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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 June 30, 1996
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 21,899,090
Class Outstanding at August 1, 1996
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UNIT CORPORATION
INDEX
Page
PART I. Financial Information: Number
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
June 30, 1996 and December 31, 1995 2
Consolidated Condensed Statements of Operations
Three and Six Months
Ended June 30, 1996 and 1995 3
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 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 13
Item 2 - Changes in Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of 13
Security Holders
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
1
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Item 1. Financial Statements
UNIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
1996 1995
---------- ----------
ASSETS (Unaudited)
- ------ (In thousands)
Current Assets:
Cash and cash equivalents $ 634 $ 534
Accounts receivable 12,629 10,398
Other 3,571 3,094
---------- ----------
Total current assets 16,834 14,026
---------- ----------
Property and Equipment:
Total cost 273,694 260,771
Less accumulated depreciation, depletion,
amortization and impairment 170,558 164,752
---------- ----------
Net property and equipment 103,136 96,019
---------- ----------
Other Assets 153 877
---------- ----------
Total Assets $ 120,123 $ 110,922
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current portion of long-term debt $ - $ 20
Accounts payable 8,802 6,701
Accrued liabilities 5,900 4,386
---------- ----------
Total current liabilities 14,702 11,107
---------- ----------
Natural Gas Purchaser Prepayments (Note 3) 1,879 2,109
---------- ----------
Long-Term Debt 40,600 41,100
---------- ----------
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, 21,819,290 and
20,976,090 shares issued, respectively 4,360 4,195
Capital in excess of par value 53,421 50,181
Retained Earnings 5,226 2,418
Treasury stock, at cost, 23,755 and
68,441 shares, respectively (65) (188)
---------- ----------
Total shareholders' equity 62,942 56,606
---------- ----------
Total Liabilities and Shareholders' Equity $ 120,123 $ 110,922
========== ==========
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
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UNIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In thousands except per share amounts)
Revenues:
Contract drilling $ 6,710 $ 3,746 $ 12,796 $ 8,071
Oil and natural gas 10,422 7,707 20,185 15,076
Other (25) 52 (3) 746
---------- ---------- ---------- ----------
Total revenues 17,107 11,505 32,978 23,893
---------- ---------- ---------- ----------
Expenses:
Contract drilling:
Operating costs 5,956 3,910 11,329 7,774
Depreciation 739 535 1,370 1,032
Oil and natural gas:
Operating costs 3,439 2,690 6,826 5,549
Depreciation, depletion
and amortization 2,622 2,499 5,229 5,098
General and administrative 1,013 982 2,129 1,898
Interest 809 783 1,614 1,575
---------- ---------- ---------- ----------
Total expenses 14,578 11,399 28,497 22,926
---------- ---------- ---------- ----------
Income From Continuing Operations
Before Income Taxes 2,529 106 4,481 967
---------- ---------- ---------- ----------
Income Tax Expense:
Current 8 4 30 8
Deferred 932 - 1,643 -
---------- ---------- ---------- ----------
Total income tax expense 940 4 1,673 8
---------- ---------- ---------- ----------
Income From Continuing Operations 1,589 102 2,808 959
Income (Loss) From Operations of
Discontinued Segment - (81) - 18
---------- ---------- ---------- ----------
Net Income $ 1,589 $ 21 $ 2,808 $ 977
========== ========== ========== ==========
Net Income Per Common Share:
Continuing Operations $ .07 $ - $ .13 $ .05
========== ========== ========== ==========
Net Income $ .07 $ - $ .13 $ .05
========== ========== ========== ==========
Weighted Average Shares
Outstanding:
Primary 22,663 20,871 22,127 20,878
========== ========== ========== ==========
Fully Diluted 22,682 20,871 22,448 20,878
========== ========== ========== ==========
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)
Six Months Ended June 30,
1996 1995
---------- ----------
Cash Flows From Operating Activities: (In thousands)
Income From Continuing Operations $ 2,808 $ 959
Adjustments to reconcile income from continuing
operations to net cash provided (used) by
operating activities:
Depreciation, depletion and amortization 6,763 6,294
Other-net 214 (499)
Deferred income tax expense 1,643 -
Changes in operating assets and liabilities
increasing (decreasing) cash:
Accounts receivable (2,231) 267
Accounts payable 220 (2,004)
Natural gas purchaser prepayments (Note 3) (230) (711)
Other-net (606) 497
---------- ----------
Net cash provided by continuing
operating activities 8,581 4,803
Net cash flow provided by discontinued operations
including changes in working capital - 650
---------- ----------
Net cash provided by operating activities 8,581 5,453
---------- ---------
Cash Flows From (Used In) Investing Activities:
Capital expenditures (11,936) (10,415)
Proceeds from disposition of assets 379 4,084
Other-net 194 (112)
---------- ----------
Net cash used in investing activities (11,363) (6,443)
---------- ----------
Cash Flows From (Used In) Financing Activities:
Net (payments) borrowings under line of credit (500) 2,300
Net payments of notes payable and long-term debt (20) (967)
Proceeds from stock options and warrants 3,402 -
Other-net - (230)
---------- ----------
Net cash provided by financing activities 2,882 1,103
---------- ----------
Net Increase in Cash and Cash Equivalents 100 113
Cash and Cash Equivalents, Beginning of Year 534 2,749
---------- ----------
Cash and Cash Equivalents, End of Period $ 634 $ 2,862
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the six months ended June 30, for:
Interest $ 1,647 $ 1,539
Income taxes $ 50 $ -
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 June 30, 1996 and the results of its
operations for the three and six month periods ended June 30, 1996 and 1995 and
cash flows for the six months ended June 30, 1996 and 1995. Results for the
three and six months ended June 30, 1996 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 condensed financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
NOTE 2 - DISCONTINUED OPERATIONS
- --------------------------------
On 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 new company called GED Gas Services,
L.L.C. ("GED"). The Company owns a 34 percent interest in GED. Effective
November 1, 1995 GED sold its natural gas marketing operations to a third party.
This sale removed the Company from the third party natural gas marketing
business. The creation of GED and its subsequent sale of its marketing
operations did not adversely affect the Company's drilling and oil and natural
gas exploration operations or the profitability of the Company as a whole. The
disposition of the Company's natural gas marketing segment has been accounted
for as a discontinued operation and accordingly, the 1995 financial information
has been restated to reflect this treatment. For the first six months of 1995,
revenues and costs associated with the Company's natural gas marketing
operations were both approximately $13.4 million.
NOTE 3 - 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 $1.9 million at June 30, 1996 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
June 30, 1996 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"). 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 $180,000 or a minimum of
5
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$90,000 per month for the year 1996. Both the maximum and minimum monthly
payments decline annually through 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 are classified as current liabilities. 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 annual installments over a five year period. The
Company anticipates the maximum balance of $3 million will be unrecouped at
December 31, 1997. 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.
NOTE 4 - INCOME TAXES
- ---------------------
Income tax expense for the three and six month periods ended June 30, 1995
differs from income tax expense computed by applying the statutory rate due
principally to the utilization of the Company's net operating loss carryforward.
All of the financial statement benefit related to the Company's net operating
loss carryforward was recognized at December 31, 1995. As such income tax
expense for the three and six month periods ended June 30, 1996 approximates the
statutory rate (federal and state).
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 June 30, 1996, and the related consolidated
condensed statements of operations for the three and six months month periods
ended June 30, 1996 and 1995 and cash flows for the six month periods ended June
30, 1996 and 1995. 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, 1995, 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 20, 1996 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, 1995, 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
July 31, 1996
7
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------
FINANCIAL CONDITION
- -------------------
The Company's loan agreement (the "Loan Agreement") provides for a total
commitment of $75 million, consisting 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 indicated $50 million of the commitment is available to the
Company. At June 30, 1996 borrowings under the Loan Agreement totaled $40.6
million and the average interest rate in the second quarter of 1996 was 7.7
percent compared to the average interest rate of 8.9 percent in the second
quarter of 1995. A 1/2 of 1 percent facility fee is charged for any unused
portion of the borrowing base.
The Company's shareholders' equity at June 30, 1996 was $62.9 million
resulting in a ratio of long-term debt-to-equity of .65 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 Company's Loan Agreement. Net cash provided by continuing operating
activities for the first six months of 1996 was $8.6 million as compared to $4.8
million for the first six months of 1995. The increase in 1996, as compared to
1995, was primarily due to higher spot market natural gas and oil prices
received and increased rig utilization.
During the first six months of 1996, the Company incurred capital
expenditures of $14.3 million. Approximately 75 percent of the expenditures
were for oil and natural gas exploration and development drilling and the
remainder were for the Company's contract drilling operations. The Company
plans to continue its focus on development drilling during the remainder of
1996. A majority of the contract drilling expenditures were for drill pipe as
certain grades of the Company's drill pipe are reaching the end of their useful
life. At December 31, 1995 the Company had orders for 75,000 feet of drill pipe
of various grades scheduled for delivery during 1996. In the first six months of
1996, 87 percent of the orders were delivered. Depending, in part, on commodity
pricing, the Company anticipates it will spend approximately $20 million on its
capital expenditures program in 1996. These expenditures are anticipated to be
within the constraints of available cash to be provided by operating activities
and the Company's existing Loan 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 Loan Agreement.
At December 31, 1995, the Company had 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. Subsequent to March 31, 1996 and through
June 30, 1996, 718,000 warrants were exercised providing $3,141,000 in
additional capital to the Company. 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.
8
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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 June 30, 1996
prepayment balance of $1.9 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 $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 value taken in 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
1996. 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 over a
five year period. The Company anticipates the maximum balance of $3 million
will be unrecouped at December 31, 1997. 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. During the first
nine months of 1995, the Company in accordance with the terms of the Settlement
Agreement, elected to deliver natural gas at approximately 75 percent of the
deliverability of the wells subject to the Settlement Agreement. Pursuant to
the terms of the Settlement Agreement, the purchaser notified the Company that
effective October 1, 1995 the purchaser planned to make seasonal takes of
natural gas by requesting the maximum deliverability subject to the Settlement
Agreement in certain months and no deliverability in other months. From October
1, 1995 and through the first quarter of 1996, the purchaser requested and
received the maximum deliverability subject to the Settlement Agreement. During
the second quarter of 1996 the purchaser elected to not take natural gas under
the Settlement Agreement and is continuing this election into the third quarter
of 1996. 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 inability 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 market prices.
The impact of the higher price received under the Settlement Agreement increased
pre-tax income approximately $28,000 and $380,000 in the second quarters of 1996
and 1995, respectively.
The average oil price of $19.84 received by the Company in the second
quarter of 1996 was $2.80 per barrel higher than the average oil price received
in the second quarter of 1995 while the average spot market natural gas price of
9
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$2.07 was $.56 per Mcf higher than the average spot market natural gas prices
received in the same quarter of 1995. 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
drops 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 cash flow. Likewise, declines in natural gas or oil prices could
adversely effect the semi-annual borrowing base determination under the
Company's current Loan 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 industry conditions improve in the future, will be restricted due to the
lack of qualified labor and certain supporting equipment not only within the
Company but in the industry as a whole. 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 1996 and into 1997.
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 have been
repurchased at prices ranging from $2 1/2 to $3 3/8 per share. During the first
quarters of 1996 and 1995, 44,686 and 46,659 of the purchased shares,
respectively, were used as the Company's matching contribution to its 401(K)
Employee Thrift Plan. At June 30, 1996, 23,755 treasury shares were held by the
Company.
The Company's wholly owned natural gas marketing subsidiary, Mountain
Front Pipeline Company, achieved substantial growth in revenues during
previous years, but did not achieve the size necessary to reach desired levels
of profitability. Consequently, on 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 new
company called GED Gas Services, L.L.C. ("GED"). The Company owns a 34 percent
interest in GED. Effective November 1, 1995 GED sold its natural gas marketing
operations to a third party. This sale removed the Company from the third party
natural gas marketing business. The creation of GED and its subsequent sale of
its marketing operations did not adversely affect the Company's drilling and oil
and natural gas exploration operations or the profitability of the Company as a
whole. The disposition of the Company's natural gas marketing segment has been
accounted for as a discontinued operation and accordingly, the 1995 financial
information has been restated to reflect this treatment. For the first six
months of 1995, revenues and costs associated with the Company's natural gas
marketing operations were both approximately $13.4 million.
In the normal course of its business, the Company, in an effort to help
keep its shareholders and the public informed about the Company's operations,
may, from time to time, issue certain statements, either in writing or orally,
that contain or may contain forward looking information. Generally, these
statements relate to projections involving the anticipated revenues to be
received from the Company's oil and natural gas production, the utilization rate
10
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of its drilling rigs, growth of its oil and natural gas reserves and well
performance and the Company's anticipated bank debt. As with any forward-
looking statement, these statements are subject to a number of factors that may
tend to influence the accuracy of the statements and the projections upon which
the statements are based. All phases of the Company's operations are subject to
a number of influences outside the control of the Company, any one of which, or
a combination of which, could materially affect the results of the Company's
operations. A more thorough discussion of some of these factors and their
possible impact on the Company is provided in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 filed with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
- ---------------------
Second Quarter 1996 versus Second Quarter 1995
- ----------------------------------------------
The Company reported income from continuing operations of $1,589,000 in
the second quarter of 1996 as compared to income from continuing operations of
$102,000 for the second quarter of 1995. Higher natural gas and oil prices
along with increased oil and natural gas production, rig utilization and rig
margins between the comparative quarters all contributed to the rise in income.
Oil and natural gas revenues increased 35 percent in the second quarter
of 1996 as compared to the second quarter of 1995. As a result of the
Company's producing property acquisitions and development drilling program,
oil and natural gas production increased by 16 and 8 percent, respectively,
between the two quarters while average oil prices received by the Company
increased 16 percent and the average natural gas prices rose by 26 percent.
The increase in natural gas prices received was directly a result of higher spot
market natural gas prices since less than 1 percent of the Company's second
quarter production came 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 $28,000 and $380,000 in the second quarters of
1996 and 1995, respectively.
Oil and natural gas operating margins (revenues less operating costs)
increased from 65 percent in the second quarter of 1995 to 67 percent in the
second quarter of 1996. Total operating costs increased 28 percent due to the
additional costs associated with producing properties acquired in 1995 and
drilled in the first half of 1996. Depreciation, depletion and amortization
("DD&A") increased 5 percent due to increased production between the comparative
quarters. The Company's average DD&A rate for the second quarter of 1996 was
$3.77 compared with $3.95 in the second quarter of 1995.
Contract drilling revenues increased 79 percent for the comparative
quarters primarily due to the rise in rig utilization. Rig utilization averaged
15.1 rigs in the second quarter of 1996 and averaged 8.8 rigs in the second
quarter of 1995. Contract drilling operating margins (revenues less operating
costs) were a positive 11 percent in the second quarter of 1996 as compared to a
negative 4 percent in the second quarter of 1995. Contract drilling operations
in the second quarter of 1995 experienced unusually wet weather delaying rig
moves and depressing rig utilization.
11
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General and administrative and interest expense both increased 3 percent
in the second quarter of 1996 when compared with the second quarter of 1995.
While the average long-term bank debt outstanding increased 17 percent between
the comparative quarters due, in large part, to borrowings associated with the
Company's producing property acquisitions and developmental drilling, the
average interest rate incurred by the Company dropped from 8.9 to 7.7 percent.
Six Months 1996 versus Six Months 1995
- -------------------------------------------------
Income from continuing operations for the first six months of 1996 was
$2,808,000 as compared to $959,000 for the first six months of 1995. Higher oil
and natural gas prices along with increase production, rig utilization and
operating margins all contributed to the increase in income between the periods.
Oil and natural gas revenues increased 34 percent in the first six
months of 1996 as compared to the first six months of 1995. As a result of
the Company's producing property acquisitions and development drilling
program, oil and natural gas production increased by 18 and 5 percent,
respectively, between the comparative periods. Average oil prices received by
the Company increased 13 percent during the first six months while the average
natural gas prices rose by 29 percent. The increase in natural gas prices
was caused by a $.53 climb in average spot market prices partially offset by 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 $310,000 and $750,000 in the first
six months of 1996 and 1995, respectively.
Oil and natural gas operating margins (revenues less operating costs)
improved from 63 percent in the first six months of 1995 to 66 percent in the
first six months of 1996. While increased prices helped improve operating
margins, total operating costs increased 23 percent due to the additional costs
associated with producing properties acquired in 1995 and drilled in the first
half of 1996. Depreciation, depletion and amortization ("DD&A") increased 3
percent due to increased production between the comparative periods. The
Company's average DD&A rate for the first six months of 1996 was $3.77 compared
with $3.97 in the first six months of 1995.
Contract drilling revenues increased 59 percent for the comparative six
month periods as rig utilization increased from an average of 9.0 rigs
operating in the first six months of 1995 to 14.1 rigs in the first six months
of 1996. Contract drilling operating margins (revenue less operating costs)
were 11 percent in the first six months of 1996 as compared to 4 percent in the
first six months of 1995. Initial start up costs caused by increasing rig
utilization negatively impacted operating margins in both the first six months
of 1995 and 1996.
General and administrative expense increased 12 percent during the
comparative six month periods as employee compensation and office related
expenses increased as the Company continues to grow.
Interest expense increased 2 percent due to a 17 percent increase in the
average long-term bank debt outstanding in the first six months of 1996 compared
to the first six months of 1995. While average long-term bank debt increased due
primarily to producing property acquisitions and developmental drilling during
1995 and early 1996, the average interest rate incurred by the Company dropped
from 8.9 to 7.8 percent.
12
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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
- ------------------------------------------------------------
On May 1, 1996 the Company held its Annual Meeting of Stockholders.
At the meeting the following matters were voted on each receiving the
votes indicated:
I. Election of Nominees King P. Kirchner, Don Cook and
Don Bodard to serve as directors.
Numbers of Against or
Nominee Votes For Withheld
-------------- ----------- ----------
King P. Kirchner 19,240,285 50,413
Don Cook 19,237,481 53,217
Don Bodard 19,234,961 55,737
The following directors, whose term of office did not expire at
this annual meeting, continue as directors of the Company: John
G. Nikkel, John S. Zink, Earle Lamborn, William B. Morgan and
John H. Williams
II. Ratification of the appointment of Coopers & Lybrand as the
Company's independent certified public accountants for the
fiscal year 1996.
For - 19,190,478
Against - 36,677
Abstain - 63,543
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 June
30, 1996.
13
<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: August 8, 1996 By: /s/ John G. Nikkel
--------------------------- ------------------------
JOHN G. NIKKEL
President, Chief Operating
Officer and Director
Date: August 8, 1996 By: /s/ Larry D. Pinkston
--------------------------- ------------------------
LARRY D. PINKSTON
Vice President, Chief
Financial Officer
and Treasurer
14
<PAGE>
Exhibit 15
----------
August 8, 1996
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 July 31, 1996 on our review of interim
financial information of Unit Corporation for the three and six month periods
ended June 30, 1996 and 1995 and included in the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1996 is incorporated by reference in
the Company's registration statements on Form S-8 (File No.'s 33-19652, 33-
44103, 33-49724, 33-64323 and 33-53542) and Form S-3 (File No. 33-16116).
Pursuant to Rule 436(c) 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 the six months ended June 30, 1996 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 634
<SECURITIES> 0
<RECEIVABLES> 12,629<F1>
<ALLOWANCES> 0
<INVENTORY> 0<F2>
<CURRENT-ASSETS> 16,834
<PP&E> 273,694
<DEPRECIATION> 170,558
<TOTAL-ASSETS> 120,123
<CURRENT-LIABILITIES> 14,702
<BONDS> 0
0
0
<COMMON> 4,360
<OTHER-SE> 58,582
<TOTAL-LIABILITY-AND-EQUITY> 120,123
<SALES> 0
<TOTAL-REVENUES> 32,978<F3>
<CGS> 0
<TOTAL-COSTS> 24,754<F3>
<OTHER-EXPENSES> 2,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,614
<INCOME-PRETAX> 4,481
<INCOME-TAX> 1,673
<INCOME-CONTINUING> 2,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,808
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
<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>On 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 new company called GED Gas
Services, L.L.C. ("GED"). The Company owns a 34 percent interest in GED.
Effective November 1, 1995, GED sold its natural gas marketing operations to
<PAGE>
a third party. This sale removed the Company from the third party natural
gas marketing business. The discontinuation of the Company's natural gas
marketing segment has been accounted for as a discontinued operation and
accordingly, the 1995 consolidated condensed financial information has been
restated to reflect this treatment.
</FN>
</TABLE>
