NOBLE AFFILIATES INC, 10-Q, 2000-05-15

NOBLE AFFILIATES INC
10-Q, 2000-05-15
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

--------------------

FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission file number: 0-7062

NOBLE AFFILIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware 73-0785597
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

110 West Broadway
Ardmore, Oklahoma 73401
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(580) 223-4110
(Registrant's telephone number, including area code)

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
----- -----

Number of shares of common stock outstanding as of May 3, 2000: 55,711,065

===============================================================================
<PAGE>

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
------------------ ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments................................... $ 4,635 $ 2,925
Accounts receivable-trade......................................... 112,718 98,794
Materials and supplies inventories................................ 3,756 5,517
Other current assets.............................................. 38,873 40,678
------------- ------------

Total Current Assets.............................................. 159,982 147,914
------------- ------------

Property, Plant and Equipment, at cost............................... 2,871,705 2,830,793
Less: accumulated depreciation,
depletion and amortization................................. (1,615,669) (1,588,423)
------------- ------------

1,256,036 1,242,370
------------- ------------

Investment in unconsolidated subsidiary.............................. 20,690 15,625

Other Assets......................................................... 51,649 44,442
------------- ------------

Total Assets...................................................... $ 1,488,357 $ 1,450,351
============= ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-trade............................................ $ 110,626 $ 103,753
Other current liabilities......................................... 32,069 48,215
Income taxes-current.............................................. 43,465 32,503
------------- ------------

Total Current Liabilities......................................... 186,160 184,471
------------- ------------

Deferred Income Taxes................................................ 88,174 83,075
------------- ------------

Other Deferred Credits and Noncurrent Liabilities.................... 55,390 53,877
------------- ------------

Long-term Debt....................................................... 480,362 445,319
------------- ------------

Shareholders' Equity:
Common stock...................................................... 195,289 195,231
Capital in excess of par value.................................... 361,246 360,983
Retained earnings................................................. 167,412 142,813
------------- ------------

723,947 699,027
Less common stock in treasury at cost
(December 31, 1999, 1,524,900 shares and
March 31, 2000, 2,911,300 shares)................................. (45,676) (15,418)
------------- ------------

Total Shareholders' Equity........................................ 678,271 683,609
------------- ------------

Total Liabilities and Shareholders' Equity........................ $ 1,488,357 $ 1,450,351
============= ============

</TABLE>

SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

<PAGE>

NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
2000 1999
-------------- ------------
<S> <C> <C>
REVENUES:
Oil and gas sales and royalties.................................... $ 151,003 $ 112,233
Gathering, marketing and processing................................ 117,869 63,633
Other income....................................................... 2,889 2,046
-------------- ------------

271,761 177,912
-------------- ------------

COSTS AND EXPENSES:
Oil and gas operations............................................. 26,165 31,352
Oil and gas exploration............................................ 15,991 10,240
Gathering, marketing and processing................................ 114,183 58,503
Depreciation, depletion and amortization........................... 51,558 66,549
Selling, general and administrative................................ 11,971 11,391
Interest........................................................... 9,622 13,035
Interest capitalized............................................... (1,081) (1,123)
-------------- ------------

228,409 189,947
-------------- ------------

INCOME (LOSS) BEFORE TAXES............................................. 43,352 (12,035)

INCOME TAX PROVISION (BENEFIT)......................................... 16,472 (1) (3,134)(1)
-------------- ------------

NET INCOME (LOSS)...................................................... $ 26,880 $ (8,901)
============== ============

BASIC EARNINGS (LOSS) PER SHARE........................................ $ .48 (2) $ (.16)(2)
============== ============

DILUTED EARNINGS (LOSS) PER SHARE...................................... $ .47 (2) $ (.16)(2)
============== ============
</TABLE>

SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

<PAGE>

NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)..................................................... $ 26,880 $ (8,901)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization............................ 51,558 66,549
Amortization of undeveloped lease costs, net........................ 2,377 1,178
Increase (decrease) in deferred credits............................. 6,612 (7,925)
(Increase) decrease in other assets and other noncash items, net... (6,316) (2,579)
Changes in working capital, not including cash:
(Increase) decrease in accounts receivable.......................... (13,925) 24,565
(Increase) decrease in other current assets and inventories......... 3,374 8,323
Increase (decrease) in accounts payable............................. 6,873 (23,548)
Increase (decrease) in other current liabilities.................... (5,184) 3,481
------------- -------------

Net Cash Provided by Operating Activities 72,249 61,143
------------- -------------

Cash Flows From Investing Activities:
Capital expenditures.................................................. (73,473) (12,763)
Investment in unconsolidated subsidiary............................... (5,066) (8,451)
Proceeds from sale of property, plant and equipment................... 5,218 226
------------- -------------

Net Cash Used in Investing Activities ................................... (73,321) (20,988)
------------- -------------

Cash Flows From Financing Activities:
Noble Affiliates share repurchase..................................... (30,258)
Exercise of stock options............................................. 322
Cash dividends........................................................ (2,282) (2,279)
Proceeds from bank borrowings......................................... 35,000
------------- -------------

Net Cash Provided by (Used in) Financing Activities...................... 2,782 (2,279)
------------- -------------

Increase (Decrease) in Cash and Short-term Investments................... 1,710 37,876
------------- -------------

Cash and Short-term Investments at Beginning of Period................... 2,925 19,100
------------- -------------

Cash and Short-term Investments at End of Period......................... $ 4,635 $ 56,976
============= =============

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized).................................. $ 3,460 $ 6,116
Income taxes.......................................................... $ 0 $ 0

</TABLE>

SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

In the opinion of Noble Affiliates, Inc. (the "Company"), the
accompanying unaudited consolidated condensed financial statements contain all
adjustments, consisting only of necessary and normal recurring adjustments,
necessary to present fairly the Company's financial position as of March 31,
2000 and the results of operations and the cash flows for the three month
periods ended March 31, 2000 and 1999. These consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1999.

(1) INCOME TAX PROVISION (BENEFIT)

For the three months ended March 31:

<TABLE>
<CAPTION>
(In thousands)
------------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Current............................................................... $ 11,326 $ (7,469)
Deferred.............................................................. 5,146 4,335
--------- ---------

$ 16,472 $ (3,134)
========= =========
</TABLE>

(2) BASIC EARNINGS PER SHARE AND DILUTED EARNINGS PER SHARE

Basic earnings per share of common stock was computed using the
weighted average number of shares of common stock outstanding during each
period. The diluted net income per share of common stock includes the effect
of outstanding stock options.

The following table summarizes the calculation of basic earnings per
share ("EPS") and diluted EPS for the quarter ending March 31:

<TABLE>
<CAPTION>
2000 1999
------------------------- -------------------------
INCOME SHARES INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE) (NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)/shares $26,880 56,396 $(8,901) 56,981
- ---------------------------------------------------------------------------------------------------------------------
BASIC EPS $.48 $(.16)
- ---------------------------------------------------------------------------------------------------------------------

Net income (loss)/shares $26,880 56,396 $(8,901) 56,981
Effect of Dilutive Securities
- -----------------------------
Stock options (1) 260
Adjusted net income (loss)/shares $26,880 56,656 $(8,901) 56,981
- ---------------------------------------------------------------------------------------------------------------------
DILUTED EPS $.47 $(.16)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The effect of dilutive securities on first quarter 1999 diluted EPS is
antidilutive as a result of the net operating loss; therefore, the basic
EPS and diluted EPS are the same.

<PAGE>

(3) TRADING AND HEDGING ACTIVITIES

The Company, through its subsidiaries, from time to time, uses various
hedging arrangements in connection with anticipated crude oil and natural gas
sales to minimize the impact of product price fluctuations. Such arrangements
include fixed price hedges, costless collars, and other contractual
arrangements. Although these hedging arrangements expose the Company to credit
risk, the Company monitors the creditworthiness of its counterparties, which
generally are major financial institutions, and believes that losses from
nonperformance are unlikely to occur. Hedging gains and losses related to the
Company's oil and gas production are recorded in oil and gas sales and
royalties. The swap component of the contracts discussed in the following
paragraphs was treated as a hedge for accounting purposes only.

The Company has entered into three crude oil premium swap contracts
related to its production for calendar year 2000. Two of the contracts provide
for payments based on daily NYMEX settlement prices. These contracts relate to
2,500 BBLS per day and 2,000 BBLS per day and have trigger prices of $21.73
per BBL and $22.45 per BBL, respectively, and both have knockout prices of
$17.00 per BBL. These two contracts entitle the Company to receive settlements
from the counterparties in amounts, if any, by which the settlement price for
each NYMEX trading day is less than the trigger price, provided the NYMEX
price is also greater than the $17.00 per BBL knockout price. If a daily
settlement price is $17.00 per BBL or less, then neither party will have any
liability to the other for that day. If a daily settlement price is above the
applicable trigger price, then the Company will owe the counterparty for the
excess of the settlement price over the trigger price for that day. Payment is
made monthly under each of these contracts, in an amount equal to the net
amount due to either party based on the sum of the daily amounts determined as
described in this paragraph for that month.

The third contract relates to 2,500 BBLS per day and provides for
payments based on monthly average NYMEX settlement prices. The contract
entitles the Company to receive monthly settlements from the counterparty in
an amount, if any, by which the arithmetic average of the daily NYMEX
settlement prices for the month is less than the trigger price, which is
$21.73 per BBL, multiplied by the number of days in the month, provided such
average NYMEX price is also greater than the $17.00 per BBL knockout price. If
the average NYMEX settlement price for the month is $17.00 per BBL or less,
then neither party will have any liability to the other for that month. If the
average NYMEX settlement price for the month is above the trigger price, then
the Company will pay the counterparty an amount equal to the excess of the
average settlement price over the trigger price, multiplied by the number of
days in the month.

The Company has treated the swap component of these contracts as a
hedge (for accounting purposes only), at swap prices ranging from $19.40 per
BBL to $20.20 per BBL, which existed at the dates it entered into these
contracts. In addition, the Company has separately accounted for the premium
component of these contracts by marking them to market, resulting in a gain of
$1,162,000 recorded in other income for the three months ended March 31, 2000.

In addition to the premium swap crude oil hedging contracts, the
Company has entered into crude oil costless collar hedges from January 1,
2000, to April 30, 2000, for volumes of 2,000 BBLS per day. These costless
collars have a floor price ranging from $21.53 per BBL to $23.27 per BBL and a
cap price ranging from $25.83 per BBL to $27.31 per BBL. These costless collar
contracts entitle the Company to receive settlements from the counterparties
in amounts, if any, by which the monthly average settlement price for each
NYMEX trading day during a contract month is less than the floor price. If the
monthly average settlement price is above the applicable cap price, then the
Company will owe the counterparties for the excess of the monthly average
settlement price over the applicable cap price. If the monthly average
settlement price falls between the applicable floor and cap price, then
neither party will have any liability to the other party for that month.
Payment, if any, is made monthly under each of the contracts in an amount
equal to the net amount due either party based on the volumes per day
multiplied by the difference between the NYMEX average price and the cap
price, if the NYMEX average price exceeds the cap price, or if the NYMEX
average price is less than the floor price, then the volumes per day
multiplied by the difference between the floor price and the NYMEX average
price.

During the first quarter of 1999, the Company had no oil or gas hedging
transactions for its production.

In addition to the hedging arrangements pertaining to the Company's
production as described above, Noble Gas Marketing, Inc. ("NGM") employs
various hedging arrangements in connection with its purchases and sales of
third party production to lock in profits or limit exposure to gas price risk.
Most of the purchases made by NGM are on an index basis; however, purchasers
in the markets in which NGM sells often require fixed or NYMEX related
pricing. NGM may use a hedge to convert the fixed or NYMEX sale to an index
basis thereby determining the margin and minimizing the risk of price
volatility.

<PAGE>

NGM records hedging gains or losses relating to fixed term sales as
gathering, marketing and processing revenues in the periods in which the
related contract is completed.

The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" in June 1998. The Statement establishes
accounting and reporting standards requiring every derivative instrument
(including certain derivative instruments embedded in other contracts) to be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met wherein gains and losses are reflected in stockholder equity until the
hedged item is recognized. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company formally document, designate
and assess the effectiveness of transactions that receive hedge accounting.

Due to the issuance of SFAS No. 137, which deferred the effective date
of SFAS No. 133, the Company is required to adopt the statement for fiscal
year beginning after June 15, 2000. A company may also implement the statement
as of the beginning of any fiscal quarter after the statement's issuance (that
is, fiscal quarters beginning June 16, 1998, and thereafter). SFAS No. 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the Company's
election, before January 1, 1998). The Company has not quantified the impact
of adopting SFAS No. 133 but plans on adopting the statement by January 1,
2001.

(4) METHANOL PLANT

The Company's unconsolidated subsidiary, Atlantic Methanol Capital
Company ("AMCCO"), is a 50 percent owned joint venture that indirectly owns 90
percent of Atlantic Methanol Production Company ("AMPCO"), which is
constructing a methanol plant in Equatorial Guinea. During 1999, AMCCO issued
$125 million senior secured notes due 2004 net to the Company's interest
(which are not included in the Company's balance sheet) to fund the remaining
construction payments. The plant construction started during 1998 and
commercial production is expected during the second quarter of 2001. The
construction cost of the turnkey contract is $322.5 million. Other associated
expenditures required to complete the project and produce marketable supplies
of methanol are projected to be $101.3 million. The total cost of the methanol
project is estimated to be $423.8 million including various contingencies and
capitalized interest, with the Company responsible for $211.9 million.
Payments are due upon the completion of specific phases of the construction.
The Company has construction contract phase payments totaling $45.5 million
due in 2000.

(5) COMPANY STOCK REPURCHASE PLAN

The Company's Board of Directors authorized a repurchase of up to $50
million in the Company's common stock. As of March 31, 2000, the Company had
completed 60.5 percent of the repurchase plan. The repurchase of 1,386,400
shares at an average cost of $21.84 per share was funded from the Company's
current cash flow.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical fact included in this Form 10-Q,
including, without limitation, statements contained under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding anticipated capital expenditures, projected timing of planned
projects or activities, the Company's financial position, business strategy,
plans and objectives of management of the Company for future operations and
industry conditions, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") include
without limitation future production levels, future prices and demand for oil
and gas, results of future exploration and development activities, future
operating and development costs, the effect of existing and future laws and
governmental regulations (including those pertaining to the environment) and
the political and economic

<PAGE>

climate of the United States and the foreign countries in which the Company
operates from time to time, as discussed in this quarterly report on Form 10-Q
and the other documents of the Company filed with the Securities and Exchange
Commission (the "Commission"). All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities increased to $72.2 million in
the three months ended March 31, 2000 from $61.1 million in the same period of
1999. Cash and short-term investments increased from $2.9 million at December
31, 1999 to $4.6 million at March 31, 2000.

During the first quarter of 2000, the Company borrowed $35.0 million on
its $300 million credit facility. At December 31, 1999, there was no debt
outstanding on the $300 million credit facility. Long-term debt at March 31,
2000 was $480.4 million compared with $445.3 million at December 31, 1999.

The Company has expended approximately $78.5 million of its $426.0
million 2000 capital budget through March 31, 2000. The Company expects to
fund its remaining 2000 capital budget from cash flows from operations and
additional borrowings from the credit facilities as required. The Company
continues to evaluate possible strategic acquisitions and believes it is
positioned to access external sources of funding should it be necessary or
desirable in connection with an acquisition.

Through the recently formed Atlantic Methanol Production Company
("AMPCO"), Samedan is participating, with a 45 percent expense interest and a
five percent carried interest for the Equatorial Guinea Government, in a joint
venture with CMS Energy Corporation to construct a methanol plant on Bioko
Island in Equatorial Guinea. The plant will use the gas from Samedan's 34.8
percent owned Alba field as feedstock. The plant is being designed to utilize
approximately 115 MMCF of gas per day. The gas will be priced at approximately
$.25 per MMBTU.

On January 29, 1998, AMPCO awarded a contract to Raytheon Engineers and
Constructors to build the methanol plant. The turnkey plant construction cost
is $322.5 million and is being designed to produce 2,500 metric tons of
methanol per day, which equates to approximately 20,000 BBLS per day. The
construction contract stipulates that the first commercial production of
methanol is expected by the second quarter of 2001. Current marketing plans
are to enter into long-term contracts with methanol users in the United States
and Europe.

The Company's unconsolidated subsidiary, Atlantic Methanol Capital
Company ("AMCCO"), is a 50 percent owned joint venture that indirectly owns 90
percent of AMPCO. During 1999, AMCCO issued $125 million senior secured notes
due 2004 net to the Company's interest (which are not included in the
Company's balance sheet) to fund the remaining construction payments. The
plant construction started during 1998 and commercial production is expected
during the second quarter of 2001. The construction cost of the turnkey
contract is $322.5 million. Other associated expenditures required to complete
the project and produce marketable supplies of methanol are projected to be
$101.3 million. The total cost of the methanol project is estimated to be
$423.8 million including various contingencies and capitalized interest, with
the Company responsible for $211.9 million. Payments are due upon the
completion of specific phases of the construction. The Company has
construction contract phase payments totaling $45.5 million due in 2000.

The Company follows the entitlements method of accounting for its gas
imbalances. The Company's estimated gas imbalance receivables were $17.9
million at March 31, 2000 and $17.9 million at December 31, 1999. Estimated
gas imbalance liabilities were $12.3 million at March 31, 2000 and $12.0 at
December 31, 1999. These imbalances are valued at the amount which is expected
to be received or paid to settle the imbalances. The settlement of the
imbalances can occur either over the life or at the end of the life of a well,
on a volume basis or by cash settlement. The Company does not expect that a
significant portion of the settlements will occur in any one year. Thus, the
Company believes the settlement of gas imbalances will not have a material
impact on its liquidity.

RESULTS OF OPERATIONS

For the first quarter of 2000, the Company recorded net income of $26.9
million, or $.48 per share, compared with a net loss of $8.9 million, or
$(.16) per share, in the first quarter of 1999. The increase resulted
primarily from substantially higher product prices.

<PAGE>

Gas sales for the Company, excluding third party sales by Noble Gas
Marketing, Inc. ("NGM"), a wholly owned subsidiary of the Company, increased
16 percent for the three months ended March 31, 2000 compared with the same
period in 1999. The primary reason for the increased sales was an increase in
average gas price of 40 percent in the 2000 first quarter compared with the
first quarter of 1999.

Oil sales for the Company, excluding third party sales by Noble
Trading, Inc. ("NTI"), a wholly owned subsidiary of the Company, increased 88
percent for the three months ended March 31, 2000, compared with the same
period in 1999. The increase in sales was due to an average oil price increase
of 137 percent in the first quarter of 2000 compared with the first quarter of
1999.

NGM markets the Company's natural gas as well as certain third party
gas. NGM sells gas directly to end-users, gas marketers, industrial users,
interstate and intrastate pipelines, and local distribution companies. NTI
markets a portion of the Company's oil as well as certain third party oil. The
Company records all of NGM's and NTI's sales as gathering, marketing and
processing revenues and expenses. All intercompany sales and expenses have
been eliminated.

For the first quarter of 2000, revenues and expenses from NGM and NTI
third party sales totaled $117.9 million and $114.2 million, respectively, for
a combined gross margin of $3.7 million. In comparison, for the first quarter
of 1999 NGM and NTI third party sales and expenses of $63.6 million and $58.5
million, respectively, resulted in a combined gross margin of $5.1 million.

The effect of these premium swap hedges was a $2.43 per BBL reduction
in the average crude oil price for the first quarter. Premium swap hedges for
April 2000 through December 2000, which average 7,000 BBLS per day, were not
closed at March 31, 2000.

<PAGE>

In addition to the premium swap crude oil hedging contracts, the
Company has entered into crude oil costless collar hedges from January 1,
2000, to April 30, 2000, for approximately 2,000 BBLS per day. These costless
collars have a floor price ranging from $21.53 per BBL to $23.27 per BBL and a
cap price ranging from $25.83 per BBL to $27.31 per BBL. These costless collar
contracts entitle the Company to receive settlements from the counterparties
in amounts, if any, by which the monthly average settlement price for each
NYMEX trading day during a contract month is less than the floor price. If the
monthly average settlement price is above the applicable cap price, then the
Company will owe the counterparties for the excess of the monthly average
settlement price over the applicable cap price. If the monthly average
settlement price falls between the applicable floor and cap price, then
neither party will have any liability to the other party for that month.
Payment, if any, is made monthly under each of the contracts in an amount
equal to the net amount due either party based on the volumes per day
multiplied by the difference between the NYMEX average price and the cap, if
the NYMEX average price exceeds the cap price, or if the NYMEX average price
is less than the floor price, then the volumes per day multiplied by the
difference between the floor price and the NYMEX average price.

The net effect of these costless collar hedges was a $.06 per BBL
reduction in the average crude oil price for the first quarter. Costless
collar hedges for April 2000, which average 2,000 BBLS per day, were not
closed at March 31, 2000.

The Company had no natural gas or crude oil hedging contracts related
to its production in the first quarter of 1999.

NGM, from time to time, employs hedging arrangements in connection with
its purchases and sales of production. While most of NGM's purchases are made
for an index-based price, NGM's customers often require prices that are either
fixed or related to NYMEX. In order to establish a fixed margin and mitigate
the risk of price volatility, NGM may convert a fixed or NYMEX sale to an
index-based sales price (such as purchasing a NYMEX futures contract at the
Henry Hub with an adjoining basis swap at a physical location). Due to the
size of such transactions and certain restraints imposed by contract and by
Company guidelines, as of March 31, 2000 the Company had no material market
risk exposure from NGM's hedging activity. During the first quarter of 2000,
NGM had hedging transactions with broker-dealers that represented
approximately 541,000 MMBTU's of gas per day. Hedges for April 2000 through
March 2001, which range from 31,000 MMBTU's to 442,000 MMBTU's of gas per day,
and from June 2001 through May 2006, for 20,000 MMBTU's of gas per day, for
future physical transactions, were not closed at March 31, 2000. During the
first quarter of 1999, NGM had hedging transactions with broker-dealers that
represented approximately 728,000 MMBTU's of gas per day.

<PAGE>

Certain selected oil and gas operating statistics follow:

<TABLE>
<CAPTION>
For the three months
ended March 31,
-----------------------
2000 1999
--------- ----------
<S> <C> <C>
Oil revenue (in thousands)................................................. $ 54,603 $ 29,070
Average daily oil production - BBLS....................................... 26,167 33,408
Average oil price per BBL.................................................. $ 23.55 $ 9.93
Gas revenues (in thousands)................................................ $ 91,994 $ 79,274
Average daily gas production - MCFS........................................ 422,360 520,506
Average gas price per MCF.................................................. $ 2.47 $ 1.76

</TABLE>

BBLS - BARRELS
MCF - THOUSAND CUBIC FEET

Oil and gas exploration expense increased $5.8 million to $16.0 million
for the three months ended March 31, 2000, as compared with the same period of
1999. This increase is attributable to a $4.3 million increase in dry hole
expense, as compared to the same period of 1999.

Oil and gas operations expense decreased $5.2 million to $26.2 million
for the three months ended March 31, 2000, as compared with the same period of
1999. This decrease is primarily attributable to a $5.3 million decrease in
lease operations expense, offset by a $.4 million increase in production tax.

Depreciation, depletion and amortization (DD&A) expense decreased 23
percent for the three months ended March 31, 2000 compared with the same
period in 1999. The unit rate of DD&A per barrel of oil equivalents (BOE),
converting gas to oil on the basis of 6 MCF per barrel, was $5.87 for the
first three months of 2000 compared with $6.15 for the same period of 1999.
The decrease in the unit rate per BOE is due to the sale of non-core assets in
the third quarter of 1999, a decrease in the periodic expense accrual for the
reserve for future liabilities related to dismantlement and reclamation costs
for offshore facilities and the increase of oil and gas reserves to the
Company's producing properties at year end 1999. The Company has recorded,
through charges to DD&A, a reserve for future liabilities related to
dismantlement and reclamation costs for offshore facilities. This reserve is
based on the best estimates of Company engineers of such costs to be incurred
in future years.

Interest expense decreased 26 percent to $9.6 million for the three
months ended March 31, 2000 as compared with the same period of 1999. The
decrease is attributable to a $264.8 million decrease in long-term debt for
the comparable quarter of 1999.

FUTURE TRENDS

The Company expects flat oil and gas volumes in 2000 compared to 1999,
with increasing volumes in 2001 and 2002. The 2001 volume increase would be
primarily due to the Alba field condensate production and gas feedstock for
the methanol plant in Equatorial Guinea and the Amistad gas field production
in Ecuador along with domestic exploitation. The 2002 volume increase would be
primarily due to oil production in China.

The Company recently set its 2000 exploration and development budget at
$497.5 million. Such expenditures are planned to be funded through internally
generated cash flows and $61.6 million of borrowings from the $300 million
credit facility to complete the methanol project. The Company believes that it
is well positioned to take advantage of strategic acquisitions as they become
available, through internally generated cash flows or borrowings.

Management believes that the Company is well positioned with its
balanced reserves of oil and gas to take advantage of future price increases
that may occur. However, the uncertainty of oil and gas prices continues to
affect the oil and gas industry. The Company can not predict the extent to
which its revenues will be affected by inflation, government regulation or
changing prices.

<PAGE>

The Company's Board of Directors authorized a repurchase of up to $50
million of the Company's common stock. As of March 31, 2000, the Company had
completed 60.5 percent of the repurchase plan. The repurchase of 1,386,400
shares at an average cost of $21.84 per share was funded from the Company's
current cash flow.

YEAR 2000 ISSUE

The Year 2000 issue is a result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment, software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than
the year 2000. This can result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. The Company took various initiatives intended to ensure
that its computer equipment and software would function properly with respect
to dates in the year 2000 and thereafter.

As of March 31, 2000, the Company has encountered no significant Year
2000 problems.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

The Company is exposed to market risk in the normal course of its
business operations. Management believes that the Company is well positioned
with its mix of oil and gas reserves to take advantage of future price
increases that may occur. However, the uncertainty of oil and gas prices
continues to impact the domestic oil and gas industry. Due to the volatility
of oil and gas prices, the Company, from time to time, has used derivative
hedging and may do so in the future as a means of controlling its exposure to
price changes. The Company had no crude oil or natural gas hedges for its
production in 1999. The swap component of the contracts discussed in the
following paragraphs was treated as a hedge for accounting purposes only.

<PAGE>

The Company has a $300 million credit agreement which exposes the
Company to the risk of earnings or cash flow loss due to changes in market
interest rates. At March 31, 2000, the Company had $35.0 million outstanding
on its $300 million credit facility which has a maturity date of December 24,
2002. The interest rate is based upon a Eurodollar rate plus a range of 17.5
to 50 basis points. All other Company long-term debt is fixed-rate and,
therefore, does not expose the Company to the risk of earnings or cash flow
loss due to changes in market interest rates.

On June 17, 1999, the Company entered into a new $100 million 364 day
credit agreement with certain commercial lending institutions. There is no
balance outstanding on this agreement which is based upon a Eurodollar rate
plus 37.5 to 87.5 basis points depending upon the percentage of utilization.

The Company does not invest in foreign currency derivatives. The U.S.
dollar is considered the primary currency for each of the Company's
international operations. Transactions that are completed in a foreign
currency are translated into U.S. dollars and recorded in the financial
statements. Translation gains or losses were not material in any of the
periods presented and the Company does not believe it is currently exposed to
any material risk of loss on this basis. Such gains or losses are included in
other expense on the income statement. However, certain sales transactions are
concluded in foreign currencies and the Company therefore is exposed to
potential risk of loss based on fluctuation in exchange rates from time to
time.

<PAGE>

PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) The annual meeting of stockholders of the Company was held at 10:00
a.m., local time, on Tuesday, April 25, 2000 in Ardmore, Oklahoma.

(b) Proxies were solicited by the Board of Directors of the Company pursuant
to Regulation 14A under the Securities Exchange Act of 1934. There was
no solicitation in opposition to the Board of Directors' nominees as
listed in the proxy statement and all such nominees were duly elected.

(c) Out of a total of 55,658,663 shares of common stock of the Company
outstanding and entitled to vote, 47,317,023 shares were present in
person or by proxy, representing approximately 89 percent.

<TABLE>
<CAPTION>
Number of Shares
WITHHOLDING
Number of Shares AUTHORITY
Voting FOR Election to Vote for Election
As Director As Director
----------------------------------- ---------------------------------
<S> <C> <C>
Alan A. Baker ............................ 46,833,451 483,572
Michael A. Cawley......................... 46,831,343 485,680
Edward F. Cox ............................ 46,835,890 481,133
Thomas E. Hassen ......................... 46,828,313 488,710
Dale P. Jones ............................ 46,830,172 486,851
Robert Kelley ............................ 46,836,890 480,133
Harold F. Kleinman ....................... 43,873,511 3,443,512
T. Don Stacy ............................. 46,829,343 487,680

</TABLE>

(d) Other matters voted on by the shareholders, as fully described in the
proxy statement for the annual meeting, and results of the voting are
as follows:

1. Stockholders adopted a resolution to amend the Company's
Certificate of Incorporation, as described in the Company's
proxy statement dated March 24, 2000. (For 42,417,246; Against
2,170,071; Abstaining 103,828).

2. Stockholders adopted a resolution to approve and ratify the
Company's 1992 Stock Option and Restricted Stock Plan, as
amended and restated. (For 26,410,361; Against 20,628,862;
Abstaining 277,800)

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The information required by this Item 6(a) is set forth in the Index to
Exhibits accompanying this quarterly report on Form 10-Q.

(b) The Company did not file any reports on Form 8-K during the three months
ended March 31, 2000.

<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

NOBLE AFFILIATES, INC.
(Registrant)

Date May 15, 2000 /s/ JAMES L. McELVANY
---------------------- -------------------------------------
JAMES L. McELVANY
Vice President-Finance and Treasurer
(Principal Financial Officer
and Authorized Signatory)

<PAGE>

INDEX TO EXHIBITS

Exhibit
Number Exhibit
- ------------ --------------------------------------------------------

<S> <C>
27.1 Financial Data Schedule

</TABLE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,635
<SECURITIES> 0
<RECEIVABLES> 112,718
<ALLOWANCES> 0
<INVENTORY> 3,756
<CURRENT-ASSETS> 159,982
<PP&E> 2,871,705
<DEPRECIATION> 1,615,669
<TOTAL-ASSETS> 1,488,357
<CURRENT-LIABILITIES> 186,160
<BONDS> 480,362
0
0
<COMMON> 195,289
<OTHER-SE> 482,982
<TOTAL-LIABILITY-AND-EQUITY> 1,488,357
<SALES> 151,003
<TOTAL-REVENUES> 271,761
<CGS> 0
<TOTAL-COSTS> 218,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,622
<INCOME-PRETAX> 43,352
<INCOME-TAX> 16,472
<INCOME-CONTINUING> 26,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,880
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.47

</TABLE>