-----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, G9JwR+z/+OzFNuaWc/w6xETPnU5Wx35Dyun8KJd/IXxe4Tm6Auwt5ziE0BxDIYUJ 2h319Ac80CFpwH1r5HVlFw== 0000950134-98-009926.txt : 19981229 0000950134-98-009926.hdr.sgml : 19981229 ACCESSION NUMBER: 0000950134-98-009926 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981228 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: 98776023 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, 1998 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, 1998 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, 1998, the aggregate market value of the voting stock held by non-affiliates was $832,621,361.00. Number of shares of common stock outstanding at December 15, 1998: 49,414,282. DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for the fiscal year ended September 30, 1998 -- Parts I, II, and IV. (2) Proxy Statement for Annual Meeting of Security Holders to be held March 3, 1999 -- Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE REGISTRANT'S FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECT", "INTEND", "ESTIMATE", "ANTICIPATE", "BELIEVE", OR "CONTINUE" OR THE NEGATIVE THEREOF OR SIMILAR TERMINOLOGY. ALTHOUGH THE REGISTRANT BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE REGISTRANT'S EXPECTATIONS ARE DISCLOSED IN MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ON PAGES 10 THROUGH 18 IN REGISTRANT'S ANNUAL REPORT TO THE SHAREHOLDERS FOR FISCAL 1998 AND IN THE REMAINDER OF THIS REPORT. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE REGISTRANT, OR PERSONS ACTING ON ITS BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. THE REGISTRANT ASSUMES NO DUTY TO UPDATE OR REVISE ITS FORWARD-LOOKING STATEMENTS BASED ON CHANGES IN INTERNAL ESTIMATES OR EXPECTATIONS OR OTHERWISE. 3 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, 1998 PART I Item 1. BUSINESS Helmerich & Payne, Inc. (the "Registrant"), was incorporated under the laws of the State of Delaware on February 3, 1940, and is successor to a business originally organized in 1920. Registrant is primarily engaged in the exploration, production, 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 all accounting, data processing, budgeting, insurance, cash management, and related activities. 4 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, 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 1998 in five international locations: Venezuela, Ecuador, Colombia, Peru and Bolivia. In the first quarter of fiscal 1999, the Registrant operated two rigs in Argentina. 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 5 include the Venezuelan state petroleum company and major international oil companies. Petroleos de Venezuela, British Petroleum Company, P.L.C. and Shell Oil Co., including their affiliates, (respectively "PDVSA", "BP" and "Shell") are the Registrant's three largest contract drilling customers. PDVSA is the government-owned producing company in Venezuela. The Registrant performs drilling services for PDVSA only in Venezuela and performs drilling services for BP and Shell on a world-wide basis. While the Registrant believes that its relationship with each of these customers is good, the loss of any of these customers would have a material adverse effect on the drilling subsidiary and the Registrant. Revenues from drilling services performed for PDVSA, BP and Shell in fiscal 1998 accounted for approximately 16%, 15% and 10%, respectively, of the Registrant's consolidated revenues for the same period. The Registrant provides drilling rigs, equipment, personnel, and camps on a contract basis. These services are provided so that Registrant's customers may explore for and develop oil and gas from onshore areas and 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 I - 3 6 platform. In addition to traditional platform rigs, Registrant operates self-moving minimum space platform drilling rigs and drilling rigs to be used on tension leg platforms. The minimum space rig is designed to be moved without the use of expensive derrick barges. The tension leg platform rig allows drilling operations to be conducted in much deeper water than traditional fixed platforms. A helicopter rig is one that can be disassembled into component part loads of approximately 4,000-20,000 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 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. Each drilling rig operates under a separate drilling contract. 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 I - 4 7 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 1998. 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 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. However, 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. In most instances contracts 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 I - 5 8 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, 1998, the Registrant had 44 (34 land rigs and 10 platform rigs) of its rigs operating in the United States and had management contracts for three operator-owned rigs. During 1998, construction was completed on four land drilling rigs and one helicopter transportable rig. These rigs were constructed for initial use in South America. Construction of six mobile land drilling rigs and one offshore tension leg platform rig (TLP) was completed during fiscal 1998. The six mobile land rigs are initially intended to be used in domestic operations and the TLP rig will perform drilling operations for a major oil company in the Gulf of Mexico. 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. During fiscal 1998, the Registrant owned and operated 21 land drilling rigs and one platform rig in Venezuela with a utilization rate of 92% for such fiscal year. As previously noted, the Registrant worked for I - 6 9 PDVSA during fiscal 1998, and revenues from this work accounted for approximately 16% of the Registrant's consolidated revenues during the fiscal year. During the first quarter of fiscal 1999, Registrant's rig utilization rate in Venezuela has decreased to approximately 50%. At this time, the Registrant is unable to predict future fluctuations in its utilization rates during fiscal 1999. 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 five independent oil companies during fiscal 1998. The Registrant presently owns and operates ten drilling rigs in Colombia. The Registrant's utilization rate for such rigs was 93% during fiscal 1998. During fiscal 1998 the revenue generated by Colombian drilling operations contributed approximately 12.5% of the Registrant's consolidated revenues. In addition to its operations in Venezuela and Colombia, the Registrant in fiscal 1998 owned and operated four rigs in Ecuador, one rig in Peru, and four rigs in Bolivia. During the first quarter of fiscal 1999, Registrant owned and operated one additional rig in Bolivia and two rigs in Argentina. In Ecuador, Peru, Bolivia and Argentina, the contracts are with large international oil companies. Drilling operations continued during 1998 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 10 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. These hazards 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 11 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 secured through fiscal 1999. 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 1999 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 which 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, the Registrant's future operations in certain areas may 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 nor pursuant to such arrangements would have a material adverse effect on the I - 9 12 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 1998, approximately 40% of the Registrant's consolidated revenues were generated from international contract drilling operations. Over 89% 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 60% of the Registrant's invoice billings are in U.S. dollars and the other 40% 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 experienced losses of approximately US$579,000 and in fiscal 1998 it experienced I - 10 13 losses of US$2,204,000 as a result of the devaluation of the bolivar. Registrant is unable to predict with certainty future devaluation in Venezuela. However, considering the recent presidential election in Venezuela, there appears to be an increasing likelihood of significant devaluation. It is speculated that within the first six months of calendar 1999, the new Venezuelan president may devalue the bolivar by 25% or more. In the event a 25% to 50% devaluation occurs, the Registrant could experience potential currency valuation losses ranging from approximately US$1.5 million to US$2.7 million. 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 pollution, except in certain cases of surface pollution. However, 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 I - 11 14 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. Additional legislation or regulation may reasonably be anticipated, and the effect thereof on operations cannot be predicted. 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, Michigan, Mississippi, and the Rocky Mountain area. The Registrant's exploration and production division includes seven geographical exploitation teams comprised of geological, engineering, and land personnel. These personnel primarily develop in-house oil and gas prospects as well as review 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. During fiscal 1998, two experienced I - 12 15 geologists were hired. These geologists focus on developing and reviewing prospects in Louisiana and Texas Onshore Gulf Coast. Continued success in the Registrant's Mountain Front play has brought gas production to 42.9 BCF and 117 MMCF of gas per day for fiscal 1998. Since its discovery in May of 1996, the Rocky East Prospect has produced approximately 15.6 BCF gross, 12.1 BCF net to Registrant of gas and is currently producing approximately 13.5 MMCF gross, 10.8 MMCF net to Registrant of gas per day. The Kiowa Flats Field, which is twelve miles east of Rocky East Prospect, has produced approximately 14.4 BCF gross, 7.2 BCF net to Registrant and is currently producing approximately 55.6 MMCF gross, 31.0 MMCF net to Registrant of gas per day. Registrant's working interests in the Kiowa Flats Field range from 11% to 100% in all wells drilled. Approximately $12.4 million has been spent in the Kiowa Flats Field for drilling and completion of wells in fiscal 1998. Continued development of the Kiowa Flats Field is expected during 1999. During fiscal 1998, the Registrant participated in three large 3D seismic surveys. The Registrant owns 32% of a 77 square mile survey in southwestern Louisiana, 25% of a 94 square mile survey in southeast Texas, and 7% of a 63 square mile survey in east Texas. These surveys are in areas of significant hydrocarbon production. The Registrant anticipates that oil and gas prospects will be identified and drilled based on results from these surveys. In addition, the Registrant is in the process of conducting a 65 square mile survey in west Texas and is completing the purchase of a 33.33% working interest in three 3D surveys which will cover approximately 185 square miles in southeast Texas. I - 13 16 After participating in the Louisiana Austin Chalk area since the early 1990's, the Registrant sold all of its oil and gas interests, together with related gathering and processing interests effective November 1, 1997. Although the Registrant did experience some successes in its exploration and development efforts, the profitability of Registrant's efforts were hampered by high finding costs as well as high lifting costs. The sales price of $10,600,000 was slightly higher than Registrant's book value. Book value reflects approximately $3.3 million of associated Austin Chalk drilling costs for the 1998 fiscal year. Approximately 600 barrels of oil per day and approximately 2,000 MCF of gas per day were associated with the Austin Chalk area during fiscal 1997. 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 1998, the Registrant participated in 51 development and/or wildcat wells, which resulted in new discoveries of approximately 20.8 BCF of gas and 175,265 barrels of oil and condensate. The Registrant participated in 17 additional development wells, which resulted in the development of approximately 3.3 BCF of gas which was previously classified as proved undeveloped or proved developed nonproducing reserves. A total of $43,590,450 was spent in the Registrant's exploration and development program during fiscal 1998. This figure includes $6,039,470 of geophysical expense, but is exclusive of expenditures for acreage and acquisition of proved oil and gas reserves. The approximate four-fold increase in geophysical expense from fiscal 1997 to fiscal 1998 is primarily due to increased seismic and related expenses. The Registrant's total company-wide acquisition cost for acreage in fiscal 1998 was approximately $9 million. I - 14 17 The Registrant spent $106,736 for the acquisition of proved oil and gas reserves during fiscal 1998. The reserves associated with these acquisitions were 188,269 MCF and 2,890 barrels of crude oil. In November of 1998, Registrant sold all of its oil and gas interests and related gathering facilities in its Southwest Mayfield, Oklahoma field. Approximately 28 wells and two salt water disposal wells were included in the sale. The sales price of approximately $5.6 million was approximately $4.5 million higher than Registrant's book value. The reserves associated with this sale were approximately 2.1 BCF and 292 barrels of crude oil. In addition to the Austin Chalk and Southwest Mayfield sales, Registrant sold certain miscellaneous properties for $346,627. The reserves associated with these sales were approximately 147,361 MCF of natural gas and 29,666 barrels of crude oil. The Registrant's fiscal 1999 exploration and production budget of approximately $64 million is 25% greater than its actual exploration and production expenditures in fiscal 1998. 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 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 its subsidiary, Helmerich & Payne Energy Services, Inc., have successfully developed markets with I - 15 18 end-users, local distribution companies, and natural gas brokers for gas produced from successful wildcat wells and development wells. The Registrant is of the opinion that the current state of approximate equilibrium between supply and demand will continue in the short term. During this short term equilibrium period, Registrant expects greater natural gas price volatility. This volatility will be caused in part by seasonal demands (both heating and cooling loads) and by more efficient use of gas storage. Registrant believes that the recent drop in natural gas prices is primarily due to unseasonably warm weather. Long term pricing will obviously react to these short term factors, as well as other causes affecting supply/demand. Other causes affecting supply/demand imbalances may be continued growth of the United States economy; consumption of natural gas for generation of electricity; 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 the best price in the area for crude oil production. During fiscal 1998, the price that Registrant received for the sale of its crude oil has steadily declined. Registrant's average per barrel crude oil sales price in fiscal 1998 for each of the I - 16 19 first through fourth quarters was $18.50, $14.53, $12.89 and $12.25, respectively. 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. The Registrant also believes that competition for the acquisition of gas producing properties will continue. Considering the Registrant's conservative acquisition strategy, the Registrant believes that it may be unable to acquire significant proved developed producing reserves from third parties. 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 these competitors 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. 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. 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 I - 17 20 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 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. I - 18 21 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 has been largely upheld by the United States Court of Appeals for the District of Columbia Circuit. Because further review of certain aspects of Order 636 is still possible and other appeals 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 I - 19 22 operations. The Registrant presently believes that it will benefit from the provisions of such Order. The FERC regularly reviews its natural gas transportation and related policies and regulations. In July, 1998, it issued proposed rules governing short term transportation which, among other matters, would eliminate cost-based regulation for such transportation, allow pipelines to negotiate rates and terms of service, and require the allocation of all short term pipeline capacity through a competitive auction process. In addition, the FERC has requested comments on certain issues related to its regulation of long term transportation. 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 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 I - 20 23 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. In February, 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 130 infill wells and believes that it will be necessary in fiscal 1999 to drill an additional 10 infill wells at a total estimated cost of $1,045,000. In September, 1997, the FERC ruled that ad valorem tax levied by the State of Kansas was 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 reimbursement of Kansas ad valorem taxes, then first sellers would be required to make refunds with interest for such excess revenues on tax bills rendered during the period October 4, 1983 through June 28, 1988. Based upon schedules provided to Registrant by certain interstate pipelines, the total reimbursement obligation of all working interest owners in Registrant-operated wells approximated $13 million as of November, 1997. During this period, Registrant estimated that its reimbursement obligation totaled approximately $6.7 million, being approximately $2.7 million of principal and $4.0 million of interest. Approximately 12.5% of such amount would be owed by Registrant's royalty owners. I - 21 24 Neither the FERC nor Congress has provided the first sellers with any generic relief on this issue to date. However, the FERC did permit the filing of individual adjustment proceedings by each first seller. Registrant has filed such adjustment proceedings requesting that its ad valorem tax refund obligation be reduced. The FERC has not ruled in any of Registrant's adjustment proceedings. During the period February through July, 1998, Registrant paid, under protest, approximately $1,379,000 to four interstate pipelines as partial ad valorem tax reimbursement and escrowed approximately $6,370,000 pending the FERC's decision in Registrant's adjustment proceedings. The escrowed amount includes Registrant's share of the amount of reimbursement obligation allegedly owed by Registrant's royalty owners. 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. I - 22 25 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 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 tenth 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 1998, HPESI's sales of third-party gas constituted approximately 8.4% of the Registrant's consolidated revenues. I - 23 26 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 contracts having a duration of 30 days or less. For fiscal 1999, HPESI's term gas sales contracts provide for the sale of approximately 6 BCF of gas at prices which are indexed to market prices. 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-15 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 (97% 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. I - 24 27 As a result of a confidential settlement of a lawsuit with a Utica Square Shopping Center tenant, approximately 30,000 square feet of retail space will be vacated during the second quarter of fiscal 1999. While the settlement resulted in a one-time payment to the tenant and certain forgiveness of rent and other charges, the Registrant believes it will receive increased rentals from new tenants. At the end of the 1998 fiscal year the Registrant owned 15 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. Three condominium units were sold during fiscal 1998. Twelve of the Registrant's units are currently leased. 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 1998. During fiscal 1998, Registrant leased approximately 29,000 square feet of office space in Tulsa and relocated Registrant's oil and gas division to such offices. The vacated space within Registrant's office building will be used to accommodate the growth of the remaining segments of its 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 I - 25 28 highways. Present occupancy is 98%. The Registrant also owns approximately 1.5 acres of undeveloped land lying adjacent to such warehouses. The Registrant received approximately $380,000 for its sale of certain rights of way and temporary easements to the Oklahoma Department of Transportation. These rights of way and temporary easements burden certain of Registrant's lands which are in or near to a high-growth area of southeast Tulsa known as Southpark. After the sale, Registrant owned approximately 253.5 acres in Southpark consisting of approximately 240.5 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 peripheral commercial, office/warehouse, and hotel sites, is the best development use for the remaining land. However, no development plans are currently pending. 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 93% to 96% during fiscal 1998 due primarily to the addition of one new tenant. 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. During fiscal 1998, occupancy has increased from 88% to 96% due to the addition of three new tenants. I - 26 29 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. During fiscal 1998, occupancy increased from 86% to 100% due to the addition of one new tenant. 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 1998, occupancy increased from 81% to 100% due to the expansion of an existing tenant. Registrant believes that there has been a recent increase in demand for multi-tenant warehouse space in the Tulsa market. Registrant is unable to determine how long this increase in demand will continue. Competition. The Registrant has numerous competitors in the multi-tenant leasing business. The size and financial capacity of these competitors range from one property sole proprietors to Fortune 500 companies. The primary competitive factors include price, location and configuration of space. Registrant's competitive position is enhanced by the location of its properties, its financial capability and the long-term ownership of its properties. However, many competitors have financial resources greater than Registrant and have more contemporary facilities. 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 1998, which is incorporated herein by reference. I - 27 30 EMPLOYEES The Registrant had 1,946 employees within the United States (11 of which were part-time employees) and 1,394 employees in international operations as of September 30, 1998. Item 2. PROPERTIES CONTRACT DRILLING The following table sets forth certain information concerning the Registrant's domestic drilling rigs as of September 30, 1998: I - 28 31
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 155 Medium Depth 14,000 Texas 164 Medium Depth 16,000 Texas 165 Medium Depth 16,000 Texas 166 Medium Depth 16,000 Texas 167 Medium Depth 16,000 Texas 168 Medium Depth 16,000 Texas 169 Medium Depth 16,000 Texas 95 Medium Depth 16,000 Texas 96 Medium Depth 16,000 Oklahoma 104 Medium Depth 18,000 Offshore California 108 Medium Depth 18,000 Gulf of Mexico 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 19,000 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 105 Deep 30,000 Gulf of Mexico 162 Deep 20,000 Texas 201 Deep 30,000 Gulf of Mexico 202 Deep 30,000 Gulf of Mexico 203 Deep 20,000 Gulf of Mexico 204 Deep 30,000 Gulf of Mexico 97 Deep 26,000 Texas 99 Deep 26,000 Texas 100 Deep 30,000 Gulf of Mexico 106 Deep 30,000 Gulf of Mexico 107 Deep 30,000 Gulf of Mexico 122 Deep 26,000 Louisiana 137 Deep 26,000 Texas 149 Deep 26,000 Louisiana 157 Deep 30,000 Texas 72 Very Deep 30,000 Louisiana 73 Very Deep 30,000 Louisiana 161 Very Deep 30,000 Louisiana 163 Very Deep 30,000 Texas
I - 29 32 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, ------------------------------------- 1994 1995 1996 1997 1998 ----- ----- ----- ----- ----- Number of rigs owned at end of period 47 41 41 38 46 Average rig utilization rate during period (1) 69% 71% 82% 88% 95%
(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, 1998:
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 156 Medium Depth 12,000 Venezuela 132 Medium Depth 18,000 Ecuador 171 Medium Depth 16,000 Bolivia 172 Medium Depth 16,000 Bolivia 176 Medium Depth 18,000 Ecuador 22 Deep (helicopter rig) 18,000 Peru 23 Deep (helicopter rig) 18,000 Ecuador 91 Deep (platform) 20,000 Venezuela 121 Deep 20,000 Colombia 173 Deep 20,000 Bolivia 170 Deep (helicopter rig) 26,000 Venezuela 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 113 Very Deep 30,000 Venezuela 115 Very Deep 30,000 Venezuela 116 Very Deep 30,000 Venezuela 125 Very Deep 30,000 Colombia
I - 30 33
Rig Registrant's Optimum Working Present Designation Classification Depth in Feet Location ----------- -------------- ------------- -------- 127 Very Deep 30,000 Venezuela 128 Very Deep 30,000 Venezuela 129 Very Deep 30,000 Venezuela 133 Very Deep 30,000 Colombia 134 Very Deep 30,000 Colombia 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 Very Deep 30,000 Colombia 153 Very Deep 30,000 Colombia 174 Very Deep 30,000 Argentina 175 Very Deep 30,000 Bolivia 177 Very Deep 30,000 Argentina 139 Super Deep 30,000+ Colombia Joint Venture Rig: 200 Deep 20,000 JV w/Atwood Australia
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, --------------------------------------------- 1994 1995 1996 1997 1998 ----- ----- ----- ----- ----- Number of rigs owned at end of period 29 35 36 39 44 Average rig utilization rate during period (1) 88% 84% 85% 91% 88%
(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 located within the continental United States. Crude Oil Sales The Registrant's net sales of crude oil and condensate for the fiscal years 1996 through 1998 are shown below: I - 31 34
Average Sales Average Lifting Year Net Barrels Price per Barrel Cost per Barrel ---- ----------- ---------------- --------------- 1996 809,571 $19.00 $7.90 1997 985,633 $20.77 $6.98 1998 701,180 $14.74 $7.40
Natural Gas Sales The Registrant's net sales of natural and casinghead gas for the three fiscal years 1996 through 1998 are as follows:
Average Sales Average Lifting Year Net Barrels Price per Barrel Cost per Barrel ---- ----------- ---------------- --------------- 1996 34,535,184 $1.75 $0.3292 1997 40,463,374 $2.23 $0.3213 1998 42,862,300 $2.04 $0.3110
Following is a summary of the net wells drilled by the Registrant for the fiscal years ended September 30, 1996, 1997, and 1998:
Exploratory Wells Development Wells -------------------------------- -------------------------------- 1996 1997 1998 1996 1997 1998 -------- -------- -------- -------- -------- -------- Productive 4.448 0.500 1.910 23.625 39.239 29.614 Dry 5.250 8.459 2.900 2.000 1.136 1.310
On September 30, 1998, the Registrant was in the process of drilling or completing four gross or 2.94 net wells. I - 32 35 Acreage Holdings The Registrant's holdings of acreage under oil and gas leases, as of September 30, 1998, 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 120,303.07 84,662.60 17,444.35 15,625.45 Louisiana 1,567.79 899.84 10,876.31 3,877.51 Michigan -0- -0- 15,206.16 15,130.88 Montana 2,037.19 449.21 3,508.95 683.50 Nebraska 480.00 168.00 -0- -0- Nevada -0- -0- 8,224.04 8,223.85 New Mexico 1,002.91 83.77 121.88 40.22 North Dakota 200.00 11.52 -0- -0- Oklahoma 136,296.85 52,335.83 27,338.61 17,104.33 Texas 89,685.59 42,220.60 158,108.54 45,792.12 Wyoming -0- -0- 440.00 105.59 ---------- ---------- ---------- ---------- Total 354,641.63 182,556.48 241,588.84 106,743.45
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. As shown in the above table, the Registrant has a significant portion of its undeveloped acreage in Texas, with five major prospects accounting for 39,700 net acres. The average minimum remaining term of leases in these five prospects is approximately 30 months. I - 33 36 Productive Wells The Registrant's total gross and net productive wells as of September 30, 1998, were as follows:
Oil Wells Gas Wells ------------- ------------- Gross Net Gross Net ----- ----- ----- ----- 3,452 176 956 436
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-24 of Item 1. BUSINESS, and pages 24 through 34 of the Registrant's Annual Report to Shareholders for fiscal 1998, "Notes to Consolidated Financial Statements" and "Note 14 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-24 through I-27. STOCK As of December 15, 1998: The Registrant owned 312,546 shares of the common stock of SUNOCO, Inc. and 500,000 shares of Oryx Energy Company, Inc. I - 34 37 The Registrant owned 3,000,000 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 22%. 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 1,000,000 shares of the common stock of Occidental Petroleum Corporation, Inc. The Registrant owned 200,000 shares of the common stock of Banc One Corporation. 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 - 35 38 W. H. Helmerich, III, 75 Director since 1949; Chairman of the Board Chairman of the Board since 1960 Hans Helmerich, 40 Director since 1987; President and Chief President Executive Officer since 1989 George S. Dotson, 57 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, 49 Vice President, Finance, since 1988 Vice President Steven R. Mackey, 47 Secretary since 1990; Vice President and Vice President and General Counsel since 1988 Secretary Steven R. Shaw, 47 Vice President, Production, since 1985; Vice Vice President President, Exploration and Production since 1996 Gordon K. Helm, 45 Chief Accounting Officer of the Registrant; Controller Controller since December 10, 1993
I - 36 39 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:
1997 1998 ------------------- ------------------ Quarter High Low High Low ------- ---- --- ---- --- First 27.56 21.94 44.97 31.06 Second 27.44 21.00 33.19 24.56 Third 29.63 21.81 33.25 21.56 Fourth 40.00 29.47 24.38 16.25
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 1997 1998 1997 1998 ------- ------ ------ ---------- ---------- First $0.065 $0.065 $3,239,007 $3,256,874 Second 0.065 0.070 3,239,892 3,519,195 Third 0.065 0.070 3,242,952 3,521,332 Fourth 0.065 0.070 3,248,275 3,504,269
The Registrant paid a cash dividend of $0.070 per share on December 1, 1998, to shareholders of record on November 13, 1998. Payment of future dividends will depend on earnings and other factors. II-1 40 As of December 15, 1998, there were 1,465 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
1994 1995 1996 1997 1998 ---------- ---------- ---------- ---------- ---------- Sales, operating, and other revenues $ 310,152 $ 306,721 $ 393,255 $ 517,859 $ 636,640 Income from con- tinuing operations 17,108 5,788 45,426 84,186 101,154 Income from con- tinuing operations per common share: Basic 0.35 0.12 0.92 1.69 2.03 Diluted 0.35 0.12 0.91 1.67 2.00 Total assets 621,689 707,061 821,914 1,033,595 1,090,430 Long-term debt -0- -0- -0- -0- 50,000 Cash dividends declared per common share 0.245 0.25 0.255 0.26 0.275
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 41 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
1994 1995 1996 1997 1998 ---------- ---------- ---------- ---------- --------- Sales, operating, and other revenues $ 18,849 $ 19,055 $ 19,540 $ -0- $ -0- Income from discon- tinued operations 3,863 3,963 3,090 -0- -0- Income from discon- tinued operations per common share: Basic 0.08 0.08 0.06 -0- -0- Diluted 0.08 0.08 0.06 -0- -0-
Item 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Information required by this item may be found on pages 10 through 18, Management's Discussion & Analysis of Results of Operations, and Financial Condition in the Registrant's Annual Report to Shareholders for fiscal 1998, which is incorporated herein by reference. Item 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item may be found on the following pages of Management's Discussion & Analysis of Results of Operations, and Financial Condition in the Registrant's Annual Report to Shareholders for fiscal 1998, which is incorporated herein by reference: II-3 42
Market Risk Page ----------- ---- o Foreign Currency Exchange Rate Risk 12 o Commodity Price Risk 13 o Interest Rate Risk 17 o Equity Price Risk 18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item may be found on pages 19 through 34 in the Registrant's Annual Report to Shareholders for fiscal 1998, which is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II-4 43 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 3, 1999, to be filed with the Commission not later than 120 days after September 30, 1998. See pages I-35 through I-36 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 3, 1999, to be filed with the Commission not later than 120 days after September 30, 1998. 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 3, 1999, to be filed with the Commission not later than 120 days after September 30, 1998. 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 3, 1999, to be filed with the Commission not later than 120 days after September 30, 1998. III-1 44 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 1998. 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 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 is incorporated by reference from Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1997. - ----------------------- * Compensatory Plan or Arrangement. IV-2 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 1998. 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 47 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 18, 1998 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 18, 1998 Date: December 18, 1998 By /s/ GEORGE S. DOTSON By /s/ HANS HELMERICH -------------------------------- ----------------------------------- George S. Dotson, Director Hans Helmerich, Director and CEO Date: December 18, 1998 Date: December 18, 1998 By /s/ W. H. HELMERICH, III By /s/ L. F. ROONEY, III -------------------------------- ----------------------------------- W. H. Helmerich, III, Director L. F. Rooney, III, Director Date: December 18, 1998 Date: December 18, 1998 By /s/ EDWARD B. RUST, JR. By /s/ GEORGE A. SCHAEFER -------------------------------- ----------------------------------- Edward B. Rust, Jr., Director George A. Schaefer, Director Date: December 18, 1998 Date: December 18, 1998 By /s/ JOHN D. ZEGLIS By /s/ DOUGLAS E. FEARS -------------------------------- ----------------------------------- John D. Zeglis, Director Douglas E. Fears Date: December 18, 1998 (Principal Financial Officer) Date: December 18, 1998 By /s/ GORDON K. HELM -------------------------------- Gordon K. Helm, Controller (Principal Accounting Officer) Date: December 18, 1998 48 INDEX TO EXHIBITS
EXHIBIT NO. 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. * 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 is incorporated by reference from Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1997. * 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 1998. 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. EX-13 2 ANNUAL REPORT TO SHAREHOLDERS FOR FISCAL 1998 1 ================================================================================ HELMERICH & PAYNE, INC. ANNUAL REPORT FOR 1998 ================================================================================ REVENUE BREAKDOWN FOR 1998 [PIE CHART]
FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 - -------------------------------------------------------------------------------- Revenues $ 636,640,000 $ 517,859,000 - -------------------------------------------------------------------------------- Net Income $ 101,154,000 $ 84,186,000 - -------------------------------------------------------------------------------- Diluted Earnings Per Share $ 2.00 $ 1.67 - -------------------------------------------------------------------------------- Dividends Paid Per Share $ .275 $ .26 - -------------------------------------------------------------------------------- Capital Expenditures $ 265,701,000 $ 159,578,000 - -------------------------------------------------------------------------------- Total Assets $ 1,090,430,000 $ 1,033,595,000 - --------------------------------------------------------------------------------
2 ================================================================================ PRESIDENT'S LETTER ================================================================================ To the Co-owners of Helmerich & Payne, Inc. Fifteen years ago, a federal report titled A Nation at Risk sounded the alarm over the performance of our nation's public schools. Today, Americans' anxiety over school quality is at an all-time high. Reforms have not gone far enough and have been fought back by the proverbial fox in the henhouse. All the while, Johnny is better at self-actualization than reading. Clearly, he is ill prepared for an economy that is steadily marching from the information to the knowledge age with a wider and wider gap between low and highly skilled workers. As a major stakeholder in efforts to improve the caliber of students our schools produce, business cannot afford to ignore how the "sausage gets made." However daunting this challenge, our nation's future place in the sun swings in the balance between success and failure. How can business influence the debate over needed reforms? First, by championing the dynamics and benefits of free-market thinking. Public schools must break out of a monopoly-oriented mindset or be forever doomed as a high cost, low quality provider. Innovation and change cannot be held hostage by powerful unions and those who would circle the wagons around a provider-controlled status quo. No wonder a voucher system that offers the customers, namely parents and children, a choice about schooling is now favored by a growing majority, winning the highest approval among Hispanic and African-American families. We should point back to the classroom as the best place for real added value. Today, about half of every public education dollar is spent outside of regular instruction, to say nothing of the tens of billions spent on the 760 federal programs scattered over 39 different agencies. To be held accountable for success, schools must be able to attract, reward on merit, and retain better teachers. Let's raise the bar for higher professional teaching standards, make a real commitment to teacher training, overhaul teachers' colleges, and remove the unfit. 2 3 Earlier this year, nearly 60 percent of Massachusetts' education graduates and future teachers flunked the basic reading, writing, and subject-matter test. Better teachers would bring high impact improvement where it counts _ in the classroom. Pointing public schools forward also means going back to basics. Historically, the founding force behind public schools was to promote solid citizenship and secure a virtuous society. If that sounds corny, ask what it is like to do business in a place like Russia today. The rule of law and the currency of trust are essential elements for democracy and free markets to thrive. Have our schools been bullied into abandoning the mission of promoting good citizenship and old-fashioned moral character? Senator John Kerry certainly thinks so: "The truth is teachers and schools have been stripped of disciplinary tools and will as the nation experimented with value neutrality, disarming before the political-correctness police, leaving a morality and value vacuum." We could well exchange less peddling of self-esteem for developing a clearer sense of right and wrong. In a time of record low oil prices, our Company must redouble its effort to work smart and to over-deliver in order to secure our customers' loyalty and trust. Our conviction that our people drive the Company's future success motivates us to champion better schools. The end game is to be transformed from a nation at risk to a nation of excellence. Sincerely, /s/ HANS HELMERICH ------------------------------- Hans Helmerich December 15, 1998 President 3 4 ================================================================================ DRILLING HELMERICH & PAYNE INTERNATIONAL DRILLING CO. ================================================================================ SUMMARY Helmerich & Payne International Drilling Co. is a leading contract driller with 90 rigs worldwide. The Company owns a total of 79 land rigs, 36 in the U.S. and 43 in the countries of Venezuela (21), Colombia (10), Bolivia (5), Ecuador (4), Argentina (2), and Peru (1). The Company has nine offshore platform rigs in the Gulf of Mexico and one each offshore California and Venezuela. Helmerich & Payne International Drilling Co. and Atwood Oceanics, Inc. jointly own a platform rig working offshore Australia. Fleet utilization averaged 92 percent in 1998, compared with 89 percent last year.
- ------------------------------------------------------------------------------------ OFFSHORE U.S. LAND PLATFORM INTERNATIONAL TOTAL DEPTH CAPACITY RIGS RIGS LAND RIGS RIGS - ------------------------------------------------------------------------------------ 12,000 feet or less 1 -- 7 8 14,000 - 16,000 feet 17 -- 2 19 18,000 - 20,000 feet 8 4 6 18 26,000 - 30,000 feet 10 7 28 45 ---- ---- ---- ---- TOTAL 36 11 43 90
Revenue and pre-tax operating income increased 36 percent and 28 percent, respectively over the previous year, and earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 27 percent to $142 million, from $112 million in 1997. These financial results do not fully reflect a considerable slowdown in the industry, which began during the last half of the year. World oil prices declined significantly during the year and the industry is responding by paring back capital spending worldwide and by consolidating on an unprecedented scale. INTERNATIONAL OPERATIONS The slide in oil prices produced a considerable decline in the Company's Venezuela 4 5 operation. After experiencing robust activity in Venezuela for the last decade, the Company encountered a severe drop in utilization from an average of nearly 100 percent in the first half of the year to approximately 50 percent by the end of September 1998. Profitability in the Company's Colombia operation also declined during the last half of the year, as two of its fleet of ten land rigs became idle. The Company entered 1998 with good momentum in South America from projects already in progress. Rig 170, a new 3,000 horsepower helicopter-transportable rig, began working in Venezuela under a multi-well contract for a consortium led by BP Exploration Orinoco Limited. The Company's operation in Ecuador experienced revenue growth of over 50 percent in 1998, as each of the country's three rigs was fully utilized during the year. A fourth medium depth land rig was added in Ecuador and began work in August under a three-year term contract with City Investing Company, Ltd. Rig 176 represents the second of five land rigs newly constructed for international operations during 1998. After the close of the year, the remaining three, 3,000 horsepower land rigs commenced operations under three-year term contracts with an Amoco-led consortium in the countries of Bolivia and Argentina. During the year, the Company was chosen to design and manage the construction of a platform rig for Mobil Oil Corporation's Jade project, located offshore Equatorial Guinea, Africa. Mobil will own the Jade rig, and the Company believes there is a good opportunity of being named the contractor for the drilling phase of this project. UNITED STATES OPERATIONS In 1998, the Company added six new 1,500 horsepower land rigs and one refurbished 3,000 horsepower land rig to its U.S. fleet. The new 1,500 5 6 horsepower rigs were designed to minimize space and mobilization times, which increases efficiency and productivity for the customer. The Company's land fleet had an average utilization of 94 percent in 1998; however, commodity price concerns began to negatively impact the U.S. land market during the last half of the year. According to Baker-Hughes statistics, the active U.S. land rig count declined 27 percent during 1998, and in the last month of the fiscal year, the Company's domestic land rig utilization was down to 84 percent. Utilization rates for the Company's ten domestic offshore platform rigs averaged 99 percent and revenues from these rigs increased 30 percent over 1997. Rig 204 was completed by mid-year and was in the process of being rigged-up on Shell Offshore, Inc.'s URSA tension-leg platform (TLP) at year-end. The URSA TLP, which will be set in nearly 4,000 feet of water, represents the Company's third TLP rig for Shell Offshore, Inc. OUTLOOK The Company strives to be the premium drilling contractor in each of its markets, differentiating itself with well-trained, experienced personnel, proactive safety programs, and equipment engineered, designed, and maintained to meet the highest quality requirements in the industry. In 1998, the Company reinvested over $200 million to build or modernize rigs and to make improvements for safety and operational efficiency. Given the present industry conditions, drilling contractors will be under more pressure to add value to the customer's operation. Helmerich & Payne International Drilling Co. believes that its ongoing strategy of setting the standard for premium service enables it to compete effectively regardless of industry conditions. 6 7 ================================================================================ EXPLORATION & PRODUCTION HELMERICH & PAYNE, INC. ================================================================================ SUMMARY Helmerich & Payne, Inc. explores for and produces oil and natural gas primarily in the states of Oklahoma, Kansas, Texas, and Louisiana. At year-end, the Company had proved reserves of approximately 4.8 million barrels of oil and 252 billion cubic feet (Bcf) of natural gas. In 1998, revenues and pre-tax operating profit decreased 11 and 49 percent, respectively, as measured against prior year levels. Natural gas production increased to 117,431 thousand cubic feet (Mcf) per day during the year, compared with 110,859 Mcf per day last year. The average price received for natural gas production fell nine percent to $2.04 per Mcf, from $2.23 in 1997. Crude oil revenues fell by 50 percent in 1998, the result of a combination of price and volume declines. Over-supplies in crude oil pushed the Company's average realized oil price down to $14.74 per barrel, compared with $20.77 in 1997. Oil production averaged 1,921 barrels per day in 1998, compared with 2,700 barrels in 1997. Oil reserves and production were impacted by the Company's sale of its Louisiana Austin Chalk properties in November 1997.
- --------------------------------------------------------------------------------------------------------------------- FIVE YEAR SUMMARY - --------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- REVENUE (in thousands) Exploration and Production $ 98,696 $ 111,512 $ 76,643 $ 47,986 $ 58,884 Natural Gas Marketing 53,499 69,015 58,507 35,301 51,889 ---------- ---------- ---------- ---------- ---------- Total Oil and Gas Division $ 152,195 $ 180,527 $ 135,150 $ 83,287 $ 110,773 OPERATING PROFIT (in thousands) Exploration and Production $ 28,088 $ 55,191 $ 26,333 $ (23,961) $ 3,245 Natural Gas Marketing 2,418 3,363 3,415 1,892 1,525 ---------- ---------- ---------- ---------- ---------- Total Oil and Gas Division $ 30,506 $ 58,554 $ 29,748 $ (22,069) $ 4,770 OIL PRODUCTION (barrels per day) 1,921 2,700 2,212 2,214 2,431 Average Oil Price Per Barrel $ 14.74 $ 20.77 $ 19.00 $ 16.37 $ 14.83 Proved Oil Reserves (millions of barrels) 4.8 5.8 6.5 6.3 6.7 NATURAL GAS PRODUCTION (Mcf per day) 117,431 110,859 94,358 72,387 72,953 Average Natural Gas Price Per Mcf $ 2.04 $ 2.23 $ 1.75 $ 1.27 $ 1.72 Proved Natural Gas Reserves (Bcf) 252 263 272 280 291 - ---------------------------------------------------------------------------------------------------------------------
7 8 EXPLORATION The Company participated in drilling 62 (35.7 net) wells during the year, 49 (29.2 net) of which were completed as natural gas producers, four (2.3 net) as oil wells, and nine (4.2 net) as dry holes. Seven (4.8 net) out of the 62 wells were wildcat exploratory wells, four (2.9 net) of which turned out to be dry. During 1998, the Company had continued success in the Rocky East Prospect and Kiowa Flats Field. Since these discoveries in 1996 and 1997, the Company has participated in 22 (16.8 net) total wells in these areas which have produced approximately 19.3 Bcf net to the Company, and were producing at a combined net rate of over 40,000 Mcf per day at year-end. The Company has several attractive exploration projects planned for 1999. In addition to an important East Texas Pinnacle Reef well to be completed early in 1999, the Company recently participated in three significant 3-D seismic surveys covering 234 square miles in Texas and Louisiana and invested over $9 million in undeveloped acreage during 1998. After the close of the year, the Company purchased a one-third interest in three, 3-D seismic surveys covering 185 square miles in Jefferson County, Texas. OUTLOOK The reductions in oil and natural gas prices have caused many companies in the industry to reduce spending plans for the coming year. As other companies cut budgets or sell down their working interest positions, Helmerich & Payne, Inc. will be carefully reviewing ways to use its financial strength to opportunistically purchase available prospects. Using seven exploitation teams specializing in specific geographical regions, the Company will continue to focus on improving its finding cost and reserve growth utilizing the latest in exploration technologies. 8 9 REVENUES AND INCOME BY BUSINESS SEGMENTS ================================================================================ HELMERICH & PAYNE, INC.
- --------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - --------------------------------------------------------------------------------------------- (in thousands) SALES AND OTHER REVENUES: Contract Drilling - Domestic ........... $ 177,059 $ 140,294 $ 108,336 Contract Drilling - International ...... 253,072 176,651 135,695 ---------- ---------- ---------- Total Contract Drilling Division .... 430,131 316,945 244,031 ---------- ---------- ---------- Exploration and Production ............. 98,696 111,512 76,643 Natural Gas Marketing .................. 53,499 69,015 58,507 ---------- ---------- ---------- Total Oil and Gas Division .......... 152,195 180,527 135,150 ---------- ---------- ---------- Real Estate Division ................... 8,922 8,641 8,082 Investments and Other Income ........... 45,392 11,746 5,992 ---------- ---------- ---------- Total Revenues .............................. $ 636,640 $ 517,859 $ 393,255 ========== ========== ========== OPERATING PROFIT: Contract Drilling - Domestic ........... $ 35,817 $ 24,437 $ 10,066 Contract Drilling - International ...... 50,834 43,118 31,176 ---------- ---------- ---------- Total Contract Drilling Division .... 86,651 67,555 41,242 ---------- ---------- ---------- Exploration and Production ............. 28,088 55,191 26,333 Natural Gas Marketing .................. 2,418 3,363 3,415 ---------- ---------- ---------- Total Oil and Gas Division .......... 30,506 58,554 29,748 ---------- ---------- ---------- Real Estate Division ................... 5,371 5,615 5,055 ---------- ---------- ---------- Total Operating Profit .............. 122,528 131,724 76,045 ---------- ---------- ---------- OTHER: Miscellaneous operating ................ (927) (1,269) (1,663) Income from investments ................ 44,603 11,437 5,782 General corporate expense .............. (11,762) (9,346) (9,083) Interest expense ....................... (942) (4,212) (678) Corporate depreciation ................. (1,280) (919) (860) ---------- ---------- ---------- Total Other ......................... 29,692 (4,309) (6,502) ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE ................. $ 152,220 $ 127,415 $ 69,543 ========== ========== ========== - ---------------------------------------------------------------------------------------------
Note: This schedule is an integral part of Note 13 (pages 31) of the financial statements that follow. 9 10 MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ================================================================================ HELMERICH & PAYNE, INC. RISK FACTORS AND FORWARD-LOOKING STATEMENTS 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, fluctuation 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 technology, and uncertain business conditions that affect the Company's business. 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 in Managements's Discussion & Analysis of Results of Operations and Financial Condition includes forward-looking statements. These forward-looking statements are based on various assumptions. The Company cautions that, while it believes such assumptions to be reasonable and makes them in good faith, assumed facts almost always vary from actual results. The differences between assumed facts and actual results can be material. The Company is including this cautionary statement to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company. The factors identified in this cautionary statement are important factors (but not necessarily all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. RESULTS OF OPERATIONS All per share amounts included in the Results of Operations discussion are stated on a diluted basis. Helmerich & Payne, Inc.'s net income for 1998 was $101,154,000 ($2.00 per share), compared with net income of $84,186,000 ($1.67 per share) in 1997, and $72,566,000 ($1.46 per share) in 1996. Included in the Company's net income, but not related to its operations, were after-tax gains from the sale of investment securities of $23,417,000 ($0.46 per share) in 1998, $2,870,000 ($0.06 per share) in 1997, and $346,000 ($0.01 per share) in 1996. Also included is the Company's portion of income from its equity affiliate, Atwood Oceanics, Inc., which was $0.11 per share in 1998, $0.05 per share in 1997, and $0.03 per share in 1996. Net income in 1998 also included a non-cash charge of $3,356,000 ($0.07 per share) related to the write-down of producing properties in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long- 10 11 Lived Assets and for Long-Lived Assets to be Disposed Of. 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). Consolidated revenues increased to $636,640,000 in 1998, from $517,859,000 in 1997, and $393,255,000 in 1996. The 23 percent increase from 1997 to 1998 was due to higher dayrates and utilization in the contract drilling division and higher capital gains from the sales of equity securities. Significant increases in these areas helped offset lower revenues from the Exploration and Production Division that were due primarily to lower crude oil and natural gas prices. 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. Revenues from investments were $44,603,000 in 1998, $11,437,000 in 1997, and $5,782,000 in 1996. Included in revenues from investments were pre-tax gains from the sale of investment securities of $38,421,000 in 1998, $4,697,000 in 1997, and $566,000 in 1996. Interest income was stable during 1998, 1997, and 1996, but dividend revenue was higher in 1997 due to the addition of Occidental Petroleum Corporation common stock to the investment portfolio. Costs and expenses in 1998 were $484,420,000, 76 percent of revenues, compared with 75 percent in 1997, and 82 percent in 1996. Operating costs, as a percentage of operating revenues, were 58 percent in 1998, 55 percent in 1997, and 59 percent in 1996. General and administrative expenses increased by 26 percent to $11,762,000 in 1998, compared with $9,346,000 in 1997, and $9,083,000 in 1996. Higher overall payroll costs and additional information technology staffing were primary reasons for the increase. Income tax expense, as a percentage of pre-tax income, was 37 percent in 1998, 36 percent in 1997, and 37 percent in 1996. CONTRACT DRILLING DIVISION revenues increased by 36 percent from 1997 to 1998, and by 30 percent from 1996 to 1997. Total operating profit rose by 28 percent over last year to $86,651,000 in 1998, compared with $67,555,000 in 1997, and $41,242,000 in 1996. Domestic drilling operating profit increased to $35,817,000 in 1998, from $24,437,000 in 1997, and $10,066,000 in 1996. Domestic Contract Drilling revenues and operating profit for both 1998 and 1997 increased, due to improved dayrates from both land and offshore rig operations and higher utilization of the offshore platform rigs. Rig utilization for the U.S. land fleet was 94 percent in 1998, 99 percent in 1997, and 88 percent in 1996. Domestic platform rig utilization was 99 percent in 1998, 63 percent in 1997, and 70 percent in 1996. Revenue and operating profit for domestic operations will most likely be lower in 1999 due to lower day rates and utilization. 11 12 International revenues climbed to $253,072,000 in 1998, from $176,651,000 in 1997, and $135,695,000 in 1996. Operating profit for the international contract drilling sector improved by 18 percent over last year to $50,834,000 in 1998, compared with $43,118,000 in 1997, and $31,176,000 for 1996. Revenues and operating profit increased significantly during 1998 due to additional rigs and increased dayrates in Venezuela, Ecuador, Peru, and Bolivia. Increases were particularly dramatic in Venezuela where the Company's offshore platform Rig 91 commenced work offshore Venezuela early in the year. Higher dayrates for the Company's land rigs in Venezuela had also been instituted during 1997 and helped move revenues and earnings up during the early part of 1998. However, as crude oil prices declined, rig activity and profitability in Venezuela declined rapidly during the last half of 1998. Increases in revenues and operating profit 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. It is anticipated that during 1999, international revenues and operating profit will be down substantially compared with 1998, because of dramatic reductions in rig utilization and dayrates, particularly in Venezuela and Colombia. Those declines should be partially offset by new rigs and contracts in Bolivia and Argentina, that should be active through most of 1999. The Company has international operations in several South American countries. With the exception of Venezuela, the Company's exposure to currency valuation losses is immaterial due to the fact that virtually all billings and payments are in U.S. dollars. In Venezuela, approximately 60 percent of the Company's billings are in U.S. dollars and 40 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 denominated receivables. During 1998, the Company experienced a loss of $2,204,000 due to devaluation of the bolivar, compared with a $579,000 loss in 1997, and a $602,000 currency exchange gain in 1996. The Company anticipates additional devaluation losses in Venezuela during 1999, but it is unable to predict the extent of either the devaluation, or its financial impact. Should Venezuela experience a 25 to 50 percent devaluation, Company losses could range from approximately $1,500,000 to $2,700,000. These estimates were calculated by applying assumed devalvation to a pro forma Balance Sheet for the Company's Venezuelan subsidiary. EXPLORATION & PRODUCTION
1998 1997 1996 - ------------------------------------------------------------------------------------------ Revenues (in 000's) ...................... $ 98,696 $ 111,512 $ 76,643 Operating Profit (in 000's) .............. $ 28,088 $ 55,191 $ 26,333 Natural Gas Production (mmcf per day) .... 117.4 110.9 94.4 Average Natural Gas Price (per mcf) ...... $ 2.04 $ 2.23 $ 1.75 Crude Oil Production (barrels per day) ... 1,921 2,700 2,212 Average Crude Oil Price (per barrel) ..... $ 14.74 $ 20.77 $ 19.00
12 13 Exploration and Production revenues and operating profit for 1998 declined from 1997 as natural gas and crude oil prices fell. Crude oil production also decreased substantially due to the sale of the Company's Austin Chalk production early in the first quarter. During 1998, the Company recorded increases in its geophysical expenses, dry hole charges, and reserve for capitalized costs of undeveloped leases. Additionally, the Company incurred a $3,356,000 after-tax charge as required by FAS 121 related to specific oil and gas properties. A similar charge of $662,000 was incurred during 1996, while no such write-down was incurred during 1997. During 1997, dry hole expenses and abandonment charges were lower than either 1998 or 1996. The combination of high commodity prices and production volumes, and lower costs resulted in a substantial operating income increase for 1997. The Company anticipates that revenues and operating profit will be impacted by commodity price volatility. To date, projected commodity prices for the remainder of 1999 are substantially below those prices averaged for 1998. Therefore, it is likely that the Company's operating profit for the coming year will be less than 1998, unless the Company experiences substantially lower costs and expenses than in the previous year, or production volume increases offset lower commodity prices. In 1997, the Company recorded a one-time net income reduction as a result of a 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. The Company's natural gas marketing subsidiary, Helmerich & Payne Energy Services, Inc. (HPESI), derives most of its revenues from selling natural gas produced by other unaffiliated companies. Total gas marketing revenues were $53,499,000 in 1998, $69,015,000 in 1997, and $58,507,000 in 1996. Operating profit was $2,418,000 in 1998, $3,363,000 in 1997, and $3,415,000 in 1996. Additionally, the Company sells most of its own natural gas production through HPESI, at variable prices based on industry pricing publications or exchange quotations. However, sales revenues for the Company's own natural gas production are reported by the Oil and Gas Division. HPESI sells most of its natural gas with monthly or daily contracts tied to industry market indices, such as inside FERC. The Company, through HPESI, has natural gas delivery commitments for periods of less than a year for approximately 40 percent of its total natural gas production. At times HPESI may enter into fixed price natural gas sales contracts on a small portion (less than 10 percent) of its natural gas sales portfolio for periods of less than six months to guarantee a certain price. No such fixed price contracts existed at September 30, 1998. 13 14 REAL ESTATE DIVISION revenues totaled $8,922,000 for 1998, $8,641,000 for 1997, and $8,082,000 for 1996. The general economy in Tulsa continued to be strong, thereby helping boost the occupancy rates, revenues and operating profit. Revenues and operating profit for 1997 also reflected the sale of a small parcel of land for a gain of $400,000. No material changes are anticipated in the Real Estate Division in 1999. YEAR 2000 COMPLIANCE Readers are cautioned that forward-looking statements contained in the following Year 2000 discussion should be read in conjunction with the Company's disclosures under the heading: "RISK FACTORS AND FORWARD-LOOKING STATEMENTS" (page 10). This discussion shall constitute the Company's "Year 2000 Readiness Disclosure" within the meaning of the Year 2000 Information and Readiness Act. THE COMPANY'S STATE OF READINESS The Company has undertaken various initiatives in an attempt to ensure that its hardware, software and equipment will function properly with respect to dates before and after January 1, 2000. For this purpose, the phrase "hardware, software and equipment" includes systems that are commonly thought of as Information Technology ("IT") systems, as well as those Non-Information Technology ("Non-IT") systems and equipment which include embedded technology. IT systems include computer hardware and software, and other related systems. Non-IT systems include certain oil and gas drilling and production equipment, security systems and other miscellaneous systems. The Non-IT systems present the greatest compliance challenge since identification of embedded technology is difficult and because the Company is, to a great extent, reliant on third parties for Non-IT compliance. The Company has formed a Year 2000 ("Y2K") Project team which is chaired by the Director of IT. The team includes IT staff, corporate staff and representatives from the Company's business units. The Company has organized its compliance efforts into a four-phase approach as follows: Phase 1: Identification - Identify and inventory material components of Company operations and systems which may be affected. Phase 2: Assessment - Determine which hardware, software and equipment must be modified, upgraded or replaced. Phase 3: Remediation - Modify, upgrade or replace non-compliant hardware, software and equipment. Phase 4: Testing - Fully test all IT systems which are material to the Company's operations. Selectively test those Non-IT systems and equipment which are material to the Company's operations. For the purposes of the Y2K Project material items are those items the Company believes to have a risk involving safety of individuals, damage to the environment, material effect on revenues or material damage to property. 14 15 The following represents the status of the Company's IT and Non-IT Y2K Compliance:
STATUS OF TARGET FOR IT COMPLETION COMPLETION o Core accounting and operational Phases 1, 2 & 3 March 1999 (mainframe) systems Complete; 4 in Progress o Human Resources & Payroll Systems Phases 1, 2 & 3 March 1999 Complete; 4 in Progress o Network Completed o Desktop Computer Hardware Phases 1 & 2 March 1999 Complete; 3 in Progress o Standard Company Desktop Phases 1 & 2 March 1999 Computer Software Complete; 3 in Progress o Business Unit User Software Phase 1 in Progress September 1999 NON-IT o Systems and Equipment Phases 1 & 2 in September 1999 Progress
As reflected in the above table, the Company is in the process of identifying embedded technology and determining the extent to which such technology is Y2K compliant. As part of this process, the Company has mailed letters to its significant vendors and service providers to confirm that the products and services purchased from or by such entities are Y2K compliant. Also, the Company is in the process of obtaining information from significant customers regarding the extent to which Y2K issues may affect the amount of business the Company currently conducts with such customers. As of December 15, 1998, the Company had received responses from approximately 32 percent of such vendors and service providers. Approximately 70 percent of the vendors and service providers contacted have provided written assurances that they expect to be Y2K compliant on a timely basis. A follow-up mailing to significant vendors and services providers that did not initially respond, or whose responses were deemed unsatisfactory, will be completed by December 31, 1998. As a result of these activities, the Company expects discussions will be conducted with such vendors and service providers to determine the most effective solutions to Y2K compliance issues. THE COST TO ADDRESS Y2K ISSUES The Company believes that the cost of its Y2K Project should not exceed $1,000,000, including costs of employees working on the Y2K Project. Costs incurred for new software and hardware purchases are being capitalized, and other costs are being expensed as incurred. The costs relating to the Company's Y2K Project are paid from the Company's general funds. To date, the Company has incurred Y2K Project costs of approximately $500,000. This expenditure mainly relates to repair, upgrading and replacement of existing 15 16 software and hardware, and solicitation and evaluation of information received from significant vendors, service providers, or customers. The $1,000,000 figure does not include the costs of independent Y2K consultants. The Company has not determined whether it will engage independent Y2K consultants. The cost of such consultants would not be material to the Company. THE COMPANY'S CONTINGENCY PLAN The Company is in the process of developing its contingency plans on a business unit and departmental basis. These plans are expected to be complete by April 1, 1999. These contingency plans will include, but will not be limited to: development of backup and recovery procedures for IT Systems; remediation of existing systems or equipment; installation of new systems or equipment; stockpiling of Y2K compliant goods and supplies; stockpiling old equipment which does not contain embedded technology; replacement of current services with temporary manual processes; finding non-technological alternatives or sources for information; or identification of alternative suppliers or outsourcing subcontractors who stand ready to receive or provide material goods, equipment and services as part of its contingency plan. The Company has engaged a computer recovery services contractor as a potential source of auxiliary computer systems. THE RISKS OF THE COMPANY'S Y2K ISSUES The Company is in the process of completing an analysis of the operational problems and costs (including loss of revenues) that would be reasonably likely to result from the failure by the Company or certain third parties to complete efforts necessary to achieve Y2K compliance on a timely basis. The Company presently believes that the Y2K issue will not pose significant operational problems for the Company. However, if all significant Y2K issues are not properly identified, or assessment, remediation and testing are not effected timely, there can be no assurance that Y2K issues will not materially and adversely impact the Company's results of operations, liquidity and financial condition or materially and adversely affect the Company's relationships with customers, vendors, or others. Additionally, there can be no assurance that the lack of Y2K compliance by other entities will not have a material and adverse impact on the Company's operations or financial condition. The preceding Y2K disclosure is based upon certain forward-looking information including, but not limited to, the dates on which the Company believes that various phases of the Y2K Project will be completed. This forward-looking information is based on Management's good faith estimates. These estimates were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party plans and other factors. However, there can be no guarantee that these estimates will be achieved, or that there will not be a delay in, or increased costs associated with, the implementation of the Y2K Project. Specific factors that might cause differences between the estimates and actual results include, but are not limited to, the 16 17 availability and cost of personnel trained in these areas, the ability to locate and correct all relevant computer code, timely responses to and corrections by third-parties and suppliers, the ability to implement interfaces between the new systems and the systems not being replaced, and similar uncertainties. Due to the general uncertainty inherent in Y2K issues, including the uncertainty of third party Y2K compliance, the Company cannot ensure its ability to timely and cost-effectively resolve problems associated with Y2K issues that may affect its operations and business, or expose it to third-party liability. LIQUIDITY AND CAPITAL RESOURCES In response to improved industry conditions in 1997 and early 1998, the Company increased its capital expenditures to a total of $266,299,000 in 1998, from $161,177,000 in 1997, and $109,985,000 in 1996. Net cash provided from operating activities for those same time periods were $113,533,000 in 1998, $165,568,000 in 1997, and $124,923,000 in 1996. In addition to the net cash provided by operating activities, the Company also generated net proceeds from the sale of portfolio securities of $73,949,000 in 1998, $8,557,000 in 1997, and $619,000 in 1996. In June 1998, the board of directors authorized the Company to repurchase up to 2,000,000 shares of its own stock during a period of one year. A total of 999,100 shares were repurchased in 1998 at a total cost of $19,112,000. During 1998, the Company paid a dividend of $0.275 per share, or a total of $13,802,000, representing the 27th consecutive year of dividend increases. Due to the need for additional funds resulting from a reduction in operating cash flow, a significant increase in capital expenditures, and the stock buyback program, the Company increased its available short-term lines of credit and obtained long-term financing. On September 30, 1998, the Company had $94.8 million in short-term debt borrowings, which had a weighted average maturity of 16 days and a weighted average interest rate of approximately 6 percent. As described in Note 2 of Notes to Consolidated Financial Statements, in October 1998, the Company obtained an additional $50 million in long-term debt proceeds which was used to pay off short-term borrowings at September 30, 1998. The $50 million of long-term debt matures in October 2003. The interest rate on this debt fluctuates based on 30-day London Interbank Offered Rate (LIBOR), however, simultaneous to receiving the $50 million in long-term debt proceeds the Company entered into a $50 million interest rate swap agreement with a major national bank. The swap effectively fixes the interest rate on this facility at 5.38% for the entire 5 year term of the note. The Company's interest rate risk exposure results predominately from fluctuations, relative to its short-term bank facilities, in short-term interest rates as measured by the 30-day LIBOR. The Company generally borrows for 30-day time periods, and can fix its interest rate for 30-day increments at spreads ranging from 35 to 45 basis points over LIBOR. Even with the additional borrowings, the Company's balance sheet is strong. Current ratios for 1998 and 1997 are 1.5 and 1.7, respectively. Total bank borrowings to total assets were nine percent 17 18 in 1998, and less than one percent in 1997. Additionally, the Company manages a large portfolio of marketable securities that, at the close of 1998, had a market value of $227,415,000, with a cost basis of $112,192,000. The portfolio, heavily weighted in energy stocks, is subject to fluctuation in the market and may vary considerably over time. The portfolio is marked to market on the Company's balance sheet for each reporting period. Capital expenditures budgeted for 1999 are significantly less than those incurred during 1998. The dramatic reduction in crude oil prices and the softness in natural gas prices have caused an overall reduction in planned capital projects by the Company's contract drilling customers. As a result, there are far fewer projects contemplated for 1999. Although budgeted capital expenditures have been cut back dramatically for 1999, the Company has substantial additional borrowing capacity and could liquidate positions in its portfolio of equity securities should additional funds be needed.
- ------------------------------------------------------------------------------------------- STOCK PORTFOLIO HELD BY THE COMPANY - ------------------------------------------------------------------------------------------- Number of September 30, 1998 Shares Book Value Market Value - ------------------------------------------------------------------------------------------- (in thousands,except share amounts) Occidental Petroleum Corporation ....... 1,000,000 $ 23,775 $ 21,500 Atwood Oceanics, Inc. .................. 3,000,000 35,422 62,437 Schlumberger, Ltd. ..................... 1,480,000 23,511 75,295 SUNOCO, Inc. ........................... 312,546 3,192 10,001 Phillips Petroleum Company ............. 240,000 5,976 10,830 BANC ONE CORPORATION ................... 200,000 2,250 8,488 Oryx Energy Company .................... 500,000 4,899 6,469 ONEOK, Inc. ............................ 225,000 2,751 7,650 Other .................................. 10,416 24,745 ------------ ------------ Total ...................... $ 112,192 $ 227,415 ============ ============
18 19 CONSOLIDATED STATEMENTS OF INCOME ================================================================================ HELMERICH & PAYNE, INC.
- ----------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - ----------------------------------------------------------------------------------------------- (in thousands, except per share amounts) REVENUES: Sales and other operating revenues ........... $ 592,037 $ 506,422 $ 387,473 Income from investments ...................... 44,603 11,437 5,782 ---------- ---------- ---------- 636,640 517,859 393,255 ---------- ---------- ---------- COSTS AND EXPENSES: Operating costs .............................. 346,066 276,094 229,584 Depreciation, depletion and amortization ..... 88,350 71,691 59,442 Dry holes and abandonments ................... 11,572 7,783 7,986 Taxes, other than income taxes ............... 25,728 21,318 16,939 General and administrative ................... 11,762 9,346 9,083 Interest ..................................... 942 4,212 678 ---------- ---------- ---------- 484,420 390,444 323,712 ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE ...... 152,220 127,415 69,543 INCOME TAX EXPENSE ............................... 56,677 45,511 25,803 EQUITY IN INCOME OF AFFILIATE net of income taxes .......................... 5,611 2,282 1,686 ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS ................ 101,154 84,186 45,426 INCOME FROM DISCONTINUED OPERATIONS .............. -- -- 3,090 GAIN ON SALE OF DISCONTINUED OPERATIONS .......... -- -- 24,050 ---------- ---------- ---------- NET INCOME ....................................... $ 101,154 $ 84,186 $ 72,566 ========== ========== ========== BASIC EARNINGS PER COMMON SHARE: INCOME FROM CONTINUING OPERATIONS ............ $ 2.03 $ 1.69 $ .92 INCOME FROM DISCONTINUED OPERATIONS .......... -- -- .06 GAIN ON SALE OF DISCONTINUED OPERATIONS ...... -- -- .49 ---------- ---------- ---------- NET INCOME ....................................... $ 2.03 $ 1.69 $ 1.47 ========== ========== ========== DILUTED EARNINGS PER COMMON SHARE: INCOME FROM CONTINUING OPERATIONS ............ $ 2.00 $ 1.67 $ .91 INCOME FROM DISCONTINUED OPERATIONS .......... -- -- .06 GAIN ON SALE OF DISCONTINUED OPERATIONS ...... -- -- .49 ---------- ---------- ---------- NET INCOME ....................................... $ 2.00 $ 1.67 $ 1.46 ========== ========== ========== - -----------------------------------------------------------------------------------------------
Note: Per share amounts reflect the effect of the December 3, 1997 two-for-one common stock split and distribution (see Note 4) and the adoption of SFAS No. 128, "Earnings Per Share" (see Note 1). The accompanying notes are an integral part of these statements. 19 20 CONSOLIDATED BALANCE SHEETS ================================================================================ HELMERICH & PAYNE, INC.
ASSETS - -------------------------------------------------------------------------------------------------------- September 30, 1998 1997 - -------------------------------------------------------------------------------------------------------- (in thousands) CURRENT ASSETS: Cash and cash equivalents ........................................ $ 24,476 $ 27,963 Short-term investments ........................................... 262 1,318 Accounts receivable, less reserve of $1,908 and $1,308 ........... 119,395 98,697 Inventories ...................................................... 25,401 19,639 Prepaid expenses and other ....................................... 14,811 10,387 ------------ ------------ Total current assets ......................................... 184,345 158,004 ------------ ------------ INVESTMENTS .......................................................... 200,400 323,510 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, at cost: Contract drilling equipment ...................................... 829,217 643,619 Oil and gas properties ........................................... 435,747 409,921 Real estate properties ........................................... 48,451 47,682 Other ............................................................ 65,120 59,659 ------------ ------------ 1,378,535 1,160,881 Less--Accumulated depreciation, depletion and amortization ....... 686,164 621,856 ------------ ------------ Net property, plant and equipment ............................ 692,371 539,025 ------------ ------------ OTHER ASSETS ......................................................... 13,314 13,056 ------------ ------------ TOTAL ASSETS ......................................................... $ 1,090,430 $ 1,033,595 ============ ============ - --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 20 21
LIABILITIES AND SHAREHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------------------------- September 30, 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) CURRENT LIABILITIES: Accounts payable ....................................................................... $ 41,851 $ 42,642 Accrued liabilities .................................................................... 38,833 47,525 Notes payable .......................................................................... 44,800 5,000 ----------- ----------- Total current liabilities ........................................................ 125,484 95,167 ----------- ----------- NONCURRENT LIABILITIES: Long-term notes payable ................................................................ 50,000 -- Deferred income taxes .................................................................. 103,469 141,331 Other .................................................................................. 18,329 16,517 ----------- ----------- Total noncurrent liabilities ..................................................... 171,798 157,848 ----------- ----------- 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 ............................................................. 59,004 51,316 Retained earnings ...................................................................... 716,875 629,562 Unearned compensation .................................................................. (5,605) -- Net unrealized holding gains ........................................................... 54,689 114,454 ----------- ----------- 830,316 800,685 Less treasury stock, 4,146,120 shares in 1998 and 3,500,698 shares in 1997, at cost .... 37,168 20,105 ----------- ----------- Total shareholders' equity ....................................................... 793,148 780,580 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................................. $ 1,090,430 $ 1,033,595 =========== =========== - -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 21 22 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ================================================================================ HELMERICH & PAYNE, INC.
Net Common Stock Additional Unrealized ------------------ Paid-in Holding Shares Amount Capital Gains - --------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Balance, September 30, 1995 ............ 53,529 $ 5,353 $ 45,760 $ 38,004 Change in net unrealized holding gains, net of income tax of $11,367 ...................... -- -- -- 18,546 Cash dividends ($.255 per share) ....... -- -- -- -- Exercise of stock options .............. -- -- 2,197 -- Lapse of restrictions on Restricted Stock Awards ............. -- -- (61) -- Forfeiture of Restricted Stock Award ... -- -- (162) -- Amortization of deferred compensation ........................ -- -- -- -- Net income ............................. -- -- -- -- --------- --------- --------- --------- Balance, September 30, 1996 ............ 53,529 5,353 47,734 56,550 Change in net unrealized holding gains, net of income tax of $35,490 .......................... -- -- -- 57,904 Cash dividends ($.26 per share) ........ -- -- -- -- Exercise of stock options .............. -- -- 3,306 -- Lapse of restrictions on Restricted Stock Awards ............. -- -- 276 -- Amortization of deferred compensation ........................ -- -- -- -- Net income ............................. -- -- -- -- --------- --------- --------- --------- Balance, September 30, 1997 ............ 53,529 5,353 51,316 114,454 Change in net unrealized holding gains, net of income taxes of $(36,631) ........................ -- -- -- (59,765) Cash dividends ($.275 per share) ....... -- -- -- -- Exercise of stock options .............. -- -- 1,833 -- Purchase of stock for treasury ......... -- -- -- -- Stock issued under Restricted Stock Award Plan ......... -- -- 5,757 -- Lapse of restrictions on Restricted Stock Awards ............. -- -- 98 -- Amortization of deferred compensation ........................ -- -- -- -- Net income ............................. -- -- -- -- --------- --------- --------- --------- Balance, September 30, 1998 ............ 53,529 $ 5,353 $ 59,004 $ 54,689 ========= ========= ========= ========= Treasury Stock Unearned Retained --------------------- Compensation Earnings Shares Amount - --------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Balance, September 30, 1995 ............ $ -- $ 495,692 4,000 $ (22,374) Change in net unrealized holding gains, net of income tax of $11,367 ...................... -- -- -- -- Cash dividends ($.255 per share) ....... -- (12,670) -- -- Exercise of stock options .............. -- -- (262) 1,274 Lapse of restrictions on Restricted Stock Awards ............. -- -- -- -- Forfeiture of Restricted Stock Award ... -- 272 20 (110) Amortization of deferred compensation ........................ -- 1,683 -- -- Net income ............................. -- 72,566 -- -- --------- --------- --------- --------- Balance, September 30, 1996 ............ -- 557,543 3,758 (21,210) Change in net unrealized holding gains, net of income tax of $35,490 .......................... -- -- -- -- Cash dividends ($.26 per share) ........ -- (12,987) -- -- Exercise of stock options .............. -- -- (257) 1,105 Lapse of restrictions on Restricted Stock Awards ............. -- -- -- -- Amortization of deferred compensation ........................ -- 820 -- -- Net income ............................. -- 84,186 -- -- --------- --------- --------- --------- Balance, September 30, 1997 ............ -- 629,562 3,501 (20,105) Change in net unrealized holding gains, net of income taxes of $(36,631) ........................ -- -- -- -- Cash dividends ($.275 per share) ....... -- (14,007) -- -- Exercise of stock options .............. -- -- (174) 1,015 Purchase of stock for treasury ......... -- -- 999 (19,112) Stock issued under Restricted Stock Award Plan ......... (6,791) -- (180) 1,034 Lapse of restrictions on Restricted Stock Awards ............. -- -- -- -- Amortization of deferred compensation ........................ 1,186 166 -- -- Net income ............................. -- 101,154 -- -- --------- --------- --------- --------- Balance, September 30, 1998 ............ $ (5,605) $ 716,875 4,146 $ (37,168) ========= ========= ========= ========= - ----------------------------------------------------------------------------------------------------
Note: Share and per share amounts reflect the effect of the December 3, 1997 two-for-one common stock split and distribution (see Note 4). The accompanying notes are an integral part of these statements. 22 23 CONSOLIDATED STATEMENTS OF CASH FLOWS ================================================================================ HELMERICH & PAYNE, INC.
- ------------------------------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................................ $ 101,154 $ 84,186 $ 72,566 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization ..................... 88,350 71,691 59,442 Dry holes and abandonments ................................... 11,572 7,783 7,986 Equity in income of affiliate before income taxes ............ (9,050) (3,680) (2,720) Amortization of deferred compensation ........................ 1,352 820 1,683 Gain on sale of securities ................................... (38,421) (4,697) (566) Loss (gain) on sale of property, plant and equipment ......... (2,951) (4,545) 303 Discontinued operations ...................................... -- -- (27,140) Other - net .................................................. 974 1,897 473 Change in assets and liabilities: Accounts receivable ....................................... (20,698) (23,323) (18,340) Inventories ............................................... (5,762) (2,724) 2,435 Prepaid expenses and other ................................ (4,682) (5,020) 1,706 Accounts payable .......................................... (194) 18,619 (1,115) Accrued liabilities ....................................... (8,692) 15,582 14,237 Deferred income taxes ..................................... (1,231) 7,506 6,668 Other noncurrent liabilities .............................. 1,812 1,473 3,802 --------- --------- --------- Total adjustments ......................................... 12,379 81,382 48,854 --------- --------- --------- Net cash provided by continuing activities ............. 113,533 165,568 121,420 Net cash provided by discontinued operations ........... -- -- 3,503 --------- --------- --------- Net cash provided by operating activities .............. 113,533 165,568 124,923 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, including dry hole costs .................... (266,299) (161,177) (109,985) Proceeds from sale of property, plant and equipment ............... 15,414 9,432 3,987 Purchase of investments ........................................... -- (1,091) (1,196) Proceeds from sale of securities .................................. 73,949 8,557 619 Discontinued operations ........................................... -- -- (2,746) Purchase of short-term investments ................................ -- (313) -- Proceeds from sale of short-term investments ...................... 1,056 -- 7,984 --------- --------- --------- Net cash used in investing activities .................. (175,880) (144,592) (101,337) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable ....................................... 169,800 34,000 35,000 Payments made on notes payable .................................... (80,000) (34,000) (51,700) Dividends paid .................................................... (13,802) (12,970) (12,530) Purchases of stock for treasury ................................... (19,112) -- -- Proceeds from exercise of stock options ........................... 1,974 3,065 2,993 --------- --------- --------- Net cash provided by (used in) financing activities .... 58,860 (9,905) (26,237) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................................................... (3,487) 11,071 (2,651) CASH AND CASH EQUIVALENTS, beginning of period ....................... 27,963 16,892 19,543 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of period ............................. $ 24,476 $ 27,963 $ 16,892 ========= ========= =========
The accompanying notes are an integral part of these statements. 23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ HELMERICH & PAYNE, INC. September 30, 1998,1997 and 1996 - -------------------------------------------------------------------------------- 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 1998 and 1997 was $1,953,000 and $452,000, respectively, with a gain for 1996 of $764,000. 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. In accordance with 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", the Company recognizes impairment losses 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. In 1998, the Company recognized an impairment charge of approximately $5.4 million for proved Exploration and Production properties which is included in depreciation, depletion and amortization expense. After-tax, the impairment charge reduced 1998 net income by approximately $3.4 million, $0.07 per share on a diluted basis. The Company evaluates impairment of exploration and production assets on a field by field basis. Fair value 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 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 22 percent and 23.6 percent of Atwood Oceanics, Inc. (Atwood) at September 30, 1998 and 1997, respectively. In fiscal 1998, the Company sold 200,000 shares of Atwood for a sales price of approximately $11.0 million and realized a pre-tax gain of $8.6 million. The quoted market value of the Company's investment was $62,437,500 and $180,200,000 at September 30, 1998 and 1997, respectively. Retained earnings at September 30, 1998 includes approximately $15,141,000 of undistributed earnings of Atwood. 24 25 Summarized financial information of Atwood is as follows:
- ----------------------------------------------------------------------------------------------- 1998 1997 1996 - ----------------------------------------------------------------------------------------------- (in thousands) Gross revenues ................................... $ 151,809 $ 89,082 $ 84,760 Costs and expenses ............................... 112,445 73,463 73,392 ---------- ---------- ---------- Net income ....................................... $ 39,364 $ 15,619 $ 11,368 ========== ========== ========== Helmerich & Payne, Inc.'s equity in net income, net of income taxes ........................ $ 5,611 $ 2,282 $ 1,686 ========== ========== ========== Current assets ................................... $ 51,587 $ 47,961 $ 44,170 Noncurrent assets ................................ 230,150 168,279 115,139 Current liabilities .............................. 26,723 19,621 18,019 Noncurrent liabilities ........................... 91,248 73,930 35,736 Shareholders' equity ............................. 163,766 122,689 105,554 ========== ========== ========== Helmerich & Payne, Inc.'s investment ............. $ 35,422 $ 28,895 $ 25,215 ========== ========== ========== - -----------------------------------------------------------------------------------------------
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. EARNINGS PER SHARE - Basic earnings per share is based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effect of stock options and restricted stock. The earnings per share amounts and the number of shares for 1997 and 1996 have been restated to reflect the adoption of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (see Note 5). DERIVATIVES - The Company did not utilize financial or commodity derivative instruments to hedge its market risks, prior to fiscal 1999. As described in Note 2, the Company entered into an interest rate swap agreement in October 1998. This agreement involves the exchange of an amount based on a fixed interest rate for an amount based on a variable interest rate without an exchange of the notional amount upon which the payments are based. The difference to be paid or received will be accrued and recognized as an adjustment of interest expense beginning in fiscal 1999. Gains and losses from termination of interest rate swap agreements are deferred and amortized as an adjustment to interest expense over the original term of the terminated swap agreement. - -------------------------------------------------------------------------------- NOTE 2 NOTES PAYABLE AND LONG-TERM DEBT - -------------------------------------------------------------------------------- At September 30, 1998, the Company had committed bank lines totaling $80 million; $20 million may be borrowed through February 1999, $50 million may be borrowed through May 1999, and $10 million may be borrowed through May 2000. Additionally, the Company had uncommitted credit facilities totaling $38 million. Collectively, the Company had $94.8 million in outstanding borrowings and outstanding letters of credit totaling $8.2 million against these lines at September 30, 1998. The average rate on the borrowings at September 30, 1998, was approximately 6 percent. Under the line of credit agreements the Company must meet certain requirements regarding levels of debt, net worth and earnings. In October 1998, the Company obtained an additional $50 million committed facility which matures in October 2003 and bears interest based on a spread over LIBOR. The Company borrowed $50 million which was used to pay a portion of the debt outstanding at September 30, 1998. Based on the Company's ability and intent to refinance a portion of its current borrowings on a long-term basis, the Company reclassified $50 million of the $94.8 million in borrowings to long-term debt on its September 30, 1998, balance sheet representing the Company's fully drawn position on the new facility. Concurrent with the $50 million borrowing, the Company entered into a 5-year interest rate swap with a notional value of $50 million to convert the $50 million floating rate facility to a fixed effective rate of 5.38 percent. The interest rate swap closely correlates with the terms and maturity of the $50 million facility. In October 1998, the Company obtained an additional $25 million uncommitted facility which expires in April 1999. At the end of October 1998, the Company had utilized $5 million of this facility. 25 26 - -------------------------------------------------------------------------------- NOTE 3 INCOME TAXES - -------------------------------------------------------------------------------- The components of the provision (credit) for income taxes from continuing operations are as follows:
- ------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - ------------------------------------------------------------------------------------------- (in thousands) CURRENT: Federal ................................ $ 36,705 $ 18,582 $ 8,909 Foreign ................................ 18,728 17,214 11,037 State .................................. 4,751 2,190 1,050 ---------- ---------- ---------- 60,184 37,986 20,996 ---------- ---------- ---------- DEFERRED: Federal ................................ (4,108) 6,349 3,757 Foreign ................................ 927 603 725 State .................................. (326) 573 325 ---------- ---------- ---------- (3,507) 7,525 4,807 ---------- ---------- ---------- TOTAL PROVISION: ............................ $ 56,677 $ 45,511 $ 25,803 ========== ========== ==========
The amounts of domestic and foreign income are as follows:
- --------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - --------------------------------------------------------------------------------------------- (in thousands) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE: Domestic .................................... $ 106,228 $ 84,723 $ 41,299 Foreign ..................................... 45,992 42,692 28,244 --------- --------- --------- $ 152,220 $ 127,415 $ 69,543 ========= ========= =========
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, 1998 1997 1996 - ---------------------------------------------------------------------------------------------- U.S. Federal income tax rate ..................... 35% 35% 35% Dividends received deduction ..................... -- (1) (1) Effect of higher foreign tax rates ............... 2 1 2 Non-conventional fuel source credits utilized .... -- -- (1) Other, net ....................................... -- 1 2 --------- --------- --------- Effective income tax rate ........................ 37% 36% 37% ========= ========= =========
The components of the Company's net deferred tax liabilities are as follows:
- ------------------------------------------------------------------------ September 30, 1998 1997 - ------------------------------------------------------------------------ (in thousands) DEFERRED TAX LIABILITIES: Property, plant and equipment $ 59,413 $ 56,328 Available-for-sale securities 41,154 85,378 Pension provision 4,602 4,738 Equity investment 9,006 6,238 Other -- 308 ---------- ---------- Total deferred tax liabilities 114,175 152,990 ---------- ---------- DEFERRED TAX ASSETS: Financial accruals 8,853 8,929 Other 1,853 2,730 ---------- ---------- Total deferred tax assets 10,706 11,659 ---------- ---------- NET DEFERRED TAX LIABILITIES $ 103,469 $ 141,331 ========== ==========
26 27 ================================================================================ NOTE 4 SHAREHOLDERS' EQUITY ================================================================================ On December 3, 1997, the board of directors declared a two-for-one common stock split and distribution; approximately 26.8 million shares were 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. In June 1998, the board of directors authorized the repurchase of up to 2,000,000 shares of its common stock in open market or private transactions. The repurchased shares will be held in treasury and used for general corporate purposes including use in the Company's benefit plans. During fiscal 1998, the Company purchased 999,100 shares at a total cost of approximately $19 million. 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 1,549,920 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. On September 30, 1998, 3,280,000 shares were available for grant under the Stock Incentive Plan. On September 30, 1998, 420,000 shares were available for grant under the Stock Incentive Plan as restricted stock awards. In fiscal 1998, 180,000 shares of restricted stock were granted at a weighted-average price of $37.73 which approximated fair market value at the date of grant. Unearned compensation of $6,791,000 is being amortized over a five-year period as compensation expense. The following summary reflects the stock option activity and related information (shares in thousands):
1998 1997 1996 ---------------------------- -------------------------- ------------------------ Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ---------------------------- -------------------------- ------------------------ Outstanding at October 1, 1,745 $ 16.44 1,708 $ 13.63 1,682 $ 13.20 Granted 544 36.84 393 26.07 494 14.00 Exercised (175) 12.15 (270) 13.03 (280) 11.76 Forfeited/Expired (24) 17.54 (86) 14.89 (188) 13.53 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding on September 30, 2,090 $ 22.09 1,745 $ 16.44 1,708 $ 13.63 - ------------------------------------------------------------------------------------------------------------------------------------ Exercisable on September 30, 453 $ 15.63 135 $ 12.22 148 $ 13.07 - ------------------------------------------------------------------------------------------------------------------------------------ Shares available on September 30, for options that may be granted 3,280 4,000 652 - ------------------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options at September 30, 1998 (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 - ------------------------------------------------------------------------------------------------------------- $12.00 to $14.00 927 6.0 years $13.54 307 $13.21 $14.01 to $16.50 244 1.4 years $15.75 73 $15.26 $16.51 to $26.50 379 8.2 years $26.06 73 $26.06 $26.51 to $37.00 540 9.2 years $36.84 -- -- - ------------------------------------------------------------------------------------------------------------- $12.00 to $37.00 2,090 6.7 years $22.09 453 $15.63 - -------------------------------------------------------------------------------------------------------------
During fiscal year 1997, the Company adopted SFAS 123. As permitted by SFAS 123, the Company has elected to continue 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 following table reflects pro forma net income and earnings per share had the Company elected to adopt the fair value approach of SFAS 123: 27 28
- ------------------------------------------------------------------------------------ Years Ended September 30, 1998 1997 1996 - ------------------------------------------------------------------------------------ (in thousands, except per share data) Net Income: As reported...................... $ 101,154 $ 84,186 $ 72,566 Pro forma........................ 99,437 83,531 72,318 Basic earnings per share: As reported...................... 2.03 1.69 1.47 Pro forma........................ 1.99 1.68 1.46 Diluted earnings per share: As reported...................... 2.00 1.67 1.46 Pro forma........................ 1.97 1.65 1.45 - ------------------------------------------------------------------------------------
These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. The weighted-average fair values of options at their grant date during 1998, 1997 and 1996 were $14.63, $9.50 and $4.83, respectively. The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. The following summarizes the weighted-average assumptions used in the model:
1998 1997 1996 - ---------------------------------------------------------------------------- Expected years until exercise ... 7.0 6.7 7.5 Expected stock volatility ....... 34% 27% 25% Dividend yield .................. 1.6% 1.0% 1.4% Risk-free interest rate ......... 5.9% 6.1% 5.7%
On September 30, 1998, the Company had 49,382,832 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 transferrable, the Company will issue one half of one Right with each new share of common stock issued. - -------------------------------------------------------------------------------- NOTE 5 EARNINGS PER SHARE - -------------------------------------------------------------------------------- A reconciliation of the weighted-average common shares outstanding on a basic and diluted basis is as follows:
(in thousands) 1998 1997 1996 - ------------------------------------------------------------------------------- Basic weighted-average shares .... 49,948 49,779 49,380 Effect of dilutive shares: Stock options .................. 595 747 322 Restricted stock ............... 22 35 46 ------- ------- ------- 617 782 368 ------- ------- ------- Diluted weighted-average shares ..... 50,565 50,561 49,748 ======= ======= =======
Restricted stock of 180,000 shares at a weighted-average price of $37.73 and options to purchase 919,000 shares of common stock at a weighted-average price of $32.40 were outstanding at September 30, 1998, but were not included in the computation of diluted earnings per common share. Inclusion of these shares would be antidilutive, as the exercise prices of the options exceed the average market price of the common shares. - -------------------------------------------------------------------------------- NOTE 6 FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- Notes payable bear interest at market rates and are carried at cost which approximates fair value. The estimated fair value of the Company's available-for-sale securities is primarily based on market quotes. 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, 1998 $ 76,770 $ 93,364 $ 5,156 $ 164,978 September 30, 1997 $ 110,011 $ 184,708 $ 104 $ 294,615
28 29 During the years ended September 30, 1998, 1997, and 1996, marketable equity available-for-sale securities with a fair value at the date of sale of $62,792,000, $8,557,000 and $619,000, respectively, were sold. The gross realized gains on such sales of available-for-sale securities totaled $30,820,000, $4,697,000 and $596,000, respectively, and the gross realized losses totaled $1,034,000, $0 and $30,000, respectively. - -------------------------------------------------------------------------------- NOTE 7 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. Operating results in 1996 for such operations are reported as discontinued operations. Income from discontinued operations has been reduced for income taxes by $2,566,000 for 1996. - -------------------------------------------------------------------------------- NOTE 8 EMPLOYEE BENEFIT PLANS - -------------------------------------------------------------------------------- In February 1998, the FASB issued statement No. 132 "Employers' Disclosures About Pensions and Other Postretirement Benefits", that supersedes the disclosure requirements of FAS 87, "Employers' Accounting for Pensions", and FAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Although statement 132 is effective for fiscal years beginning after December 15, 1997, the Company has elected early adoption in fiscal 1998. Prior year disclosures have been restated for comparative purposes. CHANGE IN BENEFIT OBLIGATION:
- ----------------------------------------------------------------------------------------- Years ended September 30, 1998 1997 - ----------------------------------------------------------------------------------------- (in thousands) Benefit obligation at beginning of year ............... $ 33,913 $ 23,534 Service cost .......................................... 2,836 2,114 Interest cost ......................................... 2,430 1,797 Actuarial loss ........................................ 231 7,179 Benefits paid ......................................... (2,456) (711) ----------- ----------- Benefit obligation at end of year ..................... $ 36,954 $ 33,913 =========== ===========
CHANGE IN PLAN ASSETS: - ----------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 - ----------------------------------------------------------------------------------------- (in thousands) Fair value of plan assets at beginning of year ........ $ 53,834 $ 42,609 Actual return on plan assets .......................... 194 11,936 Benefits paid ......................................... (2,456) (711) ----------- ----------- Fair value of plan assets at end of year .............. $ 51,572 $ 53,834 =========== =========== Funded status of the plan ............................. $ 14,618 $ 19,921 Unrecognized net actuarial gain ....................... (1,647) (6,291) Unrecognized prior service cost ....................... 1,263 1,501 Unrecognized net transition asset ..................... (2,159) (2,698) ----------- ----------- Prepaid benefit cost .................................. $ 12,075 $ 12,433 =========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS: - --------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - --------------------------------------------------------------------------------------------- Discount rate .......................... 6.75% 7.25% 7.75% Expected return on plan ................ 8.50% 9.00% 8.50% Rate of compensation increase .......... 5.00% 5.50% 5.00%
COMPONENTS OF NET PERIODIC BENEFIT COST: - -------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - -------------------------------------------------------------------------------------------- (in thousands) Service cost ........................... $ 2,836 $ 2,114 $ 1,979 Interest cost .......................... 2,430 1,797 1,553 Expected return on plan assets ......... (4,542) (3,592) (3,214) Amortization of prior service cost ..... 238 239 238 Amortization of transition asset ....... (540) (540) (542) Recognized net actuarial gain .......... (65) (66) -- ----------- ----------- ----------- Net pension expense (credit) ........... $ 357 $ (48) $ 14 =========== =========== ===========
29 30 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 $3,009,000, $2,255,000 and $1,908,000 in 1998, 1997 and 1996, respectively. - -------------------------------------------------------------------------------- NOTE 9 ACCRUED LIABILITES - -------------------------------------------------------------------------------- Accrued liabilities consist of the following:
- -------------------------------------------------------------------------------- September 30, 1998 1997 - -------------------------------------------------------------------------------- (in thousands) Accrued royalties payable .............. $ 6,997 $ 8,687 Accrued taxes payable - operations ..... 5,990 6,540 Accrued ad valorem tax ................. 5,907 6,700 Accrued income taxes payable ........... 4,487 9,371 Accrued workers compensation claims .... 3,000 3,087 Other .................................. 12,452 13,140 --------- --------- $ 38,833 $ 47,525 ========= =========
- -------------------------------------------------------------------------------- NOTE 10 SUPPLEMENTAL CASH FLOW INFORMATION - -------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - -------------------------------------------------------------------------------- (in thousands) Cash payments: Interest paid ................... $ 1,721 $ 357 $ 798 Income taxes paid: Continuing operations ......... $ 61,056 $ 36,347 $ 15,491 Discontinued operations ....... $ -- $ -- $ 2,563
- -------------------------------------------------------------------------------- NOTE 11 RISK FACTORS - -------------------------------------------------------------------------------- CONCENTRATION 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 companies in the oil and gas industry. The Company normally does not require collateral except for certain receivables of customers in its natural gas marketing operations. CONTRACT DRILLING 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. At September 30, 1998, the Company's rig utilization rate has fallen compared to the previous two years primarily as a result of reduced demand caused by a decline in the price of oil. The Company believes that its rig fleet is not currently impaired based on an assessment of future cash flows of the assets in question. However, it is possible that the Company's assessment that it will recover the carrying amount of its rig fleet from future operations may change in the near term. OIL AND GAS OPERATIONS - In estimating future cash flows attributable to the Company's exploration and production assets, certain assumptions are made with regard to commodity prices received and costs incurred. Due to the volatility of commodity prices, it is possible that the Company's assumptions used in estimating future cash flows for exploration and production assets may change in the near term. - -------------------------------------------------------------------------------- NOTE 12 NEW ACCOUNTING STANDARDS - -------------------------------------------------------------------------------- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", and SFAS 131, "Disclosures about Segments of an Enterprise and Related Information". These statements, which are effective for fiscal years beginning after December 15, 1997, expand or modify disclosures and will have no impact on the Company's consolidated financial position, results of operations or cash flows. In 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", (SFAS 133). This statement is effective for fiscal years beginning after June 15, 1999 and requires that all derivatives be recognized as assets or liabilities in the balance sheet and that these instruments be measured at fair value. The Company has not completed the process of evaluating the impact of adopting SFAS 133. The American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities", effective for fiscal years beginning after December 15, 1998. The SOP requires that all start-up costs be expensed and that the effect of adopting the SOP be reported as the cumulative effect of a change in accounting principle. The effect of this SOP on the Company's results of operations and financial position is not expected to be material. 30 31 - -------------------------------------------------------------------------------- NOTE 13 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, Ecuador and Bolivia. Oil and gas activities include the exploration for and development of productive oil and gas properties 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 14.5 percent, 17 percent and 19 percent of the total consolidated revenues during the years ended September 30, 1998, 1997 and 1996, respectively. Revenues from another company doing business with the contract drilling segment accounted for approximately 10% of total consolidated revenues in the year ended September 30, 1998. Collectively, revenues from companies controlled by the Venezuelan government accounted for approximately 16 percent, 12 percent and 12.8 percent of total consolidated revenues for the years ended September 30, 1998, 1997 and 1996, respectively. Collectively, the receivables from these customers were approximately $60.6 million and $50.1 million at September 30,1998 and 1997, respectively. Summarized revenues and operating profit by industry segment for the years ended September 30, 1998, 1997 and 1996 are located on page 9. Additional financial information by industry segment is as follows:
- -------------------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- (in thousands) Net Income (loss): Contract Drilling - Domestic .................. $ 22,876 $ 15,508 $ 6,796 Contract Drilling - International ............. 31,577 26,848 17,693 Exploration and Production .................... 18,616 35,719 17,335 Natural Gas Marketing ......................... 1,452 2,172 2,247 Real Estate Division .......................... 3,294 3,448 3,121 Corporate and Other ........................... 17,728 (1,791) (3,452) Equity in income of affiliate ................. 5,611 2,282 1,686 ------------- ------------- ------------- Income from Continuing Operations .......... $ 101,154 $ 84,186 $ 45,426 Discontinued operations ....................... -- -- 27,140 ------------- ------------- ------------- Net Income .................................... $ 101,154 $ 84,186 $ 72,566 ============= ============= ============= Identifiable assets: Contract Drilling - Domestic .................. $ 351,193 $ 257,505 $ 169,363 Contract Drilling - International ............. 303,907 210,976 213,171 Exploration and Production .................... 156,582 152,892 141,058 Natural Gas Marketing ......................... 15,069 18,884 15,602 Real Estate Division .......................... 22,937 23,310 23,628 Corporate and other ........................... 240,742 370,028 259,092 ------------- ------------- ------------- $ 1,090,430 $ 1,033,595 $ 821,914 ============= ============= ============= Depreciation, depletion and amortization: Contract Drilling - Domestic .................. $ 23,771 $ 17,916 $ 13,879 Contract Drilling - International ............. 31,689 26,458 22,120 Exploration and Production .................... 29,817 24,627 20,299 Natural Gas Marketing ......................... 292 258 725 Real Estate Division .......................... 1,501 1,412 1,455 Corporate and other ........................... 1,280 1,020 964 ------------- ------------- ------------- Continuing operations ...................... 88,350 71,691 59,442 Discontinued operations .................... -- -- 754 ------------- ------------- ------------- $ 88,350 $ 71,691 $ 60,196 ============= ============= ============= Capital expenditures: Contract Drilling - Domestic .................. $ 130,237 $ 95,277 $ 57,004 Contract Drilling - International ............. 83,843 16,900 24,801 Exploration and Production .................... 47,468 41,782 24,320 Natural Gas Marketing ......................... 636 3,170 435 Real Estate Division .......................... 875 1,161 776 Corporate and other ........................... 2,642 1,288 830 ------------- ------------- ------------- Continuing operations ...................... 265,701 159,578 108,166 Discontinued operations .................... -- -- 1,581 ------------- ------------- ------------- $ 265,701 $ 159,578 $ 109,747 ============= ============= ============= - --------------------------------------------------------------------------------------------------------
31 32 - -------------------------------------------------------------------------------- NOTE 14 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, 1998 1997 1996 - ---------------------------------------------------------------------------------------------------- (in thousands) Revenues .............................................. $ 98,696 $ 111,512 $ 76,643 ---------- ---------- ---------- Production costs ...................................... 21,786 21,750 20,080 Exploration expense and valuation provisions .......... 19,005 9,943 9,931 Depreciation, depletion and amortization .............. 29,817 24,628 20,299 Income tax expense .................................... 9,415 19,327 9,187 ---------- ---------- ---------- Total cost and expenses ............................. 80,023 75,648 59,497 ---------- ---------- ---------- Results of operations (excluding corporate overhead and interest costs) ................................. $ 18,673 $ 35,864 $ 17,146 ========== ========== ========== - ----------------------------------------------------------------------------------------------------
Capitalized Costs - - ----------------------------------------------------------------------------------------------------------- September 30, 1998 1997 - ----------------------------------------------------------------------------------------------------------- (in thousands) Proved properties ........................................................... $ 414,770 $ 395,812 Unproved properties ......................................................... 20,977 14,109 ---------- ---------- Total costs ............................................................... 435,747 409,921 Less - Accumulated depreciation, depletion and amortization ................. 295,045 268,572 ---------- ---------- Net ....................................................................... $ 140,702 $ 141,349 ========== ==========
Costs Incurred Relating to Oil and Gas Producing Activities -
- -------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - -------------------------------------------------------------------------------------- (in thousands) Property acquisition: Proved ............................... $ 107 $ 47 $ 256 Unproved ............................. 9,096 8,358 3,178 Exploration ............................ 18,107 9,656 9,874 Development ............................ 28,259 27,808 14,131 ---------- ---------- ---------- Total ................................ $ 55,569 $ 45,869 $ 27,439 ========== ========== ==========
32 33 - -------------------------------------------------------------------------------- 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, 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) ------------ ------------ 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 Revisions of previous estimates ....................... (331,280) 10,877 Extensions, discoveries and other additions ........... 175,265 20,819 Production ............................................ (701,180) (42,862) Purchases of reserves-in-place ........................ 2,890 188 Sales of reserves-in-place ............................ (189,768) (632) ------------ ------------ Proved reserves at September 30, 1998 ................. 4,761,313 251,626 ============ ============ Proved developed reserves at September 30, 1996 ................................. 6,441,803 261,519 ============ ============ September 30, 1997 ................................. 5,787,116 256,443 ============ ============ September 30, 1998 ................................. 4,754,319 249,376 ============ ============ - --------------------------------------------------------------------------------------------
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 "Disclosures About Oil and Gas Producing Activities". 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.
- ---------------------------------------------------------------------------------------------- At September 30, 1998 1997 - ---------------------------------------------------------------------------------------------- (in thousands) Future cash inflows ........................................ $ 404,549 $ 656,698 Future costs - Future production and development costs ................ (137,068) (187,672) Future income tax expense .............................. (70,890) (134,892) ----------- ----------- Future net cash flows ...................................... 196,591 334,134 10% annual discount for estimated timing of cash flows ..... (70,664) (129,099) ----------- ----------- Standardized Measure of discounted future net cash flows ... $ 125,927 $ 205,035 =========== =========== - ----------------------------------------------------------------------------------------------
33 34 - -------------------------------------------------------------------------------- Changes in Standardized Measure Relating to Proved Oil and Gas Reserves (Unaudited) -
- ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- (in thousands) Standardized Measure - Beginning of year ................. $ 205,035 $ 153,864 $ 110,934 Increases (decreases) - Sales, net of production costs ......................... (76,910) (89,762) (56,563) Net change in sales prices, net of production costs .... (97,938) 77,789 59,479 Discoveries and extensions, net of related future development and production costs ................... 21,922 42,741 29,189 Changes in estimated future development costs .......... (14,142) (16,570) (6,651) Development costs incurred ............................. 25,149 27,509 14,050 Revisions of previous quantity estimates ............... 5,089 6,146 5,731 Accretion of discount .................................. 28,012 20,691 14,362 Net change in income taxes ............................. 30,436 (29,397) (31,158) Purchases of reserves-in-place ......................... 65 2 643 Sales of reserves-in-place ............................. (2,875) (1,551) (124) Other .................................................. 2,084 13,573 13,972 ---------- ---------- ---------- Standardized Measure - End of year ....................... $ 125,927 $ 205,035 $ 153,864 ========== ========== ==========
- ------------------------------------------------------------------------------- NOTE 15 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - ------------------------------------------------------------------------------- (in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th 1998 Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------------------- Revenues ................................................. $ 151,823 $ 142,389 $ 177,136 $ 165,292 Gross profit ............................................. 47,351 32,869 55,098 29,606 Net income ............................................... 29,165 19,337 33,861 18,791 Basic net income per share ............................... .58 .39 .68 .38 Diluted net income per share ............................. .57 .38 .67 .38
- ----------------------------------------------------------------------------------------------------------------------------- 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 Basic net income per share ............................... .41 .45 .47 .36 Diluted net income per share ............................. .40 .44 .47 .35
- -------------------------------------------------------------------------------- Gross profit represents total revenues less operating costs, depreciation, depletion and amortization, dry holes and abandonments, and taxes, other than income taxes. - -------------------------------------------------------------------------------- Per share amounts reflect the effect of the two-for-one common stock split and distribution (see Note 4) and the adoption of SFAS No. 128. The sum of earnings per share for the four quarters may not equal the total earnings per share for the year due to changes in the average number of common shares outstanding. Net income in the fourth quarter of 1997 includes a provision of $6.7 million ($.08 per share, on a diluted basis, 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 1998 includes an after-tax charge of $3.1 million ($0.06 per share, on a diluted basis) related to the write-down of producing properties in accordance with SFAS No. 121. 34 35 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, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1998. 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, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1998, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP ------------------------------- Tulsa, Oklahoma November 13, 1998 STOCK PRICE INFORMATION*
================================================================================ Closing Market Price Per Share ---------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- QUARTERS HIGH LOW HIGH LOW - -------- ---------------------------------------- First............................... $ 44.97 $ 31.06 $ 27.56 $21.94 Second.............................. 33.19 24.56 27.44 21.00 Third............................... 33.25 21.56 29.63 21.81 Fourth.............................. 24.38 16.25 40.00 29.47 - --------------------------------------------------------------------------------
DIVIDEND INFORMATION*
================================================================================== Paid Per Share Total Payment -------------------------------------------- 1998 1997 1998 1997 - ---------------------------------------------------------------------------------- QUARTERS - -------- First............................... $.065 $.065 $3,256,874 $3,239,007 Second............................... .070 .065 3,519,195 3,239,892 Third............................... .070 .065 3,521,332 3,242,952 Fourth............................... .070 .065 3,504,269 3,248,275 - ----------------------------------------------------------------------------------
* Per share amounts reflect the effect of the two-for-one common stock split and distribution (see note 4). ================================================================================ STOCKHOLDERS' MEETING* The annual meeting of stockholders will be held on March 3, 1999. 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, 1999. ================================================================================ 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, 1998, there were 1,465 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 IRSForm 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 Internet Address: http://www.hpinc.com ================================================================================ 35 36 ELEVEN-YEAR FINANCIAL REVIEW ================================================================================ HELMERICH & PAYNE, INC.
- --------------------------------------------------------------------------------------------------------------------------- Years Ended September 30, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- REVENUES AND INCOME* Contract Drilling Revenues....................................... 427,713 315,327 244,338 Crude Oil Sales.................................................. 10,333 20,475 15,378 Natural Gas Sales................................................ 87,646 87,737 60,500 Gas Marketing Revenues........................................... 52,469 66,306 57,817 Real Estate Revenues............................................. 8,587 8,224 8,076 Dividend Income.................................................. 4,117 5,268 3,650 Other Revenues................................................... 45,775 14,522 3,496 Total Revenues++................................................. 636,640 517,859 393,255 Net Cash Provided by Continuing Operations++..................... 113,533 165,568 121,420 Income from Continuing Operations................................ 101,154 84,186 45,426 Net Income....................................................... 101,154 84,186 72,566 - --------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA** Income from Continuing Operations(R): Basic........................................................ 2.03 1.69 .92 Diluted...................................................... 2.00 1.67 .91 Net Income(R): Basic........................................................ 2.03 1.69 1.47 Diluted...................................................... 2.00 1.67 1.46 Cash Dividends................................................... .275 .26 .2525 Shares Outstanding*.............................................. 49,383 50,028 49,771 - --------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Net Working Capital*............................................. 58,861 62,837 51,803 Ratio of Current Assets to Current Liabilities................... 1.47 1.66 1.83 Investments*..................................................... 200,400 323,510 229,809 Total Assets*.................................................... 1,090,430 1,033,595 821,914 Long-Term Debt*.................................................. 50,000 __ __ Shareholders' Equity*...................................................... 793,148 780,580 645,970 - --------------------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES* Contract Drilling Equipment...................................... 206,794 109,036 79,269 Wells and Equipment.............................................. 38,372 33,425 21,142 Real Estate...................................................... 854 1,095 752 Other Assets (includes undeveloped leases)....................... 19,681 16,022 7,003 Discontinued Operations.......................................... __ __ 1,581 Total Capital Outlays............................................ 265,701 159,578 109,747 - --------------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT AT COST* Contract Drilling Equipment...................................... 829,217 643,619 568,110 Producing Properties............................................. 414,770 395,812 392,562 Undeveloped Leases............................................... 20,977 14,109 9,242 Real Estate...................................................... 48,451 47,682 46,970 Other............................................................ 65,120 59,659 53,547 Discontinued Operations.......................................... __ __ __ Total Property, Plant and Equipment........................................ 1,378,535 1,160,881 1,070,431 - ---------------------------------------------------------------------------------------------------------------------------
* 000's omitted. ** Per share data and shares outstanding reflect the effect of a two-for-one common stock split and distribution as discussed in Note 4. ++Chemical operations were sold August 30, 1996 (see note 7). Prior year amounts have been restated to exclude discontinued operations. (1) Includes $13.6 million ($.28 per share, on a diluted basis) 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, on a diluted basis) in 1994. 36 37
- --------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990 1989 1988 - --------------------------------------------------------------------------------------------------------------------------- 203,325 182,781 149,661 112,833 105,364 90,974 78,315 75,985 13,227 13,161 15,392 16,369 17,374 16,058 14,821 14,001 33,851 45,261 52,446 38,370 35,628 37,697 33,013 26,154 34,729 51,874 63,786 40,410 10,055 10,566 __ __ 7,560 7,396 7,620 7,541 7,542 7,636 7,778 7,878 3,389 3,621 3,535 4,050 5,285 7,402 9,127 10,069 10,640 6,058 8,283 6,646 20,020 56,131 17,371 15,206 306,721 310,152 300,723 226,219 201,268 226,464 160,425 149,293 84,010 74,463 72,493 60,414 50,006 53,288 65,474 54,959 5,788 17,108 22,158 8,973 19,608 45,489 20,715 17,746 9,751 24,971 24,550 10,849 21,241 47,562 22,700 20,150 - --------------------------------------------------------------------------------------------------------------------------- .12 .35 .46 .19 .41 .94 .43 .37 .12 .35 .45 .19 .41 .93 .43 .37 .20 .51 .51 .22 .44 .98 .47 .42 .20 .51 .50 .22 .44 .98 .47 .42 .25 .2425 .24 .2325 .23 .22 .21 .20 49,529 49,420 49,275 49,152 48,976 48,971 48,346 48,331 - --------------------------------------------------------------------------------------------------------------------------- 50,038 76,238 104,085 82,800 108,212 146,741 114,357 135,275 1.74 2.63 3.24 3.31 4.19 3.72 3.12 6.10 156,908 87,414 84,945 87,780 96,471 99,574 130,443 133,726 707,061 621,689 610,504 585,504 575,168 582,927 591,229 576,473 --- --- 3,600 8,339 5,693 5,648 49,087 70,715 562,435 524,334 508,927 493,286 491,133 479,485 443,396 430,804 - --------------------------------------------------------------------------------------------------------------------------- 80,943 53,752 24,101 43,049 56,297 18,303 17,901 19,110 19,384 40,916 23,142 21,617 34,741 16,489 30,673 25,936 873 902 436 690 2,104 1,467 878 3,095 9,717 9,695 5,901 16,984 6,793 5,448 6,717 2,496 859 618 629 158 2,594 1,153 815 815 111,776 105,883 54,209 82,498 102,529 42,860 56,984 51,452 - --------------------------------------------------------------------------------------------------------------------------- 501,682 444,432 418,004 404,155 370,494 324,293 323,313 313,289 384,755 377,371 340,176 329,264 312,438 287,248 279,768 251,445 8,051 11,729 10,010 12,973 5,552 5,507 5,441 3,305 46,642 47,827 47,502 47,286 46,671 44,928 48,016 47,165 55,655 48,612 45,085 43,153 36,423 32,135 29,716 27,798 13,937 13,131 12,545 11,962 11,838 9,270 8,156 7,370 1,010,722 943,102 873,322 848,793 783,416 703,381 694,410 650,372 - ---------------------------------------------------------------------------------------------------------------------------
37 38 ELEVEN-YEAR OPERATING REVIEW ================================================================================ HELMERICH & PAYNE, INC.
- ------------------------------------------------------------------------------------------------------------------------------ Years Ended September 30, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------ CONTRACT DRILLING Drilling Rigs, United States......................................... 46 38 41 Drilling Rigs, International......................................... 44 39 36 Contract Wells Drilled, United States................................ 242 246 233 Total Footage Drilled, United States*................................ 2,938 2,753 2,499 Average Depth per Well, United States................................ 12,142 11,192 10,724 Percentage Rig Utilization, United States............................ 95 88 82 Percentage Rig Utilization, International............................ 88 91 85 - ------------------------------------------------------------------------------------------------------------------------------ PETROLEUM EXPLORATION AND DEVELOPMENT Gross Wells Completed................................................ 62 100 63 Net Wells Completed.................................................. 35.7 49.3 35.3 Net Dry Holes........................................................ 4.2 9.6 7.3 - ------------------------------------------------------------------------------------------------------------------------------ PETROLEUM PRODUCTION Net Crude Oil and Natural Gas Liquids Produced (barrels daily)........................................... 1,921 2,700 2,212 Net Oil Wells Owned N Primary Recovery............................... 124 133 176.9 Net Oil Wells Owned N Secondary Recovery............................. 53 49 63.8 Secondary Oil Recovery Projects...................................... 5 5 12 Net Natural Gas Produced (thousands of cubic feet daily).................................... 117,431 110,859 94,358 Net Gas Wells Owned.................................................. 436 410 378 - ------------------------------------------------------------------------------------------------------------------------------ NATURAL GAS ODORANTS AND OTHER CHEMICALS++ Chemicals Sold (pounds)*............................................. -- -- 9,823 - ------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE MANAGEMENT Gross Leasable Area (square feet)*................................... 1,652 1,652 1,654 Percentage Occupancy................................................. 97 95 94 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF EMPLOYEES Helmerich & Payne, Inc. and Subsidiaries ............................ 3,340 3,627 3,309 - ------------------------------------------------------------------------------------------------------------------------------
* 000's omitted. + 1988-1989 include U.S. employees only ++ Chemical operations were sold August 30, 1996 (see note 7). Treated as discontinued operations in Financial Statements for all years presented. 38 39
- -------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990 1989 1988 - -------------------------------------------------------------------------------------------------------------------------- 41 47 42 39 46 49 49 48 35 29 29 30 25 20 20 18 212 162 128 100 106 119 108 115 1,933 1,842 1,504 1,085 1,301 1,316 1,350 1,284 9,119 11,367 11,746 10,853 12,274 11,059 12,500 11,165 71 69 53 42 47 50 44 45 84 88 68 69 69 45 46 30 - -------------------------------------------------------------------------------------------------------------------------- 59 44 42 54 45 36 45 45 27.4 15 15.9 17.8 20.2 15.3 15.2 14.6 5.9 1.7 4.3 4.3 4.3 3.4 2.8 1.6 - -------------------------------------------------------------------------------------------------------------------------- 2,214 2,431 2,399 2,334 2,152 2,265 2,486 2,463 186 202 202 220 227 223 201 202 64 71 71 74 55 46 214 222 12 14 14 14 12 12 17 21 72,387 72,953 78,023 75,470 66,617 65,147 57,490 45,480 354 341 307 289 278 194 205 197 - -------------------------------------------------------------------------------------------------------------------------- 7,670 8,071 7,930 8,452 8,155 8,255 7,702 8,507 - -------------------------------------------------------------------------------------------------------------------------- 1,652 1,652 1,656 1,656 1,664 1,664 1,669 1,670 87 83 86 87 86 85 90 90 - -------------------------------------------------------------------------------------------------------------------------- 3,245 2,787 2,389 1,928 1,758 1,864 1,100 1,156 - --------------------------------------------------------------------------------------------------------------------------
39 40
Directors Officers =========================================================================================================== W. H. HELMERICH, III W. H. HELMERICH, III Chairman of the Board Chairman of the Board Tulsa, Oklahoma HANS HELMERICH HANS HELMERICH President and Chief Executive Officer President and Chief Executive Officer Tulsa, Oklahoma WILLIAM L. ARMSTRONG** GEORGE S. DOTSON Chairman Vice President, Ambassador Media Corporation President of Helmerich & Payne Denver, Colorado International Drilling Co. GLENN A. COX* DOUGLAS E. FEARS President and Chief Operating Officer, Retired Vice President and Phillips Petroleum Company Chief Financial Officer Bartlesville, Oklahoma GEORGE S. DOTSON STEVEN R. MACKEY Vice President, Vice President, Secretary, President of Helmerich & Payne and General Counsel International Drilling Co. Tulsa, Oklahoma STEVEN R. SHAW Vice President, L. F. ROONEY, III* Exploration & Production Chief Executive Officer Manhattan Construction Company Tulsa, Oklahoma EDWARD B. RUST, JR. Chairman 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
* Member, Audit Committee ** Member, Human Resources Committee 40 EX-22 3 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 (Argentina) 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 4 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 November 13, 1998, included in the 1998 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, 333-24211, and 333-34939) pertaining, respectively, to the Helmerich & Payne, Inc. Incentive Stock Option Plan, 1990 Stock Option Plan, Non-Employee Directors' Stock Compensation Plan, and 1996 Stock Incentive Plan of our report dated November 13, 1998, 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, 1998. ERNST & YOUNG LLP Tulsa, Oklahoma December 23, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR SEP-30-1998 OCT-01-1997 SEP-30-1998 24,476 200,400 121,303 1,908 25,401 184,345 1,378,535 686,164 1,090,430 125,484 0 0 0 5,353 787,795 1,090,430 592,037 636,640 472,619 472,619 10,859 0 942 152,220 56,677 101,154 0 0 0 101,154 2.03 2.00
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