Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 1-9260
UNIT CORPORATION
(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 20,879,649
Class Outstanding at August 1, 1995
UNIT CORPORATION
INDEX
Page
PART I. Financial Information: Number
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
June 30, 1995 and December 31, 1994 2
Consolidated Condensed Statements of Operations
Three and Six Months
Ended June 30, 1995 and 1994 3
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994 4
Notes to Consolidated Condensed Financial Statements 5
Report of Review by Independent Accountants 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information:
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of
Security Holders 13
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
1
Item 1. Financial Statements
UNIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
1994 1995
---------- ----------
(Unaudited)
ASSETS (In thousands)
- ------
Current Assets:
Cash and cash equivalents $ 2,862 $ 2,749
Accounts receivable 8,007 16,369
Other 2,607 2,720
---------- ----------
Total current assets 13,476 21,838
---------- ----------
Property and Equipment:
Total cost 251,129 244,405
Less accumulated depreciation, depletion,
amortization and impairment 159,437 153,862
---------- ----------
Net property and equipment 91,692 90,543
---------- ----------
Other Assets 152 40
---------- ----------
Total Assets $ 105,320 $ 112,421
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current portion of long-term debt $ 53 $ 496
Current portion of natural gas purchaser
prepayments (Note 2) 1,315 1,580
Accounts payable 5,403 14,593
Accrued liabilities 3,728 3,172
---------- ----------
Total current liabilities 10,499 19,841
---------- ----------
Natural Gas Purchaser Prepayments (Note 2) 1,703 2,149
---------- ----------
Long-Term Debt 39,600 37,824
Sharholders' Equity: ---------- ----------
Preferred stock, $1.00 par value, 5,000,000
shares authorized, none issued - -
Common stock $.20 par value, 40,000,000
shares authorized, 20,948,090 and
20,910,190 shares issued, respectively 4,188 4,182
Capital in excess of par value 50,122 50,086
Accumulated deficit (604) (1,581)
Treasury stock, at cost, 68,441 and
25,100 shares, respectively (188) (80)
---------- ----------
Total shareholders' equity 53,518 52,607
---------- ----------
Total Liabilities and Shareholders' Equity $ 105,320 $ 112,421
========== ==========
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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
--------- --------- --------- ---------
(In thousands except per share amounts)
Revenues:
Contract drilling $ 3,746 $ 4,017 $ 8,071 $ 8,117
Oil and natural gas 7,707 7,050 15,076 13,557
Natural gas marketing
and processing - 8,816 13,566 21,193
Other 49 43 710 64
--------- --------- --------- ---------
Total revenues 11,502 19,926 37,423 42,931
--------- --------- --------- ---------
Expenses:
Contract drilling:
Operating costs 3,910 3,522 7,774 7,309
Depreciation 535 490 1,032 984
Oil and natural gas:
Operating costs 2,690 2,198 5,549 4,287
Depreciation, depletion
and amortization 2,499 2,103 5,098 3,979
Natural gas marketing
and processing - 8,844 13,434 21,186
General and administrative 982 959 1,898 1,839
Interest 783 380 1,575 702
Other - net 78 - 78 -
--------- --------- --------- ---------
Total expenses 11,477 18,496 36,438 40,286
--------- --------- --------- ---------
Income Before Income Taxes 25 1,430 985 2,645
Income Tax Expense 4 5 8 9
--------- --------- --------- ---------
Net Income $ 21 $ 1,425 $ 977 $ 2,636
========= ========= ========= =========
Net Income Per Common Share $ - $ .07 $ .05 $ .13
========= ========= ========= =========
Weighted Average Shares
Outstanding 20,871 20,909 20,878 20,901
(Both primary and ========= ========= ========= =========
fully diluted)
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)
Six Months Ended
June 30,
1995 1994
---------- ----------
(In thousands)
Cash Flows From Operating Activities:
Net income $ 977 $ 2,636
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 6,298 5,194
Other-net (499) 62
Changes in operating assets and liabilities
increasing (decreasing) cash:
Accounts receivable 8,362 1,318
Accounts payable (9,643) (3,814)
Natural gas purchaser
prepayments (Note 2) (711) (1,256)
Other-net 669 327
---------- ----------
Net cash provided by
operating activities 5,453 4,467
---------- ----------
Cash Flows From (Used In) Investing Activities:
Capital expenditures (10,415) (5,942)
Proceeds from disposition of assets 4,084 392
Other-net (112) (14)
---------- ----------
Net cash used in investing activities (6,443) (5,564)
---------- ----------
Cash Flows From (Used In) Financing Activities:
Net borrowings (payments) under line of credit 2,300 (700)
Net payments of notes payable
and long-term debt (967) (238)
Other-net (230) -
---------- ----------
Net cash provided by (used)
in financing activities 1,103 (938)
---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 113 (2,035)
Cash and Cash Equivalents, Beginning of Year 2,749 3,756
---------- ----------
Cash and Cash Equivalents, End of Period $ 2,862 $ 1,721
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the six months ended June 30, for:
Interest $ 1,539 $ 685
Income taxes $ - $ -
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
- ----------------------------------------------
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary (all
adjustments are of a normal recurring nature) to present fairly the financial
position of Unit Corporation as of June 30, 1995 and the results of its
operations for the three and six month periods ended June 30, 1995 and 1994
and cash flows for the six months ended June 30, 1995 and 1994. Results for
the three and six months ended June 30, 1995 are not necessarily indicative of
the results to be realized during the full year. The year end consolidated
condensed balance sheet data was derived from audited financial statements but
does not include all disclosures required by generally accepted accounting
principles. The financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
NOTE 2 - NATURAL GAS PURCHASER PREPAYMENTS
- -------------------------------------------
In March 1988, the Company entered into a settlement agreement with a
natural gas purchaser. During early 1991, the Company and the natural gas
purchaser superseded the original agreement with a new settlement agreement
effective retroactively to January 1, 1991. Under these settlement
agreements, the Company has a prepayment balance of $3.0 million at June 30,
1995 representing proceeds received from the purchaser as prepayment for
natural gas. This amount is net of natural gas recouped and net of certain
amounts disbursed to other owners (such owners, collectively with the Company
are referred to as the "Committed Interest") for their proportionate share of
the prepayments. The June 30, 1995 prepayment balance is subject to
recoupment in volumes of natural gas for a period ending the earlier of
recoupment or December 31, 1997 (the "Recoupment Period"). The prepayment
amounts are being recorded as liabilities and reflected in revenues as
recoupment occurs. The portion of the prepayments that are estimated to be
recouped in the next twelve months has been included in current liabilities.
Additionally, the purchaser is obligated to make monthly payments on behalf of
the Committed Interest in an amount calculated as a percentage of the
Committed Interest's share of the deliverability of the wells subject to the
settlement agreement, up to a maximum of $211,000 or a minimum of $110,000 per
month for the year 1995. Both the maximum and minimum monthly payments
decline annually through the Recoupment Period. At December 31, 1997, the
Committed Interest's prepayment balance, if any, that has not been fully
recouped in natural gas is subject to a cash repayment limited to a maximum of
$3 million to be made in equal payments over a five year period. At the end
of the Recoupment Period, the terms of the settlement agreement and the
natural gas purchase contracts which are subject to the settlement agreement
will terminate. As disclosed in the Company's Form 10-K for the year ended
December 31, 1994 the purchaser of the natural gas had notified the Company of
its intention to assert claims against the Company to recover certain taxes,
interest and penalties it has or may have to pay to the Oklahoma Tax
Commission ("OTC") relating to the prepayments made by the purchaser to the
Company. In July 1995, the Company and the purchaser agreed to make a
nonmaterial payment to the OTC to resolve the OTC's assessments. The Company
and purchaser have each reserved the right to arbitrate the ultimate
liability, as between them, regarding the payment.
5
NOTE 3 - INCOME TAXES
- ---------------------
Income tax expense for the three and six month periods ended June 30,
1995 and 1994 differs from income tax expense computed by applying the statutory
rate due principally to the utilization of the Company's net operating loss
carryforward.
6
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 June 30, 1995, and the related consolidated
condensed statements of operations for the three and six month periods ended
June 30, 1995 and 1994 and cash flows for the six month periods ended June 30,
1995 and 1994. 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 generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Unit Corporation and subsidiaries
at December 31, 1994, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for the year then ended (not
presented herein); and our report dated February 22, 1995 expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated condensed
balance sheet at December 31, 1994, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND L. L. P.
Tulsa, Oklahoma
August 7, 1995
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------
FINANCIAL CONDITION
- ---------------
The Company entered into a new credit agreement (the "Credit Agreement")
on August 3, 1995 providing for a total commitment of $75,000,000. The Credit
Agreement consists of a revolving credit facility through August 31, 1997 and
a term loan thereafter, maturing on August 31, 2001. Borrowings under the
revolving credit facility are limited to a borrowing base which is subject to
a semi-annual redetermination. The latest borrowing base determination as of
August 1, 1995 established that $50 million of the commitment is available to
the Company. At June 30, 1995, borrowings under the Credit Agreement totaled
$39.6 million and the average interest rate paid by the Company in the second
quarter of 1995 had risen to 8.9 percent compared to the average interest rate
of 6.9 percent in the second quarter of 1994. A 1/2 of 1 percent facility fee
is charged for any unused portion of the borrowing base.
The Company's shareholders' equity at June 30, 1995 was $53.5 million
resulting in a ratio of long-term debt-to-equity of .74 to 1. The Company's
primary source of liquidity and capital resources in the near- and long-term
will consist of cash flow from operating activities and available borrowings
under the Credit Agreement. Net cash provided by operating activities for the
first six months of 1995 was $5.5 million as compared to $4.5 million for the
first six months of 1994.
In June 1995, the Company signed a purchase and sale agreement to
acquire oil and natural gas properties for $4.2 million. Subsequently, the
original agreement was amended to provide that the Company would acquire all
of the outstanding stock of a wholly owned subsidiary of the seller into which
the oil and natural gas properties of the seller had been transferred. This
transaction was closed on August 9, 1995. The Company plans to focus on
development drilling for the remainder of 1995. Currently, the Company
anticipates it will spend approximately $6 million during the remainder of
1995 on capital expenditures including oil and natural gas acquisitions.
However, the ultimate amount of such expenditures will be governed by a number
of factors, including future prices for oil and natural gas production. These
expenditures are anticipated to be within the constraints of available cash to
be provided by operating activities and the Company's existing Credit
Agreement. A large portion of the Company's capital expenditures are
discretionary; therefore, current operations should not be adversely affected
by any inability to obtain funds outside of the Company's current credit
agreement.
The Company has 2.873 million common stock warrants outstanding. The
warrants entitle the holders to purchase one share of common stock at a price
of $4.375 per share. The warrants, subject to certain restrictions, are
callable by the Company, in whole or in part, at $.50 per warrant. By a
Second Amendment to the Warrant Agreement between the Company and the Warrant
Agent, dated May 9, 1994, the term of the warrants was extended until August
30, 1996.
The Company continued to receive monthly payments on behalf of itself
and other parties (collectively the "Committed Interest") from a natural gas
8
purchaser pursuant to a settlement agreement, as amended (the "Settlement
Agreement"). As a result of the Settlement Agreement, the June 30, 1995
prepayment balance of $3.0 million paid by the purchaser for natural gas not
taken (the "Prepayment Balance") is subject to recoupment in volumes of
natural gas through a period ending on the earlier of recoupment or December
31, 1997 (the "Recoupment Period"). Additionally, the purchaser is obligated
to make monthly payments on behalf of the Committed Interest based on their
share of the natural gas deliverability of the wells subject to the Settlement
Agreement, up to a maximum of $211,000 or a minimum of $110,000 per month for
the year 1995. Both the maximum and minimum monthly payments decline annually
through the Recoupment Period. If natural gas is taken during a month, the
value of such natural gas is credited toward the monthly amount the purchaser
is required to pay. In the event the purchaser takes volumes of natural gas
valued in excess of its monthly payment obligations, the value taken in excess
is applied to reduce any then outstanding Prepayment Balance. The Company
currently believes that sufficient natural gas deliverability is available to
enable the Committed Interest to receive substantially all of the maximum
monthly payments during 1995. At the end of the Recoupment Period the
Settlement Agreement and the natural gas purchase contracts which are subject
to the Settlement Agreement will terminate. If the Prepayment Balance is not
fully recouped in natural gas by December 31, 1997 then the unrecouped portion
is subject to cash repayment, limited to a maximum of $3 million, payable in
equal annual installments over a five year period. Under the Settlement
Agreement, the purchaser is entitled to make a monthly determination of the
volumes to be purchased from the wells subject to the Settlement Agreement.
During the first and second quarter of 1995, the Company in accordance with
the terms of the Settlement Agreement, elected to deliver natural gas at
approximately 75 percent of the deliverability of the wells subject to the
Settlement Agreement. First and second quarter 1994 deliverability was
approximately 80 percent of the deliverability of the wells subject to the
Settlement Agreement. However, because these month-to-month determinations,
up to certain maximum levels, are made by the purchaser, the Company is unable
to predict with certainty future natural gas sales from these wells. In
addition, future revenues to be received by the Company would be impacted by
the failure of the purchaser to meet its obligations, financially or
otherwise, under the terms of the Settlement Agreement or by the ability of
the wells to maintain certain projected deliverability requirements. In the
event the wells are unable to maintain such deliverability, the monthly
payments to be received by the Company under the Settlement Agreement would be
decreased. The price per Mcf under the Settlement Agreement is substantially
higher than current spot market prices. As disclosed in the Company's Form
10-K for the year ended December 31, 1994 the purchaser of the natural gas had
notified the Company of its intention to assert claims against the Company to
recover certain taxes, interest and penalties it has or may have to pay to the
Oklahoma Tax Commission ("OTC") relating to the prepayments made by the
purchaser to the Company. In July 1995, the Company and the purchaser agreed
to make a nonmaterial payment to the OTC to resolve the OTC's assessments.
The Company and purchaser have each reserved the right to arbitrate the
ultimate liability, as between them, regarding the payment.
Average oil prices received by the Company in the second quarter of 1995
were $1.17 per barrel higher than oil prices received in the second quarter of
1994. Average spot market natural gas prices, however, were $.27 lower per
Mcf than the average spot market natural gas prices received in the same
quarter of 1994. Oil prices within the industry remain largely dependent upon
world market developments for crude oil. Prices for natural gas are
9
influenced by weather conditions and supply imbalances, particularly in the
domestic market, and by world wide oil price levels. Since natural gas
comprises approximately 78 percent of the Company's reserves, large drops in
spot market natural gas prices have a significant adverse effect on the value
of the Company's reserves. Such decreases also adversely effect the Company's
revenues and cash flow. Likewise, declines in natural gas or oil prices could
adversely effect the semi-annual borrowing base determination under the
Company's Credit Agreement since this determination is, for the most part,
calculated on the value of the Company's oil and natural gas reserves.
The Company's ability to utilize its full complement of drilling rigs,
should economic conditions improve in the future, will be restricted due to
the lack of qualified labor and certain supporting equipment not only within
the Company but in the industry as a whole. The Company's ability to utilize
its drilling rigs at any given time is dependent on a number of factors,
including but not limited to, the price of both oil and natural gas, the
availability of labor and the Company's ability to supply the type of
equipment required. The Company's management expects that these factors will
continue to influence the Company's rig utilization throughout 1995 and into
1996.
In the third quarter of 1994, the Company's Board of Directors
authorized the Company to purchase up to 1,000,000 shares of the Company's
outstanding common stock on the open market. Since that time, 115,100 shares
were repurchased at prices ranging from $2 1/2 to $3 3/8 per share. During the
first quarter of 1995, 46,659 of the purchased shares were reissued as the
Company's matching contribution to its 401(K) Employee Thrift Plan. At June
30, 1995, 68,441 treasury shares were held by the Company.
RESULTS OF OPERATIONS
- ---------------------
Second Quarter 1995 versus Second Quarter 1994
- ----------------------------------------------
The Company reported net income of $21,000 in the second quarter of 1995
as compared to net income of $1,425,000 for the second quarter of 1994. While
the Company continued to increase natural gas production, substantially lower
natural gas prices along with decreased drilling profit margins and increased
interest expense when compared with the same period in 1994 all contributed to
the reduction in net income.
Oil and natural gas revenues increased 9 percent in the second quarter
of 1995 as compared to the second quarter of 1994. As a result of the
Company's producing property acquisitions and development drilling program,
oil and natural gas production increased by 35 and 17 percent, respectively,
between the two quarters. Average oil prices received by the Company
increased 7 percent during the quarter while the average natural gas prices
dropped by 16 percent. The reduction in natural gas prices was caused by both
a $.27 drop in average spot market prices as well as a decline in production
from wells covered by the Settlement Agreement, which provides for prices
higher than current spot market prices, as discussed above. The impact of the
higher price received under the Settlement Agreement increased pre-tax income
by approximately $380,000 and $450,000 in the second quarters of 1995 and
1994, respectively.
10
Oil and natural gas operating margins (revenues less operating costs)
declined from 69 percent in the second quarter of 1994 to 65 percent in the
second quarter of 1995. Total operating costs increased 22 percent due to the
additional costs associated with producing properties acquired in December of
1994. Depreciation, depletion and amortization ("DD&A") increased 19 percent
due to increased production between the comparative quarters. The Company's
average DD&A rate for the second quarter of 1995 was $3.95 compared with $4.02
in the second quarter of 1994.
Contract drilling revenues decreased 7 percent for the comparative
quarters due to decreased rig utilization. Rig utilization averaged 9.2 rigs
in the second quarter of 1994 and averaged 8.8 rigs in the second quarter of
1995. Lower utilization was partially offset by increased revenue received
per day from three rigs which the Company moved to South Texas after the
second quarter of 1994.
Contract drilling operating margins (revenues less operating costs) were
a negative 4 percent in the second quarter of 1995 as compared to 12 percent
in the second quarter of 1994. The Company's rigs in South Texas, while
providing higher day rates, also experienced higher expenses per day as both
that region and the drilling industry as a whole experienced increased service
and maintenance costs due, in part, to a decrease in the availability of these
services. Contract drilling operations also experienced unusually wet weather
during the second quarter delaying rig moves and depressing rig utilization.
The Company's ability to utilize its drilling rigs and maintain positive
drilling profit margins at any given time will be dependent on a number of
factors, including but not limited to, the price of both oil and natural gas,
the availability of the Company's rigs in the area of the proposed wells,
competition from other drilling contractors, the availability of labor and
drilling supplies at competitive prices and the Company's ability to supply
the equipment required. The Company's management expects that these factors
will continue to influence the Company's rig utilization during the remainder
of 1995 and into 1996.
The Company's natural gas marketing and processing operations did not
achieved the size necessary to reach desired levels of profitability while
achieving substantial growth in revenues in recent years. Consequently, the
Company, effective April 1, 1995, completed a business combination between the
Company's natural gas marketing operations and a third party also involved in
natural gas marketing activities forming a new company called GED Gas
Services, L.L.C. ("GED"). The Company owns a 34 percent interest in GED. The
combination does not adversely affect the operations of the Company's drilling
and oil and natural gas exploration segments or the profitability of the
Company as a whole, although it has resulted in a significant reduction in the
Company's total revenues and associated costs. During the second quarter of
1995, the Company recorded as "Other," net $78,000 of expenses, which includes
$24,000 of equity in earnings of GED, $17,000 of revenues and $119,000 of
costs related to its natural gas marketing and processing operations. For the
year ended December 31, 1994, revenues and costs associated with the Company's
natural gas marketing operations were $43.7 million and $43.6 million,
respectively.
Interest expense increased 106 percent due to increases in the average
interest rate from 6.9 percent in the second quarter of 1994 compared to 8.9
percent in the second quarter of 1995 combined with a 73 percent increase in
11
average long-term bank debt between the comparative quarters due, in large
part, to borrowings associated with the Company's producing property
acquisitions completed in December 1994 and January 1995.
Six Months 1995 versus Six Months 1994
- --------------------------------------
Net income for the first six months of 1995 was $977,000 as compared to
$2,636,000 for the first six months of 1994. Lower natural gas prices and rig
utilization rates and increased interest expense primarily caused the
reduction in net income between the periods.
Oil and natural gas revenues increased 11 percent in the first six
months of 1995 as compared to the first six months of 1994. As a result of
the Company's producing property acquisitions and development drilling
program, oil and natural gas production increased by 40 and 28 percent,
respectively, between the comparative periods. Average oil prices received by
the Company increased 16 percent during the first six months while the average
natural gas prices dropped by 24 percent. The reduction in natural gas prices
was caused by both a $.42 drop in average spot market prices as well as a
decline in production from wells covered by the Settlement Agreement, which
provides for prices higher than current spot market prices, as discussed
above. The impact of the higher price received under the Settlement Agreement
increased pre-tax income by approximately $750,000 and $870,000 in the first
six months of 1995 and 1994, respectively.
Oil and natural gas operating margins (revenues less operating costs)
declined from 68 percent in the first six months of 1994 to 63 percent in the
first six months of 1995. Total operating costs increased 29 percent due to
the additional costs associated with producing properties acquired in December
of 1994 and to a lesser extent from increased workover activity in the first
quarter of 1995 related to these properties. Margins were also reduced due to
the shutting in of production on certain natural gas properties in the months
of February and March due to low spot market natural gas prices. Depreciation,
depletion and amortization ("DD&A") increased 28 percent due to increased
production between the comparative periods. The Company's average DD&A rate
for the first six months of 1995 was $3.97 compared with $4.03 in the first
six months of 1994.
Contract drilling revenues decreased 1 percent for the comparative six
month periods as rig utilization decreased from an average of 9.3 rigs
operating in the first six months of 1994 to 9.0 rigs in the first six months
of 1995. Lower utilization was partially offset by increased revenue received
per day from the three rigs which were moved to South Texas after the second
quarter of 1994.
Contract drilling operating margins (revenue less operating costs) were
4 percent in the first six months of 1995 as compared to 10 percent in the
first six months of 1994. The rigs in South Texas, while providing higher day
rates, also experience higher expenses per day. This coupled with initial
start up costs limited improvements in operating margins in the first six
months of 1995.
As mentioned above, effective April 1, 1995, the Company completed a
business combination between the Company's marketing operations and a third
party also involved in natural gas marketing activities forming a new company
12
called GED Gas Services, L.L.C. Although this combination will not have a
significant impact on net income it will significantly reduce the Company's
total revenues and associated costs from gas marketing.
Interest expense increased 124 percent due to increases in the average
interest rate from 6.5 percent in the first six months of 1994 compared to 8.9
percent in the first six months of 1995 combined with a 72 percent increase in
average long-term bank debt outstanding during the comparative periods due to
producing property acquisitions in December 1994 and January 1995.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ----------------------------
As disclosed in the Company's Form 10-K for the year ended December
31, 1994 the purchaser of the natural gas had notified the Company of
its intention to assert claims against the Company to recover certain
taxes, interest and penalties it has or may have to pay to the
Oklahoma Tax Commission ("OTC") relating to the prepayments made by
the purchaser to the Company. In July 1995, the Company and the
purchaser agreed to make a nonmaterial payment to the OTC to resolve
the OTC's assessments. The Company and purchaser have each reserved
the right to arbitrate the ultimate liability, as between them,
regarding the payment.
Item 2. Changes in Securities
- ------------------------------
As of May 19, 1995 the Company declared a dividend of one Preferred
Stock Purchase Right for each outstanding share of Common Stock of
the Company. The Rights were issued to the holders of record of the
Common Stock outstanding on May 31, 1995. Each Right, when it
becomes exercisable, will entitle the registered holder to purchase
from the Company one one-hundredth (1/100th) of a share of Series A
Participating Cumulative Preferred Stock, par value $1.00 per share,
of the Company. The description and terms of the Rights are set forth
in the Rights Agreement dated as of May 19, 1995 between the Company
and Chemical Bank, as Rights Agent.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
On May 3, 1995 the Company held its Annual Meeting of
Stockholders. At the meeting the following matters were voted on
each receiving the votes indicated:
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I. Election of Nominees Earle Lamborn, William B. Morgan and
John H. Williams to serve as directors.
Numbers of Against or
Nominee Votes For Withheld
-------------- ----------- ----------
Earle Lamborn 15,146,875 1,450,785
William B. Morgan 15,148,089 1,449,571
John H. Williams 15,123,615 1,474,045
The following directors, whose term of office did not expire
at this annual meeting, continue as directors of the
Company: King P. Kirchner, Don Cook, Don Bodard, John G.
Nikkel and John S. Zink.
II. Ratification of the appointment of Coopers & Lybrand as the
Company's independent certified public accountants for the
fiscal year 1995.
For - 16,431,622
Against - 87,379
Abstain - 78,659
III. Amendments to the Company's Employee Stock option plan to
increase by 500,000 shares the aggregate number of shares of
common stock that could be issued under options granted
pursuant to the plan and to extend the plan until May 30,
2000, and, as so amended, to adopt and ratify the plan.
For - 13,334,938
Against - 2,810,198
Abstain - 764,324
IV. Amendment to the Company's Stock Bonus Plan to increase by
250,000 shares the aggregate number of shares of common
stock that could be issued under the plan and, as so
amended, to adopt and ratify the plan.
For - 13,779,384
Against - 2,353,865
Abstain - 176,211
Item 5. Other Information
- --------------------------
Not applicable
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Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
4.2.6 Rights Agreement dated as of May 19, 1995 between the
Company and Chemical Bank, as Rights Agent, filed as
Exhibit 1 to the Company's Form 8-A, filed May 23,
1995, File No. 1-92601 and incorporated herein by
reference.
10.1.20 Loan Agreement dated August 3, 1995.
15 Letter re: Unaudited Interim Financial Information
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
ended June 30, 1995.
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: August 9, 1995 By: /s/ John G. Nikkel
--------------------------- ------------------------
JOHN G. NIKKEL
President, Chief Operating
Officer and Director
Date: August 9, 1995 By: /s/ Larry D. Pinkston
--------------------------- ------------------------
LARRY D. PINKSTON
Vice President, Chief
Financial Officer
and Treasurer
16