<PAGE>   1
 
                                EXCEL PARALUBES
 
                       CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997
<PAGE>   2
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Partners of
Excel Paralubes
 
     In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of Excel
Paralubes (the Partnership) at December 31, 1998 and 1997 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
 
     As described in Notes 7 and 10 to the consolidated financial statements,
the Partnership has significant transactions with its partners.
 
PRICEWATERHOUSECOOPERS LLP
 
Houston, Texas
March 2, 1999
 
                                        1
<PAGE>   3
 
                                EXCEL PARALUBES
 
                           CONSOLIDATED BALANCE SHEET
                           DECEMBER 31, 1998 AND 1997
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                  1998            1997
                                                              -------------   ------------
<S>                                                           <C>             <C>
Current assets:
  Cash and cash equivalents.................................  $     587,935   $     46,520
  Accounts receivable -- related parties....................     39,704,186     41,716,048
  Inventory.................................................     12,176,257     13,897,549
  Other current assets......................................        804,666        785,742
                                                              -------------   ------------
          Total current assets..............................     53,273,044     56,445,859
Property, plant and equipment, net..........................    406,348,515    418,910,084
Intangible assets and deferred charges, net.................     36,414,904     38,646,321
                                                              -------------   ------------
                                                              $ 496,036,463   $514,002,264
                                                              =============   ============
 
                            LIABILITIES AND PARTNERS' DEFICIT
 
Current liabilities:
  Accounts payable and accrued liabilities -- related
     party..................................................  $   5,766,179   $ 22,871,297
  Short-term notes payable..................................     69,200,000     52,800,000
  Interest payable..........................................      5,945,833      5,945,833
                                                              -------------   ------------
          Total current liabilities.........................     80,912,012     81,617,130
Long-term debt..............................................    490,000,000    490,000,000
Long-term liabilities.......................................     28,765,025     17,163,828
Commitments and contingencies (Note 9)
Partners' deficit...........................................   (103,640,574)   (74,778,694)
                                                              -------------   ------------
                                                              $ 496,036,463   $514,002,264
                                                              =============   ============
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                        2
<PAGE>   4
 
                                EXCEL PARALUBES
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                         1998           1997           1996
                                                     ------------   ------------   ------------
<S>                                                  <C>            <C>            <C>
Revenues:
  Net sales -- related parties.....................  $269,663,968   $254,726,101   $ 12,492,524
  Processing fees -- related party.................     9,665,420      9,662,000      2,035,166
  Other............................................       354,370        433,563         97,897
                                                     ------------   ------------   ------------
          Total revenues...........................   279,683,758    264,821,664     14,625,587
                                                     ------------   ------------   ------------
Costs and expenses:
  Cost of goods sold -- related party..............   145,882,471    164,487,535     10,181,471
  Operating expense................................    47,712,610     48,549,398     30,394,209
  General and administrative expense...............     1,064,681      1,057,665        665,197
  Project construction expenses....................                      368,532      5,876,000
  Depreciation and amortization....................    17,281,029     17,738,395      3,165,247
  Interest expense.................................    38,046,184     38,133,795     13,041,253
  Taxes other than income..........................       208,663        163,284         15,000
                                                     ------------   ------------   ------------
          Total costs and expenses.................   250,195,638    270,498,604     63,338,377
                                                     ------------   ------------   ------------
Net income (loss)..................................  $ 29,488,120   $ (5,676,940)  $(48,712,790)
                                                     ============   ============   ============
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                        3
<PAGE>   5
 
                                EXCEL PARALUBES
 
                  CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
 
<TABLE>
<CAPTION>
                                                                      ATLAS
                                                  CONOCO, INC.    PROCESSING CO.        TOTAL
                                                  ------------    --------------    -------------
<S>                                               <C>             <C>               <C>
Balance, December 31, 1995......................  $ (9,994,482)    $ (9,994,482)    $ (19,988,964)
Net operating loss for the year ended December
  31, 1996......................................   (24,356,395)     (24,356,395)      (48,712,790)
                                                  ------------     ------------     -------------
Balance, December 31, 1996......................   (34,350,877)     (34,350,877)      (68,701,754)
Contributions...................................    12,500,000       12,500,000        25,000,000
Distributions...................................   (12,700,000)     (12,700,000)      (25,400,000)
Net operating loss for the year ended December
  31, 1997......................................    (2,838,470)      (2,838,470)       (5,676,940)
                                                  ------------     ------------     -------------
Balance, December 31, 1997......................   (37,389,347)     (37,389,347)      (74,778,694)
Distributions...................................   (29,175,000)     (29,175,000)      (58,350,000)
Net operating income for the year ended December
  31, 1998......................................    14,744,060       14,744,060        29,488,120
                                                  ------------     ------------     -------------
Balance, December 31, 1998......................  $(51,820,287)    $(51,820,287)    $(103,640,574)
                                                  ============     ============     =============
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                        4
<PAGE>   6
 
                                EXCEL PARALUBES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                      1998            1997            1996
                                                  ------------    ------------    -------------
<S>                                               <C>             <C>             <C>
Cash flows from operating activities:
  Net operating income (loss)...................  $ 29,488,120    $ (5,676,940)   $ (48,712,790)
  Adjustments to reconcile net income (loss) to
     net cash provided by operating activities:
     Depreciation and amortization..............    17,281,029      17,738,395        3,523,482
     (Increase) decrease in accounts
       receivable...............................     2,011,862     (21,565,500)     (20,150,548)
     (Increase) decrease in inventory...........     1,721,292      (3,544,858)     (10,352,691)
     Increase in other current assets...........       (18,924)        (49,193)        (730,788)
     Decrease in accounts payable and accrued
       liabilities..............................   (17,105,118)    (12,023,980)     (15,056,882)
     Increase in interest payable...............                       190,000        2,917,986
     Increase in long-term liabilities..........    11,601,197      11,913,828
     Other, net.................................        56,955         (48,069)
                                                  ------------    ------------    -------------
          Net cash provided by (used in)
            operating activities................    45,036,413     (13,066,317)     (88,562,231)
                                                  ------------    ------------    -------------
Cash flows from investing activities:
  Additions to property, plant and equipment....    (2,557,498)    (10,602,742)    (158,072,969)
  Acquisition of license agreements.............                    (8,260,140)     (12,000,000)
  Proceeds from sale of asset...................        12,500       1,286,759
                                                  ------------    ------------    -------------
          Net cash used in investing
            activities..........................    (2,544,998)    (17,576,123)    (170,072,969)
                                                  ------------    ------------    -------------
Cash flows from financing activities:
  Cash distributions to partners................   (58,350,000)    (25,400,000)
  Cash contributions from partners..............                    25,000,000
  Net proceeds from issuance of commercial
     paper......................................    16,400,000      31,000,000       19,800,000
  Proceeds from issuance of bonds...............                                    240,000,000
  Debt issue costs..............................                                     (2,851,869)
                                                  ------------    ------------    -------------
          Net cash provided by (used in)
            financing activities................   (41,950,000)     30,600,000      256,948,131
                                                  ------------    ------------    -------------
Net increase (decrease) in cash.................       541,415         (42,440)      (1,687,069)
Cash balance at beginning of year...............        46,520          88,960        1,776,029
                                                  ------------    ------------    -------------
Cash balance at end of year.....................  $    587,935    $     46,520    $      88,960
                                                  ============    ============    =============
Supplementary cash flow information:
  Cash paid for interest........................  $ 38,096,674    $ 37,943,795    $  23,677,351
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                        5
<PAGE>   7
 
                                EXCEL PARALUBES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. ORGANIZATION
 
     Excel Paralubes (Excel or the Partnership), a general partnership, was
formed pursuant to the laws of the state of Texas on August 2, 1994 and was
created for the purpose of constructing and operating a $500 million lube oil
hydrocracker facility. Excel is a partnership which is equally owned by Conoco
Inc. (Conoco) and Atlas Processing Company (Atlas Processing), a 100%-owned
subsidiary of Pennzoil-Quaker State Company (Pennzoil). Excel Paralubes Funding
Corporation (Excel Funding), a Delaware corporation, was formed to execute and
administer the financing arrangements of the Partnership and is a wholly-owned
subsidiary of Excel.
 
     Excel was in the development stage as defined in Statement of Financial
Accounting Standards No. 7 until early 1997. Although Excel produced and sold
some base oil and co-products in late 1996, full commercial operations did not
commence until the first quarter of 1997. As more fully described in Notes 7 and
10, Excel and its partners have entered into several long-term purchase and
supply contracts, processing agreements and partner guarantees.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Estimates
 
     The accompanying financial statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles. Preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from these estimates.
 
  Basis of Consolidation
 
     The consolidated financial statements include the accounts of Excel and its
wholly-owned subsidiary. All intercompany accounts and transactions have been
eliminated.
 
  Cash and Cash Equivalents
 
     Cash consists of cash on deposit at financial institutions and cash
equivalents in the form of time deposits with original maturities of three
months or less. There were time deposits of $387,000 and $0 at December 31, 1998
and 1997, respectively.
 
  Inventories
 
     Inventories consist principally of feedstocks. All inventories are valued
at lower of cost or market, cost being determined by the last-in, first-out
(LIFO) method. The total LIFO reserves required at December 31, 1998 and 1997
were $5,591,252 and $3,242,306, respectively.
 
  Property, Plant and Equipment
 
     Property, plant and equipment is carried at cost and consists primarily of
roads, parking lots, buildings, furniture and refining equipment in service at
year end. Property, plant and equipment is being depreciated on a straight-line
basis principally over 28 years, the life of the assets.
 
  Catalyst Reclamation and Turnaround Costs
 
     Catalyst reclamation and turnaround costs are accrued as long-term
liabilities over the period between reclamations and turnarounds based on
estimates of the scope and the future costs for these activities.
                                        6
<PAGE>   8
                                EXCEL PARALUBES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Intangible Assets and Deferred Charges
 
     Intangible assets and deferred charges consist of license fees, deferred
bond termination fees and debt issue costs. License fees are being amortized on
a straight-line basis principally over the life of the license agreement.
Deferred bond termination fees and debt issue costs are being amortized over the
life of the bonds using a method which approximates the interest method.
Intangible assets are reassessed annually to determine whether any potential
impairment exists.
 
  Revenue Recognition
 
     Revenues from the sale of base oil and co-products are recognized in the
period of delivery.
 
  Operating Costs
 
     Operating costs are expensed as incurred and consist primarily of labor,
utilities, maintenance, turnaround accruals, catalyst replacement, pilot plant,
environmental remediation, land rental and other miscellaneous costs associated
with operating the hydrocracker facility.
 
  Research and Development Expenditures
 
     Research and development expenditures are recorded in operating expenses
and primarily represent pilot plant costs surrounding the preoperating
activities of the hydrocracker facility. For the years ended December 31, 1998,
1997 and 1996, Excel recorded $1,029,216, $763,943 and $2,295,000, respectively,
for research and development expenditures.
 
  Income Taxes
 
     Excel is treated as a tax partnership under the provisions of Subchapter K
of the Internal Revenue Code. Accordingly, the accompanying financial statements
do not reflect a provision for income taxes since Excel's results of operations
and related credits and deductions will be passed through to and taken into
account by its partners in computing their respective tax liabilities. No income
taxes have been recorded for Excel's wholly-owned subsidiary as it has had no
taxable income or temporary differences since its inception.
 
  Environmental Liabilities and Expenditures
 
     Accruals for environmental matters are recorded in operating expenses when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated.
 
  Concentration of Risk
 
     All of Excel's trade receivables are from Conoco and Atlas Processing.
Although collection of these receivables could be influenced by economic factors
affecting the petroleum industry, the risk of significant loss is considered
remote.
 
  Reclassifications
 
     Certain reclassifications of prior year amounts have been made to conform
to current year classifications.
 
                                        7
<PAGE>   9
                                EXCEL PARALUBES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
3. PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment at December 31, 1998 and 1997 is summarized
below:
 
<TABLE>
<CAPTION>
                                                               1998           1997
                                                           ------------   ------------
<S>                                                        <C>            <C>
Plant and equipment......................................  $413,618,376   $412,348,450
Buildings................................................     6,673,213      7,180,879
Improvements.............................................    17,241,508     12,419,040
Office furniture and equipment...........................     1,700,343      1,271,330
Construction in progress.................................       732,508      4,200,353
                                                           ------------   ------------
                                                            439,965,948    437,420,052
Less -- accumulated depreciation.........................    33,617,433     18,509,968
                                                           ------------   ------------
                                                           $406,348,515   $418,910,084
                                                           ============   ============
</TABLE>
 
     Depreciation expense was $15,049,612 for the year ended December 31, 1998,
$15,439,073 for the year ended December 31, 1997 and $2,807,143 for the year
ended December 31, 1996.
 
4. INTANGIBLE ASSETS AND DEFERRED CHARGES
 
     Intangible assets and deferred charges at December 31, 1998 and 1997 are
summarized below:
 
<TABLE>
<CAPTION>
                                                                1998          1997
                                                             -----------   -----------
<S>                                                          <C>           <C>
License fees...............................................  $27,650,202   $27,650,202
Deferred bond termination fees (Note 6)....................    6,756,133     6,756,133
Debt issue costs...........................................    7,339,309     7,339,309
                                                             -----------   -----------
                                                              41,745,644    41,745,644
Less -- accumulated amortization...........................    5,330,740     3,099,323
                                                             -----------   -----------
                                                             $36,414,904   $38,646,321
                                                             ===========   ===========
</TABLE>
 
     Amortization cost associated with intangible assets and deferred charges
was $2,231,417, $2,299,322 and $77,901 in 1998, 1997 and 1996, respectively.
 
5. DEBT
 
     On November 5, 1996, Excel Funding issued $240 million of 7.125% senior
bonds. These bonds are due in 2011 with interest payable on May 1 and November 1
each year. The first interest payment was paid on May 1, 1997 and the first
principal payments of $1,828,800 are due on May 1 and November 1, 2001. Proceeds
were applied to repay outstanding short-term borrowings of $202 million and to
finance operations through December 1996.
 
     On November 6, 1995, Excel Funding issued $250 million of 7.43% senior
bonds. These bonds are due in 2015 with interest payable on May 1 and November 1
each year. The first interest payment was paid on May 1, 1996 and the first
principal payment is due on May 1, 2011. Proceeds were applied to repay
outstanding short-term borrowings of $201 million and to finance operations
through December 1995.
 
     Recourse under the bonds is limited to the revenues and assets of Excel.
Certain restrictive covenants may limit the ability of Excel to incur debt, make
distributions to the partners, make investments or create liens.
 
     On May 22, 1995, Excel entered into a variable rate $300 million line of
credit with a syndicate of banks which was reduced to $145 million during 1997.
The line of credit was extended through May 1999. At
                                        8
<PAGE>   10
                                EXCEL PARALUBES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
December 31, 1998 and 1997, the line of credit remained unused. This credit
facility is intended for support of commercial notes. Through the credit
facility, the commercial notes can be converted to term loans with the related
bank syndicate at the Company's discretion for a period not to exceed one year.
On June 21, 1995, Excel began issuing commercial paper as short-term financing
for the construction of the lube oil hydrocracker. Additional commercial paper
was sold during 1998 and 1997 in order to finance operations. The
weighted-average interest rate on the $69.2 million and $52.8 million of
commercial paper outstanding at December 31, 1998 and 1997, respectively, was
6.5%.
 
     Interest costs incurred in 1998, 1997 and 1996 totaled $38,046,185,
$38,133,795, and $26,519,620 respectively. Interest costs incurred during the
period required to bring assets to the condition and location for their intended
use are capitalized as part of acquisition costs. In 1998 and 1997, there were
no interest costs capitalized and, in 1996, capitalized interest costs totaled
$13,901,399. In 1998 and 1997, there were no debt issue costs capitalized. In
1996, debt issue costs capitalized were $2,851,869, which are being amortized
over the life of the bonds.
 
6. DERIVATIVES AND OTHER HEDGING INSTRUMENTS
 
     Excel Funding entered into certain forward treasury contracts as part of
its program to hedge the interest rate risk related to the 1995 senior bond
offering. These contracts were primarily forward contracts with a syndicate of
investment banks to sell 30-year treasury bonds at 7.625%. On October 30, 1995,
Excel Funding locked in the lower rate of 7.43% on the issuance of $250 million
of senior bonds and, hence, terminated the contracts for a fee of approximately
$6.7 million. Excel Funding capitalized the termination fee as a deferred asset
and is amortizing the balance over the life of the bonds as an adjustment to
interest expense. Deferred bond termination fees amortized during 1998, 1997 and
1996 were $378,769, $378,767 and $358,232, respectively.
 
7. RELATED PARTY TRANSACTIONS
 
     One of Excel's partners, Conoco, has been designated as the operator of the
partnership and, in that capacity, provides substantially all technical and
administrative assistance and services in connection with Excel's operations.
Charges for these services were approximately $9,400,000, $8,400,000 and
$11,200,000 during 1998, 1997 and 1996, respectively, and are included in
administrative expenses. Included in such charges are the costs of the
operators' salaries and wages, which include related benefits such as pensions
and other postretirement benefits, allocable to Excel. Excel has no employees.
 
     Excel and Conoco have joint ownership of certain processing units
constructed at or adjacent to Conoco's Lake Charles Refinery. Variable costs
associated with certain of these units are allocated on the basis of usage.
Fixed costs are allocated based on the ownership percentage of the applicable
units.
 
     As operator, Conoco is responsible for processing and paying Excel's
invoices. Disbursements made by the partner on Excel's behalf are reimbursed
semimonthly by Excel. Such amounts due to this partner totaled $3,326,797 at
December 31, 1998 and $2,937,658 at December 31, 1997. Accrued liabilities which
primarily represent capital expenditures incurred, but not yet invoiced, totaled
$0 at December 31, 1998 and $19,933,639 at December 31, 1997.
 
     On May 12, 1995, Excel entered into a long-term sale and purchase agreement
whereby Conoco and Atlas Processing have agreed to purchase from Excel all base
oil production (within certain specifications) and at least the amount taken by
the other party, up to a maximum of 50% each of Excel's expected output, at a
market-based price (less an annual rebate which is subordinate in right of
payment to the senior debt of Excel). If either Conoco or Atlas Processing fails
to purchase its required amount of Excel's output, that party is obligated to
pay to Excel the amount that Excel would have earned had the party made such
purchases.
 
                                        9
<PAGE>   11
                                EXCEL PARALUBES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Base oil sales made to the partners, net of rebates, were $198,884,886 for 1998,
$166,093,946 for 1997 and $3,307,954 for 1996.
 
     Excel and Conoco entered into a long-term sale and purchase agreement dated
May 12, 1995 which requires Conoco to purchase all co-products (within certain
specifications) produced by Excel, with the exception of sulfur, at market-based
prices as specified in the agreement. Co-product sales made to Conoco were
$70,779,082 during 1998, $87,499,331 during 1997 and $9,069,668 during 1996.
 
     On May 12, 1995, Excel and Conoco entered into a long-term feedstock sale
and purchase agreement whereby Excel agrees to purchase from Conoco all of the
required volume of vacuum gas oil (VGO) and hydrogen needed by the hydrocracker
facility. These feedstocks must meet certain quality specifications and are
purchased at a market-based price as specified in the agreement. Feedstocks
purchased by Excel under the agreement were $143,959,735 during 1998,
$168,032,393 during 1997 and $20,534,162 during 1996.
 
     Excel and Conoco entered into long-term processing agreements dated May 12,
1995 which require Conoco to pay processing fees for the use of the vacuum unit
and hydrogen supply facilities. The fee for the vacuum unit is equal to $1.50
for each barrel of VGO produced from the unit, not to exceed $6,740,000 in any
one year. Fees for the hydrogen supply facilities are $23,000 per day for each
day the facilities are utilized, not to exceed $4,202,000 in any one year.
Processing fees received for these facilities were $9,665,420 during 1998,
$9,662,000 during 1997 and $2,035,166 during 1996.
 
     Both partners of Excel advanced substantial amounts to Excel to facilitate
the construction process. Until short-term financing was obtained in June 1995,
the partners had contributed $110,500,000 ($55,250,000 by each partner). These
amounts were repaid from the proceeds of the credit agreement, dated May 22,
1995, among Chemical Bank, as Syndication Agent; The Chase Manhattan Bank, as
Administrative Agent; and Excel and Excel Funding.
 
     In accordance with a long-term agreement between Excel and Conoco dated
October 24, 1994, Excel agreed to pay Conoco a fixed monthly fee of $58,850 for
use of Conoco's wastewater facility. The fee was increased in May 1998 to
$73,875 per month. This adjusted fee will continue through December 31, 2024 and
amounted to $826,400 in 1998, $706,200 in 1997 and $529,650 in 1996.
 
     Excel leases the project site land from Conoco. The lease expires on
December 31, 2024; at which time, the lease will automatically be extended for
successive renewal terms of five years each unless either the lessee or lessor
elects to terminate the lease. The following details the future lease payments
required of Excel for the five succeeding years:
 
<TABLE>
<S>                                                           <C>
1999                                                          $ 2,481,600
2000........................................................    2,481,600
2001........................................................    2,481,600
2002........................................................    2,481,600
2003........................................................    2,481,600
Thereafter..................................................   52,113,600
                                                              -----------
                                                              $64,521,600
                                                              ===========
</TABLE>
 
     Rental expense under operating leases was $2,481,600 for 1998, 1997 and
1996.
 
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     At December 31, 1998 and 1997, Excel had outstanding long-term debt with a
carrying value of $490 million. Based on borrowing rates currently available,
the carrying amount of this debt approximates fair value. The reported amounts
of financial instruments such as cash equivalents, accounts receivable and
short-term notes payable approximate fair value because of their short
maturities.
 
                                       10
<PAGE>   12
                                EXCEL PARALUBES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9. COMMITMENTS AND CONTINGENCIES
 
     Excel does not maintain general liability (including sudden and accidental
pollution) insurance coverage. However, Excel's respective partners maintain
general insurance policies and/or are self-insured.
 
     On July 31, 1995, a Petition for Class Action was filed in the 14th
Judicial District Court, Parish of Calcasieu, State of Louisiana, against Conoco
and a contractor that excavated soil from the project site, by persons upon
whose property such soil was placed, alleging that the soil contained harmful
and dangerous materials, including asbestos and/or lead. The plaintiffs seek
unspecified damages, including punitive or exemplary, compensatory and clean-up
damages and attorneys' fees. Conoco intends to vigorously defend the litigation.
Conoco is voluntarily removing and replacing contaminated soils from affected
properties. Based on the agreements that Excel has with Conoco, management of
Excel determined that Excel was potentially obligated to Conoco for a portion of
the amounts paid by Conoco in connection with this litigation and related
remediation. As such, management agreed to reimburse Conoco for a portion of the
costs. Excel paid $136,015, $368,532 and $1.3 million in 1998, 1997 and 1996,
respectively. Excel has accrued $900,000 and $712,140 as of December 31, 1998
and 1997, respectively, for anticipated remediation and litigation costs for
this matter. Management does not believe that the litigation or future
remediation expenses will have a material adverse effect on Excel's financial
condition or results of operations.
 
10. GUARANTEES
 
     Conoco and Atlas Processing have entered into a Partner Loan Agreement with
Excel and the First National Bank of Chicago, as agent on behalf of holders of
certain debt of Excel, pursuant to which Conoco and Atlas Processing agreed to
provide liquidity support to Excel up to an aggregate amount of $60 million
outstanding at any time during the existence of a liquidity cash flow deficit.
 
     Pennzoil has guaranteed all of Atlas Processing's obligations and E. I.
duPont de Nemours and Company (DuPont) has guaranteed all of Conoco's
obligations under all Excel offtake and operating agreements as described in
Note 7.
 
     In October 1998, DuPont completed the initial divestiture of a portion of
its ownership interest in Conoco and has announced its intention to divest its
remaining ownership interest. If DuPont's ownership interest in Conoco falls
below 50%, the DuPont guarantee of Conoco's obligations to Excel may be
terminated if (i) the ratings of the Excel senior bonds, after giving effect to
DuPont's divestiture, are affirmed to be at least the lower of (a) A3/A- or (b)
the ratings in effect just prior to divestiture; (ii) all of Excel's senior
bonds are paid in full or (iii) 66 2/3% of the senior bond holders agree to a
change in the terms of the guarantee.
 
                                       11