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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 75-2504748
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 from last
report.)
Indicate by check mark whether the Registrant (1) 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 November 1, 1996 the issuer had 4,810,689 shares of Common Stock, par
value $0.01 per share, outstanding.
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This Form 10-Q/A is being filed solely for the purpose of reporting a
change in the average price per barrel of oil for the nine months ended
September 30, 1996, from $20.03 to $20.23.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had working capital of
approximately $11,254,000 including cash and cash equivalents of approximately
$9,450,000. For the nine months ended September 30, 1996, the Company
generated net cash from operations of approximately $7,690,000, borrowed
additional funds in the amount of $3,170,000 and received approximately
$1,121,000 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 $5,976,000, and
leasehold acquisition, exploration and development of approximately $4,262,000.
The funds were further utilized to reduce certain notes payable by
approximately $1,332,000 and to increase cash by approximately $2,241,000. In
addition a further strain on the Company's cash, which is not apparent in the
statement of cash flows, is approximately $2,268,000 of non-recurring
acquisition costs incurred by the Company during the nine months ended
September 30, 1996 relative the Company's acquisition of Tucker Drilling
Company, Inc.
The Company had 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 September 30, 1996,
the Company had drawn down $7,700,000 and approximately $3,600,000 on the lines
of credit with CIT and Norwest, respectively. During September 1996, the
Company entered into a financing agreement with CIT providing a credit facility
of $22 million. During October 1996, approximately $11,574,000 of such
facility was used to repay existing indebtedness to CIT and U.S. Bancorp
Leasing and Financial. The remaining unfunded portion of the above described
credit facility was drawn by the Company during October 1996 to substantially
finance the Company's acquisition of a non-affiliated contract drilling
company. As of October 31, 1996, approximately $21,949,000 was outstanding
related to this agreement with CIT.
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 12 months. The Company's ability to
generate sufficient cash flow for operations including repayment of 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, the Company has expended approximately
$5,976,000 in capital expenditures for fiscal year 1996 for its contract
drilling segment. For the nine months ended September 30, 1996, a significant
portion of the aforementioned capital expenditures included purchases of
approximately 129,000 feet (or approximately $3,363,000, of which approximately
$1,286,000 was expended during the three months ended September 30, 1996) of
new drill pipe. Management contends that although the net operating income
generated by this segment will be significantly burdened by increased
depreciation expense associated with such capital expenditures, the Company
must continually upgrade and maintain its contract drilling fleet during this
period of significant growth and acquisition. During October 1996, the Company
acquired 100% of the stock of a private-owned, non-affiliated contract drilling
company for a net purchase price of $13 million. The acquisition included six
fully equipped, land-based drilling rigs, related drilling equipment, three
trucks, a yard and shop facility and $4.5 million of working capital. The
acquisition increased the number of fully equipped, land-based drilling rigs
owned by the Company to 46.
As of September 30, 1996 the Company had expended approximately
$4,262,000 for leasehold acquisitions, exploration and development of oil and
gas properties. 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. During the period ended
September 30, 1996, the Company expended $978,491 further increasing its net
working and net revenue interests in this unit to approximately 40.82% and
35.59%,
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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.
RESULTS OF OPERATIONS
THE FOLLOWING RESULTS OF OPERATIONS IS BASED ON HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION THAT HAS BEEN RESTATED TO REFLECT THE MERGER OF THE
COMPANY AND TUCKER DRILLING COMPANY, INC. ON JULY 30, 1996 UNDER THE POOLING OF
INTERESTS METHOD OF ACCOUNTING.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
For the nine months ended September 30, 1996, contract drilling
revenues were approximately $47,725,000 as compared to $42,656,000 for the same
period in 1995; an increase of 12%. Average rig utilization was 70% for the
nine months ended September 30, 1996 and 1995. Direct contract drilling costs
for the nine months ended September 30, 1996 and 1995 were approximately
$38,818,000 and $34,431,000, respectively, representing approximately 81% of
contract drilling revenues. The increase in contract drilling revenues and
direct drilling costs was due primarily to the increased number of drilling
rigs included in the Company's operating drilling fleet. The Company placed one
rig into operation during May 1995 and two additional rigs during the latter
part of the third quarter of 1995. These rigs were operational during the
nine months ended September 30, 1996. An additional rig was added during May
1996 increasing the total number of available rigs to 39. The Company is
currently assembling its 40th rig which is expected to be placed into operation
during November 1996. In addition, the Company entered into a lease operating
agreement with a non-affiliate company during the quarter ended September 30,
1996 in which the Company will market and operate two contract drilling rigs
for an established day rate. The Company will be fully reimbursed for all
related expenses except labor. These rigs were not placed into operation until
after September 30, 1996. General and administrative expense for the contract
drilling segment was approximately $2,831,000 for the nine months ended
September 30, 1996 as compared to approximately $2,659,000 for the same period
in 1995. The increase in general and administrative expense was largely
attributable to approximately $70,000 of expense incurred relative to the
repairs and maintenance of an airplane leased from an affiliate of the Chairman
of the Board and Chief Executive Officer of the Company. Additional increased
general and administrative expense was incurred by the Company during the nine
months ended September 30, 1996 relative to the increased professional and
other related expenses associated with the Company's recent growth.
Depreciation expense was approximately $4,939,000 for the nine months ended
September 30, 1996 as compared to $3,721,000 for the same period in 1995. The
increase in depreciation expense was due primarily to the Company's significant
purchases of new drill pipe during the fourth quarter of 1995 and the nine
months ended September 30, 1996. For the nine months ended September 30, 1996,
income from this segment was approximately $1,702,000 as compared to
approximately $2,101,000 for the same period in 1995.
Oil and gas revenue was approximately $5,940,000 for the nine months
ended September 30, 1996, as compared to approximately $3,831,000 for the nine
months ended September 30, 1995. The volume of crude oil and natural gas sold
increased by 24% for the nine months ended September 30, 1996 as compared to
the same period in 1995. The Company sold approximately 173,000 and 139,000
barrels of crude oil and approximately 1,244,000 and 1,003,000 million cubic
feet of natural gas for the nine months ended September 30, 1996 and 1995
respectively. The average price per barrel of crude oil was $20.23 for the
nine months ended September 30 1996 as compared to $17.40 for the same period
in 1995, and the average price per mcf of natural gas was $1.96 for the nine
months ended September 30, 1996 as compared to $1.41 for the same period in
1995. Lease operating and production costs were $3.86 per barrel of oil
equivalent for the nine months ended September 30, 1996 as compared to $3.50
per barrel of oil equivalent for the same period in 1995. Exploration costs
increased by 51% to approximately $344,000 for the nine months ended September
30, 1996 as a result of the staffing and associated costs of an exploration and
production office in Midland, Texas during June of 1995. Depreciation,
depletion and amortization was approximately $2,814,000 for the nine months
ended September 30, 1996 as compared to approximately $1,565,000 for the same
nine 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
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segment was approximately $1,113,000 for the first
nine months of 1996 as compared to $948,000 for the first nine months of 1995.
For the nine months ended September 30, 1996 income from the oil and gas segment
was approximately $885,000 as compared to $795,000 for the same period in 1995.
For the nine months ended September 30, 1996, interest expense was
approximately $985,000 as compared to $762,000 for the same period in 1995.
This increase is primarily attributable to an approximate 48% increase in the
average outstanding principal balance of the Company's notes payable as
compared to the same period of 1995. At September 30, 1996, the Company
recognized a net gain on the sale of certain of its fixed assets of
approximately $533,000 as compared to approximately $336,000 recognized a year
earlier. This increase is primarily attributable to the sale of six drilling
rig generator sets and approximately 25,000 feet of used drill pipe. During the
nine months ended September 30, 1996, the Company incurred approximately
$2,268,000 of non-recurring acquisition costs associated with its merger with
Tucker.
COMPARISON OF THE FISCAL QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995
For the fiscal quarter ended September 30, 1996, contract drilling
revenues were approximately $17,517,000 as compared to $15,259,000 for the same
fiscal quarter in 1995; an increase of 15%. Average rig utilization was 73%
for the fiscal quarter ended September 30, 1996 as compared to 72% for the same
fiscal quarter in 1995. Direct contract drilling costs for the fiscal quarter
ended September 30, 1996 were approximately $14,077,000 or 80% of contract
drilling revenues as compared to approximately $12,363,000 or 81% of contract
drilling revenues for the same fiscal quarter in 1995. The increase in
contract drilling revenues and direct contract drilling costs was largely
attributable to two additional drilling rigs added to the Company's drilling
fleet during the latter part of the third fiscal quarter of 1995 which were
operational during the entire third quarter of 1996. In addition, the Company
entered into a lease operating agreement with a non-affiliate company during
the quarter ended September 30, 1996 in which the Company will market and
operate two contract drilling rigs for an established day rate. The Company
will be fully reimbursed for all related expenses except labor. These rigs
were not placed into operation until after September 30, 1996. General and
administrative expense for the contract drilling segment was approximately
$884,000 for the fiscal quarter ended September 30, 1996 as compared to
approximately $952,000 for the same fiscal quarter in 1995. Depreciation
expense was approximately $1,803,000 for the fiscal quarter ended September 30,
1996 as compared to $1,392,000 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 September 30, 1996. For the
fiscal quarter ended September 30, 1996, income from this segment was
approximately $845,000 as compared to approximately $748,000 for the same
fiscal quarter in 1995.
Oil and gas revenue was approximately $2,296,000 for the fiscal
quarter ended September 30, 1996, as compared to approximately $1,280,000 for
the same fiscal quarter in 1995. The volume of crude oil and natural gas sold
increased by 23% and 35%, respectively, in the fiscal quarter ended September
30, 1996 as compared to the same period in 1995. The Company sold
approximately 59,000 and 48,000 barrels of crude oil and approximately 440,000
and 326,000 million cubic feet of natural gas for the three months ended
September 30, 1996 and 1995, respectively. The average price per barrel of oil
was $22.23 for the fiscal quarter ended September 30, 1996 as compared to
$17.61 for the same period in 1995, and the average price per mcf of natural
gas was $2.26 as compared to $1.36 for the third quarter ended 1995. Lease
operating and production costs were $3.58 per barrel of oil equivalent in the
fiscal quarter ended September 30, 1996, as compared to $3.29 per barrel of oil
equivalent for the same period in 1995. Exploration costs increased by 16% to
approximately $111,000 for the three months ended September 30, 1996 as
compared to the same period in 1995. Depreciation, depletion and amortization
was approximately $1,163,000 for the three months ended September 30, 1996 as
compared to approximately $397,000 for the same three months ended in 1995.
The increase was 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 $414,000 for the third quarter ended 1996 as compared
to $343,000 for the same period in 1995. In the fiscal quarter ended September
30, 1996, income from the oil and gas segment was approximately $392,000 as
compared to approximately $334,000 for the fiscal quarter ended September 30,
1995.
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For the fiscal quarter ended September 30, 1996, interest expense was
approximately $340,000 as compared to $301,000 for the same period in 1995.
The increase was due primarily to an approximate 2% increase in the Company's
outstanding principal balance of notes payable when compared to the same
relative fiscal period of 1995. At September 30, 1996, the Company recognized
a net gain on the sale of certain of its fixed assets of approximately $133,000
as compared to approximately $216,000 recognized a year earlier. For the
quarter ended September 30, 1996, the Company incurred approximately $1,763,000
of non-recurring acquisition costs associated with the Company's merger with
Tucker.
INCOME TAXES
During 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 has recognized net
deferred income tax benefit for the nine months ended September 30, 1996 of
approximately $2,531,000.
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.
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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: January 24, 1997
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