-----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, NWa5TiZp9hx1QCq1yrNyVkKAjBh6K30MfLTYmhSzRbk7INQK8eupDhhDpkDoVSPc t1judEgOH02+EjpfnOtHYg== /in/edgar/work/0000909334-00-000147/0000909334-00-000147.txt : 20001114 0000909334-00-000147.hdr.sgml : 20001114 ACCESSION NUMBER: 0000909334-00-000147 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL RESOURCES INC CENTRAL INDEX KEY: 0000732834 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 730767549 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-61547 FILM NUMBER: 759221 BUSINESS ADDRESS: STREET 1: 302 NORTH INDEPENDENCE, SUITE 1400 CITY: ENID STATE: OK ZIP: 73702 BUSINESS PHONE: 5802338955 10-Q 1 0001.txt United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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: 333-61547 CONTINENTAL RESOURCES, INC. (Exact name of registrant as specified in its charter) Oklahoma 73-0767549 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 302 N. Independence, Suite 300, Enid, Oklahoma 73701 (Address of principal executive offices) (Zip Code) (580) 233-8955 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if change since last report) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding as of November 10, 2000 Common Stock, $1.00 par value 49,041 TABLE OF CONTENTS PART I. Financial Information ITEM 1. FINANCIAL STATEMENTS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK PART II. Other Information ITEM 1. LEGAL PROCEEDINGS ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PART I. Financial Information ITEM 1. FINANCIAL STATEMENTS CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) ASSETS
(Unaudited) December 31, September 30, 1999 2000 ----------- ----------- CURRENT ASSETS: Cash $ 10,421 $ 6,387 Accounts receivable- Oil and gas sales 11,508 14,304 Joint interest and other, net 8,517 6,462 Inventories 4,112 4,900 Prepaid expenses 1,690 653 ----------- ----------- Total current assets 36,248 32,706 ----------- ----------- PROPERTY AND EQUIPMENT: Oil and gas properties Producing properties 293,467 311,838 Nonproducing leaseholds 43,083 41,754 Gas gathering and processing facilities 25,740 24,799 Service properties, equipment and other 14,884 15,633 ----------- ----------- Total property and equipment 377,174 394,024 Less--Accumulated depreciation, depletion and amortization (138,872) (148,771) ----------- ----------- Net property and equipment 238,302 245,253 ----------- ----------- OTHER ASSETS: Debt issuance costs 7,847 6,569 Other assets 162 31 ----------- ----------- Total other assets 8,009 6,600 ----------- ----------- Total assets $ 282,559 $ 284,559 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 8,448 $ 10,647 Current portion of long-term debt 356 2,000 Revenues and royalties payable 6,865 6,465 Accrued liabilities and other 9,776 7,324 ----------- ----------- Total current liabilities 25,445 26,436 ----------- ----------- LONG-TERM DEBT, net of current portion 170,281 141,000 OTHER NONCURRENT LIABILITIES 167 166 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $1 par value, 75,000 shares authorized, 49,041 shares issued and outstanding 49 49 Additional paid-in-capital 25,182 25,182 Retained earnings 61,435 91,726 ----------- ----------- Total stockholders' equity 86,666 116,957 ----------- ----------- Total liabilities and stockholders' equity $ 282,559 $ 284,559 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data)
Three Months Ended Sept 30, --------------------------- 1999 2000 ----------- ----------- REVENUES: Oil and gas sales $ 18,744 $ 29,375 Crude oil marketing 49,158 64,656 Gathering, marketing and processing 5,164 8,008 Oil and gas service operations 1,698 1,845 ----------- ----------- Total revenues 74,764 103,884 ----------- ----------- OPERATING COSTS AND EXPENSES: Production expenses 4,090 4,693 Production taxes 1,344 2,433 Exploration expenses 1,852 1,550 Crude oil marketing purchases and expenses 48,133 63,797 Gathering, marketing and processing 4,270 6,860 Oil and gas service operations 979 1,285 Depreciation, depletion and amortization 4,105 5,779 General and administrative 1,842 2,959 ----------- ----------- Total operating costs and expenses 66,615 89,356 ----------- ----------- OPERATING INCOME 8,149 14,528 ----------- ----------- OTHER INCOME AND EXPENSES Interest income 109 155 Interest expense (4,032) (3,863) Other income(expense), net 78 467 ----------- ----------- Total other income and (expenses) (3,845) (3,241) ----------- ----------- NET INCOME $ 4,304 $ 11,287 =========== =========== EARNINGS PER COMMON SHARE $ 87.76 $ 230.15 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data)
Nine Months Ended Sept 30, -------------------------- 1999 2000 ---------- ---------- REVENUES: Oil and gas sales $ 44,492 $ 84,137 Crude oil marketing 173,491 196,627 Gathering, marketing and processing 12,358 21,997 Oil and gas service operations 4,792 5,536 ---------- ---------- Total revenues 235,133 308,297 ---------- ---------- OPERATING COSTS AND EXPENSES: Production expenses 10,395 14,409 Production taxes 2,965 6,762 Exploration expenses 5,139 6,475 Crude oil marketing purchases and expenses 167,157 196,463 Gathering, marketing and processing 10,126 17,926 Oil and gas service operations 2,358 3,684 Depreciation, depletion and amortization 13,789 16,040 General and administrative 6,015 7,340 ---------- ---------- Total operating costs and expenses 217,944 269,099 ---------- ---------- OPERATING INCOME 17,189 39,198 ---------- ---------- OTHER INCOME AND EXPENSES Interest income 296 578 Interest expense (12,236) (12,026) Other income, net 113 3,542 ---------- ---------- Total other income and (expenses) (11,827) (7,906) ---------- ---------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 5,362 31,292 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (2,048) - ---------- ---------- NET INCOME (LOSS) $ 3,314 $ 31,292 ========== ========== EARNINGS PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 109.35 $ 638.07 ========== ========== EARNINGS (LOSS) PER COMMON SHARE AFTER CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 67.58 $ 638.07 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Nine Months Ended Sept 30, -------------------------- 1999 2000 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) $ 3,314 $ 31,292 Adjustments to reconcile to net income or (loss) to cash provided by operating activities-- Depreciation, depletion and amortization 13,789 16,040 Gain on sale of assets (9) (3,533) Dry hole cost and impairment of undeveloped leases 4,003 3,815 Other noncurrent assets 257 853 Other noncurrent liabilities (38) (1) Changes in current assets and liabilities-- (Increase)/decrease in accounts receivable 349 (740) Increase in inventories (197) (789) (Increase)/decrease in prepaid expenses (2,336) 1,037 Increase/(decrease) in accounts payable (3,821) 2,199 Increase/(decrease) in revenues and royalties payable 338 (401) Decrease in accrued liabilities and other (3,486) (2,452) ---------- ---------- Net cash provided by operating activities 12,163 47,320 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Exploration and development (6,248) (30,370) Gas gathering and processing facilities and service properties, equipment and other (1,487) 42 Purchase of producing properties (1,329) - Proceeds from sale of assets 26 7,611 ---------- ---------- Net cash used in investing activities (9,038) (22,717) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit and other 4,600 12,600 Repayment of line of credit and other (4,964) (40,237) Payment of cash dividend - (1,000) Repayment of short-term note due to stockholder (10,000) - ---------- ---------- Net cash (used in) financing activities (10,364) (28,637) ---------- ---------- NET DECREASE IN CASH (7,239) (4,034) CASH AND CASH EQUIVALENTS, beginning of period 15,817 10,421 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period $ 8,578 $ 6,387 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 16,399 $ 16,079
The accompanying notes are an integral part of these consolidated financial statements. CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. CONTINENTAL RESOURCES, INC.'S FINANCIAL STATEMENTS In the opinion of Continental Resources, Inc. ("CRI" or the "Company") the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position as of September 30, 2000, the results of operations and cash flows for the three and nine month periods ended September 30, 1999 and 2000. The unaudited consolidated financial statements for the interim periods presented do not contain all information required by accounting principles generally accepted in the United States. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on form 10-K for the year ended December 31, 1999. 2. LONG-TERM DEBT: Long-term debt as of December 31, 1999 and September 30, 2000, consists of the following:
December 31, 1999 September 30, 2000 ----------------- ------------------ (dollars in thousands) Senior Subordinated Notes $ 150,000 $ 141,000 Credit Facility - 2,000 Notes payable to principal stockholder 18,600 - Notes payable to General Electric Capital Corporation 2,017 - Capital lease agreements 20 - --------- --------- Outstanding debt 170,637 143,000 Less current portion 356 2,000 --------- --------- Total long-term debt $ 170,281 $ 141,000 ========= =========
On December 31, 1999, the Company's principal stockholder contributed his undivided 50% interest in the Worland Properties and the Company assumed his loan of $18.6 million. By February 5, 2000, the Company had paid this loan in full with cash flow from operations and bank borrowings. Subsequent to September 30, 2000, the Company borrowed $6.7 million from the credit facility making their total debt $8.7 million. The Company made payments of $2.0 million to reduce the outstanding debt against its credit facility to $6.7 million. The current borrowing base of the credit facility is $25.0 million until January 1, 2001, when the next redetermination is expected to occur. As of September 30, 2000, the Company had purchased and retired a total of $9.0 million of the Senior Subordinated notes. On October 23, 2000 the Company purchased an additional $7.35 million of the notes which were retired on November 1, 2000 for a total to date of $16.35 million purchased and retired. 3. CRUDE OIL MARKETING: On July 1, 1998, the Company began entering into third party contracts to purchase and resell crude oil at prices based on current month NYMEX prices, current posting prices or at a stated contract price. Purchases and sales are recorded at the stated contract price. During the nine months ended September 30, 2000, the Company had revenues from purchases and resales of crude oil of $196.6 million on purchases and expenses of $196.4 million resulting in a gain from crude oil marketing activities during the period of $0.2 million. In December 1998 the Emerging Issues Task Force ("EITF") released their consensus on EITF 98-10 "Accounting for Energy Trading and Risk Management Activities." This statement requires that contracts for the purchase and sale of energy commodities which are entered into for the purpose of speculating on market movements or otherwise generating gains from market price differences to be recorded at their market value, as of the balance sheet date, with any corresponding gains or losses recorded as income from operations. The Company adopted EITF 98- 10 effective January 1, 1999. As a result, the Company recorded an expense for the cumulative effect of change in accounting principle of $2.0 million. At September 30, 2000, the market value of the Company's open energy trading contracts resulted in an unrealized gain of $0.3 million which is recorded in crude oil marketing revenues in the accompanying consolidated statement of operations and prepaid expenses in the accompanying consolidated balance sheet. In June 1998 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and for Hedging Activities", with an effective date for periods beginning after June 15, 1999. In July 1999 the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". As a result of SFAS No. 137, adoption of SFAS No. 133 is now required for financial statements for periods beginning after June 15, 2000. In June 2000 the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", which amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and hedging activities. SFAS No. 133 sweeps in a broad population of transactions and changes the previous accounting definition of a derivative instrument. Under SFAS No. 133, every derivative instrument is recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company is in the process of identifying all its derivative instruments and will prospectively adopt this new standard effective January 1, 2001, and management believes the adoption of this new standard will not have a material impact on its consolidated financial position or results of operation. 4. COMMITMENTS AND CONTINGENCIES: On May 15, 1998, the Company and Burlington Resources Oil & Gas Company, Inc. ("Burlington") entered into an agreement ("Trade Agreement") to exchange undivided interests in approximately 65,000 gross (59,000 net) leasehold acres in the northern half of the Cedar Hills Field in North Dakota. On August 19, 1998, the Company instituted a declaratory judgment action against Burlington in the District Court of Garfield County, Oklahoma. The Company sought a declaratory judgment determining that it was excused from further performance under the Trade Agreement. On December 22, 1999, the Court issued an Order requiring the parties to proceed in accordance with terms of the Trade Agreement and instructing them to use their best efforts to consummate the Trade Agreement. The Company complied with the Order of the Court and attempted to proceed with the terms of the Trade Agreement. However, substantial title defects arose with respect to the interests to be received by the Company from Burlington under the terms of the Trade Agreement. As a result of the title defects which could result in the cancellation of Burlington's leases, the Company filed a Motion to Dismiss seeking a determination by the Court that the Company was excused from performance under the Trade Agreement. A hearing was held the week of June 19, 2000. On October 11, 2000, the Court issued its Finding of Fact, conclusions of Law and Order holding that the Company was excused from further performance under the Trade Agreement. The Court also dismissed Burlington's claim for damages against the Company. No appeal has been taken from the Order since a final Judgment has not been entered by the Court. 5. GUARANTOR SUBSIDIARIES: The Company's wholly owned subsidiaries, Continental Gas, Inc. (CGI) and Continental Crude Co. (CCC), have guaranteed the Senior Subordinated Notes and the Credit Facility. The following is a summary of the financial information of Continental Gas, Inc. as of December 31, 1999 and September 30, 2000, and for the nine month periods ended September 30, 1999 and 2000.
AS OF: (dollars in thousands) Dec. 31, 1999 Sept. 30, 2000 ------------- -------------- Current assets $ 3,392 $ 3,443 Noncurrent assets 21,643 19,744 ---------- ---------- Total assets $ 25,035 $ 23,187 ========== ========== Current liabilities $ 13,188 $ 9,128 Noncurrent liabilities - - Stockholder's equity 11,847 14,059 ---------- ---------- Total liabilities and stockholder's equity $ 25,035 $ 23,187 ========== ==========
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, (dollars in thousands)
1999 2000 ----------------- ----------------- 3 month 9 month 3 month 9 month ------- ------- ------- ------- Total revenue $ 6,225 $14,976 $ 9,094 $24,947 Operating costs and expenses 6,021 14,998 8,633 22,843 ------- ------- ------- ------- Operating income (loss) 204 (22) 461 2,104 Other income (expenses) (179) (564) (121) 108 ------- ------- ------- ------- Net loss (income) $ 25 $ (586) $ 340 $ 2,212 ======= ======= ======= =======
At September 30, 2000, current liabilities payable to the Company by CGI totaled approximately $6.8 million. For the nine months ended September 30, 1999 and 2000, depreciation, depletion and amortization included in CGI's operating costs totaled approximately $1.6 million and $1.5 million, respectively. Other income for the nine month period ended September 30, 2000, included a gain from the sale of two gas systems of $0.9 million offset by interest expense. Since its incorporation, CCC has had no operations, has acquired no assets and has incurred no liabilities. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 The following discussion and analysis should be read in conjunction with the Company's unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report. The Company's operating results for the periods discussed may not be indicative of future performance. In the text below, financial statement numbers have been rounded; however, the percentage changes are based on unrounded amounts. RESULTS OF OPERATIONS REVENUES GENERAL During the third quarter of 1998, the Company began marketing crude oil that had been purchased from third parties. This activity generated $64.7 million in additional revenue to the Company for the three month period ending September 30, 2000, compared to $49.2 million for the three month period ending September 30, 1999, and $196.6 million in revenue for the nine month period ended September 30, 2000, compared to $173.5 million for the nine month period ended September 30, 1999. Revenues, excluding crude oil marketing, increased $13.6 million, or 53%, to $39.2 million during the three months ended September 30, 2000, from $25.6 million during the comparable period in 1999. The increase is mainly attributable to higher oil and gas prices and a slight increase in oil and gas production. Revenues, excluding crude oil marketing, increased $50.0 million, or 81%, to $111.6 million during the nine months ended September 30, 2000, from $61.6 million during the comparable period in 1999. The increase is mainly attributable to higher oil and gas prices and a slight increase in oil and gas production. OIL AND GAS SALES Oil and gas sales revenue for the three months ended September 30, 2000, increased $10.6 million, or 57%, to $29.3 million from $18.7 million during the comparable period in 1999 due to the increase in prices. Oil and gas sales revenue for the nine months ended September 30, 2000, increased $39.6 million, or 89%, to $84.1 million from $44.5 million during the same period in 1999 due to increased prices and the additional production provided by the contribution from the principal stockholder of the Worland properties. Oil and gas sales revenue for the nine month period ended September 30, 2000, also included an adjustment paid by a non- affiliated third party oil purchaser for $1.1million on previously delivered volumes. Oil revenues, exclusive of hedging activities, for the three months ended September 30, 2000, increased $8.8 million, or 56%, to $24.6 million from $15.8 million during the same period in 1999. Oil production increased by 15 MBbls to 818 MBbls, or 2%, for the three months ended September 30, 2000, from 803 MBbls for the comparable period in 1999. Oil prices, exclusive of hedging and adjustments, increased to an average of $30.15/Bbl, or 53%, during the three months ended September 30, 2000, from $19.74/Bbl, for the comparable 1999 period. Oil revenues for the nine months ended September 30, 2000, increased $35.5 million, or 97%, to $72.1 million from $36.6 million in the same period in 1999. Oil production increased by 69 MBbls to 2,528 MBbls, or 3%, for the nine months ended September 30, 2000, from 2,459 MBbls for the same period in 1999. Oil prices, exclusive of hedging and adjustments, increased to an average of $28.52/Bbl, or 91%, during the nine months ended September 30, 2000, from $14.90/Bbl, for the comparable 1999 period. The increase in oil sales is due to higher oil prices in 2000 and the additional production provided by the contribution from the principal stockholder of the Worland properties. Gas sales increased $3.8 million, or 131%, to $6.7 million from $2.9 million for the three month period ended September 30, 2000, compared to the same period in 1999. Gas production for the period increased 223 Mmcf, or 13%, to 1,901 Mmcf from 1,678 Mmcf in 1999. Gas revenues for the nine months ended September 30, 2000, increased $7.6 million, or 96%, to $15.5 million from $7.9 million in the same period in 1999. Gas production for the period increased 907 Mmcf, or 18%, to 5,927 Mmcf from 5,020 Mmcf in 1999. The increase in gas sales is due to higher prices in 2000 and increased volumes in the Gulf Coast region. During the third quarter of 2000 the Company entered into forward fixed price sales contracts in accordance with its hedging policy, to mitigate its exposure to the price volatility associated with its crude oil production. The monthly contracts total 80,000 barrels per month and extend from October 2000 through December 2000. The Company has 40,000 barrels per month (or 120,000 barrels) at $22.04 and 40,000 barrels per month (or 120,000 barrels) at $25.47. The Company accounts for changes in the market value of its hedging instruments as deferred gains or losses until the production month of the hedged transaction, at which time the realized gain or loss is recognized in the results of operations. At September 30, 2000, the Company had open hedge contracts totaling approximately 240,000 barrels with unrealized deferred losses of approximately $1.9 million. Hedging losses for the three months ended September 30, 2000 were $2.0 million and for the nine months ended September 30, 2000 were $3.5 million and are included in oil and gas sales on the accompanying statements of operations. CRUDE OIL MARKETING During the three month period ended September 30, 2000, the Company recognized revenues on crude oil purchased for resale of $64.7 million compared to $49.2 million for the three month period ended September 30, 1999. An increase in volume and an increase in prices made up the difference between 1999 and 2000. For the year to date period ended September 30, 2000, the Company has recognized $196.6 million on crude oil purchased for resale compared to $173.5 million for the nine months ended September 30, 1999. GATHERING, MARKETING AND PROCESSING Gathering, marketing and processing revenue in the third quarter of 2000 was $8.0 million, an increase of $2.8 million, or 54%, from $5.2 million in the same period in 1999. This increase in revenue during the third quarter was attributable to higher natural gas and liquid prices in the 2000 period. Gathering, marketing and processing revenue for the nine months ended September 30, 2000, was $22.0 million, a $9.6 million, or 78% increase, from $12.4 million in the comparable 1999 period. The increase for the nine month period was due to higher natural gas and liquid prices in the 2000 period. OIL AND GAS SERVICE OPERATIONS Oil and gas service operations for the three months ended September 30, 2000, and September 30, 1999, had no significant change. Oil and gas service operations for the nine months ended September 30, 2000, increased $0.7 million, or 15%, to $5.5 million from $4.8 million during the same period in 1999. The increase was due primarily to higher prices received for reclaimed oil sales from the Central Treating Unit. OPERATING COSTS AND EXPENSES PRODUCTION EXPENSES Production expenses increased by $0.6 million, or 15%, to $4.7 million during the three months ended September 30, 2000, from $4.1 million during the comparable period in 1999. This increase is due to a $0.3 million increase in repairs which were delayed last year due to low prices and increased energy costs of $0.3 million. Production expenses increased by $4.0 million, or 38%, to $14.4 million for the year to date period ended September 30, 2000, from $10.4 million during the comparable period in 1999. This increase is due to the production activity in the Worland field of approximately $1.4 million, increased energy costs of $1.4 million and increased repairs costs of $1.1 million. PRODUCTION TAXES Production taxes increased by $1.1 million, or 85%, to $2.4 million during the three months ended September 30, 2000, from $1.3 million during the comparable period in 1999. The increase is due to higher oil and gas prices and higher tax rates on wells that have reached the expiration date of tax relief given on newly drilled wells. Production taxes for the nine months ended September 30, 2000, have increased by $3.8 million, or 127%, to $6.8 million compared to $3.0 million in the comparable period of 1999. The increase is due to higher oil and gas prices and higher tax rates on wells that have reached the expiration date of tax relief given on newly drilled wells. EXPLORATION EXPENSES For the three months ended September 30, 2000, exploration expenses decreased $0.3 million, or 16%, to $1.5 million from $1.8 million during the comparable period of 1999. The decrease was due to a $0.4 million decrease in expired lease costs offset by a $0.1 increase in plugging expense. The year to date exploration expense as of September 30, 2000, increased $1.3 million, or 26%, to $6.4 million from $5.1 million incurred in the comparable period in 1999. The increase was due to a $1.5 million increase in dry hole costs and a total of $1.2 million increase in various other expenses offset by a decrease in expired lease costs of approximately $1.3 million. CRUDE OIL MARKETING For the three months ended September 30, 2000, the Company recognized expense for the purchases of crude oil purchased for resale of $63.8 million compared to purchases of crude oil for resale of $48.1 million for the three months ended September 30, 1999. The increase is due to an increase in volumes and an increase in costs of crude oil purchased. For the nine month period ended September 30, 2000, the Company's purchases of crude oil increased by $29.3 million, or 18%, to $196.4 million from $167.1 million for the same period in 1999. The increase is due to an increase in volumes and an increase in costs of crude oil purchased. GATHERING, MARKETING, AND PROCESSING During the three months ended September 30, 2000, the Company incurred gathering, marketing and processing expenses of $6.8 million, representing a $2.5 million, or 58% increase from the $4.3 million incurred in the second quarter of 1999 due to higher natural gas and liquid prices. Gathering, marketing and processing expenses for the nine months ended September 30, 2000, were $17.9 million, a $7.8 million, or 77% increase, from $10.1 million in the same period in 1999 due to higher natural gas and liquids prices. OIL AND GAS SERVICE OPERATIONS During the three months ended September 30, 2000, and September 30, 1999, there was no significant change in oil and gas service operations. Oil and gas service operations expenses increased by $1.3 million, or 54% to $3.7 million for the nine months ended September 30, 2000, compared to $2.4 million for the same period in 1999. The increase is due to higher prices paid for oil treated at the Central Treating Unit. DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A) For the three months ended September 30, 2000, DD&A expense increased $1.7 million, or 41%, to $5.8 million in 2000 from $4.1 million for the comparable period in 1999. For the nine months ended September 30, 2000, DD&A expense increased $2.2 million, or 16% to $16.0 million from $13.8 million for the same period in 1999 due to the contribution of the Worland properties by the principal stockholder. GENERAL AND ADMINISTRATIVE ("G&A") For the three months ended September 30, 2000, G&A expense was $2.9 million, net of overhead reimbursement of $0.5 million, for a period total of $2.4 million or an increase of $1.4 million or 140%, from G&A expense of $1.8 million net of overhead reimbursement of $0.8 million for a net of $1.0 million during the comparable period in 1999. The increase was primarily due to increased legal expenses relating to the Burlington case and increased employment expense. G&A expenses per BOE for the third quarter of 2000 was $2.20 compared to $.98 for the third quarter of 1999. For the nine month period ended September 30, 2000, G&A expense was $7.3 million, net of overhead reimbursement of $1.4 million, for a period total of $5.9 million or an increase of $2.1 million, or 55%, from G&A expense of $6.0 million net of overhead reimbursement of $2.2 million for a total of $3.8 million during the comparable period in 1999. G&A expense per BOE for the first nine months of 2000 was $1.68 compared to $1.14 for the same period in 1999. The increase was primarily due to increased legal expense and increased employment expense. OTHER COSTS AND EXPENSES INTEREST EXPENSE Interest expense for the three months ended September 30, 2000, and September 30, 1999, had no significant change. Interest expense for the nine months ended September 30, 2000, and September 30, 1999, had no significant change. OTHER INCOME Other income for the three months ended September 30, 2000, increased $0.4 million to $0.5 million compared to $0.1 million for the same period in 1999. The increase was the result of the sale of assets. Other income for the year to date ended September 30, 2000, increased $3.4 million to $3.5 million compared to $0.1 million for the year to date ended September 30, 1999. The increase reflects the sale of the Arkoma Basin properties which was approximately $3.1 million and a gain on the sale of other assets along with the gain on the repurchase of bonds of $0.13 million. NET INCOME For the three months ended September 30, 2000 net income was $11.3 million, an increase in net income of $7.0 million from $4.3 million for the comparable period in 1999. The increase in net income was due primarily to higher oil and gas prices and a slight increase in production volumes offset by increases in production taxes, G&A and DD&A totaling approximately $3.9 million. For the nine months ended September 30, 2000, net income was $31.3 million, an increase in net income of $28.0 million from $3.3 million for the comparable period in 1999. The increase in net income was due to higher oil and gas prices and an increase in production volumes, and a gain on the sale of the Arkoma properties. Net income in 2000 includes a $1.1 million price adjustment paid by a non-affiliated third party oil purchaser and does not repeat a $2.0 million charge for the commutative effect of a change in accounting principle in 1999 associated with the adoption of EITF 98-10. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW FROM OPERATIONS Net cash provided by operating activities for the nine months ended September 30, 2000, was $47.3 million, an increase of $35.1 million from $12.2 million provided by operating activities during the comparable 1999 period. Cash as of September 30, 2000, was $6.4 million, a decrease of $4.0 million or 39% of the balance of $10.4 million held at December 31, 1999. Of the $6.4 million balance at September 30, 2000, $2.4 million was set aside and will be used by the Company to make its February 1, 2001, interest payment on its 10.25% Senior Subordinated Notes. DEBT Long-term debt at December 31, 1999, and September 30, 2000, was $170.2 million and $141.0 million, respectively. Subsequent to September 30, 2000, the Company borrowed $6.7 million from the credit facility and the Company made payments of $2.0 million. CREDIT FACILITY Debt outstanding under the line of credit at September 30, 2000, included $2.0 million of revolving credit debt under the credit facility. The effective rate of interest under the line of credit agreement is 8.1% at September 30, 2000. The credit facility, which matures May 14, 2001, charges interest based on the prime rate of MidFirst Bank, or the London Interbank Offered Rate for 1, 2, 3 or 6-month offshore deposits as offered by MidFirst Bank to major banks in the London Interbank Market, rounded upwards, if necessary, to the nearest 1/16%, and adjusted for maximum cost of reserves, if any. The borrowing base of the credit facility is $25.0 million until January 1, 2001, when the next redetermination is expected to occur. On April 21, 2000, the Company replaced its credit facility with a $25.0 million credit facility provided by MidFirst Bank in Oklahoma City, Oklahoma, under terms substantially similar to the previous credit agreement with Bank One. The credit agreement was amended on August 1, 2000, to add a correspondent bank and other minor changes were made. CAPITAL EXPENDITURES The Company's 2000 capital expenditures budget was revised after the second quarter to $45.3 million, exclusive of acquisitions. During the nine months ended September 30, 2000, the Company incurred $30.3 million of capital expenditures, exclusive of acquisitions, compared to $7.7 million, exclusive of acquisitions, in the nine month period of 1999. The $22.6 million increase was the result of increased drilling activity in the Rocky Mountain and Gulf Coast. The Company expects to fund the remainder of its 2000 capital budget through cash flow from operations and its credit facility. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report includes "forward-looking statements". All statements other than statements of historical fact, including, without limitation, statements contained under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy, plans and objectives of management of the Company for future operations and industry conditions, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") include without limitation future production levels, future prices and demand for oil and gas, results of future exploration and development activities, future operating and development cost, the effect of existing and future laws and governmental regulations (including those pertaining to the environment) and the political and economic climate of the United States as discussed in this quarterly report and the other documents of the Company filed with the Securities and Exchange Commission (the "Commission"). All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risk in the normal course of its business operations. Management believes that the Company is well positioned with its mix of oil and gas reserves to take advantage of future price increases that may occur. However, the uncertainty of oil and gas prices continues to impact the domestic oil and gas industry. Due to the volatility of oil and gas prices, the Company, from time to time, has used derivative hedging and may do so in the future as a means of controlling its exposure to price changes. As of September 30, 2000, the Company had entered into fixed price sales contracts totaling 80,000 barrels per month in order to hedge its price risk exposure on its October 2000 through December 2000 production. At September 30, 2000, the Company has deferred recognition of $1.9 million of net market losses on its hedging contracts until the respective production month. Most of the Company's crude oil marketing contracts are made at either a NYMEX based price or a fixed price. As of September 30, 2000, for the periods October 2000 through December 2000, the Company has fixed price purchase and sales contracts related to its marketing activities for which it has recorded an unrealized net gain of approximately $0.3 million. At September 30, 2000, the Company had a net long position on its crude marketing activities of 200,000 barrels consisting of monthly long or short positions ranging from 40,000 to 80,000 barrels per month extending through March 2001. PART II. Other Information ITEM 1. LEGAL PROCEEDINGS From time to time, the Company is party to litigation or other legal proceedings that it considers to be a part of the ordinary course of its business. Except as discussed below, the Company is not involved in any legal proceedings nor is it party to any pending or threatened claims that could reasonably be expected to have a material adverse effect on its financial condition or results of operations. On May 15, 1998, the Company and Burlington Resources Oil & Gas Company, Inc. ("Burlington") entered into an agreement ("Trade Agreement") to exchange undivided interests in approximately 65,000 gross (59,000 net) leasehold acres in the northern half of the Cedar Hills Field in North Dakota. On August 19, 1998, the Company instituted a declaratory judgment action against Burlington in the District Court of Garfield County, Oklahoma. The Company sought a declaratory judgment determining that it was excused from further performance under the Trade Agreement. On December 22, 1999, the Court issued an Order requiring the parties to proceed in accordance with terms of the Trade Agreement and instructing them to use their best efforts to consummate the Trade Agreement. The Company complied with the Order of the Court and attempted to proceed with the terms of the Trade Agreement. However, substantial title defects arose with respect to the interests to be received by the Company from Burlington under the terms of the Trade Agreement. As a result of the title defects which could result in the cancellation of Burlington's leases, the Company filed a Motion to Dismiss seeking a determination by the Court that the Company was excused from performance under the Trade Agreement. A hearing was held the week of June 19, 2000. On October 11, 2000, the Court issued its Finding of Fact, Conclusions of Law and Order holding that the Company was excused from further performance under the Trade Agreement. The Court also dismissed Burlington's claim from damages against the Company. No appeal has been taken from the Order since a final Judgment has not been entered by the Court. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a): Exhibits DESCRIPTION ----------- 3.1 Amended and Restated Certificate of Incorporation of Continental Resources, Inc.(1) [3.1] 3.2 Amended and Restate Bylaws of Continental Resources, Inc.(1) [3.2] 3.3 Certificate of Incorporation of Continental Gas, Inc.(1) [3.3] 3.4 Bylaws of Continental Gas, Inc., as amended and restated.(1) [3.4] 3.5 Certificate of Incorporation of Continental Crude Co.(1) [3.5] 3.6 Bylaws of Continental Crude Co.(1) [3.6] 4.1 Restated Credit Agreement dated May 12, 1998 among Continental Resources, Inc. and Continental Gas, Inc., as Borrowers and Bank One, Oklahoma, N.A. and the Institutions named therein as Banks and Bank One, Oklahoma, N.A. as Agent (the "Credit Agreement")(1) [4.1] 4.1.1 First Amendment to the Credit Agreement between Registrant, the financial institutions named therein and Bank One, Oklahoma, N.A., as Agent dated February 10, 1999.(2) [4.1.1] 4.2 Form of Revolving Note under the Credit Agreement (1) [4.2] 4.3 Indenture dated as of July 24, 1998 between Continental Resources, Inc., as Issuer, the Subsidiary Guarantors named therein and the United States Trust Company of New York, as Trustee (1) [4.3] 4.4 Restated Credit Agreement dated April 21, 2000 among Continental Resources, Inc. and Continental Gas, Inc., as Borrowers and MidFirst Bank as Agent (the "Credit Agreement")(4) [4.4] 4.4.1 Form of Revolving Note under the Credit Agreement with MidFirst Bank(4) [4.4.1] 4.4.2 First Amendment to the Credit Agreement between Registrant, the financial institutions named therein and MidFirst Bank as Agent dated August 1, 2000.(5) [4.4.2] 10.4 Conveyance Agreement of Worland Area Properties from Harold G. Hamm, Trustee of the Harold G. Hamm Revocable Intervivos Trust dated April 23, 1984 to Continental Resources, Inc. (3) [10.4] 10.5 Purchase Agreement signed January 2000, effective October 1, 1999 by and between Patrick Energy Corporation as Buyer and Continental Resource, Inc. as Seller (3) [10.5] 21.0 Subsidiaries (2) [21.0] 27* Financial Data Schedule - --------------------- * Filed herewith (1) Filed as an exhibit to the Registrant's Registration Statement on Form S-4, (No. 333-61547) which was filed with the Securities and Exchange Commission. The exhibit number is indicated in brackets and incorporated by reference herein. (2) Filed as an exhibit to the Registrant's 1998 Annual Report on Form 10-K which was filed with the Securities and Exchange Commission, on March 31, 1999. The exhibit number is indicated in brackets and incorporated by reference herein. (3) Filed as an exhibit to the Registrant's 1999 Annual Report on Form 10-K which was filed with the Securities and Exchange Commission, on March 28, 2000. The exhibit number is indicated in brackets and incorporated by reference herein. (4) Filed as an exhibit to the Registrant's quarterly report on Form 10-Q for its fiscal quarter ended March 31, 2000. The exhibit number is indicated in brackets and incorporated by reference herein. (5) Filed as an exhibit to the Registrant's quarterly report on Form 10-Q for its fiscal quarter ended June 30, 2000. The exhibit number is indicated in brackets and incorporated by reference herein. (b): Reports on Form 8-K No reports on Form 8-K were filed by the Company during the nine months ended September 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONTINENTAL RESOURCES, INC. ROGER V. CLEMENT Roger V. Clement Senior Vice President (Chief Financial Officer) Date: November 10, 2000
EXHIBIT INDEX 3.1 Amended and Restated Incorporated herein by reference Certificate of Incorporation of Continental Resources, Inc. 3.2 Amended and Restate Bylaws Incorporated herein by reference of Continental Resources, Inc. 3.3 Certificate of Incorporated herein by reference Incorporation of Continental Gas, Inc. 3.4 Bylaws of Continental Gas, Incorporated herein by reference Inc., as amended and restated. 3.5 Certificate of Incorporated herein by reference Incorporation of Continental Crude Co. 3.6 Bylaws of Continental Incorporated herein by reference Crude Co. 4.1 Restated Credit Agreement Incorporated herein by reference dated May 12, 1998 among Continental Resources, Inc. and Continental Gas, Inc., as Borrowers and Bank One, Oklahoma, N.A. and the Institutions named therein as Banks and Bank One, Oklahoma, N.A. as Agent (the "Credit Agreement") 4.1.1 First Amendment to the Incorporated herein by reference Credit Agreement between Registrant, the financial institutions named therein and Bank One, Oklahoma, N.A., as Agent dated February 10, 1999. 4.2 Form of Revolving Note Incorporated herein by reference under the Credit Agreement 4.3 Indenture dated as of July Incorporated herein by reference 24, 1998 between Continental Resources, Inc., as Issuer, the Subsidiary Guarantors named therein and the United States Trust Company of New York, as Trustee 4.4 Restated Credit Agreement Incorporated herein by reference dated April 21, 2000 among Continental Resources, Inc. and Continental Gas, Inc., as Borrowers and MidFirst Bank as Agent (the "Credit Agreement") 4.4.1 Form of Revolving Note Incorporated herein by reference under the Credit Agreement with MidFirst Bank 4.4.2 First Amendment to the Incorporated herein by reference Credit Agreement between Registrant, the financial institutions named therein and MidFirst Bank as Agent dated August 1, 2000. 10.4 Conveyance Agreement of Incorporated herein by reference Worland Area Properties from Harold G. Hamm, Trustee of the Harold G. Hamm Revocable Intervivos Trust dated April 23, 1984 to Continental Resources, Inc. 10.5 Purchase Agreement signed Incorporated herein by reference January 2000, effective October 1, 1999 by and between Patrick Energy Corporation as Buyer and Continental Resource, Inc. as Seller 21.0 Subsidiaries Incorporated herein by reference 27 Financial Data Schedule Filed herewith electronically
EX-27 2 0002.txt
5 This schedule contains summary financial information extracted from the unaudited consolidated balance sheet at September 30, 2000, and the unaudited consolidated statement of operations at September 30, 2000, and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 6,387,383 0 20,765,998 0 4,900,274 32,706,951 394,023,786 (148,770,670) 284,559,375 26,436,149 141,000,000 0 0 49,041 116,908,607 284,559,375 302,760,422 308,295,983 235,560,701 269,098,607 4,120,440 0 12,025,946 31,291,788 0 31,291,788 0 0 0 31,291,788 0 0
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