STATE's share based on increases in the CONTRACTOR's pre-tax rate of return: TOTAL TOTAL CONTRACTOR'S PRE-TAX STATE SHARE CONTRACTOR SHARE RATE OF RETURN (% OF NET CRUDE OIL) (% OF NET CRUDE OIL) -------------- -------------------- -------------------- Less than 18% 0% 100% Greater or equal to 18% and less than 25% 10% 90% Greater or equal to 25% and less than 40% 35% 65% Equal or Greater than 40% 55% 45% 7.3 To determine STATE's share of Net Crude Oil, it shall first be necessary to calculate Net Cash Flow from Petroleum Operations ("Net Cash Flow"). Net Cash Flow for any given Calendar Year shall be determined by subtracting Royalty and Petroleum Operations Expenditures from Gross Receipts. 7.4 To calculate the STATE's Share of Net Crude Oil produced from the Contract Area, there are hereby established three (3) accounts: First Share Account ("FSA"); Second Share Account ("SSA"); and Third Share Account ("TSA"). 7.4.1 First Share Account: --------------------- a. For purposes of calculating the First Share Account, the following formula shall be used: FSA(Y) = FSA(Y-1)(1 + .18 + i) + NCF(Y) Where: FSA = First Share Account Y = the Calendar Year in question NCF = Net Cash Flow i = the percentage change for the calendar year in question in the index of U.S. Consumer prices as reported for the first time in the monthly publication,"International Financial Statistics" of the International Monetary Fund. b. In any Calendar Year when FSA(Y) is negative, the STATE's share of Net Crude Oil determined with reference to the First Share Account shall be zero. c. In any Calendar Year when FSA(Y) becomes positive, the CONTRACTOR for purposes of this section shall be deemed to have earned a pre-tax rate of return that is equal to or greater than eighteen percent (18%), and the STATE's share of Net Crude Oil determined with reference to the First Share Account shall be valued at an amount of Net Crude Oil equal to ten percent (10%) of FSA(Y). d. In any Calendar Year immediately subsequent to a Calendar Year when FSA(Y) is positive, for purposes of applying the formula set forth in subsection (a) of this Section 7.4.1, FSA(Y-1) shall be equal to zero. 7.4.2 Second Share Account ---------------------- a. For purposes of calculating the Second Share Account, the following formula shall be used: SSA(Y) = SSA(Y-1)(1 + .25 + i) + (NCF(Y) - GS I(Y)) Where: SSA = Second Share Account Y = the Calendar Year in question NCF = Net Cash Flow GS I = STATE share of Net Crude Oil determined with reference to the First Share Account i = the percentage change for the Calendar Year in question in the index of U.S. consumer prices as reported for the first time in the monthly publication "International Financial Statistics" of the International Monetary Fund. b. In any Calendar Year when SSA(Y) is negative, the STATE's share of Net Crude Oil determined with reference to the Second Share Account shall be zero. c. In any Calendar Year when SSA(Y) becomes positive, the CONTRACTOR for purposes of this section shall be deemed to have earned a pre-tax rate of return that is equal to or greater than twenty-five percent (25%), and the STATE's share of Net Crude Oil determined with reference to the Second Share Account shall be valued at an amount of Net Crude Oil equal to twenty-seven and 778/1000 percent (27.778%) of SSA(Y). d. In any Calendar Year immediately subsequent to a Calendar Year when SSA(Y) is positive, for purposes of applying the formula set forth in subsection (a) of this Section 7.4.2, SSA(Y-1) shall be equal to zero. 7.4.3 Third Share Account - ----- --------------------- a. For purposes of calculating the Third Share Account, the following formula shall be used: TSA(Y) = TSA(Y-1)(1 + .40 + i) + (NCF(Y) - GS I(A) - GS II(Y)) Where: TSA = Third Share Account Y = the Calendar Year in question NCF = Net Cash Flow GS I = STATE share of Net Crude Oil determined with reference to the First Share Account GS II = STATE share of Net Crude Oil determined with reference to the Second Share Account i = the percentage change for the Calendar Year in question in theindex of U.S. consumer prices as reported for the first time in the monthlypublication "International Financial Statistics" of the International Monetary Fund. b. In any Calendar Year when TSA(Y) is negative, the STATE's share of Net Crude Oil determined with reference to the Third Share Account shall be zero. c. In any Calendar Year when TSA(Y) becomes positive, the CONTRACTOR for purposes of this section shall be deemed to have earned a pre-tax rate of return that is at least forty percent (40%), and the STATE's share of Net Crude Oil determined with reference to the Third Share Account shall be valued at an amount of Net Crude Oil equal to thirty and 769/1000 percent (30.769%) of TSA(Y). d. In any Calendar Year immediately subsequent to a Calendar Year when TSA(Y) is positive, for purposes of applying the formula set forth in subsection (a) of this Section 7.4.3, TSA(Y-1) shall be equal to zero. 7.4.4 Total STATE Share ------------------- The total STATE Share of Net Crude Oil in any Calendar Year shall be the sum of the STATE Share of Net Crude Oil determined with reference to the First Share Account, the Second Share Account and the Third Share Account for such calendar year. 7.5 CONTRACTOR, if so directed by the STATE, shall be obligated to market all crude Oil produced and saved from the Contract Area subject to the provisions hereinafter set forth. 7.6 Except as provided in paragraph 7.10, CONTRACTOR shall be entitled to take and receive and freely export Crude Oil allocated for recovery of Petroleum Operations Expenditures as well as its share of Net Crude Oil. 7.7 Title to the CONTRACTOR's share of Net Crude Oil under this Section VII, as well as to that portion of Crude Oil exported and sold to recover Petroleum Operations Expenditures, shall pass to CONTRACTOR at the wellhead. 7.8 If the MINISTRY elects to take any of the STATE's share of Net Crude Oil in kind, it shall so notify CONTRACTOR in writing not less than ninety (90) calendar days prior to the commencement of each Semester of each Calendar Year specifying the quantity that it elects to take in kind, such notice to be effective for the ensuing Semester of that Calendar Year (provided, however, that such election shall not interfere with the proper performance of any Crude Oil sales agreement for Crude Oil produced within the Contract Area that CONTRACTOR has executed prior to the notice of such election). Failure to give such notice shall be conclusively deemed to evidence the STATE elects not to take in kind. Any sale of the STATE's portion of Net Crude Oil shall not be for a term of more than one Calendar Year without the STATE's consent. 7.9 If the MINISTRY elects not to receive in kind the STATE's share of Crude Oil, then the MINISTRY may direct the CONTRACTOR to market or buy the STATE's share of production, whichever CONTRACTOR shall elect to do; provided, however, the price paid to the MINISTRY for the STATE's share of production shall not be less than the market price determined in accordance with Section VIII hereof. CONTRACTOR shall pay the STATE for the STATE's share of the production produced and saved for each Calendar Quarter; such payment shall be made within thirty (30) calendar days after the end of the Calendar Quarter when the production occurred. 7.10 In addition to the State's production share in accordance with the terms of this Contract, CONTRACTOR is obligated to sell to the STATE at not less than the market price in accordance with Section VIII hereof, if requested in writing, a portion of CONTRACTOR's share of Crude Oil for the internal consumption of the country in accordance with Section 15 of the Hydrocarbons Law; provided that CONTRACTOR's obligation hereunder does not interfere with any of CONTRACTOR's contracts with third parties. 7.11 Should the STATE and CONTRACTOR consider that the processing and utilization of Natural Gas is economical and choose to participate in the processing and utilization thereof, in addition to that used in secondary recovery operations, then the construction and installation of facilities for such processing and utilization shall be carried out pursuant to an approved Work Program. The recovery of costs of operations, sharing of production, and handling of production shall be effected according to the same general framework as that utilized for Crude Oil. 7.12 In the event that CONTRACTOR considers the processing and utilization of Natural Gas is not economical, the STATE may choose to take and utilize such Natural Gas that would otherwise be flared in accordance with the provisions of Section 5.3; all costs of taking and handling will be for the sole account and risk of the STATE. VIII. VALUATION OF CRUDE OIL ------------------------- 8.1 Crude Oil sold to third parties shall be valued as follows: (a) All Crude Oil taken by CONTRACTOR including its share and the share for the recovery of Petroleum Operations Expenditures, and sold to third parties shall be valued at the net realized price received by CONTRACTOR for such Crude Oil F.O.B. the Republic of Equatorial Guinea at the point Crude Oil passes through the inlet flange of the export tanker. (b) Except for the Royalty, all of the STATE's Crude Oil taken by CONTRACTOR and sold to third parties shall be valued at the net realized price received by CONTRACTOR for such Crude Oil F.O.B. the Republic of Equatorial Guinea at the point Crude Oil passes through the inlet flange of the export tanker, less costs incurred by CONTRACTOR related to the sale of STATE's Crude Oil. (c) The MINISTRY shall be duly advised before the sales referred to in paragraph (b) of this subsection are made. (d) Subject to any existing Crude Oil sales agreement, if a more favorable net realized price is available to the STATE for the Crude Oil referred to in paragraph (b) of this subsection, then the MINISTRY shall so advise CONTRACTOR in writing not less than ninety (90) calendar days prior to the commencement of the deliveries under the State's proposed sales contract. Forty-five (45) calendar days prior to the start of such deliveries, CONTRACTOR shall notify the MINISTRY regarding CONTRACTOR's intention to meet the more favorable net realized price in relation to the quantity and period of delivery pursuant to said proposed sales contract. In the absence of such notice the STATE shall market its Crude Oil. (e) The STATE's marketing of such Crude Oil as referred to in paragraph (d) of this subsection shall continue until forty-five (45) calendar days after the STATE's net realized price on said Crude Oil becomes less favorable. CONTRACTOR's obligation to market said Crude Oil shall not apply until after the STATE has given CONTRACTOR at least sixty (60) calendar days advance notice that the STATE does not desire to continue such sales. As long as the STATE is marketing the Crude Oil referred to above, it shall notify CONTRACTOR of the more favorable net realized price. 8.2 Crude Oil sold to other than third parties shall be valued as follows: (a) By using the weighted average per unit price received by CONTRACTOR and the STATE from sales to third parties F.O.B. at the point Crude Oil passes through the inlet flange of the export tanker in the Republic of Equatorial Guinea, net of commissions and brokerages paid in relation to such third party sales, during the three (3) months preceding such sale, adjusted as necessary for quality, grade and gravity, and taking into consideration any special circumstances with respect to such sales; (b) If no such third party sales have been made during such period of time, then on the basis used to value Crude Oil of similar quality, grade and gravity and taking into consideration any special circumstances with respect to sales of such similar Crude Oil. 8.3 Third party sales referred to in this section shall mean sales by CONTRACTOR to independent purchasers of CONTRACTOR, entered into in an arm's length transaction between a willing seller and a willing purchaser on commercial terms reflecting current international open market conditions. 8.4 Commissions or brokerages incurred in connection with sales to third parties, if any, shall not exceed the customary and prevailing rate. 8.5 During any given Calendar Year, the handling of production (i.e., the implementation of the provisions of Section VII hereof) and the proceeds thereof shall be provisionally dealt with on the basis of the relevant Work Program and Budget of Petroleum Operations Expenditures based upon estimates of quantities of Crude Oil to be produced, of internal consumption in the Republic of Equatorial Guinea, of marketing possibilities, of prices and other sale conditions as well as of any other relevant factors. Within thirty (30) calendar days after the end of said given Calendar Year and to comply with the provisions of this Contract, adjustments and cash settlements between the Parties shall be made on the basis of the actual quantities, amounts and prices involved. 8.6 In the event the Petroleum Operations require the segregation of Crude Oils of different quality and/or grade and if the Parties do not otherwise mutually agree: (a) any and all provisions of this Contract concerning valuation of Crude Oil shall apply individually to each segregated Crude Oil; (b) Crude Oil produced and segregated in a given year shall contribute to: (i) the "required quantity" allotted in such year to the recovery of all Petroleum Operations Expenditures pursuant to Section VII; (ii) the "required quantity" of Crude Oil a Party is entitled in such Year pursuant to Section VII. with quantities that bear the same proportion to the respective "required quantity" (referred to in (i) or (ii) above) as the quantity of such Crude Oil produced and segregated in such given Year bears to the total quantity of Crude Oil produced in such Year from the Contract Area. IX. BONUSES AND SURFACE RENTALS ------------------------------ 9.1 On the Effective Date, CONTRACTOR shall pay the STATE the sum of Seven Hundred Fifty Thousand United States Dollars (U.S. $750,000) as a signature bonus. 9.2 On the date CONTRACTOR notifies MINISTRY it has made a Commercial Discovery, CONTRACTOR shall pay the STATE the sum of Seven Hundred Fifty Thousand United States Dollars (U.S. $750,000). 9.3 CONTRACTOR shall pay the STATE a one-time payment of One Million Five Hundred Thousand United States Dollars (U.S. $1,000,000) after daily production from the Contract Area averages for the first time twenty thousand (20,000) barrels per day for a period of sixty (60) calendar days; CONTRACTOR shall also pay the STATE a one-time payment of Two Million Five Hundred Thousand United States Dollars (U.S. $2,500,000) after daily production from the Contract Area averages for the first time thirty thousand (30,000) barrels per day for a period of sixty (60) calendar days. Such payments shall be made within thirty (30) calendar days following the last day of the respective sixty (60) calendar day period. 9.4 From the Effective Date and throughout the period CONTRACTOR is conducting Exploration Operations, CONTRACTOR shall pay to STATE an annual surface rental of One United States Dollar (U.S. $1.00) per hectare for all parts of the Contract Area covered by less than two hundred (200) meters of water and Fifty United States Cents (U.S. $.50) per hectare for all parts of the Contract Area covered by two hundred (200) meters or more of water where CONTRACTOR is authorized to conduct Exploration Operations. From the expiration of the Exploration Operations until termination of this Contract, CONTRACTOR shall pay to the STATE an annual surface rental of Two United States Dollars (U.S.$2.00) per hectare for all parts of the remaining Contract Area. The MINISTRY and CONTRACTOR agree that the coordinates shown in Annex "E" attached hereto represent the boundary where the two hundred (200) meter depth occurs and the basis for calculating the rental payments. For the year this Contract is signed, the surface rentals shall be prorated from the Effective Date through December 31 of that year, and shall be paid thirty (30) calendar days after the Effective Date. For succeeding years the surface rentals shall be paid in advance, thirty (30) calendar days before the beginning of each Calendar Year. 9.5 (a) The production bonus payments required by Section 9.3 hereof shall be included in Petroleum Operations Expenditures as cost recoverable. (b) The signature bonus, Commercial Discovery bonus and surface rentals required by Sections 9.1, and 9.2, and 9.4 of this Contract shall not be included as cost recoverable in Petroleum Operations Expenditures. X. PAYMENTS -------- 10.1 All payments to be made by CONTRACTOR to the STATE pursuant to this Contract shall be made to the Treasury of the STATE in United States currency, or at CONTRACTOR's election, in other currency acceptable to the STATE. 10.2 All payments due CONTRACTOR shall be made in United States Dollars, or at the STATE's election, in other currency acceptable to CONTRACTOR, at a bank to be designated by CONTRACTOR. 10.3 Unless otherwise specifically provided herein, any payments required to be made pursuant to this Contract shall be made within thirty (30) calendar days following the end of the month when the obligation to make such payments occurs. 10.4 At the end of each accounting period any gain or loss on the CONTRACTOR's books caused by variations in the exchange rates will be deducted or added, as the case may be, from its costs and expenses for that period, in case CONTRACTOR's accounting is done in FCFA (French Africa Confederation Francs) or in any other currency agreed to by the Parties other than United States Dollars. XI. TITLE TO EQUIPMENT -------------------- 11.1 The equipment and fixed installations purchased by CONTRACTOR for use in Development and Production Operations becomes the Property of the STATE when the term of this Contract expires. Nevertheless, the equipment and fixed installations amortized before the expiration of the Contract, could be used by the STATE providing such use does not interfere with CONTRACTOR's activities. 11.2 The provisions of Section 11.1 of this Section XI shall not apply to the equipment of CONTRACTOR or any of its subcontractors that constitute an indispensable element in the production of Hydrocarbons; such equipment may be freely exported from the Republic of Equatorial Guinea, if it has not been amortized. XII. UNITIZATION ----------- 12.1 If a Field is designated within the Contract Area and it extends to other parts of the Republic of Equatorial Guinea where other parties have obtained a Contract for exploration and production of Crude Oil or Natural Gas, or where another Contract has been granted to the CONTRACTOR, the MINISTRY may demand the production of Crude Oil and Natural Gas be carried out in collaboration with the other contractors. The same rule shall be applicable if deposits of Crude Oil or Natural Gas, within the Contract Area, not commercially recoverable are deemed as commercially exploitable if the production includes those parts of the deposits extending to areas controlled by other contractors. 12.2 If the MINISTRY so orders, CONTRACTOR shall collaborate with other contractors in preparing a collective proposal for approval by the MINISTRY for common production of the deposits of Crude Oil or Natural Gas. 12.3 If the proposal for common production has not been presented within the time period established, or if the MINISTRY does not approve that proposal (such approval shall not be unreasonably denied or delayed), the MINISTRY may prepare or cause to be prepared for the account of the parties involved, a plan for common production. If the MINISTRY adopts such plan, the CONTRACTOR shall comply with all the conditions established in such plan. 12.4 This Section XII shall also be applicable to discoveries of deposits of Crude Oil or Natural Gas within the Contract Area that extend to areas not within the dominion of the Republic of Equatorial Guinea; provided that with respect to the production of such deposits of Crude Oil or Natural Gas, the MINISTRY is empowered to impose the special rules and conditions necessary to satisfy obligations under agreements with international organizations or adjacent states. 12.5 Within one hundred eighty (180) calendar days following a request by the MINISTRY, CONTRACTOR shall agree and proceed to operate under any cooperative or unitary plan for the development and operation of the area, Field or pool, or a part of the same, including areas covered by this Contract, the MINISTRY deems feasible and necessary or advisable for purposes of conservation. If a clause of a cooperative or unitary development plan approved by the MINISTRY that by its terms affects the Contract Area or a part of the same or contradicts a clause of this Contract, the clause of the cooperative or unitary plan shall prevail. 12.6 Notwithstanding Section 12.5, in the event of conflicting clauses between the terms of the Contract and the cooperative or unitary plan, CONTRACTOR shall retain the right to conciliation and arbitration under Section XIII. XI CONSULTATION AND ARBITRATION ------------------------------ 13.1 The STATE and CONTRACTOR hereby consent to submit to the jurisdiction of the International Centre for Settlement of Investment Disputes (hereinafter the "Centre") for any dispute arising out of or relating to this Contract or relating to any investment made under it, for settlement by conciliation followed, if the dispute remains unresolved within three (3) months of the communication of the report of the Conciliation Commission to the parties, by arbitration, pursuant to the Convention of the Settlement of Investment Disputes between States and Nationals of Other States (hereinafter the "Convention"). 13.2 The MINISTRY is a governmental agency of the Republic of Equatorial Guinea that has been designated to the Centre by the STATE pursuant to Articles 25(1) and 25(3) of the Convention and the Republic of Equatorial Guinea has notified the Centre that the agreements executed by the MINISTRY do not require approval (the Government has approved said Consent Agreement by decree ______________________________) 13.3 It is agreed by the Parties to this Contract that CONTRACTOR is a citizen of the Cayman Islands. 13.4 It is hereby agree by the Parties that the consent to the Centre's Jurisdiction stipulated above, shall equally bind any successor in interest to the Government of Republic of Equatorial Guinea and CONTRACTOR to the extent that Centre can assume jurisdiction over a dispute between the successor and the other Party. 13.5 It is hereby agreed that the right of CONTRACTOR to request the settlement of a dispute by the Centre or to take any step as a party to a proceeding in accordance with this clause shall not be affected by CONTRACTOR receiving partial compensation, conditional or absolute, from any Third Party (whether a private person, a state, a government agency or an intentional organization) with respect to any material loss or injury that is the subject of the dispute; provided that the Republic of Equatorial Guinea may require evidence that such third party agrees to the exercise of those rights by CONTRACTOR. 13.6 Since the Republic of Equatorial Guinea is not a signatory to the Convention, it is hereby agreed that Section XIII shall be in force on the effective date of the convention as regards this STATE, and that date shall be considered as the date the Parties consented to submit disputes to the Centre. Until thirty (30) days after the ratification of the Convention by the Republic of Equatorial Guinea of the procedures for settlement of disputes provided for in this Section, all disputes shall be settled by procedures similar to those applicable under the Convention, except that the proceedings shall be initiated by direct communication between the Parties, and if the Tribunal is not constituted within ninety (90) calendar days following the receipt of such communication, either party may request the Centre's Secretary General to appoint any arbitrators not yet appointed. Any Tribunal constituted regarding a dispute submitted to the Centre pursuant to this Section shall consist of one arbitrator appointed by each Party, and an arbitrator appointed by the Centre's Chairman of the Administrative Council who shall be President of the Tribunal. 13.7 Any Tribunal constituted pursuant to this Contract shall apply the law of the Republic of Equatorial Guinea. Such Tribunal constituted pursuant to this Contract shall have the power to decide a dispute ex aequo et bono. 13.8 Notwithstanding Section 13.6, if conciliation or arbitration under the Convention are unavailable because the jurisdictional requirements ratione personae of Article 25 of the Convention is unfulfilled at the time a proceeding is instituted pursuant to this Section XIII, the Parties agree to conciliation or arbitration, as the case may be pursuant to Section 13.1, in accordance with the Arbitration (Additional Facility) Rules of the Centre. 13.9 The place of arbitration shall be Washington, D.C., United States of America, and the arbitration shall be held at the seat of the Centre. The language of the proceedings shall be Spanish. XIV. BOOKS AND ACCOUNTS AND AUDITS --------------------------------- 14.1 BOOKS AND ACCOUNTS -------------------- CONTRACTOR shall be responsible for keeping books and accounts reflecting all Petroleum Operations Expenditures as well as revenue received from the sale of Crude Oil and Natural Gas, consistent with modern petroleum industry practices and proceedings as described in Annex "C" attached hereto. Such books and accounts shall be maintained in United States Dollars. Should there be any inconsistency between the provisions of this Contract and the provisions of Annex "C," the provisions of this Contract shall prevail. 14.2 AUDITS ------ The STATE shall have the right to inspect and audit CONTRACTOR's books and accounts relating to this Contract in accordance with Section 4.9 If CONTRACTOR's books and accounts are not available for inspection in the Republic of Equatorial Guinea, the STATE shall have the right to audit the CONTRACTOR's books and accounts at the CONTRACTOR's headquarters; in this case, the expenses of the audit shall be paid by the CONTRACTOR. Moreover, the STATE will require CONTRACTOR to engage independent accountants to examine, in accordance with generally accepted auditing standards, CONTRACTOR's books and accounts relating to this Contract for any Calendar Year or perform auditing procedures as deemed appropriate by the STATE. A copy of the independent accountant's report or any exceptions shall be forwarded to the STATE within sixty (60) calendar days following the completion of such audit. Any cost incurred by CONTRACTOR in complying with this requirement by the STATE shall be included in Petroleum Operations Expenditures and shall be cost recoverable. CONTRACTOR's books and accounts shall be deemed accepted by the STATE twenty-four (24) months after the end of the Calendar Year when the cost was incurred, unless the MINISTRY notifies CONTRACTOR otherwise within such time. XV. ADDITIONAL PROVISIONS ---------------------- 15.1 NOTICES ------- Any notices required or given by either Party to the other, shall be deemed to have been delivered when properly acknowledged for receipt by the receiving Party. All such notices shall be in Spanish and shall be addressed to : MINISTRY OF MINES AND ENERGY -------------------------------- Malabo-Bioko Norte Republica de Guinea Ecuatorial Telephone: (240)-9-3567, -3405, -2086 Facsimile: (240)-9-3353 Telex: GBNOM 5405 EG CONTRACTOR ---------- Triton Equatorial Guinea, Inc. Wellington House, 5th Floor 125 Strand Street London, WC2R 0AP United Kingdom Attn: Project Coordinator Telephone: 44-171-533-7000 Facsimile: 44-171-533-9000 Telex: None Either party may substitute or change such address on written notice thereof to the other. XVI. LAWS AND REGULATIONS ---------------------- 16.1 For purposes of this Contract, the laws of the Republic of Equatorial Guinea shall govern in accordance with generally accepted principals of international law. 16.2 In the event of changes in the legislation regarding Petroleum Operations, and if as a consequence of their implementation, said changes cause, to the detriment of any of the Parties, the reduction of rights or an increase in the economic obligations contained in this Contract, the Parties shall meet and take the suitable measures to achieve the necessary economic balance at any time during the Effectiveness of this Contract. XVII. FORCE MAJEURE -------------- 17.1 Except as otherwise provided in this Subsection 17.1, each Party shall be excused from complying with the terms of this Contract, except for the payment of monies then due, if any, for so long as such compliance is hindered or prevented by irresistible circumstances or beyond the reasonable control of the Party concerned, including, but not limited to, change of government, violent storms, cyclones, thunderstorms, navigation dangers, destruction of machinery or whatever kind of installations, hostilities, blockades, embargoes, criminal disturbances, national emergencies, the inability to obtain, import or use any of the required materials, equipment or services, and the inability to obtain the necessary rights of passage, riots, strikes, wars (declared or undeclared), insurrections, rebellions, terrorist acts, civil disturbances, dispositions or orders of governmental authority, whether such authority be actual or assumed, acts of God, such circumstances being herein sometimes called "Force Majeure"; provided, however, inability to obtain equipment, supplies or fuel shall not be a cause of Force Majeure, unless caused by one of the factors described in this Subsection 17.1. If any failure to comply is occasioned by a governmental law, rule, regulation, disposition or order of the Government of the Republic of Equatorial Guinea as aforesaid and the affected Party is operating in accordance with good petroleum industry practice in the Contract Area and is making reasonable efforts to comply with such law, rule, regulation, disposition or order, the matter shall be deemed beyond the control of the affected Party. In the event that either Party hereto is rendered unable, wholly or in part, by any of these causes to carry out its obligations under this Contract, it is agreed that such Party shall give notice and details of Force Majeure in writing to the other Party within seven (7) calendar days after its occurrence. In such cases, the obligations of the Party giving the notice shall be suspended during the continuance of any inability so caused, and the term of the Contract shall be extended to coincide with the duration of the condition of Force Majeure. Both Parties shall do all within their power to remove such cause. XVIII. TEXT ---- 18.1 This Contract is written in the Spanish and English languages. In the event of a controversy between the two texts, the Spanish text shall prevail. XIX. EFFECTIVENESS ------------- 19.1 This Contract shall come into effect on the Effective Date. 19.2 This Contract shall not be annulled, amended or modified in any respect, except by the mutual consent in writing of the Parties or their successors hereto. Nevertheless, the MINISTRY when requested by CONTRACTOR, once all works described in Section 4.3(i)(ii) are completed, shall approve within sixty (60) calendar days from said request an amendment authorizing CONTRACTOR to transfer the minimum drilling obligation described in Section 4.3 from this Block to Block "G" including all the obligations and rights associated with said drilling. CONTRACTOR shall be entitled to recover the costs associated with drilling on the Block where the well is drilled. Any amendments or modifications agreed to in writing by the Parties shall not require approval by the Supreme Court of Justice of the Republic of Equatorial Guinea or ratification by the President of the Republic of Equatorial Guinea. IN WITNESS WHEREOF, the Parties hereto have executed this Contract, in triplicate and in the Spanish language, as of the day and year first above written. THE REPUBLIC OF EQUATORIAL GUINEA REPRESENTED BY THE MINISTRY OF MINES AND ENERGY OF THE REPUBLIC OF EQUATORIAL GUINEA By: ________________________________ Minister of Mines and Energy TRITON EQUATORIAL GUINEA, INC. By: ________________________________ Thomas G. Finck, President ANNEX "B" DESCRIPTION OF CONTRACT AREA BLOCK F CORNER POINTS LATITUDE NORTH LONGITUDE EAST A 1 41' 05" 9 37' 34" B 1 41' 07" 9 25' 37" C 1 40' 15" 9 25' 37" D 1 40' 15" 9 17' 41" E 1 34' 38" 9 17' 41" F 1 34' 34" 9 01' 56" G 2 00' 00" 9 13' 39" H 2 00' 00" 9 47' 41" From corner point H the Block is defined by the coast in low tide until the intersection with corner point A at latitude North 1 41' 05" and 9 37' 34" longitude East ANNEX "C" ACCOUNTING PROCEDURE Attached to and made an integral part of the Production Sharing Contract (the "Contract") for Block F between the REPUBLIC OF EQUATORIAL GUINEA, represented for purposes of this Contract by the Ministry of Mines and Energy, and TRITON EQUATORIAL GUINEA, INC., CONTRACTOR, dated the 26th day of March, 1997. Article I General Provisions 1. Purpose. The accounting procedure herein provided and attached to the ------- Contract is to be followed and observed in the performance of either Party's obligations under the Contract. 2. Accounts and Statements. CONTRACTOR's accounting records and books will ------------------------ be kept in accordance with generally accepted and recognized accounting systems, consistent with modern petroleum industry practices and procedures. Books and reports will be maintained and prepared in accordance with methods established by the MINISTRY. The chart of accounts and related account definitions will be prescribed by the MINISTRY. Reports will be organized for the use of the MINISTRY in carrying out its management responsibilities under the Contract. Article II Petroleum Operations Expenditures 1. Definition for Purposes of the Recovery of Costs and Calculation of -------------------------------------------------------------------- the Income Taxes. For any year when commercial production occurs, Petroleum - ------------------ Operations Expenditures shall consist of a) current year's non-capital costs, b) current year's capital costs, and c) current year allowed recovery of prior year's unrecovered Petroleum Operations Expenditures. 2. Non-Capital Expenditures. Non-capital expenditures means those ------------------------- Petroleum Operations Expenditures, whether related to Crude Oil or Natural Gas. or relating to current year's operations. Moreover, non-capital expenditures shall also include the sums agreed and designated by the MINISTRY and CONTRACTOR for the abandonment of the Petroleum Operations. In addition to costs relating only to current operations, U.S. $93,000 spent by CONTRACTOR for data acquired prior to the Effective Date shall be classified as non-capital expenditures authorized in writing by the MINISTRY, and the costs of surveys and the intangible costs of drilling exploratory and development wells, as described in paragraph (c), (d) and (e) below, will be classified as non-capital costs. Non-capital expenditures include, but are not limited to the following: (a) Labor, materials and services used in day to day crude oil well operations, crude oil field production facilities operations, secondary recovery operations, natural gas well storage, handling, transportation, and delivery operations, natural gas field production facilities operations, natural gas transportation and delivery operations, natural gas processing auxiliaries and utilities, cleaning up pollution or related damages as set forth in Section 4.8 of this Contract, and other operating activities, including maintenance, all of which comprise Petroleum Operations. (b) Office, services and general administration - General services including overhead allocation, insurance premiums, technical and related services, material services, transportation, rental of heavy engineering equipment, site rentals and other rentals of services and property, personnel expenses, public relations, and other expenses abroad. (c) Development and production drilling - Labor, materials and services used in drilling wells with the object of penetrating a proven reservoir, including the drilling of delineation wells as well as redrilling, deepening or recompleting wells, and access roads, if any, leading directly to wells. (d) Exploratory drilling - Labor, materials and services used in the drilling of wells with the object of finding unproven reservoirs of crude oil and natural gas, and access roads, if any, leading directly to wells. (e) Surveys - Labor, materials and services used in aerial, geological, topographical, geophysical and seismic surveys, and core hole drilling. (f) Other exploration expenditures - Auxiliary or temporary facilities having useful lives of one year or less used in exploration and purchased geological and geophysical information. (f) The bonus payments payable in accordance with Section 9.3 of the Contract. All payments made in accordance with Section 9 of the Contract shall be deductible for purposes of calculation of Income Tax. (h) Interest on loans shall be considered non-capital expenditures for tax purposes; however, three percent (3%) shall be cost recoverable in accordance with Article III.3 of this Annex "C". 3. Capital Expenditures. Capital expenditures means expenditures made for --------------------- items that normally have a useful life beyond the year incurred. Capital expenditures include, but are not limited to, the following: (a) Construction utilities and auxiliaries - Work shops, power and water facilities, warehouses, and field roads other than the access roads mentioned in paragraphs 2(c) and 2(d) above. Cost of oil jetties and anchorages, treating plants and equipment, secondary recovery systems, gas plant and steam systems. (b) Construction housing and welfare - Housing, recreational facilities and other tangible property incidental to construction. (c) Production facilities - Offshore platforms (including the costs of labor, fuel, hauling, and supplies for both the offsite fabrication and onsite installation of platforms, and other construction costs in erecting platforms and installing submarine pipelines), wellhead equipment, subsurface lifting equipment, production tubing, sucker rods, surface pumps, flow lines, gathering equipment, delivery lines and storage facilities. (d) Movables - Surface and subsurface drilling and production tools, equipment and instruments, barges, floating craft, automotive equipment, aircraft, construction equipment, furniture and office equipment and miscellaneous equipment. Article III Accounting Methods To Be Used to Calculate Recovery of Petroleum Operations Expenditures and Income Taxes As indicated below, the following accounting methods shall be used to calculate the recovery of Petroleum Operations Expenditures and Income Taxes. 1. Depreciation. Depreciation will be calculated from the year in which ------------ the asset is placed into service, with a full year's depreciation allowed the initial year. Depreciation of Capital Costs, for purposes of Income Tax calculation and cost recovery, will be calculated over a period of four (4) years using the straight line method. The lives to be used for items for which Capital Expenditures are incurred shall be four (4) years. The undepreciated balance of assets taken out of service will not be charged to Petroleum Operations Expenditures but will continue to depreciate based upon the lives described above, except where such assets have been subjected to unanticipated destruction, for example, by fire or accident. 2. Overhead Allocation. General and administrative expenditures, other ------------------- than direct charges, allocable to this operation should be determined by a detailed study, and the method determined by such study shall be applied each year consistently. The method selected must be approved by the MINISTRY. Either the MINISTRY or CONTRACTOR may request by notification of the other Party that the method selected be changed; provided, however that only one change to the method be allowed in any given Calendar Year. 3. Interest Recovery. Interest on loans obtained by a Party from ------------------ Affiliated Companies, or parent companies, or from third parties non-affiliated may not be recoverable as Petroleum Operations Expenditures, except for the three percent (3%) interest, but the interest may be deductible from income for the purposes of calculating CONTRACTOR's Income Tax. The interest on said loans cannot be over the prevalent commercial rates for Petroleum Operations investments. Details of any sums to be financed shall be included in each year's Budget of Petroleum Operations Expenditures for the review of the MINISTRY. Notwithstanding anything to the contrary contained herein or in any law regulation rule order or decree of the STATE, non-resident lenders shall not be subject to withholding tax or other income tax. 4. Natural Gas Costs. Petroleum Operations Expenditures directly ------------------- associated with the production of Natural Gas will be directly chargeable against Natural Gas revenues in the manner agreed by the Parties. Petroleum Operations Expenditures incurred for production of both Natural Gas and Crude Oil will be allocated to Natural Gas and Crude Oil as agreed by both Parties. 5. Inventory Accounting. The costs of non-capital items purchased for -------------------- inventory will be recoverable in the year the items have been landed in the Republic of Equatorial Guinea. The CONTRACTOR shall present two types of inventories, one for non-capital assets or articles and another for capital assets or articles. 6. Insurance and Claims. Petroleum Operations Expenditures shall ---------------------- include premiums paid for insurance normally required to be carried for the operations relating to CONTRACTOR's obligations conducted under the Contract and shall also include expenditures incurred and paid by CONTRACTOR in settlement of any and all losses, claims, damages, judgments, and other expenses, including monies relating to CONTRACTOR's obligations under the Contract. Any sums CONTRACTOR receives for settlements from insurance carried for the benefit of the Petroleum Operations shall be deducted from Petroleum Operations Expenditures for the year any such settlement is received. ANNEX "D" LETTER OF PERFORMANCE GUARANTY BY PARENT FOR CONTRACT AREA F, THE REPUBLIC OF EQUATORIAL GUINEA WHEREAS, Triton Energy Limited, a company validly existing under the laws of the Cayman Islands ("Parent"), with its principal place of business c/o Caledonian House, Mary Street, Post Office Box 1043, Georgetown, Grand Cayman, Cayman Islands; and WHEREAS, Triton Equatorial Guinea, Inc., a company validly constituted under the laws of the Cayman Islands ("Company"), is a wholly owned subsidiary of the Parent; and WHEREAS, Company has contemporaneously herewith entered into that certain Production Sharing Contract (the "Contract") with the Republic of Equatorial Guinea (the "STATE") for Contract Area F; and WHEREAS, Company holds the participating interest as specified in the Contract; and WHEREAS, the STATE desires that the performance by Company under the Contract be guaranteed; and WHEREAS, the Parent accepts that it fully understands and assumes the legal contractual undertakings of the Company under the Contract; and NOW THEREFORE, it is hereby agreed and stipulated as follows: 1. Parent shall be bound as Guarantor by virtue of this Letter of Performance Guaranty by Parent (this "Guaranty") to the STATE for the fulfillment of the obligations assumed by the Company in accordance with Section 4.3(a) of the Contract. 2. In accordance with Section 4.5 of the Contract, the amount of any guaranty by Parent hereunder in the then Contract Year phase shall be discharged of the minimum expenditure obligation for such Contract Year phase when the minimum expenditure obligation for such phase has been satisfied. If at the end, the Exploration Expenditures incurred by Company during the two (2) first years of the Contract is less than the minimum expenditure obligation described in Section 4.5 of the Contract, then Parent agrees it shall pay to the STATE on first demand without proof or conditions the balance of the amounts not incurred. The STATE's first demand shall be given within thirty (30) calendar days from the end of the related initial exploration period. Failure by the STATE to make a timely demand as provided above shall discharge Parent from its liabilities under this Guaranty. Demand shall be made by an original written or faxed statement from the Ministry of Energy and Mines of the Republic of Equatorial Guinea ("Ministry") certifying that "Triton Equatorial Guinea, Inc. did not comply with the work program in the Contract covering Block F." The Ministry shall state specifically how Triton failed to comply with such work commitment. The Minister shall deliver the demand to the Parent at 6688 N. Central Expressway, Dallas, Texas, 75206 U,S.A.; or fax number 1-214-691-0198. 3. This Guaranty shall be governed by and construed in accordance with the laws of Equatorial Guinea. 4. This Guaranty shall expire at the earlier of two (2) years and thirty (30) consecutive days from the Effective Date of the Contract or the date when Company and/or its permitted assignee has been recognized by the Ministry of Mines and Energy of the Republic of Equatorial Guinea to have fulfilled its minimum expenditure obligations for the initial exploration period pursuant to the Contract. 5. Said act to be effective in the Republic of Equatorial Guinea shall be previously elevated to a public deed by a notary or other competent authority named by the Principal, and said public deed shall comply with all legal requisites. The costs incurred for said process shall be the responsibility of the Company, and shall not be recoverable. IN WITNESS WHEREOF, Parent and Company have signed this Guaranty on ______ day of _______, 1997. PARENT: TRITON ENERGY LIMITED By:_________________________ Name:____________________ Title:___________________ COMPANY TRITON EQUATORIAL GUINEA, INC. By:_________________________ Name:____________________ Title:___________________ STATE OF TEXAS COUNTY OF DALLAS BEFORE ME, the undersigned Notary Public in and for the State of Texas, on this day personally appeared _________________________, ____________________ of TRITON ENERGY LIMITED, and acknowledged to me that he executed the foregoing instrument for the purposes and consideration therein expressed, as the act and deed of TRITON ENERGY LIMITED, and that he has the capacity to make such authorization. WITNESS MY HAND AND SEAL OF OFFICE this ____ day of ____________, 19___. ___________________________________________ Notary Public in and for the State of Texas ___________________________________________ Printed Name My Commission Expires: _______________ STATE OF TEXAS COUNTY OF DALLAS BEFORE ME, the undersigned Notary Public in and for the State of Texas, on this day personally appeared _________________________, ____________________ of TRITON EQUATORIAL GUINEA, INC., and acknowledged to me that he executed the foregoing instrument for the purposes and consideration therein expressed, as the act and deed of TRITON EQUATORIAL GUINEA, Inc., and that he has the capacity to make such authorization. WITNESS MY HAND AND SEAL OF OFFICE this ____ day of ____________, 19___. ___________________________________________ Notary Public in and for the State of Texas ___________________________________________ Printed Name My Commission Expires: _______________ EX-10.84 7 EXHIBIT 10.84 PRODUCTION SHARING CONTRACT BETWEEN THE REPUBLIC OF EQUATORIAL GUINEA AND TRITON EQUATORIAL GUINEA, INC. FOR BLOCK G Translated by Diego Giordano TABLE OF CONTENTS -----------------
PAGE SECTION I. . . . . . . . . . . . . . . . . . SCOPE AND DEFINITIONS 1 SECTION II . . . . . . . . . . . . . . . . . TERM, TERMINATION, AND CANCELLATION 5 SECTION III. . . . . . . . . . . . . . . . . SURRENDER OF AREAS 9 SECTION IV . . . . . . . . . . . . . . . . . WORK PROGRAM AND EXPENDITURES 10 SECTION V. . . . . . . . . . . . . . . . . . CONDUCT OF PETROLEUM OPERATIONS BY CONTRACTOR 13 SECTION VI . . . . . . . . . . . . . . . . . RIGHTS AND OBLIGATIONS OF THE PARTIES,DETERMINATION OF PRODUCTION LEVELS 15 SECTION VII -. . . . . . . . . . . . . . . . RECOVERY OF PETROLEUM OPERATING COSTS, SHARING OF PRODUCTION, AND DISTRIBUTION OF PRODUCTION 19 SECTION VIII . . . . . . . . . . . . . . . . VALUATION OF CRUDE OIL 23 SECTION IX . . . . . . . . . . . . . . . . . BONUSES AND SURFACE RENTALS 25 SECTION X. . . . . . . . . . . . . . . . . . PAYMENTS 26 SECTION XI . . . . . . . . . . . . . . . . . TITLE TO EQUIPMENT 26 SECTION XII. . . . . . . . . . . . . . . . . UNITIZATION 26 SECTION XIII . . . . . . . . . . . . . . . . CONSULTATION AND ARBITRATION 27 SECTION XIV. . . . . . . . . . . . . . . . . BOOKS AND ACCOUNTS AND AUDITS 28 SECTION XV . . . . . . . . . . . . . . . . . ADDITIONAL PROVISIONS 30 SECTION XVI. . . . . . . . . . . . . . . . . LAWS AND REGULATIONS 30 SECTION XVII . . . . . . . . . . . . . . . . FORCE MAJEURE 30 SECTION XVIII. . . . . . . . . . . . . . . . TEXT 31 SECTION XIX. . . . . . . . . . . . . . . . . EFFECTIVENESS 31 ANNEX "A". . . . . . . . . . . . . . . . . . MAP OF CONTRACT AREA ANNEX "B". . . . . . . . . . . . . . . . . . CONTRACT AREA COORDINATES ANNEX "C". . . . . . . . . . . . . . . . . . ACCOUNTING PROCEDURE ANNEX "D". . . . . . . . . . . . . . . . . . LETTER OF PERFORMANCE GUARANTY BY PARENT FOR CONTRACT AREA G, THE REPUBLIC OF EQUATORIAL GUINEA ANNEX "E". . . . . . . . . . . . . . . . . . COORDINATES FOR THE 200M ISOBATH
PRODUCTION SHARING CONTRACT BETWEEN THE REPUBLIC OF EQUATORIAL GUINEA AND TRITON EQUATORIAL GUINEA, INC. FOR BLOCK G THIS CONTRACT, made and entered into on this ___th day of March, 199_ by and between the REPUBLIC OF EQUATORIAL GUINEA (hereinafter referred to as the "STATE"), represented for purposes of this Contract by the MINISTRY OF MINES AND ENERGY of the REPUBLIC OF EQUATORIAL GUINEA (hereinafter referred to as the "MINISTRY"), and TRITON EQUATORIAL GUINEA, INC., a corporation organized and existing under the laws of the Cayman Islands (hereinafter referred to as "CONTRACTOR"), represented for purposes of this Contract by Thomas G. Finck, its President. STATE and CONTRACTOR hereinafter are referred to either individually as "Party" or collectively as "Parties." W I T N E S S E T H: WHEREAS, all Hydrocarbons existing within the territory of the Republic of Equatorial Guinea, including adjacent submerged lands, are national resources owned by the Republic of Equatorial Guinea; and WHEREAS, the STATE wishes to promote the development of hydrocarbon deposits in and throughout the Contract Area and CONTRACTOR desires to join and assist the STATE in accelerating the exploration and development of the potential resources within the Contract Area; and WHEREAS, CONTRACTOR, has the financial ability, technical competence and professional skills necessary to carry out the Petroleum Operations hereinafter described; and WHEREAS, in accordance with the Hydrocarbons Law of the Republic of Equatorial Guinea, agreements in the form of Production Sharing Contracts may be entered into between the STATE and foreign investors; THEREFORE, in consideration of the undertakings and covenants herein contained, the Parties hereby agree as follows: I. SCOPE AND DEFINITIONS --------------------- 1.1 Scope ----- This Contract is a Production Sharing Contract. In accordance with the provisions herein contained, the MINISTRY shall be responsible for the supervision of the Petroleum Operations contemplated in this Contract. CONTRACTOR shall: ---------- (a) be responsible to the STATE for the execution of the Petroleum Operations in accordance with the provisions of this Contract, and is hereby appointed and constituted the exclusive company to conduct Petroleum Operations in the Contract Area for the term hereof; (b) provide all necessary capital, machinery, equipment, technology and personnel necessary for the efficient conduct of Petroleum Operations; (c) bear the risk of Petroleum Operations Expenditures required in carrying out Petroleum Operations and shall therefore have an economic interest in the rapid development of any commercial hydrocarbon deposits in the Contract Area. Such costs shall be included in Petroleum Expenditures as recoverable or not recoverable as provided in Section VII and Annex "C" of this Contract. During the term of this Contract, the total production achieved in the conduct of the Petroleum Operations shall be divided between the Parties in accordance with the provisions of Section VII of this Contract. 1.2 DEFINITIONS In this Contract, words importing the singular include the plural and vice versa, and except where the context otherwise indicates, shall have the meanings set forth in this Section. Words that are not defined herein, but are defined in the Hydrocarbons Law, shall have the meanings set forth in the Hydrocarbons Law. (a) Person means any individual, corporation, partnership, joint venture, ------ association, trust, estate, unincorporated organization of government or any agency or political subdivision thereof. (b) Affiliated Company or Affiliate of any specified Person means any other -------------------------------- Person directly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct, administer and dictate policies of such Person, through the ownership of fifty percent (50%) or more of such Person's voting rights; and the terms "control" and "controlled" have meanings correlative to the foregoing. (c) Crude Oil - means Hydrocarbons which are produced at the wellhead in ---------- liquid state at atmospheric pressure and asphalt and ozokerites and the liquid Hydrocarbons known as condensate obtained from Natural Gas by condensation or extraction by means of field separation units. (d) Natural Gas - means all Hydrocarbons that at atmospheric conditions of ------------ temperature and pressure are in a gaseous state. Included in this definition are wet mineral gas, dry mineral gas, wet gas and residue gas remaining after the extraction processing or separation of liquid Hydrocarbons from wet gas. (e) Exploration Operations means works to include without limitation ----------------------- geological studies; geophysical studies; aerial mapping; investigations relating to the subsurface geology; stratigraphic test drilling; exploratory and appraisal wells; and related activities such as drillsite preparation, surveying, and all work necessarily connected therewith, that is conducted in connection with exploration for and commercial assessment of Crude Oil and/or Natural Gas. (f) Development and Production Operations means all operations other than ---------------------------------------- Exploration Operations, including those to facilitate extraction, production, local transportation and storage of Crude Oil and Natural Gas produced as part of the offshore operations. (g) Petroleum Operations means all Exploration Operations and Development --------------------- and Production Operations. (h) Exploration Expenditures means direct expenditures on Exploration ------------------------- Operations and overhead expenses made in connection with exploration and commercial assessment within the Contract Area. These expenditures shall be determined in accordance with the Accounting Procedure attached hereto as Annex "C," but expenditures made within the area of a Field after Commercial Discovery has been declared shall be excluded. (i) Development and Production Expenditures means direct expenditures on ------------------------------------------ Development and Production Operations and general expenses made in connection with the development of a Field, excluding expenditures made within the area of a Field before Commercial Discovery has been declared. These expenditures shall be determined in accordance with the Accounting Procedure attached hereto as Annex "C." (j) Petroleum Operations Expenditures means expenditures made and ----------------------------------- obligations incurred in carrying out Petroleum Operations hereunder, determined in accordance with the Accounting Procedure attached hereto as Annex "C" and made a part hereof. (k) Barrel means a quantity or unit of Crude Oil equal to 158.9874 liters ------ (forty-two (42) United States gallons) at a temperature of 15.56 degrees Centigrade (sixty (60) degrees Fahrenheit) under one atmosphere of pressure. (l) Field means an area within the Contract Area, as determined in ----- accordance with Section 2.6. (m) Well means any opening in the ground or seabed made or being made by ---- drilling or boring, or in any other manner, for the purpose of discovering, and delineating and/or producing Crude Oil or Natural Gas, or for the injection of any fluid into an underground deposit, other than a seismic hole or a structure test hole or stratigraphic test hole. (n) Commercial Discovery means a discovery of Hydrocarbons that, in the --------------------- judgment of CONTRACTOR, can be produced commercially, based on its consideration of all pertinent operating and financial data. (o) Work Program means an itemized statement of the Petroleum Operations to ------------- be carried out in the Contract Area as set forth in Section IV. (p) Budget of Petroleum Operations Expenditures means the estimate of the ---------------------------------------------- costs of all items included in the Work Program. (q) Calendar Year or Years means a period of twelve (12) months commencing ------------------------ January 1 and ending on the following December 31, according to the Gregorian Calendar. (r) Contract Year means a period of twelve (12) consecutive months according ------------- to the Gregorian Calendar, starting from the Effective Date of this Contract or from the anniversary of such Effective Date. (s) Gross Receipts means the sum of all sales proceeds and the monetary --------------- equivalent value of other Hydrocarbons dispositions from the Contract Area in any given calendar year. (t) Income Tax means the tax levied on CONTRACTOR's net income pursuant to ----------- the Tax Law of the Republic of Equatorial Guinea. (u) Calendar Quarter means a period of three (3) consecutive months ----------------- beginning January 1, April 1, July 1 or October 1 and ending March 31, June 30, September 30 or December 31, respectively. (v) Effective Date means the approval date of this Contract by the STATE in --------------- accordance with the provisions of the Hydrocarbons Law as evidenced by publication of this Contract in the Official Bulletin of the Republic of Equatorial Guinea or in the national information media (whichever publication occurs first), after approval of this Contract by the Supreme Court of Justice of the Republic of Equatorial Guinea and ratification by the President of the Republic of Equatorial Guinea. (w) Foreign Exchange means currency acceptable to the Parties other than that ---------------- of the Republic of Equatorial Guinea. (x) Hydrocarbons Law means Decree-Law No. 7/1981 of 16 June, as amended. ---------------- (y) Contract Area means the geographic territory of the Republic of -------------- Equatorial Guinea the subject of this Contract. Such Contract Area is described in Annex "B" and delineated in Annex "A" attached hereto and incorporated herein. (z) Royalty means for each Field, the percentages listed below corresponding ------- to the cumulative production of all the Crude Oil produced, saved and sold from the said Field and not otherwise utilized in Petroleum Operations: - ------
CUMULATIVE FIELD PRODUCTION ROYALTY The first 100 million barrels 10% Greater than 100 million barrels to 300 million barrels 12.5% Greater than 300 million barrels. 15%
and ten percent (10%) of all the Natural Gas produced, saved and sold from the Contract Area and not otherwise utilized in Petroleum Operations. (ab) Maximum Efficient Rate means the maximum rate of Hydrocarbons ------------------------ production in a Field, without excessive decline or loss of reservoir pressure, and in accordance with the norms and practices of the petroleum industry and Section 6.3 of this Contract. (ab) Semester, as used in Section 7.8 means a period of six (6) consecutive -------- months, commencing the first of January and the first of July of each Calendar Year. (ac) Hydrocarbons means all natural, organic substances composed of CARBON ------------ and HYDROGEN including crude oil and natural gas and all other mineral substances, products, subproducts and by-products encountered in association therewith. (ad) Area of Provisional Discovery is defined in Section 2.4 -------------------------------- (ae) Tax Law means Decree Law No. 1/1986 of February 10, of the Republic of -------- Equatorial Guinea, as amended prior to the Effective Date. (af) Exploration Well means a Well that is not a development, evaluation or ----------------- injection well, and its only objective is to determine the existence of Hydrocarbons in a structure. (ag) Evaluation Well means a Well drilled following a discovery of ---------------- Hydrocarbons to delineate and locate the reservoir and to estimate the quantity of recoverable Hydrocarbons. II. TERM, TERMINATION, AND CANCELLATION -------------------------------------- 2.1 CONTRACTOR is authorized to conduct Exploration Operations during an initial exploration period of five (5) years, starting from the Effective Date. When CONTRACTOR has fulfilled its obligations hereunder for the initial exploration period, then upon application of CONTRACTOR made not later than ninety (90) calendar days prior to the fifth, sixth, and seventh anniversary of the Effective Date, as the case may be, the MINISTRY shall extend the period when Petroleum Operations may be conducted as follows: (a) after the fifth (5th) Contract Year for an additional period of one (1) Contract Year during which year CONTRACTOR shall drill in areas covered by waters less than two hundred (200) meters deep at least one (1) Exploration Well; (b) after the sixth (6th) Contract Year for an additional period of one (1) Contract Year during which year CONTRACTOR shall drill in areas covered by waters less than two hundred (200) meters deep at least one (1) Exploration Well; (c) if after the fifth (5th) Contract Year CONTRACTOR commits to drill at least one (1) Exploration Well in an area covered by water deeper than two hundred (200) meters, for an additional period of two (2) Contract Years; and (d) if during the seventh (7th) Contract Year CONTRACTOR encounters a show of Hydrocarbons that CONTRACTOR believes is sufficient to warrant further evaluation drilling, for a period of one (1) Contract Year during which year CONTRACTOR shall drill one (1) Evaluation Well in an area designated by mutual agreement of MINISTRY and CONTRACTOR. 2.2 Notwithstanding anything contained herein, CONTRACTOR, at its sole discretion, after fulfilling its minimum Work Program for the first two (2) Contract Years pursuant to 4.3(a), may terminate this Contract in its entirety without further obligation except with respect to any obligation under this Contract due and owing at the time of said termination. Furthermore, CONTRACTOR shall have the option to extend the exploration period and to conduct Petroleum Operations beyond the first two (2) Contract Years as indicated below: (a) After the second Contract Year, CONTRACTOR may elect to continue this Contract for an additional period of one (1) year, during which year CONTRACTOR will fulfill the minimum Work Program under Section 4.3(b)(i); (b) After the third Contract Year, CONTRACTOR may elect to continue this Contract for an additional period of one (1) year, during which year CONTRACTOR will fulfill the minimum Work Program under Section 4.3(b)(ii); (c) After the fourth Contract Year, CONTRACTOR, may elect to continue this Contract for an additional period of one (1) year, during which year CONTRACTOR will fulfill the minimum Work Program under Section 4.3(b)(iii); After fulfilling the minimum Work Program for each of the extension periods above, CONTRACTOR shall have the right to terminate this Contract in its entirety without further obligation except with respect to any obligations under this Contract due and owing at the time of said termination. CONTRACTOR shall make its election, if any, to extend the exploration period as provided in Sections 2.2(a), (b) and (c) above not later than ninety (90) calendar days prior to the second, third and fourth anniversary of the Effective Date, as the case may be. 2.3 If CONTRACTOR has not elected to terminate this Contract pursuant to Section 2.2 and no Commercial Discovery has been made, and if CONTRACTOR does elect to extend the Contract beyond the fifth (5th) Contract Year pursuant to Section 2.1, then this Contract shall terminate automatically in its entirety except with respect to Areas of Provisional Discovery, which shall remain part of the Contract Area pending final determination by the CONTRACTOR as to whether said Area of Provisional Discovery will be declared a Commercial Discovery. However, an extension of one (1) year may be granted by the MINISTRY so CONTRACTOR may finish drilling and testing any Well actually being drilled or tested at the end of the fifth (5th), sixth (6th), seventh (7th) or eight (8th) Contract Year. 2.4 Upon encountering indications of a substantial accumulation of Hydrocarbons in the Contract Area, the CONTRACTOR as soon as possible will notify the MINISTRY of this fact, indicating in the notice the particular details of the location, nature and size of the accumulation. After giving such notification to the MINISTRY, the CONTRACTOR as soon as practicable will submit to the MINISTRY a report showing the results of any preliminary production tests carried out, including, when necessary, the estimate of the oil or gas in place and the recoverable reserves of the accumulation and the approximate extension of said discovery in the Contract Area (hereinafter referred to as the "Area of Provisional Discovery"). The decision to delineate the Area of Provisional Discovery shall be at CONTRACTOR's discretion taking into account a reasonable interpretation of the data and shall be in accordance with normal petroleum industry practices. 2.5 Within each Area of Provisional Discovery CONTRACTOR shall carry out evaluation work, including, as appropriate, seismic work and drilling. As soon as possible, CONTRACTOR shall determine whether the discovery is a Commercial Discovery. Provided that if there is insufficient time to properly evaluate the discovery within the then current exploration period, upon CONTRACTOR's request, the MINISTRY shall grant CONTRACTOR a reasonable extension to fully evaluate such discovery. 2.6 When it is determined that the discovery of Hydrocarbons is a Commercial Discovery in accordance with Section 2.5, CONTRACTOR shall notify the MINISTRY, and CONTRACTOR shall submit to the MINISTRY, in writing, for its written approval, which approval will not be unreasonably withheld the following: (a) a report including a map showing the extension of the area of Commercial Discovery within the Contract Area; the area when said report is accepted by MINISTRY will constitute a Field; (b) a Work Program for development of the Field, including an estimate of the costs of Development and Production Expenditures necessary for the development of the Field; (c) the estimated Maximum Efficient Rate of production (that shall be established in accordance with Section 6.3) that CONTRACTOR intends to produce the Field; and (d) the schedule of the most accelerated program consistent with good international petroleum industry practice for implementation of CONTRACTOR's Work Program. Any report submitted by CONTRACTOR to the MINISTRY will be deemed accepted by the MINISTRY ninety (90) calendar days after CONTRACTOR's submittal unless CONTRACTOR is notified otherwise in such time period by the MINISTRY. 2.7 This Contract will continue in existence with respect to each Field for a period of thirty (30) years with respect to Crude Oil and for forty (40) years with respect to Natural Gas starting from the date CONTRACTOR, in accordance with the provisions of Section 2.6, receives approval from the MINISTRY that the discovery of Hydrocarbons in such Field is a Commercial Discovery. In case of new Commercial Discoveries as a result of new exploratory drilling on formations that underlie or overlie each other or other deposits found within the extension of the area of the original Commercial Discovery, such formations will constitute only one Field; and the Field will be defined or redefined as may be necessary, to incorporate all of the underlying and overlying formations and all deposits located within the extension of the area of the original Commercial Discovery, and the provisions of Section 2.6 shall apply mutatis mutandis to any ------- -------- such new Commercial Discovery. 2.8 CONTRACTOR shall have the right to terminate this Contract totally or partially; (a) with respect to any part of the Contract Area other than a Field then producing or that prior thereto had produced Crude Oil or Natural Gas upon giving ninety (90) calendar days written notice of its intention to do so; and (b) with respect to any field then producing or that prior thereto had produced Crude Oil or Natural Gas, upon giving one hundred eighty (180) calendar days written notice of its intention to do so. 2.9 Subject to Section 2.10, the STATE shall have the right to cancel this Contract upon giving sixty (60) calendar days written notice of its intention to do so, if CONTRACTOR: (a) fails to make any monetary payment required by law or under this Contract for a period of thirty (30) days after the due date for such payment; (b) fails to comply with any other material obligation that it has assumed under this Contract; (c) fails to comply with any regulations issued in accordance with this Contract by the MINISTRY, or any governmental department or agency of the Republic of Equatorial Guinea materially affecting the Petroleum Operations or the interests of the STATE referred to in this Contract; (d) suspends its payments under this Contract, because of insolvency or makes a settlement with its creditors; or (e) has not commenced production from a Field within the period of time specified in the development plan according to the terms and conditions specified in Section 2.5 without reasonable justification; provided that CONTRACTOR's actions or inactions, as the case may be, have a material impact on the petroleum Operations and are not in accordance with industry standards. 2.10 If the circumstance or circumstances that would otherwise result in cancellation under Sections 2.9(a), (b), (c) or (d) are remedied by CONTRACTOR or CONTRACTOR begins to remedy the circumstance and proceeds with such remedy with due diligence within the sixty (60) calendar day period following the notice of termination as aforesaid, then such termination shall not become effective. If CONTRACTOR cannot completely rectify or remedy the cause or causes within the sixty (60) day period, the CONTRACTOR may request from the MINISTRY an extension or extensions to complete the remedies and the MINISTRY, according to the criteria generally accepted in the industry, shall not unreasonably withhold the approval of such extensions if CONTRACTOR is diligently pursuing the remedies. 2.11 The termination or cancellation of this Contract, for whatever reason, shall be without prejudice to the obligations incurred and not carried out by the STATE or CONTRACTOR before the termination of this Contract. 2.12 In the event of cancellation pursuant to Section 2.9, the MINISTRY may require CONTRACTOR to continue for the account of the STATE Crude Oil or Natural Gas production activities until the right to continue such production has been transferred by the MINISTRY to another Person. In this case, all provisions relevant to CONTRACTOR's entitlement under this Contract will remain in force. In no event shall CONTRACTOR have any obligations under this Section for more than ninety (90) calendar days after such termination, unless otherwise agreed to by the Parties. 2.13 Within ninety (90) calendar days after the termination of this Contract, unless the MINISTRY has required an extension of this period, CONTRACTOR shall have the obligation to take any reasonably necessary action as directed by the MINISTRY, including the cessation or continuation of Petroleum Operations to prevent pollution, environmental damage or a hazard to human life or third party property. III. SURRENDER OF AREAS -------------------- 3.1 Subject to Section 3.3, CONTRACTOR shall surrender thirty percent (30%) of the original Contract Area no later than the end of the third Contract Year. 3.2 Subject to Section 3.3, if CONTRACTOR elects to extend the exploration period pursuant to Section 2.1 above, CONTRACTOR shall surrender an additional area equal to twenty percent (20%) of the remaining Contract Area no later than the end of the fifth Contract Year. 3.3 CONTRACTOR shall not be obligated to surrender any portion of the original Contract Area declared an Area of Provisional Discovery or a Field. CONTRACTOR's surrender obligations under Sections 3.1 and 3.2 shall apply to the area remaining after excluding from the original Contract Area areas declared to be an Area of Provisional Discovery or a Field and areas previously surrendered by CONTRACTOR. 3.4 After the mandatory surrenders as set forth in this Section III, CONTRACTOR shall maintain a reasonable exploration effort with regard to the remaining portion of the Contract Area. 3.5 Upon at least thirty (30) calendar days written notice to the MINISTRY prior to the end of the first Contract Year and similarly prior to the end of any succeeding Contract Year, CONTRACTOR may surrender any portion of the Contract Area, and such portion shall then be credited against that portion of the Contract Area CONTRACTOR is next required to surrender under the provisions of Sections 3.1 and 3.2 hereof. 3.6 CONTRACTOR shall notify the MINISTRY sixty (60) calendar days prior to the date of surrender, the description of the portion of the area to be surrendered. The individual portions being surrendered, whenever possible, shall be of sufficient size and convenient shape, taking into account contiguous areas already relinquished and not the subject of a further contract, to enable Petroleum Operations to be carried out thereon and the boundaries of such areas shall be delineated in exact degrees, minutes and seconds of longitude and latitude. 3.7 CONTRACTOR shall plug and abandon all Wells drilled by Contractor on the area to be surrendered in accordance with generally accepted oilfield practices. 3.8 No surrender made in accordance with this Section III shall relieve CONTRACTOR or its surety of the obligation to pay surface rentals accrued, or making payments due and payable as a result of exploration and development activities conducted through the date of surrender. IV. WORK PROGRAM AND EXPENDITURES -------------------------------- 4.1 CONTRACTOR shall commence Petroleum Operations hereunder not later than ninety (90) calendar days after the Effective Date. 4.2 CONTRACTOR shall be entitled to employ any person qualified, in the judgment of CONTRACTOR, to undertake on its behalf such geological and geophysical surveys, drillings or similar investigations as it may decide. Any subcontractor retained by CONTRACTOR shall have the necessary professional experience to perform the task assigned and shall be required, by written agreement with CONTRACTOR, to abide by all relevant terms of this Contract and all applicable laws and regulations of the Republic of Equatorial Guinea. CONTRACTOR within thirty (30) calendar years and shall advise the MINISTRY of the name and address of any subcontractor retained. 4.3 During the first five (5) Contract Years, CONTRACTOR agrees to perform the following minimum Work Program: (a)FIRST TWO CONTRACT YEARS: ------------------------ (i) Reprocess approximately one-thousand eight-hundred (1,800) kilometers of existing seismic data; (ii) Acquire one-thousand (1,000) kilometers of new seismic data; (iii) Drill one (1) Well; and (iv) Prepare and submit an interpretive geologic study of the hydrocarbon potential of the Rio Muni area. (b)THIRD, FOURTH AND FIFTH CONTRACT YEARS: -------------------------------------- CONTRACTOR shall perform the following work in the event it exercises the option to extend pursuant to Sections 2.2(a), 2.2(b) or 2.2(c): (i) Drill one (1) Well in third Contract Year contingent upon the identification of a structure which, in CONTRACTOR's opinion, is a drillable prospect, and conduct additional geological studies and associated analyses of technical data as CONTRACTOR deems appropriate; (ii) Drill one (1) Well in the fourth Contract Year and conduct additional geological studies and associated analyses of technical data as CONTRACTOR deems appropriate; (iii) Drill one (1) Well in the fifth Contract Year contingent upon the identification of a structure, which, in CONTRACTOR's opinion, is a drillable prospect, and conduct additional geological studies and associated analyses of technical data, as CONTRACTOR deems appropriate. 4.4 In case the work completed by CONTRACTOR during any phase referred to in Section 4.3 exceeds the minimum work for that phase, the excess work may be carried forward and credited against the minimum work obligation in the next succeeding phase. 4.5 As a condition precedent to the effectiveness of this Contract, CONTRACTOR shall provide a security by means of a parent company performance guarantee to the MINISTRY substantially in the form of the guaranty set forth in ANNEX "D" and corresponding to Four Million United States Dollars (U.S. $4,000,000) for each Well CONTRACTOR commits to drill and One Million United States Dollars (U.S. $1,000,000) for other Petroleum Operations CONTRACTOR commits to conduct during the first two (2) Contract Years. If CONTRACTOR extends the period for Exploration Operations pursuant to Section 2.1 or 2.2, then CONTRACTOR on or before the date any such extension becomes effective shall provide an additional parent company performance guarantee as security substantially in the form of the guaranty set forth in Annex "D" and corresponding to an amount to be determined at the time of the extension by the MINISTRY and CONTRACTOR for Petroleum Operations CONTRACTOR commits to conduct during the period of any such extension. If at the end of the period of the phases for Exploration Operations, including any extension thereof made pursuant to Sections 2.1 and 2.2 hereof, or upon the date of termination of this Contract, whichever first occurs, CONTRACTOR has not performed the obligations described in the minimum Work Program, the balance of the security corresponding to the minimum expenditures for Petroleum Operations and the entirety of the security corresponding to the Well shall be paid automatically to the STATE in accordance with the provisions of Annex "D." 4.6 One hundred twenty (120) calendar days prior to the beginning of each Calendar Year or at such other time as otherwise mutually agreed by the parties, CONTRACTOR shall prepare and submit for approval to the MINISTRY a Work Program and Budget of Petroleum Operations Expenditures for the Contract Area setting forth the Petroleum Operations CONTRACTOR proposes to carry out during the ensuing Calendar Year. After thirty (30) calendar days and within a period of ninety (90) calendar days of its submission, the MINISTRY may ask for clarification of the Work Program and Budget of Petroleum Operations Expenditures and/or submit proposals for consideration by the Contractor for the revision of specific features thereof relating to the type and cost of the works and operations. In the absence of such proposals or a request for clarification, the Work Program and Budget of Petroleum Operations Expenditures shall be deemed to have been approved by the Ministry. Approval by the MINISTRY of the proposed Work Program and Budget of Petroleum Operations Expenditures will not be unreasonably withheld or delayed. If the Parties cannot agree on the Work Program and Budget of Petroleum Operations Expenditures, CONTRACTOR is hereby authorized to begin work necessary to carry out its proposed Work Program in a timely and practical manner until the Parties reach a mutually acceptable Work Program and Budget of Petroleum Operations Expenditures. The MINISTRY shall give a letter to CONTRACTOR authorizing in a provisional manner the beginning of said provisional Work Program and Budget of Petroleum Operations Expenditures until the MINISTRY approves the final Work Program and Budget of Petroleum Operations Expenditures. The Parties shall meet within a period of fifteen (15) days from date of issuance of the provisional Work Program and Budget of Petroleum Operations Expenditures from the MINISTRY and use all diligence to reach a mutually acceptable agreement. 4.7 It is recognized by the Parties that the details of a Work Program may require changes in the light of unforeseen circumstances and nothing herein contained shall limit the right of CONTRACTOR to make such changes, provided such changes do not alter the general objectives of the Work Program. 4.8 The Parties further recognize that in the event of an emergency or extraordinary circumstances requiring immediate action, either Party may take actions it deems proper or advisable to protect its interests and those of its employees and any costs so incurred by CONTRACTOR shall be included in the Petroleum Operations Expenditures. Costs incurred by CONTRACTOR related to measures of prevention and protection related to the environment shall be included as costs of Petroleum Operations Expenditures as cost recoverable. Costs incurred by CONTRACTOR related to cleaning up pollution or damage to the environment caused by CONTRACTOR shall not be included in Petroleum Operations Expenditures and shall not be cost recoverable except the first Two Hundred Thousand United State Dollars (U.S. $200,000) per occurrence related to such cleanup or damages per incident shall be included as costs of Petroleum Operations Expenditures and shall be cost recoverable. 4.9 Within ninety (90) calendar days after the expiration of a Calendar Year, CONTRACTOR shall submit to the MINISTRY detailed accounts showing the Exploration and/or Development and Production Expenditures CONTRACTOR has incurred during the past Calendar Year. The accounts shall be certified by an independent outside accountant acceptable to both Parties. It is understood that the MINISTRY retains the authority to review and audit occasionally CONTRACTOR's books with respect to Petroleum Operations conducted hereunder. Such audit right will terminate two (2) years after closure of the subject year's accounts. Any exceptions to Contractor's accounts must be officially communicated to the CONTRACTOR within three (3) years of the closure of the subject year's accounts. 4.10 During the term of this Contract, CONTRACTOR in accordance with good petroleum industry practice shall be responsible for carrying out all the necessary work in connection with abandonment (which includes the removal, proper disposal, alternative innovative recycling or salvage) of any Petroleum Operations Facilities, including, but not limited to, platforms, artificial structures, wellhead equipment, tubulars, and flowlines deemed by the MINISTRY to be unusable or no longer required for future operations. CONTRACTOR shall submit for the MINISTRY's approval detailed work plans for such removal, disposal or salvage. All costs incurred by CONTRACTOR to remove, dispose or salvage such facilities shall be cost recoverable. For the purpose of setting up a financial mechanism to recover such costs earlier in the life of a Field, CONTRACTOR and the MINISTRY shall agree on a mechanism and modality for setting aside a reserve on CONTRACTOR's books as part of Petroleum Operations Expenditures, subject to cost recovery, to be used for such removal, disposal or salvage operations, no later than two years after commencement of the first commercial production. V. CONDUCT OF PETROLEUM OPERATIONS BY CONTRACTOR -------------------------------------------------- 5.1 CONTRACTOR shall conduct the Petroleum Operations diligently and in accordance with generally accepted standards of the petroleum industry designed to enable production at the Maximum Efficient Rate of Crude Oil and at the level of production of Natural Gas specified in Section 6.3. CONTRACTOR shall ensure that all equipment, plant and installations used by CONTRACTOR or its subcontractors comply with generally accepted engineering norms and are of proper and accepted construction and are kept in optimal working order. 5.2 CONTRACTOR shall in particular take all reasonable steps necessary in accordance with generally accepted standards of the petroleum industry to: (a) without prejudice to Section 5.3, ensure that Crude Oil or Natural Gas discovered and produced within the Contract Area does not escape or is not in any other way wasted; (b) prevent damage to under or over Crude Oil or Natural Gas-bearing strata; (c) prevent the nonintentional entrance of water through Wells to Crude Oil or Natural Gas-bearing strata; (d) Prevent damage to under or over water-bearing strata; (e) Conduct all Petroleum Operations under this Contract in accordance with applicable law and regulations and in a manner that does not conflict with obligations imposed on the Republic of Equatorial Guinea by international law; (f) Take necessary precautions for protection of navigation and fishing and to prevent pollution of the sea or rivers; (g) Indemnify, defend and save the STATE harmless against all claims, losses and damage of any nature, whatever, including without limitation, claims for loss or damage to property or injury to persons caused by, or resulting from, any operation conducted by or on behalf of CONTRACTOR; provided that the CONTRACTOR shall not be held responsible to the STATE under this subsection for any loss, claim, damage, or injury caused by, or resulting from any negligent action of personnel of the STATE including, but not limited to, subcontractors of the STATE, other than CONTRACTOR, and employees of the State; (h) Subject to Section 2.4, drill and produce a Field without regard to CONTRACTOR's contractual interest, if any, in an adjacent contract area. 5.3 The Natural Gas CONTRACTOR does not utilize in its own operations in the Contract Area, or sell, shall be reinjected into the subsurface structure. When the existing technical and financial circumstances require the flaring of Natural Gas, the MINISTRY may authorize such flaring. The MINISTRY shall, nevertheless, authorize the flaring of Natural Gas for periods of relatively short duration during production tests, and in cases when the flaring of relatively small quantities of Natural Gas is a necessary part of Crude Oil production and is in accordance with good practice within the petroleum industry. 5.4 If any works or installations erected by CONTRACTOR or any operations undertaken by CONTRACTOR endanger Persons or third-party property or cause pollution or harm marine life to an unacceptable degree, the CONTRACTOR, in consensus with the MINISTRY, shall take opportune remedial measures within a reasonable period established by the MINISTRY and the CONTRACTOR to repair any damage to the environment. CONTRACTOR shall, if required by the nature and severity of the damage, suspend the Petroleum Operations in whole or in part, until CONTRACTOR has taken such remedial measures or has repaired the damage. 5.5 To ensure that CONTRACTOR shall meet its obligations to third parties or to government agencies that might arise in the event of damage or injury (including environmental damage or injury ) caused by Petroleum Operations, notwithstanding its accidental nature, CONTRACTOR shall maintain in force a third party liability insurance policy covering its Petroleum Operations. CONTRACTOR shall provide to the MINISTRY, within thirty (30) calendar days after the Effective Date, documents that prove the effectiveness of CONTRACTOR's third party liability insurance covering its Petroleum Operations. To the extent such third party liability insurance is unavailable, or is not obtained, or does not cover part or all of any claim or damage caused by or resulting from Petroleum Operations, including damage to the environment as mentioned in Section 4.8, CONTRACTOR shall remain wholly responsible and shall defend, indemnify and hold harmless the MINISTRY and the State against all claims or loss, except for claims arising from the negligence of the MINISTRY or STATE to their employees or their subcontractors other than CONTRACTOR. 5.6 If, after the Effective Date of this Contract, others are granted permits or licenses within the Contract Area for exploration/production of any minerals other than Crude Oil or Natural Gas, CONTRACTOR shall use his best efforts to avoid obstruction or interference with such licensees' operations within the Contract Area. The MINISTRY shall use its best efforts to ensure that operations of third parties do not obstruct CONTRACTOR's Petroleum Operations within the Contract Area. 5.7 CONTRACTOR shall provide acceptable working conditions, living accommodations on offshore installations, and access to medical attention and an infirmary for all personnel employed by CONTRACTOR or its subcontractors in its Petroleum Operations. 5.8 CONTRACTOR's Well design and drilling, including, but not limited to, CONTRACTOR's casing, cementing and drilling programs shall be in accordance with generally accepted industry practice. 5.9 Every Well shall be identified by a number, and shall be shown on maps, plans and similar records CONTRACTOR is required to keep. The MINISTRY shall at once be notified of any change on the identification numbers. 5.10 No Well shall be drilled through any vertical boundary of the Contract Area. A directional Well drilled to an objective under the Contract Area from a nearby surface location not covered by the Contract shall be deemed to have the same effect for all purposes of the Contract as a Well drilled from a surface location on the Contract Area. In such circumstances and for purposes of this Contract, production of Crude Oil or Natural Gas from the Contract Area through a directional Well surfaced nearby, or drilling or reworking of any such directional Well, shall be considered production or drilling or reworking operations (as the case may be) on the Contract Area for all purposes of this Contract. Nothing contained in this paragraph is intended or shall be construed as granting to the CONTRACTOR any leasehold interests, licenses, easements, or other rights the CONTRACTOR may have to acquire lawfully under the Hydrocarbons Law or from the MINISTRY or third parties. 5.11 Before commencing any work on drilling of any Well covered by a Work Program and Budget of Operating Expenditures or recommencing work on any Well on which work has been discontinued for more than six (6) months, CONTRACTOR shall give the MINISTRY seven (7) calendar days written notice; however, if the estimated amount to be spent on said work is less than One Hundred Thousand United States Dollars (U.S. $100,000), notice shall not be required. 5.12 Before abandoning any Field, CONTRACTOR shall give ninety (90) calendar days notice to the MINISTRY of its intention to abandon. Upon receipt of such notice, the MINISTRY may elect to assume operation of the Well or Wells proposed for abandonment; however, MINISTRY's operations shall not interfere with those of CONTRACTOR. The MINISTRY's failure to so elect, by notice to the CONTRACTOR in writing within the aforementioned ninety (90) day period, shall be deemed approval of the CONTRACTOR's proposal to abandon. 5.13 CONTRACTOR shall securely plug any Well that it intends to abandon to prevent pollution, damage to the environment, and possible damages to the reservoir. VI. RIGHTS AND OBLIGATIONS OF THE PARTIES, DETERMINATION OF PRODUCTION ------------------------------------------------------------------------ LEVELS ------ 6.1 Subject to the provisions of paragraphs (e) and (f) of this Section 6.1, CONTRACTOR shall have the following rights and obligations: (a) advance all necessary funds and purchase or lease all material, equipment and supplies required in connection with the Petroleum Operations; (b) furnish all technical aid, including foreign personnel, required for the performance of the Petroleum Operations; (c) furnish all such other funds for the performance of the Petroleum Operations as may be required, including payment to foreign entities performing services as subcontractors; (d) retain control to all leased property paid for with Foreign Exchange and brought into the Republic of Equatorial Guinea under the rules of temporary importation, and as such, shall have the right to freely export same from the Republic of Equatorial Guinea in accordance with the Hydrocarbons Law; (e) have the right prior notification to the Ministry to sell, assign, transfer, convey or otherwise dispose of any part or all of the rights and interests and obligations under this Contract to any Affiliated Company; (f) have the right to sell, assign, transfer, convey or otherwise dispose of all or any part of its rights and interests and obligations under this Contract to parties other than Affiliated Companies with the prior written consent of the MINISTRY, such consent shall not be unreasonably withheld, and shall be deemed granted if the MINISTRY does not respond to CONTRACTOR within sixty (60) calendar days of CONTRACTOR's written request for consent; (g) have the right at all times to enter and exit the Contract Area and any facilities used in the Petroleum Operations, wherever located; (h) have the right to use and have access to all geological, geophysical, drilling, Well, production and other information held by the MINISTRY or by any other governmental agency or enterprise, or enterprise in which the STATE participates, relating to the Contract Area, including Well location maps. The MINISTRY must supply the same to the CONTRACTOR; (i) submit in an appropriate form to the MINISTRY copies of all such geological, geophysical, drilling, Well, production and other data, reports, interpretations and maps, and cuttings of all samples that have been obtained or compiled during the term hereof; (j) include in the Work Program and Budget of Petroleum Operations Expenditures the following sums to be spent on training personnel of the MINISTRY and citizens of the Republic of Equatorial Guinea for professional, skilled and technical jobs in CONTRACTOR's Petroleum Operations. In conjunction with the preparation of the annual Budget of Petroleum Operations Expenditures, CONTRACTOR and MINISTRY will jointly agree on a training program where these sums will be expended. CONTRACTOR agrees to be responsible for the implementation and direct funding of the referenced training programs, and the expenditures will be included as cost recoverable in its Petroleum Operations Expenditures: (i) Fifty Thousand United States Dollars (U.S. $50,000) in each of the first and second Contract Years; (ii) Seventy-Five Thousand United States Dollars (U.S. $75,000) in the third Contract Year and in every year thereafter until a Commercial Discovery is determined in accordance with Section 2.5. For the year when Commercial Discovery is determined, the training obligation to be spent under this Section 6.1(j)(ii) will be prorated from January 1 of that year through the date on which Commercial Delivery is determined; (iii) One Hundred Thousand United States Dollars (U.S. $100,000) per year from the time of determination of Commercial Discovery to the date of first commercial production. For the year when the training obligation under this Section 6.1(j)(iii) takes effect, the amount to be spent will be prorated from the date of determination of Commercial Discovery through December 31 of that year; and (iv) Two Hundred Thousand United States Dollars (U.S. $200,000) per year from the time of first commercial production and for each year thereafter until termination of the Contract. For the year when the training obligation under this Section 6.1(j)(iv) takes effect, the amount to be spent will be prorated from the date of first commercial production through December 31 of that year. CONTRACTOR shall make all reasonable efforts to employ and train citizens of the Republic of Equatorial Guinea in Petroleum Operations. CONTRACTOR may employ non-citizens, if in the opinion of CONTRACTOR and not contested by the MINISTRY, no Equatorial Guinean citizens can be found with sufficient skill and technical qualifications. CONTRACTOR shall make similar requirements of any subcontractor. At intervals of not more than one year CONTRACTOR shall submit to the MINISTRY reports detailing the personnel employed and their residence when employed. CONTRACTOR shall provide, as CONTRACTOR deems necessary, on-the-job training for citizens of the Republic of Equatorial Guinea to undertake skilled and technical jobs in the Petroleum Operations. Costs and expenses of training citizens of Equatorial Guinea as well as costs and expenses for a program of training for the MINISTRY's personnel, shall be included in Petroleum Operation Expenditures; (k) appoint an authorized representative for the Republic of Equatorial Guinea with respect to this Contract, who shall have an office in Equatorial Guinea; (l) give preference to goods and services that are produced in the Republic of Equatorial Guinea or rendered by citizens of the Republic of Equatorial Guinea, provided such goods and services are offered at equally advantageous conditions with regard to quality, price, and immediate availability in the quantities and to the specifications required; (m) pay to the STATE the corresponding taxes in accordance with the Tax Law; (n) pay to the STATE the corresponding Royalty pursuant to the terms and conditions of this Contract; (o) except as provided in Section 7.10 hereof, have the right during the term hereof to freely lift, dispose of and export its share of Crude Oil, and retain abroad the Foreign Exchange proceeds obtained therefrom; (p) notify the MINISTRY at least forty-eight (48) hours before the abandonment of any Well. 6.2. THE MINISTRY SHALL: ------------------ (a) except with respect to CONTRACTOR's obligations to pay the taxes set forth at paragraph 6.1(m) of this Section VI, assume and discharge all other taxes CONTRACTOR would otherwise be subject, including transfer tax, import and export duties on materials, equipment and supplies brought into the Republic of Equatorial Guinea by CONTRACTOR, its contractors and subcontractors; likewise, it will comply with all taxes required with regard to property, capital, net worth, operations, remittances or transactions (whether exacted directly or by the requirement of stamp taxes on documents or the use of sealed paper), including any tax or levy on or in connection with operations performed hereunder by CONTRACTOR in accordance with this Contract. The MINISTRY shall not be obligated to pay CONTRACTOR's Royalty, Income Tax, nor taxes on tobaccos, liquor and personal income tax; nor shall it be obligated to pay the Income Tax and other taxes not listed in the preceding sentence payable by contractors and subcontractors. The obligations of the MINISTRY hereunder shall be deemed to have been complied with by the delivery to CONTRACTOR within one hundred and twenty (120) calendar days after the end of each Calendar Year, of documentary proof in accordance with fiscal laws of the Republic of Equatorial Guinea that liability for the above-mentioned taxes has been satisfied, except that with respect to any of such liabilities that CONTRACTOR may be obligated to pay directly, the MINISTRY shall reimburse it within sixty (60) calendar days after receipt of invoice. The MINISTRY shall be consulted prior to payment of such taxes by CONTRACTOR or by any other party on CONTRACTOR's behalf; (b) otherwise assist and expedite CONTRACTOR's execution of the Work Program by supplying or otherwise making available all necessary visas, work permits, import licenses, and rights of way and easements as may be required by CONTRACTOR or its subcontractors and made available from the resources under the MINISTRY's control; (c) have title to all original data resulting from the Petroleum Operations including, but not limited to, geological, geophysical, petrophysical, engineering, well logs and completion, status reports, samples and any other data CONTRACTOR may compile or obtain during the term of this Contract; provided, however, that CONTRACTOR may retain copies of such data and further provided that such data shall not be disclosed to third parties by the MINISTRY without the consent of CONTRACTOR while this Contract remains in effect. However, for the purpose of obtaining new offers, the MINISTRY may show any third party geophysical and geological data with respect to that part or parts of the Contract Area acquired by CONTRACTOR and adjacent to the area of such new offers, provided that no such data shall be disclosed that was in the possession of the MINISTRY for less than eleven (11) months. Notwithstanding the foregoing, the MINISTRY may show data to advisors and consultants of the MINISTRY that agree to keep the data confidential; (d) have the right at all reasonable times to inspect CONTRACTOR's Petroleum Operations, Hydrocarbon measuring devices, logs, plans, maps, and records relating to Petroleum Operations and surveys or investigations on or with regard to the Contract Area. MINISTRY shall make every effort to coordinate inspection activities to avoid interference with Petroleum Operations. 6.3 CONTRACTOR shall produce Crude Oil from the Contract Area at the Maximum Efficient Rate. CONTRACTOR and MINISTRY shall conduct a review of CONTRACTOR's production programs prior to the commencement of production from any Field and establish at that time by agreement the Maximum Efficient Rate and the production rate for Natural Gas and the dates the Maximum Efficient Rate and the production rate for Natural Gas will be reviewed and established in the future. In the case of Natural Gas, the production rate shall not be less than that required to satisfy any contracts then in existence for the sale of Natural Gas. 6.4 Subject to Section 5.2(b), the Crude Oil production rate shall not be less than that required to satisfy any contract in existence for the sale of Crude Oil. In no case the production rate shall damage the reservoir or reservoirs. VII. RECOVERY OF PETROLEUM OPERATING COSTS, SHARING OF PRODUCTION, AND ----------------------------------------------------------------------- DISTRIBUTION OF PRODUCTION ---------------------------- CRUDE OIL: - ---------- 7.1 The respective production shares of the STATE and the CONTRACTOR of Crude Oil produced and saved shall be determined in accordance with the definitions and procedures set forth in this Section VII. 7.2 After making Royalty payments to the STATE, CONTRACTOR shall be entitled to recover all Petroleum Operations Expenditures out of the sales proceeds or other disposition of Crude Oil produced and saved hereunder and not used in Petroleum Operations. Any Crude Oil remaining after making the Royalty payments to the STATE and after all Petroleum Operations Expenditures are recovered by CONTRACTOR shall be referred hereinafter as "Net Crude Oil." Net Crude Oil shall be shared between the STATE and the CONTRACTOR in accordance with the procedures outlined below, designed to ensure total cost recovery by CONTRACTOR, followed by an escalation of the STATE's share based on increases in the CONTRACTOR's pre-tax rate of return:
TOTAL TOTAL CONTRACTOR'S PRE-TAX STATE SHARE CONTRACTOR SHARE RATE OF RETURN (% OF NET CRUDE OIL) (% OF NET CRUDE OIL) Less than 18% 0% 100% Greater or equal to 18% and less than 25% 10% 90% Greater or equal to 25% and less than 40% 35% 65% Equal or Greater than 40% 55% 45%
7.3 To determine STATE's share of Net Crude Oil, it shall first be necessary to calculate Net Cash Flow from Petroleum Operations ("Net Cash Flow"). Net Cash Flow for any given Calendar Year shall be determined by subtracting Royalty and Petroleum Operations Expenditures from Gross Receipts. 7.4 To calculate the STATE's Share of Net Crude Oil produced from the Contract Area, there are hereby established three (3) accounts: First Share Account ("FSA"); Second Share Account ("SSA"); and Third Share Account ("TSA"). 7.4.1 First Share Account: ------------------- a. For purposes of calculating the First Share Account, the following formula shall be used: FSA(Y) = FSA(Y-1)(1 + .18 + i) + NCF(Y) Where: FSA = First Share Account Y = the Calendar Year in question NCF = Net Cash Flow i = the percentage change for the calendar year in question in the index of U.S. Consumer prices as reported for the first time in the monthly publication, "International Financial Statistics" of the International Monetary Fund. b. In any Calendar Year when FSA(Y) is negative, the STATE's share of Net Crude Oil determined with reference to the First Share Account shall be zero. c. In any Calendar Year when FSA(Y) becomes positive, the CONTRACTOR for purposes of this section shall be deemed to have earned a pre-tax rate of return that is equal to or greater than eighteen percent (18%), and the STATE's share of Net Crude Oil determined with reference to the First Share Account shall be valued at an amount of Net Crude Oil equal to ten percent (10%) of FSA(Y). d. In any Calendar Year immediately subsequent to a Calendar Year when FSA(Y) is positive, for purposes of applying the formula set forth in subsection (a) of this Section 7.4.1, FSA(Y-1) shall be equal to zero. 7.4.2 Second Share Account a. For purposes of calculating the Second Share Account, the following formula shall be used: SSA(Y) = SSA(Y-1)(1 + .25 + i) + (NCF(Y) - GS I(Y)) Where: SSA = Second Share Account Y = the Calendar Year in question NCF = Net Cash Flow GS I = STATE share of Net Crude Oil determined with reference to the First Share Account i = the percentage change for the Calendar Year in question in the index of U.S. consumer prices as reported for the first time in the monthly publication "International Financial Statistics" of the International Monetary Fund. b. In any Calendar Year when SSA(Y) is negative, the STATE's share of Net Crude Oil determined with reference to the Second Share Account shall be zero. c. In any Calendar Year when SSA(Y) becomes positive, the CONTRACTOR for purposes of this section shall be deemed to have earned a pre-tax rate of return that is equal to or greater than twenty-five percent (25%), and the STATE's share of Net Crude Oil determined with reference to the Second Share Account shall be valued at an amount of Net Crude Oil equal to twenty-seven and 778/1000 percent (27.778%) of SSA(Y). d. In any Calendar Year immediately subsequent to a Calendar Year when SSA(Y) is positive, for purposes of applying the formula set forth in subsection (a) of this Section 7.4.2, SSA(Y-1) shall be equal to zero. 7.4.3 Third Share Account ------------------- a. For purposes of calculating the Third Share Account, the following formula shall be used: TSA(Y) = TSA(Y-1)(1 + .40 + i) + (NCF(Y) - GS I(A) - GS II(Y)) Where: TSA = Third Share Account Y = the Calendar Year in question NCF = Net Cash Flow GS I = STATE share of Net Crude Oil determined with reference to the First Share Account GS II = STATE share of Net Crude Oil determined with reference to the Second Share Account i = the percentage change for the Calendar Year in question in the index of U.S. consumer prices as reported for the first time in the monthly publication "International Financial Statistics" of the International Monetary Fund. b. In any Calendar Year when TSA(Y) is negative, the STATE's share of Net Crude Oil determined with reference to the Third Share Account shall be zero. c. In any Calendar Year when TSA(Y) becomes positive, the CONTRACTOR for purposes of this section shall be deemed to have earned a pre-tax rate of return that is at least forty percent (40%), and the STATE's share of Net Crude Oil determined with reference to the Third Share Account shall be valued at an amount of Net Crude Oil equal to thirty and 769/1000 percent (30.769%) of TSA(Y). d. In any Calendar Year immediately subsequent to a Calendar Year when TSA(Y) is positive, for purposes of applying the formula set forth in subsection (a) of this Section 7.4.3, TSA(Y-1) shall be equal to zero. 7.4.4 Total STATE Share ------------------- The total STATE Share of Net Crude Oil in any Calendar Year shall be the sum of the STATE Share of Net Crude Oil determined with reference to the First Share Account, the Second Share Account and the Third Share Account for such calendar year. 7.5 CONTRACTOR, if so directed by the STATE, shall be obligated to market all crude Oil produced and saved from the Contract Area subject to the provisions hereinafter set forth. 7.6 Except as provided in paragraph 7.10, CONTRACTOR shall be entitled to take and receive and freely export Crude Oil allocated for recovery of Petroleum Operations Expenditures as well as its share of Net Crude Oil. 7.7 Title to the CONTRACTOR's share of Net Crude Oil under this Section VII, as well as to that portion of Crude Oil exported and sold to recover Petroleum Operations Expenditures, shall pass to CONTRACTOR at the wellhead. 7.8 If the MINISTRY elects to take any of the STATE's share of Net Crude Oil in kind, it shall so notify CONTRACTOR in writing not less than ninety (90) calendar days prior to the commencement of each Semester of each Calendar Year specifying the quantity that it elects to take in kind, such notice to be effective for the ensuing Semester of that Calendar Year (provided, however, that such election shall not interfere with the proper performance of any Crude Oil sales agreement for Crude Oil produced within the Contract Area that CONTRACTOR has executed prior to the notice of such election). Failure to give such notice shall be conclusively deemed to evidence the STATE elects not to take in kind. Any sale of the STATE's portion of Net Crude Oil shall not be for a term of more than one Calendar Year without the STATE's consent. 7.9 If the MINISTRY elects not to receive in kind the STATE's share of Crude Oil, then the MINISTRY may direct the CONTRACTOR to market or buy the STATE's share of production, whichever CONTRACTOR shall elect to do; provided, however, the price paid to the MINISTRY for the STATE's share of production shall not be less than the market price determined in accordance with Section VIII hereof. CONTRACTOR shall pay the STATE for the STATE's share of the production produced and saved for each Calendar Quarter; such payment shall be made within thirty (30) calendar days after the end of the Calendar Quarter when the production occurred. 7.10 In addition to the State's production share in accordance with the terms of this Contract, CONTRACTOR is obligated to sell to the STATE at not less than the market price in accordance with Section VIII hereof, if requested in writing, a portion of CONTRACTOR's share of Crude Oil for the internal consumption of the country in accordance with Section 15 of the Hydrocarbons Law; provided that CONTRACTOR's obligation hereunder does not interfere with any of CONTRACTOR's contracts with third parties. 7.11 Should the STATE and CONTRACTOR consider that the processing and utilization of Natural Gas is economical and choose to participate in the processing and utilization thereof, in addition to that used in secondary recovery operations, then the construction and installation of facilities for such processing and utilization shall be carried out pursuant to an approved Work Program. The recovery of costs of operations, sharing of production, and handling of production shall be effected according to the same general framework as that utilized for Crude Oil. 7.12 In the event that CONTRACTOR considers the processing and utilization of Natural Gas is not economical, the STATE may choose to take and utilize such Natural Gas that would otherwise be flared in accordance with the provisions of Section 5.3; all costs of taking and handling will be for the sole account and risk of the STATE. VIII. VALUATION OF CRUDE OIL ---------------------- 8.1 Crude Oil sold to third parties shall be valued as follows: (a) All Crude Oil taken by CONTRACTOR including its share and the share for the recovery of Petroleum Operations Expenditures, and sold to third parties shall be valued at the net realized price received by CONTRACTOR for such Crude Oil F.O.B. the Republic of Equatorial Guinea at the point Crude Oil passes through the inlet flange of the export tanker. (b) Except for the Royalty, all of the STATE's Crude Oil taken by CONTRACTOR and sold to third parties shall be valued at the net realized price received by CONTRACTOR for such Crude Oil F.O.B. the Republic of Equatorial Guinea at the point Crude Oil passes through the inlet flange of the export tanker, less costs incurred by CONTRACTOR related to the sale of STATE's Crude Oil. (c) The MINISTRY shall be duly advised before the sales referred to in paragraph (b) of this subsection are made. (d) Subject to any existing Crude Oil sales agreement, if a more favorable net realized price is available to the STATE for the Crude Oil referred to in paragraph (b) of this subsection, then the MINISTRY shall so advise CONTRACTOR in writing not less than ninety (90) calendar days prior to the commencement of the deliveries under the State's proposed sales contract. Forty-five (45) calendar days prior to the start of such deliveries, CONTRACTOR shall notify the MINISTRY regarding CONTRACTOR's intention to meet the more favorable net realized price in relation to the quantity and period of delivery pursuant to said proposed sales contract. In the absence of such notice the STATE shall market its Crude Oil. (e) The STATE's marketing of such Crude Oil as referred to in paragraph (d) of this subsection shall continue until forty-five (45) calendar days after the STATE's net realized price on said Crude Oil becomes less favorable. CONTRACTOR's obligation to market said Crude Oil shall not apply until after the STATE has given CONTRACTOR at least sixty (60) calendar days advance notice that the STATE does not desire to continue such sales. As long as the STATE is marketing the Crude Oil referred to above, it shall notify CONTRACTOR of the more favorable net realized price. 8.2 Crude Oil sold to other than third parties shall be valued as follows: (a) By using the weighted average per unit price received by CONTRACTOR and the STATE from sales to third parties F.O.B. at the point Crude Oil passes through the inlet flange of the export tanker in the Republic of Equatorial Guinea, net of commissions and brokerages paid in relation to such third party sales, during the three (3) months preceding such sale, adjusted as necessary for quality, grade and gravity, and taking into consideration any special circumstances with respect to such sales; (b) If no such third party sales have been made during such period of time, then on the basis used to value Crude Oil of similar quality, grade and gravity and taking into consideration any special circumstances with respect to sales of such similar Crude Oil. 8.3 Third party sales referred to in this section shall mean sales by CONTRACTOR to independent purchasers of CONTRACTOR, entered into in an arm's length transaction between a willing seller and a willing purchaser on commercial terms reflecting current international open market conditions. 8.4 Commissions or brokerages incurred in connection with sales to third parties, if any, shall not exceed the customary and prevailing rate. 8.5 During any given Calendar Year, the handling of production (i.e., the implementation of the provisions of Section VII hereof) and the proceeds thereof shall be provisionally dealt with on the basis of the relevant Work Program and Budget of Petroleum Operations Expenditures based upon estimates of quantities of Crude Oil to be produced, of internal consumption in the Republic of Equatorial Guinea, of marketing possibilities, of prices and other sale conditions as well as of any other relevant factors. Within thirty (30) calendar days after the end of said given Calendar Year and to comply with the provisions of this Contract, adjustments and cash settlements between the Parties shall be made on the basis of the actual quantities, amounts and prices involved. 8.6 In the event the Petroleum Operations require the segregation of Crude Oils of different quality and/or grade and if the Parties do not otherwise mutually agree: (a) any and all provisions of this Contract concerning valuation of Crude Oil shall apply individually to each segregated Crude Oil; (b) Crude Oil produced and segregated in a given year shall contribute to: (i) the "required quantity" allotted in such year to the recovery of all Petroleum Operations Expenditures pursuant to Section VII; (ii) the "required quantity" of Crude Oil a Party is entitled in such Year pursuant to Section VII. with quantities that bear the same proportion to the respective "required quantity" (referred to in (i) or (ii) above) as the quantity of such Crude Oil produced and segregated in such given Year bears to the total quantity of Crude Oil produced in such Year from the Contract Area. IX. BONUSES AND SURFACE RENTALS ------------------------------ 9.1 On the Effective Date, CONTRACTOR shall pay the STATE the sum of Seven Hundred Fifty Thousand United States Dollars (U.S. $750,000) as a signature bonus. 9.2 On the date CONTRACTOR notifies MINISTRY it has made a Commercial Discovery, CONTRACTOR shall pay the STATE the sum of Seven Hundred Fifty Thousand United States Dollars (U.S. $750,000). 9.3 CONTRACTOR shall pay the STATE a one-time payment of One Million Five Hundred Thousand United States Dollars (U.S. $1,000,000) after daily production from the Contract Area averages for the first time twenty thousand (20,000) barrels per day for a period of sixty (60) calendar days; CONTRACTOR shall also pay the STATE a one-time payment of Two Million Five Hundred Thousand United States Dollars (U.S. $2,500,000) after daily production from the Contract Area averages for the first time thirty thousand (30,000) barrels per day for a period of sixty (60) calendar days. Such payments shall be made within thirty (30) calendar days following the last day of the respective sixty (60) calendar day period. 9.4 From the Effective Date and throughout the period CONTRACTOR is conducting Exploration Operations, CONTRACTOR shall pay to STATE an annual surface rental of One United States Dollar (U.S. $1.00) per hectare for all parts of the Contract Area covered by less than two hundred (200) meters of water and Fifty United States Cents (U.S. $.50) per hectare for all parts of the Contract Area covered by two hundred (200) meters or more of water where CONTRACTOR is authorized to conduct Exploration Operations. From the expiration of the Exploration Operations until termination of this Contract, CONTRACTOR shall pay to the STATE an annual surface rental of Two United States Dollars (U.S.$2.00) per hectare for all parts of the remaining Contract Area. The MINISTRY and CONTRACTOR agree that the coordinates shown in Annex "E" attached hereto represent the boundary where the two hundred (200) meter depth occurs and the basis for calculating the rental payments. For the year this Contract is signed, the surface rentals shall be prorated from the Effective Date through December 31 of that year, and shall be paid thirty (30) calendar days after the Effective Date. For succeeding years the surface rentals shall be paid in advance, thirty (30) calendar days before the beginning of each Calendar Year. 9.5 (a) The production bonus payments required by Section 9.3 hereof shall be included in Petroleum Operations Expenditures as cost recoverable. (b) The signature bonus, Commercial Discovery bonus and surface rentals required by Sections 9.1, and 9.2, and 9.4 of this Contract shall not be included as cost recoverable in Petroleum Operations Expenditures. X. PAYMENTS -------- 10.1 All payments to be made by CONTRACTOR to the STATE pursuant to this Contract shall be made to the Treasury of the STATE in United States currency, or at CONTRACTOR's election, in other currency acceptable to the STATE. 10.2 All payments due CONTRACTOR shall be made in United States Dollars, or at the STATE's election, in other currency acceptable to CONTRACTOR, at a bank to be designated by CONTRACTOR. 10.3 Unless otherwise specifically provided herein, any payments required to be made pursuant to this Contract shall be made within thirty (30) calendar days following the end of the month when the obligation to make such payments occurs. 10.4 At the end of each accounting period any gain or loss on the CONTRACTOR's books caused by variations in the exchange rates will be deducted or added, as the case may be, from its costs and expenses for that period, in case CONTRACTOR's accounting is done in FCFA (French Africa Confederation Francs) or in any other currency agreed to by the Parties other than United States Dollars. XI. TITLE TO EQUIPMENT -------------------- 11.1 The equipment and fixed installations purchased by CONTRACTOR for use in Development and Production Operations becomes the Property of the STATE when the term of this Contract expires. Nevertheless, the equipment and fixed installations amortized before the expiration of the Contract, could be used by the STATE providing such use does not interfere with CONTRACTOR's activities. 11.2 The provisions of Section 11.1 of this Section XI shall not apply to the equipment of CONTRACTOR or any of its subcontractors that constitute an indispensable element in the production of Hydrocarbons; such equipment may be freely exported from the Republic of Equatorial Guinea, if it has not been amortized. XII. UNITIZATION ----------- 12.1 If a Field is designated within the Contract Area and it extends to other parts of the Republic of Equatorial Guinea where other parties have obtained a Contract for exploration and production of Crude Oil or Natural Gas, or where another Contract has been granted to the CONTRACTOR, the MINISTRY may demand the production of Crude Oil and Natural Gas be carried out in collaboration with the other contractors. The same rule shall be applicable if deposits of Crude Oil or Natural Gas, within the Contract Area, not commercially recoverable are deemed as commercially exploitable if the production includes those parts of the deposits extending to areas controlled by other contractors. 12.2 If the MINISTRY so orders, CONTRACTOR shall collaborate with other contractors in preparing a collective proposal for approval by the MINISTRY for common production of the deposits of Crude Oil or Natural Gas. 12.3 If the proposal for common production has not been presented within the time period established, or if the MINISTRY does not approve that proposal (such approval shall not be unreasonably denied or delayed), the MINISTRY may prepare or cause to be prepared for the account of the parties involved, a plan for common production. If the MINISTRY adopts such plan, the CONTRACTOR shall comply with all the conditions established in such plan. 12.4 This Section XII shall also be applicable to discoveries of deposits of Crude Oil or Natural Gas within the Contract Area that extend to areas not within the dominion of the Republic of Equatorial Guinea; provided that with respect to the production of such deposits of Crude Oil or Natural Gas, the MINISTRY is empowered to impose the special rules and conditions necessary to satisfy obligations under agreements with international organizations or adjacent states. 12.5 Within one hundred eighty (180) calendar days following a request by the MINISTRY, CONTRACTOR shall agree and proceed to operate under any cooperative or unitary plan for the development and operation of the area, Field or pool, or a part of the same, including areas covered by this Contract, the MINISTRY deems feasible and necessary or advisable for purposes of conservation. If a clause of a cooperative or unitary development plan approved by the MINISTRY that by its terms affects the Contract Area or a part of the same or contradicts a clause of this Contract, the clause of the cooperative or unitary plan shall prevail. 12.6 Notwithstanding Section 12.5, in the event of conflicting clauses between the terms of the Contract and the cooperative or unitary plan, CONTRACTOR shall retain the right to conciliation and arbitration under Section XIII. XIII. CONSULTATION AND ARBITRATION ------------------------------ 13.1 The STATE and CONTRACTOR hereby consent to submit to the jurisdiction of the International Centre for Settlement of Investment Disputes (hereinafter the "Centre") for any dispute arising out of or relating to this Contract or relating to any investment made under it, for settlement by conciliation followed, if the dispute remains unresolved within three (3) months of the communication of the report of the Conciliation Commission to the parties, by arbitration, pursuant to the Convention of the Settlement of Investment Disputes between States and Nationals of Other States (hereinafter the "Convention"). 13.2 The MINISTRY is a governmental agency of the Republic of Equatorial Guinea that has been designated to the Centre by the STATE pursuant to Articles 25(1) and 25(3) of the Convention and the Republic of Equatorial Guinea has notified the Centre that the agreements executed by the MINISTRY do not require approval (the Government has approved said Consent Agreement by decree ______________________________) 13.3 It is agreed by the Parties to this Contract that CONTRACTOR is a citizen of the Cayman Islands. 13.4 It is hereby agree by the Parties that the consent to the Centre's Jurisdiction stipulated above, shall equally bind any successor in interest to the Government of Republic of Equatorial Guinea and CONTRACTOR to the extent that Centre can assume jurisdiction over a dispute between the successor and the other Party. 13.5 It is hereby agreed that the right of CONTRACTOR to request the settlement of a dispute by the Centre or to take any step as a party to a proceeding in accordance with this clause shall not be affected by CONTRACTOR receiving partial compensation, conditional or absolute, from any Third Party (whether a private person, a state, a government agency or an intentional organization) with respect to any material loss or injury that is the subject of the dispute; provided that the Republic of Equatorial Guinea may require evidence that such third party agrees to the exercise of those rights by CONTRACTOR. 13.6 Since the Republic of Equatorial Guinea is not a signatory to the Convention, it is hereby agreed that Section XIII shall be in force on the effective date of the convention as regards this STATE, and that date shall be considered as the date the Parties consented to submit disputes to the Centre. Until thirty (30) days after the ratification of the Convention by the Republic of Equatorial Guinea of the procedures for settlement of disputes provided for in this Section, all disputes shall be settled by procedures similar to those applicable under the Convention, except that the proceedings shall be initiated by direct communication between the Parties, and if the Tribunal is not constituted within ninety (90) calendar days following the receipt of such communication, either party may request the Centre's Secretary General to appoint any arbitrators not yet appointed. Any Tribunal constituted regarding a dispute submitted to the Centre pursuant to this Section shall consist of one arbitrator appointed by each Party, and an arbitrator appointed by the Centre's Chairman of the Administrative Council who shall be President of the Tribunal. 13.7 Any Tribunal constituted pursuant to this Contract shall apply the law of the Republic of Equatorial Guinea. Such Tribunal constituted pursuant to this Contract shall have the power to decide a dispute ex aequo et bono. 13.8 Notwithstanding Section 13.6, if conciliation or arbitration under the Convention are unavailable because the jurisdictional requirements ratione personae of Article 25 of the Convention is unfulfilled at the time a proceeding is instituted pursuant to this Section XIII, the Parties agree to conciliation or arbitration, as the case may be pursuant to Section 13.1, in accordance with the Arbitration (Additional Facility) Rules of the Centre. 13.9 The place of arbitration shall be Washington, D.C., United States of America, and the arbitration shall be held at the seat of the Centre. The language of the proceedings shall be Spanish. XIV. BOOKS AND ACCOUNTS AND AUDITS ----------------------------- CONTRACTOR shall be responsible for keeping books and accounts reflecting all Petroleum Operations Expenditures as well as revenue received from the sale of Crude Oil and Natural Gas, consistent with modern petroleum industry practices and proceedings as described in Annex "C" attached hereto. Such books and accounts shall be maintained in United States Dollars. Should there be any inconsistency between the provisions of this Contract and the provisions of Annex "C," the provisions of this Contract shall prevail. 14.2 AUDITS ------ The STATE shall have the right to inspect and audit CONTRACTOR's books and accounts relating to this Contract in accordance with Section 4.9 If CONTRACTOR's books and accounts are not available for inspection in the Republic of Equatorial Guinea, the STATE shall have the right to audit the CONTRACTOR's books and accounts at the CONTRACTOR's headquarters; in this case, the expenses of the audit shall be paid by the CONTRACTOR. Moreover, the STATE will require CONTRACTOR to engage independent accountants to examine, in accordance with generally accepted auditing standards, CONTRACTOR's books and accounts relating to this Contract for any Calendar Year or perform auditing procedures as deemed appropriate by the STATE. A copy of the independent accountant's report or any exceptions shall be forwarded to the STATE within sixty (60) calendar days following the completion of such audit. Any cost incurred by CONTRACTOR in complying with this requirement by the STATE shall be included in Petroleum Operations Expenditures and shall be cost recoverable. CONTRACTOR's books and accounts shall be deemed accepted by the STATE twenty-four (24) months after the end of the Calendar Year when the cost was incurred, unless the MINISTRY notifies CONTRACTOR otherwise within such time. XV. ADDITIONAL PROVISIONS --------------------- 15.1 NOTICES ------- Any notices required or given by either Party to the other, shall be deemed to have been delivered when properly acknowledged for receipt by the receiving Party. All such notices shall be in Spanish and shall be addressed to : MINISTRY OF MINES AND ENERGY ---------------------------- Malabo-Bioko Norte Republica de Guinea Ecuatorial Telephone: (240)-9-3567, -3405, -2086 Facsimile: (240)-9-3353 Telex: GBNOM 5405 EG CONTRACTOR ---------- Triton Equatorial Guinea, Inc. Wellington House, 5th Floor 125 Strand Street London, WC2R 0AP United Kingdom Attn: Project Coordinator Telephone: 44-171-533-7000 Facsimile: 44-171-533-9000 Telex: None Either party may substitute or change such address on written notice thereof to the other. XVI LAWS AND REGULATIONS -------------------- 16.1 For purposes of this Contract, the laws of the Republic of Equatorial Guinea shall govern in accordance with generally accepted principals of international law. 16.2 In the event of changes in the legislation regarding Petroleum Operations, and if as a consequence of their implementation, said changes cause, to the detriment of any of the Parties, the reduction of rights or an increase in the economic obligations contained in this Contract, the Parties shall meet and take the suitable measures to achieve the necessary economic balance at any time during the Effectiveness of this Contract. XVII. FORCE MAJEURE -------------- 17.1 Except as otherwise provided in this Subsection 17.1, each Party shall be excused from complying with the terms of this Contract, except for the payment of monies then due, if any, for so long as such compliance is hindered or prevented by irresistible circumstances or beyond the reasonable control of the Party concerned, including, but not limited to, change of government, violent storms, cyclones, thunderstorms, navigation dangers, destruction of machinery or whatever kind of installations, hostilities, blockades, embargoes, criminal disturbances, national emergencies, the inability to obtain, import or use any of the required materials, equipment or services, and the inability to obtain the necessary rights of passage, riots, strikes, wars (declared or undeclared), insurrections, rebellions, terrorist acts, civil disturbances, dispositions or orders of governmental authority, whether such authority be actual or assumed, acts of God, such circumstances being herein sometimes called "Force Majeure"; provided, however, inability to obtain equipment, supplies or fuel shall not be a cause of Force Majeure, unless caused by one of the factors described in this Subsection 17.1. If any failure to comply is occasioned by a governmental law, rule, regulation, disposition or order of the Government of the Republic of Equatorial Guinea as aforesaid and the affected Party is operating in accordance with good petroleum industry practice in the Contract Area and is making reasonable efforts to comply with such law, rule, regulation, disposition or order, the matter shall be deemed beyond the control of the affected Party. In the event that either Party hereto is rendered unable, wholly or in part, by any of these causes to carry out its obligations under this Contract, it is agreed that such Party shall give notice and details of Force Majeure in writing to the other Party within seven (7) calendar days after its occurrence. In such cases, the obligations of the Party giving the notice shall be suspended during the continuance of any inability so caused, and the term of the Contract shall be extended to coincide with the duration of the condition of Force Majeure. Both Parties shall do all within their power to remove such cause. XVIII. TEXT ---- 18.1 This Contract is written in the Spanish and English languages. In the event of a controversy between the two texts, the Spanish text shall prevail. XIX. EFFECTIVENESS ------------- 19.1 This Contract shall come into effect on the Effective Date. 19.2 This Contract shall not be annulled, amended or modified in any respect, except by the mutual consent in writing of the Parties or their successors hereto. Nevertheless, the MINISTRY when requested by CONTRACTOR, once all works described in Section 4.3(i)(ii) are completed, shall approve within sixty (60) calendar days from said request an amendment authorizing CONTRACTOR to transfer the minimum drilling obligation described in Section 4.3 from this Block to Block "F" including all the obligations and rights associated with said drilling. CONTRACTOR shall be entitled to recover the costs associated with drilling on the Block where the well is drilled. Any amendments or modifications agreed to in writing by the Parties shall not require approval by the Supreme Court of Justice of the Republic of Equatorial Guinea or ratification by the President of the Republic of Equatorial Guinea. IN WITNESS WHEREOF, the Parties hereto have executed this Contract, in triplicate and in the Spanish language, as of the day and year first above written. THE REPUBLIC OF EQUATORIAL GUINEA REPRESENTED BY THE MINISTRY OF MINES AND ENERGY OF THE REPUBLIC OF EQUATORIAL GUINEA By:___________________________________ Minister of Mines and Energy TRITON EQUATORIAL GUINEA, INC. By:___________________________________ Thomas G. Finck, President ANNEX "B" DESCRIPTION OF CONTRACT AREA BLOCK G CORNER POINTS LATITUDE NORTH LONGITUDE EAST A 1 41' 05" 9 37' 34" B 1 41' 07" 9 25' 37" C 1 40' 15" 9 25' 37" D 1 40' 15" 9 17' 41" E 1 34' 38" 9 17' 41" F 1 34' 34" 9 00' 25" G 1 15' 00" 8 51' 38" H 1 15' 00" 9 23' 47" From corner point H the Block is defined by the coast in low tide until the intersection with corner point A at latitude North 1 41' 05" and 9 37' 34" longitude East ANNEX "C" ACCOUNTING PROCEDURE Attached to and made an integral part of the Production Sharing Contract (the "Contract") for Block G between the REPUBLIC OF EQUATORIAL GUINEA, represented for purposes of this Contract by the Ministry of Mines and Energy, and TRITON EQUATORIAL GUINEA, INC., CONTRACTOR, dated the 26th day of March, 1997. Article I General Provisions 1. Purpose. The accounting procedure herein provided and attached to the ------- Contract is to be followed and observed in the performance of either Party's obligations under the Contract. 2. Accounts and Statements. CONTRACTOR's accounting records and books will ------------------------ be kept in accordance with generally accepted and recognized accounting systems, consistent with modern petroleum industry practices and procedures. Books and reports will be maintained and prepared in accordance with methods established by the MINISTRY. The chart of accounts and related account definitions will be prescribed by the MINISTRY. Reports will be organized for the use of the MINISTRY in carrying out its management responsibilities under the Contract. Article II Petroleum Operations Expenditures 1. Definition for Purposes of the Recovery of Costs and Calculation of -------------------------------------------------------------------- the Income Taxes. For any year when commercial production occurs, Petroleum - ------------------ Operations Expenditures shall consist of a) current year's non-capital costs, b) current year's capital costs, and c) current year allowed recovery of prior year's unrecovered Petroleum Operations Expenditures. 2. Non-Capital Expenditures. Non-capital expenditures means those ------------------------- Petroleum Operations Expenditures, whether related to Crude Oil or Natural Gas. or relating to current year's operations. Moreover, non-capital expenditures shall also include the sums agreed and designated by the MINISTRY and CONTRACTOR for the abandonment of the Petroleum Operations. In addition to costs relating only to current operations, U.S. $93,000 spent by CONTRACTOR for data acquired prior to the Effective Date shall be classified as non-capital expenditures authorized in writing by the MINISTRY, and the costs of surveys and the intangible costs of drilling exploratory and development wells, as described in paragraph (c), (d) and (e) below, will be classified as non-capital costs. Non-capital expenditures include, but are not limited to the following: (a) Labor, materials and services used in day to day crude oil well operations, crude oil field production facilities operations, secondary recovery operations, natural gas well storage, handling, transportation, and delivery operations, natural gas field production facilities operations, natural gas transportation and delivery operations, natural gas processing auxiliaries and utilities, cleaning up pollution or related damages as set forth in Section 4.8 of this Contract, and other operating activities, including maintenance, all of which comprise Petroleum Operations. (b) Office, services and general administration - General services including overhead allocation, insurance premiums, technical and related services, material services, transportation, rental of heavy engineering equipment, site rentals and other rentals of services and property, personnel expenses, public relations, and other expenses abroad. (c) Development and production drilling - Labor, materials and services used in drilling wells with the object of penetrating a proven reservoir, including the drilling of delineation wells as well as redrilling, deepening or recompleting wells, and access roads, if any, leading directly to wells. (d) Exploratory drilling - Labor, materials and services used in the drilling of wells with the object of finding unproven reservoirs of crude oil and natural gas, and access roads, if any, leading directly to wells. (e) Surveys - Labor, materials and services used in aerial, geological, topographical, geophysical and seismic surveys, and core hole drilling. (f) Other exploration expenditures - Auxiliary or temporary facilities having useful lives of one year or less used in exploration and purchased geological and geophysical information. (f) The bonus payments payable in accordance with Section 9.3 of the Contract. All payments made in accordance with Section 9 of the Contract shall be deductible for purposes of calculation of Income Tax. (h) Interest on loans shall be considered non-capital expenditures for tax purposes; however, three percent (3%) shall be cost recoverable in accordance with Article III.3 of this Annex "C". 3. Capital Expenditures. Capital expenditures means expenditures made for --------------------- items that normally have a useful life beyond the year incurred. Capital expenditures include, but are not limited to, the following: (a) Construction utilities and auxiliaries - Work shops, power and water facilities, warehouses, and field roads other than the access roads mentioned in paragraphs 2(c) and 2(d) above. Cost of oil jetties and anchorages, treating plants and equipment, secondary recovery systems, gas plant and steam systems. (b) Construction housing and welfare - Housing, recreational facilities and other tangible property incidental to construction. (c) Production facilities - Offshore platforms (including the costs of labor, fuel, hauling, and supplies for both the offsite fabrication and onsite installation of platforms, and other construction costs in erecting platforms and installing submarine pipelines), wellhead equipment, subsurface lifting equipment, production tubing, sucker rods, surface pumps, flow lines, gathering equipment, delivery lines and storage facilities. (d) Movables - Surface and subsurface drilling and production tools, equipment and instruments, barges, floating craft, automotive equipment, aircraft, construction equipment, furniture and office equipment and miscellaneous equipment. Article III Accounting Methods To Be Used to Calculate Recovery of Petroleum Operations Expenditures and Income Taxes As indicated below, the following accounting methods shall be used to calculate the recovery of Petroleum Operations Expenditures and Income Taxes. 1. Depreciation. Depreciation will be calculated from the year in which ------------ the asset is placed into service, with a full year's depreciation allowed the initial year. Depreciation of Capital Costs, for purposes of Income Tax calculation and cost recovery, will be calculated over a period of four (4) years using the straight line method. The lives to be used for items for which Capital Expenditures are incurred shall be four (4) years. The undepreciated balance of assets taken out of service will not be charged to Petroleum Operations Expenditures but will continue to depreciate based upon the lives described above, except where such assets have been subjected to unanticipated destruction, for example, by fire or accident. 2. Overhead Allocation. General and administrative expenditures, other ------------------- than direct charges, allocable to this operation should be determined by a detailed study, and the method determined by such study shall be applied each year consistently. The method selected must be approved by the MINISTRY. Either the MINISTRY or CONTRACTOR may request by notification of the other Party that the method selected be changed; provided, however that only one change to the method be allowed in any given Calendar Year. 3. Interest Recovery. Interest on loans obtained by a Party from ------------------ Affiliated Companies, or parent companies, or from third parties non-affiliated may not be recoverable as Petroleum Operations Expenditures, except for the three percent (3%) interest, but the interest may be deductible from income for the purposes of calculating CONTRACTOR's Income Tax. The interest on said loans cannot be over the prevalent commercial rates for Petroleum Operations investments. Details of any sums to be financed shall be included in each year's Budget of Petroleum Operations Expenditures for the review of the MINISTRY. Notwithstanding anything to the contrary contained herein or in any law regulation rule order or decree of the STATE, non-resident lenders shall not be subject to withholding tax or other income tax. 4. Natural Gas Costs. Petroleum Operations Expenditures directly ------------------- associated with the production of Natural Gas will be directly chargeable against Natural Gas revenues in the manner agreed by the Parties. Petroleum Operations Expenditures incurred for production of both Natural Gas and Crude Oil will be allocated to Natural Gas and Crude Oil as agreed by both Parties. 5. Inventory Accounting. The costs of non-capital items purchased for -------------------- inventory will be recoverable in the year the items have been landed in the Republic of Equatorial Guinea. The CONTRACTOR shall present two types of inventories, one for non-capital assets or articles and another for capital assets or articles. 6. Insurance and Claims. Petroleum Operations Expenditures shall ---------------------- include premiums paid for insurance normally required to be carried for the operations relating to CONTRACTOR's obligations conducted under the Contract and shall also include expenditures incurred and paid by CONTRACTOR in settlement of any and all losses, claims, damages, judgments, and other expenses, including monies relating to CONTRACTOR's obligations under the Contract. Any sums CONTRACTOR receives for settlements from insurance carried for the benefit of the Petroleum Operations shall be deducted from Petroleum Operations Expenditures for the year any such settlement is received. ANNEX "D" LETTER OF PERFORMANCE GUARANTY BY PARENT FOR CONTRACT AREA G, THE REPUBLIC OF EQUATORIAL GUINEA WHEREAS, Triton Energy Limited, a company validly existing under the laws of the Cayman Islands ("Parent"), with its principal place of business c/o Caledonian House, Mary Street, Post Office Box 1043, Georgetown, Grand Cayman, Cayman Islands; and WHEREAS, Triton Equatorial Guinea, Inc., a company validly constituted under the laws of the Cayman Islands ("Company"), is a wholly owned subsidiary of the Parent; and WHEREAS, Company has contemporaneously herewith entered into that certain Production Sharing Contract (the "Contract") with the Republic of Equatorial Guinea (the "STATE") for Contract Area G; and WHEREAS, Company holds the participating interest as specified in the Contract; and WHEREAS, the STATE desires that the performance by Company under the Contract be guaranteed; and WHEREAS, the Parent accepts that it fully understands and assumes the legal contractual undertakings of the Company under the Contract; and NOW THEREFORE, it is hereby agreed and stipulated as follows: 1. Parent shall be bound as Guarantor by virtue of this Letter of Performance Guaranty by Parent (this "Guaranty") to the STATE for the fulfillment of the obligations assumed by the Company in accordance with Section 4.3(a) of the Contract. 2. In accordance with Section 4.5 of the Contract, the amount of any guaranty by Parent hereunder in the then Contract Year phase shall be discharged of the minimum expenditure obligation for such Contract Year phase when the minimum expenditure obligation for such phase has been satisfied. If at the end, the Exploration Expenditures incurred by Company during the two (2) first years of the Contract is less than the minimum expenditure obligation described in Section 4.5 of the Contract, then Parent agrees it shall pay to the STATE on first demand without proof or conditions the balance of the amounts not incurred. The STATE's first demand shall be given within thirty (30) calendar days from the end of the related initial exploration period. Failure by the STATE to make a timely demand as provided above shall discharge Parent from its liabilities under this Guaranty. Demand shall be made by an original written or faxed statement from the Ministry of Energy and Mines of the Republic of Equatorial Guinea ("Ministry") certifying that "Triton Equatorial Guinea, Inc. did not comply with the work program in the Contract covering Block G." The Ministry shall state specifically how Triton failed to comply with such work commitment. The Minister shall deliver the demand to the Parent at 6688 N. Central Expressway, Dallas, Texas, 75206 U,S.A.; or fax number 1-214-691-0198. 3. This Guaranty shall be governed by and construed in accordance with the laws of Equatorial Guinea. 4. This Guaranty shall expire at the earlier of two (2) years and thirty (30) consecutive days from the Effective Date of the Contract or the date when Company and/or its permitted assignee has been recognized by the Ministry of Mines and Energy of the Republic of Equatorial Guinea to have fulfilled its minimum expenditure obligations for the initial exploration period pursuant to the Contract. 5. Said act to be effective in the Republic of Equatorial Guinea shall be previously elevated to a public deed by a notary or other competent authority named by the Principal, and said public deed shall comply with all legal requisites. The costs incurred for said process shall be the responsibility of the Company, and shall not be recoverable. IN WITNESS WHEREOF, Parent and Company have signed this Guaranty on ______ day of _______, 1997. PARENT: TRITON ENERGY LIMITED By:___________________________ Name:______________________ Title:_____________________ COMPANY TRITON EQUATORIAL GUINEA, INC. By:___________________________ Name:______________________ Title:_____________________ STATE OF TEXAS COUNTY OF DALLAS BEFORE ME, the undersigned Notary Public in and for the State of Texas, on this day personally appeared _________________________, ____________________ of TRITON ENERGY LIMITED, and acknowledged to me that he executed the foregoing instrument for the purposes and consideration therein expressed, as the act and deed of TRITON ENERGY LIMITED, and that he has the capacity to make such authorization. WITNESS MY HAND AND SEAL OF OFFICE this ____ day of ____________, 19___. ___________________________________________ Notary Public in and for the State of Texas ___________________________________________ Printed Name My Commission Expires: _______________ STATE OF TEXAS COUNTY OF DALLAS BEFORE ME, the undersigned Notary Public in and for the State of Texas, on this day personally appeared _________________________, ____________________ of TRITON EQUATORIAL GUINEA, INC., and acknowledged to me that he executed the foregoing instrument for the purposes and consideration therein expressed, as the act and deed of TRITON EQUATORIAL GUINEA, Inc., and that he has the capacity to make such authorization. WITNESS MY HAND AND SEAL OF OFFICE this ____ day of ____________, 19___. ___________________________________________ Notary Public in and for the State of Texas ___________________________________________ Printed Name My Commission Expires: _______________ ANNEX "E" COORDINATES FOR THE 200M ISOBATH The MINISTRY and CONTRACTOR agree the following coordinates represent the boundary for the 200 meter water depth for purposes of calculating the rental payments due pursuant to Section 9.4 of the Contract. Offshore Equatorial Guinea, Block G: Coordinates for the 200m isobath Latitude (Decimal deg.) Longitude (Decimal deg) 1.669636050000000 9.420002540000000 1.718255996704102 9.432461738586430 1.736657977104187 9.442479133605960 1.746453046798706 9.449187278747560 1.778007030487061 9.461318016052250 1.833732008934021 9.487948417663570 1.852141976356506 9.498534202575680 1.915503978729248 9.540432929992680 1.933310031890869 9.548749923706050 1.962574005126953 9.560340881347660 1.999791979789734 9.569559097290040 2.018069982528687 9.571042060852050 2.034588098526001 9.569132804870610 2.048221111297607 9.564983367919920 2.074255943298340 9.550439834594730 2.119595050811768 9.529401779174800 2.174201011657715 9.517924308776860 2.206674098968506 9.514681816101070 2.240891933441162 9.513693809509280 2.265940904617310 9.509973526000980 2.314485073089600 9.513362884521480 2.421205043792725 9.515472412109380 2.438366889953613 9.518675804138180 2.475511074066162 9.522773742675780 2.587642908096313 9.544161796569820 2.606426000595093 9.541087150573730 2.621166944503784 9.534647941589360 2.642630100250244 9.519592285156250 2.651741027832031 9.518342018127440 2.657460927963257 9.519410133361820 2.695396900177002 9.538861274719240 2.729363918304443 9.560067176818850 2.744920969009399 9.570688247680660 2.777837038040161 9.598164558410640 2.789410114288330 9.609403610229490 2.794575929641724 9.611616134643550 2.804290056228638 9.612635612487790 2.807696104049683 9.611455917358400 2.810491085052490 9.607439041137700 2.814825057983398 9.591453552246090 2.818197965621948 9.587999343872070 2.822141885757446 9.584536552429200 2.826673030853271 9.582205772399900 2.850533008575439 9.575085639953610 2.951327085494995 9.561904907226560 2.976335048675537 9.555339813232420 3.001311063766479 9.546500205993650 EX-10.85 8 EXHIBIT 10.85 SUPPLEMENTARY CONTRACT (NO.1) This Supplementary Contract (No. 1) to the Production Sharing Contract for Block A-18 dated 21 April 1994 (hereinafter referred to as "the Principal Contract") is made on the 21st day of April 1999 by and between the MALAYSIA-THAILAND JOINT AUTHORITY (hereinafter referred to as "MTJA") an authority duly established under the Malaysia-Thailand Joint Authority Act 1990 of Malaysia and Thailand-Malaysia Joint Authority Act B.E. 2533 (1990) of the Kingdom of Thailand and the Agreement between the Government of Malaysia, and the Government of the Kingdom of Thailand on the Constitution and Other Matters Relating to the Establishment of the Malaysia-Thailand Joint Authority, dated 30 May 1990, and having its office at 27th Floor, Empire Tower, City Square Centre, 182 Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia, of the first part; and PETRONAS CARIGALI (JDA) SDN. BHD., a company duly incorporated and existing under the laws of Malaysia and having its registered office at Tower 1, PETRONAS Twin Towers, Persiaran KLCC, 50450 Kuala Lumpur, Malaysia (hereinafter referred to as "CARIGALI"), TRITON OIL COMPANY OF THAILAND, a company duly incorporated and existing under the laws of the State of Texas, United States of America, and having its registered office at 6688 North Central Expressway, Suite 1400, Dallas, Texas, 75206, United States of America, and having its local branch office at 7th Floor, Kin Gwan Building 1, 140 Wireless Road, Bangkok 10330, Thailand, and Suite 13.01, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak 50400 Kuala Lumpur, Malaysia (hereinafter referred to as "TRITON"), and TRITON OIL COMPANY OF THAILAND (JDA) LIMITED, a company incorporated under the laws of the Cayman Islands and having its statutory office in Dallas, Texas, United States of America, and having its local registered branch office at Suite 13.01, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia (hereinafter referred to as "TRITON JDA"), of the second part. The parties of the first and second part shall hereinafter be referred to individually as "Party" and collectively as "Parties". WHEREAS Article 2.4 Paragraph 4 of the Principal Contract provides that any Sub- Block which is not defined as a Development Area and any area which is not a Gas Field as defined in accordance with Article 8.1 at the end of five (5) years from the Effective Date (hereinafter referred to as "the Unexplored Areas") shall be deemed to be relinquished to MTJA and cease to be part of the Contract Area; AND WHEREAS CARIGALI, TRITON and TRITON JDA (hereinafter referred to as "the Contractors") request MTJA's permission to retain the Unexplored Areas for an additional three (3) years for further exploration after the end of the five (5) years from the Effective Date; AND WHEREAS MTJA agrees not to invoke the above-mentioned Article 2.4 Paragraph 4 and further agrees to the request of the Contractors to retain the Unexplored Areas in consideration of additional work commitments to be undertaken by the same. NOW THEREFORE it is hereby stipulated and agreed as follows:- 1. The Contractors shall retain the Unexplored Areas for an additional three (3) years commencing on the fifth anniversary of the Effective Date (hereinafter referred to as "the Retention Period") for further exploration subject to the following minimum work commitments and conditions:- (i) The Contractors shall carry out subsurface studies to redefine and reevaluate the hydrocarbon prospectivity in the Unexplored Areas and drill two (2) Wildcat Wells at an aggregate drilled footage of not less than five thousand (5,000) metres. (ii) The amount to be expended by Contractors in carrying out their exploration activities in the Unexplored Areas during the Retention Period shall in the aggregate be not less than ten million four hundred sixty thousand United States Dollars (USD10,460,000) which aggregate amount includes the MTJA training bonus of seventy thousand United States Dollars (USD70,000) per year. (iii) The Retention Period shall not affect the existing fixed term of thirty-five (35) years of the Principal Contract set out in Article 2.1 thereof. Any new discovery of a Gas Field within the Unexplored Areas during the Retention Period will yield a shorter gas holding period commencing from the date of agreement between the Parties on the extent of the Gas Field and its reserve area as set out in Article 8.1 of the Principal Contract, and ending 20 April 2004. The periods for development and production of the Gas Field shall remain the same. (iv) When Crude Oil is discovered in a Commercial Quantity in any Sub-block or Sub-blocks within the Unexplored Areas during the Retention Period, that Sub-block or Sub-blocks shall be automatically converted into a Development Area and the provisions of Article 2.4, Paragraph 1 of the Principal Contract shall apply. If Contractors fail to produce Crude Oil commercially, directly or indirectly, from such Sub-block or Sub-blocks prior to 20 April 2004, such Sub-block or Sub-blocks shall be deemed to be relinquished to MTJA and cease to be part of the Contract Area. 2. Except as expressly provided in this Supplementary Contract (No. 1), the Principal Contract is not otherwise waived, amended and supplemented hereby and the terms therein shall remain in full force and effect. 3. Any terms that are defined terms in the Principal Contract shall have the same meaning when used in this Supplementary Contract (No. 1) unless herein otherwise expressly provided. IN WITNESS WHEREOF MTJA, CARIGALI, TRITON and TRITON JDA have by their respective duly authorised officers executed this Supplementary Contract (No. 1) on the day and year first herein above written. Signed by : ) For and on behalf of )_____________________ MALAYSIA-THAILAND JOINT AUTHORITY ) In the presence of ) ) Signed by : ) For and on behalf of )_____________________ PETRONAS CARIGALI (JDA) SDN. BHD. ) In the presence of ) ) Signed by : ) For and on behalf of )_____________________ TRITON OIL COMPANY OF THAILAND ) In the presence of ) ) Signed by : ) For and on behalf of )______________________ TRITON OIL COMPANY OF THAILAND (JDA) ) LIMITED ) In the presence of ) ) EX-10.86 9 EXHIBIT 10.86 SUPPLEMENTARY CONTRACT (NO.2) This Supplementary Contract (No. 2) to the Production Sharing Contract for Block A-18 dated 21 April 1994, as amended and supplemented, (hereinafter referred to as "the Principal Contract") is made the 29 day of December 1999 by and between the MALAYSIA-THAILAND JOINT AUTHORITY (hereinafter referred to as "MTJA") an authority duly established under the Malaysia-Thailand Joint Authority Act 1990 of Malaysia and Thailand-Malaysia Joint Authority Act B.E. 2533 (1990) of the Kingdom of Thailand and the Agreement between the Government of Malaysia, and the Government of the Kingdom of Thailand on the Constitution and Other Matters Relating to the Establishment of the Malaysia-Thailand Joint Authority, dated 30 May 1990, and having its office at 27th Floor, Empire Tower, City Square Centre, 182 Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia, of the first part; and PETRONAS CARIGALI (JDA) SDN. BHD., a company duly incorporated and existing under the laws of Malaysia and having its registered office at Tower 1, PETRONAS Twin Towers, Persiaran KLCC, 50450 Kuala Lumpur, Malaysia (hereinafter referred to as "CARIGALI"), TRITON OIL COMPANY OF THAILAND, a company duly incorporated and existing under the laws of the State of Texas, United States of America, and having its registered office at 6688 North Central Expressway, Suite 1400, Dallas, Texas, 75206, United States of America, and having its local branch office at 33/95-96, 99-100 Wall Street Tower, Surawong Road, Bangrak, Bangkok 10500 Thailand, (hereinafter referred to as "TRITON"), and TRITON OIL COMPANY OF THAILAND (JDA) LIMITED, a company duly incorporated and existing under the laws of the Cayman Islands and having its statutory office in Dallas, Texas, United States of America, and having its local registered branch office at Suite 13.01, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia (hereinafter referred to as "TRITON JDA"), of the second part. The parties of the first and second part shall hereinafter be referred to individually as "Party" and collectively as "Parties". WHEREAS Article 8.5(b) of the Principal Contract provides that recovery by Contractors of allowable costs expended in a Quarter for the Contract Area in relation to Petroleum Operations in respect of Natural Gas shall be allowed up to a maximum of fifty per cent (50%) of such costs; AND WHEREAS CARIGALI, TRITON AND TRITON JDA (hereinafter referred to as the "Contractors") requested MTJA's agreement to an increase to sixty per cent (60%) in the maximum allowable cost to be recovered under Article 8.5(b) of the Principal Contract for certain costs, in relation to past cost for Petroleum Operations in Block A-18 (sunk cost) and cost for development of the Cakerawala Gas Field, expended by Contractors for the purpose of assisting the development of the Cakerawala Gas Project; AND WHEREAS MTJA agrees to the request of the Contractors to provide for such increase in the maximum allowable cost to be recovered by Contractors to assist in the development of the Cakerawala Gas Project and thereby to amend the Principal Contract to provide for same. NOW THEREFORE it is hereby stipulated and agreed as follows: 1. The Parties agree that Article 8.5(b) of the Principal Contract shall be revised as follows : "Up to a maximum of fifty per cent (50%) shall be applied in the manner herein provided for the purpose of recovery by Contractors of allowable costs expended in that Quarter for the Contract Area in relation to Petroleum Operations in respect of Natural Gas, provided, however, that a maximum of sixty per cent (60%) shall be applied only for the costs stipulated in (i) and (ii) below : (i) All allowable costs expended by Contractors in relation to Petroleum Operations in Block A-18 in respect of Natural Gas from the Effective Date through 31 December 1997 as reported in the detailed audited accounts as of 31 December 1997, as may be amended, modified or supplemented, until such costs are fully recovered by Contractors; (ii) All allowable costs expended by Contractors from and after 1 January 1998 in relation to capital expenditures incurred for the development of the Cakerawala Field including, without limitation, Cakerawala Booster Compression and Cakerawala Platform D as detailed in the Cakerawala Field Development Plan Update 1 approved by MTJA, as may be amended, modified or supplemented and approved by MTJA until such costs are fully recovered by Contractors; For the avoidance of doubt, it is agreed and understood that the said facilities will not be installed simultaneously and such maximum allowable cost recovery of sixty per cent (60%) shall apply from time to time; (iii) All detailed accounts that are required to be provided under Article 11 shall identify the allowable costs permitted under (i) and (ii) above, so that the accounts for which a maximum allowable cost recovery of sixty per cent (60%) is allowed can be easily identified and distinguished from all other allowable costs to be recovered by the Contractors for a maximum allowable cost recovery of fifty per cent (50%) and can be audited in accordance with Article 11; and (iv) All allowable costs pertaining to expenditures identified under (i) and (ii) above shall be recovered first and shall be fully recovered prior to the recovery of all other allowable costs which may be recovered by the Contractors at a maximum allowable cost recovery of fifty per cent (50%) during any Quarter. Contractors are entitled to recover all such allowable costs from the proceeds of Natural Gas sold equal to the amount of all such allowable costs in the Contract Area (but subject to Article 8.7). If in any Quarter all such costs expended relating to Petroleum Operations in respect of Natural Gas (including amounts accumulated or carried forward from previous Quarters) exceed the maximum permitted value of fifty per cent (50%) or sixty per cent (60%) as provided above, as the case may be, of such Natural Gas sold from the Contract Area, the unrecovered excess may be carried forward to the next succeeding Quarter and added to all such allowable costs expended relating to Petroleum Operations in respect of Natural Gas for that Quarter, but provided that such costs can only be recovered for any Quarter up to a maximum of fifty per cent (50%) or sixty per cent (60%) , as the case may be, of such Natural Gas sold." 2. Except as expressly provided in this Supplementary Contract (No. 2), the Principal Contract is not otherwise waived, amended and supplemented hereby and the terms therein shall remain in full force and effect. 3. Any terms that are defined terms in the Principal Contract shall have the same meaning when used in this Supplementary Contract (No. 2) unless herein otherwise expressly provided. IN WITNESS WHEREOF MTJA, CARIGALI, TRITON and TRITON JDA have by their respective duly authorised officers executed this Supplementary Contract (No. 2) on the day and year first herein above written. Signed by : ) For and on behalf of )_____________________ MALAYSIA-THAILAND JOINT AUTHORITY ) In the presence of ) ) Signed by : ) For and on behalf of )_____________________ PETRONAS CARIGALI (JDA) SDN. BHD. ) In the presence of ) ) Signed by : ) For and on behalf of )_____________________ TRITON OIL COMPANY OF THAILAND ) In the presence of ) ) Signed by : ) For and on behalf of )______________________ TRITON OIL COMPANY OF THAILAND (JDA) ) LIMITED ) In the presence of ) ) EX-10.87 10 Exhibit 10.87 CREDIT AGREEMENT dated as of February 29, 2000 among TRITON ENERGY LIMITED The Lenders Party Hereto and THE CHASE MANHATTAN BANK, as Administrative Agent. ___________________________ CHASE SECURITIES INC., as Lead Arranger TABLE OF CONTENTS Page ---- ARTICLE I Definitions SECTION 1.01. Defined Terms. 1 SECTION 1.02. Classification of Loans and Borrowings. 14 SECTION 1.03. Terms Generally. 14 SECTION 1.04. Accounting Terms; GAAP 14 ARTICLE II The Credits SECTION 2.01. Commitments. 15 SECTION 2.02. Loans and Borrowings. 15 SECTION 2.03. Requests for Revolving Borrowings. 15 SECTION 2.04. Letters of Credit 16 SECTION 2.05. Funding of Borrowings. 19 SECTION 2.06. Interest Elections. 19 SECTION 2.07. Termination and Reduction of Commitments. 20 SECTION 2.08. Repayment of Loans; Evidence of Debt. 20 SECTION 2.09. Prepayment of Loans. 21 SECTION 2.10. Fees. 22 SECTION 2.11. Interest. 22 SECTION 2.12. Alternate Rate of Interest. 23 SECTION 2.13. Increased Costs. 23 SECTION 2.14. Break Funding Payments. 24 SECTION 2.15. Taxes. 24 SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. 25 SECTION 2.17. Mitigation Obligations; Replacement of Lenders. 26 SECTION 2.18. Borrowing Base 27 ARTICLE III Representations and Warranties SECTION 3.01. Organization; Powers. 28 SECTION 3.02. Authorization; Enforceability. 28 SECTION 3.03. Governmental Approvals; No Conflicts. 28 SECTION 3.04. Financial Condition; No Material Adverse Change. 28 SECTION 3.05. Properties. 28 SECTION 3.06. Litigation and Environmental Matters. 29 SECTION 3.07. Compliance with Laws and Agreements. 29 SECTION 3.08. Investment and Holding Company Status. 29 SECTION 3.09. Taxes. 29 SECTION 3.10. ERISA. 29 SECTION 3.11. Disclosure. 29 SECTION 3.12. Year 2000. 30 SECTION 3.13. Regulation U 30 SECTION 3.14. Subsidiaries 30 SECTION 3.15. Outside Letters of Credit 30 ARTICLE IV Conditions SECTION 4.01. Effective Date. 30 SECTION 4.02. Each Credit Event. 31 ARTICLE V Affirmative Covenants SECTION 5.01. Financial Statements; Ratings Change and Other Information. 31 SECTION 5.02. Notices of Material Events. 32 SECTION 5.03. Existence; Conduct of Business. 33 SECTION 5.04. Payment of Obligations. 33 SECTION 5.05. Maintenance of Properties; Insurance. 33 SECTION 5.06. Books and Records; Inspection Rights. 33 SECTION 5.07. Compliance with Laws. 33 SECTION 5.08. Use of Proceeds and Letters of Credit. 33 SECTION 5.09. Engineering Reports 33 ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness. 34 SECTION 6.02. Liens. 35 SECTION 6.03. Fundamental Changes. 36 SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. 36 SECTION 6.05. Hedging Agreements. 37 SECTION 6.06. Restricted Payments. 37 SECTION 6.07. Transactions with Affiliates. 37 SECTION 6.08. Restrictive Agreements. 38 SECTION 6.09. Net Debt to EBITDA Ratio 38 SECTION 6.10. Ratio of EBITDA to Interest Expense 38 SECTION 6.11. Asset Disposition 38 ARTICLE VII Events of Default SECTION 7.01. Events of Default. 38 ARTICLE VIII The Administrative Agent ARTICLE IX Miscellaneous SECTION 9.01. Notices. 41 SECTION 9.02. Waivers; Amendments. 42 SECTION 9.03. Expenses; Indemnity; Damage Waiver. 42 SECTION 9.04. Successors and Assigns. 43 SECTION 9.05. Survival. 45 SECTION 9.06. Counterparts; Integration; Effectiveness. 45 SECTION 9.07. Severability. 45 SECTION 9.08. Right of Setoff. 45 SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. 46 SECTION 9.10. WAIVER OF JURY TRIAL. 46 SECTION 9.11. Headings. 46 SECTION 9.12. Confidentiality. 46 SECTION 9.13. Interest Rate Limitation. 47 SECTION 9.14 U.S. Dollars of the Essence 47 SECTION 9.15 Waiver of Sovereign Immunity; Commercial Activity 47 SCHEDULES: --------- Schedule 1.01A - Investments Schedule 2.01 - Commitments Schedule 3.06 - Disclosed Matters Schedule 3.14 - Subsidiaries Schedule 3.15 - Outside Letters of Credit Schedule 6.01 - Existing Indebtedness Schedule 6.02 - Existing Liens Schedule 6.08 - Existing Restrictions EXHIBITS: - -------- Exhibit A - Form of Assignment and Acceptance Exhibit B-1 - Form of Opinion of Borrower's Special Counsel Exhibit B-2 - Form of Opinion of Borrower's Cayman Islands Counsel Exhibit C - Form of Borrowing Request Exhibit D - Form of Interest Election Request This CREDIT AGREEMENT (the "Agreement") is among Triton Energy Limited, a Cayman Islands company (the "Borrower"), the lenders party hereto, and THE CHASE MANHATTAN BANK, as Administrative Agent, for such lenders. The parties hereto agree as follows: ARTICLE I Definitions ----------- SECTION 1.01. Defined Terms. As used in this Agreement, the --------------- following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to --- whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Additional Reports" has the meaning defined in Section 5.09. ------------------- "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing -------------------- for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means The Chase Manhattan Bank, in its capacity -------------------- as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire ----------------------------- in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person --------- that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Alternate Base Rate" means, for any day, a rate per annum equal to --------------------- the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Applicable Percentage" means, with respect to any Lender, the ---------------------- percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Applicable Rate" means, for any day, with respect to any ABR ---------------- Revolving Loan or Eurodollar Revolving Loan, or with respect to the commitment fees payable hereunder, or with respect to the Performance Letter of Credit Fees or Financial Letter of Credit Fees, as the case may be, the applicable rate per annum set forth below under the caption "ABR Spread", "Eurodollar Spread", "Commitment Fee", "Performance Letter of Credit Fee" or "Financial Letter of Credit Fee", as the case may be, based upon the Borrowing Base Utilization and the ratings by Moody's and S&P, respectively, applicable on such date to the Index Debt:
Equal to or greater Borrowing Base than 33% but less Utilization Less than 33% than or equal to 66% Greater than 66% Eurodollar Spread Category Category Category Category Category Category I II I II I II 2.25% 2.50% 2.50% 2.75% 2.75% 3.00% ABR Spread 1.25% 1.50% 1.50% 1.75% 1.75% 2.00% Commitment Fee 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% Performance Letter of Credit Fee 1.35% 1.50% 1.50% 1.65% 1.65% 1.80% Financial Letter of Credit Fee 2.25% 2.50% 2.50% 2.75% 2.75% 3.00%
Category I - Index Debt of the Borrower is rated BB+ or higher by S&P or Ba1or higher by Moody's. Category II - Index Debt of the Borrower is not rated BB+ or higher by S&P and is not rated Ba1 or higher by Moody's. Notwithstanding the foregoing, (i) if either Moody's or S&P shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this definition), then such rating agency shall be deemed to have established a rating in Category II; (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different Categories, the Applicable Rate shall be based on the higher of the two ratings unless one of the two ratings is two or more lower than the other, in which case the Applicable Rate shall be determined by reference to Category II; (iii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by the Borrower to the Agent and the Lenders pursuant to Section 5.01(f) hereof or otherwise; and (iv) changes to Borrowing Base Utilization are effective on the date of the change, whether as a result of a change in the Borrowing Base or a change in the Revolving Credit Exposure. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation. "Assessment Rate" means, for any day, the annual assessment rate in ---------------- effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of -------- any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. "Assignment and Acceptance" means an assignment and acceptance entered ------------------------- into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent and the Assignor and Assignee. "Availability Period" means the period from and including the -------------------- Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate ------------- multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. "Board" means the Board of Governors of the Federal Reserve System of ----- the United States of America. "Borrower" is defined in the first paragraph of this Agreement. -------- "Borrowing" means Revolving Loans of the same Type, made, converted or --------- continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Base" is defined in Section 2.18. --------------- "Borrowing Base Utilization" means, as of any day, the fraction ---------------------------- expressed as a percentage, the numerator of which is the sum of the Revolving Credit Exposures plus Outside LC Exposure for all Lenders on such day, and the denominator of which is the Borrowing Base in effect on such day. "Borrowing Request" means a request by the Borrower for a Revolving ------------------ Borrowing in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other ------------- day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, -------- the term "Business Day" shall also exclude any day on which banks are not open ------------ for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" of any Person means the obligations of --------------------------- such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly ------------------- or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 15% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated; or (c) the acquisition of direct or indirect Control of the Borrower by any Person or group other than by any Person or group possessing, as of the date of this Agreement, more than 15% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower. "Change in Law" means (a) the adoption of any law, rule or regulation -------------- after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time ---- to time. "Commitment" means, with respect to each Lender, the commitment of ---------- such Lender to make Revolving Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 or Section 7.01 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed all or part of its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $150,000,000. "Completion Guaranty" shall mean, with respect to any Project -------------------- Financing, any unsecured interim construction guaranty of completion of the construction of the project which is financed with such Project Financing, provided that in no event shall "Completion Guaranty" include any obligation of - -------- the Borrower or any Subsidiary of the Borrower to pay money. "Consolidated" refers to the consolidation of the accounts of the ------------ Borrower and its Subsidiaries (other than Project Finance Subsidiaries) in accordance with GAAP. "Consolidated Group" means the Borrower and its Consolidated ------------------- Subsidiaries. "Consolidated Net Interest Expense" means, for the Consolidated Group, --------------------------------- for any period, the Consolidated interest expense included in a Consolidated income statement (net of interest income) for such period, determined in accordance with GAAP, in respect of such Consolidated Group, including, without limitation or duplication (or, to the extent not so included, with the addition of), to the extent allocable to such period, (i) the portion of any rental obligation in respect of any Capital Lease Obligation allocable to interest expense in accordance with GAAP; (ii) the amortization of original issue discounts; (iii) any interest payments or fees with respect to bankers acceptances or similar facilities, (iv) Restricted Preferred Interest dividends or distributions payable during such period; and (v) any other interest capitalized under GAAP. "Consolidated Net Debt" means, for the Consolidated Group, (a) on a ----------------------- Consolidated basis, all obligations (determined under GAAP) for borrowed money or with respect to deposits or advances of any kind, all Capital Lease Obligations and all obligations evidenced by bonds, debentures, notes or similar instruments, plus (b) the OCENSA Swap Obligation, minus (c) cash and cash equivalents and plus (d) the positive amount, if any, that accounts payable exceed accounts receivable (determined under GAAP). "Control" means the possession, directly or indirectly, of the power ------- to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. ----------- ---------- "Default" means any event or condition which constitutes an Event of ------- Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the ------------------ environmental matters disclosed in Schedule 3.06. "dollars" or "$" refers to lawful money of the United States of ------- - America. "EBITDA" means, for the Consolidated Group, for any period, the sum of ------ (i) the Consolidated net income (or loss) for such period determined in accordance with GAAP plus (ii) to the extent included in the determination of ---- such net income (or loss), the Consolidated charges for such period for interest, depreciation, depletion and amortization plus (or, if there is a ---- benefit from income taxes, minus) (iii) to the extent included in the ----- determination of such net income, the amount of the provision for or benefit from income taxes; provided, however, that in determining such Consolidated net -------- ------- income, such Consolidated charges and such provision for or benefit from income taxes, there shall be excluded therefrom (to the extent otherwise included therein) (a) the net income (or loss) of, charges for interest, depreciation, depletion and amortization of, and such provision for or benefit from income taxes of, any Person acquired by a member of the Consolidated Group in a pooling-of-interest transaction for any period prior to the date of such transaction, (b) the net income (but not loss) of, charges for interest, depreciation, depletion and amortization of, and such provision for (but not benefit from) income taxes of, any member of the Consolidated Group (other than the Borrower) which is subject to any restriction which prevents the payment of dividends or the making of distributions on the capital stock, partnership interests or other ownership interests of such Person to the extent of such restrictions, (c) pre-tax gains or losses on the sale, transfer or other disposition of any Property by any member of the Consolidated Group, other than assets sold in the ordinary course of business, (d) all extraordinary gains and extraordinary losses, prior to applicable income taxes, and (e) any item constituting the cumulative effect of a change in accounting principles, prior to applicable income taxes and (f) all expenses from the writedown of capitalized exploration costs and the writedown of capitalized costs through the application of the full cost ceiling limitation as prescribed by the SEC. "Effective Date" means the date on which the conditions specified in --------------- Section 4.01 are satisfied (or waived in accordance with Section 9.02). "Environmental Laws" means all laws, rules, regulations, codes, ------------------- ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise ----------------------- (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "ERISA Affiliate" means any trade or business (whether or not ---------------- incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section ------------ 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers ---------- to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article ------------------ VII. "Excluded Taxes" means, with respect to the Administrative Agent, any --------------- Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.17(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.15(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.15(a). "Federal Funds Effective Rate" means, for any day, the weighted ------------------------------- average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Letter of Credit" means a Letter of Credit qualifying as a --------------------------- "financial guarantee-type letter of credit" under 12 CFR Part 3, Appendix A, Section 3(b)(1)(i) or any successor U.S. Comptroller of the Currency regulation. "Financial Officer" means the chief financial officer, principal ------------------ accounting officer, treasurer or controller of the Borrower. "Foreign Lender" means any Lender that is organized under the laws of --------------- a jurisdiction other than the United States of America, each State thereof and the District of Columbia. "FPSO Obligation" means obligations of the Borrower or any Subsidiary ---------------- under a charter lease agreement for a floating production, storage and off-loading tanker facility for the purpose of developing Borrower's Hydrocarbons in Equatorial Guinea if (a) payments thereunder do not exceed $27,500,000 in any calendar year and (b) the Lease Term is less than 3 years. "Lease Term" means any fixed term and any period or periods covered by an option to renew at a sufficiently low rental or sufficiently high penalty that the exercise of the option is reasonably assured, as amended, waived or modified, unless such amendment, waiver or modification thereto materially changes the amounts payable thereunder or its Lease Term as determined by the Administrative Agent in its reasonable discretion. "GAAP" means generally accepted accounting principles in the United ---- States of America. "Governmental Authority" means the government of the United States of ----------------------- America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any --------- --------- obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or ---------------- indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include -------- endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive substances or ------------------- wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, ------------------ foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline, ------------ natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom. "Hydrocarbon Interests" means rights, interests and properties ---------------------- pursuant to which a Person has the right to explore for, develop, produce and sell Hydrocarbons and other minerals and to receive and retain the revenues and other economic benefits resulting therefrom and regardless of whether such rights, interests and property arise by contract, order, operation of law or ownership of estates, titles, and interests in and to oil, gas, sulphur, or other mineral leases and any mineral interests, royalty and overriding royalty interest, production payment, net profits interests, mineral fee interests, and other rights, including, without limitation, any reversionary or carried interests relating to the foregoing, together with rights, titles, and interests created by or arising under the terms of any unitization, communication, and pooling agreements or arrangements. "Indebtedness" of any Person means, without duplication, (a) all ------------ obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit, (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances and (k) Restricted Preferred Stock. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Taxes" means Taxes other than Excluded Taxes. ------------------ "Index Debt" means senior, unsecured, long-term indebtedness for ----------- borrowed money of the Borrower that is not guaranteed by any other Person or subject to any other credit enhancement. "Initial Reserve Report" means the Reserve Report prepared in ------------------------ accordance with Section 5.09. "Interest Election Request" means a request by the Borrower to convert ------------------------- or continue a Revolving Borrowing in accordance with Section 2.06. "Interest Payment Date" means (a) with respect to any ABR Loan, the ----------------------- last day of each March, June, September and December and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration, as the case may be, after the first day of such Interest Period. "Interest Period" means with respect to any Eurodollar Borrowing, the ---------------- period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; provided, that (i) if any Interest Period -------- would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Issuing Bank" means the Administrative Agent, or, with the consent of ------------ such Lender, any Lender, in its capacity as the issuer of Letters of Credit hereunder. The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "LC Disbursement" means a payment made by the Issuing Bank pursuant to --------------- a Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn ----------- amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. "Lenders" means the Persons listed on Schedule 2.01 and any other ------- Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "Letter of Credit" means any letter of credit issued pursuant to this ----------------- Agreement, including Performance Letters of Credit or Financial Letters of Credit. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any ---------- Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such --------- Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of ---- trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" means this Agreement, any Letters of Credit, each --------------- Borrowing Request, each Interest Election Request, each other document delivered in connection with this Agreement, and each extension, waiver, amendment or modification of each of the foregoing. "Loans" means the loans made by the Lenders to the Borrower pursuant ----- to this Agreement. "Material Adverse Effect" means a material adverse effect on (a) the ------------------------- business, assets, operations or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower or any of its Subsidiaries to perform any of its obligations or (c) the rights of or benefits available to the Lenders under this Agreement. "Material Indebtedness" means Indebtedness (other than the Loans or ---------------------- the Letters of Credit), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Material Subsidiary" means any Subsidiary which (a) owns, directly or ------------------- indirectly through one or more Subsidiaries, assets with book or fair market value in excess of $5,000,000 or (b) owns any Hydrocarbons included in the most recently delivered Reserve Report. "Maturity Date" means February 28, 2002. -------------- "Moody's" means Moody's Investors Service, Inc. ------- "Multiemployer Plan" means a multiemployer plan as defined in Section ------------------- 4001(a)(3) of ERISA. "OCENSA" means Oleoducto Central S.A., a Colombian company. ------ "OCENSA Swap Obligation" means $100,000,000, until the Confirmation, ------------------------ dated February 2, 1998 between Triton International Finance, Inc., a Cayman Islands company, and Morgan Guaranty Trust Company of New York, has been terminated and all amounts owed thereunder have been paid, at which time the "OCENSA Swap Obligation" shall be $0. "Oil and Gas Properties" shall mean Hydrocarbon Interests; the ------------------------- Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; all operating agreements, contracts and other agreements which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment or other personal property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. "Other Taxes" means any and all present or future stamp or documentary ----------- taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Outside LC Exposure" means the amount, if any that (a) the sum of (i) ------------------- the aggregate undrawn amount of all Outside Letters of Credit plus (ii) all payments made by issuers of Outside Letters of Credit made under such Outside Letters of Credit for which such issuer has not been reimbursed by the Borrower in accordance with the terms thereunder exceeds (b) before December 31, 2000, $15,000,000, or on and after December 31, 2000, $10,000,000. "Outside Letter of Credit" means all obligations of the Borrower and -------------------------- its Subsidiaries, contingent or otherwise, as an account party in respect of letters of credit and letters of guaranty, excluding the Letters of Credit issued under Section 2.04. "PBGC" means the Pension Benefit Guaranty Corporation referred to and ---- defined in ERISA and any successor entity performing similar functions. "Participant" has the meaning set forth in Section 9.04(e). ----------- "Performance Letter of Credit" means a letter of credit qualifying as ----------------------------- a "performance-based standby letter of credit" under 12 CFR Part 3, Appendix A, Section 3(b)(2)(i) or any successor U.S. Comptroller of the Currency regulation. "Permitted Encumbrances" means: ----------------------- (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; (b) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (c) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (d) judgment liens in respect of judgments that do not constitute an Event of Default under Section 7.01(k); (e) Liens in connection with workmen's compensation, unemployment insurance or other social security, old age pension or public liability obligations not yet due or which are being contested in compliance with Section 5.04 in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (f) operator's, vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties or statutory landlord's liens, each of which is in respect of obligations that have not been outstanding more than 90 days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP; (g) any Liens or contract rights reserved in agreements creating Hydrocarbon Interests and for compliance with the terms of such agreements or leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or materially impair the value of such Property subject thereto; (h) encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way or other Property of the Borrower for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title of any rights of way or other Property which in the aggregate do not materially impair the use of such rights of way or other Property for the purposes of which such rights of way and other Property are held by the Borrower or materially impair the value of such Property subject thereto; and (i) deposits to secure the performance of bids, trade contracts, leases, statutory obligations and other obligations of a like nature incurred in the ordinary course of business. provided that the term "Permitted Encumbrances" shall not include any Lien - -------- securing Indebtedness. "Permitted Investments" means: ---------------------- (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and (e) investments described in Schedule 1.01A. "Person" means any natural person, corporation, limited liability ------ company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a ---- Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Preferred Interest" means, as applied to any Person, any capital ------------------- stock, partnership interest or other ownership interest of such Person which is entitled to preference or priority over any other capital stock, partnership interest or other ownership interest of such Person in respect of either the payment of dividends or distributions or the distribution of assets upon liquidation. "Preferred Stock" means (i) as applied to any partnership, partnership --------------- interests in such partnership which shall be entitled to preference or priority over any other partnership interest in such partnership in respect of any distribution of cash, property or other assets, (ii) as applied to any corporation, shares of such corporation which shall be entitled to preference or priority over any other shares of such corporation in respect of either the payment of dividends or the distribution of assets upon liquidation, and (iii) as applied to any other entity, interests in such entity which shall be entitled to preference or priority over any other interests in such entity in respect of any distribution of cash, property or other assets. "Prime Rate" means the rate of interest per annum publicly announced ----------- from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Project Financing" means Indebtedness incurred by a Project Financing ----------------- Subsidiary to finance the acquisition (other than any acquisition from Borrower or any of its Subsidiaries) or construction of a project which Indebtedness does not permit or provide for recourse against the Borrower or any of its Subsidiaries (other than the Project Financing Subsidiary that is to acquire or construct such project and any Project Financing Subsidiary that owns a general or limited partnership interest or similar interest in the Project Financing Subsidiary that is to acquire or construct such project). "Project Financing Subsidiary" means a Subsidiary of the Borrower (a) ----------------------------- that is created to (i) construct or acquire (other than any acquisition from Borrower or any of its Subsidiaries) a project that will be or is financed solely with Project Financing for such project incurred by such Subsidiary and related equity investments for such project, (ii) own a general or limited partnership interest (or similar interest) in a Project Financing Subsidiary, or (iii) own an interest in any such project, (b) whose assets are limited solely to those assets being financed by such Project Financing or by the related equity investments or a general or limited partnership interest (or similar interest) in a Project Financing Subsidiary whose assets are limited solely to those assets being financed by such Project Financing and any loans to, or capital contributions in, such Project Financing Subsidiary that are Permitted Investments, and (c) notice of which has been delivered to the Administrative Agent and each Lender. "Property" shall mean any interest in any kind of property or asset, -------- whether real, personal or mixed, or tangible or intangible. "Redetermination Date" has the meaning set forth in Section 2.18(a). --------------------- "Register" has the meaning set forth in Section 9.04. -------- "Related Parties" means, with respect to any specified Person, such ---------------- Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Reports" mean the Reserve Reports and Additional Reports. ------- "Required Lenders" means, at any time, Lenders having Revolving Credit ---------------- Exposures and unused Commitments representing more than 66-2/3% of the sum of the total Revolving Credit Exposures and unused Commitments at such time. "Reserve Report" shall mean a report, in form and substance reasonably -------------- satisfactory to the Administrative Agent, setting forth, as of January 1 (or such other date specified in Section 4.01(f) for the Initial Reserve Report or, in the event of an unscheduled redetermination, such other date specified in Section 2.18(d)) the proved oil and gas reserves attributable to the Consolidated Group's Oil and Gas Properties, together with a projection of the rate of production and future net income, production, severance or similar taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions consistent with SEC reporting requirements at the time. Furthermore, such information shall be provided for each individual well, unit or lease comprising the Consolidated Group's Oil and Gas Properties and by category of the reserves contained in each well, unit or lease including proved producing, proved non-producing and proved undeveloped. Such report must also include a comparison of actual and projected production volumes for the Consolidated Group's Oil and Gas Properties. "Responsible Officer" shall mean as to any Person, the Chief Executive ------------------- Officer, the President or any Vice President of such Person and, with respect to financial matters, the term "Responsible Officer" shall include the Financial Officers of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Borrower. "Restricted Payment" means any dividend or other distribution (whether ------------------ in cash, securities or other property) with respect to any shares of any class of capital stock of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Borrower or any option, warrant or other right to acquire any such shares of capital stock of the Borrower. "Restricted Preferred Interest" means any Preferred Interest which is ------------------------------ subject to retirement, purchase, redemption, other acquisition or conversion (other than a conversion into common stock of the Borrower), in whole or in part, at the option of the holder thereof. "Restricted Preferred Stock" means any Preferred Stock that is subject -------------------------- to required repayment (other than payment of dividends and distributions), redemption, repurchase, retirement, exchange for debt or Restricted Preferred Stock or conversion into debt or Restricted Preferred Stock, at the option of the holder or any other Person or at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or otherwise upon the occurrence of a condition not within the control of the issuer. "Revolving Credit Exposure" means, with respect to any Lender at any --------------------------- time, the sum of (a) the outstanding principal amount of such Lender's Revolving Loans and (b) its LC Exposure. "Revolving Loan" means a Loan made pursuant to Section 2.03. --------------- "S&P" means Standard & Poor's. --- "Scheduled Redetermination" has the meaning set forth in Section -------------------------- 2.18(d). "Scheduled Redetermination Date" has the meaning set forth in Section ------------------------------- 2.18(d). "SEC" shall mean the Securities and Exchange Commission or any --- successor Governmental Authority. "Statutory Reserve Rate" means a fraction (expressed as a decimal), ------------------------ the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to, three months, in the case of the Base CD Rate, and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsidiary" means, with respect to any Person (the "parent") at any ---------- ------ date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. If not otherwise specified, "Subsidiary" means a Subsidiary of the Borrower. "Taxes" means any and all present or future taxes, levies, imposts, ----- duties, deductions, charges or withholdings imposed by any Governmental Authority. "Three-Month Secondary CD Rate" means, for any day, the secondary -------------------------------- market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. "Transactions" means the execution, delivery and performance by the ------------ Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof and the obtaining by the Borrower of any Letters of Credit. "Type", when used in reference to any Loan or Borrowing, refers to ---- whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate, and when used in reference to a Letter of Credit, refers to whether the Letter of Credit is a Performance Letter of Credit or Financial Letter of Credit. "Unscheduled Redetermination" means an unscheduled redetermination ---------------------------- requested by the Borrower or the Required Banks under Section 2.18(d). "Withdrawal Liability" means liability to a Multiemployer Plan as a --------------------- result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For ------------------------------------------- purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class --- --- and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be --- classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type --- (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar ---- --- Revolving Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein ----------------- shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP . Except as otherwise ------------------------ expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided -------- that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II The Credits ----------- SECTION 2.01. Commitments. Subject to the terms and conditions ------------ set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure plus such Lender's Applicable Percentage of Outside LC Exposure exceeding the lesser of (i) such Lender's Applicable Percentage of the Borrowing Base or (ii) such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures plus Outside LC Exposure for all Lenders exceeding the lesser of (i) Borrowing Base or (ii) the total Commitment of all Lenders. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan ----------------------- shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the -------- Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.12, each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the -------- obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $1,000,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is - -------- equal to the entire unused balance of the total Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.04(e). Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 6 -------- Eurodollar Revolving Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Requests for Revolving Borrowings. To request a ----------------------------------- Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request ("Borrowing Request") by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that any such notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.04(e) may be given not later than 10:00 a.m., New York City time on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in substantially in the form attached hereto as Exhibit C and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05; (vi) the Borrowing Base Utilization on the date of such Borrowing (after giving effect to such Borrowing); and (vii) The amount of Outside LC Exposure on the Business Day of the proposed Borrowing. If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration, in the case of a Eurodollar Borrowing. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Letters of Credit . (a) General. Subject to the ------------------- -------- terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own account, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the period from and including the Effective Date to but excluding the day that is six days before the last day of the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain ---------------------------------------------------------------- Conditions. To request the issuance of a Letter of Credit (or the amendment, - ---------- renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a written notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof, the Type of the Letter of Credit, and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $20,000,000 and (ii) the sum of the total Revolving Credit Exposures plus Outside LC Exposure shall not exceed the lesser of (A) the total Commitments and (B) the Borrowing Base. (c) Expiration Date. Each Letter of Credit shall expire at or prior to ---------------- the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date. (d) Participations. By the issuance of a Letter of Credit (or an --------------- amendment, renewal or extension of a Letter of Credit) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement -------------- in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement which, unless (i) otherwise reimbursed by the Borrower by no later than 12:00 noon, New York City Time or (ii) there is an Event of Default under Section 7.01(i) or 7.01(h), shall be made by an ABR Revolving Borrowing in an equivalent amount, the Borrowing Request for which shall be deemed to have been delivered to the Administrative Agent on the day of such LC Disbursement. Promptly following notice from the Administrate Agent, the Borrower shall execute and deliver a Borrowing Request confirming such deemed delivery. Promptly following such LC Disbursement the Administrative Agent shall notify each Lender of such Lender's Applicable Percentage of such ABR Revolving Borrowing. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of such ABR Revolving Borrowing in the same manner as provided in Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to the ------- -------- payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. (f) Obligations Absolute. The Borrower's obligation to reimburse LC --------------------- Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder. Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the -------- Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) Disbursement Procedures. The Issuing Bank shall, promptly ------------------------- following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or -------- delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement. (h) Interim Interest. If the Issuing Bank shall make any LC ------------------ Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due - -------- pursuant to paragraph (e) of this Section, then Section 2.11(c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) Cash Collateralization. If any Event of Default shall occur and be ----------------------- continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit -------- such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Section 7.01. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make ---------------------- each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request; provided that ABR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.04(e) shall be remitted by the Administrative Agent to the Issuing Bank . (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing ------------------- initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election ("Interest Election Request") pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request substantially in the form of Exhibit D attached hereto and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the Borrowing Base Utilization on the effective date of the election (after giving effect to any new Borrowings on such date). If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.07. Termination and Reduction of Commitments. (a) --------------------------------------------- Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments -------- shall be in an amount that is an integral multiple of $5,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.09, the sum of the Revolving Credit Exposures would exceed the total Commitments. (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of -------- the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked, or the effective date postponed, by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition remains unsatisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) The ----------------------------------------- Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and ----- ----- amounts of the obligations recorded therein; provided that the failure of any -------- Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.09. Prepayment of Loans. (a) The Borrower shall have -------------------- the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided -------- that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.07, then such notice of prepayment may be revoked, or the effective date postponed, if such notice of termination is revoked, or the effective date postponed, in accordance with Section 2.07. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.11. (c) Upon any redetermination of the amount of the Borrowing Base in accordance with Section 2.18, if the redetermined Borrowing Base is less than the aggregate Revolving Credit Exposure plus Outside LC Exposure (the "Borrowing --------- Base Deficiency"), then (i) the Borrower shall, within ninety (90) days of - ---------------- receipt of written notice of such redetermination, prepay the Loans in an aggregate principal amount equal to or greater than 50% of the Borrowing Base Deficiency together with interest on the principal amount paid accrued to the date of such prepayment and (ii) the Borrower shall, within 180 days of receipt of written notice of such redetermination, prepay the Loans in an aggregate principal amount necessary to eliminate the Borrowing Base Deficiency together with interest on the principal amount paid accrued to the date of such prepayment. (d) Upon any ABR Revolving Borrowing made pursuant to Section 2.04(e), if the Borrowing Base is less than the aggregate Revolving Credit Exposure plus Outside LC Exposure after giving effect to such ABR Revolving Borrowing, an amount sufficient to reduce the aggregate Revolving Credit Exposure plus the Outside LC Exposure to be equal to or less than the Borrowing Base shall be immediately due and payable. SECTION 2.10. Fees. (a) The Borrower agrees to pay to the ----- Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Rate on the daily amount by which such Lender's Applicable Percentage of the lesser of the Borrowing Base or the Commitment of such Lender exceeds the Revolving Credit Exposure of such Lender during the period from and including February 29, 2000 to but excluding the date on which such Commitment terminates. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 365 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the Applicable Rate for the Type of such Letter of Credit on the average daily amount of such Lender's LC Exposure for such Type of Letter of Credit (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the - -------- Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of facility fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances. SECTION 2.11. Interest. (a) The Loans comprising each ABR --------- Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to -------- paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.12. Alternate Rate of Interest. If prior to the ------------------------------ commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing. SECTION 2.13. Increased Costs. (a) If any Change in Law shall: ---------------- (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate), or the Issuing Bank; or (ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans or Fixed Rate Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or the Issuing Bank such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided -------- that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the Issuing Bank's intention to claim compensation therefor; provided further that, if the Change -------- ------- in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.14. Break Funding Payments. In the event of (a) the ------------------------- payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked or the effective date postponed under Section 2.07(c) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.17, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.15. Taxes. (a) Any and all payments by or on account ------ of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the -------- Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of --------------------------------------------------- Set-offs. (a) The Borrower shall make each payment required to be made by it - -------- hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments to be made directly to the Issuing Bank as expressly provided herein and except that payments pursuant to Sections 2.13, 2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements; provided that (i) if any -------- such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to 2.05(b) or 2.16(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.17. Mitigation Obligations; Replacement of Lenders. --------------------------------------------------- (a) If any Lender requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower -------- shall have received the prior written consent of the Administrative Agent (and, if a Commitment is being assigned, the Issuing Bank), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. SECTION 2.18. Borrowing Base . --------------- (a) The borrowing base ("Borrowing Base") shall be determined in accordance with Section 2.18(b) by the Administrative Agent with the concurrence of the Required Lenders and is subject to redetermination in accordance with Section 2.18(d). Upon any redetermination of the Borrowing Base, such redetermination shall remain in effect until the next successive Redetermination Date. "Redetermination Date" means the date that the redetermined Borrowing --------------------- Base becomes effective in accordance with Section 2.18(e) both for Scheduled Redeterminations and unscheduled redeterminations. So long as any of the Commitments are in effect and until all of the Loans outstanding hereunder are paid in full, this facility shall be governed by the then effective Borrowing Base. During the period from and after the Effective Date until the first Redetermination Date, the amount of the Borrowing Base shall be $150,000,000. (b) Upon receipt of the Reports in accordance with Section 5.09, the Administrative Agent will propose a new Borrowing Base. Such proposal will be in accordance with the Administrative Agent's normal and customary procedures for evaluating international or domestic, as the case may be, oil and gas reserves and other related assets as such exist at that particular time with any changes to such procedures as the Administrative Agent, in its sole discretion, deems reasonably appropriate to reflect changed circumstances or conditions generally in the domestic or international oil and gas industry including, without limitation, adjustments to the rates, volumes, prices and other assumptions set forth therein from time to time. The Administrative Agent shall propose to the Lenders a new Borrowing Base within 30 days following receipt by the Administrative Agent of the Reports in a timely and complete manner. After having received notice of such proposal by the Administrative Agent, the Required Lenders shall have 14 days to agree or disagree with such proposal. If, at the end of 14 days, the Required Lenders have not communicated their approval or disapproval, such silence shall be deemed to be an approval and the Administrative Agent's proposal shall be the new Borrowing Base. If however, the Required Lenders notify the Agent within 14 days of their disapproval, the Required Lenders shall, within a reasonable period of time, agree on a new Borrowing Base. (c) The Administrative Agent may exclude any Oil and Gas Property or portion of production therefrom or any income from any other Property from the Borrowing Base, at any time, if any Hydrocarbon Interests are forfeited or suspended pursuant to the terms of the instrument granting the same. (d) So long as any of the Commitments are in effect or there is any Revolving Credit Exposure, effective as of the day notice is given under Section 2.18(e) (each being a "Scheduled Redetermination Date"), the -------------------------------- Administrative Agent and Required Lenders shall redetermine the amount of the Borrowing Base in accordance with Section 2.18(b) (each being a "Scheduled --------- Redetermination"). In addition, Borrower may request an unscheduled - --------------- redetermination of the Borrowing Base at any other time but no more often than once between Scheduled Redetermination Dates by specifying in writing to the Administrative Agent the date on which such redetermination is to occur and providing a Reserve Report in accordance with Section 5.09(b) prior to the requested redetermination date and providing any Additional Reports. Also, the Required Lenders may request an unscheduled redetermination of the Borrowing Base at any other time but no more often than once between Scheduled Redetermination Dates by specifying in writing to the Borrower the date on which the Borrower is to furnish a Reserve Report (and the "as of" date of such Reserve Report) and Additional Reports, if any, in accordance with Section 5.09(b) and the date on which such redetermination is to occur. (e) The Administrative Agent shall promptly notify in writing the Borrower and the Lenders of the new Borrowing Base. Any redetermination of the Borrowing Base shall not be in effect until written notice is given in accordance with Section 9.01. ARTICLE III Representations and Warranties ------------------------------ The Borrower represents and warrants to the Lenders that: SECTION 3.01. Organization; Powers. Each of the Borrower and its --------------------- Material Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite corporate power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions ------------------------------- are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The ---------------------------------------- Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 3.04. Financial Condition; No Material Adverse Change. --------------------------------------------------- (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of operations, shareholders equity and cash flows (i) as of and for the fiscal year ended December 31, 1998, reported on by independent, United States-based public accountants of recognized national standing, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 1999, certified by a Financial Officer (the statements in (i) and (ii) are referred to as the "Delivered Statements"). The Delivered Statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to the adjustments described in Schedule 3.04 and subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. Before the day of the initial Loans, the Borrower will have furnished to the Lenders its consolidated balance sheet and statements of operations, shareholders equity and cash flows as of and for the fiscal year ended December 31, 1999, reported on by independent, United States-based public accountants of recognized national standing ("1999 Statements"). The 1999 Statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP (b) Since September 30, 1999, there have been no events or occurrences that, in the aggregate, have had a Material Adverse Effect. SECTION 3.05. Properties. (a) Each of the Borrower and its ----------- Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.06. Litigation and Environmental Matters. (a) There --------------------------------------- are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. SECTION 3.07. Compliance with Laws and Agreements. Each of the ------------------------------------- Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.08. Investment and Holding Company Status. Neither the -------------------------------------- Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries ------ has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. ERISA. No ERISA Event has occurred or is ------ reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $10,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $10,000,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.11. Disclosure. The Borrower has disclosed to the ----------- Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the other reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, -------- with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. SECTION 3.12. Year 2000. The Year 2000 date change has not ----------- resulted in a material disruption of the Borrower's and its Subsidiaries' computer hardware, software, databases, systems and other equipment containing embedded microchips (including systems and equipment supplied by others or with which the Borrower's or its Subsidiaries' systems interface), or to the Borrower's or its Subsidiaries' operations or business systems, or to the best of the Borrower's and its Subsidiaries' knowledge, to the operations or business systems of the Borrower's major vendors, customers, suppliers and counterparties. Borrower has no reason to believe that liabilities and expenditures related to the Year 2000 date-change (including, without limitation, costs caused by reprogramming errors, the failure of others' systems or equipment, and the potential liability, if any, of the Borrower or its Subsidiaries for Year 2000 related costs incurred or disruption experienced by others) will result in a Default or a Material Adverse Effect. SECTION 3.13. Regulation U . Following application of the ------------- proceeds of each Loan, not more than 25 percent of the value of the assets which are subject to any arrangement with the Administrative Agent or any Lender (herein or otherwise) whereby the Borrower's right or ability to sell, pledge or otherwise dispose of assets is in any way restricted (or pursuant to which the exercise of any such right is or may be cause for accelerating the maturity of all or any portion of the Loans or any other amount payable hereunder or under any such other arrangement), will be margin stock (within the meaning of Regulation U issued by the Federal Reserve Board). No proceeds of any Loan have been used in violation of Section 5.08. SECTION 3.14. Subsidiaries . Each Subsidiary of the Borrower as ------------ of February 29, 2000 is listed on Schedule 3.14. Each Material Subsidiary as of the date of the most recently delivered certificate of a Financial Officer described in Section 5.01(c) is listed on Schedule 3.14 as revised by such certificate in accordance with Section 5.01(c). SECTION 3.15. Outside Letters of Credit . Each Outside Letter of ------------------------- Credit is listed on Schedule 3.15, with its expiration date, name of issuer, beneficiary and face amount except that, if the face amount is different from the amount stated on Schedule 3.15, it is no greater than the amount stated on Schedule 3.15. Schedule 3.15 may be updated by written notice to the Administrative Agent and the Lenders delivered in accordance with Section 9.01 and 5.01(h). ARTICLE IV Conditions ---------- SECTION 4.01. Effective Date. The obligations of the Lenders to --------------- make Loans and of the Issuing Bank to issue, extend or renew Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received favorable written opinions (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Jackson Walker L.L.P., special counsel for the Borrower, substantially in the form of Exhibit B-1, and covering such other matters relating to the Borrower, or this Agreement as the Required Lenders may reasonably request and Walkers, Cayman Islands counsel for the Borrower, substantially in the form of Exhibit B-2, and covering such other matters relating to the Borrower, or this Agreement, as the Required Lenders may reasonably request. The Borrower hereby requests such counsel to deliver such opinions. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02 and confirming the Moody's and S&P ratings of the Index Debt. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. (f) The Administrative Agent shall have received the Initial Reserve Report. SECTION 4.02. Each Credit Event. The obligation of each Lender ------------------- to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrower set forth in this Agreement shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable. (b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE V Affirmative Covenants --------------------- Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements; Ratings Change and Other --------------------------------------------------- Information. The Borrower will furnish to the Administrative Agent and each - ----------- Lender: (a) within 90 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, shareholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported independent, United States-based public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, shareholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 6.06, 6.09, 6.10 and 6.11, (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate and (iv) stating any revisions to Schedule 3.14 necessary so such Schedule includes each Material Subsidiary; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the SEC, or with any national securities exchange, as the case may be; (f) promptly after Moody's or S&P shall have announced a change in the rating established or deemed to have been established for the Index Debt, written notice of such rating change; and (g) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. (h) promptly after any change in the information set forth in Schedule 3.15 or Schedule 3.16, the Borrower shall update such schedules in accordance with Section 3.15 or Section 3.16, respectively except that, with respect to the face amount of Outside Letters of Credit listed on Schedule 3.15, a reduction in the face amount below the amount stated in such Schedule (as updated in accordance with this Agreement) need not be updated until the next delivery of a certificate of a Financial Officer under Section 5.01(c). (i) promptly after execution therof, the Borrower shall deliver a copy of all documents evidencing the FPSO Obligation, as amended from time to time. SECTION 5.02. Notices of Material Events. The Borrower will ------------------------------ furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $10,000,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Existence; Conduct of Business. The Borrower will, ------------------------------- and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of the business of the Borrower and its Subsidiaries taken as a whole; provided that the foregoing shall not prohibit any merger, consolidation, -------- liquidation or dissolution permitted under Section 6.03. SECTION 5.04. Payment of Obligations. The Borrower will, and ------------------------- will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05. Maintenance of Properties; Insurance. The Borrower ------------------------------------- will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of the business of the Borrower and its Subsidiaries taken as a whole in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. SECTION 5.06. Books and Records; Inspection Rights. The Borrower ------------------------------------- will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.07. Compliance with Laws. The Borrower will, and will --------------------- cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08. Use of Proceeds and Letters of Credit. The -------------------------------------------- proceeds of the Loans will be used only for general corporate purposes, including but not limited to capital expenditures. No part of the proceeds of any Loan will be used, whether directly or indirectly, to purchase or carry "margin stock" (as defined by Regulation U) or for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. SECTION 5.09. Engineering Reports . -------------------- (a) On or prior to each March 1 (or such other date specified in the event of an unscheduled redetermination under Section 2.18(d)) commencing with the Scheduled Redetermination Date to occur on March 1, 2000, the Borrower shall furnish to the Lenders a Reserve Report prepared and certified by (i) DeGolyer and MacNaughton, with respect to the proved reserves in the Cusiana and Cupiagua fields in the Republic of Colombia (ii), Netherland Sewell and Associates, with respect to the proved reserves in the Ceiba Field in Equatorial Guinea, and (iii) the petroleum engineers of the Borrower or Carigali-Triton Carigali-Triton Operating Company Sdn. Bhd. with respect to the proved reserves in Malaysia-Thailand on Block A-18 in the Gulf of Thailand or, in the case of (i), (ii) or (iii) above, such other certified independent engineers satisfactory to the Administrative Agent. The Borrower will also provide the Lenders with any supplemental information or updates to the information in the Reserve Report as may be reasonably requested by any Lender through the Administrative Agent ("Additional Reports"). (b) For each unscheduled redetermination, the Borrower shall furnish to the Lenders a Reserve Report prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately preceding Reserve Report and shall furnish to the Lenders any Additional Reports as may be reasonably requested. For any unscheduled redetermination requested by the Required Lenders pursuant to Section 2.18(d), the Borrower shall provide such Reserve Report as soon as practicable, but in any event no later than 30 days following the receipt of the request by the Required Lenders. (c) Concurrently with the delivery of each Reserve Report, the Borrower shall provide the Lenders production reports covering in the aggregate, the Borrower's net production of oil and gas, which reports shall include quantities or volumes of production, realized product prices, operating expenses, taxes, capital expenditures and such other information as the Administrative Agent may reasonably request and having the same "as of" date and period as the Reserve Report being delivered with such production report. (d) With the delivery of each Reserve Report, the Borrower shall provide to the Lenders, a certificate from a Responsible Officer of the Borrower that, to the best of his or her knowledge and in all material respects, (a) the information contained in the Reserve Report is true and correct, (b) the Borrower has the contractual right to receive the proceeds from the production from the Oil and Gas Properties evaluated in such Reserve Report, in such amounts and for such durations consistent with the projected proceeds from such production, and free of all Liens except for Permitted Encumbrances, (c) except as set forth on an exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments with respect to the Oil and Gas Properties evaluated in such Reserve Report which would require the Borrower to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (d) no Oil and Gas Properties have been sold since the date of the last Borrowing Base determination except as consented to in writing by the Required Lenders or as permitted by the terms of this Agreement, (e) attached to the certificate is a list of the Oil and Gas Properties added to and deleted from the immediately prior Reserve Report, and (f) attached to the certificate are statements of the Borrower's outstanding Hedging Agreements, which statements shall include for each such Hedging Agreement (A) the termination date, (B) the notional amounts or volumes and the periods covered by such volumes; and (C) the price to be paid or the basis for calculating the price to be paid by the Borrower and the other Person under each Hedging Agreement for each of the future periods covered by each Hedging Agreement. ARTICLE VI Negative Covenants ------------------ Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: SECTION 6.01. Indebtedness. The Borrower will not, and will not ------------- permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness of the Consolidated Group created hereunder; (b) Indebtedness of the Consolidated Group existing on the date hereof and set forth in Schedule 6.01 (which schedule may exclude Indebtedness of a member of the Consolidated Group (other than the Borrower) to any other member of the Consolidated Group) and Indebtedness incurred by the Consolidated Group after the date of this Agreement the proceeds of which are applied substantially simultaneously with the receipt thereof to the repayment, retirement, redemption, prepayment or defeasance of existing Indebtedness of the Consolidated Group (the "Refinanced Indebtedness"); provided, that (i) such Indebtedness incurred shall be subordinate and junior to the Indebtedness of the Consolidated Group to the same (or greater) extent that the Refinanced Indebtedness was subordinate and junior to the Indebtedness of the Consolidated Group, (ii) such Indebtedness incurred shall not have a maturity date prior to March 31, 2005 or require the amortization of principal (whether pursuant to any mandatory payment, prepayment, repurchase or other obligation) prior to or in an amount greater than the amortization required under the terms of the Refinanced Indebtedness and (iii) such Indebtedness incurred shall have terms not materially more burdensome to the Borrower than such Refinanced Indebtedness, as determined by the Administrative Agent in its sole discretion; (c) Indebtedness of a member of the Consolidated Group to any other member of the Consolidated Group; (d) Guarantees by the Borrower of Indebtedness of any member of the Consolidated Group; (e) Indebtedness of any member of the Consolidated Group incurred to finance the acquisition, construction or improvement of any fixed or capital assets of any member of the Consolidated Group, including Capital Lease Obligations (other than the FPSO Obligation, to the extent the FPSO Obligation is deemed to be a Capital Lease) and any Indebtedness (other than the FPSO Obligation, to the extent the FPSO Obligation is deemed to be a Capital Lease) assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that (i) such Indebtedness is -------- incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by Section 6.01(e) and (f) shall not exceed $20,000,000 at any time outstanding; (f) other unsecured Indebtedness of the Consolidated Group; provided -------- that the aggregate principal amount of Indebtedness of the Consolidated Group permitted by Section 6.01(e) and (f) shall not exceed $20,000,000 at any time outstanding; (g) Outside Letters of Credit if the aggregate Outside LC Exposure for such Outside Letters of Credit is less than $25,000,000; (h) Project Financings and liabilities under Completion Guaranties if the aggregate amount of such Project Financings plus the aggregate maximum liabilities under such Completion Guaranties is less than $25,000,000; and (i) The FPSO Obligation, to the extent the FPSO Obligation is deemed to be a Capital Lease. SECTION 6.02. Liens. The Borrower will not, and will not permit ------ any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided that (i) -------- such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in -------- contemplation of or in connection with such acquisition or such Person becoming a Subsidiary , as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; (d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests -------- secure only Indebtedness permitted by clause (e) of Section 6.01, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; and (e) Liens securing any Project Financing, provided that such Lien shall -------- secure only such Project Financing and shall extend only to the project being acquired or constructed with the proceeds of such Project Financing and any capital stock, partnership interest or other ownership interest in the Project Financing Subsidiary that is acquiring or constructing such project or in the Project Financing Subsidiary that owns the Project Financing Subsidiary that is acquiring or constructing such project. SECTION 6.03. Fundamental Changes. (a) The Borrower will not, --------------------- and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary, (iv) any Subsidiary may merge with or into another Person in a transaction that is not prohibited by Section 6.11, (v) the Borrower may transfer shares of any Subsidiary to any other Subsidiary and (vi) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided that any such merger involving a Person -------- that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.04. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. SECTION 6.04. Investments, Loans, Advances, Guarantees and ------------------------------------------------ Acquisitions. The Borrower will not, and will not permit any of its - ----------- Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments by the Borrower in the capital stock of its Subsidiaries; (c) loans or advances among the Consolidated Group; (d) Guarantees constituting Indebtedness permitted by Section 6.01; (e) investments in Project Financing Subsidiaries, if the aggregate such investments are less than $10,000,000; (f) acquisition of all of the ownership interest of Triton Pipeline Colombia, Inc. or of any other Person substantially all of whose assets consist of an interest in OCENSA for $100,000,000 or less before June 30, 2000, and new investments in OCENSA (after the acquisition of such ownership interests) in an aggregate amount not to exceed $10,000,000 from the date of this Agreement; (g) new investments in Triton International Oil Corporation (a Cayman Islands company) and its Subsidiaries and in Carigali-Triton Operating Co. SDN.BHD, a Malaysia corporation, in an aggregate amount not to exceed $25,000,000 from the date of this Agreement; (h) Acquisition of assets or ownership interests in Persons and assets in the same line of business as the Borrower and its Subsidiaries, provided such Persons become Subsidiaries at the time of such acquisition; provided that the -------- aggregate purchase price for such acquisitions (including the value of any assumed Indebtedness) shall not exceed $20,000,000 from the date of this Agreement; and (i) any other Investments, not to exceed $5,000,000 in the aggregate outstanding at any time. SECTION 6.05. Hedging Agreements. The Consolidated Group will -------------------- not enter into any Hedging Agreement, other than Hedging Agreements (i) for total aggregate volumes of oil or total aggregate volumes of natural gas less than 70% of the oil or natural gas net volumes, respectively, for the next 12-month period, as projected in the most recently delivered Reserve Report, (ii) for total aggregate volumes of oil or total aggregate volumes of natural gas less than 60% of the oil or natural gas net volumes, respectively, for the next 36-month period, as projected in the most recently delivered Reserve Report and (iii) for total aggregate volumes of oil or total aggregate volumes of natural gas less than 50% of the oil or natural gas net volumes, respectively, for the next 60-month period, as projected in the most recently delivered Reserve Report. SECTION 6.06. Restricted Payments. The Borrower will not, and --------------------- will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) the Borrower may declare and pay dividends and distributions with respect to its capital stock payable solely in additional shares of its common stock and may purchase shares of its capital stock with consideration consisting solely of shares of its common stock, (b) Subsidiaries may declare and pay dividends ratably with respect to their capital stock, (c) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (d) Restricted Payments on Preferred Stock issued by the Borrower before the date of this Agreement or additional shares of Preferred Stock issued as dividends after the date of this Agreement in accordance with the terms of such Preferred Stock, and (e) the Borrower may repurchase shares of its common stock for an aggregate consideration not exceeding $100,000 in any fiscal year. SECTION 6.07. Transactions with Affiliates. The Borrower will ------------------------------- not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its wholly owned Subsidiaries not involving any other Affiliate, (c) any Restricted Payment permitted by Section 6.06, (d) transactions with Affiliates of any director of the Borrower in accordance with agreements in effect as of the date of this Agreement and (e) transactions that would be permitted pursuant to Section 6.04(b), (c), (f) and (g). SECTION 6.08. Restrictive Agreements. The Borrower will not, and ----------------------- will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that -------- (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.08 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, and (iv) the foregoing shall not apply to a Project Financing Subsidiary. SECTION 6.09. Net Debt to EBITDA Ratio . For each period of four ------------------------ consecutive fiscal quarters of the Borrower, the Borrower will not permit the ratio of (i) Consolidated Net Debt as of the end of such period to (ii) EBITDA for such period to be greater than 3.75 to 1.0. SECTION 6.10. Ratio of EBITDA to Interest Expense . The Borrower ----------------------------------- will not permit, for each period of four consecutive fiscal quarters of the Borrower, the ratio of EBITDA for such period to Consolidated Net Interest Expense for such period to be less than the 2.5 to 1.00. SECTION 6.11. Asset Disposition . The Consolidated Group will not ----------------- sell, lease, transfer (including, without limitation, any transfer pursuant to any merger) or otherwise dispose of, any property of the Consolidated Group, except (i) sales, leases, transfers and other dispositions of assets in the ordinary course of business and for fair market value, (ii) the sale of assets among members of the Consolidated Group, (iii) the sale of assets located in the Republic of Colombia for fair market value if the aggregate fair market value of all such assets does not exceed $10,000,000 in any fiscal year of the Borrower (iv) the sale of assets not located in the Republic of Colombia for fair market value if the aggregate fair market value of all such assets does not exceed $50,000,000 in any fiscal year of the Borrower, (v) any transfer of the capital stock among members of the Consolidated Group if (A) no Default or Event of Default exists at the time of such transfer or would result therefrom and (B) after giving effect to such transfer the Borrower owns, directly or indirectly, the same percentage interest in the member of the Consolidated Group the stock of which is being transferred as it owned immediately prior to such transfer, (vi) any merger permitted by Section 6.03, and (vii) the transfer of assets from a Project Financing Subsidiary. ARTICLE VII Events of Default SECTION 7.01. Events of Default. If any of the following events ------------------ ("Events of Default") shall occur: ------------------- (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days; (c) any representation or warranty made or deemed made by or on behalf of the Borrower (including, without limitation, the certificate provided by the chief engineer under Section 5.09 (b)) or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (with respect to the Borrower's existence) or 5.08 or in Article VI; (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 15 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender); (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Material Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower, any Material Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Material Subsidiary to enforce any such judgment; (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; (m) a Change in Control shall occur; or (n) any change in a contract or concession of the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII The Administrative Agent ------------------------ Each of the Lenders and the Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or wilful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. Each Lender acknowledges that there is no fact, and that it has not made any assumption of fact, material to its inducement to become a Bank hereunder which it has not independently and without reliance on the Administrative Agent investigated and determined to its satisfaction prior to its execution of this Credit Agreement. ARTICLE IX Miscellaneous ------------- SECTION 9.01. Notices. Except in the case of notices and other -------- communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it in care of Triton Energy, 6688 North Central Expressway, Suite 1400, Dallas, Texas 75206, Attention of Treasurer, (Telecopy No. (214) 691-0340); (b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Michael Cerniglia (Telecopy No. (212) 552-5777); and (c) if to any other Lender (in its capacity as a Lender or Issuing Bank) , to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 9.02. Waivers; Amendments. (a) No failure or delay by --------------------- the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no -------- such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (v) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no ---------------- such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Issuing Bank hereunder without the prior written consent of the Administrative Agent or the Issuing Bank, as the case may be. SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The -------------------------------------- Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, the Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) The Borrower shall indemnify the Administrative Agent, the Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each ---------- Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such -------- indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent or the Issuing Bank under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent or the Issuing Bank, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, - -------- liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent or the Issuing Bank in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. SECTION 9.04. Successors and Assigns. (a) The provisions of ------------------------- this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except -------- in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent (and, in the case of an assignment of all or a portion of a Commitment or any Lender's obligations in respect of its LC Exposure, the Issuing Bank) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and provided further that any consent of the Borrower otherwise ---------------- required under this paragraph shall not be required if an Event of Default has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in -------- the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower, the Administrative Agent or the Issuing Bank, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's ----------- rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's -------- obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may -------- provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.16(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under Section 2.13 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.15(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of -------- a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 9.05. Survival. All covenants, agreements, --------- representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. SECTION 9.06. Counterparts; Integration; Effectiveness. This ------------------------------------------- Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. Severability. Any provision of this Agreement held ------------- to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. Right of Setoff. If an Event of Default shall have ---------------- occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of --------------------------------------------------- Process. (a) This Agreement shall be construed in accordance with and - ------- governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY ------------------------ WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. Headings. Article and Section headings and the --------- Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. Confidentiality. Each of the Administrative Agent, ---------------- the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information ----------- received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower -------- after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. SECTION 9.13. Interest Rate Limitation. Notwithstanding anything ------------------------- herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the ------- maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, ------------ taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.14 U.S. Dollars of the Essence . Each reference in the --------------------------- Loan Documents to U.S. Dollars is of the essence. The obligation of the Borrower in respect of any amount due under the Loan Documents shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in U.S. Dollars that the Lender may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any premium and costs of exchange) on the Business Day immediately following the day on which the Lender receives such payment. If the amount in U.S. Dollars that may be so purchased for any reasons falls short of the amount originally due, the Borrower shall pay such additional amounts, in U.S. Dollars, as may be necessary to compensate for such a shortfall. Any obligation of the Borrower not discharged by such payment shall be due as a separate and independent obligation and, until discharged as provided herein, shall continue in full force and effect. SECTION 9.15 Waiver of Sovereign Immunity; Commercial Activity . -------------------------------------------------- Neither the Borrower nor its property has any right of immunity on the grounds of sovereignty or otherwise from jurisdiction, attachment (before or after judgment) or execution in respect of any action or proceeding relating in any way to the Loan Documents that may be brought before any Governmental Authority. The execution, delivery and performance of the obligations of the Loan Documents by the Borrower constitute commercial transactions. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. TRITON ENERGY LIMITED By:____________________________________ Name:__________________________________ Title:_________________________________ THE CHASE MANHATTAN BANK, individually and as Administrative Agent, By:____________________________________ Name:__________________________________ Title:_________________________________ PARIBAS By:____________________________________ Name:__________________________________ Title:_________________________________ BANKERS TRUST COMPANY By:____________________________________ Name:__________________________________ Title:_________________________________ MEESPIERSON CAPITAL CORP. By:____________________________________ Name:__________________________________ Title:_________________________________ BANK OF AMERICA, N.A. By:____________________________________ Name:__________________________________ Title:_________________________________ BARCLAYS BANK PLC By:____________________________________ Name:__________________________________ Title:_________________________________ Schedule 1.01A Investments ----------- 1. U.S. Government and government-sponsored securities a. Direct obligations of the U.S. government-including Treasury Bills, Notes and Bonds. b. Government-sponsored Agency securities as follows: - Government National Mortgage Agency (GNMA) - Federal National Mortgage Association (FNMA) - Student Loan Marketing Association (SLMA) - Federal Home Loan Bank (FHLB) - Federal Home Loan Mortgage Corporation (FHLMC) - Federal Home Credit Banks (FFCB) 2. Money Market Funds a Funds must be rated AAA or equivalent and have at least $1.0 billion in assets with an average fund maturity not to exceed 90 days. 3. Corporate Debt Securities a. Commercial paper (US or EURO)--Corporate issuers of commercial paper having original maturities of not more than 180 days. Must be rated A-1/P-1 or equivalent. 4. Bank Related Securities (banks rated AA or equivalent with assets of at least $10.0 billion). a. Certificates of deposit b. Bankers acceptances c. Time deposits d. Eurodollar time deposits up to 180 days (incl. overnight sweep accounts) e. Overnight Bank Loan Participations (must be A-1/P-1 commercial paper rated companies or be fully guaranteed by parent company with an A-1/P rating) 5. Repurchase Agreements - Securities must be with major banks or dealers that are recognized as Primary Dealers by the Federal Reserve Bank of New York. Collateral for the transactions must be U.S. Treasury or Agency securities collateralized at 102% of value. INVESTMENT CONCENTRATION LIMITS - Investments may be made only in securities for which there are consistent and adequate secondary markets or that are immediately liquid. 1. Money Market Funds - No cumulative limit, however investments may not exceed 10% of a fund's assets. 2. U.S. Government and government-sponsored securities - No limit. 3. Foreign securities - Investments in foreign securities (non-U.S. but including U.S. branches of foreign banks) will be limited to 30% with no single issuer and/or country exceeding the lower of 5% of the portfolio or $5 million (except for Euro-commercial paper at the lower of 10% of the portfolio or $10 million). 4. All other investments/issuers - Maximum expose is 10% of the portfolio up to $10 million. MATURITY - At a minimum, maturities shall be structured to meet the funding requirements of the Company. 1. No investment may exceed one year to maturity. 2. The weighted average maturity of the portfolio may not exceed six months. 3. 25% of the portfolio must mature within 30 days. 4. 10% of the portfolio must mature within 7 days. OTHER 1. Securities denomination - All securities must be dollar-denominated. 2. Securities lending - Securities will not be lent. 3. Unrated securities - No unrated company/securities will be acquired. 4. Brokers and dealers - a sufficient number of business relationships should be maintained to assure competitive pricing, information flow and cost effective execution of the Company's business. 5. Fixed/floating rate securities - both are allowed, but the maturity of the security must still be under one year. Schedule 2.01 Lenders Commitments - ------- ----------- The Chase Manhattan Bank $27,500,000.00 Barclays Bank PLC $27,500,000.00 Paribas $27,500,000.00 Deutsche Bank AG $27,500,000.00 MeesPierson Capital Corp. $20,000,000.00 Bank of America, N.A. $20,000,000.00 -------------- TOTAL $150,000,000.00 Schedule 3.04 Commencing with the 1999 Form 10-K, Borrower will account for its 50% ownership in Triton International Oil Corporation ("TIOC") using the equity method instead of the pro rata consolidation method. For purposes of the 1999 Form 10-K, Borrower will reflect its investment in TIOC at December 31, 1999 as an equity investment in the consolidated balance sheet. The December 31, 1998 consolidated balance sheet will be reclassified to conform to the 1999 presentation. Schedule 3.06 Disclosed Matters ----------------- Litigation and Environmental Matters In re: Triton Energy Limited Securities Litigation. Consolidated lawsuits filed in the United States District Court for the Eastern District of Texas, Texarkana Division, against the Borrower and Thomas G. Finck and Peter Rugg, in their capacities as Chairman and Chief Executive Officer and Chief Financial Officer, respectively. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and negligent misrepresentation in connection with disclosures concerning the Company's properties, operations, and value relating to a prospective sale of the Company or of all or a part of its assets. Operating Industries, Inc. One of Borrower's former domestic oil and gas subsidiaries (dissolved) has been named as a potentially responsible party for the clean-up of the Monterey Park, California, Superfund site operated by Operating Industries, Inc. Hite and Nordell International Resources vs. Triton. Lawsuit by David A. Hite, Nordell International Resources Ltd., and International Veronex Resources, Ltd. against the Borrower, Triton Energy Corporation and Triton Indonesia, Inc. The lawsuit was tried and the jury found in favor of the plaintiffs and assessed compensatory damages in the amount of approximately $700,000 and punitive damages in the amount of approximately $11 million. Also pending are lawsuits involving Borrower and the other named defendants in the above listed Hite lawsuit involving coverage issues under insurance policies. The lawsuits are (1) American International Specialty Lines Ins. vs. the Borrower, Triton Energy Corporation and Triton Indonesia, Inc.; Cause No. BC220090, Superior Court, CA, and (2) Triton Energy Limited, et al. vs. Sphere Drake Insurance, PLC, et al. Dallas, County, Texas [insurers have removed to federal court]. Aaron Sherman, et al vs Triton Energy Corporation et al. Lawsuit filed in the ___ Judicial District, Dallas County, Texas against the Borrower, Triton Energy Corporation, and Messrs. Finck, Rugg and Holland alleging as causes of action fraud and negligent misrepresentation in connection with disclosures concerning the prospective sale of the Borrower or of all or a part of its assets. Maria Ninfa Diaz vs. Triton Colombia, Inc., TOTAL, BP and Ecopetrol. Triton Colombia Inc. is a defendant, together with Total, BP and Ecopetrol in a civil action filed in February, 1997 in the 8th Judicial Circuit Court in Bogota by Ninfa Diaz Toloza. The plaintiff's claim arises out of the flaring of natural gas from the Cusiana CPF and the Cupiagua CPF and alleges (1) damage to the environment, (2) inappropriate use of a natural resource, (3) hazard to the people and animal life of the area, (4) interruption to the tranquillity, intimacy and quality of life, (5) reduction in the bovine livestock and (6) noise pollution. In discovery stage. Juvenal Huertas Romero vs. Triton Colombia, Inc., Case No. 33492, 6th Judicial Labor Circuit of Bogot . Suit seeking damages of Col$50,000,000 for wrongful termination; etc. In discovery stage. BP Exploration Company (Colombia) Ltd. has informed the Borrower that a "popular action" was instituted against the Ministry of Environment of Colombia alleging that the Ministry issued an environmental license permitting the water injection project to proceed without conducting a thorough analysis and evaluation of the environmental impact of the water injection to the natural resources. BP is currently evaluating its alternatives to intervene in the action. SCHEDULE 3.14 SECTION 3.14 - LIST OF SUBSIDIARIES ----------------------------------- THE FOLLOWING ARE THE SUBSIDIARIES OF THE COMPANY AS OF THE DATE OF THIS AGREEMENT:
Jurisdiction of Jurisdiction where --------------- ------------------ Name Organization Qualified - ---- ------------ --------- Inlet North Sea Corporation Delaware Inlet Oil & Mineral Company (U.K.) Limited U.K. North Central Aviation, Inc. Delaware Oil & Gas Colombia GmbH Germany Colombia Servion, Inc. Delaware TriBlora Indonesia B.V. Netherlands Triton Air Holdings, Inc. Delaware Triton Algeria, Inc. Cayman Islands Triton Angola, Inc. Cayman Islands Triton Asia Holdings, Inc. Cayman Islands Triton Australia, Inc. Cayman Islands Australia Triton Brazil, Inc. Cayman Islands Triton Cambodia, Inc. Cayman Islands Triton China Resources, Inc. Cayman Islands Triton China, Inc. LLC Cayman Islands Triton Colombia, Inc. Cayman Islands Colombia Triton Domestic Oil & Gas Corp. Nevada Triton Ecuador, Inc. LLC Cayman Islands Triton Energy Corporation Delaware Texas Triton Equatorial Guinea, Inc. Cayman Islands [Equatorial Guinea in process] Triton Exploration (Malaysia) Sdn. Bhd. Malaysia Triton Exploration Services, Inc. Delaware Texas Triton Financial Services, Inc. Cayman Islands Triton Guatemala S.A. B.V.I. Triton Hellas Exploration and Exploitation of Hydrocarbons Anonymous Industrial Technical and Commercial Company Greece Triton Holdings (U.K.) Limited U.K. Triton Indonesia Resources, Inc. Cayman Islands Triton Indonesia, Inc. Delaware Triton International Finance, Inc. Cayman Islands Triton International Oil Corporation, a Delaware corporation Delaware Triton International Petroleum, Inc. Cayman Islands Triton Italy, Inc. Cayman Islands Italy Triton Madagascar, Inc. Cayman Islands Madagascar Triton Mediterranean Oil & Gas N.V. Netherlands Triton Oil (GB) Limited U.K. Triton Oil & Gas GmbH Germany Triton Oman Resources, Inc. Cayman Islands Oman Triton Oman, Inc. Cayman Islands Triton Resources (UK) Limited U.K. Triton Resources Argentina, Inc. Cayman Islands Triton Tunisia, Inc. Cayman Islands Triton Ventures, Inc. Cayman Islands
Also own 50% of Triton International Oil Corporation, a Cayman Islands company, which owns 100% of: Triton Oil Company of Thailand (JDA) Limited, incorporated in Cayman Islands and qualified in Malaysia, Thailand, and Triton Oil Company of Thailand Ltd. Co., incorporated in Texas and qualified in Thailand, which owns 50% of : Carigali-Triton Operating Co. SDN.BHD, a Malaysia corporation SCHEDULE 3.15 OUTSIDE LETTERS OF CREDIT ------------------------- EXPIRATION DATE ISSUER BENEFICIARY FACE AMOUNT --------------- ------ ----------- ----------- 9/30/00 MeesPierson Shell Overseas Co. 725,029 9/30/00 MeesPierson Shell Overseas Co. 695,027 10/14/00 Banque Paribas Public Petroleum 10,683,012 Corp. - Greece 3/22/00 Union Bank St. Paul Fire & Marine Insurance 100,000 9/8/00 Societe Generale Public Petroleum 4,202,515 Corp. - Greece THE AMOUNT OF THE OUTSIDE LC EXPOSURE IS $16,405,583. SCHEDULE 6.01 EXISTING INDEBTEDNESS --------------------- DESCRIPTION AMOUNT MATURITY Export-Import Bank term loan facility 13,540,712 Jan. 15, 2001 Senior notes 8 3/4 199,946,833 April 15, 2002 Senior notes 9 1/4 200,000,000 April 15, 2005 Note payable to Triton Financial Services, Inc. (a Subsidiary) in the amount of $14,545,356. Note payable to Triton Italy, Inc. (a Subsidiary) in the amount of $280,915. SCHEDULE 6.02 EXISTING LIENS -------------- Pursuant to the Shareholders Agreement with ARCO JDA Limited and Atlantic Richfield Company (the "ARCO Shareholders Agreement"), the transfer of the shares of any Subsidiary holding the Company's interest in Triton International Oil Corporation is subject to a right of first refusal. This does not apply to a transaction involving a merger of, or a sale of the shares of, the ultimate parent company. Triton Oil Company of Thailand and Federated Consultant Limited are parties to an Assignment of Overriding Royalty Interest dated march 25, 1993, as amended pursuant to a Consulting Agreement among Triton Energy Corporation, Triton Oil Company of Thailand and Federated Consultant Limited dated January 3, 1996 and Addendum to Consulting Agreement Triton Energy Corporation, Triton Oil Company of Thailand and Federated Consultant Limited dated July 19, 1996. SCHEDULE 6.08 EXISTING RESTRICTIVE AGREEMENTS ------------------------------- None EXHIBIT A [FORM OF] ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement dated as of February 29, 2000 (as amended and in effect on the date hereof, the "Credit Agreement"), among Triton Energy Limited, the Lenders named therein and The Chase Manhattan Bank, as Administrative Agent for the Lenders. Terms defined in the Credit Agreement are used herein with the same meanings. The Assignor named on the reverse hereof hereby sells and assigns, without recourse, to the Assignee named on the reverse hereof, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Assignment Date set forth on the reverse hereof, the interests set forth on the reverse hereof (the "Assigned Interest") in the Assignor's rights and obligations under the Credit Agreement, including, without limitation, the interests set forth on the reverse hereof in the Commitment of the Assignor on the Assignment Date and Competitive Loans and Revolving Loans owing to the Assignor which are outstanding on the Assignment Date, together with the participations in Letters of Credit and LC Disbursements held by the Assignor on the Assignment Date, but excluding accrued interest and fees to and excluding the Assignment Date. The Assignee hereby acknowledges receipt of a copy of the Credit Agreement. From and after the Assignment Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its obligations under the Credit Agreement. This Assignment and Acceptance is being delivered to the Administrative Agent together with (i) if the Assignee is a Foreign Lender, any documentation required to be delivered by the Assignee pursuant to Section 2.15(e) of the Credit Agreement, duly completed and executed by the Assignee, and (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form supplied by the Administrative Agent, duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the Administrative Agent pursuant to Section 9.04(b) of the Credit Agreement. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. Date of Assignment: Legal Name of Assignor: Legal Name of Assignee: Assignee's Address for Notices: Effective Date of Assignment ("Assignment Date"): Percentage Assigned of Facility/Commitment (set forth, Principal to at least 8 decimals, as a Amount Assigned percentage of the Facility and the aggregate Commitments of all Lenders thereunder) ---------- Facility - -------- Commitment Assigned: $ % Revolving Loans: The terms set forth above and on the reverse side hereof are hereby agreed to: [Name of Assignor], as Assignor ------------------ By: Name: Title: [Name of Assignee], as Assignee ------------------ By: Name: Title: The undersigned hereby consents to the within assignment: (8) TRITON ENERGY LIMITED THE CHASE MANHATTAN BANK, as Administrative Agent, By: By: Name: Name: Title: Title: THE CHASE MANHATTAN BANK, as Issuing Bank By: Name: Title: (8) Consents to be included to the extent required by Section 9.04(b) of the Credit Agreement. EXHIBIT B-1 ________, 2000 To the Lenders and the Administrative Agent from time to time parties to the Credit Agreement and The Chase Manhattan Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Gentlemen: We have acted as special counsel to Triton Energy Limited, a Cayman Islands company ("Borrower"), in connection with that certain Credit Agreement dated of even date herewith (the "Credit Agreement"), among Borrower, the Lenders named therein, and The Chase Manhattan Bank, as Administrative Agent. Capitalized terms used herein and not otherwise defined shall have the same meanings assigned to them in the Credit Agreement. In our examination we have assumed the genuineness of all signatures other than the Borrower's, due execution and delivery by all parties other than the Borrower of all documents submitted to us, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies. As to questions of fact material to this opinion, we have relied, to the extent we deem appropriate, upon the certificates of governmental officials. As special counsel for Borrower, we have examined the Credit Agreement and such other documents and have conducted such other investigations of fact and law as we consider necessary to enable us to give this opinion. Based upon the foregoing and subject in all respects to the qualifications, limitations, conditions, assumptions and exceptions herein expressed, it is our opinion that: 1. Each of the Borrower and its Material Subsidiaries (i) to our current actual knowledge, without independent investigation, qualified as a foreign corporation and to do business in and in good standing in each jurisdiction where failure to qualify would have a Material Adverse Effect (other than Equatorial Guinea); and (ii) to our current actual knowledge, without independent investigation, has the requisite corporate power and authority to own its properties, to lease the property it operates under lease, and to conduct its business as presently conducted. 2. The execution, delivery and performance of the Credit Agreement by Borrower (I) will not, violate any law or regulation, or, to our current actual knowledge, any order or decree, of any court or governmental instrumentality of the State of New York, the State of Texas or the United States of America; (ii) will not, to our current actual knowledge, without independent investigation, conflict with or result in the breach or termination of, or constitute a default under, any indenture, mortgage, deed of trust, lease, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or any of its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries; (iii) will not, to our current actual knowledge, without independent investigation, result in the creation or imposition of any Lien upon any of the property of Borrower or any of its Subsidiaries, pursuant to any such agreement or instrument referred to in clause (ii) above; and (iv) do not require the consent or approval of, or registration or filing with, or any other action by, any governmental body, agency, authority of the State of New York, the State of Texas or United States of America except such as have been obtained or made and are in full force and effect or, to our current actual knowledge without independent investigation, any other Person, other than those previously obtained and in full force and effect or as disclosed in the Loan Documents. 3. The Credit Agreement has been duly executed and delivered by or on behalf of Borrower. Assuming the corporate power and due authorization of Borrower and that the execution, delivery and performance of the Credit Agreement is not in contravention of any provision of its Memorandum and Articles of Association, the Credit Agreement constitutes a valid and binding agreement of Borrower enforceable in accordance with its terms. 4. Neither the Borrower nor, to our current actual knowledge, without independent investigation, any of its Subsidiaries is an "investment company" as defined in the Investment Company Act of 1940, as amended. Neither the Borrower nor any of its Subsidiaries is a 'holding company" as defined in our subject to regulation under the Public Utility Holding Company Act of 1934. 5. To the best of our current actual knowledge, without independent investigation, no action, claim or proceeding, other than as set forth in the Loan Documents, is now pending or threatened against Borrower, at law, in equity or otherwise, before any Governmental Authority, which, if determined adversely, could reasonably be expected to have a Material Adverse Effect or that involve the Credit Agreement or the Loan Documents. The opinions set forth above are limited by, subject to and based on the following: (a) The opinions are limited in all respects to the laws of the State of Texas, State of New York and applicable federal law. We are licensed to practice law in the State of New York and Texas only and do not hold ourselves out to be experts on the laws of any jurisdiction other than the States of New York and Texas and the United States of America. (b) With respect to the opinions expressed in paragraphs 1(i), 1(ii), 2(i) through (iv) and 5 above, we advise you that we act only as special counsel to Borrower for certain matters and do not represent them in all of their legal matters. "Current actual knowledge" as expressed therein means that no information has come to the attention of the attorneys of this firm currently engaged in this representation that would give us present knowledge of the existence or absence of facts that would render the opinions expressed in paragraphs 1(i), 1(ii), 2(i) through (iv) and 5 above to be untrue. "Without independent investigation" as expressed therein means that we have not investigated or reviewed material which is not in our possession as a result of our retention in connection with this loan facility or other matters for which we have been presently retained by the Borrower. (c) Our opinions set forth in paragraph 3 above concerning the enforceability of the Credit Agreement may be limited by and are subject to (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, marshaling and similar laws affecting the enforcement of creditors' rights and remedies generally (including but not limited to such as may deny giving effect to waivers or debtors' rights), (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and (iii) other applicable federal and state laws, statutes, ordinances, rules, regulations, judicial decisions and constitutional requirements may delay but should not materially diminish the practical realization of the enforceability of such obligation, right or remedy. (d) We express no opinion as to (i) the enforceability of any particular provision of the Credit Agreement (A) against any party other than Borrower, (B) relating to waivers of defenses, of rights to trial by jury, or rights to object to jurisdiction or venue and other rights or benefits bestowed by operation of law, (C) waivers of provisions which are not capable of waiver under applicable law, (D) grants of powers of attorney, or (E) exculpation clauses, indemnity clauses to the extent violative of public policy or clauses relating to releases or waivers of unmatured rights or claims, or (ii) the availability of any specified equitable relief of any kind. (e) The opinions contained herein are limited to the matters expressly set forth in paragraphs 1 through 5 above, and no opinion may be implied or inferred beyond the matters expressly so stated. (f) The opinions herein expressed are given as of the date hereof and we assume no obligation to update or supplement such opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law which may hereafter occur. (g) The opinions herein expressed are for the benefit of the Lenders and the Administrative Agent and their successors and assigns and may be relied upon only by the Lenders and the Administrative Agent and their successors and assigns and only in consummating the transactions evidenced by the Credit Agreement. Very truly yours, JACKSON WALKER L.L.P. By: _________________________________________ Lawrence A. Waks, Partner By: _________________________________________ Bryan C. Birkeland, Partner EXHIBIT B-2 WALKERS Attorneys-at-Law WALKER HOUSE, P.O. BOX 265 GEORGE TOWN, GRAND CAYMAN CAYMAN ISLANDS TEL: (345) 949-0100 FAX: (345) 949-7886 Internet:- walker@candw.ky Our ref:GWP/dw/T183-10663 January[ ], 2000 THE CHASE MANHATTAN BANK ONE CHASE MANHATTAN PLAZA 8TH FLOOR, NEW YORK, NEW YORK 10018 (THE "BANK") Dear Sirs, We have been asked to provide this legal opinion to you with regard to the laws of the Cayman Islands in relation to the Credit Agreement dated ________, 2000 being entered into by TRITON ENERGY LIMITED (the "Company"), the Lenders named therein and the Bank as Administrative Agent (the "Agreement"). For the purposes of giving this opinion, we have examined the documents listed in Schedule 1 hereto. In giving this opinion we have relied upon the assumptions set out in Schedule 2 hereto, which we have not independently verified. We are Attorneys-at-Law in the Cayman Islands and express no opinion as to any laws other than the laws of the Cayman Islands in force and as interpreted at the date hereof. Except as explicitly stated herein, we express no opinion in relation to any representation or warranty contained in the Agreement nor upon the commercial terms of the transactions contemplated by the Agreement. Based upon the foregoing examinations and assumptions and upon such searches as we have conducted and having regard to legal considerations which we deem relevant, and subject to the qualifications set out in Schedule 3 hereto, we are of the opinion that under the laws of the Cayman Islands: 1. The Company is a company duly incorporated, validly existing and in good standing under the laws of the Cayman Islands and has full power and legal right to execute and deliver the Agreement and to perform the provisions of the Agreement to be performed on its part. 2. The Agreement has been duly authorized and executed and when delivered by the Company, will constitute the legal, valid and binding obligations of the Company enforceable in accordance with its terms. 3. The execution, delivery and performance of the Agreement, the consummation of the transactions contemplated thereby and the compliance by the Company with the terms and provisions thereof do not: (i) contravene any law or regulation of the Cayman Islands applicable to the Company; or (ii) contravene the Memorandum and Articles of Association of the Company. 4. Neither the execution, delivery or performance of the Agreement nor the consummation or performance of any of the transactions contemplated thereby by the Company, requires the consent or approval of, the giving of notice to, or the registration with, or the taking of any other action in respect of any Cayman Islands governmental or judicial authority or agency. 5. The law chosen by the Agreement to govern its interpretation would be upheld as a valid choice of law in any action on that document in the courts of the Cayman Islands. 6. There are no stamp duties (other than the stamp duties mentioned in qualification 2 in Schedule 3 hereto), income taxes, withholdings, levies, registration taxes, or other duties or similar taxes or charges now imposed, or which under the present laws of the Cayman Islands could in the future become imposed, in connection with the enforcement or admissibility in evidence of the Agreement or on any payment to be made by the Company or any other person pursuant to the Agreement. 7. None of the parties to the Agreement (other than the Company) is or will be deemed to be resident, domiciled or carrying on business in the Cayman Islands by reason only of the execution, delivery, performance or enforcement of the Agreement. 8. A judgement obtained in a foreign court will be recognized and enforced in the courts of the Cayman Islands without any re-examination of the merits: (a) at common law, by an action commenced on the foreign judgement debt in the Grand Court of the Cayman Islands, where the judgement is final and in respect of which the foreign court had jurisdiction over the defendant according to Cayman Islands conflict of law rules and which is conclusive, for a liquidated sum not in respect of penalties or taxes or a fine or similar fiscal or revenue obligations, and which was neither obtained in a manner, nor is of a kind enforcement of which is contrary to natural justice or the public policy of the Cayman Islands; or (b) by statute, registration in the Grand Court of the Cayman Islands and execution as if it were a judgement of the Grand Court, where the judgement is a judgement of a superior court of any state of the Commonwealth of Australia which is final and conclusive for a sum of money not in respect of taxes or other charges of a like nature or in respect of a fine, penalty or revenue obligation and which remains enforceable by execution in that jurisdiction. 9. It is not necessary or advisable under the laws of the Cayman Islands that the Agreement or any document relating thereto be registered or recorded in any public office or elsewhere in the Cayman Islands in order to ensure the validity, effectiveness or enforceability of the Agreement. 10. The Company has executed an effective submission to the jurisdiction of the courts of the jurisdiction specified in the Agreement. 11. The Company is subject to civil and commercial law with respect to its obligations under the Agreement and neither the Company nor any of its assets is entitled to immunity from suit or enforcement of a judgment on the grounds of sovereignty or otherwise in the courts of the Cayman Islands in proceedings against the Company in respect of any obligations under the Agreement, which obligations constitute private and commercial acts rather than governmental or public acts. 12. There are no actions, suits or proceedings pending against the Company before any court in the Cayman Islands and no steps have been, or are being, taken to compulsorily wind up the Company and no resolution to voluntarily wind up the Company has been adopted by its members. 13. A judgment of a court in the Cayman Islands may be expressed in a currency other than Cayman Islands dollars. 14. On a liquidation of the Company, claims against the Company under the Agreement to which it is party will rank at least pari passu with the claims of ---- ----- all other unsecured creditors (other than those preferred by law). This opinion is limited to the matters referred to herein and shall not be construed as extending to any other matter or document not referred to herein. This opinion is given solely for your benefit and the benefit of your legal advisers acting in that capacity in relation to this transaction and may not be relied upon by any other person without our prior written consent. This opinion is governed by and shall be construed in accordance with the laws of the Cayman Islands. Yours faithfully, WALKERS SCHEDULE 1 LIST OF DOCUMENTS EXAMINED (1) the Memorandum and Articles of Association of the Company; (2) a Certificate of Good Standing in respect of the Company dated __________, 2000 issued by the Registrar of Companies; (3) an executed copy of a Secretary's Certificate dated ______, 2000 containing certified resolutions of the Board of Directors of the Company (the "Resolutions"); (4) the executed Agreement; and (5) such other documents as we have considered necessary for the purposes of rendering this opinion. SCHEDULE 2 ASSUMPTIONS The opinions hereinbefore given are based upon the following assumptions: -- 1. There are no provisions of the laws of any jurisdiction outside the Cayman Islands which would be contravened by the execution or delivery of the Agreement and that, in so far as any obligation expressed to be incurred under the Agreement is to be performed in or is otherwise subject to the laws of any jurisdiction outside the Cayman Islands, its performance will not be illegal by virtue of the laws of that jurisdiction. 2. The Agreement is within the capacity and powers of and have been or will be duly authorised, executed and delivered by each of the parties thereto (other than the Company) and constitute or will, when executed and delivered, constitute the legal, valid and binding obligations of each of the parties thereto enforceable in accordance with their terms as a matter of the laws of all relevant jurisdictions (other than the Cayman Islands). 3. The choice of the laws of the jurisdiction selected to govern the Agreement has been made in good faith and will be regarded as a valid and binding selection which will be upheld in the courts of that jurisdiction and all other relevant jurisdictions (other than the Cayman Islands). 4. All authorisations, approvals, consents, licences and exemptions required by and all filings and other requirements of each of the parties to the Agreement outside the Cayman Islands to ensure the legality, validity and enforceability of the Agreement have been or will be duly obtained, made or fulfilled and are and will remain in full force and effect and that any conditions to which they are subject have been satisfied. 5. All conditions precedent contained in the Agreement have been or will be satisfied or waived. 6. No disposition of property effected by the Agreement is made wilfully to defeat an obligation owed to a creditor and at an undervalue. 7. The Company was on the date of execution of the Agreement able to pay its debts as they became due from its own moneys, and that any disposition or settlement of property effected by the Agreement is made in good faith and for valuable consideration. 8. The Agreement has not been nor will be executed or delivered in the Cayman Islands. 9. All original documents are authentic, that all signatures and seals are genuine, that all documents purporting to be sealed have been so sealed, that all copies are complete and conform to their original and that the Agreement conform in every material respect to the latest drafts of the same produced to us. 10. The Minute Book of the Company examined by us on __________, 2000 at its Registered Office contains a complete and accurate record of the business transacted by it. 11. The corporate records of the Company examined by us on __________, 2000 at its Registered Office constitute its complete and accurate corporate records and that all matters required by law to be recorded therein are so recorded. 12. The Cause List and the Register of Writs and other Originating Process of the Cayman Islands Grand Court maintained by the Clerk of the Courts examined by us at the Courts Office on _________, 2000, constitute a complete record of the proceedings before the Grand Court of the Cayman Islands. 13. None of the parties to the Agreement is (a) a "person in Iraq" as that term is defined in The Iraq and Kuwait (United Nations Sanctions) (Dependent Territories) Order 1990 or an "Iraqi person" as defined in The Iraq (United Nations) (Sequestration of Assets) (Dependent Territories) Order 1993 or a person resident in the Republic of Iraq for the purposes of The Caribbean Territories (Control of Gold, Securities, Payment and Credits: Kuwait and Republic of Iraq) Order 1990; or (b) a "person connected with Libya" as that term is defined in The Libya (United Nations Sanctions) (Dependent Territories) Order 1992. 14. abThe meeting of the Board of Directors at which the Resolutions were duly adopted was called and held in accordance with the Articles of Association of the Company. SCHEDULE 3 QUALIFICATIONS The opinions hereinbefore given are subject to the following qualifications: 1. The term "enforceable" as used above means that the obligations assumed by the Company under the Agreement are of a type which the courts of the Cayman Islands enforce; it does not mean that those obligations will necessarily be enforced in all circumstances in accordance with their terms. In particular: (a) enforcement may be limited by bankruptcy, insolvency, liquidation, reorganisation and other laws of general application relating to or affecting the rights of creditors; (b) enforcement may be limited by general principles of equity; (c) claims may become barred under statutes of limitation or may be or become subject to defenses of set-off or counterclaim; (d) where obligations are to be performed in a jurisdiction outside the Cayman Islands, they may not be enforceable in the Cayman Islands to the extent that performance would be illegal under the laws of that jurisdiction; (e) an award of a court of the Cayman Islands may be required to be made in Cayman Islands dollars; (f) to the extent that any provision of the Agreement is adjudicated to be penal in nature, it will not be enforceable in the courts of the Cayman Islands; in particular, the enforceability of any provision of the Agreement which imposes additional obligations in the event of any breach or default, or of payment or prepayment being made other than on an agreed date maybe limited to the extent that it is subsequently adjudicated to be penal in nature and not an attempt to make a reasonable pre-estimate of loss; (g) to the extent that the performance of any obligation arising under the Agreement would be fraudulent or contrary to public policy, it will not be enforceable in the courts of the Cayman Islands; and (h) a Cayman Islands court will not necessarily award costs in litigation in accordance with contractual provisions in this regard. 2. Cayman Islands stamp duty will be payable if the Agreement is executed in, brought to, or produced before a court of the Cayman Islands. Such duty would be nominal except in the case of: (a) a legal or equitable mortgage or charge of immovable property or a debenture: (i) where the sum secured is CIS300,000 (US$360,000) or less, in which case such duty would be 1% of the sum secured; (ii) where the sum secured is more than CIS300,000 (US$360,000), in which case such duty would be 1.5% of the sum secured; (b) a legal or equitable mortgage of movable property (not including a debenture), in which case such duty would be 1.5% of the sum secured; (c) a bill of sale by way of security, in which case such duty would be 1 % of the sum secured; PROVIDED that no duty shall be payable where the property is situated outside the Cayman Islands and that in the case of a mortgage of moveable property situated in the Cayman Islands granted by an exempted company or by an ordinary non-resident company (as defined in the Companies Law (1995 Revision)) or by a body corporate incorporated outside the Cayman Islands, the maximum duty payable shall be CI$500.00. (US$600.00). 3. A certificate, determination, calculation or designation of any party to the Agreement as to any matter provided therein might be held by a Cayman Islands court not to be conclusive, final and binding, notwithstanding any provision to that effect therein contained, if, for example, it could be shown to have an unreasonable, arbitrary or improper basis or in the event of manifest error. 4. If any provision of the Agreement is held to be illegal, invalid or unenforceable, severance of such provision from the remaining provisions will be subject to the discretion of the Cayman Islands courts. 5. To maintain the Company in good standing under the laws of the Cayman Islands, annual filing fees must be paid and returns made to the Registrar of Companies. 6. Any term of the Agreement may be amended orally by the parties thereto, notwithstanding provisions to the contrary contained therein. 7. Notwithstanding any purported date of execution in any of the Agreement, the rights and obligations therein contained take effect only on the actual execution and delivery thereof but the Agreement may provide that they have retrospective effect as between the parties thereto alone. 8. The effectiveness of terms in the Agreement excusing any party from a liability or duty otherwise owed or indemnifying that party from the consequences of incurring such liability or breaching such duty are limited by law. EXHIBIT C BORROWING REQUEST [DATE] The Chase Manhattan Bank, as Administrative Agent under the Credit Agreement referred to below One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Attention: Michael Cerniglia Ladies and Gentlemen: The undersigned refers to the Credit Agreement dated as of February 29, 2000 (such Credit Agreement, as it may hereafter be amended or otherwise modified from time to time, being referred to herein as the "Credit Agreement", the terms defined therein being used herein as therein defined) among Triton Energy Limited, a Cayman Islands company, other financial institutions party ("Lenders"), and The Chase Manhattan Bank, as administrative agent for such Lenders ("Administrative Agent") and hereby gives you notice, irrevocably, pursuant to Section 2.03 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section 2.03 of the Credit Agreement: (i) The Business Day of the Proposed Borrowing is , _________. (ii) The Type of Advances comprising the Proposed Borrowing is [ABR Loans] [Eurodollar Loans]. (iii) The aggregate amount of the Proposed Borrowing is $____________________. (iv) The location and number of the Borrower account to which funds are to be transferred is ___________. (v) The Borrowing Base Utilization on the Business Day of the Proposed Borrowing (after giving effect to the Proposed Borrowing) is _____%. (vi) The amount of Outside LC Exposure on the Business Day of the proposed Borrowing is ___________________. [(vii) The Interest Period for each Eurodollar Loan made as part of the Proposed Borrowing is _____ months.] Very truly yours, TRITON ENERGY LIMITED By:_______________________________________ Name: ____________________________________ Title: ____________________________________ EXHIBIT D INTEREST ELECTION REQUEST [Date] The Chase Manhattan Bank, as Administrative Agent under the Credit Agreement referred to below One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Attention: Michael Cerniglia Ladies and Gentlemen: The undersigned refers to the Credit Agreement dated as of February 29, 2000 (such Credit Agreement, as it may hereafter be amended or otherwise modified from time to time, being referred to herein as the "Credit Agreement", the terms defined therein being used herein as therein defined) among Triton Energy Limited, a Cayman Islands company, other financial institutions party ("Lenders"), and The Chase Manhattan Bank, as administrative agent for such Lenders ("Administrative Agent") and hereby gives you notice, irrevocably, pursuant to Section 2.06 of the Credit Agreement that the undersigned hereby makes an Interest Election Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing as required by Section 2.06 of the Credit Agreement: (i) The Borrowing (or portion thereof)* to which this Interest Election applies is _______________. (ii) The effective date (which must be a Business Day) of the election is ______________________. (iii) The resulting Borrowing will be an [ABR Borrowing] [Eurodollar Borrowing]. (iv) The Borrowing Base Utilization on the effective date of the election is (after giving effect to any new Borrowings on such date) is __%. [(v) The Interest Period Applicable to the Eurodollar Borrowing is __________________________.] *If this Interest Election applies to only a portion of a Borrowing, submit another Interest Election for the remaining portion or portions. EX-12.1 11 EXHIBIT 12.1 TRITON ENERGY LIMITED AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
YEAR ENDING DECEMBER 31, ------------------------------------------------------ 1999 1998 1997 1996 1995 --------- ---------- --------- --------- --------- Fixed charges, as defined Interest charges $ 38,231 $ 50,253 $ 50,625 $ 43,884 $ 41,305 Preferred dividend requirements of subsidiaries adjusted to pre-tax basis --- --- --- --- --- --------- ---------- --------- --------- --------- Total fixed charges $ 38,231 $ 50,253 $ 50,625 $ 43,884 $ 41,305 ========= ========== ========= ========= ========= Earnings, as defined (2): Earnings (loss) from continuing operations before income taxes and extraordinary item $ 76,177 $(238,609) $ 16,896 $ 20,945 $ 16,600 Fixed charges, above 38,231 50,253 50,625 43,884 41,305 Less interest capitalized (14,539) (23,215) (25,818) (27,102) (16,211) Plus undistributed (earnings) loss of affiliates 28 --- --- (118) 2,249 Less preferred dividend requirements of subsidiaries adjusted to pre-tax basis --- --- --- --- --- --------- ---------- --------- --------- --------- $ 99,897 $(211,571) $ 41,703 $ 37,609 $ 43,943 ========= ========== ========= ========= ========= RATIO OF EARNINGS TO FIXED CHARGES (1) (2) 2.6 --- 0.8 0.9 1.1 ========= ========== ========= ========= =========
____________________ [FN] (1) Earnings were inadequate to cover fixed for the years ended December 31, 1998, 1997 and 1996 by$261,824,000, $8,922,000 and $6,275,000, respectively. (2) Earnings reflect nonrecurring writedowns and loss provisions of $5,159,000, $348,064,000, $46,153,000 and $1,058,000 for the years ended December 31, 1999, 1998, 1996 and 1995, respectively. Nonrecurring gains from the sale of assets and other gains aggregated $442,000, $125,617,000, $6,253,000, $22,189,000 and $13,617,000 for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively. The ratio of earnings to fixed charges if adjusted to remove nonrecurring items, would have been 2.7, 0.2, 0.7, 1.4 and 0.8 for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively. Without nonrecurring items, earnings would have been inadequate to cover fixed charges for the years ended December 31, 1998, 1997 and 1995 by $39,377,000, $15,175,000 and $9,921,000, respectively. EX-12.2 12 EXHIBIT 12.2 TRITON ENERGY LIMITED AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS (IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
YEAR ENDING DECEMBER 31, ------------------------------------------------------ 1999 1998 1997 1996 1995 --------- ---------- --------- --------- --------- Fixed charges, as defined: Interest charges $ 38,231 $ 50,253 $ 50,625 $ 43,884 $ 41,305 Preference dividend requirements of the Company 28,671 3,061 400 985 802 Preferred dividend requirements of subsidiaries adjusted to pre-tax basis --- --- --- --- --- --------- ---------- --------- --------- --------- Total fixed charges $ 66,902 $ 53,314 $ 51,025 $ 44,869 $ 42,107 ========= ========== ========= ========= ========= Earnings, as defined (2): Earnings (loss) from continuing operations before income taxes and extraordinary item $ 76,177 $(238,609) $ 16,896 $ 20,945 $ 16,600 Fixed charges, above 66,902 53,314 51,025 44,869 42,107 Less interest capitalized (14,539) (23,215) (25,818) (27,102) (16,211) Plus undistributed (earnings) loss of affiliates 28 --- --- (118) 2,249 Less preference dividend requirements of the Company and its subsidiaries adjusted to pre-tax basis (28,671) (3,061) (400) (985) (802) --------- ---------- --------- --------- --------- $ 99,897 $(211,571) $ 41,703 $ 37,609 $ 43,943 ========= ========== ========= ========= ========= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS (1) (2) 1.5 --- 0.8 0.8 1.0 ========= ========== ========= ========= =========
____________________ (1) Earnings were inadequate to cover combined fixed charges and preference dividends for the years ended December 31, 1998, 1997 and 1996 by $264,885,000, $9,322,000 and $7,260,000, respectively. (2) Earnings reflect nonrecurring writedowns and loss provisions of $5,159,000, $348,064,000, $46,153,000 and $1,058,000 for the years ended December 31, 1999, 1998, 1996 and 1995, respectively. Nonrecurring gains from the sale of assets and other gains aggregated $442,000, $125,617,000, $6,253,000, $22,189,000 and $13,617,000 for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively. The ratio of earnings to combined fixed charges and preference dividends if adjusted to remove nonrecurring items, would have been 1.6, 0.2, 0.7, 1.4 and 0.7 for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively. Without nonrecurring items, earnings would have been inadequate to cover combined fixed charges and preference dividends for the years ended December 31, 1998, 1997 and 1995 by $42,438,000, $15,575,000 and $10,723,000, respectively. EX-21.1 13 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY
JURISDICTION OF --------------- NAME ORGANIZATION - ---- ------------ Oil & Gas Colombia GmbH Germany Triton Algeria, Inc. Cayman Islands Triton Angola, Inc. Cayman Islands Triton Asia Holdings, Inc. Cayman Islands Triton Australia, Inc. Cayman Islands Triton Brazil, Inc. Cayman Islands Triton Cambodia, Inc. Cayman Islands Triton Colombia, Inc. Cayman Islands Triton Ecuador, Inc. LLC Cayman Islands Triton Energy Corporation Delaware Triton Equatorial Guinea, Inc. Cayman Islands Triton Exploration Services, Inc. Delaware Triton Financial Services, Inc. Cayman Islands Triton Guatemala S.A. B.V.I. Triton Hellas Exploration and Exploitation of Hydrocarbons Anonymous Industrial Technical and Commercial Company Greece Triton International Finance, Inc. Cayman Islands Triton International Oil Corporation Delaware Triton International Petroleum, Inc. Cayman Islands Triton Italy, Inc. Cayman Islands Triton Madagascar, Inc. Cayman Islands Triton Mediterranean Oil & Gas N.V. Netherlands Triton Oil & Gas GmbH Germany Triton Oman Resources, Inc. Cayman Islands Triton Oman, Inc. Cayman Islands Triton Resources (UK) Limited U.K. Triton Tunisia, Inc. Cayman Islands Triton Ventures, Inc. Cayman Islands
EX-23.1 14 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 33-59567, 333-11703, 333-11703-01, 333-67843 and 333-81029) and to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-80978, 33-4042, 33-27203, 33-29498, 33-46968, 33-51691, 333-08005, 333-27313 and 333-81031) of Triton Energy Limited of our report dated February 23, 2000 appearing on page F-2 of this Form 10-K. PricewaterhouseCoopers LLP Dallas, Texas March 8, 2000 EX-23.2 15 EXHIIT 23.2 DeGOLYER and MacNAUGHTON One Energy Square Dallas, Texas 75206 March 3, 2000 Triton Energy Limited Caledonian House Mary Street P.O. Box 1043 George Town Grand Cayman, Cayman Islands Gentlemen: We hereby consent to (i) the use of the information contained in our "Appraisal Report, as of December 31, 1999, on Certain Properties in Colombia owned by Triton Colombia Incorporated," under the caption "Items 1 and 2 - Business and Properties - Reserves" and in note 23 of the Notes to the Consolidated Financial Statements under the caption "Oil and Gas Reserve Data" in the Form 10-K of Triton Energy Limited for the year ended December 31, 1999, and (ii) the references to our firm under such captions. Our estimates of reserves, however, for the Cusiana and Cupiagua fields have been aggregated in the Form 10-K with other Colombian reserves for which we have not prepared estimates. Very truly yours, DeGOLYER and MacNAUGHTON EX-23.3 16 EXHIBIT 23.3 NETHERLAND, SEWELL & ASSOCIATES, INC. CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS --------------------------------------------------------- We hereby consent to (i) the use of the information in our report dated January 31, 2000, for Ceiba Field located offshore Equatorial Guinea (the "Report") under the caption "Items 1. and 2. Business and Properties - Reserves" and in note 23 of the Notes to the Consolidated Financial Statements under the caption "Oil and Gas Reserve Data" in the Form 10-K of Triton Energy Limited for the year ended December 31, 1999 (the "Form 10-K"), and (ii) the references to our firm under such captions. We further consent to (i) the incorporation by reference from the Form 10-K of certain data from the Report in the Company's Registration Statements on Form S-3 (Nos. 33-59567, 333-11703, 333-11703-01, 333-67843, and 333-81029), and on Form S-8 (Nos. 2-80978, 33-4042, 33-27203, 33-29498, 33-46968, 33-51691, 333-08005, 333-27313 and 333-81031) of the Company, and to (ii) references to our name in said Registration Statements and the Prospectuses contained therein. NETHERLAND, SEWELL & ASSOCIATES, INC. By: Clarence M. Netherland Chairman Dallas, Texas March 3, 2000 EX-27.1 17
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DEC-31-1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 DEC-31-1999 186,323 0 17,246 0 0 255,279 960,255 436,103 974,475 93,950 404,460 0 370,769 358 89,195 974,475 247,878 247,878 68,130 68,130 61,343 0 22,648 76,177 28,620 47,557 0 0 0 47,557 0.52 0.52
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