8-K/A 1 cri8ka922.txt FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Current Report Pursuant to Section 13 or 15(b) of the Securities Exchange Act of 1934 Date of report: September 21, 2001 (Date of earliest event reported : July 9, 2001) Continental Resources, Inc. (Exact name of registrant as specified in its charter) Oklahoma 333-61547 73-0767549 ------------------------------------------------------------------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 302 N. Independence, Suite 106, Enid, Oklahoma 73701 ---------------------------------------------- ----- (Address of principal executive offices) (Zip Code) 580-233-8955 ------------ (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name or former address, if changed since last report) As indicated in the Registrant's Form 8-K as filed with the Securities and Exchange Commission on July 18, 2001 ("Form 8-K"), the financial and pro forma financial information required to be filed therewith would be filed not later than 60 days after July 23, 2001. Accordingly, this Amendment No. 1 to form 8-K supplies the financials and pro forma financial information as required. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired Report of Independent Public Accountants To the Board of Directors of Continental Resources, Inc.: We have audited the accompanying consolidated balance sheet of Farrar Oil Company (a Delaware corporation) and subsidiary as of December 31, 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These consolidated financials are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Farrar Oil Company and subsidiary as of December 31, 2000 and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Oklahoma City, Oklahoma July 20, 2001 Farrar Oil Company Consolidated Balance Sheets (Dollars in thousands)
Assets December 31, June 30, ------------ -------- 2000 2001 ---- ---- Current Assets (unaudited) Cash and cash equivalents $ 3,234 $ 5,313 Accounts receivable- Oil and gas sales 1,929 1,861 Joint interest and other 86 140 Inventories 266 453 Prepaid expenses 27 89 -------- -------- Total current assets 5,542 7,856 -------- -------- Property and Equipment: Oil and gas properties- Producing properties 45,916 46,088 Non-producing properties 375 61 Service properties, equipment and other 3,515 3,506 -------- -------- Total property and equipment 49,806 49,655 Less-Accumulated depreciation, depletion & amortization (34,712) (35,627) -------- -------- Net property and equipment 15,094 14,028 -------- -------- Other Non Current Assets 10 10 -------- -------- TOTAL ASSETS $ 20,646 $ 21,894 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Farrar Oil Company Consolidated Balance Sheets (Dollars in thousands)
December 31, June 30, ------------ -------- Liabilities and Stockholders' Equity 2000 2001 ---- ---- (unaudited) Current Liabilities: Accounts payable $ 567 $ 365 Revenues and royalties payable 22 30 Accrued liabilities and other 249 612 -------- -------- Total current liabilities 838 1,007 -------- -------- Long-term Debt, net of current portion 900 -- Commitments and contingencies (Note 6) Total liabilities 1,738 1,007 -------- -------- Stockholders' Equity: Common stock, $1 par value 50,000 shares authorized 32,115 shares issued and 29,825 shares outstanding (Note 4) 32 32 Treasury stock, at cost (252) (252) Additional paid-in capital 3,780 3,780 Retained earnings 15,348 17,327 -------- -------- Total stockholders' equity 18,908 20,887 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,646 $ 21,894 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Farrar Oil Company Consolidated Statements of Operations (Dollars in thousands) Year Ended Six Months Ended December 31, June 30, June 30, ------------ -------- -------- 2000 2000 2001 ---- ---- ---- (unaudited) Revenue: Oil and gas sales $ 19,229 $ 7,588 $ 11,498 Oil and gas service operations 235 230 21 -------- -------- -------- Total revenues 19,464 7,818 11,519 -------- -------- -------- Operating costs and expenses: Production expenses 4,561 2,054 2,293 Production taxes 491 210 328 Exploration expenses 188 90 275 Oil and gas service operations 184 178 17 Depreciation, depletion & amortization 3,586 1,366 1,554 General and administrative 1,250 504 790 -------- -------- -------- Total operating costs and expenses 10,260 4,402 5,257 -------- -------- -------- Operating income 9,204 3,416 6,262 -------- -------- -------- Other income and expenses: Interest income 66 16 108 Interest expense (176) (125) (5) Other (expense) income, net (119) 163 315 -------- -------- -------- Total other (expense) income (229) 54 418 -------- -------- -------- Income before income taxes 8,975 3,470 6,680 Federal and state income taxes -- -- -- -------- -------- -------- NET INCOME $ 8,975 $ 3,470 $ 6,680 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Farrar Oil Company Consolidated Statement of Stockholders' Equity For the Year Ended December 31, 2000 and the Six Months Ended June 30, 2001 (unaudited)
Additional Common Stock Paid-In Retained Treasury Stock Stockholder's Shares Amount Capital Earnings Shares Amount Equity ------ ------ ------- -------- ------ ------ ------ Balance December 31, 1999 32,115 $32,115 $3,687,947 $8,432,509 2,601 ($286,683) $11,865,888 Dividends Paid -- -- -- (2,060,000) -- -- ($2,060,000) Employee Stock Bonus -- -- 92,222 -- (311) 34,279 $126,501 Net Income -- -- -- 8,975,252 -- -- $8,975,252 Balance December 31, 2000 32,115 $32,115 $3,780,169 $15,347,761 2,290 ($252,404) $18,907,641 Dividends Paid -- -- -- (4,700,000) -- -- ($4,700,000) Net Income -- -- -- 6,679,488 -- -- $6,679,488 ------ ------- ---------- ----------- ----- --------- ----------- Balance June 30, 2001 32,115 $32,115 $3,780,169 $17,327,249 2,290 ($252,404) $20,887,129 ====== ======= ========== =========== ===== ========= ===========
The accompanying notes are an integral part of these consolidated financial statements. Farrar Oil Company, Inc. Consolidated Statements of Cash Flows (Dollars in thousands)
Year ended Six months ended June 30, December 31,2000 2000 2001 ---------------- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited) Net Income $ 8,975 $ 3,470 $ 6,680 xAdjustments to reconcile net income to cash provided by operating activities-- Depreciation, depletion and amortization 3,586 1,366 1,554 (Gain) loss on sale of assets 174 (113) (294) Dry hole cost and impairment of undeveloped leases 162 69 5 Employee Stock Bonus 127 -- -- Changes in current assets and liabilities-- (Increase)/decrease in accounts receivable (386) (50) 13 (Increase)/decrease in inventories 81 11 (187) Increase in prepaid expenses (5) (25) (62) Increase/(decrease) in accounts payable 102 (165) (202) Increase in revenues and royalties payable 1 3 8 Increase/(decrease) in accrued liabilities and other 83 (46) 363 -------- -------- -------- Net cash provided by operating activities 12,900 4,520 7,878 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Exploration and development (2,372) (780) (499) Purchase of producing properties (1,044) Proceeds from sale of assets 631 387 300 -------- -------- -------- Net cash used in investing activities (2,785) (393) (199) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of shareholder notes (5,470) -- -- Repayment of line of credit and other -- (3,450) (900) Payment of cash dividend (2,060) (1,020) (4,700) -------- -------- -------- Net cash used in financing activities (7,530) (4,470) (5,600) -------- -------- -------- NET INCREASE (DECREASE) IN CASH 2,585 (343) 2,079 CASH AND CASH EQUIVALENTS, beginning of period 649 649 3,234 -------- -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 3,234 $ 306 $ 5,313 ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 246 $ 213 $ 24 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. FARRAR OIL COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. ORGANIZATION: Farrar Oil Company ("Farrar") was incorporated in Delaware effective January 1, 1981, for the primary purpose of locating, acquiring and producing oil and gas properties, promoting investment in such properties and performing drilling and completion operations. Farrar is based in Mt. Vernon, Illinois and has 568 operated and 232 non-operated wells in Illinois, Kentucky, Montana, Oklahoma and North Dakota at December 31, 2000. Farrar has one wholly-owned subsidiary, Har-Ken Oil Company ("Har-Ken"). INTERIM CONSOLIDATED FINANCIAL INFORMATION The interim consolidated financial statements as of and for the six months ended June 30, 2000 and 2001, are unaudited, and certain disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to fairly present the financial position, results of operations and cash flows with respect to the interim consolidated financial statements have been included. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The accompanying consolidated financial statements include the accounts and operations of Farrar and Har-Ken (collectively the "Company"). All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. Accounts Receivable The Company operates exclusively in the oil and natural gas exploration and production industry. No allowance for doubtful accounts has been recorded in the accompanying consolidated December 31, 2000, balance sheet. Inventories Inventories, consisting of equipment and supplies purchased for future use in oil and gas exploration, development and drilling activities are recorded at the lower of average cost or market. Property and Equipment The Company utilizes the successful efforts method of accounting for oil and gas activities whereby costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves and to drill and equip development wells are capitalized. These costs are amortized to operations on a unit-of-production method based on proved developed oil and gas reserves, allocated property by property, as estimated by petroleum engineers. Geological and geophysical costs, lease rentals and costs associated with unsuccessful exploratory wells are expensed as incurred. Non-producing leaseholds are periodically assessed for impairment, based on exploration results and planned drilling activity. Maintenance and repairs are expensed as incurred, except that the cost of replacements or renewals that expand capacity or improve production are capitalized. Service property and equipment, which includes certain buildings, is depreciated using the straight-line method over estimated useful lives of 5 to 40 years. Income Taxes The Company, effective January 1, 1990, elected Subchapter S status as provided under the Internal Revenue Code. As a result, income taxes attributable to federal taxable income of the Company, if any, are payable by the stockholders of the Company. Treasury Stock At December 31, 2000, treasury stock include 2,290 shares of the Company's common stock recorded at cost. Issuances of treasury stock are recorded at the weighted average cost of the treasury shares with additional proceeds, if any, recorded as additional paid-in capital. Significant Customer During 2000, approximately $14,850,000 or 76% of the Company's total revenues were derived from sales made to a single customer. Revenue Recognition Revenues are recognized when production is sold. Gas Balancing Arrangements The Company follows the "sales method" of accounting for its gas revenue whereby the Company recognizes sales revenue on all gas sold to its purchasers, regardless of whether the sales are proportionate to the Company's ownership in the property. A liability is recognized only to the extent that the Company has a net imbalance in excess of their share of the reserves in the underlying properties. The Company's aggregate imbalance positions at December 31, 2000 were not material. Business Segments The Company operates in one business segment pursuant to Statement of Financial Accounting Standards (SFAS) No, 131, "Disclosure About Segments of an Enterprise and Related Information." Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Of the estimates and assumptions that affect reported results, the estimate of the Company's oil and natural gas reserves, which is used to compute depreciation, depletion, amortization and impairment on producing oil and gas properties, is the most significant. Accounting Principles 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 on 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. Management reviewed all contracts throughout the Company to identify both freestanding and embedded derivatives which meet the criteria set forth in SFAS No. 133 and SFAS No. 138. The Company adopted the new standards effective January 1, 2001. On January 1, 2001, the Company had no outstanding derivatives which were required to be marked to market. As a result the adoption of SFAS No. 133 and SFAS No. 138 had no significant impact on the Company's financial position or results of operations. Accounting Pronouncement In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires all businesses to recognize liabilities related to legal asset retirement obligations when they are incurred, measure them at their fair value, and classify the accrued amount as a liability in the balance sheet. The Company will record a material asset retirement obligation under the new Standard but is uncertain how these requirements will affect its financial statements. 3. LONG TERM INVESTMENT The Company holds 35.89% interest in Shiloh Hotel Partners ("SHP") which was formed in 1984 and is controlled by the Company's principal shareholder. SHP until December 31, 1998, owned and operated a Holiday Inn in Mt. Vernon, Illinois. On December 31, 1998, SHP sold the Holiday Inn and in 2001 the partnership is expected to be completely liquidated. Based upon the Company's evaluation of the anticipated cash flows from the liquidation of SHP, the Company's remaining investment was written off. 4. STOCKHOLDERS' EQUITY The Company has an agreement regarding the sale or transfer of stock with each of its shareholders. The agreement provides, among other things, that no shares may be sold or transferred without first offering the shares for sale to the Company at the same price as that provided for in any bona fide offer received by the shareholder. During 2000, the Company awarded 311 shares of common stock, previously held as treasury stock, to an employee. As a result of this award, the Company recorded compensation expense, based upon the stockholders' fair market value of approximately $126,500. 5. INCOME TAXES The Company follows Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." As mentioned in Note 2, the Company is an S-Corporation resulting in the taxable income or loss of the Company being reported to the stockholders and included in their respective Federal and state income tax returns. The taxable income of the Company attributable to the stockholders is different than the net income of the Company due primarily to intangible drilling costs which are capitalized for financial reporting purposes and accelerated depreciation and depletion methods utilized for tax purposes. 6. COMMITMENTS AND CONTINGENCIES Company employees are eligible to participate in the Company's 401K Retirement Savings Plan ("Plan") after one year of service. Effective January 2, 2001, under the Plan, the Company matches 50% of employees' contributions up to 3% of pay. Previously the Company's match was 25% of the employees contribution for the first 3% of pay. The Company contributed $6,445 in 2000 and $9,662 thru June 30, 2001. Due to the nature of the oil and gas business, the Company is exposed to possible environmental risks. The Company has implemented various policies and procedures to avoid environmental contamination and risks from environmental contamination. The Company is not aware of any material potential environmental issues or claims. 7. TRANSACTIONS WITH RELATED PARTIES Certain employees and shareholders of the Company, own working interests in oil and gas properties operated by the Company and, as such, are billed their respective share of the costs of drilling, completing and operating these properties. All the unsecured promissory notes listed in Note 8 are payable to shareholders or the Chairman of the Board. 8. NOTES PAYABLE The long-term debt of the Company as of December 31, 2000, include unsecured notes payable to related parties with all principal and accrued interest due in 2013. Interest is due quarterly at a fixed rate of 5.35%. The outstanding notes include the following: Marital Trust "B" $ 150,000 Marjorie S. Farrar 750,000 --------- TOTAL NOTES PAYABLE $ 900,000 ========= Subsequent to December 31, 2000, all outstanding amounts due under the notes were repaid. 9. SUBSEQUENT EVENT In June 2001, the Company and its stockholders entered into a definitive agreement with Continental Resources, Inc. providing for the acquisition of the Company's energy assets. 10. SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED): Proved Oil and Gas Reserves The following reserve information was developed from reserve reports as of December 31, 1999 and 2000, prepared by the Company's internal reserve engineers and set forth the changes in estimated quantities of proved oil and gas reserves of the Company during the year presented.
Crude Oil and Natural Gas Condensate (MMcf) (MBbls) ------ ------- Proved reserves as of December 31, 1999 4,416 3,978 Revisions of previous estimates 3,285 10 Extensions, discoveries and other additions 29 357 Production (778) (586) Purchase of minerals in place 0 160 ----- ----- Proved reserves as of December 31, 2000 6,952 3,919 ===== ===== Proved developed reserves January 1, 2000 4,416 3,978 January 1, 2001 6,952 3,919
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 proved reserves which are expected to be recovered through existing wells with existing equipment and operating methods. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves. Oil and gas reserve engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be precisely measured, and estimates of engineers other than the Company's might differ materially from the estimates set forth herein. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. Gas imbalance receivables and liabilities for the year ended December 31, 2000, were not material and have not been included in the reserve estimates. Costs Incurred in Oil and Gas Activities Costs incurred in connection with the Company's oil and gas acquisition, exploration and development activities during the year are shown below (in thousands of dollars). Amounts are presented in accordance with SFAS No. 19, and may not agree with amounts determined using traditional industry definitions. 2000 ---- Property acquisition costs: Proved Purchased $1,044 Unproved 0 ------ Total property acquisition costs $1,044 Exploration costs 512 Development costs 1,722 Total ------ $3,278 ====== Aggregate Capitalized Costs Aggregate capitalized costs relating to the Company's oil and gas producing activities, and related accumulated DD&A, as of December 31 (in thousands of dollars): 2000 ---- Proved oil and gas properties $45,916 Unproved oil and gas properties 375 ------- Total 46,291 Less- Accumulated DD&A 32,885 ------- Net capitalized costs $13,406 ======= Oil and Gas Operations (Unaudited) Aggregate results of operations for each period ended December 31, in connection with the Company's oil and gas producing activities are shown below (in thousands of dollars): 2000 ---- Revenues $19,229 Production costs 5,052 Exploration expenses 188 DD&A and valuation provision(1) 3,346 Income 10,643 Income tax expense(2) -- Results of operations from producing activities (excluding corporate overhead and interest costs) $10,643 ======= (1) Includes $99 thousand in 2000 of additional DD&A as a result of SFAS No. 121 impairments. (2) The Company is an S-Corporation, as a result the income or loss of the Company is taxable at the stockholder level. Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves The following information is based on the Company's best estimate of the required data for the Standardized Measure of Discounted Future Net Cash Flows as of December 31, 2000, as required by Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 69. The Standard requires the use of a 10% discount rate. This information is not the fair market value nor does it represent the expected present value of future cash flows of the Company's proved oil and gas reserves (in thousands of dollars). 2000 ---- Future cash inflows $ 172,021 Future production and development costs (65,569) Future income tax expenses -- --------- Future net cash flows 106,452 10% annual discount for estimated timing of cash flows (42,771) --------- Standardized measure of discounted future net cash flows $ 63,681 ========= Future cash inflows are computed by applying year-end prices of oil and gas relating to the Company's proved reserves to the year-end quantities of those reserves. The year-end weighted average oil price utilized in the computation of future cash inflows was approximately $23.87 and $26.62 per BBL at December 31, 1999 and 2000, respectively. The year-end weighted average gas price utilized in the computation of future cash inflows was approximately $1.77 and $9.76 per MCF at December 31, 1999 and 2000, respectively. Future production and development costs, which include dismantlement and restoration expense, are computed by estimating the expenditures to be incurred in developing and producing the Company's proved oil and gas reserves at the end of the year, based on year-end costs, and assuming continuation of existing economic conditions. Income taxes were not computed at December 31, 2000, as the Company elected S-Corporation status effective January 1, 1990. Principal changes in the aggregate standardized measure of discounted future net cash flows attributable to the Company's proved oil and gas reserves at year-end are shown below (in thousands of dollars): 2000 ---- Standardized measure of discounted future net cash flows at the beginning of the year $ 40,748 Extensions, discoveries and improved recovery, less related costs 6,334 Revisions of previous quantity estimates 7,653 Purchases (sales) of minerals in place 1,871 Net changes in prices and production costs 23,456 Accretion of discount 4,075 Sales of oil and gas produced, net of production costs (14,177) Change in timing of estimated future production, and other (6,279) ------- Standardized measure of discounted future net cash flows at the end of the year $ 63,681 ======== (b) Unaudited Pro Forma Financial Statements The following unaudited pro forma financial information presents the historical consolidated balance sheet and statement of income of Continental Resources, Inc. (the "Company") after giving effect to the acquisition of the assets of Farrar Oil Company ("Farrar") and its subsidiary. The unaudited pro forma balance sheet at June 30, 2001, gives effect to the acquisition as if it had occurred at June 30, 2001. The unaudited pro forma statement of income for the year ended December 31, 2000, gives effect to the acquisition as if it had occurred at January 1, 2000. The unaudited pro forma statement of income for the six months ended June 30, 2001, gives effect to the acquisition as if it had occurred at January 1, 2001. The following unaudited pro forma financial information has been prepared from, and should be read in conjunction with, the historical consolidated financial statements and related notes thereto of the Company and Farrar. The following information is not necessarily indicative of the financial position or operating results that would have occurred had the transaction been consummated on the date, or at the beginning of the periods, for which the transaction is being given effect nor is it necessarily indicative of future operating results or financial position. Continental Resources, Inc. and Subsidiaries Unaudited Pro Forma Balance Sheets June 30, 2001
Continental Farrar Oil Pro Forma Resources, Inc. Company Pro Forma Continental (As Reported) (As Reported) Adjustments Resources, Inc. ------------- ------------- ----------- --------------- ASSETS (Dollars in thousands) Current Assets Cash and cash equivalents $ 7,456 $ 5,313 $ (5,313)(1) $ 7,456 Accounts receivable- Oil and gas sales 12,144 1,861 (1,861)(1) 12,144 Joint interest and other 7,343 140 (140)(1) 7,343 Inventories 5,675 453 497 (2) 6,625 Prepaid expenses 326 89 (89)(1) 326 Advances to affiliates 1,990 -- -- 1,990 --------- --------- --------- --------- Total current assets 34,934 7,856 (6,906) 35,884 Property and Equipment: Oil and gas properties- Producing properties 339,169 46,088 (15,485)(2) 369,772 Non-producing properties 47,805 61 1,056 (2) 48,922 Gas gathering and processing facilities 26,581 -- -- 26,581 Service properties, equipment and other 16,118 3,506 (2,506)(2) 17,118 --------- --------- --------- --------- Total property and equipment 429,673 49,655 (16,935) 462,393 Less-Accumulated depreciation, depletion & amortization (157,576) (35,627) 35,627 (3) (157,576) --------- --------- --------- --------- Net property and equipment 272,097 14,028 18,692 304,817 Other Assets: Deferred loan costs 5,218 -- -- 5,218 Other assets 5 10 (10)(1) 5 --------- --------- --------- --------- Total other assets 5,223 10 (10) 5,223 TOTAL ASSETS $ 312,254 $ 21,894 $ 11,776 $ 345,924 ========= ========= ========= =========
See accompanying notes to unaudited pro forma financial statements. Continental Resources, Inc. and Subsidiaries Unaudited Pro Forma Balance Sheets June 30, 2001
Continental Farrar Oil Pro Forma Resources, Inc. Company Pro Forma Continential (As Reported) (As Reported) Adjustments Resources, Inc. ------------- ------------- ----------- --------------- (Dollars in thousands) Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 14,527 $ 365 $ (365)(4) $ 14,527 Current portion of long-term debt -- -- 5,400 (5) 5,400 Revenues and royalties payable 5,413 30 (30)(4) 5,413 Accrued liabilities and other 10,075 612 (612)(4) 10,075 --------- --------- --------- --------- Total current liabilities 30,015 1,007 4,393 35,415 Long-term Debt, net of current portion 136,350 -- 28,270 (5) 164,620 Other Noncurrent Liabilities 93 -- -- 93 Commitments and contingencies (Note 6) Stockholders' Equity: Common stockholders' equity 144 32 (32)(6) 144 Treasury stock, at cost -- (252) 252 (6) -- Additional paid-in capital 25,087 3,780 (3,780)(6) 25,087 Retained earnings 120,565 17,327 (17,327)(6) 120,565 --------- --------- --------- --------- Total stockholders' equity 145,796 20,887 (20,887) 145,796 --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 312,254 $ 21,894 $ 11,776 $ 345,924 ========= ========= ========= =========
Continental Resources, Inc. and Subsidiaries Unaudited Pro Forma Statements of Operations For the Six Months Ended June 30, 2001
Continental Farrar Oil Pro Forma Resources, Inc. Company Pro Forma Continential (As Reported) (As Reported) Adjustments Resources, Inc. ------------- ------------- ----------- --------------- (Dollars in thousands) Revenue Oil and gas sales $ 62,825 $ 11,498 -- $ 74,323 Crude oil marketing sales 132,416 -- -- 132,416 Gathering, marketing and processing 24,424 -- -- 24,424 Oil and gas service operations 4,065 21 -- 4,086 --------- --------- --------- --------- Total revenues 223,730 11,519 -- 235,249 Operating costs and expenses Production expenses 14,397 2,293 -- 16,690 Production taxes 4,915 328 -- 5,243 Exploration expense 4,171 275 -- 4,446 Crude oil marketing purchases and expenses 132,095 -- -- 132,095 Gathering, marketing and processing 20,299 -- -- 20,299 Oil and gas service operations 3,049 17 -- 3,066 Depreciation, depletion and amortization 12,266 1,554 3,357 (7) 17,177 General and administrative 5,381 790 -- 6,171 --------- --------- --------- --------- Total operating costs and expense 196,573 5,257 3,357 205,187 Operating income 27,157 6,262 (3,357) 30,062 Other income and expense Interest income 413 108 -- 521 Interest expense (7,206) (5) (1,313)(8) (8,524) Other income 1,986 315 -- 2,301 --------- --------- --------- --------- Total other (expense) income (4,807) 418 (1,313) (5,702) Income before income taxes 22,350 6,680 (4,670) 24,360 Federal and state income taxes benefit (expense) -- -- -- -- NET INCOME $ 22,350 $ 6,680 $ (4,670) $ 24,360 ========= ========= ========= ========= Earnings (loss) per common share Basic $ 1.56 $ 1.69 Diluted $ 1.55 $ 1.68
See accompanying notes to unaudited pro forma financial statements. Continental Resources, Inc. and Subsidiaries Unaudited Pro Forma Statements of Operations For the Year Ended December 31, 2000
Continental Farrar Oil Pro Forma Resources, Inc. Company Pro Forma Continential (As Reported) (As Reported) Adjustments Resources, Inc. ------------- ------------- ----------- --------------- (Dollars in thousands) Revenue Oil and gas sales $ 115,478 $ 19,229 -- $ 134,707 Crude oil marketing sales 279,834 -- -- 279,834 Gathering, marketing and processing 32,758 -- -- 32,758 Oil and gas service operations 7,656 235 -- 7,891 --------- --------- --------- --------- Total revenues 435,726 19,464 -- 455,190 Operating costs and expenses Production expenses 20,301 4,561 -- 24,862 Production taxes 9,506 491 -- 9,997 Exploration expense 13,321 188 -- 13,509 Crude oil marketing purchases and expenses 278,809 -- -- 278,809 Gathering, marketing and processing 27,593 -- -- 27,593 Oil and gas service operations 5,582 184 -- 5,766 Depreciation, depletion and amortization 21,945 3,586 6,463 (7) 31,994 General and administrative 10,358 1,250 -- 11,608 --------- --------- --------- --------- Total operating costs and expense 387,415 10,260 6,463 404,138 Operating income 48,311 9,204 (6,463) 51.052 Other income and expense Interest income 756 66 -- 822 Interest expense (15,786) (176) (2,886)(8) (18,848) Other income 4,499 (119) -- 4,380 --------- --------- --------- --------- Total other (expense) income (10,531) (229) (2,886) (13,646) Income before income taxes 37,780 8,975 (9,349) 37,406 Federal and state income taxes benefit (expense) -- -- -- -- NET INCOME $ 37,780 $ 8,975 $ (9,349) $ 37,406 ========= ========= ========= ========= Earnings per common share Basic $ 2.63 $ 2.60 Diluted $ 2.62 $ 2.59
See accompanying notes to unaudited pro forma financial statements. CONTINENTAL RESOURCES, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS Method of accounting for the acquisition Continental Resources accounted for the asset purchase using the purchase method of accounting for business combinations. Accordingly, Farrar's assets acquired and liabilities assumed by Continental were revalued and recorded at their estimated fair market values. In the acquisition, Continental purchased the oil and gas assets of Farrar and its subsidiary and is entitled to the net cash flow of the assets subsequent to the transaction's effective date, May 15, 2001. Continental did not acquire any of Farrar's non oil and gas related assets or working capital and did not assume any long-term debt. PRO FORMA ADJUSTMENTS 1. This adjustment eliminates assets not included in the assets purchased by the Company. 2. This adjustment reflects the allocation of the purchase price to the assets acquired by the Company as follows (in thousands): Current assets - inventories $ 950 Producing properties 30,603 Non-producing properties 1,117 Service properties, equipment and other 1,000 -------- Total purchase price $ 33,670 ======== The purchase price allocation is subject to changes in: o The fair value of the net cash flow of the acquired assets subsequent to the effective date o Satisfactory cure of identified title defects by the seller, and o The actual costs incurred in connection with the asset purchase. Management does not believe the final purchase price will differ materially from the estimated purchase price allocation. 3. This adjustment eliminates the accumulated depreciation recorded prior to the acquisition by the Company. 4. This adjustment eliminates liabilities not assumed in the acquisition of the Farrar Oil Company assets. 5. This adjustment reflects borrowings under the Company's revolving credit agreement to fund the purchase of the assets of Farrar Oil Company. 6. This adjustment eliminates the historical equity of Farrar Oil Company to reflect the Company's asset purchase. 7. To adjust depreciation and amortization to reflect estimated pro forma depreciation based upon the Company's allocated purchase price basis in the fixed assets. 8. This adjustment increases interest expense to reflect estimated pro forma interest expense on the $33.7 million borrowed by the Company to finance the acquisition of the assets of Farrar Oil Company. Signatures ---------- Pursuant to the requirements 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. Continental Resources, Inc. (Registrant) Date September 21, 2001 By ROGER V. CLEMENT Roger V. Clement Senior Vice President and Chief Financial Officer