10-K/A 1 e10-ka.txt BURLINGTON RESOURCES INC. - AMENDMENT NO.2 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A NO. 2 (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 COMMISSION FILE NUMBER 1-9971 BURLINGTON RESOURCES INC. 5051 WESTHEIMER, SUITE 1400, HOUSTON, TEXAS 77056 TELEPHONE: (713) 624-9500

INCORPORATED IN THE STATE OF DELAWARE EMPLOYER IDENTIFICATION NO. 91-1413284

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE PREFERRED STOCK PURCHASE RIGHTS THE ABOVE SECURITIES ARE REGISTERED ON THE 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 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. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant: Common Stock aggregate market value as of February 29, 2000: $5,946,038,509 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class: Common Stock, par value $.01 per share, on February 29, 2000, Shares Outstanding: 215,241,213 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: Burlington Resources Inc. 1999 Annual Report to stockholders, which is incorporated by reference into Part I and Part II of this Form 10-K. Burlington Resources Inc. definitive proxy statement, to be filed not later than 120 days after the end of the fiscal year covered by this report, is incorporated by reference into Part III. ================================================================================ EXPLANATORY NOTE Burlington Resources Inc. (the "Company") is filing this amendment to its Annual Report on Form 10-K for the year ended December 31, 1999 in order to restate the Financial Statements and revise the Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company discovered an accounting error that resulted in a $26 million overstatement of revenues for the fourth quarter of 1998. The net effect, after adjusting for income tax of $9 million, is a $17 million increase in net loss from $321 million to $338 million for the year ended December 31, 1998 and a $17 million reduction in stockholders' equity at December 31, 1998 and 1999. See Note 14 of the Notes to Consolidated Financial Statements. ================================================================================ 2 BURLINGTON RESOURCES INC. TABLE OF CONTENTS

PAGE PART II Item Six Selected Financial Data................................ 1 Item Seven and Seven A Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk......... 1 Item Eight Financial Statements and Supplementary Financial Information........................................... 8 PART IV Item Fourteen Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................. 38

3 ITEM SIX SELECTED FINANCIAL DATA The selected financial data for Burlington Resources Inc. set forth below for the five years ended December 31, 1999 should be read in conjunction with the consolidated financial statements. Prior year amounts have been restated to include Poco Petroleums Ltd. Certain financial data for 1998 and 1999 have been further restated as described in Note 14 to the Consolidated Financial Statements.

1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA Revenues........................................ $2,065 $1,983 $2,375 $2,477 $1,905 Operating Income (Loss)......................... 236 (439) 605 643 (508) Net Income (Loss)............................... 1 (338) 352 354 (332) Basic Earnings (Loss) per Common Share.......... .01 (1.60) 1.69 1.72 (1.65) Diluted Earnings (Loss) per Common Share........ $ -- $(1.60) $ 1.67 $ 1.70 $(1.65) BALANCE SHEET DATA Total Assets.................................... $7,165 $7,060 $7,164 $6,790 $6,169 Long-term Debt.................................. 2,769 2,684 2,317 2,223 2,306 Stockholders' Equity............................ 3,229 3,301 3,550 3,320 2,848 Cash Dividends Declared per Common Share........ $ .46 $ .46 $ .39 $ .37 $ .38 Common Shares Outstanding....................... 216 216 209 209 201

ITEM SEVEN AND SEVEN A MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ACQUISITION OF POCO On August 16, 1999, the Company entered into a definitive agreement to acquire Poco Petroleums Ltd. ("Poco"), a corporation existing under the laws of the Province of Alberta, Canada (the "Acquisition"). The Acquisition was consummated on November 18, 1999. Under the terms of the Acquisition, Poco shareholders received .25 BR common equivalent shares ("exchangeable shares"), totaling 38,393,135 BR shares, for each Poco share held. The exchangeable shares are Canadian securities, which began trading on The Toronto Stock Exchange November 23, 1999 under the symbol BRX. These shares have the same voting rights, dividend entitlements and other attributes as shares of BR Common Stock and are exchangeable, at each shareholder's option, for BR Common Stock on a one for one basis. The Acquisition was accounted for as a pooling of interests. All operational and financial information contained herein includes the business activities of Poco for all periods presented. FINANCIAL CONDITION AND LIQUIDITY The Company's long-term debt to capital ratio at December 31, 1999 and 1998 was 47 percent and 45 percent, respectively. The Company has unused credit commitments in the form of revolving facilities ("revolvers") as of December 31, 1999. These revolvers are available to cover debt due within one year, therefore, commercial paper, credit facility notes and a portion of fixed-rate debt due within one year are classified as long-term debt. During 1999, due to debt covenant violations, the Company obtained waivers related to certain of its Canadian debt. In addition, the Company has the capacity to issue $1 billion of securities under a shelf registration statement filed with the Securities and Exchange Commission. The revolvers are comprised of agreements for 1 4 $600 million, $400 million, $310 million, $121 million and $52 million. The $600 million revolver expires in February 2003. The other credit facilities expire in March 2000 unless renewed by mutual consent, with the exception of the $52 million revolver which is cancelable by the creditor upon demand. Balances outstanding on the $310 million revolver automatically become five year amortizing notes at expiration of the agreement. In March 1999 and April 1999, the Company issued $450 million of 7 3/8 percent fixed-rate debt and $19 million of 6.40 percent fixed-rate debt, respectively. During 1999, the Company repaid $474 million of fixed-rate debt. The Company has a total of $961 million of debt to be repaid in 2000. Of this amount, $362 million represents fixed-rate debt which the Company intends to refinance with other fixed-rate long-term debt. The remaining $599 million is comprised of $267 million of commercial paper outstanding at December 31, 1999 with an average interest rate of 7 percent and $332 million of credit facility notes with interest rates between 5 and 6 percent. In July 1998, the Company's Board of Directors approved the repurchase of up to two million shares of its Common Stock. During 1999, the Company repurchased 250,000 shares of its Common Stock for $9 million. Since December 1988, the Company has repurchased approximately 32 million shares. Net cash provided by operating activities for 1999 was $1,102 million compared to $980 million and $1,363 million in 1998 and 1997, respectively. The increase in 1999 compared to 1998 was primarily due to higher operating income and working capital and other changes. The decrease in 1998 compared to 1997 was primarily due to significantly lower operating income and lower working capital and other changes. The Company and its subsidiaries are named defendants in numerous lawsuits and named parties in numerous governmental and other proceedings arising in the ordinary course of business. While the outcome of lawsuits and other proceedings cannot be predicted with certainty, management believes these matters will not have a material adverse effect on the consolidated financial position of the Company, although results of operations and cash flows could be significantly impacted in the reporting periods in which such matters are resolved. The Company has certain other commitments and uncertainties related to its normal operations. Management believes that there are no other commitments or uncertainties that will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. CAPITAL EXPENDITURES AND RESOURCES Capital expenditures during 1999 totaled $989 million compared to $1,839 million and $1,682 million in 1998 and 1997, respectively. The Company invested $792 million on internal development and exploration during 1999 compared to $1,291 million and $1,220 million in 1998 and 1997, respectively. The Company invested $135 million for proved property acquisitions in 1999 compared to $437 million and $340 million in 1998 and 1997, respectively. Capital expenditures for 2000, excluding proved property acquisitions, are projected to be approximately $1 billion. Capital expenditures are expected to be primarily for internal development and exploration of oil and gas properties and plant and pipeline expenditures. Capital expenditures will be funded from internal cash flows, supplemented, if needed, by external financing. MARKETING North America The Company's marketing strategy is to maximize the value of its production by developing marketing flexibility from the wellhead to its ultimate sales. The Company's natural gas production is gathered, processed, exchanged and transported utilizing various firm and interruptible contracts and routes to access the highest value market hubs. The Company's customers include local distribution companies, electric utilities, industrial users and marketers. The Company maintains the capacity to ensure its production can be marketed either at the wellhead or downstream at market sensitive prices. 2 5 All of the Company's crude oil production is sold to third parties at the wellhead or transported to market hubs where it is sold or exchanged. NGLs are typically sold at field plants or transported to market hubs and sold to third parties. International The Company's international production is marketed to third parties either directly by the Company or by the operators of the properties. Production is sold at the platforms or local sales points based on spot or contract prices. COMMODITY RISK Substantially all of the Company's crude oil and natural gas production is sold on the spot market or under short-term contracts at market sensitive prices. Spot market prices for domestic crude oil and natural gas are subject to volatile trading patterns in the commodity futures market, including among others, the New York Mercantile Exchange ("NYMEX"). Quality differentials, worldwide political developments and the actions of the Organization of Petroleum Exporting Countries also affect crude oil prices. There is also a difference between the NYMEX futures contract price for a particular month and the actual cash price received for that month in a U.S. producing basin or at a U.S. market hub, which is referred to as the "basis differential." The Company utilizes over-the-counter price and basis swaps as well as options to hedge its production in order to decrease its price risk exposure. The gains and losses realized as a result of these derivative transactions are substantially offset when the hedged commodity is delivered. In order to accommodate the needs of its customers, the Company also uses price swaps to convert natural gas sold under fixed price contracts to market prices. The Company uses a sensitivity analysis technique to evaluate the hypothetical effect that changes in the market value of crude oil and natural gas may have on the fair value of the Company's derivative instruments. At December 31, 1999, the potential decrease in fair value of derivative instruments assuming a 10 percent adverse movement (an increase in the underlying commodities price) would result in a $65 million increase in the net deferred amount. For purposes of calculating the hypothetical change in fair value, the relevant variables include the type of commodity, the commodity futures prices, the volatility of commodity prices and the basis and quality differentials. The hypothetical change in fair value is calculated by multiplying the difference between the hypothetical price (adjusted for any basis or quality differentials) and the contractual price by the contractual volumes. FOREIGN CURRENCY RISK The Company's reported cash flows related to Canadian operations is based on cash flows measured in Canadian dollars converted to the U.S. dollar equivalent based on the average of the Canadian and U.S. dollar exchange rates for the period reported. The Company's Canadian subsidiary has financial obligations that are denominated in U.S. dollars. A decrease in value of 10 percent in Canadian dollars relative to the U.S. dollar from the year-end exchange rate would result in a foreign currency loss of $20 million based on December 31, 1999 amounts. The Company considers its current risk exposure to exchange rate movements, based on net cash flows, to be immaterial. DIVIDENDS On January 19, 2000, the Board of Directors declared a common stock quarterly cash dividend of $.1375 per share, payable April 3, 2000 to shareholders of record on March 10, 2000. Dividend levels are determined by the Board of Directors based on profitability, capital expenditures, financing and other factors. The Company declared cash dividends on Common Stock totaling approximately $103 million during 1999. 3 6 RESULTS OF OPERATIONS Year Ended December 31, 1999 Compared With Year Ended December 31, 1998 The Company reported net income of $1 million or $.01 basic earnings per common share in 1999 compared to a net loss of $338 million or $1.60 basic loss per common share in 1998. The 1999 and 1998 results included a non-cash per share charge of $.65 and $1.85, respectively, related to the impairment of oil and gas properties. The Company evaluates the impairment of its oil and gas properties on a field-by-field basis whenever events or changes in circumstances indicate an asset's carrying amount may not be recoverable. Unamortized capital costs are reduced to fair value if the sum of the expected undiscounted future cash flows is less than the assets' net book value. Cash flows are determined based upon proved reserves using prices and costs consistent with those used for internal decision making. In the fourth quarter of 1999, the Company determined there would be performance related downward reserve adjustments associated with certain properties located on the Gulf of Mexico shelf and in the Permian Basin. As a result, the Company recognized a pretax impairment charge of $225 million ($140 million after tax) related to those properties. In the fourth quarter of 1998, the market experienced a weakness in commodity prices. The Company subjected all properties to impairment testing and subsequently recognized a pretax impairment charge related to certain Canadian properties of $706 million ($390 million after tax). The 1999 results also included a $.12 per share charge related to severance and transaction costs associated with the Acquisition. Revenues were $2,065 million in 1999 compared to $1,983 million in 1998. Average oil prices increased 31 percent to $16.85 per barrel in 1999 and average gas prices increased 6 percent to $2.01 per MCF which increased revenues $131 million and $88 million, respectively. Oil sales volumes decreased 14 percent in 1999 to 89.9 MBbls per day and gas sales volumes decreased 4 percent to 2,004 MMCF per day which decreased revenues $69 million and $51 million, respectively. Oil sales volumes decreased primarily due to natural production declines in the Gulf Coast, Mid-Continent and North Sea areas. Costs and Expenses were $1,829 million in 1999 compared to $2,422 million in 1998. Costs and expenses in 1999 and 1998 included a $225 million and $706 million charge, respectively, related to the impairment of oil and gas properties. Costs and expenses in 1999 also included a charge of $37 million related to severance and transaction costs associated with the Acquisition. Excluding the $262 million of charges in 1999 and the $706 million charge in 1998, costs and expenses in 1999 decreased $149 million compared to 1998. The decrease was primarily due to a $114 million decrease in exploration costs and a $48 million decrease in depreciation, depletion and amortization ("DD&A"). Exploration costs decreased due to lower exploratory spending resulting in lower geological and geophysical ("G&G") expenses of $58 million and lower exploratory dry hole expense of $69 million partially offset by higher impairment expense of $13 million. DD&A decreased due to lower production volumes and a lower unit rate resulting in reduced expenses of $38 million and $16 million, respectively, partially offset by higher fixed-rate expense of $6 million. Interest Expense was $211 million in 1999 compared to $193 million in 1998. The increase was primarily due to higher outstanding fixed-rate debt and higher outstanding commercial paper borrowings during 1999. Other Expense (Income) -- Net was an expense of $2 million in 1999 compared to income of $8 million in 1998. The decrease in other income is primarily due to lower interest income in 1999. Income taxes were an expense of $22 million, a rate of 95 percent in 1999 compared to a benefit of $286 million, a rate of 46 percent in 1998. The increased tax expense in 1999 compared to 1998 was primarily a result of substantially higher pretax income and lower benefits from nonconventional fuel tax credits. Year Ended December 31, 1998 Compared With Year Ended December 31, 1997 The Company reported a net loss of $338 million or $1.60 basic loss per common share in 1998 compared to net income of $352 million or $1.69 basic earnings per common share in 1997. The 1998 results included a non-cash per share charge of $1.85 related to the impairment of oil and gas properties. The 1997 results included a $.34 per share charge for severance and transaction costs related to the 1997 merger ("Merger") with The Louisiana Land and Exploration Company ("LL&E"). The 1997 results also included a per share gain of $.15 related to the sales of oil and gas properties associated with the divestiture program. 4 7 Revenues were $1,983 million in 1998 compared to $2,375 million in 1997. Average oil prices decreased 32 percent to $12.86 per barrel in 1998 and average gas prices decreased 10 percent to $1.89 per MCF which decreased revenues $235 million and $152 million, respectively. Oil sales volumes decreased 3 percent to 104.5 MBbls per day which decreased revenues $25 million. Oil sales volumes decreased primarily due to natural declines in the Gulf Coast and Mid-Continent areas. Gas sales volumes increased 1 percent to 2,077 MMCF per day which increased revenues $19 million. Costs and Expenses were $2,422 million in 1998 compared to $1,770 million in 1997. Costs and expenses in 1998 included a $706 million charge related to the impairment of oil and gas properties. Costs and expenses in 1997 included an $80 million charge for severance and transaction costs associated with the Merger. Excluding the $706 million charge in 1998 and the $80 million charge in 1997, costs and expenses in 1998 increased $26 million from 1997. The increase was primarily due to a $44 million increase in exploration costs partially offset by a $19 million decrease in production taxes. Exploration costs increased due to higher exploratory spending resulting in higher G&G expenses. Production taxes decreased primarily due to lower oil and gas revenues. Interest Expense was $193 million in 1998 compared to $174 million in 1997. The increase was primarily due to higher outstanding fixed-rate debt and higher outstanding commercial paper borrowings during 1998. Other Expense (Income) -- Net was income of $8 million in 1998 compared to income of $39 million in 1997. The decrease in other income was primarily related to lower gains on sales of oil and gas properties and higher losses related to foreign exchange transactions. Income taxes were a benefit of $286 million, a rate of 46 percent in 1998 compared to an expense of $118 million, a rate of 25 percent in 1997. The decrease in tax expense in 1998 compared to 1997 is primarily a result of lower pretax income partially offset by lower benefits from nonconventional fuel tax credits. OTHER MATTERS Year 2000 Compliance The year 2000 issue is the result of computer systems and other equipment with embedded chips or processors using two digits instead of four to define a specific year and potentially being unable to process accurately certain data before, during or after the year 2000. This could result in system failures or miscalculations, causing disruptions to various activities and operations. During 1999, the Company completed its year 2000 readiness plan for its critical information technology and operating systems. The readiness plan involved four phases: assessment, remediation, testing and implementation. Since entering the year 2000, the Company has not experienced any significant year 2000 failures in its own information technology or operating systems or those of its vendors. The Company will continue to monitor these systems throughout the year but does not anticipate any material disruptions. The year 2000 readiness plan was funded through operating cash flows at an approximate cost of $3 million. 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, as amended, 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. 5 8 FORWARD-LOOKING STATEMENTS The Company, in discussions of its future plans, objectives and expected performance in periodic reports filed by the Company with the Securities and Exchange Commission (or documents incorporated by reference therein) and in written and oral presentations made by the Company, may include projections or other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, as amended. Such projections and forward-looking statements are based on assumptions which the Company believes are reasonable, but are by their nature inherently uncertain. In all cases, there can be no assurance that such assumptions will prove correct or that projected events will occur, and actual results could differ materially from those projected. Some of the important factors that could cause actual results to differ from any such projections or other forward-looking statements follow. Changes in crude oil and natural gas prices (including basis differentials) from those assumed in preparing projections and forward-looking statements could cause the Company's actual financial results to differ materially from projected financial results and can also impact the Company's determination of proved reserves and the standardized measure of discounted future net cash flows relative to crude oil and natural gas reserves. In addition, periods of sharply lower commodity prices could affect the Company's production levels and/or cause it to curtail capital spending projects and delay or defer exploration, exploitation or development projects. Projections relating to the price received by the Company for natural gas also rely on assumptions regarding the availability and pricing of transportation to the Company's key markets. In particular, the Company has contractual arrangements for the transportation of natural gas from the San Juan Basin eastward to Eastern and Midwestern markets or to market hubs in Texas, Oklahoma and Louisiana. The natural gas price received by the Company could be adversely affected by any constraints in pipeline capacity to serve these markets. Exploration and Production Risks. The Company's business is subject to all of the risks and uncertainties normally associated with the exploration for and development and production of crude oil and natural gas. Reserves which require the use of improved recovery techniques for production are included in proved reserves if supported by a successful pilot project or the operation of an installed program. The process of estimating quantities of proved reserves is inherently uncertain and involves subjective engineering and economic determinations. In this regard, changes in the economic conditions (including commodity prices) or operating conditions (including, without limitation, exploration, development and production costs and expenses and drilling results from exploration and development activity) could cause the Company's estimated proved reserves or production to differ from those included in any such forward-looking statements or projections. Projecting future crude oil and natural gas production is imprecise. Producing oil and gas reservoirs eventually have declining production rates. Projections of production rates rely on certain assumptions regarding historical production patterns in the area or formation tests for a particular producing horizon. Actual production rates could differ materially from such projections. Production rates depend on a number of additional factors, including commodity prices, market demand and the political, economic and regulatory climate. Another major factor affecting the Company's production is its ability to replace depleting reservoirs with new reserves through acquisition, exploration or development programs. Exploration success is extremely difficult to predict with certainty, particularly over the short term where the timing and extent of successful results vary widely. Over the long term, the ability to replace reserves depends not only on the Company's ability to locate crude oil and natural gas reserves, but on the cost of finding and developing such reserves. Moreover, development of any particular exploration or development project may not be justified because of the commodity price environment at the time or because of the Company's finding and development costs for such project. No assurances can be given as to the level or timing of success that the Company will be able to achieve in acquiring or finding and developing additional reserves. 6 9 Projections relating to the Company's production and financial results rely on certain assumptions about the Company's continued success in its acquisition and asset rationalization programs and in its cost management efforts. The Company's drilling operations are subject to various hazards common to the oil and gas industry, including explosions, fires, and blowouts, which could result in damage to or destruction of oil and gas wells or formations, production facilities and other property and injury to people. They are also subject to the additional hazards of marine operations, such as capsizing, collision and damage or loss from severe weather conditions. Development Risk. A significant portion of the Company's development plans involve large projects in the Gulf of Mexico and other areas. A variety of factors affect the timing and outcome of such projects including, without limitation, approval by the other parties owning working interests in the project, receipt of necessary permits and approvals by applicable governmental agencies, the availability of the necessary drilling equipment, delivery schedules for critical equipment and arrangements for the gathering and transportation of the produced hydrocarbons. Foreign Operations Risk. The Company's operations outside of the U.S. are subject to risks inherent in foreign operations, including, without limitation, the loss of revenue, property and equipment from hazards such as expropriation, nationalization, war, insurrection and other political risks, increases in taxes and governmental royalties, renegotiation of contracts with governmental entities, changes in laws and policies governing operations of foreign-based companies, currency restrictions and exchange rate fluctuations and other uncertainties arising out of foreign government sovereignty over the Company's international operations. Laws and policies of the U.S. affecting foreign trade and taxation may also adversely affect the Company's international operations. The Company's ability to market oil and natural gas discovered or produced in its foreign operations, and the price the Company could obtain for such production, depends on many factors beyond the Company's control, including ready markets for oil and natural gas, the proximity and capacity of pipelines and other transportation facilities, fluctuating demand for oil and natural gas, the availability and cost of competing fuels, and the effects of foreign governmental regulation of oil and gas production and sales. Pipeline and processing facilities do not exist in certain areas of exploration and, therefore, any actual sales of the Company's production could be delayed for extended periods of time until such facilities are constructed. Competition. The Company actively competes for property acquisitions, exploration leases and sales of crude oil and natural gas, frequently against companies with substantially larger financial and other resources. In its marketing activities, the Company competes with numerous companies for gas purchasing and processing contracts and for natural gas and NGLs at several steps in the distribution chain. Competitive factors in the Company's business include price, contract terms, quality of service, pipeline access, transportation discounts and distribution efficiencies. Political and Regulatory Risk. The Company's operations are affected by national, state and local laws and regulations such as restrictions on production, changes in taxes, royalties and other amounts payable to governments or governmental agencies, price or gathering rate controls and environmental protection regulations. Changes in such laws and regulations, or interpretations thereof, could have a significant effect on the Company's operations or financial results. Potential Environmental Liabilities. The Company's operations are subject to various national, state and local laws and regulations covering the discharge of material into, and protection of, the environment. Such regulations affect the costs of planning, designing, operating and abandoning facilities. The Company expends considerable resources, both financial and managerial, to comply with environmental regulations and permitting requirements. Although the Company believes that its operations and facilities are in general compliance with applicable environmental laws and regulations, risks of substantial costs and liabilities are inherent in crude oil and natural gas operations. Moreover, it is possible that other developments, such as increasingly strict environmental laws, regulations and enforcement, and claims for damage to property or persons resulting from the Company's current or discontinued operations, could result in substantial costs and liabilities in the future. 7 10 ITEM EIGHT FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31, ------------------------------- RESTATED (SEE NOTE 14) ------------- 1999 1998 1997 ------ ------------- ------ (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) REVENUES.................................................... $2,065 $1,983 $2,375 ------ ------ ------ COSTS AND EXPENSES Production Taxes.......................................... 109 100 119 Production and Processing................................. 472 478 471 Depreciation, Depletion and Amortization.................. 631 679 671 Exploration Costs......................................... 214 328 284 Impairment of Oil and Gas Properties...................... 225 706 -- Merger Costs.............................................. 37 -- 80 Administrative............................................ 141 131 145 ------ ------ ------ Total Costs and Expenses.................................... 1,829 2,422 1,770 ------ ------ ------ Operating Income (Loss)..................................... 236 (439) 605 Interest Expense............................................ 211 193 174 Other Expense (Income) -- Net............................... 2 (8) (39) ------ ------ ------ Income (Loss) Before Income Taxes........................... 23 (624) 470 Income Tax Expense (Benefit)................................ 22 (286) 118 ------ ------ ------ NET INCOME (LOSS)........................................... $ 1 $ (338) $ 352 ====== ====== ====== BASIC EARNINGS (LOSS) PER COMMON SHARE...................... $ .01 $(1.60) $ 1.69 ====== ====== ====== DILUTED EARNINGS (LOSS) PER COMMON SHARE.................... $ -- $(1.60) $ 1.67 ====== ====== ======

See accompanying Notes to Consolidated Financial Statements. 8 11 BURLINGTON RESOURCES INC. CONSOLIDATED BALANCE SHEET

DECEMBER 31, ----------------------- RESTATED (SEE NOTE 14) ----------------------- 1999 1998 ------- ------------ (IN MILLIONS, EXCEPT SHARE DATA) ASSETS Current Assets Cash and Cash Equivalents................................. $ 89 $ -- Accounts Receivable....................................... 473 442 Inventories............................................... 53 53 Other Current Assets...................................... 26 22 ------- ------- 641 517 ------- ------- Oil and Gas Properties (Successful Efforts Method).......... 12,834 11,943 Other Properties............................................ 935 898 ------- ------- 13,769 12,841 Accumulated Depreciation, Depletion and Amortization...... 7,412 6,494 ------- ------- Properties -- Net......................................... 6,357 6,347 ------- ------- Deferred Income Taxes....................................... 32 61 ------- ------- Other Assets................................................ 135 135 ------- ------- Total Assets....................................... $ 7,165 $ 7,060 ======= ======= LIABILITIES Current Liabilities Accounts Payable.......................................... $ 449 $ 457 Taxes Payable............................................. 93 53 Accrued Interest.......................................... 36 30 Other Current Liabilities................................. 19 41 Current Maturities of Long-term Debt...................... 51 -- ------- ------- 648 581 ------- ------- Long-term Debt.............................................. 2,769 2,684 ------- ------- Deferred Income Taxes....................................... 96 112 ------- ------- Other Liabilities and Deferred Credits...................... 423 371 ------- ------- Put Options on Common Stock................................. -- 11 ------- ------- Commitments and Contingent Liabilities STOCKHOLDERS' EQUITY Preferred Stock, Par Value $.01 per Share (Authorized 75,000,000 Shares; One Share Issued)...................... -- -- Common Stock, Par Value $.01 per Share (Authorized 325,000,000 Shares; Issued 241,188,770 and 241,083,924 Shares for 1999 and 1998, respectively)................... 2 2 Paid-in Capital............................................. 3,966 3,953 Retained Earnings........................................... 328 429 Deferred Compensation -- Restricted Stock................... (3) (2) Accumulated Other Comprehensive Loss........................ (54) (74) Cost of Treasury Stock (25,219,025 and 25,420,562 Shares for 1999 and 1998, respectively).............................. (1,010) (1,007) ------- ------- Stockholders' Equity........................................ 3,229 3,301 ------- ------- Total Liabilities and Stockholders' Equity......... $ 7,165 $ 7,060 ======= =======

See accompanying Notes to Consolidated Financial Statements. 9 12 BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, -------------------------------- RESTATED (SEE NOTE 14) ------------- 1999 1998 1997 ------ ------------- ------- (IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss)......................................... $ 1 $ (338) $ 352 Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By Operating Activities Depreciation, Depletion and Amortization............... 631 679 671 Deferred Income Taxes.................................. 13 (304) 58 Exploration Costs...................................... 214 328 284 Gain on Sales of Oil and Gas Properties................ -- (13) (50) Impairment of Oil and Gas Properties................... 225 706 -- Working Capital Changes Accounts Receivable.................................... (31) (19) 99 Inventories............................................ -- -- (7) Other Current Assets................................... (4) 7 1 Accounts Payable....................................... (8) 4 40 Taxes Payable.......................................... 40 (18) (4) Accrued Interest....................................... 6 (1) 2 Other Current Liabilities.............................. (22) (3) (21) Other..................................................... 37 (48) (62) ------ ------- ------- Net Cash Provided By Operating Activities......... 1,102 980 1,363 ------ ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to Properties................................... (989) (1,839) (1,682) Short-term Investments.................................... -- 83 (83) Proceeds from Sales and Other............................. (4) 241 467 ------ ------- ------- Net Cash Used In Investing Activities............. (993) (1,515) (1,298) ------ ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Long-term Debt.............................. 632 410 213 Reduction in Long-term Debt............................... (528) (15) (115) Dividends Paid............................................ (127) (97) (74) Common Stock Purchases.................................... (9) (15) (58) Common Stock Issuances.................................... 7 114 3 Other..................................................... 5 (14) 32 ------ ------- ------- Net Cash Provided By (Used In) Financing Activities...................................... (20) 383 1 ------ ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS............................................... -- -- 9 ------ ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 89 (152) 75 CASH AND CASH EQUIVALENTS Beginning of Year......................................... -- 152 77 ------ ------- ------- End of Year............................................... $ 89 $ -- $ 152 ====== ======= =======

See accompanying Notes to Consolidated Financial Statements. 10 13 BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

ACCUMULATED DEFERRED OTHER COST OF COMMON PAID-IN RETAINED COMPENSATION -- COMPREHENSIVE TREASURY STOCKHOLDERS' STOCK CAPITAL EARNINGS RESTRICTED STOCK LOSS STOCK EQUITY ------ ------- ------------- ---------------- ------------- -------- -------------- RESTATED RESTATED (SEE NOTE 14) (SEE NOTE 14) ------------- -------------- (IN MILLIONS, EXCEPT SHARE DATA) Balance, December 31, 1996...................... $2 $3,741 $ 595 $-- $(29) $ (989) $3,320 -- ------ ----- --- ---- ------- ------ Comprehensive Income Net Income................ 352 352 Foreign Currency Translation............. (22) (22) -- ------ ----- --- ---- ------- ------ Comprehensive Income.... 330 -- ------ ----- --- ---- ------- ------ Cash Dividends ($.39 per Share).................... (82) (82) Common Stock Purchases (1,312,500 Shares)........ (58) (58) Common Stock Issuances...... 3 3 Stock Option Activity and Other..................... 28 9 37 -- ------ ----- --- ---- ------- ------ Balance, December 31, 1997...................... 2 3,772 865 -- (51) (1,038) 3,550 -- ------ ----- --- ---- ------- ------ Comprehensive Loss Net Loss.................. (338) (338) Foreign Currency Translation............. (23) (23) -- ------ ----- --- ---- ------- ------ Comprehensive Loss...... (361) -- ------ ----- --- ---- ------- ------ Cash Dividends ($.46 per Share).................... (98) (98) Common Stock Purchases (435,000 Shares).......... (15) (15) Common Stock Issuances...... 188 188 Stock Option Activity and Other..................... (7) (2) 46 37 -- ------ ----- --- ---- ------- ------ Balance, December 31, 1998...................... 2 3,953 429 (2) (74) (1,007) 3,301 -- ------ ----- --- ---- ------- ------ Comprehensive Income Net Income................ 1 1 Foreign Currency Translation............. 20 20 -- ------ ----- --- ---- ------- ------ Comprehensive Income.... 21 -- ------ ----- --- ---- ------- ------ Cash Dividends ($.46 per Share).................... (103) (103) Common Stock Purchases (250,000 Shares).......... (9) (9) Common Stock Issuances...... 7 7 Stock Option Activity and Other..................... 6 1 (1) 6 12 -- ------ ----- --- ---- ------- ------ Balance, December 31, 1999...................... $2 $3,966 $ 328 $(3) $(54) $(1,010) $3,229 == ====== ===== === ==== ======= ======

See accompanying Notes to Consolidated Financial Statements. 11 14 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES Principles of Consolidation and Reporting The consolidated financial statements include the accounts of Burlington Resources Inc. ("BR") and its majority-owned subsidiaries (the "Company"). All significant intercompany transactions have been eliminated in consolidation. Due to the nature of financial reporting, management makes estimates and assumptions in preparing the consolidated financial statements. Actual results could differ from estimates. The consolidated financial statements include certain reclassifications that were made to conform to current presentation. All operational and financial information contained herein includes the business activities of Poco Petroleums Ltd. ("Poco") for all periods presented. Cash and Cash Equivalents All short-term investments purchased with a maturity of three months or less are considered cash equivalents. Cash equivalents are stated at cost, which approximates market value. Short-term Investments Short-term investments consist of highly-liquid debt securities with a maturity of more than three months. The securities are available for sale and are carried at fair value based on quoted market prices. Unrealized gains and losses, net of tax, are included as a component of other comprehensive income. Realized gains and losses are based on specific identification of the securities sold. Inventories Inventories of materials, supplies and products are valued at the lower of average cost or market. Properties Oil and gas properties are accounted for using the successful efforts method. Under this method, all development costs and acquisition costs of proved properties are capitalized and amortized on a units-of-production basis over the remaining life of proved developed reserves and proved reserves, respectively. Costs of drilling exploratory wells are initially capitalized, but charged to expense if and when a well is determined to be unsuccessful. In addition, unamortized capital costs at a field level are reduced to fair value if the sum of expected undiscounted future cash flows is less than net book value. Costs of retired, sold or abandoned properties that constitute a part of an amortization base are charged or credited, net of proceeds, to accumulated depreciation, depletion and amortization. Gains or losses from the disposal of other properties are recognized currently. Expenditures for maintenance, repairs and minor renewals necessary to maintain properties in operating condition are expensed as incurred. Major replacements and renewals are capitalized. Estimated dismantlement and abandonment costs for oil and gas properties are capitalized at their estimated net present value and amortized net of salvage value. The Company's abandonment liability was $154 million and $93 million at December 31, 1999 and 1998, respectively. Revenue Recognition Gas revenues are recorded on the entitlement method. Under the entitlement method, revenue is recorded based on the Company's net interest. Functional Currency The assets, liabilities and operations of BR's Canadian subsidiaries are measured using the Canadian dollar as the functional currency. The foreign exploration and production operations of BR other than in 12 15 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Canada are considered an extension of the Company's domestic operations. The assets, liabilities and operations of these locations are therefore measured using the United States dollar as the functional currency. Foreign currency transaction gains of $9 million in 1999 and losses of $17 million and $11 million in 1998 and 1997, respectively, are included in net income. Foreign currency translation adjustments are reported as other comprehensive income. Hedging and Related Activities In order to mitigate the risk of market price fluctuations, the Company utilizes options and swaps to hedge future crude oil and natural gas production. Changes in the market value of these contracts and premiums paid for option contracts are deferred until the gain or loss is recognized on the hedged commodity. If the contract is not a hedge, changes in market value are recorded currently. To qualify as a hedge, these transactions must be designated as a hedge and changes in their fair value must correlate with changes in the price of anticipated future production such that the Company's exposure to the effects of commodity price changes is reduced. These hedging instruments are measured for effectiveness on an enterprise basis both at the inception of the contract and on an ongoing basis. If these instruments are terminated prior to maturity, resulting gains or losses continue to be deferred until the hedged item is recognized in income. The Company also enters into swap agreements to convert fixed price gas sales contracts to market-sensitive contracts. Gains or losses resulting from these transactions are included in revenue as the related physical production is delivered. Treasury lock agreements are used to hedge interest rate exposure on specific anticipated debt issuances of the Company. Accordingly, the differential paid or received by the Company on maturity of a treasury lock agreement is recognized as an adjustment to interest expense over the term of the underlying financing transaction. Credit and Market Risks The Company manages and controls market and counterparty credit risk through established formal internal control procedures which are reviewed on an ongoing basis. The Company attempts to minimize credit risk exposure to counterparties through formal credit policies, monitoring procedures and through establishment of valuation reserves related to counterparty credit risk. In the normal course of business, collateral is not required for financial instruments with credit risk. Income Taxes Income taxes are provided based on earnings reported for tax return purposes in addition to a provision for deferred income taxes. Deferred income taxes are provided to reflect the tax consequences in future years of differences between the financial statement and tax basis of assets and liabilities. Tax credits are accounted for under the flow-through method, which reduces the provision for income taxes in the year the tax credits are earned. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. Stock-based Compensation The Company uses the intrinsic value based method of accounting for stock-based compensation. Under this method, the Company records no compensation expense for stock options granted when the exercise price for options granted is equal to the fair market value of the Company's stock on the date of the grant. 13 16 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Earnings Per Common Share Basic earnings per common share ("EPS") is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic EPS was 216 million, 211 million and 209 million for the years ended December 31, 1999, 1998 and 1997, respectively. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The weighted average number of common shares outstanding for computing diluted EPS, including dilutive stock options, was 217 million, 211 million and 211 million for the years ended December 31, 1999, 1998 and 1997, respectively. For the years ended December 31, 1999, 1998 and 1997, approximately 4 million, 4 million and 700 thousand shares, respectively, attributable to the exercise of outstanding options were excluded from the calculation of diluted EPS because the effect was antidilutive. No adjustments were made to reported net income in the computation of EPS. 2. BUSINESS COMBINATIONS Poco On August 16, 1999, the Company entered into a definitive agreement to acquire Poco Petroleums Ltd. ("Poco"), a corporation existing under the laws of the Province of Alberta, Canada (the "Acquisition"). The Acquisition was consummated on November 18, 1999. Under the terms of the Acquisition, Poco shareholders received .25 BR common equivalent shares ("exchangeable shares"), totaling 38,393,135 BR shares, for each Poco share held. The exchangeable shares are Canadian securities, which began trading on the Toronto Stock Exchange on November 23, 1999 under the symbol BRX. These shares have the same voting rights, dividend entitlements and other attributes as shares of BR Common Stock and are exchangeable, at each shareholder's option, for BR Common Stock on a one for one basis. The Acquisition was accounted for as a pooling of interests. During the fourth quarter of 1999, the Company recorded a pretax charge of $37 million ($26 million after tax) for direct costs associated with the Acquisition. These costs consist of $10 million for severance related to certain executives, and $27 million for direct transaction costs. Approximately $25 million of severance and direct transaction costs remained unpaid as of December 31, 1999. 14 17 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The historical consolidated financial statements of Poco were prepared in Canadian dollars. The historical financial information of Poco presented here has been converted to U.S. dollars. The historical consolidated financial statements of Poco were prepared under Canadian GAAP using the full cost method of accounting for oil and gas properties. Conforming adjustments consist primarily of conversion of Poco financial information to the successful efforts method of accounting for oil and gas properties. The separate results of operations of BR and Poco are as follow.

YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ---------------- 1999 1998 1997 ----------------- ------ ------ (UNAUDITED) (IN MILLIONS) Revenues BR.................................................... $1,162 $1,611 $2,000 Poco.................................................. 276 372 375 ------ ------ ------ Combined.............................................. $1,438 $1,983 $2,375 ====== ====== ====== Net Income (Loss) BR.................................................... $ 47 $ 69 $ 319 Poco.................................................. 16 34 53 Conforming adjustments................................ 22 (441) (20) ------ ------ ------ Combined.............................................. $ 85 $ (338) $ 352 ====== ====== ====== Stockholders' Equity BR.................................................... $2,991 $3,001 $3,016 Poco.................................................. 839 780 592 Conforming adjustments................................ (483) (480) (58) ------ ------ ------ Combined.............................................. $3,347 $3,301 $3,550 ====== ====== ======

The Louisiana Land and Exploration Company On July 17, 1997, BR and The Louisiana Land and Exploration Company ("LL&E") announced that they had entered into an Agreement and Plan of Merger (the "Merger"). On October 22, 1997, the Merger was completed and LL&E became a wholly-owned subsidiary of the Company. Pursuant to the Merger, BR issued 52,795,635 shares of its Common Stock based on an exchange ratio of 1.525 for each outstanding share of LL&E stock. The Merger was accounted for as a pooling of interests and qualified as a tax-free reorganization. 3. INCOME TAXES The jurisdictional components of income (loss) before income taxes follow.

YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------ ------- ------ (IN MILLIONS) Domestic.................................................... $(30) $ 113 $369 Foreign..................................................... 53 (737) 101 ---- ----- ---- Total............................................. $ 23 $(624) $470 ==== ===== ====

15 18 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision for income taxes follows.

YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------ ------- ------ (IN MILLIONS) Current Federal................................................... $ 4 $ 10 $ 44 State..................................................... -- 5 2 Foreign................................................... 5 3 14 ---- ----- ---- 9 18 60 ---- ----- ---- Deferred Federal................................................... (20) (1) 30 State..................................................... 5 1 11 Foreign................................................... 28 (304) 17 ---- ----- ---- 13 (304) 58 ---- ----- ---- Total............................................. $ 22 $(286) $118 ==== ===== ====

Reconciliation of the federal statutory income tax rate to the effective income tax rate follows.

YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ----- ------ ------ U.S. statutory rate......................................... 35.0% 35.0% 35.0% State income taxes.......................................... 13.7 (.4) 2.1 Taxes on foreign income in excess of U.S. statutory rate.... 36.0 6.9 4.1 Tax credits................................................. (8.6) 5.1 (18.5) Merger costs................................................ 17.2 -- 4.6 Other....................................................... 2.1 (.7) (2.2) ---- ----- ----- Effective rate......................................... 95.4% 45.9% 25.1% ==== ===== =====

Deferred income tax liabilities (assets) follow.

DECEMBER 31, ------------- 1999 1998 ----- ----- (IN MILLIONS) Deferred income tax liabilities Excess of book over tax basis of properties............... $ 488 $ 453 ----- ----- Deferred income tax assets AMT credit carryforward................................... (302) (308) Deferred foreign tax credits.............................. (75) (71) Net operating loss carryforward........................... (37) (3) Foreign tax credit carryforward........................... (2) (2) Financial accruals and other.............................. (45) (53) ----- ----- (461) (437) ----- ----- Less valuation allowance.................................... 37 35 ----- ----- $ 64 $ 51 ===== ===== Net Canadian deferred income tax asset...................... $ (32) $ (61) ----- ----- Net deferred income tax liability........................... $ 96 $ 112 ===== =====

16 19 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The above net deferred income tax liabilities, as of December 31, 1999 and 1998, include deferred state income tax liabilities of approximately $21 million and $15 million, respectively. The net deferred income tax liabilities also include foreign tax liabilities of approximately $56 million and $55 million as of December 31, 1999 and 1998, respectively. The Alternative Minimum Tax ("AMT") credit carryforward, related primarily to nonconventional fuel tax credits, is available to offset future federal income tax liabilities. The AMT credit carryforward has no expiration date. The benefit of these tax credits is recognized in net income for accounting purposes and is reflected in the current tax provision to the extent the Company is able to utilize the credits for tax return purposes. The foreign tax credit carryforward is available to offset future federal income taxes and will expire between 2001 and 2004 if not used. The federal income tax net operating loss carryforward as of December 31, 1999 is available through the year 2019 to offset expected future taxable income. A valuation allowance is provided for uncertainties surrounding the realization of certain non-Canadian deferred foreign tax credits. The Company expects to realize the deferred income tax assets through future Canadian taxable income. No deferred U.S. income tax liability has been recognized on the undistributed earnings of foreign subsidiaries that have been retained for reinvestment. 4. COMMODITY HEDGING AND RELATED ACTIVITIES Natural Gas Swaps The Company enters into gas swap agreements to fix the price of anticipated future natural gas production. As of December 31, 1999, the Company had the following volumes hedged.

TOTAL HEDGED DEFERRED VOLUME HEDGE/STRIKE GAIN/(LOSS) PRODUCTION PERIOD (MMBTU) PRICE (IN MILLIONS) ----------------- ------------ ------------ ------------- 2000................................................... 164,065,000 $2.43 $ 2 2001................................................... 91,345,000 2.35 (15) 2002................................................... 2,530,000 $2.57 $ --

The Company also enters into swap agreements that, when matched against fixed price gas sales, convert our production back to a market sensitive position. These arrangements are recorded as a revision to gas price in the period the production is sold. As of December 31, 1999, the unrealized loss on these positions was approximately $4 million. Natural Gas Options The Company purchases call option agreements that allow the Company to participate in market price increases that exceed hedge prices established when the Company enters into a swap. Approximately 15 percent of the 164,065,000 MMBTU of year 2000 hedged natural gas production was matched with call options that strike at an average price of $2.76 per MMBTU. The deferred loss on call option agreements as of December 31, 1999 was approximately $1 million. The Company also enters into producer collars to establish a floor and ceiling price on anticipated future natural gas production. As of December 31, 1999, the Company had 5.5 million MMBTU of year 2000 natural gas production hedged at a floor price of $2.70 per MMBTU. Approximately 67 percent of that 5.5 million MMBTU of collar floor volumes had a ceiling of $3.30 per MMBTU. The deferred gain on these producer collar positions as of December 31, 1999 was approximately $2 million. 17 20 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Natural Gas Basis Swaps The Company enters into natural gas basis swap agreements to fix a component of the sales price of anticipated future natural gas production. This component is expressed as the differential between CIG Rockies and Henry Hub. These transactions are accounted for as hedges of the Company's underlying production. As of December 31, 1999, the Company had 10.1 million MMBTU of year 2000 natural gas production hedged at a fixed differential of approximately ($.28) per MMBTU. There was no deferred gain or loss on these transactions. Crude Oil Swaps The Company enters into crude oil swap agreements to fix the price of anticipated future crude oil production. As of December 31, 1999, the Company had the following volumes hedged.

TOTAL HEDGED DEFERRED VOLUME HEDGE/STRIKE GAIN/(LOSS) PRODUCTION PERIOD (BBLS) PRICE (IN MILLIONS) ----------------- ------------ ------------ ------------- 2000.................................................... 16,535,500 $20.33 $(30) 2001.................................................... 3,365,000 $19.57 $ 1

Crude Oil Options The Company purchases call option agreements that allow the Company to participate in market price increases that exceed hedge prices established when the Company enters into a swap. Approximately 66 percent of the 16,535,500 Bbl of year 2000 hedged crude oil production was matched with call options that strike at an average price of $20.28 per Bbl. All of the year 2001 hedged crude oil production was matched with call options that strike at an average price of $19.57 per Bbl. The deferred gain on these transactions as of December 31, 1999 was $32 million. The Company had an additional 7,585,000 Bbl of year 2001 purchased call options agreements and 180,000 Bbl of year 2002 purchased call option agreements that had not been matched with crude oil swaps that strike at an average price of $19.79 per Bbl and $19.89 per Bbl, respectively. The $12 million unrealized gain on unmatched call option agreements had been recognized in income. Unmatched options are marked to market until matched with swap agreements. Due to a change in oil and gas prices, the deferred loss on all positions as of February 22, 2000 was a loss of $78 million. 18 21 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT Long-term debt follows.

DECEMBER 31, ---------------- 1999 1998 ------ ------ (IN MILLIONS) Commercial Paper............................................ $ 267 $ 320 Credit Facility Notes....................................... 332 151 Capitalized Lease Obligations............................... 56 50 Notes 7.15%, due 1999....................................... -- 300 Notes 6 7/8%, due 1999...................................... -- 150 Notes, 9 5/8%, due 2000..................................... 150 150 Notes, 8 1/2%, due 2001..................................... 150 150 Notes, 8.54%, due 2001...................................... 40 60 Notes, 6.20%, due 2001...................................... 34 33 Notes, 8 1/4%, due 2002..................................... 100 100 Notes, 6.40%, due 2003...................................... 69 47 Notes, 7.12%, due 2005...................................... 47 50 Notes, 6.60%, due 2007...................................... 103 98 Notes, 6.91%, due 2008...................................... 50 50 Debentures, 9 7/8%, due 2010................................ 150 150 Notes, 7.00%, due 2011...................................... 75 75 Debentures, 7 5/8%, due 2013................................ 100 100 Debentures, 9 1/8%, due 2021................................ 150 150 Debentures, 7.65%, due 2023................................. 200 200 Debentures, 8.20%, due 2025................................. 150 150 Debentures, 6 7/8%, due 2026................................ 150 150 Debentures, 7 3/8%, due 2029................................ 450 -- Other, including discounts -- net........................... (3) -- ------ ------ 2,820 2,684 Less current maturities..................................... 51 -- ------ ------ Total long-term debt.............................. $2,769 $2,684 ====== ======

The Company has debt maturities of $961 million, $185 million, $101 million, $123 million, $0 million and $1,453 million due in 2000, 2001, 2002, 2003, 2004 and thereafter, respectively. The Company's commercial paper borrowings at December 31, 1999 and 1998 had average interest rates of 7 percent and 6 percent, respectively. The credit facility notes bear interest at rates between 5 and 6 percent. The capitalized lease obligations have an imputed interest rate of 6 percent and expire in 2003. The Company has unused credit commitments in the form of revolving facilities ("revolvers") as of December 31, 1999. These revolvers are available to cover debt due within one year, therefore, commercial paper, credit facility notes and a portion of fixed-rate debt due within one year are classified as long-term debt. During 1999, due to debt covenant violations, the Company obtained waivers related to certain of its Canadian debt. In addition, the Company has the capacity to issue $1 billion of securities under a shelf registration statement filed with the Securities and Exchange Commission. The revolvers are comprised of agreements for $600 million, $400 million, $310 million, $121 million and $52 million. The $600 million revolver expires in February 2003. The other revolvers expire in March 2000, unless renewed by mutual consent, with the exception of the $52 million revolver which is cancellable by the creditor upon demand. Balances outstanding on the $310 million revolver automatically become five year amortizing notes at expiration of the agreement. 19 22 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At the Company's option, interest on borrowings under the $600 million and $400 million revolvers is based on the prime rate or Eurodollar rates. The other revolvers bear interest at rates based on prime, Eurodollar rates or bankers' acceptances in Canada, also at the Company's option. Under the covenants of the revolvers, Company debt cannot exceed 60 percent of capitalization (as defined in the agreements). Also, the Company's Canadian subsidiary must limit the ratio of debt net of working capital to pre-tax funds from operations to 3 3/4 to 1 and maintain tangible net worth in excess of a specified amount. Outstanding borrowings of $103 million and $93 million as of December 31, 1999 and 1998, respectively, on Company-owned life insurance policies were reported as a reduction to the cash surrender value. 6. TRANSPORTATION ARRANGEMENTS WITH EL PASO NATURAL GAS COMPANY In 1999, 1998 and 1997, approximately 27 percent, 29 percent and 33 percent, respectively, of the Company's gas production was transported to direct sale customers through El Paso Natural Gas Company's ("EPNG") pipeline systems. These transportation arrangements are pursuant to EPNG's approved Federal Energy Regulatory Commission tariffs applicable to all shippers. The Company expects to continue to transport a substantial portion of its future gas production through EPNG's pipeline system. See Note 9 for demand charges paid to EPNG which provide the Company with firm and interruptible transportation capacity rights on interstate and intrastate pipeline systems. 7. CAPITAL STOCK Stock Options The Company's 1993 Stock Incentive Plan (the "1993 Plan") succeeds its 1988 Stock Option Plan which expired by its terms in May 1993 but remains in effect for options granted prior to May 1993. The 1993 Plan provides for the grant of stock options, restricted stock, stock purchase rights and stock appreciation rights or limited stock appreciation rights (together "SARs"). The Company issued 110,250, 24,625 and 76,078 shares of restricted stock in 1999, 1998 and 1997, respectively. Under the 1993 Plan, options may be granted to officers and key employees at fair market value on the date of grant, exercisable in whole or part by the optionee after completion of at least one year of continuous employment from the grant date and have a term of ten years. At December 31, 1999, 5,516,459 shares were available for grant under the 1993 Plan. In 1997, the Company adopted the 1997 Employee Stock Incentive Plan (the "1997 Plan") from which stock options and restricted stock ("Awards") may be granted to employees who are not eligible to participate in the 1993 Plan. The options are granted at fair market value on the grant date, become exercisable in whole or part by the optionee after completion of at least one year of continuous employment and have a term of ten years. The 1997 Plan limits Awards, in aggregate, to a maximum of one million shares annually. 20 23 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Activity in the Company's stock option plans follows.

WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ---------- ---------------- Balance, December 31, 1996.................................. 9,140,307 $34.78 Granted................................................... 2,976,177 39.27 Exercised................................................. (1,283,326) 24.82 Cancelled................................................. (344,823) 41.00 ---------- ------ Balance, December 31, 1997.................................. 10,488,335 36.98 Granted................................................... 1,125,050 36.77 Exercised................................................. (1,578,818) 24.42 Cancelled................................................. (889,485) 44.69 ---------- ------ Balance, December 31, 1998.................................. 9,145,082 37.84 Granted................................................... 822,880 33.35 Exercised................................................. (424,089) 30.50 Cancelled................................................. (645,075) 38.32 ---------- ------ Balance, December 31, 1999.................................. 8,898,798 $37.80 ========== ======

The following table summarizes information related to stock options outstanding and exercisable at December 31, 1999.

WEIGHTED AVERAGE OPTIONS RANGE OF WEIGHTED AVERAGE REMAINING OPTIONS WEIGHTED AVERAGE OUTSTANDING EXERCISE PRICES EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE ----------- --------------- ---------------- ---------------- ----------- ---------------- 4,730,438............. $19.51-35.38 $30.43 4.2 4,245,838 $29.87 4,168,360............. 35.43-52.03 46.16 6.7 3,392,526 45.88 ------------ ------ --- --------- ------ 8,898,798............. $19.51-52.03 $37.80 5.3 7,638,364 $36.98 ============ ====== === ========= ======

Exercisable stock options and weighted average exercise prices at December 31, 1998 and 1997 follow.

OPTIONS WEIGHTED AVERAGE EXERCISABLE EXERCISE PRICE ----------- ---------------- December 31, 1998........................................... 5,255,473 $37.22 December 31, 1997........................................... 4,681,281 $32.41

21 24 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The weighted average fair values of options granted during the years 1999, 1998 and 1997 were $11.13, $16.54 and $12.27, respectively. The fair values of employee stock options were calculated using a variation of the Black-Scholes stock option valuation model with the following weighted average assumptions for grants in 1999, 1998 and 1997: stock price volatility of 27 percent, 25 percent and 20 percent, respectively; risk free rate of return ranging from 5 percent to 6 percent; dividend yield of .88 percent, .33 percent and .81 percent, respectively; and an expected term of between 4 and 6 years. If the fair value based method of accounting had been applied, the Company's net income and EPS would have been reduced to the pro forma amounts indicated below. The fair value of stock options included in the pro forma amounts is not necessarily indicative of future effects on net income and EPS.

YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------ ------- ------ (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net income (loss) -- as reported............................ $ 1 $ (338) $ 352 Net income (loss) -- pro forma.............................. (30) (357) 339 Basic EPS -- as reported.................................... .01 (1.60) 1.69 Basic EPS -- pro forma...................................... (.14) (1.69) 1.62 Diluted EPS -- as reported.................................. -- (1.60) 1.67 Diluted EPS -- pro forma.................................... $(.14) $(1.69) $1.61

Stock Appreciation Rights The Company has granted SARs in connection with certain outstanding options under the 1988 Stock Option Plan. SARs are subject to the same terms and conditions as the related options. A SAR entitles an option holder, in lieu of exercise of an option, to receive a cash payment equal to the difference between the option price and the fair market value of the Company's Common Stock based upon the plan provisions. To the extent the SAR is exercised, the related option is cancelled and to the extent the option is exercised, the related SAR is cancelled. The outstanding SARs are exercisable only under certain circumstances related to significant changes in the ownership of the Company or its holdings, or certain changes in the constitution of its Board of Directors. At December 31, 1999, there were 46,890 SARs outstanding related to stock options with a weighted average exercise price of $34.68 per share. In January 2000, all outstanding SARs expired. Preferred Stock and Preferred Stock Purchase Rights The Company is authorized to issue 75,000,000 shares of preferred stock, par value $.01 per share. As of December 31, 1999, one share of preferred stock was issued and designated as Special Voting Stock in connection with the Poco acquisition. On December 9, 1998, the Company's Board of Directors designated 3,250,000 of the authorized preferred shares as Series A Junior Participating Preferred Stock. Upon issuance, each one-hundredth of a share of Series A Junior Participating Preferred Stock will have dividend and voting rights approximately equal to those of one share of Common Stock of the Company. In addition, on December 9, 1998, the Board of Directors declared a dividend distribution of one Right for each outstanding share of Common Stock of the Company to shareholders of record on December 16, 1998. The Rights become exercisable if, without the Company's prior consent, a person or group acquires securities having 15 percent or more of the voting power of all of the Company's voting securities (an "Acquiring Person") or ten days following the announcement of a tender offer which would result in such ownership. Each Right, when exercisable, entitles the registered holder to purchase from the Company one-hundredth of a share of Series A Junior Participating Preferred Stock at a price of $200 per one hundredth of a share, subject to adjustment. If, after the Rights become exercisable, the Company were to be involved in a merger or other business combination in which its Common Stock was exchanged or changed or 50 percent or more of the Company's assets or earning power were sold, each Right would permit the holder to purchase, for the exercise price, 22 25 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) stock of the acquiring company having a value of twice the exercise price. In addition, except for certain permitted offers, if any person or group becomes an Acquiring Person, each Right would permit the purchase, for the exercise price, of Common Stock of the Company having a value of twice the exercise price. Rights owned by an Acquiring Person are void. The Rights may be redeemed by the Company under certain circumstances until their expiration date for $.01 per Right. On November 8, 1999 (effective November 18, 1999), the Company's Board of Directors designated one of the authorized preferred shares as Special Voting Stock. The Special Voting Stock is entitled to a number of votes equal to the number of outstanding Exchangeable Shares of Burlington Resources Canada Inc. (other than Exchangeable Shares held by the Company), on all matters presented to the stockholders of the Company. Upon the liquidation, dissolution or winding up of the Company, the holder of the Special Voting Stock shall be entitled, prior and in preference to any distribution to the holders of Common Stock and after the distribution to the holders of any class or series of Preferred Stock ranking senior to the Special Voting Stock of all amounts to which such holders are entitled, to receive the sum of $.01. Except as aforesaid, no dividends or distributions shall be payable to the holder of the Special Voting Stock. The Special Voting Stock is not convertible into any other class or series of the capital stock or to cash, property or other rights, and may not be redeemed. If the Special Voting Stock shall be purchased or otherwise acquired by the Company, it shall be deemed retired and shall be cancelled and may not thereafter be reissued or otherwise disposed of by the Company. As long as any Exchangeable Shares of Burlington Resources Canada Inc. are outstanding, the number of shares comprising the Special Voting Stock shall not be increased or decreased and no other term of the Special Voting Stock shall be amended, except upon the unanimous approval of all shares of Common Stock. On November 18, 1999, the one share of Special Voting Stock was issued to CIBC Mellon Trust Company, as trustee pursuant to the Voting and Exchange Trust Agreement among the Company, Burlington Resources Canada Inc. and CIBC Mellon Trust Company, for the benefit of the holders of the Exchangeable Shares of Burlington Resources Canada Inc. 8. RETIREMENT BENEFITS The Company's pension plans are non-contributory defined benefit plans covering all United States' employees. The benefits are based on years of credited service and final average compensation. Contributions to the tax qualified plans are limited to amounts that are currently deductible for tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. 23 26 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following tables set forth the amounts recognized in the Consolidated Balance Sheet and Statement of Income.

PENSION POSTRETIREMENT BENEFITS BENEFITS ----------- --------------- YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1999 1998 ---- ---- ------ ------ (IN MILLIONS) Change in benefit obligation Benefit obligation at beginning of year................... $182 $178 $ 32 $ 33 Service cost.............................................. 10 9 -- -- Interest cost............................................. 12 12 2 2 Amendments................................................ -- 2 (4) 1 Actuarial loss (gain)..................................... (15) 8 (3) (2) Benefits paid............................................. (28) (27) (3) (2) ---- ---- ---- ---- Benefit obligation at end of year......................... 161 182 24 32 ---- ---- ---- ---- Change in plan assets Fair value of plan assets at beginning of year............ 172 161 -- -- Actual return on plan assets.............................. 22 30 -- -- Employer contribution..................................... 5 8 3 2 Benefits paid............................................. (28) (27) (3) (2) ---- ---- ---- ---- Fair value of plan assets at end of year.................. 171 172 -- -- ---- ---- ---- ---- Funded status............................................... 10 (10) (24) (32) Unrecognized net actuarial gain (loss)...................... (11) 16 (1) 1 Unrecognized net transition obligation...................... 1 1 -- -- Unrecognized prior service cost............................. 1 2 (3) 2 ---- ---- ---- ---- Net prepaid (accrued) benefit cost.......................... $ 1 $ 9 $(28) $(29) ==== ==== ==== ====

PENSION BENEFITS POSTRETIREMENT BENEFITS -------------------- ------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------ 1999 1998 1997 1999 1998 1997 ---- ---- ---- ----- ----- ------ (IN MILLIONS) Benefit cost for the plans includes the following components Service cost.................................. $ 10 $ 9 $ 9 $-- $-- $1 Interest cost................................. 12 12 12 2 2 3 Expected return on plan assets................ (14) (13) (12) -- -- -- Amortization of prior service cost............ -- -- 1 -- -- -- Recognized net actuarial loss (gain).......... 1 2 1 -- (1) -- ---- ---- ---- --- --- -- Net benefit cost...................... $ 9 $ 10 $ 11 $ 2 $ 1 $4 ==== ==== ==== === === ==

PENSION BENEFITS POSTRETIREMENT BENEFITS ----------------------- ----------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------- 1999 1998 1997 1999 1998 1997 ----- ----- ----- ----- ----- ----- Weighted average assumptions Discount rate......................... 7.75% 6.75% 7.25% 7.75% 6.75% 7.25% Expected return on plan assets........ 9.00% 9.00% 9.00% -- -- -- Rate of compensation increase......... 5.00% 5.00% 5.00% -- -- --

24 27 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company provides postretirement medical, dental and life insurance benefits for a closed group of retirees and their dependents. The Company also provides limited retiree life insurance benefits to employees who retire under the pension plan. The postretirement benefit plans are unfunded and the Company funds claims on a cash basis. During 1998, the Company recognized a settlement expense of approximately $800 thousand related to the employee reduction associated with the Merger in the fourth quarter of 1997. A 5 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate is assumed to decrease gradually to 4 percent for 2003 and remain at that level thereafter. Assumed health care cost trends have a significant effect on the amounts reported for the postretirement medical and dental care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects.

1-PERCENTAGE 1-PERCENTAGE POINT INCREASE POINT DECREASE -------------- -------------- (IN THOUSANDS) Effect on total service and interest cost................... $ 167 $ (145) Effect on postretirement benefit obligation................. $1,807 $(1,578)

9. COMMITMENTS AND CONTINGENT LIABILITIES Demand Charges The Company has entered into contracts which provide firm transportation capacity rights on interstate and intrastate pipeline systems. The remaining terms on these contracts range from 1 to 23 years and require the Company to pay transportation demand charges regardless of the amount of pipeline capacity utilized by the Company. The Company paid $122 million, $109 million and $89 million of demand charges of which $36 million, $44 million and $34 million was paid to EPNG for the years ended December 31, 1999, 1998 and 1997, respectively. Future transportation demand charge commitments at December 31, 1999 follow.

YEAR ENDED DECEMBER 31, ----------------------- (IN MILLIONS) 2000........................................................ $101 2001........................................................ 99 2002........................................................ 94 2003........................................................ 90 2004........................................................ 89 Thereafter.................................................. 346 ---- Total............................................. $819 ====

Lease Obligations The Company has operating leases for office space and other property and equipment. The Company incurred lease rental expense of $24 million, $19 million and $20 million for the years ended December 31, 1999, 1998 and 1997, respectively. 25 28 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum annual rental commitments at December 31, 1999 follow.

YEAR ENDED DECEMBER 31, ----------------------- (IN MILLIONS) 2000........................................................ $ 23 2001........................................................ 21 2002........................................................ 20 2003........................................................ 20 2004........................................................ 19 Thereafter.................................................. 82 ---- Total............................................. $185 ====

Drilling Rig Commitments During 1998, the Company entered into agreements to lease or participate in the use of various drilling rigs. The exposure with respect to these commitments ranges from $142 million to $270 million depending on partner participation. These agreements extend through the year 2004. Legal Proceedings The Company is involved in several proceedings challenging the payment of royalties for its crude oil and natural gas production. On November 20, 1997, the Company and numerous other defendants entered into a settlement agreement in a lawsuit styled as The McMahon Foundation, et al. v. Amerada Hess Corporation, et al. This lawsuit is a proposed class action consisting of both working interest owners and royalty owners against numerous defendants, all of which are oil companies and/or purchasers of oil from oil companies, including Burlington Resources Oil & Gas Company, formerly known as Meridian Oil Inc. ("BROG") and LL&E. The plaintiffs allege that the defendants conspired to fix, depress, stabilize and maintain at artificially low levels the prices paid for oil by, among other things, setting their posted prices at arbitrary levels below competitive market prices. Cases involving similar allegations have been filed in federal courts in other states. On January 14, 1998, the United States Judicial Panel on Multidistrict Litigation issued an order consolidating these cases and transferring the McMahon case to the United States District Court for the Southern District of Texas in Corpus Christi (In Re Lease Oil Antitrust Litigation, MDL No. 1206). The Company and other defendants have entered into a Settlement Agreement which received preliminary approval by the Court on October 28, 1998. Following an evidentiary hearing, the Court issued a final order dated September 10, 1999 finding that class certification was appropriate and that the Settlement Agreement was fair, adequate and reasonable. The Court further ordered the dismissal of all claims against the Company and other designated defendants. Several appeals have been filed and are pending. The Company is also involved in several governmental proceedings relating to the payment of royalties. Various administrative proceedings are pending before the Minerals Management Service ("MMS") of the United States Department of the Interior with respect to the proper valuation of oil and gas produced on federal and Indian lands for purposes of paying royalties on production sold by BROG to its affiliate, Burlington Resources Trading Inc. ("BRTI"), or gathered by its affiliate, Burlington Resources Gathering, Inc. In general, these proceedings stem from regular MMS audits of the Company's royalty payments over various periods of time and involve the interpretation of the relevant federal regulations. In late February 1998, the Company and numerous other oil and gas companies received a complaint filed in the United States District Court for the Eastern District of Texas in Lufkin in a lawsuit styled as United States of America ex rel. J. Benjamin Johnson, Jr., et al. v. Shell Oil Company, et al. alleging violations of the civil False Claims Act. The United States has intervened in this lawsuit as to some of the 26 29 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) defendants, including the Company, and has filed a separate complaint. This suit alleges that the Company underpaid royalties for crude oil produced on federal and Indian lands through the use of below-market posted prices in the sale of oil from BROG to BRTI. The suit alleges that royalties paid by BROG based on these posted prices were lower than the royalties allegedly required to be paid under federal regulations, and that the forms filed by BROG with the MMS reporting the royalties paid were false, thereby violating the civil False Claims Act. The Company and others have also received document subpoenas and other inquiries from the Department of Justice relating to the payment of royalties to the federal government for natural gas production. These requests and inquiries have been made in the context of one or more other False Claims Act cases brought by individuals which remain under seal and are now being investigated by the Civil Division of the Department of Justice. The Company has responded and continues to respond to these requests and inquiries, but the Company does not know what action, if any, the Department of Justice will take with regard to these other cases. If the government chooses not to intervene and pursue these cases, the individuals who initially brought these cases are free to pursue them in return for a share, if any, of any final settlement or judgment. In addition, the Company has been advised that it is a target of a criminal investigation by the United States Attorney for the District of Wyoming into the alleged underpayment of oil and gas royalties. The United States Attorney for the District of Wyoming has also inquired into certain historical oil and gas accounting and financial reporting practices of the Company. The Company has responded to numerous grand jury document subpoenas in connection with the investigation and is otherwise cooperating with the investigation. Management cannot predict when the investigation will be completed or its ultimate outcome. In April 1999, the court unsealed and the Company was served with the petition in the False Claims Act lawsuits styled United States of America ex rel. Jack J. Grynberg v. Burlington Resources Oil & Gas Company, et al. and United States of America ex rel. Jack J. Grynberg v. The Louisiana Land and Exploration Company, et al., filed in the United States District Court of the District of Wyoming (the "Grynberg lawsuits"). In both cases the United States Department of Justice declined to intervene following its investigation, resulting in these claims being pursued by Grynberg individually. Grynberg has filed seventy similar suits against more than three hundred defendants. On October 20, 1999, the Judicial Panel on Multidistrict Litigation consolidated sixty-six of the Grynberg False Claims Act lawsuits, including the referenced suits against the Company, and transferred all cases to the United States District Court for the District of Wyoming. The Grynberg lawsuits generally allege that the Company and other defendants improperly measured and otherwise undervalued natural gas in connection with the payment of royalties on production from federal and Indian lands. Motions to Dismiss have been filed by the Company and numerous other defendants and are pending before the Court. Based on the Company's present understanding of the various governmental and False Claims Act proceedings described above, the Company believes that it has substantial defenses to these claims and intends to vigorously assert such defenses. However, in the event that the Company is found to have violated the civil False Claims Act or is indicted or convicted on criminal charges, the Company could be subject to a variety of sanctions, including treble damages, substantial monetary fines, civil and/or criminal penalties and a temporary suspension from entering into future federal mineral leases and other federal contracts for a defined period of time. While the ultimate outcome and impact on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material adverse effect on the consolidated financial position of the Company, although results of operations and cash flow could be significantly impacted in the reporting periods in which such matters are resolved. In addition to the foregoing, the Company and its subsidiaries are named defendants in numerous other lawsuits and named parties in numerous governmental and other proceedings arising in the ordinary course of business. While the outcome of these other lawsuits and proceedings cannot be predicted with certainty, 27 30 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) management believes these matters, other than the above-described proceedings, will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. 10. SUPPLEMENTAL CASH FLOW INFORMATION The following is additional information concerning supplemental disclosures of cash payments.

YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ----- ----- ----- (IN MILLIONS) Interest paid............................................... $206 $192 $177 Income taxes paid -- net.................................... 13 26 60

The following is additional information concerning supplemental disclosure of non-cash investing and financing activities.

YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ----- ----- ----- (IN MILLIONS) Issuance of Common Stock in exchange for oil and gas properties................................................ -- $74 -- Capitalized lease obligations............................... -- 53 --

11. IMPAIRMENT OF OIL AND GAS PROPERTIES The Company evaluates the impairment of its oil and gas properties on a field-by-field basis whenever events or changes in circumstances indicate an asset's carrying amount may not be recoverable. Unamortized capital costs are reduced to fair value if the sum of the expected undiscounted future cash flows is less than the assets' net book value. Cash flows are determined based upon proved reserves using prices and costs consistent with those used for internal decision making. In the fourth quarter of 1999, the Company determined there would be performance related downward reserve adjustments associated with certain properties located on the Gulf of Mexico shelf and in the Permian Basin. As a result, the Company recognized a pretax impairment charge of $225 million ($140 million after tax) related to those properties. In the fourth quarter of 1998, the market experienced a weakness in commodity prices. The Company subjected all properties to impairment testing and subsequently recognized a pretax impairment charge related to certain Canadian properties of $706 million ($390 million after tax). 12. DIVESTITURE PROGRAM AND REORGANIZATION In June 1997, the Company completed its divestiture program of non-strategic assets which was announced in July 1996. As planned, the Company sold approximately 27,000 wells and related facilities. Before closing adjustments, gross proceeds for 1997 from the sales of oil and gas properties related to this divestiture program were approximately $450 million. During 1997, the Company recorded a pretax gain of approximately $50 million related to the sales of oil and gas properties. This program allowed the Company to reorganize and resulted in a reduction of 456 employees. As of December 31, 1997, this program was complete. 13. SEGMENT AND GEOGRAPHIC INFORMATION The Company's reportable segments are North America and International. Both segments are engaged principally in the exploration, development, production and marketing of oil and gas. The North America segment is responsible for the Company's operations in the USA and Canada and the International segment is 28 31 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) responsible for all operations outside that geographical region. The accounting policies for the segments are the same as those described in Note 1 to the consolidated financial statements. There are no significant intersegment sales or transfers. The following tables present information about reported segment operations.

YEAR ENDED DECEMBER 31, 1999 -------------------------------------- NORTH AMERICA INTERNATIONAL TOTAL ------------- ------------- ------ (IN MILLIONS) Revenues................................................... $1,934 $131 $2,065 Depreciation, depletion and amortization................... 560 57 617 Impairment of oil and gas properties....................... 225 -- 225 Operating income (loss).................................... 449 (21) 428 Additions to properties.................................... $ 797 $148 $ 945

YEAR ENDED DECEMBER 31, 1998 -------------------------------------- NORTH AMERICA INTERNATIONAL TOTAL ------------- ------------- ------ (IN MILLIONS) Revenues................................................... $1,834 $149 $1,983 Depreciation, depletion and amortization................... 601 67 668 Impairment of oil and gas properties....................... 706 -- 706 Operating income........................................... (259) (38) (297) Additions to properties.................................... $1,653 $136 $1,789

YEAR ENDED DECEMBER 31, 1997 -------------------------------------- NORTH AMERICA INTERNATIONAL TOTAL ------------- ------------- ------ (IN MILLIONS) Revenues................................................... $2,170 $205 $2,375 Depreciation, depletion and amortization................... 579 75 654 Operating income........................................... 794 53 847 Additions to properties.................................... $1,409 $228 $1,637

The following is a reconciliation of segment operating income (loss) to consolidated income (loss) before income taxes.

YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------ ------- ------ (IN MILLIONS) Total operating income (loss) for reportable segments....... $428 $(297) $847 Merger costs................................................ 37 -- 80 Corporate expenses.......................................... 155 142 162 Interest expense............................................ 211 193 174 Other expense (income)-- net................................ 2 (8) (39) ---- ----- ---- Consolidated income (loss) before income taxes.............. $ 23 $(624) $470 ==== ===== ====

29 32 BURLINGTON RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation of segment additions to properties to consolidated amounts.

YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ----- ------- ------- (IN MILLIONS) Total additions to properties for reportable segments....... $945 $1,789 $1,637 Administrative expenditures................................. 44 50 45 ---- ------ ------ Consolidated additions to properties........................ $989 $1,839 $1,682 ==== ====== ======

The following table presents revenues by geographic location.

YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ (IN MILLIONS) USA......................................................... $1,527 $1,462 $1,795 Canada...................................................... 407 372 375 Other International......................................... 131 149 205 ------ ------ ------ Consolidated revenues....................................... $2,065 $1,983 $2,375 ====== ====== ======

14. RESTATEMENT The Company discovered an accounting error that resulted in a $26 million ($17 million net of tax) overstatement of revenues for the fourth quarter of 1998. The net effect, after adjusting for income tax of $9 million, is a $17 million increase in net loss from $321 million to $338 million for the year ended December 31, 1998 and a $17 million reduction in stockholders' equity at December 31, 1998 and 1999. As a result, the Company has restated its 1998 consolidated financial statements. The following table summarizes the effect of the restatement.

FOURTH QUARTER 1998 (UNAUDITED) 1998 --------------------------- --------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED AS RESTATED REPORTED AS RESTATED ------------- ----------- ------------- ----------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Revenues..................................... $ 499 $ 473 $2,009 $1,983 Loss before income taxes..................... (707) (733) (598) (624) Net loss..................................... (411) (428) (321) (338) Basic loss per common share.................. (1.95) (2.03) (1.52) (1.60) Diluted loss per common share................ $(1.95) $(2.03) $(1.52) $(1.60)

30 33 REPORT OF MANAGEMENT The management of Burlington Resources is responsible for the preparation and integrity of all information contained in this Annual Report. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. The financial statements include amounts that are management's best estimates and judgments. BR maintains a system of internal control and a program of internal auditing that provides management with reasonable assurance that BR's assets are protected and that published financial statements are reliable and free of material misstatement. Management is responsible for the effectiveness of internal controls. This is accomplished through established codes of conduct, accounting and other control systems, policies and procedures, employee selection and training, appropriate delegation of authority and segregation of responsibilities. The Audit Committee of the Board of Directors, composed solely of directors who are not officers or employees, meets regularly with the independent certified public accountants, financial management, counsel and corporate audit. To ensure complete independence, the certified public accountants and corporate audit have full and free access to the Audit Committee to discuss the results of their audits, the adequacy of internal controls and the quality of financial reporting. Our independent certified public accountants provide an objective independent review by their audit of the Company's financial statements. Their audit is conducted in accordance with generally accepted auditing standards and includes a review of internal accounting controls to the extent deemed necessary for the purposes of their audit. /s/ JOHN E. HAGALE /s/ PHILIP W. COOK -------------------------------------------- -------------------------------------------- John E. Hagale Philip W. Cook Executive Vice President and Vice President, Controller and Chief Financial Officer Chief Accounting Officer 31 34 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Burlington Resources Inc. In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheet and the related consolidated statements of income, cash flows and stockholders' equity, after the restatement described in Note 14, present fairly, in all material respects, the financial position of Burlington Resources Inc. 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. The consolidated financial statements give retroactive effect to the merger of Poco Petroleums Ltd. on November 18, 1999 in a transaction accounted for as a pooling of interests, as described in Note 2 to the consolidated financial statements. We did not audit the financial statements of Poco Petroleums Ltd., which statements reflect total assets of $1.3 billion and $1.1 billion as of December 31, 1999 and 1998, respectively, and total revenues of $407 million, $372 million and $375 million for the years ended December 31, 1999, 1998 and 1997, respectively. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Poco Petroleums Ltd., is based solely on the report of the other auditors. 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 and the report of other auditors provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP March 3, 2000, except for Note 14 as to which the date is August 7, 2000 Houston, Texas 32 35 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION SUPPLEMENTAL OIL AND GAS DISCLOSURES -- UNAUDITED The supplemental data presented herein reflects information for all of the Company's oil and gas producing activities. Capitalized costs for oil and gas producing activities follow.

DECEMBER 31, ------------------ 1999 1998 ------- ------- (IN MILLIONS) Proved properties........................................... $12,516 $11,617 Unproved properties......................................... 318 326 ------- ------- 12,834 11,943 Accumulated depreciation, depletion and amortization........ 6,765 6,107 ------- ------- Net capitalized costs............................. $ 6,069 $ 5,836 ======= =======

Costs incurred for oil and gas property acquisition, exploration and development activities follow.

YEAR ENDED DECEMBER 31, 1999 -------------------------------------------- OTHER USA CANADA INTERNATIONAL WORLDWIDE ---- ------ ------------- --------- (IN MILLIONS) Property acquisition Unproved.......................................... $ 12 $ 18 $ 2 $ 32 Proved............................................ 69 66 -- 135 Exploration......................................... 88 67 66 221 Development......................................... 319 140 80 539 ---- ---- ---- ---- Total costs incurred...................... $488 $291 $148 $927 ==== ==== ==== ====

YEAR ENDED DECEMBER 31, 1998 -------------------------------------------- OTHER USA CANADA INTERNATIONAL WORLDWIDE ---- ------ ------------- --------- (IN MILLIONS) Property acquisition Unproved.......................................... $ 92 $ 16 $ 6 $ 114 Proved............................................ 23 410 4 437 Exploration......................................... 315 95 96 506 Development......................................... 491 150 30 671 ---- ---- ---- ------ Total costs incurred...................... $921 $671 $136 $1,728 ==== ==== ==== ======

YEAR ENDED DECEMBER 31, 1997 -------------------------------------------- OTHER USA CANADA INTERNATIONAL WORLDWIDE ---- ------ ------------- --------- (IN MILLIONS) Property acquisition Unproved.......................................... $ 93 $ 41 $ 5 $ 139 Proved............................................ 54 126 160 340 Exploration......................................... 241 74 48 363 Development......................................... 539 164 15 718 ---- ---- ---- ------ Total costs incurred...................... $927 $405 $228 $1,560 ==== ==== ==== ======

33 36 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION Results of operations for oil and gas producing activities follow.

YEAR ENDED DECEMBER 31, 1999 ------------------------------------------- OTHER USA CANADA INTERNATIONAL WORLDWIDE ------ ------ ------------- --------- (IN MILLIONS) Revenues............................................. $1,479 $ 404 $124 $2,007 ------ ------ ---- ------ Production costs..................................... 336 102 33 471 Exploration costs.................................... 129 39 46 214 Operating expenses................................... 188 28 27 243 Depreciation, depletion and amortization............. 435 107 54 596 Impairment of oil and gas properties................. 225 -- -- 225 ------ ------ ---- ------ 1,313 276 160 1,749 ------ ------ ---- ------ Operating income (loss).............................. 166 128 (36) 258 Income tax provision (benefit)....................... 63 61 (11) 113 ------ ------ ---- ------ Results of operations for oil and gas producing activities......................................... $ 103 $ 67 $(25) $ 145 ====== ====== ==== ======

YEAR ENDED DECEMBER 31, 1998 ------------------------------------------- OTHER USA CANADA INTERNATIONAL WORLDWIDE ------ ------ ------------- --------- (IN MILLIONS) Revenues............................................. $1,422 $ 367 $149 $1,938 ------ ------ ---- ------ Production costs..................................... 343 90 43 476 Exploration costs.................................... 239 30 59 328 Operating expenses................................... 177 18 32 227 Depreciation, depletion and amortization............. 429 157 64 650 Impairment of oil and gas properties................. -- 706 -- 706 ------ ------ ---- ------ 1,188 1,001 198 2,387 ------ ------ ---- ------ Operating income (loss).............................. 234 (634) (49) (449) Income tax provision (benefit)....................... 55 (259) (11) (215) ------ ------ ---- ------ Results of operations for oil and gas producing activities......................................... $ 179 $ (375) $(38) $ (234) ====== ====== ==== ======

YEAR ENDED DECEMBER 31, 1997 ------------------------------------------- OTHER USA CANADA INTERNATIONAL WORLDWIDE ------ ------ ------------- --------- (IN MILLIONS) Revenues............................................. $1,747 $ 372 $205 $2,324 ------ ------ ---- ------ Production costs..................................... 363 86 42 491 Exploration costs.................................... 234 25 25 284 Operating expenses................................... 220 18 10 248 Depreciation, depletion and amortization............. 422 143 75 640 ------ ------ ---- ------ 1,239 272 152 1,663 ------ ------ ---- ------ Operating income..................................... 508 100 53 661 Income tax provision................................. 103 43 27 173 ------ ------ ---- ------ Results of operations for oil and gas producing activities......................................... $ 405 $ 57 $ 26 $ 488 ====== ====== ==== ======

34 37 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION The following table reflects estimated quantities of proved oil and gas reserves. These reserves have been reduced for royalty interests owned by others. These reserves have been estimated by the Company's petroleum engineers. The Company considers such estimates to be reasonable, however, due to inherent uncertainties, estimates of underground reserves are imprecise and subject to change over time as additional information becomes available.

OIL (MMBBLS) GAS (BCF) ------------------------------------------ ------------------------------------------ OTHER OTHER USA CANADA INTERNATIONAL WORLDWIDE USA CANADA INTERNATIONAL WORLDWIDE ----- ------ ------------- --------- ----- ------ ------------- --------- PROVED DEVELOPED AND UNDEVELOPED RESERVES December 31, 1996.......... 275.0 61.4 30.8 367.2 5,908 892 323 7,123 Revisions of previous estimates................ (15.6) 3.2 (2.6) (15.0) 68 (15) (4) 49 Extensions, discoveries and other additions.......... 44.9 9.9 .3 55.1 913 231 1 1,145 Production................. (24.6) (7.7) (7.2) (39.5) (583) (140) (26) (749) Purchases of reserves in place.................... 1.4 2.0 -- 3.4 116 178 240 534 Sales of reserves in place.................... (48.7) (0.5) -- (49.2) (538) (18) -- (556) ----- ---- ---- ----- ----- ----- --- ----- December 31, 1997............ 232.4 68.3 21.3 322.0 5,884 1,128 534 7,546 Revisions of previous estimates................ (8.4) (.4) 1.6 (7.2) (94) (66) (6) (166) Extensions, discoveries and other additions.......... 26.7 11.6 29.7 68.0 636 235 35 906 Production................. (24.2) (7.9) (6.0) (38.1) (577) (157) (24) (758) Purchases of reserves in place.................... .1 3.7 -- 3.8 81 338 8 427 Sales of reserves in place.................... -- (2.9) -- (2.9) (72) (57) (25) (154) ----- ---- ---- ----- ----- ----- --- ----- December 31, 1998............ 226.6 72.4 46.6 345.6 5,858 1,421 522 7,801 Revisions of previous estimates................ (9.0) (1.9) 0.3 (10.6) (52) (20) (2) (74) Extensions, discoveries and other additions.......... 19.0 4.7 2.0 25.7 554 164 384 1,102 Production................. (20.9) (7.1) (4.8) (32.8) (543) (156) (32) (731) Purchases of reserves in place.................... .5 1.0 -- 1.5 138 53 -- 191 Sales of reserves in place.................... -- -- -- -- -- (9) -- (9) ----- ---- ---- ----- ----- ----- --- ----- December 31, 1999............ 216.2 69.1 44.1 329.4 5,955 1,453 872 8,280 ===== ==== ==== ===== ===== ===== === ===== PROVED DEVELOPED RESERVES December 31, 1996.......... 242.0 57.7 25.4 325.1 4,870 837 265 5,972 December 31, 1997.......... 203.9 62.8 15.6 282.3 4,641 1,053 233 5,927 December 31, 1998.......... 199.2 61.2 14.5 274.9 4,564 1,134 258 5,956 December 31, 1999.......... 168.3 57.5 13.5 239.3 4,715 1,180 314 6,209

35 38 BURLINGTON RESOURCES, INC. SUPPLEMENTARY FINANCIAL INFORMATION A summary of the standardized measure of discounted future net cash flows relating to proved oil and gas reserves is shown below. Future net cash flows are computed using year end sales prices, costs and statutory tax rates (adjusted for tax credits and other items) that relate to the Company's existing proved oil and gas reserves.

YEAR ENDED DECEMBER 31, 1999 -------------------------------------------- OTHER USA CANADA INTERNATIONAL WORLDWIDE ------- ------ ------------- --------- (IN MILLIONS) Future cash inflows................................. $17,568 $4,184 $2,840 $24,592 Less related future Production costs............................... 4,778 1,140 778 6,696 Development costs.............................. 661 279 604 1,544 Income taxes................................... 3,281 685 423 4,389 ------- ------ ------ ------- Future net cash flows............................... 8,848 2,080 1,035 11,963 10% annual discount for estimated timing of cash flows............................................. 4,374 788 508 5,670 ------- ------ ------ ------- Standardized measure of discounted future net cash flows............................................. $ 4,474 $1,292 $ 527 $ 6,293 ======= ====== ====== =======

YEAR ENDED DECEMBER 31, 1998 -------------------------------------------- OTHER USA CANADA INTERNATIONAL WORLDWIDE ------- ------ ------------- --------- (IN MILLIONS) Future cash inflows................................. $13,840 $3,363 $1,912 $19,115 Less related future Production costs............................... 3,761 1,076 773 5,610 Development costs.............................. 617 282 296 1,195 Income taxes................................... 2,113 287 190 2,590 ------- ------ ------ ------- Future net cash flows............................... 7,349 1,718 653 9,720 10% annual discount for estimated timing of cash flows............................................. 3,643 632 301 4,576 ------- ------ ------ ------- Standardized measure of discounted future net cash flows............................................. $ 3,706 $1,086 $ 352 $ 5,144 ======= ====== ====== =======

36 39 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION A summary of the changes in the standardized measure of discounted future net cash flows applicable to proved oil and gas reserves follows.

YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------- ------- (IN MILLIONS) January 1................................................... $ 5,144 $ 5,789 $ 8,593 ------- ------- ------- Revisions of previous estimates Changes in prices and costs............................... 1,844 (1,017) (4,723) Changes in quantities..................................... (83) (135) 16 Changes in rate of production............................. (92) (274) (422) Additions to proved reserves resulting from extensions, discoveries and improved recovery, less related costs..... 723 547 741 Purchases of reserves in place.............................. 168 183 396 Sales of reserves in place.................................. (6) (102) (691) Accretion of discount....................................... 628 737 1,206 Sales of oil and gas, net of production costs............... (1,536) (1,488) (1,833) Net change in income taxes.................................. (815) 435 1,888 Other....................................................... 318 469 618 ------- ------- ------- Net change.................................................. 1,149 (645) (2,804) ------- ------- ------- December 31................................................. $ 6,293 $ 5,144 $ 5,789 ======= ======= =======

QUARTERLY FINANCIAL DATA -- UNAUDITED

1999(C) -------------------------------------------------------- 4TH 3RD 2ND 1ST ----------- ----------- ----------- ----------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Revenues......................... $ 627 $ 547 $ 455 $ 436 Operating Income (Loss)(a)(b).... (59) 155 86 54 Net Income (Loss)(a)(b).......... (84) 61 24 -- Basic Earnings (Loss) per Common Share........ (.38) .28 .11 -- Diluted Earnings (Loss) per Common Share................... (.38) .27 .11 -- Cash Dividends Declared per Common Share................... .12 .11 .12 .11 Common Stock Price Range High........................... 39 1/4 46 3/4 47 5/8 42 5/16 Low............................ $ 29 1/2 $ 35 5/8 $ 38 3/8 $ 29 1/2

1998(C) ---------------------------------------------------------- 4TH (RESTATED)(D) 3RD 2ND 1ST ------------- ----------- ----------- ----------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Revenues......................... $ 473 $ 478 $ 492 $ 540 Operating Income (Loss)(a)(b).... (697) 58 73 127 Net Income (Loss)(a)(b).......... (428) 13 16 61 Basic Earnings (Loss) per Common Share........ (2.03) .07 .07 .29 Diluted Earnings (Loss) per Common Share................... (2.03) .07 .07 .29 Cash Dividends Declared per Common Share................... .11 .12 .11 .12 Common Stock Price Range High........................... 43 1/8 44 1/2 49 5/8 49 1/2 Low............................ $ 32 $ 29 7/16 $ 38 3/16 $ 38 15/16

--------------- (a) During the fourth quarter of 1999, as a result of the Acquisition, the Company recorded a pretax charge of $37 million for severance and transaction costs ($26 million after tax). (b) During the fourth quarter of 1999, as a result of a downward adjustment associated with the performance of certain properties, the Company recognized a non-cash, pretax charge of $225 million ($140 million after tax). During the fourth quarter of 1998, as a result of a weak market for oil and gas, the Company recognized a non-cash, pretax charge of $706 million ($390 million after tax). (c) Amounts in periods prior to the Acquisition have been restated to include Poco. (d) See Note 14 of the Notes to Consolidated Financial Statements. 37 40 PART IV ITEM FOURTEEN EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

PAGE ---- FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION Consolidated Statement of Income.......................... 8 Consolidated Balance Sheet................................ 9 Consolidated Statement of Cash Flows...................... 10 Consolidated Statement of Stockholders' Equity............ 11 Notes to Consolidated Financial Statements................ 12 Report of Independent Accountants......................... 32 Supplemental Oil and Gas Disclosures -- Unaudited......... 33 Quarterly Financial Data -- Unaudited..................... 37 AMENDED EXHIBIT INDEX....................................... A-1

38 41 SIGNATURES REQUIRED FOR FORM 10-K Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Burlington Resources Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BURLINGTON RESOURCES INC. By /s/ BOBBY S. SHACKOULS ------------------------------------ Bobby S. Shackouls Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Burlington Resources Inc. and in the capacities and on the dates indicated. By /s/ BOBBY S. SHACKOULS Chairman of the Board, August 16, 2000 -------------------------------------------------------- President and Chief Executive Bobby S. Shackouls Officer /s/ JOHN E. HAGALE Executive Vice President and August 16, 2000 -------------------------------------------------------- Chief Financial Officer John E. Hagale /s/ PHILIP W. COOK Vice President, August 16, 2000 -------------------------------------------------------- Controller and Chief Philip W. Cook Accounting Officer * Director August 16, 2000 -------------------------------------------------------- James F. McDonald * Director August 16, 2000 -------------------------------------------------------- Kenneth W. Orce * Director August 16, 2000 -------------------------------------------------------- Donald M. Roberts * Director August 16, 2000 -------------------------------------------------------- John F. Schwarz * Director August 16, 2000 -------------------------------------------------------- Walter Scott, Jr. *By: /s/ JOHN E. HAGALE -------------------------------------------------------- John E. Hagale Attorney-in-Fact 39 42 BURLINGTON RESOURCES INC. AMENDED EXHIBIT INDEX The following exhibits are filed as part of this report.

EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- ----------- ------ 3.1 Certificate of Incorporation of Burlington Resources Inc. as amended November 18, 1999 (Exhibit 3.1 to Form 10-K, filed March 17, 2000)............................................. * 3.2 By-Laws of Burlington Resources Inc. amended as of January 13, 1999 (Exhibit 3.2 to Form 10-K, filed February 1999).... * 4.1 Form of Rights Agreement dated as of December 16, 1998, between Burlington Resources Inc. and The First National Bank of Boston which includes, as Exhibit A thereto, the form of Certificate of Designation specifying terms of the Series A Junior Participating Preferred Stock and, as Exhibit B thereto, the form of Rights Certificate (Exhibit 1 to Form 8-A, filed December 1998)........................... * 4.2 Indenture, dated as of June 15, 1990, between the registrant and Citibank, N.A., including Form of Debt Securities (Exhibit 4.2 to Form 8, filed February 1992)................ * 4.3 Indenture, dated as of October 1, 1991, between the registrant and Citibank, N.A., including Form of Debt Securities (Exhibit 4.3 to Form 8, filed February 1992)..... * 4.4 Indenture, dated as of April 1, 1992, between the registrant and Citibank, N.A., including Form of Debt Securities (Exhibit 4.4 to Form 8, filed March 1993)................... * 4.5 Indenture dated as of June 15, 1992 among the Registrant and Texas Commerce Bank National Association (as Trustee) (Exhibit 4.1 LL&E's Form S-3, as amended, filed November 1993)....................................................... * 10.1 The 1988 Burlington Resources Inc. Stock Option Incentive Plan as amended (Exhibit 10.4 to Form 8, filed March 1993)....................................................... * +10.2 Burlington Resources Inc. Incentive Compensation Plan as amended and restated (Exhibit 10.2 to Form 10-K, filed February 1997).............................................. * +10.3 Burlington Resources Inc. Senior Executive Survivor Benefit Plan dated as of January 1, 1989 (Exhibit 10.11 to Form 8, filed February 1989)........................................ * +10.4 Burlington Resources Inc. Deferred Compensation Plan as amended and restated (Exhibit 10.4 to Form 10-K, filed February 1997).............................................. * +10.5 Burlington Resources Inc. Supplemental Benefits Plan as amended and restated (Exhibit 10.5 to Form 10-K, filed February 1997).............................................. * +10.6 Employment Contract between Burlington Resources Inc. and Bobby S. Shackouls (Exhibit 10.7 to Form 10-K, filed February 1996).............................................. * Amendment to Employment Contract between Burlington Resources Inc. and Bobby S. Shackouls, dated July 9, 1997 (Exhibit 10.6 to Form 10-K, filed February 1998)............ * Amendment to Employment Contract between the Company and Bobby S. Shackouls (Exhibit 10.29 to Form 10-Q, filed August 1999)....................................................... * +10.7 Employment Contract between Burlington Resources Inc. and H. Leighton Steward, dated October 22, 1997 (Exhibit 10.7 to Form 10-K, filed February 1998)............................. * +10.8 Burlington Resources Inc. Compensation Plan for Non-Employee Directors as amended and restated (Exhibit 10.8 to Form 10-K, filed February 1997).................................. * +10.9 Burlington Resources Inc. Key Executive Severance Protection Plan as amended June 8, 1989 (Exhibit 10.20 to Form 8, filed February 1992).............................................. * +10.10 Burlington Resources Inc. Retirement Income Plan for Directors (Exhibit 10.21 to Form 8, filed February 1991).... * +10.11 Burlington Resources Inc. 1991 Director Charitable Award Plan, dated as of January 16, 1991 (Exhibit 10.22 to Form 8, filed February 1991)........................................ * 10.12 Master Separation Agreement and documents related thereto dated January 15, 1992 by and among Burlington Resources Inc., El Paso Natural Gas Company and Meridian Oil Holding Inc., including exhibits (Exhibit 10.24 to Form 8, filed February 1992).............................................. * +10.13 Burlington Resources Inc. 1992 Stock Option Plan for Non-employee Directors (Exhibit 28.1 of Form S-8, No. 33-46518, filed March 1992)................................. * +10.14 Burlington Resources Inc. Key Executive Retention Plan and Amendments No. 1 and 2 (Exhibit 10.20 to Form 8, filed March 1993)....................................................... * Amendments No. 3 and 4 to the Burlington Resources Inc. Key Executive Retention Plan (Exhibit 10.17 to Form 10-K, filed February 1994).............................................. *

A-1 43

EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- ----------- ------ +10.15 Burlington Resources Inc. 1992 Performance Share Unit Plan as amended and restated (Exhibit 10.17 to Form 10-K, filed February 1997).............................................. * +10.16 Burlington Resources Inc. 1993 Stock Incentive Plan (Exhibit 10.22 to Form 10-K, filed February 1994).................... * +10.17 Burlington Resources Inc. 1994 Restricted Stock Exchange Plan (Exhibit 10.23 to Form 10-K, filed February 1995)...... * +10.18 Burlington Resources Inc. 1997 Performance Share Unit Plan, (Exhibit 10.21 to Form 10-K, filed February 1997)........... * 10.19 $400 million Short-term Revolving Credit Agreement, dated as of February 25, 1998, as Amended and Restated February 23, 1999 between Burlington Resources Inc. and Chase Bank of Texas, N.A., as agent, dated as of February 23, 1999 (Exhibit 10.22 to Form 10-K filed February 1999)............ * 10.20 $600 million Long-term Revolving Credit Agreement, dated as of February 25, 1998, between Burlington Resources Inc. and Morgan Guaranty Trust Company of New York as agent (Exhibit 10.23 to Form 10-K filed February 1999)..................... * Amendment and Restatement Agreement dated as of February 23, 1999 in respect of the Long-Term Credit Agreement (Exhibit 10.23 to Form 10-K filed February 1999)..................... * +10.21 Form of Termination Agreement with Certain Senior Management Personnel as amended (Exhibit 10(a)(i) to LL&E's Form 10-K, filed March 1996)........................................... * +10.22 Pension Agreement, dated as of December 27, 1994 (Exhibit 10(e) to LL&E's Form 10-K filed March 1995)................. * +10.23 Form of The Louisiana Land and Exploration Company Deferred Compensation Arrangement for Selected Key Employees (Exhibit 10(g) to LL&E's Form 10-K filed March 1991)................. * Amendment to the LL&E Deferred Compensation Arrangement for Selected Key Employees dated December 21, 1998 (Exhibit 10.26 to Form 10-K filed February 1999)..................... * +10.24 The LL&E Supplemental Excess Plan (Exhibit 10(j) to LL&E's Form 10-K filed March 1993)................................. * 10.25 Severance benefit agreement between Burlington Resources Inc. and John A. Williams, dated March 25, 1999 (Exhibit 10.28 to Form 10-Q filed May 1999).......................... * 10.26 Form of agreement on pension related benefits with certain former Seattle holding company office employees (Exhibit 10.26 to Form 10-K, filed March 17, 2000)................... * 10.27 Poco Petroleums Ltd. Incentive Stock Option Plan (Form S-8 No. 333-91247, filed November 18, 1999)..................... * 10.28 Employee Savings Plan for Eligible Employees of Poco Petroleums Ltd. (Exhibit 4.4 to Form S-8 No. 333-95071, filed January 20, 2000)..................................... * 13.1 Burlington Resources Inc. 1999 Annual Report (Exhibit 13.1 to Form 10-K, filed March 17, 2000)......................... * 21.1 Subsidiaries of the Registrant (Exhibit 21.1 to Form 10-K, filed March 17, 2000)....................................... * 23.1 Consent of Independent Accountants -- PricewaterhouseCoopers....................... 23.2 Consent of Independent Accountants -- KPMG.................. 27.1 Financial Data Schedule..................................... ** 99.1 Audit opinion of KPMG.......................................

--------------- *Exhibit incorporated herein by reference as indicated. **Exhibit required only for filings made electronically using the Securities and Exchange Commission's EDGAR System. +Exhibit constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K. A-2