FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: March 31,June 30, 2002
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
(State or other jurisdiction of incorporation or organization)
73-0679879
(I.R.S. Employer I.D. Number)
UTICA AT TWENTY-FIRST STREET, TULSA, OKLAHOMA 74114
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (918) 742-5531
Former name, former address and former fiscal year, if changed since last
report:
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
--- ---
CLASS OUTSTANDING AT MARCH 31,JUNE 30, 2002
Common Stock, $0.10 par value 49,896,73549,980,947
TOTAL NUMBER OF PAGES - 24
HELMERICH & PAYNE, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
March 31,June 30, 2002 and September 30, 2001 .......................................................... 3
Consolidated Condensed Statements of Income for the
Three Months and SixNine Months Ended March 31,June 30, 2002 and 2001 ............................................................ 4
Consolidated Condensed Statements of Cash Flows for the
SixNine Months Ended March 31,June 30, 2002 and 2001 ......................................... 5
Consolidated Condensed Statement of Shareholders' Equity
For the SixNine Months Ended March 31,June 30, 2002 .................................... 6
Notes to Consolidated Condensed Financial Statements ................. 7 - 14
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition .................................................. 15 - 21
Item 3. Quantitative and Qualitative Disclosures about Market
Risk ............................................ 21.............................................................. 22
PART II. OTHER INFORMATION ..................................................................................................... 22
Item 1. Legal Proceedings ....................................................................................... 22
Item 6. Exhibits and Reports on Form 8-K ........................................................ 22 - 23
Signatures ........................................................................................................................... 23
Exhibit Index ..................................................................................................................... 24
-2-
PART I. FINANCIAL INFORMATION
HELMERICH & PAYNE, INC.
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(Unaudited)
March 31,June 30, September 30,
2002 2001
----------------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 44,89948,200 $ 122,962
Accounts receivable, net 128,105122,267 147,235
Inventories 27,34926,964 28,934
Prepaid expenses and other 22,71619,263 32,281
----------- ----------------------- ------------
Total current assets 223,069216,694 331,412
----------- ----------------------- ------------
Investments 231,823167,356 200,286
Property, plant and equipment, net 919,301978,414 818,404
Other assets 15,15312,796 14,405
----------- ----------------------- ------------
Total assets $ 1,389,3461,375,260 $ 1,364,507
=========== ======================= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,01229,822 $ 67,595
Accrued liabilities 47,06854,131 53,626
----------- ----------------------- ------------
Total current liabilities 76,08083,953 121,221
----------- ----------------------- ------------
Noncurrent liabilities:
Long-term notes payable 50,000 50,000
Deferred income taxes 170,683155,056 144,439
Other 24,54924,784 22,370
----------- ----------------------- ------------
Total noncurrent liabilities $ 245,232 $229,840 216,809
----------- ----------------------- ------------
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per
share 5,353 5,353
Preferred stock, no shares issued -- --
Additional paid-in capital 80,70481,881 80,324
Retained earnings 962,092986,559 943,105
Unearned compensation (1,079)(713) (1,812)
Accumulated other comprehensive income 70,17136,453 49,309
----------- -----------
1,117,241------------ ------------
1,109,533 1,076,279
Less treasury stock, at cost 49,20748,066 49,802
----------- ----------------------- ------------
Total shareholders' equity 1,068,0341,061,467 1,026,477
----------- ----------------------- ------------
Total liabilities and shareholders' equity $ 1,389,3461,375,260 $ 1,364,507
=========== ======================= ============
See accompanying notes to financial statements.
-3-
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
Three Months Ended SixNine Months Ended
March 31, March 31,June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- -------------------- ------------ ------------ ------------
REVENUES:
Sales and other operating revenues $153,959 $218,817 $326,756 $408,565$ 159,912 $ 212,573 $ 486,668 $ 621,138
Income from investments 1,617 2,752 2,967 5,554
-------- -------- -------- --------
155,576 221,569 329,723 414,119
-------- -------- -------- --------25,555 4,649 28,522 10,203
------------ ------------ ------------ ------------
185,467 217,222 515,190 631,341
------------ ------------ ------------ ------------
COST AND EXPENSES:
Operating costs 96,919 107,076 199,250 201,12291,464 111,120 290,714 312,242
Depreciation, depletion and
amortization 21,893 22,784 48,886 40,76225,728 21,341 74,614 62,103
Dry holes and abandonments 4,311 6,704 10,123 18,7485,628 6,878 15,751 25,626
Taxes, other than income taxes 9,154 12,066 18,113 20,93410,389 10,276 28,502 31,210
General and administrative 5,358 4,646 9,926 8,2134,127 3,449 14,053 11,662
Interest 342 68 716 675
-------- -------- -------- --------
137,977 153,344 287,014 290,454
-------- -------- -------- --------(684) (1,626) 32 (951)
------------ ------------ ------------ ------------
136,652 151,438 423,666 441,892
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATES 17,599 68,225 42,709 123,66548,815 65,784 91,524 189,449
PROVISION FOR INCOME TAXES 7,497 27,118 18,095 49,15321,259 25,679 39,354 74,832
EQUITY IN INCOME OF AFFILIATES,
net of income taxes 770 642 1,862 1,077
-------- -------- -------- --------662 332 2,524 1,409
------------ ------------ ------------ ------------
NET INCOME $ 10,87228,218 $ 41,74940,437 $ 26,47654,694 $ 75,589
======== ======== ======== ========116,026
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.220.57 $ 0.830.80 $ 0.531.10 $ 1.512.31
Diluted 0.220.56 $ 0.820.79 $ 0.531.09 $ 1.492.28
CASH DIVIDENDS (Note 2)$ 0.08 $ 0.075 $ 0.0750.23 $ 0.15 $ 0.150.225
AVERAGE COMMON SHARES OUTSTANDING:
Basic 49,788 50,197 49,762 50,00549,855 50,467 49,793 50,159
Diluted 50,265 51,139 50,171 50,78350,574 51,256 50,306 50,941
The accompanying notes are an integral part of these statements.
-4-
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
SixNine Months Ended
March 31,June 30,
2002 2001
--------- ------------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 26,47654,694 $ 75,589116,026
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 48,886 40,76274,614 62,103
Dry holes and abandonments 10,123 18,74815,751 25,626
Equity in income of affiliateaffiliates before income taxes (3,420) (2,152)(4,696) (2,898)
Amortization of deferred compensation 733 7461,099 1,112
Gain on sale of securities (539) (138)and non-monetary
investment income (25,078) (2,634)
Gain on sale of property, plant & equipment (727) (3,949)(1,321) (3,759)
Other, net 922 3273 22
Change in assets and liabilities-
Accounts receivable 19,130 (14,799)25,408 (28,112)
Inventories 1,585 (2,544)1,970 (5,274)
Prepaid expenses and other 8,817 1,47514,627 11,200
Accounts payable (34,770) (213)(33,960) 15,432
Accrued liabilities (7,531) 8,625(411) 22,451
Deferred income taxes 13,458 10,47418,495 (1,417)
Other noncurrent liabilities 3,770 788
--------- ---------4,005 1,425
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 86,913 133,739
--------- ---------145,200 211,303
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including dry hole costs (165,653) (110,503)(257,494) (186,664)
Proceeds from sales of property, plant and equipment 2,658 7,3954,624 10,476
Proceeds from sale of investments 4,670 2,159
--------- ---------41,489 24,438
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (158,325) (100,949)
--------- ---------(211,381) (151,750)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (7,489) (7,572)(11,240) (11,366)
Purchases of stock for Treasury -- (1,921)
Proceeds from exercise of stock options 838 13,336
--------- ---------2,659 13,521
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (6,651) 5,764
--------- ---------(8,581) 234
---------- ----------
NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (78,063) 38,554(74,762) 59,787
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 122,962 108,087
--------- ------------------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 44,89948,200 $ 146,641
========= =========167,874
========== ==========
-5-
HELMERICH & PAYNE, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands - except per share data)
Accumulated
Common Stock Additional Treasury Stock
Other
---------------------------------- Paid-In Unearned Retained ---------------- Comprehensive----------------------
Shares Amount Capital Compensation Earnings Shares Amount
Income
------------- --------- ---------- ------------ ---------- ------ ----------
------------ -------- ------ ------ -------------
Balance, September 30, 2001 53,529 $5,353 $80,324 $(1,812) $943,105$ 5,353 $ 80,324 $ (1,812) $ 943,105 3,676 $(49,802) $49,309$ (49,802)
Comprehensive Income:
Net Income 26,47654,694
Other comprehensive income,
Unrealized gainslosses on available-
for-sale securities, net
of deferred taxes of $12,552 20,479$7,894
Derivatives instruments gains, net
of deferred taxes of $235 383
-------$16
Total other comprehensive income
20,862
-------
Comprehensive income
Cash dividends ($0.150.23 per share) (7,489)(11,240)
Exercise of stock options 243 (44) 595923 (128) 1,736
Tax benefit of stock-based awards 137634
Amortization of deferred compensation 7331,099
------- --------- --------- --------- ---------- ------ ------ ------- ------- -------- ----- -------- -----------------
Balance, March 31,June 30, 2002 53,529 $5,353 $80,704 $(1,079) $962,092 3,632 $(49,207) $70,171$ 5,353 $ 81,881 $ (713) $ 986,559 3,548 $ (48,066)
======= ========= ========= ========= ========== ====== ====== ======= ======= ======== ===== ======== =================
Accumulated
Other Total
Comprehensive Shareholders'
Income Equity
------------- -------------
Balance, September 30, 2001 $1,026,477$ 49,309 $ 1,026,477
Comprehensive Income:
Net Income 26,47654,694
Other comprehensive income,
Unrealized gainslosses on available-
for-sale securities, net
of deferred taxes of $12,552 20,479$7,894 (12,881) (12,881)
Derivatives instruments gains, net
of deferred taxes of $235 383
----------$16 25 25
Total other comprehensive income 20,862
----------(12,856) (12,856)
Comprehensive income 47,33841,838
Cash dividends ($0.150.23 per share) (7,489)(11,240)
Exercise of stock options 8382,659
Tax benefit of stock-based awards 137634
Amortization of deferred compensation 733
----------1,099
--------- -----------
Balance, March 31,June 30, 2002 $1,068,034
==========$ 36,453 $ 1,061,467
========= ===========
-6-
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, which
consists only of those of a normal recurring nature, necessary to
present fairly the results of the periods presented. The results of
operations for the three and sixnine months ended March 31,June 30, 2002, and March
31,June
30, 2001, are not necessarily indicative of the results to be expected
for the full year. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto in the Company's 2001 Annual Report on
Form 10-K and the Company's 2002 First and Second Quarter ReportReports on
Form 10-Q.
As announced on February 25, 2002, the Company and Key Production
Company, Inc. (Key) have signed a definitive agreement that provides
for Helmerich & Payne to contribute the assets and liabilities of the
Oil and Gas Division to a newly formed subsidiary, Cimarex Energy Co.
(Cimarex), and distribute on a pro-rata basis all of the shares of
stock of Cimarex to the shareholders of Helmerich & Payne. Cimarex
would then merge with Key. Cimarex Energy Co. will be a new publicly
traded exploration and production company. The transaction will close
after receipt of necessary Key shareholder and regulatory approvals.
The Company has received a favorable private letter ruling from the
Internal Revenue Service with regard to the transaction. Closing will
likely occur prior to the end of the Company's fiscal year. Approval of
the transaction by Helmerich and Payne shareholders will not be
required.
2. The $.075 cash dividend declared in December, 2001,March, 2002, was paid March 1,June 3, 2002.
On March 6,June 5, 2002, a cash dividend of $.075$.08 per share was declared for
shareholders of record on MayAugust 15, 2002, payable JuneSeptember 3, 2002.
3. Inventories consist of materials and supplies.
4. Income from investments includes $324,000$15,468,000 ($0.30 per share) and
$15,792,000 ($0.31 per share) after-tax gains from sales of
available-for-sale securities during the secondthird quarter and first sixnine
months of fiscal 2002. After-tax gains from security sales were
$74,000
$1,423,000 and $1,497,000 ($0.03 per share)for the same periods in
fiscal 2001.
5. The following is a summary of available-for-sale securities, which
excludes those accounted for under the equity method of accounting. At
March 31,June 30, 2002, the Company's investment in securities accounted for
under the equity method is $58,807,000.$60,083,000.
Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ---------------- ---------
(in thousands)
Equity Securities 03/31/06/30/02 $58,864 $114,185 $ 33 $173,01646,927 $ 60,950 $ 604 $ 107,273
Equity Securities 09/30/01 $63,778$ 63,778 $ 84,257 $3,136 $144,899$ 3,136 $ 144,899
-7-
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
6. Comprehensive Income -
The components of comprehensive income, net of related tax, are as follows
(in thousands):
Three Months Ended SixNine Months Ended
March 31, March 31,June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- ------------------- ----------- ----------- -----------
Net Income $ 10,87228,218 $ 41,74940,437 $ 26,47654,694 $ 75,589116,026
Other comprehensive income:
Net unrealized gain (loss) on
securities 3,224 (27,265) 20,479 (35,710)(33,360) 939 (12,881) (34,771)
Net unrealized gain (loss) on
derivative instruments 309 (726) 383 (28)
-------- -------- -------- --------(358) 6 25 (22)
----------- ----------- ----------- -----------
Other comprehensive income (loss) 3,533 (27,991) 20,862 (35,738)
-------- -------- -------- --------(33,718) 945 (12,856) (34,793)
----------- ----------- ----------- -----------
Comprehensive income (loss) $ 14,405(5,500) $ 13,75841,382 $ 47,33841,838 $ 39,851
======== ======== ======== ========81,233
=========== =========== =========== ===========
The components of accumulated other comprehensive income, net of related
taxes, are as follows (in thousands):
March 31,June 30, Sept.30,
2002 2001
-------- ----------------- ----------
Unrealized gains on securities, net $70,774 $50,295$ 37,414 $ 50,295
Unrealized loss on derivative instruments (603)(961) (986)
------- ----------------- ----------
Accumulated other comprehensive income $70,171 $ 9,309
======= =======36,453 $ 49,309
========== ==========
7. At March 31,June 30, 2002, the Company had committed bank lines of credit totaling
$100 million; $50 million expires in February 2003 and $50 million expires
in October 2003. Additionally, the Company had uncommitted credit
facilities totaling $10 million. Collectively, the Company had $50 million
in outstanding borrowings and outstanding letters of credit totaling $10.6
million against these lines at March 31,June 30, 2002. Concurrent with a $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 and
an expiration date of October 2003. The swap effectively converts this $50
million facility from a floating rate of LIBOR plus 50 basis points to a
fixed effective rate of 5.38 percent. Excluding the impact of the interest
rate swap, the average interest rate for the borrowings at March 31,June 30, 2002,
was approximately 2.402.34 percent on a 360-day basis.
In July 2002, the Company modified its short-term revolving credit
arrangements by replacing the above mentioned $50 million committed line
that expires in February 2003 and a $10 million uncommitted line with a
$125 million committed unsecured revolving credit facility, which expires
in July, 2005. Each year the Company can request a one year extension on
the facility. The facility requires quarterly interest payments with the
principal payment due at the expiration date. The interest rate on the
facility is LIBOR plus 87.5 basis points.
The Company is also in the process of negotiating a $200 million
intermediate term debt facility that would provide staged maturities
ranging from 5 to 12 years. The Company expects to finalize this
arrangement in mid-August 2002.
Under the various credit agreements currently in effect, the Company must meet
certain requirements regarding levels of debt, net worth, cash flows and
earnings. The Company met all requirements at March 31,June 30, 2002.
-8-
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
8. 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 include
the dilutive effect of stock options and restricted stock.
A reconciliation of the weighted-average common shares outstanding on a
basic and diluted basis is as follows (in thousands):
Three Months Ended SixNine Months Ended
March 31, March 31,June 30, June 30,
2002 2001 2002 2001
------ ------ ------ ---------------- ---------- ---------- ----------
Basic weighted-average shares 49,788 50,197 49,762 50,00549,855 50,467 49,793 50,159
Effect of dilutive shares:
Stock options 469 889 402 746691 735 498 743
Restricted stock 8 53 7 32
------ ------ ------ ------
477 942 409 778
------ ------ ------ ------28 54 15 39
---------- ---------- ---------- ----------
719 789 513 782
---------- ---------- ---------- ----------
Diluted weighted-average
shares 50,265 51,139 50,171 50,783
====== ====== ====== ======50,574 51,256 50,306 50,941
========== ========== ========== ==========
9. Income Taxes -
The Company's effective tax rate was 42.4%43% in the first sixnine months of fiscal
2002 compared to 39.7%39.5% in the same period of fiscal 2001. Costs and
expenses related to certain foreign locations for which the Company does
not receive a tax benefit resulted in the current year estimated effective
tax rate of 42.4%43%. The two major reasons for the effective tax rate increase
are that the Company had larger net operating loss carry forwards from
Venezuela in fiscal 2001, and the Company does not receive a tax benefit
from the devaluation losses in Argentina and Venezuela.
10. Interest Rate Risk Management -
The Company uses derivatives as part of an overall operating strategy to
moderate certain financial market risks and its exposure to interest rate
risk from long-term debt. To manage this risk, the Company has entered into
an interest rate swap to exchange floating rate for fixed rate interest
payments over the remaining life of the debt. As of March 31,June 30, 2002, the
Company had an interest rate swap outstanding with a notional principal
amount of $50 million. (See Note 7)
The Company's accounting policy for these instruments is based on its
designation of such instruments as hedging transactions. An instrument is
designated as a hedge based in part on its effectiveness in risk reduction
and one-to-one matching of derivative instruments to underlying
transactions. The Company records all derivatives on the balance sheet at
fair value.
-9-
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
For derivative instruments that are designated and qualify as a cash flow
hedge (i.e., hedging the exposure of variability in expected future cash
flows that is attributable to a particular risk), the effective portion of
the gain or loss on the derivative instrument is reported as a component of
other comprehensive income in stockholders' equity and reclassified into
earnings in the same period or periods during which the hedged transaction
affects earnings. The change in value of the derivative instrument in
excess of the cumulative change in the present value of the future cash
flows of the risk being hedged, if any, is recognized in the current
earnings during the period of change.
The Company's interest rate swap has been designated as a cash flow hedge
and is expected to be 100% effective in hedging the exposure of variability
in the future interest payments attributable to the debt because the terms
of the interest swap correlate with the terms of the debt.
11. Currency Devaluation -
The uncertainty regarding economic, banking and currency stability
continues without improvement in Argentina. The development of a solution
to the crisis is uncertain, increasing the potential for additional
currency declines in the near term. The Argentine peso currently trades in
the range of 3 to 3.53.6 pesos to one U.S. dollar. The Company has recorded
$1.2 million in pre-tax currency devaluation losses related to the peso
during the first quarter of fiscal 2002. The Company could be exposed to
additional currency losses of between $2$1 million and $4$2 million during the
remainder of fiscal 2002. The Company currently has one rig under contract
and working in Argentina.
Also, as a result of a severe decline in the value of the Venezuelan
bolivar due to political instability and a change in the Venezuelan
government's exchange policy, pre-tax currency devaluation losses of $2.3$3.1
million and $0.5 million were recorded in the secondfirst nine months and the
third quarter of fiscal 2002.2002, respectively. Subsequent to March 31,June 30, 2002,
the bolivar has improved in value relative to the U.S. dollar. Should an
additional devaluation of the bolivar occur, the Company could be exposed
to additional currency losses of between $0.5 million and $1.4 million
during the remainder of fiscal 2002. The Company currently has three rigs
under contract and working in Venezuela.
12. Contingent Liabilities and Commitments -
Litigation Settlement -
The Company iswas a defendant in Verdin v. R&B Falcon Drilling USA, Inc., et
al., a civil action in the United States District Court, Galveston, Texas.
In May 2001, the Company reached an agreement in principle with Plaintiff's
counsel to settle all claims pending court approval of the settlement. In
the third quarter of fiscal 2001, the Company incurred a net charge of
$3.25 million to contract drilling expense based on the pending settlement.
The total settlement liability is $10 million of which $6.75 million will
be paid by the Company's insurer. The Court approved the settlement on April 25, 2002. Payment ofIn June, 2002, the
settlement proceeds is expectedCompany paid $10 million to settle all claims in this litigation. The
Company was reimbursed $6.75 million in June, 2002.2002 by the Company's
insurer.
-10-
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
Other Matters -
The Company is thea defendant to claims of drainage of oil and gas from two properties
offsetting oil and gas wellsthat it operates. The royalty owner plaintiffs have filed suit on behalf of
themselves and a class of similarly situated owners.royalty owners in two 640 acre
spacing units. The plaintiffs allege that the two units have suffered
approximately 12 billion cubic feet of gross gas drainage. Although the
plaintiffs have not specified in their pleadings the amount of damages
alleged, the plaintiffs have orally stated that the royalty owner class has
sustained actual damages of approximately $6.2 million exclusive of
interest and costs. The Company estimates that the share of such alleged
damages attributable to its working interest ownership would total
approximately $1.0 million exclusive of interest and costs. Plaintiffs
further allege that, as a former operator, the Company is in the early stages of its responseliable for all
damages attributable to the claim,
and is unable to estimate the loss, if any,drainage. The Company believes that it might incur relatedis
liable only for its working interest share of any actual damages
attributable to this matter.the alleged drainage. In the event that the Company is held
liable for the full amount of any actual damages, the Company will seek
contribution, indemnification and/or other appropriate relief from all
other working interest owners for their portion of the alleged drainage
that is attributable to the interest of those other owners.
The Company, on a regular basis, makes commitments for the purchase of
contract drilling equipment. At March 31,June 30, 2002, the Company had commitments
outstanding of approximately $200$170 million for the purchase of drilling
equipment.
13. Segment Information -
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. Intersegment sales are accounted for in the same manner as
sales to unaffiliated customers. Other includes investments in
available-for-sale securities, equity owned investments, as well as
corporate operations.
-11-
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
Summarized financial information of the Company's reportable segments
for the sixnine months ended March 31,June 30, 2002, and 2001, is shown in the
following table:
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
- ------------- --------- --------- --------- ------------------------------------------------- ---------- ---------- ---------- ----------
MARCH 31,JUNE 30, 2002
Contract Drilling
Domestic $ 170,793251,379 $ 538682 $ 171,331252,061 $ 41,34955,709
International 78,263109,643 -- 78,263 8,293
--------- --------- --------- ---------
249,056 538 249,594 49,642
--------- --------- --------- ---------109,643 11,840
---------- ---------- ---------- ----------
361,022 682 361,704 67,549
---------- ---------- ---------- ----------
Oil & Gas Operations
Exploration & Production 47,84780,385 -- 47,847 (953)80,385 7,696
Natural Gas Marketing 25,80238,995 -- 25,802 1,439
--------- --------- --------- ---------
73,64938,995 1,330
---------- ---------- ---------- ----------
119,380 -- 73,649 486
--------- --------- --------- ---------119,380 9,026
---------- ---------- ---------- ----------
Real Estate 4,460 760 5,220 2,7336,649 1,128 7,777 4,073
Other 2,55828,139 -- 2,55828,139 --
Eliminations -- (1,298) (1,298)(1,810) (1,810) --
--------- --------- --------- ------------------- ---------- ---------- ----------
Total $ 329,723515,190 $ -- $ 329,723515,190 $ 52,861
========= ========= ========= =========80,648
========== ========== ========== ==========
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
- ------------- --------- --------- --------- ------------------------------------------------- ---------- ---------- ---------- ----------
MARCH 31,JUNE 30, 2001
Contract Drilling
Domestic $ 135,453228,769 $ 1,6122,331 $ 137,065231,100 $ 37,69067,995
International 73,819114,346 -- 73,819 11,353
--------- --------- --------- ---------
209,272 1,612 210,884 49,043
--------- --------- --------- ---------114,346 19,311
---------- ---------- ---------- ----------
343,115 2,331 345,446 87,306
---------- ---------- ---------- ----------
Oil & Gas Operations
Exploration & Production 132,563184,900 -- 132,563 71,115184,900 95,047
Natural Gas Marketing 60,15383,661 -- 60,153 4,666
--------- --------- --------- ---------
192,71683,661 4,817
---------- ---------- ---------- ----------
268,561 -- 192,716 75,781
--------- --------- --------- ---------268,561 99,864
---------- ---------- ---------- ----------
Real Estate 6,576 776 7,352 4,3048,826 1,159 9,985 5,312
Other 5,55510,839 -- 5,55510,839 --
Eliminations -- (2,388) (2,388)(3,490) (3,490) --
--------- --------- --------- ------------------- ---------- ---------- ----------
Total $ 414,119631,341 $ -- $ 414,119631,341 $ 129,128
========= ========= ========= =========192,482
========== ========== ========== ==========
-12-
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
Summarized financial information of the Company's reportable segments
for the quarters ended March 31,June 30, 2002, and 2001, is shown in the
following table:
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
- ------------- --------- --------- --------- ------------------------------------------------- ---------- ---------- ---------- ----------
MARCH 31,JUNE 30, 2002
Contract Drilling
Domestic $ 78,67080,586 $ 196144 $ 78,86680,730 $ 13,53314,360
International 39,21031,380 -- 39,210 4,416
--------- --------- --------- ---------
117,880 196 118,076 17,949
--------- --------- --------- ---------31,380 3,547
---------- ---------- ---------- ----------
111,966 144 112,110 17,907
---------- ---------- ---------- ----------
Oil & Gas Operations
Exploration & Production 23,05632,538 -- 23,056 3,00632,538 8,649
Natural Gas Marketing 11,48113,193 -- 11,481 979
--------- --------- --------- ---------
34,53713,193 (109)
---------- ---------- ---------- ----------
45,731 -- 34,537 3,985
--------- --------- --------- ---------45,731 8,540
---------- ---------- ---------- ----------
Real Estate 1,965 381 2,346 1,3362,189 368 2,557 1,340
Other 1,19425,581 -- 1,19425,581 --
Eliminations -- (577) (577)(512) (512) --
--------- --------- --------- ------------------- ---------- ---------- ----------
Total $ 155,576185,467 $ -- $ 155,576185,467 $ 23,270
========= ========= ========= =========27,787
========== ========== ========== ==========
External Inter- Total Operating
(in thousands) Sales Segment Sales Profit
- ------------- --------- --------- --------- ------------------------------------------------- ---------- ---------- ---------- ----------
MARCH 31,JUNE 30, 2001
Contract Drilling
Domestic $ 73,15993,316 $ 671719 $ 73,83094,035 $ 20,64430,305
International 35,12840,527 -- 35,128 3,805
--------- --------- --------- ---------
108,287 671 108,958 24,449
--------- --------- --------- ---------40,527 7,958
---------- ---------- ---------- ----------
133,843 719 134,562 38,263
---------- ---------- ---------- ----------
Oil & Gas Operations
Exploration & Production 74,83552,337 -- 74,835 44,09552,337 23,932
Natural Gas Marketing 31,47423,508 -- 31,474 (33)
--------- --------- --------- ---------
106,30923,508 151
---------- ---------- ---------- ----------
75,845 -- 106,309 44,062
--------- --------- --------- ---------75,845 24,083
---------- ---------- ---------- ----------
Real Estate 4,245 387 4,632 2,9292,250 383 2,633 1,008
Other 2,7285,284 -- 2,7285,284 --
Eliminations -- (1,058) (1,058)(1,102) (1,102) --
--------- --------- --------- ------------------- ---------- ---------- ----------
Total $ 221,569217,222 $ -- $ 221,569217,222 $ 71,440
========= ========= ========= =========63,354
========== ========== ========== ==========
-13-
HELMERICH & PAYNE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)((Unaudited)
The following table reconciles segment-operating profit per the table above to
income before income taxes and equity in income of affiliate as reported on the
Consolidated Condensed Statements of Income (in thousands).
Quarter Ended SixNine Months Ended
March 31, March 31,June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ------------------- ---------- ---------- ----------
Segment operating profit $ 23,27027,787 $ 71,44063,354 $ 52,86180,648 $ 129,128192,482
Unallocated amounts:
Income from investments 1,617 2,752 2,967 5,55425,555 4,649 28,522 10,203
General corporate expense (5,358) (4,646) (9,926) (8,213)(4,127) (3,449) (14,053) (11,662)
Interest expense (342) (68) (716) (675)684 1,626 (32) 951
Corporate depreciation (506) (505) (989) (976)(509) (550) (1,498) (1,526)
Other corporate expense (1,082) (748) (1,488) (1,153)
--------- --------- --------- ---------(575) 154 (2,063) (999)
---------- ---------- ---------- ----------
Total unallocated amounts (5,671) (3,215) (10,152) (5,463)
--------- --------- --------- ---------21,028 2,430 10,876 (3,033)
---------- ---------- ---------- ----------
Income before income taxes
and equity in income of
affiliates $ 17,59948,815 $ 68,22565,784 $ 42,70991,524 $ 123,665
========= ========= ========= =========189,449
========== ========== ========== ==========
The following table presents revenues from external customers by country based
on the location of service provided (in thousands).
Quarter Ended SixNine Months Ended
March 31, March 31,June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ------------------- ---------- ---------- ----------
Revenues:
United States $116,366 $186,441 $251,460 $340,300$ 154,087 $ 176,695 $ 405,547 $ 516,995
Venezuela 14,929 9,150 30,218 17,83110,528 11,987 40,746 29,818
Ecuador 11,059 6,952 22,210 15,79710,698 9,763 32,908 25,560
Colombia 2,250 6,299 6,031 14,0661,915 6,089 7,946 20,155
Other Foreign 10,972 12,727 19,804 26,125
-------- -------- -------- --------8,239 12,688 28,043 38,813
---------- ---------- ---------- ----------
Total $155,576 $221,569 $329,723 $414,119
======== ======== ======== ========$ 185,467 $ 217,222 $ 515,190 $ 631,341
========== ========== ========== ==========
14. Impairment -
Included in depreciation, depletion and amortization for the three and sixnine
month periods ended March 31,June 30, 2002 were impairment charges of $19,000$2,464,000 and
$5,444,000,$7,908,000, respectively for proved Exploration and Production properties.
After tax, the impairment charges reduced net income by approximately
$12,000$1,528,000 and $3,375,000$4,903,000 ($0.000.03 and $0.07$0.10 per share) for the three and
sixnine month periods ended March 31,June 30, 2002, respectively. Included in
depreciation, depletion and amortization for both the three and sixnine month
periods ended March 31,June 30, 2001 were impairment charges of $3,808,000$642,000 and
$4,450,000 for proved Exploration and Production properties. After tax, the
impairment charges reduced net income by approximately $2,400,000($0.05$398,000 and
$2,759,000 ($0.01 and $0.05 per share) for the three and sixnine month periods
ended March 31,June 30, 2001, respectively.
-14-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31,June 30, 2002
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated
financial statements, notes and management's narrative analysis contained in the
Company's 2001 Annual Report on Form 10-K and the Company's fiscal 2002 First
and Second Quarter Report on Form 10-Q and the condensed 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 natural gas and crude oil prices, expiration or termination of drilling
contracts, currency exchange losses, changes in general economic and political
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 includes forward-looking statements. These forward-looking statements
are based on various assumptions. The Company cautions that, while it believes
such assumptions to be reasonable and makes them in good faith, assumed facts
almost always vary from actual results. The differences between assumed facts
and actual results can be material. The Company is including this cautionary
statement to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. The factors identified in this cautionary
statement are important factors (but not necessarily all important factors) that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
RESULTS OF OPERATIONS
SECONDTHIRD QUARTER 2002 VS SECONDTHIRD QUARTER 2001
The Company reported net income of $10,872,000$28,218,000 ($0.220.56 per share) from revenues
of $155,576,000$185,467,000 for the secondthird quarter ended March 31,June 30, 2002, compared to net
income of $41,749,000$40,437,000 ($0.820.79 per share) from revenues of $221,569,000$217,222,000 for the
secondthird quarter of the prior fiscal year. Net income in the secondthird quarter of
fiscal 2002 and 2001 included $324,000$15,468,000 ($0.010.30 per share) and $74,000,
respectively,of after-tax gains from the
sale of investment securities.available-for-sale securities compared to $1,423,000 ($0.03 per share)
in the third quarter of fiscal 2001.
OIL & GAS DIVISION
EXPLORATION and PRODUCTION reported operating profit of $3.0$8.6 million for the
secondthird quarter of fiscal 2002 compared to $44.1$23.9 million for the same period of
fiscal 2001. Oil & gas revenues decreased to $23.1$32.5 million from $74.8compared with $52.3
million as commodity prices
were significantly lower than in the second quarter of fiscal 2001.
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31,June 30, 2002
(Continued)
Natural gas revenues decreased $49.8to $27.7 million to $19.2from $46.5 million, foror 40
percent. The $18.8 million decrease in gas revenues was the current
quarter, due primarily toresult of
significantly lower gas prices. Oil revenues decreased $1.8prices ($14.4 million or 33.2 percent, as bothdecrease) and a 12% decrease in
gas volumes and price decreased compared to last year.($4.4 million decrease). Natural gas prices averaged $2.03$2.94 per mcf
and $6.46$4.27 per mcf for the secondthird quarter of fiscal 2002 and 2001, respectively,
while natural gas volumes averaged 103.5 Mmcf/d and 117.8 Mmcf/d, respectively.
Oil revenues decreased to $4.5 million from $5.4 million. The $0.9 million
decrease in oil revenues was the result of both lower prices ($0.4 million
decrease) and volumes ($0.5 million decrease). Crude oil prices averaged $24.34
per Bbl and $26.12 per Bbl for the third quarter of fiscal 2002 and 2001,
respectively, while crude oil volumes averaged 2,044 Bbls/d and 2,224 Bbls/d,
respectively.
Exploration expenses were approximately $5.6 million and $9.5 million in the
third quarter of fiscal 2002 and 2001, respectively. Natural gas volumes averaged
104.5 mmcf/d and 118.4 mmcf/d, respectively. Crude oil prices averaged $19.86
per bbl and $27.78 per bbl for the second quarter of fiscal 2002 and 2001,
respectively. Crude oil volumes averaged 2,018 bbls/d and 2,258 bbls/d,
respectively.
Exploration expenses decreased to $2.5Dry hole costs were $3.1
million for the second quarter of 2002
from $5.3compared with $2.6 million in the second quarter2001 and impairment of
fiscalundeveloped leases was $2.4 million compared with $4.2 million in 2001. The decrease was
primarily the result of a $1.9 million decrease in dry hole costs and a $.6
million decrease inThere
were no geophysical expenses asin the result of reduced exploration
activity compared to the second quarter of fiscal 2001.
Production expenses were $7.6 million for the secondthird quarter of fiscal 2002 compared with $11.0to
$2.7 million in the same period of fiscal 2001. The $3.4 million
decrease was primarilydecreases were the result of
lower production taxes resulting from
significantly lower gas pricesreduced exploration activity in fiscal 2002.
Operating expenses decreased to $6.7 million in the secondthird quarter of fiscal 2002
compared with the same period in 2001.
Depreciation, depletion and amortization expense was $7.0 million for the second
quarter of fiscal 2002 compared with $11.0to $9.6 million in the same period of fiscal 2001. Lower production
taxes of $2.5 million, as the result of lower gas prices than last year's third
quarter, was the primary reason for the decrease.
The $4.0 million decrease is due primarily to a $3.8 million impairment charge
for producing propertiesCompany participated in an additional 29 wells during the secondthird quarter, of
which 24 were producing, waiting on pipeline connections or completing. Of the
29 wells drilled, 6 were wildcat wells, of which 3 were successful and 3 were
dry holes. For the first nine months of fiscal 2001. After-tax, the
impairment charge reduced net income by approximately $2.4 million, $0.05 per
share, on a diluted basis.
During the second quarter,2002, the Company participated in
the drilling of 851 wells,
6 of which 39 were completed or are producing, completing, or waiting on pipeline connections, and 2
are temporarily abandoned.12 were dry holes.
The Company expects to participate in 94 gross wells for the year.
NATURAL GAS MARKETING segment reported an operating profitloss of $1.0$0.1 million in the
currentthird quarter of fiscal 2002 compared to an operating lossprofit of $33 thousand$0.4 million in
the secondthird quarter of fiscal 2001. The operating loss in the second quarter of 2001 was the
result of selling higher priced inventory in January of 2001 as spot gas prices
declined rapidly. In the second quarter of 2002, steadily rising prices
benefited the marketing segment.
OIL AND GAS DIVISION SPINOFF AND MERGER
As announced on February 25, 2002, the Company and Key Production Company, Inc.
(Key) have signed a definitive agreement that provides for Helmerich & Payne to
contribute the assets and liabilities of the Oil and Gas Division to a newly
formed subsidiary, Cimarex Energy Co., and distribute on a pro-rata basis all of
the shares of stock of Cimarex to the shareholders of Helmerich & Payne. Cimarex
would then merge with Key. Cimarex Energy Co. will be a new publicly traded
exploration and production company. The transaction will close after receipt of
necessary Key shareholder and regulatory approvals, including the receipt of a
favorable letter ruling from the Internal Revenue Service. Closing will likely
occur in the third calendar quarter of 2002.
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31,June 30, 2002
(Continued)
DOMESTIC DRILLING
DOMESTIC DRILLING'SDomestic contract drilling revenues for the third quarter of 2002 and 2001 were
$80.6 million and $93.3 million, respectively. Operating profit for the third
quarter of fiscal 2002 was $14.4 million, compared with $30.3 million in last
year's third quarter. The decrease in operating profit is primarily the result
of reduced performance in the Company's land operations. Land dayrates averaged
approximately $11,500 per day in the current quarter, compared to $15,000 per
day in the third quarter of fiscal 2001. Land rig utilization was 85% and 98%
for the third quarter of 2002 and 2001, respectively. The average number of land
rigs available in the U.S. has increased 30%, from 44.6 rigs in the third
quarter of fiscal 2001, to 58.1 rigs during the current quarter. The increase is
due to the additional FlexRigs constructed by the Company over the past year, as
well as four rigs moved from international locations to the U.S.
Operating profit from offshore operations decreased approximately 19% in the
current quarter compared to the third quarter of fiscal 2001, as rig utilization
was 81% and 100% for the third quarter of 2002 and 2001, respectively. Offshore
operating profit for the third quarter of 2002 was helped by the commencement of
work for the Company's new offshore platform rigs 205 and 206. This improvement
was more than offset with two rigs down for the entire quarter, with plans for
modification, and another rig going to standby rates for the quarter.
As previously announced, the Company has begun construction of its third series
of the H&P-designed FlexRig. The current series of rigs, named FlexRig3, is
being assembled in the Company's construction facility in Houston. Two of the
new FlexRig3s recently were deployed to the field to commence operations for
customers. An additional 23 rigs are scheduled to be completed within the next
12-14 months. The next six FlexRig3s to be completed are already committed to
specific customers for work. Rig utilization for all FlexRigs since 1998 have
averaged over 95%. Upon the projected completion in late 2003 of the FlexRig3
project, it is estimated that the Company's land rig fleet in the U.S. will
total 83 rigs, representing a 43% increase over the 58 rigs available during the
current quarter.
INTERNATIONAL DRILLING
International Drilling's operating profit decreased to $13.5$3.5 million from $20.6$8.0
million. Revenues decreased to $31.4 million from $40.5 milion. The operating
profit decrease is due primarily to decreases in Venezuela, Colombia and
Equatorial Guinea, partially offset by continued improvement from Ecuador as the
result of increased margins. Colombia decreased from three rigs working in the
secondthird quarter of fiscal 2001. The decrease is mainly due2001 to a
significant declineone rig in the Company's land operations results. Average U.S. land
rig revenue per day for the second quarter was $12,386, down 6% from $13,154 in
the second quarter of fiscal 2001. Margins also declined, with expenses rising
slightly during the quarter, as the Company started to incur costs associated
with placing into service new rigs from the FlexRig3 construction program. U.S.
land rig utilization for the second quarter of 2002 was 76%, compared with 96%
in the same period of 2001. The rig utilization rate was impacted by the
inclusion of an additional four rigs that recently became available after
significant modifications. The Company currently has 58 U.S. land rigs.
Depreciation expense increased $3.0 million to $8.8 million in the secondthird quarter of fiscal 2002. The 53% increaseone
remaining rig in Colombia is scheduled to end its contract in September 2002.
The decrease in Venezuela is the result of capital expenditures
made in thelower margins compared to last six months of fiscal 2001year
and in the first six months of fiscal
2002.
As previously announced, the Company is currently in its FlexRig3 construction
program wherein a total of 25 new rigs are expected to be built over the next 18
months. It is anticipated that the Company will commence operations on ten of
the 25 rigs prior to the end of the fiscal year 2002, and that the remainder
will commence operations during fiscal year 2003. The first rig from the
FlexRig3 project is scheduled to be completed next month.
Dayrates for the Company's U.S. offshore platform rigs remained steady, but
utilization dropped to 89% in the second quarter of fiscal 2002 compared with
100% in the secondthird quarter of fiscal 2001 as work on two rigs ended in February
2002 without replacement contracts. The Company anticipates that its newly
constructed platform rigs, 205 and 206, will commence operations in May and
June, respectively.
INTERNATIONAL DRILLING
INTERNATIONAL DRILLING'S operating profit increasedthere was a one-time contract settlement
of $2.0 million
Rig utilization averaged 48% for the current quarter, compared to $4.4 million60% in the
secondthird quarter of fiscal 2002 from $3.8 million2001. Rig activity continued to be low in all international
countries except in Ecuador where the same period of 2001.
Revenues increased to $39.2 million from $35.1 millionrig utilization averaged 86% for the
same periods. The
increase in operating profit was the result of improved profitability in Ecuador
and Argentina, partially offset by reduced operating profitquarter. Rig activity in Venezuela, and
Bolivia. Venezuela's second quarter results were negatively impacted by
$2,379,000where the Company operates 14 of currency devaluation losses resulting from a severe decline in the
value of the Venezuelan bolivar due to a change in its government exchange rate
policy. The value of the bolivar has improved relative to the dollar since the
end of the quarter but there is still uncertainty as to the direction of the
Venezuelan government, regarding currency policies (See Note 11).
Rig utilization33
international rigs, averaged 38% for the international operations averaged 58% for the second
quarter of fiscal 2002 compared to 49% for the second quarter of 2001.quarter.
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31,June 30, 2002
(Continued)
OTHER
Other revenues decreasedincreased approximately $1.5$20.3 million fromover last year, with $.4including a
$22.5 million dueincrease in gains from the sale of available-for-sale securities.
In the current quarter, the Company sold all of its holdings in Bank One
Corporation, Kerr McGee, Oneok and Sun Co. (see note 4). Dividend income
decreased $0.4 million for the quarter as compared to reduced dividendthe third quarter of 2001.
Interest income and $1.1decreased to $0.2 million duecompared to decreased
interest income. The decrease in dividend income is the result of reduced equity
holdings of Occidental Petroleum and Kerr-McGee$1.4 million in the secondthird
quarter of fiscal 2001 as interest rates and average cash invested both
decreased in 2002.
Interest expense was a credit of $0.7 million in the third quarter of fiscal
2002 compared to fiscala credit of $1.6 million for the same period of 2001. Interest income decreased asIn 2002,
third quarter interest expense included credits for capitalized interest and ad
valorem tax settlements of $1.2 million and $0.2 million, respectively. For the
resultsame period of reduced
cash balances2001, the capitalized interest was $0.4 million and significantly reduced interest rates in the second quarter of
fiscal 2002.
Corporate generalcredit
for ad valorem tax settlements was $1.9 million, respectively.
General and administrative expenses increased to $5.4$4.1 million in the
second quarter of 2002 from $4.6$3.4 million,
in the same period of 2001. The $0.8
million increase is relateddue to labor and benefits, higherincreased professional services, pension expense and aircraft maintenance.administrative labor
and benefits.
The Company'scompany's effective income tax rate increased to 42.6%43.5% for the secondthird quarter
of fiscal 2002 compared to 39.7%39.0% for the same period of 2001. The increase is
due primarily to certain costs and expenses related to foreign locations for
which the Company does not receive a tax benefit, including currency devaluation
losses.
SIXNINE MONTHS ENDED MARCH 31,JUNE 30, 2002 VS SIXNINE MONTHS ENDED MARCH 31,JUNE 30, 2001
The Company reported net income of $26,476,000$54,694,000 ($0.531.09 per share) from revenues
of $329,723,000$515,190,000 for the sixnine months ended March 31,June 30, 2002, compared towith net
income of $75,589,000$116,026,000 ($1.492.28 per share) from revenues of $414,119,000$631,341,000 for the
first sixnine months of the prior fiscal year. Net income in the first sixnine months
of fiscal 2002 and 2001 included $324,000$15,792,000 ($0.010.31 per share) and $155,000, respectively, from the sale of
investment securities.securities compared with $1,497,000 ($0.03 per share) for the same
period of fiscal 2001.
OIL AND GAS DIVISION
EXPLORATION AND PRODUCTION reported an operating lossprofit of $1.0$7.7 million for the
first sixnine months of fiscal 2002 compared to an operating profit of $71.1$95.0 million for the same period
of fiscal 2001. Oil & gas revenues decreased to $47.8$80.4 million from $132.6compared to $184.9
million in 2001.
Natural gas revenues were $39.9 million for the first six months of fiscal 2002
compared to $119.5 million for the same period of fiscal 2001, as gas prices
decreased significantly. Oil revenues decreased to $7.4 million compared to
$12.7 million for the first six months of fiscal 2001, as both oil prices and
volumes decreased. Natural gas prices averaged $2.05 per mcf and $5.59 per mcf
for the first six months of fiscal 2002 and 2001, respectively. Natural gas
volumes averaged 106.7 mmcf/d and 117.4 mmcf/d, respectively. Crude oil prices
averaged $19.72 per bbl and $29.70 per bbl for the first six months of fiscal
2002 and 2001, respectively. Crude oil volumes averaged 2,064 bbls/d and 2,345
bbls/d, respectively.
-18-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31,June 30, 2002
(Continued)
DuringNatural gas revenues decreased to $67.6 million from $166.1 million, or 59
percent. The $98.5 million decrease in gas revenues was the result of
significantly lower gas prices ($90.4 million decrease) and a 10% decrease in
gas volumes ($8.1 million decrease). Natural gas prices averaged $2.34 per mcf
and $5.16 per mcf for the first sixnine months of fiscal 2002 and 2001
respectively. Natural gas volumes averaged 105.5 Mmcf/d and 117.5 Mmcf/d,
respectively. Oil revenues decreased to $12.0 million from $18.0 million. The
$6.0 million decrease in oil revenues was the result of both lower prices ($4.5
million decrease) and volumes ($1.5 million decrease). Crude oil prices averaged
$21.33 per Bbl and $28.65 per Bbl for the nine months of fiscal 2002 and 2001,
respectively. Crude oil volumes averaged 2,052 Bbls/d and 2,303 Bbls/d,
respectively.
Exploration expenses were approximately $16.8 million and $31.3 million in the
first nine months of fiscal 2002 and 2001, respectively. A decrease in
exploration related expenses
decreased significantly fromactivity in 2002, as a result of lower gas prices, is the primary
reason for the $14.5 million decrease in exploration expenses. Dry hole costs
were $6.8 million for the first nine months of fiscal 2002 compared to $14.1
million in the same period of 2001. Impairment of undeveloped leases and
geophysical expense were $8.6 million and $1.4 million, respectively, in the
first nine months of fiscal 2002 compared to $11.2 million and $6.0 million,
respectively, in the same period of fiscal 2001.
Geophysical, dry
hole and abandonmentOperating expenses were $11.1 million for the first sixnine months of fiscal 2002 $10.7were $21.9 million
lower than in the same period of last year with
reduced dry holes of $7.8 million being the primary item. Reduced exploration
activity and exploratory drilling is the primary reason for the decrease in
exploration expenses.
Production expenses decreasedcompared to $15.3 million for the first six months of
fiscal 2002 compared with $19.2$28.8 million in the same period of fiscal 2001. LowerThe $6.9 million
decrease is primarily the result of decreased production taxes in 2002 due to
significantly lower commodity prices in the first nine months of fiscal 2002
compared to the same period in 2001.
Depreciation, depletion and amortization expense was the primary reason$30.7 million for the decreasefirst
nine months of fiscal 2002 compared to $26.1 million in the same period of 2001.
Impairment charges for producing properties of $7.9 million and $4.5 million
were included in these respective amounts. After-tax, the impairment charge
reduced net income in 2002 and 2001 by approximately $4.9 million ($0.10 per
share) and $2.8 million ($0.05 per share), respectively. The remaining increase
of $1.2 million is due to higher depreciation rates as the result of significantly lower
natural gas prices in the first six months of fiscal 2002.
During the first six months of fiscal 2002, the Company participated in the
drilling of 22 wells, 15 of which are producing, completing or waiting on
pipeline connections, and 2 are temporarily abandoned and 5 are dry holes. With
the current increase in product prices, drilling expenditures will increase with
anticipated drilling of 94 gross wells for fiscal 2002 for a net expenditure of
approximately $47 million.reserves at September 30, 2001.
NATURAL GAS MARKETING segment reported an operating profit of $1.4$1.3 million infor
the first sixnine months of fiscal 2002 compared to $4.7$4.8 million in the same period
of fiscal 2001. The significant decrease wasis the result of very favorable spot
market gas prices in both November and Decemberthe first quarter of 2000,fiscal 2001, as gas prices were increasing
to record levels.dramatically. Those same conditions did not occur during the first sixnine months
of fiscal 2002.
DOMESTIC DRILLING
DOMESTIC DRILLING'SDomestic Drilling's operating profit increased to $41.3was $55.7 million in the first six
months of 2002 from $37.7and $68.0 million in the first six months of fiscal 2001.
Average U.S. land rig revenue per day for the
first six months of 2002 was
$13,245 per day compared to $11,884 per day for the same period of 2001. Rig
utilization for U.S. land rigs was 83% for the first sixnine months of fiscal 2002 compared to 94% inand fiscal 2001, respectively. Revenues for the
same period of 2001 as demand for land rigs decreasedperiods were $251.4 million and $228.8, respectively. The decrease in
2002 as the result of lower natural gas prices. In March 2002, land rig revenue
per day was $12,197 and rig utilization was 79% as dayrates were still drifting
lower.
The Company's U.S. offshore platform rigs operating results were slightly
improved in the six months ended March 31, 2002 compared with the same period of
fiscal 2001. Rig utilization was 95% for the first six months of fiscal 2002
compared to 96% in the same period of 2001. Two newly constructed platform rigs,
205 and 206, are scheduled to commence operations in the Gulf of Mexico in May
and June, respectively.
Depreciation expense was $16.8 million in the first six months of fiscal 2002
compared to $10.9 million in the same period of fiscal 2001. The $5.9 million
increaseprofit is the result of new rig investment during the period April, 2001 to
March 2002.due
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31,June 30, 2002
(Continued)
Although difficultprimarily to predict, the Company's estimatedreduced performance in land operations, with average revenue per
day for U.S.
land rigsof approximately $12,600 in the last sixfirst nine months of fiscal 2002, is approximately $10,600 per day
andcompared
with $15,420 in the same period of fiscal 2001. Land rig utilization is 85%. Margins will be somewhat lower inwas 83% and
95% for the second half of
2002, as expenses have not decreased with lower revenues. As previously stated,
ten new FlexRigs will be added in the last sixfirst nine months of fiscal 2002.2002 and 2001, respectively. Operating
profit from offshore operations was down 3% for the first nine months of fiscal
2002, compared to the same period in fiscal 2001. Offshore rig utilization was
90% and 97% for the same periods, respectively.
Although land dayrates are still soft and difficult to predict in future months,
there are signs that they are stabilizing, if commodity prices stay at present
levels. Rig utilization for both land and offshore operations should remain at
third quarter levels in the fourth quarter, as the two new platform rigs 205 and
206 will work a full quarter.
INTERNATIONAL DRILLING
INTERNATIONAL DRILLING'SInternational Drilling's operating profit decreased to $8.3$11.8 million from $11.3$19.3
million. Revenues increaseddecreased to $78.3 million$109.6 from $73.8$114.3 million. Improved
profitabilityThe decrease in
Ecuadoroperating profit is due primarily to a 15% reduction in revenue days and
Argentina helped offset reduced operatingcurrency devaluation losses in Venezuela and Argentina. Operating profit in
Colombia and Bolivia. Indecreased $4.9 million in the first sixnine months of fiscal 2002 compared
to the same period of 2001 as there was one rig working in 2002 and an average
of 3.4 rigs in 2001. Equatorial Guinea operating profit decreased $1.2 million
due to an increase in operating expenses. Operating profit in Ecuador increased
$4.6 million for the first nine months of 2002 compared to the same period in
2001 as revenue per day increased by 25%.
In Argentina, operating profit decreased $2.3 million in 2002 compared with 2001
as the average rigs working decreased from 2.8 rigs in the first nine months of
2001 to 1.3 rigs in 2002. Argentina also recorded a currency devaluation loss of
$1.2 million in the first nine months of fiscal 2002 due to devaluation of the
Argentina peso. Although some stability has been achieved, there is still
significant uncertainty regarding economic, banking and currency stability.
Operations in Venezuela incurred currency valuation losses in both Argentina and Venezuela negatively impacted operating profit. Venezuela
recorded devaluation lossesthe first nine
months of $2.3fiscal 2002 of $3.1 million resulting from acompared to $0.6 million in the same
period of fiscal 2001. The severe decline in the value of the Venezuelan bolivar due to a change in its government exchange
policy. Subsequent to March 31, 2002, the bolivar has improved in valueBolivar
relative to the U.S. dollar.dollar is the result of a change in the government's
exchange policy and general instability in the country. Should an additional
devaluation of the bolivar occur, the Company could be exposed to additional
currency losses of between $0.5 million and $1.4 million during the remainder of
fiscal 2002.
Argentina also recorded a devaluation loss of $1.2OTHER
Other revenues increased approximately $17 million in the first six
months of 2002 due to devaluation of the Argentina peso. With current conditions
in Argentina, there is still significant uncertainty regarding economic, banking
and currency stability. Based on a peso exchange of 3.0 and 3.5, the Company
could be exposed to additional losses of between $2 and $4 million during this
fiscal year due to currency devaluation.
OTHER
Interest income was $1.1 million in the first sixnine months of
2002 compared to the same period of 2001. Gains from the sale of
available-for-sale securities in the first nine months of 2002 were $25.4
million compared to $2.6 million in the same period of 2001. Dividend income
decreased from $3.1 million in 2001 to $1.8 million in 2002 as the result of
reduced equity holdings and lower money market investments in fiscal 2002.
Interest income was $1.3 million in the first nine months of fiscal 2002
compared to $4.5 million in the same period of 2001. The decrease is the result
of lower interest rates and decreased cash balances in 2002. Dividend income was $1.4
million in the first six months of fiscal 2002 compared to $2.2 million in 2001.
The decrease is the result of reduced equity holdings in Kerr-McGee and
Occidental Petroleum and in money market investments in fiscal 2002.
-20-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
June 30, 2002
(Continued)
Interest expense for the first sixnine months of fiscal 2001 was a credit of $1.0
million compared with an expense of $32,000 in fiscal 2002. In the first nine
months of fiscal 2002, was $0.7interest expense included credits for capitalized
interest and ad valorem tax settlements of $1.8 million compared with $0.7and $0.3 million,
forrespectively. For the same period inof fiscal 2001. Corporate general2001, the credits were $0.8 million
and $2.3 million, respectively.
General and administrative expense was $9.9increased from $11.7 million in the first
sixnine months of fiscal 2002 compared2001 to $8.2$14.1 million forin the same period of 2001.fiscal 2002.
The $1.7 million increase is related to labor and employee benefits, higher pension and insuranceadvertising costs,
and legal and
professional services related to efforts to establishestablishing the Oil and
GasCompany's Exploration &
Production Division as a separate public entity.entity, and pension expense.
The Company's effective income tax rate increased to 42.4%43.0% for the nine months
compared to 39.9% for the first sixnine months of fiscal 2002 compared to 39.7% for the same period of 2001. The increase is due
primarily to certain costs and expenses related to foreign locations for which
the Company does not receive a tax benefit.
-20-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31, 2002
(Continued)benefit, including currency devaluation
losses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $86.9$145.2 million for the first sixnine
months of fiscal 2002, compared to $133.7with $211.3 million for the same period in 2001.
The decrease in cash flows was primarily the result of significantly lower cash
flow from the Exploration and Production segment due to decreased gascommodity
prices. Capital expenditures were $165.7$257.5 million and $110.5$186.7 million for the
first sixnine months of
fiscal 2002 and 2001, respectively. The increase is primarily the
result of new rig construction in the Company's U.S. land operations.
The Company anticipates capital expenditures to be approximately $357$350 million
for fiscal 2002. Internally generated cash flows are projected to be
approximately $165$200 million for fiscal 2002 and cash balances were $45$48 million at
March 31,June 30, 2002. The Company's indebtedness totaled $50,000,000$50 million as of March 31,June 30,
2002, as described in noteNote 7 to the Consolidated Condensed Financial Statements. It is anticipated thatTo help
finance the future capital expenditure requirements, the Company is currently
negotiating a $200 million intermediate term debt facility. This facility will
secure additional borrowingprovide for staged maturities from 5 to 12 years. The Company expects to
finalize this facility in mid-August 2002. To provide short-term flexibility,
the last
six monthsCompany increased its revolving bank lines of fiscal 2002 and possibly sellcredit to a portiontotal of its investment
portfolio to fund projected capital expenditures.$175
million. (see Note 7)
In the secondthird quarter of fiscal 2002, the Company sold its remaining 150,000
shares in
Bank One Corporation (175,000 shares), Kerr McGee (150,000 shares), Oneok
(450,000 shares) and Sun Co. (312,546 shares) for total proceeds of
Occidental Petroleum for approximately $4.2$36.8 million. The Company's remaining stock portfolio has a
market value of approximately $180 million.
There were no other significant changes in the Company's financial position
since September 30, 2001.
-21-
PART II. OTHER INFORMATION
HELMERICH & PAYNE, INC.
June 30, 2002
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For a description of the Company's market risks, see "Item 7 (a). Quantitative
and Qualitative Disclosures About Market Risk" in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 2001, and Note 10 to the
Consolidated condensed Financial Statements contained in Part I hereof.
-21-
PART II. OTHER INFORMATION
HELMERICH & PAYNE, INC.
March 31, 2002
(continued)
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The discussion of legal proceedings under the heading "Litigation Settlement" as
disclosed in Note 12 to the Consolidated Condensed Financial Statements
contained in Part I hereof is hereby incorporated by reference.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such. If not so
indicated, such exhibits are filed herewith.
Exhibit
Number Description
2.1 Agreement and Plan of Merger, dated as of February
23, 2002, by and among Helmerich & Payne, Inc.,
Cimarex Energy Co., Mountain Acquisition Co. and Key
Production Company, Inc. is incorporated herein by
reference to Exhibit 2.1 to the Cimarex Energy Co.
Registration Statement No. 333-87948 on Form S-4
filed May 9, 2002.
3.2 Amended and Restated By-laws of the Registrant.
10.1 Distribution Agreement, dated as of February 23,
2002, by and between Helmerich & Payne, Inc. and
Cimarex Energy Co. is incorporated herein by
reference to Exhibit 10.1 to the Cimarex Energy Co.
Registration Statement No. 333-87948 on Form S-4
filed May 9, 2002.
10.2 Tax Sharing Agreement, dated as of February 23, 2002,
by and between Helmerich & Payne, Inc. and Cimarex
Energy Co. is incorporated herein by reference to
Exhibit 10.2 to the Cimarex Energy Co. Registration
Statement No. 333-87948 on Form S-4 filed May 9,
2002.
10.3 Employee Benefits Agreement, dated as of February 23,
2002, by and between Helmerich & Payne, Inc. and
Cimarex Energy Co. is incorporated herein by
reference to Exhibit 10.3 to the Cimarex Energy Co.
Registration Statement No. 333-87948 on Form S-4
filed May 9, 2002.
Exhibit
Number Description
- ------- -----------
10.1 Form of Director Nonqualified Stock Option Agreement Under 2000
Helmerich & Payne, Inc. Stock Incentive Plan
10.2 Form of Change of Control Agreement for Helmerich & Payne
Exploration and Production Employees
10.3 Form of Change of Control Agreement for Helmerich & Payne
Drilling Employees
10.4 Second Amendment to Credit Agreement, dated as of July 16, 2002,
by and among Helmerich & Payne International Drilling Co.,
Helmerich & Payne, Inc., and Bank One, Oklahoma, N.A.
10.5 Credit Agreement, dated as of July 16, 2002, among Helmerich &
Payne International Drilling Co., Helmerich & Payne, Inc., The
Several Lenders From Time to Time Party Hereto, and Bank of
Oklahoma, National Association
-22-
PART II. OTHER INFORMATION
HELMERICH & PAYNE, INC.
March 31,June 30, 2002
(continued)
(b) Reports on Form 8-K
For the three months ended March 31,June 30, 2002, registrant furnished, on January 23,April 24,
2002, one form 8-K reporting under Item 9, Regulation forFD Disclosure, attaching a
press release announcing results of operations and certain supplemental
information, including financial statements. In addition, registrant filed on
February 25, 2002 one Form 8-K reporting events under Item 5 of the Form 8-K
regarding execution of a merger agreement and a related press release and
another Form 8-K reporting events under Item 5 of the Form 8-K regarding
currency devaluation in connection with registrant's operations in Venezuela.
SIGNATURES
HELMERICH & PAYNE, INC.
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.
Date: May 15 2002/s/ HANS HELMERICH /s/ DOUGLAS E. FEARS
---------------------- ------------------------------------------ ------------------------------ -------------------------------
Hans Helmerich Douglas E. Fears
Chief Executive Officer Chief Financial Officer
Date: May 15August 14, 2002 August 14, 2002
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Helmerich & Payne, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Hans
Helmerich, as Chief Executive Officer of the Company, and Douglas E. Fears, as
Chief Financial Officer of the Company, each hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ HANS C. HELMERICH ---------------------- -----------------------------------------/s/ DOUGLAS E. FEARS
- ------------------------------ -------------------------------
Hans C. Helmerich PresidentDouglas E. Fears
Chief Executive Officer Chief Financial Officer
August 14, 2002 August 14, 2002
-23-
EXHIBIT INDEX
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such. If not so
indicated, such exhibits are filed herewith.
EXHIBIT
NUMBER DESCRIPTION
------Exhibit
Number Description
- ------- -----------
2.110.1 Form of Director Nonqualified Stock Option Agreement Under
2000 Helmerich & Payne, Inc. Stock Incentive Plan
10.2 Form of Change of Control Agreement for Helmerich & Payne
Exploration and PlanProduction Employees
10.3 Form of Merger,Change of Control Agreement for Helmerich & Payne
Drilling Employees
10.4 Second Amendment to Credit Agreement, dated as of February
23,July 16,
2002, by and among Helmerich & Payne International Drilling
Co., Helmerich & Payne, Inc., Cimarex Energy Co., Mountain Acquisition Co. and Key
Production Company, Inc. is incorporated herein by
reference to Exhibit 2.1 to the Cimarex Energy Co.
Registration Statement No. 333-87948 on Form S-4
filed May 9, 2002.
3.2 Amended and Restated By-laws of the Registrant.
10.1 DistributionBank One, Oklahoma, N.A.
10.5 Credit Agreement, dated as of February 23,July 16, 2002, by and betweenamong Helmerich &
Payne Inc. and
Cimarex EnergyInternational Drilling Co. is incorporated herein by
reference to Exhibit 10.1 to the Cimarex Energy Co.
Registration Statement No. 333-87948 on Form S-4
filed May 9, 2002.
10.2 Tax Sharing Agreement, dated as of February 23, 2002,
by and between, Helmerich & Payne, Inc., The
Several Lenders From Time to Time Party Hereto, and Cimarex
Energy Co. is incorporated herein by reference to
Exhibit 10.2 to the Cimarex Energy Co. Registration
Statement No. 333-87948 on Form S-4 filed May 9,
2002.
10.3 Employee Benefits Agreement, dated asBank of
February 23,
2002, by and between Helmerich & Payne, Inc. and
Cimarex Energy Co. is incorporated herein by
reference to Exhibit 10.3 to the Cimarex Energy Co.
Registration Statement No. 333-87948 on Form S-4
filed May 9, 2002.Oklahoma, National Association
-24-