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 June 30, 2000
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 August 11, 2000
Common Stock, $1.00 par value 49,041
<PAGE>
TABLE OF CONTENTS
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . . . . 12
PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . 13
<PAGE>
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
ASSETS
<CAPTION>
(Unaudited)
December 31, June 30,
1999 2000
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 10,421 $ 10,524
Accounts receivable-
Oil and gas sales 11,508 13,470
Joint interest and other, net 8,517 6,687
Inventories 4,112 5,457
Prepaid expenses 1,690 655
----------- -----------
Total current assets 36,248 36,793
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas properties
Producing properties 293,467 302,536
Nonproducing leaseholds 43,083 41,501
Gas gathering and processing facilities 25,740 24,285
Service properties, equipment and other 14,884 16,534
----------- -----------
Total property and equipment 377,174 384,856
Less--Accumulated depreciation, depletion
and amortization (138,872) (143,560)
----------- -----------
Net property and equipment 238,302 241,296
----------- -----------
OTHER ASSETS:
Debt issuance costs 7,847 6,841
Other assets 162 31
----------- -----------
Total other assets 8,009 6,872
----------- -----------
Total assets $ 282,559 $ 284,961
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,448 $ 13,553
Current portion of long-term debt 356 8,007
Revenues and royalties payable 6,865 6,017
Accrued liabilities and other 9,776 10,546
----------- -----------
Total current liabilities 25,445 38,123
----------- -----------
LONG-TERM DEBT, net of current portion 170,281 141,000
OTHER NONCURRENT LIABILITIES 167 167
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 75,000 shares
authorized, 49,041 shares issued and
outstanding 49 49
Additional paid-in-capital 25,182 25,182
Retained earnings 61,435 80,440
----------- -----------
Total stockholders' equity 86,666 105,671
----------- -----------
Total liabilities and stockholders'
equity $ 282,559 $ 284,961
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<TABLE>
CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<CAPTION>
Three Months Ended June 30,
---------------------------
1999 2000
----------- -----------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 15,634 $ 26,934
Crude oil marketing 34,194 70,166
Gathering, marketing and processing 3,758 7,085
Oil and gas service operations 1,752 1,627
----------- -----------
Total revenues 55,338 105,812
----------- -----------
OPERATING COSTS AND EXPENSES:
Production expenses 3,413 4,937
Production taxes 1,077 2,185
Exploration expenses 1,931 3,932
Crude oil marketing purchases and expenses 32,382 71,924
Gathering, marketing and processing 3,113 5,756
Oil and gas service operations 1,037 1,218
Depreciation, depletion and amortization 4,240 4,710
General and administrative 2,141 2,248
----------- -----------
Total operating costs and expenses 49,334 96,910
----------- -----------
OPERATING INCOME 6,004 8,902
----------- -----------
OTHER INCOME AND EXPENSES
Interest income 101 265
Interest expense (4,100) (4,079)
Other income(expense), net 26 (399)
----------- -----------
Total other income and (expenses) ( 3,973) (4,213)
----------- -----------
NET INCOME $ 2,031 $ 4,689
=========== ===========
EARNINGS PER COMMON SHARE $ 41.41 $ 95.62
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 25,747 $ 54,762
Crude oil marketing 124,334 131,971
Gathering, marketing and processing 7,194 13,989
Oil and gas service operations 3,094 3,690
----------- -----------
Total revenues 160,369 204,412
----------- -----------
OPERATING COSTS AND EXPENSES:
Production expenses 6,305 9,716
Production taxes 1,621 4,329
Exploration expenses 3,287 4,925
Crude oil marketing purchases and expenses 119,024 132,666
Gathering, marketing and processing 5,856 11,066
Oil and gas service operations 1,380 2,399
Depreciation, depletion and amortization 9,683 10,260
General and administrative 4,172 4,381
----------- -----------
Total operating costs and expenses 151,328 179,742
----------- -----------
OPERATING INCOME 9,041 24,670
----------- -----------
OTHER INCOME AND EXPENSES
Interest income 187 423
Interest expense (8,204) (8,163)
Other income, net 35 3,075
----------- -----------
Total other income and (expenses) (7,982) (4,665)
----------- -----------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 1,059 20,005
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (2,048) -
----------- -----------
NET INCOME (LOSS) $ (989) $ 20,005
=========== ===========
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ 21.59 $ 407.92
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE AFTER
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ (20.18) $ 407.92
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION>
Six Months Ended June 30,
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (989) $ 20,005
Adjustments to reconcile to net income or
(loss) to cash provided by operating activities--
Depreciation, depletion and amortization 9,683 10,260
Gain on sale of assets (8) (3,081)
Dry hole cost and impairment of
undeveloped leases 2,941 3,158
Other noncurrent assets (3) 761
Changes in current assets and liabilities--
(Increase)/Decrease in accounts receivable 3,043 (131)
Increase in inventories (533) (1,346)
Decrease/(Increase) in prepaid expenses (2,713) 1,035
Increase/(Decrease) in accounts payable (5,357) 5,105
Decrease in revenues and royalties payable (1,009) (848)
Increase/(Decrease) in accrued liabilities
and other (238) 769
----------- -----------
Net cash provided by (used in)operating
activities 4,817 35,687
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development (3,748) (19,624)
Gas gathering and processing facilities and
service properties, equipment and other (763) (290)
Proceeds from sale of assets 25 6,959
Proceeds from note receivable 185 -
----------- -----------
Net cash used in investing
activities (4,301) (12,955)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and other 4,600 12,600
Repayment of line of credit and other (176) (34,229)
Payment of cash dividend - (1,000)
Repayment of short-term note due to
stockholder (10,000) -
----------- -----------
Net cash provided by (used
in) financing activities (5,576) (22,629)
----------- -----------
NET INCREASE (DECREASE) IN CASH (5,060) 103
CASH AND CASH EQUIVALENTS, beginning of period 15,817 10,421
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 10,757 $ 10,524
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,502 $ 8,493
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES
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 June 30, 2000, the
results of operations and cash flows for the three and six month periods ended
June 30, 1999 and 2000. The unaudited consolidated financial statements for
the interim periods presented do not contain all information required by
accounting principles generally accepted in the United States. The results of
operations for any interim period are not necessarily indicative of the
results of operations for the entire year. 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, 1999.
2. LONG-TERM DEBT:
Long-term debt as of December 31, 1999 and June 30, 2000 consists of the
following:
<TABLE>
<CAPTION>
December 31,1999 June 30, 2000
---------------- -------------
(dollars in thousands)
<S> <C> <C>
Senior Subordinated Notes $ 150,000 $ 141,000
Credit Facility - 8,000
Notes payable to principle stockholder 18,600 -
Notes payable to General Electric Capital
Corporation 2,017 -
Capital lease agreements 20 7
--------- ---------
Outstanding debt 170,637 149,007
Less current portion 356 8,007
--------- ---------
Total long-term debt $ 170,281 $ 141,000
========= =========
</TABLE>
On December 31, 1999, the Company's principal stockholder contributed his
undivided 50% interest in the Worland Properties and the Company assumed his
loan of $18.6 million. By February 5, 2000, the Company had paid this loan
in full with cash flow from operations and bank borrowings.
Subsequent to June 30, 2000 the Company made payments of $2.0 million to
reduce the outstanding debt against its credit facility to $6.0 million. The
current borrowing base of the credit facility is $25.0 million until January
1, 2001 when the next redetermination is expected to occur.
As of June 30, 2000, the Company has purchased and retired a total of $9.0
million of the Senior Subordinated notes.
3. CRUDE OIL MARKETING:
On July 1, 1998, the Company began entering into third party contracts to
purchase and resell 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 six months ended June 30,
2000, the Company had revenues from purchases and resales of crude oil of
$132.0 million on purchases of $132.7 million, while incurring expenses of
$0.06 million, resulting in a loss from crude oil marketing activities during
the quarter of $0.7 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 of change in accounting
principle of $2.0 million. At June 30, 2000, the market value of the
Company's open energy trading contracts resulted in an unrealized gain of $0.5
million which is recorded in crude oil marketing revenues in the accompanying
consolidated statement of operations and prepaid expenses in the accompanying
consolidated balance sheet.
In June 1998, the Financial Acounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and for Hedging Activities", with an effective date
for periods beginning after June 15, 1999. In July 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133". As
a result of SFAS No. 137, adoption of SFAS No. 133 is now required for
financial statements for periods beginning after June 15, 2000. In June 2000,
the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities", which amends the accounting and reporting
standards of SFAS No. 133 for certain derivative instruments and hedging
activities. SFAS No. 133 sweeps in a broad population of transactions and
changes the previous accounting definition of a derivative instrument. Under
SFAS No. 133, every derivative instrument is recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company will
prospectively adopt this new standard effective January 1, 2001, and manage-
ment believes the adoption of this new standard will not have a material
impact on its consolidated financial position or results of operation.
4. COMMITMENTS AND CONTINGENCIES:
On May 15, 1998, the Company and Burlington Resources Oil & Gas Company,
Inc. ("Burlington") entered into an agreement ("Trade Agreement") to exchange
undivided interests in approximately 65,000 gross (59,000 net) leasehold acres
in the northern half of the Cedar Hills Field in North Dakota. On August 19,
1998, the Company instituted a declaratory judgment action against Burlington
in the District Court of Garfield County, Oklahoma. The Company sought a
declaratory judgment determining that it was excused from further performance
under the Trade Agreement. On December 22, 1999, the Court issued an Order
requiring the parties to proceed in accordance with terms of the Trade
Agreement and instructing them to use their best efforts to consummate the
Trade Agreement. The Company complied with the Order of the Court and
attempted to proceed with the terms of the Trade Agreement. However,
substantial title defects arose with respect to the interests to be received
by the Company from Burlington under the terms of the Trade Agreement. As a
result of the title defects which could result in the cancellation of
Burlington's leases, the Company filed a Motion to Dismiss seeking a
determination by the Court that the Company was excused from performance under
the Trade Agreement. A hearing was held the week of June 19, 2000.
Subsequent to that hearing, the Court issued a verbal ruling granting the
Company's Motion to Dismiss.
5. GUARANTOR SUBSIDIARIES
The Company's wholly owned subsidiaries, Continental Gas, Inc. (CGI) and
Continental Crude Co. (CCC), have guaranteed the Senior Subordinated Notes and
the Credit Facility. The following is a summary of the financial information
of Continental Gas, Inc. as of December 31, 1999 and June 30, 2000 and for the
six month periods ended June 30, 1999 and 2000.
<TABLE>
<CAPTION>
AS OF:
------
(dollars in thousands)
December 31, 1999 June 30, 2000
----------------- -------------
<S> <C> <C>
Current assets $ 3,392 $ 3,071
Noncurrent assets 21,643 19,728
--------- ---------
Total assets $ 25,035 $ 22,799
========= =========
Current liabilities $ 13,188 $ 9,080
Noncurrent liabilities - -
Stockholder's equity 11,847 13,719
--------- ---------
Total liabilities and stockholder's equity $ 25,035 $ 22,799
========= =========
</TABLE>
<TABLE>
FOR THE THREE MONTH AND SIX MONTH PERIOD ENDED JUNE 30,
-------------------------------------------------------
(dollars in thousands)
<CAPTION>
1999 2000
------------------ ------------------
3 month 6 month 3 month 6 month
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue $ 4,632 $ 8,751 $ 8,070 $ 15,853
Operating costs and expenses 4,706 8,977 7,374 14,210
------- ------- ------- --------
Operating income (loss) (74) (226) 696 1,643
Other income (expenses) (199) (385) (468) 229
------- ------ ------- --------
Net loss (income) $ (273) $ (611) $ 228 $ 1,872
======= ====== ======= ========
</TABLE>
At June 30, 2000, current liabilities payable to the Company by CGI totaled
approximately $6.8 million. For the six months ended June 30, 1999 and 2000,
depreciation, depletion and amortization included in CGI's operating costs
totaled approximately $1.1 million and $1.1 million, respectively. Other
income for the six month period ended June 30, 2000 includes a gain from the
sale of two gas systems of $0.9 million offset by interest expense.
Since its incorporation, CCC 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 AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 1999
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
During the third quarter of 1998, the Company began marketing crude oil
that had been purchased from third parties. This activity generated $70.1
million in additional revenue to the Company for the three month period ending
June 30, 2000 compared to $34.2 million for the three month period ending June
30, 1999 and $132.0 million in revenue for the six month period ended June 30,
2000 compared to $124.3 million for the six month period ended June 30, 1999.
Revenues, excluding crude oil marketing, increased $14.5 million, or
69%, to $35.6 million during the three months ended June 30, 2000 from $21.1
million during the comparable period in 1999. The increase is mainly
attributable to higher oil and gas prices and a slight increase in oil and gas
production.
Revenues, excluding crude oil marketing, increased $36.4 million, or
101%, to $72.4 million during the six months ended June 30, 2000 from $36.0
million during the comparable period in 1999. The increase is mainly
attributable to higher oil and gas prices and a slight increase in oil and gas
production.
OIL AND GAS SALES
Oil and gas sales revenue for the three months ended June 30, 2000
increased $11.3 million, or 72%, to $26.9 million from $15.6 million during
the comparable period in 1999 due primarily to the increase in prices.
Oil and gas sales revenue for the six months ended June 30, 2000
increased $29.0 million, or 112%, to $54.7 million from $25.7 million during
the same period in 1999 due to increased prices and the acquisition of the
Worland properties.
Oil and gas sales revenue for the six month period ended June 30, 2000,
also includes an adjustment paid by a non-affiliated third party oil
purchaser for $1.1 million on previously delivered volumes.
Oil revenues, exclusive of hedging activities, for the three months
ended June 30, 2000 increased $10.3 million, or 80%, to $23.2 million from
$12.9 million during the same period in 1999. Oil production decreased by 10
MBbls to 856 MBbls, or 1%, for the three months ended June 30, 2000 from 866
MBbls for the comparable period in 1999. Oil prices, exclusive of hedging and
adjustments, increased to an average of $27.05/Bbl, or 82%, during the three
months ended June 30, 2000, from $14.88/Bbl, for the comparable 1999 period.
Oil revenues for the six months ended June 30, 2000 increased $26.7
million, or 128%, to $47.5 million from $20.8 million in the same period in
1999. Oil production increased by 54 MBbls to 1,710 MBbls, or 3%, for the six
months ended June 30, 2000 from 1,656 MBbls for the same period in 1999. Oil
prices, exclusive of hedging and adjustments, increased to an average of
$27.74/Bbl, or 121%, during the six months ended June 30, 2000, from
$12.55/Bbl, for the comparable 1999 period. The increase in oil sales is due
to higher oil prices in 2000 and the addition of the Worland properties.
Gas sales increased $1.9 million, or 68%, to $4.6 million from $2.7
million for the three month period ended June 30, 2000 compared to the same
period in 1999. Gas production for the period increased 165 Mmcf, or 9%, to
1,918 Mmcf from 1,753 Mmcf in 1999.
Gas revenues for the six months ended June 30, 2000 increased $3.8
million, or 77%, to $8.8 million from $5.0 million in the same period in 1999.
Gas production for the period increased 683 Mmcf, or 20%, to 4,025 Mmcf from
3,342 Mmcf in 1999. The increase in gas sales is due to higher prices in 2000
and increased volumes in the Gulf Coast region.
During the second quarter of 2000, the Company entered into forward
fixed price sales contracts in accordance with its hedging policy, to mitigate
its exposure to the price volatility associated with its crude oil production.
The monthly contracts total 80,000 barrels per month and extend from July
2000 through December 2000. The Company has 40,000 barrels per month (or
240,000 barrels) at $22.04 and 40,000 barrels per month (or 240,000 barrels)
at $25.47. The Company accounts for changes in the market value of its
hedging instruments as deferred gains or losses until the production month of
the hedged transaction, at which time the realized gain or loss is recognized
in the results of operations. At June 30, 2000, the Company had open
contracts totaling approximately 480,000 barrels with unrealized deferred
losses of approximately $2.8 million.
CRUDE OIL MARKETING
During the three month period ended June 30, 2000, the Company
recognized revenues on crude oil purchased for resale of $70.1 million
compared to $34.2 million for the three month period ended June 30, 1999. An
increase in volume and an increase in prices made up the difference between
1999 and 2000.
For the year to date period ended June 30, 2000, the Company has
recognized $132.0 million on crude oil purchased for resale compared to $124.3
million for the six months ended June 30, 1999.
GATHERING, MARKETING AND PROCESSING
Gathering, marketing and processing revenue in the second quarter of
2000 was $7.1 million, an increase of $3.3 million, or 89%, from $3.8 million
in the same period in 1999. This increase in revenue during the second
quarter was attributable to higher natural gas and liquids prices in the 2000
period.
Gathering, marketing and processing revenue for the six months ended
June 30, 2000 was $14.0 million, a $6.8 million, or 94% increase, from $7.2
million in the comparable 1999 period. The increase for the six month period
was due to higher natural gas and liquids prices in the 2000 period.
OIL AND GAS SERVICE OPERATIONS
Oil and gas service operations for the three months ended June 30, 2000
and June 30, 1999 had no significant change.
Oil and gas service operations for the six months ended June 30, 2000
increased $0.6 million, or 19%, to $3.7 million from $3.1 million during the
same period in 1999. The increase was due primarily to higher prices received
for reclaimed oil sales from the Central Treating Unit.
OPERATING COSTS AND EXPENSES
PRODUCTION EXPENSES
Production expenses increased by $1.5 million, or 45%, to $4.9 million
during the three months ended June 30, 2000 from $3.4 million during the
comparable period in 1999. This increase is mainly due to increased activity
from the Worland properties of approximately $0.7 million and increased energy
costs of $0.5 million.
Production expenses increased by $3.4 million, or 54%, to $9.7 million
for the year to date period ended June 30, 2000 from $6.3 million during the
comparable period in 1999. This increase is mainly due to the activity from
the Worland properties of approximately $1.4 million and the increased energy
costs of $0.9 million.
PRODUCTION TAXES
Production taxes increased by $1.1 million , or 102%, to $2.2 million
during the three months ended June 30, 2000 from $1.1 million during the
comparable period in 1999. The increase is due to higher oil and gas prices
and higher tax rates on wells in North Dakota that have reached the expiration
date of tax relief given on newly drilled wells.
Production taxes for the six months ended June 30, 2000 have increased
by $2.7 million, or 167%, to $4.3 million compared to $1.6 million in the
comparable period of 1999. The increase is due to higher oil and gas prices
and higher tax rates on wells in North Dakota that have reached the expiration
date of tax relief given on newly drilled wells.
EXPLORATION EXPENSES
For the three months ended June 30, 2000, exploration expenses increased
$2.0 million, or 104%, to $3.9 million from $1.9 million during the comparable
period of 1999. The increase was due to a $1.4 million increase in dry hole
and in expired lease costs.
The year to date exploration expense as of June 30, 2000 increased $1.6
million, or 50%, to $4.9 million from $3.3 million incurred in the comparable
period in 1999. The increase was due to a $1.4 million increase in dry hole
costs and an increase in expired lease costs.
CRUDE OIL MARKETING
For the three months ended June 30, 2000, the Company recognized expense
for the purchases of crude oil purchased for resale of $71.9 million compared
to purchases of crude oil for resale of $32.4 million for the three months
ended June 30, 1999. The increase is due to an increase in volumes and an
increase in costs of crude oil purchases.
For the six month period ended June 30, 2000, the Company's purchases of
crude oil increased by $13.6 million, or 11%, to $132.6 million from $119.0
million for the same period in 1999. Marketing expense for the six months
ended June 30, 2000 has decreased $0.7 million, or 92%, to $0.06 million
from $0.7 million for the same period in 1999 due to reductions in
transportation fees from renegotiated contracts.
GATHERING, MARKETING, AND PROCESSING
During the three months ended June 30, 2000, the Company incurred
gathering, marketing and processing expenses of $5.7 million, representing a
$2.6 million, or 85% increase from the $3.1 million incurred in the second
quarter of 1999 due to higher natural gas and liquids prices.
Gathering, marketing and processing expenses for the six months ended
June 30, 2000 were $11.0 million, a $5.2 million, or 89% increase, from $5.8
million in the same period in 1999 due to higher natural gas and liquids
prices.
OIL AND GAS SERVICE OPERATIONS
During the three months ended June 30, 2000 and June 30, 1999 there was
no significant change in oil and gas service operations.
Oil and gas service operations expenses increased by $1.0 million, or
74% to $2.4 million for the six months ended June 30, 2000 compared to $1.4
million for the same period in 1999. The increase is due to higher prices paid
for oil treated at the Central Treating Unit.
DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A)
For the three months ended June 30, 2000, DD&A expense increased $0.5
million, or 11%, to $4.7 million in 2000 from $4.2 million for the comparable
period in 1999.
For the six months ended June 30, 2000, DD&A expense increased $0.6
million, or 6% to $10.3 million from $9.7 million for the same period in 1999
due to the acquisition of the Worland properties.
GENERAL AND ADMINISTRATIVE ("G&A")
For the three months ended June 30, 2000, G&A expense was $2.2 million,
net of overhead reimbursement of $0.4 million, for a period total of $1.8
million or an increase of $0.1 million or 5%, from G&A expense of $2.1 million
net of overhead reimbursement of $0.8 million for a net of $1.3 million during
the comparable period in 1999. The increase was primarily due to increased
legal expenses and increased employment expense. G&A expenses per BOE for the
second quarter of 2000 was $1.53 compared to $1.20 for the second quarter of
1999.
For the six month period ended June 30, 2000, G&A expense was $4.4
million, net of overhead reimbursement of $1.0 million, for a period total of
$3.4 million or an increase of $0.2 million, or 5%, from G&A expense of $4.2
million net of overhead reimbursement of $1.5 million for a total of $2.7
million during the comparable period in 1999. G&A expense per BOE for the
first six months of 2000 was $1.43 compared to $1.22 for the same period in
1999. The increase was primarily due to increased legal expense and increased
employment expense.
OTHER COSTS AND EXPENSES
INTEREST EXPENSE
For the three months ended June 30, 2000 and June 30, 1999, interest
expense remained constant at $4.1 million and the year to date period ended
June 30, 2000 and June 30, 1999 also remained constant at $8.2 million.
OTHER INCOME
Other income for the three months ended June 30, 2000 was an expense of
$0.4 compared to income of $0.03 million for the same period in 1999. The 2000
expense was the write off of debt issuance costs associated with the
purchase and retirement of $9.0 million of our bonds.
Other income for the year to date ended June 30, 2000 was $3.1 million
compared to $0.03 million for the year to date ended June 30, 1999. The
increase reflects the sale of the Arkoma Basin properties which was
approximately $3.1 million and a gain on the repurchase of bonds of $0.13
million offset by other miscellaneous expenses.
NET INCOME
For the three months ended June 30, 2000 net income was $4.6 million,
an increase in net income of $2.7 million from $2.0 million for the comparable
period in 1999. The increase in net income was due primarily to higher oil and
gas prices and a slight increase in production volumes.
For the six months ended June 30, 2000 net income was $20.0 million, an
increase in net income of $21.0 million from a loss of $1.0 million for the
comparable period in 1999. The increase in net income was due to higher oil
and gas prices and an increase in production volumes, and a gain on the sale
of the Arkoma properties. Net income in 2000 includes a $1.1 million price
adjustment paid by a non-affiliated third party oil purchaser and does
not repeat a $2.0 million negative adjustment for a change in accounting
principle in 1999.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
Net cash provided by operating activities for the six months ended June
30, 2000 was $35.7 million, an increase of $30.9 million from $4.8 million
provided by operating activities during the comparable 1999 period. Cash as
of June 30, 2000 was $10.5 million, an increase of $0.1 million or 1% of the
balance of $10.4 million held at December 31, 1999. Of the $10.5 million
balance at June 30, 2000, $6.5 million was set aside and used by the Company
to make its August 1, 2000 interest payment on its 10.25% Senior Subordinated
Notes.
DEBT
Long-term debt at December 31, 1999 and June 30, 2000 was $170.2 million
and $141.0 million, respectively. During the quarter ended June 30, 2000,
the Company purchased and retired $5.0 million of the Senior Subordinated
notes. Subsequent to June 30, 2000, the Company made payments of $2.0 million
to reduce its outstanding borrowings against its Bank Line of Credit to $6.0
million.
CREDIT FACILITY
Debt outstanding under the line of credit at June 30, 2000 included $8.0
million of revolving credit debt under the credit facility. The effective
rate of interest under the line of credit agreement is 7.9% at June 30,
2000. The credit facility, which matures May 14, 2001, charges interest based
on the prime rate of MidFirst Bank, or the London Interbank Offered Rate for
1, 2, 3 or 6-month offshore deposits as offered by MidFirst Bank 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
borrowing base of the credit facility is $25.0 million until January 1, 2001
when the next redetermination is expected to occur. On April 21, 2000 the
Company replaced its credit facility with a $25.0 million credit facility
provided by MidFirst Bank in Oklahoma City, Oklahoma, under terms
substantially similar to the previous credit agreement with Bank One. The
credit agreement was amended on August 1, 2000 to add a correspondent bank and
other minor changes were made.
CAPITAL EXPENDITURES
The Company's 2000 capital expenditures budget is $30.4 million,
exclusive of acquisitions. During the six months ended June 30, 2000, the
Company incurred $19.9 million of capital expenditures, exclusive of
acquisitions, compared to $4.5 million, exclusive of acquisitions, in the six
month period of 1999. The $15.4 million increase was the result of increased
drilling activity in the Rocky Mountain and Gulf Coast. The Company expects to
fund the remainder of its 2000 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.
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. As of June 30, 2000, the Company had entered into fixed price
sales contracts totaling 80,000 barrels per month in order to hedge its price
risk exposure on its July through December 2000 production. At June 30, 2000,
the Company has deferred recognition of $2.8 million of net market losses on
its hedging contracts until the respective production month. Most of the
Company's crude oil marketing contracts are made at either a NYMEX based price
or a fixed price. As of June 30, 2000, for the periods July 2000 through
December 2000, the Company has fixed price purchase and sales contracts
related to its marketing activities for which it has recorded an unrealized
net gain of approximately $0.5 million. At June 30, 2000, the Company had a
net long position on its crude marketing activities of 430,000 barrels
consisting of monthly long or short positions ranging from 40,000 to 110,000
barrels per month.
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. Except as discussed below, 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 Burlington Resources Oil & Gas Company,
Inc. ("Burlington") entered into an agreement ("Trade Agreement") to exchange
undivided interests in approximately 65,000 gross (59,000 net) leasehold acres
in the northern half of the Cedar Hills Field in North Dakota. On August 19,
1998, the Company instituted a declaratory judgment action against Burlington
in the District Court of Garfield County, Oklahoma. The Company sought a
declaratory judgment determining that it was excused from further performance
under the Trade Agreement. On December 22, 1999, the Court issued an Order
requiring the parties to proceed in accordance with terms of the Trade
Agreement and instructing them to use their best efforts to consummate the
Trade Agreement. The Company complied with the Order of the Court and
attempted to proceed with the terms of the Trade Agreement. However,
substantial title defects arose with respect to the interests to be received
by the Company from Burlington under the terms of the Trade Agreement. As a
result of the title defects which could result in the cancellation of
Burlington's leases, the Company filed a Motion to Dismiss seeking a
determination by the Court that the Company was excused from performance under
the Trade Agreement. A hearing was held the week of June 19, 2000.
Subsequent to that hearing, the Court issued a verbal ruling granting the
Company's Motion to Dismiss.
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 Restated Credit Agreement dated April 21, 2000 among Continental
Resources, Inc. and Continental Gas, Inc., as Borrowers and MidFirst
Bank as Agent (the "Credit Agreement")(4) [4.4]
4.4.1 Form of Revolving Note under the Credit Agreement with MidFirst Bank
(4) [4.4.1]
4.4.2* First Amendment to the Credit Agreement between Registrant, the
financial institutions named therein and MidFirst Bank as Agent dated
August 1, 2000
10.4 Conveyance Agreement of Worland Area Properties from Harold G. Hamm,
Trustee of the Harold G. Hamm Revocable Intervivos Trust dated April
23, 1984 to Continental Resources, Inc. (3) [10.4]
10.5 Purchase Agreement signed January 2000, effective October 1, 1999 by
and between Patrick Energy Corporation as Buyer and Continental
Resource, Inc. as Seller (3) [10.5]
21.0 Subsidiaries (2) [21.0]
27* Financial Data Schedule
---------------
* Filed herewith
(1) Filed as an exhibit to the Registrant'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 Registrant's 1998 Annual Report on Form 10-K
which was filed with the Securities and Exchange Commission on March 31,
1999. The exhibit number is indicated in brackets and incorporated by
reference herein.
(3) Filed as an exhibit to the Registrant's 1999 Annual Report on Form 10-K
which was filed with the Securities and Exchange Commission on March 28,
2000. The exhibit number is indicated in brackets and incorporated by
reference herein.
(4) Filed as an exhibit to the Registrant's quarterly report on Form 10-Q for
its fiscal quarter ended March 31, 2000. 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 six months
ended June 30, 2000.
<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: August 11, 2000
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
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
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 Restated Credit Agreement dated Incorporated herein by reference
April 21, 2000 among Continental
Resources, Inc. and Continental
Gas, Inc., as Borrowers and
MidFirst Bank as Agent
4.4.1 Form of Revolving Note under Incorporated herein by reference
the Credit Agreement with
MidFirst Bank
4.4.2 First Amendment to the Credit Filed herewith electronically
Agreement between Registrant, the
financial institutions named
therein and MidFirst Bank as Agent
dated August 1, 2000
10.4 Conveyance Agreement of Worland Incorporated herein by reference
Area Properties from Harold G. Hamm,
Trustee of the Harold G. Hamm
Revocable Intervivos Trust dated April
23, 1984 to Continental Resources, Inc.
10.5 Purchase Agreement signed January Incorporated herein by reference
2000, effective October 1, 1999 by and
between Patrick Energy Corporation
as Buyer and Continental Resource,
Inc. as Seller
21.0 Subsidiaries Incorporated herein by reference
27 Financial Data Schedule Filed herewith electronically
</TABLE>
