<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
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, 1998
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
incorporation or organization) Identification No.)
P. O. BOX 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 14, 1998 the issuer had outstanding 31,671,132 shares of common
stock, $0.01 par value, its only class of voting stock.
- --------------------------------------------------------------------------------
<PAGE> 2
PATTERSON ENERGY, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants, PricewaterhouseCoopers LLP............................ 3
Part I - Financial Information
Item 1. Financial Statements
Unaudited condensed consolidated balance sheets........................ 4
Unaudited condensed consolidated statements of income.................. 6
Unaudited condensed consolidated statement of stockholders' equity..... 7
Unaudited condensed consolidated statements of cash flows.............. 8
Notes to unaudited condensed consolidated financial statements......... 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 15
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995.................. 20
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K....................................... 21
Signatures............................................................................... 25
</TABLE>
2
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
of Patterson Energy, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Patterson Energy, Inc. and its Subsidiaries as of June 30,1998 and the related
condensed consolidated statements of income for the three and six months ended
June 30, 1998 and 1997 and cash flows for the six months ended June 30, 1998 and
1997 and the related condensed consolidated statement of stockholders' equity
for the six months ended June 30, 1998. 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 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 upon 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 as of December 31, 1997 and the
related consolidated statements of income and cash flows for the year then ended
(not presented herein); and in our report dated February 27, 1998, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1997, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
July 30, 1998
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE FOLLOWING UNAUDITED CONDENSED 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
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1997 1998
------------ ----------
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ 23,338 $ 17,576
Marketable securities .......................................... 566 --
Accounts receivable:
Trade ....................................................... 44,732 39,210
Oil and natural gas sales ................................... 773 871
Costs of uncompleted drilling contracts in excess of related
billings .................................................... -- 464
Inventory ...................................................... -- 1,181
Deferred income taxes .......................................... 2,309 274
Undeveloped oil and natural gas properties held for resale ..... 4,781 6,517
Other current assets ........................................... 515 2,806
--------- ---------
Total current assets ..................................... 77,014 68,899
Property and equipment, at cost, net .............................. 100,405 138,224
Intangible assets, net ............................................ 24,644 43,902
Other assets ...................................................... 1,137 678
--------- ---------
Total assets ............................................. $ 203,200 $ 251,703
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
(continued)
4
<PAGE> 5
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1997 1998
------------ ----------
(in thousands)
<S> <C> <C>
Current liabilities:
Current maturities of notes payable ................................. $ 1,467 $ 6,602
Accounts payable:
Trade ............................................................. 12,126 15,686
Revenue distribution .............................................. 3,352 2,017
Other ............................................................. 1,569 972
Accrued expenses .................................................... 5,142 4,359
Accrued state and federal income taxes payable ...................... 6,874 1,851
--------- ---------
Total current liabilities ................................. 30,530 31,487
Deferred income taxes .................................................. 3,268 3,268
Deferred liabilities ................................................... 687 119
Notes payable, less current maturities ................................. 21,783 53,398
--------- ---------
Total liabilities ......................................... 56,268 88,272
--------- ---------
Commitments and contingencies .......................................... -- --
Stockholders' equity:
Preferred stock - par value $.01; authorized
1,000,000 shares, no shares issued ............................... -- --
Common stock - par value $.01; authorized 50,000,000 shares
with 30,967,084 and 31,671,132 issued and outstanding at
December 31, 1997 and June 30, 1998, respectively ................ 310 317
Additional paid-in capital .......................................... 102,306 112,544
Retained earnings ................................................... 44,316 50,570
--------- ---------
Total stockholders' equity ................................ 146,932 163,431
--------- ---------
Total liabilities and stockholders' equity ................ $ 203,200 $ 251,703
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
<PAGE> 6
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1997 1998 1997 1998
--------- --------- ---------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Drilling ................................ $ 37,592 $ 45,913 $ 65,156 $ 100,210
Drilling fluids ......................... -- 3,520 -- 7,789
Oil and natural gas sales ............... 2,702 1,324 5,335 3,120
Well operation fees ..................... 398 361 822 735
Other ................................... -- 32 20 48
--------- --------- ---------- ---------
40,692 51,150 71,333 111,902
--------- --------- --------- ---------
Operating costs and expenses:
Direct drilling costs ................... 28,066 34,342 50,386 74,411
Drilling fluids ......................... -- 2,772 -- 5,743
Lease operating and production .......... 545 418 1,062 945
Impairment of oil and natural gas
properties ........................... 300 489 450 790
Exploration costs ....................... 166 168 325 336
Dry holes and abandonments .............. 370 121 593 143
Depreciation, depletion and
amortization ......................... 3,905 6,428 7,200 12,599
General and administrative expense ...... 1,294 2,881 2,631 5,542
--------- --------- --------- ---------
34,646 47,619 62,647 100,509
--------- --------- --------- ---------
Operating income ............................ 6,046 3,531 8,686 11,393
--------- --------- --------- ---------
Other income (expense):
Net gain on sale of assets .............. 183 213 318 372
Interest income ......................... 356 282 640 446
Interest expense ........................ (26) (1,266) (509) (2,165)
Other ................................... 121 68 140 93
--------- --------- --------- ---------
634 (703) 589 (1,254)
--------- --------- --------- ---------
Income before income taxes .................. 6,680 2,828 9,275 10,139
--------- --------- --------- ---------
Income tax expense:
Current ................................. 1,977 -- 2,474 1,850
Deferred ................................ 425 1,107 883 2,035
--------- --------- --------- ---------
2,402 1,107 3,357 3,885
--------- --------- --------- ---------
Net income .................................. $ 4,278 $ 1,721 $ 5,918 $ 6,254
========= ========= ========= =========
Net income per common share:
Basic ................................... $ 0.15 $ 0.05 $ 0.22 $ 0.20
========= ========= ========= =========
Diluted ................................. $ 0.14 $ 0.05 $ 0.21 $ 0.20
========= ========= ========= =========
Weighted average number of common
shares outstanding:
Basic ................................... 28,536 31,669 27,069 31,618
========= ========= ========= =========
Diluted ................................. 29,519 31,989 28,052 31,888
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
6
<PAGE> 7
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional
Number paid-in Retained
of shares Amount capital earnings Total
------------ ----------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ........ 30,967 $ 310 $ 102,306 $ 44,316 $ 146,932
Issuances of common stock ......... 571 5 9,941 -- 9,946
Exercise of stock options ........ 133 2 297 -- 299
Net income ........................ -- -- -- 6,254 6,254
-------- --------- --------- --------- ---------
Balance, June 30, 1998 ............ 31,671 $ 317 $ 112,544 $ 50,570 $ 163,431
======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
7
<PAGE> 8
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1998
--------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $ 5,918 $ 6,254
Adjustments to reconcile net income to net cash from
operating activities:
Abandonment of oil and natural gas properties ........................ 483 --
Depreciation, depletion and amortization ............................. 7,200 12,599
Impairment of oil and natural gas properties ......................... 450 790
Net gain on sale of assets ........................................... (318) (372)
Deferred income tax expense .......................................... 883 2,035
Tax benefit related to stock options ................................. 1,012 --
Decrease in deferred compensation liabilities ........................ (14) (568)
Change in operating assets and liabilities:
(Increase) decrease in trade accounts receivable ................ (7,306) 5,522
Increase in oil and natural gas sales receivables ............... (162) (98)
Increase in inventory held for resale ........................... -- (1,181)
Increase in undeveloped oil and natural gas
properties held for resale .................................. (171) (1,736)
Increase in other current assets ................................ (584) (2,755)
Increase in trade accounts payable .............................. 1,977 3,560
Increase (decrease) in revenue distribution payable ............. 2,310 (1,335)
Increase (decrease) in accrued expenses ......................... 3,701 (783)
Decrease in accrued state and federal income taxes payable ...... -- (5,023)
Decrease in other current payables .............................. (499) (597)
-------- --------
Net cash provided by operating activities ................... 14,880 16,312
-------- --------
Cash flows from investing activities:
Net sales (purchases) of investment securities ....................... (7) 566
Acquisitions ......................................................... (30,687) (41,879)
Purchases of property and equipment .................................. (17,144) (18,641)
Sale of property and equipment ....................................... 578 372
Change in other assets ............................................... 44 459
-------- --------
Net cash used in investing activities ....................... (47,216) (59,123)
-------- --------
Cash flows from financing activities:
Proceeds from notes payable .......................................... 6,000 40,150
Payments of notes payable ............................................ (25,849) (3,400)
Issuance of common stock ............................................. 59,401 --
Proceeds from exercise of stock options .............................. 648 299
-------- --------
Net cash provided by financing activities ................... 40,200 37,049
-------- --------
Net increase (decrease) in cash and cash equivalents ........ 7,864 (5,762)
Cash and cash equivalents at beginning of period .......................... 3,494 23,338
-------- --------
Cash and cash equivalents at end of period ................................ $ 11,358 $ 17,576
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................................. $ 509 $ 2,165
Income taxes ......................................................... 745 8,000
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
(continued)
8
<PAGE> 9
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
Supplemental disclosure of cash flow information - continued:
During the six months ended June 30, 1998, the Company acquired
Lone Star Mud, Inc. and Robertson Onshore Drilling Company for an aggregate
purchase price of approximately $55,225,000 of which, $41,879,000 was paid in
cash as follows (See Note 2):
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Purchase price.................................................... $ 55,225
Less non-cash item:
Common stock issued.......................................... (9,946)
Debt assumed................................................. (3,400)
--------
Total cash paid............................................ $ 41,879
========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
9
<PAGE> 10
PATTERSON ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF CONSOLIDATION AND PRESENTATION
The condensed consolidated financial statements include the accounts of
Patterson Energy, Inc. ("Patterson"), and its wholly-owned subsidiaries,
Patterson Drilling Company, Patterson Onshore Drilling Company, Lone Star Mud,
Inc., Patterson Petroleum, Inc., Patterson Petroleum Trading Company, Inc. and
Patterson Drilling Programs, Inc. (collectively referred to hereafter as the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
The interim condensed consolidated financial statements have been
prepared by management of the Company, 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 the Company believes the
disclosures included herein 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 unaudited condensed consolidated balance
sheet as of December 31, 1997, as presented herein, was derived from audited
financial statements as of such date, but does not include all disclosures
required by generally accepted accounting principles.
The results of operations for the three and six months ended June 30,
1998, are not necessarily indicative of the results to be expected for the full
year.
Certain reclassifications have been made to the 1997 condensed
consolidated financial statements in order for them to conform to the 1998
presentation.
The Company's earnings per share and weighted average number of common
shares outstanding for all periods presented and as otherwise indicated herein,
reflect a two-for-one split of the Company's common stock effected in January
1998.
2. RECENT ACQUISITIONS
On January 5, 1998, the Company acquired 100% of the outstanding stock
of Lone Star Mud, Inc. ("Lone Star"), a privately-owned, non-affiliated company
based in Midland, Texas. The purchase price of approximately $12.98 million
consisted of $1.430 million in cash, 571,328 shares of the Company's common
stock valued at $17.41 per share, the assumption of $1.6 million of debt and
approximately $3,300 of other direct costs incurred relative to the transaction.
Pursuant to certain terms of the Company's existing loan agreement with Norwest
Bank Texas, N.A. ("Norwest"), the outstanding balance of the above mentioned
note payable was paid in full. The fair market values of the assets acquired
were estimated and the purchase price, as of the date of the acquisition, was
allocated as follows (in thousands):
<TABLE>
<S> <C>
Net assets acquired................................. $ 3,069
Goodwill............................................ 9,911
--------
Total purchase price............................. $ 12,980
========
</TABLE>
(continued)
10
<PAGE> 11
PATTERSON ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. RECENT ACQUISITIONS - CONTINUED
On February 6, 1998, the Company completed the merger of Robertson
Onshore Drilling Company ("Robertson") a privately-owned, non-affiliated,
contract drilling company based in Dallas, Texas, with and into Patterson
Onshore Drilling Company, a wholly-owned subsidiary of Patterson Drilling
Company. The purchase price of approximately $42.245 million was funded using
cash on hand of approximately $3.25 million, proceeds of $36.75 million provided
by the Company's line of credit, the assumption of $1.8 million of debt and
approximately $444,000 of direct costs incurred related to the acquistion. The
assets acquired consisted of 15 operable drilling rigs and a shop and yard
located in Liberty City, Texas. The purchase price, as of the date of the
acquisition, was allocated based on estimated fair values as follows (in
thousands):
<TABLE>
<S> <C>
Net assets acquired............................. $ 31,565
Goodwill........................................ 10,680
--------
Total purchase price..................... $ 42,245
========
</TABLE>
On June 12, 1997, the Company consummated an acquisition to purchase
the contract drilling assets of Wes-Tex Drilling Company ("Wes-Tex"), a
privately-held, non-affiliated company based in Abilene, Texas, for a purchase
price of approximately $35.4 million; consisting of $25 million in cash, 283,000
shares of Patterson common stock valued at $31.50 per share, which represented
the approximate fair market value on the date the terms of the acquisition were
agreed to and announced, a three-year stock purchase warrant (valued at $6.24
per share) to purchase 200,000 additional shares of Patterson common stock at an
exercise price of $32 per share and approximately $190,000 of other direct costs
incurred relative to the transaction. The acquisition was funded using $19
million of the Company's cash on hand and $6 million provided by the Company's
line of credit. The assets acquired consisted of 21 fully operable contract
drilling rigs, all related rolling stock and a shop and yard. The purchase
price, as of the date of acquisition, was allocated as follows (in thousands):
<TABLE>
<S> <C>
Contract drilling assets....................... $ 17,450
Goodwill....................................... 16,629
Covenants not to compete....................... 1,273
--------
Total purchase price...................... $ 35,352
========
</TABLE>
As the acquisitions of both Robertson and Wes-Tex are significant to
the Company's operations, the following summary for the six months ended June
30, 1997 and 1998, prepared on a pro forma basis, combines the consolidated
results of operations as if Robertson and Wes-Tex had been acquired on January
1, 1997, after including the impact of certain adjustments, such as restatement
of depreciation using the fair values instead of the book values of the assets
acquired, the increased interest expense on the acquisition debt, increased
amortization expense on intangible assets and the related income tax effects.
<TABLE>
<CAPTION>
1997 1998
------------------- -------------------
(in thousands, except per share data)
<S> <C> <C>
Revenues.............................. $ 111,085 $ 117,661
Net income............................ 4,597 6,428
Basic earnings per share.............. .17 .20
Diluted earnings per share............ .16 .20
</TABLE>
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
The aforementioned acquisitions have been accounted for as purchases
and the results of operations and cash flows relating to the entities or
drilling assets acquired have been included in the condensed consolidated
financial statements since the respective dates of acquisition. The purchase
price allocations set forth above are preliminary and are subject to change as
the allocations are finalized.
(continued)
11
<PAGE> 12
PATTERSON ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. INTANGIBLE ASSETS
Intangible assets at June 30, 1998 consist principally of covenants not
to compete and goodwill arising from the Company's acquisitions completed during
fiscal year 1997 and the six months ended June 30, 1998. The covenants are being
amortized on a straight line basis over their contractual lives of five years.
Goodwill, representing the excess of the purchase price over the estimated fair
value of the assets acquired, is being amortized on a straight line basis over
15 years.
Intangible assets consisted of the following at June 30, 1998 (in thousands):
<TABLE>
<S> <C>
Goodwill............................................. $ 44,561
Covenants not to compete............................. 1,757
Other................................................ 889
---------
47,207
Less accumulated amortization........................ (3,305)
---------
$ 43,902
=========
</TABLE>
Management continually reviews the carrying amounts of goodwill for
recoverability based on the anticipated undiscounted cash flows of the assets to
which it relates. The Company considers operating results, trends and prospects
of the Company, as well as competitive comparisons. The Company also takes into
consideration competition within the industry and any other events or
circumstances which might indicate potential impairment. If goodwill is
determined to not be recoverable, an impairment charge will be recognized to the
extent that the carrying value of the related assets, including goodwill,
exceeds the estimated fair value.
4. NOTE PAYABLE
During February 1998, the Company amended its loan agreement with
Norwest increasing its line of credit from $60 million to $70 million. The
Company's debt to tangible net worth ratio requirement increased from 1.2:1.0 to
1.35:1.00 and the Company's current ratio requirement increased from 1.25:1.00
to 1.40:1.00. In conjunction with the increased credit facility, the Company
paid a $25,000 origination fee.
5. STOCKHOLDERS' EQUITY
On December 8, 1997, Patterson's Board of Directors authorized a
two-for-one stock split in the form of a stock dividend payable on January
23, 1998. The stockholders of Patterson, at a Special Meeting of Stockholders on
December 30, 1997, approved an amendment to Patterson's Certificate of
Incorporation increasing the number of authorized shares of common stock from
18,000,000 to 50,000,000. Par value of the Company's common stock remained at
$0.01 per common share. Accordingly, earnings per share and weighted average
number of common shares outstanding for all periods presented herein reflect the
effects of the stock split.
During January 1998, the Company issued 571,328 shares of its common
stock as partial consideration for the Company's acquisition of Lone Star (see
Note 2). The common stock was valued at $17.41 per share for purposes of the
transaction.
(continued)
12
<PAGE> 13
PATTERSON ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. EARNINGS PER SHARE
The following table summarizes the dilutive effect of certain options
and warrants to the Company's earnings per share for the three and six months
ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1998 1997 1998
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income .............................. $ 4,278 $ 1,721 $ 5,918 $ 6,254
Weighted average number of common
shares outstanding .................. 28,536 31,669 27,069 31,618
======= ======= ======= =======
Basic earnings per share ................ $ 0.15 $ 0.05 $ 0.22 $ 0.20
======= ======= ======= =======
Net income .............................. $ 4,278 $ 1,721 $ 5,918 $ 6,254
Weighted average number of common
shares outstanding .................. 28,536 31,669 27,069 31,618
Dilutive effect of outstanding options
and warrants ........................ 983 320 983 270
------- ------- ------- -------
Weighted average number of common
shares outstanding, as adjusted ..... 29,519 31,989 28,052 31,888
======= ======= ======= =======
Diluted earnings per share .............. $ 0.14 $ 0.05 $ 0.21 $ 0.20
======= ======= ======= =======
</TABLE>
The following options and warrants to purchase the Company's common
stock were outstanding as of June 30, 1997 and 1998 but were excluded from the
computation of Diluted earnings per share because the respective exercise prices
were greater than the average market price of the Company's common stock for the
period indicated below.
<TABLE>
<CAPTION>
Options/Warrants Exercise
Outstanding Price Per Share
---------------------- ----------------------
Three Months Ended:
<S> <C> <C> <C>
June 30, 1997 8,000 $ 10.00
========
June 30, 1998 623,400 $ 14.81
4,000 15.81
8,000 11.06
--------
635,400
========
Six Months Ended:
June 30, 1997 800,000 $ 8.00
8,000 $ 10.00
--------
808,000
========
June 30, 1998 623,400 $ 14.81
4,000 15.81
8,000 11.06
--------
635,400
========
</TABLE>
(continued)
13
<PAGE> 14
PATTERSON ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. RECENT ACCOUNTING STANDARDS
During the quarter ended March 31, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"), which establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. Statement 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Statement 130
requires that an enterprise (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
Company's adoption of Statement 130 did not result in any significant changes to
its related reporting disclosures.
During the quarter ended March 31, 1998, the Company adopted Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("Statement 131"). Statement 131 establishes
revised guidelines for determining an entity's operating segments and the type
and level of financial information to be disclosed. The Company's adoption of
Statement 131 did not result in any significant changes to its related reporting
disclosures.
During the quarter ended June 30, 1998, the Company adopted Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("Statement 132"). Statement 132
revises employers' disclosures about pension and other postretirement benefit
plans. The Company's adoption of Statement 132 did not result in any changes to
its related reporting disclosures.
During June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"), which establishes
accounting and reporting standards for derivative instruments and other hedging
activities. Statement 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The provisions of Statement 133 are not expected
to have a material impact on the Company.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had working capital of approximately
$37.4 million and cash and cash equivalents of approximately $17.6 million as
compared to working capital of approximately $46.5 million and cash and cash
equivalents of approximately $23.3 million as of December 31, 1997. The decrease
in the Company's working capital at June 30, 1998 was largely attributable to
cash expended by the Company related to acquisitions completed during the first
three months of fiscal year 1998. Approximately $5.1 million of the aggregate
purchase price was funded using cash on hand at the respective dates of
acquisition. In addition, the Company assumed approximately $3.4 million of
debt, which was paid in full using cash on hand immediately following the
consummation of such acquisitions and made an $8.0 million payment to the
Internal Revenue Service for the Company's estimated Federal tax liability. For
the six months ended June 30, 1998, the Company generated net cash from
operations of approximately $16.3 million, received proceeds of approximately
$299,000 from the exercise of stock options, sold property and equipment for
proceeds of approximately $372,000, received approximately $566,000 from the
sale of investment securities and borrowed $40.15 million under an existing
credit facility. These funds were used primarily to acquire drilling rigs and
related equipment of approximately $57.2 million, to reduce certain notes
payable by approximately $3.4 million and to fund leasehold acquisition,
exploration and development of approximately $3.3 million.
On January 5, 1998, the Company completed the acquisition of Lone Star
Mud, Inc. ("Lone Star"), a privately-owned, non-affiliated company based in
Midland, Texas for a purchase price of approximately $12.98 million consisting
of $1.430 million in cash, 571,328 shares of the Company's common stock valued
at $17.41 per share, which was the market price on the acquisition date, the
assumption of $1.6 million of debt and approximately $3,300 of direct costs
incurred related to the acquisition. Lone Star is a provider of drilling fluids
to the oil and natural gas industry. Management of the Company viewed the
acquisition as an opportunity to enter into a related segment of the oilfield
service industry, which would integrate well with the Company's existing
operations.
On February 6, 1998, the Company completed its merger with Robertson
Onshore Drilling Company ("Robertson"), a privately-owned, non-affiliated
contract drilling company based in Dallas, Texas. The purchase price of $42.245
million consisted of $3.25 million in cash, $36.75 million provided by the
Company's line of credit, the assumption of $1.8 million of debt and
approximately $444,000 of direct costs incurred related to the acquisition. As a
result of the merger, the Company acquired 15 operable drilling rigs, increasing
the Company's rig fleet to 114 drilling rigs, and a shop and yard located in
Liberty City, Texas.
During February 1998, the Company amended its existing line of credit
agreement with Norwest Bank Texas, N.A. increasing the credit facility from $60
million to $70 million. Certain of the underlying covenants were amended;
however, the basic terms of the agreement remained unchanged. Currently, the
Company has $10 million of available credit facility remaining under the
agreement.
Management believes that the current level of cash and short-term
investments, together with cash generated from operations, should be sufficient
to meet the Company's immediate capital needs. From time to time, the Company
reviews acquisition opportunities relating to its business. The timing, size or
success of any acquisition and the associated capital commitments are
unpredictable. Should further opportunities for growth requiring capital arise,
the Company believes it would be able to satisfy these needs through a
combination of working capital, cash from operations, and either debt or equity
financing. However, there can be no assurance that such capital would be
available.
15
<PAGE> 16
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
For the six months ended June 30, 1998, contract drilling revenues were
approximately $100.2 million as compared to $65.2 million for the same period in
1997, an increase of 54%. Average rig utilization was 67% for the six months
ended June 30, 1998, as compared to 88% for the same period in 1997. Direct
contract drilling expenses for the six months ended June 30, 1998 were
approximately $74.4 million, or 74% of related contract drilling revenues, as
compared to approximately $50.4 million, or 77% of contract drilling revenues,
for the same period in 1997. The increase in contract drilling revenues and
direct contract drilling expenses was largely attributable to an increase,
primarily through a series of acquisitions during fiscal year 1998, in the
number of operable drilling rigs. Since the first fiscal quarter in 1997, 50
operable drilling rigs were added to the Company's drilling fleet. General and
administrative expense for the contract drilling segment was approximately $4.1
million for the six months ended June 30, 1998 as compared to $1.9 million for
the same period in 1997. The increase in general and administrative expense was
largely attributable to approximately $1.0 million of expense associated with
the administrative office in Dallas, Texas acquired with the Company's
acquisition of Robertson Onshore Drilling Company during February 1998. During
July 1998, the administrative functions of the Dallas office were eliminated and
the related responsibilities were absorbed by the Company's personnel in Snyder,
Texas. As a result of the Company's rig acquisitions since April 1997,
depreciation and amortization expense for the contract drilling segment
increased from $5.0 million for the six months ended June 30, 1997 to
approximately $10.7 million for the same six-month period in 1998. For the six
months ended June 30, 1998, operating income from the contract drilling segment
was approximately $10.948 million as compared to approximately $7.828 million
for the same period in 1997.
The Company derives substantially all of its operating revenues and
profit from its contract drilling operations; however, the Company realized
revenues from other operating activities of approximately $11.7 million for the
six months ended June 30, 1998 as compared to $6.2 for the same period in 1997.
The increase in the current year revenues from the Company's other operating
activities was attributable to the Company's addition of Lone Star during
January 1998, which generated revenues of approximately $7.8 million from its
drilling fluid sales and services during the six months ended June 30, 1998. For
the six months ended June 30, 1998, the Company incurred operating costs of
approximately $11.2 million related to its other operating activities, including
approximately $1.9 million of depreciation, depletion and amortization and
approximately $1.4 million of general and administrative expense. This compares
to operating costs of approximately $5.3 million, including $2.2 million of
depreciation, depletion and amortization and approximately $695,000 of general
and administrative expense for the same period in 1997. Operating income from
the Company's other operating activities for the six months ended June 30, 1998
was approximately $445,000 as compared to approximately $858,000 for the six
months ended June 30, 1997.
For the six months ended June 30, 1998, interest expense was
approximately $2.165 million as compared to $509,000 for the same six-month
period in 1997. The 1997 interest expense amount includes approximately $265,000
of prepayment penalties and fees incurred as a result of the Company's early
retirement of its notes payable during the first quarter of 1997. As a result of
the Company's acquisitions in fiscal 1997 and 1998, obligations under an
existing line of credit increased from $6.0 million at June 30, 1997 to $60.0
million at June 30, 1998, resulting in the Company's increased interest expense.
Interest income for the first six months of fiscal 1998 was approximately
$446,000 as compared to approximately $640,000 for the same period in 1997. The
Company recognized a net gain on the sale of property and equipment of
approximately $372,000 for the six months ended June 30, 1998 as compared to a
net gain of approximately $318,000 for the same period in 1997.
As a result of the Company's increased profitability and reduced
benefit of certain deferred tax assets, the Company incurred income tax expense
of approximately $3.9 million as compared to approximately $3.4 million in
16
<PAGE> 17
1997. As previously reported, the Company fully reduced its valuation allowance
existing against its deferred tax assets in prior periods recognizing the
related benefit. To the extent the Company generates income in excess of its
remaining deferred tax assets, it will incur income tax expense at its effective
statutory rate.
COMPARISON OF THE FISCAL QUARTERS ENDED JUNE 30, 1998 AND 1997
For the fiscal quarter ended June 30, 1998, contract drilling revenues
were approximately $45.9 million as compared to $37.6 million for the same
fiscal quarter in 1997, an increase of 22%. Average rig utilization was 64% for
the fiscal quarter ended June 30, 1998, as compared to 90% for the same fiscal
quarter in 1997. Direct contract drilling costs for the fiscal quarter ended
June 30, 1998 were approximately $34.3 million, or 75% of contract drilling
revenues, as compared to approximately $28.1 million, or 75% of contract
drilling revenues, for the same fiscal quarter in 1997. As previously discussed,
the increase in contract drilling revenues and direct contract drilling costs
was due largely to the addition of 50 operable drilling rigs since the first
fiscal quarter in 1997. General and administrative expense for the contract
drilling segment was approximately $2.2 million for the fiscal quarter ended
June 30, 1998 as compared to approximately $926,000 for the same fiscal quarter
in 1997. Depreciation and amortization expense was approximately $5.6 million
for the fiscal quarter ended June 30, 1998 as compared to $2.8 million for the
same fiscal quarter in 1997. The increase in depreciation and amortization
expense was due primarily to the addition of the aforementioned drilling rigs.
For the fiscal quarter ended June 30, 1998, operating income from the contract
drilling segment was approximately $3.8 million as compared to approximately
$5.8 million for the same fiscal quarter in 1997.
The Company derives substantially all of its operating revenues and
profit from its contract drilling operations; however, the Company realized
revenues from other operating activities of approximately $5.2 million for the
three months ended June 30, 1998 as compared to $3.1 for the same period in
1997. The increase in the current year revenues from the Company's other
operating activities was attributable to the Company's addition of Lone Star
during January 1998, which generated revenues of approximately $3.5 million from
its drilling fluid services during the three months ended June 30, 1998. For the
three months ended June 30, 1998, the Company incurred operating costs of
approximately $5.5 million related to its other operating activities, including
approximately $830,000 of depreciation, depletion and amortization and
approximately $692,000 of general and administrative expense. This compares to
operating costs of approximately $2.9 million, including $1.1 million of
depreciation, depletion and amortization and approximately $368,000 of general
and administrative expense for the same period in 1997. The Company's other
operating activities for the three months ended June 30, 1998 generated an
operating loss of approximately $252,000, as compared to operating income of
approximately $239,000 for the three months ended June 30, 1997. The decrease in
operating income as indicated above was due primarily to the significantly
reduced price of crude oil the Company received during the second quarter of
1998 as well as a significant decline in related production as compared to the
same period in 1997. The average price per barrel of crude oil decreased from
$19.75 for the three months ended June 30, 1997 to $13.12 for the three months
ended June 30, 1998 and the Company's production of crude oil declined 34%
during the quarter ended June 30, 1998 as compared to the same period in 1997.
For the fiscal quarter ended June 30, 1998, interest expense was
approximately $1.3 million as compared to $26,000 for the same period in 1997.
As a result of the Company's acquisitions in fiscal 1997 and 1998, obligations
under an existing line of credit increased from $6.0 million at June 30, 1997 to
$60.0 million at June 30, 1998, resulting in the Company's increased interest
expense. Interest income for the three months ended June 30, 1998, was $282,000
as compared to $356,000 for the same three-month period in 1997. The Company
recognized a net gain on the sale of property and equipment of approximately
$213,000 for the three months ended June 30, 1998 as compared to a net gain of
approximately $183,000 for the same period in 1997.
17
<PAGE> 18
VOLATILITY OF OIL AND NATURAL GAS PRICES AND ITS IMPACT ON OPERATIONS
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and natural gas, both
with respect to its contract drilling and its oil and natural gas segments.
Historically, oil and natural 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 natural gas prices will have a
material adverse effect on the Company's financial condition and results of
operations. The sharp decline in crude oil prices beginning in the fourth
quarter of 1997 has adversely impacted the Company's operations. Should oil
prices remain at current levels or continue to decline or natural gas prices
begin to decline, the Company's operations could be further adversely affected.
IMPACT OF INFLATION
The Company believes that inflation will not have a significant impact
on its financial position.
RECENT ACCOUNTING STANDARDS
During the quarter ended March 31, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"), which establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. Statement 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Statement 130
requires that an enterprise (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
Company's adoption of Statement 130 did not result in any significant changes to
its related reporting disclosures.
During the quarter ended March 31, 1998, the Company adopted Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("Statement 131"). Statement 131 establishes
revised guidelines for determining an entity's operating segments and the type
and level of financial information to be disclosed. The Company's adoption of
Statement 131 did not result in any significant changes to its related reporting
disclosures.
During the quarter ended June 30, 1998, the Company adopted Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("Statement 132"). Statement 132
revises employers' disclosures about pension and other postretirement benefit
plans. The Company's adoption of Statement 132 did not however, change the
measurement recognition of those plans.
During June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"), which establishes
accounting and reporting standards for derivative instruments and other hedging
activities. Statement 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The provisions of Statement 133 are not expected
to have a material impact to the Company.
18
<PAGE> 19
YEAR 2000 COMPLIANCE PROGRAM
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the Year 2000 Issue (as defined below) and
has developed an implementation plan. The "Year 2000 Issue" is whether the
Company's computer systems will properly recognize date sensitive information
when the year changes to 2000, or "00." Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Company uses purchased software programs for a variety of functions, including
general ledger, accounts payable and accounts receivable packages. The companies
providing these software programs have represented that they are Year 2000
compliant. The Company's Year 2000 implementation plan also includes ensuring
that all individual workstations are Year 2000 compliant. Costs associated with
ensuring the Company's systems are Year 2000 compliant are not expected to be
material to the Company's operations. Additionally, the Company does not
anticipate an interruption in its operations relative to Year 2000 concerns of
its customers and vendors. The Company believes that the Year 2000 Issue will
not pose significant operational problems for the Company's computer systems
and, therefore, will not have a significant impact on the operations of the
Company.
19
<PAGE> 20
----------------------
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 2 of this Report contains
forward-looking statements which are made pursuant to the "safe harbor"
provisions of The Private Securities Litigation Reform Act of 1995. These
statements include, without limitation, statements relating to: liquidity;
financing of operations; continued volatility of oil and natural gas prices;
source and sufficiency of funds required for immediate capital needs and
additional rig acquisitions (if further opportunities arise); and such other
matters. The words "believes," "plans," "intends," "expected" or "budgeted" and
similar expressions identify forward-looking statements. The forward-looking
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate in the circumstances. The Company does not undertake to update,
revise or correct any of the forward-looking information. Factors that could
cause actual results to differ materially from the Company's expectations
expressed in the forward-looking statements include, but are not limited to, the
following: intense competition in the contract drilling industry; continued low
level oil prices and/or fall of natural gas prices; continued adverse market
conditions for contract drilling services; drill-pipe shortages; labor
shortages, primarily qualified drilling rig personnel; insurance coverage
limitations and requirements; inability to acquire additional drilling rigs on
terms favorable to the Company; and the loss of key personnel, particularly
Cloyce A. Talbott and A. Glenn Patterson, the Chairman and Chief Executive
Officer and the President and Chief Operating Officer of the Company,
respectively. For a more complete explanation of these various factors and
others, see "Cautionary Statement for Purposes of the 'Safe Harbor' Provisions
of the Private Securities Litigation Reform Act of 1995" included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
beginning on page 10.
----------------------
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The following exhibits are filed herewith or incorporated by reference:
2.1 Plan and Agreement of Merger dated October 14, 1993, between
Patterson Energy, Inc., a Texas corporation, and Patterson
Energy, Inc., a Delaware corporation, together with related
Certificates of Merger.(1)
2.2 Agreement and Plan of Merger, dated April 22, 1996 among
Patterson Energy, Inc., Patterson Drilling Company and Tucker
Drilling Company, Inc.(11)
2.2.1 Amendment to Agreement and Plan of Merger, dated May 16, 1996
among Patterson Energy, Inc., Patterson Drilling Company and
Tucker Drilling Company, Inc.(12)
2.3 Asset Purchase Agreement, dated April 22, 1998, among and
between Patterson Drilling Company and Ziadril, Inc.(2)
2.4 Asset Purchase Agreement, dated June 4, 1998, among Patterson
Energy Inc., Patterson Drilling Company and Wes-Tex Drilling
Company.(3)
2.4.1 Amendment to Asset Purchase Agreement, dated June 4, 1998,
among Patterson Energy Inc., Patterson Drilling Company and
Wes-Tex Drilling Company.(3)
2.5 Agreement, dated June 4, 1998, among Patterson Energy Inc.,
Patterson Drilling Company, Greathouse Foundation and Myrle
Greathouse, Trustee under Agreement dated June 2, 1998.(3)
2.6 Asset Purchase Agreement, dated June 4, 1998, among Patterson
Energy Inc., Patterson Drilling Company and McGee Drilling
Company.(2)
2.7 Agreement and Plan of Merger, dated January 20, 1998, among
Patterson Energy, Inc., Patterson Onshore Drilling Company and
Robertson Onshore Drilling Company.(20)
3.1 Restated Certificate of Incorporation.(4)
3.1.1 Certificate of Amendment to the Certificate of
Incorporation.(19)
3.2 Bylaws.(1)
4.1 Excerpt from Restated Certificate of Incorporation of
Patterson Energy, Inc. regarding authorized Common Stock and
Preferred Stock.(5)
4.2 Registration Rights Agreement, dated June 12, 1998, among
Patterson Energy Inc. and Wes-Tex Drilling Company, Greathouse
Foundation and Myrle Greathouse, Trustee under Agreement dated
June 2, 1998.(6)
4.3 Stock Purchase Warrant of Patterson Energy, Inc., dated June
12, 1998.(6)
21
<PAGE> 22
10.1 Credit Agreement dated December 9, 1997 among Patterson
Energy, Inc., Patterson Drilling Company, Patterson Petroleum,
Inc., Patterson Trading Company, Inc. and Norwest Bank Texas,
N.A.(6)
10.1.1 Promissory Note dated December 9, 1997 among Patterson Energy,
Inc. and Norwest Bank Texas, N.A.(6)
10.1.2 Security Agreement dated December 9, 1997 between Patterson
Drilling Company and Norwest Bank Texas, N.A.(6)
10.1.4 Corporate Guarantees of Patterson Drilling Company, Patterson
Petroleum, Inc. and Patterson Petroleum Trading Company, Inc.
(6)
10.2 Aircraft Lease, dated January 15, 1998, (effective January 1,
1998) between Talbott Aviation, Inc. and Patterson Energy,
Inc.(19)
10.3 Participation Agreement, dated October 19, 1994, between
Patterson Petroleum Trading Company, Inc. and BHT Marketing,
Inc.(12)
10.3.1 Participation Agreement dated October 24, 1995, between
Patterson Petroleum Trading Company, Inc. and BHT Marketing,
Inc.(13)
10.4 Crude Oil Purchase Contract, dated October 19, 1994, between
Patterson Petroleum, Inc. and BHT Marketing, Inc.(14)
10.4.1 Crude Oil Purchase Contract, dated October 24, 1995, between
Patterson Petroleum, Inc. and BHT Marketing, Inc.(13)
10.5 Patterson Energy, Inc. 1993 Stock Incentive Plan, as amended
(15)
10.6 Patterson Energy, Inc. Non-Employee Directors' Stock Option
Plan, as amended.(16)
10.7 Consulting and Stock Option Agreement, dated as of November
15, 1994, between Patterson Energy, Inc. and E. Peter Hoffman,
Jr.(13)
10.8 Consulting and Stock Option Agreement, dated as of February
15, 1995, between Patterson Energy, Inc. and E. Peter Hoffman,
Jr.(13)
10.9 Consulting and Stock Option Agreement, dated as of August 2,
1995, between Patterson Energy, Inc. and E. Peter Hoffman, Jr.
(13)
10.10 Model Form Operating Agreement.(17)
10.11 Form of Drilling Bid Proposal and Footage Drilling Contract.
(17)
10.12 Form of Turnkey Drilling Agreement.(17)
22
<PAGE> 23
15.1 Awareness letter of Independent Accountants;
PricewaterhouseCoopers LLP
21.1 Subsidiaries of the registrant. (19)
27.1 Financial Data Schedule as of June 30, 1998 and for
the three and six months ended 1998.
27.2 Financial Data Schedule for the three and six months ended
June 30, 1997.
-----------------------
(1) Incorporated herein by reference to Item 27, "Exhibits" to Amendment
No. 2 to Registration Statement on Form SB-2 (File No. 33-68058-FW);
filed October 28, 1993.
(2) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated April 22, 1996 and filed on April 30, 1996.
(3) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated May 16, 1996 and filed on May 22, 1996.
(4) Incorporated herein by reference to Item 16, "Exhibits" to Amendment
No. 1 to Registration Statement on Form S-3 (File No. 333-29035); filed
August 5, 1997.
(5) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits", to Form 8-K dated September 3, 1997; filed September 11,
1997.
(6) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated November 14, 1997 and filed December 24,
1997.
(7) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits," to Form 8-K dated January 23, 1998; filed February 3, 1998.
(8) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended September 30,
1996; filed August 12, 1996.
(9) Incorporated herein by reference to Item 6. "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended June 30, 1997;
filed August 14, 1997.
(10) Incorporated by reference to Item 16, "Exhibits" to Registration
Statement on Form S-3 filed with the Securities Exchange Commission on
December 18, 1996.
(11) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits", to Form 8-K dated September 12, 1997; filed September 19,
1997.
(12) Incorporated by reference to Item 27, "Exhibits" to Post Effective
Amendment No. 1 to Registration Statement on Form SB-2 (File No.
33-68058-FW).
(13) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 10-KSB for the year ended December 31, 1995.
(14) Incorporated by reference to Item 5, "Other Items" to Form 8-K dated
December 1, 1995 and filed on January 16, 1996.
(15) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 333-47917); filed March 13, 1998.
23
<PAGE> 24
(16) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471); filed November 4, 1997.
(17) Incorporated by reference to Item 27, "Exhibits" to Registration
Statement filed with the Securities and Exchange Commission on August
30, 1993.
(18) Incorporated by reference to Item 7, "Financial Statements and
Exhibits," of Form 8-K dated January 23, 1998.
(19) Incorporated by reference to Item 14, "Exhibits, Financial Statement
Schedules and Reports on Form 8-K" to Form 10-K dated December 31,
1997.
(20) Incorporated by reference to Item 7, "Financial Statements and
Exhibits," of Form 8-K dated January 23, 1998.
(b) REPORTS ON FORM 8-K.
The following report on Form 8-K was filed with the Securities and
Exchange Commission during the fiscal quarter ended June 30, 1998 related
to:
(1) Report dated April 30, 1998 announcing the Company's results from
operations for the period ended March 31, 1998; filed May 1, 1998.
24
<PAGE> 25
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 14, 1998
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
15.1 Awareness Letter of Independent Accountants,
PricewaterhouseCoopers LLP
27.1 Financial Data Schedule as of June 30, 1998
and for the three and six months ended
June 30, 1998.
27.2 Financial Data Schedule for the three and
six months ended June 30, 1997.
</TABLE>
<PAGE> 1
Exhibit 15.1
August 13, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Patterson Energy, Inc.
We are aware that our report dated July 30, 1998 on our review of the interim
condensed consolidated balance sheet of Patterson Energy, Inc. and its
Subsidiaries as of June 30, 1998 and the related condensed consolidated
statements of income for the three and six months ended June 30, 1998 and 1997
and cash flows for the six months ended June 30, 1998 and 1997 and the related
condensed consolidated statement of stockholder's equity for the six months
ended June 30, 1998 and included in this Form 10-Q, is incorporated by reference
in the registration statements of Patterson Energy, Inc. on Forms S-8 (File
No.'s 333-47917, 33-97972, 33-39471 and 33-35399) and Forms S-3, as amended
(File No.'s 333-43739 and 333-39537).
/s/ PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND RELATED
STATEMENTS OF INCOME AND CASH FLOWS FROM THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1997 AND 1998, AS APPLICABLE. THIS FINANCIAL INFORMATION IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO FILING ON FORM 10-Q FOR THE QUARTERLY PERIODS
ENDED JUNE 30, 1997 AND 1998.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 17,576 17,576
<SECURITIES> 0 0
<RECEIVABLES> 40,081 40,081
<ALLOWANCES> 0 0
<INVENTORY> 1,181 1,181
<CURRENT-ASSETS> 68,899 68,899
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 251,703 251,703
<CURRENT-LIABILITIES> 31,487 31,487
<BONDS> 0 0
0 0
0 0
<COMMON> 317 317
<OTHER-SE> 163,114 163,114
<TOTAL-LIABILITY-AND-EQUITY> 251,703 251,703
<SALES> 0 0
<TOTAL-REVENUES> 51,150 111,902
<CGS> 0 0
<TOTAL-COSTS> 47,619 100,509
<OTHER-EXPENSES> (563) (911)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,266 2,165
<INCOME-PRETAX> 2,828 10,139
<INCOME-TAX> 1,107 3,885
<INCOME-CONTINUING> 1,721 6,254
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,721 6,254
<EPS-PRIMARY> .05 .20
<EPS-DILUTED> .05 .20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND RELATED
STATEMENTS OF INCOME AND CASH FLOWS FROM THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1997 AND 1998, AS APPLICABLE. THIS FINANCIAL INFORMATION IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO FILING ON FORM 10-Q FOR THE QUARTERLY PERIODS
ENDED JUNE 30, 1997 AND 1998.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 11,358 11,358
<SECURITIES> 551 551
<RECEIVABLES> 32,210 32,210
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 51,161 51,161
<PP&E> 147,407 147,407
<DEPRECIATION> 65,744 65,744
<TOTAL-ASSETS> 153,480 153,480
<CURRENT-LIABILITIES> 25,584 25,584
<BONDS> 0 0
0 0
0 0
<COMMON> 294 294
<OTHER-SE> 120,329 120,329
<TOTAL-LIABILITY-AND-EQUITY> 153,480 153,480
<SALES> 0 0
<TOTAL-REVENUES> 40,692 71,333
<CGS> 0 0
<TOTAL-COSTS> 34,646 62,647
<OTHER-EXPENSES> (660) (1,098)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 26 509
<INCOME-PRETAX> 6,680 9,275
<INCOME-TAX> 2,402 3,357
<INCOME-CONTINUING> 4,278 5,918
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,278 5,918
<EPS-PRIMARY> .15 .22
<EPS-DILUTED> .14 .21
</TABLE>
