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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 73-0679879
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
UTICA AT TWENTY-FIRST STREET, 74114
TULSA, OKLAHOMA (Zip code)
(Address of principal executive offices)
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Registrant's telephone number, including area code (918) 742-5531
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
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Common Stock ($0.10 par value) New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
At December 15, 1998, the aggregate market value of the voting stock held
by non-affiliates was $832,621,361.00.
Number of shares of common stock outstanding at December 15, 1998:
49,414,282.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the fiscal year ended September 30,
1998 -- Parts I, II, and IV.
(2) Proxy Statement for Annual Meeting of Security Holders to be held March 3,
1999 -- Part III.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN
THIS REPORT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
REGISTRANT'S FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED
COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE
FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY",
"WILL", "EXPECT", "INTEND", "ESTIMATE", "ANTICIPATE", "BELIEVE", OR "CONTINUE"
OR THE NEGATIVE THEREOF OR SIMILAR TERMINOLOGY. ALTHOUGH THE REGISTRANT BELIEVES
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE
CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE REGISTRANT'S EXPECTATIONS ARE DISCLOSED IN MANAGEMENT'S DISCUSSION &
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ON PAGES 10 THROUGH 18
IN REGISTRANT'S ANNUAL REPORT TO THE SHAREHOLDERS FOR FISCAL 1998 AND IN THE
REMAINDER OF THIS REPORT. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE REGISTRANT, OR PERSONS ACTING ON ITS BEHALF, ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. THE
REGISTRANT ASSUMES NO DUTY TO UPDATE OR REVISE ITS FORWARD-LOOKING STATEMENTS
BASED ON CHANGES IN INTERNAL ESTIMATES OR EXPECTATIONS OR OTHERWISE.
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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 1998
PART I
Item 1. BUSINESS
Helmerich & Payne, Inc. (the "Registrant"), was incorporated under the
laws of the State of Delaware on February 3, 1940, and is successor to a
business originally organized in 1920. Registrant is primarily engaged in the
exploration, production, and sale of crude oil and natural gas and in contract
drilling of oil and gas wells for others. These activities account for the major
portion of its operating revenues. The Registrant is also engaged in the
ownership, development, and operation of commercial real estate.
The Registrant is organized into three separate autonomous operating
divisions being contract drilling; oil and gas exploration, production and
natural gas marketing; and real estate. While there is a limited amount of
intercompany activity, each division operates essentially independently of the
others. Each of the divisions, except exploration and production, conducts their
respective business through wholly owned subsidiaries. Operating
decentralization is balanced by a centralized finance division, which handles
all accounting, data processing, budgeting, insurance, cash management, and
related activities.
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Most of the Registrant's current exploration efforts are concentrated
in Louisiana, Oklahoma, Texas, and the Hugoton Field of western Kansas. The
Registrant also explores from time to time in the Rocky Mountain area, New
Mexico, Alabama, Michigan, and Mississippi. Substantially all of the
Registrant's gas production is sold to and resold by its marketing subsidiary.
This subsidiary also purchases gas from unaffiliated third parties for resale.
The Registrant's domestic contract drilling is conducted primarily in
Oklahoma, Texas, and Louisiana, and offshore from platforms in the Gulf of
Mexico and offshore California. The Registrant has also operated during fiscal
1998 in five international locations: Venezuela, Ecuador, Colombia, Peru and
Bolivia. In the first quarter of fiscal 1999, the Registrant operated two rigs
in Argentina.
The Registrant's real estate investments are located in Tulsa,
Oklahoma, where the Registrant has its executive offices.
CONTRACT DRILLING
The Registrant believes that it is one of the major land and offshore
platform drilling contractors in the western hemisphere. Operating principally
in North and South America, the Registrant specializes in deep drilling in major
gas producing basins of the United States and in drilling for oil and gas in
remote international areas. For its international operations, the Registrant
also constructs and operates rigs which are transportable by helicopter. In the
United States, the Registrant draws its customers primarily from the major oil
companies and the larger independents. The Registrant also drills for its own
oil and gas division. In South America, the Registrant's current customers
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include the Venezuelan state petroleum company and major international oil
companies.
Petroleos de Venezuela, British Petroleum Company, P.L.C. and Shell Oil
Co., including their affiliates, (respectively "PDVSA", "BP" and "Shell") are
the Registrant's three largest contract drilling customers. PDVSA is the
government-owned producing company in Venezuela. The Registrant performs
drilling services for PDVSA only in Venezuela and performs drilling services for
BP and Shell on a world-wide basis. While the Registrant believes that its
relationship with each of these customers is good, the loss of any of these
customers would have a material adverse effect on the drilling subsidiary and
the Registrant. Revenues from drilling services performed for PDVSA, BP and
Shell in fiscal 1998 accounted for approximately 16%, 15% and 10%, respectively,
of the Registrant's consolidated revenues for the same period.
The Registrant provides drilling rigs, equipment, personnel, and camps
on a contract basis. These services are provided so that Registrant's customers
may explore for and develop oil and gas from onshore areas and from fixed
platforms in offshore areas. Each of the drilling rigs consists of engines,
drawworks, a mast, pumps, blowout preventers, a drillstring, and related
equipment. The intended well depth and the drilling site conditions are the
principal factors that determine the size and type of rig most suitable for a
particular drilling job. A land drilling rig may be moved from location to
location without modification to the rig. Conversely, a platform rig is
specifically designed to perform drilling operations upon a particular platform.
While a platform rig may be moved from its original platform, significant
expense is incurred to modify a platform rig for operation on each subsequent
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platform. In addition to traditional platform rigs, Registrant operates
self-moving minimum space platform drilling rigs and drilling rigs to be used on
tension leg platforms. The minimum space rig is designed to be moved without the
use of expensive derrick barges. The tension leg platform rig allows drilling
operations to be conducted in much deeper water than traditional fixed
platforms. A helicopter rig is one that can be disassembled into component part
loads of approximately 4,000-20,000 pounds and transported to remote locations
by helicopter, cargo plane, or other means.
The Registrant's workover rigs are equipped with engines, drawworks, a
mast, pumps, and blowout preventers. A workover rig is used to complete a new
well after the hole has been drilled by a drilling rig, and to remedy various
downhole problems that occur in producing wells.
The Registrant's drilling contracts are obtained through competitive
bidding or as a result of negotiations with customers, and sometimes cover
multi-well and multi-year projects. Each drilling rig operates under a separate
drilling contract. Most of the contracts are performed on a "daywork" basis,
under which the Registrant charges a fixed rate per day, with the price
determined by the location, depth, and complexity of the well to be drilled,
operating conditions, the duration of the contract, and the competitive forces
of the market. The Registrant has previously performed contracts on a
combination "footage" and "daywork" basis, under which the Registrant charged a
fixed rate per foot of hole drilled to a stated depth, usually no deeper than
15,000 feet, and a fixed rate per day for the remainder of the hole. Contracts
performed on a "footage" basis involve a greater element of risk to the
contractor than do contracts performed on a "daywork" basis. Also, the
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Registrant has previously accepted "turnkey" contracts under which the
Registrant charges a fixed sum to deliver a hole to a stated depth and agrees to
furnish services such as testing, coring, and casing the hole which are not
normally done on a "footage" basis. "Turnkey" contracts entail varying degrees
of risk greater than the usual "footage" contract. Registrant has not accepted a
"footage" or "turnkey" contract during fiscal 1998. The Registrant believes that
under current market conditions "footage" and "turnkey" contract rates do not
adequately compensate contractors for the added risks. The duration of the
Registrant's drilling contracts are "well-to-well" or for a fixed term.
"Well-to-well" contracts are cancelable at the option of either party upon the
completion of drilling at any one site. Fixed-term contracts customarily provide
for termination at the election of the customer, with an "early termination
payment" to be paid to the contractor if a contract is terminated prior to the
expiration of the fixed term.
While current fixed term contracts are for one to three year periods,
some fixed term and well-to-well contracts are expected to be continued for
longer periods than the original terms. However, the contracting parties have no
legal obligation to extend the contracts. Contracts generally contain renewal or
extension provisions exercisable at the option of the customer at prices
mutually agreeable to the Registrant and the customer. In most instances
contracts provide for additional payments for mobilization and demobilization.
Contracts for work in foreign countries generally provide for payment in United
States dollars, except for amounts required to meet local expenses. However,
government owned petroleum companies are more frequently requesting that a
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greater proportion of these payments be made in local currencies. See
Regulations and Hazards, page I-8.
Domestic Drilling
The Registrant believes it is a major land and offshore platform
drilling contractor in the domestic market. At the end of September, 1998, the
Registrant had 44 (34 land rigs and 10 platform rigs) of its rigs operating in
the United States and had management contracts for three operator-owned rigs.
During 1998, construction was completed on four land drilling rigs and
one helicopter transportable rig. These rigs were constructed for initial use in
South America. Construction of six mobile land drilling rigs and one offshore
tension leg platform rig (TLP) was completed during fiscal 1998. The six mobile
land rigs are initially intended to be used in domestic operations and the TLP
rig will perform drilling operations for a major oil company in the Gulf of
Mexico.
International Drilling
The Registrant's international drilling operations began in 1958 with
the acquisition of the Sinclair Oil Company's drilling rigs in Venezuela.
Helmerich & Payne de Venezuela, C.A., a wholly owned subsidiary of the
Registrant, is one of the leading drilling contractors in Venezuela. Beginning
in 1972, with the introduction of its first helicopter rig, the Registrant
expanded into other Latin American countries.
Venezuelan operations continue to be a significant part of the
Registrant's operations. During fiscal 1998, the Registrant owned and operated
21 land drilling rigs and one platform rig in Venezuela with a utilization rate
of 92% for such fiscal year. As previously noted, the Registrant worked for
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PDVSA during fiscal 1998, and revenues from this work accounted for
approximately 16% of the Registrant's consolidated revenues during the fiscal
year.
During the first quarter of fiscal 1999, Registrant's rig utilization
rate in Venezuela has decreased to approximately 50%. At this time, the
Registrant is unable to predict future fluctuations in its utilization rates
during fiscal 1999.
The Venezuelan government, in early 1996, permitted foreign exploration
and production companies to acquire rights to explore for and produce oil and
gas in Venezuela. Registrant has performed contract drilling services in
Venezuela for five independent oil companies during fiscal 1998.
The Registrant presently owns and operates ten drilling rigs in
Colombia. The Registrant's utilization rate for such rigs was 93% during fiscal
1998. During fiscal 1998 the revenue generated by Colombian drilling operations
contributed approximately 12.5% of the Registrant's consolidated revenues.
In addition to its operations in Venezuela and Colombia, the Registrant
in fiscal 1998 owned and operated four rigs in Ecuador, one rig in Peru, and
four rigs in Bolivia. During the first quarter of fiscal 1999, Registrant owned
and operated one additional rig in Bolivia and two rigs in Argentina. In
Ecuador, Peru, Bolivia and Argentina, the contracts are with large international
oil companies.
Drilling operations continued during 1998 on a joint venture platform
rig in Australia. The rig is owned 50% by the Registrant and 50% by Registrant's
equity affiliate, Atwood Oceanics, Inc.
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Competition
The contract drilling business is highly competitive. Competition in
contract drilling involves such factors as price, rig availability, efficiency,
condition of equipment, reputation, and customer relations. Competition is
primarily on a regional basis and may vary significantly by region at any
particular time. Land drilling rigs can be readily moved from one region to
another in response to changes in levels of activity, and an oversupply of rigs
in any region may result.
Although many contracts for drilling services are awarded based solely
on price, the Registrant has been successful in establishing long-term
relationships with certain customers which have allowed the Registrant to secure
drilling work even though the Registrant may not have been the lowest bidder for
such work. The Registrant has continued to attempt to differentiate its services
based upon its engineering design expertise, operational efficiency, safety and
environmental awareness.
Regulations and Hazards
The drilling operations of the Registrant are subject to the many
hazards inherent in the business, including blowouts and well fires. These
hazards could cause personal injury, suspend drilling operations, seriously
damage or destroy the equipment involved, and cause substantial damage to
producing formations and the surrounding areas.
The Registrant believes that it has adequate insurance coverage for
comprehensive general liability, public liability, property damage (including
insurance against loss by fire and storm, blowout, and cratering risks), workers
compensation and employer's liability. No insurance is carried against loss
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of earnings or business interruption. The Registrant is unable to obtain
significant amounts of insurance to cover risks of underground reservoir damage;
however, the Registrant is generally indemnified under its drilling contracts
from this risk. The Registrant's present insurance coverage has been secured
through fiscal 1999. However, in view of conditions generally in the liability
insurance industry, no assurance can be given that the Registrant's present
coverage will not be cancelled during fiscal 1999 nor that insurance coverage
will continue to be available at rates considered reasonable.
International operations are subject to certain political, economic,
and other uncertainties not encountered in domestic operations, including risks
of expropriation of equipment as well as expropriation of a particular oil
company operator's property and drilling rights, taxation policies, foreign
exchange restrictions, currency rate fluctuations, and general hazards
associated with foreign sovereignty over certain areas in which operations are
conducted. There can be no assurance that there will not be changes in local
laws, regulations, and administrative requirements or the interpretation thereof
which could have a material adverse effect on the profitability of the
Registrant's operations or on the ability of the Registrant to continue
operations in certain areas. Because of the impact of local laws, the
Registrant's future operations in certain areas may be conducted through
entities in which local citizens own interests and through entities (including
joint ventures) in which the Registrant holds only a minority interest, or
pursuant to arrangements under which the Registrant conducts operations under
contract to local entities. While the Registrant believes that neither operating
through such entities nor pursuant to such arrangements would have a material
adverse effect on the
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Registrant's operations or revenues, there can be no assurance that the
Registrant will in all cases be able to structure or restructure its operations
to conform to local law (or the administration thereof) on terms acceptable to
the Registrant. The Registrant further attempts to minimize the potential impact
of such risks by operating in more than one geographical area and by attempting
to obtain indemnification from operators against expropriation, nationalization,
and deprivation.
During fiscal 1998, approximately 40% of the Registrant's consolidated
revenues were generated from international contract drilling operations. Over
89% of the international revenues were from Venezuela, Colombia, and Ecuador.
Exposure to potential losses from currency devaluation is minimal in the
countries of Colombia and Ecuador. In those countries, all receivables and
payments are currently in U.S. dollars. Cash balances are kept at a minimum
which assists in reducing exposure.
In Venezuela, approximately 60% of the Registrant's invoice billings
are in U.S. dollars and the other 40% are in the local currency, the bolivar.
The Registrant is exposed to risks of currency devaluation in Venezuela as a
result of bolivar receivable balances and necessary bolivar cash balances. In
1994, the Venezuelan government established a fixed exchange rate in hopes of
stemming economic problems caused by a high rate of inflation. During the first
week of December, 1995, the government established a new exchange rate,
resulting in further devaluation of the bolivar. In April of 1996, the bolivar
was again devalued when the government decided to abolish its fixed rate policy
and to allow a floating market exchange rate. During fiscal 1997, the Registrant
experienced losses of approximately US$579,000 and in fiscal 1998 it experienced
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losses of US$2,204,000 as a result of the devaluation of the bolivar. Registrant
is unable to predict with certainty future devaluation in Venezuela. However,
considering the recent presidential election in Venezuela, there appears to be
an increasing likelihood of significant devaluation. It is speculated that
within the first six months of calendar 1999, the new Venezuelan president may
devalue the bolivar by 25% or more. In the event a 25% to 50% devaluation
occurs, the Registrant could experience potential currency valuation losses
ranging from approximately US$1.5 million to US$2.7 million.
During the mid-1970s, the Venezuelan government nationalized the
exploration and production business. At the present time it appears the
Venezuelan government will not nationalize the contract drilling business. Any
such nationalization could result in Registrant's loss of all or a portion of
its assets and business in Venezuela.
Many aspects of the Registrant's operations are subject to government
regulation, including those relating to drilling practices and methods and the
level of taxation. In addition, various countries (including the United States)
have environmental regulations which affect drilling operations. Drilling
contractors may be liable for damages resulting from pollution. Under United
States regulations, drilling contractors must establish financial responsibility
to cover potential liability for pollution of offshore waters. Generally, the
Registrant is indemnified under drilling contracts from pollution, except in
certain cases of surface pollution. However, the enforceability of
indemnification provisions in foreign countries may be questionable.
The Registrant believes that it is in substantial compliance with all
legislation and regulations affecting its operations in the drilling of oil and
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gas wells and in controlling the discharge of wastes. To date, compliance has
not materially affected the capital expenditures, earnings, or competitive
position of the Registrant, although these measures may add to the costs of
operating drilling equipment in some instances. Additional legislation or
regulation may reasonably be anticipated, and the effect thereof on operations
cannot be predicted.
OIL AND GAS DIVISION
The Registrant engages in the origination of prospects; the
identification, acquisition, exploration, and development of prospective and
proved oil and gas properties; the production and sale of crude oil, condensate,
and natural gas; and the marketing of natural gas. The Registrant considers
itself a medium-sized independent producer. All of the Registrant's oil and gas
operations are conducted in the United States.
Most of the Registrant's current exploration and drilling effort is
concentrated in Oklahoma, Kansas, Texas, and Louisiana. The Registrant also
explores from time to time in New Mexico, Alabama, Michigan, Mississippi, and
the Rocky Mountain area.
The Registrant's exploration and production division includes seven
geographical exploitation teams comprised of geological, engineering, and land
personnel. These personnel primarily develop in-house oil and gas prospects as
well as review outside prospects and acquisitions for their respective
geographical areas. The Registrant believes that this structure allows each team
to gain greater expertise in its respective geographical area and reduces risk
in the development of prospects. During fiscal 1998, two experienced
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geologists were hired. These geologists focus on developing and reviewing
prospects in Louisiana and Texas Onshore Gulf Coast.
Continued success in the Registrant's Mountain Front play has brought
gas production to 42.9 BCF and 117 MMCF of gas per day for fiscal 1998. Since
its discovery in May of 1996, the Rocky East Prospect has produced approximately
15.6 BCF gross, 12.1 BCF net to Registrant of gas and is currently producing
approximately 13.5 MMCF gross, 10.8 MMCF net to Registrant of gas per day. The
Kiowa Flats Field, which is twelve miles east of Rocky East Prospect, has
produced approximately 14.4 BCF gross, 7.2 BCF net to Registrant and is
currently producing approximately 55.6 MMCF gross, 31.0 MMCF net to Registrant
of gas per day. Registrant's working interests in the Kiowa Flats Field range
from 11% to 100% in all wells drilled. Approximately $12.4 million has been
spent in the Kiowa Flats Field for drilling and completion of wells in fiscal
1998. Continued development of the Kiowa Flats Field is expected during 1999.
During fiscal 1998, the Registrant participated in three large 3D
seismic surveys. The Registrant owns 32% of a 77 square mile survey in
southwestern Louisiana, 25% of a 94 square mile survey in southeast Texas, and
7% of a 63 square mile survey in east Texas. These surveys are in areas of
significant hydrocarbon production. The Registrant anticipates that oil and gas
prospects will be identified and drilled based on results from these surveys. In
addition, the Registrant is in the process of conducting a 65 square mile survey
in west Texas and is completing the purchase of a 33.33% working interest in
three 3D surveys which will cover approximately 185 square miles in southeast
Texas.
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After participating in the Louisiana Austin Chalk area since the early
1990's, the Registrant sold all of its oil and gas interests, together with
related gathering and processing interests effective November 1, 1997. Although
the Registrant did experience some successes in its exploration and development
efforts, the profitability of Registrant's efforts were hampered by high finding
costs as well as high lifting costs. The sales price of $10,600,000 was slightly
higher than Registrant's book value. Book value reflects approximately $3.3
million of associated Austin Chalk drilling costs for the 1998 fiscal year.
Approximately 600 barrels of oil per day and approximately 2,000 MCF of gas per
day were associated with the Austin Chalk area during fiscal 1997.
The Registrant's exploration and development program has covered a
range of prospects, from shallow "bread and butter" programs to deep expensive,
high risk/high return wells. During fiscal 1998, the Registrant participated in
51 development and/or wildcat wells, which resulted in new discoveries of
approximately 20.8 BCF of gas and 175,265 barrels of oil and condensate. The
Registrant participated in 17 additional development wells, which resulted in
the development of approximately 3.3 BCF of gas which was previously classified
as proved undeveloped or proved developed nonproducing reserves. A total of
$43,590,450 was spent in the Registrant's exploration and development program
during fiscal 1998. This figure includes $6,039,470 of geophysical expense, but
is exclusive of expenditures for acreage and acquisition of proved oil and gas
reserves. The approximate four-fold increase in geophysical expense from fiscal
1997 to fiscal 1998 is primarily due to increased seismic and related expenses.
The Registrant's total company-wide acquisition cost for acreage in fiscal 1998
was approximately $9 million.
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The Registrant spent $106,736 for the acquisition of proved oil and gas
reserves during fiscal 1998. The reserves associated with these acquisitions
were 188,269 MCF and 2,890 barrels of crude oil.
In November of 1998, Registrant sold all of its oil and gas interests
and related gathering facilities in its Southwest Mayfield, Oklahoma field.
Approximately 28 wells and two salt water disposal wells were included in the
sale. The sales price of approximately $5.6 million was approximately $4.5
million higher than Registrant's book value. The reserves associated with this
sale were approximately 2.1 BCF and 292 barrels of crude oil. In addition to the
Austin Chalk and Southwest Mayfield sales, Registrant sold certain miscellaneous
properties for $346,627. The reserves associated with these sales were
approximately 147,361 MCF of natural gas and 29,666 barrels of crude oil.
The Registrant's fiscal 1999 exploration and production budget of
approximately $64 million is 25% greater than its actual exploration and
production expenditures in fiscal 1998.
Market for Oil and Gas
The Registrant does not refine any of its production. The availability
of a ready market for such production depends upon a number of factors,
including the availability of other domestic production, price, crude oil
imports, the proximity and capacity of oil and gas pipelines, and general
fluctuations in supply and demand. The Registrant does not anticipate any
unusual difficulty in contracting to sell its production of crude oil and
natural gas to purchasers and end-users at prevailing market prices and under
arrangements that are usual and customary in the industry. The Registrant and
its subsidiary, Helmerich & Payne Energy Services, Inc., have successfully
developed markets with
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end-users, local distribution companies, and natural gas brokers for gas
produced from successful wildcat wells and development wells. The Registrant is
of the opinion that the current state of approximate equilibrium between supply
and demand will continue in the short term. During this short term equilibrium
period, Registrant expects greater natural gas price volatility. This volatility
will be caused in part by seasonal demands (both heating and cooling loads) and
by more efficient use of gas storage. Registrant believes that the recent drop
in natural gas prices is primarily due to unseasonably warm weather. Long term
pricing will obviously react to these short term factors, as well as other
causes affecting supply/demand. Other causes affecting supply/demand imbalances
may be continued growth of the United States economy; consumption of natural gas
for generation of electricity; federal regulation of the market; large
quantities of developed gas reserves in Canada (and subsequent pipeline
expansions) and Mexico available for export by pipelines to the United States;
fuel switching between fuel oil and natural gas; development of coalbed methane;
and development of large quantities of liquefied natural gas in Trinidad and
Tobago and Africa available for export to the United States.
Historically, the Registrant has had no long-term sales contracts for
its crude oil and condensate production. The Registrant continues its practice
of contracting for the sale of its Kansas and Oklahoma and portions of its west
Texas crude oil for terms of six to twelve months in an attempt to assure itself
of the best price in the area for crude oil production. During fiscal 1998, the
price that Registrant received for the sale of its crude oil has steadily
declined. Registrant's average per barrel crude oil sales price in fiscal 1998
for each of the
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first through fourth quarters was $18.50, $14.53, $12.89 and $12.25,
respectively.
Competition
The Registrant competes with numerous other companies and individuals
in the acquisition of oil and gas properties and the marketing of oil and gas.
The Registrant believes that it should continue to prepare for increased
exploration activity without committing to a definite drilling timetable. The
Registrant also believes that competition for the acquisition of gas producing
properties will continue. Considering the Registrant's conservative acquisition
strategy, the Registrant believes that it may be unable to acquire significant
proved developed producing reserves from third parties. The Registrant intends
to continue its review of properties in areas where the Registrant has
expertise. The Registrant's competitors include major oil companies, other
independent oil companies, and individuals. Many of these competitors have
financial resources, staffs, and facilities substantially larger than those of
the Registrant. The effect of these competitive factors on the Registrant cannot
be predicted with certainty.
Title to Oil and Gas Properties
The Registrant undertakes title examination and performs curative work
at the time properties are acquired. The Registrant believes that title to its
oil and gas properties is generally good and defensible in accordance with
standards acceptable in the industry.
Oil and gas properties in general are subject to customary royalty
interests contracted for in connection with the acquisitions of title, liens
incident to operating agreements, liens for current taxes, and other burdens and
minor encumbrances, easements, and restrictions. The
I - 17
<PAGE> 20
Registrant believes that the existence of such burdens will not materially
detract from the general value of its leasehold interests.
Governmental Regulation in the Oil and Gas Industry
The Registrant's domestic operations are affected from time to time in
varying degrees by political developments and federal and state laws and
regulations. In particular, oil and gas production operations and economics are
affected by price control, tax, and other laws relating to the petroleum
industry; by changes in such laws; and by constantly changing administrative
regulations. Most states in which the Registrant conducts or may conduct oil and
gas activities regulate the production and sale of oil and natural gas,
including regulation of the size of drilling and spacing units or proration
units, the density of wells which may be drilled, and the unitization or pooling
of oil and gas properties. In addition, state conservation laws establish
maximum rates of production from oil and natural gas wells, generally prohibit
the venting or flaring of natural gas, and impose certain requirements regarding
the ratability of production. The effect of these regulations is to limit the
amounts of oil and natural gas the Registrant can produce from its wells, and to
limit the number of wells or locations at which the Registrant can drill. In
addition, legislation affecting the natural gas and oil industry is under
constant review. Inasmuch as such laws and regulations are frequently expanded,
amended, or reinterpreted, the Registrant is unable to predict the future cost
or impact of complying with such regulations. The Registrant believes that
compliance with existing federal, state and local laws, rules and regulations
will not have a material adverse effect upon its capital expenditures, earnings
or competitive position.
I - 18
<PAGE> 21
Regulatory Controls
Historically, the transportation and sale for resale of natural gas in
interstate commerce have been regulated under the Natural Gas Act ("NGA") and
the Natural Gas Policy Act of 1978 ("NGPA") and the regulations promulgated
thereunder.
The Natural Gas Wellhead Decontrol Act of 1989 amended both the price
and non-price decontrol provisions of the NGPA for the purpose of providing
complete decontrol of first sales of natural gas by January 1, 1993. The
Registrant believes that substantially all of its gas is decontrolled.
Commencing in April, 1992, the Federal Energy Regulatory Commission
("FERC") issued Order 636, Order 636-A, and Order 636-B (collectively, "Order
636") which requires interstate pipelines to provide transportation unbundled
from their sales of gas. Also, such pipelines must provide open-access
transportation on a basis that is equal for all gas supplies. Although Order 636
has provided the Registrant with additional market access and more fairly
applied transportation service rates, it has also subjected the Registrant to
more restrictive pipeline imbalance tolerances and greater penalties for
violation of those tolerances. Order 636 has been largely upheld by the United
States Court of Appeals for the District of Columbia Circuit. Because further
review of certain aspects of Order 636 is still possible and other appeals in
individual pipeline proceedings and related dockets remain pending, it is
difficult for the Registrant to predict what effect, if any, the ultimate
outcome of these regulatory and judicial review proceedings will have on the
FERC's open-access regulations or the Registrant's
I - 19
<PAGE> 22
operations. The Registrant presently believes that it will benefit from the
provisions of such Order.
The FERC regularly reviews its natural gas transportation and related
policies and regulations. In July, 1998, it issued proposed rules governing
short term transportation which, among other matters, would eliminate cost-based
regulation for such transportation, allow pipelines to negotiate rates and terms
of service, and require the allocation of all short term pipeline capacity
through a competitive auction process. In addition, the FERC has requested
comments on certain issues related to its regulation of long term
transportation. While any resulting FERC action would affect the Registrant only
indirectly, these inquiries are intended to further enhance competition in the
natural gas markets.
Under the NGA, natural gas gathering facilities are exempt from FERC
jurisdiction. The Registrant believes that its gathering systems meet the
traditional tests that the FERC has used to establish a pipeline's status as a
gatherer. In recent years, the FERC has slightly narrowed its statutory tests
for establishing gathering status. A number of states have either enacted new
laws or are considering the adequacy of existing laws affecting gathering rates
and/or services. For example, in May, 1997, Kansas enacted new gathering
oversight legislation that, among other matters, requires reporting of gathering
prices and authorizes the Kansas Corporation Commission ("KCC") to oversee open
access on gathering systems to assure it is just, reasonable, and
non-discriminatory. Thus, natural gas gathering may receive greater regulatory
scrutiny by state agencies. In addition, the FERC has approved several transfers
by interstate pipelines of gathering
I - 20
<PAGE> 23
facilities to unregulated gathering companies, including affiliates. This could
allow such companies to compete more effectively with independent gatherers. It
is not possible at this time to predict the ultimate effect of the policy,
although it could affect access to and rates charged for interstate gathering
services. However, the Registrant does not presently believe the status of its
facilities would be materially affected by modification to the statutory
criteria.
In February, 1994, the KCC issued an order which modified allowables
applicable to wells within the Hugoton Gas Field so that those proration units
upon which infill wells had been drilled would be assigned a larger allowable
than those units without infill wells. As a consequence of this order, the
Registrant has drilled 130 infill wells and believes that it will be necessary
in fiscal 1999 to drill an additional 10 infill wells at a total estimated cost
of $1,045,000.
In September, 1997, the FERC ruled that ad valorem tax levied by the
State of Kansas was not a severance tax within the meaning of Section 110 of the
NGPA. Therefore, to the extent that first sellers collected revenues in excess
of the maximum lawful price as a result of reimbursement of Kansas ad valorem
taxes, then first sellers would be required to make refunds with interest for
such excess revenues on tax bills rendered during the period October 4, 1983
through June 28, 1988. Based upon schedules provided to Registrant by certain
interstate pipelines, the total reimbursement obligation of all working interest
owners in Registrant-operated wells approximated $13 million as of November,
1997. During this period, Registrant estimated that its reimbursement obligation
totaled approximately $6.7 million, being approximately $2.7 million of
principal and $4.0 million of interest. Approximately 12.5% of such amount would
be owed by Registrant's royalty owners.
I - 21
<PAGE> 24
Neither the FERC nor Congress has provided the first sellers with any
generic relief on this issue to date. However, the FERC did permit the filing of
individual adjustment proceedings by each first seller. Registrant has filed
such adjustment proceedings requesting that its ad valorem tax refund obligation
be reduced. The FERC has not ruled in any of Registrant's adjustment
proceedings.
During the period February through July, 1998, Registrant paid, under
protest, approximately $1,379,000 to four interstate pipelines as partial ad
valorem tax reimbursement and escrowed approximately $6,370,000 pending the
FERC's decision in Registrant's adjustment proceedings. The escrowed amount
includes Registrant's share of the amount of reimbursement obligation allegedly
owed by Registrant's royalty owners. The final outcome of this matter cannot be
predicted at this time.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before the Congress, the FERC, and the courts. The
Registrant cannot predict when or whether any such proposals may become
effective. In the past, the natural gas industry has been very heavily
regulated. There is no assurance that the current regulatory approach pursued by
the FERC will continue. Notwithstanding the foregoing, it is anticipated that
compliance with existing federal, state and local laws, rules and regulations
will not have a material adverse effect upon the capital expenditures, earnings
or competitive position of the Registrant.
I - 22
<PAGE> 25
Federal Income Taxation
The Registrant's oil and gas operations, and the petroleum industry in
general, are affected by certain federal income tax laws. The Registrant has
considered the effects of such federal income tax laws on its operations and
does not anticipate that there will be any material impact on the capital
expenditures, earnings or competitive position of the Registrant.
Environmental Laws
The Registrant's activities are subject to existing federal and state
laws and regulations governing environmental quality and pollution control. Such
laws and regulations may substantially increase the costs of exploring,
developing, or producing oil and gas and may prevent or delay the commencement
or continuation of a given operation. In the opinion of the Registrant's
management, its operations substantially comply with applicable environmental
legislation and regulations. The Registrant believes that compliance with
existing federal, state, and local laws, rules, and regulations regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment will not have any material effect upon the capital
expenditures, earnings, or competitive position of the Registrant.
Natural Gas Marketing
Helmerich & Payne Energy Services, Inc., ("HPESI") continues into its
tenth year of business with emphasis on the purchase and marketing of the
Registrant's natural gas production. In addition, HPESI purchases third-party
gas for resale and provides compression, gathering services and processing for a
fee. During fiscal year 1998, HPESI's sales of third-party gas constituted
approximately 8.4% of the Registrant's consolidated revenues.
I - 23
<PAGE> 26
HPESI sells natural gas to markets in the Midwest and Rocky Mountain
areas. Term gas sales contracts are for varied periods ranging from three months
to seven years. However, recent contracts have tended toward shorter terms. The
remainder of the Registrant's gas is sold under spot market contracts having a
duration of 30 days or less. For fiscal 1999, HPESI's term gas sales contracts
provide for the sale of approximately 6 BCF of gas at prices which are indexed
to market prices. HPESI presently intends to fulfill such term sales contracts
with a portion of the gas reserves purchased from the Registrant as well as from
its purchases of third-party gas. See pages I-15 through I-23 regarding the
market, competition, and regulation of natural gas.
REAL ESTATE OPERATIONS
The Registrant's real estate operations are conducted exclusively
within the metropolitan area of Tulsa, Oklahoma. Its major holding is Utica
Square Shopping Center, consisting of fifteen separate buildings, with parking
and other common facilities covering an area of approximately 30 acres. Fourteen
of these buildings provide approximately 405,709 square feet of net leasable
retail sales and storage space (97% of which is currently leased) and
approximately 18,590 square feet of net leasable general office space (99% of
which is currently leased). Approximately 24% of the general office space is
occupied by the Registrant's real estate operations. The fifteenth building is
an eight-story medical office building which provides approximately 76,379
square feet of net leasable medical office space (76% of which is currently
leased). The Registrant has a two-level parking garage located in the southwest
corner of Utica Square that can accommodate approximately 250 cars.
I - 24
<PAGE> 27
As a result of a confidential settlement of a lawsuit with a Utica
Square Shopping Center tenant, approximately 30,000 square feet of retail space
will be vacated during the second quarter of fiscal 1999. While the settlement
resulted in a one-time payment to the tenant and certain forgiveness of rent and
other charges, the Registrant believes it will receive increased rentals from
new tenants.
At the end of the 1998 fiscal year the Registrant owned 15 of a total
of 73 units in The Yorktown, a 16-story luxury residential condominium with
approximately 150,940 square feet of living area located on a six-acre tract
adjacent to Utica Square Shopping Center. Three condominium units were sold
during fiscal 1998. Twelve of the Registrant's units are currently leased.
The Registrant owns an eight-story office building located diagonally
across the street from Utica Square Shopping Center, containing approximately
87,000 square feet of net leasable general office and retail space. This
building houses the Registrant's principal executive offices. Approximately 11%
of this building was leased to third parties during fiscal 1998. During fiscal
1998, Registrant leased approximately 29,000 square feet of office space in
Tulsa and relocated Registrant's oil and gas division to such offices. The
vacated space within Registrant's office building will be used to accommodate
the growth of the remaining segments of its businesses.
The Registrant is also engaged in the business of leasing multi-tenant
warehouse space. Three warehouses known as Space Center, each containing
approximately 165,000 square feet of net leasable space, are situated in the
southeast part of Tulsa at the intersection of two major limited-access
I - 25
<PAGE> 28
highways. Present occupancy is 98%. The Registrant also owns approximately 1.5
acres of undeveloped land lying adjacent to such warehouses.
The Registrant received approximately $380,000 for its sale of certain
rights of way and temporary easements to the Oklahoma Department of
Transportation. These rights of way and temporary easements burden certain of
Registrant's lands which are in or near to a high-growth area of southeast Tulsa
known as Southpark. After the sale, Registrant owned approximately 253.5 acres
in Southpark consisting of approximately 240.5 acres of undeveloped real estate
and approximately 13 acres of multi-tenant warehouse area. The warehouse area is
known as Space Center East and consists of two warehouses, one containing
approximately 90,000 square feet and the other containing approximately 112,500
square feet. Occupancy has remained at 100%. The Registrant believes that a high
quality office park, with peripheral commercial, office/warehouse, and hotel
sites, is the best development use for the remaining land. However, no
development plans are currently pending.
The Registrant also owns a five-building complex called Tandem Business
Park. The project is located adjacent to and east of the Space Center East
facility and contains approximately six acres, with approximately 88,084 square
feet of office/warehouse space. Occupancy has increased from 93% to 96% during
fiscal 1998 due primarily to the addition of one new tenant. The Registrant also
owns a twelve-building complex, consisting of approximately 204,600 square feet
of office/warehouse space, called Tulsa Business Park. The project is located
south of the Space Center facility, separated by a city street, and contains
approximately 12 acres. During fiscal 1998, occupancy has increased from 88% to
96% due to the addition of three new tenants.
I - 26
<PAGE> 29
The Registrant also owns two service center properties located adjacent
to arterial streets in south central Tulsa. The first, called Maxim Center,
consists of one office/warehouse building containing approximately 40,800 square
feet and located on approximately 2.5 acres. During fiscal 1998, occupancy
increased from 86% to 100% due to the addition of one new tenant. The second,
called Maxim Place, consists of one office/warehouse building containing
approximately 33,750 square feet and located on approximately 2.25 acres. During
fiscal 1998, occupancy increased from 81% to 100% due to the expansion of an
existing tenant.
Registrant believes that there has been a recent increase in demand for
multi-tenant warehouse space in the Tulsa market. Registrant is unable to
determine how long this increase in demand will continue.
Competition.
The Registrant has numerous competitors in the multi-tenant leasing
business. The size and financial capacity of these competitors range from one
property sole proprietors to Fortune 500 companies. The primary competitive
factors include price, location and configuration of space. Registrant's
competitive position is enhanced by the location of its properties, its
financial capability and the long-term ownership of its properties. However,
many competitors have financial resources greater than Registrant and have more
contemporary facilities.
FINANCIAL
Information relating to Revenue and Income by Business Segments may be
found on page 9 of the Registrant's Annual Report to Shareholders for fiscal
1998, which is incorporated herein by reference.
I - 27
<PAGE> 30
EMPLOYEES
The Registrant had 1,946 employees within the United States (11 of
which were part-time employees) and 1,394 employees in international operations
as of September 30, 1998.
Item 2. PROPERTIES
CONTRACT DRILLING
The following table sets forth certain information concerning the
Registrant's domestic drilling rigs as of September 30, 1998:
I - 28
<PAGE> 31
<TABLE>
<CAPTION>
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
- ----------- -------------- ------------- --------
<S> <C> <C> <C>
110 Medium Depth 12,000 Texas
141 Medium Depth 14,000 Texas
142 Medium Depth 14,000 Texas
143 Medium Depth 14,000 Texas
145 Medium Depth 14,000 Texas
155 Medium Depth 14,000 Texas
164 Medium Depth 16,000 Texas
165 Medium Depth 16,000 Texas
166 Medium Depth 16,000 Texas
167 Medium Depth 16,000 Texas
168 Medium Depth 16,000 Texas
169 Medium Depth 16,000 Texas
95 Medium Depth 16,000 Texas
96 Medium Depth 16,000 Oklahoma
104 Medium Depth 18,000 Offshore California
108 Medium Depth 18,000 Gulf of Mexico
118 Medium Depth 16,000 Texas
119 Medium Depth 16,000 Texas
120 Medium Depth 16,000 Texas
147 Medium Depth 16,000 Texas
154 Medium Depth 19,000 Texas
79 Deep 20,000 Louisiana
80 Deep 20,000 Oklahoma
89 Deep 20,000 Texas
92 Deep 20,000 Oklahoma
94 Deep 20,000 Texas
98 Deep 20,000 Oklahoma
105 Deep 30,000 Gulf of Mexico
162 Deep 20,000 Texas
201 Deep 30,000 Gulf of Mexico
202 Deep 30,000 Gulf of Mexico
203 Deep 20,000 Gulf of Mexico
204 Deep 30,000 Gulf of Mexico
97 Deep 26,000 Texas
99 Deep 26,000 Texas
100 Deep 30,000 Gulf of Mexico
106 Deep 30,000 Gulf of Mexico
107 Deep 30,000 Gulf of Mexico
122 Deep 26,000 Louisiana
137 Deep 26,000 Texas
149 Deep 26,000 Louisiana
157 Deep 30,000 Texas
72 Very Deep 30,000 Louisiana
73 Very Deep 30,000 Louisiana
161 Very Deep 30,000 Louisiana
163 Very Deep 30,000 Texas
</TABLE>
I - 29
<PAGE> 32
The following table sets forth information with respect to the
utilization of the Registrant's domestic drilling rigs for the periods
indicated:
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Number of rigs owned at end of
period 47 41 41 38 46
Average rig utilization rate
during period (1) 69% 71% 82% 88% 95%
</TABLE>
(1) A rig is considered to be utilized when it is operated or being moved,
assembled, or dismantled under contract.
The following table sets forth certain information concerning the
Registrant's international drilling rigs as of September 30, 1998:
<TABLE>
<CAPTION>
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
----------- -------------- ------------- -----------
<S> <C> <C> <C>
14 Workover/drilling 6,000 Venezuela
19 Workover/drilling 6,000 Venezuela
20 Workover/drilling 6,000 Venezuela
140 Medium Depth 10,000 Venezuela
158 Medium Depth 10,000 Venezuela
159 Medium Depth 12,000 Venezuela
156 Medium Depth 12,000 Venezuela
132 Medium Depth 18,000 Ecuador
171 Medium Depth 16,000 Bolivia
172 Medium Depth 16,000 Bolivia
176 Medium Depth 18,000 Ecuador
22 Deep (helicopter rig) 18,000 Peru
23 Deep (helicopter rig) 18,000 Ecuador
91 Deep (platform) 20,000 Venezuela
121 Deep 20,000 Colombia
173 Deep 20,000 Bolivia
170 Deep (helicopter rig) 26,000 Venezuela
45 Deep 26,000 Venezuela
82 Deep 26,000 Venezuela
83 Deep 26,000 Venezuela
117 Deep 26,000 Venezuela
123 Deep 26,000 Bolivia
138 Deep 26,000 Ecuador
148 Deep 26,000 Venezuela
160 Deep 26,000 Venezuela
113 Very Deep 30,000 Venezuela
115 Very Deep 30,000 Venezuela
116 Very Deep 30,000 Venezuela
125 Very Deep 30,000 Colombia
</TABLE>
I - 30
<PAGE> 33
<TABLE>
<CAPTION>
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
----------- -------------- ------------- --------
<S> <C> <C> <C>
127 Very Deep 30,000 Venezuela
128 Very Deep 30,000 Venezuela
129 Very Deep 30,000 Venezuela
133 Very Deep 30,000 Colombia
134 Very Deep 30,000 Colombia
135 Very Deep 30,000 Colombia
136 Very Deep 30,000 Colombia
150 Very Deep 30,000 Venezuela
151 Very Deep 30,000 Colombia
152 Very Deep 30,000 Colombia
153 Very Deep 30,000 Colombia
174 Very Deep 30,000 Argentina
175 Very Deep 30,000 Bolivia
177 Very Deep 30,000 Argentina
139 Super Deep 30,000+ Colombia
Joint Venture Rig:
200 Deep 20,000 JV w/Atwood Australia
</TABLE>
The following table sets forth information with respect to the
utilization of the Registrant's international drilling rigs for the periods
indicated:
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Number of rigs owned at end of
period 29 35 36 39 44
Average rig utilization rate
during period (1) 88% 84% 85% 91% 88%
</TABLE>
(1) A rig is considered to be utilized when it is operated or being moved,
assembled, or dismantled under contract.
OIL AND GAS DIVISION
All of the Registrant's oil and gas operations and holdings are located
within the continental United States.
Crude Oil Sales
The Registrant's net sales of crude oil and condensate for the fiscal
years 1996 through 1998 are shown below:
I - 31
<PAGE> 34
<TABLE>
<CAPTION>
Average Sales Average Lifting
Year Net Barrels Price per Barrel Cost per Barrel
---- ----------- ---------------- ---------------
<S> <C> <C> <C>
1996 809,571 $19.00 $7.90
1997 985,633 $20.77 $6.98
1998 701,180 $14.74 $7.40
</TABLE>
Natural Gas Sales
The Registrant's net sales of natural and casinghead gas for the three
fiscal years 1996 through 1998 are as follows:
<TABLE>
<CAPTION>
Average Sales Average Lifting
Year Net Barrels Price per Barrel Cost per Barrel
---- ----------- ---------------- ---------------
<S> <C> <C> <C>
1996 34,535,184 $1.75 $0.3292
1997 40,463,374 $2.23 $0.3213
1998 42,862,300 $2.04 $0.3110
</TABLE>
Following is a summary of the net wells drilled by the Registrant for
the fiscal years ended September 30, 1996, 1997, and 1998:
<TABLE>
<CAPTION>
Exploratory Wells Development Wells
-------------------------------- --------------------------------
1996 1997 1998 1996 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Productive 4.448 0.500 1.910 23.625 39.239 29.614
Dry 5.250 8.459 2.900 2.000 1.136 1.310
</TABLE>
On September 30, 1998, the Registrant was in the process of drilling or
completing four gross or 2.94 net wells.
I - 32
<PAGE> 35
Acreage Holdings
The Registrant's holdings of acreage under oil and gas leases, as of
September 30, 1998, were as follows:
<TABLE>
<CAPTION>
Developed Acreage Undeveloped Acreage
------------------------ ------------------------
Gross Net Gross Net
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Arkansas 3,068.23 1,725.11 -0- -0-
Colorado -0- -0- 320.00 160.00
Kansas 120,303.07 84,662.60 17,444.35 15,625.45
Louisiana 1,567.79 899.84 10,876.31 3,877.51
Michigan -0- -0- 15,206.16 15,130.88
Montana 2,037.19 449.21 3,508.95 683.50
Nebraska 480.00 168.00 -0- -0-
Nevada -0- -0- 8,224.04 8,223.85
New Mexico 1,002.91 83.77 121.88 40.22
North Dakota 200.00 11.52 -0- -0-
Oklahoma 136,296.85 52,335.83 27,338.61 17,104.33
Texas 89,685.59 42,220.60 158,108.54 45,792.12
Wyoming -0- -0- 440.00 105.59
---------- ---------- ---------- ----------
Total 354,641.63 182,556.48 241,588.84 106,743.45
</TABLE>
Acreage is held under leases which expire in the absence of production
at the end of a prescribed primary term, and is, therefore, subject to
fluctuation from year to year as new leases are acquired, old leases expire, and
other leases are allowed to terminate by failure to pay annual delay rentals. As
shown in the above table, the Registrant has a significant portion of its
undeveloped acreage in Texas, with five major prospects accounting for 39,700
net acres. The average minimum remaining term of leases in these five prospects
is approximately 30 months.
I - 33
<PAGE> 36
Productive Wells
The Registrant's total gross and net productive wells as of September
30, 1998, were as follows:
<TABLE>
<CAPTION>
Oil Wells Gas Wells
------------- -------------
Gross Net Gross Net
----- ----- ----- -----
<S> <C> <C> <C>
3,452 176 956 436
</TABLE>
Additional information required by this item with respect to the
Registrant's oil and gas operations may be found on pages I-12 through I-24 of
Item 1. BUSINESS, and pages 24 through 34 of the Registrant's Annual Report to
Shareholders for fiscal 1998, "Notes to Consolidated Financial Statements" and
"Note 14 Supplementary Financial Information for Oil and Gas Producing
Activities."
Estimates of oil and gas reserves, future net revenues, and present
value of future net revenues were audited by Lee Keeling and Associates, Inc.,
15 East 5th Street, Suite 3500, Tulsa, Oklahoma 74103. Total oil and gas reserve
estimates do not differ by more than 5% from the total reserve estimates filed
with any other federal authority or agency.
REAL ESTATE OPERATIONS
See Item 1. BUSINESS, pages I-24 through I-27.
STOCK
As of December 15, 1998:
The Registrant owned 312,546 shares of the common stock of SUNOCO, Inc.
and 500,000 shares of Oryx Energy Company, Inc.
I - 34
<PAGE> 37
The Registrant owned 3,000,000 shares of the common stock of Atwood
Oceanics, Inc., a Houston, Texas based company engaged in offshore contract
drilling. The Registrant's ownership of Atwood is approximately 22%.
The Registrant owned 1,480,000 shares of the common stock of
Schlumberger, Ltd.
The Registrant owned 240,000 shares of the common stock of Phillips
Petroleum Company, Inc.
The Registrant owned 1,000,000 shares of the common stock of Occidental
Petroleum Corporation, Inc.
The Registrant owned 200,000 shares of the common stock of Banc One
Corporation.
The Registrant owned 225,000 shares of the common stock of ONEOK Inc.
The Registrant also owned lesser holdings in several other publicly
traded corporations.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Registrant.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of the Registrant's
executive officers, together with all positions and offices held with the
Registrant by such executive officers. Officers are elected to serve until the
meeting of the Board of Directors following the next Annual Meeting of
Stockholders and until their successors have been elected and have qualified or
until their earlier resignation or removal.
I - 35
<PAGE> 38
<TABLE>
<S> <C>
W. H. Helmerich, III, 75 Director since 1949; Chairman of the Board
Chairman of the Board since 1960
Hans Helmerich, 40 Director since 1987; President and Chief
President Executive Officer since 1989
George S. Dotson, 57 Director since 1990; Vice President, Drilling,
Vice President since 1977 and President and Chief Operating
Officer of Helmerich & Payne International
Drilling Co. since 1977
Douglas E. Fears, 49 Vice President, Finance, since 1988
Vice President
Steven R. Mackey, 47 Secretary since 1990; Vice President and
Vice President and General Counsel since 1988
Secretary
Steven R. Shaw, 47 Vice President, Production, since 1985; Vice
Vice President President, Exploration and Production since
1996
Gordon K. Helm, 45 Chief Accounting Officer of the Registrant;
Controller Controller since December 10, 1993
</TABLE>
I - 36
<PAGE> 39
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information provided in this Item 5 has been restated to reflect
the Registrant's December 15, 1997, 2-for-1 common stock split.
The principal market on which the Registrant's common stock is traded
is the New York Stock Exchange. The high and low sale prices per share for the
common stock for each quarterly period during the past two fiscal years as
reported in the NYSE - Composite Transaction quotations follow:
<TABLE>
<CAPTION>
1997 1998
------------------- ------------------
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First 27.56 21.94 44.97 31.06
Second 27.44 21.00 33.19 24.56
Third 29.63 21.81 33.25 21.56
Fourth 40.00 29.47 24.38 16.25
</TABLE>
The Registrant paid quarterly cash dividends during the past two years
as shown in the following table:
<TABLE>
<CAPTION>
Paid per Share Total Payment
------------------- -------------------------
Fiscal Fiscal
------------------- -------------------------
Quarter 1997 1998 1997 1998
------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C>
First $0.065 $0.065 $3,239,007 $3,256,874
Second 0.065 0.070 3,239,892 3,519,195
Third 0.065 0.070 3,242,952 3,521,332
Fourth 0.065 0.070 3,248,275 3,504,269
</TABLE>
The Registrant paid a cash dividend of $0.070 per share on December 1,
1998, to shareholders of record on November 13, 1998. Payment of future
dividends will depend on earnings and other factors.
II-1
<PAGE> 40
As of December 15, 1998, there were 1,465 record holders of the
Registrant's common stock as listed by the transfer agent's records.
Item 6. SELECTED FINANCIAL DATA
The information provided in this Item 6 has been restated to reflect
the Registrant's December 15, 1997, 2-for-1 common stock split.
Five-year Summary of Selected Financial Data
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales, operating,
and other revenues $ 310,152 $ 306,721 $ 393,255 $ 517,859 $ 636,640
Income from con-
tinuing operations 17,108 5,788 45,426 84,186 101,154
Income from con-
tinuing operations
per common share:
Basic 0.35 0.12 0.92 1.69 2.03
Diluted 0.35 0.12 0.91 1.67 2.00
Total assets 621,689 707,061 821,914 1,033,595 1,090,430
Long-term debt -0- -0- -0- -0- 50,000
Cash dividends
declared per
common share 0.245 0.25 0.255 0.26 0.275
</TABLE>
The Five-year Summary of Selected Financial Data described above
excludes results of Natural Gas Odorizing, Inc. ("NGO") operations. Registrant,
on August 30, 1996, sold its wholly-owned subsidiary, NGO, to Occidental
Petroleum Corporation.
II-2
<PAGE> 41
The following Five-year Summary of Selected Financial Data includes
only the results of NGO operations.
Five-year Summary of Selected Financial Data for NGO
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Sales, operating,
and other revenues $ 18,849 $ 19,055 $ 19,540 $ -0- $ -0-
Income from discon-
tinued operations 3,863 3,963 3,090 -0- -0-
Income from discon-
tinued operations
per common share:
Basic 0.08 0.08 0.06 -0- -0-
Diluted 0.08 0.08 0.06 -0- -0-
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Information required by this item may be found on pages 10 through 18,
Management's Discussion & Analysis of Results of Operations, and Financial
Condition in the Registrant's Annual Report to Shareholders for fiscal 1998,
which is incorporated herein by reference.
Item 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item may be found on the following pages
of Management's Discussion & Analysis of Results of Operations, and Financial
Condition in the Registrant's Annual Report to Shareholders for fiscal 1998,
which is incorporated herein by reference:
II-3
<PAGE> 42
<TABLE>
<CAPTION>
Market Risk Page
----------- ----
<S> <C>
o Foreign Currency Exchange Rate Risk 12
o Commodity Price Risk 13
o Interest Rate Risk 17
o Equity Price Risk 18
</TABLE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item may be found on pages 19 through 34
in the Registrant's Annual Report to Shareholders for fiscal 1998, which is
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
II-4
<PAGE> 43
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item with respect to Directors and with
respect to delinquent filers pursuant to Item 405 of Regulation S-K is
incorporated by reference from the Registrant's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held March 3, 1999, to be filed with
the Commission not later than 120 days after September 30, 1998. See pages I-35
through I-36 for information covering the Registrant's Executive Officers.
Item 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held
March 3, 1999, to be filed with the Commission not later than 120 days after
September 30, 1998.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held
March 3, 1999, to be filed with the Commission not later than 120 days after
September 30, 1998.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held
March 3, 1999, to be filed with the Commission not later than 120 days after
September 30, 1998.
III-1
<PAGE> 44
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Document List
1. The financial statements called for by Item 8 are incorporated
herein by reference from the Registrant's Annual Report to
Shareholders for fiscal 1998.
2. Exhibits required by Item 601 of Regulation S-K:
Exhibit Number:
3.1 Restated Certificate of Incorporation and Amendment
to Restated Certificate of Incorporation of the
Registrant are incorporated herein by reference to
Registrant's Annual Report on Form 10-K to the
Securities and Exchange Commission for fiscal 1996.
3.2 By-Laws of the Registrant are incorporated herein by
reference to Registrant's Annual Report on Form 10-K
to the Securities and Exchange Commission for fiscal
1996.
4.1 Rights Agreement dated as of January 8, 1996, between
the Registrant and The Liberty National Bank and
Trust Company of Oklahoma City, N.A. is incorporated
herein by reference to the Registrant's Form 8-A,
dated January 17, 1996.
* 10.1 Incentive Stock Option Plan is incorporated herein by
reference to Exhibit 4.2 to the Registrant's
Registration Statement No. 33-16771 on Form S-8.
* 10.2 Form of Incentive Stock Option Plan Stock Option
Contract for the Incentive Stock Option Plan is
incorporated herein by reference to Registrant's
Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
* 10.3 Consulting Services Agreement between W. H.
Helmerich, III, and the Registrant effective January
1, 1990, as amended is incorporated herein by
reference to Registrant's Annual Report on Form 10-K
to the Securities and Exchange Commission for fiscal
1996.
- -----------------------
* Compensatory Plan or Arrangement.
IV-1
<PAGE> 45
* 10.4 Restricted Stock Plan for Senior Executives of
Helmerich & Payne, Inc. is incorporated herein by
reference to Registrant's Annual Report on Form 10-K
to the Securities and Exchange Commission for fiscal
1996.
* 10.5 Form of Restricted Stock Award Agreement for the
Restricted Stock Plan for Senior Executives of
Helmerich & Payne, Inc., together with all amendments
thereto is incorporated herein by reference to
Registrant's Annual Report on Form 10-K to the
Securities and Exchange Commission for fiscal 1996.
* 10.6 Supplemental Retirement Income Plan for Salaried
Employees of Helmerich & Payne, Inc. is incorporated
herein by reference to Registrant's Annual Report on
Form 10-K to the Securities and Exchange Commission
for fiscal 1996.
* 10.7 Helmerich & Payne, Inc. 1990 Stock Option Plan is
incorporated herein by reference to Registrant's
Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
* 10.8 Form of Nonqualified Stock Option Agreement for the
1990 Stock Option Plan is incorporated by reference
to Exhibit 99.2 to the Registrant's Registration
Statement No. 33-55239 on Form S-8, dated August 24,
1994.
* 10.9 Supplemental Savings Plan for Salaried Employees of
Helmerich and Payne, Inc., is incorporated herein by
reference from Registrant's Annual Report on Form
10-K to the Securities and Exchange Commission for
fiscal 1993.
* 10.10 Helmerich & Payne, Inc. 1996 Stock Incentive Plan is
incorporated herein by reference to Registrant's
Registration Statement No. 333-34939 on Form S-8
dated September 4, 1997.
* 10.11 Form of Nonqualified Stock Option Agreement for
Helmerich & Payne, Inc. 1996 Stock Incentive Plan is
incorporated by reference to Exhibit 99.2 to
Registrant's Registration Statement on Form S-8 dated
September 4, 1997.
* 10.12 Form of Restricted Stock Agreement for Helmerich &
Payne, Inc. 1996 Stock Incentive Plan is incorporated
by reference from Registrant's Annual Report on Form
10-K to the Securities and Exchange Commission for
fiscal 1997.
- -----------------------
* Compensatory Plan or Arrangement.
IV-2
<PAGE> 46
* 10.13 Helmerich & Payne, Inc. Non-Employee Directors Stock
Compensation Plan is hereby incorporated by reference
to Exhibit "B" of Registrant's Proxy Statement dated
January 27, 1997.
13. The Registrant's Annual Report to Shareholders for
fiscal 1998.
22. Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
27. Financial Data Schedule.
(b) Report on Form 8-K
None.
- -----------------------
* Compensatory Plan or Arrangement.
IV-3
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized:
HELMERICH & PAYNE, INC.
By /s/ HANS HELMERICH
--------------------------------
Hans Helmerich, President
(Chief Executive Officer)
Date: December 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
By /s/ WILLIAM L. ARMSTRONG By /s/ GLENN A. COX
-------------------------------- -----------------------------------
William L. Armstrong, Director Glenn A. Cox, Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ GEORGE S. DOTSON By /s/ HANS HELMERICH
-------------------------------- -----------------------------------
George S. Dotson, Director Hans Helmerich, Director and CEO
Date: December 18, 1998 Date: December 18, 1998
By /s/ W. H. HELMERICH, III By /s/ L. F. ROONEY, III
-------------------------------- -----------------------------------
W. H. Helmerich, III, Director L. F. Rooney, III, Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ EDWARD B. RUST, JR. By /s/ GEORGE A. SCHAEFER
-------------------------------- -----------------------------------
Edward B. Rust, Jr., Director George A. Schaefer, Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ JOHN D. ZEGLIS By /s/ DOUGLAS E. FEARS
-------------------------------- -----------------------------------
John D. Zeglis, Director Douglas E. Fears
Date: December 18, 1998 (Principal Financial Officer)
Date: December 18, 1998
By /s/ GORDON K. HELM
--------------------------------
Gordon K. Helm, Controller
(Principal Accounting Officer)
Date: December 18, 1998
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation and Amendment to Restated
Certificate of Incorporation of the Registrant are incorporated
herein by reference to Registrant's Annual Report on Form 10-K to
the Securities and Exchange Commission for fiscal 1996.
3.2 By-Laws of the Registrant are incorporated herein by reference to
Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
4.1 Rights Agreement dated as of January 8, 1996, between the
Registrant and The Liberty National Bank and Trust Company of
Oklahoma City, N.A. is incorporated herein by reference to the
Registrant's Form 8-A, dated January 17, 1996.
* 10.1 Incentive Stock Option Plan is incorporated herein by reference
to Exhibit 4.2 to the Registrant's Registration Statement No.
33-16771 on Form S-8.
* 10.2 Form of Incentive Stock Option Plan Stock Option Contract for
the Incentive Stock Option Plan is incorporated herein by
reference to Registrant's Annual Report on Form 10-K to the
Securities and Exchange Commission for fiscal 1996.
* 10.3 Consulting Services Agreement between W. H. Helmerich, III, and
the Registrant effective January 1, 1990, as amended is
incorporated herein by reference to Registrant's Annual Report on
Form 10-K to the Securities and Exchange Commission for fiscal
1996.
* 10.4 Restricted Stock Plan for Senior Executives of Helmerich & Payne,
Inc. is incorporated herein by reference to Registrant's Annual
Report on Form 10-K to the Securities and Exchange Commission for
fiscal 1996.
* 10.5 Form of Restricted Stock Award Agreement for the Restricted Stock
Plan for Senior Executives of Helmerich & Payne, Inc., together
with all amendments thereto is incorporated herein by reference
to Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
* 10.6 Supplemental Retirement Income Plan for Salaried Employees of
Helmerich & Payne, Inc. is incorporated herein by reference to
Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
* 10.7 Helmerich & Payne, Inc. 1990 Stock Option Plan is incorporated
herein by reference to Registrant's Annual Report on Form 10-K to
the Securities and Exchange Commission for fiscal 1996.
* 10.8 Form of Nonqualified Stock Option Agreement for the 1990 Stock
Option Plan is incorporated by reference to Exhibit 99.2 to the
Registrant's Registration Statement No. 33-55239 on Form S-8,
dated August 24, 1994.
* 10.9 Supplemental Savings Plan for Salaried Employees of Helmerich and
Payne, Inc., is incorporated herein by reference from
Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1993.
* 10.10 Helmerich & Payne, Inc. 1996 Stock Incentive Plan is incorporated
herein by reference to Registrant's Registration Statement No.
333-34939 on Form S-8 dated September 4, 1997.
* 10.11 Form of Nonqualified Stock Option Agreement for Helmerich &
Payne, Inc. 1996 Stock Incentive Plan is incorporated by
reference to Exhibit 99.2 to Registrant's Registration Statement
on Form S-8 dated September 4, 1997.
* 10.12 Form of Restricted Stock Agreement for Helmerich & Payne, Inc.
1996 Stock Incentive Plan is incorporated by reference from
Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1997.
* 10.13 Helmerich & Payne, Inc. Non-Employee Directors Stock Compensation
Plan is hereby incorporated by reference to Exhibit "B" of
Registrant's Proxy Statement dated January 27, 1997.
13. The Registrant's Annual Report to Shareholders for fiscal 1998.
22. Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
27. Financial Data Schedule.
</TABLE>
(b) Report on Form 8-K
None.
- -----------------------
* Compensatory Plan or Arrangement.
<PAGE> 1
================================================================================
HELMERICH & PAYNE, INC. ANNUAL REPORT FOR 1998
================================================================================
REVENUE BREAKDOWN FOR 1998
[PIE CHART]
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Years Ended September 30, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 636,640,000 $ 517,859,000
- --------------------------------------------------------------------------------
Net Income $ 101,154,000 $ 84,186,000
- --------------------------------------------------------------------------------
Diluted Earnings Per Share $ 2.00 $ 1.67
- --------------------------------------------------------------------------------
Dividends Paid Per Share $ .275 $ .26
- --------------------------------------------------------------------------------
Capital Expenditures $ 265,701,000 $ 159,578,000
- --------------------------------------------------------------------------------
Total Assets $ 1,090,430,000 $ 1,033,595,000
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
================================================================================
PRESIDENT'S LETTER
================================================================================
To the Co-owners of Helmerich & Payne, Inc.
Fifteen years ago, a federal report titled A Nation at Risk sounded the alarm
over the performance of our nation's public schools. Today, Americans' anxiety
over school quality is at an all-time high. Reforms have not gone far enough and
have been fought back by the proverbial fox in the henhouse. All the while,
Johnny is better at self-actualization than reading. Clearly, he is ill prepared
for an economy that is steadily marching from the information to the knowledge
age with a wider and wider gap between low and highly skilled workers.
As a major stakeholder in efforts to improve the caliber of students our schools
produce, business cannot afford to ignore how the "sausage gets made." However
daunting this challenge, our nation's future place in the sun swings in the
balance between success and failure.
How can business influence the debate over needed reforms? First, by championing
the dynamics and benefits of free-market thinking. Public schools must break out
of a monopoly-oriented mindset or be forever doomed as a high cost, low quality
provider. Innovation and change cannot be held hostage by powerful unions and
those who would circle the wagons around a provider-controlled status quo. No
wonder a voucher system that offers the customers, namely parents and children,
a choice about schooling is now favored by a growing majority, winning the
highest approval among Hispanic and African-American families.
We should point back to the classroom as the best place for real added value.
Today, about half of every public education dollar is spent outside of regular
instruction, to say nothing of the tens of billions spent on the 760 federal
programs scattered over 39 different agencies.
To be held accountable for success, schools must be able to attract, reward on
merit, and retain better teachers. Let's raise the bar for higher professional
teaching standards, make a real commitment to teacher training, overhaul
teachers' colleges, and remove the unfit.
2
<PAGE> 3
Earlier this year, nearly 60 percent of Massachusetts' education graduates and
future teachers flunked the basic reading, writing, and subject-matter test.
Better teachers would bring high impact improvement where it counts _ in the
classroom.
Pointing public schools forward also means going back to basics. Historically,
the founding force behind public schools was to promote solid citizenship and
secure a virtuous society. If that sounds corny, ask what it is like to do
business in a place like Russia today. The rule of law and the currency of trust
are essential elements for democracy and free markets to thrive. Have our
schools been bullied into abandoning the mission of promoting good citizenship
and old-fashioned moral character? Senator John Kerry certainly thinks so: "The
truth is teachers and schools have been stripped of disciplinary tools and will
as the nation experimented with value neutrality, disarming before the
political-correctness police, leaving a morality and value vacuum." We could
well exchange less peddling of self-esteem for developing a clearer sense of
right and wrong.
In a time of record low oil prices, our Company must redouble its effort to work
smart and to over-deliver in order to secure our customers' loyalty and trust.
Our conviction that our people drive the Company's future success motivates us
to champion better schools. The end game is to be transformed from a nation at
risk to a nation of excellence.
Sincerely,
/s/ HANS HELMERICH
-------------------------------
Hans Helmerich
December 15, 1998 President
3
<PAGE> 4
================================================================================
DRILLING HELMERICH & PAYNE INTERNATIONAL DRILLING CO.
================================================================================
SUMMARY Helmerich & Payne International Drilling Co. is a leading contract
driller with 90 rigs worldwide. The Company owns a total of 79 land rigs, 36 in
the U.S. and 43 in the countries of Venezuela (21), Colombia (10), Bolivia (5),
Ecuador (4), Argentina (2), and Peru (1). The Company has nine offshore platform
rigs in the Gulf of Mexico and one each offshore California and Venezuela.
Helmerich & Payne International Drilling Co. and Atwood Oceanics, Inc. jointly
own a platform rig working offshore Australia. Fleet utilization averaged 92
percent in 1998, compared with 89 percent last year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
OFFSHORE
U.S. LAND PLATFORM INTERNATIONAL TOTAL
DEPTH CAPACITY RIGS RIGS LAND RIGS RIGS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12,000 feet or less 1 -- 7 8
14,000 - 16,000 feet 17 -- 2 19
18,000 - 20,000 feet 8 4 6 18
26,000 - 30,000 feet 10 7 28 45
---- ---- ---- ----
TOTAL 36 11 43 90
</TABLE>
Revenue and pre-tax operating income increased 36 percent and 28 percent,
respectively over the previous year, and earnings before interest, taxes,
depreciation, and amortization (EBITDA) increased 27 percent to $142 million,
from $112 million in 1997. These financial results do not fully reflect a
considerable slowdown in the industry, which began during the last half of the
year. World oil prices declined significantly during the year and the industry
is responding by paring back capital spending worldwide and by consolidating on
an unprecedented scale.
INTERNATIONAL OPERATIONS The slide in oil prices produced a considerable
decline in the Company's Venezuela
4
<PAGE> 5
operation. After experiencing robust activity in Venezuela for the last decade,
the Company encountered a severe drop in utilization from an average of nearly
100 percent in the first half of the year to approximately 50 percent by the end
of September 1998. Profitability in the Company's Colombia operation also
declined during the last half of the year, as two of its fleet of ten land rigs
became idle.
The Company entered 1998 with good momentum in South America from projects
already in progress. Rig 170, a new 3,000 horsepower helicopter-transportable
rig, began working in Venezuela under a multi-well contract for a consortium led
by BP Exploration Orinoco Limited. The Company's operation in Ecuador
experienced revenue growth of over 50 percent in 1998, as each of the country's
three rigs was fully utilized during the year. A fourth medium depth land rig
was added in Ecuador and began work in August under a three-year term contract
with City Investing Company, Ltd. Rig 176 represents the second of five land
rigs newly constructed for international operations during 1998. After the close
of the year, the remaining three, 3,000 horsepower land rigs commenced
operations under three-year term contracts with an Amoco-led consortium in the
countries of Bolivia and Argentina.
During the year, the Company was chosen to design and manage the construction of
a platform rig for Mobil Oil Corporation's Jade project, located offshore
Equatorial Guinea, Africa. Mobil will own the Jade rig, and the Company believes
there is a good opportunity of being named the contractor for the drilling phase
of this project.
UNITED STATES OPERATIONS In 1998, the Company added six new 1,500 horsepower
land rigs and one refurbished 3,000 horsepower land rig to its U.S. fleet.
The new 1,500
5
<PAGE> 6
horsepower rigs were designed to minimize space and mobilization times, which
increases efficiency and productivity for the customer. The Company's land fleet
had an average utilization of 94 percent in 1998; however, commodity price
concerns began to negatively impact the U.S. land market during the last half of
the year. According to Baker-Hughes statistics, the active U.S. land rig count
declined 27 percent during 1998, and in the last month of the fiscal year, the
Company's domestic land rig utilization was down to 84 percent.
Utilization rates for the Company's ten domestic offshore platform rigs averaged
99 percent and revenues from these rigs increased 30 percent over 1997. Rig 204
was completed by mid-year and was in the process of being rigged-up on Shell
Offshore, Inc.'s URSA tension-leg platform (TLP) at year-end. The URSA TLP,
which will be set in nearly 4,000 feet of water, represents the Company's third
TLP rig for Shell Offshore, Inc.
OUTLOOK The Company strives to be the premium drilling contractor in each of
its markets, differentiating itself with well-trained, experienced personnel,
proactive safety programs, and equipment engineered, designed, and maintained to
meet the highest quality requirements in the industry. In 1998, the Company
reinvested over $200 million to build or modernize rigs and to make improvements
for safety and operational efficiency. Given the present industry conditions,
drilling contractors will be under more pressure to add value to the customer's
operation. Helmerich & Payne International Drilling Co. believes that its
ongoing strategy of setting the standard for premium service enables it to
compete effectively regardless of industry conditions.
6
<PAGE> 7
================================================================================
EXPLORATION & PRODUCTION HELMERICH & PAYNE, INC.
================================================================================
SUMMARY Helmerich & Payne, Inc. explores for and produces oil and natural gas
primarily in the states of Oklahoma, Kansas, Texas, and Louisiana. At year-end,
the Company had proved reserves of approximately 4.8 million barrels of oil and
252 billion cubic feet (Bcf) of natural gas. In 1998, revenues and pre-tax
operating profit decreased 11 and 49 percent, respectively, as measured against
prior year levels.
Natural gas production increased to 117,431 thousand cubic feet (Mcf) per day
during the year, compared with 110,859 Mcf per day last year. The average price
received for natural gas production fell nine percent to $2.04 per Mcf, from
$2.23 in 1997.
Crude oil revenues fell by 50 percent in 1998, the result of a combination of
price and volume declines. Over-supplies in crude oil pushed the Company's
average realized oil price down to $14.74 per barrel, compared with $20.77 in
1997. Oil production averaged 1,921 barrels per day in 1998, compared with 2,700
barrels in 1997. Oil reserves and production were impacted by the Company's sale
of its Louisiana Austin Chalk properties in November 1997.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FIVE YEAR SUMMARY
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE (in thousands)
Exploration and Production $ 98,696 $ 111,512 $ 76,643 $ 47,986 $ 58,884
Natural Gas Marketing 53,499 69,015 58,507 35,301 51,889
---------- ---------- ---------- ---------- ----------
Total Oil and Gas Division $ 152,195 $ 180,527 $ 135,150 $ 83,287 $ 110,773
OPERATING PROFIT (in thousands)
Exploration and Production $ 28,088 $ 55,191 $ 26,333 $ (23,961) $ 3,245
Natural Gas Marketing 2,418 3,363 3,415 1,892 1,525
---------- ---------- ---------- ---------- ----------
Total Oil and Gas Division $ 30,506 $ 58,554 $ 29,748 $ (22,069) $ 4,770
OIL PRODUCTION (barrels per day) 1,921 2,700 2,212 2,214 2,431
Average Oil Price Per Barrel $ 14.74 $ 20.77 $ 19.00 $ 16.37 $ 14.83
Proved Oil Reserves (millions of barrels) 4.8 5.8 6.5 6.3 6.7
NATURAL GAS PRODUCTION (Mcf per day) 117,431 110,859 94,358 72,387 72,953
Average Natural Gas Price Per Mcf $ 2.04 $ 2.23 $ 1.75 $ 1.27 $ 1.72
Proved Natural Gas Reserves (Bcf) 252 263 272 280 291
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
EXPLORATION The Company participated in drilling 62 (35.7 net) wells during the
year, 49 (29.2 net) of which were completed as natural gas producers, four (2.3
net) as oil wells, and nine (4.2 net) as dry holes. Seven (4.8 net) out of the
62 wells were wildcat exploratory wells, four (2.9 net) of which turned out to
be dry.
During 1998, the Company had continued success in the Rocky East Prospect and
Kiowa Flats Field. Since these discoveries in 1996 and 1997, the Company has
participated in 22 (16.8 net) total wells in these areas which have produced
approximately 19.3 Bcf net to the Company, and were producing at a combined net
rate of over 40,000 Mcf per day at year-end.
The Company has several attractive exploration projects planned for 1999. In
addition to an important East Texas Pinnacle Reef well to be completed early in
1999, the Company recently participated in three significant 3-D seismic surveys
covering 234 square miles in Texas and Louisiana and invested over $9 million in
undeveloped acreage during 1998. After the close of the year, the Company
purchased a one-third interest in three, 3-D seismic surveys covering 185 square
miles in Jefferson County, Texas.
OUTLOOK The reductions in oil and natural gas prices have caused many companies
in the industry to reduce spending plans for the coming year. As other companies
cut budgets or sell down their working interest positions, Helmerich & Payne,
Inc. will be carefully reviewing ways to use its financial strength to
opportunistically purchase available prospects. Using seven exploitation teams
specializing in specific geographical regions, the Company will continue to
focus on improving its finding cost and reserve growth utilizing the latest in
exploration technologies.
8
<PAGE> 9
REVENUES AND INCOME BY BUSINESS SEGMENTS
================================================================================
HELMERICH & PAYNE, INC.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- ---------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
SALES AND OTHER REVENUES:
Contract Drilling - Domestic ........... $ 177,059 $ 140,294 $ 108,336
Contract Drilling - International ...... 253,072 176,651 135,695
---------- ---------- ----------
Total Contract Drilling Division .... 430,131 316,945 244,031
---------- ---------- ----------
Exploration and Production ............. 98,696 111,512 76,643
Natural Gas Marketing .................. 53,499 69,015 58,507
---------- ---------- ----------
Total Oil and Gas Division .......... 152,195 180,527 135,150
---------- ---------- ----------
Real Estate Division ................... 8,922 8,641 8,082
Investments and Other Income ........... 45,392 11,746 5,992
---------- ---------- ----------
Total Revenues .............................. $ 636,640 $ 517,859 $ 393,255
========== ========== ==========
OPERATING PROFIT:
Contract Drilling - Domestic ........... $ 35,817 $ 24,437 $ 10,066
Contract Drilling - International ...... 50,834 43,118 31,176
---------- ---------- ----------
Total Contract Drilling Division .... 86,651 67,555 41,242
---------- ---------- ----------
Exploration and Production ............. 28,088 55,191 26,333
Natural Gas Marketing .................. 2,418 3,363 3,415
---------- ---------- ----------
Total Oil and Gas Division .......... 30,506 58,554 29,748
---------- ---------- ----------
Real Estate Division ................... 5,371 5,615 5,055
---------- ---------- ----------
Total Operating Profit .............. 122,528 131,724 76,045
---------- ---------- ----------
OTHER:
Miscellaneous operating ................ (927) (1,269) (1,663)
Income from investments ................ 44,603 11,437 5,782
General corporate expense .............. (11,762) (9,346) (9,083)
Interest expense ....................... (942) (4,212) (678)
Corporate depreciation ................. (1,280) (919) (860)
---------- ---------- ----------
Total Other ......................... 29,692 (4,309) (6,502)
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND EQUITY
IN INCOME OF AFFILIATE ................. $ 152,220 $ 127,415 $ 69,543
========== ========== ==========
- ---------------------------------------------------------------------------------------------
</TABLE>
Note: This schedule is an integral part of Note 13 (pages 31) of the financial
statements that follow.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION & ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
================================================================================
HELMERICH & PAYNE, INC.
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. The Company's
future operating results may be affected by various trends and factors which are
beyond the Company's control. These include, among other factors, fluctuation in
oil and natural gas prices, expiration or termination of drilling contracts,
currency exchange losses, changes in general economic conditions, rapid or
unexpected changes in technology, and uncertain business conditions that affect
the Company's business. Accordingly, past results and trends should not be used
by investors to anticipate future results or trends.
With the exception of historical information, the matters discussed in
Managements's Discussion & Analysis of Results of Operations and Financial
Condition includes forward-looking statements. These forward-looking statements
are based on various assumptions. The Company cautions that, while it believes
such assumptions to be reasonable and makes them in good faith, assumed facts
almost always vary from actual results. The differences between assumed facts
and actual results can be material. The Company is including this cautionary
statement to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. The factors identified in this cautionary
statement are important factors (but not necessarily all important factors) that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
RESULTS OF OPERATIONS
All per share amounts included in the Results of Operations discussion are
stated on a diluted basis. Helmerich & Payne, Inc.'s net income for 1998 was
$101,154,000 ($2.00 per share), compared with net income of $84,186,000 ($1.67
per share) in 1997, and $72,566,000 ($1.46 per share) in 1996. Included in the
Company's net income, but not related to its operations, were after-tax gains
from the sale of investment securities of $23,417,000 ($0.46 per share) in 1998,
$2,870,000 ($0.06 per share) in 1997, and $346,000 ($0.01 per share) in 1996.
Also included is the Company's portion of income from its equity affiliate,
Atwood Oceanics, Inc., which was $0.11 per share in 1998, $0.05 per share in
1997, and $0.03 per share in 1996. Net income in 1998 also included a non-cash
charge of $3,356,000 ($0.07 per share) related to the write-down of producing
properties in accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-
10
<PAGE> 11
Lived Assets and for Long-Lived Assets to be Disposed Of. Included in 1996
income is a $24,050,000 ($0.49 per share) gain from the sale of the Company's
chemical subsidiary, Natural Gas Odorizing, Inc. (NGO).
Consolidated revenues increased to $636,640,000 in 1998, from $517,859,000 in
1997, and $393,255,000 in 1996. The 23 percent increase from 1997 to 1998 was
due to higher dayrates and utilization in the contract drilling division and
higher capital gains from the sales of equity securities. Significant increases
in these areas helped offset lower revenues from the Exploration and Production
Division that were due primarily to lower crude oil and natural gas prices. The
32 percent increase from 1996 to 1997 was a result of increased dayrates for
contract drilling services and a significant increase in oil and gas revenues
due to higher commodity prices and production volumes.
Revenues from investments were $44,603,000 in 1998, $11,437,000 in 1997, and
$5,782,000 in 1996. Included in revenues from investments were pre-tax gains
from the sale of investment securities of $38,421,000 in 1998, $4,697,000 in
1997, and $566,000 in 1996. Interest income was stable during 1998, 1997, and
1996, but dividend revenue was higher in 1997 due to the addition of Occidental
Petroleum Corporation common stock to the investment portfolio.
Costs and expenses in 1998 were $484,420,000, 76 percent of revenues, compared
with 75 percent in 1997, and 82 percent in 1996. Operating costs, as a
percentage of operating revenues, were 58 percent in 1998, 55 percent in 1997,
and 59 percent in 1996.
General and administrative expenses increased by 26 percent to $11,762,000 in
1998, compared with $9,346,000 in 1997, and $9,083,000 in 1996. Higher overall
payroll costs and additional information technology staffing were primary
reasons for the increase. Income tax expense, as a percentage of pre-tax income,
was 37 percent in 1998, 36 percent in 1997, and 37 percent in 1996.
CONTRACT DRILLING DIVISION revenues increased by 36 percent from 1997 to 1998,
and by 30 percent from 1996 to 1997. Total operating profit rose by 28 percent
over last year to $86,651,000 in 1998, compared with $67,555,000 in 1997, and
$41,242,000 in 1996. Domestic drilling operating profit increased to $35,817,000
in 1998, from $24,437,000 in 1997, and $10,066,000 in 1996. Domestic Contract
Drilling revenues and operating profit for both 1998 and 1997 increased, due to
improved dayrates from both land and offshore rig operations and higher
utilization of the offshore platform rigs. Rig utilization for the U.S. land
fleet was 94 percent in 1998, 99 percent in 1997, and 88 percent in 1996.
Domestic platform rig utilization was 99 percent in 1998, 63 percent in 1997,
and 70 percent in 1996. Revenue and operating profit for domestic operations
will most likely be lower in 1999 due to lower day rates and utilization.
11
<PAGE> 12
International revenues climbed to $253,072,000 in 1998, from $176,651,000 in
1997, and $135,695,000 in 1996. Operating profit for the international contract
drilling sector improved by 18 percent over last year to $50,834,000 in 1998,
compared with $43,118,000 in 1997, and $31,176,000 for 1996. Revenues and
operating profit increased significantly during 1998 due to additional rigs and
increased dayrates in Venezuela, Ecuador, Peru, and Bolivia. Increases were
particularly dramatic in Venezuela where the Company's offshore platform Rig 91
commenced work offshore Venezuela early in the year. Higher dayrates for the
Company's land rigs in Venezuela had also been instituted during 1997 and helped
move revenues and earnings up during the early part of 1998. However, as crude
oil prices declined, rig activity and profitability in Venezuela declined
rapidly during the last half of 1998. Increases in revenues and operating profit
during 1997 were primarily due to a full year of activity for three additional
rigs sent to Venezuela in 1996, increased dayrates in Venezuela and Colombia,
and increased activity in Ecuador. It is anticipated that during 1999,
international revenues and operating profit will be down substantially compared
with 1998, because of dramatic reductions in rig utilization and dayrates,
particularly in Venezuela and Colombia. Those declines should be partially
offset by new rigs and contracts in Bolivia and Argentina, that should be active
through most of 1999.
The Company has international operations in several South American countries.
With the exception of Venezuela, the Company's exposure to currency valuation
losses is immaterial due to the fact that virtually all billings and payments
are in U.S. dollars. In Venezuela, approximately 60 percent of the Company's
billings are in U.S. dollars and 40 percent are in bolivars, the local currency.
As a result, the Company is exposed to risks of currency devaluation in
Venezuela because of the bolivar denominated receivables. During 1998, the
Company experienced a loss of $2,204,000 due to devaluation of the bolivar,
compared with a $579,000 loss in 1997, and a $602,000 currency exchange gain in
1996. The Company anticipates additional devaluation losses in Venezuela during
1999, but it is unable to predict the extent of either the devaluation, or its
financial impact. Should Venezuela experience a 25 to 50 percent devaluation,
Company losses could range from approximately $1,500,000 to $2,700,000. These
estimates were calculated by applying assumed devalvation to a pro forma Balance
Sheet for the Company's Venezuelan subsidiary.
EXPLORATION & PRODUCTION
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues (in 000's) ...................... $ 98,696 $ 111,512 $ 76,643
Operating Profit (in 000's) .............. $ 28,088 $ 55,191 $ 26,333
Natural Gas Production (mmcf per day) .... 117.4 110.9 94.4
Average Natural Gas Price (per mcf) ...... $ 2.04 $ 2.23 $ 1.75
Crude Oil Production (barrels per day) ... 1,921 2,700 2,212
Average Crude Oil Price (per barrel) ..... $ 14.74 $ 20.77 $ 19.00
</TABLE>
12
<PAGE> 13
Exploration and Production revenues and operating profit for 1998 declined from
1997 as natural gas and crude oil prices fell. Crude oil production also
decreased substantially due to the sale of the Company's Austin Chalk production
early in the first quarter. During 1998, the Company recorded increases in its
geophysical expenses, dry hole charges, and reserve for capitalized costs of
undeveloped leases. Additionally, the Company incurred a $3,356,000 after-tax
charge as required by FAS 121 related to specific oil and gas properties. A
similar charge of $662,000 was incurred during 1996, while no such write-down
was incurred during 1997. During 1997, dry hole expenses and abandonment charges
were lower than either 1998 or 1996. The combination of high commodity prices
and production volumes, and lower costs resulted in a substantial operating
income increase for 1997.
The Company anticipates that revenues and operating profit will be impacted by
commodity price volatility. To date, projected commodity prices for the
remainder of 1999 are substantially below those prices averaged for 1998.
Therefore, it is likely that the Company's operating profit for the coming year
will be less than 1998, unless the Company experiences substantially lower costs
and expenses than in the previous year, or production volume increases offset
lower commodity prices.
In 1997, the Company recorded a one-time net income reduction as a result of a
Federal Energy Regulatory Commission (FERC) order which requires certain Kansas
producers of natural gas to make certain refunds of ad valorem tax
reimbursement, with interest, for tax bills rendered between October 4, 1983,
and June 28, 1988. The Company's total pre-tax adjustment of $6,700,000 includes
a reduction of exploration and production revenues of $2,700,000 and $4,000,000
of interest charges.
The Company's natural gas marketing subsidiary, Helmerich & Payne Energy
Services, Inc. (HPESI), derives most of its revenues from selling natural gas
produced by other unaffiliated companies. Total gas marketing revenues were
$53,499,000 in 1998, $69,015,000 in 1997, and $58,507,000 in 1996. Operating
profit was $2,418,000 in 1998, $3,363,000 in 1997, and $3,415,000 in 1996.
Additionally, the Company sells most of its own natural gas production through
HPESI, at variable prices based on industry pricing publications or exchange
quotations. However, sales revenues for the Company's own natural gas production
are reported by the Oil and Gas Division. HPESI sells most of its natural gas
with monthly or daily contracts tied to industry market indices, such as inside
FERC. The Company, through HPESI, has natural gas delivery commitments for
periods of less than a year for approximately 40 percent of its total natural
gas production. At times HPESI may enter into fixed price natural gas sales
contracts on a small portion (less than 10 percent) of its natural gas sales
portfolio for periods of less than six months to guarantee a certain price. No
such fixed price contracts existed at September 30, 1998.
13
<PAGE> 14
REAL ESTATE DIVISION revenues totaled $8,922,000 for 1998, $8,641,000 for 1997,
and $8,082,000 for 1996. The general economy in Tulsa continued to be strong,
thereby helping boost the occupancy rates, revenues and operating profit.
Revenues and operating profit for 1997 also reflected the sale of a small parcel
of land for a gain of $400,000. No material changes are anticipated in the Real
Estate Division in 1999.
YEAR 2000 COMPLIANCE
Readers are cautioned that forward-looking statements contained in the following
Year 2000 discussion should be read in conjunction with the Company's
disclosures under the heading: "RISK FACTORS AND FORWARD-LOOKING STATEMENTS"
(page 10). This discussion shall constitute the Company's "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information and Readiness Act.
THE COMPANY'S STATE OF READINESS
The Company has undertaken various initiatives in an attempt to ensure that its
hardware, software and equipment will function properly with respect to dates
before and after January 1, 2000. For this purpose, the phrase "hardware,
software and equipment" includes systems that are commonly thought of as
Information Technology ("IT") systems, as well as those Non-Information
Technology ("Non-IT") systems and equipment which include embedded technology.
IT systems include computer hardware and software, and other related systems.
Non-IT systems include certain oil and gas drilling and production equipment,
security systems and other miscellaneous systems. The Non-IT systems present the
greatest compliance challenge since identification of embedded technology is
difficult and because the Company is, to a great extent, reliant on third
parties for Non-IT compliance.
The Company has formed a Year 2000 ("Y2K") Project team which is chaired by the
Director of IT. The team includes IT staff, corporate staff and representatives
from the Company's business units. The Company has organized its compliance
efforts into a four-phase approach as follows:
Phase 1: Identification - Identify and inventory material components of Company
operations and systems which may be affected.
Phase 2: Assessment - Determine which hardware, software and equipment must be
modified, upgraded or replaced.
Phase 3: Remediation - Modify, upgrade or replace non-compliant hardware,
software and equipment.
Phase 4: Testing - Fully test all IT systems which are material to the
Company's operations. Selectively test those Non-IT systems and
equipment which are material to the Company's operations.
For the purposes of the Y2K Project material items are those items the Company
believes to have a risk involving safety of individuals, damage to the
environment, material effect on revenues or material damage to property.
14
<PAGE> 15
The following represents the status of the Company's IT and Non-IT Y2K
Compliance:
<TABLE>
<CAPTION>
STATUS OF TARGET FOR
IT COMPLETION COMPLETION
<S> <C> <C>
o Core accounting and operational Phases 1, 2 & 3 March 1999
(mainframe) systems Complete; 4 in
Progress
o Human Resources & Payroll Systems Phases 1, 2 & 3 March 1999
Complete; 4 in
Progress
o Network Completed
o Desktop Computer Hardware Phases 1 & 2 March 1999
Complete; 3 in
Progress
o Standard Company Desktop Phases 1 & 2 March 1999
Computer Software Complete; 3 in
Progress
o Business Unit User Software Phase 1 in Progress September 1999
NON-IT
o Systems and Equipment Phases 1 & 2 in September 1999
Progress
</TABLE>
As reflected in the above table, the Company is in the process of identifying
embedded technology and determining the extent to which such technology is Y2K
compliant. As part of this process, the Company has mailed letters to its
significant vendors and service providers to confirm that the products and
services purchased from or by such entities are Y2K compliant. Also, the Company
is in the process of obtaining information from significant customers regarding
the extent to which Y2K issues may affect the amount of business the Company
currently conducts with such customers. As of December 15, 1998, the Company had
received responses from approximately 32 percent of such vendors and service
providers. Approximately 70 percent of the vendors and service providers
contacted have provided written assurances that they expect to be Y2K compliant
on a timely basis. A follow-up mailing to significant vendors and services
providers that did not initially respond, or whose responses were deemed
unsatisfactory, will be completed by December 31, 1998. As a result of these
activities, the Company expects discussions will be conducted with such vendors
and service providers to determine the most effective solutions to Y2K
compliance issues.
THE COST TO ADDRESS Y2K ISSUES
The Company believes that the cost of its Y2K Project should not exceed
$1,000,000, including costs of employees working on the Y2K Project. Costs
incurred for new software and hardware purchases are being capitalized, and
other costs are being expensed as incurred. The costs relating to the Company's
Y2K Project are paid from the Company's general funds. To date, the Company has
incurred Y2K Project costs of approximately $500,000. This expenditure mainly
relates to repair, upgrading and replacement of existing
15
<PAGE> 16
software and hardware, and solicitation and evaluation of information received
from significant vendors, service providers, or customers. The $1,000,000 figure
does not include the costs of independent Y2K consultants. The Company has not
determined whether it will engage independent Y2K consultants. The cost of such
consultants would not be material to the Company.
THE COMPANY'S CONTINGENCY PLAN
The Company is in the process of developing its contingency plans on a business
unit and departmental basis. These plans are expected to be complete by April 1,
1999. These contingency plans will include, but will not be limited to:
development of backup and recovery procedures for IT Systems; remediation of
existing systems or equipment; installation of new systems or equipment;
stockpiling of Y2K compliant goods and supplies; stockpiling old equipment which
does not contain embedded technology; replacement of current services with
temporary manual processes; finding non-technological alternatives or sources
for information; or identification of alternative suppliers or outsourcing
subcontractors who stand ready to receive or provide material goods, equipment
and services as part of its contingency plan. The Company has engaged a computer
recovery services contractor as a potential source of auxiliary computer
systems.
THE RISKS OF THE COMPANY'S Y2K ISSUES
The Company is in the process of completing an analysis of the operational
problems and costs (including loss of revenues) that would be reasonably likely
to result from the failure by the Company or certain third parties to complete
efforts necessary to achieve Y2K compliance on a timely basis. The Company
presently believes that the Y2K issue will not pose significant operational
problems for the Company. However, if all significant Y2K issues are not
properly identified, or assessment, remediation and testing are not effected
timely, there can be no assurance that Y2K issues will not materially and
adversely impact the Company's results of operations, liquidity and financial
condition or materially and adversely affect the Company's relationships with
customers, vendors, or others. Additionally, there can be no assurance that the
lack of Y2K compliance by other entities will not have a material and adverse
impact on the Company's operations or financial condition.
The preceding Y2K disclosure is based upon certain forward-looking information
including, but not limited to, the dates on which the Company believes that
various phases of the Y2K Project will be completed. This forward-looking
information is based on Management's good faith estimates. These estimates were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party plans and other factors. However,
there can be no guarantee that these estimates will be achieved, or that there
will not be a delay in, or increased costs associated with, the implementation
of the Y2K Project. Specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the
16
<PAGE> 17
availability and cost of personnel trained in these areas, the ability to locate
and correct all relevant computer code, timely responses to and corrections by
third-parties and suppliers, the ability to implement interfaces between the new
systems and the systems not being replaced, and similar uncertainties. Due to
the general uncertainty inherent in Y2K issues, including the uncertainty of
third party Y2K compliance, the Company cannot ensure its ability to timely and
cost-effectively resolve problems associated with Y2K issues that may affect its
operations and business, or expose it to third-party liability.
LIQUIDITY AND CAPITAL RESOURCES
In response to improved industry conditions in 1997 and early 1998, the Company
increased its capital expenditures to a total of $266,299,000 in 1998, from
$161,177,000 in 1997, and $109,985,000 in 1996. Net cash provided from operating
activities for those same time periods were $113,533,000 in 1998, $165,568,000
in 1997, and $124,923,000 in 1996. In addition to the net cash provided by
operating activities, the Company also generated net proceeds from the sale of
portfolio securities of $73,949,000 in 1998, $8,557,000 in 1997, and $619,000 in
1996. In June 1998, the board of directors authorized the Company to repurchase
up to 2,000,000 shares of its own stock during a period of one year. A total of
999,100 shares were repurchased in 1998 at a total cost of $19,112,000. During
1998, the Company paid a dividend of $0.275 per share, or a total of
$13,802,000, representing the 27th consecutive year of dividend increases.
Due to the need for additional funds resulting from a reduction in operating
cash flow, a significant increase in capital expenditures, and the stock buyback
program, the Company increased its available short-term lines of credit and
obtained long-term financing. On September 30, 1998, the Company had $94.8
million in short-term debt borrowings, which had a weighted average maturity of
16 days and a weighted average interest rate of approximately 6 percent. As
described in Note 2 of Notes to Consolidated Financial Statements, in October
1998, the Company obtained an additional $50 million in long-term debt proceeds
which was used to pay off short-term borrowings at September 30, 1998. The $50
million of long-term debt matures in October 2003. The interest rate on this
debt fluctuates based on 30-day London Interbank Offered Rate (LIBOR), however,
simultaneous to receiving the $50 million in long-term debt proceeds the Company
entered into a $50 million interest rate swap agreement with a major national
bank. The swap effectively fixes the interest rate on this facility at 5.38% for
the entire 5 year term of the note. The Company's interest rate risk exposure
results predominately from fluctuations, relative to its short-term bank
facilities, in short-term interest rates as measured by the 30-day LIBOR. The
Company generally borrows for 30-day time periods, and can fix its interest rate
for 30-day increments at spreads ranging from 35 to 45 basis points over LIBOR.
Even with the additional borrowings, the Company's balance sheet is strong.
Current ratios for 1998 and 1997 are 1.5 and 1.7, respectively. Total bank
borrowings to total assets were nine percent
17
<PAGE> 18
in 1998, and less than one percent in 1997. Additionally, the Company manages a
large portfolio of marketable securities that, at the close of 1998, had a
market value of $227,415,000, with a cost basis of $112,192,000. The portfolio,
heavily weighted in energy stocks, is subject to fluctuation in the market and
may vary considerably over time. The portfolio is marked to market on the
Company's balance sheet for each reporting period.
Capital expenditures budgeted for 1999 are significantly less than those
incurred during 1998. The dramatic reduction in crude oil prices and the
softness in natural gas prices have caused an overall reduction in planned
capital projects by the Company's contract drilling customers. As a result,
there are far fewer projects contemplated for 1999. Although budgeted capital
expenditures have been cut back dramatically for 1999, the Company has
substantial additional borrowing capacity and could liquidate positions in its
portfolio of equity securities should additional funds be needed.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
STOCK PORTFOLIO HELD BY THE COMPANY
- -------------------------------------------------------------------------------------------
Number of
September 30, 1998 Shares Book Value Market Value
- -------------------------------------------------------------------------------------------
(in thousands,except share amounts)
<S> <C> <C> <C>
Occidental Petroleum Corporation ....... 1,000,000 $ 23,775 $ 21,500
Atwood Oceanics, Inc. .................. 3,000,000 35,422 62,437
Schlumberger, Ltd. ..................... 1,480,000 23,511 75,295
SUNOCO, Inc. ........................... 312,546 3,192 10,001
Phillips Petroleum Company ............. 240,000 5,976 10,830
BANC ONE CORPORATION ................... 200,000 2,250 8,488
Oryx Energy Company .................... 500,000 4,899 6,469
ONEOK, Inc. ............................ 225,000 2,751 7,650
Other .................................. 10,416 24,745
------------ ------------
Total ...................... $ 112,192 $ 227,415
============ ============
</TABLE>
18
<PAGE> 19
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
HELMERICH & PAYNE, INC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------
(in thousands,
except per share amounts)
REVENUES:
<S> <C> <C> <C>
Sales and other operating revenues ........... $ 592,037 $ 506,422 $ 387,473
Income from investments ...................... 44,603 11,437 5,782
---------- ---------- ----------
636,640 517,859 393,255
---------- ---------- ----------
COSTS AND EXPENSES:
Operating costs .............................. 346,066 276,094 229,584
Depreciation, depletion and amortization ..... 88,350 71,691 59,442
Dry holes and abandonments ................... 11,572 7,783 7,986
Taxes, other than income taxes ............... 25,728 21,318 16,939
General and administrative ................... 11,762 9,346 9,083
Interest ..................................... 942 4,212 678
---------- ---------- ----------
484,420 390,444 323,712
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND EQUITY IN INCOME OF AFFILIATE ...... 152,220 127,415 69,543
INCOME TAX EXPENSE ............................... 56,677 45,511 25,803
EQUITY IN INCOME OF AFFILIATE
net of income taxes .......................... 5,611 2,282 1,686
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS ................ 101,154 84,186 45,426
INCOME FROM DISCONTINUED OPERATIONS .............. -- -- 3,090
GAIN ON SALE OF DISCONTINUED OPERATIONS .......... -- -- 24,050
---------- ---------- ----------
NET INCOME ....................................... $ 101,154 $ 84,186 $ 72,566
========== ========== ==========
BASIC EARNINGS PER COMMON SHARE:
INCOME FROM CONTINUING OPERATIONS ............ $ 2.03 $ 1.69 $ .92
INCOME FROM DISCONTINUED OPERATIONS .......... -- -- .06
GAIN ON SALE OF DISCONTINUED OPERATIONS ...... -- -- .49
---------- ---------- ----------
NET INCOME ....................................... $ 2.03 $ 1.69 $ 1.47
========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE:
INCOME FROM CONTINUING OPERATIONS ............ $ 2.00 $ 1.67 $ .91
INCOME FROM DISCONTINUED OPERATIONS .......... -- -- .06
GAIN ON SALE OF DISCONTINUED OPERATIONS ...... -- -- .49
---------- ---------- ----------
NET INCOME ....................................... $ 2.00 $ 1.67 $ 1.46
========== ========== ==========
- -----------------------------------------------------------------------------------------------
</TABLE>
Note: Per share amounts reflect the effect of the December 3, 1997 two-for-one
common stock split and distribution (see Note 4) and the adoption of SFAS No.
128, "Earnings Per Share" (see Note 1). The accompanying notes are an integral
part of these statements.
19
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
================================================================================
HELMERICH & PAYNE, INC.
<TABLE>
<CAPTION>
ASSETS
- --------------------------------------------------------------------------------------------------------
September 30, 1998 1997
- --------------------------------------------------------------------------------------------------------
(in thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ........................................ $ 24,476 $ 27,963
Short-term investments ........................................... 262 1,318
Accounts receivable, less reserve of $1,908 and $1,308 ........... 119,395 98,697
Inventories ...................................................... 25,401 19,639
Prepaid expenses and other ....................................... 14,811 10,387
------------ ------------
Total current assets ......................................... 184,345 158,004
------------ ------------
INVESTMENTS .......................................................... 200,400 323,510
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Contract drilling equipment ...................................... 829,217 643,619
Oil and gas properties ........................................... 435,747 409,921
Real estate properties ........................................... 48,451 47,682
Other ............................................................ 65,120 59,659
------------ ------------
1,378,535 1,160,881
Less--Accumulated depreciation, depletion and amortization ....... 686,164 621,856
------------ ------------
Net property, plant and equipment ............................ 692,371 539,025
------------ ------------
OTHER ASSETS ......................................................... 13,314 13,056
------------ ------------
TOTAL ASSETS ......................................................... $ 1,090,430 $ 1,033,595
============ ============
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 21
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
September 30, 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ....................................................................... $ 41,851 $ 42,642
Accrued liabilities .................................................................... 38,833 47,525
Notes payable .......................................................................... 44,800 5,000
----------- -----------
Total current liabilities ........................................................ 125,484 95,167
----------- -----------
NONCURRENT LIABILITIES:
Long-term notes payable ................................................................ 50,000 --
Deferred income taxes .................................................................. 103,469 141,331
Other .................................................................................. 18,329 16,517
----------- -----------
Total noncurrent liabilities ..................................................... 171,798 157,848
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, 80,000,000 shares authorized,
53,528,952 shares issued ........................................................... 5,353 5,353
Preferred stock, no par value, 1,000,000 shares authorized,
no shares issued.................................................................... -- --
Additional paid-in capital ............................................................. 59,004 51,316
Retained earnings ...................................................................... 716,875 629,562
Unearned compensation .................................................................. (5,605) --
Net unrealized holding gains ........................................................... 54,689 114,454
----------- -----------
830,316 800,685
Less treasury stock, 4,146,120 shares in 1998 and 3,500,698 shares in 1997, at cost .... 37,168 20,105
----------- -----------
Total shareholders' equity ....................................................... 793,148 780,580
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................................. $ 1,090,430 $ 1,033,595
=========== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 22
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
================================================================================
HELMERICH & PAYNE, INC.
<TABLE>
<CAPTION>
Net
Common Stock Additional Unrealized
------------------ Paid-in Holding
Shares Amount Capital Gains
- ---------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Balance, September 30, 1995 ............ 53,529 $ 5,353 $ 45,760 $ 38,004
Change in net unrealized holding
gains, net of income
tax of $11,367 ...................... -- -- -- 18,546
Cash dividends ($.255 per share) ....... -- -- -- --
Exercise of stock options .............. -- -- 2,197 --
Lapse of restrictions on
Restricted Stock Awards ............. -- -- (61) --
Forfeiture of Restricted Stock Award ... -- -- (162) --
Amortization of deferred
compensation ........................ -- -- -- --
Net income ............................. -- -- -- --
--------- --------- --------- ---------
Balance, September 30, 1996 ............ 53,529 5,353 47,734 56,550
Change in net unrealized holding
gains, net of income tax
of $35,490 .......................... -- -- -- 57,904
Cash dividends ($.26 per share) ........ -- -- -- --
Exercise of stock options .............. -- -- 3,306 --
Lapse of restrictions on
Restricted Stock Awards ............. -- -- 276 --
Amortization of deferred
compensation ........................ -- -- -- --
Net income ............................. -- -- -- --
--------- --------- --------- ---------
Balance, September 30, 1997 ............ 53,529 5,353 51,316 114,454
Change in net unrealized holding
gains, net of income taxes
of $(36,631) ........................ -- -- -- (59,765)
Cash dividends ($.275 per share) ....... -- -- -- --
Exercise of stock options .............. -- -- 1,833 --
Purchase of stock for treasury ......... -- -- -- --
Stock issued under
Restricted Stock Award Plan ......... -- -- 5,757 --
Lapse of restrictions on
Restricted Stock Awards ............. -- -- 98 --
Amortization of deferred
compensation ........................ -- -- -- --
Net income ............................. -- -- -- --
--------- --------- --------- ---------
Balance, September 30, 1998 ............ 53,529 $ 5,353 $ 59,004 $ 54,689
========= ========= ========= =========
<CAPTION>
Treasury Stock
Unearned Retained ---------------------
Compensation Earnings Shares Amount
- ---------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Balance, September 30, 1995 ............ $ -- $ 495,692 4,000 $ (22,374)
Change in net unrealized holding
gains, net of income
tax of $11,367 ...................... -- -- -- --
Cash dividends ($.255 per share) ....... -- (12,670) -- --
Exercise of stock options .............. -- -- (262) 1,274
Lapse of restrictions on
Restricted Stock Awards ............. -- -- -- --
Forfeiture of Restricted Stock Award ... -- 272 20 (110)
Amortization of deferred
compensation ........................ -- 1,683 -- --
Net income ............................. -- 72,566 -- --
--------- --------- --------- ---------
Balance, September 30, 1996 ............ -- 557,543 3,758 (21,210)
Change in net unrealized holding
gains, net of income tax
of $35,490 .......................... -- -- -- --
Cash dividends ($.26 per share) ........ -- (12,987) -- --
Exercise of stock options .............. -- -- (257) 1,105
Lapse of restrictions on
Restricted Stock Awards ............. -- -- -- --
Amortization of deferred
compensation ........................ -- 820 -- --
Net income ............................. -- 84,186 -- --
--------- --------- --------- ---------
Balance, September 30, 1997 ............ -- 629,562 3,501 (20,105)
Change in net unrealized holding
gains, net of income taxes
of $(36,631) ........................ -- -- -- --
Cash dividends ($.275 per share) ....... -- (14,007) -- --
Exercise of stock options .............. -- -- (174) 1,015
Purchase of stock for treasury ......... -- -- 999 (19,112)
Stock issued under
Restricted Stock Award Plan ......... (6,791) -- (180) 1,034
Lapse of restrictions on
Restricted Stock Awards ............. -- -- -- --
Amortization of deferred
compensation ........................ 1,186 166 -- --
Net income ............................. -- 101,154 -- --
--------- --------- --------- ---------
Balance, September 30, 1998 ............ $ (5,605) $ 716,875 4,146 $ (37,168)
========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------
</TABLE>
Note: Share and per share amounts reflect the effect of the December 3, 1997
two-for-one common stock split and distribution (see Note 4). The accompanying
notes are an integral part of these statements.
22
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
HELMERICH & PAYNE, INC.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 101,154 $ 84,186 $ 72,566
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization ..................... 88,350 71,691 59,442
Dry holes and abandonments ................................... 11,572 7,783 7,986
Equity in income of affiliate before income taxes ............ (9,050) (3,680) (2,720)
Amortization of deferred compensation ........................ 1,352 820 1,683
Gain on sale of securities ................................... (38,421) (4,697) (566)
Loss (gain) on sale of property, plant and equipment ......... (2,951) (4,545) 303
Discontinued operations ...................................... -- -- (27,140)
Other - net .................................................. 974 1,897 473
Change in assets and liabilities:
Accounts receivable ....................................... (20,698) (23,323) (18,340)
Inventories ............................................... (5,762) (2,724) 2,435
Prepaid expenses and other ................................ (4,682) (5,020) 1,706
Accounts payable .......................................... (194) 18,619 (1,115)
Accrued liabilities ....................................... (8,692) 15,582 14,237
Deferred income taxes ..................................... (1,231) 7,506 6,668
Other noncurrent liabilities .............................. 1,812 1,473 3,802
--------- --------- ---------
Total adjustments ......................................... 12,379 81,382 48,854
--------- --------- ---------
Net cash provided by continuing activities ............. 113,533 165,568 121,420
Net cash provided by discontinued operations ........... -- -- 3,503
--------- --------- ---------
Net cash provided by operating activities .............. 113,533 165,568 124,923
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including dry hole costs .................... (266,299) (161,177) (109,985)
Proceeds from sale of property, plant and equipment ............... 15,414 9,432 3,987
Purchase of investments ........................................... -- (1,091) (1,196)
Proceeds from sale of securities .................................. 73,949 8,557 619
Discontinued operations ........................................... -- -- (2,746)
Purchase of short-term investments ................................ -- (313) --
Proceeds from sale of short-term investments ...................... 1,056 -- 7,984
--------- --------- ---------
Net cash used in investing activities .................. (175,880) (144,592) (101,337)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ....................................... 169,800 34,000 35,000
Payments made on notes payable .................................... (80,000) (34,000) (51,700)
Dividends paid .................................................... (13,802) (12,970) (12,530)
Purchases of stock for treasury ................................... (19,112) -- --
Proceeds from exercise of stock options ........................... 1,974 3,065 2,993
--------- --------- ---------
Net cash provided by (used in) financing activities .... 58,860 (9,905) (26,237)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .......................................................... (3,487) 11,071 (2,651)
CASH AND CASH EQUIVALENTS, beginning of period ....................... 27,963 16,892 19,543
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period ............................. $ 24,476 $ 27,963 $ 16,892
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
HELMERICH & PAYNE, INC. September 30, 1998,1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
CONSOLIDATION -
The consolidated financial statements include the accounts of Helmerich & Payne,
Inc. (the Company), and all of its wholly-owned subsidiaries. Fiscal years of
the Company's foreign consolidated operations end on August 31 to facilitate
reporting of consolidated results.
TRANSLATION OF FOREIGN CURRENCIES -
The Company has determined that the functional currency for its foreign
subsidiaries is the U.S. dollar. The foreign currency transaction loss for 1998
and 1997 was $1,953,000 and $452,000, respectively, with a gain for 1996 of
$764,000.
USE OF ESTIMATES -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
PROPERTY, PLANT AND EQUIPMENT -
The Company follows the successful efforts method of accounting for oil and gas
properties. Under this method, the Company capitalizes all costs to acquire
mineral interests in oil and gas properties, to drill and equip exploratory
wells which find proved reserves and to drill and equip development wells.
Geological and geophysical costs, delay rentals and costs to drill exploratory
wells which do not find proved reserves are expensed. Capitalized costs of
producing oil and gas properties are depreciated and depleted by the
unit-of-production method based on proved developed oil and gas reserves
determined by the Company and reviewed by independent engineers. Reserves are
recorded for capitalized costs of undeveloped leases based on management's
estimate of recoverability. Costs of surrendered leases are charged to the
reserve.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", the Company recognizes impairment losses for long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the carrying amount of the
asset. In 1998, the Company recognized an impairment charge of approximately
$5.4 million for proved Exploration and Production properties which is included
in depreciation, depletion and amortization expense. After-tax, the impairment
charge reduced 1998 net income by approximately $3.4 million, $0.07 per share on
a diluted basis. The Company evaluates impairment of exploration and production
assets on a field by field basis. Fair value on all long- lived assets are based
on discounted future cash flows or information provided by sales and purchases
of similar assets.
Substantially all property, plant and equipment other than oil and gas
properties is depreciated using the straight-line method based on the following
estimated useful lives:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
YEARS
- ----------------------------------------------------------------
<S> <C>
Contract drilling equipment........................... 4-10
Real estate buildings and equipment................... 10-50
Other................................................. 3-33
- ----------------------------------------------------------------
</TABLE>
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents consist of cash in banks and investments readily
convertible into cash which mature within three months from the date of
purchase.
INVENTORIES -
Inventories, primarily materials and supplies, are valued at the lower of cost
(moving average or actual) or market.
DRILLING REVENUE -
Substantially all drilling contracts are daywork contracts and drilling revenues
and expenses are recognized as work progresses.
GAS IMBALANCES -
The Company recognizes revenues from gas wells on the sales method, and a
liability is recorded for permanent imbalances.
INVESTMENTS -
The cost of securities used in determining realized gains and losses is based on
average cost of the security sold.
Investments in companies owned from 20 to 50 percent are accounted for using the
equity method with the Company recognizing its proportionate share of the income
or loss of each investee. The Company owned 22 percent and 23.6 percent of
Atwood Oceanics, Inc. (Atwood) at September 30, 1998 and 1997, respectively. In
fiscal 1998, the Company sold 200,000 shares of Atwood for a sales price of
approximately $11.0 million and realized a pre-tax gain of $8.6 million. The
quoted market value of the Company's investment was $62,437,500 and $180,200,000
at September 30, 1998 and 1997, respectively. Retained earnings at September 30,
1998 includes approximately $15,141,000 of undistributed earnings of Atwood.
24
<PAGE> 25
Summarized financial information of Atwood is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Gross revenues ................................... $ 151,809 $ 89,082 $ 84,760
Costs and expenses ............................... 112,445 73,463 73,392
---------- ---------- ----------
Net income ....................................... $ 39,364 $ 15,619 $ 11,368
========== ========== ==========
Helmerich & Payne, Inc.'s equity in net income,
net of income taxes ........................ $ 5,611 $ 2,282 $ 1,686
========== ========== ==========
Current assets ................................... $ 51,587 $ 47,961 $ 44,170
Noncurrent assets ................................ 230,150 168,279 115,139
Current liabilities .............................. 26,723 19,621 18,019
Noncurrent liabilities ........................... 91,248 73,930 35,736
Shareholders' equity ............................. 163,766 122,689 105,554
========== ========== ==========
Helmerich & Payne, Inc.'s investment ............. $ 35,422 $ 28,895 $ 25,215
========== ========== ==========
- -----------------------------------------------------------------------------------------------
</TABLE>
INCOME TAXES -
Deferred income taxes are computed using the liability method and are provided
on all temporary differences between the financial basis and the tax basis of
the Company's assets and liabilities.
OTHER POST EMPLOYMENT BENEFITS -
The Company sponsors a health care plan that provides post retirement medical
benefits to retired employees. Employees who retire after November 1, 1992 and
elect to participate in the plan pay the entire estimated cost of such benefits.
The Company has accrued a liability for estimated workers compensation claims
incurred. The liability for other benefits to former or inactive employees after
employment but before retirement is not material.
EARNINGS PER SHARE -
Basic earnings per share is based on the weighted-average number of common
shares outstanding during the period. Diluted earnings per share includes the
dilutive effect of stock options and restricted stock. The earnings per share
amounts and the number of shares for 1997 and 1996 have been restated to reflect
the adoption of Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" (see Note 5).
DERIVATIVES -
The Company did not utilize financial or commodity derivative instruments to
hedge its market risks, prior to fiscal 1999. As described in Note 2, the
Company entered into an interest rate swap agreement in October 1998. This
agreement involves the exchange of an amount based on a fixed interest rate for
an amount based on a variable interest rate without an exchange of the notional
amount upon which the payments are based. The difference to be paid or received
will be accrued and recognized as an adjustment of interest expense beginning in
fiscal 1999. Gains and losses from termination of interest rate swap agreements
are deferred and amortized as an adjustment to interest expense over the
original term of the terminated swap agreement.
- --------------------------------------------------------------------------------
NOTE 2 NOTES PAYABLE AND LONG-TERM DEBT
- --------------------------------------------------------------------------------
At September 30, 1998, the Company had committed bank lines totaling $80
million; $20 million may be borrowed through February 1999, $50 million may be
borrowed through May 1999, and $10 million may be borrowed through May 2000.
Additionally, the Company had uncommitted credit facilities totaling $38
million. Collectively, the Company had $94.8 million in outstanding borrowings
and outstanding letters of credit totaling $8.2 million against these lines at
September 30, 1998. The average rate on the borrowings at September 30, 1998,
was approximately 6 percent. Under the line of credit agreements the Company
must meet certain requirements regarding levels of debt, net worth and earnings.
In October 1998, the Company obtained an additional $50 million committed
facility which matures in October 2003 and bears interest based on a spread over
LIBOR. The Company borrowed $50 million which was used to pay a portion of the
debt outstanding at September 30, 1998. Based on the Company's ability and
intent to refinance a portion of its current borrowings on a long-term basis,
the Company reclassified $50 million of the $94.8 million in borrowings to
long-term debt on its September 30, 1998, balance sheet representing the
Company's fully drawn position on the new facility. Concurrent with the $50
million borrowing, the Company entered into a 5-year interest rate swap with a
notional value of $50 million to convert the $50 million floating rate facility
to a fixed effective rate of 5.38 percent. The interest rate swap closely
correlates with the terms and maturity of the $50 million facility.
In October 1998, the Company obtained an additional $25 million uncommitted
facility which expires in April 1999. At the end of October 1998, the Company
had utilized $5 million of this facility.
25
<PAGE> 26
- --------------------------------------------------------------------------------
NOTE 3 INCOME TAXES
- --------------------------------------------------------------------------------
The components of the provision (credit) for income taxes from continuing
operations are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- -------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CURRENT:
Federal ................................ $ 36,705 $ 18,582 $ 8,909
Foreign ................................ 18,728 17,214 11,037
State .................................. 4,751 2,190 1,050
---------- ---------- ----------
60,184 37,986 20,996
---------- ---------- ----------
DEFERRED:
Federal ................................ (4,108) 6,349 3,757
Foreign ................................ 927 603 725
State .................................. (326) 573 325
---------- ---------- ----------
(3,507) 7,525 4,807
---------- ---------- ----------
TOTAL PROVISION: ............................ $ 56,677 $ 45,511 $ 25,803
========== ========== ==========
</TABLE>
The amounts of domestic and foreign income are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- ---------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND EQUITY IN INCOME OF AFFILIATE:
Domestic .................................... $ 106,228 $ 84,723 $ 41,299
Foreign ..................................... 45,992 42,692 28,244
--------- --------- ---------
$ 152,220 $ 127,415 $ 69,543
========= ========= =========
</TABLE>
Effective income tax rates on income from continuing operations as compared to
the U.S. Federal income tax rate are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal income tax rate ..................... 35% 35% 35%
Dividends received deduction ..................... -- (1) (1)
Effect of higher foreign tax rates ............... 2 1 2
Non-conventional fuel source credits utilized .... -- -- (1)
Other, net ....................................... -- 1 2
--------- --------- ---------
Effective income tax rate ........................ 37% 36% 37%
========= ========= =========
</TABLE>
The components of the Company's net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
September 30, 1998 1997
- ------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property, plant and equipment $ 59,413 $ 56,328
Available-for-sale securities 41,154 85,378
Pension provision 4,602 4,738
Equity investment 9,006 6,238
Other -- 308
---------- ----------
Total deferred tax liabilities 114,175 152,990
---------- ----------
DEFERRED TAX ASSETS:
Financial accruals 8,853 8,929
Other 1,853 2,730
---------- ----------
Total deferred tax assets 10,706 11,659
---------- ----------
NET DEFERRED TAX LIABILITIES $ 103,469 $ 141,331
========== ==========
</TABLE>
26
<PAGE> 27
================================================================================
NOTE 4 SHAREHOLDERS' EQUITY
================================================================================
On December 3, 1997, the board of directors declared a two-for-one common stock
split and distribution; approximately 26.8 million shares were issued on
December 31, 1997 to stockholders of record on December 15, 1997. All references
in the financial statements and notes to the number of common shares
outstanding, options and per share amounts reflect the impact of the split.
In June 1998, the board of directors authorized the repurchase of up to
2,000,000 shares of its common stock in open market or private transactions. The
repurchased shares will be held in treasury and used for general corporate
purposes including use in the Company's benefit plans. During fiscal 1998, the
Company purchased 999,100 shares at a total cost of approximately $19 million.
The Company has several plans providing for common stock-based awards to
employees and to non-employee directors. The plans permit the granting of
various types of awards including stock options and restricted stock. Awards may
be granted for no consideration other than prior and future services. The
purchase price per share for stock options may not be less than the market price
of the underlying stock on the date of grant. Stock options expire 10 years
after grant.
The Company has reserved 1,549,920 shares of its treasury stock to satisfy the
exercise of stock options issued under the 1982 and 1990 Stock Option Plans.
Effective December 4, 1996, additional options are no longer granted under these
plans. Options granted under the 1982 plan vest over a period of nine years
while options granted under the 1990 plan generally vest over a seven year
period. Options granted under both plans become exercisable in increments as
outlined in the plans.
In March 1997, the Company adopted the 1996 Stock Incentive Plan (the "Stock
Incentive Plan"). The Stock Incentive Plan was effective December 4, 1996, and
will terminate December 3, 2006. Under this plan the Company is authorized to
grant options for up to 4,000,000 shares of the Company's common stock at an
exercise price not less than the fair market value of the common stock on the
date of grant. Up to 600,000 shares of the total authorized may be granted to
participants as restricted stock awards. On September 30, 1998, 3,280,000 shares
were available for grant under the Stock Incentive Plan.
On September 30, 1998, 420,000 shares were available for grant under the Stock
Incentive Plan as restricted stock awards. In fiscal 1998, 180,000 shares of
restricted stock were granted at a weighted-average price of $37.73 which
approximated fair market value at the date of grant. Unearned compensation of
$6,791,000 is being amortized over a five-year period as compensation expense.
The following summary reflects the stock option activity and related information
(shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- -------------------------- ------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
---------------------------- -------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at October 1, 1,745 $ 16.44 1,708 $ 13.63 1,682 $ 13.20
Granted 544 36.84 393 26.07 494 14.00
Exercised (175) 12.15 (270) 13.03 (280) 11.76
Forfeited/Expired (24) 17.54 (86) 14.89 (188) 13.53
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding on September 30, 2,090 $ 22.09 1,745 $ 16.44 1,708 $ 13.63
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable on September 30, 453 $ 15.63 135 $ 12.22 148 $ 13.07
- ------------------------------------------------------------------------------------------------------------------------------------
Shares available on September 30,
for options that may be granted 3,280 4,000 652
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options at September 30,
1998 (shares in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding Stock Options Exercisable Stock Options
---------------------------------------------------------- ----------------------------
Weighted-Average
Range of Remaining Contractural Weighted-Average Weighted-Average
Exercise Prices Shares Life Exercise Price Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.00 to $14.00 927 6.0 years $13.54 307 $13.21
$14.01 to $16.50 244 1.4 years $15.75 73 $15.26
$16.51 to $26.50 379 8.2 years $26.06 73 $26.06
$26.51 to $37.00 540 9.2 years $36.84 -- --
- -------------------------------------------------------------------------------------------------------------
$12.00 to $37.00 2,090 6.7 years $22.09 453 $15.63
- -------------------------------------------------------------------------------------------------------------
</TABLE>
During fiscal year 1997, the Company adopted SFAS 123. As permitted by SFAS 123,
the Company has elected to continue to apply the recognition and measurement
provisions of Accounting Principles Board Opinion No.25, "Accounting for Stock
Issued to Employees" (APB 25). As stock options issued by the Company are equal
to at least market price on the date of grant, no compensation expense is
recognized under APB 25. The following table reflects pro forma net income and
earnings per share had the Company elected to adopt the fair value approach of
SFAS 123:
27
<PAGE> 28
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- ------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net Income:
As reported...................... $ 101,154 $ 84,186 $ 72,566
Pro forma........................ 99,437 83,531 72,318
Basic earnings per share:
As reported...................... 2.03 1.69 1.47
Pro forma........................ 1.99 1.68 1.46
Diluted earnings per share:
As reported...................... 2.00 1.67 1.46
Pro forma........................ 1.97 1.65 1.45
- ------------------------------------------------------------------------------------
</TABLE>
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
The weighted-average fair values of options at their grant date during 1998,
1997 and 1996 were $14.63, $9.50 and $4.83, respectively. The estimated fair
value of each option granted is calculated using the Black-Scholes
option-pricing model. The following summarizes the weighted-average assumptions
used in the model:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Expected years until exercise ... 7.0 6.7 7.5
Expected stock volatility ....... 34% 27% 25%
Dividend yield .................. 1.6% 1.0% 1.4%
Risk-free interest rate ......... 5.9% 6.1% 5.7%
</TABLE>
On September 30, 1998, the Company had 49,382,832 outstanding common stock
purchase rights ("Rights") pursuant to terms of the Rights Agreement dated
January 8, 1996. Under the terms of the Rights Agreement each Right entitled the
holder thereof to purchase from the Company one half of one unit consisting of
one one-thousandth of a share of Series A Junior Participating Preferred Stock
("Preferred Stock"), without par value, at a price of $90 per unit. The exercise
price and the number of units of Preferred Stock issuable on exercise of the
Rights are subject to adjustment in certain cases to prevent dilution. The
Rights will be attached to the common stock certificates and are not exercisable
or transferrable apart from the common stock, until 10 business days after a
person acquires 15% or more of the outstanding common stock or 10 business days
following the commencement of a tender offer or exchange offer that would result
in a person owning 15% or more of the outstanding common stock. In the event the
Company is acquired in a merger or certain other business combination
transactions (including one in which the Company is the surviving corporation),
or more than 50% of the Company's assets or earning power is sold or
transferred, each holder of a Right shall have the right to receive, upon
exercise of the Right, common stock of the acquiring company having a value
equal to two times the exercise price of the Right. The Rights are redeemable
under certain circumstances at $.01 per Right and will expire, unless earlier
redeemed, on January 31, 2006. As long as the Rights are not separately
transferrable, the Company will issue one half of one Right with each new share
of common stock issued.
- --------------------------------------------------------------------------------
NOTE 5 EARNINGS PER SHARE
- --------------------------------------------------------------------------------
A reconciliation of the weighted-average common shares outstanding on a basic
and diluted basis is as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic weighted-average shares .... 49,948 49,779 49,380
Effect of dilutive shares:
Stock options .................. 595 747 322
Restricted stock ............... 22 35 46
------- ------- -------
617 782 368
------- ------- -------
Diluted weighted-average shares ..... 50,565 50,561 49,748
======= ======= =======
</TABLE>
Restricted stock of 180,000 shares at a weighted-average price of $37.73 and
options to purchase 919,000 shares of common stock at a weighted-average price
of $32.40 were outstanding at September 30, 1998, but were not included in the
computation of diluted earnings per common share. Inclusion of these shares
would be antidilutive, as the exercise prices of the options exceed the average
market price of the common shares.
- --------------------------------------------------------------------------------
NOTE 6 FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Notes payable bear interest at market rates and are carried at cost which
approximates fair value. The estimated fair value of the Company's
available-for-sale securities is primarily based on market quotes.
The following is a summary of available-for-sale securities, which excludes
those accounted for under the equity method of accounting (see Note 1):
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Equity Securities:
September 30, 1998 $ 76,770 $ 93,364 $ 5,156 $ 164,978
September 30, 1997 $ 110,011 $ 184,708 $ 104 $ 294,615
</TABLE>
28
<PAGE> 29
During the years ended September 30, 1998, 1997, and 1996, marketable equity
available-for-sale securities with a fair value at the date of sale of
$62,792,000, $8,557,000 and $619,000, respectively, were sold. The gross
realized gains on such sales of available-for-sale securities totaled
$30,820,000, $4,697,000 and $596,000, respectively, and the gross realized
losses totaled $1,034,000, $0 and $30,000, respectively.
- --------------------------------------------------------------------------------
NOTE 7 DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
Effective August 30, 1996, the Company exchanged all of the common stock of its
wholly owned subsidiary, Natural Gas Odorizing, Inc. (NGO), to Occidental
Petroleum Corporation (OPC) for 2,018,928 shares of OPC common stock with a fair
market value of approximately $48 million. The sale yielded a gain of $24.1
million (net of deferred income taxes of approximately $14.8 million) which is
reported as gain on sale of discontinued operations. NGO comprised the Company's
chemical operations. Operating results in 1996 for such operations are reported
as discontinued operations. Income from discontinued operations has been reduced
for income taxes by $2,566,000 for 1996.
- --------------------------------------------------------------------------------
NOTE 8 EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
In February 1998, the FASB issued statement No. 132 "Employers' Disclosures
About Pensions and Other Postretirement Benefits", that supersedes the
disclosure requirements of FAS 87, "Employers' Accounting for Pensions", and FAS
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
Although statement 132 is effective for fiscal years beginning after December
15, 1997, the Company has elected early adoption in fiscal 1998. Prior year
disclosures have been restated for comparative purposes.
CHANGE IN BENEFIT OBLIGATION:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Years ended September 30, 1998 1997
- -----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Benefit obligation at beginning of year ............... $ 33,913 $ 23,534
Service cost .......................................... 2,836 2,114
Interest cost ......................................... 2,430 1,797
Actuarial loss ........................................ 231 7,179
Benefits paid ......................................... (2,456) (711)
----------- -----------
Benefit obligation at end of year ..................... $ 36,954 $ 33,913
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN PLAN ASSETS:
- -----------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997
- -----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Fair value of plan assets at beginning of year ........ $ 53,834 $ 42,609
Actual return on plan assets .......................... 194 11,936
Benefits paid ......................................... (2,456) (711)
----------- -----------
Fair value of plan assets at end of year .............. $ 51,572 $ 53,834
=========== ===========
Funded status of the plan ............................. $ 14,618 $ 19,921
Unrecognized net actuarial gain ....................... (1,647) (6,291)
Unrecognized prior service cost ....................... 1,263 1,501
Unrecognized net transition asset ..................... (2,159) (2,698)
----------- -----------
Prepaid benefit cost .................................. $ 12,075 $ 12,433
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE ASSUMPTIONS:
- ---------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate .......................... 6.75% 7.25% 7.75%
Expected return on plan ................ 8.50% 9.00% 8.50%
Rate of compensation increase .......... 5.00% 5.50% 5.00%
</TABLE>
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC BENEFIT COST:
- --------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- --------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Service cost ........................... $ 2,836 $ 2,114 $ 1,979
Interest cost .......................... 2,430 1,797 1,553
Expected return on plan assets ......... (4,542) (3,592) (3,214)
Amortization of prior service cost ..... 238 239 238
Amortization of transition asset ....... (540) (540) (542)
Recognized net actuarial gain .......... (65) (66) --
----------- ----------- -----------
Net pension expense (credit) ........... $ 357 $ (48) $ 14
=========== =========== ===========
</TABLE>
29
<PAGE> 30
DEFINED CONTRIBUTION PLAN:
Substantially all employees on the United States payroll of the Company may
elect to participate in the Company sponsored Thrift/401(k) Plan by contributing
a portion of their earnings. The Company contributes amounts equal to 100
percent of the first five percent of the participant's compensation subject to
certain limitations. Expensed Company contributions were $3,009,000, $2,255,000
and $1,908,000 in 1998, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
NOTE 9 ACCRUED LIABILITES
- --------------------------------------------------------------------------------
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
September 30, 1998 1997
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accrued royalties payable .............. $ 6,997 $ 8,687
Accrued taxes payable - operations ..... 5,990 6,540
Accrued ad valorem tax ................. 5,907 6,700
Accrued income taxes payable ........... 4,487 9,371
Accrued workers compensation claims .... 3,000 3,087
Other .................................. 12,452 13,140
--------- ---------
$ 38,833 $ 47,525
========= =========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NOTE 10 SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash payments:
Interest paid ................... $ 1,721 $ 357 $ 798
Income taxes paid:
Continuing operations ......... $ 61,056 $ 36,347 $ 15,491
Discontinued operations ....... $ -- $ -- $ 2,563
</TABLE>
- --------------------------------------------------------------------------------
NOTE 11 RISK FACTORS
- --------------------------------------------------------------------------------
CONCENTRATION OF CREDIT -
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high quality
financial institutions and limits the amount of credit exposure to any one
financial institution. The Company's trade receivables are primarily with
companies in the oil and gas industry. The Company normally does not require
collateral except for certain receivables of customers in its natural gas
marketing operations.
CONTRACT DRILLING OPERATIONS -
International drilling operations are significant contributors to the Company's
revenues and net profit. It is possible that operating results could be affected
by the risks of such activities, including economic conditions in the
international markets in which the Company operates, political and economic
instability, fluctuations in currency exchange rates, changes in international
regulatory requirements, international employment issues, and the burden of
complying with foreign laws. These risks may adversely affect the Company's
future operating results and financial position.
At September 30, 1998, the Company's rig utilization rate has fallen compared to
the previous two years primarily as a result of reduced demand caused by a
decline in the price of oil. The Company believes that its rig fleet is not
currently impaired based on an assessment of future cash flows of the assets in
question. However, it is possible that the Company's assessment that it will
recover the carrying amount of its rig fleet from future operations may change
in the near term.
OIL AND GAS OPERATIONS -
In estimating future cash flows attributable to the Company's exploration and
production assets, certain assumptions are made with regard to commodity prices
received and costs incurred. Due to the volatility of commodity prices, it is
possible that the Company's assumptions used in estimating future cash flows for
exploration and production assets may change in the near term.
- --------------------------------------------------------------------------------
NOTE 12 NEW ACCOUNTING STANDARDS
- --------------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income",
and SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information". These statements, which are effective for fiscal years beginning
after December 15, 1997, expand or modify disclosures and will have no impact on
the Company's consolidated financial position, results of operations or cash
flows.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", (SFAS 133). This
statement is effective for fiscal years beginning after June 15, 1999 and
requires that all derivatives be recognized as assets or liabilities in the
balance sheet and that these instruments be measured at fair value. The Company
has not completed the process of evaluating the impact of adopting SFAS 133.
The American Institute of Certified Public Accountants (AICPA) issued Statement
of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities",
effective for fiscal years beginning after December 15, 1998. The SOP requires
that all start-up costs be expensed and that the effect of adopting the SOP be
reported as the cumulative effect of a change in accounting principle. The
effect of this SOP on the Company's results of operations and financial position
is not expected to be material.
30
<PAGE> 31
- --------------------------------------------------------------------------------
NOTE 13 SEGMENT INFORMATION
- --------------------------------------------------------------------------------
The Company operates principally in the contract drilling and oil and gas
industries. The contract drilling operations consist of contracting
Company-owned drilling equipment primarily to major oil and gas exploration
companies. The Company's primary international areas of operation include
Venezuela, Colombia, Ecuador and Bolivia. Oil and gas activities include the
exploration for and development of productive oil and gas properties located
primarily in Oklahoma, Texas, Kansas and Louisiana. Intersegment sales, which
are accounted for in the same manner as sales to unaffiliated customers, are not
material. Operating profit is total revenue less operating expenses. In
computing operating profit, the following items have not been considered: equity
in income of affiliate; income from investments; general corporate expenses;
interest expense; and domestic and foreign income taxes. Identifiable assets by
segment are those assets that are used in the Company's operations in each
segment. Corporate assets are principally cash and cash equivalents, short-term
investments and investments in marketable securities.
Revenues from one company doing business with the contract drilling segment
accounted for approximately 14.5 percent, 17 percent and 19 percent of the total
consolidated revenues during the years ended September 30, 1998, 1997 and 1996,
respectively. Revenues from another company doing business with the contract
drilling segment accounted for approximately 10% of total consolidated revenues
in the year ended September 30, 1998. Collectively, revenues from companies
controlled by the Venezuelan government accounted for approximately 16 percent,
12 percent and 12.8 percent of total consolidated revenues for the years ended
September 30, 1998, 1997 and 1996, respectively. Collectively, the receivables
from these customers were approximately $60.6 million and $50.1 million at
September 30,1998 and 1997, respectively.
Summarized revenues and operating profit by industry segment for the years ended
September 30, 1998, 1997 and 1996 are located on page 9. Additional financial
information by industry segment is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net Income (loss):
Contract Drilling - Domestic .................. $ 22,876 $ 15,508 $ 6,796
Contract Drilling - International ............. 31,577 26,848 17,693
Exploration and Production .................... 18,616 35,719 17,335
Natural Gas Marketing ......................... 1,452 2,172 2,247
Real Estate Division .......................... 3,294 3,448 3,121
Corporate and Other ........................... 17,728 (1,791) (3,452)
Equity in income of affiliate ................. 5,611 2,282 1,686
------------- ------------- -------------
Income from Continuing Operations .......... $ 101,154 $ 84,186 $ 45,426
Discontinued operations ....................... -- -- 27,140
------------- ------------- -------------
Net Income .................................... $ 101,154 $ 84,186 $ 72,566
============= ============= =============
Identifiable assets:
Contract Drilling - Domestic .................. $ 351,193 $ 257,505 $ 169,363
Contract Drilling - International ............. 303,907 210,976 213,171
Exploration and Production .................... 156,582 152,892 141,058
Natural Gas Marketing ......................... 15,069 18,884 15,602
Real Estate Division .......................... 22,937 23,310 23,628
Corporate and other ........................... 240,742 370,028 259,092
------------- ------------- -------------
$ 1,090,430 $ 1,033,595 $ 821,914
============= ============= =============
Depreciation, depletion and amortization:
Contract Drilling - Domestic .................. $ 23,771 $ 17,916 $ 13,879
Contract Drilling - International ............. 31,689 26,458 22,120
Exploration and Production .................... 29,817 24,627 20,299
Natural Gas Marketing ......................... 292 258 725
Real Estate Division .......................... 1,501 1,412 1,455
Corporate and other ........................... 1,280 1,020 964
------------- ------------- -------------
Continuing operations ...................... 88,350 71,691 59,442
Discontinued operations .................... -- -- 754
------------- ------------- -------------
$ 88,350 $ 71,691 $ 60,196
============= ============= =============
Capital expenditures:
Contract Drilling - Domestic .................. $ 130,237 $ 95,277 $ 57,004
Contract Drilling - International ............. 83,843 16,900 24,801
Exploration and Production .................... 47,468 41,782 24,320
Natural Gas Marketing ......................... 636 3,170 435
Real Estate Division .......................... 875 1,161 776
Corporate and other ........................... 2,642 1,288 830
------------- ------------- -------------
Continuing operations ...................... 265,701 159,578 108,166
Discontinued operations .................... -- -- 1,581
------------- ------------- -------------
$ 265,701 $ 159,578 $ 109,747
============= ============= =============
- --------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
- --------------------------------------------------------------------------------
NOTE 14 SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
- --------------------------------------------------------------------------------
All of the Company's oil and gas producing activities are located in the United
States.
Results of Operations from Oil and Gas Producing Activities -
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Revenues .............................................. $ 98,696 $ 111,512 $ 76,643
---------- ---------- ----------
Production costs ...................................... 21,786 21,750 20,080
Exploration expense and valuation provisions .......... 19,005 9,943 9,931
Depreciation, depletion and amortization .............. 29,817 24,628 20,299
Income tax expense .................................... 9,415 19,327 9,187
---------- ---------- ----------
Total cost and expenses ............................. 80,023 75,648 59,497
---------- ---------- ----------
Results of operations (excluding corporate overhead
and interest costs) ................................. $ 18,673 $ 35,864 $ 17,146
========== ========== ==========
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Capitalized Costs -
- -----------------------------------------------------------------------------------------------------------
September 30, 1998 1997
- -----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Proved properties ........................................................... $ 414,770 $ 395,812
Unproved properties ......................................................... 20,977 14,109
---------- ----------
Total costs ............................................................... 435,747 409,921
Less - Accumulated depreciation, depletion and amortization ................. 295,045 268,572
---------- ----------
Net ....................................................................... $ 140,702 $ 141,349
========== ==========
</TABLE>
Costs Incurred Relating to Oil and Gas Producing Activities -
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- --------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Property acquisition:
Proved ............................... $ 107 $ 47 $ 256
Unproved ............................. 9,096 8,358 3,178
Exploration ............................ 18,107 9,656 9,874
Development ............................ 28,259 27,808 14,131
---------- ---------- ----------
Total ................................ $ 55,569 $ 45,869 $ 27,439
========== ========== ==========
</TABLE>
32
<PAGE> 33
- --------------------------------------------------------------------------------
Estimated Quantities of Proved Oil and Gas Reserves (Unaudited) -
Proved reserves are estimated quantities of crude oil, natural gas, and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those which are
expected to be recovered through existing wells with existing equipment and
operating methods. The following is an analysis of proved oil and gas reserves
as estimated by the Company and reviewed by independent engineers.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
OIL (Bbls) GAS (Mmcf)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Proved reserves at September 30, 1995 ................. 6,329,112 280,046
Revisions of previous estimates ....................... 629,154 5,098
Extensions, discoveries and other additions ........... 298,986 21,311
Production ............................................ (809,571) (34,535)
Purchases of reserves-in-place ........................ 21,912 647
Sales of reserves-in-place ............................ (1,477) (266)
------------ ------------
Proved reserves at September 30, 1996 ................. 6,468,116 272,301
Revisions of previous estimates ....................... 92,863 6,178
Extensions, discoveries and other additions ........... 419,795 25,762
Production ............................................ (985,633) (40,463)
Purchases of reserves-in-place ........................ 120 6
Sales of reserves-in-place ............................ (189,875) (548)
------------ ------------
Proved reserves at September 30, 1997 ................. 5,805,386 263,236
Revisions of previous estimates ....................... (331,280) 10,877
Extensions, discoveries and other additions ........... 175,265 20,819
Production ............................................ (701,180) (42,862)
Purchases of reserves-in-place ........................ 2,890 188
Sales of reserves-in-place ............................ (189,768) (632)
------------ ------------
Proved reserves at September 30, 1998 ................. 4,761,313 251,626
============ ============
Proved developed reserves at
September 30, 1996 ................................. 6,441,803 261,519
============ ============
September 30, 1997 ................................. 5,787,116 256,443
============ ============
September 30, 1998 ................................. 4,754,319 249,376
============ ============
- --------------------------------------------------------------------------------------------
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves (Unaudited) -
The "Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement under
Financial Accounting Standards Board Statement No. 69 "Disclosures About Oil and
Gas Producing Activities". The Standardized Measure does not purport to present
the fair market value of a company's proved oil and gas reserves. This would
require consideration of expected future economic and operating conditions,
which are not taken into account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by applying
year-end prices to the estimated future production of year-end proved reserves.
Future cash inflows were reduced by estimated future production and development
costs based on year-end costs to determine pre-tax cash inflows. Future income
taxes were computed by applying the statutory tax rate to the excess of pre-tax
cash inflows over the Company's tax basis in the associated proved oil and gas
properties. Tax credits and permanent differences were also considered in the
future income tax calculation. Future net cash inflows after income taxes were
discounted using a ten percent annual discount rate to arrive at the
Standardized Measure.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
At September 30, 1998 1997
- ----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Future cash inflows ........................................ $ 404,549 $ 656,698
Future costs -
Future production and development costs ................ (137,068) (187,672)
Future income tax expense .............................. (70,890) (134,892)
----------- -----------
Future net cash flows ...................................... 196,591 334,134
10% annual discount for estimated timing of cash flows ..... (70,664) (129,099)
----------- -----------
Standardized Measure of discounted future net cash flows ... $ 125,927 $ 205,035
=========== ===========
- ----------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 34
- --------------------------------------------------------------------------------
Changes in Standardized Measure Relating to Proved Oil and Gas Reserves
(Unaudited) -
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Standardized Measure - Beginning of year ................. $ 205,035 $ 153,864 $ 110,934
Increases (decreases) -
Sales, net of production costs ......................... (76,910) (89,762) (56,563)
Net change in sales prices, net of production costs .... (97,938) 77,789 59,479
Discoveries and extensions, net of related future
development and production costs ................... 21,922 42,741 29,189
Changes in estimated future development costs .......... (14,142) (16,570) (6,651)
Development costs incurred ............................. 25,149 27,509 14,050
Revisions of previous quantity estimates ............... 5,089 6,146 5,731
Accretion of discount .................................. 28,012 20,691 14,362
Net change in income taxes ............................. 30,436 (29,397) (31,158)
Purchases of reserves-in-place ......................... 65 2 643
Sales of reserves-in-place ............................. (2,875) (1,551) (124)
Other .................................................. 2,084 13,573 13,972
---------- ---------- ----------
Standardized Measure - End of year ....................... $ 125,927 $ 205,035 $ 153,864
========== ========== ==========
</TABLE>
- -------------------------------------------------------------------------------
NOTE 15 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
1998 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ................................................. $ 151,823 $ 142,389 $ 177,136 $ 165,292
Gross profit ............................................. 47,351 32,869 55,098 29,606
Net income ............................................... 29,165 19,337 33,861 18,791
Basic net income per share ............................... .58 .39 .68 .38
Diluted net income per share ............................. .57 .38 .67 .38
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
1997 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ................................................. $ 118,262 $ 132,479 $ 129,812 $ 137,306
Gross profit ............................................. 33,643 36,863 37,513 32,954
Net income ............................................... 20,125 22,418 23,648 17,995
Basic net income per share ............................... .41 .45 .47 .36
Diluted net income per share ............................. .40 .44 .47 .35
</TABLE>
- --------------------------------------------------------------------------------
Gross profit represents total revenues less operating costs, depreciation,
depletion and amortization, dry holes and abandonments, and taxes, other than
income taxes.
- --------------------------------------------------------------------------------
Per share amounts reflect the effect of the two-for-one common stock split and
distribution (see Note 4) and the adoption of SFAS No. 128. The sum of earnings
per share for the four quarters may not equal the total earnings per share for
the year due to changes in the average number of common shares outstanding.
Net income in the fourth quarter of 1997 includes a provision of $6.7 million
($.08 per share, on a diluted basis, after income taxes) for a Federal Energy
Regulatory Commission ordered repayment of ad valorem taxes reimbursed to the
Company during the period 1983-1988. The provision includes $2.7 million for ad
valorem taxes (reduced revenues) and $4.0 million for interest.
Net income in the fourth quarter of 1998 includes an after-tax charge of $3.1
million ($0.06 per share, on a diluted basis) related to the write-down of
producing properties in accordance with SFAS No. 121.
34
<PAGE> 35
REPORT OF INDEPENDENT AUDITORS
HELMERICH & PAYNE, INC.
================================================================================
The Board of Directors and Shareholders
Helmerich & Payne, Inc.
We have audited the accompanying consolidated balance sheets of Helmerich &
Payne, Inc. as of September 30, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended September 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Helmerich & Payne,
Inc. at September 30, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
-------------------------------
Tulsa, Oklahoma
November 13, 1998
STOCK PRICE INFORMATION*
<TABLE>
<CAPTION>
================================================================================
Closing Market Price Per Share
----------------------------------------
1998 1997
- --------------------------------------------------------------------------------
QUARTERS HIGH LOW HIGH LOW
- -------- ----------------------------------------
<S> <C> <C> <C> <C>
First............................... $ 44.97 $ 31.06 $ 27.56 $21.94
Second.............................. 33.19 24.56 27.44 21.00
Third............................... 33.25 21.56 29.63 21.81
Fourth.............................. 24.38 16.25 40.00 29.47
- --------------------------------------------------------------------------------
</TABLE>
DIVIDEND INFORMATION*
<TABLE>
<CAPTION>
==================================================================================
Paid Per Share Total Payment
--------------------------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------
QUARTERS
- --------
<S> <C> <C> <C> <C>
First............................... $.065 $.065 $3,256,874 $3,239,007
Second............................... .070 .065 3,519,195 3,239,892
Third............................... .070 .065 3,521,332 3,242,952
Fourth............................... .070 .065 3,504,269 3,248,275
- ----------------------------------------------------------------------------------
</TABLE>
* Per share amounts reflect the effect of the two-for-one common stock split and
distribution (see note 4).
================================================================================
STOCKHOLDERS' MEETING*
The annual meeting of stockholders will be held on March 3, 1999. A formal
notice of the meeting, together with a proxy statement and form of proxy, will
be mailed to shareholders on or about January 27, 1999.
================================================================================
STOCK EXCHANGE LISTING
Helmerich & Payne, Inc. Common Stock is traded on the New York Stock Exchange
with the ticker symbol "HP." The newspaper abbreviation most commonly used for
financial reporting is "HelmP." Options on the Company's stock are also traded
on the New York Stock Exchange.
================================================================================
STOCK TRANSFER AGENT AND REGISTRAR
As of December 15, 1998, there were 1,465 record holders of Helmerich & Payne,
Inc. common stock as listed by the transfer agent's records.
Our Transfer Agent is responsible for our shareholder records, issuance of stock
certificates, and distribution of our dividends and the IRSForm 1099. Your
requests, as shareholders, concerning these matters are most efficiently
answered by corresponding directly with The Transfer Agent at the following
address:
Bank One Trust Company, N.A.
Stock Transfer Department
P.O. Box 25848, OK1-1096
Oklahoma City, Oklahoma 73125-0848
Telephone: (405) 231-6325
800-395-2662, Extension 6598
================================================================================
FORM 10-K
The Company's Annual Report on Form 10-K, which has been submitted to the
Securities and Exchange Commission, is available free of charge upon written
request.
DIRECT INQUIRIES TO:
President
Helmerich & Payne, Inc.
Utica at Twenty-First
Tulsa, Oklahoma 74114
Telephone: (918) 742-5531
Internet Address: http://www.hpinc.com
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35
<PAGE> 36
ELEVEN-YEAR FINANCIAL REVIEW
================================================================================
HELMERICH & PAYNE, INC.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
REVENUES AND INCOME*
<S> <C> <C> <C>
Contract Drilling Revenues....................................... 427,713 315,327 244,338
Crude Oil Sales.................................................. 10,333 20,475 15,378
Natural Gas Sales................................................ 87,646 87,737 60,500
Gas Marketing Revenues........................................... 52,469 66,306 57,817
Real Estate Revenues............................................. 8,587 8,224 8,076
Dividend Income.................................................. 4,117 5,268 3,650
Other Revenues................................................... 45,775 14,522 3,496
Total Revenues++................................................. 636,640 517,859 393,255
Net Cash Provided by Continuing Operations++..................... 113,533 165,568 121,420
Income from Continuing Operations................................ 101,154 84,186 45,426
Net Income....................................................... 101,154 84,186 72,566
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA**
Income from Continuing Operations(R):
Basic........................................................ 2.03 1.69 .92
Diluted...................................................... 2.00 1.67 .91
Net Income(R):
Basic........................................................ 2.03 1.69 1.47
Diluted...................................................... 2.00 1.67 1.46
Cash Dividends................................................... .275 .26 .2525
Shares Outstanding*.............................................. 49,383 50,028 49,771
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Net Working Capital*............................................. 58,861 62,837 51,803
Ratio of Current Assets to Current Liabilities................... 1.47 1.66 1.83
Investments*..................................................... 200,400 323,510 229,809
Total Assets*.................................................... 1,090,430 1,033,595 821,914
Long-Term Debt*.................................................. 50,000 __ __
Shareholders' Equity*...................................................... 793,148 780,580 645,970
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES*
Contract Drilling Equipment...................................... 206,794 109,036 79,269
Wells and Equipment.............................................. 38,372 33,425 21,142
Real Estate...................................................... 854 1,095 752
Other Assets (includes undeveloped leases)....................... 19,681 16,022 7,003
Discontinued Operations.......................................... __ __ 1,581
Total Capital Outlays............................................ 265,701 159,578 109,747
- ---------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT AT COST*
Contract Drilling Equipment...................................... 829,217 643,619 568,110
Producing Properties............................................. 414,770 395,812 392,562
Undeveloped Leases............................................... 20,977 14,109 9,242
Real Estate...................................................... 48,451 47,682 46,970
Other............................................................ 65,120 59,659 53,547
Discontinued Operations.......................................... __ __ __
Total Property, Plant and Equipment........................................ 1,378,535 1,160,881 1,070,431
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 000's omitted.
** Per share data and shares outstanding reflect the effect of a two-for-one
common stock split and distribution as discussed in Note 4.
++Chemical operations were sold August 30, 1996 (see note 7). Prior year amounts
have been restated to exclude discontinued operations.
(1) Includes $13.6 million ($.28 per share, on a diluted basis) effect of
impairment charge for adoption of SFAS No. 121 in 1995 and cumulative effect of
change in accounting for income taxes of $4,000,000 ($.08 per share, on a
diluted basis) in 1994.
36
<PAGE> 37
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
203,325 182,781 149,661 112,833 105,364 90,974 78,315 75,985
13,227 13,161 15,392 16,369 17,374 16,058 14,821 14,001
33,851 45,261 52,446 38,370 35,628 37,697 33,013 26,154
34,729 51,874 63,786 40,410 10,055 10,566 __ __
7,560 7,396 7,620 7,541 7,542 7,636 7,778 7,878
3,389 3,621 3,535 4,050 5,285 7,402 9,127 10,069
10,640 6,058 8,283 6,646 20,020 56,131 17,371 15,206
306,721 310,152 300,723 226,219 201,268 226,464 160,425 149,293
84,010 74,463 72,493 60,414 50,006 53,288 65,474 54,959
5,788 17,108 22,158 8,973 19,608 45,489 20,715 17,746
9,751 24,971 24,550 10,849 21,241 47,562 22,700 20,150
- ---------------------------------------------------------------------------------------------------------------------------
.12 .35 .46 .19 .41 .94 .43 .37
.12 .35 .45 .19 .41 .93 .43 .37
.20 .51 .51 .22 .44 .98 .47 .42
.20 .51 .50 .22 .44 .98 .47 .42
.25 .2425 .24 .2325 .23 .22 .21 .20
49,529 49,420 49,275 49,152 48,976 48,971 48,346 48,331
- ---------------------------------------------------------------------------------------------------------------------------
50,038 76,238 104,085 82,800 108,212 146,741 114,357 135,275
1.74 2.63 3.24 3.31 4.19 3.72 3.12 6.10
156,908 87,414 84,945 87,780 96,471 99,574 130,443 133,726
707,061 621,689 610,504 585,504 575,168 582,927 591,229 576,473
--- --- 3,600 8,339 5,693 5,648 49,087 70,715
562,435 524,334 508,927 493,286 491,133 479,485 443,396 430,804
- ---------------------------------------------------------------------------------------------------------------------------
80,943 53,752 24,101 43,049 56,297 18,303 17,901 19,110
19,384 40,916 23,142 21,617 34,741 16,489 30,673 25,936
873 902 436 690 2,104 1,467 878 3,095
9,717 9,695 5,901 16,984 6,793 5,448 6,717 2,496
859 618 629 158 2,594 1,153 815 815
111,776 105,883 54,209 82,498 102,529 42,860 56,984 51,452
- ---------------------------------------------------------------------------------------------------------------------------
501,682 444,432 418,004 404,155 370,494 324,293 323,313 313,289
384,755 377,371 340,176 329,264 312,438 287,248 279,768 251,445
8,051 11,729 10,010 12,973 5,552 5,507 5,441 3,305
46,642 47,827 47,502 47,286 46,671 44,928 48,016 47,165
55,655 48,612 45,085 43,153 36,423 32,135 29,716 27,798
13,937 13,131 12,545 11,962 11,838 9,270 8,156 7,370
1,010,722 943,102 873,322 848,793 783,416 703,381 694,410 650,372
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
ELEVEN-YEAR OPERATING REVIEW
================================================================================
HELMERICH & PAYNE, INC.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Years Ended September 30, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT DRILLING
<S> <C> <C> <C>
Drilling Rigs, United States......................................... 46 38 41
Drilling Rigs, International......................................... 44 39 36
Contract Wells Drilled, United States................................ 242 246 233
Total Footage Drilled, United States*................................ 2,938 2,753 2,499
Average Depth per Well, United States................................ 12,142 11,192 10,724
Percentage Rig Utilization, United States............................ 95 88 82
Percentage Rig Utilization, International............................ 88 91 85
- ------------------------------------------------------------------------------------------------------------------------------
PETROLEUM EXPLORATION AND DEVELOPMENT
Gross Wells Completed................................................ 62 100 63
Net Wells Completed.................................................. 35.7 49.3 35.3
Net Dry Holes........................................................ 4.2 9.6 7.3
- ------------------------------------------------------------------------------------------------------------------------------
PETROLEUM PRODUCTION
Net Crude Oil and Natural Gas Liquids
Produced (barrels daily)........................................... 1,921 2,700 2,212
Net Oil Wells Owned N Primary Recovery............................... 124 133 176.9
Net Oil Wells Owned N Secondary Recovery............................. 53 49 63.8
Secondary Oil Recovery Projects...................................... 5 5 12
Net Natural Gas Produced
(thousands of cubic feet daily).................................... 117,431 110,859 94,358
Net Gas Wells Owned.................................................. 436 410 378
- ------------------------------------------------------------------------------------------------------------------------------
NATURAL GAS ODORANTS AND
OTHER CHEMICALS++
Chemicals Sold (pounds)*............................................. -- -- 9,823
- ------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT
Gross Leasable Area (square feet)*................................... 1,652 1,652 1,654
Percentage Occupancy................................................. 97 95 94
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF EMPLOYEES
Helmerich & Payne, Inc. and Subsidiaries ............................ 3,340 3,627 3,309
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 000's omitted.
+ 1988-1989 include U.S. employees only
++ Chemical operations were sold August 30, 1996 (see note 7). Treated as
discontinued operations in Financial Statements for all years presented.
38
<PAGE> 39
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
41 47 42 39 46 49 49 48
35 29 29 30 25 20 20 18
212 162 128 100 106 119 108 115
1,933 1,842 1,504 1,085 1,301 1,316 1,350 1,284
9,119 11,367 11,746 10,853 12,274 11,059 12,500 11,165
71 69 53 42 47 50 44 45
84 88 68 69 69 45 46 30
- --------------------------------------------------------------------------------------------------------------------------
59 44 42 54 45 36 45 45
27.4 15 15.9 17.8 20.2 15.3 15.2 14.6
5.9 1.7 4.3 4.3 4.3 3.4 2.8 1.6
- --------------------------------------------------------------------------------------------------------------------------
2,214 2,431 2,399 2,334 2,152 2,265 2,486 2,463
186 202 202 220 227 223 201 202
64 71 71 74 55 46 214 222
12 14 14 14 12 12 17 21
72,387 72,953 78,023 75,470 66,617 65,147 57,490 45,480
354 341 307 289 278 194 205 197
- --------------------------------------------------------------------------------------------------------------------------
7,670 8,071 7,930 8,452 8,155 8,255 7,702 8,507
- --------------------------------------------------------------------------------------------------------------------------
1,652 1,652 1,656 1,656 1,664 1,664 1,669 1,670
87 83 86 87 86 85 90 90
- --------------------------------------------------------------------------------------------------------------------------
3,245 2,787 2,389 1,928 1,758 1,864 1,100 1,156
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
Directors Officers
===========================================================================================================
<S> <C>
W. H. HELMERICH, III W. H. HELMERICH, III
Chairman of the Board Chairman of the Board
Tulsa, Oklahoma
HANS HELMERICH HANS HELMERICH
President and Chief Executive Officer President and Chief Executive Officer
Tulsa, Oklahoma
WILLIAM L. ARMSTRONG** GEORGE S. DOTSON
Chairman Vice President,
Ambassador Media Corporation President of Helmerich & Payne
Denver, Colorado International Drilling Co.
GLENN A. COX* DOUGLAS E. FEARS
President and Chief Operating Officer, Retired Vice President and
Phillips Petroleum Company Chief Financial Officer
Bartlesville, Oklahoma
GEORGE S. DOTSON STEVEN R. MACKEY
Vice President, Vice President, Secretary,
President of Helmerich & Payne and General Counsel
International Drilling Co.
Tulsa, Oklahoma STEVEN R. SHAW
Vice President,
L. F. ROONEY, III* Exploration & Production
Chief Executive Officer
Manhattan Construction Company
Tulsa, Oklahoma
EDWARD B. RUST, JR.
Chairman and Chief Executive Officer
State Farm Insurance Companies
Bloomington, Illinois
GEORGE A. SCHAEFER**
Chairman and Chief Executive Officer, Retired
Caterpillar Inc.
Peoria, Illinois
JOHN D. ZEGLIS**
President
AT&T
Basking Ridge, New Jersey
</TABLE>
* Member, Audit Committee
** Member, Human Resources Committee
40
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
Helmerich & Payne, Inc.
Subsidiaries of Helmerich & Payne, Inc.
Helmerich & Payne Properties, Inc. (Incorporated in Oklahoma)
Utica Square Shopping Center, Inc. (Incorporated in Oklahoma)
The Hardware Store of Utica Square, Inc. (Incorporated in Oklahoma)
The Space Center, Inc. (Incorporated in Oklahoma)
H&P DISC, Inc. (Incorporated in Oklahoma)
Helmerich & Payne Coal Co. (Incorporated in Oklahoma)
Helmerich & Payne Energy Services, Inc. (Incorporated in Oklahoma)
Helmerich & Payne International Drilling Co. (Incorporated in
Delaware)
Subsidiaries of Helmerich & Payne International Drilling Co.
Helmerich & Payne (Africa) Drilling Co. (Incorporated
in Cayman Islands, British West Indies)
Helmerich & Payne Drilling (Bolivia) S.A.
(Incorporated in Bolivia)
Helmerich & Payne (Colombia) Drilling Co. (Incorporated
in Oklahoma)
Helmerich & Payne (Gabon) Drilling Co. (Incorporated in
Cayman Islands, British West Indies)
Helmerich & Payne (Argentina) Drilling Co. (Incorporated
in Oklahoma)
Helmerich & Payne (Peru) Drilling Co. (Incorporated in
Oklahoma)
Helmerich & Payne (Peru) Drilling Co., Sucursal del Peru,
Lima (Lima Branch - Incorporated in Peru)
Helmerich & Payne (Peru) Drilling Co., Sucursal del Peru
(Iquitos Branch - Incorporated in Peru)
Helmerich & Payne (Australia) Drilling Co. (Incorporated
in Oklahoma)
Helmerich & Payne del Ecuador, Inc. (Incorporated in
Oklahoma)
Helmerich & Payne de Venezuela, C.A. (Incorporated in
Venezuela)
Helmerich & Payne, C.A. (Incorporated in Venezuela)
Helmerich & Payne Rasco, Inc. (Incorporated in Oklahoma)
H&P Finco (Incorporated in Cayman Islands, British
West Indies)
H&P Invest Ltd. (Incorporated in Cayman Islands), British
West Indies, doing business as H&P (Yemen) Drilling Co.
Subsidiary of H&P Invest Ltd.
Turrum Pty. Ltd. (Incorporated in Papua, New Guinea)
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Helmerich & Payne, Inc. of our report dated November 13, 1998,
included in the 1998 Annual Report to Shareholders of Helmerich & Payne, Inc.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-16771, 33-55239, 333-24211, and 333-34939)
pertaining, respectively, to the Helmerich & Payne, Inc. Incentive Stock Option
Plan, 1990 Stock Option Plan, Non-Employee Directors' Stock Compensation Plan,
and 1996 Stock Incentive Plan of our report dated November 13, 1998, with
respect to the consolidated financial statements of Helmerich & Payne, Inc.
incorporated by reference in the Annual Report (Form 10-K) for the year ended
September 30, 1998.
ERNST & YOUNG LLP
Tulsa, Oklahoma
December 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 24,476
<SECURITIES> 200,400
<RECEIVABLES> 121,303
<ALLOWANCES> 1,908
<INVENTORY> 25,401
<CURRENT-ASSETS> 184,345
<PP&E> 1,378,535
<DEPRECIATION> 686,164
<TOTAL-ASSETS> 1,090,430
<CURRENT-LIABILITIES> 125,484
<BONDS> 0
0
0
<COMMON> 5,353
<OTHER-SE> 787,795
<TOTAL-LIABILITY-AND-EQUITY> 1,090,430
<SALES> 592,037
<TOTAL-REVENUES> 636,640
<CGS> 472,619
<TOTAL-COSTS> 472,619
<OTHER-EXPENSES> 10,859
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 942
<INCOME-PRETAX> 152,220
<INCOME-TAX> 56,677
<INCOME-CONTINUING> 101,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,154
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.00
</TABLE>
