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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-61547
CONTINENTAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-0767549
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or organization)
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 reports), 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 November 10, 2000
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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
<CAPTION>
(Unaudited)
December 31, September 30,
1999 2000
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 10,421 $ 6,387
Accounts receivable-
Oil and gas sales 11,508 14,304
Joint interest and other, net 8,517 6,462
Inventories 4,112 4,900
Prepaid expenses 1,690 653
----------- -----------
Total current assets 36,248 32,706
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas properties
Producing properties 293,467 311,838
Nonproducing leaseholds 43,083 41,754
Gas gathering and processing
facilities 25,740 24,799
Service properties, equipment
and other 14,884 15,633
----------- -----------
Total property and equipment 377,174 394,024
Less--Accumulated depreciation,
depletion and amortization (138,872) (148,771)
----------- -----------
Net property and equipment 238,302 245,253
----------- -----------
OTHER ASSETS:
Debt issuance costs 7,847 6,569
Other assets 162 31
----------- -----------
Total other assets 8,009 6,600
----------- -----------
Total assets $ 282,559 $ 284,559
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,448 $ 10,647
Current portion of long-term debt 356 2,000
Revenues and royalties payable 6,865 6,465
Accrued liabilities and other 9,776 7,324
----------- -----------
Total current liabilities 25,445 26,436
----------- -----------
LONG-TERM DEBT, net of current
portion 170,281 141,000
OTHER NONCURRENT LIABILITIES 167 166
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 91,726
----------- -----------
Total stockholders' equity 86,666 116,957
----------- -----------
Total liabilities and stockholders'
equity $ 282,559 $ 284,559
=========== ===========
</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 Sept 30,
---------------------------
1999 2000
----------- -----------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 18,744 $ 29,375
Crude oil marketing 49,158 64,656
Gathering, marketing and processing 5,164 8,008
Oil and gas service operations 1,698 1,845
----------- -----------
Total revenues 74,764 103,884
----------- -----------
OPERATING COSTS AND EXPENSES:
Production expenses 4,090 4,693
Production taxes 1,344 2,433
Exploration expenses 1,852 1,550
Crude oil marketing purchases and expenses 48,133 63,797
Gathering, marketing and processing 4,270 6,860
Oil and gas service operations 979 1,285
Depreciation, depletion and amortization 4,105 5,779
General and administrative 1,842 2,959
----------- -----------
Total operating costs and expenses 66,615 89,356
----------- -----------
OPERATING INCOME 8,149 14,528
----------- -----------
OTHER INCOME AND EXPENSES
Interest income 109 155
Interest expense (4,032) (3,863)
Other income(expense), net 78 467
----------- -----------
Total other income and (expenses) (3,845) (3,241)
----------- -----------
NET INCOME $ 4,304 $ 11,287
=========== ===========
EARNINGS PER COMMON SHARE $ 87.76 $ 230.15
=========== ===========
</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>
Nine Months Ended Sept 30,
--------------------------
1999 2000
---------- ----------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 44,492 $ 84,137
Crude oil marketing 173,491 196,627
Gathering, marketing and processing 12,358 21,997
Oil and gas service operations 4,792 5,536
---------- ----------
Total revenues 235,133 308,297
---------- ----------
OPERATING COSTS AND EXPENSES:
Production expenses 10,395 14,409
Production taxes 2,965 6,762
Exploration expenses 5,139 6,475
Crude oil marketing purchases
and expenses 167,157 196,463
Gathering, marketing and processing 10,126 17,926
Oil and gas service operations 2,358 3,684
Depreciation, depletion and
amortization 13,789 16,040
General and administrative 6,015 7,340
---------- ----------
Total operating costs and expenses 217,944 269,099
---------- ----------
OPERATING INCOME 17,189 39,198
---------- ----------
OTHER INCOME AND EXPENSES
Interest income 296 578
Interest expense (12,236) (12,026)
Other income, net 113 3,542
---------- ----------
Total other income and (expenses) (11,827) (7,906)
---------- ----------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 5,362 31,292
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (2,048) -
---------- ----------
NET INCOME (LOSS) $ 3,314 $ 31,292
========== ==========
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ 109.35 $ 638.07
========== ==========
EARNINGS (LOSS) PER COMMON SHARE AFTER
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ 67.58 $ 638.07
========== ==========
</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>
Nine Months Ended Sept 30,
--------------------------
1999 2000
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 3,314 $ 31,292
Adjustments to reconcile to net
income or (loss) to cash provided
by operating activities--
Depreciation, depletion and amortization 13,789 16,040
Gain on sale of assets (9) (3,533)
Dry hole cost and impairment of
undeveloped leases 4,003 3,815
Other noncurrent assets 257 853
Other noncurrent liabilities (38) (1)
Changes in current assets and liabilities--
(Increase)/decrease in accounts receivable 349 (740)
Increase in inventories (197) (789)
(Increase)/decrease in prepaid expenses (2,336) 1,037
Increase/(decrease) in accounts payable (3,821) 2,199
Increase/(decrease) in revenues and
royalties payable 338 (401)
Decrease in accrued liabilities and other (3,486) (2,452)
---------- ----------
Net cash provided by operating
activities 12,163 47,320
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development (6,248) (30,370)
Gas gathering and processing facilities
and service properties, equipment and
other (1,487) 42
Purchase of producing properties (1,329) -
Proceeds from sale of assets 26 7,611
---------- ----------
Net cash used in investing
activities (9,038) (22,717)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and other 4,600 12,600
Repayment of line of credit and other (4,964) (40,237)
Payment of cash dividend - (1,000)
Repayment of short-term note due to
stockholder (10,000) -
---------- ----------
Net cash (used in) financing
activities (10,364) (28,637)
---------- ----------
NET DECREASE IN CASH (7,239) (4,034)
CASH AND CASH EQUIVALENTS, beginning
of period 15,817 10,421
---------- ----------
CASH AND CASH EQUIVALENTS, end of
period $ 8,578 $ 6,387
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 16,399 $ 16,079
</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 September 30, 2000, the results of
operations and cash flows for the three and nine month periods
ended September 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 September 30, 2000,
consists of the following:
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Senior Subordinated Notes $ 150,000 $ 141,000
Credit Facility - 2,000
Notes payable to principal stockholder 18,600 -
Notes payable to General Electric
Capital Corporation 2,017 -
Capital lease agreements 20 -
--------- ---------
Outstanding debt 170,637 143,000
Less current portion 356 2,000
--------- ---------
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 September 30, 2000, the Company borrowed $6.7
million from the credit facility making their total debt $8.7
million. The Company made payments of $2.0 million to reduce the
outstanding debt against its credit facility to $6.7 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 September 30, 2000, the Company had purchased and retired
a total of $9.0 million of the Senior Subordinated notes. On
October 23, 2000 the Company purchased an additional $7.35
million of the notes which were retired on November 1, 2000 for a
total to date of $16.35 million purchased and retired.
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 nine months ended September 30, 2000,
the Company had revenues from purchases and resales of crude oil
of $196.6 million on purchases and expenses of $196.4 million
resulting in a gain from crude oil marketing activities during
the period of $0.2 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 September 30, 2000, the market
value of the Company's open energy trading contracts resulted in
an unrealized gain of $0.3 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 Accounting 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 is in the process of identifying all its derivative
instruments and will prospectively adopt this new standard
effective January 1, 2001, and management 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. On October 11, 2000, the Court issued
its Finding of Fact, conclusions of Law and Order holding that
the Company was excused from further performance under the Trade
Agreement. The Court also dismissed Burlington's claim for
damages against the Company. No appeal has been taken from the
Order since a final Judgment has not been entered by the Court.
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 September 30, 2000, and for the nine
month periods ended September 30, 1999 and 2000.
<TABLE>
<CAPTION>
AS OF:
(dollars in thousands)
Dec. 31, 1999 Sept. 30, 2000
------------- --------------
<S> <C> <C>
Current assets $ 3,392 $ 3,443
Noncurrent assets 21,643 19,744
---------- ----------
Total assets $ 25,035 $ 23,187
========== ==========
Current liabilities $ 13,188 $ 9,128
Noncurrent liabilities - -
Stockholder's equity 11,847 14,059
---------- ----------
Total liabilities and
stockholder's equity $ 25,035 $ 23,187
========== ==========
</TABLE>
<TABLE>
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
(dollars in thousands)
<CAPTION>
1999 2000
----------------- -----------------
3 month 9 month 3 month 9 month
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue $ 6,225 $14,976 $ 9,094 $24,947
Operating costs and expenses 6,021 14,998 8,633 22,843
------- ------- ------- -------
Operating income (loss) 204 (22) 461 2,104
Other income (expenses) (179) (564) (121) 108
------- ------- ------- -------
Net loss (income) $ 25 $ (586) $ 340 $ 2,212
======= ======= ======= =======
</TABLE>
At September 30, 2000, current liabilities payable to the
Company by CGI totaled approximately $6.8 million. For the nine
months ended September 30, 1999 and 2000, depreciation, depletion
and amortization included in CGI's operating costs totaled
approximately $1.6 million and $1.5 million, respectively.
Other income for the nine month period ended September 30, 2000,
included 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 NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED
TO THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 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 $64.7 million in additional revenue to the
Company for the three month period ending September 30, 2000,
compared to $49.2 million for the three month period ending
September 30, 1999, and $196.6 million in revenue for the nine
month period ended September 30, 2000, compared to $173.5 million
for the nine month period ended September 30, 1999.
Revenues, excluding crude oil marketing, increased $13.6
million, or 53%, to $39.2 million during the three months ended
September 30, 2000, from $25.6 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 $50.0
million, or 81%, to $111.6 million during the nine months ended
September 30, 2000, from $61.6 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 September
30, 2000, increased $10.6 million, or 57%, to $29.3 million from
$18.7 million during the comparable period in 1999 due to the
increase in prices.
Oil and gas sales revenue for the nine months ended September
30, 2000, increased $39.6 million, or 89%, to $84.1 million from
$44.5 million during the same period in 1999 due to increased
prices and the additional production provided by the contribution
from the principal stockholder of the Worland properties.
Oil and gas sales revenue for the nine month period ended
September 30, 2000, also included an adjustment paid by a non-
affiliated third party oil purchaser for $1.1million on
previously delivered volumes.
Oil revenues, exclusive of hedging activities, for the three
months ended September 30, 2000, increased $8.8 million, or 56%,
to $24.6 million from $15.8 million during the same period in
1999. Oil production increased by 15 MBbls to 818 MBbls, or 2%,
for the three months ended September 30, 2000, from 803 MBbls for
the comparable period in 1999. Oil prices, exclusive of hedging
and adjustments, increased to an average of $30.15/Bbl, or 53%,
during the three months ended September 30, 2000, from
$19.74/Bbl, for the comparable 1999 period.
Oil revenues for the nine months ended September 30, 2000,
increased $35.5 million, or 97%, to $72.1 million from $36.6
million in the same period in 1999. Oil production increased by
69 MBbls to 2,528 MBbls, or 3%, for the nine months ended
September 30, 2000, from 2,459 MBbls for the same period in 1999.
Oil prices, exclusive of hedging and adjustments, increased to an
average of $28.52/Bbl, or 91%, during the nine months ended
September 30, 2000, from $14.90/Bbl, for the comparable 1999
period. The increase in oil sales is due to higher oil prices in
2000 and the additional production provided by the contribution
from the principal stockholder of the Worland properties.
Gas sales increased $3.8 million, or 131%, to $6.7 million
from $2.9 million for the three month period ended September 30,
2000, compared to the same period in 1999. Gas production for
the period increased 223 Mmcf, or 13%, to 1,901 Mmcf from 1,678
Mmcf in 1999.
Gas revenues for the nine months ended September 30, 2000,
increased $7.6 million, or 96%, to $15.5 million from $7.9
million in the same period in 1999. Gas production for the
period increased 907 Mmcf, or 18%, to 5,927 Mmcf from 5,020 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 third 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 October 2000
through December 2000. The Company has 40,000 barrels per month
(or 120,000 barrels) at $22.04 and 40,000 barrels per month (or
120,000 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 September 30, 2000, the Company had open hedge
contracts totaling approximately 240,000 barrels with unrealized
deferred losses of approximately $1.9 million.
Hedging losses for the three months ended September 30, 2000
were $2.0 million and for the nine months ended September 30,
2000 were $3.5 million and are included in oil and gas sales on
the accompanying statements of operations.
CRUDE OIL MARKETING
During the three month period ended September 30, 2000, the
Company recognized revenues on crude oil purchased for resale of
$64.7 million compared to $49.2 million for the three month
period ended September 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 September 30, 2000, the
Company has recognized $196.6 million on crude oil purchased for
resale compared to $173.5 million for the nine months ended
September 30, 1999.
GATHERING, MARKETING AND PROCESSING
Gathering, marketing and processing revenue in the third
quarter of 2000 was $8.0 million, an increase of $2.8 million,
or 54%, from $5.2 million in the same period in 1999. This
increase in revenue during the third quarter was attributable to
higher natural gas and liquid prices in the 2000 period.
Gathering, marketing and processing revenue for the nine months
ended September 30, 2000, was $22.0 million, a $9.6 million, or
78% increase, from $12.4 million in the comparable 1999 period.
The increase for the nine month period was due to higher natural
gas and liquid prices in the 2000 period.
OIL AND GAS SERVICE OPERATIONS
Oil and gas service operations for the three months ended
September 30, 2000, and September 30, 1999, had no significant
change.
Oil and gas service operations for the nine months ended
September 30, 2000, increased $0.7 million, or 15%, to $5.5
million from $4.8 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 $0.6 million, or 15%, to $4.7
million during the three months ended September 30, 2000, from
$4.1 million during the comparable period in 1999. This increase
is due to a $0.3 million increase in repairs which were delayed
last year due to low prices and increased energy costs of $0.3 million.
Production expenses increased by $4.0 million, or 38%, to $14.4
million for the year to date period ended September 30, 2000,
from $10.4 million during the comparable period in 1999. This
increase is due to the production activity in the Worland field
of approximately $1.4 million, increased energy costs of $1.4
million and increased repairs costs of $1.1 million.
PRODUCTION TAXES
Production taxes increased by $1.1 million, or 85%, to $2.4
million during the three months ended September 30, 2000, from
$1.3 million during the comparable period in 1999. The increase
is due to higher oil and gas prices and higher tax rates on wells
that have reached the expiration date of tax relief given on
newly drilled wells.
Production taxes for the nine months ended September 30, 2000,
have increased by $3.8 million, or 127%, to $6.8 million compared
to $3.0 million in the comparable period of 1999. The increase
is due to higher oil and gas prices and higher tax rates on wells
that have reached the expiration date of tax relief given on
newly drilled wells.
EXPLORATION EXPENSES
For the three months ended September 30, 2000, exploration
expenses decreased $0.3 million, or 16%, to $1.5 million from
$1.8 million during the comparable period of 1999. The decrease
was due to a $0.4 million decrease in expired lease costs offset
by a $0.1 increase in plugging expense.
The year to date exploration expense as of September 30, 2000,
increased $1.3 million, or 26%, to $6.4 million from $5.1 million
incurred in the comparable period in 1999. The increase was due
to a $1.5 million increase in dry hole costs and a total of $1.2
million increase in various other expenses offset by a decrease
in expired lease costs of approximately $1.3 million.
CRUDE OIL MARKETING
For the three months ended September 30, 2000, the Company
recognized expense for the purchases of crude oil purchased for
resale of $63.8 million compared to purchases of crude oil for
resale of $48.1 million for the three months ended September 30,
1999. The increase is due to an increase in volumes and an
increase in costs of crude oil purchased.
For the nine month period ended September 30, 2000, the
Company's purchases of crude oil increased by $29.3 million, or
18%, to $196.4 million from $167.1 million for the same period
in 1999. The increase is due to an increase in volumes and an
increase in costs of crude oil purchased.
GATHERING, MARKETING, AND PROCESSING
During the three months ended September 30, 2000, the Company
incurred gathering, marketing and processing expenses of
$6.8 million, representing a $2.5 million, or 58% increase from
the $4.3 million incurred in the second quarter of 1999 due to
higher natural gas and liquid prices.
Gathering, marketing and processing expenses for the nine
months ended September 30, 2000, were $17.9 million, a $7.8
million, or 77% increase, from $10.1 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 September 30, 2000, and September
30, 1999, there was no significant change in oil and gas service
operations.
Oil and gas service operations expenses increased by $1.3
million, or 54% to $3.7 million for the nine months ended
September 30, 2000, compared to $2.4 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 September 30, 2000, DD&A expense
increased $1.7 million, or 41%, to $5.8 million in 2000 from $4.1
million for the comparable period in 1999.
For the nine months ended September 30, 2000, DD&A expense
increased $2.2 million, or 16% to $16.0 million from $13.8
million for the same period in 1999 due to the contribution of
the Worland properties by the principal stockholder.
GENERAL AND ADMINISTRATIVE ("G&A")
For the three months ended September 30, 2000, G&A expense was
$2.9 million, net of overhead reimbursement of $0.5 million, for
a period total of $2.4 million or an increase of $1.4 million or
140%, from G&A expense of $1.8 million net of overhead
reimbursement of $0.8 million for a net of $1.0 million during
the comparable period in 1999. The increase was primarily due to
increased legal expenses relating to the Burlington case and
increased employment expense. G&A expenses per BOE for the third
quarter of 2000 was $2.20 compared to $.98 for the third quarter
of 1999.
For the nine month period ended September 30, 2000, G&A expense
was $7.3 million, net of overhead reimbursement of $1.4 million,
for a period total of $5.9 million or an increase of $2.1
million, or 55%, from G&A expense of $6.0 million net of overhead
reimbursement of $2.2 million for a total of $3.8 million during
the comparable period in 1999. G&A expense per BOE for the first
nine months of 2000 was $1.68 compared to $1.14 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
Interest expense for the three months ended September 30, 2000,
and September 30, 1999, had no significant change.
Interest expense for the nine months ended September 30, 2000,
and September 30, 1999, had no significant change.
OTHER INCOME
Other income for the three months ended September 30, 2000,
increased $0.4 million to $0.5 million compared to $0.1 million
for the same period in 1999. The increase was the result of the
sale of assets.
Other income for the year to date ended September 30, 2000,
increased $3.4 million to $3.5 million compared to $0.1 million
for the year to date ended September 30, 1999. The increase
reflects the sale of the Arkoma Basin properties which was
approximately $3.1 million and a gain on the sale of other assets
along with the gain on the repurchase of bonds of $0.13 million.
NET INCOME
For the three months ended September 30, 2000 net income was
$11.3 million, an increase in net income of $7.0 million from
$4.3 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 offset by increases in
production taxes, G&A and DD&A totaling approximately $3.9 million.
For the nine months ended September 30, 2000, net income was
$31.3 million, an increase in net income of $28.0 million from
$3.3 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 charge for the commutative
effect of a change in accounting principle in 1999 associated
with the adoption of EITF 98-10.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
Net cash provided by operating activities for the nine months
ended September 30, 2000, was $47.3 million, an increase of
$35.1 million from $12.2 million provided by operating activities
during the comparable 1999 period. Cash as of September 30,
2000, was $6.4 million, a decrease of $4.0 million or 39% of the
balance of $10.4 million held at December 31, 1999. Of the $6.4
million balance at September 30, 2000, $2.4 million was set aside
and will be used by the Company to make its February 1, 2001,
interest payment on its 10.25% Senior Subordinated Notes.
DEBT
Long-term debt at December 31, 1999, and September 30, 2000,
was $170.2 million and $141.0 million, respectively. Subsequent
to September 30, 2000, the Company borrowed $6.7 million from the
credit facility and the Company made payments of $2.0 million.
CREDIT FACILITY
Debt outstanding under the line of credit at September 30,
2000, included $2.0 million of revolving credit debt under the
credit facility. The effective rate of interest under the line
of credit agreement is 8.1% at September 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 was revised
after the second quarter to $45.3 million, exclusive of
acquisitions. During the nine months ended September 30, 2000,
the Company incurred $30.3 million of capital expenditures,
exclusive of acquisitions, compared to $7.7 million, exclusive of
acquisitions, in the nine month period of 1999. The $22.6
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 September 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 October 2000 through December 2000 production. At September
30, 2000, the Company has deferred recognition of $1.9 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 September 30, 2000, for the periods October 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 $0.3
million. At September 30, 2000, the Company had a net long
position on its crude marketing activities of 200,000 barrels
consisting of monthly long or short positions ranging from 40,000
to 80,000 barrels per month extending through March 2001.
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. On October 11, 2000, the Court issued
its Finding of Fact, Conclusions of Law and Order holding that
the Company was excused from further performance under the Trade
Agreement. The Court also dismissed Burlington's claim from
damages against the Company. No appeal has been taken from the
Order since a final Judgment has not been entered by the Court.
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.(5) [4.4.2]
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 Registration
Statement on Form S-4, (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.
(5) Filed as an exhibit to the Registrant's quarterly report on
Form 10-Q for its fiscal quarter ended June 30, 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
nine months ended September 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: November 10, 2000
<PAGE>
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EXHIBIT INDEX
<S> <C> <C>
3.1 Amended and Restated Incorporated herein by reference
Certificate of
Incorporation of
Continental Resources,
Inc.
3.2 Amended and Restate Bylaws Incorporated herein by reference
of Continental Resources,
Inc.
3.3 Certificate of Incorporated herein by reference
Incorporation of
Continental Gas, Inc.
3.4 Bylaws of Continental Gas, Incorporated herein by reference
Inc., as amended and
restated.
3.5 Certificate of Incorporated herein by reference
Incorporation of
Continental Crude Co.
3.6 Bylaws of Continental Incorporated herein by reference
Crude Co.
4.1 Restated Credit Agreement Incorporated herein by reference
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")
4.1.1 First Amendment to the Incorporated herein by reference
Credit 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 Incorporated herein by reference
under the Credit Agreement
4.3 Indenture dated as of July Incorporated herein by reference
24, 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 Incorporated herein by reference
dated April 21, 2000 among
Continental Resources,
Inc. and Continental Gas,
Inc., as Borrowers and
MidFirst Bank as Agent
(the "Credit Agreement")
4.4.1 Form of Revolving Note Incorporated herein by reference
under the Credit Agreement
with MidFirst Bank
4.4.2 First Amendment to the Incorporated herein by reference
Credit Agreement between
Registrant, the financial
institutions named therein
and MidFirst Bank as Agent
dated August 1, 2000.
10.4 Conveyance Agreement of Incorporated herein by reference
Worland 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 Incorporated herein by reference
January 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
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