-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RIIka0Nc6N4BqvamvSZ6HMxmAKc6EQnDAU0Zm74Z0fIw0C99apH4d+oNPlbxNRl4 xFclWKf6gwgBIQB/aQn1Kg== 0000950129-00-001238.txt : 20000320 0000950129-00-001238.hdr.sgml : 20000320 ACCESSION NUMBER: 0000950129-00-001238 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BURLINGTON RESOURCES INC CENTRAL INDEX KEY: 0000833320 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 911413284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09971 FILM NUMBER: 572135 BUSINESS ADDRESS: STREET 1: 5051 WESTHEIMER STREET 2: SUITE 1400 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7136249500 MAIL ADDRESS: STREET 1: 5051 WESTHEIMER STREET 2: STE 1400 CITY: HOUSTON STATE: TX ZIP: 77056 10-K 1 BURLINGTON RESOURCES INC 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 BURLINGTON RESOURCES INC. TABLE OF CONTENTS
PAGE PART I Items One and Two Business and Properties................................ 1 Employees.............................................. 2 Item Three Legal Proceedings...................................... 2 Item Four Submission of Matters to a Vote of Security Holders.... 2 PART II Item Five Market for Registrant's Common Equity and Related Stockholder Matters................................... 3 Item Six Selected Financial Data................................ 3 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......... 3 Item Eight Financial Statements and Supplementary Financial Information........................................... 5 Item Nine Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 5 PART III Items Ten and Eleven Directors and Executive Officers of the Registrant and Executive Compensation................................ 6 Item Twelve Security Ownership of Certain Beneficial Owners and Management............................................ 7 Item Thirteen Certain Relationships and Related Transactions......... 7 PART IV Item Fourteen Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................. 7
3 PART I ITEMS ONE AND TWO BUSINESS AND PROPERTIES Burlington Resources Inc. ("BR") is a holding company engaged, through its principal subsidiaries, Burlington Resources Oil & Gas Company, The Louisiana Land and Exploration Company ("LL&E"), and Burlington Resources Canada Energy Ltd. (formerly known as Poco Petroleums Ltd. ("Poco")) acquired November 18, 1999, and their affiliated companies (collectively the "Company"), in the exploration, development, production and marketing of crude oil and natural gas. On August 16, 1999, the Company entered into a definitive agreement to acquire 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. For additional information concerning Items One and Two, see pages 7 through 26 of the BR 1999 Annual Report, which information is incorporated herein by reference. OTHER MATTERS Competition. The Company actively competes for reserve acquisitions, exploration leases and sales of oil and gas, frequently against companies with substantially larger financial and other resources. In its marketing activities, the Company competes with numerous companies for the sale of oil, gas and natural gas liquids ("NGLs"). Competitive factors in the Company's business include price, contract terms, quality of service, pipeline access, transportation discounts and distribution efficiencies. Regulation of Oil and Gas Production, Sales and Transportation. The oil and gas industry is subject to regulation by numerous national, state and local governmental agencies and departments in the countries in which the Company operates, compliance with which is often difficult and costly and some of which carry substantial noncompliance penalties and risks. Statutes, rules, regulations or guidelines require drilling permits, drilling bonds and operating reports. Most jurisdictions in which the Company operates also have statutes, rules, regulations or guidelines governing conservation matters, including the unitization or pooling of oil and gas properties and the establishment of maximum rates of production from oil and gas wells. Many jurisdictions also limit production to the market demand for oil and gas. Such statutes, rules, regulations or guidelines may limit the rate at which oil and gas could otherwise be produced from the Company's properties. All of the Company's sales of its domestic gas are deregulated. The Company operates various gathering systems. The United States Department of Transportation and certain state agencies regulate, under various statutes, rules or regulations, the safety and operating aspects of the transportation and storage activities of these facilities by prescribing standards. The Federal Energy Regulatory Commission ("FERC") has implemented policies, subject to court review, allowing interstate pipeline companies to negotiate their rates with individual shippers. The FERC is also considering allowing the interstate pipeline companies to negotiate tariffed terms and 1 4 conditions of service. The Company will monitor the effects of these programs on its marketing efforts but does not expect that these actions will have a material adverse effect on the consolidated financial position or results of operations of the Company. Environmental Regulation. Various federal, state and local laws and regulations relating to the protection of the environment, including the discharge of materials into the environment, may affect the Company's domestic operations and costs as a result of their effect on oil and gas exploration, development and production operations. In addition, certain of the Company's international operations are subject to environmental regulations administered by foreign governments, including political subdivisions thereof, or by international organizations. Offshore oil and gas operations in the United States ("U.S.") are subject to regulations of the U.S. Department of the Interior which currently imposes absolute liability upon the lessee under a federal lease for the cost of pollution cleanup resulting from the lessee's operations and could subject the lessee to possible liability for pollution damages. In the event of a serious incident of pollution, the U.S. Department of the Interior may require a lessee under a federal lease to suspend or cease operations in the affected area. The Company believes it is in substantial compliance with applicable environmental laws and regulations. The Company does not anticipate that it will be required under current environmental laws and regulations to expend amounts that will have a material adverse effect on the consolidated financial position or results of operations of the Company. Filings of Reserve Estimates With Other Agencies. During 1999, the Company filed estimates of oil and gas reserves, excluding the Canadian reserves, for the year 1998 with the Department of Energy. These estimates differ by 5 percent or less from the reserve data presented. For information concerning proved oil and gas reserves, see page 59 of the BR 1999 Annual Report, which information is incorporated herein by reference. EMPLOYEES The Company had 1,997 and 2,119 employees at December 31, 1999 and 1998, respectively. Currently, the Company has no union employees. ITEM THREE LEGAL PROCEEDINGS For information concerning Item Three, see pages 50 through 52 of the BR 1999 Annual Report, which information is incorporated herein by reference. ITEM FOUR SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At a special meeting of stockholders of the Company held on November 18, 1999, the stockholders voted to approve the issuance of exchangeable shares pursuant to the Amended and Restated Combination Agreement dated August 16, 1999 among the Company and Poco. Approval of the issuance of shares of the Company's Common Stock pursuant to the combination was as follows.
FOR AGAINST ABSTENTIONS --- ------- ----------- 136,922,895 858,570 649,512
2 5 PART II ITEM FIVE MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange under the symbol "BR." The Company's exchangeable shares are traded on The Toronto Stock Exchange in Canada under the symbol "BRX." At December 31, 1999, the number of common stockholders was 20,916. For information concerning common stock prices and quarterly dividends, see page 61 of the BR 1999 Annual Report, which information is incorporated herein by reference. ITEM SIX SELECTED FINANCIAL DATA For information concerning Item Six, see page 31 of the BR 1999 Annual Report, which information is incorporated herein by reference. 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 For information concerning Item Seven, see pages 32, through 35 of the BR 1999 Annual Report, which information is incorporated herein by reference. 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. 3 6 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. 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. 4 7 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. ITEM EIGHT FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION For information concerning Item Eight, see pages 36 through 61 of the BR 1999 Annual Report, which information is incorporated herein by reference. ITEM NINE CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 5 8 PART III ITEMS TEN AND ELEVEN DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND EXECUTIVE COMPENSATION Executive officers of the Company follow. BOBBY S. SHACKOULS, 49 Chairman of the Board, President and Chief Executive Officer, Burlington Resources Inc., July 1997 to Present. President and Chief Executive Officer, Burlington Resources Inc., December 1995 to July 1997; President and Chief Executive Officer, Burlington Resources Oil & Gas Company, October 1994 to Present; Executive Vice President and Chief Operating Officer, Meridian Oil Inc., June 1993 to October 1994. H. LEIGHTON STEWARD, 65 Vice Chairman of the Board, Burlington Resources Inc., October 1997 to Present. Chairman of the Board, President and Chief Executive Officer, The Louisiana Land and Exploration Company ("LL&E"), November 1996 to October 1997; Chairman of the Board and Chief Executive Officer, LL&E, September 1995 to November 1996; and Chairman of the Board, President and Chief Executive Officer, LL&E, January 1989 to September 1995. JOHN E. HAGALE, 43 Executive Vice President and Chief Financial Officer, Burlington Resources Inc., December 1995 to Present. Executive Vice President and Chief Financial Officer, Burlington Resources Oil & Gas Company, March 1993 to Present; Senior Vice President and Chief Financial Officer, Burlington Resources Inc., April 1994 to December 1995. L. DAVID HANOWER, 40 Senior Vice President, Law and Administration Burlington Resources Inc., July 1998 to Present. Senior Vice President, Law, Burlington Resources Inc., April 1996 to June 1998, Vice President, Law, Burlington Resources Inc., April 1991 to April 1996; Senior Vice President, Law, Burlington Resources Oil & Gas Company, July 1993 to June 1998. RANDY L. LIMBACHER, 41 President and Chief Executive Officer, Burlington Resources North America, July 1998 to Present. Vice President, Gulf Coast Division, Burlington Resources Oil & Gas Company, February 1997 to June 1998; Vice President, Farmington Region, Burlington Resources Oil & Gas Company, June 1993 to January 1997. JOHN A. WILLIAMS, 55 President and Chief Executive Officer, Burlington Resources International, July 1998 to Present. Senior Vice President, Exploration, Burlington Resources Inc., October 1997 to June 1998; Senior Vice President, Exploration and Production, LL&E, September 1995 to October 1997; Vice President, LL&E, March 1988 to September 1995. A definitive proxy statement for the 2000 Annual Meeting of Stockholders of BR will be filed no later than 120 days after the end of the fiscal year with the Securities and Exchange Commission. The information set forth therein under "Election of Directors" and "Executive Compensation" is incorporated herein by reference. 6 9 ITEM TWELVE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required is set forth under the caption "Election of Directors" in the Proxy Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM THIRTEEN CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required is set forth under the caption "Election of Directors" in the Proxy Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein by reference. 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.......................... ** Consolidated Balance Sheet................................ ** Consolidated Statement of Cash Flows...................... ** Consolidated Statement of Stockholders' Equity............ ** Notes to Consolidated Financial Statements................ ** Report of Independent Accountants......................... ** Supplemental Oil and Gas Disclosures -- Unaudited......... ** Quarterly Financial Data -- Unaudited..................... ** AMENDED EXHIBIT INDEX....................................... A-1
REPORTS ON FORM 8-K The Company filed a Form 8-K dated December 3, 1999 which included as exhibits Press Releases dated November 18, 1999 and November 22, 1999. The first Press Release announced the completion of the acquisition of Poco by Burlington. The second Press Release was of detailed pro forma financial information for the nine months ended September 30, 1999 to reflect the BR acquisition of Poco. The Company also filed a Form 8-K dated December 21, 1999 which included as an exhibit a Press Release dated December 16, 1999, announcing preliminary estimates of year-end 1999 reserves and disclosing that 1999 reserve revisions would include performance related downward adjustments associated with certain properties located on the Gulf of Mexico Shelf and in the Permian Basin. BR also announced that it would record a one-time, non cash charge of approximately $225 million (pretax) to reduce the carrying value of the affected properties in accordance with Statement of Financial Accounting Standards No. 121. - --------------- ** Included in Annual Report and incorporated herein by reference. 7 10 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 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 BOBBY S. SHACKOULS Chairman of the Board, January 19, 2000 ----------------------------------------------------- President and Chief Bobby S. Shackouls Executive Officer JOHN E. HAGALE Executive Vice President and January 19, 2000 - -------------------------------------------------------- Chief Financial Officer John E. Hagale PHILIP W. COOK Vice President, January 19, 2000 - -------------------------------------------------------- Controller and Chief Philip W. Cook Accounting Officer H. LEIGHTON STEWARD Vice Chairman of the Board January 19, 2000 - -------------------------------------------------------- H. Leighton Steward JOHN V. BYRNE Director January 19, 2000 - -------------------------------------------------------- John V. Byrne S. PARKER GILBERT Director January 19, 2000 - -------------------------------------------------------- S. Parker Gilbert LAIRD I. GRANT Director January 19, 2000 - -------------------------------------------------------- Laird I. Grant JOHN T. LAMACCHIA Director January 19, 2000 - -------------------------------------------------------- John T. LaMacchia JAMES F. MCDONALD Director January 19, 2000 - -------------------------------------------------------- James F. McDonald KENNETH W. ORCE Director January 19, 2000 - -------------------------------------------------------- Kenneth W. Orce DONALD M. ROBERTS Director January 19, 2000 - -------------------------------------------------------- Donald M. Roberts JOHN F. SCHWARZ Director January 19, 2000 - -------------------------------------------------------- John F. Schwarz WALTER SCOTT, JR. Director January 19, 2000 - -------------------------------------------------------- Walter Scott, Jr. WILLIAM E. WALL Director January 19, 2000 - -------------------------------------------------------- William E. Wall
8 11 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................................... 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).............................................. *
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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............. 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................ 21.1 Subsidiaries of the Registrant.............................. 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 EX-3.1 2 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 BURLINGTON RESOURCES CERTIFICATE OF INCORPORATION of BURLINGTON RESOURCES INC. As Amended Through November 18, 1999 2 CERTIFICATE OF INCORPORATION OF BURLINGTON RESOURCES INC. ARTICLE 1. NAME The name of this corporation is Burlington Resources Inc. ARTICLE 2. REGISTERED OFFICE AND AGENT The address of the initial registered office of this corporation is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle, State of Delaware 19081, and the name of its initial registered agent at such address is The Corporation Trust Company. ARTICLE 3. PURPOSES The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE 4. SHARES 4.1 Authorized Capital. The total authorized stock of this corporation shall consist of 325,000,000 shares of common stock having a par value of $.01 per share and 75,000,000 shares of preferred stock having a par value of $.01 per share. 4.2 Issuance of Preferred Stock in Series. The preferred stock may be issued from time to time in one or more series, the shares of each series to have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed herein or in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors. 4.3 Authority of the Board of Directors. Authority is hereby expressly granted to the Board of Directors of this corporation, subject to the provisions of this Article 4 and to the limitations prescribed by law, to authorize the issue of one or more series of preferred stock, and with respect to each such series to fix by resolution or resolutions providing for the issue of such series the number of shares of such series, the voting powers, full or limited, if any, of the shares of such series and the designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each series of preferred stock shall include, but not be limited to, the determination or fixing of the following: (a) The number of shares of such series; (b) The designation of such series; (c) The dividend on the shares of such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes or on any other series of any class or classes of stock of this corporation and whether such dividends shall be cumulative or noncumulative; 1 3 (d) Whether the shares of such series shall be subject to redemption by this corporation and, if made subject to such redemption, the times, prices, rates, adjustments, and other terms and conditions of such redemption; (e) The terms and amounts of any sinking fund provided for the purchase or redemption of the shares of such series; (f) Whether or not the shares of such series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of this corporation and, if provision be made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (g) The extent, if any, to which the holders of the shares of such series shall be entitled to vote with respect to the election of directors or otherwise, including the right to elect a specified number or class of directors, the extent, if any, to which the holders of the shares of such series shall have (i) separate voting rights with respect to the matters solely affecting the preferences, rights or powers of such series but not so affecting the common stock or the entire class of preferred stock and (ii) on a pro rata basis with other shares of preferred stock having voting rights, voting rights with respect to matters solely affecting the preferences, rights or powers of the entire class of preferred stock but not so affecting the common stock, the number or percentage of votes required for certain actions, and the extent to which a vote by class or series shall be required for certain actions; (h) The restrictions, if any, on the issue or reissue of any preferred stock; (i) The amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation prior to any payment or distribution of the assets of the corporation to any class or classes of stock of the corporation ranking junior to the preferred stock; (j) Whether, and the extent to which, any of the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of any such series may be made dependent upon facts ascertainable outside this Certificate of Incorporation or of any amendment hereto, or outside the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors, provided that the manner in which such facts shall operate upon the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of such series is clearly and expressly set forth in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors; (k) The extent, if any, to which any committee of the Board of Directors may fix the designations and any of the preferences, privileges and powers and relative, participating, optional or other special rights and qualifications, limitations or restrictions of the shares of such series relating to dividends, redemption, dissolution, any distribution of assets of this corporation or the conversion into or exchange of such shares for shares of any other class or classes of stock of this corporation or any other series of the same or any other class or classes of stock of this corporation, or fix the number of shares of any such series or authorize the increase or decrease in the shares of such series; and (l) Any other preferences, privileges and powers and relative, participating, optional or other special rights and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable, which shall not adversely affect any other class or series of 2 4 preferred stock at the time outstanding and which shall not be inconsistent with the provisions hereof. 4.4 Dividends. Subject to any preferential rights granted to any series of preferred stock, the holders of shares of the common stock shall be entitled to receive dividends, out of the funds of this corporation legally available therefor, at the rate and at the time or times, whether cumulative or noncumulative, as may be provided by the Board of Directors. The holders of shares of the preferred stock shall be entitled to receive dividends to the extent provided by the Board of Directors in designating the particular series of preferred stock. The holders of shares of the common stock shall not be entitled to receive any dividends thereon other than the dividends referred to in this section. 4.5 Voting. The holders of shares of the common stock, on the basis of one vote per share, shall have the right to vote for the election of members of the Board of Directors of this corporation and the right to vote on all other matters, except those matters on which the holders of a separate class or series of this corporation's stock are entitled to vote separately by class or series. To the extent provided by resolution or resolutions of the Board of Directors providing for the issue of a series of preferred stock, the holders of each such series of preferred stock shall have the right to vote for the election of members of the Board of Directors of this corporation and the right to vote on all other matters, except those matters on which the holders of a separate class or series of this corporation's stock are entitled to vote separately by class or series. ARTICLE 5. INCORPORATOR The name and mailing address of the incorporator are as follows: Andrew Bor 1900 Washington Building Seattle, Washington 98101 ARTICLE 6. DIRECTORS The powers of the incorporator shall terminate upon the filing of this Certificate of Incorporation with the Secretary of State of the State of Delaware. The names and mailing addresses of the persons whom are to serve as Directors until the first annual meeting of stockholders or until their successors are elected and qualify are: James W. Becker 999 Third Avenue Seattle, Washington 98101 Luino Dell'Osso, Jr. 999 Third Avenue Seattle, Washington 98101 3 5 ARTICLE 7. BY-LAWS The Board of Directors shall have the power to adopt, amend or repeal the By-Laws of this corporation, subject to the power of the stockholders to amend or repeal such By-Laws. The stockholders having voting power shall also have the power to adopt, amend or repeal the By-Laws for this corporation. ARTICLE 8. ELECTION OF DIRECTORS Except as may be otherwise required by the By-Laws, written ballots are not required in the election of Directors. ARTICLE 9. PROVISIONS FOR A COMPROMISE OR ARRANGEMENT Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. ARTICLE 10. PREEMPTIVE RIGHTS No preemptive rights shall exist with respect to shares of stock or securities convertible into shares of stock of this corporation. ARTICLE 11. CUMULATIVE VOTING The right to cumulate votes in the election of Directors shall not exist with respect to shares of stock of this corporation. ARTICLE 12. AMENDMENTS TO CERTIFICATE OF INCORPORATION This corporation reserves the right to amend or repeal any of the provisions contained in this Certificate of Incorporation in any manner now or hereafter permitted by law, and the rights of the stockholders of this corporation are granted subject to this reservation. 4 6 ARTICLE 13. LIMITATION OF DIRECTOR LIABILITY To the full extent that the Delaware General Corporation Law, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors, a director of this corporation shall not be liable to this corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any amendment to or repeal of this Article 13 shall not adversely affect any right or protection of a director of this corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. ARTICLE 14. ACTION BY STOCKHOLDERS WITHOUT A MEETING Any action by stockholders of this corporation shall be taken at a meeting of stockholders and no action may be taken by written consent of stockholders entitled to vote upon such action. ARTICLE 15. SPECIAL VOTING REQUIREMENTS In addition to any affirmative vote required by law, this Certificate of Incorporation, any agreement with any national securities exchange or otherwise, any "Business Combination" (as hereinafter defined) involving this corporation shall be subject to approval in the manner set forth in this Article 15. 15.1 Definitions For the purposes of this Article 15: (a) "Affiliate" and "beneficial owner" are used herein as defined in Rule 12b-2 and Rule 13d-3, respectively, under the Securities Exchange Act of 1934 as in effect on May 25, 1988 (the "1934 Act"). The term "Affiliate" as used herein shall exclude this corporation, but shall include the definition of "Associate" as contained in said Rule 12b-2. (b) An "Interested Stockholder" is a person other than (i) the corporation or (ii) Burlington Northern Inc., a Delaware corporation ("BNI"), as long as BNI continues to own at least a majority of the stock of this corporation entitled to vote for the election of directors ("Voting Stock") and there has been no Change in Control of BNI since May 25, 1988, who is (A) the beneficial owner of ten percent or more of the Voting Stock or (B) an Affiliate of this corporation which (1) at any time within a two-year period prior to the record date for the vote on a Business Combination was the beneficial owner of ten percent or more of the Voting Stock, or (2) at the completion of the Business Combination will be the beneficial owner of ten percent or more of the Voting Stock. (c) A "Person" is a natural person or a legal entity of any kind, together with any Affiliate of such person or entity, or any person or entity with whom such person, entity or any Affiliate has any agreement or understanding relating to acquiring, voting or holding Voting Stock. (d) A "Disinterested Director" is a member of the Board of Directors of this corporation (other than the Interested Stockholder) who was a director prior to the time the Interested Stockholder became an Interested Stockholder, or any director who was recommended for election by the Disinterested Directors. Any action to be taken by the Disinterested Directors shall require the affirmative vote of at least two-thirds of the Disinterested Directors. 5 7 (e) A "Business Combination" is (i) a merger or consolidation of this corporation or any of its subsidiaries with an Interested Stockholder; (ii) the sale, lease, exchange, pledge, transfer or other disposition (A) by this corporation or any of its subsidiaries of all or a Substantial Part of the corporation's Assets to an Interested Stockholder, or (B) by an Interested Stockholder of any of its assets, except in the ordinary course of business, to this corporation or any of its subsidiaries; (iii) the issuance of stock or other securities of this corporation or any of its subsidiaries to an Interested Stockholder, other than on a pro rata basis to all holders of Voting Stock of the same class held by the Interested Stockholder pursuant to a stock split, stock dividend or distribution of warrants or rights; (iv) the adoption of any plan or proposal for the liquidation or dissolution of this corporation proposed by or on behalf of an Interested Stockholder; (v) any reclassification of securities, recapitalization, merger or consolidation or other transaction which has the effect, directly or indirectly, of increasing the proportionate share of any Voting Stock beneficially owned by an Interested Stockholder; or (vi) any agreement, contract or other arrangement providing for any of the foregoing transactions. (f) A "Substantial Part of the corporation's Assets" shall mean assets of this corporation or any of its subsidiaries in an amount equal to twenty percent or more of the fair market value, as determined by the Disinterested Directors, of the total consolidated assets of this corporation and its subsidiaries taken as a whole as of the end of its most recent fiscal year ended prior to the time the determination is made. (g) A "Change in Control" shall be deemed to occur (i) if any Person is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the 1934 Act), directly or indirectly, of securities of BNI representing twenty percent or more of the stock of BNI entitled to vote for directors of BNI, (ii) upon the first purchase of BNI's common stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by BNI), (iii) upon the approval by BNI's stockholders of a merger or consolidation, a sale or disposition of all or substantially all of BNI's assets or a plan of liquidation or dissolution of BNI, or (iv) if, during any period of two consecutive years, individuals who at the beginning of such period constitute the BNI board of directors cease for any reason to constitute at least a majority thereof, unless the election or nomination for the election by BNI's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 15.2 Vote Required for Business Combinations The affirmative vote of not less than fifty-one percent of the Voting Stock, excluding the Voting Stock of an Interested Stockholder who is a party to the Business Combination, shall be required for the adoption or authorization of a Business Combination, unless the Disinterested Directors determine that: (a) The Interested Stockholder is the beneficial owner of not less than eighty percent of the Voting Stock and has declared its intention to vote in favor of or to approve such Business Combination: or (b) (i) The fair market value of the consideration per share to be received or retained by the holders of each class or series of stock of this corporation in a Business Combination is equal to or greater than the consideration per share (including brokerage commissions and soliciting dealer's fees) paid by such Interested Stockholder in acquiring the largest number of shares of such class of stock previously acquired in any one transaction or series of related transactions, whether before or after the Interested Stockholder became an Interested Stockholder and (ii) the Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance provided by 6 8 this corporation, whether in anticipation of or in connection with such Business Combination or otherwise. 15.3 Information Requirements In the event any vote of holders of Voting Stock is required for the adoption or approval of any Business Combination, a proxy or information statement describing the Business Combination and complying with the requirements of the 1934 Act shall be mailed at a date determined by the Disinterested Directors to all stockholders of this corporation whether or not such statement is required under the 1934 Act. The statement shall contain any recommendations as to the advisability of the Business Combination which the Disinterested Directors, or any of them, may choose to state and, if deemed advisable by the Disinterested Directors, an opinion of an investment banking firm as to the fairness of the terms of such Business Combination. Such firm shall be selected by the Disinterested Directors and be paid a fee for its services by this corporation as approved by the Disinterested Directors. 15.4 Amendment No amendment to this Certificate of Incorporation shall amend, alter, change or repeal any of the provisions of Article 14 or of this Article 15 unless such amendment shall receive the affirmative vote of not less than fifty-one percent of the Voting Stock, excluding the Voting Stock of any Interested Stockholder as defined in Section 15.1 of this Article 15. OTHER AMENDMENTS 1. SERIES A JUNIOR PARTICIPATING PREFERRED STOCK Section 1. Designation and Amount. There shall be a series of Preferred Stock, par value $.0l per share, of the Company which shall be designated as "Series A Junior Participating Preferred Stock," par value $.01 per share, and the number of shares constituting such series shall be 3,250,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Junior Participating Preferred Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Company. Section 2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock in preference to the holders of shares of Common Stock, par value $.01 per share (the "Common Stock"), of the Company and any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of January, April, July, and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock in an amount per share (rounded to the nearest cent) equal to the greater of (a) $25, or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or 7 9 other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Company shall at any time after December 16, 1998 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $25 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Company. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the 8 10 number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Company. (C) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of shareholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman of the Board or the President and Chief Executive Officer of the Company. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Company. Such meeting shall be called for a time not earlier than 10 days 9 11 and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Company if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the Restated Certificate of Incorporation or By-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the Restated Certificate of Incorporation or By-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) Declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) Declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or 10 12 winding up) with the Series A Junior Participating Preferred Stock except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) Redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or (iv) Purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 11 13 Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Company, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received per share, the greater of 100 times $200 or 100 times the payment made per share of Common Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. If the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property then in any such event the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding 12 14 immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event. Section 8. Redemption. The shares of Series A Junior Participating Preferred Stock shall not be redeemable. Section 9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Company's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. (Added December 15, 1988 and amended January 4, 1999) 2. SPECIAL VOTING STOCK A series of Preferred Stock is hereby created designated as "Special Voting Stock." The number of shares constituting such series shall be one (1). The outstanding share of Special Voting Stock shall be entitled at any relevant date to the number of votes determined in accordance with the "Plan of Arrangement" (as that term is defined in that certain "Combination Agreement" dated as of August 16, 1999, by and between the Corporation and Poco Petroleums Ltd. ("Poco")) on all matters presented to the stockholders of the Corporation. Upon the liquidation, dissolution or winding up of the Corporation, the holder of the Special Voting Stock shall be entitled, prior and in preference to any distribution to holders of Common Stock and after the distribution to 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 Special Voting Stock. The Special Voting Stock shall not be convertible into any other class or series of the capital stock or into cash, property or other rights, and may not be redeemed. If the Special Voting Stock shall be purchased or otherwise acquired by the Corporation, it shall be deemed retired and shall be canceled and may not thereafter be reissued or otherwise disposed of by the Corporation. So long as any "Exchangeable Shares" (as that term is defined in the Combination Agreement) shall be 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. (Added November 18, 1999) 13 EX-10.26 3 AMENDMENT TO RETENTION PLAN 1 Exhibit 10.26 The following agreement was entered into by the Company with, among others, John E. Hagale Executive Vice President and Chief Financial Officer and one other executive officer, on August 5, 1999. 2 You were a participant in the Burlington Resources Inc. ("BR") Retention Plan that was adopted effective March 1, 1992 (the "Retention Plan"). The Retention Plan offered certain benefits, including a pension enhancement, to those individuals who were employed at BR's Seattle holding company office on January 1, 1992. In connection with your relocation from Seattle to Houston, you were asked to sign a waiver of your benefits under the Retention Plan. As you may know, BR has paid a similar pension enhancement to former eligible BR employees who relocated from Seattle to Houston, even though they had executed such waivers. Under these circumstances, it would be inequitable not to treat you similarly. The purpose of this letter is to confirm that, upon termination of your employment and execution by you of BR's customary severance agreement, you will be paid a lump sum pension enhancement that results from the following modifications to the provisions of BR's Pension Plan (the "Qualified Plan") and Supplemental Benefits Plan (the "Supplemental Plan") in effect on the date hereof: o The "Lump Sum" calculation assumes you are eligible for and commence early retirement benefits, including the early retirement supplement, at age 60; o "Final Average Earnings" at age 60 assumes your base salary increases 6% per year and you receive your maximum bonus opportunity each year; and o "Integration Level" at age 60 assumes the Social Security Wage Base increases 5% per year. The Lump Sum described above will be determined using the actuarial assumptions being used at the time of such payment with respect to the Qualified Plan (for example, the discount rate and mortality assumptions) and will be reduced by the lump sum value of benefits payable from the Qualified Plan and Supplemental Plan whether or not such benefits are payable in a lump sum. BURLINGTON RESOURCES INC. --------------------------------------- By: Bobby S. Shackouls Its: Chairman of the Board, President and Chief Executive Officer EX-13.1 4 1999 ANNUAL REPORT 1 Exhibit 13.1 [BURLINGTON RESOURCES LOGO] ANNUAL REPORT 1999 OUR FORMULA REMAINS VALUE ADDED GROWTH [Background Graphics] 2 BURLINGTON RESOURCES IS ENGAGED IN THE EXPLORATION, DEVELOPMENT, PRODUCTION AND MARKETING OF OIL AND GAS. THE COMPANY CONDUCTS ACTIVITIES IN SEVERAL STRATEGIC AREAS WORLDWIDE, AND RANKS FIRST AMONG INDEPENDENT OIL AND GAS COMPANIES IN TERMS OF PROVED NORTH AMERICAN RESERVES. BR COMBINES THE DIVERSE GLOBAL OPPORTUNITIES, CRITICAL MASS AND FINANCIAL STRENGTH OF A MAJOR OIL COMPANY WITH THE ENTREPRENEURIAL SPIRIT, FLEXIBILITY AND RESPONSIVENESS OF AN INDEPENDENT OPERATOR. OUR HISTORY DATES TO THE 1800'S AND REPRESENTS A HERITAGE OF GROWTH AND SUCCESS. CONTENTS Operational Highlights .................................................... 2 Shareholder Letter ........................................................ 4 Review of Operations ...................................................... 7 Financial Review .......................................................... 30
BURLINGTON RESOURCES TERMS USED IN THIS REPORT Bbls Barrels BCF Billion Cubic Feet BCFE Billion Cubic Feet of Gas Equivalent MBbls Thousands of Barrels MMBbls Millions of Barrels MCF Thousand Cubic Feet MMCF Million Cubic Feet MCFE Thousand Cubic Feet of Gas Equivalent MMCFE Million Cubic Feet of Gas Equivalent MMBTU Million British Thermal Units TCF Trillion Cubic Feet TCFE Trillion Cubic Feet of Gas Equivalent 2-D Two Dimensional 3-D Three Dimensional NGLs Natural Gas Liquids DD&A Depreciation, Depletion and Amortization BR Burlington Resources Inc. LL&E The Louisiana Land and Exploration Company Poco Poco Petroleums Ltd. Shelf Shallow Waters of the Outer Continental Shelf in the Gulf of Mexico Deepwater Water Depths of 600 Feet or Greater in the Gulf of Mexico
Proved reserves represent estimated quantities of oil and gas which geological and engineering data demonstrate, with reasonable certainty, can be recovered in future years from known reservoirs under existing economic and operating conditions. Reservoirs are considered proved if shown to be economically producible by either actual production or conclusive formation tests. Proved developed reserves are the portion of proved reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are the portion of proved reserves which can be expected to be recovered from new wells on undrilled proved acreage, or from existing wells where a relatively major expenditure is required for completion. Net acreage and net oil and gas wells are obtained by multiplying gross acreage and gross oil and gas wells by the Company's working interest percentage in the properties. Oil is converted into cubic feet of gas equivalent based on 6 MCF of gas to one barrel of oil. [Photo of gas well equipment] 3 STATISTICAL DATA OPERATIONAL HIGHLIGHTS OPERATING DATA
1999 1998 1997 YEAR-END PROVED RESERVES Gas (BCF) 8,280 7,801 7,546 Oil (MMBbls) 329.4 345.6 322.0 Total (BCFE) 10,256 9,875 9,478 PRODUCTION Gas (MMCF per day) 2,004 2,077 2,052 Oil (MBbls per day) 89.9 104.5 108.1 Total (MMCFE per day) 2,543 2,704 2,701 AVERAGE SALES PRICE Gas (per MCF) $ 2.01 $1.92 $2.09 Oil (per Bbl) $16.85 $13.00 $19.01 AVERAGE PRODUCTION COSTS (PER MCFE) $ .51 $ .48 $ .50 WELLS DRILLED (NET) 319 520 552 PERCENTAGE SUCCESSFUL 93% 89% 90% GROSS WELLS BEING DRILLED AT DECEMBER 31, 33 40 74 NET WELLS BEING DRILLED AT DECEMBER 31, 22 26 42
FINANCIAL DATA
(In Millions, Except per Share Amounts) 1999 1998 1997 REVENUES $2,065 $2,009 $2,375 OPERATING INCOME (LOSS) (A) 236 (413) 605 NET INCOME (LOSS) (A) 1 (321) 352 BASIC EARNINGS (LOSS) PER COMMON SHARE (A) $ .01 $(1.52) $ 1.69 WEIGHTED AVERAGE COMMON SHARES 216 211 209 CASH FLOWS FROM OPERATIONS $1,102 $ 980 $1,363 CAPITAL EXPENDITURES 989 1,839 1,682 TOTAL ASSETS 7,191 7,086 7,164 TOTAL DEBT 2,820 2,684 2,317 STOCKHOLDERS' EQUITY $3,246 $3,318 $3,550 DEBT TO CAPITAL RATIO 46% 45% 39% CASH DIVIDENDS PER COMMON SHARE $ .46 $ .46 $ .39
(A) INCLUDED IN 1999 IS A $225 MILLION NON-CASH, PRETAX CHARGE ($140 MILLION AFTER TAX OR $.65 PER SHARE) FOR IMPAIRMENT OF OIL AND GAS PROPERTIES. ALSO INCLUDED IN 1999 IS A $37 MILLION PRETAX CHARGE ($26 MILLION AFTER TAX OR $.12 PER SHARE) FOR MERGER COSTS RELATED TO THE ACQUISITION OF POCO PETROLEUMS LTD. INCLUDED IN 1998 IS A $706 MILLION ($390 MILLION AFTER TAX OR $1.85 PER SHARE) NON-CASH, PRETAX CHARGE FOR IMPAIRMENT OF OIL AND GAS PROPERTIES. INCLUDED IN 1997 IS AN $80 MILLION PRETAX CHARGE ($71 MILLION AFTER TAX OR $.34 PER SHARE) RELATED TO THE LL&E MERGER FOR SEVERANCE AND RELATED TRANSACTION COSTS. ALSO INCLUDED IN 1997 IS A $50 MILLION PRETAX GAIN ($31 MILLION AFTER TAX OR $.15 PER SHARE) RELATED TO THE SALES OF OIL AND GAS PROPERTIES ASSOCIATED WITH THE DIVESTITURE PROGRAM. [Bar Graphs] NATURAL GAS RESERVES December 31, (TCF) 1997 7.5 1998 7.8 1999 8.3
[ ] = Proved Developed [ ] = Proved Undeveloped NATURAL GAS PRODUCTION Year Ended December 31, (MMCF per day) 1997 2,052 1998 2,077 1999 2,004
NATURAL GAS PRICES Year Ended December 31, ($ per MCF) 1997 $2.09 1998 $1.92 1999 $2.01
4 [Bar Graphs] OIL RESERVES December 31, (MMBbls) 1997 322.0 1998 345.6 1999 329.4
[ ] = Proved Developed [ ] = Proved Undeveloped TOTAL RESERVES December 31, (TCFE) 1997 9.5 1998 9.9 1999 10.3
RESERVE REPLACEMENT RATIO * Year Ended December 31, (Percent of Production) 1997 202% 1998 158% 1999 142% 3 YR. AVG. 168%
OIL PRODUCTION Year Ended December 31, (MBbls per day) 1997 108.1 1998 104.5 1999 89.9
DAILY PRODUCTION Year Ended December 31, (MMCFE per day) 1997 2,701 1998 2,704 1999 2,543
RESERVE REPLACEMENT COSTS* Year Ended December 31, ($ per MCFE) 1997 $ .78 1998 $1.11 1999 $ .70 3 YR. AVG. $ .86
OIL PRICES Year Ended December 31, ($ per Bbl) 1997 $19.01 1998 $13.00 1999 $16.85
PROVED RESERVES BY PRODUCT COMPOSITION December 31,
1997 1998 1999 [ ] = Oil 20% 21% 19% [ ] = Gas 80% 79% 81%
CAPITAL EXPENDITURES* Year Ended December 31, ($ Millions) 1997 $1,682 1998 $1,839 1999 $ 989
*Includes Acquisitions 3 5 [BURLINGTON RESOURCES LOGO] [Photo of man's Shadow] TABLES & GRAPHS 6 TO OUR FELLOW SHAREHOLDERS WE STRONGLY BELIEVE THAT THE KEY TO THE CREATION OF LASTING, LONG-TERM VALUE IS EFFECTIVE PORTFOLIO MANAGEMENT RESULTING IN THE DEVELOPMENT OF AN INVENTORY OF SIGNIFICANT, HIGH QUALITY PROJECTS THAT CAN MAKE A DIFFERENCE TO A COMPANY OF OUR SIZE. [BACKGROUND GRAPHICS] SHAREHOLDER LETTER [PHOTO OF CHAIRMAN OF THE BOARD, PRESIDENT AND CEO] Unlike most shareholder letters, I do not plan to devote my comments to our accomplishments and operating record during the past year. Although we achieved much in terms of financial, operational and strategic performance, those achievements are thoroughly addressed in the body of this annual report. It is my objective to share with you the manner in which our Company is undertaking fundamental change to improve the financial returns realized by our shareholders. Over the past several years, we have made a number of strategic moves, including the acquisitions of LL&E and Poco, as well as non-core property divestitures. All of these actions have been designed to transform our Company into one capable of creating substantial incremental value. This is a goal that few within the independent segment of our industry have been able to meet. We coined this new kind of company a "Super Independent" - one that possesses assets comparable with the large, integrated companies in terms of size and quality, yet operates with the entrepreneurial mindset of an independent. The overriding objective in this transformation has been the creation of a platform for delivering competitive financial returns prospectively. We have de-emphasized production volume growth in order to concentrate solely on value enhancement. While this has not been an overwhelmingly popular decision throughout our investor base, it has been necessary to instill the kind of capital discipline necessary to meet this singular objective. We have to deal with certain facts of life in this business. In today's world, commodity prices are, and will continue to be, volatile. Our financial results will be impacted by that volatility and our stock is going to react to commodity price cycles. The types of projects required to generate competitive returns are, by their very nature, capital intensive and require long cycle times. There are numerous risks associated with these 4 7 types of projects, both above and below ground. In order to be successful, to create value and generate competitive returns, we must proactively manage these risks and find creative ways to turn these realities into opportunities. We strongly believe that the key to the creation of lasting, long-term value is effective portfolio management resulting in the development of an inventory of significant, high quality projects that can make a difference to a company of our size. To successfully employ the portfolio management concept, we must exhibit significant breadth and diversity. We must possess a large diversified base of high quality production that throws off a substantial volume of cash flow to fund the numerous projects required to enhance value. We must control a large inventory of low-risk, predictable development opportunities that can offset the natural decline that is present in any production base. Finally, we must explore - we must add high-return reserves through the drill bit and we must develop an inventory of significant, high quality projects that can make a difference to a company of our size. Each property or project must be analyzed independently, including an assessment of the full range of risks involved. At Burlington Resources, we have divided our assets into groups of properties and projects that behave similarly and share common characteristics. We have analyzed each group to identify and rank those factors which will have the highest impact on the property or project's potential for future value creation. We then have the ability to mix and match these properties and projects to balance our risk and maximize our financial returns in the aggregate. The ability to balance these various aspects of our business is entirely dependent upon the quality, number and maturity of the assets and projects that we control. Our present portfolio of assets possesses a high degree of this breadth and diversity that is so necessary in order to be a successful independent exploration and production company. Our high quality production base is epitomized by the long-lived reserves in the San Juan Basin and the Madden Field. This is complemented by the vast exploitation opportunities we possess in western Canada, the San Juan Basin, the East Irish Sea, the Anadarko Basin and onshore south Louisiana and south Texas. Finally, we have significant value-adding growth potential through exploration in the Deepwater province of the Gulf of Mexico, Canada, Algeria and Suriname. I invite you to read more about each of these areas in the remainder of this report. [Photo of drilling rig] [Photo of gas plant separator] One characteristic that has made the majors successful is that they possess an enormous inventory of projects which I refer to as a "pipeline." This pipeline has been filled with opportunities that can be brought to fruition as needed. Unlike the [Pie Graphs] 1999 PROVED RESERVES December 31 Total: 10.3 TCFE US Gas 58% US Oil 13% Canadian Gas 14% Canadian Oil 4% Other International Gas 9% Other International Oil 2%
1999 DAILY PRODUCTION Year Ended December 31 Total: 2.5 BCFE US Gas 58% US Oil 14% Canadian Gas 17% Canadian Oil 5% Other International Gas 3% Other International Oil 3%
5 8 ALL OF US AT BURLINGTON RESOURCES ARE COMMITTED TO DELIVERING RELIABLE, ECONOMIC SOURCES OF ENERGY AS WE MOVE INTO THE 21ST CENTURY. majors, we have only recently begun to fill our opportunity pipeline. This means that we are currently spending large sums of capital on projects that won't bear immediate fruit, but possess tremendous potential for future value creation. These investments weigh on our current period returns. However, if we don't make these investments now, we won't be here to compete tomorrow. [PHOTO OF DRILLING RIG] We have taken significant steps over the past several years to be the leading independent in our industry, not just in size but in terms of financial returns. We have high graded our asset base leaving us with superior core properties. We have continued to expand our inventory of high quality, development projects by leveraging our competitive advantages core areas. The strategic mergers that we have concluded have built upon our organizational skills and strengths and were both aimed at populating our inventory of projects for future value creation. We are beginning to see tangible, successful results from these transactions in places like Madden, Algeria and western Canada. Finally, we have imposed the capital discipline necessary to preserve our financial flexibility to take advantage of future opportunities, to see our current project inventory to fruition and to weather the cyclical downturns for which our industry has become known. As a result, we believe that we are well positioned to prosper in the future with significant value generation, despite the numerous obstacles that face our industry. All of us at Burlington Resources are committed to delivering reliable, economic sources of energy as we move into the 21st Century. However, I can assure you that we are all further driven to achieve this objective only in concurrence with the deliverance of competitive returns to our shareholders. In closing, I would like to thank three of our directors who are retiring from service on our board. John Byrne, Leighton Steward and Bill Wall have provided valuable advice and unwavering support for many years. We will miss all three of them and wish them the very best in their future endeavors. /s/ Bobby S. Shackouls Bobby S. Shackouls Chairman, President and Chief Executive Officer [PHOTO OF COMPUTER] [PHOTO OF PLATFORM] 6 9 [PHOTO OF MAN'S HAND HOLDING MAP] REVIEW OF OPERATIONS NORTH AMERICA 7 10 [PHOTO OF MAN'S HANDS HOLDING MAP] NORTH AMERICA BUSINESS AT A GLANCE Our Company is known first and foremost as a natural gas exploration and production company. We are the largest independent producer of natural gas in North America, with proved U.S. and Canadian natural gas reserves of 7.4 TCF, as of year-end 1999. Our total North American proved reserves at year-end 1999 were 9.1 TCFE. Our North American operations provide the cash flow to fuel the Company's future growth, as well as a diverse portfolio of value creation opportunities to achieve that growth. Our most significant accomplishment in 1999 was the acquisition of Poco Petroleums Ltd., affording us an entry into the Canadian exploration and production business and securing a platform for future growth in Canada. Poco's assets were the perfect complement to our existing North American portfolio. 8 11 Our North American assets play an important role in the balance of our overall corporate portfolio, providing the largest part of our stable production base. Our North American production base is complemented by numerous, repeatable low-risk exploitation opportunities for replacing production and a generous inventory of high quality exploration plays in the most prospective areas of the U.S. and Canada. The San Juan Basin, boasting record production for the thirteenth consecutive year, best characterizes our stable production base. The Madden Field in Wyoming is quickly becoming a legacy asset as well. Exploitation projects in Madden's shallow formations and development of its prolific Deep Madison Formation are providing opportunities for future production growth and a substantial, stable cash flow stream that will be used to fund other high growth opportunities. Exploration plays in the Deepwater of the Gulf of Mexico, western Canada and the Canadian Northwest Territories provide meaningful opportunities for value-added growth. During 1999, oil and gas capital expenditures for our North American operations totaled $779 million: $185 million for exploration; $459 million for development projects; and $135 million related to proved reserve acquisitions. As a result of these investments, we added 923 BCFE to our proved oil and gas reserves, achieving a reserve replacement ratio of 106 percent. Reserve replacement costs averaged $.84 per MCFE. Reserve replacement averaged 148 percent over the last three years, with replacement costs averaging $.92 per MCFE. Our strategy for North America is to continue to leverage our competitive strengths to enhance the value of the business. Our engineering capability allows us to find new ways of reducing drilling and completion costs in technically challenging areas, such as at the Madden Field in Wyoming; our natural gas expertise provides us the ability to continue unlocking untapped hydrocarbon resources in mature basins like the San Juan Basin; and our financial strength gives us the ability to take advantage of opportunistic acquisitions and to make prudent capital investments, regardless of commodity price volatility. These qualities allow our North American operations to contribute significantly to the overall corporate goal of building long-term shareholder value. [PHOTO OF DRILLING RIG] CANADA Our entry into Canada through the acquisition of Poco represents a major milestone in the continuation of a North American natural gas strategy aimed at delivering competitive returns to our shareholders. The acquisition was a strategic move that gives us access to one of the largest natural gas resource bases in North America and provides a platform for significant future growth. Poco was a logical choice for our debut in Canada because of the nature of its asset portfolio and its relationship to the core competencies we have developed at Burlington Resources. Our proven experience and expertise in the areas of deep drilling, sour gas treating, coalbed methane production and the resolution of infrastructure, marketing and transportation issues will help us fully realize the potential of the high quality Canadian assets acquired in the transaction. Under the terms of the transaction which closed on November 18, 1999, Poco shareholders received 0.25 BR common shares or 0.25 BR common equivalent (exchangeable) shares, at their discretion, for each Poco share held. The exchangeable shares are Canadian securities, traded on the Toronto Stock Exchange under the symbol BRX and have the same rights, entitlements and attributes as shares of BR common stock. The BRX shares are exchangeable at the shareholder's option for BR common shares on a one for one basis. The combination of the two companies was accounted for as a pooling of interests and qualified as a tax-free reorganization. The Canadian properties we acquired through the Poco transaction represent an extremely high quality, well-balanced 9 12 CANADIAN EXPLORATION ACTIVITY IS FOCUSED IN THE CENTRAL AND NORTHERN REGIONS OF ALBERTA AT LOCATIONS SUCH AS HAMBURG, WHITECOURT AND O'CHIESE AND IN NORTHEAST BRITISH COLUMBIA AT MONKMAN AND MAXHAMISH. [PHOTO OF MAN ON DRILLING RIG] asset portfolio that complements our existing asset base. At year-end 1999, our Canadian proved reserves were approximately 1,870 BCFE; production from our Canadian properties averaged approximately 429 MMCF per day of gas and 19.4 MBbls per day of oil during 1999. Poco's reserve and production base is predominantly natural gas, representing respectively 78 and 79 percent of the total. In addition to producing properties, we also have access to 2.8 million acres of undeveloped leasehold and the opportunity to take advantage of the excellent prospect inventory developed by Poco over the last several years. Viewing the portfolio from a risk profile standpoint, the Canadian asset base includes low-risk production, located primarily in eastern Alberta and southeastern Saskatchewan, where the productive horizons are well established and relatively shallow. Our 1999 program in this region entailed drilling 40 shallow wells and our plans for 2000 call for a similar program. We believe we can maintain production in this area over the next several years by exploiting the existing assets through low-cost development and infill drilling. This region contributed approximately 15 percent of our Canadian production in 1999. Moving up the risk profile, the majority of the Canadian exploitation program is located in central Alberta. These exploitation areas are generally characterized by moderate risk, with multizone hydrocarbon potential and good access to pipeline and plant infrastructure. The productive reservoirs in these areas occur in Cretaceous and Jurassic rocks, which are quite similar to the formations we have efficiently developed for years in the San Juan Basin. We currently maintain an inventory of over 300 defined drilling locations, primarily in the Whitecourt, O'Chiese and Harmattan areas of Alberta, and plan to drill approximately 160 to 170 wells here in 2000. We hold over 1.6 million undeveloped acres in this trend which contain up to fifteen zones that are gas productive. This asset base will allow us to continue to generate new projects for many years to come. This region contributed 65 percent of our Canadian production in 1999. [PHOTO OF OIL STORAGE TANKS] Canadian exploration activity is focused in the central and northern regions of Alberta at locations such as Hamburg, Whitecourt and O'Chiese and in northeast British Columbia at Monkman and Maxhamish. These areas present significant upside potential for us and offer the opportunity to discover world class natural gas reserves. The risks are greater here and lead-time to establish production is longer, due to deeper well depths and remote well locations. In many cases, drilling and completion operations are restricted to the winter months. Although the deep Devonian plays in this region are higher risk, single well production rates can be as high as 60 MMCF of gas per day. Our plans are to drill approximately 76 exploration wells, including 16 deep Devonian wells in 2000. In 1999, these areas accounted for 20 percent of our Canadian production Poco enhanced its position in some of Canada's most exciting natural gas exploration plays through a farm-in and joint venture negotiated with Chevron Canada Resources in July 1999. This joint venture involves a multi-well commitment and 10 13 sharing of operatorship and technical knowledge. The venture gives us access to 800,000 gross acres and all of Chevron's proprietary seismic data, which amounts to over 7,100 miles of 2-D seismic and 150 square miles of 3-D seismic data. We have committed to drill 14 wells at our expense over a two-year period ending June 30, 2001, with an option for a third year. The target formations are at depths of 11,000 to 15,000 feet. Upon meeting all commitments, we will earn a 50 percent working interest in the Chevron lands. In September 1999, BR was the successful bidder on two parcels offered in the Mackenzie Delta area of the Northwest Territories. These land acquisitions give us a 100 percent working interest in these two parcels located in one of the most promising exploration areas in North America. In the Mackenzie Delta, industry has discovered nine TCF of natural gas and one billion Bbls of oil to date. We have access to lands totaling 364,000 acres for a term of up to nine years, with a commitment to spend a minimum of $53 million over five years. A review of existing seismic data began in the fourth quarter of 1999 and a new seismic program is planned in 2000. The Mackenzie Delta requires a pipeline to be built to service the region and allow natural gas to reach market. In terms of key 1999 activity, drilling continued to focus on the deeper gas-bearing areas of the western Canadian sedimentary basin. During 1999, 153 wells were drilled, with a 93 percent success rate. Of those, 119 were completed as natural gas wells, 23 as oil wells and 11 were dry and abandoned. Drilling in 1999 included spudding nine deep Devonian exploration wells, seven of which were still drilling at year-end. At year-end 1999, the deep drilling program planned for the Kaybob area of southwestern Alberta is for six wells directed towards deep, large reserve, Devonian gas prospects. Three more of these wells are currently drilling as a part of the Chevron/BR joint venture. Our plans are to drill 13 deep gas prospects in this area during 2000, with half of this exploration program undertaken on the joint venture lands. We will drill three wells in the Maxhamish area of northeast British Columbia as part of the joint venture. This area is a sparsely drilled part of the western Canadian sedimentary basin that holds significant potential. The area is located south of the Fort Liard area, where Chevron and other companies have been very successful in drilling for natural gas. The acquisition of Poco provided us with a unique opportunity to expand our North American presence. We added nearly two TCFE of proved reserves to our base, substantial probable and possible reserve volumes, and a large inventory of high quality exploration prospects and acreage. We also acquired ownership of an enormous geological and geophysical database and gained a seasoned, [PHOTO OF 3 MEN AND DRILLING EQUIPMENT] THE ACQUISITION OF POCO PROVIDED US WITH A UNIQUE OPPORTUNITY TO EXPAND OUR NORTH AMERICAN PRESENCE. WHEN YOU ADD THIS TO OUR CORE COMPETENCIES AND FINANCIAL STRENGTH, YOU HAVE A FORMULA FOR SUCCESS IN DELIVERING LONG-TERM SHAREHOLDER VALUE. 11 14 ALTHOUGH WE HAVE EXPANDED TO OTHER LOCATIONS AROUND THE GLOBE, THE SAN JUAN BASIN REMAINS ONE OF OUR MOST IMPORTANT OPERATIONAL AREAS. [PHOTO OF OIL STORAGE TANK] knowledgeable Canadian staff. When added to our core competencies and financial strength, the acquisition of Poco strengthened our formula for successful delivery of long-term shareholder value. SAN JUAN BASIN Our Company had its beginning in the San Juan Basin of New Mexico and today we are the largest and most active producer in the area, operating over 6,400 wells in the basin and holding interests in an additional 3,600 non-operated wells. We also operate the Val Verde gathering system, consisting of the basin's largest treating plant and approximately 420 miles of gathering lines and 14 compressor stations. Although we have expanded to other locations around the globe, the San Juan Basin remains one of our most important operational areas. At year-end 1999, the San Juan Basin's 3.8 TCF of proved natural gas reserves represented 46 percent of our total natural gas assets. The basin is also important because it generates free cash flow of three to four times the annual investment required to fund operations in the region. The excess capital generated by our legacy assets in the San Juan Basin is utilized throughout our Company to help fund our aggressive worldwide exploration and development program, without unduly taxing our balance sheet. Active development of the San Juan Basin began in the early 1950's and many would consider it to be a mature basin. We continue to defy this view by consistently using innovative approaches to exploit the basin's multiple zone, gas reservoirs. Our aggressive program to optimize existing wellbores helps us remain the lowest cost and most successful operator in the basin. We continually learn from our experience in this vast "geologic laboratory" and we constantly pursue new opportunities to apply that knowledge. Consistent with our history of deriving the maximum value from our assets in the San Juan Basin, we achieved record production for the thirteenth consecutive year in 1999. The basin contributed 43 percent of our total daily net gas production, averaging 864 MMCF per day. The exit volumes at year-end were even higher, at nearly 900 MMCF per day of natural gas. Prior to 1998, most of our growth in the basin came from production of coalbed methane gas from the Fruitland Coal Formation. Beginning in 1997, as the Fruitland Coal play matured, we began placing greater emphasis on increasing production from the conventional gas-producing formations, such as the Mesaverde, the Pictured Cliffs and the Dakota. The Mesaverde Formation, which consists of the Lewis Shale, Cliffhouse, Menefee and Point Lookout sands, is the highest producing conventional formation in the San Juan Basin. It has been extensively developed for over 40 years on 320-acre and 160-acre spacing. In February 1999, the New Mexico Oil Conservation Division approved our plans for increased density drilling. With regulatory approval in place to undertake 80-acre infill drilling of the Mesaverde formation across the entire basin "fairway", we launched an aggressive drilling program to develop the extensive inventory of development opportunities that existed. During 1999, we completed 76 of these projects, at a cost of approximately $23 million. To date we have added over 400 BCFE and developed one quarter of the reserves. The program's outstanding success calls for development in 2000 of an additional 90 BCFE at a cost of approximately $30 million. The remaining program will provide a low cost inventory of opportunities for the next several years. The 80-acre spacing Mesaverde drilling program also provides the opportunity to exploit formations that would be less economic to develop on a stand-alone basis. In 2000, we plan to take advantage of dual development opportunities with the Pictured Cliffs and Dakota Formations. Our development program goes beyond the new 80-acre Mesaverde infill drilling program as we begin exploiting the Lewis Shale. The Lewis Shale interval is a 1,200 to 1,500 foot thick, organically rich shale found between the Pictured 12 15 Cliffs sandstone and the Cliffhouse portion of the Mesaverde Formation. The shale is one of the major hydrocarbon source rocks in the basin, containing a vast non-traditional gas resource that has been largely overlooked by producers. Consistent with our never-ending pursuit of new opportunities in the basin, we started a pilot program in 1998, which was expanded in 1999, to evaluate the feasibility of commercially developing the Lewis Shale interval. The results have shown us that commercial quantities of gas can be economically extracted in areas where the shale is naturally fractured. In 1999, we approached the Lewis Shale program from two different aspects. We performed 108 completions of the shale interval in conjunction with new wells drilled as part of the Mesaverde development program. Additionally, we successfully completed 62 Lewis payadds in existing well bores across the basin. Our 1999 program also provided additional data for the construction of a comprehensive reservoir characterization model, which is being used to plan for an expanded program for 2000 and beyond. If results continue to be favorable, we could eventually recomplete over 1,000 wells in the Lewis Shale. Using methodology similar to our successful Mesaverde study, we completed a study of the Dakota formation in 1999. In 2000, we will drill 13 new wells and deepen over 50 Mesaverde development projects to include the Dakota Formation. This program strategically tests geological and petrophysical study assumptions across a wide geographic area and will generate follow-up potential in 2001 and beyond. Although production from the Fruitland Coal formation peaked in 1998, we continue to optimize our coal gas production through the application of technology. We have an ongoing optimization program that consists of recavitating existing wells, adding compression and installing artificial lift, where appropriate, to offset production decline. In 1999 we completed 67 projects throughout the basin and successfully negotiated lower gathering pressures in the Allison Unit. As a result, coal gas production exceeded our expectations in 1999, averaging 420 MMCF of gas per day. In 2000, we will continue to focus on minimizing production decline by completing over 60 projects in the Fruitland Coal Formation. This Four Corners region is generally thought of as an area for exploitation and development, but in 1999 we undertook a successful exploration project in the Paradox Basin of southwestern Colorado. We have substantial opportunity to capitalize on this exploration success, with a surrounding acreage position of approximately 150,000 acres. We will undertake additional drilling on this acreage in 2000. We aggressively continued to pursue acquisition opportunities in the San Juan Basin in 1999. We successfully acquired nearly 100 BCFE of proved reserves in areas that complement our capital programs, much like our Allison Unit acquisition in 1998. By the end of 1999 we had nearly [PHOTO OF OIL WELL EQUIPMENT] THE EXCESS CAPITAL GENERATED BY OUR LEGACY ASSETS IN THE SAN JUAN BASIN IS UTILIZED THROUGHOUT OUR COMPANY TO HELP FUND OUR AGGRESSIVE WORLDWIDE EXPLORATION AND DEVELOPMENT PROGRAM, WITHOUT UNDULY TAXING OUR BALANCE SHEET. 13 16 tripled daily production rates in the Allison Unit from the pre-acquisition average of 40 MMCF of gas per day. We anticipate significant future production increases from our 1999 acquisition activity. As evidenced by our aggressive development and exploration programs during 1999, our strategy in the San Juan Basin is to continue doing what we have done so well. We will relentlessly pursue new opportunities, including acquisitions, to apply our unsurpassed knowledge of the basin and continue to push our technological edge in different ways to exploit the enormous untapped natural gas resource that remains in this 1,000 square mile productive area. WIND RIVER BASIN The Madden Field, located in central Wyoming's Wind River Basin, is taking its place next to the San Juan Basin as a legacy asset which contributes to our stable production base. This field is a prime example of a property whose value we are significantly enhancing by creatively using our engineering and marketing expertise. Application of "best practices" from our other operational areas has allowed us to reduce drilling costs significantly. Our proactive approach to gathering and marketing issues, coupled with our innovative hedging program, assures us of obtaining the maximum financial benefit from our production from the field. [PHOTO of drilling rig] At year-end 1999, total net production from the field stood at 86 MMCF of gas per day. Although this is only six percent of our current daily production, the real story of the Madden Field lies with its huge long-lived reserve potential, the producing characteristics of the deep Madison Formation wells and the opportunity for continuous growth for a number of years to come. We operate the Madden Deep Unit and control over 70,000 acres in the area. The most significant aspect of the field is the deep Madison Formation. In late 1999, we completed drilling of the fourth deep Madison well, the Bighorn 5-6, which reached a total depth of 25,190 feet. We drilled the well in a record 300 days, 40 percent faster than the last deep Madison well, the Bighorn 4-36. This operational improvement is a result of applying our innovative engineering capability to the very complex issues associated with drilling this ultra-deep well. Drilling, completion and equipment costs are projected at almost $10 million lower than the last well. The Bighorn 4-36, completed in 1997, extended the lowest known gas in the pool, increasing proved gross reserves to approximately two TCF. The Bighorn 5-6 further extended downdip the level of lowest known gas by approximately 210 feet. The incremental increase in the reservoir's proved reserves will be evaluated in the first quarter of 2000, with the production testing of the Bighorn 5-6 well. We have begun drilling operations on the next deep well, the Bighorn 6-27, expecting to achieve total depth by December 2000. This downdip well provides us the chance to extend the lowest known gas in this prolific reservoir by an additional 600 feet, presenting us the opportunity for further substantial increases in proved reserves. The three existing deep Madison Formation wells have demonstrated their ability to sustain production rates in excess of 40 MMCF of gas per day each, but are constrained by the inlet capacity of the Lost Cabin Gas Plant, which removes hydrogen sulfide and carbon dioxide from the gas in order to meet pipeline specifications. During 1999, we doubled the plant capacity from 65 MMCF to 130 MMCF of gas per day. Existing well performance has been so strong and the outlook for continued production growth is so positive that we are currently designing an additional 180 MMCF per day of plant capacity, which should be completed in mid-2002, bringing total capacity to 310 MMCF of gas per day. We hold an average working interest in the deep Madison Formation of 48 percent and own a 51 percent working interest in the Lost Cabin Gas Plant. In addition to our Madison successes, 1999 was a successful year for the Madden Field shallow drilling program. [PHOTO of gas plant] 14 17 During the year, we drilled 14 new wells and accomplished 12 recompletions into the Lower Fort Union, Lance and Mesaverde Formations. Completed well costs and drilling time continue to run at about 60 percent of what has been experienced in prior years. We anticipate a continued active drilling program for the shallow formations, with 13 new wells and 19 recompletions planned for year 2000. In March of 1999, we announced a joint venture with Enron Capital and Trade to build a 124-mile, 24-inch gathering line from the Madden Field to compression and processing facilities located near Wamsutter, Wyoming. The Lost Creek Gathering System will relieve the capacity constraints that are being created by production growth and will provide access to transportation, giving us the flexibility to move the Madden Field gas to the best available markets. We anticipate that this project will reduce price differentials and increase wellhead netbacks, thereby further enhancing the value of the Madden Field gas. First delivery is anticipated in early fourth quarter of 2000. We hold a 65 percent working interest in the project. The development of the Madden Field is a work in progress with a very bright future. We will continue to work on reducing costs to further enhance the economics, while systematically conducting delineation drilling to ultimately define the size of the deep Madison Formation reservoir. Our multi-pronged approach to the Madden Field, which includes continuous drilling, providing "just in time" processing capacity expansions and proactive solutions for gathering, transportation and marketing issues, is transforming the Madden Field into a core asset that will provide an important part of our stable production base for many years to come. ANADARKO BASIN The Anadarko Basin continues to provide numerous low-risk exploitation opportunities that can contribute to our production base and future growth. The basin is characterized by stacked productive reservoirs reaching depths over 25,000 feet. We have become highly proficient at drilling these very deep wells, a skill that will help us in our new endeavors in Canada. We control over 250,000 net acres in the Anadarko Basin. During 1999, we completed 31 drilling and workover projects. Average net production for the year from the basin was 103 MMCF of gas per day. PERMIAN BASIN In 1999, we scaled back operations significantly in the Permian Basin as a result of our ongoing value enhancement program, which dictates that we constantly evaluate our allocation of capital based on all of the opportunities available at any given time. In the Permian Basin, this strategy translated into a high-grading of our activities in 1999. Most of our 1999 oil & gas capital spent in the basin was focused on the Sonora, Puckett and Waddell Ranch properties. This activity allowed us to maintain production, which averaged approximately 74 MMCF of gas per day and 11 MBbls of oil per day. We will continue to focus on key Permian Basin assets and we have identified a large inventory of projects for 2000, primarily on the Sonora properties, which encompass approximately 30,500 net acres. We also plan increased capital activity on our Waddell Ranch properties, consisting of 37,000 net acres. WILLISTON BASIN The Williston Basin, located in western North Dakota and northeast Montana, is primarily an oil producing region. We have been very successful in this core area during the past decade by utilizing the horizontal drilling expertise that we developed in the Bakken shale program of the early 1990's. We continue to refine this process, drilling many of the current wells with "state of the art" multilateral drilling technology. These techniques significantly increase the wellbore's ability to encounter pay, increase wellbore contact to the productive formation from a single surface location and improve production rates. Our use of technology, such as advanced horizontal drilling, allows otherwise uneconomic wells to generate significant additional value. THE MADDEN FIELD IS A PRIME EXAMPLE OF A PROPERTY WHOSE VALUE WE ARE SIGNIFICANTLY ENHANCING BY CREATIVELY USING OUR ENGINEERING AND MARKETING EXPERTISE. 15 18 During 1999, we completed 83 projects in the basin utilizing $34 million of capital. This is a reduction from the 104 projects we completed in 1998 at a cost of $89 million. At year end, net daily oil production for the basin was 17.5 MBbls per day compared to an average of 22 MBbls of oil per day in 1998. Our original plans for the Cedar Hills Field called for construction of waterflood facilities, infill drilling and conversion of producing wells into water injectors during 1999. Unitization issues were still pending at year end, thus delaying the necessary preparatory work for secondary recovery. Our current plans call for injection well conversions and drilling of 15 wells beginning in July 2000, with production impact anticipated in 2001. [PHOTO of platform] Our efforts in the basin during 1999 were predominantly focused on enhanced recovery through programs such as East Lookout Butte (ELOB), where horizontal drilling and waterflood technology provide the opportunity for optimum production response. During 1999, we drilled 20 wells at ELOB, re-entered four wells and converted eight wells for water injection. As a result of this successful project, we are already experiencing production inclines in the ELOB Waterflood Pilot Area. We will complete the ELOB flood pattern in 2000, with maximum production response anticipated in 2005. Our strategy in the Williston Basin is to continue leveraging our technical competencies of horizontal drilling and enhanced recovery techniques to maximize the value of the assets contained in the 1,000,000 gross acres we currently control. DEEPWATER GULF OF MEXICO Over the last few years, we have strategically positioned our Company to be a prime player and operator in what has been deemed as one of the last premier exploration plays in the U.S. - the Deepwater province of the Gulf of Mexico. Deepwater growth potential and opportunity for value creation plays an important role in our future strategy. We maintain one of the largest Deepwater leasehold positions in the industry, with nearly 200 blocks leased in multiple basins located in a broad range of water depths. Our Deepwater exploration program's first full year was 1999. We participated in drilling six prospects, including our first two operated prospects, Spoon and Fiesta. The 1999 program, however, did not yield any commercial discoveries. During 1999 exploration oil and gas capital expenditures amounted to $60 million, including $4.5 million spent to acquire 11 additional blocks at lease sales. In mid-1999, we acquired a 63 percent working interest in the Pluto Deepwater development project, situated in Mississippi Canyon Blocks 673, 674, 717 and 718 in approximately 2,800 feet of water. The project, completed in November 1999, entailed drilling a single production well with a subsea completion tied back to a host platform on South Pass Block 89. Production operations commenced in late December 1999, with net production of 40 MMCF of gas per day and 5.8 MBbls of oil per day. The well has produced at gross rates up to 72 MMCF of gas and 12 MBbls of oil per day. In total, we developed Deepwater reserves at an acquisition and development cost of $1.04 per MCFE. Our interest reverts to 49 percent after all costs have been recovered. We will proceed with our Deepwater drilling program in 2000, continuing to focus on maturing our portfolio of projects generated by 3-D seismic data. We anticipate a capital program of approximately $60 million to participate in drilling at least six Deepwater wells. Our Deepwater exploration program will provide opportunities over the next several years to test the numerous prospects we have identified on our extensive lease block holdings. In addition to exploiting our existing leasehold position, we will persist in searching for opportunities to participate in high potential exploration projects on blocks held by others, and in Deepwater development projects on known discoveries such as Pluto. 16 19 [PHOTO of deepwater drill ship] THE DEEPWATER GROWTH POTENTIAL AND OPPORTUNITY FOR VALUE CREATION PLAYS AN IMPORTANT ROLE IN OUR FUTURE STRATEGY. WE MAINTAIN ONE OF THE LARGEST DEEPWATER LEASEHOLD POSITIONS IN THE INDUSTRY. Historically, industry commercial success rates in the Deepwater have been about 20 percent, and our high quality acreage position should provide us many opportunities to be rewarded with future discoveries. ONSHORE GULF COAST We maintained a very active exploration and development program in onshore south Louisiana and south Texas in 1999. Our program is built on the numerous years of experience accumulated in successfully exploring and developing our 680,000 acres of company-owned fee lands and 100,000 leasehold acres, located primarily in south Louisiana and South Texas, almost all of which are covered by 3-D seismic. The fee lands provide us a competitive advantage in an area where lease acreage costs are high and leasehold positions are difficult to maintain. We continue to use 3-D seismic to exploit these fee lands and identify additional exploration potential on third party acreage. During 1999, we completed approximately 40 projects in south Louisiana, with almost half of those projects being company-operated. Although much of the south Louisiana activity is exploitation-oriented, our 1999 exploration program was extremely encouraging, with a 100 percent success rate. 17 20 We began expanding our onshore Gulf Coast program to south Texas in 1998, applying the knowledge and expertise we developed in south Louisiana in dealing with complex faulting, geopressure and depleted sands. We were very active in south Texas in 1999, drilling a total of nine exploration and development wells. Much of this activity was located at Armstrong Ranch in Jim Hogg County, in a field that was first discovered in 1959. Our focus has been on the eighth and ninth Hinnant Sands in the Wilcox Formation since drilling our first two successful Armstrong Ranch wells in 1998. A high potential exploration target was identified at Armstrong Ranch in the Wilcox Fandango section. Preliminary data from this first Fandango exploration test are very encouraging, with full results expected early in 2000. [PHOTO OF MEN AND DRILLING EQUIPMENT] Following the Wilcox trend northward, we completed a 3-D seismic project in the Big Thicket area of East Texas during the third quarter of 1999, acquiring approximately 300 square-miles of 3-D seismic data. At year-end, approximately one third of the seismic data had been processed and the first exploration well to test the Lower Wilcox Formation in the Big Thicket was spud. Our strategy for the onshore Gulf Coast regions of south Louisiana and south Texas is to continue applying the latest geophysical and drilling techniques to effectively explore for and develop hydrocarbons on more than 100,000 net acres of leasehold and over 680,000 acres of fee lands under our control in one of the most prolific producing provinces in the U.S. GULF OF MEXICO SHELF During 1999, we decreased our emphasis on the Gulf of Mexico Shelf as part of our ongoing value enhancement program. The "Shelf Trend", a geographical area with water depths less than 600 feet, is a mature basin which has begun to offer smaller reserve potential and to exhibit increasingly steep production decline rates. Given these circumstances, we reduced capital spending on the Shelf during 1999 to approximately $24 million, compared to $218 million spent during 1998. Our emphasis has shifted on the Shelf, reducing the number of higher-risk projects we undertake in favor of lower-risk exploitation and development projects. We have also shifted our focus to a few core areas on the Shelf where we operate and maintain a large production infrastructure. Our 1999 production from the Shelf averaged 218 MMCF of gas per day and 13 MBbls of oil per day, down from the 1998 average of approximately 307 MMCF of gas per day and 14 MBbls of oil per day of production. These production volume decreases were, of course, accentuated by reduced capital spending in 1999. With our substantial core assets and infrastructure on the Shelf, the historically successful exploitation and development drilling programs will continue into 2000 and beyond, primarily aimed at maintaining production volumes. Exploration drilling on the Shelf will play a reduced role in our future efforts to deliver long-term shareholder value. OUR PROGRAM IN SOUTH LOUISIANA AND SOUTH TEXAS IS BUILT ON THE NUMEROUS YEARS OF EXPERIENCE WE HAVE ACCUMULATED IN SUCCESSFULLY EXPLORING AND DEVELOPING ON OUR FEE LANDS AND LEASEHOLD ACRES, ALMOST ALL OF WHICH ARE COVERED BY 3-D SEISMIC. 18 21 [MAP AND BACKGROUND GRAPHIC] REVIEW OF OPERATIONS INTERNATIONAL 19 22 [MAP AND BACKGROUND GRAPHIC ON COMPUTER] INTERNATIONAL BUSINESS AT A GLANCE Our strategy to create long-term shareholder value also includes seeking opportunities in other areas around the world outside of North America. Significant growth opportunities in North America are limited for a company our size, because most of the hydrocarbon basins on the continent, with the exception of parts of Canada, Alaska and the Deepwater Gulf of Mexico, are extremely mature. We are pursuing high potential exploration and development opportunities to improve growth prospects through our international operations. Many of the technical and project management competencies we have developed through our North American activities are transferable and will enhance our ability to be successful in the international arena as well. 20 23 [GRAPHICS] OUR 1999 EXPERIENCE REINFORCES THE VIABILITY OF A BALANCED APPROACH WHICH INCLUDES A VALUE-ADDING ACQUISITION PROGRAM, ALONG WITH HIGH IMPACT EXPLORATION OPPORTUNITIES. Our international business is charged with building a portfolio of assets over the next three to five years that can contribute materially to our financial returns and net asset value. This aggressive goal requires a business development strategy that includes acquisitions, exploration and exploitation in order to build a sustainable and growing asset base and production profile. The key elements in our international strategy are focus, balance and discipline, and for this reason, we concentrate business development activities in five focus areas: the Northwest European Shelf; North Africa; Northern South America; the Far East; and West Africa. We currently have assets and operations in all of these areas except West Africa. Our efforts in each of these focus areas continue to be directed toward two goals: 1) Maximizing the value of our existing asset base through operational excellence and effective cost management; 2) Recognizing new business opportunities which will provide materiality, portfolio impact and the opportunity to progressively grow our international position and influence. Our 1999 experience reinforces the viability of a balanced approach which includes a value-adding acquisition program, along with high impact exploration opportunities. Our goal for 2000 is to bring two of the five focus areas to a "core area" status through the acquisition of key producing properties that provide significant exploration upside. Acquisition efforts will be concentrated in the Northern South America and Far East regions. International oil and gas capital expenditures totaled $148 million in 1999: $68 million for exploration and $80 million for development. Our international proved reserves at year-end 1999 totaled 1,136 BCFE, concentrated primarily in the East Irish Sea, the United Kingdom and Dutch sectors of the North Sea, Algeria and Egypt. We also have reserves in Colombia and Indonesia. Proved reserves added during 1999 amounted to 396 BCFE, which equates to a 651 percent reserve replacement ratio in 1999 and an average reserve replacement ratio of 444 percent for the last three years. Reserves were replaced at a cost of $.37 per MCFE in 1999, with an average replacement cost of $.61 per MCFE over the last three years. Daily gas production from the international business segment grew by 31 percent in 1999, from 67 MMCF of gas per day to 88 MMCF per day, primarily because of the initiation of production from the East Irish Sea. We have a series of projects in the East Irish Sea, Algeria and Egypt that should provide additional production growth over the next several years. Oil production, primarily from the North Sea, Colombia and Indonesia, accounted for an average of 13.2 MBbls of oil per day. At present, international operations represent 11 percent of our total proved reserves and seven percent of total daily production. Our current international asset portfolio contains a large inventory of exploration prospects that provide the opportunity for increasing its relative contribution to our reserve and production profile. In 1999, we negotiated new exploration opportunities in Suriname, Ecuador, Peru and Colombia which complement our existing exploration plays in the North Sea, Algeria and Egypt. NORTHWEST EUROPEAN SHELF The Northwest European Shelf provides the majority of our production outside of North America and includes assets in the United Kingdom, Dutch and Danish sectors of the North Sea and the East Irish Sea. Prior to 1999, our production was derived solely from the North Sea. However, we established production from the East Irish Sea ahead of schedule [PHOTO OF SUBSEA PRODUCTION EQUIPMENT] 21 24 [PHOTO OF OIL RIG IN OCEAN] in the third quarter of 1999, bringing the focus area's average net daily production to 88 MMCF of gas and 9 MBbls of oil. U.K. NORTH SEA PRODUCTION COMES FROM TWO PRIMARY LOCATIONS, THE BRAE AND T-BLOCK COMPLEXES. WE HAVE ESTABLISHED A PROGRAM FOR THESE TWO RELATIVELY MATURE FIELDS THAT WILL CONTINUE IN 2000. U.K. North Sea production comes from two primary locations, the Brae and T-Block Complexes. We have a six percent interest in the Brae Complex and an eleven percent interest in the T-Block Complex. Both fields are relatively mature, but in 1999 the operator of the Brae Complex was successful in reducing the decline rate by drilling low-cost sidetrack wells designed to recover unswept reserves and implementing pressure maintenance projects. This program will be continued in 2000. We currently participate in natural gas exploration and production in the Dutch sector of the North Sea through our CLAM joint venture. Net gas production from this area was 33 MMCF per day in 1999, up slightly from the 30 MMCF of gas per day experienced in 1998. We also participated in the drilling of the Q4-9 exploration well in 1999. This follow-up to a 1998 discovery tested a combined rate of 54 MMCF of gas per day from two zones and first production is expected in late 2000. CLAM has been awarded two exploration licenses in the Danish sector of the North Sea, the Ribe and Viborg Blocks. During 1999, we acquired 193 square miles of 3-D seismic data on these blocks, with plans to drill one exploratory well on each block in 2000. In late 1997, we acquired ten licenses in the East Irish Sea, covering 267,000 acres. The acquisition included a ninety- percent working interest in seven operated, undeveloped gas fields with significant recoverable reserve potential. Phase I of our East Irish Sea project, development of the sweet gas fields at Dalton and East Millom, began in early 1999. We completed an aggressive program that called for drilling one new well, re-entering two existing wells and completing a subsea tieback to Centrica's North Morecambe Bay platform, ahead of schedule in July 1999. We began production in August 1999, and the field was producing nearly 90 MMCF of gas per day net to us at year end. Phase II of the project, development of the West Millom sweet gas field, began in late 1999. The project timeline calls for a platform to be set in April 2000 and the drilling of three wells, two of which will be multilateral horizontal wells. First gas production is targeted for November 2000. Phase III, development of the five sour gas fields to the south, is scheduled to take place in 2001. Alternatives for processing and transporting gas from these fields are currently being evaluated and a preferred route is expected to be finalized in the first quarter of 2000. During 1999, we identified several new exploration prospects on our original East Irish Sea acquisition acreage. We plan to drill one of these prospects in 2000. We also acquired additional properties in the East Irish Sea containing several promising exploration prospects. 22 25 WE HAVE EXPLORATION AND DEVELOPMENT ACTIVITIES IN BOTH ALGERIA AND EGYPT THAT SHOULD PROVIDE GROWING PRODUCTION AND FINANCIAL RETURNS OVER THE NEXT SEVERAL YEARS. NORTH AFRICA Our North African focus area is currently concentrated in Algeria and Egypt. We have exploration and development activities in both countries that should provide growing production and financial returns over the next several years. Algeria represents one of our key entrees into international oil and gas exploration and our most successful international exploration venture to date. Since 1989, industry activity in this highly prospective area has discovered in excess of three billion Bbls of recoverable oil reserves. We first established a presence in the Berkine Basin of Algeria in 1993 when we signed a Production Sharing Contract (PSC) for an interest in two exploration blocks. The focus of our activity is on Menzel Lejmat Block 405, where we are the operator and hold a 65 percent working interest. We have made at least four separate field discoveries on the block. Capital and exploration expenditures in Algeria totaled $42 million in 1999. Of this total, we devoted $30 million to exploratory, development and appraisal drilling, $6 million was related to seismic evaluation and $6 million was committed to production facility design and construction. We continued to experience encouraging results in 1999, drilling two successful wildcat discovery wells and four appraisal wells that delineated previous discoveries. Our first discovery well in 1999, the MLC-1, tested a separate fault block located to the east of our main field on Block 405, the MLN Field. The well flowed at almost 8 MBbls of crude oil per day and 2 MMCF of natural gas per day. An appraisal well, the MLC-2, was also productive and successfully defined the reservoir boundary. The second 1999 wildcat well and potentially the most important, the MLNW-1, discovered oil in the Strunian F1 zone of a Devonian-age reservoir. The well tested at 8.5 MBbls of oil per day and 13 MMCF of gas per day. In addition to its productive capacity, this well was significant because it was the fourth successful penetration of Devonian-age sandstones on Block 405 where stable, high quality crude oil was found. This led us to conclude that hydrocarbon trapping is stratigraphic in nature and possibly widespread. We spudded an appraisal well, the MLNW-2, in late December 1999 that should provide [PHOTO of people, trucks and oil field equipment] 23 26 SIGNIFICANT EXPLORATION POTENTIAL REMAINS ON OUR ALGERIAN ACREAGE. WITH THREE YEARS REMAINING ON OUR EXPLORATION CONTRACT, WE ARE ACCELERATING EFFORTS TO IDENTIFY EXPLOITABLE HYDROCARBON DEPOSITS. additional information regarding the nature and extent of the reservoir. Our most mature discovery on Block 405, which is nearest to commercial production, is the MLN Field in the central portion of the block. During 1999, we continued delineation work on the field by drilling two appraisal wells, MLN-5 and MLN-6. We completed the MLN-5 well in January 1999 and tested it at 6.8 MBbls of oil per day and 7 MMCF of gas per day from the Devonian-age Strunian Formation that appears to be productive on a large area of the block. [PHOTO of jeep and sand dune] We completed the MLN-6 appraisal well in May 1999. It was the thirteenth successful well we have drilled on Block 405 and the last appraisal well to be drilled in the MLN Field prior to the field's first phase of development. The well tested and flowed at 3.6 MBbls of oil per day and 5 MMCF of gas per day from the Triassic-age TAG-I Formation. In late 1999, we prepared to make the transition from exploration and appraisal to development on Block 405. We filed the application for an exploitation license agreement (ELA) for development of the MLN Field with Sonatrach in August 1999. We will develop the field in phases and the first application relates to the MLN-1, MLN-2, MLN-4 and MLN-5 wells. We anticipate that first production from the MLN Field should be initiated in late 2001 or early 2002. We made a significant discovery on the southeast portion of Block 405 in 1998 at the MLSE Field. The MLSE-1, flow tested at a combined rate of 14.6 MBbls of oil and 107 MMCF of gas per day from four intervals with a combined net pay of 190 feet. We completed the drilling of an appraisal well, the MLSE-3, in January 2000. This well tested at a combined rate of 21.9 MBbls of high quality oil per day from 131 feet of net pay from three zones. This constituted the largest production test encountered to date on our block. Our appraisal drilling has confirmed that this area will be pursued for development and production. We intend to file an ELA application following final appraisal. Our other field development on Block 405 is the MLNE discovery in the northeast corner of the block. The MLNE Field is actually an extension of the giant Ourhoud Field, discovered on an adjacent block. Based on current plans, we anticipate first production from the Ourhoud in mid-2002. Development drilling has been ongoing in 1999, along with base camp construction and front-end engineering. Significant exploration potential remains on our Algerian acreage. With three years remaining on our exploration contract, we are continuing our efforts to identify exploitable hydrocarbon deposits. We completed the world's largest contiguous land 3-D seismic survey over a portion of Block 405 in 1999, giving us nearly full 3-D seismic coverage over the block. This data will be invaluable in completing the exploration effort and fully evaluating the discoveries that we have already made. We plan a continuous two-rig drilling program in 2000. 24 27 We are currently earning a 50 percent working interest in 870,000 gross acres at the Egyptian Offshore North Sinai Block, located in the Nile River Delta area of the Mediterranean Sea. The block contains three proved undeveloped Pliocene gas fields and several additional prospects which are similar in nature to these Pliocene accumulations. We have agreed to fund a disproportionate share of development costs in order to earn our working interest. During 1999, we signed a gas sales agreement with the Egyptian General Petroleum Company (EGPC) to begin production from our offshore concession. Production is contracted for the domestic Egyptian market beginning in 2004 at a daily contract rate of 110 MMCF of gas per day (40 MMCF per day, net). Three fields, Tao, Kamose and Seti, will be developed to supply gas through a new offshore pipeline to the West Harbour onshore processing plant near Port Said. The total gross investment in this project is expected to be $150 million, with development activities scheduled to begin in 2002. NORTHERN SOUTH AMERICA We continued to pursue opportunities during 1999 that could transform our northern South American focus area into a core area that would contribute significantly to our production profile and future growth potential. Currently, we have non-operated production in Colombia, but the majority of our South American assets consist of exploration acreage in Venezuela, Peru, Ecuador, Colombia and Suriname. Our Colombian production is derived from a 14 percent interest in the Casanare Association Contract, which covers twelve producing fields. Our net production from these fields averaged 1.6 MBbls of oil per day in 1999. In eastern Venezuela, we operate the 525,000 acre Delta Centro Block, located in the Orinoco River Basin. Our obligation at Delta Centro is to shoot seismic and drill three exploratory wells before the end of 2001. We have completed seismic work and drilled our first exploratory well on the block in early 1999, which proved unsuccessful. The future prospectivity of the block is greatly diminished, based on the results from our first well. Comprehensive analysis of the block is ongoing to determine our future course of action. We hold a 58 percent non-operated interest in Peru's Block 32. The first exploratory well on Block 32 is planned for drilling in 2000. If successful, production is anticipated in 2002. The well will test the Guineayacu prospect, which was identified as a result of the acquisition and processing of 2-D seismic data in 1998. In October 1999, we announced that we were negotiating to acquire ARCO's Ecuadorian assets, which consisted of Block 10 and Block 24, as well as exploration blocks in Peru and Colombia. A third party exercised its preemptive purchase right on Ecuador's Block 10, which contains the producing area known as the Villano Field. We will still acquire the remaining properties at minimal cost, with closing anticipated in 2000. The remaining properties consist of a 100 percent working interest in Ecuador's Block 24, a 25 percent operated working interest in Peru's Block 64 and a 50 percent working interest in the BP/Amoco-operated Los Galeones and La Fragata blocks in Colombia. In 1999, we became part of a multinational consortium that signed a contract [PHOTO OF MEN AND AIR BOAT] WE CONTINUED TO PURSUE OPPORTUNITIES DURING 1999 THAT COULD TRANSFORM OUR NORTHERN SOUTH AMERICAN FOCUS AREA INTO A CORE AREA THAT WOULD CONTRIBUTE SIGNIFICANTLY TO OUR PRODUCTION PROFILE AND FUTURE GROWTH POTENTIAL. 25 28 with Suriname's state-run oil company to explore for oil off of the country's Atlantic coast. The contract gives us, as operator, and the other members of the consortium, exploration rights covering over 18,000 square miles. During 1999, we acquired and processed 4,100 miles of 2-D seismic covering much of the area. Interpretation and reprocessing of seismic data through the second quarter of 2000 is aimed at selecting the location for a first well to be spud in early 2001. This frontier exploration play is very exciting because of the geologic similarities of Suriname to the coasts of West Africa and Brazil, two areas where numerous large Deepwater hydrocarbon discoveries have been made in recent years. [PHOTO OF COMPUTER] THE FAR EAST IS ONE OF THE TWO INTERNATIONAL FOCUS AREAS WE HAVE SELECTED FOR MAJOR GROWTH OVER THE NEXT TWO OR THREE YEARS. ACQUISITION OPPORTUNITIES IN THE SUMATRA AND JAVA BASINS OF INDONESIA OFFER THE BEST POSSIBILITY TO ELEVATE THIS FOCUS AREA TO "CORE AREA" STATUS. FAR EAST We have selected the Far East as a focus area for potential growth. The Far East is primarily a gas prone region and, except for liquified natural gas (LNG), regional gas markets are in an early stage of development. We are currently evaluating acquisition and exploration opportunities in the region that would capitalize on our expertise in transportation and marketing. Regional gas markets are expected to show strong growth during the next 20 years as Asia recovers from its financial slump and large population centers begin using natural gas. The Far East is one of the two international focus areas we have selected for major growth over the next two or three years. Acquisition opportunities in the Sumatra and Java Basins of Indonesia offer the best possibility to elevate this focus area to "core area" status. The concept is to use an acquisition to gain a foothold in highly prospective gas basins and build a value-adding business through associated exploration and aggressive gas marketing. Currently, our sole asset in Indonesia is a 15 percent non-operated working interest in the KAKAP concession in the West Natuna Sea. During 1999, production averaged 2.2 MBbls of oil per day. Gas production from the concession is anticipated to commence in April 2001, but could start as early as November 2000. The gas will be transported to the Singapore market under a 22-year sales agreement. This long-term arrangement enhances the value of our KAKAP reserves, which historically have had limited marketability. Our Far East team continues to seek opportunities to add to our current asset portfolio. WEST AFRICA West Africa is the fifth focus area we have selected as a potential platform for international growth. We chose this region on the basis of the tremendous upside potential that exists in this prolific hydrocarbon province. During 1999, our West Africa Business Development Team continued to pursue exploration and production opportunities that could provide a foundation for future growth. At year-end 1999, we had developed our play strategy, acquired a significant technical database within the region and high-graded several possible exploration entry opportunities. 26 29 [BACKGROUND GRAPHICS] REVIEW OF OPERATIONS OF COMPUTERS AND MAN STATISTICAL DATA 27 30 RESERVES December 31, 1999
TOTAL PROVED PROVED PROVED DEVELOPED UNDEVELOPED RESERVES - -------------------------------------------------------------------------------- USA Gas (BCF) 4,715 1,240 5,955 Oil (MMBbls) 168.3 47.9 216.2 Total USA (BCFE) 5,725 1,527 7,252 - -------------------------------------------------------------------------------- CANADA Gas (BCF) 1,180 273 1,453 Oil (MMBbls) 57.5 11.6 69.1 Total Canada (BCFE) 1,525 343 1,868 - -------------------------------------------------------------------------------- OTHER INTERNATIONAL Gas (BCF) 314 558 872 Oil (MMBbls) 13.5 30.6 44.1 Total Other International (BCFE) 395 741 1,136 - -------------------------------------------------------------------------------- WORLDWIDE Gas (BCF) 6,209 2,071 8,280 Oil (MMBbls) 239.3 90.1 329.4 Total Worldwide (BCFE) 7,645 2,611 10,256 ================================================================================
PRODUCTIVE WELLS December 31, 1999
GROSS NET - ------------------------------------------------------------------------------- USA Oil 5,835 2,900 Gas 10,924 6,106 - -------------------------------------------------------------------------------- CANADA Oil 1,875 1,243 Gas 2,292 1,519 - -------------------------------------------------------------------------------- OTHER INTERNATIONAL Oil 391 55 Gas 159 21 - -------------------------------------------------------------------------------- WORLDWIDE Oil 8,101 4,198 Gas 13,375 7,646 ================================================================================
CAPITAL EXPENDITURES Year Ended December 31 ($ Millions)
1999 1998 1997 - -------------------------------------------------------------------------------- USA Oil and Gas Activities $ 488 $ 921 $ 927 Plants & Pipelines 14 60 50 Administration 38 45 40 - -------------------------------------------------------------------------------- Total USA 540 1,026 1,017 - -------------------------------------------------------------------------------- CANADA Oil and Gas Activities 291 671 405 Plants & Pipelines 4 1 27 Administration 4 2 5 - -------------------------------------------------------------------------------- Total Canada 299 674 437 - -------------------------------------------------------------------------------- OTHER INTERNATIONAL Oil and Gas Activities 148 136 228 Administration 2 3 - - -------------------------------------------------------------------------------- Total Other International 150 139 228 - -------------------------------------------------------------------------------- WORLDWIDE Oil and Gas Activities 927 1,728 1,560 Plants & Pipelines 18 61 77 Administration 44 50 45 - -------------------------------------------------------------------------------- Total Worldwide $ 989 $ 1,839 $ 1,682 ===============================================================================
ACREAGE December 31, 1999
GROSS NET - -------------------------------------------------------------------------------- USA Developed Acres 5,642,763 3,090,045 Undeveloped Acres 11,776,341 9,423,755 - -------------------------------------------------------------------------------- CANADA Developed Acres 1,034,291 588,761 Undeveloped Acres 4,889,675 2,822,878 - -------------------------------------------------------------------------------- OTHER INTERNATIONAL Developed Acres 112,435 22,087 Undeveloped Acres 19,264,353 7,392,562 - -------------------------------------------------------------------------------- WORLDWIDE Developed Acres 6,789,489 3,700,893 Undeveloped Acres 35,930,369 19,639,195 ================================================================================
28 31 PRODUCTION & PRICES Year Ended December 31,
1999 1998 1997 - -------------------------------------------------------------------------------- USA PRODUCTION Gas (MMCF per day) 1,487 1,580 1,592 Oil (MBbls per day) 57.3 66.2 68.3 AVERAGE SALES PRICE Gas (per MCF) $ 2.08 $ 1.94 $ 2.16 Oil (per Bbl) $ 16.31 $ 13.31 $ 19.32 - -------------------------------------------------------------------------------- CANADA PRODUCTION Gas (MMCF per day) 429 430 383 Oil (MBbls per day) 19.4 21.8 20.9 AVERAGE SALES PRICE Gas (per MCF) $ 1.76 $ 1.74 $ 1.68 Oil (per Bbl) $ 18.25 $ 11.90 $ 18.00 - -------------------------------------------------------------------------------- OTHER INTERNATIONAL PRODUCTION Gas (MMCF per day) 88 67 77 Oil (MBbls per day) 13.2 16.5 18.9 AVERAGE SALES PRICE Gas (per MCF) $ 1.93 $ 2.56 $ 2.69 Oil (per Bbl) $ 16.80 $ 13.16 $ 18.95 - -------------------------------------------------------------------------------- WORLDWIDE PRODUCTION Gas (MMCF per day) 2,004 2,077 2,052 Oil (MBbls per day) 89.9 104.5 108.1 AVERAGE SALES PRICE Gas (per MCF) $ 2.01 $ 1.92 $ 2.09 Oil (per Bbl) $ 16.85 $ 13.00 $ 19.01 ================================================================================
NET WELLS DRILLED Year Ended December 31,
1999 1998 1997 - -------------------------------------------------------------------------------- USA PRODUCTIVE Exploratory 9.3 16.3 29.0 Development 183.1 297.7 247.5 DRY Exploratory 9.4 27.5 26.5 Development 4.4 12.5 8.5 - -------------------------------------------------------------------------------- TOTAL NET WELLS USA 206.2 354.0 311.5 - -------------------------------------------------------------------------------- CANADA PRODUCTIVE Exploratory 67.4 71.2 64.7 Development 30.6 72.2 150.1 DRY Exploratory 3.6 7.3 13.1 Development 4.2 8.4 7.3 - -------------------------------------------------------------------------------- TOTAL NET WELLS CANADA 105.8 159.1 235.2 - -------------------------------------------------------------------------------- OTHER INTERNATIONAL PRODUCTIVE Exploratory 2.1 3.5 2.4 Development 3.2 1.8 1.3 DRY Exploratory 2.0 2.0 1.3 Development - - 0.1 - -------------------------------------------------------------------------------- TOTAL NET WELLS OTHER INTERNATIONAL 7.3 7.3 5.1 - -------------------------------------------------------------------------------- WORLDWIDE PRODUCTIVE Exploratory 78.8 91.0 96.1 Development 216.9 371.7 398.9 DRY Exploratory 15.0 36.8 40.9 Development 8.6 20.9 15.9 - -------------------------------------------------------------------------------- TOTAL NET WELLS WORLDWIDE 319.3 520.4 551.8 ================================================================================
UNIT COSTS Year Ended December 31, ($ per MCFE)
1999 1998 1997 - -------------------------------------------------------------------------------- USA Average Production Costs $ .50 $ .48 $ .50 DD&A Rates .65 .59 .58 - -------------------------------------------------------------------------------- CANADA Average Production Costs .51 .44 .46 DD&A Rates .54 .77 .77 - -------------------------------------------------------------------------------- OTHER INTERNATIONAL Average Production Costs .54 .71 .60 DD&A Rates .88 1.06 1.08 - -------------------------------------------------------------------------------- WORLDWIDE Average Production Costs .51 .48 .50 DD&A Rates $ .64 $ .66 $ .65 ================================================================================
29 32 [BACKGROUND GRAPHICS] BURLINGTON RESOURCES 1999 Financial Review 33 BURLINGTON RESOURCES INC. 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.
(In Millions, Except per Share Amounts) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA Revenues $ 2,065 $ 2,009 $ 2,375 $ 2,477 $ 1,905 Operating Income (Loss) 236 (413) 605 643 (508) Net Income (Loss) 1 (321) 352 354 (332) Basic Earnings (Loss) per Common Share .01 (1.52) 1.69 1.72 (1.65) Diluted Earnings (Loss) per Common Share $ -- $(1.52) $ 1.67 $ 1.70 $(1.65) - ------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Total Assets $ 7,191 $ 7,086 $ 7,164 $ 6,790 $ 6,169 Long-term Debt 2,769 2,684 2,317 2,223 2,306 Stockholders' Equity 3,246 3,318 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
31 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 to 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 46 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 $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 32 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. 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. 33 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. 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 $321 million or $1.52 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 $2,009 million in 1998. Average oil prices increased 30 percent to $16.85 per barrel in 1999 and average gas prices increased 5 percent to $2.01 per MCF which increased revenues $126 million and $65 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 $277 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 $321 million or $1.52 basic loss per common share in 1998 compared to 34 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Revenues were $2,009 million in 1998 compared to $2,375 million in 1997. Average oil prices decreased 32 percent to $13.00 per barrel in 1998 and average gas prices decreased 8 percent to $1.92 per MCF which decreased revenues $229 million and $129 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 $277 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. [BACKGROUND GRAPHIC] 35 38 BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------ (In Millions, Except per Share Amounts) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ REVENUES $ 2,065 $ 2,009 $ 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 (413) 605 Interest Expense 211 193 174 Other Expense (Income) -- Net 2 (8) (39) - ------------------------------------------------------------------------------------------------------------------------ Income (Loss) Before Income Taxes 23 (598) 470 Income Tax Expense (Benefit) 22 (277) 118 - ------------------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 1 $ (321) $ 352 ======================================================================================================================== BASIC EARNINGS (LOSS) PER COMMON SHARE $ .01 $ (1.52) $ 1.69 ======================================================================================================================== DILUTED EARNINGS (LOSS) PER COMMON SHARE $ -- $ (1.52) $ 1.67 ========================================================================================================================
See accompanying Notes to Consolidated Financial Statements. [BACKGROUND GRAPHIC] 36 39 BURLINGTON RESOURCES INC. CONSOLIDATED BALANCE SHEET
December 31, - ------------------------------------------------------------------------------------------------------------------------------ (In Millions, Except Share Data) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Current Assets Cash and Cash Equivalents $ 89 $ -- Accounts Receivable 499 468 Inventories 53 53 Other Current Assets 26 22 - ------------------------------------------------------------------------------------------------------------------------------ 667 543 - ------------------------------------------------------------------------------------------------------------------------------ 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 $ 7,191 $ 7,086 ========================================================================================================================------ 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 105 121 - ------------------------------------------------------------------------------------------------------------------------------ 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 345 446 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 3,246 3,318 - ------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Stockholders' Equity $ 7,191 $ 7,086 ==============================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 37 40 BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, ============================================================================================================================== (In Millions) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) $ 1 $ (321) $ 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 (295) 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) (45) 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. 38 41 BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Deferred Accumulated Compensation -- Other Cost of Common Paid-in Retained Restricted Comprehensive Treasury Stockholders' Stock Capital Earnings Stock Loss Stock Equity (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 (321) (321) Foreign Currency Translation (23) (23) - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive Loss (344) - ------------------------------------------------------------------------------------------------------------------------------------ Cash Dividends ($.46 per Share) (98) (98) Common Stock Purchases (435,000 Shares) (15) (15) Common Stock Issuances 188 188 Stock Option Activity and Other (7) (2) 46 37 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 2 3,953 446 (2) (74) (1,007) 3,318 - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive Income Net Income 1 1 Foreign Currency Translation 20 20 - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive Income 21 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Dividends ($.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 $345 $(3) $ (54) $(1,010) $3,246 ====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. [BACKGROUND GRAPHIC] 39 42 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 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 40 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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. 41 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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.
(Unaudited) Nine Months Ended September 30, Year Ended December 31, (In Millions) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Revenues BR $ 1,162 $ 1,637 $ 2,000 Poco 276 372 375 - --------------------------------------------------------------------------------------------------------------------- Combined $ 1,438 $ 2,009 $ 2,375 ===================================================================================================================== Net Income (Loss) BR $ 47 $ 86 $ 319 Poco 16 34 53 Conforming adjustments 22 (441) (20) - --------------------------------------------------------------------------------------------------------------------- Combined $ 85 $ (321) $ 352 ===================================================================================================================== Stockholders' Equity BR $ 3,008 $ 3,018 $ 3,016 Poco 839 780 592 Conforming adjustments (483) (480) (58) - --------------------------------------------------------------------------------------------------------------------- Combined $ 3,364 $ 3,318 $ 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. [BACKGROUND GRAPHIC] 42 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. INCOME TAXES The jurisdictional components of income (loss) before income taxes follow.
Year Ended December 31, - ------------------------------------------------------ (In Millions) 1999 1998 1997 - ------------------------------------------------------ Domestic $ (30) $ 139 $ 369 Foreign 53 (737) 101 - ------------------------------------------------------ Total $ 23 $ (598) $ 470 ======================================================
The provision for income taxes follows.
Year Ended December 31, - -------------------------------------------------------- (In Millions) 1999 1998 1997 - -------------------------------------------------------- Current Federal $ 4 $ 10 $ 44 State -- 5 2 Foreign 5 3 14 - -------------------------------------------------------- 9 18 60 - -------------------------------------------------------- Deferred Federal (20) 8 30 State 5 1 11 Foreign 28 (304) 17 - -------------------------------------------------------- 13 (295) 58 - -------------------------------------------------------- Total $ 22 $ (277) $ 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 4.1 2.1 Taxes on foreign income in excess of U.S. statutory rate 36.0 37.6 4.1 Tax credits (8.6) (33.4) (18.5) Merger costs 17.2 -- 4.6 Other 2.1 3.0 (2.2) - ------------------------------------------------------- Effective rate 95.4% 46.3% 25.1% =======================================================
Deferred income tax liabilities (assets) follow.
December 31, - --------------------------------------------------------- (In Millions) 1999 1998 - --------------------------------------------------------- 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 (36) (44) - --------------------------------------------------------- (452) (428) - --------------------------------------------------------- Less valuation allowance 37 35 - --------------------------------------------------------- $ 73 $ 60 ========================================================= Net Canadian deferred income tax asset $ (32) $ (61) - --------------------------------------------------------- Net deferred income tax liability $ 105 $ 121 =========================================================
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. 43 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Production Volume Hedge/Strike Gain/(Loss) 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 $2 million. NATURAL GAS BASIS SWAPS The Company enters into natural gas basis swap agreements to fix a component of the sales price of anticipated future natural gas production. This component is expressed as the differential between CIG Rockies and Henry Hub. These transactions are accounted for as hedges of the Company's underlying production. As of December 31, 1999, the Company had 10.1 million MMBTU of year 2000 natural gas production hedged at a fixed differential of approximately ($.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 Production Volume Hedge/Strike Gain/(Loss) 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. [BACKGROUND GRAPHIC] 44 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. LONG-TERM DEBT Long-term debt follows.
December 31, - --------------------------------------------------------- (In Millions) 1999 1998 - --------------------------------------------------------- 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. 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. 45 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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
[BACKGROUND GRAPHIC] 46 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, - ---------------------------------------------------------------------- (In Millions, Except per Share Amounts) 1999 1998 1997 - ---------------------------------------------------------------------- Net income (loss) -- as reported $ 1 $ (321) $ 352 Net income (loss) -- pro forma (30) (340) 339 Basic EPS -- as reported .01 (1.52) 1.69 Basic EPS -- pro forma (.14) (1.61) 1.62 Diluted EPS -- as reported -- (1.52) 1.67 Diluted EPS -- pro forma $ (.14) $(1.61) $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, 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 47 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. The following tables set forth the amounts recognized in the Consolidated Balance Sheet and Statement of Income.
Pension Benefits Postretirement Benefits - ------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------- (In Millions) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- 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) =========================================================================================================================
48 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension Benefits Postretirement Benefits - ------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------- (In Millions) 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- 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% -- -- --
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 (In Thousands) Point Increase Point Decrease - -------------------------------------------------------------------------------- Effect on total service and interest cost $ 167 $ (145) Effect on postretirement benefit obligation $ 1,807 $ (1,578)
[BACKGROUND GRAPHICS] 49 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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.
(In Millions) Year Ended December 31, - ------------------------------------------------------------------ 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. Future minimum annual rental commitments at December 31, 1999 follow.
(In Millions) Year Ended December 31, - ------------------------------------------------------------------ 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 [BACKGROUND GRAPHICS] 50 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 51 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS proceedings arising in the ordinary course of business. While the outcome of these other lawsuits and proceedings cannot be predicted with certainty, 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, - -------------------------------------------------------- (In Millions) 1999 1998 1997 - -------------------------------------------------------- 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, - -------------------------------------------------------- (In Millions) 1999 1998 1997 - -------------------------------------------------------- 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. [BACKGROUND GRAPHICS] 52 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 - ---------------------------------------------------------------------------------------------------------------------- (In Millions) North America International Total - ---------------------------------------------------------------------------------------------------------------------- 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, 1999 - ---------------------------------------------------------------------------------------------------------------------- (In Millions) North America International Total - ---------------------------------------------------------------------------------------------------------------------- Revenues $ 1,860 $ 149 $ 2,009 Depreciation, depletion and amortization 601 67 668 Impairment of oil and gas properties 706 -- 706 Operating income (233) (38) (271) Additions to properties $ 1,653 $ 136 $ 1,789 - ----------------------------------------------------------------------------------------------------------------------
[BACKGROUND GRAPHICS] 53 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1997 - --------------------------------------------------------------------------------------------------------------------------- (In Millions) North America International Total - --------------------------------------------------------------------------------------------------------------------------- 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, - --------------------------------------------------------------------------------------------------------------------------- (In Millions) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Total operating income (loss) for reportable segments $ 428 $ (271) $ 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 $ (598) $ 470 ===========================================================================================================================
The following is a reconciliation of segment additions to properties to consolidated amounts.
Year Ended December 31, - --------------------------------------------------------------------------------------------------------------------------- (In Millions) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- 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, - --------------------------------------------------------------------------------------------------------------------------- In Millions 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- USA $1,527 $1,488 $1,795 Canada 407 372 375 Other International 131 149 205 - --------------------------------------------------------------------------------------------------------------------------- Consolidated revenues $2,065 $2,009 $2,375 ===========================================================================================================================
[BACKGROUND GRAPHICS] 54 57 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 [BACKGROUND GRAPHICS] 55 58 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 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 Houston, Texas [BACKGROUND GRAPHICS] 56 59 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, - ------------------------------------------------------------------------------------------- (In Millions) 1999 1998 - ------------------------------------------------------------------------------------------- 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 (In Millions) USA Canada International Worldwide - --------------------------------------------------------------------------------------------------------------------------- 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 (In Millions) USA Canada International Worldwide - --------------------------------------------------------------------------------------------------------------------------- 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 (In Millions) USA Canada International Worldwide - --------------------------------------------------------------------------------------------------------------------------- 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 ===========================================================================================================================
57 60 BURLINGTON RESOURCES INC. SUPPLEMENTARY FINANCIAL INFORMATION Results of operations for oil and gas producing activities follow.
Year Ended December 31, 1999 - --------------------------------------------------------------------------------------------------------------------------- Other (In Millions) USA Canada International Worldwide - --------------------------------------------------------------------------------------------------------------------------- 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 (In Millions) USA Canada International Worldwide - --------------------------------------------------------------------------------------------------------------------------- Revenues $ 1,448 $ 367 $ 149 $ 1,964 - --------------------------------------------------------------------------------------------------------------------------- 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) 260 (634) (49) (423) Income tax provision (benefit) 64 (259) (11) (206) - --------------------------------------------------------------------------------------------------------------------------- Results of operations for oil and gas producing activities $ 196 $ (375) $ (38) $ (217) ===========================================================================================================================
Year Ended December 31, 1997 - --------------------------------------------------------------------------------------------------------------------------- Other (In Millions) USA Canada International Worldwide - --------------------------------------------------------------------------------------------------------------------------- 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 ===========================================================================================================================
58 61 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 Interna- World- Interna- World- USA Canada tional wide USA Canada tional wide - --------------------------------------------------------------------------------------------------------------------------- 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
59 62 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 (In Millions) USA Canada International Worldwide - --------------------------------------------------------------------------------------------------------------------------- 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 (In Millions) USA Canada International Worldwide - --------------------------------------------------------------------------------------------------------------------------- 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 ===========================================================================================================================
60 63 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, - --------------------------------------------------------------------------------------------------------------------------- (In Millions) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- 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) 1998(c) - -------------------------------------------------------------------------------------------------------------------------------- (In Millions, Except per Share Amounts) 4th 3rd 2nd 1st 4th 3rd 2nd 1st - -------------------------------------------------------------------------------------------------------------------------------- Revenues $ 627 $ 547 $ 455 $ 436 $ 499 $ 478 $492 $540 Operating Income (Loss)(a)(b) (59) 155 86 54 (671) 58 73 127 Net Income (Loss)(a)(b) (84) 61 24 -- (411) 13 16 61 Basic Earnings (Loss) per Common Share (.38) .28 .11 -- (1.95) .07 .07 .29 Diluted Earnings (Loss) per Common Share (.38) .27 .11 -- (1.95) .07 .07 .29 Cash Dividends Declared per Common Share .12 .11 .12 .11 .11 .12 .11 .12 Common Stock Price Range High 39 1/4 46 3/4 47 5/8 42 5/16 43 1/8 44 1/2 49 5/8 49 1/2 Low $ 29 1/2 $ 35 5/8 $ 38 3/8 $ 29 1/2 $ 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. 61 64 BOARD OF DIRECTORS John V. Byrne (1) President Emeritus Oregon State University S. Parker Gilbert (2) Former Chairman Morgan Stanley Group Inc. Laird I. Grant (1) Former President, Chief Executive Officer and Chief Investment Officer Rockefeller & Co., Inc. John T. LaMacchia (2) (3) President and Chief Executive Officer CellNet Data Systems, Inc. James F. McDonald (1) (3) President and Chief Executive Officer Scientific-Atlanta, Inc. Kenneth W. Orce (1) Senior Partner Cahill Gordon & Reindel Donald M. Roberts (1) Retired Vice Chairman and Treasurer United States Trust Company of New York and U.S. Trust Corporation John F. Schwarz (2) Chairman, President and Chief Executive Officer Entech Enterprises, Inc. Walter Scott, Jr. (2) (3) Chairman Level 3 Communications, Inc. Bobby S. Shackouls (3) Chairman of the Board, President and Chief Executive Officer Burlington Resources Inc. H. Leighton Steward (3) Vice Chairman of the Board Burlington Resources Inc. William E. Wall (2) Of Counsel Siderius Lonergan (1) Audit Committee (2) Compensation and Nominating Committee (3) Executive Committee OFFICERS Bobby S. Shackouls Chairman of the Board, President and Chief Executive Officer H. Leighton Steward Vice Chairman of the Board John E. Hagale Executive Vice President and Chief Financial Officer L. David Hanower Senior Vice President, Law and Administration Randy L. Limbacher President and Chief Executive Officer Burlington Resources North America John A. Williams President and Chief Executive Officer Burlington Resources International Lee B. Backsen Vice President, Domestic Exploration Suzanne V. Baer Vice President and Treasurer Philip W. Cook Vice President and Controller Richard D. Dole Vice President and Chief Financial Officer Burlington Resources International Mark E. Ellis Vice President, San Juan Division Richard E. Fraley Vice President, London C. Scott Kirk Vice President, Marketing Gregory M. Larberg Executive Vice President and Chief Operating Officer Burlington Resources International Hunter L. Malson Vice President, Gulf Coast Division J. Terry McCoy President Burlington Resources Canada Energy Ltd. Thomas B. Nusz Vice President, Strategic Planning and Engineering Frederick J. Plaeger Vice President and General Counsel Gavin H. Smith Vice President, Corporate Affairs William B. Usher Vice President, Human Resources and Administration Barry J. Winstead Vice President, Mid-Continent Division 62 65 FORWARD-LOOKING STATEMENTS The Company may, 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, 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. CORPORATE INFORMATION Principal Corporate Office Burlington Resources Inc. 5051 Westheimer, Suite 1400 Houston, Texas 77056 (713) 624-9500 http://www.br-inc.com Annual Meeting The Annual Meeting of Stockholders will be in Houston, Texas on April 19, 2000. Formal notice of the meeting will be mailed in advance. Common Stock Stock Exchange Listing New York Stock Exchange Symbol: BR Stock Transfer Agent and Registrar BankBoston, N.A. c/o EquiServe P.O. Box 8040 Boston, Massachusetts 02266-8040 (800) 736-3001 http://www.equiserve.com Exchangeable Shares Stock Exchange Listing Toronto Stock Exchange Symbol: BRX Stock Transfer Agent and Registrar CIBC Mellon Trust Company P.O. Box 2517 Calgary, Alberta T2P 4P4 (800) 387-0825 http://www.cibcmellon.com Additional copies of this Annual Report and the Company's Form 10-K filed with the Securities and Exchange Commission are available, without charge, by writing or calling: Investor Relations Burlington Resources Inc. P.O. Box 4239 Houston, Texas 77210 (800) 262-3456 [PHOTO] 66 [photo of a hardhat & Background Graphics] [BURLINGTON RESOURCES LOGO] 5051 WESTHEIMER, SUITE 1400 HOUSTON, TEXAS 77056 EX-21.1 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 BURLINGTON RESOURCES INC. SUBSIDIARIES OF THE REGISTRANT The following is a list of the significant subsidiaries of Burlington Resources Inc. showing the place of incorporation and the percentage of voting securities owned.
PERCENTAGE OF VOTING SECURITIES OWNED DIRECTLY OR JURISDICTION OF INDIRECTLY BY NAME OF COMPANY INCORPORATION IMMEDIATE PARENT --------------- --------------- ---------------- Burlington Resources North America Inc. .................. Delaware 100% Burlington Resources International Inc.................... Delaware 100% Burlington Resources Hydrocarbons Inc. ................... Delaware 100% Burlington Resources Oil & Gas Company.................... Delaware 100% Burlington Resources Trading Inc. ........................ Delaware 100% Glacier Park Company...................................... Delaware 100% The Louisiana Land and Exploration Company................ Maryland 100% Burlington Resources Canada Inc. ......................... Alberta, Canada 100% Burlington Resources Canada Energy Ltd. .................. Alberta, Canada 100%
The names of certain subsidiaries are omitted as such subsidiaries, considered as a single subsidiary, would not constitute a significant subsidiary. EX-23.1 6 CONSENT OF INDEPENDENT ACCOUNTANTS (PWC) 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (Registration Nos. 33-54477, 333-24999, 333-52213 and 333-83163) and on Form S-8 (Registration Nos. 33-22493, 33-25807, 33-26024 (as amended in Registration No. 2-97533), 33-33626, 33-46518, 33-53973, 333-02029, 333-32603, 333-40565, 333-60081, 333-91247 and 333-95071) of Burlington Resources Inc. of our report dated March 3, 2000 relating to the financial statements, which appears in the 1999 Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Houston, Texas March 15, 2000 EX-23.2 7 CONSENT OF INDEPENDENT ACCOUNTS (KPMG) 1 EXHIBIT 23.2 The Board of Directors Burlington Resources Inc. We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 33-22493, 33-25807, 33-26024, as amended in 2-97533, 33-33626, 33-46518, 33-53973, 333-02029, 333-32603, 333-4056, 333-60081, 333-91247 and 333-90571) and on Form S-3 (Nos. 33-54477, 333-24999, 333-52213 and 333-83163) of Burlington Resources Inc. of our report dated March 3, 2000 with respect to the consolidated balance sheets of Burlington Resources Canada Energy Ltd. as of December 31, 1999 and 1998 and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1999 which report is filed as an exhibit to the Annual Report of Burlington Resources Inc. on Form 10-K for the year ended December 31, 1999. KPMG LLP Calgary, Canada March 15, 2000 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 1,000,000 U.S. DOLLARS 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1 89 0 499 0 53 667 13,769 7,412 7,191 648 2,769 0 0 2 3,244 7,191 2,065 2,065 1,829 1,829 2 0 211 23 22 1 0 0 0 1 .01 0
EX-99.1 9 AUDIT OPINION OF KPMG 1 Exhibit 99.1 REPORT TO THE SHAREHOLDER OF BURLINGTON RESOURCES CANADA ENERGY LTD. We have audited the consolidated balance sheets of Burlington Resources Canada Energy Ltd. as at December 31, 1999 and 1998 and the consolidated statements of income, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1999 and 1998 and the results of its operations and cash flows for each of the years in the three year period ended December 31, 1999 in accordance with United States generally accepted accounting principles. KPMG LLP Chartered Accountants Calgary, Canada March 3, 2000 -----END PRIVACY-ENHANCED MESSAGE-----