-----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, Trh9joEWKTZEgtZ4ZIMoxZlivsDkKOyG5ffQhDGl6jrJLy45yX/YyGEcBin20loV OZXISUqHwyfuipX5q4e96Q== 0000950134-99-011418.txt : 19991229 0000950134-99-011418.hdr.sgml : 19991229 ACCESSION NUMBER: 0000950134-99-011418 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991228 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: 99781399 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 YEAR ENDED SEPTEMBER 30, 1999 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, 1999 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, TULSA, OKLAHOMA 74114 (Address of principal executive offices) (Zip code)
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, 1999, the aggregate market value of the voting stock held by non-affiliates was $964,657,219. Number of shares of common stock outstanding at December 15, 1999: 49,642,750. DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for the fiscal year ended September 30, 1999 -- Parts I, II, and IV. (2) Proxy Statement for Annual Meeting of Security Holders to be held March 1, 2000 -- 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 17 IN REGISTRANT'S ANNUAL REPORT TO THE SHAREHOLDERS FOR FISCAL 1999 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, 1999 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 & gas operations; 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 1999 in six international locations: Venezuela, Ecuador, Colombia, Peru, Argentina and Bolivia. In the second quarter of fiscal 2000, the Registrant expects to operate a customer-owned offshore platform rig in Equatorial Guinea. 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 operates certain 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. In fiscal 1999, Registrant received approximately 57% of its consolidated revenues from the Registrant's ten largest contract drilling customers. BP Amoco and Shell Oil Co., including their affiliates, (respectively, "BPA" and "Shell") are the Registrant's two largest contract drilling customers. The Registrant performs drilling services for BPA and Shell on a world-wide basis. Revenues from drilling services performed for BPA and Shell in fiscal 1999 accounted for approximately 18% and 12%, respectively, of the Registrant's consolidated revenues for the same period. While the Registrant believes that its relationship with all of these customers is good, the loss of BPA or Shell or a simultaneous loss of several of its larger customers would have a material adverse effect on the drilling subsidiary and the Registrant. 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 1999. 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, 1999, the Registrant had 50 (40 land rigs and 10 platform rigs) of its rigs operating in the United States and had management contracts for two customer-owned rigs. During fiscal 1999, four land rigs and one platform rig were relocated from the Registrant's operations in Venezuela to the Registrant's domestic operations. In November of 1999, Registrant returned one of such land rigs to Venezuela. In addition, one of the Registrant's older platform rigs was sold. 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. At the end of fiscal 1999, the Registrant owned and operated 18 land drilling rigs in Venezuela with a utilization rate of 36% for such fiscal year. The Registrant worked for the Venezuelan State Petroleum Company during fiscal 1999, and revenues from this work accounted for approximately 6% of the Registrant's consolidated revenues during the fiscal year. I - 6 9 Registrant's rig utilization rate in Venezuela has decreased from approximately 92% during the 1998 fiscal year to approximately 36% in fiscal 1999. This reduction in utilization is primarily due to curtailed production and development activities resulting from a reduction in worldwide oil prices. At this time, the Registrant is unable to predict future fluctuations in its utilization rates during fiscal 2000. 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 six independent oil companies during fiscal 1999. At the end of fiscal 1999, the Registrant owned and operated ten drilling rigs in Colombia. The Registrant's utilization rate was 71% during fiscal 1999. During fiscal 1999 the revenue generated by Colombian drilling operations contributed approximately 10.8% of the Registrant's consolidated revenues. In addition to its operations in Venezuela and Colombia, the Registrant in fiscal 1999 owned and operated four rigs in Ecuador, five rigs in Bolivia, and two rigs in Argentina. In Ecuador, Bolivia and Argentina, the contracts are with large international oil companies. Drilling operations ended during 1999 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. 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 I - 7 10 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 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 I - 8 11 through fiscal 2000. 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 2000 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 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 I - 9 12 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 1999, approximately 32% of the Registrant's consolidated revenues were generated from the international contract drilling business. Over 95% of the international revenues were from Venezuela, Colombia, Bolivia, Ecuador and Argentina. Exposure to potential losses from currency devaluation is minimal in the above-mentioned countries except for Venezuela. 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 1998, the Registrant experienced losses of approximately US$2,204,000 and in fiscal 1999 it experienced losses of US$712,000 as a result of the devaluation of the bolivar. Registrant is unable to predict future devaluation in Venezuela. In the event a 25% to 50% devaluation would occur, the Registrant could experience potential currency valuation losses ranging from approximately US$350,000 to US$600,000. I - 10 13 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 liability arising 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 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. I - 11 14 OIL & GAS OPERATIONS 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. The Registrant continued its involvement in the Mountain Front play during 1999, spending $10.2 million drilling and completing extensional and development wells in both its Rocky and Kiowa Flats fields. In 1999, Registrant drilled 13 wells, of which seven were completed as producing wells. Current producing rates from the two fields are 63 MMCFD gross and 40 MMCFD net. The Mountain Front area is located in Kiowa and Washita Counties, Oklahoma. I - 12 15 During fiscal 1998 and 1999, the Registrant has focused on developing prospects using 3D seismic technology. Currently, the Registrant is involved in 3D surveys covering more than 850 square miles. Approximately 700 square miles of land covered by such surveys is located near the Texas and Louisiana onshore Gulf Coast. This is Registrant's first major exploration effort in the Gulf Coast area. The following summarizes the Registrant's activities, during fiscal 1999, on the lands covered by these 3D surveys. During fiscal 1999, the Registrant participated in or purchased three 3D seismic surveys covering approximately 185 square miles of lands in Jefferson County, Texas. After successfully drilling four consecutive producing wells, the Company extended these seismic surveys by approximately 42 square miles. Registrant's working interests in the lands covered by this survey range from 54% to 66%. In addition, one well is currently being drilled in West Texas on lands covered by a 65 square mile 3D survey. Four wells have been drilled in Galveston County, Texas, based upon a 94 square mile 3D survey. Two of the wells were completed as producers. This 3D survey was extended by 27 square miles during the 1999 fiscal year. Registrant's working interests in this area range from 25% to 87%. The Registrant recently completed the purchase of a 42% working interest in a 50 square mile 3D survey in Calcasieu Parish, Louisiana. A wildcat well is in the process of being completed. The purchase of a 35% working interest in a 200 square mile 3D shoot in South Texas has also been finalized. One wildcat well is currently being drilled on these lands. The Registrant's exploration and development program has covered a range of prospects, from shallow "bread and butter" programs to deep expensive, high I - 13 16 risk/high return wells. During fiscal 1999, the Registrant participated in 49 development and/or wildcat wells, which resulted in new discoveries of approximately 22.5 BCF of gas and 151,829 barrels of oil and condensate. The Registrant participated in five additional development wells, which resulted in the development of approximately 1.2 BCF of gas which was previously classified as proved undeveloped or proved developed nonproducing reserves. A total of $36,613,104 was spent in the Registrant's exploration and development program during fiscal 1999. This figure includes $8,216,501 of geophysical expense, but is exclusive of expenditures for acreage and acquisition of proved oil and gas reserves. The Registrant's total company-wide acquisition cost for acreage in fiscal 1999 was approximately $14.4 million. The Registrant spent $88,997 for the acquisition of proved oil and gas reserves during fiscal 1999. The reserves associated with these acquisitions were 77,826 MCF. The Registrant's fiscal 2000 exploration and production budget of approximately $80 million is 70% greater than its actual exploration and production expenditures in fiscal 1999. This increase is necessary to exploit the additional amounts of acreage acquired in fiscal years 1998 and 1999. 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 I - 14 17 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 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 natural gas market will continue to experience high volatility. This high volatility (as evidenced by the mid-summer increase in natural gas prices, and the subsequent price reductions during early November, 1999) is a result of ever changing perceptions throughout the industry centered around supply and demand. Pricing perceptions constantly change as members of the natural gas industry weigh the impacts of decline in deliverability of domestic supply; increased use of natural gas for electrical generation; continued U.S. economic growth; increased usage and better management of natural gas storage; seasonal usage; fuel switching; usage of gas as a feed stock; and importation of gas from Canada and Mexico. Registrant presently believes that natural gas price volatility will continue for the next three to five years as the natural gas industry reacts to these factors. Long term pricing will obviously react to these short term factors, as well as other considerations affecting supply/demand. 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 1999, the price that Registrant received I - 15 18 for the sale of its crude oil has steadily increased. Registrant's average per barrel crude oil sales price in fiscal 1999 for each of the first through fourth quarters was $11.26, $11.21, $15.77 and $19.67, 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. 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, I - 16 19 liens incident to operating agreements, liens for current taxes, and other burdens and minor encumbrances, easements, and restrictions. The Registrant believes that the existence of such burdens will not materially detract from the general value of its leasehold interests. Governmental Regulation in the Oil and Gas Industry The Registrant's domestic operations are affected from time to time in varying degrees by political developments and federal and state laws and regulations. In particular, oil and gas production operations and economics are affected by price control, tax, and other laws relating to the petroleum industry; by changes in such laws; and by constantly changing administrative regulations. Most states in which the Registrant conducts or may conduct oil and gas activities regulate the production and sale of oil and natural gas, including regulation of the size of drilling and spacing units or proration units, the density of wells which may be drilled, and the unitization or pooling of oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas, and impose certain requirements regarding the ratability of production. The effect of these regulations is to limit the amounts of oil and natural gas the Registrant can produce from its wells, and to limit the number of wells or locations at which the Registrant can drill. In addition, legislation affecting the natural gas and oil industry is under constant review. Inasmuch as such laws and regulations are frequently expanded, amended, or reinterpreted, the Registrant is unable to predict the future cost or impact of complying with such regulations. The Registrant believes that compliance with existing federal, state and local laws, rules and regulations will not I - 17 20 have a material adverse effect upon its capital expenditures, earnings or competitive position. Regulatory Controls Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated under the Natural Gas Act ("NGA") and the Natural Gas Policy Act of 1978 ("NGPA") and the regulations promulgated thereunder. The Natural Gas Wellhead Decontrol Act of 1989 amended both the price and non-price decontrol provisions of the NGPA for the purpose of providing complete decontrol of first sales of natural gas by January 1, 1993. The Registrant believes that substantially all of its gas is decontrolled. Commencing in April, 1992, the Federal Energy Regulatory Commission ("FERC") issued Order 636, Order 636-A, and Order 636-B (collectively, "Order 636") which requires interstate pipelines to provide transportation unbundled from their sales of gas. Also, such pipelines must provide open-access transportation on a basis that is equal for all gas supplies. Although Order 636 has provided the Registrant with additional market access and more fairly applied transportation service rates, it has also subjected the Registrant to more restrictive pipeline imbalance tolerances and greater penalties for violation of those tolerances. Order 636 and numerous related orders pertaining to individual pipelines have been largely upheld by the Courts. However, certain appeals remain pending, and the FERC continues to review and modify open access regulations. In particular, the FERC recently issued new rules and policies pertaining to interstate pipeline certificates which require notification I - 18 21 of landowners affected by proposed pipeline construction, and which presume incremental pricing is appropriate for new construction. The FERC also has 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 facilities to unregulated gathering companies, including affiliates. This could allow such companies to compete more effectively with I - 19 22 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 137 infill wells and believes that it will be necessary in fiscal 2000 to drill an additional 3 infill wells at a total estimated cost of $360,000. 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 - 20 23 Neither the FERC nor Congress has provided the first sellers with any generic relief on this issue. However, the FERC has permitted 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. 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 I - 21 24 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 1999, HPESI's sales of third-party gas constituted approximately 10% of the Registrant's consolidated revenues. HPESI sells natural gas to markets in the Midwest and Rocky Mountain areas. Term gas sales contracts are for varied periods ranging from I - 22 25 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 2000, HPESI's term gas sales contracts provide for the sale of approximately 16 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-14 through I-22 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 (93% 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 (64% 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. Registrant has completed two phases of a three-phase renovation for major existing tenants in Utica Square Shopping Center. This renovation I - 23 26 has resulted in a temporary occupancy reduction of approximately 4%. During fiscal 2000, occupancy is expected to reach approximately 97%. At the end of the 1999 fiscal year the Registrant owned 12 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 1999. 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 1999. Registrant has leased approximately 29,000 square feet of office space in Tulsa and relocated Registrant's oil and gas division from Registrant's office building to such leased office space. The vacated space within Registrant's office building has been 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 highways. Present occupancy is 100%. The Registrant also owns approximately 1.5 acres of undeveloped land lying adjacent to such warehouses. I - 24 27 Registrant owns 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 decreased from 100% to 96% due to the loss of one tenant. 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 decreased from 96% to 93% during fiscal 1999 due primarily to the loss of one 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 1999, occupancy has remained at 96%. 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 1999, occupancy has remained at 100%. The second, called Maxim Place, consists of one office/warehouse building containing I - 25 28 approximately 33,750 square feet and located on approximately 2.25 acres. During fiscal 1999, occupancy has remained at 100%. Registrant believes that the recent increase in demand for multi-tenant warehouse space in the Tulsa market will continue. 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 large international corporations. 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 Operating Profit by Business Segments may be found on pages 9 and 30 through 31 of the Registrant's Annual Report to Shareholders for fiscal 1999, which is incorporated herein by reference. EMPLOYEES The Registrant had 2,162 employees within the United States (16 of which were part-time employees) and 1,278 employees in international operations as of September 30, 1999. Item 2. PROPERTIES CONTRACT DRILLING The following table sets forth certain information concerning the Registrant's domestic drilling rigs as of September 30, 1999: I - 26 29
Rig Registrant's Optimum Working Present Designation Classification Depth in Feet Location - ----------- -------------- ------------- -------- 140 Medium Depth 10,000 Texas 158 Medium Depth 10,000 Texas 110 Medium Depth 12,000 Texas 156 Medium Depth 12,000 Texas 159 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 95 Medium Depth 16,000 Texas 96 Medium Depth 16,000 Oklahoma 118 Medium Depth 16,000 Texas 119 Medium Depth 16,000 Texas 120 Medium Depth 16,000 Texas 147 Medium Depth 16,000 Texas 154 Medium Depth 16,000 Texas 162 Medium Depth 16,000 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 108 Medium Depth 18,000 Gulf of Mexico 79 Deep 20,000 Louisiana 80 Deep 20,000 Texas 89 Deep 20,000 Texas 91 Deep 20,000 Gulf of Mexico 92 Deep 20,000 Oklahoma 94 Deep 20,000 Texas 98 Deep 20,000 Oklahoma 122 Deep 20,000 Louisiana 203 Deep 20,000 Gulf of Mexico 97 Deep 26,000 Texas 99 Deep 26,000 Texas 137 Deep 26,000 Texas 149 Deep 26,000 Texas 72 Very Deep 30,000 Alabama 73 Very Deep 30,000 Texas 100 Very Deep 30,000 Gulf of Mexico 105 Very Deep 30,000 Gulf of Mexico 106 Very Deep 30,000 Gulf of Mexico 107 Very Deep 30,000 Gulf of Mexico 157 Very Deep 30,000 Texas 161 Very Deep 30,000 Texas 163 Very Deep 30,000 Louisiana 201 Very Deep 30,000 Gulf of Mexico 202 Very Deep 30,000 Gulf of Mexico 204 Very Deep 30,000 Gulf of Mexico
I - 27 30 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, ----------------------------------- 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Number of rigs owned at end of period 41 41 38 46 50 Average rig utilization rate during period (1) 71% 82% 88% 95% 75%
(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, 1999:
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 171 Medium Depth 16,000 Bolivia 172 Medium Depth 16,000 Bolivia 22 Medium Depth (Heli Rig) 18,000 Ecuador 23 Medium Depth (Heli Rig) 18,000 Colombia 132 Medium Depth 18,000 Ecuador 176 Medium Depth 18,000 Ecuador 121 Deep 20,000 Venezuela 173 Deep 20,000 Bolivia 45 Deep 26,000 Venezuela 82 Deep 26,000 Venezuela 83 Deep 26,000 Venezuela 117 Deep 26,000 Venezuela 123 Deep 26,000 Bolivia 138 Deep 26,000 Ecuador 148 Deep 26,000 Venezuela 160 Deep 26,000 Venezuela 170 Deep (Heli Rig) 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 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
I - 28 31
Rig Registrant's Optimum Working Present Designation Classification Depth in Feet Location ----------- -------------- ------------- -------- 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, ---------------------------------- 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Number of rigs owned at end of period 35 36 39 44 39 Average rig utilization rate during period (1) 84% 85% 91% 88% 53%
(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 1997 through 1999 are shown below:
Average Sales Average Lifting Year Net Barrels Price per Barrel Cost per Barrel ---- ----------- ---------------- --------------- 1997 985,633 $20.77 $6.98 1998 701,180 $14.74 $7.40 1999 649,370 $14.60 $7.02
I - 29 32 Natural Gas Sales The Registrant's net sales of natural and casinghead gas for the three fiscal years 1997 through 1999 are as follows:
Average Sales Average Lifting Year Net MCF Price per MCF Cost per MCF ---- ------- ------------- --------------- 1997 40,463,374 $2.23 $0.3213 1998 42,862,300 $2.04 $0.3110 1999 44,240,332 $1.83 $0.3300
Following is a summary of the net wells drilled by the Registrant for the fiscal years ended September 30, 1997, 1998, and 1999:
Exploratory Wells Development Wells ------------------ -------------------- 1997 1998 1999 1997 1998 1999 ---- ---- ---- ---- ---- ---- Productive 0.500 1.910 2.917 39.239 29.614 13.846 Dry 8.459 2.900 2.615 1.136 1.310 4.502
On September 30, 1999, the Registrant was in the process of drilling or completing three gross or 2.868 net wells. I - 30 33 Acreage Holdings The Registrant's holdings of acreage under oil and gas leases, as of September 30, 1999, 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 121,983.07 85,662.60 16,603.87 14,422.30 Louisiana 1,584.77 910.66 7,099.56 2,275.77 Michigan -0- -0- 13,684.68 13,281.84 Montana 2,037.19 423.37 3,428.95 984.37 Nebraska 480.00 168.00 -0- -0- Nevada -0- -0- 5,264.04 5,064.04 New Mexico 1,002.91 99.54 121.88 40.22 North Dakota 200.00 11.52 -0- -0- Oklahoma 129,722.88 50,880.80 13,207.79 8,211.65 Texas 94,184.45 42,833.35 284,001.91 69,756.18 Wyoming -0- -0- 440.00 105.59 ---------- ---------- ---------- ---------- Total 354,263.50 182,714.95 344,172.68 114,301.96
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 - 31 34 Productive Wells The Registrant's total gross and net productive wells as of September 30, 1999, were as follows:
Oil Wells Gas Wells ------------ ------------ Gross Net Gross Net ----- --- ----- --- 3,577 178 962 439
Additional information required by this item with respect to the Registrant's oil and gas operations may be found on pages I-12 through I-23 of Item 1. BUSINESS, and pages 23 through 34 of the Registrant's Annual Report to Shareholders for fiscal 1999, "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-23 through I-26. STOCK As of December 15, 1999: The Registrant owned 312,546 shares of the common stock of SUNOCO, Inc. and 184,500 shares of Kerr McGee Corporation which the Registrant received in a stock merger for Registrant's 500,000 shares of Oryx Energy Company, Inc. 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 owns approximately 22% of Atwood. I - 32 35 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 175,000 shares of the common stock of Banc One Corporation. The Registrant owned 225,000 shares of the common stock of ONEOK Inc. The Registrant owned 150,000 shares of the common stock of Citrix Systems, Inc. The Registrant owned 190,000 shares of the common stock of Legato Systems, Inc. The Registrant also owned lesser holdings in several other publicly traded corporations. Item 3. LEGAL PROCEEDINGS There are no material legal proceedings pending against the Registrant. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of the Registrant's executive officers, together with all positions and offices held with the Registrant by such executive officers. Officers are elected to serve until the meeting of the Board of Directors following the next Annual Meeting of Stockholders and until their successors have been elected and have qualified or until their earlier resignation or removal. I - 33 36 W. H. Helmerich, III, 76 Director since 1949; Chairman of the Board Chairman of the Board since 1960 Hans Helmerich, 41 Director since 1987; President and Chief President Executive Officer since 1989 George S. Dotson, 58 Director since 1990; Vice President, Vice President Drilling since 1977 and President and Chief Operating Officer of Helmerich & Payne International Drilling Co. since 1977 Douglas E. Fears, 50 Vice President, Finance, since 1988 Vice President Steven R. Mackey, 48 Secretary since 1990; Vice President and Vice President and General Counsel since 1988 Secretary Steven R. Shaw, 48 Vice President, Production, since 1985; Vice President Vice President, Exploration and Production since 1996 Gordon K. Helm, 46 Chief Accounting Officer of the Registrant; Controller Controller since December 10, 1993
I - 34 37 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 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:
1998 1999 ----------------- ----------------- Quarter High Low High Low ------- ---- ---- ---- ---- First 44.97 31.06 24.50 16.75 Second 33.19 24.56 23.94 16.06 Third 33.25 21.56 26.75 20.38 Fourth 24.38 16.25 30.19 23.00
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 1998 1999 1998 1999 ------- ------ ------ ---------- ---------- First $0.065 $0.070 $3,256,874 $3,457,626 Second 0.070 0.070 3,519,195 3,459,168 Third 0.070 0.070 3,521,332 3,464,109 Fourth 0.070 0.070 3,504,269 3,468,377
The Registrant paid a cash dividend of $0.07 per share on December 1, 1999, to shareholders of record on November 15, 1999. Payment of future dividends will depend on earnings and other factors. As of December 15, 1999, there were 1,306 record holders of the Registrant's common stock as listed by the transfer agent's records. II - 1 38 Item 6. SELECTED FINANCIAL DATA The Five-year Summary of Selected Financial Data described below excludes results of Natural Gas Odorizing, Inc. ("NGO") operations. Registrant, on August 30, 1996, sold its wholly-owned subsidiary, NGO, to Occidental Petroleum Corporation.
Five-year Summary of Selected Financial Data ------------------------------------------------------- 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- (in thousands) Sales, operating, and other revenues $306,721 $393,255 $517,859 $636,640 $564,319 Income from con- tinuing operations 5,788 45,426 84,186 101,154 42,788 Income from con- tinuing operations per common share: Basic 0.12 0.92 1.69 2.03 0.87 Diluted 0.12 0.91 1.67 2.00 0.86 Total assets 707,061 821,914 1,033,595 1,090,430 1,109,699 Long-term debt -0- -0- -0- 50,000 50,000 Cash dividends declared per common share 0.25 0.255 0.26 0.275 0.28
II - 2 39 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 ---------------------------------------------------- 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- (in thousands) Sales, operating, and other revenues $19,055 $19,540 $ -0- $ -0- $ -0- Income from discon- tinued operations 3,963 3,090 -0- -0- -0- Income from discon- tinued operations per common share: Basic 0.08 0.06 -0- -0- -0- Diluted 0.08 0.06 -0- -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 17, Management's Discussion & Analysis of Results of Operations and Financial Condition, in the Registrant's Annual Report to Shareholders for fiscal 1999, 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 1999, which is incorporated herein by reference: II - 3 40
Market Risk Page ----------- ---- o Foreign Currency Exchange Rate Risk 12 o Commodity Price Risk 12-14 o Interest Rate Risk 17 o Equity Price Risk 17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item may be found on pages 18 through 34 in the Registrant's Annual Report to Shareholders for fiscal 1999, which is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II - 4 41 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 1, 2000, to be filed with the Commission not later than 120 days after September 30, 1999. See pages I-33 and I-34 for information covering the Registrant's Executive Officers. Item 11. EXECUTIVE COMPENSATION This information is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 1, 2000, to be filed with the Commission not later than 120 days after September 30, 1999. 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 1, 2000, to be filed with the Commission not later than 120 days after September 30, 1999. 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 1, 2000, to be filed with the Commission not later than 120 days after September 30, 1999. III - 1 42 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 1999. 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 43 * 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. * 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 44 * 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 1999. 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 45 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 17, 1999 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 17, 1999 Date: December 17, 1999 By /s/ George S. Dotson By /s/ Hans Helmerich ------------------------------ -------------------------------- George S. Dotson, Director Hans Helmerich, Director and CEO Date: December 17, 1999 Date: December 17, 1999 By /s/ W. H. Helmerich, III By /s/ L. F. Rooney, III ------------------------------ -------------------------------- W. H. Helmerich, III, Director L. F. Rooney, III, Director Date: December 17, 1999 Date: December 17, 1999 By /s/ Edward B. Rust, Jr. By /s/ George A. Schaefer ------------------------------ -------------------------------- Edward B. Rust, Jr., Director George A. Schaefer, Director Date: December 17, 1999 Date: December 17, 1999 By /s/ John D. Zeglis By /s/ Douglas E. Fears ------------------------------ -------------------------------- John D. Zeglis, Director Douglas E. Fears Date: December 17, 1999 (Principal Financial Officer) Date: December 17, 1999 By /s/ Gordon K. Helm ------------------------------ Gordon K. Helm, Controller (Principal Accounting Officer) Date: December 17, 1999
46 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Restated Certificate of Incorporation and Amendment to Restated Certificate of Incorporation of the Registrant are incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. 3.2 By-Laws of the Registrant are incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. 4.1 Rights Agreement dated as of January 8, 1996, between the Registrant and The Liberty National Bank and Trust Company of Oklahoma City, N.A. is incorporated herein by reference to the Registrant's Form 8- A, dated January 17, 1996. * 10.1 Incentive Stock Option Plan is incorporated herein by reference to Exhibit 4.2 to the Registrant's Registration Statement No. 33-16771 on Form S-8. * 10.2 Form of Incentive Stock Option Plan Stock Option Contract for the Incentive Stock Option Plan is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996. * 10.3 Consulting Services Agreement between W. H. Helmerich, III, and the Registrant effective January 1, 1990, as amended is incorporated herein by reference to Registrant's Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996.
- ---------------- * Compensatory Plan or Arrangement. 47 * 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. * 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. 48 * 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 1999. 22. Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 27. Financial Data Schedule.
- ---------------- * Compensatory Plan or Arrangement. EX-10.9 2 SUPPLEMENTAL SAVINGS PLAN FOR SALARIED EMPLOYEES 1 EXHIBIT 10.9 SUPPLEMENTAL SAVINGS PLAN FOR SALARIED EMPLOYEES OF HELMERICH & PAYNE, INC. THIS SUPPLEMENTAL SAVINGS PLAN FOR EMPLOYEES OF HELMERICH & PAYNE, INC. is hereby adopted under the following terms and conditions. ARTICLE I NAME AND PURPOSE OF PLAN 1.1 Name of Plan. This Plan shall be hereafter known as the SUPPLEMENTAL SAVINGS PLAN FOR EMPLOYEES OF HELMERICH & PAYNE, INC. 1.2 Purpose. The Plan is established and maintained by Helmerich & Payne, Inc. and certain of its subsidiaries for the purpose, in part, of providing benefits for certain key management salaried employees of the Company or any Subsidiary. This Plan shall be binding on the Company and any Subsidiary whose employees are selected for participation in the Plan. It is intended that this Plan be unfunded for federal income tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974. ARTICLE II DEFINITIONS 2.1 Definitions. Where the following capitalized words and phrases appear in this instrument, they shall have the respective meanings set forth below unless a different context is clearly expressed herein. (a) "Accounts" means the Supplemental Deferrals of Compensation Account and the Supplemental Employer Matching Contribution Account. (b) "Beneficiary" means the person or persons (including, without limitation, the trustees of any testamentary or inter vivos trust) designated from time to time in writing by the Participant to receive payments under the Plan after the death of the Participant, or, in the absence of any such designation, or, in the event that such designated person or persons shall predecease the Participant or shall not be in existence or shall otherwise be unable to receive such payments, the person or persons designated under such Participant's last will and testament, or, in absence of such designation, to his estate. A Beneficiary Designation Form is attached hereto as Exhibit "A." (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any regulations relating thereto. 1 2 (e) "Committee" means the committee appointed by the Company pursuant to Article VII hereof to administer the Plan. (f) "Company" means Helmerich & Payne, Inc., a corporation, or, to the extent provided in Section 9.6 below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company. (g) "Compensation" means the total regular base wages and salary (prior to reduction for Supplemental Deferrals of Compensation under this Plan) which would be paid to a Participant during a Plan Year and reported by the Employer to the Internal Revenue Service on Form W-2 including (i) bonuses and overtime, (ii) vacation pay, (iii) sick pay, (iv) compensation paid for boat time travelling to drilling rigs, (v) shift differential; and (vi) any amount deferred by a Participant pursuant to Section 401(k) of the Code with respect to an employee benefit plan sponsored by the Employer or Section 125 of the Code with respect to a "cafeteria plan" sponsored by the Employer, but excluding (i) any amount recognized on the exercise of a stock option, upon becoming vested in any stock award or grant or upon the premature disposition of stock acquired under an inactive stock option, (ii) dividends received as compensation under any stock award plan, (iii) relocation allowances, (iv) deferred compensation except in the year included in income and except as provided under this Plan, and (v) all allowances, reimbursements and other extraordinary sums paid for travel, expenses or special payments for extraordinary services, (vi) coverall and uniform allowances, (vii) phantom overrides, (viii) overseas housing allowances, (ix) income attributable to group life insurance over $50,000, (x) disability income paid under the Employer's long term disability plan, (xi) bonuses or payments mandated by foreign laws, (xii) safety awards, (xiii) expatriate foreign service premiums, (xiv) expatriate foreign service allowances, and (xv) other fringe or welfare benefits of the Employer which are includable in the income of the Participant such as executive medical reimbursements, premium payments and tax reimbursement. (h) "Disability" shall mean the inability of any Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The permanence and degree of such impairment shall be supported by medical evidence. In the event of a dispute, such shall be settled by a majority decision of three physicians, one to be appointed by the Committee, one by the Participant and the third by the two physicians previously appointed. (i) "Early Retirement Date" shall mean the date that a Participant may elect to terminate employment on or after attaining the age of at least 55 years and commence receipt of his benefit. (j) "Employer" means the Company, its parent, or any Subsidiary who is the employer of the Participant. (k) "Investment Guidelines" means any of those investment options which are described in Section 5.2 hereof. 2 3 (l) "Limitations on Benefits" means the limitations imposed by Sections 401(k), 401(m), 402(g), 401(a) s(17) and 415 of the Code on the accrual of benefits under the Qualified Plan. (m) "Normal Retirement Date" shall mean the date on which a Participant attains the age of 65 years. (n) "Participant" means a key management salaried employee of the Company, its parent or any Subsidiary who (i) is a participant under the Qualified Plan (or any successor or replacement retirement plan qualified under Section 401(a) and 501(a) of the Code) and to whom or with respect to whom a benefit is payable under the Qualified Plan, and (ii) has been selected by the Committee to participate in the Plan. The initial participants are listed on Exhibit "B" attached hereto. (o) "Plan" means this "Supplemental Savings Plan for Salaried Employees of Helmerich & Payne, Inc." (p) "Plan Year" means the annual period commencing January 1 through December 31. (q) "Qualified Plan" means the "Helmerich & Payne, Inc. Employees' 401(k)/Thrift Plan" amended and restated effective January 1, 1987, and each predecessor, successor or replacement employees retirement plan qualified under Section 401(a) and 501(a) of the Code. (r) "Qualified Plan Employer Matching Contribution" means the total of all matching contributions made by the Employer for the benefit of a Participant under and in accordance with the terms of the Qualified Plan in any Plan Year. (s) "Qualified Plan Employee Section 401(k) Contributions" means the Section 401(k) Contributions deferred from the Participant's Compensation as made by the Employer for the benefit of a Participant under and in accordance with the terms of the Qualified Plan in any Plan Year. (t) "Qualified Plan Employee Section 401(k) Contribution Account" means the account established for a Participant under the Qualified Plan and known as the Employee Section 401(k) Contribution Account. (u) "Qualified Plan Employer Matching Contribution Account" means the account established for a Participant under the Qualified Plan and known as the Employer Matching Contribution Account. (v) "Salary Reduction Agreement" means the written salary reduction agreement entered into by a Participant with the Employer pursuant to the Qualified Plan. (w) "Subsidiary" means any corporation with 80% or more of its voting common stock being owned by the Company. 3 4 (x) "Supplemental Deferrals of Compensation" means the amount of the salary reduction credit made by the Employer to the Participant's Supplemental Deferrals of Compensation Account under and in accordance with the terms of this Plan in any Plan Year. (y) "Supplemental Deferrals of Compensation Account" means the bookkeeping account maintained by the Employer under the Plan for a Participant that is credited with amounts contributed under Section 4.1 of the Plan. (z) "Supplemental Employer Matching Contribution" means the amount of the matching credit made by the Employer to the Participant's Supplemental Employer Matching Contribution Account under and in accordance with the terms of the Plan in any Plan Year. (aa) "Supplemental Employer Matching Contribution Account" means the bookkeeping account maintained by the Employer under the Plan for a Participant that is credited with amounts contributed under Section 4.3 of the Plan. (bb) "Supplemental Salary Reduction Agreement" means the written salary reduction agreement entered into by a Participant and the Company pursuant to this Plan. A form of Supplemental Salary Reduction Agreement is attached as Exhibit "B." (cc) "Trust" means the Helmerich & Payne, Inc. Supplemental Benefits Trust which has been established and may be used by the Company, its parent or any Subsidiary as the device for assisting the Company, its parent or any Subsidiary in meeting their respective obligations under the Plan. The Trust will hold Supplemental Deferrals of Compensation and Supplemental Employer Matching Contributions and earnings on such amounts. The Trust and any assets held by the Trust will conform to the terms of the model trust as described in Revenue Procedure 92-64, as modified by the Internal Revenue Service. (dd) "Trustee" or "Trustees" means the entity who has been designated by the Company to serve as Trustee of the Trust. 2.2 Construction. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, unless the context clearly indicates to the contrary. Any word appearing herein in the plural shall include the singular, where appropriate, and likewise the singular shall include the plural, unless the context clearly indicates to the contrary. ARTICLE III ELIGIBILITY A Participant who (i) is eligible to receive a Qualified Plan Employee Section 401(k) Contribution and Qualified Plan Employer Matching Contribution, but the amount of such benefits are reduced by reason of the application of the Limitations on Benefits, as in effect on the date of commencement of the Qualified Plan Employee Section 401(k) Contributions and Qualified Plan Employer Matching Contributions, or as in effect at any time thereafter, shall be eligible to participate in the Plan and (ii) is among a group of key management employees and who are included in a classification to coverage under this Plan has been extended. A Participant shall only be able to participate in the Plan for any Plan Year with respect to Supplemental 4 5 Deferrals of Compensation and Supplemental Employer Matching Contributions only if such Participant has made the maximum elective deferrals under Section 402(g) of the Code or the maximum elective contributions permitted under the terms of the Qualified Plan determined as of the first day of the applicable Plan Year. ARTICLE IV SUPPLEMENTAL CONTRIBUTIONS 4.1 Supplemental Deferrals of Compensation. The Supplemental Deferrals of Compensation to be made by the Employer under this Plan for the benefit of a Participant for any Plan Year shall be in an amount equal to the difference between (a) "minus" (b) below where: (a) is the Qualified Plan Employee Section 401(k) Contributions which would have been allocated to the Qualified Plan Employee Section 401(k) Contribution Account of the Participant for the Plan Year, as determined by the Salary Reduction Agreement between the Participant and the Company in effect for such Plan Year pursuant to the terms of the Qualified Plan based on the assumption that the Participant elected to defer 15% of Compensation (or a lesser percentage which has been designated by the Participant under the Supplemental Salary Reduction Agreement) into the Qualified Plan Employee Section 401(k) Contribution Account, without giving effect to the Limitations on Benefits applicable to the Qualified Plan; and (b) is the amount of the Qualified Plan Employee Section 401(k) Contributions actually elected by the Participant to the Qualified Plan Employee Section 401(k) Contribution Account of the Participant for the Plan Year determined as of the first day of the plan year applicable to the Qualified Plan. Provided, in order to be eligible to make Supplemental Deferrals of Compensation into this Plan for any Plan Year, the Participant must have elected to make the maximum Qualified Plan Employee Section 401(k) Contributions to the Qualified Plan as provided under either Sections 401(k)(3) or 402(g) of the Code, or as otherwise limited by the terms of the Qualified Plan. Provided further, the calculation of whether the Participant has made the required maximum contribution to the Qualified Plan will be made as of the beginning of the applicable Plan Year to which such Supplemental Deferrals of Compensation shall be applicable, and once such determination has been made for such Plan Year, then, the Participant may make Supplemental Deferrals of Compensation into this Plan. Provided further, in no event will any Qualified Plan Employee Section 401(k) Contributions or any Qualified Plan Employer Matching Contributions attributable to any Participant be deferred or contributed into this Plan or the Trust from the Qualified Plan. 4.2 Supplemental Salary Reduction Agreement. As a condition to the Company's obligation to make Supplemental Deferrals of Compensation for the benefit of a Participant pursuant to Section 4.1 above, the Participant must execute a Supplemental Salary Reduction Agreement in the form attached hereto as Exhibit "C." The Supplemental Salary Reduction Agreement for any Plan Year shall be made before the beginning of that Plan Year and shall remain in full force and effect for subsequent Plan Years unless revoked by a Participant by written instrument delivered to the Company prior to the beginning of the Plan Year in which 5 6 such revocation is to be effective. Provided, for the Plan Year commencing January 1, 1993, this election may be made prior to December 1, 1993 and such election shall be effective as of December 1, 1993 with respect to Supplemental Deferrals of Compensation and Supplemental Employer Matching Contributions made after December 1, 1993 through December 31, 1993 but based on compensation paid during calendar year 1993. Also, the Participant may elect to terminate Supplemental Deferrals of Compensation at any time during the Plan Year, and if such election is made, the Participant may not reenter the Plan until the beginning of the next Plan Year. 4.3 Supplemental Employer Matching Contributions. The Supplemental Employer Matching Contribution to be made by the Company or any Subsidiary for the benefit of a Participant for any Plan Year shall be in an amount equal to the difference between (a) "minus" (b) below where: (a) is the Qualified Plan Employer Matching Contribution which would have been allocated to the Qualified Plan Employer Matching Contribution Account of the Participant for the Plan Year based on the assumption that the Participant elected to defer 5% of Compensation into the Qualified Plan Employee Section 401(k) Contribution Account without giving effect to any reduction in the Qualified Plan Employer Matching Contribution required by the Limitations on Benefits applicable to the Qualified Plan; and (b) is the amount of the Qualified Plan Employer Matching Contribution which would be actually allocated to the Qualified Plan Employer Matching Contribution Account of the Participant for the Plan Year. 4.4 Source of Contributions. For the purpose of this Plan, all Supplemental Deferrals of Compensation will be a reduction of the Participant's Compensation prior to the time such amounts would otherwise be actually deferred into the Qualified Plan as an Employee Section 401(k) Contribution; and, all Supplemental Employer Matching Contributions will be made by the Employer without application of any amounts otherwise contributed by the Employer to the Qualified Plan. 4.5 Establishment of Accounts. Supplemental Deferrals of Compensation made for the benefit of a Participant for any Plan Year shall be credited to a Supplemental Employee Contribution Account maintained under the Plan in the name of such Participant within 30 days after the last day of such Plan Year. Supplemental Employer Matching Contributions made for the benefit of a Participant for any Plan Year shall be credited to a Supplemental Employer Matching Contribution Account maintained under the Plan in the name of such Participant at regular intervals during the Plan Year but no later than 30 days after the last day of such Plan Year. 4.6 Form of Benefit. The Supplemental Retirement Benefit payable to a Participant shall be paid in the form of a single lump sum payment. The Participant's election under the Qualified Plan of any optional form of payment of his Qualified Plan Retirement Benefit shall in no manner whatsoever be applicable to or effect the payment of his Supplemental Retirement Benefit under this Plan. 6 7 4.7 Commencement of Benefit. Payment of the Supplemental Retirement Benefit to a Participant shall commence on the same date as payment of the Qualified Plan Retirement Benefit to the Participant commences but in no event will payment commence later than 30 days following the Participant's termination of employment or date of death, as the case may be. 4.8 Cost of Benefits. The cost of all benefits under this Plan shall be paid by the Company; however, the Company may require reimbursement for the cost of such benefits from either its parent or any Subsidiary whose employees have been selected to participate in this Plan. ARTICLE V INVESTMENT OF SUPPLEMENTAL CONTRIBUTIONS 5.1 Form of Investment. All amounts equal to Supplemental Deferrals of Compensation and Supplemental Employer Matching Contributions will be held by the Trustee of the Trust to be administered in accordance with the terms and provisions of the Trust. Amounts equivalent to Supplemental Deferrals of Compensation will be contributed to the Trust within a reasonable period of time following the deferral of such amounts by the Participant. Amounts equivalent to Supplemental Employer Matching Contributions will be contributed at such time as the Company elects but in no event will such amount be contributed later than 30 days following the end of the Plan Year. Amounts contributed to the Trust shall be invested in accordance with the terms of the Trust; provided, however, in no event shall the assets held in the Trust be invested in any securities issued by the Company, its Subsidiaries or its parent. The Trustee will establish an Account for each Participant which will be used only for recordkeeping purposes, and no Participant shall have any ownership or other rights in such Accounts. The Participants may elect to request the manner of deemed investment of their Plan Accounts represented by Supplemental Deferrals of Compensation (but not Supplemental Employer Matching Contributions) pursuant to such Investment Guidelines as are provided by the Company as provided in Section 5.2 below. The Company will establish methods for accounting for gains and losses with respect to the Accounts in the Trust on a uniform and nondiscriminatory basis. Supplemental Employer Matching Contributions will be credited to the Participant's Supplemental Employer Matching Contribution Account. 5.2 Investment Guidelines. From time to time during the Plan Year the Company will provide "investment guidelines" ("Investment Guidelines") to each Participant and the Company will request each Participant to provide each such Participant's request as to the manner in which each Participant's Supplemental Deferrals of Compensation Account may be deemed to be invested during the following Plan Year. After receipt of each Participants' request as to the appropriate Investment Guidelines, the Company will develop an investment policy (the "Policy") which may or may not be based on such Investment Guidelines, and the Company will forward this Policy to the Trustee of the Trust who has the responsibility to make all investment decisions with regard to the Trust assets in accordance with the terms of the Policy. 7 8 ARTICLE VI DISTRIBUTIONS 6.1 Time and Form of Distributions. Except as provided under Section 6.3 below, all amounts credited to a Participant's Supplemental Employee Contribution Account and Supplemental Employer Matching Contribution Account, including gains and losses credited in accordance with Section 5.1 of the Plan shall be distributed to or with respect to a Participant only upon termination of the Participant's employment with the Employer for any reason including death. All amounts distributable under the Plan shall be distributed in a single lump sum payment within 30 days following the Participant's termination of employment. Distributions may be made in cash or in kind, in the Company's sole discretion. 6.2 Death of Participant. If a Participant should die before distribution of the full amount of Supplemental Employee Contribution Account and Supplemental Employer Matching Contribution Account has been made to him, any remaining amounts shall be distributed to his Beneficiary. 6.3 Beneficiary Designation. The Company will provide a Beneficiary Designation Form on which the Participant shall designate to whom payments should be made in the event of his death. If there is no surviving Beneficiary, then, the Company may make payment to the Participant's estate, his surviving spouse or his surviving children as determined by the Company. 6.4 Termination of Employment - Vesting of Accounts. (a) General. Unless sooner vested under this Plan, when a Participant ceases to be an Employee, his benefit represented by Supplemental Employer Matching Contribution Accounts shall be determined in accordance with the following Subsection. (b) Vesting. A Participant shall have vested and nonforfeitable rights in all or part of his benefit represented by his Supplemental Employer Matching Contribution Account, as set forth by the percentages in the applicable table hereafter set forth:
Years of Percent of Supplemental Employer Credited Service Matching Contribution Account Vested - ---------------- ------------------------------------- Less than: 3 0% At least: 3 20% 4 40% 5 60% 6 80% 7 100%
With respect to a Participant who has any unvested portion of his Supplemental Employer Matching Contribution Account, such Account shall be forfeited and be returned to the Company. 8 9 ARTICLE VII ADMINISTRATION OF THE PLAN 7.1 Administration by the Company. The Company shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. 7.2 Allocation of Responsibility to the Committee for Plan Administration. The Committee shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under the Plan or the Trust. In general, the Company shall have the sole responsibility for appointing and removing Committee members, as provided in Section 7.3 herein. The Committee shall have the sole responsibility for the administration of this Plan, which responsibility is specifically described in this Plan. 7.3 Appointment of Committee. The Plan shall be administered by a Human Resources Committee consisting of at least three members of the Board who shall be appointed by and serve at the pleasure of the Board. No member of the Human Resources Committee shall be eligible to participate in the Plan. 7.4 Rules and Decisions. The Committee may adopt such rules as it deems necessary, desirable, or appropriate to administer the Plan. 7.5 Authorization of Benefit Payments". The Committee shall issue directions to the Trustees concerning all Benefits which are to be paid from the Plan. ARTICLE VIII AMENDMENT OR TERMINATION 8.1 Amendment or Termination. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable. Any such amendment or termination shall be made pursuant to a resolution of the Board and shall be effective as of the date of such resolution. 8.2 Effect of Amendment or Termination No amendment to or termination of the Plan shall directly or indirectly deprive any current or former Participant of all or any portion of any Supplemental Deferrals of Compensation or Supplemental Employer Matching Contribution payment of which has accrued prior to the effective date of such amendment or termination or which would be payable if the Participant terminated employment for any reason, including death, on such effective date of amendment or termination. Further in the event of the termination of this Plan by the Company, each Participant shall be 100% vested and nonforfeitable in all of his benefit accrued as of such date of termination. 9 10 ARTICLE IX GENERAL PROVISIONS 9.1 Funding. The Plan at all times shall be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of the Employer for payment of any benefits hereunder. No Participant or any other person shall have any interest in any particular assets of the Company by reason of the right to receive a benefit under the Plan and any such Participant or other person shall have only the rights of a general unsecured creditor of the Employer with respect to any rights under the Plan. No right or benefit under this Plan shall in any manner be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of any Participant or Beneficiary, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. If any Participant under this Plan should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right to a benefit hereunder or under the Plan, then such right or benefit shall, in the discretion of the Employer, cease and determine, and, in such event, the Employer may hold or apply the same or any part thereof for the benefit of such Participant, his or her spouse, children, or other dependents, or any of them, in such manner and in such portion as the Employer, in its sole and absolute discretion, may deem proper. 9.2 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a guaranty by the Employer or any other entity or person that the assets of the Employer will be sufficient to pay any benefit hereunder. 9.3 No Enlargement of Employee Rights. No Participant shall have any right to a benefit under the Plan except in accordance with the terms of the Plan. The establishment of the Plan shall not be construed to give any Participant the right to be retained in the employment service of the Employer. 9.4 Spendthrift Provision. No action under this Plan by the Employer or its Board shall be construed as creating a trust, escrow or other secured or segregated fund in favor of the Participant or any other persons otherwise entitled to his Supplemental Employee Contribution Account or Supplemental Employer Matching Contribution Account which is not otherwise subject to the claims of unsecured creditors of the Company. The Plan constitutes a mere promise by the Company to make benefit payments in the future. The status of the Participant with respect to any liabilities assumed by the Employer hereunder shall be solely those of unsecured creditors of the Employer and its Subsidiaries who employ such Participant. Any asset acquired or held by the Employer in connection with liabilities assumed by it hereunder, shall not be deemed to be held under any trust (other than the Helmerich & Payne, Inc. Supplemental Benefits Trust), escrow or other secured or segregated fund for the benefit of the Participant or to be security for the performance of the obligations of the Employer, but shall be, and remain a general, unpledged, unrestricted asset of the Employer at all times subject to the claims of general creditors of the Employer. The Company has created the Trust which relates to the Plan. The assets in the Trust will at all times be subject to the unsecured creditors of the Company. 10 11 9.5 Incapacity of Recipient. If any person entitled to a benefit payment under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan therefor. 9.6 Corporate Successors. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall terminate subject to the provisions of Section 8.2. 9.7 Unclaimed Benefit. Each Participant shall keep the Company informed of his current address and the current address of his Beneficiary. The Company shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Company within three years after the date on which payment of the Participant's Supplemental Employee Contribution Account and Supplemental Employer Matching Contribution Account may first be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, the Company is unable to locate any designated Beneficiary of the Participant, then, the Company shall have no further obligation to pay any benefit hereunder to such Participant or designated Beneficiary or any other person and such benefit shall be irrevocably forfeited. 9.8 Limitations on Liability. Notwithstanding any of the preceding provisions of the Plan, neither the Employer nor any individual acting as an employee or agent of the Employer shall be liable to any Participant, former Participant, or any other person for any claim, loss, liability or expense incurred in connection with the Plan unless such claim, loss, liability or expense is due to the gross negligence or willful misconduct of the Employer. 9.9 Withholding and Other Employment Taxes. The Employer shall comply with all federal and state laws and regulations respecting the withholding, deposit and payment of any income or other taxes relating to any payments made under this Plan. 9.10 Claims Procedure. (a) The Company shall make all determinations as to the right of any person to benefits under this Plan. If any request for benefits is wholly or partially denied, the Company shall notify the person requesting such benefits, in writing, of such denial, including in such notification the following information: (i) the specific reason or reasons for such denial; 11 12 (ii) the specific references to the pertinent Plan provisions upon which the denial is based; (iii) a description of any additional material and information which may be needed to clarify the request, including an explanation of why such information is required; and (iv) an explanation of the Plan's review procedure with respect to denial of such benefits. Provided, that any such notice to be delivered to any Participant or beneficiary must be personally delivered to such Participant by obtaining a signed receipt therefor or must be mailed by certified or registered mail to such Participant. (b) Any Participant or beneficiary, whose claim has been denied, may appeal to the Company for review of such denial by making a written request therefor within 60 days after receipt of the notification of such denial. Such Participant or beneficiary may examine documents pertinent to the review and may submit to the Company written issues and comments. Within 60 days after receipt of the request for review, the Company shall communicate to the claimant, in writing, its decision, and the communication shall set forth the reason for the decision and specific reference to those Plan provisions upon which the decision is based. 9.11 Applicable Law. The Plan shall be construed and administered under the laws of the State of Oklahoma. 9.12 Binding Effect. To the extent provided in this Plan, the Plan shall be binding upon the Company and its successors and assigns. 9.13 Effective Date. The effective date of this Plan shall be November 1, 1993. HELMERICH & PAYNE, INC., a Delaware corporation ATTEST: Steven R. Mackey By Hans C. Helmerich - --------------------------------- ------------------------------------ Secretary President [SEAL] 12 13 EXHIBIT "A" TO SUPPLEMENTAL SAVINGS PLAN FOR EMPLOYEES OF HELMERICH & PAYNE, INC. 1. Hans C. Helmerich 2. Allen S. Braumiller 3. George S. Dotson 4. Douglas E. Fears 5. Jerome T. Johnson 6. Steven R. Mackey 7. Merrill A. Miller, Jr. 8. James L. Payne 9. Steven Shaw 10. Todd F. Sprague 11. Clint K. Whisenhunt 13 14 EXHIBIT "B" TO SUPPLEMENTAL SAVINGS PLAN FOR SALARIED EMPLOYEES OF HELMERICH & PAYNE, INC. BENEFICIARY DESIGNATION FORM The undersigned Participant hereby designates the following primary and contingent beneficiaries to receive all benefits payable to him under the Supplemental Savings Plan for Salaried Employees of Helmerich & Payne, Inc. (the "Plan") in the event of his death: Primary ------- Name Address Relationship - ---- ------- ------------ Contingent ---------- Name Address Relationship - ---- ------- ------------ The undersigned Participant understands that during his lifetime, he shall have the right at any time to select and change selection of the beneficiary or beneficiaries by delivering to Helmerich & Payne, Inc. a request for a change of beneficiaries. Upon receipt and acceptance by the Company, all previous beneficiary designations shall be null and void. --------------------------- Participant's Signature Date: ------------------------- ACCEPTED THIS ______ DAY OF _________________, 19__ BY ______________________ ON BEHALF OF HELMERICH & PAYNE, INC. HELMERICH & PAYNE, INC., a Delaware corporation ATTEST: By - --------------------------------- ------------------------------------ Secretary President 14 15 EXHIBIT "C" TO SUPPLEMENTAL SAVINGS PLAN FOR SALARIES EMPLOYEES OF HELMERICH & PAYNE, INC. SUPPLEMENTAL SALARY REDUCTION AGREEMENT As a condition to receiving Supplemental Deferrals of Compensation under the Supplemental Savings Plan for Salaried Employees of Helmerich & Payne, Inc., I hereby agree that: 1. The Compensation otherwise payable to me by the Employer for the period commencing _________________, 19__ and ending ________________, 19__, shall be reduced by an amount of Supplemental Deferrals of Compensation determined by electing one of the following: __ 15% of Compensation __ ________ (Enter 1% - 14%) of Compensation 2. I have received a copy of the Plan and agree to be bound by the terms and provisions thereof. Dated: -------------------- ------------------------------ Participant "PARTICIPANT" Dated: HELMERICH & PAYNE, INC., a -------------------- Delaware corporation By: --------------------------- President "COMPANY" 15 EX-13 3 1999 ANNUAL REPORT TO STOCKHOLDERS 1 HELMERICH & PAYNE, INC. ANNUAL REPORT FOR 1999 Revenue Breakdown for 1999 [CHART] FINANCIAL HIGHLIGHTS
Years Ended September 30, 1999 1998 --------------- --------------- Revenues $ 564,319,000 $ 636,640,000 Net Income $ 42,788,000 $ 101,154,000 Diluted Earnings Per Share $ .86 $ 2.00 Dividends Paid Per Share $ .28 $ .275 Capital Expenditures $ 122,951,000 $ 266,299,000 Total Assets $ 1,109,699,000 $ 1,090,430,000
2 PRESIDENT'S LETTER To the Co-owners of Helmerich & Payne, Inc. At the closing of this century, dubbed by some "The Century of Oil," energy continues to play a fascinating role on the world stage. Wars have been waged over its control and strategic advantage. Great machines of commerce, defense, and development have been fueled by its availability and abundance. It is hard to imagine turning through the pages of history for the last hundred years without the oil patch occupying a prominent place. Your Company has been privileged to play a part of that story for eighty years. Perhaps by now, we should be able to figure out where things are going. But true to character, predicting the future of the energy business remains elusive. Earlier this year, prices plunged to a fifty-year, inflation-adjusted low, prompting seasoned observers, notably The Economist, to predict the specter of prolonged pricing pain in a range of $5 per barrel. Within mere months, oil prices threatened to reach a $30 threshold on the strength of OPEC solidarity and recovering worldwide demand. These dramatic price swings reflect the unprecedented shifts occurring in the industry at the change of the century. What can be said as we move into the new millennium? While no one is suggesting "The Century of Oil, Part Two," future worldwide energy needs will continue to grow, even in a world of less steel and more E-commerce. The global economy's appetite for more energy will be met primarily from OPEC's low cost supplies. While OPEC's market share will certainly grow, the non-OPEC countries must still provide around half of the demand, and their major fields continue to mature and deplete. New production will be supplied from expensive frontier and deepwater exploration efforts. 2 3 The need for new drilling is even more profound for declining natural gas production. Over the next ten years, the United States is expected to burn half again our current domestic reserves. Going forward, an emerging cycle of strong supply and demand fundamentals is taking shape. Like always before, there will be ups and downs and unforeseen surprises. Predictably, financial strength and flexibility will be needed to cope with the industry's cyclicality and constant change. Technology will continue to be a key driver in delivering added value and reducing costs. Yet the challenge that will determine the clearest strategic advantage is on the people side of the business. From the beginning, our Company has succeeded on the skill, experience, and creative contributions of its people. At the same time, we operate in an industry that has lost over half of its workforce during the last twenty years and continues to suffer from an immeasurable drain of institutional knowledge. Thankfully, that is not the case at Helmerich & Payne, Inc. We are stronger and more talented throughout the organization than ever before. No annual report can capture the enterprise value found in the culture, shared values, and loyalty of its people. Perhaps that story is best told by customers, partners, suppliers, and competitors who know us best and with whom we earn our reputation everyday. As the calendar turns to the year 2000, your Company is confident and excited about the future. Sincerely, /s/ HANS HELMERICH Hans Helmerich December 15, 1999 President 3 4 DRILLING HELMERICH & PAYNE INTERNATIONAL DRILLING CO. SUMMARY Helmerich & Payne International Drilling Co. is a leading drilling contractor with a fleet of 89 drilling rigs worldwide. The Company owns 79 land rigs, 40 of which were located in the United States at year-end, and 39 located in the countries of Venezuela (18), Colombia (10), Bolivia (5), Ecuador (4), and Argentina (2). Additionally, the Company owns 10 offshore platform rigs in the Gulf of Mexico and jointly owns, with Atwood Oceanics, Inc., an offshore platform rig located in Australia. Helmerich & Payne International Drilling Co. also provides management services for two Exxon-owned platform rigs operating offshore California. Low oil prices had a considerable negative impact on the financial performance of the Company, as well as on the contract drilling industry worldwide. Total contract drilling revenues slipped eight percent in 1999, interrupting a string of consecutive increases which began over a decade ago in 1987. Earnings before interest, taxes, depreciation, and amortization (EBITDA) fell ten percent to $127.3 million, and pre-tax operating profit fell to $60 million, from $86.7 million in 1998. INTERNATIONAL OPERATIONS Rig utilization fell to an average of 53 percent in 1999, compared to 88 percent in 1998. The Company's Venezuelan operation was the hardest hit during the year as rig activity fell to less than half of the previous year's level, resulting in revenue and EBITDA declines of 55 percent and 65 percent, respectively, in that country. As a leading member of OPEC, Venezuela sharply curtailed production and development activities in its effort to adhere to the revised quota arrangement set forth by the cartel. During 1999, the Company transferred four land rigs and one offshore platform rig from Venezuela to the United 4 5 States. One of the land rigs and the platform rig began working in the U.S. market during 1999, and another land rig is committed to stay in the U.S. Out of the two remaining land rigs, one was returned to Venezuela in November after refurbishment, and the other will return to the international market at the earliest opportunity. The Company's operations in Colombia also slowed, with revenues and EBITDA there decreasing 23 percent and 18 percent, respectively. Improvements in the Venezuelan and Colombian drilling markets will likely correlate highly with the health of the world oil market. Additionally, both of these countries grapple with considerable socioeconomic and political challenges, which could also have a significant impact on the speed at which oil exploration and development activities resume to levels the Company has experienced in years past. Increased activity in Argentina and Bolivia helped offset part of the decline experienced internationally in 1999. A significant portion of the drilling in Argentina and Bolivia is aimed at developing natural gas supplies for growing markets in the southern cone region of South America. The Company completed the rig construction phase of Mobil's Jade project, which made a significant contribution to revenues and EBITDA during 1999. Separately, Helmerich & Payne International Drilling Co. was awarded a management contract for the Jade offshore platform, which is scheduled to begin early in calendar year 2000 in Equatorial Guinea, West Africa. UNITED STATES OPERATIONS The weak crude oil market also factored into the U.S. drilling market during 5 6 1999, resulting in lower activity levels and dayrates. Utilization averaged 75 percent in 1999, compared with 95 percent in 1998. Lower activity, coupled with decreased dayrates, caused domestic land drilling revenues and EBITDA to decline by 26 percent and 64 percent, respectively. The U.S. land drilling market is becoming increasingly skewed toward natural gas, so future activity levels are likely to become more dependent on the price of this commodity and less on the price of crude oil. During 1999, the Company's active rigs drilled almost exclusively for natural gas. The Company's ten offshore platform rigs remained highly active through most of the year, averaging a utilization rate of 95 percent. Domestic offshore revenues and EBITDA increased 24 percent and 39 percent, respectively, over the 1998 level. OUTLOOK Two important factors drive the Company's operating strategy going forward. First, financial strength and flexibility are important in an industry where cycles are as severe as the one recently experienced. Second, customers will increasingly demand better rig equipment and technology, and higher standards for safety and operating performance in their drilling programs. Even under depressed industry conditions, when the dayrate seems to reign as the paramount component in a bid, the Company has quantified the significant impact that quality performance can have on the ultimate cost of a well. Safety and training programs, high standards for rig maintenance, and design, engineering, and construction experience are in and of themselves sound investments. The return on these investments comes in new projects, solid, long-term customer relationships, a well-recognized reputation for quality performance, and the highest rig utilization among our peers in key drilling markets. 6 7 EXPLORATION & PRODUCTION HELMERICH & PAYNE, INC. SUMMARY Helmerich & Payne, Inc. explores for and produces crude oil and natural gas primarily in the states of Kansas, Louisiana, Oklahoma, and Texas. Additionally, the Company provides natural gas marketing services through its wholly-owned subsidiary, Helmerich & Payne Energy Services, Inc. Helmerich & Payne, Inc. produced an average of 1,779 barrels of oil per day in 1999, compared with 1,921 barrels per day in 1998. Although oil prices fell in 1999 to their lowest point in many years, the average price the Company received declined only slightly to $14.60 per barrel, from $14.74 per barrel in 1998. Natural gas production increased to 121,206 thousand cubic feet (Mcf) per day, from 117,431 Mcf per day. The average price received for natural gas fell ten percent to $1.83 per Mcf, from $2.04 per Mcf in 1998. Reductions in both oil production and natural gas prices pushed revenues down three percent, to $96 million. Additionally, higher depreciation, geophysical, and lease abandonment expenses reduced operating profit to $11.2 million in 1999, compared with $28.1 million in 1998. NATURAL GAS MARKETING Helmerich & Payne Energy Services, Inc. realized a three percent increase in revenues and an 83 percent increase in operating profit in 1999. The dramatic increase in operating profit resulted from favorable forward prices contracted on a small portion of marketed production prior to last year's mild winter. EXPLORATION ACTIVITIES Helmerich & Payne, Inc. participated in the drilling of 49 (23.9 net) wells in 1999, of which 33 (15.5 net) were completed as natural gas wells, two (1.3 net) as oil wells, and 14 (7.1 net) as dry holes. A total of 15 (5.5 net) wells were exploratory and the remaining 34 (18.4 net) were development wells. Proved reserves at year-end were 4.8 million barrels of oil and 239.6 billion cubic feet (Bcf) of natural gas. 7 8 Over the past two years, the Company has focused on prospect development utilizing 3D seismic technology. The Company is presently involved in a number of 3D seismic surveys covering over 850 square miles in Texas and Louisiana. Three of these surveys encompassed 185 square miles in Jefferson County, Texas, where the Company has an acreage position with working interests ranging from 54 percent to 66 percent. Four successful wells were drilled in this area during 1999. The Company also participated in 65 square miles of 3D seismic in West Texas and a 94 square mile survey in Galveston County, Texas. Five wells were drilled on these prospects in 1999; two of four Galveston County wells were successful and the West Texas well was in progress at year-end. The Company also participated in a 200 square mile, 3D seismic survey on another south Texas prospect where a wildcat well was drilling at year-end. The Company could potentially participate in more than 20 wells in its Texas prospect areas alone during the first half of fiscal 2000. In Louisiana, the Company purchased a 42 percent working interest in a prospect in Calcasieu Parish, as well as 50 square miles of 3D seismic in the area. At calendar year-end, the first wildcat well was nearing completion and a second well was about to spud. OUTLOOK Due to the nature of the exploration business, many projects can take years to come to fruition. This makes it challenging to gauge the overall success of an effort, particularly when looking at annual reserve replacement and finding cost data. Over the past two years, the Company has invested almost $35 million in acreage and seismic to develop a larger and more technologically-focused portfolio of promising prospects. With this significant amount of spadework completed, the Company is poised to participate in more exploratory drilling in fiscal 2000 than it has in several years. 8 9 Revenues and Operating Profit by Business Segments HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997 --------- --------- --------- (in thousands) SALES AND OTHER REVENUES: Contract Drilling - Domestic .......... $ 213,647 $ 177,059 $ 140,294 Contract Drilling - International ..... 182,987 253,072 176,651 --------- --------- --------- Total Contract Drilling ............ 396,634 430,131 316,945 --------- --------- --------- Exploration and Production ............ 95,953 98,696 111,512 Natural Gas Marketing ................. 55,259 53,499 69,015 --------- --------- --------- Total Oil and Gas Operations ....... 151,212 152,195 180,527 --------- --------- --------- Real Estate ........................... 8,671 8,922 8,641 Other ................................. 7,802 45,392 11,746 --------- --------- --------- Total Revenues ........................... $ 564,319 $ 636,640 $ 517,859 ========= ========= ========= OPERATING PROFIT: Contract Drilling - Domestic .......... $ 30,154 $ 35,817 $ 24,437 Contract Drilling - International ..... 29,845 50,834 43,118 --------- --------- --------- Total Contract Drilling ............ 59,999 86,651 67,555 --------- --------- --------- Exploration and Production ............ 11,245 28,088 55,191 Natural Gas Marketing ................. 4,418 2,418 3,363 --------- --------- --------- Total Oil and Gas Operations ....... 15,663 30,506 58,554 --------- --------- --------- Real Estate ........................... 5,338 5,371 5,615 --------- --------- --------- Total Operating Profit ............. 81,000 122,528 131,724 --------- --------- --------- OTHER: Income from investments ............... 7,757 44,603 11,437 General and administrative expense .... (14,198) (11,762) (9,346) Interest expense ...................... (6,481) (942) (4,212) Corporate depreciation ................ (1,565) (1,280) (919) Other corporate expense ............... (1,575) (927) (1,269) --------- --------- --------- Total Other ........................ (16,062) 29,692 (4,309) --------- --------- --------- INCOME BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE ......... $ 64,938 $ 152,220 $ 127,415 ========= ========= =========
- -------------------------------------------------------------------------------- Note: See Note 13 (pages 31 and 32) for complete segment disclosure. 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, fluctuations in oil and natural gas prices, expiration or termination of drilling contracts, currency exchange gains and losses, changes in general economic conditions, rapid or unexpected changes in technologies, and uncertain business conditions that affect the Company's businesses. Accordingly, past results and trends should not be used by investors to anticipate future results or trends. With the exception of historical information, the matters discussed in Management's Discussion & Analysis of Results of Operations and Financial Condition include 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 1999 was $42,788,000 ($0.86 per share), compared with net income of $101,154,000 ($2.00 per share) in 1998, and $84,186,000 ($1.67 per share) in 1997. Included in the Company's net income, but not related to its operations, were after-tax gains from the sale of investment securities of $1,562,000 ($0.03 per share) in 1999, $23,417,000 ($0.46 per share) in 1998, and $2,870,000 ($0.06 per share) in 1997. Also included is the Company's portion of income from its equity affiliate, Atwood Oceanics, Inc., which was $0.07 per share in 1999, $0.11 per share in 1998, and $0.05 per share in 1997. Net income also included non-cash charges of $6,237,000 ($0.13 per share) in 1999 and $3,356,000 ($0.07 per share) in 1998 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-Lived Assets and for Long-Lived Assets to be Disposed Of. 10 11 Consolidated revenues were $564,319,000 in 1999, $636,640,000 in 1998, and $517,859,000 in 1997. The 11 percent decline from 1998 to 1999 was primarily due to the $70,085,000 reduction in international contract drilling revenues. An increase in domestic contract drilling revenues of $36,588,000 was offset by a decline in investment revenues of $36,846,000. 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 due to lower crude oil and natural gas prices. Revenues from investments were $7,757,000 in 1999, $44,603,000 in 1998, and $11,437,000 in 1997. Included in revenues from investments were pre-tax gains from the sale of investment securities of $2,547,000 in 1999, $38,421,000 in 1998, and $4,697,000 in 1997. Interest income was stable during 1999, 1998, and 1997, but dividend income declined slightly as the Company sold shares of dividend paying stocks during the last two years. Costs and expenses in 1999 were $499,381,000, 88 percent of revenues, compared with 76 percent in 1998, and 75 percent in 1997. Operating costs, as a percentage of operating revenues, were 60 percent in 1999, 58 percent in 1998, and 55 percent in 1997. Depreciation, depletion, and amortization (DD&A) expense increased by approximately 24 percent in each of the last two years, due primarily to increases in capital investment made by the Company during the last several years. Also included in DD&A are SFAS 121 impairment charges of $10,059,000 in 1999 and $5,413,000 in 1998. There were no such charges in 1997. General and administrative expenses increased by 21 percent to $14,198,000 in 1999, compared with $11,762,000 in 1998, and $9,346,000 in 1997. Higher overall payroll costs and additional information technology staffing were primary reasons for the increases the last two years. Because of the impact of foreign taxes, income tax expense rose to 40 percent of pre-tax income in 1999, from 37 percent in 1998, and 36 percent in 1997. Interest expense rose to $6,481,000 in 1999, from $942,000 in 1998, and $4,212,000 in 1997. Outstanding bank loans rose at the end of 1998 and into the first half of 1999 as the Company completed a substantial capital expenditure program and, in 1998, repurchased some of its stock. CONTRACT DRILLING DIVISION revenues, which include both domestic and international segment revenues, declined eight percent to $396,634,000 during 1999, from $430,131,000 in 1998. Revenues for 1998 were up 36 percent over the previous year. Division operating profit declined 31 percent to $59,999,000 during 1999, compared with a 28 percent increase from 1997 to 1998. 11 12 Domestic segment revenues were $213,647,000 in 1999, $177,059,000 in 1998, and $140,294,000 in 1997. Domestic segment operating profit was $30,154,000 in 1999, $35,817,000 in 1998, and $24,437,000 in 1997. Domestic segment revenues were up for 1999 mainly due to $40,790,000 of revenues from the Mobil Jade rig construction project and increased offshore platform rig revenues. Domestic operating profit was down because of lower land rig utilization and dayrates. However, operating profit for 1999 was bolstered by several non-recurring items such as income from the Jade construction project and from several capital reimbursements from operators for new rig equipment on existing rigs. Approximately $7.5 million of operating profit from these sources will likely not occur in fiscal 2000. Domestic segment revenues and operating profit for 1998 increased over 1997 because of improved dayrates from both U.S. land and offshore rig operations and higher utilization of the Company's offshore platform rigs. Rig utilization for the U.S. land fleet was 69 percent in 1999, 94 percent in 1998, and 99 percent in 1997. Domestic platform rig utilization was 95 percent in 1999, 99 percent in 1998, and 63 percent in 1997. Revenues and operating profit for domestic operations could be lower in 2000 if rig demand remains soft. International segment revenues fell 28 percent to $182,987,000 during 1999, from $253,072,000 in 1998. Revenues were $176,651,000 in 1997. Operating profit for the international segment declined to $29,845,000 in 1999, from $50,834,000 in 1998, and $43,118,000 in 1997. International rig utilization averaged 53 percent during 1999, 88 percent in 1998, and 91 percent in 1997. Revenues and operating profit increased significantly from 1997 to 1998 due to additional rigs and increased dayrates in Venezuela, Ecuador, Peru, and Bolivia. However, as crude oil prices declined, rig activity and profitability declined rapidly during the last half of 1999, particularly in Venezuela. It is anticipated that during 2000, international revenues and operating profit will be down substantially compared with 1999, because of low rig utilization, dayrates and profit margins, particularly in Venezuela and Colombia. 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 1999, the Company experienced a loss of $711,566 due to devaluation of the bolivar, compared with a $2,204,000 loss in 1998, and a $579,000 loss in 1997. The Company anticipates additional devaluation losses in Venezuela during 2000, 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 $350,000 to $600,000. Using the same assumptions in 1998 resulted in the Company estimating foreign currency losses in Venezuela for 1999 ranging from $1,500,000 to $2,700,000. OIL AND GAS DIVISION includes operating results from its Exploration and Production segment, as depicted in the following table, and its Natural Gas Marketing segment. 12 13
Exploration & Production 1999 1998 1997 -------- -------- --------- Revenues (in 000's) ....................... $ 95,953 $ 98,696 $ 111,512 Operating Profit (in 000's) ............... $ 11,245 $ 28,088 $ 55,191 Natural Gas Production (mmcf per day) ..... 121.2 117.4 110.9 Average Natural Gas Price (per mcf) ....... $ 1.83 $ 2.04 $ 2.23 Crude Oil Production (barrels per day) .... 1,779 1,921 2,700 Average Crude Oil Price (per barrel) ...... $ 14.60 $ 14.74 20.77
Exploration and Production segment revenues and operating profit have declined the past two years as both crude oil and natural gas prices have fallen. Natural gas production increased slightly over the last two years, while oil production has decreased substantially. Much of the decline in oil production was due to the sale of the Company's, Austin Chalk production in the first quarter of 1998. Operating profit has been impacted the last three years by the Company's efforts to increase the quantity and quality of its exploration projects. Accordingly, geophysical expense and reserve for capitalized costs of undeveloped leases have increased. Also, the Company incurred pre-tax impairment charges as required by SFAS 121 of $10,059,000 in 1999 and $5,413,000 in 1998. No impairment charges were incurred in 1997. During 2000, the Company intends to increase its capital spending over the previous year in order to participate in more exploratory opportunities. Therefore, operating profit for the coming year will be impacted by the results of those efforts. Geophysical expense, reserve for capitalized costs of undeveloped leases, and dry hole expense could be higher as a result of more exploration activity. Also, it is difficult to predict the movement of crude oil and natural gas prices and their impact on operating profit. The Company's Natural Gas Marketing segment, Helmerich & Payne Energy Services, Inc., (HPESI) derives most of its revenues from selling natural gas produced by other unaffiliated companies. Total Natural Gas Marketing segment revenues were $55,259,000 in 1999, $53,499,000 in 1998, and $69,015,000 in 1997. Operating profit was $4,418,000 in 1999, $2,418,000 in 1998, and $3,363,000 in 1997. Most of the natural gas owned and produced by the Exploration and Production segment is sold through HPESI to third parties at variable prices based on industry pricing publications or exchange quotations. Revenues for the Company's own natural gas production are reported by the Exploration and Production segment with the Natural Gas Marketing segment retaining a market-based fee from the sale of such production. HPESI sells most of its natural gas with monthly or daily contracts tied to industry market indices, such as Inside FERC Gas Market Report. The Company, through HPESI, has natural gas delivery commitments for periods of less than a year for approximately 35 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 ten percent) of its natural gas sales for periods of less than twelve months to guarantee a certain price. In 1999, HPESI had approximately 2.3 percent of its natural gas sales portfolio dedicated to such fixed price contracts. As of September 30, 1999, HPESI had fixed price contracts for approximately 10 percent of its projected monthly sales 13 14 for the months of November, 1999 through March, 2000, and fixed price contracts for less than four percent of its projected sales for the remainder of fiscal year 2000. There were no fixed price contracts in effect at September 30, 1998. REAL ESTATE DIVISION revenues totaled $8,671,000 for 1999, $8,922,000 for 1998, and $8,641,000 for 1997. Operating profit was $5,338,000 in 1999, $5,371,000 in 1998, and $5,615,000 in 1997. The general economy in Tulsa continued to grow during the year resulting in occupancy rates, revenues, and operating profit remaining strong. 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 2000. YEAR 2000 COMPLIANCE The Company's State of Readiness THE FOLLOWING INFORMATION SHALL CONSTITUTE THE COMPANY'S "YEAR 2000 READINESS DISCLOSURE" WITHIN THE MEANING OF THE YEAR 2000 INFORMATION READINESS ACT. 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 that 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 that 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 mission critical components of Company operations and systems that 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 IT COMPLETION o Core accounting and operational Phases 1, 2, 3 & 4 (mainframe) systems Completed o Human Resources & Payroll Systems Phases 1, 2, 3 & 4 Completed o Network Phases 1, 2, 3 & 4 Completed o Desktop Computer Hardware Phases 1, 2, 3 & 4 Completed o Standard Company Desktop Computer Software Phases 1, 2, 3 & 4 Completed o Business Unit User Software Phases 1, 2, 3 & 4 Completed NON-IT o Systems and Equipment Phases 1, 2, 3 & 4 Completed
As reflected in the above table, the Company has completed the process of identifying embedded technology and determining the extent to which such technology is Y2K compliant. As part of this process, the Company 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 has obtained 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 a result of these activities, the Company conducted discussions with the vendors or manufacturers of such mission critical equipment to determine the most effective solutions to Y2K compliance issues. The Cost to Address Y2K Issues The cost of the Company's Y2K compliance Project was approximately $800,000 which was well below the $1,000,000 budgeted for this purpose. This cost included costs of employees working on the Y2K Project. Costs for new hardware and equipment are being capitalized, and other costs were expensed as incurred. The costs relating to the Company's Y2K Project were paid from the Company's general funds. This expenditure mainly relates to repair, upgrading or replacement of existing software and hardware, and solicitation and evaluation of information received from significant vendors, service providers, or customers. The total cost included the costs of independent consultants engaged to review selected Y2K issues. The Company's Contingency Plan The Company has refined its contingency plans on a business unit and departmental basis. These contingency plans include, but are not limited to: backup and recovery procedures for IT Systems; remediation of existing systems or equipment; installation 15 16 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 customers, suppliers or outsourcing subcontractors who stand ready to receive or provide critical goods, equipment and services. The Company has engaged a computer recovery services contractor as a source of alternative computer systems as part of its contingency plan. The Risks of The Company's Y2K Issues The Company completed 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 and 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 were not properly identified or assessed, there can be no assurance that the Y2K issue 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. 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. 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 The Company's capital spending for 1999 was $122,951,000, less than half of 1998 capital expenditures of $266,299,000, and 24 percent less than the $161,177,000 spent in 1997. Net cash provided from operating activities for those same time periods were $158,694,000 in 1999, $113,533,000 in 1998, and $165,568,000 in 1997. In addition to the net cash provided by operating activities, the Company also generated net proceeds from the sale of portfolio securities of $2,803,000 in 1999, $73,949,000 in 1998, and $8,557,000 in 1997. 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. The Company plans to increase capital spending during 2000 in its Exploration and Production segment. The increase will likely be offset by a decrease in capital spending in the Company's Contract Drilling Division. The potential for new contract drilling projects requiring large amounts of capital is difficult to predict at this time. 16 17 Due to the need for additional funds during 1998 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, 1999, the Company had $5 million in short-term debt borrowings, which had a weighted average maturity of 19 days and a weighted average interest rate of approximately 5.73 percent. As further 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 a portion of its short-term borrowings. 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 percent for the entire 5-year term of the note. The estimated fair value of the interest rate swap is $2,574,000 at September 30, 1999. The Company's interest rate risk exposure is limited to its short-term borrowings and results predominately from fluctuations in short-term interest rates as measured by 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 50 basis points over LIBOR. The strength of the Company's balance sheet is substantial, with current ratios for 1999 and 1998 at 2.2 and 1.5, respectively, and with total bank borrowings only 5 percent of total assets at September 30, 1999. Additionally, the Company manages a large portfolio of marketable securities that, at the close of 1999, had a market value of $289,005,000, with a cost basis of $117,214,000. 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. During 1999, the Company paid a dividend of $0.28 per share, or a total of $13,849,000, representing the 28th consecutive year of dividend increases.
- -------------------------------------------------------------------------------- Stock Portfolio Held by the Company - -------------------------------------------------------------------------------- Number of September 30, 1999 Shares Book Value Market Value ------------------ ---------- ---------- ------------ (in thousands, except share amounts) Occidental Petroleum Corporation .... 1,000,000 $ 23,775 $ 23,125 Atwood Oceanics, Inc. ............... 3,000,000 41,157 91,687 Schlumberger, Ltd. .................. 1,480,000 23,511 92,223 Sunoco, Inc. ........................ 312,546 3,192 8,556 Phillips Petroleum Company .......... 240,000 5,976 11,700 Bank One Corporation ................ 175,000 1,969 6,092 Kerr-McGee Corporation .............. 184,500 4,899 10,159 ONEOK, Inc. ......................... 225,000 2,751 6,820 Other ............................... 9,984 38,643 ---------- ----------- Total ................... $ 117,214 $ 289,005 ========== ===========
17 18 CONSOLIDATED BALANCE SHEETS HELMERICH & PAYNE, INC. - ---------------------------
ASSETS September 30, 1999 1998 - ------------------------------------------------------------------------ ---------- ---------- (in thousands) CURRENT ASSETS: Cash and cash equivalents ..................................... $ 21,758 $ 24,476 Accounts receivable, less reserve of $2,908 and $1,908 ........ 99,598 119,395 Inventories ................................................... 25,187 25,401 Prepaid expenses and other .................................... 14,081 15,073 ---------- ---------- Total current assets ................................. 160,624 184,345 ---------- ---------- INVESTMENTS ............................................................ 238,475 200,400 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, at cost: Contract drilling equipment ................................... 881,269 829,217 Oil and gas properties ........................................ 446,889 435,747 Real estate properties ........................................ 49,065 48,451 Other ......................................................... 71,139 65,120 ---------- ---------- 1,448,362 1,378,535 Less--Accumulated depreciation, depletion and amortization .... 757,147 686,164 ---------- ---------- Net property, plant and equipment ......................... 691,215 692,371 ---------- ---------- OTHER ASSETS ........................................................... 19,385 13,314 ---------- ---------- TOTAL ASSETS ........................................................... $1,109,699 $1,090,430 ---------- ----------
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. 18 19 LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, 1999 1998 ----------- ----------- (in thousands, except share data) CURRENT LIABILITIES: Accounts payable .............................................................................. $ 25,704 $ 41,851 Accrued liabilities ........................................................................... 41,200 38,833 Notes payable ................................................................................. 5,000 44,800 ----------- ----------- Total current liabilities ............................................................... 71,904 125,484 ----------- ----------- NONCURRENT LIABILITIES: Long-term notes payable ....................................................................... 50,000 50,000 Deferred income taxes ......................................................................... 116,588 103,469 Other ......................................................................................... 23,098 18,329 ----------- ----------- Total noncurrent liabilities ............................................................ 189,686 171,798 ----------- ----------- 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 .................................................................... 61,411 59,004 Retained earnings ............................................................................. 745,956 716,875 Unearned compensation ......................................................................... (4,487) (5,605) Accumulated other comprehensive income ........................................................ 75,182 54,689 ----------- ----------- 883,415 830,316 Less treasury stock, 3,903,286 shares in 1999 and 4,146,120 shares in 1998, at cost ........... 35,306 37,168 ----------- ----------- Total shareholders' equity .............................................................. 848,109 793,148 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................................................... $ 1,109,699 $ 1,090,430 =========== ===========
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. 19 20 CONSOLIDATED STATEMENTS OF INCOME HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997 -------- -------- -------- (in thousands, except per share amounts) REVENUES: Sales and other operating revenues .......... $556,562 $592,037 $506,422 Income from investments ..................... 7,757 44,603 11,437 -------- -------- -------- 564,319 636,640 517,859 -------- -------- -------- COSTS AND EXPENSES: Operating costs ............................. 332,330 346,066 276,094 Depreciation, depletion and amortization .... 109,167 88,350 71,691 Dry holes and abandonments .................. 11,727 11,572 7,783 Taxes, other than income taxes .............. 25,478 25,728 21,318 General and administrative .................. 14,198 11,762 9,346 Interest .................................... 6,481 942 4,212 -------- -------- -------- 499,381 484,420 390,444 -------- -------- -------- INCOME BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE ............... 64,938 152,220 127,415 INCOME TAX EXPENSE ................................... 25,706 56,677 45,511 EQUITY IN INCOME OF AFFILIATE net of income taxes ......................... 3,556 5,611 2,282 -------- -------- -------- NET INCOME ........................................... $ 42,788 $101,154 $ 84,186 ======== ======== ======== EARNINGS PER COMMON SHARE: BASIC ....................................... $ 0.87 $ 2.03 $ 1.69 DILUTED ..................................... $ 0.86 $ 2.00 $ 1.67 AVERAGE COMMON SHARES OUTSTANDING: BASIC ....................................... 49,243 49,948 49,779 DILUTED ..................................... 49,817 50,565 50,561
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. 20 21 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY HELMERICH & PAYNE, INC.
Common Stock Additional ---------------------- Paid-in Unearned Retained Shares Amount Capital Compensation Earnings -------- ------------- --------- ------------ ---------- Balance, Sept. 30, 1996 ................ 53,529 $ 5,353 $ 47,734 $ $ 557,543 Comprehensive Income: Net Income ............................ -- -- -- -- 84,186 Other comprehensive income, net of tax unrealized gains on available-for-sale securities ........ -- -- -- -- -- Comprehensive income ................... -- -- -- -- -- Cash dividends ($.26 per share) ........ -- -- -- -- (12,987) Exercise of Stock Options .............. -- -- 3,306 -- -- Lapse of restrictions on Restricted Stock Awards .............. -- -- 276 -- -- Amortization of deferred Compensation ......................... -- -- -- -- 820 ---------- ---------- --------- --------- ---------- Balance, Sept. 30, 1997 ................ 53,529 5,353 51,316 -- 629,562 Comprehensive Income: Net Income ........................... -- -- -- -- 101,154 Other comprehensive loss, net of tax--unrealized losses on available-for-sale securities ....... -- -- -- -- -- Comprehensive income ................... -- -- -- -- -- Cash dividends ($.275 per share) ....... -- -- -- -- (14,007) Exercise of Stock Options .............. -- -- 1,833 -- -- Purchase of stock for treasury ......... -- -- -- -- -- Lapse of restrictions on Restricted Stock Awards ............... -- -- 98 -- -- Stock issued under Restricted Stock Award Plan ...................... -- -- 5,757 (6,791) -- Amortization of deferred Compensation .......................... -- -- -- 1,186 166 ---------- ---------- --------- --------- ---------- Balance, Sept. 30, 1998 ................ 53,529 5,353 59,004 (5,605) 716,875 Comprehensive Income: Net Income ............................ -- -- -- -- 42,788 Other comprehensive income, net of tax unrealized gains on available-for-sale securities ........ -- -- -- -- -- Comprehensive income ................... -- -- -- -- -- Cash dividends ($.28 per share) ........ -- -- -- -- (13,866) Exercise of Stock Options .............. -- -- 2,201 -- -- Lapse of restrictions on Restricted Stock Awards ............... -- -- 69 -- -- Stock issued under Restricted Stock Award Plan ...................... -- -- 137 (289) -- Amortization of deferred Compensation .......................... -- -- -- 1,407 159 ---------- ---------- --------- --------- ---------- Balance, Sept. 30, 1999 ................ 53,529 $ 5,353 $ 61,411 $ (4,487) $ 745,956 ========== ========== ========= ========= ========== Accumulated Treasury Stock Other ---------------------- Comprehensive Shares Amount Income (Loss) Total --------- --------- ------------- --------- (in thousands, except per share amounts) Balance, Sept. 30, 1996 ................ 3,758 $ (21,210) $ 56,550 $ 645,970 Comprehensive Income: Net Income ............................ -- -- -- 84,186 Other comprehensive income, net of tax unrealized gains on available-for-sale securities ........ -- -- 57,904 57,904 --------- Comprehensive income ................... -- -- -- 142,090 --------- Cash dividends ($.26 per share) ........ -- -- -- (12,987) Exercise of Stock Options .............. (257) 1,105 -- 4,411 Lapse of restrictions on Restricted Stock Awards .............. -- -- -- 276 Amortization of deferred Compensation ......................... -- -- -- 820 --------- --------- ------------- --------- Balance, Sept. 30, 1997 ................ 3,501 (20,105) 114,454 780,580 Comprehensive Income: Net Income ........................... -- -- -- 101,154 Other comprehensive loss, net of tax--unrealized losses on available-for-sale securities ....... -- -- (59,765) (59,765) --------- Comprehensive income ................... -- -- -- 41,389 --------- Cash dividends ($.275 per share) ....... -- -- -- (14,007) Exercise of Stock Options .............. (174) 1,015 -- 2,848 Purchase of stock for treasury ......... 999 (19,112) -- (19,112) Lapse of restrictions on Restricted Stock Awards ............... -- -- -- 98 Stock issued under Restricted Stock Award Plan ...................... (180) 1,034 -- -- Amortization of deferred Compensation .......................... -- -- -- 1,352 --------- --------- ------------- --------- Balance, Sept. 30, 1998 ................ 4,146 (37,168) 54,689 793,148 Comprehensive Income: Net Income ............................ -- -- -- 42,788 Other comprehensive income, net of tax unrealized gains on available-for-sale securities ........ -- -- 20,493 20,493 --------- Comprehensive income ................... -- -- -- 63,281 --------- Cash dividends ($.28 per share) ........ -- -- -- (13,866) Exercise of Stock Options .............. (226) 1,710 -- 3,911 Lapse of restrictions on Restricted Stock Awards ............... -- -- -- 69 Stock issued under Restricted Stock Award Plan ...................... (17) 152 -- -- Amortization of deferred Compensation .......................... -- -- -- 1,566 --------- --------- ------------- --------- Balance, Sept. 30, 1999 ................ 3,903 $ (35,306) $ 75,182 $ 848,109 ========= ========= ============= =========
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. 21 22 Consolidated Statements of Cash Flows HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997 --------- --------- --------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ......................................................... $ 42,788 $ 101,154 $ 84,186 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization ...................... 109,167 88,350 71,691 Dry holes and abandonments .................................... 11,727 11,572 7,783 Equity in income of affiliate before income taxes ............. (5,735) (9,050) (3,680) Amortization of deferred compensation ......................... 1,566 1,352 820 Gain on sale of securities .................................... (2,547) (38,421) (4,697) Gain on sale of property, plant and equipment ................. (6,900) (2,951) (4,545) Other - net ................................................... 2,148 974 1,897 Change in assets and liabilities: Accounts receivable ........................................ 19,797 (20,698) (23,323) Inventories ................................................ 214 (5,762) (2,724) Prepaid expenses and other ................................. (5,079) (4,682) (5,020) Accounts payable ........................................... (16,147) (194) 18,619 Accrued liabilities ........................................ 2,367 (8,692) 15,582 Deferred income taxes ...................................... 559 (1,231) 7,506 Other noncurrent liabilities ............................... 4,769 1,812 1,473 --------- --------- --------- 115,906 12,379 81,382 --------- --------- --------- Net cash provided by operating activities .............. 158,694 113,533 165,568 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, including dry hole costs ..................... (122,951) (266,299) (161,177) Proceeds from sale of property, plant and equipment ............... 9,990 15,414 9,432 Purchase of investments ........................................... (537) 1,056 (1,404) Proceeds from sale of securities .................................. 2,803 73,949 8,557 --------- --------- --------- Net cash used in investing activities .................. (110,695) (175,880) (144,592) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable ................................ 102,000 169,800 34,000 Payments made on notes payable ............................. (141,800) (80,000) (34,000) Dividends paid ............................................. (13,849) (13,802) (12,970) Purchases of stock for treasury ............................ -- (19,112) -- Proceeds from exercise of stock options .................... 2,932 1,974 3,065 --------- --------- --------- Net cash provided by (used in) financing activities .... (50,717) 58,860 (9,905) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ (2,718) (3,487) 11,071 CASH AND CASH EQUIVALENTS, beginning of period ...................... 24,476 27,963 16,892 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of period ............................ $ 21,758 $ 24,476 $ 27,963 ========= ========= =========
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. 22 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HELMERICH & PAYNE, INC. September 30, 1999,1998 and 1997 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 1999, 1998 and 1997 was $21,000, $1,953,000 and $452,000, respectively. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. PROPERTY, PLANT AND EQUIPMENT - The Company follows the successful efforts method of accounting for oil and gas properties. Under this method, the Company capitalizes all costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells which find proved reserves and to drill and equip development wells. Geological and geophysical costs, delay rentals and costs to drill exploratory wells which do not find proved reserves are expensed. Capitalized costs of producing oil and gas properties are depreciated and depleted by the unit-of-production method based on proved developed oil and gas reserves determined by the Company and reviewed by independent engineers. Reserves are recorded for capitalized costs of undeveloped leases based on management's estimate of recoverability. Costs of surrendered leases are charged to the reserve. 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 1999, the Company recognized an impairment charge of approximately $10.1 million for proved Exploration and Production properties which is included in depreciation, depletion and amortization expense. After-tax, the impairment charge reduced 1999 net income by approximately $6.2 million, $0.13 per share on a diluted basis. 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 - Contract drilling revenues are comprised primarily of daywork drilling contracts for which the related revenues and expenses are recognized as work progresses. Fiscal 1999 contract drilling revenues also include revenues of $40,790,000 from a rig construction contract for which revenues were recognized based on the percentage-of-completion method, measured by the percentage that incurred costs to date bear to total estimated costs. The rig construction contract was complete by September 30, 1999. 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 approximately 22 percent of Atwood Oceanics, Inc. (Atwood) at both September 30, 1999 and 1998. The quoted market value of the Company's investment was $91,687,500 and $62,437,500 at September 30, 1999 and 1998, respectively. Retained earnings at September 30, 1999 includes approximately $18,697,000 of undistributed earnings of Atwood. 23 24 Summarized financial information of Atwood is as follows:
1999 1998 1997 -------- -------- -------- (in thousands) Gross revenues ..................................... $150,009 $151,809 $ 89,082 Costs and expenses ................................. 122,289 112,445 73,463 -------- -------- -------- Net income ......................................... $ 27,720 $ 39,364 $ 15,619 ======== ======== ======== Helmerich & Payne, Inc.'s equity in net income, net of income taxes ............................. $ 3,556 $ 5,611 $ 2,282 ======== ======== ======== Current assets ..................................... $ 50,532 $ 51,587 $ 47,961 Noncurrent assets .................................. 243,072 230,150 168,279 Current liabilities ................................ 19,013 26,723 19,621 Noncurrent liabilities ............................. 82,362 91,248 73,930 Shareholders' equity ............................... 192,229 163,766 122,689 ======== ======== ======== Helmerich & Payne, Inc.'s investment ............... $ 41,157 $ 35,422 $ 28,895 ======== ======== ========
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. EMPLOYEE STOCK-BASED AWARDS - Employee stock-based awards are accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related information. Fixed plan common stock options do not result in compensation expense, because the exercise price of the stock equals the market price of the underlying stock on the date of grant. TREASURY STOCK - Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged to additional paid-in-capital using the average-cost method. DERIVATIVES - As described in Note 2, the Company entered into an interest rate swap agreement in fiscal 1999. 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 is accrued and recognized as an adjustment of interest expense. 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, 1999, the Company had committed bank lines totaling $120 million; $50 million expires October 2003 and $70 million expires May 2000. Additionally, the Company had uncommitted credit facilities totaling $60 million. Collectively, the Company had $55 million in outstanding borrowings and outstanding letters of credit totaling $8.4 million against these lines at September 30, 1999. Concurrent with the $50 million borrowing under the facility that expires October 2003, the Company entered into an interest rate swap with a notional value of $50 million. The swap effectively converts this $50 million facility from a floating rate 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. Excluding the impact of the interest rate swap, the average interest rate for the borrowings at September 30, 1999, was approximately 5.9 percent. The interest rate swap reduces the average rate to approximately 5.4 percent on year-end borrowings. Under the various credit agreements, the Company must meet certain requirements regarding levels of debt, net worth and earnings. 24 25 NOTE 3 INCOME TAXES The components of the provision (benefit) for income taxes are as follows:
Years Ended September 30, 1999 1998 1997 ------------------------- ------- -------- -------- (in thousands) CURRENT: Federal .......................... $ 9,684 $ 36,705 $ 18,582 Foreign .......................... 15,963 18,728 17,214 State ............................ 1,744 4,751 2,190 ------- -------- -------- 27,391 60,184 37,986 ------- -------- -------- DEFERRED: Federal (842) (4,108) 6,349 Foreign (771) 927 603 State (72) (326) 573 ------- -------- -------- (1,685) (3,507) 7,525 ------- -------- -------- TOTAL PROVISION: $25,706 $ 56,677 $ 45,511 ======= ======== ========
The amounts of domestic and foreign income are as follows:
Years Ended September 30, 1999 1998 1997 ------------------------- ------- -------- -------- (in thousands) INCOME BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE: Domestic ............ $41,693 $106,228 $ 84,723 Foreign ............. 23,245 45,992 42,692 ------- -------- -------- $64,938 $152,220 $127,415 ======= ======== ========
Effective income tax rates on income as compared to the U.S. Federal income tax rate are as follows:
Years Ended September 30, 1999 1998 1997 ------------------------- ---- ---- ---- U.S. Federal income tax rate ........................ 35% 35% 35% Dividends received deduction ........................ (1) - (1) Effect of higher foreign tax rates .................. 5 2 1 Non-conventional fuel source credits utilized ....... (1) - - Other, net .......................................... 2 - 1 -- -- -- Effective income tax rate ........................... 40% 37% 36% == == ==
The components of the Company's net deferred tax liabilities are as follows:
September 30, 1999 1998 -------- -------- (in thousands) DEFERRED TAX LIABILITIES: Property, plant and equipment $ 59,695 $ 59,413 Available-for-sale securities 53,651 41,154 Pension provision 3,951 4,602 Equity investment 10,759 9,006 Other 923 -- -------- -------- Total deferred tax liabilities 128,979 114,175 -------- -------- DEFERRED TAX ASSETS: Financial accruals 8,832 8,853 Other 3,559 1,853 -------- -------- Total deferred tax assets 12,391 10,706 -------- -------- NET DEFERRED TAX LIABILITIES $116,588 $103,469 ======== ========
25 26 NOTE 4 SHAREHOLDERS' EQUITY 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 did not purchase any shares in fiscal 1999. 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 1,307,638 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. Options granted under the 1996 plan vest over a four-year period. On September 30, 1999, 2,537,000 shares were available for grant under the Stock Incentive Plan. On September 30, 1999, 403,000 shares were available for grant under the Stock Incentive Plan as restricted stock awards. In fiscal 1999 and 1998, 17,000 and 180,000 shares of restricted stock, respectively, were granted at a weighted-average price of $17.00 and $37.73, respectively, which approximated fair market value at the date of grant. Unearned compensation of $289,000 and $6,791,000 for fiscal 1999 and 1998, respectively, is being amortized over a five-year vesting period as compensation expense. The following summary reflects the stock option activity and related information (shares in thousands):
1999 1998 1997 ------------------------- ----------------------- ------------------------ Weighted-Average Weighted-Average Weighted-Average Options Exercise Price Options Exercise Price Options Exercise Price ------- -------------- ------- -------------- ------- -------------- Outstanding at October 1, 2,090 $22.09 1,745 $16.44 1,708 $13.63 Granted 726 16.81 544 36.84 393 26.07 Exercised (238) 14.28 (175) 12.15 (270) 13.03 Forfeited/Expired (4) 13.51 (24) 17.54 (86) 14.89 ----- ------ ----- ------ ----- ------ Outstanding on September 30, 2,574 $21.34 2,090 $22.09 1,745 $16.44 ----- ------ ----- ------ ----- ------ Exercisable on September 30, 782 $20.13 453 $15.63 135 $12.22 ----- ------ ----- ------ ----- ------ Shares available on September 30, for options that may be granted 2,537 3,280 4,000 ----- ----- -----
The following table summarizes information about stock options at September 30, 1999 (shares in thousands):
Outstanding Stock Options Exercisable Stock Options ----------------------------------------- ------------------------- Weighted-Average Range of Remaining Contractural Weighted-Average Weighted-Average Exercise Prices Options Life Exercise Price Options Exercise Price --------------- ------- ---------------------- ---------------- ------- ---------------- $12.00 to $14.00 812 5.1 years $13.59 431 $13.42 $14.01 to $16.50 117 0.9 years $16.34 66 $16.34 $16.51 to $26.50 1,105 8.5 years $19.99 150 $26.06 $26.51 to $37.00 540 8.2 years $36.84 135 $36.84 ====== ====== ===== ========= ====== === ====== $12.00 to $37.00 2,574 7.0 years $21.34 782 $20.13 ====== ====== ===== ========= ====== === ======
The following table reflects pro forma net income and earnings per share had the Company applied the fair value method of SFAS No. 123, "Accounting for Stock-Based Compensation", in measuring compensation cost beginning with 1997 employee stock-based awards. 26 27
Years Ended September 30, 1999 1998 1997 ------------------------- ---- ---- ---- (in thousands, except per share data) Net Income: As reported ......................... $42,788 $101,154 $84,186 Pro forma ........................... 40,268 99,437 83,531 Basic earnings per share: As reported ......................... .87 2.03 1.69 Pro forma ........................... .82 1.99 1.68 Diluted earnings per share: As reported ......................... .86 2.00 1.67 Pro forma ........................... .81 1.97 1.65
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 1999, 1998 and 1997 were $6.81, $14.63, and $9.50, 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:
1999 1998 1997 ---- ---- ---- Expected years until exercise .......... 5.5 7.0 6.7 Expected stock volatility .............. 38% 34% 27% Dividend yield ......................... 1.2% 1.6% 1.0% Risk-free interest rate ................ 6.0% 5.9% 6.1%
On September 30, 1999, the Company had 49,625,666 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) 1999 1998 1997 -------------- ---- ---- ---- Basic weighted-average shares .......... 49,243 49,948 49,779 Effect of dilutive shares: Stock options ....................... 561 595 747 Restricted stock .................... 13 22 35 ------ ------ ------ 574 617 782 ------ ------ ------ Diluted weighted-average shares .......... 49,817 50,565 50,561 ====== ====== ======
Restricted stock of 180,000 shares at a weighted-average price of $37.73 and options to purchase 540,000 shares of common stock at a price of $36.84 were outstanding at September 30, 1999, 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 interest rate swap is $2,574,000 at September 30,1999, based on forward-interest rates derived from the year-end yield curve as calculated by the financial institution that is a counterparty to the swap. 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, 1999 $76,057 $122,369 $1,108 $197,318 September 30, 1998 $76,770 $ 93,364 $5,156 $164,978
27 28 During the years ended September 30, 1999, 1998, and 1997, marketable equity available-for-sale securities with a fair value at the date of sale of $2,803,000, $62,792,000 and $8,557,000, respectively, were sold. The gross realized gains on such sales of available-for-sale securities totaled $2,547,000, $30,820,000 and $4,697,000, respectively, and the gross realized losses totaled $0, $1,034,000 and $0 respectively. NOTE 7 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The table below presents changes in the components of accumulated other comprehensive income (loss).
Years Ended September 30, 1999 1998 1997 ------------------------- ---- ---- ---- (in thousands) Balance, beginning of period ................. $ 54,689 $114,454 $ 56,550 Unrealized gains (losses) on available-for-sale securities ............ 35,600 (66,610) 98,091 Less: Reclassification adjustment for net gains realized in net income ..... (2,547) (29,786) (4,697) -------- -------- -------- Net unrealized gains (losses) ......... 33,053 (96,396) 93,394 Tax benefit (expense) ...................... (12,560) 36,631 (35,490) -------- -------- -------- Net-of-tax amount ..................... 20,493 (59,765) 57,904 -------- -------- -------- Balance, end of period ....................... $ 75,182 $ 54,689 $114,454 ======== ======== ========
NOTE 8 EMPLOYEE BENEFIT PLANS The following tables set forth the Company's disclosures required by SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits". CHANGE IN BENEFIT OBLIGATION:
Years ended September 30, 1999 1998 ------------------------- ---- ---- (in thousands) Benefit obligation at beginning of year ......... $ 36,954 $ 33,913 Service cost .................................... 3,700 2,836 Interest cost ................................... 2,468 2,430 Actuarial (gain) loss ........................... (4,468) 231 Benefits paid ................................... (1,659) (2,456) -------- -------- Benefit obligation at end of year ............... $ 36,995 $ 36,954 ======== ========
CHANGE IN PLAN ASSETS:
Years Ended September 30, 1999 1998 (in thousands) Fair value of plan assets at beginning of year .. $ 51,572 $ 53,834 Actual return on plan assets .................... 8,604 194 Benefits paid ................................... (1,659) (2,456) -------- -------- Fair value of plan assets at end of year ........ $ 58,517 $ 51,572 ======== ======== Funded status of the plan ....................... $ 21,522 $ 14,618 Unrecognized net actuarial gain ................. (10,127) (1,647) Unrecognized prior service cost ................. 1,025 1,263 Unrecognized net transition asset ............... (1,619) (2,159) -------- -------- Prepaid benefit cost $ 10,801 $ 12,075 ======== ========
WEIGHTED-AVERAGE ASSUMPTIONS:
Years Ended September 30, 1999 1998 1997 ------------------------- ---- ---- ---- Discount rate 7.50% 6.75% 7.25% Expected return on plan 9.00% 8.50% 9.00% Rate of compensation increase 5.00% 5.00% 5.50%
28 29 COMPONENTS OF NET PERIODIC (BENEFIT) COST:
Years Ended September 30, 1999 1998 1997 ------------------------- ---- ---- ---- (in thousands) Service cost ............................. $ 3,700 $ 2,836 $ 2,114 Interest cost ............................ 2,468 2,430 1,797 Expected return on plan assets ........... (4,606) (4,542) (3,592) Amortization of prior service cost ....... 238 238 239 Amortization of transition asset ......... (540) (540) (540) Recognized net actuarial gain ............ 14 (65) (66) ------- ------- ------- Net pension expense (credit) ............. $ 1,274 $ 357 $ (48) ======= ======= =======
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 $3,315,000, $3,009,000 and $2,255,000 in 1999, 1998 and 1997, respectively. NOTE 9 ACCRUED LIABILITIES Accrued liabilities consist of the following:
September 30, 1999 1998 ------------- -------- -------- (in thousands) Royalties payable ................. $ 9,625 $ 6,997 Taxes payable - operations ........ 6,990 6,502 Ad valorem tax .................... 7,177 5,907 Income taxes payable .............. 3,278 4,487 Workers compensation claims ....... 3,122 3,000 Payroll and employee benefits ..... 3,970 5,576 Other ............................. 7,038 6,364 -------- -------- $ 41,200 $ 38,833 ======== ========
NOTE 10 SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended September 30, 1999 1998 1997 ------------------------- ---- ---- ---- (in thousands) Cash payments: Interest paid ............. $ 5,705 $ 1,721 $ 357 Income taxes paid ......... $ 27,843 $ 61,056 $ 36,347
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. During fiscal 1999, the Company's rig utilization rate decreased 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. 29 30 NOTE 12 NEW ACCOUNTING STANDARDS 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, 2000 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 Company will adopt this SOP effective October 1, 1999. The effect of this SOP on the Company's results of operations and financial position will not be material. NOTE 13 SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures About Segments of an Enterprise and Related Information", during the fourth quarter of fiscal 1999. SFAS No. 131 establishes standards for reporting information about segments and related disclosures about products and services, geographical areas, and major customers. Prior year financial statements and notes have been reclassified to conform to the requirements of SFAS No. 131. The Company operates principally in the contract drilling industry, which includes a Domestic segment and an International segment, and in the oil and gas industry, which includes an Exploration and Production segment and a Natural Gas Marketing segment. 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, Argentina 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, as well as, the marketing of natural gas for third parties. The Natural Gas Marketing segment also markets most of the natural gas produced by the Exploration and Production segment retaining a market based fee from the sale of such production. The Company also has a Real Estate segment whose operations are conducted exclusively in the metropolitan area of Tulsa, Oklahoma. The primary areas of operations include a major shopping center and several multi-tenant warehouses. Each reportable segment is a strategic business unit which is managed separately as an autonomous business. Other includes investments in available-for-sale securities, equity owned investments, as well as corporate operations. The Company evaluates performance of its segments based upon operating profit or loss from operations before income taxes which includes revenues from external and internal customers; operating costs; depreciation, depletion and amortization; dry holes and abandonments and taxes other than income taxes. The accounting policies of the segments are the same as those described in Note 1, Summary of Accounting Policies. Intersegment sales are accounted for in the same manner as sales to unaffiliated customers. Summarized financial information of the Company's reportable segments for each of the years ended September 30, 1999, 1998, and 1997 is shown in the following table:
Depreciation Additions External Inter- Total Operating Depletion & Total to Long-Live (in thousands) Sales Segment Sales Profit (Loss) Amortization Assets Assets ---------- ---------- ---------- ------------- ------------ ---------- ---------- 1999: CONTRACT DRILLING Domestic $ 213,647 $ 2,457 $ 216,104 $ 30,154 $ 31,164 $ 371,766 $ 57,975 International 182,987 -- 182,987 29,845 36,178 271,746 17,293 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 396,634 2,457 399,091 59,999 67,342 643,512 75,268 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OIL & GAS OPERATIONS Exploration and Production 95,953 -- 95,953 11,245 38,658 151,898 44,333 Natural Gas Marketing 55,259 -- 55,259 4,418 174 15,156 261 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 151,212 -- 151,212 15,663 38,832 167,054 44,594 ---------- ---------- ---------- ---------- ---------- ---------- ---------- REAL ESTATE 8,671 1,531 10,202 5,338 1,427 22,816 1,445 OTHER 7,802 -- 7,802 -- 1,566 276,317 1,644 ELIMINATIONS -- (3,988) (3,988) -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL $ 564,319 $ -- $ 564,319 $ 81,000 $ 109,167 $1,109,699 $ 122,951 ========== ========== ========== ========== ========== ========== ==========
30 31
Depreciation Additions External Inter- Total Operating Depletion & Total to Long-Live (in thousands) Sales Segment Sales Profit (Loss) Amortization Assets Assets ---------- ---------- ---------- ------------- -------------- ---------- ---------- 1998: CONTRACT DRILLING Domestic $ 177,059 $ 4,084 $ 181,143 $ 35,817 $ 23,771 $ 351,193 $ 130,237 International 253,072 -- 253,072 50,834 31,689 303,907 83,843 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 430,131 4,084 434,215 86,651 55,460 655,100 214,080 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OIL & GAS OPERATIONS Exploration and Production 98,696 -- 98,696 28,088 29,817 156,582 48,066 Natural Gas Marketing 53,499 -- 53,499 2,418 292 15,069 636 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 152,195 -- 152,195 30,506 30,109 171,651 48,702 ---------- ---------- ---------- ---------- ---------- ---------- ---------- REAL ESTATE 8,922 1,526 10,448 5,371 1,501 22,937 875 OTHER 45,392 -- 45,392 -- 1,280 240,742 2,642 ELIMINATIONS -- (5,610) (5,610) -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL $ 636,640 $ -- $ 636,640 $ 122,528 $ 88,350 $1,090,430 $ 266,299 ========== ========== ========== ========== ========== ========== ========== 1997: CONTRACT DRILLING Domestic $ 140,294 $ 2,218 $ 142,512 $ 24,437 $ 17,916 $ 257,505 $ 95,277 International 176,651 -- 176,651 43,118 26,458 210,976 16,900 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 316,945 2,218 319,163 67,555 44,374 468,481 112,177 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OIL & GAS OPERATIONS Exploration and Production 111,512 -- 111,512 55,191 24,627 152,892 43,381 Natural Gas Marketing 69,015 -- 69,015 3,363 258 18,884 3,170 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 180,527 -- 180,527 58,554 24,885 171,776 46,551 ---------- ---------- ---------- ---------- ---------- ---------- ---------- REAL ESTATE 8,641 1,498 10,139 5,615 1,412 23,310 1,161 OTHER 11,746 -- 11,746 -- 1,020 370,028 1,288 ELIMINATIONS -- (3,716) (3,716) -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL $ 517,859 $ -- $ 517,859 $ 131,724 $ 71,691 $1,033,595 $ 161,177 ========== ========== ========== ========== ========== ========== ==========
The following table reconciles segment operating profit (loss) per the table on page 31 and 32 to income before taxes and equity in income of affiliate as reported on the Consolidated Statements of Income (in thousands).
Years Ended September 30, 1999 1998 1997 ----------- ----------- ----------- Segment operating profit .................... $ 81,000 $ 122,528 $ 131,724 Unallocated amounts: Income from investments ................... 7,757 44,603 11,437 General corporate expense ................. (14,198) (11,762) (9,346) Interest expense .......................... (6,481) (942) (4,212) Corporate depreciation .................... (1,565) (1,280) (919) Other corporate expense ................... (1,575) (927) (1,269) ----------- ----------- ----------- Total unallocated amounts ............... (16,062) 29,692 (4,309) ----------- ----------- ----------- Income before income taxes and equity in Income of affiliate ....................... $ 64,938 $ 152,220 $ 127,415 =========== =========== ===========
The following tables present revenues from external customers and long-lived assets by country based on the location of service provided (in thousands).
Years Ended September 30, 1999 1998 1997 ---------- ---------- ---------- Revenues United States ................... $ 381,332 $ 383,568 $ 341,208 Venezuela ....................... 59,481 131,137 77,858 Colombia ........................ 60,838 79,675 78,370 Other Foreign ................... 62,668 42,260 20,423 ---------- ---------- ---------- Total ......................... $ 564,319 $ 636,640 $ 517,859 ========== ========== ========== Long-Lived Assets United States ................... $ 479,753 $ 475,832 $ 384,861 Venezuela ....................... 62,931 85,703 50,336 Colombia ........................ 46,621 59,848 69,340 Other Foreign ................... 101,910 70,988 34,488 ---------- ---------- ---------- Total ......................... $ 691,215 $ 692,371 $ 539,025 ========== ========== ==========
Long-lived assets are comprised of property, plant and equipment. 31 32 Revenues from one company doing business with the contract drilling segment accounted for approximately 17.5 percent, 14.5 percent and 17 percent of the total consolidated revenues during the years ended September 30, 1999, 1998 and 1997, respectively. Revenues from another company doing business with the contract drilling segment accounted for approximately 12 percent and 10 percent of total consolidated revenues in the years ended September 30, 1999 and 1998. Collectively, revenues from companies controlled by the Venezuelan government accounted for approximately 5.6 percent, 16 percent and 12 percent of total consolidated revenues for the years ended September 30, 1999, 1998 and 1997, respectively. Collectively, the receivables from these customers were approximately $35.6 million and $60.6 million at September 30, 1999 and 1998, respectively. 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, 1999 1998 1997 ------------ ------------ ------------ (in thousands) Revenues ......................................... $ 95,953 $ 98,696 $ 111,512 ------------ ------------ ------------ Production costs ................................. 23,058 21,786 21,750 Exploration expense and valuation provisions ..... 22,992 19,005 9,943 Depreciation, depletion and amortization ......... 38,658 29,817 24,628 Income tax expense ............................... 3,437 9,415 19,327 ------------ ------------ ------------ Total cost and expenses ........................ 88,145 80,023 75,648 ------------ ------------ ------------ Results of operations (excluding corporate overhead and interest costs) ................... $ 7,808 $ 18,673 $ 35,864 ============ ============ ============
Capitalized Costs -
September 30, 1999 1998 ---------- ---------- (in thousands) Proved properties ................................ $ 421,552 $ 414,770 Unproved properties .............................. 25,337 20,977 ---------- ---------- Total costs .................................... 446,889 435,747 Less - Accumulated depreciation, depletion and amortization ............................ 312,644 295,045 ---------- ---------- Net ............................................ $ 134,245 $ 140,702 ========== ==========
Costs Incurred Relating to Oil and Gas Producing Activities -
Years Ended September 30, 1999 1998 1997 ---------- ---------- ---------- (in thousands) Property acquisition: Proved ......................... $ 89 $ 107 $ 47 Unproved ....................... 14,385 9,096 8,358 Exploration ...................... 22,292 18,107 9,656 Development ...................... 19,167 28,259 27,808 ---------- ---------- ---------- Total .......................... $ 55,933 $ 55,569 $ 45,869 ========== ========== ==========
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, 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 Revisions of previous estimates .................. 570,126 11,771 Extensions, discoveries and other additions ...... 151,829 22,491 Production ....................................... (649,370) (44,240) Purchases of reserves-in-place ................... -- 77 Sales of reserves-in-place ....................... -- (2,105) --------- ------- Proved reserves at September 30, 1999 ............ 4,833,898 239,620 ========= ======= Proved developed reserves at September 30, 1997 ...................... 5,787,116 256,443 ========= ======= September 30, 1998 ...................... 4,754,319 249,376 ========= ======= September 30, 1999 ...................... 4,828,071 229,765 ========= =======
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, 1999 1998 ----------- ----------- (in thousands) Future cash inflows ........................................ $ 688,766 $ 404,549 Future costs - Future production and development costs .................. (188,579) (137,068) Future income tax expense ................................ (135,763) (70,890) ----------- ----------- Future net cash flows ...................................... 364,424 196,591 10% annual discount for estimated timing of cash flows ..... (131,806) (70,664) ----------- ----------- Standardized Measure of discounted future net cash flows ... $ 232,618 $ 125,927 =========== ===========
33 34 Changes in Standardized Measure Relating to Proved Oil and Gas Reserves (Unaudited) -
Years Ended September 30, 1999 1998 1997 ------------ ------------ ------------ (in thousands) Standardized Measure - Beginning of year ................... $ 125,927 $ 205,035 $ 153,864 Increases (decreases) - Sales, net of production costs ........................... (72,895) (76,910) (89,762) Net change in sales prices, net of production costs ...... 142,970 (97,938) 77,789 Discoveries and extensions, net of related future Development and production costs ...................... 38,164 21,922 42,741 Changes in estimated future development costs ............ (11,095) (14,142) (16,570) Development costs incurred ............................... 16,558 25,149 27,509 Revisions of previous quantity estimates ................. 17,713 5,089 6,146 Accretion of discount .................................... 16,700 28,012 20,691 Net change in income taxes ............................... (40,671) 30,436 (29,397) Purchases of reserves-in-place ........................... 96 65 2 Sales of reserves-in-place ............................... (1,390) (2,875) (1,551) Other .................................................... 541 2,084 13,573 ------------ ------------ ------------ Standardized Measure - End of year ......................... $ 232,618 $ 125,927 $ 205,035 ============ ============ ============
NOTE 15 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share amounts)
1st 2nd 3rd 4th 1999 Quarter Quarter Quarter Quarter ------------ ------------ ------------ ------------ Revenues .......................... $ 143,864 $ 155,374 $ 131,799 $ 133,282 Gross profit ...................... 25,071 16,924 23,532 20,090 Net income ........................ 12,811 7,352 12,196 10,429 Basic net income per share ........ .26 .15 .25 .21 Diluted net income per share ...... .26 .15 .24 .21
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
Gross profit represents total revenues less operating costs, depreciation, depletion and amortization, dry holes and abandonments, and taxes, other than income taxes. 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. Net income in the second quarter of 1999 includes an after-tax charge of $5.5 million ($0.11 per share, on a diluted basis) in connection with the drilling and completion of a pinnacle reef well with reserve values significantly below its carrying cost. 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, 1999 and 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform 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, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1999, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Tulsa, Oklahoma November 19, 1999 STOCKHOLDERS' MEETING The annual meeting of stockholders will be held on March 1, 2000. 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, 2000. 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, 1999, there were 1,306 record holders of Helmerich & Payne, Inc. common stock as listed by the transfer agent's records. Our Transfer Agent is responsible for our shareholder records, issuance of stock certificates, and distribution of our dividends and the IRS Form 1099. Your requests, as shareholders, concerning these matters are most efficiently answered by corresponding directly with The Transfer Agent at the following address: UMB Bank Security Transfer Division 928 Grand Blvd., 13th Floor Kansas City, MO 64106 Telephone: (800) 884-4225 (816) 860-5000 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 STOCK PRICE INFORMATION
Closing Market Price Per Share --------------------------------------------------- 1999 1998 ----------------------- ----------------------- QUARTERS HIGH LOW HIGH LOW --------- --------- --------- --------- First .............. $24.50 $16.75 $44.97 $31.06 Second ............. 23.94 16.06 33.19 24.56 Third .............. 26.75 20.38 33.25 21.56 Fourth ............. 30.19 23.00 24.38 16.25
DIVIDEND INFORMATION
Paid Per Share Total Payment --------------------------- --------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ QUARTERS First .............. $ .070 $ .065 $ 3,457,626 $ 3,256,874 Second ............. .070 .070 3,459,168 3,519,195 Third .............. .070 .070 3,464,109 3,521,332 Fourth ............. .070 .070 3,468,377 3,504,269
35 36 ELEVEN-YEAR FINANCIAL REVIEW HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997 ------- ------- ------- REVENUES AND INCOME*(2) Contract Drilling Revenues ...................... 394,715 427,713 315,327 Crude Oil Sales ................................. 9,479 10,333 20,475 Natural Gas Sales ............................... 81,533 87,646 87,737 Gas Marketing Revenues .......................... 54,263 52,469 66,306 Real Estate Revenues ............................ 8,663 8,587 8,224 Dividend Income ................................. 3,569 4,117 5,268 Other Revenues .................................. 12,097 45,775 14,522 Total Revenues++................................. 564,319 636,640 517,859 Net Cash Provided by Continuing Operations++..... 158,694 113,533 165,568 Income from Continuing Operations ............... 42,788 101,154 84,186 Net Income ...................................... 42,788 101,154 84,186 --------- --------- --------- PER SHARE DATA Income from Continuing Operations(1): Basic ......................................... .87 2.03 1.69 Diluted ....................................... .86 2.00 1.67 Net Income(1): Basic ......................................... .87 2.03 1.69 Diluted ....................................... .86 2.00 1.67 Cash Dividends .................................. .28 .275 .26 Shares Outstanding* ............................. 49,626 49,383 50,028 --------- --------- --------- FINANCIAL POSITION Net Working Capital* ............................ 88,720 58,861 62,837 Ratio of Current Assets to Current Liabilities .. 2.23 1.47 1.66 Investments* .................................... 238,475 200,400 323,510 Total Assets* ................................... 1,109,699 1,090,430 1,033,595 Long-Term Debt* ................................. 50,000 50,000 -- Shareholders' Equity* ........................... 848,109 793,148 780,580 --------- --------- --------- CAPITAL EXPENDITURES* Contract Drilling Equipment ..................... 68,639 206,794 109,036 Wells and Equipment ............................. 29,947 38,970 35,024 Real Estate ..................................... 1,435 854 1,095 Other Assets (includes undeveloped leases) ...... 22,930 19,681 16,022 Discontinued Operations ......................... -- -- -- Total Capital Outlays ........................... 122,951 266,299 161,177 --------- --------- --------- PROPERTY, PLANT AND EQUIPMENT AT COST* Contract Drilling Equipment ..................... 881,269 829,217 643,619 Producing Properties ............................ 421,552 414,770 395,812 Undeveloped Leases .............................. 25,337 20,977 14,109 Real Estate ..................................... 49,065 48,451 47,682 Other ........................................... 71,139 65,120 59,659 Discontinued Operations ......................... -- -- -- Total Property, Plant and Equipment ............. 1,448,362 1,378,535 1,160,881 --------- --------- ---------
* 000's omitted. ++ Chemical operations were sold August 30, 1996. 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. (2) See Note 13 for segment presentation of revenues. 36 37
1996 1995 1994 1993 1992 1991 1990 1989 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- 244,338 203,325 182,781 149,661 112,833 105,364 90,974 78,315 15,378 13,227 13,161 15,392 16,369 17,374 16,058 14,821 60,500 33,851 45,261 52,446 38,370 35,628 37,697 33,013 57,817 34,729 51,874 63,786 40,410 10,055 10,566 -- 8,076 7,560 7,396 7,620 7,541 7,542 7,636 7,778 3,650 3,389 3,621 3,535 4,050 5,285 7,402 9,127 3,496 10,640 6,058 8,283 6,646 20,020 56,131 17,371 393,255 306,721 310,152 300,723 226,219 201,268 226,464 160,425 121,420 84,010 74,463 72,493 60,414 50,006 53,288 65,474 45,426 5,788 17,108 22,158 8,973 19,608 45,489 20,715 72,566 9,751 24,971 24,550 10,849 21,241 47,562 22,700 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- .92 .12 .35 .46 .19 .41 .94 .43 .91 .12 .35 .45 .19 .41 .93 .43 1.47 .20 .51 .51 .22 .44 .98 .47 1.46 .20 .51 .50 .22 .44 .98 .47 .2525 .25 .2425 .24 .2325 .23 .22 .21 49,771 49,529 49,420 49,275 49,152 48,976 48,971 48,346 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- 51,803 50,038 76,238 104,085 82,800 108,212 146,741 114,357 1.83 1.74 2.63 3.24 3.31 4.19 3.72 3.12 229,809 156,908 87,414 84,945 87,780 96,471 99,574 130,443 821,914 707,061 621,689 610,504 585,504 575,168 582,927 591,229 -- -- -- 3,600 8,339 5,693 5,648 49,087 645,970 562,435 524,334 508,927 493,286 491,133 479,485 443,396 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- 79,269 80,943 53,752 24,101 43,049 56,297 18,303 17,901 21,142 19,384 40,916 23,142 21,617 34,741 16,489 30,673 752 873 902 436 690 2,104 1,467 878 7,003 9,717 9,695 5,901 16,984 6,793 5,448 6,717 1,581 859 618 629 158 2,594 1,153 815 109,747 111,776 105,883 54,209 82,498 102,529 42,860 56,984 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- 568,110 501,682 444,432 418,004 404,155 370,494 324,293 323,313 392,562 384,755 377,371 340,176 329,264 312,438 287,248 279,768 9,242 8,051 11,729 10,010 12,973 5,552 5,507 5,441 46,970 46,642 47,827 47,502 47,286 46,671 44,928 48,016 53,547 55,655 48,612 45,085 43,153 36,423 32,135 29,716 -- 13,937 13,131 12,545 11,962 11,838 9,270 8,156 1,070,431 1,010,722 943,102 873,322 848,793 783,416 703,381 694,410 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
37 38 ELEVEN-YEAR OPERATING REVIEW HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997 ------- ------- ------- CONTRACT DRILLING Drilling Rigs, United States ................. 50 46 38 Drilling Rigs, International ................. 39 44 39 Contract Wells Drilled, United States ........ 273 242 246 Total Footage Drilled, United States* ........ 3,078 2,938 2,753 Average Depth per Well, United States ........ 11,275 12,142 11,192 Percentage Rig Utilization, United States .... 75 95 88 Percentage Rig Utilization, International .... 53 88 91 ------- ------- ------- PETROLEUM EXPLORATION AND DEVELOPMENT Gross Wells Completed ........................ 49 62 100 Net Wells Completed .......................... 23.9 35.7 49.3 Net Dry Holes ................................ 7.1 4.2 9.6 ------- ------- ------- PETROLEUM PRODUCTION Net Crude Oil and Natural Gas Liquids Produced (barrels daily) ..................... 1,779 1,921 2,700 Net Oil Wells Owned N Primary Recovery ....... 124 124 133 Net Oil Wells Owned N Secondary Recovery ..... 54 53 49 Secondary Oil Recovery Projects .............. 5 5 5 Net Natural Gas Produced (thousands of cubic feet daily) ............ 121,206 117,431 110,859 Net Gas Wells Owned .......................... 439 436 410 ------- ------- ------- REAL ESTATE MANAGEMENT Gross Leasable Area (square feet)* ........... 1,652 1,652 1,652 Percentage Occupancy ......................... 95 97 95 ------- ------- ------- TOTAL NUMBER OF EMPLOYEES Helmerich & Payne, Inc. and Subsidiaries ..... 3,440 3,340 3,627 ------- ------- -------
* 000's omitted. + 1988-1989 include U.S. employees only 38 39
1996 1995 1994 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ ------ ------ ------ 41 41 47 42 39 46 49 49 36 35 29 29 30 25 20 20 233 212 162 128 100 106 119 108 2,499 1,933 1,842 1,504 1,085 1,301 1,316 1,350 10,724 9,119 11,367 11,746 10,853 12,274 11,059 12,500 82 71 69 53 42 47 50 44 85 84 88 68 69 69 45 46 ------ ------ ------ ------ ------ ------ ------ ------ 63 59 44 42 54 45 36 45 35.3 27.4 15 15.9 17.8 20.2 15.3 15.2 7.3 5.9 1.7 4.3 4.3 4.3 3.4 2.8 ------ ------ ------ ------ ------ ------ ------ ------ 2,212 2,214 2,431 2,399 2,334 2,152 2,265 2,486 176.9 186 202 202 220 227 223 201 63.8 64 71 71 74 55 46 214 12 12 14 14 14 12 12 17 94,358 72,387 72,953 78,023 75,470 66,617 65,147 57,490 378 354 341 307 289 278 194 205 ------ ------ ------ ------ ------ ------ ------ ------ 1,654 1,652 1,652 1,656 1,656 1,664 1,664 1,669 94 87 83 86 87 86 85 90 ------ ------ ------ ------ ------ ------ ------ ------ 3,309 3,245 2,787 2,389 1,928 1,758 1,864 1,100 ------ ------ ------ ------ ------ ------ ------ ------
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 GEORGE S. DOTSON WILLIAM L. ARMSTRONG** Vice President, Chairman President of Helmerich & Payne Transland Financial Services, Inc. International Drilling Co. Denver, Colorado DOUGLAS E. FEARS GLENN A. COX* Vice President and President and Chief Operating Officer, Chief Financial Officer Retired Phillips Petroleum Company STEVEN R. MACKEY Bartlesville, Oklahoma Vice President, Secretary, and General Counsel GEORGE S. DOTSON Vice President, STEVEN R. SHAW President of Helmerich & Payne Vice President, International Drilling Co. Exploration & Production Tulsa, Oklahoma L.F. ROONEY, III* 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 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 22 SUBSIDIARIES OF THE REGISTRANT Helmerich & Payne, Inc. Subsidiaries of Helmerich & Payne, Inc. Helmerich & Payne Properties, Inc. (Incorporated in Oklahoma) Utica Square Shopping Center, Inc. (Incorporated in Oklahoma) The Hardware Store of Utica Square, Inc. (Incorporated in Oklahoma) The Space Center, Inc. (Incorporated in Oklahoma) H&P DISC, Inc. (Incorporated in Oklahoma) Helmerich & Payne Coal Co. (Incorporated in Oklahoma) Helmerich & Payne Energy Services, Inc. (Incorporated in Oklahoma) Helmerich & Payne International Drilling Co. (Incorporated in Delaware) Subsidiaries of Helmerich & Payne International Drilling Co. Helmerich & Payne (Africa) Drilling Co. (Incorporated in Cayman Islands, British West Indies) Helmerich & Payne Drilling (Bolivia) S.A. (Incorporated in Bolivia) Helmerich & Payne (Colombia) Drilling Co. (Incorporated in Oklahoma) Helmerich & Payne (Gabon) Drilling Co. (Incorporated in Cayman Islands, British West Indies) Helmerich & Payne (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 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 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 19, 1999, included in the 1999 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 19, 1999, 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, 1999. ERNST & YOUNG LLP Tulsa, Oklahoma December 27, 1999 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR SEP-30-1999 OCT-01-1998 SEP-30-1999 21,758 238,475 102,506 2,908 25,187 160,624 1,448,362 757,147 1,109,699 71,904 0 0 0 5,353 842,756 1,109,699 556,562 564,319 485,536 485,536 7,364 0 6,481 64,938 25,706 42,788 0 0 0 42,788 .87 .86
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