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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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Form 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 0-6352
ATWOOD OCEANICS, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of 74-1611874
incorporation or organization) (I.R.S. Employer Identification No.)
15835 Park Ten Place Drive 77084
Houston, Texas (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code:
281-492-2929
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1 par value
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 15 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 filings
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation in S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definite 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 stock held by non-affiliates of the
registrants as of November 30, 1998 is $ 199,000,000.
The number of shares outstanding of the issuer's class of Common Stock, as of
November 30, 1998: 13,624,926 shares of Common Stock, $1 par value.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the fiscal year ended September 30, 1998 -
Referenced in Parts I, II and IV of this report.
(2) Proxy Statement for Annual Meeting of Shareholders to be held
February 11, 1999 - Referenced in Part III of this report.
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PART I
ITEM 1. BUSINESS
Atwood Oceanics, Inc. (which together with its subsidiaries is identified
as the "Company" or "Registrant", unless the context requires otherwise), a
corporation organized in 1968 under the laws of the State of Texas, is engaged
in contract drilling of exploratory and development oil and gas wells in
offshore areas and related support, management and consulting services. The
Company currently owns (i) three "third-generation" semisubmersibles, one
"second-generation" semisubmersible, one jack-up, one "second-generation"
semisubmersible tender assist rig, one submersible, and one modular,
self-contained platform rig, and (ii) a 50 percent interest in a new
generation platform rig. The Company also provides labor, supervisory and
consulting services to two operator-owned platform rigs in Australia.
In fiscal 1998, the Company's revenues, operating cash flows and net
income were the highest in its history. For the last five fiscal years, the
Company has maintained 99 percent utilization of its drilling equipment,
resulting in five consecutive years of improved profitability. However, during
the second half of fiscal 1998, the price for oil declined which has resulted in
some curtailment of worldwide drilling activities, especially for jack-ups and
shallow water drilling rigs. Currently, the price for oil is approximately $12
per barrel, with worldwide fleet utilization for mobile offshore rigs at less
than 90 percent.
Historically, most of the Company's drilling operations have been conducted
outside United States waters. Approximately 69, 88 and 92 percent of the
Company's contract revenues were derived from foreign operations in fiscal years
1998, 1997 and 1996, respectively. The reduction in foreign operations in fiscal
1998 was due to a full year of operations of the ATWOOD HUNTER in United States
waters following its relocation from Southeast Asia during fiscal 1997. In
addition to operating in United States waters, the Company is currently involved
in active foreign operations in the territorial waters of Australia, Italy,
Malaysia, India, Egypt and the Philippines. The ATWOOD HUNTER, a
third-generation semisubmersible, and the submersible RICHMOND are the Company's
only drilling vessels located in United States waters. For information relating
to the contract revenues, operating income and identifiable assets attributable
to specific geographic areas of operations, see Note 12 of Notes to Consolidated
Financial Statements contained in the Company's Annual Report to Shareholders
for fiscal year 1998, incorporated by reference herein.
OFFSHORE DRILLING EQUIPMENT
The Company's diversified fleet of owned or operated
drilling rigs currently consists of four semisubmersibles, one jack-up, one
semisubmersible tender assist vessel, one submersible, and four modular,
self-contained platform rigs. Each type of drilling rig is designed for
different purposes and applications, for operations in different water depths,
bottom conditions, environments and geographical areas, and for different
drilling and operating requirements. The following descriptions of the various
types of drilling rigs owned or operated by the Company illustrate the
diversified range of application of the Company's rig fleet.
Each semisubmersible drilling unit has two hulls, the lower of which is
capable of being flooded. Drilling equipment is mounted on the main hull. After
the drilling unit is towed to location, the lower hull is flooded, lowering the
entire drilling unit to its operating draft, and the drilling unit is anchored
in place. On completion of operations, the lower hull is deballasted, raising
the entire drilling unit to its towing draft. This type of drilling unit is
designed to operate in greater water depths than a jack-up and in more severe
sea conditions than a drillship. Semisubmersible units are generally more
expensive to operate than jack-up rigs and, compared to a drillship, are often
limited in the amount of supplies that can be stored on board.
The semisubmersible tender assist vessel operates like a semisubmersible
except that its drilling equipment is temporarily installed on permanently
constructed offshore support platforms. The semisubmersible vessel provides crew
accommodations, storage facilities and other support for the drilling
operations.
A jack-up drilling unit contains all of the drilling equipment on a single
hull designed to be towed to the well site. Once on location, legs are lowered
to the sea floor and the unit is raised out of the water by jacking up the legs.
On completion of the well, the unit is jacked down, and towed to the next
location. A jack-up drilling unit can operate in more severe sea and weather
conditions than a drillship and is less expensive to operate than a
semisubmersible. However, because it must rest on the sea floor, a jack-up
cannot operate in as deep water as other units.
The submersible drilling unit owned by the Company has two hulls, the lower
being a mat which is capable of being flooded. Drilling equipment and crew
accommodations are located on the main hull. After the drilling unit is towed to
its location, the lower hull is flooded, lowering the entire unit to its
operating draft at which it rests on the sea floor. On completion of operations,
the lower hull is deballasted, raising the entire unit to its towing draft. This
type of drilling unit is designed to operate in shallow water depths ranging
from 9 to 70 feet and can operate in moderately severe sea conditions. Although
drilling units of this type are less expensive to operate, like the jack-up rig,
they cannot operate in as deep water as other units.
A modular platform rig is similar to a land rig in its basic components.
Modular platform rigs are temporarily installed on permanently constructed
offshore support platforms in order to perform the drilling operations. After
the drilling phase is completed, the modular rig is broken down into convenient
packages and moved by work boats. A platform rig usually stays at a location for
several months, if not years, since several wells are typically drilled from a
support platform.
DRILLING CONTRACTS
The contracts under which the Company operates its vessels are obtained
either through individual negotiations with the customer or by submitting
proposals in competition with other contractors and vary in their terms and
conditions. The initial term of contracts for the Company's owned and/or
operated vessels has ranged from the length of time necessary to drill one well
to several months and is generally subject to early termination in the event of
a total loss of the drilling vessel, excessive equipment breakdown or failure to
meet minimum performance criteria. It is not unusual for contracts to contain
renewal provisions at the option of the customer.
The rate of compensation specified in each contract depends on the nature
of the operation to be performed, the duration of the work, the amount and type
of equipment and services provided, the geographic areas involved, market
conditions and other variables. Generally, contracts for drilling, management
and support services specify a basic rate of compensation computed on a dayrate
basis. Such agreements generally provide for a reduced dayrate payable when
operations are interrupted by equipment failure and subsequent repairs, field
moves, adverse weather conditions or other factors beyond the control of the
Company. Some contracts also provide for revision of the specified dayrates in
the event of material changes in certain items of cost. Any period during which
a vessel is not earning a full operating dayrate because of the above conditions
or because the vessel is idle and not on contract will have an adverse effect on
operating profits. An over-supply of drilling rigs in any market area can
adversely affect the Company's ability to employ its drilling vessels. Except
for two rigs idle for upgrades, the Company had virtually 100 percent
utilization of its drilling fleet in 1998. However, due to current weakness in
the worldwide offshore drilling market, the Company was unable to identify a new
contract for the ATWOOD SOUTHERN CROSS when it completed its last contract at
the end of September 1998. Despite the current market softness and no current
contract for the ATWOOD SOUTHERN CROSS, the Company's contract backlog for its
third-generation semisubmersibles should provide a high level of revenues and
cash flows in fiscal 1999; however, there is no guarantee that the Company will
not experience additional equipment idle time in fiscal 1999.
For long moves of drilling equipment, the Company attempts to obtain
either a lump sum or a dayrate as mobilization compensation for expenses
incurred during the period in transit. A surplus of certain types of units,
either worldwide or in particular operating areas, can result in the Company's
acceptance of a contract which provides only partial or no recovery of
relocation costs. In recent times, the Company has received full recovery of
relocation costs; however, there can be no assurance that this trend will
continue.
Operation of the Company's drilling equipment is subject to the offshore
drilling requirements of petroleum exploration companies and agencies of foreign
governments. These requirements are, in turn, subject to fluctuations in
government policies, world demand and prices for petroleum products, proved
reserves in relation to such demand and the extent to which such demand can be
met from onshore sources.
The Company also contracts to provide various types of services to third
party owners of drilling rigs. These contracts are normally for a stated term or
until termination of operations or stages of operation at a particular facility
or location. The services may include, as in the case of contracts entered into
by the Company in connection with operations offshore Australia, the supply of
personnel and rig design, fabrication, installation and operation. The contracts
normally provide for reimbursement to the Company for all out-of-pocket
expenses, plus a service or management fee for all of the services performed. In
most instances, the amount charged for the services may be adjusted if there are
changes in conditions, scope or costs of operations. The Company generally
obtains insurance or a contractual indemnity from the owner for liabilities
which could be incurred in operations.
OPERATIONAL RISKS AND INSURANCE
The Company's operations are subject to the usual hazards associated with
the drilling of oil and gas wells, such as blowouts, explosions and fires. In
addition, the Company's vessels are subject to those perils peculiar to marine
operations, such as capsizing, grounding, collision and damage from severe
weather conditions. Any of these risks could result in damage or destruction of
drilling rigs and oil and gas wells, personal injury and property damage,
suspension of operations or environmental damage through oil spillage or
extensive, uncontrolled fires. Although the Company believes that it is
adequately insured against normal and foreseeable risks in its operations in
accordance with industry standards, such insurance may not be adequate to
protect the Company against liability from all consequences of well disasters,
marine perils, extensive fire damage or damage to the environment. To date, the
Company has not experienced difficulty in obtaining insurance coverage, although
no assurance can be given as to the future availability of such insurance or
cost thereof. The occurrence of a significant event against which the Company is
not fully insured could have a material adverse effect on the Company's
financial position.
ENVIRONMENTAL PROTECTION
Under the Federal Water Pollution Control Act, as amended by the Oil
Pollution Act of 1990, operators of vessels in navigable United States waters
and certain offshore areas are liable to the United States government for the
costs of removing oil and certain other pollutants for which they may be held
responsible, subject to certain limitations, and must establish financial
responsibility to cover such liability. The Company has taken all steps
necessary to comply with this law, and has received a Certificate of Financial
Responsibility (Water Pollution) from the U.S. Coast Guard. The Company's
operations in United States waters are also subject to various other
environmental regulations regarding pollution and control thereof, and the
Company has taken steps to ensure compliance therewith.
CUSTOMERS
During fiscal year 1998, the Company performed operations for 13
customers. Because of the relatively limited number of customers for which the
Company can operate at any given time, sales to each of 3 different customers
amounted to 10% or more of the Company's fiscal 1998 revenues. British-Borneo
Petroleum Inc., Esso Australia Limited/Esso Production Malaysia, Inc., and
Santos Ltd., accounted for 24%, 17% and 14%, respectively, of fiscal year 1998
revenues. The Company's business operations are subject to the risks associated
with a business having a limited number of customers for its products or
services, and a decrease in the drilling programs of these customers in the
areas where they employ the Company may adversely affect the Company's revenues.
COMPETITION
The Company competes with numerous other drilling contractors, most of
which are substantially larger than the Company and possess appreciably greater
financial and other resources. Although recent business combinations among
drilling companies have resulted in a decrease in the total number of
competitors, the drilling industry remains competitive, with no single drilling
contractor being dominant. Thus, there continues to be competition in securing
available drilling contracts.
Price competition is generally the most important factor in the drilling
industry, but the technical capability of specialized drilling equipment and
personnel at the time and place required by customers is also important. Other
competitive factors include work force experience, rig suitability, efficiency,
condition of equipment, reputation and customer relations. The Company believes
that it competes favorably with respect to these factors. If demand for drilling
rigs increases in the future, rig availability may also become a competitive
factor. Competition usually occurs on a regional basis and, although drilling
rigs are mobile and can be moved from one region to another in response to
increased demand, an oversupply of rigs in any region may result. Demand for
drilling equipment is also dependent on the exploration and development programs
of oil and gas companies, which are in turn influenced by the financial
condition of such companies, by general economic conditions, by prices of oil
and gas, and from time to time by political considerations and policies.
FOREIGN OPERATIONS
The operations of the Company are conducted primarily in foreign waters
and are subject to certain political, economic and other uncertainties not
encountered by purely domestic drilling contractors, including risks of
expropriation, nationalization, foreign exchange restrictions, foreign taxation,
changing conditions and foreign and domestic monetary policies. Generally, the
Company purchases insurance to protect against some or all loss due to events of
political risk such as nationalization, expropriation, war, confiscation and
deprivation. Occasionally, customers will indemnify the Company against such
losses. Moreover, offshore drilling activity is affected by government
regulations and policies limiting the withdrawal of offshore oil and gas,
regulations affecting production, regulations restricting the importation of
foreign petroleum, environmental regulations and regulations which may limit
operations in offshore areas by foreign companies and/or personnel. See Note 12
to Consolidated Financial Statements contained in the Company's Annual Report to
Shareholders for fiscal year 1998, incorporated herein by reference, for a
summary of contract revenues, operating income and identifiable assets by
geographic region.
Because of the Company's foreign operations, its overall effective tax
rate may in the future be higher than the maximum United States corporate
statutory rate due to the possibility of higher foreign tax rates in certain
jurisdictions or less than full creditability of foreign taxes paid.
EMPLOYEES
The Company currently employs approximately 700 persons in its domestic
and worldwide operations. In connection with its foreign drilling operations,
the Company has often been required by the host country to hire substantial
portions of its work force in that country and, in some cases, these employees
may be represented by foreign unions. To date, the Company has experienced
little difficulty in complying with such requirements, and the Company's
drilling operations have not been significantly interrupted by strikes or work
stoppages.
ITEM 2. PROPERTIES
Information regarding the location and general character of the Company's
principal assets may be found in the table with the caption heading "Offshore
Drilling Operations" in the Company's Annual Report to Shareholders for fiscal
year 1998, which is incorporated by reference herein.
During fiscal 1997, the Company upgraded and relocated the ATWOOD HUNTER
at a cost of approximately $40 million and refurbished and upgraded the ATWOOD
SOUTHERN CROSS at a cost of approximately $35 million. During fiscal 1998, the
Company commenced an approximate $50 million upgrade of the ATWOOD FALCON and an
approximate $35 million upgrade of the VICSKBURG. Both upgrades were completed
during the first quarter of fiscal 1999. For more information concerning these
costs, see Note 4 in Consolidated Financial Statements contained in the
Company's Annual Report to Shareholders for fiscal year 1998, incorporated by
reference herein.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
During the fourth quarter of fiscal 1998, no matters were submitted to
a vote of shareholders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
As of September 30, 1998, there were over 750 beneficial owners of the
Company's common stock.
The Company did not pay cash dividends in fiscal years 1997 or 1998 and
the Company does not anticipate paying cash dividends in the foreseeable future
because of the capital intensive nature of its business. To enable the company
to maintain its high competitive profile in the industry, cash reserves will be
utilized, at the appropriate time, to upgrade existing equipment or to acquire
additional equipment. The Company's revolving credit facility prohibits the
Company from paying dividends on common stock.
Market information concerning the Company's common stock may be found
under the caption heading "Stock Price Information" in the Company's Annual
Report to Shareholders for fiscal 1998, which is incorporated by reference
herein.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item may be found under the caption "Five
Year Financial Review" in the Company's Annual Report to Shareholders for fiscal
1998, which is incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this item may be found in the Company's Annual
Report to Shareholders for fiscal 1998, which is incorporated by reference
herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item may be found under the caption
"Disclosures About Market Risk" in the Company's Annual Report to Shareholders
for fiscal 1998, which is incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item may be found in the Company's Annual
Report to Shareholders for fiscal 1998, which is incorporated by reference
herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's
independent public accountants on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
This information is incorporated by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held February 11,
1999, to be filed with the Securities and Exchange Commission (the Commission)
not later than 120 days after the end of the fiscal year covered by this Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held February 11,
1999, to be filed with the Commission not later than 120 days after the end of
the fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held February 11,
1999, to be filed with the Commission not later than 120 days after the end of
the fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held February 11,
1999, to be filed with the Commission not later than 120 days after the end of
the fiscal year covered by this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND EXHIBITS
1. FINANCIAL STATEMENTS
The following financial statements, together with the report of Arthur
Andersen LLP dated November 23, 1998 appearing in the Company's Annual Report to
Shareholders, are incorporated by reference herein:
Report of Independent Public Accountants
Consolidated Balance Sheets dated September 30, 1998 and 1997
Consolidated Statements of Operations for each of the three years in
the period ended September 30, 1998
Consolidated Statements of Cash Flows for each of the three years in
the period ended September 30, 1998
Consolidated Statements of Changes in Shareholders' Equity for each of
the three years in the period ended September 30, 1998
Notes to Consolidated Financial Statements
2. EXHIBITS
See the "EXHIBIT INDEX" for a listing of all of the Exhibits filed as part
of this report.
The management contracts and compensatory plans or arrangements required
to be filed as exhibits to this report are as follows:
Atwood Oceanics, Inc. 1990 Stock Option Plan -
See Exhibit 10.1 hereof.
Atwood Oceanics, Inc. 1996 Incentive Equity Plan -
See Exhibit 10.3 hereof.
(b) REPORTS ON FORM 8-K
During the last quarter of fiscal 1998, the Company did not file with
the Securities and Exchange Commission any report on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ATWOOD OCEANICS, INC.
/s/ JOHN R. IRWIN
JOHN R. IRWIN, President
DATE: 3 December 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities on the dates indicated.
/s/ JAMES M. HOLLAND /s/ JOHN R. IRWIN
JAMES M. HOLLAND JOHN R. IRWIN
Senior Vice President President and Director
(Principal Financial and (Principal Executive Officer)
Accounting Officer) Date: 3 December 1998
Date: 3 December 1998
/s/ ROBERT W. BURGESS /s/ GEORGE S. DOTSON
ROBERT W. BURGESS, GEORGE S. DOTSON,
Director Director
Date: 3 December 1998 Date: 3 December 1998
/s/ HANS HELMERICH /s/ WILLIAM J. MORRISSEY
HANS HELMERICH, WILLIAM J. MORRISSEY,
Director Director
Date: 3 December 1998 Date: 3 December 1998
/s/ W.H. HELMERICH, III
W.H. HELMERICH, III
Director
DATE: 3 December 1998
EXHIBIT INDEX
3.1.1 Restated Articles of Incorporation dated January 1972 (Incorporated
herein by reference to Exhibit 3.1.1 of the Company's Form 10-K for
the year ended September 30, 1993).
3.1.2 Articles of Amendment dated March 1975 (Incorporated herein by reference
to Exhibit 3.1.2 of the Company's Form 10-K for the year ended
September 30, 1993).
3.1.3 Articles of Amendment dated March 1992 (Incorporated herein by reference
to Exhibit 3.1.3 of the Company's Form 10-K for the year ended
September 30, 1993).
3.1.4 Articles of Amendment dated November 6, 1997 (Incorporated by reference
to Exhibit 3.1.4 of the Company's Form 10-K for the year ended
September 30, 1997).
3.2 Bylaws, as amended (Incorporated herein by reference to Exhibit 3.2 of the
Company's Form 10-K for the year ended September 30, 1993).
10.1 Atwood Oceanics, Inc. 1990 Stock Option Plan (Incorporated herein by
reference to Exhibit 10.2 of the Company's Form 10-K for the year ended
September 30, 1993).
10.2 Joint Venture Letter Agreement dated November 4, 1994 between the Company
and Helmerich & Payne, Inc.(Incorporated herein by reference to
Exhibit 10.3 of the Company's Form 10-K for the year ended
September 30, 1994).
10.3 Atwood Oceanics, Inc. 1996 Incentive Equity Plan (Incorporated herein by
reference to Exhibit 10.2 of the Company's Form 10-Q for the quarter
ended June 30, 1997).
10.4 Drilling Contract dated January 29, 1997 between the Company and
Occidental Phillipines, Inc. (Incorporated herein by reference to the
Company's Form 8-K dated July 10, 1997).
10.5 Credit Agreement dated July 17, 1997 between the Company and Bank One,
Texas, N.A., Christiania Bank OG Kreditkasse Asa, New York Branch and
Other Financial Institutions (Incorporated herein by reference to the
Company's Form 8-K dated July 21, 1997.)
10.6 Drilling Contract dated June 20, 1996 between the Company and
British-Borneo Petroleum, Inc. for use the ATWOOD HUNTER (Incorporated
herein by reference to the Company's Form 8-K dated June 24, 1996).
*13.1 Annual Report to Shareholders
*21.1 List of Subsidiaries
*23.1 Consent of Independent Public Accountants
*27.1 Financial Data Schedule
* Filed hereinwith