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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-61547
CONTINENTAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-0767549
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 N. INDEPENDENCE, SUITE 300, ENID, OKLAHOMA 73701
(Address of principal executive offices) (Zip Code)
(580) 233-8955
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if
change since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months(or
for such shorter period that the registrant was required to file
such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding as of May 13, 1999
Common Stock, $1.00 par value 49,041
<PAGE>
TABLE OF CONTENTS
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CONTINENTAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
<CAPTION>
(Unaudited)
December 31, March 31,
1998 1999
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . $ 15,817 $ 3,462
Accounts receivable-
Oil and gas sales . . . . . . . 7,255 5,562
Joint interest and other, net . 7,733 5,805
Inventories. . . . . . . . . . . 4,627 5,473
Prepaid expenses . . . . . . . . 168 1,745
Advances to affiliates . . . . . 1 1
---------- ---------
Total current assets. . . . . 35,601 22,048
---------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties
Producing properties. . . . . . 241,358 242,153
Nonproducing leaseholds . . . . 47,583 46,370
Gas gathering and processing
facilities. . . . . . . . . . . 24,709 25,170
Service properties, equipment and
other . . . . . . . . . . . . . 15,989 15,792
---------- ---------
Total property and equipment. 329,639 329,485
Less--Accumulated depreciation,
depletion and amortization . (121,061) (126,286)
---------- ---------
Net property and equipment. . 208,578 203,199
---------- ---------
OTHER ASSETS:
Debt issuance costs. . . . . . . 9,023 8,716
Other assets . . . . . . . . . . 537 442
---------- ---------
Total other assets. . . . 9,560 9,158
---------- ---------
Total assets. . . . . . . . . $ 253,739 $ 234,405
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . $ 10,532 $ 5,893
Current portion of long-term debt 337 325
Revenues and royalties payable . 5,855 4,130
Accrued liabilities and other. . 9,224 4,769
Short-term debt - stockholder. . 10,000 ---
---------- ---------
Total current liabilities . . 35,948 15,117
---------- ---------
LONG-TERM DEBT, net of current
portion . . . . . . . . . . . . . 157,302 161,820
OTHER NONCURRENT LIABILITIES . . . 205 204
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 75,000
shares authorized, 49,041 shares
issued and outstanding . . . . 49 49
Additional paid-in-capital . . . 2,721 2,721
Retained earnings. . . . . . . . 57,514 54,494
---------- ---------
Total stockholders' equity. . 60,284 57,264
---------- ---------
Total liabilities and
stockholders' equity . . . . $ 253,739 $ 234,405
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
CONTINENTAL RESOURCES, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share data)
<CAPTION>
Three Months Ended March 31,
1998 1999
-------- --------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 16,083 $ 10,113
Crude oil marketing --- 90,139
Gathering, marketing and processing 6,639 3,436
Oil and gas service operations 1,467 1,343
-------- --------
Total revenues 24,189 105,031
-------- --------
OPERATING COSTS AND EXPENSES:
Production expenses 4,061 2,891
Production taxes 777 543
Exploration expenses 1,548 1,356
Crude oil marketing purchases and
expenses --- 86,642
Gathering, marketing and processing 5,826 2,743
Oil and gas service operations 883 343
Depreciation, depletion and
amortization 5,408 5,443
General and administrative 2,215 2,032
-------- --------
Total operating costs and expenses 20,718 101,993
-------- --------
OPERATING INCOME 3,471 3,038
-------- --------
OTHER INCOME AND EXPENSES
Interest income 243 86
Interest expense (2,005) (4,104)
Other income (expense), net 6 8
-------- --------
Total other income and (expenses) ( 1,756) (4,010)
-------- --------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 1,715 (972)
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE --- (2,048)
-------- --------
NET INCOME (LOSS) $1,715 ($3,020)
======== ========
EARNING (LOSS) PER COMMON SHARE $34.97 ($61.59)
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CONTINENTAL RESOURCES, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 1,715 ($ 3,020)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities--
Depreciation, depletion and amortization 5,408 5,443
Gain on sale of assets (4) (3)
Dry hole cost and impairment of undeveloped leases --- 1,441
Other noncurrent assets --- (1)
Changes in current assets and liabilities--
Decrease in accounts receivable 7,429 3,621
Increase in inventories (285) (846)
(Increase)/decrease in prepaid expenses 114 (1,577)
Decrease in accounts payable (5,771) (4,639)
Decrease in revenues and royalties payable (3,919) (1,726)
Decrease in accrued liabilities and other (672) (4,455)
-------- --------
Net cash provided by (used in) operating
activities 4,015 (5,762)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development (14,944) (925)
Gas gathering and processing facilities and
service properties, equipment and other (1,087) (272)
Purchase of producing properties (8,650) ---
Proceeds from sale of assets 3 3
Advances from (to) affiliates (413) (1)
-------- --------
Net Cash used in investing activities (25,091) (1,195)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and other 18,650 4,600
Repayment of line of credit and other (78) (94)
Proceeds from note receivable --- 96
Proceeds from short-term note due to stockholder 2,490 ---
Repayment of short-term note due to stockholder --- (10,000)
-------- --------
Net cash provided by (used in) financing
activities 21,062 (5,398)
-------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (14) (12,355)
CASH AND CASH EQUIVALENTS, beginning of period 1,301 15,817
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,287 $ 3,462
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 999 ---
Interest paid $1,341 $4,104
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CONTINENTAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. CONTINENTAL RESOURCES, INC.'S FINANCIAL STATEMENTS
In the opinion of Continental Resources, Inc. ("CRI" or the
"Company") the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Company's
financial position as of March 31, 1999,the results of operations
and cash flows for the three months ended March 31, 1998 and
1999. The unaudited consolidated financial statements for the
interim periods presented do not contain all information required
by generally accepted accounting principles. These consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in
the Company's annual report on form 10-K for the year ended
December 31, 1998.
2. LONG-TERM DEBT:
Long-term debt as of December 31, 1998 and March 31, 1999
consists of the following:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
(dollars in thousands)
<S> <C> <C>
Senior subordinated notes........... $150,000 $150,000
Line of credit agreement............ 4,000 8,600
Notes Payable to General Electric
Capital Corporation............... 3,582 3,507
Capital Lease agreements............ 57 38
-------- --------
Outstanding Debt............... 157,639 162,145
Less--Current portion............... 337 325
-------- --------
Total long-term debt........... $157,302 $161,820
======== ========
</TABLE>
In February 1999, the Company borrowed $4.6 million against its
revolving credit facility. The current borrowing base of the
Credit Facility is $25 million. The next borrowing base
determination date is expected to be July 1, 1999.
3. CRUDE OIL MARKETING:
On July 1, 1998, the Company began entering into third party
contracts to purchase and resale crude oil at prices based on
current month NYMEX prices, current posting prices or at a stated
contract price. Purchases and sales are recorded at the stated
contract price. During the first quarter ended March 31, 1999,
the Company had revenues of $90.1 million on purchases of $86.2
million, while incurring expenses of $.4 million, resulting in a
margin from crude oil marketing activities during the quarter of
$3.9 million.
In December 1998, the Emerging Issues Task Force ("EITF")
released their consensus on EITF 98-10 "Accounting for Energy
Trading and Risk Management Activities." This statement requires
that contracts for the purchase and sale of energy commodities
which are entered into for the purpose of speculating on market
movements or otherwise generating gains from market price
differences to be recorded at their market value, as of the
balance sheet date, with any corresponding gains or losses
recorded as income from operations. The Company adopted EITF
98-10 effective January 1, 1999. As a result, the Company
recorded an expense for the cumulative effect change in
accounting principle of $2,048,000. At March 31, 1999, the
market value of the Company's energy trading contracts resulted
in an unrealized gain of approximately $1,524,000, which is
recorded in prepaid expenses in the accompanying consolidated
balance sheet.
4. COMMITMENTS AND CONTINGENCIES:
On May 15, 1998, the Company and an unrelated third party
entered into a definitive agreement to exchange undivided
interests in approximately 65,000 gross (59,000 net) leasehold
acres in the northern half of the Cedar Hills Field. On August
19, 1998, the Company instituted a declaratory judgment action
against the unrelated third party in the Oklahoma District Court.
The Company seeks a declaratory judgment determining that it is
excused from further performance under its exchange agreement
with the third party. The third party has denied the Company's
allegations and seeks specific performance by the Company, plus
monetary damages of an unspecified amount. The Cedar Hills
unitization process is expected to continue. On March 31, 1999,
the North Dakota Industrial Commission held a hearing to discuss
the status of the unitization process. The timing and probability
of unitization should be enhanced by the state's objective to
invoke their wide range of authority, including the ability to
restrict production, which will be targeted towards preserving
the value of the field and ensuring that secondary recovery
reserves are captured. A decision has not yet been made, based
on this meeting.
5. GUARANTOR SUBSIDIARIES
The Company's wholly owned subsidiaries have guaranteed the
Notes and the Credit Facility. The following is a summary of the
financial information of Continental Gas, Inc. as of March 31,
1998 and for the three moth period ended March 31, 1998 and 1999.
<TABLE>
AS OF MARCH 31, 1999
<CAPTION>
(dollars in thousands)
<S> <C>
Current assets. . . . . . . . . $ 1,775
Noncurrent assets . . . . . . . 22,214
----------
Total assets. . . . . . . . . 23,989
==========
Current liabilities . . . . . . 13,074
Stockholder's equity. . . . . . 10,915
----------
Total liabilities and stockholder's equity 23,989
==========
</TABLE>
<TABLE>
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
1998 1999
---- ----
<S> <C> <C>
Total revenues. . . . . . . . . 6,784 4,119
Operating costs and expenses. . 6,579 4,271
----- -----
Operating income (loss) . . . 205 (152)
Other income and (expenses) . . (123) (186)
----- -----
Net income (loss) . . . . . . . 82 (338)
----- -----
At March 31, 1999, current liabilities payable to the Company
totaled approximately $10.0 million. For the three months ended
March 31, 1998 and 1999 depreciation, depletion and amortization
included in operating costs totaled approximately $0.5 million
and $0.5 million, respectively.
Since its incorporation, Continental Crude Co. has had no
operations, has acquired no assets and has incurred no liabilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
The following discussion and analysis should be read in
conjunction with the Company's unaudited consolidated financial
statements and the notes thereto appearing elsewhere in this
report. The Company's operating results for the periods
discussed may not be indicative of future performance. In the
text below, financial statement numbers have been rounded,
however, the percentage changes are based on unrounded amounts.
RESULTS OF OPERATIONS
REVENUES
GENERAL
Revenues, excluding crude oil marketing, have decreased $9.3
million, or 38%, to $14.9 million during the three months ended
March 31, 1999 from $24.2 million during the comparable period in
1998. The decrease is attributable to lower oil prices and lower
oil and gas production. During the third quarter of 1998, the
Company began marketing crude oil that had been purchased from
third parties. This activity generated an additional $90.1
million in revenue to the Company for the three month period of 1999.
OIL AND GAS
Oil and gas sales revenue for the three months ended March 31,
1999 decreased $6.0 million, or 37%, to $10.1 million from $16.1
million during the comparable period in 1998. Oil production
decreased by 186 MBbls to 790 MBbls, or 19%, for the three months
ended March 31, 1999 from 976 MBbls for the comparable period in
1998. The production decrease was mainly due to the natural
production declines for new wells and the shutting in of wells
which had become uneconomic due to lower oil prices. Oil prices
decreased to an average of $10.01/Bbl, or 27%, during the three
months ended March 31, 1999 from $13.77/Bbl, for the comparable
1998 period price. Gas sales decreased $0.4 million, or 15%, to
$2.2 for the three month period in 1999 from $2.6 million
during the period in 1998. Gas production for the period
increased 95 mmcf, or 0 .6%, to 1,589mmcf from 1,494 mmcf in
1998. The increase in production for the period was offset by a
12% decrease in gas prices to $1.39/mcf in 1999 from $1.77/mcf in 1998.
CRUDE OIL MARKETING
The Company began marketing crude oil purchased from third
parties in July 1998. During the three month period ended March
31, 1999, the Company recognized revenues on crude oil purchased
for resale of $90.1 million.
GATHERING, MARKETING AND PROCESSING
Gathering, marketing and processing revenue in the first
quarter of 1999 was $3.4 million, a decrease of $3.2 million, or
48%, from $6.6 million in the same period in 1998. This
reduction in revenue was attributable to the elimination of
purchases and resales of third party gas for marketing purposes
and a refocus on purchases to supply the Company's gas plants.
OIL AND GAS SERVICE OPERATIONS
There was no material change in the Company's revenues from Oil
and Gas Service Operations between the quarter ended March 31,
1999 and the quarter ended March 31, 1998.
COSTS AND EXPENSES
PRODUCTION EXPENSES
Production expense decreased by $1.2 million, or 29%, to $2.9
million during the three months ended March 31, 1999 from $4.1
million during the comparable period in 1998. High Pressure Air
Injection Units operating costs decreased by $0.5 million due to
a reduction in air compression for injection into the unit.
Operating expenses increased by $0.3 million due to the Worland
Field Acquisition, while operating expenses for all other fields
decreased by $0.8 million.
PRODUCTION TAXES
Production taxes decreased by $0.3 million , or 30%, to $0.5
million during the three months ended March 31, 1999 from $0.8
million during the comparable period in 1998 due to lower oil and
gas prices and tax rate relief based on pricing allowed by some
states.
EXPLORATION EXPENSES
For the three months ended March 31, 1999, exploration expenses
decreased $0.1 million, or 6%, to $1.4 million from $1.5 million
during the comparable period of 1998. The decrease was due to a
$0.1 million decrease in expired lease costs.
During the second quarter of 1999, leases on approximately
11,300 net leasehold acres, in which the Company has an
investment of $0.6 million are scheduled to expire. The Company
has not determined if these leases will be drilled, renewed, or
allowed to expire.
CRUDE OIL MARKETING
The Company began marketing crude oil purchased from third
parties during the quarter ended September 30, 1998. For the
three months ended March 31, 1999, the Company recognized expense
for the purchases of crude oil purchased for resale of $86.2
million, and marketing expenses of $0.4 million.
GATHERING, MARKETING, AND PROCESSING
During the three months ended March 31, 1999, the Company
incurred gathering, marketing and processing expenses of $2.7
million, representing a $3.1 million, or 53% decrease from $5.8
million incurred in the first quarter of 1998 due to the
elimination of purchases of third party gas not used for gas
plant supply, but sold as part of the Company's gas marketing
activities.
DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A)
For the three months ended March 31,1998, DD&A expense remained
constant at $5.4 million with the DD&A expense associated with
greater investment being offset by lower depreciation rates on a
unit of production basis.
GENERAL AND ADMINISTRATIVE ("G&A")
For the three months ended March 31, 1999 G&A expense was $2.0
million, net of overhead reimbursement of $0.7 million, for a
period total of $1.3 million or a decrease of $0.4 million or
24%, from G&A expense of $2.2 million net of overhead
reimbursement of $0.5 million for a total of $1.7 million during
the comparable period in 1998. This decrease was primarily due
to increased overhead reimbursement and decreased office expenses
of $0.2 million. G&A expenses per Boe for the first quarter of
1999 was $1.26 compared to $1.44 for the first quarter of 1998.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 1999 was
$4.1 million, an increase of $2.1 million, or 105%, from $2.0
million in the comparable 1998 period. The increase in the 1999
interest expense is attributable primarily to higher levels of
indebtedness outstanding during 1999.
OTHER INCOME
Other income for the three months ended March 31, 1999 and
1998 remained insignificant.
INCOME TAXES
Effective June 1, 1997, the Company converted to an
"S-corporation" under Subchapter S of the Internal Revenue Code.
As a result, income taxes attributable to Federal taxable income
of the Company after May 31, 1997, if any, will be payable by the
stockholders of the Company.
NET INCOME
For the three months ended March 31, 1999 net income was a
loss of $3.0 million, a decrease in net income of $4.7 million,
or 276%, from $1.7 million of income for the comparable period in
1998. This decrease in net income is due primarily to lower oil
and gas prices discussed previously.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
Net cash used in operating activities for the three months
ended March 31, 1999 was $5.8 million, a decrease of $9.8
million, or 244%, from $4.0 million provided by operating
activities during the comparable 1998 period. Cash as of March
31, 1999 was $3.5 million, a decrease of $12.3 million or 78% of
the balance of $15.8 million held at December 31, 1998. Of the
$3.5 million balance at March 31, 1999, $2.6 million has been set
aside by the Company to provide funds for the August 1, 1999
interest payment on the 10 1/4% Senior Subordinated Notes.
LONG-TERM DEBT
Long-term debt at December 31, 1998 and March 31, 1999 was
$157.3 million and $161.8 million, respectively. The $4.5
million, or 3%, increase was due to an advance on the Company's
line of credit in February 1999.
CREDIT FACILITY
Long-term debt outstanding under the line of credit at
December 31, 1998 and March 31, 1999 included $4.0 million and
$8.6 million, respectively, of revolving credit debt under the
line of credit agreement. The effective rate of interest under
the line of credit agreement was 7.75% at December 31, 1998 and
March 31, 1999. The Credit Facility matures May 14, 2001. The
Credit Facility provides for interest based on the prime rate of
Bank One Oklahoma, N.A., or the London Interbank Offered Rate for
1, 2, 3 or 6-month offshore deposits as offered by Bank One to
major banks in the London Interbank Market, rounded upwards, if
necessary, to the nearest 1/16%, and adjusted for maximum cost of
reserves, if any. The scheduled borrowing base redetermination
date is expected to be July 1, 1999.
CAPITAL EXPENDITURES
The Company's 1999 capital expenditures budget is $10.7
million, exclusive of acquisitions. During the three months ended
March 31, 1999, the Company incurred $1.2 million of capital
expenditures, exclusive of acquisitions. The Company expects to
fund the 1999 capital budget through cash flow from operations
and its Credit Facility.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements". All
statements other than statements of historical fact, including,
without limitation, statements contained under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business
strategy, plans and objectives of management of the Company for
future operations and industry conditions, are forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results
to differ materially from the Company's expectations ("Cautionary
Statements") include without limitation future production levels,
future prices and demand for oil and gas, results of future
exploration and development activities, future operating and
development cost, the effect of existing and future laws and
governmental regulations (including those pertaining to the
environment) and the political and economic climate of the United
States as discussed in this quarterly report and the other
documents of the Company filed with the Securities and Exchange
Commission (the "Commission"). All subsequent written and oral
forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by
the Cautionary Statements.
YEAR 2000
The Company is reviewing its computer software and hardware,
telecommunications systems, process control systems and business
relationships to locate potential operational problems associated
with the year 2000.
The Company's computer consultant has reviewed the Company's
mainframe hardware and operating software and updates to both
have been performed. All additional programming changes have
been provided for the operating system and have been installed.
Management believes the mainframe computer system will be year
2000 compatible. The financial software package utilized on the
mainframe computer has already been tested and updated by the
software vendor. The Company is in the process of developing a
plan to further test the financial software during the second
quarter of 1999 to insure the compatibility of the software with
the year 2000. Assessment of other less critical software
systems and various types of computer equipment is continuing and
should be completed by the second quarter of 1999. The Company
believes that the potential impact, if any, of these systems not
being year 2000 compliant may, at most, require employees to
manually complete otherwise automated tasks or calculations.
The telephone system billing software utilized in tracking
telephone usage is known to be incompatible with the year 2000.
A plan is currently in place to increase the capacity of the
telephone system and new software will be installed at that time
to make the system year 2000 compatible. The cost of this update
will be $20,000. The Company believes that the radios being used
for communications with field operations will not be impacted.
The Company also relies on various public telephone companies to
supply normal voice and electronic data service and service to
operating locations which utilize process control alarms. These
alarms notify Company personnel if there are operations
abnormalities that need to be checked and, if necessary,
corrected. If the telephone service were disrupted, the
operations would need to be more closely monitored by Company
personnel, but because the operations are not actually controlled
through the phone systems, there should be no interruption in
operations. Surveys will be made of all telephone companies to
determine their system readiness and contingency plans will be
developed for those areas where service that is year 2000
compliant has not been verified.
The gas measurement systems and gas processing facilities
operated by the Company use various Program Logic Controllers
(PLC's) and alarm mechanisms. The Company has been verbally
notified that the measurement systems that it currently uses are
year 2000 compatible and Company tests have been done to verify
that information.
There can be no assurance that the systems of other companies
on which the Company's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion
that is incompatible with the Company's systems would not have a
material adverse effect on the Company. The Company will
evaluate its relationships with third parties to determine any
critical services, suppliers, or customers. The third parties
will include financial services, utility services, oil and gas
purchasers and parts and supply vendors. Once critical
relationships have been identified the third parties will be
surveyed and their preparedness for year 2000 evaluated. If the
Company believes that the third parties have not minimized risk
satisfactorily it will evaluate alternatives to the current
relationships. The survey and evaluation of preparedness should
be completed by June 30, 1999.
The Company believes that there is minimal risk associated with
internal operating systems in relation to year 2000
compatibility. Plans are already in place to address known areas
of incompatibility at costs estimated to be less than $100,000.
Because of the immaterial nature of the expenditures on an
individual basis, the Company plans to finance all costs through
normal operating funds.
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. During 1998, the Company had no oil
or gas hedging transactions for its produciton, however, the
company did begin marketing crude oil. Most of the Company's
purchases are made at either a NYMEX based price or a fixed
price. As of March 31, 1999, for the periods July, 1999 through
July, 2000 the Company had purchased a total of 975,000 barrels
of oil on contract at an average price of $15.15 per barrel. If
oil prices declined by 10% prior to the marketing of these barrels,
the company would incur a loss of $1.5 million.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is party to litigation or other
legal proceedings that it considers to be a part of the ordinary
course of its business. The Company is not involved in any legal
proceedings nor is it party to any pending or threatened claims
that could reasonably be expected to have a material adverse
effect on its financial condition or results of operations.
On May 15, 1998, the Company and an unrelated third party
entered into a definitive agreement to exchange undivided
interests in approximately 65,000 gross (59,000 net) leasehold
acres in the northern half of the Cedar Hills Field. On August
19, 1998, the Company instituted a declaratory judgment action
against the unrelated third party in the Oklahoma District Court.
The Company seeks a declaratory judgment determining that it is
excused from further performance under its exchange agreement
with the third party. The third party has denied the Company's
allegations and seeks specific performance by the Company, plus
monetary damages of an unspecified amount. The Cedar Hills
unitization process is expected to continue. On March 31, 1999,
the North Dakota Industrial Commission held a hearing to discuss
the status of the unitization process. The timing and probability
of unitization should be enhanced by the state's objective to
invoke their wide range of authority, including the ability to
restrict production, which will be targeted towards preserving
the value of the field and ensuring that secondary recovery
reserves are captured. A decision has not yet been made, based
on this meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits
DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of Continental
Resources, Inc.(1) [3.1]
3.2 Amended and Restate Bylaws of Continental Resources, Inc.(1) [3.2]
3.3 Certificate of Incorporation of Continental Gas, Inc.(1) [3.3]
3.4 Bylaws of Continental Gas, Inc., as amended and restated.(1) [3.4]
3.5 Certificate of Incorporation of Continental Crude Co.(1) [3.5]
3.6 Bylaws of Continental Crude Co. (1) [3.6]
4.1 Restated Credit Agreement dated May 12, 1998 among Continental
Resources, Inc. and Continental Gas, Inc., as Borrowers and Bank
One, Oklahoma, N.A. and the Institutions named therein as Banks
and Bank One, Oklahoma, N.A. as Agent (the "Credit Agreement")(1)
[4.1]
4.1.1 First Amendment to the Credit Agreement between Registrant,
the financial institutions named therein and Bank One, Oklahoma,
N.A., as Agent dated February 10, 1999.(2) [4.1.1]
4.2 Form of Revolving Note under the Credit Agreement (1) [4.2]
4.3 Indenture dated as of July 24, 1998 between Continental
Resources, Inc., as Issuer, the Subsidiary Guarantors named
therein and the United States Trust Company of New York, as
Trustee (1) [4.3]
4.4 Exchange and Registration Rights Agreement dated July 24,
1998 between Continental Resources, Inc., the Subsidiary
Guarantors named therein and Chase Securities, Inc. (1) [4.4]
10.1 Purchase and Sale Agreement dated March 28, 1998 by and
between Bass Enterprises Production Co., et al. As Sellers
and Continental Resources, Inc. as Buyer (1) [10.1]
10.2 Worland Area Purchase and Sale Agreement, as amended, dated
June 25, 1998 by and between Continental Resources, Inc. as
Seller and Harold G. Hamm, Trustee of the Harold G. Hamm
Revocable Intervivos Trust dated April 23, 1984 as Buyer.(1) [10.2]
10.3 Illinois Purchase and Sale Agreement dated October 7, 1998
by and between Continental Resources, Inc. as Seller and
Farrar Oil Company as Buyer (2) [10.3]
21.0 Subsidiaries (2) [21.0]
27* Financial Data Schedule
- --------------------
* Filed herewith
(1) Filed as an exhibit to the Company's Form S-4 Registration
Statement on Form S-4, as amended (No. 333-61547) which was
filed with the Securities and Exchange Commission. The exhibit
number is indicated in brackets and incorporated by reference herein.
(2) Filed as an exhibit to the Company's 1998 Annual Report on
Form 10-K which was filed with the Securities and Exchange
Commission. The exhibit number is indicated in brackets and
incorporated by reference herein.
(b): Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three months ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONTINENTAL RESOURCES, INC.
ROGER V. CLEMENT
Roger V. Clement
Senior Vice President
(Chief Financial Officer)
Date: May 14, 1999
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
3.1 Amended and Restated Certificate Incorporated herein by reference
of Incorporation of Continental
Resources, Inc.
3.2 Amended and Restate Bylaws of Incorporated herein by reference
Continental Resources, Inc.
3.3 Certificate of Incorporation of Incorporated herein by reference
Continental Gas, Inc.
3.4 Bylaws of Continental Gas, Inc., Incorporated herein by reference
as amended and restated.
3.5 Certificate of Incorporation of Incorporated herein by reference
Continental Crude Co.
3.6 Bylaws of Continental Crude Co. Incorporated herein by reference
4.1 Restated Credit Agreement dated Incorporated herein by reference
May 12, 1998 among Continental
Resources, Inc. and Continental
Gas, Inc., as Borrowers and Bank
One, Oklahoma, N.A. and the
Institutions named therein as
Banks and Bank One, Oklahoma,
N.A. as Agent (the "Credit
Agreement")
4.1.1 First Amendment to the Credit Incorporated herein by reference
Agreement between Registrant,
the financial institutions named
therein and Bank One, Oklahoma,
N.A., as Agent dated February
10, 1999.
4.2 Form of Revolving Note under the Incorporated herein by reference
Credit Agreement
4.3 Indenture dated as of July 24, Incorporated herein by reference
1998 between Continental
Resources, Inc., as Issuer, the
Subsidiary Guarantors named
therein and the United States
Trust Company of New York, as
Trustee
4.4 Exchange and Registration Rights Incorporated herein by reference
Agreement dated July 24, 1998
between Continental Resources,
Inc., the Subsidiary Guarantors
named therein and Chase
Securities, Inc.
10.1 Purchase and Sale Agreement Incorporated herein by reference
dated March 28, 1998 by and
between Bass Enterprises
Production Co., et al. as Sellers
and Continental Resources, Inc.
as Buyer
10.2 Worland Area Purchase and Sale Incorporated herein by reference
Agreement, as amended, dated
June 25, 1998 by and between
Continental Resources, Inc. as
Seller and Harold G. Hamm,
Trustee of the Harold G. Hamm
Revocable Intervivos Trust dated
April 23, 1984 as Buyer
10.3 Illinois Purchase and Sale Incorporated herein by reference
Agreement dated October 7, 1998
by and between Continental
Resources, Inc. as Seller and
Farrar Oil Company as Buyer
21.0 Subsidiaries Incorporated herein by reference
27 Financial Data Schedule Filed herewith electronically
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet at March 31, 1999 and the unaudited
consolidated statement of operations at March 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,461,921
<SECURITIES> 0
<RECEIVABLES> 11,367,159
<ALLOWANCES> 0
<INVENTORY> 5,473,155
<CURRENT-ASSETS> 22,048,480
<PP&E> 329,484,938
<DEPRECIATION> (126,286,028)
<TOTAL-ASSETS> 234,405,089
<CURRENT-LIABILITIES> 15,117,248
<BONDS> 150,000,000
0
0
<COMMON> 49,041
<OTHER-SE> 57,215,027
<TOTAL-LIABILITY-AND-EQUITY> 234,405,089
<SALES> 100,168,060
<TOTAL-REVENUES> 104,946,332
<CGS> 93,397,260
<TOTAL-COSTS> 103,957,404
<OTHER-EXPENSES> (1,083,719)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,103,959
<INCOME-PRETAX> (3,020,240)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,020,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,020,240)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
