<PAGE>
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 March 31, 1998
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 25,550,165
Class Outstanding at May 4, 1998
<PAGE>
UNIT CORPORATION
INDEX
Page
PART I. Financial Information: Number
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
March 31, 1998 and December 31, 1997 2
Consolidated Condensed Statements of Operations
Three Months Ended March 31, 1998 and 1997 3
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 4
Notes to Consolidated Condensed Financial Statements 5
Report of Review by Independent Accountants 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
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
March 31, December 31,
1998 1997
---------- ----------
ASSETS (Unaudited)
- ------ (In thousands)
Current Assets:
Cash and cash equivalents $ 1,964 $ 458
Accounts receivable 15,519 19,813
Other 6,628 5,741
---------- ----------
Total current assets 24,111 26,012
---------- ----------
Property and Equipment:
Total cost 381,783 362,587
Less accumulated depreciation, depletion,
amortization and impairment 197,248 192,613
---------- ----------
Net property and equipment 184,535 169,974
---------- ----------
Other Assets 6,549 6,511
---------- ----------
Total Assets $ 215,195 $ 202,497
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current portion of long-term debt $ 1,286 $ 286
Accounts payable 12,492 11,112
Accrued liabilities 7,235 7,854
Gas Purchaser Prepayments 440 441
---------- ----------
Total current liabilities 21,453 19,693
---------- ----------
Natural Gas Purchaser Prepayments (Note 3) 1,760 1,765
---------- ----------
Long-Term Debt 64,103 54,614
---------- ----------
Deferred Income Taxes 17,951 17,560
---------- ----------
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, 25,549,165 and
25,514,836 shares issued, respectively 5,110 5,103
Capital in excess of par value 82,218 82,043
Retained earnings 22,600 21,875
Treasury stock, at cost, 0 and
9,863 shares, respectively - (156)
---------- ----------
Total shareholders' equity 109,928 108,865
---------- ----------
Total Liabilities and Shareholders' Equity $ 215,195 $ 202,497
========== ==========
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
March 31,
1998 1997
---------- ----------
(In thousands except per
share amounts)
Revenues:
Contract drilling $ 14,888 $ 11,037
Oil and natural gas 9,351 13,259
Other 10 26
---------- ----------
Total revenues 24,249 24,322
---------- ----------
Expenses:
Contract drilling:
Operating costs 12,487 8,729
Depreciation 1,395 912
Oil and natural gas:
Operating costs 3,376 3,528
Depreciation, depletion and amortization 3,510 3,157
General and administrative 1,235 1,117
Interest 1,083 660
---------- ----------
Total expenses 23,086 18,103
---------- ----------
Income Before Income Taxes 1,163 6,219
---------- ----------
Income Tax Expense:
Current 47 43
Deferred 391 2,302
---------- ----------
Total income taxes 438 2,345
---------- ----------
Net Income $ 725 $ 3,874
========== ==========
Net Income Per Common Share:
Basic $ .03 $ .16
========== ==========
Diluted $ .03 $ .16
========== ==========
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)
Three Months Ended
March 31,
1998 1997
---------- ----------
(In thousands)
Cash Flows From Operating Activities:
Net income $ 725 $ 3,874
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation, depletion and amortization 4,985 4,153
Other-net 327 223
Deferred income tax expense 391 2,302
Changes in operating assets and liabilities
increasing (decreasing) cash:
Accounts receivable 4,294 1,941
Accounts payable 4,731 4,073
Natural gas purchaser prepayments (Note 3) (6) (164)
Other-net (1,506) (195)
---------- ----------
Net cash provided by
operating activities 13,941 16,207
---------- ----------
Cash Flows From (Used In) Investing Activities:
Capital expenditures (22,928) (8,293)
Proceeds from disposition of assets 83 58
Other-net (99) (159)
---------- ----------
Net cash used in investing activities (22,944) (8,394)
---------- ----------
Cash Flows From (Used In) Financing Activities:
Net borrowings (payments) under line of credit 10,500 (5,600)
Net payments of notes payable
and long-term debt (11) -
Other-net 20 120
---------- ----------
Net cash from (used in)
financing activities 10,509 (5,480)
---------- ----------
Net Increase in Cash and Cash Equivalents 1,506 2,333
Cash and Cash Equivalents, Beginning of Year 458 547
---------- ----------
Cash and Cash Equivalents, End of Period $ 1,964 $ 2,880
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the three months ended March 31, for:
Interest $ 896 $ 73
Income taxes $ 20 $ -
The accompanying notes are an integral part of the
consolidated condensed financial statements
4
<PAGE>
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 March 31, 1998 and the results of its
operations and cash flows for the three month periods ended March 31, 1998 and
1997. Results for the three months ended March 31, 1998 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, 1997.
NOTE 2 - LONG-TERM DEBT
- -----------------------
On May 1, 1998, the Company completed a new loan agreement (the "Credit
Agreement") replacing its previous bank loan. The Credit Agreement increased
the Company's total loan facility to $100 million and the current available
borrowing value to $85 million. The revolving credit facility covers four
years with a three year term loan thereafter.
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
("Settlement Agreement"), the Company has a prepayment balance of $2.2 million
at March 31, 1998 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. Per the Settlement Agreement the
purchaser was required 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.
These monthly payments ended at December 31, 1997. As a result of the
Settlement Agreement, the March 31, 1998 Prepayment Balance of $2.2 million is
payable in equal annual payments over a five year period with the first
payment due June 1, 1998. At December 31, 1997, the Settlement Agreement and
the natural gas purchase contracts which were subject to the Settlement
Agreement terminated.
5
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NOTE 4 - EARNINGS PER SHARE
- ---------------------------
The following data shows the amounts used in computing earnings per
share for the Company.
For the Three Months Ended March 31, 1998
-----------------------------------------
INCOME WEIGHTED SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- --------------- ----------
Basic earnings per common
share $ 725,000 25,547,000 $ 0.03
==========
Effect of dilutive
stock options - 292,000
----------- ----------
Diluted earnings per common
share $ 725,000 25,839,000 $ 0.03
=========== ========== ==========
For the Three Months Ended March 31, 1997
-----------------------------------------
INCOME WEIGHTED SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- --------------- ----------
Basic earnings per common
share $ 3,874,000 24,170,000 $ 0.16
==========
Effect of dilutive
stock options - 362,000
----------- ----------
Diluted earnings per common
share $ 3,874,000 24,532,000 $ 0.16
=========== ========== ==========
The following options and their average exercise prices were not included in
the computation of diluted earnings per share because the option exercise
prices were greater than the average market price on common shares for the
three months ended March 31,:
1998 1997
---------- ---------
Options 156,000 6,500
========== =========
Average exercise price $ 8.79 $ 10.00
========== =========
6
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NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
- --------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("FAS 131"). FAS 131 amends standards
regarding the disclosure of information on business segments in annual
financial statements and also requires selected financial information on
segments for interim financial statements. FAS 131 will become effective for
the Company when the annual financial statements are filed at the end of the
1998 fourth quarter. The Company does not anticipate that FAS 131 will
significantly impact the disclosure of its segment information.
7
<PAGE>
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 March 31, 1998, and the related consoli-
dated condensed statements of operations and cash flows for the three month
periods ended March 31, 1998 and 1997. 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, 1997, 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 17, 1998 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, 1997, 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
April 29, 1998
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------
FINANCIAL CONDITION
- -------------------
On May 1, 1998, the Company completed a new bank loan agreement (the
"Credit Agreement") replacing its previous bank loan. The Credit Agreement
increased the Company's total loan facility to $100 million and the current
available borrowing value (the "Loan Value") to $85 million. The Loan Value
under the revolving credit facility is subject to a semi-annual redeter-
mination calculated as the sum of the discounted future value of the Company's
oil and natural gas reserves plus the greater of (i) 50 percent of the
appraised value of the Company's contract drilling rigs or (ii) two times the
previous 12 months cash flow from the contract drilling rigs, limited in
either case to $20 million. The revolving credit facility covers four years
with a three year term loan thereafter. Borrowings under the revolving
credit facility bear interest at the Chase Manhattan Bank, N.A. prime rate
("Prime Rate") or the London Interbank Offered Rates ("Libor Rate") plus .75
to 1.25 percent depending on the level of debt as a percentage of the total
Loan Value. Subsequent to May 1, 2002, borrowings under the Credit Agreement
bear interest at the Prime Rate plus .25 percent or the Libor Rate plus 1.00
to 1.50 percent depending on the level of debt as a percentage of the total
Loan Value. A facility fee of .375 of 1 percent is charged for any unused
portion of the Loan Value.
At the Company's election, any portion of the debt outstanding may be
fixed at the Libor Rate for 30, 60, 90 or 180 days. During any Libor Rate
funding period the Company may not pay in part or in whole the outstanding
principal balance of the note to which such Libor Rate option applies.
Borrowings under the Prime Rate option may be paid anytime in part or in whole
without premium or penalty.
Virtually all of the Company's drilling rigs are collateral for such
indebtedness and the balance of the Company's assets are subject to a negative
pledge.
The Credit Agreement includes prohibitions against (i) the payment of
dividends (other than stock dividends) during any fiscal year in excess of 25
percent of the consolidated net income of the Company during the preceding
fiscal year and only if working capital provided from operations during said
year is equal to or greater than 175 percent of current maturities of long-
term debt at the end of such year, (ii) the incurrence by the Company or any
of its subsidiaries of additional debt with certain very limited exceptions
and (iii) the creation or existence of mortgages or liens, other than those in
the ordinary course of business, on any property of the Company or any of its
subsidiaries, except in favor of its banks. The Credit Agreement also
requires that the Company maintain consolidated net worth of at least $75
million, a current ratio of not less than 1 to 1, a ratio of long-term debt
to consolidated tangible net worth not greater than 1.2 to 1 and a ratio of
total liabilities, as defined in the Credit Agreement, to consolidated
tangible net worth not greater than 1.65 to 1. In addition, working capital
provided by operations, as defined in the Loan Agreement, cannot be less than
$18 million for the previous twelve months.
9
<PAGE>
At March 31, 1998 borrowings under the Company's previous bank loan
agreement totaled $59.6 million and the average interest rate in the first
quarter of 1998 was 7.8 percent compared with 7.1 percent in the first quarter
of 1997.
The Company's shareholders' equity at March 31, 1998 was $109.9 million
resulting in a ratio of long-term debt-to-equity of .60 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 Credit Agreement. Net cash provided by operating
activities for the first three months of 1998 was $13.9 million as compared to
$16.2 million for the first three months of 1997. The decrease in 1998, as
compared to 1997, was primarily due to lower spot market natural gas and oil
prices partially offset by decreases in accounts receivable and increases
accrued liabilities.
During the first quarter of 1998, the Company had capital additions of
$19.6 million. Approximately 83 percent of the expenditures were for
producing property acquisitions and oil and natural gas exploration and
development drilling while the remainder was for the Company's contract
drilling operations. The Company purchased an interest in approximately 300
producing properties in the first quarter of 1998 for $4.8 million along with
continuing its development drilling projects. The Company plans to continue
its focus on development drilling during the remainder of 1998. Depending, in
part, on commodity pricing, the Company anticipates it will spend
approximately $30 million on its exploration capital expenditures program in
1998 and approximately $10.0 million on domestic drilling capital
expenditures. These expenditures are anticipated to be within the constraints
of available cash to be provided by operating activities and the Company's
existing Credit Agreement. Since a large portion of the Company's capital
expenditures are discretionary and directed toward increasing reserves and
future growth, current operations are not dependent on the Company's ability
to obtain funds outside of the Company's current Credit Agreement.
The Company is moving forward with its plans to expand its contract
drilling operations outside the continental United States, specifically into
areas of South America. Although these operations are in the early stages of
development, the Company currently anticipates that it may move one or two
rigs to Columbia during the fourth quarter of this year. The Company has not
previously conducted international contract drilling operations, but
anticipates that such operations would involve a number of additional
political, economic, currency, tax and other risks and costs not generally
encountered in its domestic operations.
On November 20, 1997, the Company acquired Hickman Drilling Company,
pursuant to an Agreement and Plan of Merger ("the Merger Agreement") entered
into by and between the Company, Hickman Drilling Company and all of the
holders of the outstanding capital stock of Hickman Drilling Company (the
"Selling Stockholders"). As part of this acquisition, the Selling
Stockholders received promissory notes in the aggregate principal amount of
$5,000,000. These notes are to be paid in five equal annual installments
commencing January 2, 1999. The notes bear interest at the Chase Prime Rate
which at December 31, 1997 and March 31, 1998 was 8.5 percent.
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
10
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effective retroactively to January 1, 1991. Under these settlement agreements
("Settlement Agreement"), the Company has a prepayment balance of $2.2 million
at March 31, 1998 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. Per the Settlement Agreement the
purchaser was required 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.
These monthly payments ended at December 31, 1997. As a result of the
Settlement Agreement, the March 31, 1998 Prepayment Balance of $2.2 million is
payable in equal annual payments over a five year period with the first
payment due June 1, 1998. At December 31, 1997, the Settlement Agreement and
the natural gas purchase contracts which were subject to the Settlement
Agreement terminated.The price per Mcf under the Settlement Agreement was
substantially higher than current spot market prices. The impact of the
higher price received under the Settlement Agreement increased pre-tax income
approximately $165,000 in the first quarter of 1997.
Both average oil and spot market natural gas prices received during the
first quarter of 1998 were substantially lower than during the same period in
1997. The average oil price received by the Company during the first quarter
of 1998 was $14.66 per barrel which was a $6.90 per barrel decrease. Average
spot market natural gas prices decreased to $1.89 per Mcf, a $.82 per Mcf
decrease. 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
86 percent of the Company's reserves, the large drop in spot market natural
gas prices had a significant adverse effect on the value of the Company's
reserves at the end on the quarter and further price declines could cause the
Company to reduce the carrying value of its oil and natural gas properties.
Such decreases, if sustained, will also adversely effect the Company's cash
flow in future quarters and possibly beyond due to reduced oil and natural gas
revenues and if continued over an extended period will adversely impact demand
for the Company's contract drilling rigs. Declines in natural gas and oil
prices could also adversely effect the semi-annual determination of the loan
value under the Company's Credit Agreement since this determination is
calculated on the value of the Company's oil and natural gas reserves and its
drilling rigs.
The Company's ability to utilize its full complement of drilling rigs is
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
1998.
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, 135,100 shares
have been repurchased at prices ranging from $2.50 to $9.69 per share. During
the first quarters of 1998 and 1997, 19,863 and 23,892 of the purchased
11
<PAGE>
shares, respectively, were used as the Company's matching contribution to its
401(K) Employee Thrift Plan. At March 31, 1997 9,863 treasury shares were
held by the Company. No treasury shares were held by the Company at March 31,
1998.
SAFE HARBOR STATEMENT
- ---------------------
With the exception of historical information many of the matters
discussed in this report are forward looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995, that involve risks and
uncertainties and actual results could differ materially from those discussed.
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 of its drilling rigs, growth of its oil and natural gas
reserves and well performance and the Company's anticipated 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, 1997 filed with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
- ---------------------
The Company reported net income of $725,000 in the first quarter of 1998
as compared to net income of $3,874,000 for the first quarter of 1997.
Decreased spot market natural gas and oil prices when compared with the same
period in 1997 along with decreased oil production and increased contract
drilling indirect expenses all contributed to the decline in net income.
Oil and natural gas revenues decreased 29 percent in the first quarter
of 1998 as compared to the first quarter of 1997. As a result of the
Company's 1997 development drilling program which focused on the development
of natural gas reserves, natural gas production increased by 6 percent. Oil
production decreased 17 percent primarily due to reduced production from
several high volume wells in southeast New Mexico. Average natural gas and
oil prices received by the Company both decreased 32 percent between the
comparative quarters. Prior to December 31, 1997, the Company received
natural gas revenue from the production of wells covered by a natural gas
purchaser settlement agreement (the "Settlement Agreement"), which provided
for prices higher than current spot market prices. The first quarter 1997
production from wells covered by the Settlement Agreement represented 3
percent of the Company's natural gas production. The impact of the higher
price received under the Settlement Agreement increased pre-tax income by
approximately $165,000 in the first quarter of 1997.
Due primarily to lower natural gas and oil prices received by the
Company, oil and natural gas operating margins (revenues less operating costs)
declined to 64 percent in the first quarter of 1998 compared to 73 percent in
the first quarter of 1997. Total operating costs decreased 4 percent. Total
depreciation, depletion and amortization ("DD&A") increased 11 percent between
12
<PAGE>
the comparative quarters due to increased natural gas production and an
increase in the Company's DD&A rate. The Company's average DD&A rate per
equivalent barrel increased from $4.36 in the first quarter of 1997 to $4.77
in the first quarter of 1998.
Contract drilling revenues increased 35 percent for the comparative
quarters due to increases in both rig utilization and dayrates. As a result
of the acquisition of Hickman Drilling Company, rig utilization increased and
averaged 24.8 rigs in the first quarter of 1998 as opposed to 20.1 rigs in the
first quarter of 1997. Average revenue per rig per operating day for daywork
contracts increased by over 6 percent between the comparative quarters.
Contract drilling operating margins (revenues less operating costs) were 16
percent in the first quarter of 1998 as compared to 21 percent in the first
quarter of 1997. Total contract drilling operating costs increased 43 percent
due to increased utilization and the increase in certain indirect drilling
expenses as a result of the Hickman Drilling Company acquisition. Contract
drilling depreciation expense increased 53 percent due to increased rig
utilization and the addition of rigs through the Hickman Drilling Company
acquisition.
General and administrative expense increased by 11 percent while
interest expense increased 64 percent. Average long-term debt increased 38
percent between the first quarter of 1998 and the first quarter of 1997 and
the average interest rate incurred by the Company increased from 7.1 percent
in the first quarter of 1997 to 7.9 percent in the first quarter of 1998.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("FAS 131"). FAS 131 amends standards
regarding the disclosure of information on business segments in annual
financial statements and also requires selected financial information on
segments for interim financial statements. FAS 131 will become effective for
the Company when the annual financial statements are filed at the end of the
1998 fourth quarter. The Company does not anticipate that FAS 131 will
significantly impact the disclosure of its segment information.
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
March 31, 1998.
14
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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: May 6, 1998 By: /s/ John G. Nikkel
------------------------------ -----------------------------
JOHN G. NIKKEL
President, Chief Operating Officer
and Director
Date: May 6, 1998 By: /s/ Larry D. Pinkston
------------------------------ -----------------------------
LARRY D. PINKSTON
Vice President, Chief Financial
Officer and Treasurer
15
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Exhibit 15
----------
May 6, 1998
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 April 29, 1998 on our review of interim
financial information of Unit Corporation for the three month periods ended
March 31, 1998 and 1997 and included in the Company's quarterly report on Form
10-Q for the quarter ended March 31, 1998 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.333-42341). 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 three months ended March 31, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,964
<SECURITIES> 0
<RECEIVABLES> 15,519<F1>
<ALLOWANCES> 0
<INVENTORY> 0<F2>
<CURRENT-ASSETS> 24,111
<PP&E> 381,783
<DEPRECIATION> 197,248
<TOTAL-ASSETS> 215,195
<CURRENT-LIABILITIES> 21,453
<BONDS> 0
0
0
<COMMON> 5,110
<OTHER-SE> 104,818
<TOTAL-LIABILITY-AND-EQUITY> 215,195
<SALES> 0
<TOTAL-REVENUES> 24,249
<CGS> 0
<TOTAL-COSTS> 20,768
<OTHER-EXPENSES> 1,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,083
<INCOME-PRETAX> 1,163
<INCOME-TAX> 438
<INCOME-CONTINUING> 725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 725
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<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.
</FN>
</TABLE>
