-----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, AloAIF6T9ROoSdh1I8MygE6zP+mzybRKlFIfKkGwsyqLycQGbDCUKVSZixklrkus B54bVb7Z0HMywpyp8beaIA== 0000950134-97-009511.txt : 19971224 0000950134-97-009511.hdr.sgml : 19971224 ACCESSION NUMBER: 0000950134-97-009511 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971223 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HELMERICH & PAYNE INC CENTRAL INDEX KEY: 0000046765 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 730679879 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04221 FILM NUMBER: 97742991 BUSINESS ADDRESS: STREET 1: UTICA AT 21ST ST CITY: TULSA STATE: OK ZIP: 74114 BUSINESS PHONE: 9187425531 MAIL ADDRESS: STREET 1: UTICA AT 21ST ST CITY: TULSA STATE: OK ZIP: 74114 10-K 1 FORM 10-K FOR FISCAL YEAR END - SEPTEMBER 30, 1997 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 SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-4221 HELMERICH & PAYNE, INC. (Exact name of registrant as specified in its charter) DELAWARE 73-0679879 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) UTICA AT TWENTY-FIRST STREET, 74114 TULSA, OKLAHOMA (Zip code) (Address of principal executive offices) Registrant's telephone number, including area code (918) 742-5531 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- Common Stock ($0.10 par value) New York Stock Exchange Common Stock Purchase Rights 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 THE 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. [ ] At December 15, 1997, the aggregate market value of the voting stock held by non-affiliates was $1,517,678,164. Number of shares of common stock outstanding at December 15, 1997: 50,264,394. DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for the fiscal year ended September 30, 1997 -- Parts I, II, and IV. (2) Proxy Statement for Annual Meeting of Security Holders to be held March 4, 1998 -- Part III. ================================================================================ 2 HELMERICH & PAYNE, INC. AND SUBSIDIARIES Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended September 30, 1997 PART I Item 1. BUSINESS Helmerich & Payne, Inc. (the "Registrant"), incorporated under the laws of the State of Delaware on February 3, 1940, and successor to a business originally organized in 1920, is engaged primarily in the exploration, produc- tion, and sale of crude oil and natural gas and in contract drilling of oil and gas wells for others. These activities account for the major portion of its operating revenues. The Registrant is also engaged in the ownership, development, and operation of commercial real estate. The Registrant is organized into three separate autonomous operating divisions being contract drilling; oil and gas exploration, production and natural gas marketing; and real estate. While there is a limited amount of intercompany activity, each division operates essentially independently of the others. Each of the divisions, except exploration and production, conducts their respective business through wholly owned subsidiaries. Operating decentralization is balanced by a centralized finance division, which handles 3 all accounting, data processing, budgeting, insurance, cash management, and related activities. Most of the Registrant's current exploration efforts are concentrated in Louisiana, Oklahoma, Texas, and the Hugoton Field of western Kansas. The Registrant also explores from time to time in the Rocky Mountain area, New Mexico, Alabama, Florida, Michigan, and Mississippi. Substantially all of the Registrant's gas production is sold to and resold by its marketing subsidiary. This subsidiary also purchases gas from unaffiliated third parties for resale. The Registrant's domestic contract drilling is conducted primarily in Oklahoma, Texas, and Louisiana, and offshore from platforms in the Gulf of Mexico and offshore California. The Registrant has also operated during fiscal 1997 in five international locations: Venezuela, Ecuador, Colombia, Peru, and Bolivia. The Registrant's real estate investments are located in Tulsa, Oklahoma, where the Registrant has its executive offices. CONTRACT DRILLING The Registrant believes that it is one of the major land and offshore platform drilling contractors in the western hemisphere. Operating principally in North and South America, the Registrant specializes in deep drilling in major gas producing basins of the United States and in drilling for oil and gas in remote international areas. For its international operations, the Registrant also constructs and operates rigs which are transportable by helicopter. In the United States, the Registrant draws its customers primarily from the major oil companies and the larger independents. The Registrant also drills for its own oil and gas division. In South America, the Registrant's current customers I - 2 4 include the Venezuelan state petroleum companies and major international oil companies. British Petroleum Company, P.L.C., including its affiliates, ("BP") is the Registrant's largest single customer. The Registrant performs drilling services for BP, both domestically and internationally. Each drilling rig operates under a separate contract. The Registrant believes that its relationship with BP is good. Revenues from drilling services performed for BP in fiscal 1997 accounted for approximately 17% of the Registrant's consolidated revenues for the same period. The Registrant provides drilling equipment, personnel, and camps for others on a contract basis for exploration and development of onshore areas and for development from fixed platforms in offshore areas. Each of the drilling rigs consists of engines, drawworks, a mast, pumps, blowout preventers, a drillstring, and related equipment. The intended well depth and the drilling site conditions are the principal factors that determine the size and type of rig most suitable for a particular drilling job. A land drilling rig may be moved from location to location without modification to the rig. Conversely, a platform rig is specifically designed to perform drilling operations upon a particular platform. While a platform rig may be moved from its original platform, significant expense is incurred to modify a platform rig for operation on each subsequent platform. A helicopter rig is one that can be disassembled into component part loads of approximately 4,000 pounds and transported to remote locations by helicopter, cargo plane, or other means. The Registrant's workover rigs are equipped with engines, drawworks, a mast, pumps, and blowout preventers. A workover rig is used to complete a new I - 3 5 well after the hole has been drilled by a drilling rig, and to remedy various downhole problems that occur in producing wells. The Registrant's drilling contracts are obtained through competitive bidding or as a result of negotiations with customers, and sometimes cover multi-well and multi-year projects. Most of the contracts are performed on a "daywork" basis, under which the Registrant charges a fixed rate per day, with the price determined by the location, depth, and complexity of the well to be drilled, operating conditions, the duration of the contract, and the competitive forces of the market. The Registrant has previously performed contracts on a combination "footage" and "daywork" basis, under which the Registrant charged a fixed rate per foot of hole drilled to a stated depth, usually no deeper than 15,000 feet, and a fixed rate per day for the remainder of the hole. Contracts performed on a "footage" basis involve a greater element of risk to the contractor than do contracts performed on a "daywork" basis. Also, the Registrant has previously accepted "turnkey" contracts under which the Registrant charges a fixed sum to deliver a hole to a stated depth and agrees to furnish services such as testing, coring, and casing the hole which are not normally done on a "footage" basis. "Turnkey" contracts entail varying degrees of risk greater than the usual "footage" contract. Registrant has not accepted a "footage" or "turnkey" contract during fiscal 1997. The Registrant believes that under current market conditions "footage" and "turnkey" contract rates do not adequately compensate contractors for the added risks. The duration of the Registrant's drilling contracts are "well-to-well" or for a fixed term. "Well-to-well" contracts are cancelable at the option of either party upon the completion of drilling at any one site. Fixed-term contracts customarily I - 4 6 provide for termination at the election of the customer, with an "early termination payment" to be paid to the contractor if a contract is terminated prior to the expiration of the fixed term. While current fixed term contracts are for one to three year periods, some fixed term and well-to-well contracts are expected to be continued for longer periods than the original terms, although the contracting parties have no legal obligation to extend the contracts. Contracts generally contain renewal or extension provisions exercisable at the option of the customer at prices mutually agreeable to the Registrant and the customer, and in most instances provide for additional payments for mobilization and demobilization. Contracts for work in foreign countries generally provide for payment in United States dollars, except for amounts required to meet local expenses. However, government owned petroleum companies are more frequently requesting that a greater proportion of these payments be made in local currencies. See Regulations and Hazards, page I-8. Domestic Drilling The Registrant believes it is a major land and offshore platform drilling contractor in the domestic market. At the end of September, 1997, the Registrant had all 38 (29 land rigs and 9 platform rigs) of its rigs operating in the United States and had management contracts for three operator owned rigs in offshore California. During 1997, major modifications and upgrades were undertaken on three land drilling rigs and construction started on six mobile land drilling rigs. Offshore, one new tension leg platform rig (TLP) and one new self-moving minimum space rig began operations for a major oil company in the Gulf of Mexico. The I - 5 7 same major oil company awarded a three-year term drilling contract to Registrant for another TLP rig that is scheduled to commence drilling in fall of 1998. The TLP rig allows drilling operations to be conducted in much deeper water than traditional fixed platforms. The self-moving minimum space rig is designed to be moved without the use of expensive derrick barges. During fiscal 1997, one platform rig was transferred from domestic operations to Venezuela. The Registrant retired three platform rigs, one in the Gulf of Mexico and two offshore California. International Drilling The Registrant's international drilling operations began in 1958 with the acquisition of the Sinclair Oil Company's drilling rigs in Venezuela. Helmerich & Payne de Venezuela, C.A., a wholly owned subsidiary of the Registrant, is one of the leading drilling contractors in Venezuela. Beginning in 1972, with the introduction of its first helicopter rig, the Registrant expanded into other Latin American countries. Venezuelan operations continue to be a significant part of the Registrant's operations. The Registrant presently owns and operates 21 drilling rigs in Venezuela. The Registrant had a utilization rate of 93% for these rigs during fiscal 1997. The Registrant worked for all three government owned producing companies in Venezuela (Corpoven, Maraven and Lagoven) during the fiscal year ended September 30, 1997. Collectively, revenues from these three producing companies accounted for approximately 12% of the Registrant's con- solidated revenues during fiscal 1997. Although the Registrant believes its relationship with such producing companies is good, the loss of this business could have an adverse effect on Registrant. I - 6 8 The Venezuelan government, in early 1996, permitted foreign exploration and production companies to acquire rights to explore for and produce oil and gas in Venezuela. Registrant has performed contract drilling services in Venezuela for four independent oil companies during fiscal 1997. The Registrant presently owns and operates ten drilling rigs in Colombia. The Registrant's utilization rate for such rigs was 99% during fiscal 1997. During fiscal 1997 the revenue generated by Colombian drilling operations contributed approximately 15% of the Registrant's consolidated revenues. In addition to its operations in Venezuela and Colombia, the Registrant in fiscal 1997 owned and operated three rigs in Ecuador, one rig in Peru, and one rig in Bolivia. In Ecuador, Peru, and Bolivia, the contracts are with large international oil companies. During 1997, one land/helicopter rig was moved from Bolivia to Peru for work with a major oil company. Also, Registrant purchased three land rigs from a Bolivian drilling company. The three rigs are currently located in southern Bolivia. One small workover/drilling rig was retired in Venezuela during fiscal 1997. One platform rig was transferred from domestic operations to Venezuela for a major international oil company. In October of 1997, the same oil company awarded the Registrant a contract for a 3,000-horsepower helicopter rig to begin operations in May of 1998. Drilling operations commenced during 1997 on a joint venture platform rig in Australia. The rig is owned 50% by the Registrant and 50% by Registrant's equity affiliate, Atwood Oceanics, Inc. I - 7 9 Competition The contract drilling business is highly competitive. Competition in contract drilling involves such factors as price, rig availability, efficiency, condition of equipment, reputation, and customer relations. Competition is primarily on a regional basis and may vary significantly by region at any particular time. Land drilling rigs can be readily moved from one region to another in response to changes in levels of activity, and an oversupply of rigs in any region may result. Although many contracts for drilling services are awarded based solely on price, the Registrant has been successful in establishing long-term relationships with certain customers which have allowed the Registrant to secure drilling work even though the Registrant may not have been the lowest bidder for such work. The Registrant has continued to attempt to differentiate its services based upon its engineering design expertise, operational efficiency, safety and environmental awareness. Regulations and Hazards The drilling operations of the Registrant are subject to the many hazards inherent in the business, including blowouts and well fires, which could cause personal injury, suspend drilling operations, seriously damage or destroy the equipment involved, and cause substantial damage to producing formations and the surrounding areas. The Registrant believes that it has adequate insurance coverage for comprehensive general liability, public liability, property damage (including insurance against loss by fire and storm, blowout, and cratering risks), workers compensation and employer's liability. No insurance is carried against loss I - 8 10 of earnings or business interruption. The Registrant is unable to obtain significant amounts of insurance to cover risks of underground reservoir damage; however, the Registrant is generally indemnified under its drilling contracts from this risk. The Registrant's present insurance coverage has been contracted through fiscal 1998. However, in view of conditions generally in the liability insurance industry, no assurance can be given that the Registrant's present coverage will not be cancelled during fiscal 1998 nor that insurance coverage will continue to be available at rates considered reasonable. International operations are subject to certain political, economic, and other uncertainties not encountered in domestic operations, including risks of expropriation of equipment as well as expropriation of a particular oil company operator's property and drilling rights, taxation policies, foreign exchange restrictions, currency rate fluctuations, and general hazards associated with foreign sovereignty over certain areas in which operations are conducted. There can be no assurance that there will not be changes in local laws, regulations, and administrative requirements or the interpretation thereof, any of which changes could have a material adverse effect on the profitability of the Registrant's operations or on the ability of the Registrant to continue operations in certain areas. Because of the impact of local laws, in certain areas the Registrant's operations may, in the future, be conducted through entities in which local citizens own interests and through entities (including joint ventures) in which the Registrant holds only a minority interest, or pursuant to arrangements under which the Registrant conducts operations under contract to local entities. While the Registrant believes that neither operating through such entities or pursuant to such arrangements nor the I - 9 11 restructuring of existing operations along such lines would have a material adverse effect on the Registrant's operations or revenues, there can be no assurance that the Registrant will in all cases be able to structure or restructure its operations to conform to local law (or the administration thereof) on terms acceptable to the Registrant. The Registrant further attempts to minimize the potential impact of such risks by operating in more than one geographical area and by attempting to obtain indemnification from operators against expropriation, nationalization, and deprivation. During fiscal 1997, approximately 34% of the Registrant's consolidated revenues were generated from international contract drilling operations. Over 94% of the international revenues were from Venezuela, Colombia, and Ecuador. Exposure to potential losses from currency devaluation is minimal in the countries of Colombia and Ecuador. In those countries, all receivables and payments are currently in U.S. dollars. Cash balances are kept at a minimum which assists in reducing exposure. In Venezuela, approximately 50% of the Registrant's invoice billings are in U.S. dollars and the other 50% are in the local currency, the bolivar. The Registrant is exposed to risks of currency devaluation in Venezuela as a result of bolivar receivable balances and necessary bolivar cash balances. In 1994, the Venezuelan government established a fixed exchange rate in hopes of stemming economic problems caused by a high rate of inflation. During the first week of December, 1995, the government established a new exchange rate, resulting in further devaluation of the bolivar. In April of 1996, the bolivar was again devalued when the government decided to abolish its fixed rate policy and to allow a floating market exchange rate. During fiscal 1997, the Registrant I - 10 12 experienced losses of approximately US$579,000 as a result of the devaluation of the bolivar; however, the Registrant is unable to predict future devaluation. During the mid-1970s, the Venezuelan government nationalized the exploration and production business. At the present time it appears the Venezuelan government will not nationalize the contract drilling business. Any such nationalization could result in Registrant's loss of all or a portion of its assets and business in Venezuela. Many aspects of the Registrant's operations are subject to government regulation, including those relating to drilling practices and methods and the level of taxation. In addition, various countries (including the United States) have environmental regulations which affect drilling operations. Drilling contractors may be liable for damages resulting from pollution. Under United States regulations, drilling contractors must establish financial responsibility to cover potential liability for pollution of offshore waters. Generally, the Registrant is indemnified under drilling contracts from environmental damages, except in certain cases of surface pollution, but the enforceability of indemnification provisions in foreign countries may be questionable. The Registrant believes that it is in substantial compliance with all legislation and regulations affecting its operations in the drilling of oil and gas wells and in controlling the discharge of wastes. To date, compliance has not materially affected the capital expenditures, earnings, or competitive position of the Registrant, although these measures may add to the costs of operating drilling equipment in some instances. Further legislation or regulation may reasonably be anticipated, and the effect thereof on operations cannot be predicted. I - 11 13 OIL AND GAS DIVISION The Registrant engages in the origination of prospects; the identification, acquisition, exploration, and development of prospective and proved oil and gas properties; the production and sale of crude oil, condensate, and natural gas; and the marketing of natural gas. The Registrant considers itself a medium-sized independent producer. All of the Registrant's oil and gas operations are conducted in the United States. Most of the Registrant's current exploration and drilling effort is concentrated in Oklahoma, Kansas, Texas, and Louisiana. The Registrant also explores from time to time in New Mexico, Alabama, Florida, Michigan, Mississippi, and the Rocky Mountain area. The Registrant's exploration and production division includes geographical exploitation teams comprised of geological, engineering, and land personnel who primarily develop in-house oil and gas prospects as well as review a limited number of outside prospects and acquisitions for their respective geographical areas. The Registrant believes that this structure allows each team to gain greater expertise in its respective geographical area and reduces risk in the development of prospects. The Registrant's Mountain Front area in western Oklahoma contained the most significant discoveries in both 1996 and 1997. The Rocky East Prospect, since its discovery in May of 1996, has produced 10.3 BCF and is currently producing approximately 15,000 mcf of gas per day. Twelve miles east of the Rocky East Prospect, the Registrant was involved, during fiscal 1997, in the discovery of the Kiowa Flats Field with current participation in nine gross wells. Working interests in the Kiowa Flats Field have ranged from 11% to 100% I - 12 14 in all wells drilled, and current daily gas production is 19,000 mcf. The Registrant owns 7,271 net acres in 13,760 gross acres in the Mountain Front area, of which 3,520 net acres have been developed. During fiscal 1997, the Registrant participated in several wells drilled in the Masters Creek and Artillery Range area of the Austin Chalk in Louisiana. Total expenditures for drilling and completion costs in this area for fiscal 1997 were $5,702,162, and total revenues were $6,605,175. Individual well results have been mixed with estimated recoverable oil reserves ranging from minimal to over 1 million barrels. The Registrant is continuing its analysis of each well proposal in the area, with potential expenditures for the area of $5,000,000 to $10,000,000 during fiscal 1998. During 1997, the Registrant was a working interest owner in two wells in the Austin Chalk which suffered blowouts. Almost all of Registrant's share of the costs of well control and site clean-up was covered by its insurance. In addition, Helmerich & Payne Energy Services, Inc., a wholly owned subsidiary of Registrant, has participated with a five percent (5%) working interest in the joint venture gathering system and processing plant for the area. Total expenditures, for fiscal 1997, for Helmerich & Payne Energy Services, Inc. in this area was $2,642,356. The Registrant, in December of 1997, signed a non-binding letter of intent with a large independent oil company to sell all of Registrant's oil and gas interests in the Austin Chalk in Louisiana. This sale is subject to the negotiation and execution of a mutually acceptable purchase and sale agreement. The Registrant's exploration and development program has covered a range of prospects, from shallow "bread and butter" programs to deep expensive, high risk/high return wells. During fiscal 1997, the Registrant participated in 78 I - 13 15 development and/or wildcat wells, which resulted in new discoveries of approximately 25.8 bcf of gas and 419,795 barrels of oil and condensate. The Registrant participated in 22 additional development wells, which resulted in the development of approximately 5.4 bcf of gas and 19,700 barrels of oil and condensate which was previously classified as proved undeveloped or proved developed nonproducing reserves. A total of $37,464,000 was spent in the Registrant's exploration and development program during fiscal 1997. This figure includes $1,194,447 of geophysical expense, but is exclusive of expenditures for acreage and acquisitions of proved oil and gas reserves. The Registrant's total company-wide acquisition cost for acreage in fiscal 1997 was approximately $8,358,000. The Registrant spent $47,272 for the acquisition of proved oil and gas reserves during fiscal 1997. In addition, the Registrant sold 63 properties for $3,051,306. The reserves associated with these sales were approximately 548,000 mcf of natural gas and 189,875 barrels of crude oil. The Registrant's fiscal 1998 exploration and production budget of approximately $48,165,000 is 15% greater than its actual exploration and production expenditures in fiscal 1997. Market for Oil and Gas The Registrant does not refine any of its production. The availability of a ready market for such production depends upon a number of factors, including the availability of other domestic production, price, crude oil imports, the proximity and capacity of oil and gas pipelines, and general fluctuations in supply and demand. The Registrant does not anticipate any unusual difficulty in contracting to sell its production of crude oil and I - 14 16 natural gas to purchasers and end-users at prevailing market prices and under arrangements that are usual and customary in the industry. The Registrant and Helmerich & Payne Energy Services, Inc. have successfully developed markets with end-users, local distribution companies, and natural gas brokers for gas produced from successful wildcat wells or development wells. The Registrant is of the opinion that the supply/demand for natural gas is reaching a state of equilibrium, thereby increasing the overall natural gas prices to higher floor levels. In addition, this new equilibrium appears to have increased price volatility. Short-term pricing will continue to depend on the stability of the supply/demand balance. This balance will continue to be affected by seasonal demands (both heating and cooling loads), and the utilization of storage throughout the United States. Long term pricing will obviously react to short term factors as discussed above, as well as other causes affecting supply/demand. Other causes affecting supply/demand imbalances may be federal regulation of the market; large quantities of developed gas reserves in Canada (and subsequent pipeline expansions) and Mexico available for export by pipelines to the United States; fuel switching between fuel oil and natural gas; development of coalbed methane; and development of large quantities of liquefied natural gas in Trinidad and Tobago and Africa available for export to the United States. Historically, the Registrant has had no long-term sales contracts for its crude oil and condensate production. The Registrant continues its practice of contracting for the sale of its Kansas and Oklahoma and portions of its west Texas crude oil for terms of six to twelve months in an attempt to assure itself of higher than posted prices for such crude oil production. I - 15 17 Competition The Registrant competes with numerous other companies and individuals in the acquisition of oil and gas properties and the marketing of oil and gas. The Registrant believes that it should continue to prepare for increased exploration activity without committing to a definite drilling timetable involving large expenditures. The Registrant also believes that the competition for the acquisition of gas producing properties will continue. Due to the recent increase in oil and gas prices and considering the Registrant's conservative acquisition strategy, the Registrant believes that it may be unable to acquire significant proved developed producing reserves. However, the Registrant intends to continue its review of properties in areas where the Registrant has expertise. The Registrant's competitors include major oil companies, other independent oil companies, and individuals, many of whom have financial resources, staffs, and facilities substantially larger than those of the Registrant. The effect of these competitive factors on the Registrant cannot be predicted with certainty. The Registrant intends to continue to pursue the purchase of proven producing properties and to avail itself of the opportunities for drilling and development. Title to Oil and Gas Properties The Registrant undertakes title examination and performs curative work at the time properties are acquired. The Registrant believes that title to its oil and gas properties is generally good and defensible in accordance with standards acceptable in the industry. I - 16 18 Oil and gas properties in general are subject to customary royalty interests contracted for in connection with the acquisitions of title, liens incident to operating agreements, liens for current taxes, and other burdens and minor encumbrances, easements, and restrictions. The Registrant believes that the existence of such burdens will not materially detract from the general value of its leasehold interests. Governmental Regulation in the Oil and Gas Industry The Registrant's domestic operations are affected from time to time in varying degrees by political developments and federal and state laws and regulations. In particular, oil and gas production operations and economics are affected by price control, tax, and other laws relating to the petroleum industry; by changes in such laws; and by constantly changing administrative regulations. Most states in which the Registrant conducts or may conduct oil and gas activities regulate the production and sale of oil and natural gas, including regulation of the size of drilling and spacing units or proration units, the density of wells which may be drilled, and the unitization or pooling of oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas, and impose certain requirements regarding the ratability of production. The effect of these regulations is to limit the amounts of oil and natural gas the Registrant can produce from its wells, and to limit the number of wells or locations at which the Registrant can drill. In addition, legislation affecting the natural gas and oil industry is under constant review. Inasmuch as such laws and regulations are frequently expanded, amended, or reinterpreted, the Registrant is unable to predict the future cost I - 17 19 or impact of complying with such regulations. The Registrant believes that compliance with existing federal, state and local laws, rules and regulations will not have a material adverse effect upon its capital expenditures, earnings or competitive position. Regulatory Controls Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated under the Natural Gas Act ("NGA") and the Natural Gas Policy Act of 1978 ("NGPA") and the regulations promulgated thereunder. The Natural Gas Wellhead Decontrol Act of 1989 amended both the price and non-price decontrol provisions of the NGPA for the purpose of providing complete decontrol of first sales of natural gas by January 1, 1993. The Registrant believes that substantially all of its gas is decontrolled. Commencing in April, 1992, the Federal Energy Regulatory Commission ("FERC") issued Order 636, Order 636-A, and Order 636-B (collectively, "Order 636") which requires interstate pipelines to provide transportation unbundled from their sales of gas. Also, such pipelines must provide open-access transportation on a basis that is equal for all gas supplies. Although Order 636 has provided the Registrant with additional market access and more fairly applied transportation service rates, it has also subjected the Registrant to more restrictive pipeline imbalance tolerances and greater penalties for violation of those tolerances. Order 636 and certain related proceedings were the subject of an appeal to the United States Court of Appeals for the District of Columbia Circuit. Last year, that court largely upheld the order. Because further review of certain of these orders is still possible and other appeals I - 18 20 in individual pipeline proceedings and related dockets remain pending, it is difficult for the Registrant to predict what effect, if any, the ultimate outcome of these regulatory and judicial review proceedings will have on the FERC's open-access regulations or the Registrant's operations. Assuming that Order 636 is largely upheld, the Registrant believes that it will benefit from the provisions of such Order. The FERC has announced its intention to re-examine certain of its transportation-related policies, including a statement of policy and request for comments concerning alternatives to cost-based rates for interstate gas transportation. Several interstate pipelines have obtained authorization from FERC to charge negotiated rates as one such alternative. In addition, in February, 1997, the FERC announced a broad inquiry into issues facing the natural gas industry to assist the FERC in establishing regulatory goals and priorities in the post-Order 636 environment. While any resulting FERC action would affect the Registrant only indirectly, these inquiries are intended to further enhance competition in the natural gas markets. Under the NGA, natural gas gathering facilities are exempt from FERC jurisdiction. The Registrant believes that its gathering systems meet the traditional tests that the FERC has used to establish a pipeline's status as a gatherer. In recent years, the FERC has slightly narrowed its statutory tests for establishing gathering status. A number of states have either enacted new laws or are considering the adequacy of existing laws affecting gathering rates and/or services. For example, in May, 1997, Kansas enacted new gathering oversight legislation that, among other matters, requires reporting of gathering prices and authorizes the Kansas Corporation Commission ("KCC") to oversee open I - 19 21 access on gathering systems to assure it is just, reasonable, and non-discriminatory. Thus, natural gas gathering may receive greater regulatory scrutiny by state agencies. In addition, the FERC has approved several transfers by interstate pipelines of gathering facilities to unregulated gathering companies, including affiliates. This could allow such companies to compete more effectively with independent gatherers. It is not possible at this time to predict the ultimate effect of the policy, although it could affect access to and rates charged for interstate gathering services. However, the Registrant does not presently believe the status of its facilities would be materially affected by modification to the statutory criteria. On February 2, 1994, the KCC issued an order which modified allowables applicable to wells within the Hugoton Gas Field so that those proration units upon which infill wells had been drilled would be assigned a larger allowable than those units without infill wells. As a consequence of this order, the Registrant has drilled 106 infill wells and believes that it will be necessary in fiscal 1998 to drill an additional 23 infill wells at a total estimated cost of $2,200,000. The FERC, in September of 1997, ordered that ad valorem tax levied by the State of Kansas is not a severance tax within the meaning of Section 110 of the NGPA. Therefore, to the extent that first sellers collected revenues in excess of the maximum lawful price, as a result of Kansas ad valorem tax reimbursement, then first sellers would be required to make refunds to the pipeline which purchased the gas, with interest at the FERC-prescribed rate for excess revenues received, based on tax bills rendered during the period October 4, 1983 through June 28, 1988. The refunds are to be paid within 180 days after September 10, I - 20 22 1997. Based upon statements received from interstate pipelines, Registrant presently estimates its refund obligation to approximate $6.7 million, comprised of approximately $2.7 million of ad valorem tax reimbursement and approximately $4 million of interest. While Registrant does not expect the tax reimbursement amount to increase, it intends to continue to review the pipeline statements for accuracy and seek reduction of such refund amount, if possible. The FERC, on November 10, 1997, granted rehearing of its September 1997 order for the purpose of further consideration of this matter. The final FERC order could be subject to appeal to the United States Court of Appeals. In addition, Senate Bill 1388 has been introduced in the United States Senate to prevent penalties or interest from being assessed on any Kansas ad valorem tax refund under the September 1997 order. The final outcome of this matter cannot be predicted at this time. Additional proposals and proceedings that might affect the oil and gas industry are pending before the Congress, the FERC, and the courts. The Registrant cannot predict when or whether any such proposals may become effective. In the past, the natural gas industry has been very heavily regulated. There is no assurance that the current regulatory approach pursued by the FERC will continue. Notwithstanding the foregoing, it is anticipated that compliance with existing federal, state and local laws, rules and regulations will not have a material adverse effect upon the capital expenditures, earnings or competitive position of the Registrant. Federal Income Taxation The Registrant's oil and gas operations, and the petroleum industry in general, are affected by certain federal income tax laws. The Registrant has considered the effects of such federal income tax laws on its operations and I - 21 23 does not anticipate that there will be any material impact on the capital expenditures, earnings or competitive position of the Registrant. Environmental Laws The Registrant's activities are subject to existing federal and state laws and regulations governing environmental quality and pollution control. Such laws and regulations may substantially increase the costs of exploring, developing, or producing oil and gas and may prevent or delay the commencement or continuation of a given operation. In the opinion of the Registrant's management, its operations substantially comply with applicable environmental legislation and regulations. The Registrant believes that compliance with existing federal, state, and local laws, rules, and regulations regulating the discharge of materials into the environment or otherwise relating to the protection of the environment will not have any material effect upon the capital expenditures, earnings, or competitive position of the Registrant. Natural Gas Marketing Helmerich & Payne Energy Services, Inc., ("HPESI") continues into its ninth year of business with emphasis on the purchase and marketing of the Registrant's natural gas production. In addition, HPESI purchases third-party gas for resale and provides compression, gathering services and processing for a fee. During fiscal year 1997, HPESI's sales of third-party gas constituted approximately 13.4% of the Registrant's consolidated revenues. HPESI sells natural gas to markets in the Midwest and Rocky Mountain areas. Term gas sales contracts are for varied periods ranging from three months to seven years. However, recent contracts have tended toward shorter terms. The remainder of the Registrant's gas is sold under spot market I - 22 24 contracts having a duration of 30 days or less. For fiscal 1998, HPESI's term gas sales contracts provide for the sale of approximately 6 bcf of gas. HPESI presently intends to fulfill such term sales contracts with a portion of the gas reserves purchased from the Registrant as well as from its purchases of third-party gas. See pages I-14 through I-23 regarding the market, competition, and regulation of natural gas. REAL ESTATE OPERATIONS The Registrant's real estate operations are conducted exclusively within the metropolitan area of Tulsa, Oklahoma. Its major holding is Utica Square Shopping Center, consisting of fifteen separate buildings, with parking and other common facilities covering an area of approximately 30 acres. Fourteen of these buildings provide approximately 405,709 square feet of net leasable retail sales and storage space (96% of which is currently leased) and approximately 18,590 square feet of net leasable general office space (99% of which is currently leased). Approximately 24% of the general office space is occupied by the Registrant's real estate operations. The fifteenth building is an eight-story medical office building which provides approximately 76,379 square feet of net leasable medical office space (76% of which is currently leased). The Registrant has a two-level parking garage located in the southwest corner of Utica Square that can accommodate approximately 250 cars. At the end of the 1997 fiscal year the Registrant owned 18 of a total of 73 units in The Yorktown, a 16-story luxury residential condominium with approximately 150,940 square feet of living area located on a six-acre tract adjacent to Utica Square Shopping Center. Sixteen of the Registrant's units are currently leased. I - 23 25 The Registrant owns an eight-story office building located diagonally across the street from Utica Square Shopping Center, containing approximately 87,000 square feet of net leasable general office and retail space. This building houses the Registrant's principal executive offices. Approximately 11% of this building was leased to third parties during fiscal 1997. During the second quarter of fiscal 1998, Registrant intends to lease approximately 29,000 square feet of office space in Tulsa. The Registrant's oil and gas division will be relocated to such offices. The vacated space will be used to accommodate the growth of the remaining segments of Registrant's businesses. The Registrant is also engaged in the business of leasing multi-tenant warehouse space. Three warehouses known as Space Center, each containing approximately 165,000 square feet of net leasable space, are situated in the southeast part of Tulsa at the intersection of two major limited-access highways. Present occupancy is 98%. The Registrant also owns approximately 1 1/2 acres of undeveloped land lying adjacent to such warehouses. The Registrant received approximately $530,000 for its sale of an unimproved 15-acre tract of land to the City of Tulsa. This tract is located in a high-growth area of southeast Tulsa known as Southpark. After the sale, Registrant owned approximately 255 acres in Southpark consisting of approximately 242 acres of undeveloped real estate and approximately 13 acres of multi-tenant warehouse area. The warehouse area is known as Space Center East and consists of two warehouses, one containing approximately 90,000 square feet and the other containing approximately 112,500 square feet. Occupancy has remained at 100%. The Registrant believes that a high quality office park, with I - 24 26 peripheral commercial, office/warehouse, and hotel sites, is the best development use for the remaining land. The Registrant also owns a five-building complex called Tandem Business Park. The project is located adjacent to and east of the Space Center East facility and contains approximately six acres, with approximately 88,084 square feet of office/warehouse space. Occupancy has increased from 79% to 93% during fiscal 1997 due primarily to the addition of several new tenants. The Registrant also owns a twelve-building complex, consisting of approximately 204,600 square feet of office/warehouse space, called Tulsa Business Park. The project is located south of the Space Center facility, separated by a city street, and contains approximately 12 acres. Occupancy is currently at 88%. The Registrant also owns two service center properties located adjacent to arterial streets in south central Tulsa. The first, called Maxim Center, consists of one office/warehouse building containing approximately 40,800 square feet and located on approximately 2.5 acres. Occupancy is currently 86%. The second, called Maxim Place, consists of one office/warehouse building containing approximately 33,750 square feet and located on approximately 2.25 acres. During fiscal 1997, occupancy remained at 81%. FINANCIAL Information relating to Revenue and Income by Business Segments may be found on page 9 of the Registrant's Annual Report to Shareholders for fiscal 1997, which is incorporated herein by reference. I - 25 27 EMPLOYEES The Registrant had 1,838 employees within the United States (14 of which were part-time employees) and 1,789 employees in international operations as of September 30, 1997. Item 2. PROPERTIES CONTRACT DRILLING The following table sets forth certain information concerning the Registrant's domestic drilling rigs as of September 30, 1997: I - 26 28
Rig Registrant's Optimum Working Present Designation Classification Depth in Feet Location - ----------- -------------- ------------- -------- 110 Medium Depth 12,000 Texas 141 Medium Depth 14,000 Texas 142 Medium Depth 14,000 Texas 143 Medium Depth 14,000 Texas 145 Medium Depth 14,000 Texas 157 Deep 26,000 Texas 95 Medium Depth 16,000 Texas 96 Medium Depth 16,000 Oklahoma 118 Medium Depth 16,000 Texas 119 Medium Depth 16,000 Texas 120 Medium Depth 16,000 Texas 147 Medium Depth 16,000 Texas 154 Medium Depth 16,000 Texas 155 Medium Depth 14,000 Texas 79 Deep 20,000 Louisiana 80 Deep 20,000 Oklahoma 89 Deep 20,000 Texas 92 Deep 20,000 Oklahoma 94 Deep 20,000 Texas 98 Deep 20,000 Oklahoma 122 Deep 26,000 Texas 97 Deep 26,000 Texas 99 Deep 26,000 Texas 137 Deep 26,000 Texas 149 Deep 26,000 Louisiana 162 Deep 20,000 Texas 72 Very Deep 30,000 Louisiana 73 Very Deep 30,000 Louisiana 161 Very Deep 30,000 Louisiana 104 Medium Depth 16,000 * Offshore California 108 Medium Depth 16,000 * Gulf of Mexico 105 Deep 20,000 * Gulf of Mexico 202 Deep 20,000 * Gulf of Mexico 203 Deep 20,000 * Gulf of Mexico 100 Deep 26,000 * Gulf of Mexico 106 Deep 26,000 * Gulf of Mexico 107 Deep 26,000 * Gulf of Mexico 201 Deep 26,000 * Gulf of Mexico
* Offshore platform rig I - 27 29 The following table sets forth information with respect to the utilization of the Registrant's domestic drilling rigs for the periods indicated:
Years ended September 30, ------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Number of rigs owned at end of period 42 47 41 41 38 Average rig utilization rate during period (1) 53% 69% 71% 82% 88%
(1) A rig is considered to be utilized when it is operated or being moved, assembled, or dismantled under contract. The following table sets forth certain information concerning the Registrant's international drilling rigs as of September 30, 1997:
Rig Registrant's Optimum Working Present Designation Classification Depth in Feet Location ----------- -------------- ------------- -------- 14 Workover/drilling 6,000 Venezuela 19 Workover/drilling 6,000 Venezuela 20 Workover/drilling 6,000 Venezuela 140 Medium Depth 10,000 Venezuela 158 Medium Depth 10,000 Venezuela 159 Medium Depth 12,000 Venezuela 132 Medium Depth 16,000 Ecuador 171 Medium Depth 16,000 Bolivia 172 Medium Depth 16,000 Bolivia 156 Medium Depth 14,000 Venezuela 22 Deep (helicopter rig) 18,000 Peru 23 Deep (helicopter rig) 18,000 Ecuador 91 Deep 20,000 Venezuela (Offshore) 121 Deep 20,000 Colombia 173 Deep 20,000 Bolivia 45 Deep 26,000 Venezuela 82 Deep 26,000 Venezuela 83 Deep 26,000 Venezuela 117 Deep 26,000 Venezuela 123 Deep 26,000 Bolivia 138 Deep 26,000 Ecuador 148 Deep 26,000 Venezuela 160 Deep 26,000 Venezuela 115 Very Deep 30,000 Venezuela 116 Very Deep 30,000 Venezuela 125 Very Deep 30,000 Colombia 113 Very Deep 30,000 Venezuela 128 Very Deep 30,000 Venezuela
I - 28 30
Rig Registrant's Optimum Working Present Designation Classification Depth in Feet Location ----------- -------------- ------------- -------- 129 Very Deep 30,000 Venezuela 133 Very Deep 30,000 Colombia 134 Very Deep 30,000 Colombia 127 Very Deep 30,000 Venezuela 135 Very Deep 30,000 Colombia 136 Very Deep 30,000 Colombia 150 Very Deep 30,000 Venezuela 151 Very Deep 30,000 Colombia 152 Super Deep 30,000+ Colombia 153 Super Deep 30,000+ Colombia 139 Super Deep 30,000+ Colombia
The following table sets forth information with respect to the utilization of the Registrant's international drilling rigs for the periods indicated:
Years ended September 30, ------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Number of rigs owned at end of period 29 29 35 36 39 Average rig utilization rate during period (1) 68% 88% 84% 85% 91%
(1) A rig is considered to be utilized when it is operated or being moved, assembled, or dismantled under contract. OIL AND GAS DIVISION All of the Registrant's oil and gas operations and holdings are domestic. Crude Oil Sales The Registrant's net sales of crude oil and condensate for the fiscal years 1995 through 1997 are shown below:
Average Sales Average Lifting Year Net Barrels Price per Barrel Cost per Barrel ---- ----------- ---------------- --------------- 1995 808,058 $16.37 $7.86 1996 809,571 $19.00 $7.90 1997 985,633 $20.77 $6.98
I - 29 31 Natural Gas Sales The Registrant's net sales of natural and casinghead gas for the three fiscal years 1995 through 1997 are as follows:
Average Sales Average Lifting Year Net Mcf Price per Mcf Cost per Mcf ---- ------- ------------- --------------- 1995 26,421,434 $1.27 $0.3640 1996 34,535,184 $1.75 $0.3292 1997 40,463,374 $2.23 $0.3213
Following is a summary of the net wells drilled by the Registrant for the fiscal years ended September 30, 1995, 1996, and 1997:
Exploratory Wells Development Wells ----------------- ----------------- 1995 1996 1997 1995 1996 1997 ---- ---- ---- ---- ---- ---- Productive 0.7 4.448 0.5 20.7695 23.625 39.2391 Dry 2.596 5.250 8.4588 3.2867 2.000 1.1362
On September 30, 1997, the Registrant was in the process of drilling or completing eight gross or 0.979 net wells. I - 30 32 Acreage Holdings The Registrant's holdings of acreage under oil and gas leases, as of September 30, 1997, were as follows:
Developed Acreage Undeveloped Acreage ----------------- ------------------- Gross Net Gross Net ----- --- ----- --- Arkansas 3,068.23 1,725.11 -0- -0- Colorado -0- -0- 320.00 160.00 Kansas 119,663.07 83,643.73 31,179.49 27,587.51 Louisiana 14,273.31 3,937.01 115,028.09 31,674.31 Michigan -0- -0- 15,206.16 15,130.88 Mississippi -0- -0- 0.83 0.10 Montana 2,037.19 381.54 3,508.95 751.17 Nebraska 480.00 168.00 -0- -0- Nevada -0- -0- 36,312.67 27,634.51 New Mexico 960.00 54.86 161.88 38.85 North Dakota 200.00 11.52 -0- -0- Oklahoma 134,088.88 50,758.54 32,803.77 19,953.74 Texas 84,637.01 41,343.60 19,041.00 12,325.96 Wyoming -0- -0- 1,075.00 185.92 ---------- ---------- ---------- ---------- Total 359,407.69 182,023.91 254,637.84 135,442.95
Acreage is held under leases which expire in the absence of production at the end of a prescribed primary term, and is, therefore, subject to fluctuation from year to year as new leases are acquired, old leases expire, and other leases are allowed to terminate by failure to pay annual delay rentals. Productive Wells The Registrant's total gross and net productive wells as of September 30, 1997, were as follows:
Oil Wells Gas Wells --------- --------- Gross Net Gross Net ----- --- ----- --- 3,142 182 912 410
Additional information required by this item with respect to the Registrant's oil and gas operations may be found on pages I-12 through I-23 of I - 31 33 Item 1. BUSINESS, and pages 21 through 30 of the Registrant's Annual Report to Shareholders for fiscal 1997, "Notes to Consolidated Financial Statements" and "Note 12 Supplementary Financial Information for Oil and Gas Producing Activities." Estimates of oil and gas reserves, future net revenues, and present value of future net revenues were audited by Lee Keeling and Associates, Inc., 15 East 5th Street, Suite 3500, Tulsa, Oklahoma 74103. Total oil and gas reserve estimates do not differ by more than 5% from the total reserve estimates filed with any other federal authority or agency. REAL ESTATE OPERATIONS See Item 1. BUSINESS, pages I-23 through I-25. STOCK As of December 15, 1997: The Registrant owned 300,000 shares of the common stock of Sun Company, Inc., and 329,053 shares of the Sun Company, Inc. preferred series "A". The Registrant owned 500,000 shares of Oryx Energy Company, Inc. The Registrant owned 3,200,000 shares of the common stock of Atwood Oceanics, Inc., a Houston, Texas based company engaged in offshore contract drilling. The Registrant's ownership of Atwood is approximately 24%. The Registrant owned 1,480,000 shares of the common stock of Schlumberger, Ltd. The Registrant owned 240,000 shares of the common stock of Phillips Petroleum Company, Inc. The Registrant owned 1,400,000 shares of the common stock of Occidental Petroleum Corporation, Inc. I - 32 34 The Registrant owned 400,000 shares of the common stock of Banc One Corporation, which purchased Liberty Bancorp, Inc. during fiscal 1997. The Registrant owned 225,000 shares of the common stock of ONEOK INC. The Registrant also owned lesser holdings in several other publicly traded corporations. Item 3. LEGAL PROCEEDINGS There are no material legal proceedings pending against the Registrant. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of the Registrant's executive officers, together with all positions and offices held with the Registrant by such executive officers. Officers are elected to serve until the meeting of the Board of Directors following the next Annual Meeting of Stockholders and until their successors have been elected and have qualified or until their earlier resignation or removal. I - 33 35 W. H. Helmerich, III, 74 Director since 1949; Chairman of the Board Chairman of the Board since 1960 Hans Helmerich, 39 Director since 1987; President and Chief President Executive Officer since 1989 George S. Dotson, 56 Director since 1990; Vice President, Drilling, Vice President since 1977 and President and Chief Operating Officer of Helmerich & Payne International Drilling Co. since 1977 Douglas E. Fears, 48 Vice President, Finance, since 1988 Vice President Steven R. Mackey, 46 Secretary since 1990; Vice President and Vice President and General Counsel since 1988 Secretary Steven R. Shaw, 46 Vice President, Production, since 1985; Vice Vice President President, Exploration and Production, since 1996 Gordon K. Helm, 44 Chief Accounting Officer of the Registrant; Controller Controller since December 10, 1993; and Manager of Internal Audit from September 13, 1991 to December 9, 1993
I - 34 36 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information provided in this Item 5 has been restated to reflect the Registrant's December 15, 1997 2-for-1 common stock split. The principal market on which the Registrant's common stock is traded is the New York Stock Exchange. The high and low sale prices per share for the common stock for each quarterly period during the past two fiscal years as reported in the NYSE - Composite Transaction quotations follow:
1996 1997 ---- ---- Quarter High Low High Low ------- ---- --- ---- --- First 15.06 12.25 27.56 21.94 Second 17.25 13.50 27.44 21.00 Third 19.13 16.50 29.63 21.81 Fourth 21.81 17.38 40.00 29.47
The Registrant paid quarterly cash dividends during the past two years as shown in the following table:
Paid per Share Total Payment -------------- ------------- Fiscal Fiscal ------ ------ Quarter 1996 1997 1996 1997 ------- ---- ---- ---- ---- First $0.0625 $0.065 $3,095,578 $3,239,007 Second 0.0625 0.065 3,100,568 3,239,892 Third 0.0625 0.065 3,104,724 3,242,952 Fourth 0.0650 0.065 3,229,596 3,248,275
The Registrant paid a cash dividend of $0.065 per share on December 1, 1997, to shareholders of record on November 14, 1997. Payment of future dividends will depend on earnings and other factors. II - 1 37 As of December 15, 1997, there were 1,467 record holders of the Registrant's common stock as listed by the transfer agent's records. Item 6. SELECTED FINANCIAL DATA The information provided in this Item 6 has been restated to reflect the Registrant's December 15, 1997 2-for-1 common stock split. Five-year Summary of Selected Financial Data
1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Sales, operating, and other revenues $ 300,723 $ 310,152 $ 306,721 $ 393,255 $ 517,859 Income from con- tinuing operations 22,158 17,108 5,788 45,426 84,186 Income from con- tinuing operations per common share 0.46 0.35 0.12 0.92 1.69 Total assets 610,935 621,689 707,061 821,914 1,033,595 Long-term debt 3,600 -0- -0- -0- -0- Cash dividends declared per common share 0.24 0.245 0.25 0.255 0.26
The Five-year Summary of Selected Financial Data described above excludes results of Natural Gas Odorizing, Inc. ("NGO") operations. Registrant, on August 30, 1996, sold its wholly-owned subsidiary, NGO, to Occidental Petroleum Corporation. II - 2 38 The following Five-year Summary of Selected Financial Data includes only the results of NGO operations. Five-year Summary of Selected Financial Data for NGO
1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Sales, operating, and other revenues $14,374 $18,849 $19,055 $19,540 $ -0- Income from discon- tinued operations 2,392 3,863 3,963 3,090 -0- Income from discon- tinued operations per common share 0.05 0.08 0.08 0.06 -0-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item may be found on pages 10 through 15, Management's Discussion & Analysis of Results of Operations and Financial Condition, in the Registrant's Annual Report to Shareholders for fiscal 1997, which is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item may be found on pages 16 through 30 in the Registrant's Annual Report to Shareholders for fiscal 1997, which is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II - 3 39 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required under this item with respect to Directors and with respect to delinquent filers pursuant to Item 405 of Regulation S-K is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 4, 1998, to be filed with the Commission not later than 120 days after September 30, 1997. See pages I-33 through I-34 for information covering the Registrant's Executive Officers. Item 11. EXECUTIVE COMPENSATION This information is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 4, 1998, to be filed with the Commission not later than 120 days after September 30, 1997. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 4, 1998, to be filed with the Commission not later than 120 days after September 30, 1997. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 4, 1998, to be filed with the Commission not later than 120 days after September 30, 1997. III - 1 40 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Document List 1. The financial statements called for by Item 8 are incorporated herein by reference from the Registrant's Annual Report to Shareholders for fiscal 1997. 2. Exhibits required by Item 601 of Regulation S-K: Exhibit Number: 3.1 Restated Certificate of Incorporation and Amendment to Restated Certificate of Incorporation of the Registrant are incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. 3.2 By-Laws of the Registrant are incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. 4.1 Rights Agreement dated as of January 8, 1996, between the Registrant and The Liberty National Bank and Trust Company of Oklahoma City, N.A. is incorporated herein by reference to the Registrant's Form 8-A, dated January 17, 1996. * 10.1 Incentive Stock Option Plan is incorporated herein by reference to Exhibit 4.2 to the Registrant's Registration Statement No. 33-16771 on Form S-8. * 10.2 Form of Incentive Stock Option Plan Stock Option Contract for the Incentive Stock Option Plan is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.3 Consulting Services Agreement between W. H. Helmerich, III, and the Registrant effective January 1, 1990, as amended is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. - ----------------------- * Compensatory Plan or Arrangement. IV-1 41 * 10.4 Restricted Stock Plan for Senior Executives of Helmerich & Payne, Inc. is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.5 Form of Restricted Stock Award Agreement for the Restricted Stock Plan for Senior Executives of Helmerich & Payne, Inc., together with all amendments thereto is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.6 Supplemental Retirement Income Plan for Salaried Employees of Helmerich & Payne, Inc. is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.7 Helmerich & Payne, Inc. 1990 Stock Option Plan is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.8 Form of Nonqualified Stock Option Agreement for the 1990 Stock Option Plan is incorporated by reference to Exhibit 99.2 to the Registrant's Registration Statement No. 33-55239 on Form S-8, dated August 24, 1994. * 10.9 Supplemental Savings Plan for Salaried Employees of Helmerich and Payne, Inc., is incorporated herein by reference from Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1993. * 10.10 Helmerich & Payne, Inc. 1996 Stock Incentive Plan is incorporated herein by reference to Registrant's Registration Statement No. 333-34939 on Form S-8 dated September 4, 1997. * 10.11 Form of Nonqualified Stock Option Agreement for Helmerich & Payne, Inc. 1996 Stock Incentive Plan is incorporated by reference to Exhibit 99.2 to Registrant's Registration Statement on Form S-8 dated September 4, 1997. * 10.12 Form of Restricted Stock Agreement for Helmerich & Payne, Inc. 1996 Stock Incentive Plan. - ----------------------- * Compensatory Plan or Arrangement. IV-2 42 * 10.13 Helmerich & Payne, Inc. Non-Employee Directors Stock Compensation Plan is hereby incorporated by reference to Exhibit "B" of Registrant's Proxy Statement dated January 27, 1997. 13. The Registrant's Annual Report to Shareholders for fiscal 1997. 22. Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 27. Financial Data Schedule. (b) Report on Form 8-K None. - ----------------------- * Compensatory Plan or Arrangement. IV-3 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized: HELMERICH & PAYNE, INC. By /s/ Hans Helmerich ------------------------------ Hans Helmerich, President (Chief Executive Officer) Date: December 19, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: By /s/ William L. Armstrong By /s/ Glenn A. Cox ------------------------------ -------------------------------- William L. Armstrong, Director Glenn A. Cox, Director Date: December 19, 1997 Date: December 19, 1997 By /s/ George S. Dotson By /s/ Hans Helmerich ------------------------------ -------------------------------- George S. Dotson, Director Hans Helmerich, Director and CEO Date: December 19, 1997 Date: December 19, 1997 By /s/ W. H. Helmerich, III By /s/ L. F. Rooney, III ------------------------------ -------------------------------- W. H. Helmerich, III, Director L. F. Rooney, III, Director Date: December 19, 1997 Date: December 19, 1997 By /s/ Edward B. Rust, Jr. By /s/ George A. Schaefer ------------------------------ -------------------------------- Edward B. Rust, Jr., Director George A. Schaefer, Director Date: December 19, 1997 Date: December 19, 1997 By /s/ John D. Zeglis By /s/ Douglas E. Fears ------------------------------ -------------------------------- John D. Zeglis, Director Douglas E. Fears Date: December 19, 1997 (Principal Financial Officer) Date: December 19, 1997 By /s/ Gordon K. Helm ------------------------------ Gordon K. Helm, Controller (Principal Accounting Officer) Date: December 19, 1997
44 Index to Exhibits
Exhibit Number Description ------- ----------- 3.1 Restated Certificate of Incorporation and Amendment to Restated Certificate of Incorporation of the Registrant are incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. 3.2 By-Laws of the Registrant are incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. 4.1 Rights Agreement dated as of January 8, 1996, between the Registrant and The Liberty National Bank and Trust Company of Oklahoma City, N.A. is incorporated herein by reference to the Registrant's Form 8-A, dated January 17, 1996. * 10.1 Incentive Stock Option Plan is incorporated herein by reference to Exhibit 4.2 to the Registrant's Registration Statement No. 33-16771 on Form S-8. * 10.2 Form of Incentive Stock Option Plan Stock Option Contract for the Incentive Stock Option Plan is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.3 Consulting Services Agreement between W. H. Helmerich, III, and the Registrant effective January 1, 1990, as amended is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996.
- ----------------------- * Compensatory Plan or Arrangement. 45
* 10.4 Restricted Stock Plan for Senior Executives of Helmerich & Payne, Inc. is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.5 Form of Restricted Stock Award Agreement for the Restricted Stock Plan for Senior Executives of Helmerich & Payne, Inc., together with all amendments thereto is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.6 Supplemental Retirement Income Plan for Salaried Employees of Helmerich & Payne, Inc. is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.7 Helmerich & Payne, Inc. 1990 Stock Option Plan is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.8 Form of Nonqualified Stock Option Agreement for the 1990 Stock Option Plan is incorporated by reference to Exhibit 99.2 to the Registrant's Registration Statement No. 33-55239 on Form S-8, dated August 24, 1994. * 10.9 Supplemental Savings Plan for Salaried Employees of Helmerich and Payne, Inc., is incorporated herein by reference from Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1993. * 10.10 Helmerich & Payne, Inc. 1996 Stock Incentive Plan is incorporated herein by reference to Registrant's Registration Statement No. 333-34939 on Form S-8 dated September 4, 1997. * 10.11 Form of Nonqualified Stock Option Agreement for Helmerich & Payne, Inc. 1996 Stock Incentive Plan is incorporated by reference to Exhibit 99.2 to Registrant's Registration Statement on Form S-8 dated September 4, 1997. * 10.12 Form of Restricted Stock Agreement for Helmerich & Payne, Inc. 1996 Stock Incentive Plan.
- ----------------------- * Compensatory Plan or Arrangement. 46
* 10.13 Helmerich & Payne, Inc. Non-Employee Directors Stock Compensation Plan is hereby incorporated by reference to Exhibit "B" of Registrant's Proxy Statement dated January 27, 1997. 13. The Registrant's Annual Report to Shareholders for fiscal 1997. 22. Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 27. Financial Data Schedule.
EX-10.12 2 FORM OF RESTRICTED STOCK AGREEMENT 1 Exhibit 10.12 RESTRICTED STOCK AWARD AGREEMENT HELMERICH & PAYNE, INC. 1996 STOCK INCENTIVE PLAN THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") entered into as of the _____ day of ___________, 19__, by and between Helmerich & Payne, Inc. (the "Company"), and _______________, an individual (the "Participant"); W I T N E S S E T H: WHEREAS, the Participant is a key employee employed by the Company; and WHEREAS, the Company desires to encourage the Participant to remain in the employ of the Company in the future; and WHEREAS, in consideration of future services to be rendered by the Participant to the Company, the Company desires to provide the Participant the opportunity to acquire additional shares of Common Stock of the Company in exchange for the Participant performing future services for the Company. NOW, THEREFORE, BE IT RESOLVED, the Participant and the Company agree as follows: 1. The Plan. A copy of the Helmerich & Payne, Inc. 1996 Stock Incentive Plan (the "Plan") is attached hereto as Exhibit "A", and such Plan is hereby incorporated herein by reference and made a part hereof for all purposes, and when taken with this Agreement shall govern the rights of the Participant and the Company with respect to the Award. All capitalized terms shall have the same meaning as contained in the Plan unless stated to the contrary herein. 2. Grant of Award. The Company hereby grants to the Participant a Restricted Stock Award (the "Award") of ____________ (______) shares of Company Common Stock (the "Restricted Shares") on the terms and conditions set forth herein and in the Plan. 2 3. Terms of Award. (a) Vesting and Release of Restricted Shares. Certificates representing the Restricted Shares subject to the Award will be issued in the name of the Participant and will be delivered to the Secretary of the Company as escrow agent (the "Agent"). Subject to the terms of this Agreement, the Plan and any agreement entered into with the Agent, the Participant shall be deemed vested and entitled to receive the following number of the Restricted Shares within the Award within a reasonable length of time after the expiration of the following vesting dates (the "Vesting Dates") described in Subsection (b) below. (b) Vesting Dates. If the Participant shall have been continuously in the employment of the Company or one of its Subsidiaries for a period of three years from the date of grant of the Award, the Company shall deliver to the Participant on or about the third anniversary thereof a certificate, registered in the name of the Participant and free of Restrictions hereunder, representing one-third ( 1/3) of the total number of Restricted Shares granted to the Participant pursuant to this Agreement. Similarly, if the Participant shall be so continuously employed on each of the fourth and fifth anniversaries thereof, the Company, on or about each such anniversary shall deliver additional certificates representing one-third ( 1/3) of the total number of such Restricted Shares. The following sets forth the vesting schedule described hereinabove:
Number of Shares of Stock Within an Award Vesting Date To Be Distributed ------------ --------------------- ---------------- ------------ ---------------- ------------ ---------------- ------------ Total ============
No payment shall be required from the Participant in connection with any delivery to the Participant of Restricted Shares hereunder other than the payment of income tax withholding and other employment taxes that may be due with respect to the issuance or delivery of such shares. 2 3 (c) Voting and Dividends. Participant shall have the right to vote and receive dividends upon the unvested Restricted Shares held by the Agent. If dividends or other distributions are paid in shares of Common Stock, all such shares shall be subject to the same restrictions on transferability as the Restricted Shares. Participant shall forfeit the right to vote and receive dividends upon any of the Restricted Shares at the time such shares are forfeited under the Plan. (d) Delivery of Restricted or Forfeited Shares. As promptly as is reasonable following such time as the Restrictions shall expire, the Company will deliver to the Participant (including a beneficiary, estate or designated representative, if appropriate) a certificate or certificates for the Restricted Shares for which the Restrictions have expired; and, such Restricted Shares delivered to the Participant (or beneficiary, estate or designated representative) shall no longer be subject to any restrictions and he shall enjoy all rights and privileges of a stockholder as to such shares. At such time as the Restricted Shares shall be forfeited, the forfeited shares shall be returned to the Company to be held as treasury shares or to be canceled as the Company shall at any time determine. The Participant shall have no rights and privileges as a stockholder or otherwise as to the forfeited shares. 4. Delivery by the Agent. As promptly as is practicable after the expiration of the appropriate Vesting Dates specified in Subsection 3(b) above, the Agent will deliver to the Participant a certificate evidencing the number of Restricted Shares to which he is entitled. Such certificate shall be issued in the Participant's name. 5. Nontransferability of Award. With respect to unvested Restricted Shares held by the Agent, the Participant, for whose benefit such shares are held, shall not have the right to sell, assign, transfer, convey, dispose, pledge, hypothecate, burden, encumber or charge such unvested Restricted Shares or any interest therein in any manner whatsoever. 6. Notices. All notices or other communications relating to the Plan and this Agreement as it relates to the Participant shall be in writing and shall be mailed (U.S. Mail) by the Company to the Participant at the following address: ____________________________________________________ 3 4 or such other address as the Participant may advise the Company in writing. 7. Restrictive Legend. The Participant acknowledges that the certificate representing the Restricted Shares shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED STOCK, HAVE BEEN ISSUED PURSUANT TO THE HELMERICH & PAYNE, INC. 1996 STOCK INCENTIVE PLAN (THE 'PLAN'), ARE SUBJECT TO THE TERMS AND PROVISIONS OF THE PLAN, AND BEAR THE RESTRICTIONS ON ALIENATION SET FORTH IN THE PLAN, AND ARE FURTHER SUBJECT TO THE TERMS AND PROVISIONS OF THE APPLICABLE RESTRICTED STOCK AWARD AGREEMENT BETWEEN HELMERICH & PAYNE, INC. AND THE PARTICIPANT. COPIES OF THE PLAN MAY BE OBTAINED FROM THE OFFICE OF THE SECRETARY OF THE COMPANY." The Participant acknowledges and agrees that violation of the foregoing restrictive legend shall result in immediate forfeiture of all Restricted Shares. 8. Other Restrictions on Transferability. The Participant acknowledges that the holding and transfer of all Restricted Shares received by the Participant will be subject to all applicable state and federal securities laws. 9. Stock Powers and the Beneficiary. The Participant hereby agrees to execute and deliver to the Secretary of the Company a stock power (endorsed in blank) covering his Award and authorizes the Secretary of the Company to deliver to the Company any and all Restricted Shares that are forfeited under the provisions of the 4 5 Plan. The Participant designates his spouse as the beneficiary under this Agreement, and if the Participant has no spouse, then, the Participant's estate shall be the designated beneficiary of the Participant. 10. Change of Control. Upon the occurrence of a Change of Control Event as defined in the Plan, all restrictions upon the Restricted Shares subject to this Agreement shall be immediately and automatically vested without further action of the Company or the Participant. 11. Further Assurances. The Participant hereby agrees to execute and deliver all such instruments and take all such action as the Company may from time to time reasonably request, including, but not limited to, acknowledging the forfeiture of the Restricted Shares in accordance with the Plan, in order to fully effectuate the purposes of this Agreement. 12. Binding Effect and Governing Law. This Agreement shall be (i) binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns except as may be limited by the Plan and (ii) governed and construed under the laws of the State of Oklahoma. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "COMPANY" HELMERICH & PAYNE, INC., a Delaware corporation By -------------------------------- Hans Helmerich President "PARTICIPANT" ---------------------------------- --------------- 5 EX-13 3 ANNUAL REPORT TO SHAREHOLDERS FOR FISCAL 1997 1 EXHIBIT 13 =============================================================================== Helmerich & Payne, Inc. Annual Report for 1997 =============================================================================== Revenue Breakdown for 1997 [PIE CHART] CONTRACT DRILLING Domestic 27% Exploration and Production 22% Natural Gas Marketing 13% International 34% Real Estate 2% Investments and Other Income 2%
FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 - ------------------------------------------------------------------------------- Revenues $ 517,859,000 $393,255,000 - ------------------------------------------------------------------------------- Income from Continuing Operations $ 84,186,000 $ 45,426,000 - ------------------------------------------------------------------------------- Income per Share from - ------------------------------------------------------------------------------- Continuing Operations $ 1.69 $ .92 - ------------------------------------------------------------------------------- Net Income $ 84,186,000 $ 72,566,000 - ------------------------------------------------------------------------------- Net Income Per Share $ 1.69 $ 1.47 - ------------------------------------------------------------------------------- Dividends Paid Per Share $ .26 $ .2525 - ------------------------------------------------------------------------------- Capital Expenditures $ 159,578,000 $109,747,000 - ------------------------------------------------------------------------------- Total Assets $1,033,595,000 $821,914,000 - -------------------------------------------------------------------------------
2 =============================================================================== PRESIDENT'S LETTER =============================================================================== To the Co-owners of Helmerich & Payne, Inc. During 1997, Americans achieved the dubious distinction of bearing the heaviest tax burden in our country's history. Compounding the confiscatory levels of taxation is the complexity and confusion a taxpayer faces in figuring out some seven million words of tax law. Again this year, we will spend over five billion hours and 225 billion dollars simply preparing our tax returns. Senator Don Nickles commented, "The present tax code is about 10 times longer than the Bible, a lot more complicated and, unlike the Bible, contains no good news." In fact, it is bad news when the average American family shells out more for taxes than for food, clothing, shelter, and transportation combined. It is bad news when that same family's savings and stock market holdings are punished through double and triple taxation; first from a layer of corporate taxes with rates up to 35 percent, then again the same dollar is taxed as high as 39.6 percent when received as a dividend. Finally, as those investments share in asset value growth, they are subjected to another bite through a capital gains tax. It is more bad news when the American family is betrayed by their elected representatives and the tax code becomes an exclusive feeding trough of special-interest politics. Business and union campaign contributions are too often rewarded by loopholes and favored tax treatment. We have arrived at the place where injury has been inflicted beyond the sizable pocketbook damage. Harm has also fallen upon the great American spirit of enterprise. This great engine of creativity, innovation, entrepreneurial risk taking, 2 3 and diligence has produced an unprecedented record of accomplishment, but is forced to labor under heavy disincentives. What repair can be made to a tax system that holds fundamental property rights in such low esteem and disregards the basic liberty to keep and dispose of the fruit of one's labor and intellect? The New York Times expressed early concerns with the new income tax all the way back in 1909, predicting, "When men get in the habit of helping themselves to the property of others, they cannot easily be cured of it." The time is right to take a step toward that cure by replacing what is clearly broken with the simplicity and fairness of a flat tax. Sincerely, Hans Helmerich December 15, 1997 President 3 4 =============================================================================== DRILLING HELMERICH & PAYNE INTERNATIONAL DRILLING CO. =============================================================================== SUMMARY Increased U.S. land activity, the activation of two new offshore platform rigs, and continued high utilization in international markets resulted in a 30 percent increase in revenues in 1997. Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 45 percent to $111.9 million, and pre-tax operating profit rose 64 percent to $67.6 million. For the second consecutive year, revenues were at an all-time high for Helmerich & Payne International Drilling Co. and the overall pre-tax operating profit margin of 21 percent was at its highest level since 1983.
- ------------------------------------------------------------------------------------------------ FIVE YEAR FINANCIAL SUMMARY - ------------------------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------ (in thousands) REVENUE Domestic $140,294 $108,336 $ 93,890 $ 86,521 $ 60,328 International 176,651 135,695 110,695 98,111 89,618 TOTAL REVENUE 316,945 244,031 204,585 184,632 149,946 PRE-TAX OPERATING PROFIT Domestic 24,437 10,066 7,127 5,874 122 International 43,118 31,176 21,110 14,645 15,281 Total Pre-tax Operating Profit 67,555 41,242 28,237 20,519 15,403 Capital Expenditures $112,177 $ 81,805 $ 87,547 $ 57,415 $ 26,636 - ------------------------------------------------------------------------------------------------
At the close of 1997, the Company's domestic rig fleet consisted of 29 land rigs and nine offshore platform rigs. Internationally, the Company has a total of 38 land rigs in the countries of Venezuela (20), Colombia (10), Bolivia (4), Ecuador (3), and Peru (1). The Company also has one platform rig offshore Venezuela and owns a one-half interest in a platform rig offshore Australia. Total fleet utilization averaged 89 percent in 1997, compared with 84 percent in 1996. UNITED STATES LAND OPERATIONS According to statistics collected by Baker Hughes, total rig activity in the United States increased 24 percent during the Company's 4 5 fiscal year. Almost 60 percent of these gains resulted from increased activity in the states of Texas and Louisiana, the Company's primary domestic land drilling markets. The Company's land rig utilization remained at 100 percent for most of the year, with an average of 28 rigs working continuously compared with 24 in 1996. During the year, the Company announced plans to refurbish two 3,000 horsepower rigs and to further expand the fleet with an order for six new 1,500 horsepower rigs. The new rigs will be capable of drilling to depths of 18,000 feet and are configured to minimize space and mobilization time. Designed by Helmerich & Payne International Drilling Co. with the latest technological, environmental, and safety advances in mind, the rigs will be marketed to both domestic and international customers. UNITED STATES OFFSHORE OPERATIONS At the close of the year, the Company had eight offshore platform rigs in the Gulf of Mexico, one platform rig offshore California, and labor contracts on three Exxon-owned platform rigs offshore California. During 1997, rigs 202 and 203 began operations for Shell Offshore, Inc. (SOI) in the Gulf of Mexico. Rig 202 is on the Ram/Powell tension leg platform (TLP) and represents the second of three rigs built by Helmerich & Payne International Drilling Co. for SOI deepwater developments. The third, rig 204, is nearing completion and is scheduled to begin operations on Shell's Ursa TLP in 1998. Rig 203, a minimum-area, self-moving platform rig was installed on SOI's Enchilada platform during the year. The Company retired three offshore platform rigs in 1997, one of which worked almost continually since being constructed in 1983. INTERNATIONAL OPERATIONS International drilling revenues increased 30 percent over last year due largely to higher dayrates. 5 6 Venezuela continues to be a very active area for the Company with two expansion opportunities announced during the year. BP Exploration de Venezuela, S.A. awarded the Company a two-year contract for offshore platform rig 91. Approximately $15 million was spent to upgrade the rig for operations which began in December of 1997. The Company also received a letter of intent for a multi-well contract from Agencia Operadora Guarapiche S.A., on behalf of BP Exploration Orinoco Limited, Amoco Venezuela Energy Company B.V. and Maxus Guarapiche Ltd. A new 3,000 horsepower, helicopter- transportable rig is being built for the endeavor at an approximate cost of $20 million. Drilling operations are scheduled to begin in May of 1998. In the fourth quarter of the year, the Company purchased three land rigs and related drilling assets from Serpetbol Perforaciones, S.A. in Bolivia. Recent legislative changes have increased Bolivia's potential as a very active drilling market, and this purchase increases the Company's presence in the country from one rig to four. OUTLOOK The industry's response to increasing U.S. demand confronts shortages in experienced or skilled personnel in several sectors critical to building, operating, and maintaining the industry's rig fleet. Attracting, training, and retaining new employees in an already competitive labor market is perhaps the most significant challenge going forward. This year, the Company placed the first significant new land rig order since the early 1980s. The decision to build new rigs rather than to buy used is in keeping with the strategy of having the most technologically advanced fleet, which can add significant value to a customer's drilling project. As important as good equipment is to a quality operation, ultimately H&P personnel make the difference in achieving project success. 6 7 =============================================================================== EXPLORATION & PRODUCTION HELMERICH & PAYNE, INC. =============================================================================== SUMMARY Helmerich & Payne, Inc. explores for, develops, and produces oil and natural gas primarily in the states of Kansas, Louisiana, Oklahoma, and Texas. Through its wholly-owned subsidiary, Helmerich & Payne Energy Services, Inc., the Company also provides natural gas marketing services for itself and third party customers. At the close of 1997, the Company had proved natural gas reserves of 263 billion cubic feet (Bcf) and proved oil reserves of 5.8 million barrels. Revenues and operating profit from exploration and production activities were up sharply in 1997, the result of higher prices and increased production volumes for both natural gas and oil. The average price received this year for natural gas was $2.23 per thousand cubic feet (Mcf), compared with $1.75 per Mcf in 1996. This 27 percent increase in price was augmented by a 17 percent increase in producing volumes, which averaged 110,859 Mcf per day in 1997. Oil prices also increased to an average of $20.77 per barrel, compared with $19 per barrel in 1996. Oil production averaged 2,700 barrels per day in 1997, compared with 2,212 barrels in 1996. Revenues from exploration and production activities increased 45 percent for the year and pre-tax operating profit more than doubled to $55.2 million. EXPLORATION ACTIVITIES The Company participated in 100 (49.3 net) wells during the year, 84 (39.2 net) of which were completed as natural gas wells, two (.5 net) were oil wells, and 14 (9.6 net) were dry holes. Approximately 20 percent more reserves were added through drilling efforts in 1997, than in the previous year. These efforts fell short of replacing reserves, but that objective was significantly larger this year given that natural gas production was at a record level and oil production was at its highest level in 10 years. The most significant reserve additions this year came from the Company's Mountain Front prospect area in western Oklahoma, 7 8 which was discovered in 1996. The Rocky East field, discovered in 1996, is currently producing an average of 15,000 Mcf per day, and has produced over 10 Bcf of natural gas since the first well was completed. Southeast of the Rocky East field the Company has a significant interest in the Kiowa Flats field, which was discovered during the year in Kiowa County, Oklahoma. The Company has participated in nine wells in the prospect, with working interests ranging from 11 to 100 percent. Current production from the field is averaging 19,000 Mcf per day. The Company has approximately 7,200 net acres under lease in the prospect, half of which have been developed with the remainder to be drilled as success warrants in the coming year. The Company participated in a number of wells drilled and completed in the Louisiana Austin Chalk during the year and most of them have been disappointments. The Company is considering a sharp reduction in its involvement in this area during 1998. Considerable progress was made during the year to put together future exploration prospects. Wildcat drilling began in four prospect areas shortly after the close of the fiscal year. Two of the wells are in east Texas; one a Cotton Valley Lime prospect and the second a Pinnacle Reef prospect. The remaining two wildcats are being drilled in Louisiana and Oklahoma. OUTLOOK Record natural gas production and higher natural gas prices combined to make 1997 an excellent year financially; however, the measurements of long-term success remain centered on reserve growth and finding cost reduction. The Company seeks to generate the majority of its prospects internally using geographically focused exploration teams to develop an expertise in key areas. To that end, considerable progress was made in the Rocky East and Kiowa Flats fields, as well as in the development of future prospects resulting in increased exploration drilling for the coming year. 8 9 REVENUES AND INCOME BY BUSINESS SEGMENTS =============================================================================== HELMERICH & PAYNE, INC.
- ----------------------------------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------- (in thousands) SALES AND OTHER REVENUES: Contract Drilling - Domestic ................ $ 140,294 $ 108,336 $ 93,890 Contract Drilling - International ........... 176,651 135,695 110,695 --------- --------- --------- Total Contract Drilling Division ......... 316,945 244,031 204,585 --------- --------- --------- Exploration and Production .................. 111,512 76,643 47,986 Natural Gas Marketing ....................... 69,015 58,507 35,301 --------- --------- --------- Total Oil and Gas Division ............... 180,527 135,150 83,287 --------- --------- --------- Real Estate Division ........................ 8,641 8,082 7,570 Investments and Other Income ..................... 11,746 5,992 11,279 --------- --------- --------- Total Revenues ................................... $ 517,859 $ 393,255 $ 306,721 ========= ========= ========= OPERATING PROFIT (LOSS): Contract Drilling - Domestic ................ $ 24,437 $ 10,066 $ 7,127 Contract Drilling - International ........... 43,118 31,176 21,110 --------- --------- --------- Total Contract Drilling Division ......... 67,555 41,242 28,237 --------- --------- --------- Exploration and Production .................. 55,191 26,333 (23,961) Natural Gas Marketing ....................... 3,363 3,415 1,892 --------- --------- --------- Total Oil and Gas Division ............... 58,554 29,748 (22,069) --------- --------- --------- Real Estate Division ........................ 5,615 5,055 2,157 --------- --------- --------- Total Operating Profit ................... 131,724 76,045 8,325 --------- --------- --------- OTHER: Miscellaneous operating ..................... (1,269) (1,663) (1,624) Income from investments ..................... 11,437 5,782 10,846 General corporate expense ................... (9,346) (9,083) (8,801) Interest expense ............................ (4,212) (678) (407) Corporate depreciation ...................... (919) (860) (851) --------- --------- --------- Total Other .............................. (4,309) (6,502) (837) --------- --------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE ....................... $ 127,415 $ 69,543 $ 7,488 ========= ========= ========= - ------------------------------------------------------------------------------------------------------------
Note: This schedule is an integral part of Note 12 (page 27) of the financial statements that follow. 9 10 MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION =============================================================================== HELMERICH & PAYNE, INC. BUSINESS ENVIRONMENT AND RISK FACTORS The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere herein. The Company's future operating results may be affected by various trends and factors which are beyond the Company's control. These include, among other factors, fluctuations in oil and natural gas prices, expiration or termination of drilling contracts, currency exchange losses, changes in general economic conditions, rapid or unexpected changes in technologies, and uncertain business conditions that affect the Company's businesses. Accordingly, past results and trends should not be used by investors to anticipate future results or trends. With the exception of historical information, the matters discussed below under the headings "Results of Operations" and "Liquidity and Capital Resources" may include forward-looking statements that involve risks and uncertainties. The Company wishes to caution readers that a number of important factors discussed in this report and in the Company's other reports filed with the Securities and Exchange Commission could affect the Company's actual results and cause actual results to differ materially from those in the forward-looking statements. RESULTS OF OPERATIONS On December 3, 1997, the Board of Directors declared a two-for-one common stock split, effective December 15, 1997 (the "Record Date"). All references to share and per share amounts have been restated to reflect the two-for-one stock split and distribution. Helmerich & Payne, Inc.'s net income for 1997 was $84,186,000 ($1.69 per share), compared with net income of $72,566,000 ($1.47 per share) in 1996, and $9,751,000 ($0.20 per share) in 1995. Included in 1996 income is a $24,050,000 ($0.49 per share) gain from the sale of the Company's chemical subsidiary, Natural Gas Odorizing, Inc. (NGO). Net income in 1995 included a non-cash, non-recurring charge of $13,600,000 ($0.28 per share) as a result of the Company's adoption of Statement of 10 11 Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Included in the Company's net income, but not related to its operations, were after-tax gains from the sale of investment securities of $2,870,000 ($0.06 per share) in 1997, $346,000 ($0.01 per share) in 1996, and $3,481,000 ($0.07 per share) in 1995. Also included was the Company's portion of income of its equity affiliate, Atwood Oceanics, Inc., which was $0.05 per share in 1997, $0.03 per share in 1996, and $0.02 per share in 1995. Consolidated revenues increased to $517,859,000 in 1997, from $393,255,000 in 1996, and $306,721,000 in 1995. The 32 percent increase from 1996 to 1997 was a result of increased dayrates for contract drilling services and a significant increase in oil and gas revenues due to higher commodity prices and production volumes. Consolidated revenues increased by 28 percent from 1995 to 1996 as a result of revenue increases in the exploration and production, natural gas marketing, international drilling, and domestic drilling segments. Revenues from investments were $11,437,000 in 1997, up from $5,782,000 in 1996, and $10,846,000 in 1995. Included in revenues from investments were pre-tax gains from the sale of investment securities of $4,697,000 in 1997, $566,000 in 1996, and $5,697,000 in 1995. Interest income was stable during 1997, 1996, and 1995, but dividend revenue increased in 1997 due to the addition of 2,018,928 shares of Occidental Petroleum Corporation common stock to the investment portfolio. During the first quarter of fiscal 1998, the Company sold 600,000 shares of Occidental Petroleum Corporation stock. Costs and expenses in 1997 were $390,444,000, 75 percent of total revenues, compared with 82 percent in 1996, and 98 percent in 1995. Total costs for 1995 were abnormally high due to the adoption of SFAS No. 121 which resulted in a total pre-tax impairment charge of $22,000,000 recorded as additional depreciation, depletion, and amortization. Operating costs as a percentage of operating revenues declined to 55 percent in 1997, compared with 59 percent in 1996, and 64 percent in 1995. General and administrative expenses increased by three percent to $9,346,000 in 1997, from $9,083,000 in 1996, and $8,801,000 11 12 in 1995. Income tax expense, as a percentage of pre-tax income was 36 percent in 1997, and 37 percent for 1996 and 1995. CONTRACT DRILLING DIVISION revenues increased by 30 percent from 1996 to 1997, and by 19 percent from 1995 to 1996. Total operating profit rose by 64 percent over last year to $67,555,000 in 1997, from $41,242,000 in 1996, and $28,237,000 in 1995. Domestic drilling operating profit increased to $24,437,000 in 1997, from $10,066,000 in 1996, and from $7,127,000 in 1995. Domestic contract drilling revenues and operating profit for both 1997 and 1996 increased, primarily due to significant improvements in revenues and margins from U.S. land rig operations, the addition of offshore platform rigs for Shell's tension leg platforms, and increased revenues and earnings from the Company's three offshore labor contracts. Rig utilization for the U.S. land fleet was 99 percent in 1997, 88 percent in 1996, and 73 percent in 1995. Domestic platform rig utilization was 63 percent in 1997, 70 percent in 1996, and 66 percent in 1995. International revenues climbed to $176,651,000 in 1997, from $135,695,000 in 1996, and $110,695,000 in 1995. Operating profit for the international contract drilling sector improved by 38 percent over last year to $43,118,000 in 1997, compared with $31,176,000 in 1996, and $21,110,000 for 1995. Increases during 1997 were primarily due to a full year of activity for three additional rigs sent to Venezuela in 1996, increased dayrates in Venezuela and Colombia, and increased activity in Ecuador. During the fourth quarter of fiscal 1997, three additional rigs were purchased in Bolivia, bringing total rigs located there to four and the total international rig count to 39. During 1995, six additional rigs were shipped to Venezuela and three to Colombia, which helped boost revenues and earnings significantly in 1996. In Venezuela, approximately 50 percent of the Company's billings are in U.S. dollars and the other 50 percent are in bolivars, the local currency. As a result, the Company is exposed to risks of currency devaluation in Venezuela because of the bolivar receivables created by billings in that currency. Over the past three years, total net devaluation losses in Venezuela have not been material. Although devaluation losses may occur again in 1998, the Company does not presently believe that such losses 12 13 will have a material impact on the Company. However, if the country experiences extreme economic difficulty, accompanied by severe devaluation and/or inflation, the Company could experience material losses. OIL AND GAS DIVISION revenues and operating profit increased dramatically this year as average prices received for the Company's production rose to $20.77 per barrel of oil and $2.23 per Mcf of natural gas from $19.00 per barrel and $1.75 per Mcf last year. In 1995, average prices were $16.37 per barrel and $1.27 per Mcf. Average natural gas production increased by 17 percent over last year to 110.9 million cubic feet per day (Mmcf/d) during 1997, compared with 94.4 Mmcf/d in 1996, and 72.4 Mmcf/d in 1995. Oil production rose to an average of 2,700 barrels per day in 1997 from approximately 2,200 barrels per day in both 1996 and 1995. The Company's natural gas production has grown over the past two years as a result of allowing more of its existing reserves to be delivered to the market and by virtue of discoveries and production of new natural gas reserves. Due to the significant increases in product prices and production volumes, exploration and production revenues increased by 45 percent over last year to $111,512,000 in 1997, from $76,643,000 in 1996, and $47,986,000 in 1995. Exploration and production operating profit increased by 110 percent over last year to $55,191,000 in 1997, from $26,333,000 in 1996, compared with a loss of $23,961,000 in 1995. In 1997, the Company recorded a one-time net income reduction as a result of a recent Federal Energy Regulatory Commission (FERC) order which requires certain Kansas producers of natural gas to make certain refunds of ad valorem tax reimbursement, with interest, for tax bills rendered between October 4, 1983 and June 28, 1988. The Company's total pre-tax adjustment of $6,700,000 includes a reduction of exploration and production revenues of $2,700,000 and $4,000,000 of interest charges. Earnings for 1996 were aided by lower dry hole and abandonment charges, lower geophysical expense and reduced depletion per production unit than in the previous year. During the past three years, the Company has not hedged any of its oil or natural gas production and does not intend to do so during 1998. 13 14 Therefore, increases or decreases in its product prices will affect its ongoing results accordingly. In 1995, the Company elected to adopt SFAS No. 121, resulting in a pre-tax, non-cash charge of $19,982,000 to the Oil and Gas Division. Natural gas marketing revenues, which are primarily derived from selling natural gas produced by other unaffiliated companies, increased to $69,015,000 in 1997, from $58,507,000 in 1996, and $35,301,000 in 1995. Operating profit was $3,363,000 in 1997, $3,415,000 in 1996, and $1,892,000 in 1995. The Company's approach has been to derive additional profit from matching its customers with third party producers when the marketing situation is not conducive to the sale of the Company's own natural gas. Although revenues are likely to increase during periods of rising natural gas prices, it is expected that competition will continue to limit fees and premiums for third party natural gas sales. REAL ESTATE DIVISION revenues totaled $8,641,000 for 1997, $8,082,000 for 1996, and $7,570,000 for 1995. Revenues and operating profit were up in 1997, primarily due to the sale of a small parcel of land for a gain of $400,000. Operating profits for 1995 were down from normal levels due to a $2,000,000 charge to two properties in connection with the adoption of SFAS No. 121. No major changes are anticipated in the Real Estate Division for 1998. LIQUIDITY AND CAPITAL RESOURCES The Company has maintained a very strong balance sheet for many years, with current ratios above 1.6 for the last three years. During the past three years, the Company has maintained a line of credit with its bank group that has ranged from $40 to $75 million in order to fund short-term cash needs. The Company had borrowings under its line of credit totaling $5,000,000 at the end of both fiscal 1997 and 1996, and line of credit borrowings totaling $21,700,000 at the end of fiscal 1995. Capital expenditures for each of the last three years were over $100 million and exceeded the funds generated internally during 1995. Cash provided by operating activities totaled $165,568,000 for 1997, $124,923,000 for 1996, and $88,572,000 for 1995. It is anticipated that during 1998, capital expenditures will be approximately $200 million. Capital expenditures budgeted for 14 15 1998 include exploration and development drilling and major offshore platform rig construction projects for Gulf of Mexico operations. Capital expenditure totals could be significantly increased by additional projects now being considered. Additional borrowings and/or portfolio liquidations would be used to fund capital expenditures exceeding internally generated capital. The Company manages a large portfolio of marketable securities which had a cost basis of $138,906,000 at September 30, 1997, and a total market value at that time of $474,815,000 including its investment in Atwood Oceanics, Inc. During 1995, the Company adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, which resulted in a balance sheet adjustment to market values for investments in companies of which the Company owned less than 20 percent. Accordingly, at the end of each reporting period, a deferred tax estimate is calculated from pre-tax unrealized changes in the portfolio market value and posted to deferred taxes under the liability section of the balance sheet. Net unrealized holding gains are reflected in the shareholders' equity section of the balance sheet and not in the statement of income. Those unrealized gains were $114,454,000, $56,550,000, and $38,004,000 at the end of fiscal years 1997, 1996, and 1995, respectively. During 1997, the Company paid a dividend of $0.26 per share which represented the 26th consecutive year of dividend increases.
- -------------------------------------------------------------------------------------------------------- STOCK PORTFOLIO HELD BY THE COMPANY. - -------------------------------------------------------------------------------------------------------- Number of September 30, 1997 Shares Book Value Market Value - -------------------------------------------------------------------------------------------------------- (in thousands,except share amounts) Occidental Petroleum Corporation ................. 2,000,000 $ 47,550 $ 51,875 Atwood Oceanics, Inc. ............................ 1,600,000 28,895 180,200 Schlumberger, Ltd. ............................... 1,480,000 23,511 124,597 Sun Company, Inc. ................................ 300,000 3,512 13,144 Sun Company PFD A ................................ 329,053 3,192 11,928 Phillips Petroleum Company ....................... 240,000 5,976 12,390 BANC ONE CORPORATION ............................. 464,125 5,743 25,991 Oryx Energy Company .............................. 500,000 4,899 12,719 ONEOK INC ........................................ 225,000 2,751 7,341 Other ............................................ 12,877 34,630 -------- -------- Total ................................ $138,906 $474,815 ======== ========
15 16 CONSOLIDATED BALANCE SHEETS =============================================================================== HELMERICH & PAYNE, INC.
ASSETS - ---------------------------------------------------------------------------------------------- September 30, 1997 1996 - ---------------------------------------------------------------------------------------------- (in thousands) CURRENT ASSETS: Cash and cash equivalents .................................... $ 27,963 $ 16,892 Short-term investments ....................................... 1,318 1,005 Accounts receivable, less reserve of $1,308 and $712 ......... 98,697 75,374 Inventories .................................................. 19,639 16,915 Prepaid expenses and other ............................... 10,387 4,182 ---------- ---------- Total current assets ................................ 158,004 114,368 ---------- ---------- INVESTMENTS .................................................. 323,510 229,809 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, at cost: Contract drilling equipment .............................. 643,619 568,110 Oil and gas properties ................................... 409,921 401,804 Real estate properties ....................................... 47,682 46,970 Other .................................................... 59,659 53,547 ---------- ---------- 1,160,881 1,070,431 Less--Accumulated depreciation, depletion and amortization 621,856 606,935 ---------- ---------- Net property, plant and equipment ................... 539,025 463,496 ---------- ---------- OTHER ASSETS ................................................. 13,056 14,241 ---------- ---------- TOTAL ASSETS ................................................. $1,033,595 $ 821,914 ========== ==========
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. 16 17 Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------------------------------------------------- September 30, 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- (in thousands) CURRENT LIABILITIES: Accounts payable ..................................................................... $ 42,642 $ 25,622 Accrued liabilities .................................................................. 47,525 31,943 Notes payable ........................................................................ 5,000 5,000 ---------- ---------- Total current liabilities ................................................... 95,167 62,565 ---------- ---------- NONCURRENT LIABILITIES: Deferred income taxes ................................................................ 141,331 98,335 Other ................................................................................ 16,517 15,044 ---------- ---------- Total noncurrent liabilities ................................................. 157,848 113,379 ---------- ---------- SHAREHOLDERS' EQUITY: Common stock, $.10 par value, 80,000,000 shares authorized, 53,528,952 shares issued ......................................................... 5,353 5,353 Preferred stock, no par value, 1,000,000 shares authorized, no shares issued -- -- Additional paid-in capital ........................................................... 51,316 47,734 Net unrealized holding gains ......................................................... 114,454 56,550 Retained earnings .................................................................... 629,562 557,543 ---------- ---------- 800,685 667,180 Less treasury stock, 3,500,698 shares in 1997 and 3,757,680 shares in 1996, at cost .. 20,105 21,210 ---------- ---------- Total shareholders' equity ....................................................... 780,580 645,970 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................................... $1,033,595 $ 821,914 ========== ==========
- -------------------------------------------------------------------------------- Note: Certain amounts have been restated to reflect the effect of the two-for-one common stock split and distribution as discussed in Note 4. The accompanying notes are an integral part of these statements. 17 18 CONSOLIDATED STATEMENTS OF INCOME ================================================================================ HELMERICH & PAYNE, INC.
- --------------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 - --------------------------------------------------------------------------------------- (in thousands, except per share amounts) REVENUES: Sales and other operating revenues ........ $506,422 $387,473 $295,875 Income from investments ................... 11,437 5,782 10,846 -------- -------- -------- 517,859 393,255 306,721 -------- -------- -------- COSTS AND EXPENSES: Operating costs ........................... 276,094 229,584 188,497 Depreciation, depletion and amortization .. 71,691 59,442 76,443 Dry holes and abandonments ................ 7,783 7,986 10,095 Taxes, other than income taxes ............ 21,318 16,939 14,990 General and administrative ................ 9,346 9,083 8,801 Interest .................................. 4,212 678 407 -------- -------- -------- 390,444 323,712 299,233 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE ... 127,415 69,543 7,488 INCOME TAX EXPENSE ............................ 45,511 25,803 2,786 EQUITY IN INCOME OF AFFILIATE net of income taxes ....................... 2,282 1,686 1,086 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS ............. 84,186 45,426 5,788 INCOME FROM DISCONTINUED OPERATIONS ........... -- 3,090 3,963 GAIN ON SALE OF DISCONTINUED OPERATIONS ....... -- 24,050 -------- -------- -------- NET INCOME .................................... $ 84,186 $ 72,566 $ 9,751 ======== ======== ======== PER COMMON SHARE: INCOME FROM CONTINUING OPERATIONS ............. $ 1.69 $ .92 $ .12 INCOME FROM DISCONTINUED OPERATIONS ........... -- $ .06 $ .08 GAIN ON SALE OF DISCONTINUED OPERATIONS ....... -- .49 -- -------- -------- -------- NET INCOME .................................... $ 1.69 $ 1.47 $ .20 ======== ======== ======== AVERAGE COMMON SHARES OUTSTANDING ............. 49,779 49,380 49,072
- -------------------------------------------------------------------------------- Note: Certain amounts have been restated to reflect the effect of the two-for-one common stock split and distribution as discussed in Note 4. The accompanying notes are an integral part of these statements. 18 19 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY =============================================================================== HELMERICH & PAYNE, INC.
Net Additional Unrealized Common Stock Paid-In Holding Retained Treasury Stock Shares Amount Capital Gains Earnings Shares Amount - -------------------------------------------------------------------------------------------------------------------------------- (in thousands except per share data) Balance, September 30, 1994 ............ 53,529 $ 5,353 $ 45,520 $ -- $496,280 4,109 $(22,819) Adjustment to beginning balance for change in accounting method, net of income taxes of $21,106 .... -- -- -- 34,435 -- -- -- Change in net unrealized holding gains, net of income taxes of $2,187 ......................... -- -- -- 3,569 -- -- -- Cash dividends ($.25 per share) ..... -- -- -- -- (12,372) -- -- Exercise of stock options ........... -- -- 859 -- -- (139) 615 Lapse of restrictions on Restricted Stock Awards ............. -- -- (229) -- -- -- -- Forfeiture of Restricted Stock Award ............................. -- -- (390) -- 560 30 (170) Amortization of deferred compensation ...................... -- -- -- -- 1,473 -- -- Net income .......................... -- -- -- -- 9,751 -- -- ------ -------- -------- -------- -------- ----- -------- Balance, September 30, 1995 ............ 53,529 5,353 45,760 38,004 495,692 4,000 (22,374) Change in net unrealized holding gains, net of income taxes of $11,367 ........................ -- -- -- 18,546 -- -- -- Cash dividends ($.255 per share) .. -- -- -- -- (12,670) -- -- Exercise of stock options ........... -- -- 2,197 -- -- (262) 1,274 Lapse of restrictions on Restricted Stock Awards ........... -- -- (61) -- -- -- -- Forfeiture of Restricted Stock Award ............................. -- -- (162) -- 272 20 (110) Amortization of deferred compensation ...................... -- -- -- -- 1,683 -- -- Net income .......................... -- -- -- -- 72,566 -- -- ------ -------- -------- -------- -------- ----- -------- Balance, September 30, 1996 ......... 53,529 5,353 47,734 56,550 557,543 3,758 (21,210) Change in net unrealized holding gains, net of income taxes of $35,490 ........................ -- -- -- 57,904 -- -- -- Cash dividends ($.26 per share) ..... -- -- -- -- (12,987) -- -- Exercise of stock options ........... -- -- 3,306 -- -- (257) 1,105 Lapse of restrictions on Restricted Stock Awards ........... -- -- 276 -- -- -- -- Amortization of deferred compensation ...................... -- -- -- -- 820 -- -- Net income .......................... -- -- -- -- 84,186 -- -- ------ -------- -------- -------- -------- ----- -------- Balance, September 30, 1997 ............ 53,529 $ 5,353 $ 51,316 $114,454 $629,562 3,501 $(20,105) ====== ======== ======== ======== ======== ===== ========
- ------------------------------------------------------------------------------- Note: Certain amounts have been restated to reflect the effect of the two-for-one common stock split and distribution as discussed in Note 4. The accompanying notes are an integral part of these statements. 19 20 CONSOLIDATED STATEMENTS OF CASH FLOWS =============================================================================== HELMERICH & PAYNE, INC.
- --------------------------------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 - --------------------------------------------------------------------------------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................. $ 84,186 $ 72,566 $ 9,751 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization ............... 71,691 59,442 76,443 Dry holes and abandonments ............................. 7,783 7,986 10,095 Equity in income of affiliate before income taxes ...... (3,680) (2,720) (1,752) Amortization of deferred compensation .................. 820 1,683 1,473 Gain on sale of investments ............................ (4,697) (566) (5,697) Loss (gain) on sale of property, plant and equipment ... (4,545) 303 (1,205) Discontinued operations ................................ -- (27,140) (3,963) Other .................................................. 1,897 473 10 Change in assets and liabilities: Accounts receivable .................................. (23,323) (18,340) 275 Inventories .......................................... (2,724) 2,435 86 Prepaid expenses and other ........................... (5,020) 1,706 (2,768) Accounts payable ..................................... 18,619 (1,115) 3,030 Accrued liabilities .................................... 15,582 14,237 (2,701) Deferred income taxes ................................ 7,506 6,668 (1,630) Other noncurrent liabilities ......................... 1,473 3,802 2,563 --------- --------- --------- Total adjustments .................................... 81,382 48,854 74,259 --------- --------- --------- Net cash provided by continuing operations ........ 165,568 121,420 84,010 Net cash provided by discontinued operations ...... -- 3,503 4,562 --------- --------- --------- Net cash provided by operating activities ......... 165,568 124,923 88,572 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, including dry hole costs .............. (161,177) (109,985) (109,901) Proceeds from sale of property, plant and equipment ......... 9,432 3,987 2,923 Purchase of investments ..................................... (1,091) (1,196) (12,858) Proceeds from sale of investments ........................... 8,557 619 11,713 Discontinued operations ..................................... -- (2,746) (977) Purchase of short-term investments .......................... (313) -- -- Proceeds from sale of short-term investments ................ -- 7,984 7 --------- --------- --------- Net cash used in investing activities ............. (144,592) (101,337) (109,093) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable ................................. 34,000 35,000 37,100 Payments made on notes payable .............................. (34,000) (51,700) (15,400) Dividends paid .............................................. (12,970) (12,530) (12,365) Proceeds from exercise of stock options ..................... 3,065 2,993 1,282 --------- --------- --------- Net cash provided by (used in) financing activities (9,905) (26,237) 10,617 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................................. 11,071 (2,651) (9,904) CASH AND CASH EQUIVALENTS, beginning of period ................. 16,892 19,543 29,447 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of period ....................... $ 27,963 $ 16,892 $ 19,543 ========= ========= =========
- ------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. 20 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== HELMERICH & PAYNE, INC. September 30, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 1 SUMMARY OF ACCOUNTING POLICIES - ------------------------------------------------------------------------------- CONSOLIDATION - The consolidated financial statements include the accounts of Helmerich & Payne, Inc. (the Company), and all of its wholly-owned subsidiaries. Fiscal years of the Company's foreign consolidated operations end on August 31 to facilitate reporting of consolidated results. TRANSLATION OF FOREIGN CURRENCIES - The Company has determined that the functional currency for its foreign subsidiaries is the U.S. dollar. The foreign currency transaction loss for 1997 was $452,000, with a gain for 1996 and 1995 of $764,000 and $1,845,000, respectively. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. PROPERTY, PLANT AND EQUIPMENT - The Company follows the successful efforts method of accounting for oil and gas properties. Under this method, the Company capitalizes all costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells which find proved reserves and to drill and equip development wells. Geological and geophysical costs, delay rentals and costs to drill exploratory wells which do not find proved reserves are expensed. Capitalized costs of producing oil and gas properties are depreciated and depleted by the unit-of-production method based on proved developed oil and gas reserves determined by the Company and reviewed by independent engineers. Reserves are recorded for capitalized costs of undeveloped leases based on management's estimate of recoverability. Costs of surrendered leases are charged to the reserve. Effective July 1, 1995, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the carrying amount of the asset. Adoption of SFAS No. 121 resulted in a before-tax impairment charge of $22 million which is included in depreciation, depletion and amortization expense. After-tax, the impairment charge reduced 1995 net income by $13.6 million, $.28 per share. The before-tax impairment charges included $20 million for proved Exploration and Production properties and $2 million for Real Estate properties. The Company evaluates impairment of exploration and production assets on a field by field basis. Fair values on all long-lived assets are based on discounted future cash flows or information provided by sales and purchases of similar assets. Substantially all property, plant and equipment other than oil and gas properties is depreciated using the straight-line method based on the following estimated useful lives:
- ------------------------------------------------------------------------------- YEARS - ------------------------------------------------------------------------------- Contract drilling equipment ................... 4-10 Real estate buildings and equipment ........... 10-50 Other ......................................... 3-33 - -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash in banks and investments readily convertible into cash which mature within three months from the date of purchase. INVENTORIES - Inventories, primarily materials and supplies, are valued at the lower of cost (moving average or actual) or market. DRILLING REVENUE - Substantially all drilling contracts are daywork contracts and drilling revenues and expenses are recognized as work progresses. GAS IMBALANCES - The Company recognizes revenues from gas wells on the sales method, and a liability is recorded for permanent imbalances. INVESTMENTS - The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", effective October 1, 1994. SFAS No. 115 requires that available-for-sale securities be carried at their fair value determined based on quoted market prices. Upon adoption of SFAS No. 115, the Company recorded an increase to shareholders' equity of $34 million, which was net of income taxes of $21 million. The cost of securities used in determining realized gains and losses is based on average cost of the security sold. Investments in companies owned from 20 to 50 percent are accounted for using the equity method with the Company recognizing its proportionate share of the income or loss of each investee. The Company owned 23.6 percent and 23.9 percent of Atwood Oceanics, Inc. (Atwood) at September 30, 1997 and 1996, respectively. The quoted market value of the Company's investment was $180,200,000 and $70,400,000 at September 30, 1997 and 1996, respectively. Retained earnings at September 30, 1997 include approximately $16,715,000 of undistributed earnings of Atwood. 21 22 Summarized financial information of Atwood is as follows:
- ------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------ (in thousands) Gross revenues .................................... $ 89,082 $ 84,760 $ 77,315 Costs and expenses ................................ 73,463 73,392 70,255 -------- -------- -------- Net income ........................................ $ 15,619 $ 11,368 $ 7,060 ======== ======== ======== Helmerich & Payne, Inc.'s equity in net income, net of income taxes ......................... $ 2,282 $ 1,686 $ 1,086 ======== ======== ======== Current assets .................................... $ 47,961 $ 44,170 $ 34,266 Noncurrent assets ................................. 168,279 115,139 118,587 Current liabilities ............................... 19,621 18,019 20,505 Noncurrent liabilities ............................ 73,930 35,736 37,456 Shareholders' equity .............................. 122,689 105,554 94,892 ======== ======== ======== Helmerich & Payne, Inc.'s investment .............. $ 28,895 $ 25,215 $ 22,495 ======== ======== ======== - ------------------------------------------------------------------------------------------
INCOME TAXES - Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of the Company's assets and liabilities. OTHER POST EMPLOYMENT BENEFITS - The Company sponsors a health care plan that provides post retirement medical benefits to retired employees. Employees who retire after November 1, 1992 and elect to participate in the plan pay the entire estimated cost of such benefits. The Company has accrued a liability for estimated workers compensation claims incurred. The liability for other benefits to former or inactive employees after employment but before retirement is not material. NET INCOME PER SHARE - Net income per share is computed using the weighted average number of common shares outstanding during the period. The number of shares for 1996 and 1995 have been restated to reflect the effect of a two-for-one stock split and distribution (see Note 4). Common stock equivalents are insignificant, and therefore, have not been considered in the net income per share computation. DERIVATIVES - The Company does not utilize financial or commodity derivative instruments to hedge its market risks. - ------------------------------------------------------------------------------- NOTE 2 SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS - ------------------------------------------------------------------------------- The Company maintains a line of credit agreement with certain banks which provides for maximum borrowing of $40,000,000 at adjustable interest rates. Under the agreement, $40,000,000 may be borrowed through May 1998, and $10,000,000 may be borrowed through May 1999. As of September 30, 1997, the Company had borrowed $5,000,000 at a rate of 6.0375% and had letters of credit outstanding in the amount of $7,671,000, leaving $27,329,000 available. Under the line of credit agreement the Company must meet certain requirements regarding levels of debt, net worth and earnings. The Company has an additional $14.5 million line of credit with a bank to be used primarily for letters of credit. As of September 30, 1997, the Company had letters of credit outstanding in the amount of $1,347,222 leaving, $13,152,778 available. - ------------------------------------------------------------------------------- 22 23 - ------------------------------------------------------------------------------- NOTE 3 INCOME TAXES - ------------------------------------------------------------------------------- The components of the provision (credit) for income taxes from continuing operations are as follows:
- ------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 - ------------------------------------------------------------------------------- (in thousands) CURRENT: Federal ............ $18,582 $ 8,909 $ (802) Foreign ............ 17,214 11,037 6,104 State .............. 2,190 1,050 276 ------- -------- ------- 37,986 20,996 5,578 ------- -------- ------- DEFERRED: Federal ............ 6,349 3,757 (3,083) Foreign ............ 603 725 534 State .............. 573 325 (243) ------- -------- ------- 7,525 4,807 (2,792) ------- -------- ------- TOTAL PROVISION: ........ $45,511 $ 25,803 $ 2,786 ======= ======== =======
- ------------------------------------------------------------------------------- The amounts of domestic and foreign income are as follows:
- ------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 - ------------------------------------------------------------------------------- (in thousands) INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE: Domestic .. $ 84,723 $ 41,299 $(11,399) Foreign ... 42,692 28,244 18,887 -------- -------- -------- $127,415 $ 69,543 $ 7,488 ======== ======== ========
- ------------------------------------------------------------------------------- Effective income tax rates on income from continuing operations as compared to the U.S. Federal income tax rate are as follows: - -------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 - ----------------------------------------------------------------------------------------- U.S. Federal income tax rate ................... 35% 35% 35% Dividends received deduction ................... (1) (1) (8) Excess statutory depletion ..................... -- -- (3) Effect of higher foreign tax rates ............. 1 2 19 Non-conventional fuel source credits utilized .. -- (1) (8) Other, net ..................................... 1 2 2 -- -- -- Effective income tax rate ...................... 36% 37% 37% == == ==
- ------------------------------------------------------------------------------- The components of the Company's net deferred tax liabilities are as follows:
- ------------------------------------------------------------------------------- September 30, 1997 1996 - ------------------------------------------------------------------------------- (in thousands) DEFERRED TAX LIABILITIES: Property, plant and equipment $ 56,328 $ 46,706 Available-for-sale securities 85,378 49,889 Pension provision 4,738 4,720 Equity investment 6,238 4,840 Other 308 709 -------- -------- Total deferred tax liabilities $152,990 $106,864 -------- -------- DEFERRED TAX ASSETS: Financial accruals 8,929 5,213 Other 2,730 3,316 -------- -------- Total deferred tax assets 11,659 8,529 -------- -------- NET DEFERRED TAX LIABILITIES $141,331 $ 98,335 ======== ========
- ------------------------------------------------------------------------------- 23 24 - ------------------------------------------------------------------------------- NOTE 4 SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------- On December 3, 1997, the Board of Directors of the Company declared a two-for-one stock split and distribution; approximately 26.8 million shares will be issued on December 31, 1997 to stockholders of record on December 15, 1997. All references in the financial statements and notes to the number of common shares outstanding, options and per share amounts reflect the impact of the split. The Company has several plans providing for common stock-based awards to employees and to non-employee directors. The plans permit the granting of various types of awards including stock options and restricted stock. Awards may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than the market price of the underlying stock on the date of grant. Stock options expire 10 years after grant. The Company has reserved 1,745,502 shares of its treasury stock to satisfy the exercise of stock options issued under the 1982 and 1990 Stock Option Plans. Effective December 4, 1996 additional options are no longer granted under these plans. Options granted under the 1982 plan vest over a period of nine years while options granted under the 1990 plan generally vest over a seven year period. Options granted under both plans become exercisable in increments as outlined in the plans. In March 1997, the Company adopted the 1996 Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan was effective December 4, 1996 and will terminate December 3, 2006. Under this plan, the Company is authorized to grant options for up to 4,000,000 shares of the Company's common stock at an exercise price not less than the fair market value of the common stock on the date of grant. Up to 600,000 shares of the total authorized may be granted to participants as restricted stock awards. There was no activity under this plan during fiscal 1997. The following summary reflects the stock option activity and related information (shares in thousands):
1997 1996 1995 ---------------------- -------------------- -------------------- Weighted-Average Weighted-Average Weighted-Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ---------------------- -------------------- -------------------- Outstanding on October 1, 1,708 $ 13.63 1,682 $ 13.20 1,672 $ 12.83 Granted 393 26.07 494 14.00 216 13.44 Exercised (270) 13.03 (280) 11.76 (156) 9.84 Forfeited/Expired (86) 14.89 (188) 13.53 (50) 12.41 - --------------------------------------------------------------------------------------------------------- Outstanding on September 30, 1,745 $ 16.44 1,708 $ 13.63 1,682 $ 13.20 - --------------------------------------------------------------------------------------------------------- Exercisable on September 30, 135 $ 12.22 148 $ 13.07 221 $ 12.05 - --------------------------------------------------------------------------------------------------------- Shares available on September 30, for options that may be granted 4,000 652 1,040 - ---------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options at September 30, 1997 (shares in thousands): - -------------------------------------------------------------------------------
Outstanding Stock Options Exercisable Stock Options ------------------------------------------ ---------------------------- Weighted-Average Range of Remaining Contractural Weighted-Average Weighted-Average Exercise Prices Shares Life Exercise Price Shares Exercise Price - ------------------------------------------------------------------------------------------------------------------- $10.00 to $12.00 94 .9 years $10.88 34 $10.88 $12.01 to $14.00 1,017 6.9 years $13.50 97 $12.53 $14.01 to $16.50 252 2.4 years $15.75 4 $16.35 $16.51 to $26.50 382 9.2 years $26.07 - ------------------------------------------------------------------------------------------------------------------- $10.00 to $26.50 1,745 6.4 years $16.44 135 $12.22 - -------------------------------------------------------------------------------------------------------------------
In 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). As permitted by SFAS 123, the Company continues to apply the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). As stock options issued by the Company are equal to at least market price on the date of grant, no compensation expense is recognized under APB 25. The differences between the recognition and measurement provisions of SFAS 123 and APB 25 are not significant to net income or per common share amounts. On September 30, 1997, the Company had 50,028,254 outstanding common stock purchase rights ("Rights") pursuant to terms of the Rights Agreement dated January 8, 1996. Under the terms of the Rights Agreement each Right entitled the holder thereof to purchase from the Company one half of one unit consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock ("Preferred Stock"), without par value, at a price of $90 per unit. The exercise price and the number of units of Preferred Stock issuable on exercise of the Rights are subject to adjustment in certain cases to prevent dilution. The Rights will be attached to the common stock certificates and are not exercisable or transferrable apart from the common stock, until 10 business days after a person acquires 15% or more of the outstanding common stock or 10 business days following the commencement of a tender offer or exchange offer that would result in a person owning 15% or more of the outstanding common stock. In the event the Company is acquired in a merger or certain other business combination transactions (including one in which the Company is the surviving corporation), or more than 50% of the Company's assets or earning power is sold or transferred, each holder of a Right shall have the right to receive, upon exercise of the Right, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The Rights are redeemable under certain circumstances at $.01 per Right and will expire, unless earlier redeemed, on January 31, 2006. As long as the Rights are not separately transferable, the Company will issue one half of one Right with each new share of common stock issued. - ------------------------------------------------------------------------------- 24 25 - ------------------------------------------------------------------------------- NOTE 5 FINANCIAL INSTRUMENTS - ------------------------------------------------------------------------------- Short-term investments consist mainly of U.S. treasury notes carried at cost, which approximates fair value. Notes payable bear interest at market rates and are carried at cost, which approximates fair value. The following is a summary of available-for-sale securities, which excludes those accounted for under the equity method of accounting (see Note 1):
Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value ------------------------------------------------ (in thousands) Equity Securities: September 30, 1997 $110,011 $184,708 $104 $294,615 September 30, 1996 $113,384 $ 92,081 $871 $204,594
During the years ended September 30, 1997, 1996, and 1995, marketable equity available-for-sale securities with a fair value at the date of sale of $8,557,000, $619,000, and $11,713,000, respectively, were sold. The gross realized gains on such sales of available-for-sale securities totaled $4,697,000, $596,000, and $5,734,000, respectively, and the gross realized losses totaled $0, $30,000, and $37,000, respectively. - ------------------------------------------------------------------------------- NOTE 6 DISCONTINUED OPERATIONS - ------------------------------------------------------------------------------- Effective August 30, 1996, the Company exchanged all of the common stock of its wholly-owned subsidiary, Natural Gas Odorizing, Inc. (NGO), to Occidental Petroleum Corporation (OPC) for 2,018,928 shares of OPC common stock with a fair market value of approximately $48 million. The sale yielded a gain of $24.1 million (net of deferred income taxes of approximately $14.8 million) which is reported as gain on sale of discontinued operations. NGO comprised the Company's chemical operations. Prior period operating results for such operations are reported as discontinued operations. Income from discontinued operations has been reduced for income taxes by $2,566,000 and $2,258,000 for 1996 and 1995, respectively. - ------------------------------------------------------------------------------- NOTE 7 EMPLOYEE BENEFIT PLANS - ------------------------------------------------------------------------------- DEFINED BENEFIT PLANS: The Company has noncontributory pension plans covering substantially all of its employees, including certain employees in foreign countries. The Company makes annual contributions to the plans equal to the maximum amount allowable, subject to regulatory funding limitations. Future service benefits are determined using a 1.5 percent career average formula. The net pension expense (credit) included the following components:
- ------------------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 - ------------------------------------------------------------------------------------------- (in thousands) Service cost-benefits earned during the year $ 2,114 $ 1,979 $ 1,589 Interest cost on projected benefit obligations 1,797 1,553 1,301 Return on plan assets (3,592) (3,214) (2,798) Net amortization and deferral (367) (304) (301) ------- ------- ------- Net pension expense (credit) $ (48) $ 14 $ (209) ======= ======= =======
- ------------------------------------------------------------------------------- The discount rate used in determining the actuarial value of the projected benefit obligation for 1997 and 1996 was 7.25% and 7.75%, respectively. The average expected rate of return on plan assets was 9.0%, 8.5% and 8.5% for 1997, 1996 and 1995, respectively. The assumed rate of increase in compensation was 5.5% for 1997 and 5.0% for 1996. The following table sets forth the plans' funded status and amounts recognized in the balance sheet: - -------------------------------------------------------------------------------
September 30, 1997 1996 - ----------------------------------------------------------------------------------------------------------- (in thousands) Actuarial present value of benefit obligations: Vested benefit obligation ....................................... $ 23,392 $ 17,376 ========== ========== Accumulated benefit obligation .................................. $ 27,988 $ 20,675 ========== ========== Projected benefit obligation .................................... $ 33,913 $ 23,534 ========== ========== Plan assets at fair value, primarily listed stocks, U.S. Government securities and guaranteed insurance contracts ................... $ 53,834 $ 42,609 ========== ========== Plan assets in excess of projected benefit obligation ................ $ 19,921 $ 19,075 Unrecognized net gain, including unrecognized net assets existing at October 1, 1987 .......................... (8,989) (8,430) Unrecognized prior service cost ...................................... 1,501 1,740 ---------- ---------- Prepaid pension cost ................................................. $ 12,433 $ 12,385 ========== ========== - -----------------------------------------------------------------------------------------------------------
25 26 - ------------------------------------------------------------------------------- DEFINED CONTRIBUTION PLAN: Substantially all employees on the United States payroll of the Company may elect to participate in the Company sponsored Thrift/401(k) Plan by contributing a portion of their earnings. The Company contributes amounts equal to 100 percent of the first five percent of the participant's compensation subject to certain limitations. Expensed Company contributions were $2,255,000, $1,908,000 and $1,735,000 in 1997, 1996 and 1995, respectively. - ------------------------------------------------------------------------------- NOTE 8 ACCRUED LIABILITIES - ------------------------------------------------------------------------------- Accrued liabilities consist of the following: - -------------------------------------------------------------------------------
September 30, 1997 1996 - ------------------------------------------------------------------------------- (in thousands) Accrued royalties payable ............ $ 8,687 $ 7,709 Accrued taxes payable - operations ... 9,240 4,645 Accrued income taxes payable ......... 9,371 4,915 Accrued interest payable ............. 4,056 200 Accrued workers compensation claims .. 3,087 2,561 Accrued equipment cost ............... 598 2,197 Other ................................ 12,486 9,716 ------- -------- $47,525 $ 31,943 ======= ======== - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- NOTE 9 SUPPLEMENTAL CASH FLOW INFORMATION - -------------------------------------------------------------------------------
Years Ended September 30, 1997 1996 1995 - ------------------------------------------------------------------------------- (in thousands) Cash payments: Interest paid ............. $ 357 $ 798 $ 408 Income taxes paid: Continuing operations ... 36,347 15,491 2,102 Discontinued operations . -- 2,563 2,522 Noncash investing activity: Accrued equipment cost .. $ 598 $ 2,197 $ 4,016 - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- NOTE 10 RISK FACTORS - ------------------------------------------------------------------------------- CONCENTRATIONS OF CREDIT - Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments and trade receivables. The Company places its temporary cash investments with high quality financial institutions and limits the amount of credit exposure to any one financial institution. The Company's trade receivables are primarily with a variety of companies in the oil and gas industry. Management requires collateral for certain receivables of customers in its natural gas marketing operations. INTERNATIONAL OPERATIONS - International drilling operations are significant contributors to the Company's revenues and net profit. It is possible that operating results could be affected by the risks of such activities, including economic conditions in the international markets in which the Company operates, political and economic instability, fluctuations in currency exchange rates, changes in international regulatory requirements, international employment issues, and the burden of complying with foreign laws. These risks may adversely affect the Company's future operating results and financial position. - ------------------------------------------------------------------------------- NOTE 11 NEW ACCOUNTING PRONOUNCEMENTS - ------------------------------------------------------------------------------- The Financial Accounting Standards Board has issued SFAS No. 128 "Earnings per Share", effective for financial statement reporting periods ending after December 15, 1997. Management does not believe that earnings per share calculated under this standard would differ significantly from amounts reported in the Consolidated Statements of Income. The Financial Accounting Standards Board has issued two new accounting standards, SFAS No. 130, "Reporting Comprehensive Income", (SFAS 130) and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", (SFAS 131) both effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for the reporting and display of comprehensive income. While the Company does have certain comprehensive income items, management does not believe that adopting SFAS 130 will materially change the Company's financial reporting and disclosures. SFAS 131 establishes standards for reporting financial and descriptive information about a company's operating segments. Management is currently analyzing the impact of SFAS 131, but does not expect the standard to materially change its current segment reporting disclosures. - ------------------------------------------------------------------------------- 26 27 - ------------------------------------------------------------------------------- NOTE 12 SEGMENT INFORMATION - ------------------------------------------------------------------------------- The Company operates principally in the contract drilling and oil and gas industries. The contract drilling operations consist of contracting Company-owned drilling equipment primarily to major oil and gas exploration companies. The Company's primary international areas of operation include Venezuela, Colombia and Ecuador. Oil and gas activities consist of ownership of mineral interests in productive oil and gas leases and undeveloped leases located primarily in Oklahoma, Texas, Kansas and Louisiana. Intersegment sales, which are accounted for in the same manner as sales to unaffiliated customers, are not material. Operating profit is total revenue less operating expenses. In computing operating profit, the following items have not been considered: equity in income of affiliate; income from investments; general corporate expenses; interest expense; and domestic and foreign income taxes. Identifiable assets by segment are those assets that are used in the Company's operations in each segment. Corporate assets are principally cash and cash equivalents, short-term investments and investments in marketable securities. Revenues from one company doing business with the contract drilling segment accounted for approximately 17 percent, 19 percent, and 18 percent of the total consolidated revenues during the years ended September 30, 1997, 1996 and 1995, respectively. Collectively, revenues from three companies controlled by the Venezuelan government accounted for approximately 12 percent, 12.8 percent and 13.4 percent of total consolidated revenues for the years ended September 30, 1997, 1996, and 1995, respectively. Summarized revenues and operating profit by industry segment for the years ended September 30, 1997, 1996 and 1995 are located on page 9. Additional financial information by industry segment is as follows:
- ----------------------------------------------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- (in thousands) Net Income (loss): Contract Drilling - Domestic............................. $ 15,508 $ 6,796 $ 4,506 Contract Drilling - International........................ 26,848 17,693 12,106 Exploration and Production............................... 35,719 17,335 (13,906) Natural Gas Marketing.................................... 2,172 2,247 1,230 Real Estate Division..................................... 3,448 3,121 1,324 Other.................................................... (1,791) (3,452) (558) Equity in income of affiliate............................ 2,282 1,686 1,086 ------------- ----------- ---------- Income from Continuing Operations..................... 84,186 45,426 5,788 Discontinued operations.................................... -- 27,140 3,963 ------------- ----------- ---------- Net Income................................................. $ 84,186 $ 72,566 $ 9,751 ============= =========== ========== Identifiable assets: Contract drilling - Domestic............................. $ 257,505 $169,363 $138,359 Contract drilling - International........................ 210,976 213,171 188,587 Exploration and Production............................... 152,892 141,058 142,474 Natural Gas Marketing.................................... 18,884 15,602 10,192 Real Estate Division..................................... 23,310 23,628 24,380 Corporate and other...................................... 370,028 259,092 196,233 Discontinued operations.................................. -- -- 6,836 ------------- ----------- ---------- $ 1,033,595 $ 821,914 $ 707,061 ============= =========== ========== Depreciation, depletion and amortization: Contract drilling - Domestic............................. $ 17,916 $ 13,879 $ 12,111 Contract drilling - International........................ 26,458 22,120 19,557 Exploration and Production............................... 24,627 20,299 39,895 Natural Gas Marketing.................................... 258 725 298 Real Estate Division..................................... 1,412 1,455 3,623 Corporate and other...................................... 1,020 964 959 ------------- ----------- ---------- Continuing operations................................. 71,691 59,442 76,443 Discontinued operations............................... -- 754 672 ------------- ----------- ---------- $ 71,691 $ 60,196 $ 77,115 ============= =========== ========== Capital expenditures: Contract drilling - Domestic............................. $ 95,277 $ 57,004 $ 32,503 Contract drilling - International........................ 16,900 24,801 55,044 Exploration and Production............................... 41,782 24,320 20,956 Natural Gas Marketing.................................... 3,170 435 252 Real Estate Division..................................... 1,161 776 907 Corporate and other...................................... 1,288 830 1,255 ------------- ----------- ---------- Continuing operations................................. 159,578 108,166 110,917 Discontinued operations............................... -- 1,581 859 ------------- ----------- ---------- $ 159,578 $ 109,747 $ 111,776 ============= =========== ==========
- ------------------------------------------------------------------------------- 27 28 - ------------------------------------------------------------------------------- NOTE 13 SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES - ------------------------------------------------------------------------------- All of the Company's oil and gas producing activities are located in the United States. Results of Operations from Oil and Gas Producing Activities - - -------------------------------------------------------------------------------
Years Ended September 30, 1997 1996 1995 - -------------------------------------------------------------------------------------------------- (in thousands) Revenues ............................................. $111,512 $ 76,643 $ 47,986 -------- -------- -------- Production costs ..................................... 21,750 20,080 18,035 Exploration expense and valuation provisions ......... 9,943 9,931 14,017 Depreciation, depletion and amortization ............. 24,628 20,299 39,895 Income tax expense (benefit) ......................... 19,327 9,187 (7,243) -------- -------- -------- Total cost and expenses ............................ 75,648 59,497 64,704 -------- -------- -------- Results of operations (excluding corporate overhead and interest costs) ................................ $ 35,864 $ 17,146 $(16,718) ======== ======== ========
- ------------------------------------------------------------------------------- Capitalized Costs - - -------------------------------------------------------------------------------
September 30, 1997 1996 - --------------------------------------------------------------------------------------------- (in thousands) Properties being amortized: Proved properties ........................................... $395,812 $392,562 Unproved properties ......................................... 14,109 9,242 -------- -------- Total costs being amortized ............................... 409,921 401,804 -------- -------- Less - Accumulated depreciation, depletion and amortization ... 268,572 269,994 -------- -------- Net ....................................................... $141,349 $131,810 ======== ========
- ------------------------------------------------------------------------------- Costs Incurred Relating to Oil and Gas Producing Activities - - -------------------------------------------------------------------------------
Years Ended September 30, 1997 1996 1995 - ------------------------------------------------------------------------------- (in thousands) Property acquisition: Proved ................ $ 47 $ 256 $ 1,228 Unproved .............. 8,358 3,178 1,565 Exploration ............. 9,656 9,874 13,497 Development ............. 27,808 14,131 9,703 ------- ------- ------- Total ............... $45,869 $27,439 $25,993 ======= ======= =======
- ------------------------------------------------------------------------------- Estimated Quantities of Proved Oil and Gas Reserves (Unaudited) - Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. The following is an analysis of proved oil and gas reserves as estimated by the Company and reviewed by independent engineers.
- -------------------------------------------------------------------------------- OIL (Bbls.) GAS (Mmcf) - -------------------------------------------------------------------------------- Proved reserves at September 30, 1994 ......... 6,710,211 290,652 Revisions of previous estimates ............... 124,361 5,222 Extensions, discoveries and other additions ... 328,539 8,775 Production .................................... (808,058) (26,421) Purchases of reserves-in-place ................ 310 1,934 Sales of reserves-in-place .................... (26,251) (116) --------- ------- Proved reserves at September 30, 1995 ......... 6,329,112 280,046 Revisions of previous estimates ............... 629,154 5,098 Extensions, discoveries and other additions ... 298,986 21,311 Production .................................... (809,571) (34,535) Purchases of reserves-in-place ................ 21,912 647 Sales of reserves-in-place .................... (1,477) (266) --------- -------
- ------------------------------------------------------------------------------- 28 29
Proved reserves at September 30, 1996 ......... 6,468,116 272,301 Revisions of previous estimates ............... 92,863 6,178 Extensions, discoveries and other additions ... 419,795 25,762 Production .................................... (985,633) (40,463) Purchases of reserves-in-place ................ 120 6 Sales of reserves-in-place .................... (189,875) (548) --------- ------- Proved reserves at September 30, 1997 ......... 5,805,386 263,236 ========= ======= Proved developed reserves at September 30, 1995 ......................... 6,270,216 262,319 ========= ======= September 30, 1996 ......................... 6,441,803 261,519 ========= ======= September 30, 1997 ......................... 5,787,116 256,443 ========= =======
- ------------------------------------------------------------------------------- Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves (Unaudited) - The "Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement under Financial Accounting Standards Board Statement No. 69. The Standardized Measure does not purport to present the fair market value of a company's proved oil and gas reserves. This would require consideration of expected future economic and operating conditions, which are not taken into account in calculating the Standardized Measure. Under the Standardized Measure, future cash inflows were estimated by applying year-end prices to the estimated future production of year-end proved reserves. Future cash inflows were reduced by estimated future production and development costs based on year-end costs to determine pre-tax cash inflows. Future income taxes were computed by applying the statutory tax rate to the excess of pre-tax cash inflows over the Company's tax basis in the associated proved oil and gas properties. Tax credits and permanent differences were also considered in the future income tax calculation. Future net cash inflows after income taxes were discounted using a ten percent annual discount rate to arrive at the Standardized Measure.
- ------------------------------------------------------------------------------------------- September 30, 1997 1996 - ------------------------------------------------------------------------------------------- (in thousands) Future cash inflows ........................................ $ 656,698 $ 549,033 Future costs - Future production and development costs ................ (187,672) (193,047) Future income tax expense .............................. (134,892) (98,158) --------- --------- Future net cash flows ...................................... 334,134 257,828 10% annual discount for estimated timing of cash flows ..... (129,099) (103,964) --------- --------- Standardized Measure of discounted future net cash flows ... $ 205,035 $ 153,864 ========= =========
- ------------------------------------------------------------------------------- Changes in Standardized Measure Relating to Proved Oil and Gas Reserves (Unaudited)- - -------------------------------------------------------------------------------
Years Ended September 30, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Standardized Measure - Beginning of year ................... $ 153,864 $ 110,934 $ 124,623 Increases (decreases) - Sales, net of production costs .......................... (89,762) (56,563) (29,951) Net change in sales prices, net of production costs ..... 77,789 59,479 (12,917) Discoveries and extensions, net of related future development and production costs ...................... 42,741 29,189 8,179 Changes in estimated future development costs ........... (16,570) (6,651) (4,672) Development costs incurred .............................. 27,509 14,050 9,703 Revisions of previous quantity estimates ................ 6,146 5,731 2,825 Accretion of discount ................................... 20,691 14,362 16,171 Net change in income taxes .............................. (29,397) (31,158) (7,538) Purchases of reserves-in-place .......................... 2 643 1,202 Sales of reserves-in-place .............................. (1,551) (124) (51) Other ................................................... 13,573 13,972 3,360 --------- --------- --------- Standardized Measure - End of Year ......................... $ 205,035 $ 153,864 $ 110,934 ========= ========= =========
- ------------------------------------------------------------------------------- 29 30 - ------------------------------------------------------------------------------- NOTE 14 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - -------------------------------------------------------------------------------
(in thousands, except per share amounts) - ----------------------------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th 1997 Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------- Revenues .................................... $118,262 $132,479 $129,812 $137,306 Gross profit ................................ 33,643 36,863 37,513 32,954 Net income .................................. 20,125 22,418 23,648 17,995 Earnings per share .......................... .41 .45 .47 .36
- ----------------------------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th 1996 Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------- Revenues .................................... $ 88,427 $ 95,213 $ 101,358 $ 108,257 Gross profit ................................ 16,971 17,897 23,256 21,180 Income from continuing operations ........... 9,468 9,802 12,650 13,506 Income (loss) from discontinued operations ................................ 1,625 1,225 508 (268) Gain on sale of discontinued operations ..... 24,050 Net income .................................. 11,093 11,027 13,158 37,288 Earnings (loss) per share: Continuing operations ..................... .19 .20 .26 .27 Discontinued operations ................... .04 .02 .01 (.01) Gain on sale of discontinued operations ... .49 Net income ................................ .23 .22 .27 .75
- ------------------------------------------------------------------------------- Gross profit (loss) represents total revenues less operating costs, depreciation, depletion and amortization, dry holes and abandonments, and taxes, other than income taxes. - ------------------------------------------------------------------------------- Per share amounts have been restated to reflect the effect of the two-for-one common stock split and distribution (see Note 4). Net income in the fourth quarter of 1997 includes a provision of $6.7 million ($.08 per share after income taxes) for a Federal Energy Regulatory Commission ordered repayment of ad valorem taxes reimbursed to the Company during the period 1983-1988. The provision includes $2.7 million for ad valorem taxes (reduced revenues) and $4.0 million for interest. Net income in the fourth quarter of 1996 includes the gain from sale of discontinued operations (see Note 6). - ------------------------------------------------------------------------------- 30 31 REPORT OF INDEPENDENT AUDITORS HELMERICH & PAYNE, INC. =============================================================================== The Board of Directors and Shareholders Helmerich & Payne, Inc. We have audited the accompanying consolidated balance sheets of Helmerich & Payne, Inc. as of September 30, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1997. 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 the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Helmerich & Payne, Inc. at September 30, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, effective July 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of". /s/ ERNST & YOUNG LLP Tulsa, Oklahoma December 4, 1997 STOCKHOLDERS' MEETING =============================================================================== The annual meeting of stockholders will be held on March 4, 1998. A formal notice of the meeting, together with a proxy statement and form of proxy, will be mailed to shareholders on or about January 27, 1998. =============================================================================== STOCK EXCHANGE LISTING Helmerich & Payne, Inc. Common Stock is traded on the New York Stock Exchange with the ticker symbol "HP." The newspaper abbreviation most commonly used for financial reporting is "HelmP." Options on the Company's stock are also traded on the New York Stock Exchange. =============================================================================== STOCK TRANSFER AGENT AND REGISTRAR As of December 15, 1997, there were 1,467 record holders of Helmerich & Payne, Inc. common stock as listed by the transfer agent's records. Our Transfer Agent is responsible for our shareholder records, issuance of stock certificates, and distribution of our dividends and the IRS Form 1099. Your requests, as shareholders, concerning these matters are most efficiently answered by corresponding directly with the Transfer Agent at the following address: Bank One Trust Company, N.A. Stock Transfer Department P.O. Box 25848, OK1-1096 Oklahoma City, Oklahoma 73125-0848 Telephone: (405) 231-6325 800-395-2662, Extension 6598 =============================================================================== FORM 10-K The Company's Annual Report on Form 10-K, which has been submitted to the Securities and Exchange Commission, is available free of charge upon written request. DIRECT INQUIRIES TO: President Helmerich & Payne, Inc. Utica at Twenty-First Tulsa, Oklahoma 74114 Telephone: (918) 742-5531 =============================================================================== STOCK PRICE INFORMATION* ===============================================================================
Closing Market Price Per Share ------------------------------------- 1997 1996 - ------------------------------------------------------------------------------- QUARTERS HIGH LOW HIGH LOW - -------- ------------------------------------- First............................... $27.56 $21.94 $15.06 $12.25 Second.............................. 27.44 21.00 17.25 13.50 Third 29.63 21.81 19.13 16.50 Fourth 40.00 29.47 21.81 17.38 - -------------------------------------------------------------------------------
Dividend Information* ===============================================================================
Paid Per Share Total Payment --------------------------------------------------------- 1997 1996 1997 1996 - ------------------------------------------------------------------------------- QUARTERS - -------- First ...... $ .065 $ .0625 $3,239,007 $3,095,578 Second ..... .065 .0625 3,239,892 3,100,568 Third ...... .065 .0625 3,242,952 3,104,724 Fourth ..... .065 .065 3,248,275 3,229,596
- ------------------------------------------------------------------------------- *Restated to reflect the effect of the two-for-one common stock split and distribution (see Note 4). 31 32 ELEVEN-YEAR FINANCIAL REVIEW =============================================================================== HELMERICH & PAYNE, INC.
- ---------------------------------------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- REVENUES AND INCOME* Contract Drilling Revenues ........................ 315,327 244,338 203,325 Crude Oil Sales ................................... 20,475 15,378 13,227 Natural Gas Sales ................................. 87,737 60,500 33,851 Gas Marketing Revenues ............................ 66,306 57,817 34,729 Real Estate Revenues .............................. 8,224 8,076 7,560 Dividend Income ................................... 5,268 3,650 3,389 Other Revenues .................................... 14,522 3,496 10,640 Total Revenues++ .................................. 517,859 393,255 306,721 Net Cash Provided by Continuing Operations++ ...... 165,568 121,420 84,010 Income from Continuing Operations ................. 84,186 45,426 5,788 Net Income (3) .................................... 84,186 72,566 9,751 - ---------------------------------------------------------------------------------------------------------------- PER SHARE DATA** Income from Continuing Operations ................. 1.69 .92 .12 Net Income (3)..................................... 1.69 1.47 .20 Cash Dividends .................................... .26 .2525 .25 Shares Outstanding* ............................... 50,028 49,771 49,529 - ---------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Net Working Capital* .............................. 62,837 51,803 50,038 Ratio of Current Assets to Current Liabilities .... 1.66 1.83 1.74 Investments* ...................................... 323,510 229,809 156,908 Total Assets* ..................................... 1,033,595 821,914 707,061 Long-Term Debt* ................................... -- -- -- Shareholders' Equity* ............................. 780,580 645,970 562,435 - ---------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES* Contract Drilling Equipment ....................... 109,036 79,269 80,943 Wells and Equipment ............................... 33,425 21,142 19,384 Real Estate ....................................... 1,095 752 873 Other Assets (includes undeveloped leases) ........ 16,022 7,003 9,717 Discontinued Operations ........................... -- 1,581 859 Total Capital Outlays ............................. 159,578 109,747 111,776 - ---------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT AT COST* Contract Drilling Equipment ....................... 643,619 568,110 501,682 Producing Properties .............................. 395,812 392,562 384,755 Undeveloped Leases ................................ 14,109 9,242 8,051 Real Estate ....................................... 47,682 46,970 46,642 Other ............................................. 59,659 53,547 55,655 Discontinued Operations ........................... -- -- 13,937 Total Property, Plant and Equipment ............... 1,160,881 1,070,431 1,010,722 - ----------------------------------------------------------------------------------------------------------------
* 000's omitted ** Per share data and shares outstanding are restated to reflect the effect of a two-for-one stock split and distribution as discussed in Note 4. ++ Chemical operations were sold August 30, 1996 (see note 6). Prior year amounts have been restated to exclude discontinued operations. 3 Includes $13.6 million ($.28 per share) effect of impairment charge for adoption of SFAS No. 121 in 1995 and cumulative effect of change in accounting for income taxes of $4,000,000 ($.08 per share) in 1994. 32 33
- ---------------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 1988 1987 - ---------------------------------------------------------------------------------------------------------------- 182,781 149,661 112,833 105,364 90,974 78,315 75,985 64,718 13,161 15,392 16,369 17,374 16,058 14,821 14,001 15,223 45,261 52,446 38,370 35,628 37,697 33,013 26,154 17,251 51,874 63,786 40,410 10,055 10,566 -- -- -- 7,396 7,620 7,541 7,542 7,636 7,778 7,878 7,561 3,621 3,535 4,050 5,285 7,402 9,127 10,069 9,757 6,058 8,283 6,646 20,020 56,131 17,371 15,206 34,757 310,152 300,723 226,219 201,268 226,464 160,425 149,293 149,267 74,463 72,493 60,414 50,006 53,288 65,474 54,959 36,999 17,108 22,158 8,973 19,608 45,489 20,715 17,746 20,575 24,971 24,550 10,849 21,241 47,562 22,700 20,150 22,016 - ---------------------------------------------------------------------------------------------------------------- .35 .46 .19 .41 .94 .43 .37 .43 .51 .51 .22 .44 .98 .47 .42 .46 .2425 .24 .2325 .23 .22 .21 .20 .19 49,420 49,275 49,152 48,976 48,971 48,346 48,331 48,374 - ---------------------------------------------------------------------------------------------------------------- 76,238 104,085 82,800 108,212 146,741 114,357 135,275 135,139 2.63 3.24 3.31 4.19 3.72 3.12 6.10 6.68 87,414 84,945 87,780 96,471 99,574 130,443 133,726 140,431 621,689 610,935 585,504 575,168 582,927 591,229 576,473 571,348 -- 3,600 8,339 5,693 5,648 49,087 70,715 74,732 524,334 508,927 493,286 491,133 479,485 443,396 430,804 420,833 - ---------------------------------------------------------------------------------------------------------------- 53,752 24,101 43,049 56,297 18,303 17,901 19,110 13,993 40,916 23,142 21,617 34,741 16,489 30,673 25,936 27,402 902 436 690 2,104 1,467 878 3,095 6,128 9,695 5,901 16,984 6,793 5,448 6,717 2,496 2,012 618 629 158 2,594 1,153 815 815 336 105,883 54,209 82,498 102,529 42,860 56,984 51,452 49,871 - ---------------------------------------------------------------------------------------------------------------- 444,432 418,004 404,155 370,494 324,293 323,313 313,289 309,865 377,371 340,176 329,264 312,438 287,248 279,768 251,445 228,214 11,729 10,010 12,973 5,552 5,507 5,441 3,305 4,197 47,827 47,502 47,286 46,671 44,928 48,016 47,165 44,070 48,612 45,085 43,153 36,423 32,135 29,716 27,798 28,274 13,131 12,545 11,962 11,838 9,270 8,156 7,370 6,602 943,102 873,322 848,793 783,416 703,381 694,410 650,372 621,222 - ----------------------------------------------------------------------------------------------------------------
33 34 ELEVEN-YEAR OPERATING REVIEW =============================================================================== HELMERICH & PAYNE, INC.
- ---------------------------------------------------------------------------------------------------------------- Years Ended September 30, 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- CONTRACT DRILLING Drilling Rigs, United States ............ 38 41 41 47 42 Drilling Rigs, International ............ 39 36 35 29 29 Contract Wells Drilled, United States ... 246 233 212 162 128 Total Footage Drilled, United States* ... 2,753 2,499 1,933 1,842 1,504 Average Depth per Well, United States ... 11,192 10,724 9,119 11,367 11,746 Percentage Rig Utilization, United States 88 82 71 69 53 Percentage Rig Utilization, International 91 85 84 88 68 - ---------------------------------------------------------------------------------------------------------------- PETROLEUM EXPLORATION AND DEVELOPMENT Gross Wells Completed ................... 100 63 59 44 42 Net Wells Completed ..................... 49.3 35.3 27.4 15 15.9 Net Dry Holes ........................... 9.6 7.3 5.9 1.7 4.3 - ---------------------------------------------------------------------------------------------------------------- PETROLEUM PRODUCTION Net Crude Oil and Natural Gas Liquids Produced (barrels daily) ............ 2,700 2,212 2,214 2,431 2,399 Net Oil Wells Owned-- Primary Recovery .. 133 176.9 186 202 202 Net Oil Wells Owned-- Secondary Recovery 49 63.8 64 71 71 Secondary Oil Recovery Projects ......... 5 12 12 14 14 Net Natural Gas Produced (thousands of cubic feet daily) ..... 110,859 94,358 72,387 72,953 78,023 Net Gas Wells Owned ..................... 410 378 354 341 307 - ---------------------------------------------------------------------------------------------------------------- NATURAL GAS ODORANTS AND OTHER CHEMICALS++ Chemicals Sold (pounds)* ................ -- 9,823 7,670 8,071 7,930 - ---------------------------------------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT Gross Leasable Area (square feet)* ...... 1,652 1,654 1,652 1,652 1,656 Percentage Occupancy .................... 95 94 87 83 86 - ---------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF EMPLOYEES Helmerich & Payne, Inc. and Subsidiaries+ 3,627 3,309 3,245 2,787 2,389 - ----------------------------------------------------------------------------------------------------------------
34 35
- -------------------------------------------------------------------------------------------------------------------------- Years Ended September 30, 1992 1991 1990 1989 1988 1987 - -------------------------------------------------------------------------------------------------------------------------- CONTRACT DRILLING Drilling Rigs, United States ............ 39 46 49 49 48 50 Drilling Rigs, International ............ 30 25 20 20 18 19 Contract Wells Drilled, United States ... 100 106 119 108 115 110 Total Footage Drilled, United States* ... 1,085 1,301 1,316 1,350 1,284 1,182 Average Depth per Well, United States ... 10,853 12,274 11,059 12,500 11,165 10,745 Percentage Rig Utilization, United States 42 47 50 44 45 39 Percentage Rig Utilization, International 69 69 45 46 30 16 - -------------------------------------------------------------------------------------------------------------------------- PETROLEUM EXPLORATION AND DEVELOPMENT Gross Wells Completed ................... 54 45 36 45 45 18 Net Wells Completed ..................... 17.8 20.2 15.3 15.2 14.6 5.2 Net Dry Holes ........................... 4.3 4.3 3.4 2.8 1.6 .5 - -------------------------------------------------------------------------------------------------------------------------- PETROLEUM PRODUCTION Net Crude Oil and Natural Gas Liquids Produced (barrels daily) ............ 2,334 2,152 2,265 2,486 2,463 2,578 Net Oil Wells Owned-- Primary Recovery .. 220 227 223 201 202 199 Net Oil Wells Owned-- Secondary Recovery 74 55 46 214 222 237 Secondary Oil Recovery Projects ......... 14 12 12 17 21 20 Net Natural Gas Produced (thousands of cubic feet daily) ..... 75,470 66,617 65,147 57,490 45,480 31,752 Net Gas Wells Owned ..................... 289 278 194 205 197 180 - -------------------------------------------------------------------------------------------------------------------------- NATURAL GAS ODORANTS AND OTHER CHEMICALS++ Chemicals Sold (pounds)* ................ 8,452 8,155 8,255 7,702 8,507 8,165 - -------------------------------------------------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT Gross Leasable Area (square feet)* ...... 1,656 1,664 1,664 1,669 1,670 1,595 Percentage Occupancy .................... 87 86 85 90 90 94 - -------------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF EMPLOYEES Helmerich & Payne, Inc. and Subsidiaries+ 1,928 1,758 1,864 1,100 1,156 1,026 - --------------------------------------------------------------------------------------------------------------------------
* 000's omitted. + 1987-1989 include U.S. employees only ++ Chemical operations were sold August 30, 1996 (see note 6). Treated as discontinued operations in Financial Statements for all years presented. 35 36 DIRECTORS OFFICERS =============================================================================== W. H. HELMERICH, III Chairman of the Board Tulsa, Oklahoma HANS HELMERICH President and Chief Executive Officer Tulsa, Oklahoma WILLIAM L. ARMSTRONG Chairman Ambassador Media Corporation Denver, Colorado GLENN A. COX* President and Chief Operating Officer, Retired Phillips Petroleum Company Bartlesville, Oklahoma GEORGE S. DOTSON Vice President President of Helmerich & Payne International Drilling Co. Tulsa, Oklahoma L. F. ROONEY, III* Chief Executive Officer Manhattan Construction Company Tulsa, Oklahoma EDWARD B. RUST, JR. President and Chief Executive Officer State Farm Insurance Companies Bloomington, Illinois GEORGE A. SCHAEFER Chairman and Chief Executive Officer, Retired Caterpillar Inc. Peoria, Illinois JOHN D. ZEGLIS President AT&T Basking Ridge, New Jersey W. H. HELMERICH, III Chairman of the Board HANS HELMERICH President and Chief Executive Officer GEORGE S. DOTSON Vice President, President of Helmerich & Payne International Drilling Co. DOUGLAS E. FEARS Vice President and Chief Financial Officer STEVEN R. MACKEY Vice President, Secretary and General Counsel STEVEN R. SHAW Vice President Exploration & Production *Member, Audit Committee 36 EX-22 4 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 22 SUBSIDIARIES OF THE REGISTRANT Helmerich & Payne, Inc. Subsidiaries of Helmerich & Payne, Inc. Helmerich & Payne Properties, Inc. (Incorporated in Oklahoma) Utica Square Shopping Center, Inc. (Incorporated in Oklahoma) The Hardware Store of Utica Square, Inc. (Incorporated in Oklahoma) The Space Center, Inc. (Incorporated in Oklahoma) H&P DISC, Inc. (Incorporated in Oklahoma) Helmerich & Payne Coal Co. (Incorporated in Oklahoma) Helmerich & Payne Energy Services, Inc. (Incorporated in Oklahoma) Helmerich & Payne International Drilling Co. (Incorporated in Delaware) Subsidiaries of Helmerich & Payne International Drilling Co. Helmerich & Payne (Africa) Drilling Co. (Incorporated in Cayman Islands, British West Indies) Helmerich & Payne Drilling (Bolivia) S.A. (Incorporated in Bolivia) Helmerich & Payne (Colombia) Drilling Co. (Incorporated in Oklahoma) Helmerich & Payne (Gabon) Drilling Co. (Incorporated in Cayman Islands, British West Indies) Helmerich & Payne (Guatemala) Drilling Co. (Incorporated in Oklahoma) Helmerich & Payne (Peru) Drilling Co. (Incorporated in Oklahoma) Helmerich & Payne (Peru) Drilling Co., Sucursal del Peru, Lima (Lima Branch - Incorporated in Peru) Helmerich & Payne (Peru) Drilling Co., Sucursal del Peru (Iquitos Branch - Incorporated in Peru) Helmerich & Payne (Australia) Drilling Co. (Incorporated in Oklahoma) Helmerich & Payne del Ecuador, Inc. (Incorporated in Oklahoma) Helmerich & Payne de Venezuela, C.A. (Incorporated in Venezuela) Helmerich & Payne, C.A. (Incorporated in Venezuela) Helmerich & Payne Rasco, Inc. (Incorporated in Oklahoma) H&P Finco (Incorporated in Cayman Islands, British West Indies) H&P Invest Ltd. (Incorporated in Cayman Islands), British West Indies, doing business as H&P (Yemen) Drilling Co. Subsidiary of H&P Invest Ltd. Turrum Pty. Ltd. (Incorporated in Papua, New Guinea) EX-23.1 5 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Helmerich & Payne, Inc. of our report dated December 4, 1997, included in the 1997 Annual Report to Shareholders of Helmerich & Payne, Inc. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-16771, 33-55239 and 333-34939) pertaining, respectively, to the Helmerich & Payne, Inc. Incentive Stock Option Plan, 1990 Stock Option Plan, and 1996 Stock Incentive Plan of our report dated December 4, 1997, with respect to the consolidated financial statements of Helmerich & Payne, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended September 30, 1997. ERNST & YOUNG LLP Tulsa, Oklahoma December 23, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR SEP-30-1997 OCT-01-1996 SEP-30-1997 27,963 323,510 100,005 1,308 19,639 158,004 1,160,881 621,856 1,033,595 95,167 0 0 0 2,677 777,903 1,033,595 506,422 517,859 376,886 376,886 9,346 0 4,212 127,415 45,511 84,186 0 0 0 84,186 1.69 1.69
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