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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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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. BOX 1416, 4510 LAMESA HIGHWAY, SNYDER, TEXAS 79550
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (915) 573-1104
SECURITIES REGISTERED PURSUANT TO 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of March 24, 2000 was $934,494,274, based
upon the average bid and asked prices of $28.50 and $30.50, respectively, on the
Nasdaq National Market.
As of March 24, 2000, the registrant had outstanding 32,694,940 shares of
common stock, $.01 Par Value, its only class of voting stock.
DOCUMENT INCORPORATED BY REFERENCE
Parts of the following document are incorporated by reference into Part III
of this Annual Report on Form 10-K: Definitive Proxy Statement for the
registrant's 2000 Annual Meeting of Stockholders.
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This Form 10-K/A is being filed solely for the purpose of updating certain
of the risk factors contained in "Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Private Securities Litigation Reform Act of 1995,"
contained on pages 13 through 17 of the Form 10-K as originally filed with the
SEC between Parts I and II thereof.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statement made by, or on behalf of,
the Company. The factors identified in this cautionary statement are important
factors (but not necessarily all of the important factors) that could cause
actual results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company. Where any such forward-looking
statement includes a statement of the assumptions or bases underlying such
forward-looking statement, the Company cautions that, while it believes such
assumptions or bases to be reasonable and makes them in good faith, assumed
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material, depending
upon the circumstances. Where, in any forward-looking statement, the Company, or
its management, expresses an expectation or belief as to the future results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result, or be achieved or accomplished. Taking into
account the foregoing, the following are identified as important risk factors
that could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company:
RISKS RELATED TO PATTERSON'S BUSINESS GENERALLY
PATTERSON IS DEPENDENT ON THE OIL AND NATURAL GAS INDUSTRY AND MARKET PRICES FOR
OIL AND NATURAL GAS. DECLINES IN OIL AND NATURAL GAS PRICES HAVE ADVERSELY
AFFECTED PATTERSON'S OPERATIONS.
Patterson's revenue, profitability and rate of growth are substantially
dependent upon prevailing prices for oil and natural gas. In recent years, oil
and natural gas prices and, therefore, the level of drilling, exploration,
development and production, have been extremely volatile. Prices are affected by
market supply and demand factors as well as international military, political
and economic conditions and the ability of the Organization of Petroleum
Exporting Countries to set and maintain production and prices. All of these
factors are beyond our control. Low level commodity prices beginning in the
fourth quarter of 1997 and continuing into mid-1999 have materially adversely
affected our operations. We expect oil and natural gas prices to continue to be
volatile and to effect our financial condition and operations and ability to
access sources of capital.
INDUSTRY CONDITIONS FOR CONTRACT DRILLING SERVICES HAVE BEEN POOR FOR MUCH OF
THE TIME SINCE MID-1982.
The contract drilling business experienced increased demand for drilling
services from 1995 through the third quarter of 1997 due to stronger oil and
natural gas prices. However, except for that period and other occasional
upturns, the market for onshore contract drilling services has generally been
depressed since mid-1982. Since this time and except during the occasional
upturns, there have been substantially more drilling rigs available than
necessary to meet demand in most operating and geographic segments of the
domestic drilling industry. As a result, drilling contractors have had
difficulty sustaining profit margins.
In addition to adverse effects that future declines in demand could have on
Patterson, ongoing movement of drilling rigs from region to region or
reactivation of onshore drilling rigs or new construction of drilling rigs could
adversely effect utilization rates and pricing, even in an environment of
stronger oil and natural gas prices and increased drilling activity. We cannot
predict either the future level of demand for our contract drilling services or
future conditions in the contract drilling business. Notwithstanding the
significant improvement in oil and natural gas prices since mid-1999, the demand
for contract drilling services, although improving, remains relatively weak.
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There can be no assurance that the demand for contract drilling services will
increase proportionally with the current higher prices or of the duration of the
higher commodity prices.
SHORTAGES OF DRILL PIPE AND OTHER DRILLING EQUIPMENT COULD ADVERSELY AFFECT
PATTERSON'S DRILLING OPERATIONS.
The increase in domestic drilling demand from mid-1995 through the third
quarter of 1997 and related increase in contract drilling activity resulted in a
shortage of drill pipe in the industry. This shortage caused the price of drill
pipe to increase significantly and required that orders for new drill pipe be
placed at least one year in advance. The price increase and delay in delivery of
drill pipe caused Patterson to substantially increase capital expenditures in
its contract drilling segment. Notwithstanding the recent increase in demand for
contract drilling services, the Company has not experienced a drill pipe
shortage, due in part to a long term drill pipe supply contract at a fixed
price. This contract expires in November 2000. Severe problems associated with
drill pipe shortages could reoccur upon the expiration of the supply contract
and/or additional increases in demand for drilling services. Additionally,
further increases in demand for drilling services could cause shortages in other
drilling rig parts. Severe shortages could impair Patterson's ability to obtain
the equipment required for its contract drilling operations.
THE CONTRACT DRILLING INDUSTRY IN WHICH PATTERSON OPERATES IS HIGHLY
COMPETITIVE.
The inability to compete effectively in the contract drilling industry
would adversely impact Patterson's operations. Price is generally the most
important competitive factor. Other competitive factors include the availability
of drilling equipment and experienced personnel at or near the time and place
required by customers, the reputation of the drilling contractor and its
relationship with existing customers. We believe that we compete favorably with
respect to all of these factors. Competition is usually on a regional basis,
although drilling rigs are mobile and can be moved from one region to another in
response to increased demand. An oversupply of drilling rigs in any region may
result. Demand for land drilling equipment is also dependent on the exploration
and development budgets of oil and natural gas companies, which are in turn
influenced primarily by the financial condition of such companies, by general
economic conditions, by prices of oil and natural gas, and from time to time
political considerations and policies. It is not practical to estimate the
number of contract drilling competitors of Patterson, some of which have
substantially greater resources than Patterson. Also, in recent years, many
drilling companies have consolidated or merged with other companies. Although
this consolidation has decreased the total number of competitors, Patterson
believes the competition for drilling services will continue to be intense.
There is also substantial competition for the acquisition of oil and
natural gas leases suitable for exploration and for the hiring of experienced
personnel. Patterson's competitors in the exploration, development and
production segment of its operations include major integrated oil and natural
gas companies, numerous independent oil and natural gas companies, drilling and
production purchase programs and individual producers and operators. Patterson's
ability to increase its holdings of oil and natural gas reserves in the future
is directly dependent upon its ability to select, acquire and develop suitable
prospects in competition with those companies. Many competitors have financial
resources, staff, facilities and other resources significantly greater than
those of Patterson.
LABOR SHORTAGES ARE ADVERSELY AFFECTING PATTERSON'S DRILLING OPERATIONS.
The increase in domestic drilling demand from mid-1995 through the third
quarter of 1997 and related increase in contract drilling activity caused a
shortage of qualified drilling rig personnel in the industry. This increase
adversely impaired our ability to attract and retain sufficient qualified
personnel and to market and operate our drilling rigs. Further, the labor
shortages resulted in wage increases, which impacted our operating margins. The
return to higher demand levels in the contract drilling industry has reinstated
the problems associated with labor shortages. Of particular concern to us is
that these problems are more severe than those previously experienced by
Patterson and were reinstated at a much lower rig utilization rate than
experienced in the past. These labor shortages are adversely effecting
Patterson's operations. They are impeding Patterson's ability to place
additional drilling rigs into operation and are causing delays in the drilling
of new wells for Patterson customers.
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PATTERSON HAS SIGNIFICANT BORROWINGS; FAILURE TO REPAY COULD RESULT IN
FORECLOSURE ON DRILLING RIGS.
Patterson has a $60 million credit facility with an outstanding principal
balance of $59.4 million at March 31, 2000. All of Patterson's drilling assets
are pledged as collateral on the facility. The loan is payable in monthly
payments of interest only until February 2001, at which time the loan will
convert to a term loan with a 60-month principal and interest amortization. A
decline in general economic conditions in the oil and gas industry could
adversely affect Patterson's ability to repay the loan. Failure to repay could,
at the lender's election, result in acceleration of the maturity date of the
loan and foreclosure on the drilling assets. Additionally, the loan agreement
contains a number of covenants, including financial covenants, the failure of
which to satisfy could also cause acceleration of the maturity date and require
immediate repayment.
CONTINUED GROWTH THROUGH RIG ACQUISITIONS IS NOT ASSURED.
Patterson substantially increased its drilling rig fleet over the four-year
period ending in the first quarter of 1998 through strategic acquisitions.
Although the land drilling industry has experienced significant consolidation
over the past couple of years, Patterson believes that significant acquisition
opportunities are still available. However, there can be no assurance that
suitable acquisitions can be found. We are likely to continue to face intense
competition from other companies for available acquisition opportunities.
There can be no assurance that Patterson will have sufficient capital
resources to complete acquisitions, that acquisitions can be completed on terms
acceptable to us or that any completed acquisition would improve Patterson's
financial condition, results of operation, business or prospects in any material
manner. In fact, Patterson may incur substantial indebtedness to finance future
acquisitions and also may issue equity securities or convertible securities in
connection with any such acquisitions. Additional debt service requirements
could represent a significant burden on our results of operations and financial
condition and the issuance of additional equity or convertible shares could be
dilutive to our existing stockholders. Also, continued growth could strain
Patterson's management, operations, employees and resources.
PATTERSON'S OPERATIONS ARE SUBJECT TO OPERATING HAZARDS AND UNINSURED RISKS.
Contract drilling and oil and natural gas activities are subject to a
number of risks and hazards. These could cause serious injury or death to
persons, suspension of drilling operations, serious damage to equipment or
property of others, and damage to producing formations in surrounding areas. Our
operations could also cause environment damage, particularly through oil spills,
gas leaks, discharges of toxic gases or extensive uncontrolled fires. In
addition, we could become subject to liability for reservoir damages. The
occurrence of a significant event, including pollution or environmental damage,
could materially affect our operations and financial condition.
We believe we are adequately insured or indemnified against normal and
foreseeable risks in our operations in accordance with industry standards.
However, such insurance or indemnification may not be adequate to protect
Patterson against liability from all consequences of well disasters, extensive
fire damage or damage to the environment. There is no assurance that Patterson
will be able to maintain adequate insurance in the future at rates it considers
reasonable or that any particular types of coverage will be available. In
addition to insurance, Patterson generally seeks to obtain indemnity agreements
whenever possible from its customers requiring them to hold Patterson harmless
if production or reservoir damage occurs. However, even when we are successful
in obtaining contractual indemnification, the customer may not maintain adequate
insurance to support such indemnification.
VIOLATIONS OF ENVIRONMENTAL LAWS AND REGULATIONS COULD MATERIALLY ADVERSELY
AFFECT PATTERSON'S OPERATIONS.
Patterson's operations are subject to numerous domestic laws and
regulations that relate directly or indirectly to the drilling of oil and
natural gas wells, including laws and regulations controlling the discharge of
materials into the environment, requiring removal and clean-up under certain
circumstances, or otherwise relating to the protection of the environment. Laws
and regulations protecting the environment have generally become more stringent
in recent years, and may in certain circumstances impose strict liability,
rendering a person liable for
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environmental damage without regard to negligence or to the fault on the part of
such person. Such laws and regulations may expose us to liability for the
conduct of, or conditions caused by, others, or for our acts that were in
compliance with all applicable laws at the time such acts were performed.
Although we generally have been able to obtain some degree of contractual
indemnification from our customers in most of our day rate drilling contracts
against pollution and environmental damages, there is no assurance that
Patterson will be able to enforce the indemnification in all instances, that the
customer will be financially able in all cases to comply with its indemnity
obligations, or that Patterson will be able to obtain such indemnification
agreements in the future. No such indemnification is typically available for
turnkey contracts. While we also maintain insurance coverage against certain
environmental liabilities, including pollution caused by sudden and accidental
oil spills, we cannot assure that we will continue to be able to secure or carry
this insurance or, if Patterson were able to do so, that the coverage would be
adequate to cover the liabilities.
SOME OF PATTERSON'S CONTRACT DRILLING SERVICES ARE DONE UNDER TURNKEY CONTRACTS,
WHICH ARE FINANCIALLY RISKY.
A portion of Patterson's contract drilling is done under turnkey contracts,
which involve substantial risks. Under turnkey drilling contracts, Patterson
contracts to drill a well to a contract depth under specified conditions for a
fixed price. The risks to us under these types of drilling contracts are
substantially greater than on a well drilled on a daywork basis since we assume
most of the risks associated with the drilling operations generally assumed by
the operator of the well in a daywork contract, including risk of blowout,
machinery breakdowns and abnormal drilling conditions. Accordingly, if severe
drilling problems are encountered in drilling wells under a turnkey contract,
Patterson could suffer substantial losses associated with that contract.
Generally, the weaker the demand for our drilling services, the higher the
percentage of our turnkey contracts. For each of the years in the two-year
period ended December 31, 1999, the percentage of our contract drilling revenues
attributable to turnkey contracts was 12.0%, and 20.0%, respectively.
ESTIMATES OF PATTERSON'S OIL AND NATURAL GAS RESERVES ARE UNCERTAIN.
Estimates of our proved developed reserves and future net revenues are
based on engineering reports prepared by an independent petroleum engineer based
upon a review of production histories and other geologic, economic, ownership
and engineering data provided by Patterson. These estimates are based on several
assumptions that the SEC requires oil and natural gas companies to use,
including, for example, constant oil and natural gas prices. Such estimates are
inherently imprecise indications of future net revenues. Actual future
production, revenues, taxes, production costs and development costs may vary
substantially from those assumed in the estimates. Any significant variance
could materially affect the estimates. In addition, our reserves might be
subject to upward or downward adjustment based on future production, results of
future exploration and development, prevailing oil and natural gas prices and
other factors.
RISKS RELATED TO PATTERSON'S OPERATIONS
THE LOSS OF SERVICES OF KEY OFFICERS COULD HURT PATTERSON'S OPERATIONS.
Patterson is highly dependent on its executive officers and key employees.
The unexpected loss of the services of any of these individuals, particularly
Cloyce A. Talbott or A. Glenn Patterson, Chief Executive Officer and the
President, respectively, could have a detrimental affect on Patterson. Patterson
has no employment agreements with any of its executive officers. We maintain key
man life insurance on the lives of Messrs. Talbott and Patterson in the amount
of $3 million each.
ANTI-TAKEOVER MEASURES IN PATTERSON'S CHARTER DOCUMENTS AND UNDER STATE LAW
COULD DISCOURAGE AN ACQUISITION OF PATTERSON AND THEREBY AFFECT THE RELATED
PURCHASE PRICE.
Patterson, as a Delaware corporation, is subject to the Delaware General
Corporation Law, including Section 203, an anti-takeover law enacted in 1988.
Patterson has also enacted certain anti-takeover measures,
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including a stockholders rights plan. In addition, our Board of Directors has
the authority to issue up to one million shares of preferred stock and to
determine the price, rights (including voting rights), conversion ratios,
preferences and privileges of that stock without further vote or action by the
holders of the common stock. As a result of these measures and others, potential
acquirers of Patterson may find it more difficult or be discouraged from
attempting to effect an acquisition transaction with us, thereby possibly
depriving holders of Patterson securities of certain opportunities to sell or
otherwise dispose of such securities at above-market prices pursuant to their
transactions.
PATTERSON HAS PAID NO DIVIDENDS ON ITS COMMON STOCK AND HAS NO PLANS TO PAY
DIVIDENDS IN THE FORESEEABLE FUTURE.
Patterson has not declared or paid cash dividends on its common stock in
the past and does not expect to declare or pay any cash dividends on its common
stock in the foreseeable future. The terms of our existing credit facility
prohibit payment of dividends by Patterson without the prior written consent of
the noteholders.
PARTICIPATION BY PATTERSON DIRECTORS AND OFFICERS IN OIL AND NATURAL GAS
PROSPECTS COULD CREATE CONFLICTS OF INTEREST.
Certain of Patterson's directors and executive officers and their
respective affiliates have participated and may continue to participate from
time to time in oil and natural gas prospects and properties in which Patterson
has an interest. Conflicts of interest may arise between such persons and
Patterson as to the advisability of conducting drilling and recompletion
activities on these properties. Of the 155 wells operated by Patterson at
December 31, 1999, Patterson's directors, officers and/or their respective
affiliates were working interest owners in approximately 143 wells.
PATTERSON BOARD MAY ISSUE PREFERRED STOCK WITH RIGHTS AND PREFERENCES ADVERSE TO
COMMON STOCK.
Patterson has a class of authorized preferred stock. Patterson's Board of
Directors, without stockholder approval, may issue shares of the preferred stock
with rights and preferences adverse to the voting power or other rights of the
holders of common stock. Patterson has not issued any shares of preferred stock.
However, as of December 31, 1999, an aggregate of 326,756 shares of preferred
stock had been reserved for issuance upon exercise of the Rights described under
"Description of Capital Stock - Stockholder Rights Plan," below.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Patterson Energy, Inc. has duly caused this Form 10-K/A
Amendment No. 1 to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: June 12, 2000
<TABLE>
<CAPTION>
SIGNATURES TITLE
<S> <C>
/s/ CLOYCE A. TALBOTT Chairman of the Board, Chief Executive Officer and
----------------------------------- Treasurer
Cloyce A. Talbott
(Principal Executive Officer)
/s/ A. GLENN PATTERSON President, Chief Operating Officer and Director
-----------------------------------
A. Glenn Patterson
/s/ JONATHAN D. (JODY) NELSON Vice President - Finance, Chief Financial Officer,
----------------------------------- Secretary and Treasurer
Jonathan D. (Jody) Nelson
(Principal Accounting Officer)
/s/ ROBERT C. GIST Director
-----------------------------------
Robert C. Gist
/s/ SPENCER D. ARMOUR, III Director
-----------------------------------
Spencer D. Armour, III
/s/ VINCENT A. ROSSI, JR. Director
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Vincent A. Rossi, Jr.
</TABLE>
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