United States
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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-61547
CONTINENTAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma
73-0767549
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
302 N. Independence, Suite 300,
Enid, Oklahoma
73701
(Address of principal executive offices)
(Zip Code)
(580) 233-8955
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if
change 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 report(s), 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:
Class Outstanding as of March 12, 2000
Common Stock, $1.00 par value 49,041
TABLE OF CONTENTS
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.10
PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . .10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . .11
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
ASSETS
(Unaudited)
December 31, March 31,
1999 2000
------------ -----------
CURRENT ASSETS:
Cash $ 10,421 $ 10,221
Accounts receivable-
Oil and gas sales. . . . . . . 11,508 14,869
Joint interest and other, net. 8,517 6,044
Inventories . . . . . . . . . . . 4,112 4,966
Prepaid expenses. . . . . . . . . 1,690 1,430
---------- ----------
Total current assets . . . . 36,248 37,530
---------- ----------
PROPERTY AND EQUIPMENT:
Oil and gas properties
Producing properties . . . . . 293,467 291,988
Nonproducing leaseholds . . . 43,083 43,412
Gas gathering and processing facilities 25,740 23,909
Service properties, equipment and other 14,884 16,895
---------- ----------
Total property and equipment 377,174 376,204
Less--Accumulated depreciation,
depletion and amortization. (138,872) (139,387)
---------- ----------
Net property and equipment. 238,302 236,817
---------- ----------
OTHER ASSETS:
Debt issuance costs . . . . . . . 7,847 7,574
Other assets . . . . . . . . . . . 162 76
---------- ----------
Total other assets . . . . 8,009 7,650
---------- ----------
Total assets . . . . . . . $ 282,559 $ 281,997
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . $ 8,448 $ 9,202
Current portion of long-term debt. 356 14
Revenues and royalties payable . . 6,865 6,386
Accrued liabilities and other. . . 9,776 6,246
---------- ----------
Total current liabilities 25,445 21,848
---------- ----------
LONG-TERM DEBT, net of current portion 170,281 158,000
OTHER NONCURRENT LIABILITIES . . . . 167 167
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 75,000 shares
authorized, 49,041 shares issued and
outstanding . . . . . . . . . . . 49 49
Additional paid-in-capital . . . . 25,182 25,182
Retained earnings. . . . . . . . . 61,435 76,751
---------- ----------
Total stockholders' equity 86,666 101,982
---------- ----------
Total liabilities and stockholders'
equity. . . . . . . . . . . $ 282,559 $ 281,997
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Three Months Ended March 31,
----------------------------
1999 2000
---- ----
REVENUES:
Oil and gas sales . . . . . . . $ 10,113 $ 27,828
Crude oil marketing. . . . . . . 90,139 61,805
Gathering, marketing and processing 3,436 6,904
Oil and gas service operations . 1,343 2,063
---------- ----------
Total revenues. . . . . . . . 105,031 98,600
---------- ----------
OPERATING COSTS AND EXPENSES:
Production expenses . . . . . . . 2,891 4,779
Production taxes. . . . . . . . . 543 2,144
Exploration expenses. . . . . . . 1,356 993
Crude oil marketing purchases . . 86,642 60,709
Crude oil marketing expenses. . . - 39
Gathering, marketing and processing 2,743 5,304
Oil and gas service operations. . 343 1,183
Depreciation, depletion and amortization 5,443 5,551
General and administrative. . . . 2,032 2,132
---------- ----------
Total operating costs and expenses 101,993 82,834
---------- ----------
OPERATING INCOME . . . . . . . . . 3,038 15,766
---------- ----------
OTHER INCOME AND EXPENSES
Interest income . . . . . . . . . 86 159
Interest expense. . . . . . . . . (4,104) (4,083)
Other income (expense), net . . . 8 3,474
---------- ----------
Total other income and (expenses) (4,010) (450)
---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (972) 15,316
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . (2,048) -
---------- ----------
NET INCOME (LOSS) . . . . . . . . . $ (3,020) $ 15,316
========== ==========
EARNINGS (LOSS) PER COMMON SHARE. . $ (61.59) $ 312.30
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Three Months Ended March 31,
-----------------------------
1999 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (3,020) $ 15,316
Adjustments to reconcile to net income or (loss) to
cash provided by operating activities--
Depreciation, depletion and amortization 5,443 5,551
Gain on sale of assets (3) (3,298)
Dry hole cost and impairment of undeveloped leases 1,441 377
Other noncurrent assets (1) 183
Changes in current assets and liabilities--
(Increase)/Decrease in accounts receivable 3,621 (888)
Increase in inventories (846) (854)
Decrease/(Increase) in prepaid expenses (1,577) 260
Increase/(Decrease) in accounts payable (4,639) 754
Decrease in revenues and royalties payable (1,726) (479)
Decrease in accrued liabilities and other (4,455) (3,530)
---------- ----------
Net cash provided by (used in)operating activities (5,762) 13,392
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development (925) (7,532)
Gas gathering and processing facilities and
service properties, equipment and other (272) (230)
Proceeds from sale of assets 3 6,793
Advances from (to) affiliates (1) -
---------- ----------
Net cash used in investing activities (1,195) (969)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and other 4,600 12,600
Repayment of line of credit and other (94) (25,223)
Proceeds from note receivable 96 -
Repayment of short-term note due to stockholder (10,000) -
---------- ----------
Net cash provided by (used in) financing activities (5,398) (12,623)
---------- ----------
NET DECREASE IN CASH (12,355) (200)
CASH AND CASH EQUIVALENTS, beginning of period 15,817 10,421
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 3,462 $ 10,221
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,257 $ 8,022
The accompanying notes are an integral part of these consolidated financial
statements.
CONTINENTAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. CONTINENTAL RESOURCES, INC.'S FINANCIAL STATEMENTS
In the opinion of Continental Resources, Inc. ("CRI" or the "Company") the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position as of March 31, 2000, the
results of operations and cash flows for the three months ended March 31,
1999 and 2000. The unaudited consolidated financial statements for the
interim periods presented do not contain all information required by
generally accepted accounting principles. The results of operations for
any interim period are not necessarily indicative of the results of
operations for the entire year. These consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's annual report on form 10-K for
the year ended December 31, 1999.
2. LONG-TERM DEBT:
Long-term debt as of December 31, 1999 and March 31, 2000 consists of
the following:
December 31, 1999 March 31, 2000
----------------- --------------
(dollars in thousands)
Senior Subordinated Notes. . . . . $ 150,000 $ 146,000
Credit facility. . . . . . . . . . - 12,000
Notes payable to principle stockholder 18,600 -
Notes payable to General Electric
Capital Corporation 2,017 -
Capital lease agreements . . . . . 20 14
--------- ---------
Outstanding debt. . . . . . . 170,637 158,014
Less current portion . . . . . . . 356 14
--------- ---------
Total long-term debt. . . . . $ 170,281 $ 158,000
========= =========
On December 31, 1999, the Company's principal stockholder contributed
his undivided 50% interest in the Worland Properties and the Company
assumed his loan of $18.6 million. By February 5, 2000, the Company had
paid this loan in full with cash flow from operations and bank borrowings.
Subsequent to March 31, 2000 the Company made payments of $4.0 million
to reduce the outstanding debt against its credit facility to $8.0 million.
The current borrowing base of the credit facility is $25.0 million until
July 1, 2000 when the next redetermination is expected to occur.
3. CRUDE OIL MARKETING:
On July 1, 1998, the Company began entering into third party contracts
to purchase and resell crude oil at prices based on current month NYMEX
prices, current posting prices or at a stated contract price. Purchases
and sales are recorded at the stated contract price. During the quarter
ended March 31, 2000, the Company had revenues from purchases and resales
of crude oil of $61.8 million on purchases of $60.7 million, while
incurring expenses of $0.04 million, resulting in a margin from crude oil
marketing activities during the quarter of $1.1 million.
In December 1998, the Emerging Issues Task Force ("EITF") released
their consensus on EITF 98-10 "Accounting for Energy Trading and Risk
Management Activities." This statement requires that contracts for the
purchase and sale of energy commodities which are entered into for the
purpose of speculating on market movements or otherwise generating
gains from market price differences to be recorded at their market value, as
of the balance sheet date, with any corresponding gains or losses recorded
as income from operations. The Company adopted EITF 98-10 effective January
1, 1999. As a result, the Company recorded an expense for the cumulative
effect of change in accounting principle of $2.0 million. At March 31,
2000, the market value of the Company's open energy trading contracts
resulted in an unrealized gain of $1.3 million which is recorded in crude
oil marketing revenues in the accompanying consolidated statement of
operations and prepaid expenses in the accompanying consolidated balance
sheet.
4. COMMITMENTS AND CONTINGENCIES:
On May 15, 1998, the Company and an unrelated third party entered into
an agreement ("Trade Agreement") to exchange undivided interests in
approximately 65,000 gross (59,000 net) leasehold acres in the northern
half of the Cedar Hills Field in North Dakota. On August 19, 1998, the
Company instituted a declaratory judgment action against the unrelated
third party in the District Court of Garfield County, Oklahoma. The
Company sought a declaratory judgment determining that it is excused
from further performance under its Trade Agreement with the third
party. The third party denied the Company's allegations and sought
specific performance by the Company, plus monetary damages of an
unspecified amount. On December 22, 1999, the Court issued an Order
requiring the parties to proceed in accordance with terms of the Trade
Agreement and instructing them to use their best efforts to consummate
the Trade Agreement. The Company is currently complying with the Order.
However, various other legal and title issues have required a new hearing
which is expected to be held in late May or early June of 2000.
5. GUARANTOR SUBSIDIARIES
The Company's wholly owned subsidiaries, Continental Gas, Inc. (CGI) and
Continental Crude Co. (CCC), have guaranteed the Senior Subordinated Notes
and the Credit Facility. The following is a summary of the financial
information of Continental Gas, Inc. as of December 31, 1999 and March 31,
2000 and for the three month periods ended March 31, 1999 and 2000.
AS OF:
(dollars in thousands)
December 31, 1999 March 31, 2000
----------------- --------------
Current assets. . . . . . . . $ 3,392 $ 4,240
Noncurrent assets . . . . . . 21,643 20,064
---------- ----------
Total assets. . . . . . . . . $ 25,035 $ 24,304
========== ==========
Current liabilities . . . . . $ 13,188 $ 10,813
Noncurrent liabilities. . . . - -
Stockholder's equity. . . . . 11,847 13,491
---------- ----------
Total liabilities and stock-
holder's equity . . . . . . $ 25,035 $ 24,304
========== ==========
FOR THE THREE MONTH
PERIOD ENDED MARCH 31,
(dollars in thousands)
1999 2000
---- ----
Total revenues . . . . . $ 4,119 $ 7,783
Operating costs and expenses. 4,271 6,836
---------- ----------
Operating income (loss) . . . (152) 947
Other income (expenses) . . . (186) 697
---------- ----------
Net income (loss) . . . . . . $ (338) $ 1,644
========== ==========
At March 31, 2000, current liabilities payable to the Company by CGI totaled
approximately $7.5 million. For the three months ended March 31, 1999 and 2000,
depreciation, depletion and amortization included in CGI's operating costs
totaled approximately $0.5 million and $0.5 million, respectively. Other
income includes a gain from the sale of two gas systems of $0.9 million
offset by interest expense.
Since its incorporation, CCC has had no operations, has acquired no assets
and has incurred no liabilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
The following discussion and analysis should be read in conjunction with the
Company's unaudited consolidated financial statements and the notes thereto
appearing elsewhere in this report. The Company's operating results for the
periods discussed may not be indicative of future performance. In the text
below, financial statement numbers have been rounded; however, the percentage
changes are based on unrounded amounts.
RESULTS OF OPERATIONS
REVENUES
GENERAL
Revenues, excluding crude oil marketing, increased $21.9 million, or 147%,
to $36.8 million during the three months ended March 31, 2000 from $14.9
million during the comparable period in 1999. The increase is attributable
to a combination of higher oil and gas prices and increased oil and gas
production. During the third quarter of 1998, the Company began marketing
crude oil that had been purchased from third parties. This activity
generated $61.8 million in additional revenue to the Company for the
three month period ending March 31, 2000 compared to $90.1 million for the
three month period ending March 31, 1999.
OIL AND GAS SALES
Oil and gas sales revenue for the three months ended March 31, 2000 increased
$17.7 million, or 175%, to $27.8 million from $10.1 million during the
comparable period in 1999. Oil production increased by 64 MBbls to 854 MBbls,
or 8%, for the three months ended March 31, 2000 from 790 MBbls for the
comparable period in 1999. The revenue and production increases are partly
due to the acquisition of additional interest in the Worland properties
which contributed 84 MBbls of production and the HPAI projects which
increased production by 11MBbls. These increases are offset by normal
declines in production from the remaining properties. Oil prices, exclusive of
hedging and adjustments, increased to an average of $27.09/Bbl, or 170%, during
the three months ended March 31, 2000, from $10.01/Bbl, for the comparable
1999 period. Gas sales increased $1.9 million for the three month period
in 2000 compared to 1999. Gas production for the period increased 518 Mmcf,
or 32%, to 2,107 Mmcf from 1,589 Mmcf in 1999. The Gulf Coast region gas
production increased by 372 Mmcf and the contribution of the Worland
Properties increased gas production by 268 Mmcf. These increases in gas
production were offset by the natural decline in production from the remaining
properties.
Oil and gas sales revenue for the three month period ended March 31, 2000,
also includes a price adjustment paid by a non-affiliated third party oil
purchaser for $1.1million.
During the first quarter of 2000, the Company entered into forward fixed
price sales contracts in accordance with its hedging policy, to mitigate its
exposure to the price volatility associated with its crude oil production.
The monthly contracts total 80,000 barrels per month and extend from May
2000 through December 2000. The Company has 40,000 barrels per month (or
320,000 barrels) at $22.04 and 40,000 barrels per month (or 320,000 barrels)
at $25.47. The Company accounts for changes in the market value of its
hedging instruments as deferred gains or losses until the production month
of the hedged transaction, at which time the realized gain or loss is
recognized in the results of operations. At March 31, 2000, the Company
had open contracts totaling approximately 640,000 barrels with unrealized
deferred losses of approximately $1.2 million.
CRUDE OIL MARKETING
During the three month period ended March 31, 2000, the Company recognized
revenues on crude oil purchased for resale of $61.8 million compared to
$90.1 million for the three month period ended March 31, 1999. A decrease
in volume offset by an increase in prices made up the difference between
1999 and 2000.
GATHERING, MARKETING AND PROCESSING
Gathering, marketing and processing revenue in the first quarter of 2000 was
$6.9 million, an increase of $3.5 million, or 101%, from $3.4 million in the
same period in 1999. This increase in revenue during the first quarter was
attributable to higher natural gas and liquids prices in the 2000 period.
OIL AND GAS SERVICE OPERATIONS
Oil and gas service operations for the three months ended March 31, 2000
increased $0.7 million, or 54%, to $2.0 million from $1.3 million during
the same period in 1999. Increased revenues in Dynameter income, reclaimed
oil income and mud additive income combined for a total increase in revenue
of $0.4 million. Also, an increase of $0.3 million for salt water disposal
fees contributed to this overall increase.
COSTS AND EXPENSES
PRODUCTION EXPENSES
Production expenses increased by $1.9 million, or 65%, to $4.8 million
during the three months ended March 31, 2000 from $2.9 million during the
comparable period in 1999. This increase is mainly due to increased activity
from the Worland properties of approximately $1.3 million and increased
energy costs.
PRODUCTION TAXES
Production taxes increased by $1.6 million , or 294%, to $2.1 million
during the three months ended March 31, 2000 from $0.5 million during the
comparable period in 1999. The increase is due to higher oil and gas prices
and higher tax rates on wells in North Dakota that have reached the expira-
tion date of tax relief given on newly drilled wells.
EXPLORATION EXPENSES
For the three months ended March 31, 2000, exploration expenses decreased
$0.4 million, or 27%, to $1.0 million from $1.4 million during the comparable
period of 1999. The decrease was due to a $1.3 million decrease in expired
lease costs to $45,000 in the three month period in 2000 from $1.3 million
for the comparable period in 1999. The decrease in expired lease costs is
partially offset by an increase in dry hole expenses of $0.4 million, an
increase in other exploration costs of $0.4 million and an increase in
plugging costs of $0.1 million.
CRUDE OIL MARKETING
For the three months ended March 31, 2000, the Company recognized expense
for the purchases of crude oil purchased for resale of $60.7 million, and
marketing expenses of $0.04 million compared to purchases of crude oil for
resale of $86.2 million, and marketing expenses of $0.4 million for the
three months ended March 31, 1999. The decrease is due to a reduction in
volumes offset by an increase in prices.
GATHERING, MARKETING, AND PROCESSING
During the three months ended March 31, 2000, the Company incurred
gathering, marketing and processing expenses of $5.3 million, representing
a $2.6 million, or 93% increase from the $2.7 million incurred in the first
quarter of 1999 due to higher natural gas and liquids prices.
OIL AND GAS SERVICE OPERATIONS
During the three months ended March 31, 2000, the Company incurred oil and
gas service operations expense of $1.2 million, a $0.8 million, or 245%
increase over the $0.3 million for the comparable period in 1999. This
increase was due to increased maintenance, work over expense on salt water
disposal wells and increased costs of purchasing oil for reclaiming at the
central treating unit.
DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A)
For the three months ended March 31, 2000, DD&A expense increased $0.1
million, or 2%, to $5.5 million in 2000 from $5.4 million for the comparable
period in 1999. The DD&A expense remained fairly constant. In the first
quarter of 1999, DD&A expense amounted to $3.61 per BOE compared to $3.67
per BOE in the first quarter of 2000.
GENERAL AND ADMINISTRATIVE ("G&A")
For the three months ended March 31, 2000, G&A expense was $2.1 million,
net of overhead reimbursement of $0.5 million, for a period total of $1.6
million or an increase of $0.3 million or 21%, from G&A expense of $2.0
million net of overhead reimbursement of $0.7 million for a net of $1.3
million during the comparable period in 1999. This increase was primarily
due to increased legal expenses and increased employment expense. G&A
expenses per BOE for the first quarter of 2000 was $1.32 compared to $1.25
for the first quarter of 1999.
INTEREST EXPENSE
For the three months ended March 31, 2000 and March 31, 1999, interest expense
remained constant at $4.1 million.
OTHER INCOME
Other income for the three months ended March 31, 2000 was $3.5 million
compared to $8,439 for the same period in 1999. This increase reflects the
sale of the Arkoma Basin properties which was approximately $3.3 million and
a gain on the repurchase of bonds of $170,000.
NET INCOME
For the three months ended March 31, 2000 net income was $15.3 million,
an increase in net income of $18.3 million from the loss of $3.0 million for
the comparable period in 1999. This increase in net income is due primarily
to higher oil and gas prices and increased production volumes. Net income
in 2000 also includes a price adjustment, paid by a non-affiliated third
party oil purchaser for $1.1 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
Net cash provided by operating activities for the three months ended March
31, 2000 was $13.4 million, an increase of $19.2 million from $5.8 million
used in operating activities during the comparable 1999 period. Cash as of
March 31, 2000 was $10.2 million, a decrease of $0.2 million or 2% of the
balance of $10.4 million held at December 31, 1999. Of the $10.2 million
balance at March 31, 2000, $2.5 million has been set aside and will be used
by the Company to make its August 1, 2000 interest payment on its 10.25%
Senior Subordinated Notes.
DEBT
Long-term debt at December 31, 1999 and March 31, 2000 was $170.2 million
and $158.0 million, respectively. During the quarter ended March 31, 2000,
the note of $2.0 million to General Electric was paid off and the Company
purchased and retired $4.0 million of the Senior Subordinated notes. Sub-
sequent to March 31, 2000, the Company made payments of $4.0 million to
reduce its outstanding borrowings against its Bank Line of Credit to $8.0
million.
CREDIT FACILITY
Long-term debt outstanding under the line of credit at March 31, 2000
included $12.0 million of revolving credit debt under the credit facility.
The effective rate of interest under the line of credit agreement is 9.00%
at March 31, 2000. The credit facility, which matures May 14, 2001, charges
interest based on the prime rate of Bank One Oklahoma, N.A., or the London
Interbank Offered Rate for 1, 2, 3 or 6-month offshore deposits as offered
by Bank One to major banks in the London Interbank Market, rounded upwards,
if necessary, to the nearest 1/16%, and adjusted for maximum cost of
reserves, if any. The borrowing base of the credit facility is $25 million
until July 1, 2000 when the next redetermination is expected to occur.
Subsequent to March 31, 2000 the Company replaced its credit facility with
a $25.0 million credit facility provided by MidFirst Bank in Oklahoma City,
Oklahoma, under terms substantially similar to the previous credit agreement
with Bank One.
CAPITAL EXPENDITURES
The Company's 2000 capital expenditures budget is $30.4 million, exclusive
of acquisitions. During the three months ended March 31, 2000, the Company
incurred $7.8 million of capital expenditures, exclusive of acquisitions,
compared to $1.2 million, exclusive of acquisitions, in the three month
period of 1999. The $6.6 million increase was the result of increased
drilling activity in the Rocky Mountain and Gulf Coast. The Company expects
to fund the remainder of its 2000 capital budget through cash flow from
operations and its credit facility.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements". All statements other
than statements of historical fact, including, without limitation, statements
contained under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position,
business strategy, plans and objectives of management of the Company for
future operations and industry conditions, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") include without limitation future
production levels, future prices and demand for oil and gas, results of
future exploration and development activities, future operating and
development cost, the effect of existing and future laws and governmental
regulations (including those pertaining to the environment) and the
political and economic climate of the United States as discussed in this
quarterly report and the other documents of the Company filed with the
Securities and Exchange Commission (the "Commission"). All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by
the Cautionary Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk in the normal course of its business
operations. Management believes that the Company is well positioned with
its mix of oil and gas reserves to take advantage of future price increases
that may occur. However, the uncertainty of oil and gas prices continues
to impact the domestic oil and gas industry. Due to the volatility of oil
and gas prices, the Company, from time to time, has used derivative hedging
and may do so in the future as a means of controlling its exposure to price
changes. As of March 31, 2000, the Company had entered into fixed price
sales contracts totaling 80,000 barrels per month in order to hedge its
price risk exposure on its May through December 2000 production. At March
31, 2000, the Company has deferred recognition of $1.2 million of net market
losses on its hedging contracts until the respective production month. Most
of the Company's crude oil marketing contracts are made at either a NYMEX
based price or a fixed price. As of March 31, 2000, for the periods May
2000 through December 2000, the Company has fixed price purchase and sales
contracts related to its marketing activities for which it has recorded an
unrealized net gains of approximately $1.3 million. At March 31, 2000, the
Company had a net long position on its crude marketing activities of 280,000
barrels consisting of monthly long or short positions ranging from 40,000 to
80,000 barrels per month.
PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is party to litigation or other legal
proceedings that it considers to be a part of the ordinary course of its
business. Except as discussed below, the Company is not involved in any
legal proceedings nor is it party to any pending or threatened claims that
could reasonably be expected to have a material adverse effect on its
financial condition or results of operations.
On May 15, 1998, the Company and an unrelated third party entered into an
agreement ("Trade Agreement") to exchange undivided interests in approximately
65,000 gross (59,000 net) leasehold acres in the northern half of the Cedar
Hills Field in North Dakota. On August 19, 1998, the Company instituted a
declaratory judgment action against the unrelated third party in the District
Court of Garfield County, Oklahoma. The Company sought a declaratory judgment
determining that it is excused from further performance under its Trade
Agreement with the third party. The third party denied the Company's
allegations and sought specific performance by the Company, plus monetary
damages of an unspecified amount. On December 22, 1999, the Court issued
an Order requiring the parties to proceed in accordance with terms of the
Trade Agreement and instructing them to use their best efforts to consummate
the Trade Agreement. The Company is currently complying with the Order.
However, various other legal and title issues have required a new hearing
which is expected to be held in late May or early June of 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of Continental
Resources, Inc.(1) [3.1]
3.2 Amended and Restate Bylaws of Continental Resources, Inc.(1) [3.2]
3.3 Certificate of Incorporation of Continental Gas, Inc.(1) [3.3]
3.4 Bylaws of Continental Gas, Inc., as amended and restated.(1) [3.4]
3.5 Certificate of Incorporation of Continental Crude Co.(1) [3.5]
3.6 Bylaws of Continental Crude Co.(1) [3.6]
4.1 Restated Credit Agreement dated May 12, 1998 among Continental
Resources, Inc. and Continental Gas, Inc., as Borrowers and Bank One,
Oklahoma, N.A. and the Institutions named therein as Banks and Bank
One, Oklahoma, N.A. as Agent (the "Credit Agreement")(1) [4.1]
4.1.1 First Amendment to the Credit Agreement between Registrant, the
financial institutions named therein and Bank One, Oklahoma, N.A.,
as Agent dated February 10, 1999.(2) [4.1.1]
4.2 Form of Revolving Note under the Credit Agreement(1) [4.2]
4.3 Indenture dated as of July 24, 1998 between Continental Resources,
Inc., as Issuer, the Subsidiary Guarantors named therein and the
United States Trust Company of New York, as Trustee (1) [4.3]
4.4* Restated Credit Agreement dated April 21, 2000 among Continental
Resources, Inc. and Continental Gas, Inc., as Borrowers and Midfirst
Bank as Agent (the "Credit Agreement")(1) [4.4]
4.4.1* Form of Revolving Note under the Credit Agreement with Midfirst Bank
[4.4.1]
10.4 Conveyance Agreement of Worland Area Properties from Harold G. Hamm,
Trustee of the Harold G. Hamm Revocable Intervivos Trust dated April
23, 1984 to Continental Resources, Inc. (3)
10.5 Purchase Agreement signed January 2000, effective October 1, 1999 by
and between Patrick Energy Corporation as Buyer and Continental
Resource, Inc. as Seller (3)
21.0 Subsidiaries (2) [21.0]
27* Financial Data Schedule
- -----------------
* Filed herewith
(1) Filed as an exhibit to the Company's Form S-4 Registration Statement
on Form S-4, as amended (No. 333-61547) which was filed with the
Securities and Exchange Commission. The exhibit number is indicated
in brackets and incorporated by reference herein.
(2) Filed as an exhibit to the Company's 1998 Annual Report on Form 10-K
which was filed with the Securities and Exchange Commission. The
exhibit number is indicated in brackets and incorporated by reference
herein.
(3) Filed as an exhibit to the Company's 1999 Annual Report on Form 10-K
which was filed with the Securities and Exchange Commission. The exhibit
number is indicated in brackets and incorporated by reference herein.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three months
ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONTINENTAL RESOURCES, INC.
ROGER V. CLEMENT
Roger V. Clement
Senior Vice President
(Chief Financial Officer)
Date: May 12, 2000
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
3.1 Amended and Restated Certificate of Incorporated herein by reference
Incorporation of Continental Resources,
Inc.
3.2 Amended and Restate Bylaws of Incorporated herein by reference
Continental Resources, Inc.
3.3 Certificate of Incorporation of Incorporated herein by reference
Continental Gas, Inc.
3.4 Bylaws of Continental Gas, Inc., as Incorporated herein by reference
amended and restated
3.5 Certificate of Incorporation of Incorporated herein by reference
Continental Crude Co.
3.6 Bylaws of Continental Crude Co. Incorporated herein by reference
4.1 Restated Credit Agreement dated May 12, Incorporated herein by reference
1998 among Continental Resources, Inc.
and Continental Gas, Inc., as Borrowers
and Bank One, Oklahoma, N.A. and the
Institutions named therein as Banks
and Bank One, Oklahoma, N.A. as
Agent (the "Credit Agreement")
4.1.1 First Amendment to the Credit Agree- Incorporated herein by reference
ment between Registrant, the
financial institutions named therein
and Bank One, Oklahoma, N.A., as
Agent dated February 10, 1999
4.2 Form of Revolving Note under the Incorporated herein by reference
Credit Agreement
4.3 Indenture dated as of July 24, 1998 Incorporated herein by reference
between Continental Resources, Inc.,
as Issuer, the Subsidiary Guarantors
named therein and the United States
Trust Company of New York, as Trustee
4.4 Restated Credit Agreement dated Filed herewith electronically
April 21, 2000 among Continental
Resources, Inc. and Continental Gas,
Inc., as Borrowers and Midfirst
Bank as Agent (the "Credit Agreement")
4.4.1 Form of Revolving Note under the Credit Filed herewith electronically
Agreement with Midfirst Bank
10.4 Conveyance Agreement of Worland Incorporated herein by reference
Area Properties from Harold
G. Hamm, Trustee of the Harold G.
Hamm Revocable Intervivos Trust
dated April 23, 1984 to Continental
Resources, Inc.
10.5 Purchase Agreement signed January Incorporated herein by reference
2000, effective October 1, 1999
by and between Patrick Energy
Corporation as Buyer and Continental
Resource, Inc. as Seller
21.0 Subsidiaries Incorporated herein by reference
27 Financial Data Schedule Filed herewith electronically