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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 1-9260
UNIT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-1283193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Kensington Tower I, 7130 South Lewis, Tulsa, Oklahoma 74136
(Address of principal executive offices)
(Zip Code)
(918) 493-7700
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed 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.
Common Stock, $.20 par value 20,976,090
Class Outstanding at November 1, 1995
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UNIT CORPORATION
INDEX
Page
PART I. Financial Information: Number
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
September 30, 1995 and December 31, 1994 2
Consolidated Condensed Statements of Operations
Three and Nine Months
Ended September 30, 1995 and 1994 3
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 4
Notes to Consolidated Condensed Financial Statements 5
Report of Review by Independent Accountants 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information:
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 3 - Defaults Upon Senior Securities 14
Item 4 - Submission of Matters to a Vote of
Security Holders 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
1
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Item 1. Financial Statements
UNIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1995 1994
----------- ----------
ASSETS (Unaudited)
- ------ (In thousands)
Current Assets:
Cash and cash equivalents $ 1,076 $ 2,749
Accounts receivable 9,759 16,369
Other 2,955 2,720
---------- ----------
Total current assets 13,790 21,838
---------- ----------
Property and Equipment:
Total cost 256,328 244,405
Less accumulated depreciation, depletion,
amortization and impairment 162,275 153,862
---------- ----------
Net property and equipment 94,053 90,543
---------- ----------
Other Assets 176 40
---------- ----------
Total Assets $ 108,019 $ 112,421
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current portion of long-term debt $ 40 $ 496
Current portion of natural gas purchaser
prepayments (Note 2) - 1,580
Accounts payable 6,462 14,593
Accrued liabilities 4,245 3,172
---------- ----------
Total current liabilities 10,747 19,841
---------- ----------
Natural Gas Purchaser Prepayments (Note 2) 2,417 2,149
---------- ----------
Long-Term Debt 40,400 37,824
---------- ----------
Shareholders' Equity:
Preferred stock, $1.00 par value, 5,000,000
shares authorized, none issued - -
Common stock $.20 par value, 40,000,000
shares authorized, 20,976,090 and
20,910,190 shares issued, respectively 4,194 4,182
Capital in excess of par value 50,172 50,086
Retained earnings (deficit) 277 (1,581)
Treasury stock, at cost, 68,441 and
25,100 shares, respectively (188) (80)
---------- ----------
Total shareholders' equity 54,455 52,607
---------- ----------
Total Liabilities and Shareholders' Equity $ 108,019 $ 112,421
========== ==========
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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UNIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------- --------- --------- ---------
(In thousands except per share amounts)
Revenues:
Contract drilling $ 6,003 $ 4,624 $ 14,074 $ 12,741
Oil and natural gas 7,160 6,413 22,236 19,970
Natural gas marketing
and processing - 9,374 13,566 30,567
Other 932 755 1,642 819
-------- -------- -------- --------
Total revenues 14,095 21,166 51,518 64,097
-------- -------- -------- --------
Expenses:
Contract drilling:
Operating costs 5,260 4,126 13,034 11,435
Depreciation 624 569 1,656 1,553
Oil and natural gas:
Operating costs 3,052 2,320 8,601 6,607
Depreciation, depletion
and amortization 2,506 2,127 7,604 6,106
Natural gas marketing
and processing - 9,179 13,434 30,365
General and administrative 942 838 2,840 2,677
Interest 813 412 2,388 1,114
Other - net 13 - 91 -
-------- -------- -------- --------
Total expenses 13,210 19,571 49,648 59,857
-------- -------- -------- --------
Income Before Income Taxes 885 1,595 1,870 4,240
Income Tax Expense 4 5 12 14
-------- -------- -------- --------
Net Income $ 881 $ 1,590 $ 1,858 $ 4,226
======== ======== ======== ========
Net Income Per Common Share $ .04 $ .07 $ .09 $ .20
======== ======== ======== ========
Weighted Average Shares
Outstanding 20,896 20,910 20,884 20,904
(Both primary and fully diluted) ======== ======== ======== ========
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
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UNIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
1995 1994
---------- ----------
(In thousands)
Cash Flows From Operating Activities:
Net income $ 1,858 $ 4,226
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 9,492 8,016
Other-net (511) (686)
Changes in operating assets and liabilities
increasing (decreasing) cash:
Accounts receivable 6,610 1,508
Accounts payable (9,806) (2,501)
Natural gas purchaser
prepayments (Note 2) (1,312) (1,348)
Other-net 838 101
---------- ----------
Net cash provided by
operating activities 7,169 9,316
---------- ----------
Cash Flows From (Used In) Investing Activities:
Capital expenditures (14,931) (10,167)
Proceeds from disposition of assets 4,335 1,764
Other-net (136) (52)
---------- ----------
Net cash used in investing activities (10,732) (8,455)
---------- ----------
Cash Flows From (Used In) Financing Activities:
Net borrowings (payments) under line of credit 3,100 (1,700)
Payments of notes payable
and long-term debt (980) (382)
Other-net (230) -
---------- ----------
Net cash provided by (used in)
financing activities 1,890 (2,082)
---------- ----------
Net Decrease in Cash and Cash Equivalents (1,673) (1,221)
Cash and Cash Equivalents, Beginning of Year 2,749 3,756
---------- ----------
Cash and Cash Equivalents, End of Period $ 1,076 $ 2,535
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the nine months ended September 30, for:
Interest $ 2,101 $ 1,088
Income taxes $ - $ 2
The accompanying notes are an integral part of the
consolidated condensed financial statements.
4
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UNIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PREPARATION AND PRESENTATION
- ----------------------------------------------
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary (all
adjustments are of a normal recurring nature) to present fairly the financial
position of Unit Corporation as of September 30, 1995 and the results of its
operations for the three and nine month periods ended September 30, 1995 and
1994 and cash flows for the nine months ended September 30, 1995 and 1994.
Results for the three and nine months ended September 30, 1995 are not
necessarily indicative of the results to be realized during the full year.
The year end consolidated condensed balance sheet data was derived from
audited financial statements but does not include all disclosures required by
generally accepted accounting principles. The financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
NOTE 2 - NATURAL GAS PURCHASER PREPAYMENTS
- -------------------------------------------
In March 1988, the Company entered into a settlement agreement with a
natural gas purchaser. During early 1991, the Company and the natural gas
purchaser superseded the original agreement with a new settlement agreement
effective retroactively to January 1, 1991. Under these settlement
agreements, the Company has a prepayment balance of $2.4 million at September
30, 1995 representing proceeds received from the purchaser as prepayment for
natural gas. This amount is net of natural gas recouped and net of certain
amounts disbursed to other owners (such owners, collectively with the Company
are referred to as the "Committed Interest") for their proportionate share of
the prepayments. The September 30, 1995 prepayment balance is subject to
recoupment in volumes of natural gas for a period ending the earlier of
recoupment or December 31, 1997 (the "Recoupment Period"). The prepayment
amounts are being recorded as liabilities and reflected in revenues as
recoupment occurs. The portion of the prepayments that are estimated to be
recouped in the next twelve months has been included in current liabilities.
Based on the purchasers deliverability requested at September 30, 1995, the
Company does not anticipate any recoupment of the prepayment balance during the
next twelve months. Additionally, the purchaser is obligated to make monthly
payments on behalf of the Committed Interest in an amount calculated as a
percentage of the Committed Interest's share of the deliverability of the
wells subject to the settlement agreement, up to a maximum of $211,000 or a
minimum of $110,000 per month for the year 1995 and up to a maximum of
$180,000 or a minimum of $90,000 per month for the year 1996. Both the
maximum and minimum monthly payments decline annually through the Recoupment
Period. At December 31, 1997, the Committed Interest's prepayment balance, if
any, that has not been fully recouped in natural gas is subject to a cash
repayment limited to a maximum of $3 million to be made in equal payments over a
five year period. At the end of the Recoupment Period, the terms of the
settlement agreement and the natural gas purchase contracts which are subject to
the settlement agreement will terminate. As disclosed in the Company's
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Form 10-K for the year ended December 31, 1994 the purchaser of the natural
gas had notified the Company of its intention to assert claims against the
Company to recover certain taxes, interest and penalties it has or may have to
pay to the Oklahoma Tax Commission ("OTC") relating to the prepayments. In July
1995, the Company and the purchaser agreed to make a immaterial payment
to the OTC to resolve the OTC's assessments.
NOTE 3 - INCOME TAXES
- ---------------------
Income tax expense for the three and nine month periods ended September 30, 1995
and 1994 differs from income tax expense computed by applying the statutory rate
due principally to the utilization of the Company's net operating loss
carryforward.
6
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REPORT OF REVIEW BY INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Unit Corporation
We have reviewed the accompanying consolidated condensed balance sheet of Unit
Corporation and subsidiaries as of September 30, 1995, and the related
consolidated condensed statements of operations for the three and nine month
periods ended September 30, 1995 and 1994 and cash flows for the nine month
periods ended September 30, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Unit Corporation and subsidiaries
at December 31, 1994, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for the year then ended (not
presented herein); and our report dated February 22, 1995 expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet at December 31, 1994, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND L. L. P.
Tulsa, Oklahoma
November 8, 1995
7
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------
FINANCIAL CONDITION
- -------------------
The Company entered into a new credit agreement (the "Credit Agreement")
on August 3, 1995 providing for a total commitment of $75,000,000. The Credit
Agreement consists of a revolving credit facility through August 31, 1997 and
a term loan thereafter, maturing on August 31, 2001. Borrowings under the
revolving credit facility are limited to a borrowing base which is subject to
a semi-annual redetermination. The latest borrowing base determination as of
August 1, 1995 established that $50 million of the commitment is available to
the Company. At September 30, 1995, borrowings under the Credit Agreement
totaled $40.4 million and the average interest rate paid by the Company in the
third quarter of 1995 had risen to 8.1 percent compared to the average
interest rate of 7.5 percent in the third quarter of 1994. A 1/2 of 1 percent
facility fee is charged for any unused portion of the borrowing base.
The Company's shareholders' equity at September 30, 1995 was $54.5 million
resulting in a ratio of long-term debt-to-equity of .74 to 1. The Company's
primary source of liquidity and capital resources in the near- and long-term
will consist of cash flow from operating activities and available borrowings
under the Credit Agreement. Net cash provided by operating activities for the
first nine months of 1995 was $7.2 million as compared to $9.3 million for the
first nine months of 1994. The decrease was due
primarily to lower spot market natural gas prices received by the Company for
its natural gas production during 1995.
During September 1995, the Company received $850,000 from a settlement
reached by two of the Company's subsidiaries in certain litigation brought
against the Federal Deposit Insurance Corporation and other parties.
On August 9, 1995 the Company completed its acquisition of all the
outstanding stock of Willis Drilling Co. ("Willis") a wholly owned subsidiary of
DI Energy, Inc. The sole assets of Willis consisted of the oil and natural gas
properties previously owned by DI Energy, Inc. Total cost of this acquisition
was $4.2 million.
Through the first nine months of 1995, the Company made capital
expenditures of $14.9 million as compared to $10.2 million in 1994.
Approximately 95 percent of the 1995 expenditures have been for the Company's
exploration and production segment. Approximately 55 percent of the exploration
and production expenditures were for development drilling and workover costs
with the remainder being for producing property acquisitions. Currently, the
Company anticipates it will spend approximately $4 million during the remainder
of 1995 on capital expenditures including oil and natural gas acquisitions.
However, the ultimate amount of such expenditures will be governed by a number
of factors, including future prices for oil and natural gas production. These
expenditures, if made, are anticipated to be within the constraints of available
cash to be provided by operating activities and the Company's Credit Agreement.
A large portion of the Company's capital expenditures are discretionary;
therefore, current operations should not be adversely affected by any inability
to obtain funds outside of the Company's current Credit Agreement.
8
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The Company has 2.873 million common stock warrants outstanding. The
warrants entitle the holders to purchase one share of common stock at a price of
$4.375 per share. The warrants, subject to certain restrictions, are callable
by the Company, in whole or in part, at $.50 per warrant. By a
Second Amendment to the Warrant Agreement between the Company and the Warrant
Agent, dated May 9, 1994, the term of the warrants was extended until August 30,
1996.
The Company continued to receive monthly payments on behalf of itself
and other parties (collectively the "Committed Interest") from a natural gas
purchaser pursuant to a settlement agreement, as amended (the "Settlement
Agreement"). As a result of the Settlement Agreement, the September 30, 1995
prepayment balance of $2.4 million paid by the purchaser for natural gas not
taken (the "Prepayment Balance") is subject to recoupment in volumes of
natural gas through a period ending on the earlier of recoupment or December 31,
1997 (the "Recoupment Period"). Additionally, the purchaser is obligated to
make monthly payments on behalf of the Committed Interest based on their share
of the natural gas deliverability of the wells subject to the Settlement
Agreement, up to a maximum of $211,000 or a minimum of $110,000 per month for
the year 1995 and up to a maximum of $180,000 or a minimum of $90,000 per
month for the year 1996. Both the maximum and minimum monthly payments
decline annually through the Recoupment Period. If natural gas is taken
during a month, the value of such natural gas is credited toward the monthly
amount the purchaser is required to pay. In the event the purchaser takes
volumes of natural gas valued in excess of its monthly payment obligations,
the excess is applied to reduce any then outstanding Prepayment Balance. The
Company currently believes that sufficient natural gas deliverability is
available to enable the Committed Interest to receive substantially all of the
maximum monthly payments during 1995. At the end of the Recoupment Period the
Settlement Agreement and the natural gas purchase contracts which are subject to
the Settlement Agreement will terminate. If the Prepayment Balance is not fully
recouped in natural gas by December 31, 1997 then the unrecouped portion is
subject to cash repayment, limited to a maximum of $3 million, payable in equal
annual installments, without interest, over a five year period. Under the
Settlement Agreement, the purchaser is entitled to make a monthly determination
of the volumes to be purchased from the wells subject to the Settlement
Agreement. Pursuant to the terms of the Settlement Agreement, the purchaser has
requested that effective October 1, 1995 and continuing through December 31,
1995, the Company will deliver 65 percent of the maximum required deliverability
from the wells subject to the Settlement Agreement. For the period prior to
October 1, the Company had delivered 100 percent of the
maximum required by the Settlement Agreement which was approximately 75
percent of the total deliverability of the subject wells. First and second
quarter 1994 deliverability was 80 percent of the total deliverability of the
wells subject to the Settlement Agreement and was 75 percent in the third
quarter of 1994. Because these month-to-month determinations, up to certain
maximum levels, are made by the purchaser, the Company is unable to predict with
certainty future natural gas sales from these wells. In addition, future
revenues to be received by the Company would be impacted by the failure of the
purchaser to meet its obligations, financially or otherwise, under the terms
of the Settlement Agreement or by the ability of the wells to maintain certain
projected deliverability requirements. In the event the wells are unable to
maintain such deliverability, the monthly payments to be received by the Company
under the Settlement Agreement would be decreased. The price per Mcf under the
Settlement Agreement is substantially higher than current spot
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market prices. The impact of the higher price received under the Settlement
Agreement increased pre-tax income by approximately $1,250,000 and $1,330,000 in
the first nine months of 1995 and 1994, respectively. As disclosed in the
Company's Form 10-K for the year ended December 31, 1994, the purchaser of the
natural gas had notified the Company of its intention to assert claims against
the Company to recover certain taxes, interest and penalties it has or may
have to pay to the Oklahoma Tax Commission ("OTC") relating to the prepayments
made by the purchaser to the Company. In July 1995, the Company and the
purchaser agreed to make a immaterial payment to the OTC to resolve the OTC's
assessments.
Average oil prices received by the Company in the third quarter of 1995
were 1 percent per barrel higher than oil prices received in the third quarter
of 1994. Average spot market natural gas prices, however, were 15 percent lower
per Mcf than the average spot market natural gas prices received in the same
quarter of 1994. Oil prices within the industry remain largely dependent upon
world market developments for crude oil. Prices for natural gas are influenced
by weather conditions and supply imbalances, particularly in the domestic
market, and by world wide oil price levels. Since natural gas comprises
approximately 78 percent of the Company's reserves, large declines
in spot market natural gas prices have a significant adverse effect on the value
of the Company's reserves. Such decreases also adversely effect the Company's
revenues and cash flow. Likewise, declines in natural gas or oil prices could
adversely effect the semi-annual borrowing base determination under the
Company's Credit Agreement since this determination is calculated on the value
of the Company's oil and natural gas reserves.
The Company's ability to utilize its full complement of drilling rigs,
should economic conditions improve in the future, will be restricted due to
the lack of qualified labor and the availability and cost of drill pipe and
certain supporting equipment. The Company's ability to utilize its drilling
rigs at any given time is dependent on a number of factors, including but not
limited to, the price of both oil and natural gas, the availability of labor and
the Company's ability to supply the type of equipment required. The Company's
management expects that these factors will continue to influence the Company's
rig utilization throughout 1995 and into 1996.
In the third quarter of 1994, the Company's Board of Directors
authorized the Company to purchase up to 1,000,000 shares of the Company's
outstanding common stock on the open market. Since that time, 115,100 shares
were repurchased at prices ranging from $2 1/2 to $3 3/8 per share. During the
first quarter of 1995, 46,659 of the purchased shares were reissued as the
Company's matching contribution to its 401(K) Employee Thrift Plan. At
September 30, 1995, 68,441 treasury shares were held by the Company.
RESULTS OF OPERATIONS
- ---------------------
Third Quarter 1995 versus Third Quarter 1994
- --------------------------------------------
The Company reported net income of $881,000 in the third quarter of 1995
as compared to net income of $1,590,000 for the third quarter of 1994. While
the Company continued to increase natural gas production through producing
property acquisitions and developmental drilling, substantially lower natural
gas prices prohibited corresponding increases to net income. The impact on
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net income from lower natural gas prices was offset by the receipt of $850,000
in September 1995 from a settlement reached by two of the Company's subsidiaries
in certain litigation brought against the Federal Deposit Insurance Corporation
and other parties. The litigation resulted from a prior lien foreclosure action
which claimed that the Company's interest in several oil and natural gas wells
was subject to a prior mortgage lien.
Oil and natural gas revenues increased 12 percent in the third quarter
of 1995 as compared to the third quarter of 1994. As a result of the
Company's producing property acquisitions and development drilling program,
oil and natural gas production increased by 27 and 22 percent, respectively,
between the two quarters. Average oil prices received by the Company
increased 1 percent during the quarter while average natural gas prices
dropped by 14 percent. The reduction in the average natural gas price was
caused primarily by a $.23 drop in average spot market prices. The Company
continues to sell a limited amount of its production through the Settlement
Agreement, which provides for prices higher than current spot market prices,
as discussed above. The impact of the higher price received under the
Settlement Agreement increased pre-tax income by approximately $510,000 and
$465,000 in the third quarters of 1995 and 1994, respectively.
Oil and natural gas operating margins (revenues less operating costs)
decreased from 64 percent in the third quarter of 1994 to 57 percent in the
third quarter of 1995. This reduction resulted from the lower natural gas
prices received in the third quarter of 1995. Total operating costs increased
32 percent due to the additional costs associated with production of oil and
natural gas from new wells drilled and acquired over the period.
Depreciation, depletion and amortization ("DD&A") increased 18 percent due to
increased production between the comparative quarters. The Company's average
DD&A rate for the third quarter of 1995 was $3.95 compared with $3.98 in the
third quarter of 1994.
Contract drilling revenues increased 30 percent for the comparative
quarters due to increased rig utilization. Rig utilization averaged 12.4 rigs
in the third quarter of 1995 and averaged 10.4 rigs in the third quarter of
1994.
Contract drilling operating margins (revenues less operating costs) were
12 percent in the third quarter of 1995 and 11 percent in the third quarter of
1994. The Company has 2 of its 3 South Texas rigs under contract. While
providing higher day rates, the South Texas rigs have also experienced higher
expenses per day.
The Company's ability to utilize its drilling rigs and maintain positive
drilling profit margins at any given time will be dependent on a number of
factors, including but not limited to, the price of both oil and natural gas,
the availability of the Company's rigs in the area of the proposed wells,
competition from other drilling contractors, the availability of labor and
drilling supplies at competitive prices and the Company's ability to supply
the equipment required. The Company's management expects that these factors
will continue to influence the Company's rig utilization during the remainder of
1995 and into 1996.
As previously reported, effective April 1, 1995, the Company completed a
business combination between the Company's natural gas marketing operations
and a third party also involved in natural gas marketing activities forming a
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new company called GED Gas Services, L.L.C. ("GED"). The Company owns a 34
percent interest in GED. The combination does not adversely affect the
operations of the Company's drilling and oil and natural gas exploration
segments or the profitability of the Company as a whole, although it has
resulted in a significant reduction in the Company's total revenues and
associated costs. For the year ended December 31, 1994, revenues and costs
associated with the Company's natural gas marketing operations were $43.7
million and $43.6 million, respectively.
General and administrative expense increased 12 percent between the
comparative quarters. The increase came in part from additional employee
related costs and from additional office space requirements due to the Company's
growth.
Interest expense increased 97 percent over the comparative quarters as a
result of increases in the average interest rate from 7.5 percent in the third
quarter of 1994 to 8.1 percent in the third quarter of 1995 and a 43 percent
increase in the average long-term bank debt due, in large part, to borrowings
associated with the Company's producing property acquisitions completed in
December 1994 and January through August of 1995.
Nine Months 1995 versus Nine Months 1994
- ----------------------------------------
Net income for the first nine months of 1995 was $1,858,000 as compared to
$4,226,000 for the first nine months of 1994. Lower natural gas prices coupled
with increased rig start up costs and adverse second quarter weather conditions
in the drilling segment's area of operation caused the reduction in net income.
The impact on net income from lower natural gas prices was partially offset by
the receipt of $850,000 in September from the settlement
of certain litigation as discussed above.
Oil and natural gas revenues increased 11 percent in the first nine months
of 1995 as compared to the first nine months of 1994. As a result of the
Company's producing property acquisitions and development drilling
program, oil and natural gas production increased by 35 and 26 percent,
respectively, between the comparative periods. Average oil prices received by
the Company increased 11 percent during the first nine months while the
average natural gas prices dropped by 21 percent. The reduction in natural
gas prices was caused by both a $.35 drop in average spot market prices as
well as a decline in production from wells covered by the Settlement
Agreement, which provides for prices higher than current spot market prices,
as discussed above. The impact of the higher price received under the
Settlement Agreement increased pre-tax income by approximately $1,250,000 and
$1,330,000 in the first nine months of 1995 and 1994, respectively.
Oil and natural gas operating margins (revenues less operating costs)
declined from 67 percent in the first nine months of 1994 to 61 percent in the
first nine months of 1995. Lower natural gas spot market prices received in
1995 caused the reduction in operating margin. Total operating costs
increased 30 percent due to the additional costs associated with oil and natural
gas production from new wells acquired. Margins were also reduced due to the
shutting in of production on certain natural gas properties in the months of
February and March due to low spot market natural gas prices.
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Depreciation, depletion and amortization ("DD&A") increased 25 percent due to
increased production between the comparative periods. The Company's average
DD&A rate for the first nine months of 1995 was $3.96 compared with $4.01 in the
first nine months of 1994.
Contract drilling revenues increased 10 percent for the comparative nine
month periods as rig utilization increased from an average of 9.7 rigs operating
in the first nine months of 1994 to 10.1 rigs in the first nine months of 1995.
Higher revenues in 1995, to a lesser extent, were also achieved due to increased
revenue received per day from the three rigs which were moved to South Texas
after the second quarter of 1994.
Contract drilling operating margins (revenue less operating costs) were
7 percent in the first nine months of 1995 as compared to 10 percent in the
first nine months of 1994. The rigs in South Texas, while providing higher
day rates, also experience higher expenses per day. This coupled with initial
start up costs and bad weather in the second quarter limited improvements in
operating margins in the first nine months of 1995.
As mentioned above, effective April 1, 1995, the Company completed a
business combination between the Company's marketing operations and a third
party also involved in natural gas marketing activities forming a new company
called GED Gas Services, L.L.C. Although this combination will not have a
significant impact on net income it will significantly reduce the Company's
total revenues and associated costs from gas marketing.
Interest expense increased 114 percent due to increases in the average
interest rate from 6.8 percent in the first nine months of 1994 compared to
8.6 percent in the first nine months of 1995 combined with a 76 percent increase
in average long-term bank debt outstanding during the comparative periods due to
producing property acquisitions in December 1994 and January thru August 1995.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Not applicable
Item 2. Changes in Securities
- ------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not applicable
Item 5. Other Information
- ------------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------
(a) Exhibits:
15 Letter re: Unaudited Interim Financial Information
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
ended September 30, 1995.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIT CORPORATION
Date: November 8, 1995 By: /s/ John G. Nikkel
--------------------------- ------------------------
JOHN G. NIKKEL
President, Chief Operating
Officer and Director
Date: November 8, 1995 By: /s/ Larry D. Pinkston
--------------------------- ------------------------
LARRY D. PINKSTON
Vice President, Chief
Financial Officer
and Treasurer
15
<PAGE>
Exhibit 15
----------
November 8, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Unit Corporation
Registration on Form S-8 and S-3
We are aware that our report dated November 8, 1995 on our review of interim
financial information of Unit Corporation for the three and nine month periods
ended September 30, 1995 and 1994 and included in the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1995 is incorporated
by reference in the Company's registration statements on Form S-8 (File No.'s
33-19652, 33-44103, 33-49724 and 33-53542) and Form S-3 (File No. 33-16116).
Pursuant to Rule 436 under the Securities Act of 1933, this report should not
be considered a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L. L. P.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Condensed Financial Statements of Unit Corporation and
Subsidiaries under cover of Form 10-Q for September 30, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000798949
<NAME> UNIT CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,076
<SECURITIES> 0
<RECEIVABLES> <F1> 9,759
<ALLOWANCES> 0
<INVENTORY> <F2> 0
<CURRENT-ASSETS> 13,790
<PP&E> 256,328
<DEPRECIATION> 162,275
<TOTAL-ASSETS> 108,019
<CURRENT-LIABILITIES> 10,747
<BONDS> 0
<COMMON> 4,194
0
0
<OTHER-SE> 50,261
<TOTAL-LIABILITY-AND-EQUITY> 108,019
<SALES> 0
<TOTAL-REVENUES> <F3> 51,518
<CGS> 0
<TOTAL-COSTS> <F3> 44,329
<OTHER-EXPENSES> 2,931
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,388
<INCOME-PRETAX> 1,870
<INCOME-TAX> 12
<INCOME-CONTINUING> 1,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,858
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1> Accounts Receivable is presented net in the Consolidated Condensed Balance
Sheet.
<F2> Inventory is presented as a portion of Other Current Assets in the
Consolidated Condensed Balance Sheet.
<F3> Total revenues and total costs were reduced in the second and third
quarters of 1995, as compared to prior quarters, by a business combination
in the Company's natural gas marketing segment which left the Company with
a 34 percent equity interest in the new resulting entity.
</FN>
</TABLE>
