<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT UNDER 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)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-22664
PATTERSON ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 75-2504748
incorporation or organization) (I.R.S. Employer Identification No.)
P. O. Drawer 1416, 4510 Lamesa Highway, Snyder, Texas 79550
(Address of principal executive offices) (Zip Code)
(915) 573-1104
(Registrant's telephone number, including area code)
No change
(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 [ ]
As of August 2, 1996 the issuer had 4,810,689 shares of Common Stock, par value
$0.01 per share, outstanding.
<PAGE> 2
PATTERSON ENERGY, INC.
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C> <C>
Item 1. Financial Statements
Unaudited consolidated balance sheets 3
Unaudited consolidated statements of income 5
Unaudited consolidated statements of cash flows 6
Notes to unaudited consolidated financial statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of Security
Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
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<PAGE> 3
PATTERSON ENERGY, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE FOLLOWING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDE ALL
ADJUSTMENTS WHICH IN THE OPINION OF MANAGEMENT ARE NECESSARY IN ORDER TO MAKE
SUCH FINANCIAL STATEMENTS NOT MISLEADING.
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,467,482 $ 4,251,304
Accounts receivable:
Trade:
Billed 8,722,373 11,724,314
Unbilled 1,807,029 862,050
Oil and gas sales 487,027 473,937
Costs of uncompleted contracts in excess of related billings 218,447
Equipment inventory 405,049 462,464
Deferred income taxes 614,567 614,567
Undeveloped oil and gas properties held for resale 2,122,112 2,544,206
Other current assets 174,588 231,212
----------- -----------
Total current assets 16,800,227 21,382,501
----------- -----------
Property and equipment, at cost, net 26,470,324 27,988,302
Deposits on workers' compensation insurance policy 343,760 343,760
Deferred income taxes 1,470,957
Other assets 176,115 94,274
----------- -----------
Total assets $43,790,426 $51,279,794
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(Continued)
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<PAGE> 4
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
---------------- -------------
<S> <C> <C>
Current liabilities:
Current maturities of notes payable $ 909,634 $ 3,388,149
Accounts payable:
Trade 6,102,382 8,425,213
Revenue distribution 1,595,411 2,133,531
Other 245,374 514,150
Accrued expenses 1,657,994 1,761,199
---------------- ---------------
Total current liabilities 10,510,795 16,222,242
---------------- ---------------
Notes payable, less current maturities 12,906,473 12,544,908
---------------- ---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - par value $.01; authorized
1,000,000 shares, no shares issued
Common stock - par value $.01; authorized
5,000,000 shares, issued and
outstanding shares of 3,194,951 31,950 31,950
Additional paid-in capital 14,095,200 14,095,200
Retained earnings 6,246,008 8,385,494
---------------- ---------------
Total stockholders' equity 20,373,158 22,512,644
---------------- ---------------
Total liabilities and stockholders' equity $ 43,790,426 $ 51,279,794
================ ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 5
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
1995 1996 1995 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Operating revenues:
Drilling $ 9,449,885 $12,349,151 $18,492,141 $22,882,288
Oil and gas sales 1,047,702 1,565,290 1,966,615 2,889,433
Well operation fees 254,706 343,520 506,647 688,347
Other 81,745 95,754 122,355 169,769
----------- ----------- ----------- -----------
10,834,038 14,353,715 21,087,758 26,629,837
----------- ----------- ----------- -----------
Operating costs and expenses:
Direct drilling costs 7,574,179 10,115,011 15,028,715 18,861,191
Lease operating and production 303,397 419,638 579,922 807,184
Exploration costs 62,686 116,787 131,339 232,716
Dry holes and abandonments 23,599 167,591 178,179 235,512
Depreciation, depletion and amortization 1,387,842 1,952,867 2,417,611 3,686,249
General and administrative expense 734,988 1,140,042 1,455,500 1,948,134
----------- ----------- ----------- -----------
10,086,691 13,911,936 19,791,266 25,770,986
----------- ----------- ----------- -----------
Operating income 747,347 441,779 1,296,492 858,851
----------- ----------- ----------- -----------
Other income (expense):
Net gain on sale of assets 57,803 339,438 86,787 366,051
Interest income 36,795 41,998 71,356 76,638
Interest expense (272,279) (314,931) (460,155) (644,385)
Other income (expense) (15,745) 24,061 (10,688) 64,838
----------- ----------- ----------- -----------
(193,426) 90,566 (312,700) (136,858)
----------- ----------- ----------- -----------
Income before income taxes 553,921 532,345 983,792 721,993
----------- ----------- ----------- -----------
Income taxes:
Current 50,173 30,025 66,774 53,464
Deferred income tax expense (benefit) (94,243) 138,935 (94,243) (1,470,957)
----------- ----------- ----------- -----------
Income tax expense (benefit) (44,070) 168,960 (27,469) (1,417,493)
----------- ----------- ----------- -----------
Net income $ 597,991 $ 363,385 $1,011,261 $ 2,139,486
=========== =========== =========== ===========
Net income per common share:
Primary $ .22 $ .11 $.38 $ .64
=========== =========== =========== ===========
Assuming full dilution $ .21 $ .11 N/A $ .63
=========== =========== =========== ===========
Weighted average number of
common shares outstanding:
Primary 2,677,857 3,378,032 2,656,547 3,357,971
=========== =========== =========== ===========
Assuming full dilution 2,800,875 3,378,032 N/A 3,375,945
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 6
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,011,261 $ 2,139,486
Adjustments to reconcile net income to net cash from
operating activities:
Loss on abandonments 10,456
Depreciation, depletion and amortization 2,417,611 3,686,249
Net gain on sale of assets (86,787) (366,051)
Deferred income tax benefit (94,243) (1,470,957)
Change in current assets and liabilities:
(Increase) decrease in trade accounts receivable 1,879,882 (3,001,941)
(Increase) decrease in oil and gas sales receivable (62,231) 13,090
Increase in oil and gas properties held for resale (830,468) (422,094)
(Increase) decrease in other current assets (214,387) 612,494
Increase (decrease) in trade accounts payable (2,115,910) 2,322,830
Increase in revenue distribution payable 812,428 538,120
Increase (decrease) in other current liabilities (111,831) 371,981
Net change in deposits on workers' compensation
insurance policy (150,000)
----------- -----------
Net cash provided by operating activities 2,465,781 4,423,207
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (7,521,965) (5,541,030)
Sale of property and equipment 100,813 702,854
(Increase) decrease in other assets (85,781) 81,841
----------- -----------
Net cash used in investing activities (7,506,933) (4,756,335)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 8,000,000 2,440,000
Payments on notes payable (1,679,128) (323,050)
----------- -----------
Net cash provided by financing activities 6,320,872 2,116,950
----------- -----------
Net increase in cash and cash equivalents 1,279,720 1,783,822
Cash and cash equivalents at beginning of period 3,369,382 2,467,482
----------- -----------
Cash and cash equivalents at end of period $ 4,649,102 $ 4,251,304
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 435,665 $ 645,188
Income taxes 91,491 141,898
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(Continued)
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<PAGE> 7
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
Non cash investing and financing activities:
During the six months ended June 30, 1995, Patterson acquired three
drilling rigs and related equipment from a non-affiliated person. The purchase
price for the rigs consisted of $367,500 cash, 97,500 shares of Patterson's
common stock, valued for purposes of the transaction at $682,500, and warrants
to purchase an additional 75,000 shares at an exercise price of $9.00 per
share, valued at $39,750 for this transaction.
See accompanying notes to unaudited consolidated financial statements.
-7-
<PAGE> 8
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements include the accounts of Patterson
Energy, Inc. ("Patterson") dba Patterson Drilling Company and its wholly-owned
subsidiaries, Patterson Petroleum, Inc., Patterson Petroleum Trading Company,
Inc. and Patterson Drilling Programs, Inc (collectively referred to as the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
On April 19, 1996, Patterson filed a Certificate of Incorporation with the
Secretary of State of the State of Delaware organizing Patterson Drilling
Company ("Patterson Drilling") as a wholly-owned subsidiary of Patterson.
Patterson Drilling was formed solely for the purpose of acquiring Tucker
Drilling Company, Inc. ("Tucker") through a merger of Patterson Drilling with
and into Tucker ("Merger"), pursuant to the terms of the previously announced
Agreement and Plan of Merger (the "Merger Agreement") dated as of April 22,
1996, as amended on May 16, 1996, among these three entities. As of June 30,
1996, no transactions had occurred involving the operating accounts of
Patterson Drilling. The Merger was consummated on July 30, 1996. See Note 2
below.
The consolidated financial statements have been prepared by management of
Patterson, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations, although Patterson believes that the disclosures
are adequate to make the information presented not misleading. In the opinion
of management, all adjustments (consisting of only normal recurring accruals)
considered necessary for presentation of the information have been included.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 1995 consolidated
financial statements in order for them to conform with the 1996 presentation.
2. As a result of the Merger, Tucker became a wholly-owned subsidiary of
Patterson under the name of "Patterson Drilling Company." Pursuant to the
terms of the Merger Agreement, each share of Tucker common stock outstanding on
July 30, 1996, the consummation date of the Merger, was converted into 0.74 of
a share of Patterson common stock ("Exchange Ratio"), and all options to
purchase shares of Tucker common stock outstanding on that date became options
to purchase Patterson common stock upon the terms of the governing stock option
plans and as adjusted by the Exchange Ratio. A total of 1,577,514 shares of
Patterson common stock was issued pursuant to the Merger and an additional
74,592 shares of Patterson common stock was reserved for issuance under the
outstanding Tucker stock options, (which, upon consummation of the Merger,
became options to purchase Patterson common stock). The Merger was treated as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and was accounted for as a pooling of interests for
accounting purposes.
On July 30, 1996, prior to consummation of the Merger on that date, the
stockholders of Patterson at a special meeting thereof, approved an amendment
to Patterson's Certificate of Incorporation providing for an increase in the
number of authorized shares of Patterson common stock from 5,000,00 shares to
9,000,000 shares (the "Charter Amendment") and the issuance of the shares of
Patterson common stock in connection with the Merger (the "Stock Issuance").
(continued)
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<PAGE> 9
PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Because the merger was consummated subsequent to June 30, 1996, the
unaudited consolidated financial statements as of and for the period ended June
30, 1996, included under Item 1. "Financial Statements" of this report, do not
give affect to the pooling of Tucker's operations with those of Patterson.
A registration statement on Form S-4, which included a prospectus/joint
proxy statement relating to the Merger and the issuance of shares of Patterson
common stock, was filed and became effective with the Securities and Exchange
Commission on June 20, 1996.
3. Effective March 31, 1996, Patterson revised its estimates relative to the
realization of the future benefits of its net operating loss carryforwards and,
accordingly, fully reduced the related valuation allowance recognizing a net
deferred income tax benefit of 1,610,000. Patterson continues to maintain a
valuation allowance of approximately $470,000 as it does not appear likely that
the company will realize the benefit of certain other deferred tax assets prior
to their respective expirations. Patterson has incurred net deferred income
tax expense of approximately $139,000 for the fiscal quarter ended June 30,
1996.
4. Patterson adopted Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of" during
the fiscal quarter ended March 31, 1996. The Statement establishes accounting
standards for determining the impairment of the Company's long-lived assets.
Implementation of the Statement did not result in any adjustments to the
carrying values of Patterson's assets.
5. Patterson adopted Statement of Financial Accounting Standard No. 123,
"Accounting for Stock Based Compensation" during the fiscal quarter ended March
31, 1996, The Statement defines a fair value based method of accounting (i.e.,
using an option pricing model such as Black-Scholes) for employee stock options
or similar equity instrument plans, but also allows an entity to measure
compensation costs for those plans using the intrinsic value (the amount by
which the market price of the underlying stock exceeds the underlying price of
the option) based method of accounting as prescribed by Accounting Principles
Board Opinion No. 25. Patterson has elected to continue using the intrinsic
value based method as allowed by the Statement.
On June 6, 1996, pursuant to the terms of Patterson's Non-Employee
Directors' Stock Option Plan, options to purchase a total of 2,000 shares were
granted. Patterson did not incur any compensation related expenses as a result
of this transaction. For the six months ended June 30, 1995, stock options to
purchase 180,000 shares of Patterson common stock were granted in which no
compensation expense was incurred. Furthermore, significant compensation
expense would not have been incurred had a fair value based method of
accounting (i.e., Black-Sholes) been applied to the above described activity.
6. On July 12, 1996, pursuant to the terms of the Underwriter's Warrant
Agreement dated November 2, 1993, as amended on November 15, 1994 and June 18,
1996, Patterson authorized the issuance of 38,224 shares of Patterson's common
stock upon exercise of the 75,316 warrants. In lieu of a cash payment to
Patterson, the warrant holders chose to forfeit 37,092 shares of common stock
back to Patterson, in order to receive 38,224 shares of Patterson's common
stock (i.e., the cashless method). The number of shares forfeited and received
was determined using the stated exercise price of the warrants of $8.68, the
fair market value of Patterson's common stock on the date of the exercise of
$17.63 and the difference thereof.
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had working capital of approximately
$5,160,000 including cash and cash equivalents of approximately $4,251,000 as
compared to working capital of approximately $5,538,000 including cash and cash
equivalents of approximately $4,649,000 as of June 30, 1995. For the six
months ended June 30, 1996, the Company generated net cash from operations of
approximately $4,423,000, borrowed additional funds in the amount of $2,440,000
and received approximately $703,000 from the sale of various fixed assets.
These funds were used primarily to fund the Company's capital expenditure
program including the acquisition of drilling and related equipment of
approximately $3,090,000, and leasehold acquisition, exploration and
development of approximately $2,245,000. The funds were further utilized to
reduce certain notes payable by approximately $323,000 and to increase cash by
approximately $1,784,000.
The Company has a $10,000,000 line of credit with The CIT Group/Equipment
Financing, Inc. ("CIT") and a $4,000,000 line of credit with Norwest Bank
Texas, Wichita Falls, N.A. ("Norwest"). As of June 30, 1996, the Company has
drawn down $7,700,000 and approximately $3,600,000 on the lines of credit with
CIT and Norwest, respectively.
The Company's management believes that it will continue to use cash flow
from operations and borrowings (if available) which, together with the current
working capital should be sufficient to fund operations and service the
Company's debt for at least the next twelve months. The Company's ability to
repay debt would be adversely affected by a decline in natural gas and crude
oil prices or by unsuccessful results in the Company's contract drilling or
exploration, development and production activities. See "Volatility of Oil and
Gas Prices" below in this item.
The Company believes it must continually upgrade and maintain its contract
drilling fleet. As such, management has budgeted $4,000,000 in capital
expenditures for fiscal year 1996 for its contract drilling segment. The funds
(if available) will be used for repairs and maintenance on the existing
drilling rig fleet as well as to fund acquisitions of drilling and other
related equipment. For the six months ended June 30, 1996, a significant
portion of the aforementioned capital expenditures included purchases of
approximately 79,000 feet (or approximately $2,077,000, of which approximately
$556,000 was expended during the three months ended March 31, 1996 and
$1,521,000 was expended during the three months ended June 30, 1996) of new
drill pipe. During July 1996, the Company began assembly of the last of the
four drilling rigs acquired in the second quarter of 1995. Management
estimates expenses of the assembly to approximate $350,000.
The Company has also budgeted $4,000,000 in the current fiscal year for
capital expenditures in its oil and gas segment. The funds (if available) will
be used for leasehold acquisitions, exploration and development of oil and gas
properties. As of June 30, 1996 the Company had expended approximately
$2,245,000 of this budget. A significant portion of the Company's current
capital expenditures in its oil and gas segment involve a focused effort to
increase its ownership interest in the North Nena Lucia Unit. As of June 30,
1996, the Company expended approximately $245,000 increasing its net working
and net revenue interests to approximately 24.27% and 21.37%, respectively.
Subsequent to June 30, 1996, the Company expended an additional $730,000
further increasing its net working and net revenue interests to approximately
40.24% and 35.43%, respectively. The Company obtained short term bank
financing of $730,000 during July 1996 to fund its continued investment in this
oil and gas property.
-10-
<PAGE> 11
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
For the six months ended June 30, 1996, contract drilling revenues were
approximately $22,882,000 as compared to $18,492,000 for the same period in
1995; an increase of 24%. Average rig utilization was 80% for the six months
ended June 30, 1996 as compared to 77% for the same period in 1995. The
utilization rate for 1996 was based on 26 rigs while 1995 was based on 23 rigs.
Direct contract drilling costs for the six months ended June 30, 1996 were
approximately $18,861,000 or 82% of the contract drilling revenues as compared
to approximately $15,029,000 or 81% of the contract drilling revenues for the
same period in 1995. The increase in contract drilling revenues and direct
drilling costs was due primarily to the addition of three drilling rigs during
the second and third quarters of 1995. General and administrative expense for
the contract drilling segment was approximately $1,250,000 for the six months
ended June 30, 1996 as compared to $850,000 for the same period in 1995. The
increase in general and administrative expense was largely attributable to
approximately $270,000 of professional and other related expenses incurred
relative to the Company's merger with Tucker and approximately $70,000 of
repairs and maintenance incurred by the Company relative to an airplane leased
by the Company from an affiliate of the Chairman of the Board and Chief
Executive Officer of the Company. Depreciation expense was approximately
$2,355,000 for the six months ended June 30, 1996 as compared to $1,468,000 for
the same period in 1995. The increase in depreciation expense was due
primarily to the Company's significant purchases of new drill pipe through the
second quarter ended June 30, 1996 and, to a lesser extent the addition of the
three aforementioned drilling rigs in late fiscal year 1995. For the six
months ended June 30, 1996, income from this segment was approximately $779,000
as compared to approximately $1,179,000 for the same period in 1995.
Oil and gas revenue was approximately $2,889,000 for the six months ended
June 30, 1996, as compared to approximately $1,967,000 for the six months ended
June 30, 1995. The volume of crude oil and natural gas sold increased by 27%
and 25%, respectively, for the six months ended June 30, 1996 as compared to
the same period in 1995. The average price per barrel of crude oil was $19.53
in the first six months of 1996 as compared to $17.47 for the same period in
1995, and the average price per mcf of natural gas was $1.80 in the first six
months of 1996 as compared to $1.47 for the first six months of fiscal year
1995. Lease operating and production costs were $4.13 per barrel of oil
equivalent for the six months ended June 30, 1996 as compared to $3.76 per
barrel of oil equivalent for the same period in 1995. Exploration costs
increased by 77% to approximately $233,000 for the six months ended June 30,
1996 as a result of the addition of an exploration and production office in
Midland, Texas during June of 1995. Depreciation, depletion and amortization
was approximately $1,331,000 for the six months ended June 30, 1996 as compared
to approximately $950,000 for the same six months ended in 1995. The increase
is due primarily to increased production of crude oil and natural gas as
discussed above. General and administrative expense for the oil and gas
segment was approximately $698,000 for the first six months of 1996 as compared
to $608,000 for the first six months of 1995. For the six months ended June
30, 1996 income from the oil and gas segment was approximately $511,000 as
compared to $194,000 for the same period in 1995.
For the six months ended June 30, 1996, interest expense was approximately
$644,000 as compared to $460,000 for the same period in 1995. This increase is
primarily attributable to an approximate 21% increase in the total outstanding
principal balance of the Company's notes payable as compared to the same period
of 1995. At June 30, 1996, the Company recognized a net gain on the sale of
certain of its fixed assets of approximately $366,000 as compared to
approximately $87,000 recognized a year earlier. This increase is primarily
attributable to the sale of six drilling rig generator sets and approximately
12,000 feet of drill pipe.
-11-
<PAGE> 12
COMPARISON OF THE FISCAL QUARTERS ENDED JUNE 30, 1996 AND 1995
For the fiscal quarter ended June 30, 1996, contract drilling revenues
were approximately $12,349,000 as compared to $9,450,000 for the same fiscal
quarter in 1995; an increase of 31%. Average rig utilization was 82% for the
fiscal quarter ended June 30, 1996 as compared to 79% in the same fiscal
quarter in 1995. Direct contract drilling costs for the fiscal quarter ended
June 30, 1996 were approximately $10,115,000 or 82% of contract drilling
revenues as compared to approximately $7,574,000 or 80% of contract drilling
revenues for the same fiscal quarter in 1995. The increase in contract
drilling revenues and direct contract drilling costs was due largely to the
addition of three drilling rigs during the second and third quarters of 1995
and, to a lesser extent increased cost of fuel to operate the rigs. General
and administrative expense for the contract drilling segment was approximately
$803,000 for the fiscal quarter ended June 30, 1996 as compared to
approximately $408,000 for the same fiscal quarter in 1995. This increase in
general and administrative expense was largely attributable to increased
professional and other related expenses incurred relative to the Company's
merger with Tucker and approximately $70,000 of repairs and maintenance
incurred relative to an airplane leased by the Company from an affiliate of
the Chairman of the Board and Chief Executive Officer of the Company.
Depreciation expense was approximately $1,224,000 for the fiscal quarter ended
June 30, 1996 as compared to $775,000 for the same fiscal quarter in 1995. The
increase in depreciation expense was due primarily to the significant purchases
of new drill pipe during the three months ended June 30, 1996. For the fiscal
quarter ended June 30, 1996, income from this segment was approximately
$511,000 as compared to approximately $721,000 for the same fiscal quarter in
1995.
Oil and gas revenue was approximately $1,565,000 for the fiscal quarter
ended June 30, 1996, as compared to approximately $1,048,000 for the same
fiscal quarter in 1995. The volume of crude oil and natural gas sold increased
by 32% and 8%, respectively, in the fiscal quarter ended June 30, 1996 as
compared to the same period in 1995. The average price per barrel of oil was
$20.67 for the fiscal quarter ended June 30, 1996 as compared to $18.51 for the
same period in 1995, and the average price per mcf of natural gas was $2.13 as
compared to $1.56 for the second quarter ended 1995. Lease operating and
production costs were $4.46 per barrel of oil equivalent in the fiscal quarter
ended June 30, 1996, as compared to $3.87 per barrel of oil equivalent for the
same period in 1995. Exploration costs increased by 86% to approximately
$117,000 for the three months ended June 30, 1996 as compared to the same
period ended June 30, 1995. The increase is due primarily to the addition of
an exploration and production office in Midland, Texas during June of 1995.
Depreciation, depletion and amortization was approximately $729,000 for the
three months ended June 30, 1996 as compared to approximately $613,000 for the
same three months ended in 1995. The increase is due primarily to increased
crude oil and natural gas production as discussed above. General and
administrative expense for the oil and gas segment was approximately $337,000
for the second quarter ended 1996 as compared to $326,000 for the same period
in 1995. In the fiscal quarter ended June 30, 1996, income from the oil and
gas segment was approximately $294,000 as compared to approximately $69,000 for
the fiscal quarter ended June 30, 1995.
For the fiscal quarter ended June 30, 1996, interest expense was
approximately $315,000 as compared to $272,000 for the same period in 1995.
The increase is due primarily to an increase in the outstanding principal
balance of notes payable of approximately 8%. At June 30, 1996, the Company
recognized a net gain on the sale of certain of its fixed assets of
approximately $339,000 as compared to approximately $58,000 recognized a year
earlier. This increase is primarily attributable to the sale of six drilling
rig generator sets and approximately 12,000 feet of drill pipe.
-12-
<PAGE> 13
INCOME TAXES
Effective March 31, 1996, the Company revised its estimates relative to
the realization of the future benefits of its deferred tax assets, particularly
the net operating loss carryforwards. In light of the Company's
recent historical earnings, stable rig utilization rates and increased crude
oil prices, management has determined that it is more likely than not that the
Company will realize the benefits provided by its net operating loss
carryforwards and certain other deferred tax assets As such, the Company
reduced its valuation allowance and recognized a net deferred income tax
benefit of approximately $1,610,000 which was then offset by approximately
$139,000 of net deferred income tax expense recognized during the second
quarter ended June 30, 1996.
VOLATILITY OF OIL AND GAS PRICES
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and gas, both with
respect to its contract drilling and its oil and gas segments. Historically,
oil and gas prices and markets have been extremely volatile. Prices are
affected by market supply and demand factors as well as actions of state and
local agencies, the United States and foreign governments and international
cartels. All of these are beyond the control of the Company. Any significant
or extended decline in oil and/or gas prices could have a material adverse
effect on the Company's financial condition and results of operations.
The price of crude oil fell to a five year low in December 1993 ($13.50
per barrel in the United States) and has risen and fallen since then to $21.43
per barrel on August 7, 1996. The average price of natural gas per mcf
received by the Company has increased from $1.37 in the first quarter of 1995
to $2.13 in the second quarter of 1996.
-13-
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held an annual meeting of stockholders on June 6, 1996. The
following table sets forth certain information relating to each of the matters
voted upon at the meeting.
<TABLE>
<CAPTION>
Votes
---------------------------------------------------
Withheld/ Broker
Matters Voted Upon For Against Abstain Non-Votes
- ------------------ --------- ------- --------- ---------
<S> <C> <C> <C> <C>
1. Election of Directors:
Cloyce A. Talbott 2,517,410 0 21,050 0
A. Glenn Patterson 2,517,410 0 21,050 0
Robert C. Gist 2,517,410 0 21,050 0
Kenneth E. Davis 2,517,410 0 21,050 0
2. Ratification of the
appointment of Coopers &
Lybrand L.L.P. as independent
auditors for fiscal 1996 2,537,560 900 0 0
</TABLE>
-14-
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following Exhibits are filed herewith or incorporated by reference
herein:
2.1 Agreement and Plan of Merger, dated April 22, 1996, among Patterson
Energy, Inc., Patterson Drilling Company and Tucker Drilling Company,
Inc. (1)
2.2 Amendment to Agreement and Plan of Merger dated May 16, 1996. (2)
3. Restated Certificate of Incorporation of Patterson Energy, Inc.
11. Statement re computation of per share earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the fiscal quarter
ended June 30, 1996:
(1) Report dated April 22, 1996 regarding the execution of the definitive
Agreement and Plan of Merge among and between the Company and Tucker
Drilling Company, Inc.;
(2) Report dated April 30, 1996 relating to the execution of Endorsement
No. 1 and Amendment No. 1 to a Promissory Note and related Loan
Agreement existing among and between the Company and The CIT
Group/Equipment Financing, Inc.; and,
(3) Report dated May 16, 1996 describing the execution and certain
provisions contained therein of the Amendment to Agreement and Plan
of Merger.
- ------------------------------------------
(1) Incorporated herein by reference to Item 5. "Other Events" to Form 8-K
dated April 22, 1996, filed on April 30, 1996.
(2) Incorporated herein by reference to Item 5. "Other Events" to Form 8-K
dated May 16, 1996, filed on May 22, 1996.
-15-
<PAGE> 16
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PATTERSON ENERGY, INC.
By: /s/ Cloyce A. Talbott
-----------------------------
Cloyce A. Talbott
Chairman of the Board and
Chief Executive Officer
By: /s/ James C. Brown
-----------------------------
James C. Brown
Vice President-Finance
DATED: August 12, 1996
-16-
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page
- ----------- ------------------- -----
<S> <C> <C>
2.1 Agreement and Plan of Merger, drafted April 22, 1996, among
Patterson Energy, Inc., Patterson Drilling Company and Tucker
Drilling Company, Inc. (1)
2.2 Amendment to Agreement and Plan of Merger dated May 16, 1996. (2)
3. Restated Certificate of Incorporation of Patterson Energy, Inc. 18
11. Statement re computation of per share earnings. 23
27. Financial Data Schedule 24
</TABLE>
- --------------------------------------------------------
(1) Incorporated herein by reference to Item 5. "Other Events" to Form 8-K
dated April 22, 1996, filed on April 30, 1996.
(2) Incorporated herein by reference to Item 5. "Other Events" to Form 8-K
dated May 16, 1996, filed on May 22, 1996.
-17-
<PAGE> 1
EXHIBIT 3
RESTATED
CERTIFICATE OF INCORPORATION
OF
PATTERSON ENERGY, INC.
(Originally incorporated on October 14, 1993)
FIRST: The name of the Corporation is Patterson Energy, Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
are to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock that the Corporation shall
have authority to issue is ten million (10,000,000) shares, of which nine
million (9,000,000) shares shall be Common Stock, having a par value of $0.01
per share, and one million (1,000,000) shares shall be Preferred Stock, having
a par value of $0.01 per share. The shares of such classes of stock shall have
the following express terms:
Section 1. PREFERRED STOCK
1.1 Authority of the Board of Directors to Create Series. The Board of
Directors is hereby expressly granted authority, to the full extent now or
hereafter permitted herein and by the General Corporation Law of the State of
Delaware, at any time or from time to time, by resolution or resolutions, to
create one or more series of Preferred Stock, to fix the authorized number of
shares of any series (which number of shares may vary as between series and be
changed from time to time by like action), and to fix the terms of such series,
including, but not limited to, the following:
(a) the designation of such series, which may be by distinguishing
number, letter, or title;
(b) the rate or rates at which shares of such series shall be
entitled to receive dividends; the periods in respect of which dividends
are payable; the conditions upon, and times of payment of, such
dividends; the relationship and preference, if any, of such dividends to
dividends payable on any other class or classes or any other series of
stock; whether such dividends shall be cumulative and, if cumulative, the
date or dates from which such dividends shall accumulate; and the other
terms and conditions applicable to dividends upon shares of such series;
-18-
<PAGE> 2
(c) the rights of the holders of the shares of such series in case
the Corporation be liquidated, dissolved or wound up (which may vary
depending uponthe time manner, or voluntary or involuntary nature or
other circumstances of such liquidation, dissolution, or winding up) and
the relationship and preference, if any, of such rights to rights of
holders of shares of stock of any other class or classes or any other
series of stock;
(d) the right, if any, of the Corporation to redeem shares of such
series at its option, including any limitation of such right, and the
amount or amounts to be payable in respect of the shares of such series
in case of such redemption (which may vary depending on the time, manner,
or other circumstances of such redemption), and the manner, effect, and
other terms and conditions of any such redemption;
(e) the obligation, if any, of the Corporation to purchase, redeem,
or retire shares of such series and/or to maintain a fund for such
purpose, and the amount or amounts to be payable from time to time for
such purpose or into such fund, or the number of shares to be purchased,
redeemed, or retired, the per share purchase price or prices, and the
other terms and conditions of any such obligation or obligations;
(f) the voting rights, if any, which, if granted, may be full,
special, or limited, to be given the shares of such series, including,
without limiting the generality of the foregoing, the right, if any, as a
series or in conjunction with other series or classes, to elect one or
more members of the Board of Directors either generally or at certain
times or under certain circumstances, and restrictions, if any, on
particular corporate acts without a specified vote or consent of holders
of such shares (such as, among others, restrictions on modifying the
terms of such series or of the Preferred Stock, restricting the
permissible terms of other series or the permissible variations between
series of the Preferred Stock, authorizing or issuing additional shares
of the Preferred Stock, creating debt, or creating any class of stock
ranking prior to or on a parity with the Preferred Stock or any series
thereof as to dividends, or assets remaining for distribution to the
stockholders in the event of the liquidation, dissolution, or winding up
of the Corporation);
(g) the right, if any, to exchange or convert the shares into shares
of any other series of the Preferred Stock or into shares of any other
class of stock of the Corporation or the securities of any other
corporation, and the rate or basis, time, manner, terms, and conditions
of exchange or conversion or the method by which the same shall be
determined; and
(h) the other special powers, preferences, or rights, if any, and
the qualifications, limitations, or restrictions thereof, of the shares
of such series.
-19-
<PAGE> 3
The Board of Directors shall fix the terms of each series by resolution
or resolutions adopted at any time prior to the issuance of the shares
thereof, and the terms of each such series may, subject only to
restrictions, if any, imposed by this Certificate of Incorporation or by
applicable law, vary from the terms of other series to the extent
determined by the Board of Directors from time to time and provided in
the resolution or resolutions fixing the terms of the respective series
of the Preferred Stock.
1.2 Status of Certain Shares. Shares of any series of the Preferred
Stock, whether provided for herein or by resolution or resolutions of the Board
of Directors, which have been redeemed (whether through the operation of a
sinking fund or otherwise) or which, if convertible or exchangeable, have been
converted into or exchanged for shares of stock of any other class or classes,
or which have been purchased or otherwise acquired by the Corporation, shall
have the status of authorized and unissued shares of the Preferred Stock of the
same series and may be reissued as a part of the series of which they were
originally a part or may be reclassified and reissued as part of a new series
of the Preferred Stock to be created by resolution or resolutions of the Board
of Directors or as a part of any other series of the Preferred Stock, all
subject to the conditions or restrictions on issuance set forth herein or in
the resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of the Preferred Stock.
Section 2. COMMON STOCK
2.1 Issuance, Consideration, and Terms. Any unissued shares of the
Common Stock may be issued from time to time for such consideration, having a
value of not less than the par value thereof, as may be fixed from time to time
by the Board of Directors. Any treasury shares may be disposed of for such
consideration as may be determined from time to time by the Board of Directors.
The Common Stock shall be subject to the express terms of the Preferred Stock
and any series thereof. Each share of Common Stock shall be of equal rank and
shall be identical to every other share of Common Stock. Holders of Common
Stock shall have such rights as are provided herein and by law.
2.2 Voting Rights. Except as expressly required by law or as provided in
or fixed and determined pursuant to Section 1 of this Article FOURTH, the
entire voting power and all voting rights shall be vested exclusively in the
Common Stock. Each holder of shares of Common Stock shall be entitled to one
(1) vote for each share standing in such holder's name on the books of the
Corporation.
2.3 Dividends. Subject to Section 1 of this Article FOURTH, the holders
of Common Stock shall be entitled to receive, and shall share equally share for
share, when and as declared by the Board of Directors, out of the assets of the
Corporation which are by law available therefor, dividends or distributions
payable in cash, in property, or in securities of the Corporation.
FIFTH: The Board of Directors is authorized to make, alter, or repeal the
Bylaws of the Corporation.
-20-
<PAGE> 4
SIXTH: Meeting of stockholders shall be held at such place, within or
without the State of Delaware, as may be designated by or in the manner
provided in the Bylaws, or, if not so designated, at the registered office of
the Corporation in the State of Delaware. Elections of directors need not be
by written ballot unless and to the extent that the Bylaws so provide.
SEVENTH: Special meetings of the stockholders of the Corporation for any
purposes or purposes may be called at any time by the Board of Directors (or a
majority of the members thereof) of the Corporation by action at a meeting, a
majority of the members of the Board of Directors of the Corporation acting
without a meeting, the Chief Executive Officer of the Corporation, the
President of the Corporation or the holders of a majority of the issued and
outstanding stock of the Corporation entitled to be voted at such special
meeting. Such special meetings may not be called by any other person or
persons or in any other manner.
EIGHTH: The Corporation reserves the right to amend, alter, or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by statute, and all rights of stockholders herein are
subject to this reservation.
NINTH: To the fullest extent permitted by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended, a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
TENTH: Any action required or permitted to be taken by the holders of the
stock of the Corporation entitled to vote in the election of directors must be
effected at a duly called annual meeting or special meeting of such holders and
may not be effected by any consent in writing by such holders.
ELEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under provisions of Section 279 of Title 8 of the
Delaware Code order a meeting the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
-21-
<PAGE> 5
This Restated Certificate of Incorporation of Patterson Energy, Inc. (i)
was duly adopted by the Board of Directors of Patterson Energy, Inc., without a
vote of the stockholders, in accordance with Section 245 of the Delaware
General Corporation Law, (ii) only restates and integrates and does not further
amend the provisions of the Certificate of Incorporation of Patterson Energy,
Inc., as heretofore amended; and there is no discrepancy between those
provisions and the provisions of this Restated Certificate of Incorporation.
Dated this 31st day of July, 1996.
/s/ A. Glenn Patterson
-----------------------------
A. Glenn Patterson, President
STATE OF TEXAS )
) SS:
COUNTY OF SCURRY )
Before me, Neva Bufkin, a Notary Public of the State of Texas, on the
31st of July, 1996, personally appeared A. GLENN PATTERSON, to me known and
known to be the person who signed the foregoing Restated Certificate of
Incorporation, who being duly sworn, acknowledged that he signed, sealed and
delivered the same as his voluntary act and deed, for the uses and purposes
therein expressed, and that the facts stated therein are true.
/s/ Neva Bufkin
------------------------------------
[SEAL] Notary Public
Address: P.O. Drawer 1416
------------------------------------
Snyder, Texas 79550
------------------------------------
My commission expires: 10-11-97
-------------
-22-
<PAGE> 1
EXHIBIT 11
PATTERSON ENERGY, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
------------- -------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income $ 363,385 $ 2,139,486
============= =============
Shares:
Weighted average number of shares outstanding 3,194,951 3,194,951
Add-Dilutive effect of outstanding options and
redeemable warrants (as determined by the
application of the treasury stock method) 183,081 163,020
------------- -------------
Weighted average number of shares outstanding,
as adjusted 3,378,032 3,357,971
============= =============
Net income per share: Primary $ 0.107573 $ 0.637137
============= =============
ASSUMING FULL DILUTION
Net income $ 363,385 $ 2,139,486
============= =============
Shares:
Weighted average number of shares outstanding 3,194,951 3,194,951
Add-Dilutive effect of outstanding options and
redeemable warrants (as determined by the
application of the treasury stock method) 183,081 180,994
------------- -------------
Weighted average number of shares outstanding,
as adjusted 3,378,032 3,375,945
============= =============
Net income per share: Assuming full dilution $ 0.107573 $ 0.633744
============= =============
</TABLE>
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,251
<SECURITIES> 0
<RECEIVABLES> 13,160
<ALLOWANCES> 0
<INVENTORY> 462
<CURRENT-ASSETS> 21,382
<PP&E> 58,045
<DEPRECIATION> 30,057
<TOTAL-ASSETS> 51,279
<CURRENT-LIABILITIES> 16,222
<BONDS> 0
<COMMON> 32
0
0
<OTHER-SE> 22,481
<TOTAL-LIABILITY-AND-EQUITY> 22,513
<SALES> 2,889
<TOTAL-REVENUES> 26,360
<CGS> 807
<TOTAL-COSTS> 25,771
<OTHER-EXPENSES> (137)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 644
<INCOME-PRETAX> 722
<INCOME-TAX> (1,417)
<INCOME-CONTINUING> 2,139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,139
<EPS-PRIMARY> .64
<EPS-DILUTED> .63
</TABLE>
