SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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 1-9260]
U N I T C O R P O R A T I O N
(Exact name of registrant as specified in its charter)
Delaware 73-1283193
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Kensington Tower I,
7130 South Lewis,
Tulsa, Oklahoma 74136
--------------- -----
(Address of principal executive offices) (Zip Code)
(918) 493-7700
--------------
(Registrant's telephone number, including area code)
None
----
(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 ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.20 par value 35,951,291
---------------------------- ----------
Class Outstanding at April 27, 2001
FORM 10-Q
UNIT CORPORATION
TABLE OF CONTENTS
Page
Number
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
December 31, 2000 and March 31, 2001. . . . . . . . . . 2
Consolidated Condensed Statements of Operations
Three Months Ended March 31, 2000 and 2001. . . . . . . 3
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 2000 and 2001. . . . . . . 4
Notes to Consolidated Condensed Financial Statements. . 5
Report of Review by Independent Accountants . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 10
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities and Use of Proceeds . . . . . . . 15
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
UNIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
December 31, March 31,
2000 2001
----------- -----------
(In thousands)
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 726 $ 288
Accounts receivable 40,220 50,880
Other 5,071 6,457
----------- -----------
Total current assets 46,017 57,625
----------- -----------
Property and Equipment:
Total cost 561,047 586,204
Less accumulated depreciation, depletion,
amortization and impairment 270,690 278,536
----------- -----------
Net property and equipment 290,357 307,668
----------- -----------
Other Assets 9,914 10,074
----------- -----------
Total Assets $ 346,288 $ 375,367
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current portion of long-term liabilities
and debt $ 1,627 $ 1,576
Accounts payable 21,012 23,915
Accrued liabilities 10,033 14,044
----------- -----------
Total current liabilities 32,672 39,535
----------- -----------
Long-Term Debt 54,000 48,600
----------- -----------
Other Long-Term Liabilities 3,597 3,836
----------- -----------
Deferred Income Taxes 41,479 48,772
----------- -----------
Shareholders' Equity:
Preferred stock, $1.00 par value,
5,000,000 shares authorized, none issued - -
Common stock, $.20 par value, 75,000,000
shares authorized, 35,768,344 and
35,941,291 shares issued, respectively 7,154 7,188
Capital in excess of par value 139,872 140,750
Retained earnings 67,514 86,686
----------- -----------
Total shareholders' equity 214,540 234,624
----------- -----------
Total Liabilities and Shareholders' Equity $ 346,288 $ 375,367
=========== ===========
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
UNIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31,
-----------------------
2000 2001
---------- ----------
(In thousands except per
share amounts)
Revenues:
Contract drilling $ 21,748 $ 35,500
Oil and natural gas 14,729 34,720
Other 750 223
---------- ----------
Total revenues 37,227 70,443
---------- ----------
Expenses:
Contract drilling:
Operating costs 18,069 22,430
Depreciation and amortization 2,541 3,219
Oil and natural gas:
Operating costs 3,976 6,479
Depreciation, depletion
and amortization 4,172 4,678
General and administrative 1,479 1,803
Interest 1,342 972
---------- ----------
Total expenses 31,579 39,581
---------- ----------
Income Before Income Taxes 5,648 30,862
---------- ----------
Income Tax Expense:
Current 32 4,397
Deferred 2,038 7,293
---------- ----------
Total income taxes 2,070 11,690
---------- ----------
Net Income $ 3,578 $ 19,172
========== ==========
Net Income Per Common Share:
Basic $ 0.10 $ .53
========== ==========
Diluted $ 0.10 $ .53
========== ==========
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
UNIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
----------------------
2000 2001
---------- ----------
(In thousands)
Cash Flows From Operating Activities:
Net income $ 3,578 $ 19,172
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation, depletion, 6,804 8,061
and amortization
Deferred tax expense 2,038 7,293
Other (183) 632
Changes in operating assets and
liabilities increasing
(decreasing) cash:
Accounts receivable (855) (10,660)
Accounts payable 1,774 (1,008)
Other - net (510) 2,813
---------- ----------
Net cash provided by
operating activities 12,646 26,303
---------- ----------
Cash Flows From (Used In) Investing
Activities:
Capital expenditures (8,507) (24,320)
Proceeds from disposition of assets 1,142 320
Other-net (160) (220)
---------- ----------
Net cash used in
investing activities (7,525) (24,220)
---------- ----------
Cash Flows From (Used In) Financing
Activities:
Net borrowings (payments) under
line of credit (4,239) (5,400)
Net payments of notes payable
and other long-term debt (308) -
Proceeds from stock 86 255
Book overdrafts (2,508) 2,624
---------- ----------
Net cash used in financing
activities (6,969) (2,521)
---------- ----------
Net Decrease in Cash and Cash Equivalents (1,848) (438)
Cash and Cash Equivalents, Beginning
of Year 2,647 726
---------- ----------
Cash and Cash Equivalents, End of Period $ 799 $ 288
========== ==========
The accompanying notes are an integral part of the
consolidated condensed financial statements.
4
UNIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PREPARATION AND PRESENTATION
- ----------------------------------------------
The accompanying unaudited consolidated condensed financial statements
include the accounts of the Company and its wholly owned subsidiaries and have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. As applicable under these regulations, certain information
and footnote disclosures have been condensed or omitted and the consolidated
condensed financial statements do not include all disclosures required by
generally accepted accounting principles. In the opinion of the Company, the
unaudited consolidated condensed financial statements contain all adjustments
necessary (all adjustments are of a normal recurring nature) to present fairly
the interim financial information.
Results for the three months ended March 31, 2001 are not necessarily
indicative of the results to be realized during the full year. The condensed
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 2000. Our independent
accountants have performed a review of these interim financial statements in
accordance with standards established by the American Institute of Certified
Public Accountants. Pursuant to Rule 436(c) under the Securities Act of 1933,
their report of that review should not be considered as part of any registration
statements prepared or certified by them within the meaning of Section 7 and 11
on that Act.
5
NOTE 2 - EARNINGS PER SHARE
- ---------------------------
The following data shows the amounts used in computing earnings
(loss) per share for the Company.
WEIGHTED
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ----------
For the Three Months Ended
March 31, 2000:
Basic earnings
per common share $ 3,578,000 35,689,000 $ 0.10
==========
Effect of dilutive
stock options - 336,000
------------- -------------
Diluted earnings
per common share $ 3,578,000 36,025,000 $ 0.10
============= ============= ==========
For the Three Months Ended
March 31, 2001:
Basic earnings per
common share $ 19,172,000 35,912,000 $ 0.53
==========
Effect of dilutive
stock options - 398,000
------------- -------------
Diluted earnings per
common share $ 19,172,000 36,310,000 $ 0.53
============= ============= ==========
All options granted were included in the computation of diluted earnings
per share for the three months ended March 31, 2001. The following options and
their average exercise prices were not included in the computation of diluted
earnings per share for the three months ended March 31, 2000 because the option
exercise prices were greater than the average market price of common shares:
2000
----------
Options 149,000
==========
Average exercise price $ 8.85
==========
6
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
- --------------------------------------
On January 1, 2001, Unit Corporation adopted Statement of Financial
Accounting Standard No. 133 (subsequently amended by Financial Accounting
Standard No.'s 137 and 138), Accounting for Derivative Instruments and Hedging
Activities ("FAS 133"). This statement requires all derivatives to be
recognized on the balance sheet and measured at fair value. If a derivative is
designated as a cash flow hedge, the Company is required to measure the
effectiveness of the hedge, or the degree that the gain (loss) for the hedging
instrument offsets the loss (gain) on the hedged item, at each reporting period.
The effective portion of the gain or loss on the derivative instrument is
recognized in other comprehensive income as a component of equity and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. The ineffective portion of a derivative's change in fair value is
required to be recognized in earnings immediately. Derivatives that do not
qualify for hedge treatment under FAS 133 must be recorded at fair value with
gains or losses recognized in earnings in the period of change. Unit Corporation
and its subsidiaries periodically enter into derivative commodity instruments to
hedge its exposure to price fluctuations on oil and natural gas production.
Such instruments include regulated natural gas and crude oil futures contracts
traded on the New York Mercantile Exchange (NYMEX) and over-the-counter swaps
and basic hedges with major energy derivative product specialists. At March 31,
2001, the Company was not holding any oil and natural gas derivatives which
qualify as cash flow hedges under FAS 133.
In the first quarter of 2000, we entered into swap transactions in an
effort to lock in a portion of our oil production at the higher oil prices which
currently existed. These transactions applied to approximately 50 percent of our
daily oil production covering the period from April 1, 2000 to July 31, 2000 and
25 percent of our daily oil production for August and September of 2000, at
prices ranging from $24.42 to $27.01. We also entered into a collar contract
for approximately 25 percent of our daily oil production for the period covering
November 1, 2000 to February 28, 2001. The collar had a floor of $26.00 and a
ceiling of $33.00 and we received $0.86 per barrel for entering into the collar
transaction. During the first quarter of 2001, the sum of these hedging
transactions yielded a increase in our oil revenues of $17,200.
7
NOTE 4 - INDUSTRY SEGMENT INFORMATION
- -------------------------------------
The Company has two business segments: Contract Drilling and Oil and
Natural Gas, representing its two strategic business units offering different
products and services. The Contract Drilling segment provides land contract
drilling of oil and natural gas wells and the Oil and Natural Gas segment is
engaged in the development, acquisition and production of oil and natural gas
properties. The Company evaluates the performance of its operating segments
based on operating income, which is defined as operating revenues less operating
expenses and depreciation, depletion and amortization. The Company has natural
gas production in Canada which is not significant. Information regarding the
Company's operations by industry segment for the three months ended March 31,
2000 and 2001 is as follows:
2000 2001
---------- ----------
(In thousands)
Revenues:
Contract drilling $ 21,748 $ 35,500
Oil and natural gas 14,729 34,720
Other 750 223
---------- ----------
Total revenues $ 37,227 $ 70,443
========== ==========
Operating Income (1):
Contract drilling $ 1,138 $ 9,851
Oil and natural gas 6,581 23,563
---------- ----------
Total operating income 7,719 33,414
General and administrative expense (1,479) (1,803)
Interest expense (1,342) (972)
Other income - net 750 223
---------- ----------
Income before income taxes $ 5,648 $ 30,862
========== ==========
(1) Operating income is total operating revenues less operating expenses,
depreciation, depletion and amortization and does not include non-operating
revenues, general corporate expenses, interest expense or income taxes.
8
REPORT OF REVIEW BY INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Unit Corporation
We have reviewed the accompanying consolidated condensed balance sheet of Unit
Corporation and subsidiaries as of March 31, 2001, and the related consolidated
condensed statements of operations and cash flows for the three month periods
ended March 31, 2001 and 2000. 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 review 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 on 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 accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 2000, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the year then ended (not presented herein); and in our report, dated
February 7, 2001, 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, 2000, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
PricewaterhouseCoopers L L P
Tulsa, Oklahoma
April 24, 2001
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ---------------------------------------------------------------------------
FINANCIAL CONDITION
- -------------------
Our bank loan agreement provides for a total loan facility of $100 million.
Each year on April 1 and October 1 our banks redetermine our available borrowing
value. This value is primarily determined by an amount equal to a percentage of
the discounted future value of our oil and natural gas reserves, as determined
by the banks. In addition, an amount representing a part of the value of our
drilling rig fleet, limited to $20 million, is added to the borrowing value. Our
loan agreement provides for a revolving credit facility, which terminates on May
1, 2002 followed by a three-year term loan. At March 31, 2001 and April 24,
2001, borrowings under our loan agreement totaled $47.6 million and $43.0
million, respectively. The latest borrowing value computation determined the
full amount of the loan facility could be available to us, however, in order to
reduce cost, we elected to set the borrowing value at $70 million for the
current borrowing value period. We are charged a facility fee of .375 of 1
percent on any unused portion of the available borrowing value.
The interest rate on our bank debt was 6.35 percent at March 31, 2001
and 6.17 percent at April 24, 2001. At our election, any portion of our
outstanding bank debt may be fixed at the London Interbank Offered Rate ("Libor
Rate"), as adjusted depending on the level of our debt as a percentage of the
available borrowing value. The Libor Rate may be fixed for periods of up to 30,
60, 90 or 180 days with the remainder of our bank debt being subject to the
Chase Manhattan Bank, N. A. prime rate. During any Libor Rate funding period,
we may not pay any part of the outstanding principal balance which is subject to
the Libor Rate. Borrowings subject to the Libor Rate were $43.0 million at
March 31, 2001 and April 24, 2001.
Our shareholders' equity at March 31, 2001 was $234.6 million giving
us a ratio of long-term debt-to-total capitalization of 17 percent. Our
primary source of funds consists of the cash flow from our operating activities
and borrowings under our bank loan agreement. Net cash provided by our
operating activities in the first quarter of 2001 was $26.3 million compared to
$12.6 million in 2000. We had working capital of $18.1 million at March 31,
2001. Our first quarter 2001 capital expenditures were $25.6 million ($1.3
million net in accounts payable) of which $11.5 million was spent on our oil and
natural gas operations and $14.1 million on our contract drilling operations.
Our oil and natural gas operations completed 29 wells in the first quarter
of 2001. If oil and natural gas prices remain favorable, we anticipate that we
will participate in the drilling of approximately 130 total wells during 2001
and spend approximately $65 million drilling or buying oil and natural gas
properties during the year.
In January 2001, we purchased a 1,000 horse power diesel electric rig with
a 16,000 foot depth capacity for $3.2 million. This new rig is working in the
Gulf Coast region. In February 2001, we purchased a 1,000 horse power
10
mechanical rig, also with a 16,000 foot depth capacity, for $2.5 million. This
rig will be moved from Alaska to the Rocky Mountain region in the second quarter
of 2001. The addition of these two rigs brings our fleet to 52 rigs. We
anticipate that we will have capital expenditures of approximately $35 million
this year for new drilling rigs, additional drilling rig components and
refurbishments to existing rigs.
Most of our capital expenditures are discretionary and directed toward
increasing oil and natural gas reserves and future growth. Current operations
do not depend on our ability to obtain funds outside of our loan agreement.
Future decisions to acquire or drill on oil and natural gas properties will
depend on prevailing or anticipated market conditions, potential return on
investment, future drilling potential and the availability of financing, thus
providing us with a large degree of flexibility in determining when and if to
incur such costs.
The prices we received for the sale of our natural gas in the first quarter
of 2001 increased 177 percent above the prices we received during the first
quarter of 2000. Average oil prices we received over the same periods increased
1 percent. For the first quarter of 2001, the average natural gas price we
received was $6.59 per Mcf and the average oil price we received was $27.11 per
barrel. Natural gas prices are influenced by weather conditions and supply
imbalances, particularly in the domestic market, and by world wide oil price
levels. Domestic oil price levels continue to be primarily influenced by world
market developments. Since natural gas comprises approximately 90 percent of
our total oil and natural gas reserves, large drops in spot market natural gas
prices have a significant adverse effect on the value of our oil and natural gas
reserves and price declines could cause us to reduce the carrying value of our
oil and natural gas properties. Any price decreases, if sustained, would also
adversely affect our future cash flow by reducing our oil and natural gas
revenues and, if continued over an extended period, could lessen not only
the demand for our contract drilling rigs but also the rate we would receive.
Any declines in natural gas and oil prices could also adversely affect the semi-
annual determination of the borrowing value under our bank loan agreement since
this determination is based on the value of our oil and natural gas reserves and
our drilling rigs. Such a reduction would reduce the amount available to us
under our loan agreement which, in turn, would affect our ability to carry out
our capital projects.
To reduce the impact of price fluctuations, we periodically use hedging
strategies to hedge the price we will receive for a portion of our future oil
and natural gas production. We entered into a collar contract for approximately
25 percent of our daily oil production for the period covering November 1, 2000
to February 28, 2001. The collar had a floor of $26.00 per barrel and a ceiling
of $33.00 per barrel and we received $0.86 per barrel for entering into the
collar transaction. During the first quarter of 2001, the sum of these hedging
transactions yielded an increase in our oil revenues of $17,200. At March 31,
2001, we were not holding any oil or natural gas hedging contracts. Subsequent
to the end of the first quarter 2001, we entered into a collar contract for
almost 40 percent of our daily natural gas production for the period covering
May 1, 2001 to June 30, 2001. The collar has a floor of $4.50 per Mcf and a
ceiling of $5.95 per Mcf.
11
Generally, during the past 17 years, our contract drilling operations
have encountered significant competition. Starting in the last half of 1999
and continuing through the first quarter of 2001, we experienced significant
improvement in rig utilization and dayrates. Despite the recent improvement in
rig demand, we still anticipate that competition within our industry will, for
the foreseeable future, continue to influence the use of our drilling rigs. In
addition to competition, our ability to use our drilling rigs at any given time
depends on a number of other factors, including the price of both oil and
natural gas, the availability of labor and our ability to supply the type of
equipment required.
Although we have not encountered material difficulty in hiring and
retaining qualified rig crews, such shortages have in the past occurred in the
industry. We may experience shortages of qualified personnel to operate our
rigs, which would limit our ability to increase the number of our rigs working
and could have an adverse effect on our financial condition and results of
operations.
SAFE HARBOR STATEMENT
- ---------------------
Statements in this document as well as information contained in written
material, press releases and oral statements issued by or on behalf of us
contain, or may contain, certain "forward-looking statements" within the meaning
of federal securities laws. All statements, other than statements of historical
facts, included in this document which address activities, events or
developments which we expect or anticipate will or may occur in the future are
forward-looking statements. The words "believes," "intends," "expects,"
"anticipates," "projects," "estimates," "predicts" and similar expressions are
also intended to identify forward-looking statements. These forward-looking
statements include, among others, such things as:
. the amount and nature of future capital expenditures;
. wells to be drilled or reworked;
. oil and natural gas prices to be received and demand for oil and
natural gas;
. exploitation and exploration prospects;
. estimates of proved oil and natural gas reserves;
. reserve potential;
. development and infill drilling potential;
. drilling prospects;
. expansion and other development trends of the oil and natural gas
industry;
. our business strategy;
. production of our oil and natural gas reserves;
. expansion and growth of our business and operations;
. availability of drilling rigs and rig related equipment;
. drilling rig utilization, revenues and costs; and
. availability of qualified labor.
12
These statements are based on certain assumptions and analyses made by
us in light of our experience and our perception of historical trends, current
conditions and expected future developments as well as other factors we believe
are appropriate in the circumstances. However, whether actual results and
developments will conform to our expectations and predictions is subject to a
number of risks and uncertainties which could cause actual results to differ
materially from our expectations, including:
. the risk factors discussed in this document;
. general economic, market or business conditions;
. the nature or lack of business opportunities that may be presented to
and pursued by us;
. demand for land drilling services;
. changes in laws or regulations; and
. other factors, most of which are beyond our control.
A more thorough discussion of forward-looking statements with the possible
impact of some of these risks and uncertainties is provided in our Annual Report
on Form 10-K filed with the Securities and Exchange Commission. We encourage you
to obtain and read that document.
RESULTS OF OPERATIONS
- ---------------------
Our net income for the first three months of 2001 was $19,172,000, compared
with net income of $3,578,000 in 2000. Higher natural gas and oil prices and
production volumes along with increases in the use of our drilling rigs and the
rates we received for the drilling rigs all contributed to the increase in our
net income.
Our revenue from the sale of our oil and natural gas increased 136 percent
in the first quarter of 2001 compared to the first quarter of 2000 due to a 177
percent and 1 percent increase in the average prices we received for natural gas
and oil, respectively. Natural gas production also increased 5 percent and oil
production increased 8 percent when compared to the first quarter of 2000.
Production increases from both our oil and natural gas were due to the
acceleration of our development drilling program as a result of rising prices in
the last half of 1999 and throughout 2000.
In the first three months of 2001, revenues from our contract drilling
operations increased by 63 percent as the average number of drilling rigs being
used increased from 34.8 in the first quarter of 2000 to 45.9 in 2001. The
increase in our rig utilization was provided by increased operator demand for
contract drilling rigs within our operating area resulting from a substantial
increase in natural gas prices. Revenues per rig per day increased 26 percent in
the first quarter of 2001 as compared to the same period in 2000. Dayrates on
our daywork contracts averaged 38 percent higher in the first quarter of 2001
when compared with the first quarter of 2000 and at March 31, 2001, all of our
drilling rigs being utilized were under daywork contracts.
13
Operating margins (revenues less operating costs) for our oil and natural
gas operations were 81 percent in the first three months of 2001 compared to 73
percent for the same period in 2000. This increase resulted primarily from the
increase in the average oil and natural gas prices we received. Total operating
costs increased 63 percent due to increases in the net number of wells owned.
Our contract drilling operating margins increased from 17 percent in the
first quarter of 2000 to 37 percent in the first quarter of 2001. This increase
was primarily due to increased revenue per rig per day and to a lesser extent
from the increase in rig utilization. Total contract drilling operating costs
were up 24 percent in 2001 versus 2000 due to increased utilization.
Depreciation, depletion and amortization ("DD&A") of our oil and natural
gas properties increased 12 percent as natural gas and oil production increased
and our average DD&A rate per Mcfe increased to $5.16 in the first quarter of
2001, 7 percent higher than our first quarter 2000 DD&A rate. Contract drilling
depreciation increased 27 percent due to the impact of higher depreciation per
operating day on new rigs acquired and constructed and the increase in rig
utilization.
General and administrative expenses increased 22 percent while interest
expense decreased 28 percent between the comparative periods. The average
interest rate on all long-term debt decreased from 7.63 percent in the first
three months of 2000 to 7.13 percent in the first three months of 2001 while our
average outstanding debt decrease by 22 percent.
On May 3, 1999, our contract drilling offices in Moore, Oklahoma were
struck by a tornado destroying two buildings and damaging various vehicles and
drilling equipment. During the first quarter of 2000, we received the final
insurance proceeds totaling $987,000 for the contents of the buildings
destroyed, damaged equipment and clean up costs. As a result, we recognized a
gain of $599,000 recorded as part of other revenues in the first quarter of
2000.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable
Item 5. Other Information
- --------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
15 Letter re: Unaudited Interim Financial Information.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 2001.
15
SIGNATURES
Pursuant to the requirements 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.
UNIT CORPORATION
Date: May 1, 2001 By: /s/ John G. Nikkel
--------------------------- ------------------------------
JOHN G. NIKKEL
President, Chief Operating
Officer and Director
Date: May 1, 2001 By: /s/ Larry D. Pinkston
--------------------------- ------------------------------
LARRY D. PINKSTON
Vice President, Chief
Financial Officer
and Treasurer
16