FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Current Report Pursuant to Section 13 or 15(b)
of the Securities Exchange Act of 1934
Date of report: September 21, 2001
(Date of earliest event reported : July 9, 2001)
Continental Resources, Inc.
(Exact name of registrant as specified in its charter)
Oklahoma 333-61547 73-0767549
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
302 N. Independence, Suite 106, Enid, Oklahoma 73701
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(Address of principal executive offices) (Zip Code)
580-233-8955
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
As indicated in the Registrant's Form 8-K as filed with the Securities and
Exchange Commission on July 18, 2001 ("Form 8-K"), the financial and pro forma
financial information required to be filed therewith would be filed not later
than 60 days after July 23, 2001. Accordingly, this Amendment No. 1 to form 8-K
supplies the financials and pro forma financial information as required.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Public Accountants
To the Board of Directors
of Continental Resources, Inc.:
We have audited the accompanying consolidated balance sheet of Farrar Oil
Company (a Delaware corporation) and subsidiary as of December 31, 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These consolidated financials are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Farrar Oil Company
and subsidiary as of December 31, 2000 and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
July 20, 2001
Farrar Oil Company
Consolidated Balance Sheets
(Dollars in thousands)
Assets December 31, June 30,
------------ --------
2000 2001
---- ----
Current Assets (unaudited)
Cash and cash equivalents $ 3,234 $ 5,313
Accounts receivable-
Oil and gas sales 1,929 1,861
Joint interest and other 86 140
Inventories 266 453
Prepaid expenses 27 89
-------- --------
Total current assets 5,542 7,856
-------- --------
Property and Equipment:
Oil and gas properties-
Producing properties 45,916 46,088
Non-producing properties 375 61
Service properties, equipment and other 3,515 3,506
-------- --------
Total property and equipment 49,806 49,655
Less-Accumulated depreciation, depletion & amortization (34,712) (35,627)
-------- --------
Net property and equipment 15,094 14,028
-------- --------
Other Non Current Assets 10 10
-------- --------
TOTAL ASSETS $ 20,646 $ 21,894
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Farrar Oil Company
Consolidated Balance Sheets
(Dollars in thousands)
December 31, June 30,
------------ --------
Liabilities and Stockholders' Equity 2000 2001
---- ----
(unaudited)
Current Liabilities:
Accounts payable $ 567 $ 365
Revenues and royalties payable 22 30
Accrued liabilities and other 249 612
-------- --------
Total current liabilities 838 1,007
-------- --------
Long-term Debt, net of current portion 900 --
Commitments and contingencies (Note 6)
Total liabilities 1,738 1,007
-------- --------
Stockholders' Equity:
Common stock, $1 par value
50,000 shares authorized
32,115 shares issued and 29,825 shares outstanding (Note 4) 32 32
Treasury stock, at cost (252) (252)
Additional paid-in capital 3,780 3,780
Retained earnings 15,348 17,327
-------- --------
Total stockholders' equity 18,908 20,887
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 20,646 $ 21,894
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Farrar Oil Company
Consolidated Statements of Operations
(Dollars in thousands)
Year Ended Six Months Ended
December 31, June 30, June 30,
------------ -------- --------
2000 2000 2001
---- ---- ----
(unaudited)
Revenue:
Oil and gas sales $ 19,229 $ 7,588 $ 11,498
Oil and gas service operations 235 230 21
-------- -------- --------
Total revenues 19,464 7,818 11,519
-------- -------- --------
Operating costs and expenses:
Production expenses 4,561 2,054 2,293
Production taxes 491 210 328
Exploration expenses 188 90 275
Oil and gas service operations 184 178 17
Depreciation, depletion & amortization 3,586 1,366 1,554
General and administrative 1,250 504 790
-------- -------- --------
Total operating costs and expenses 10,260 4,402 5,257
-------- -------- --------
Operating income 9,204 3,416 6,262
-------- -------- --------
Other income and expenses:
Interest income 66 16 108
Interest expense (176) (125) (5)
Other (expense) income, net (119) 163 315
-------- -------- --------
Total other (expense) income (229) 54 418
-------- -------- --------
Income before income taxes 8,975 3,470 6,680
Federal and state income taxes -- -- --
-------- -------- --------
NET INCOME $ 8,975 $ 3,470 $ 6,680
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Farrar Oil Company
Consolidated Statement of Stockholders' Equity
For the Year Ended December 31, 2000 and the
Six Months Ended June 30, 2001 (unaudited)
Additional
Common Stock Paid-In Retained Treasury Stock Stockholder's
Shares Amount Capital Earnings Shares Amount Equity
------ ------ ------- -------- ------ ------ ------
Balance December 31, 1999 32,115 $32,115 $3,687,947 $8,432,509 2,601 ($286,683) $11,865,888
Dividends Paid -- -- -- (2,060,000) -- -- ($2,060,000)
Employee Stock Bonus -- -- 92,222 -- (311) 34,279 $126,501
Net Income -- -- -- 8,975,252 -- -- $8,975,252
Balance December 31, 2000 32,115 $32,115 $3,780,169 $15,347,761 2,290 ($252,404) $18,907,641
Dividends Paid -- -- -- (4,700,000) -- -- ($4,700,000)
Net Income -- -- -- 6,679,488 -- -- $6,679,488
------ ------- ---------- ----------- ----- --------- -----------
Balance June 30, 2001 32,115 $32,115 $3,780,169 $17,327,249 2,290 ($252,404) $20,887,129
====== ======= ========== =========== ===== ========= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
Farrar Oil Company, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year ended Six months ended June 30,
December 31,2000 2000 2001
---------------- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited)
Net Income $ 8,975 $ 3,470 $ 6,680
xAdjustments to reconcile net income to
cash provided by operating activities--
Depreciation, depletion and amortization 3,586 1,366 1,554
(Gain) loss on sale of assets 174 (113) (294)
Dry hole cost and impairment of undeveloped leases 162 69 5
Employee Stock Bonus 127 -- --
Changes in current assets and liabilities--
(Increase)/decrease in accounts receivable (386) (50) 13
(Increase)/decrease in inventories 81 11 (187)
Increase in prepaid expenses (5) (25) (62)
Increase/(decrease) in accounts payable 102 (165) (202)
Increase in revenues and royalties payable 1 3 8
Increase/(decrease) in accrued liabilities and other 83 (46) 363
-------- -------- --------
Net cash provided by operating activities 12,900 4,520 7,878
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development (2,372) (780) (499)
Purchase of producing properties (1,044)
Proceeds from sale of assets 631 387 300
-------- -------- --------
Net cash used in investing activities (2,785) (393) (199)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of shareholder notes (5,470) -- --
Repayment of line of credit and other -- (3,450) (900)
Payment of cash dividend (2,060) (1,020) (4,700)
-------- -------- --------
Net cash used in financing activities (7,530) (4,470) (5,600)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 2,585 (343) 2,079
CASH AND CASH EQUIVALENTS, beginning of period 649 649 3,234
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 3,234 $ 306 $ 5,313
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 246 $ 213 $ 24
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
FARRAR OIL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. ORGANIZATION:
Farrar Oil Company ("Farrar") was incorporated in Delaware effective
January 1, 1981, for the primary purpose of locating, acquiring and producing
oil and gas properties, promoting investment in such properties and performing
drilling and completion operations. Farrar is based in Mt. Vernon, Illinois and
has 568 operated and 232 non-operated wells in Illinois, Kentucky, Montana,
Oklahoma and North Dakota at December 31, 2000. Farrar has one wholly-owned
subsidiary, Har-Ken Oil Company ("Har-Ken").
INTERIM CONSOLIDATED FINANCIAL INFORMATION
The interim consolidated financial statements as of and for the six months
ended June 30, 2000 and 2001, are unaudited, and certain disclosures normally
included in the consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States have been omitted.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim consolidated financial
statements have been included.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements include the accounts and
operations of Farrar and Har-Ken (collectively the "Company"). All significant
inter-company accounts and transactions have been eliminated in the consolidated
financial statements.
Accounts Receivable
The Company operates exclusively in the oil and natural gas exploration and
production industry. No allowance for doubtful accounts has been recorded in the
accompanying consolidated December 31, 2000, balance sheet.
Inventories
Inventories, consisting of equipment and supplies purchased for future use
in oil and gas exploration, development and drilling activities are recorded at
the lower of average cost or market.
Property and Equipment
The Company utilizes the successful efforts method of accounting for oil
and gas activities whereby costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves and
to drill and equip development wells are capitalized. These costs are amortized
to operations on a unit-of-production method based on proved developed oil and
gas reserves, allocated property by property, as estimated by petroleum
engineers. Geological and geophysical costs, lease rentals and costs associated
with unsuccessful exploratory wells are expensed as incurred. Non-producing
leaseholds are periodically assessed for impairment, based on exploration
results and planned drilling activity. Maintenance and repairs are expensed as
incurred, except that the cost of replacements or renewals that expand capacity
or improve production are capitalized. Service property and equipment, which
includes certain buildings, is depreciated using the straight-line method over
estimated useful lives of 5 to 40 years.
Income Taxes
The Company, effective January 1, 1990, elected Subchapter S status as
provided under the Internal Revenue Code. As a result, income taxes attributable
to federal taxable income of the Company, if any, are payable by the
stockholders of the Company.
Treasury Stock
At December 31, 2000, treasury stock include 2,290 shares of the Company's
common stock recorded at cost. Issuances of treasury stock are recorded at the
weighted average cost of the treasury shares with additional proceeds, if any,
recorded as additional paid-in capital. Significant Customer
During 2000, approximately $14,850,000 or 76% of the Company's total
revenues were derived from sales made to a single customer.
Revenue Recognition
Revenues are recognized when production is sold.
Gas Balancing Arrangements
The Company follows the "sales method" of accounting for its gas revenue
whereby the Company recognizes sales revenue on all gas sold to its purchasers,
regardless of whether the sales are proportionate to the Company's ownership in
the property. A liability is recognized only to the extent that the Company has
a net imbalance in excess of their share of the reserves in the underlying
properties. The Company's aggregate imbalance positions at December 31, 2000
were not material.
Business Segments
The Company operates in one business segment pursuant to Statement of
Financial Accounting Standards (SFAS) No, 131, "Disclosure About Segments of an
Enterprise and Related Information."
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Of the estimates and assumptions that affect reported results, the estimate of
the Company's oil and natural gas reserves, which is used to compute
depreciation, depletion, amortization and impairment on producing oil and gas
properties, is the most significant.
Accounting Principles
In June 1998, the Financial Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and for Hedging Activities", with an effective date for
periods beginning after June 15, 1999. In July 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133". As a result of SFAS No. 137,
adoption of SFAS No.133 is now required for financial statements for periods
beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities",
which amends the accounting and reporting standards of SFAS No. 133 for certain
derivative instruments and hedging activities. SFAS No. 133 sweeps in a broad
population of transactions and changes the previous accounting definition of a
derivative instrument. Under SFAS No. 133, every derivative instrument is
recorded on the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Management reviewed all contracts throughout the Company to identify both
freestanding and embedded derivatives which meet the criteria set forth in SFAS
No. 133 and SFAS No. 138. The Company adopted the new standards effective
January 1, 2001. On January 1, 2001, the Company had no outstanding derivatives
which were required to be marked to market. As a result the adoption of SFAS No.
133 and SFAS No. 138 had no significant impact on the Company's financial
position or results of operations.
Accounting Pronouncement
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations." SFAS No. 143 requires all businesses to recognize
liabilities related to legal asset retirement obligations when they are
incurred, measure them at their fair value, and classify the accrued amount as a
liability in the balance sheet. The Company will record a material asset
retirement obligation under the new Standard but is uncertain how these
requirements will affect its financial statements.
3. LONG TERM INVESTMENT
The Company holds 35.89% interest in Shiloh Hotel Partners ("SHP") which
was formed in 1984 and is controlled by the Company's principal shareholder. SHP
until December 31, 1998, owned and operated a Holiday Inn in Mt. Vernon,
Illinois. On December 31, 1998, SHP sold the Holiday Inn and in 2001 the
partnership is expected to be completely liquidated. Based upon the Company's
evaluation of the anticipated cash flows from the liquidation of SHP, the
Company's remaining investment was written off.
4. STOCKHOLDERS' EQUITY
The Company has an agreement regarding the sale or transfer of stock with
each of its shareholders. The agreement provides, among other things, that no
shares may be sold or transferred without first offering the shares for sale to
the Company at the same price as that provided for in any bona fide offer
received by the shareholder.
During 2000, the Company awarded 311 shares of common stock, previously
held as treasury stock, to an employee. As a result of this award, the Company
recorded compensation expense, based upon the stockholders' fair market value of
approximately $126,500.
5. INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes." As mentioned in Note 2, the Company is
an S-Corporation resulting in the taxable income or loss of the Company being
reported to the stockholders and included in their respective Federal and state
income tax returns. The taxable income of the Company attributable to the
stockholders is different than the net income of the Company due primarily to
intangible drilling costs which are capitalized for financial reporting purposes
and accelerated depreciation and depletion methods utilized for tax purposes.
6. COMMITMENTS AND CONTINGENCIES
Company employees are eligible to participate in the Company's 401K
Retirement Savings Plan ("Plan") after one year of service. Effective January 2,
2001, under the Plan, the Company matches 50% of employees' contributions up to
3% of pay. Previously the Company's match was 25% of the employees contribution
for the first 3% of pay. The Company contributed $6,445 in 2000 and $9,662 thru
June 30, 2001.
Due to the nature of the oil and gas business, the Company is exposed to
possible environmental risks. The Company has implemented various policies and
procedures to avoid environmental contamination and risks from environmental
contamination. The Company is not aware of any material potential environmental
issues or claims.
7. TRANSACTIONS WITH RELATED PARTIES
Certain employees and shareholders of the Company, own working interests in
oil and gas properties operated by the Company and, as such, are billed their
respective share of the costs of drilling, completing and operating these
properties.
All the unsecured promissory notes listed in Note 8 are payable to
shareholders or the Chairman of the Board.
8. NOTES PAYABLE
The long-term debt of the Company as of December 31, 2000, include
unsecured notes payable to related parties with all principal and accrued
interest due in 2013. Interest is due quarterly at a fixed rate of 5.35%.
The outstanding notes include the following:
Marital Trust "B" $ 150,000
Marjorie S. Farrar 750,000
---------
TOTAL NOTES PAYABLE $ 900,000
=========
Subsequent to December 31, 2000, all outstanding amounts due under the notes
were repaid.
9. SUBSEQUENT EVENT
In June 2001, the Company and its stockholders entered into a definitive
agreement with Continental Resources, Inc. providing for the acquisition of the
Company's energy assets.
10. SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED):
Proved Oil and Gas Reserves
The following reserve information was developed from reserve reports as of
December 31, 1999 and 2000, prepared by the Company's internal reserve engineers
and set forth the changes in estimated quantities of proved oil and gas reserves
of the Company during the year presented.
Crude Oil and
Natural Gas Condensate
(MMcf) (MBbls)
------ -------
Proved reserves as of December 31, 1999 4,416 3,978
Revisions of previous estimates 3,285 10
Extensions, discoveries and other additions 29 357
Production (778) (586)
Purchase of minerals in place 0 160
----- -----
Proved reserves as of December 31, 2000 6,952 3,919
===== =====
Proved developed reserves
January 1, 2000 4,416 3,978
January 1, 2001 6,952 3,919
Proved reserves are estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved developed reserves are proved reserves which are expected to be
recovered through existing wells with existing equipment and operating methods.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves. Oil and gas reserve engineering is a subjective
process of estimating underground accumulations of oil and gas that cannot be
precisely measured, and estimates of engineers other than the Company's might
differ materially from the estimates set forth herein. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify
revision of such estimate. Accordingly, reserve estimates are often different
from the quantities of oil and gas that are ultimately recovered.
Gas imbalance receivables and liabilities for the year ended December 31,
2000, were not material and have not been included in the reserve estimates.
Costs Incurred in Oil and Gas Activities
Costs incurred in connection with the Company's oil and gas acquisition,
exploration and development activities during the year are shown below (in
thousands of dollars). Amounts are presented in accordance with SFAS No. 19, and
may not agree with amounts determined using traditional industry definitions.
2000
----
Property acquisition costs:
Proved Purchased $1,044
Unproved 0
------
Total property acquisition costs $1,044
Exploration costs 512
Development costs 1,722
Total ------
$3,278
======
Aggregate Capitalized Costs
Aggregate capitalized costs relating to the Company's oil and gas producing
activities, and related accumulated DD&A, as of December 31 (in thousands of
dollars):
2000
----
Proved oil and gas properties $45,916
Unproved oil and gas properties 375
-------
Total 46,291
Less- Accumulated DD&A 32,885
-------
Net capitalized costs $13,406
=======
Oil and Gas Operations (Unaudited)
Aggregate results of operations for each period ended December 31, in
connection with the Company's oil and gas producing activities are shown below
(in thousands of dollars):
2000
----
Revenues $19,229
Production costs 5,052
Exploration expenses 188
DD&A and valuation provision(1) 3,346
Income 10,643
Income tax expense(2) --
Results of operations from producing activities
(excluding corporate overhead and interest costs) $10,643
=======
(1) Includes $99 thousand in 2000 of additional DD&A as a result of SFAS
No. 121 impairments.
(2) The Company is an S-Corporation, as a result the income or loss of the
Company is taxable at the stockholder level.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves
The following information is based on the Company's best estimate of the
required data for the Standardized Measure of Discounted Future Net Cash Flows
as of December 31, 2000, as required by Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 69. The Standard requires the
use of a 10% discount rate. This information is not the fair market value nor
does it represent the expected present value of future cash flows of the
Company's proved oil and gas reserves (in thousands of dollars).
2000
----
Future cash inflows
$ 172,021
Future production and development costs (65,569)
Future income tax expenses --
---------
Future net cash flows 106,452
10% annual discount for estimated timing of cash flows (42,771)
---------
Standardized measure of discounted future net cash flows $ 63,681
=========
Future cash inflows are computed by applying year-end prices of oil and gas
relating to the Company's proved reserves to the year-end quantities of those
reserves. The year-end weighted average oil price utilized in the computation of
future cash inflows was approximately $23.87 and $26.62 per BBL at December 31,
1999 and 2000, respectively. The year-end weighted average gas price utilized in
the computation of future cash inflows was approximately $1.77 and $9.76 per MCF
at December 31, 1999 and 2000, respectively.
Future production and development costs, which include dismantlement and
restoration expense, are computed by estimating the expenditures to be incurred
in developing and producing the Company's proved oil and gas reserves at the end
of the year, based on year-end costs, and assuming continuation of existing
economic conditions.
Income taxes were not computed at December 31, 2000, as the Company elected
S-Corporation status effective January 1, 1990.
Principal changes in the aggregate standardized measure of discounted
future net cash flows attributable to the Company's proved oil and gas reserves
at year-end are shown below (in thousands of dollars):
2000
----
Standardized measure of discounted future net cash flows at
the beginning of the year $ 40,748
Extensions, discoveries and improved recovery, less related costs 6,334
Revisions of previous quantity estimates 7,653
Purchases (sales) of minerals in place 1,871
Net changes in prices and production costs 23,456
Accretion of discount 4,075
Sales of oil and gas produced, net of production costs (14,177)
Change in timing of estimated future production, and other (6,279)
-------
Standardized measure of discounted future net cash flows at
the end of the year $ 63,681
========
(b) Unaudited Pro Forma Financial Statements
The following unaudited pro forma financial information presents the
historical consolidated balance sheet and statement of income of Continental
Resources, Inc. (the "Company") after giving effect to the acquisition of the
assets of Farrar Oil Company ("Farrar") and its subsidiary. The unaudited pro
forma balance sheet at June 30, 2001, gives effect to the acquisition as if it
had occurred at June 30, 2001. The unaudited pro forma statement of income for
the year ended December 31, 2000, gives effect to the acquisition as if it had
occurred at January 1, 2000. The unaudited pro forma statement of income for the
six months ended June 30, 2001, gives effect to the acquisition as if it had
occurred at January 1, 2001.
The following unaudited pro forma financial information has been prepared
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes thereto of the Company and Farrar. The
following information is not necessarily indicative of the financial position or
operating results that would have occurred had the transaction been consummated
on the date, or at the beginning of the periods, for which the transaction is
being given effect nor is it necessarily indicative of future operating results
or financial position.
Continental Resources, Inc. and Subsidiaries
Unaudited Pro Forma Balance Sheets
June 30, 2001
Continental Farrar Oil Pro Forma
Resources, Inc. Company Pro Forma Continental
(As Reported) (As Reported) Adjustments Resources, Inc.
------------- ------------- ----------- ---------------
ASSETS (Dollars in thousands)
Current Assets
Cash and cash equivalents $ 7,456 $ 5,313 $ (5,313)(1) $ 7,456
Accounts receivable-
Oil and gas sales 12,144 1,861 (1,861)(1) 12,144
Joint interest and other 7,343 140 (140)(1) 7,343
Inventories 5,675 453 497 (2) 6,625
Prepaid expenses 326 89 (89)(1) 326
Advances to affiliates 1,990 -- -- 1,990
--------- --------- --------- ---------
Total current assets 34,934 7,856 (6,906) 35,884
Property and Equipment:
Oil and gas properties-
Producing properties 339,169 46,088 (15,485)(2) 369,772
Non-producing properties 47,805 61 1,056 (2) 48,922
Gas gathering and processing facilities 26,581 -- -- 26,581
Service properties, equipment and other 16,118 3,506 (2,506)(2) 17,118
--------- --------- --------- ---------
Total property and equipment 429,673 49,655 (16,935) 462,393
Less-Accumulated depreciation, depletion & amortization (157,576) (35,627) 35,627 (3) (157,576)
--------- --------- --------- ---------
Net property and equipment 272,097 14,028 18,692 304,817
Other Assets:
Deferred loan costs 5,218 -- -- 5,218
Other assets 5 10 (10)(1) 5
--------- --------- --------- ---------
Total other assets 5,223 10 (10) 5,223
TOTAL ASSETS $ 312,254 $ 21,894 $ 11,776 $ 345,924
========= ========= ========= =========
See accompanying notes to unaudited pro forma financial statements.
Continental Resources, Inc. and Subsidiaries
Unaudited Pro Forma Balance Sheets
June 30, 2001
Continental Farrar Oil Pro Forma
Resources, Inc. Company Pro Forma Continential
(As Reported) (As Reported) Adjustments Resources, Inc.
------------- ------------- ----------- ---------------
(Dollars in thousands)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 14,527 $ 365 $ (365)(4) $ 14,527
Current portion of long-term debt -- -- 5,400 (5) 5,400
Revenues and royalties payable 5,413 30 (30)(4) 5,413
Accrued liabilities and other 10,075 612 (612)(4) 10,075
--------- --------- --------- ---------
Total current liabilities 30,015 1,007 4,393 35,415
Long-term Debt, net of current portion 136,350 -- 28,270 (5) 164,620
Other Noncurrent Liabilities 93 -- -- 93
Commitments and contingencies (Note 6)
Stockholders' Equity:
Common stockholders' equity 144 32 (32)(6) 144
Treasury stock, at cost -- (252) 252 (6) --
Additional paid-in capital 25,087 3,780 (3,780)(6) 25,087
Retained earnings 120,565 17,327 (17,327)(6) 120,565
--------- --------- --------- ---------
Total stockholders' equity 145,796 20,887 (20,887) 145,796
--------- --------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 312,254 $ 21,894 $ 11,776 $ 345,924
========= ========= ========= =========
Continental Resources, Inc. and Subsidiaries
Unaudited Pro Forma Statements of Operations
For the Six Months Ended June 30, 2001
Continental Farrar Oil Pro Forma
Resources, Inc. Company Pro Forma Continential
(As Reported) (As Reported) Adjustments Resources, Inc.
------------- ------------- ----------- ---------------
(Dollars in thousands)
Revenue
Oil and gas sales $ 62,825 $ 11,498 -- $ 74,323
Crude oil marketing sales 132,416 -- -- 132,416
Gathering, marketing and processing 24,424 -- -- 24,424
Oil and gas service operations 4,065 21 -- 4,086
--------- --------- --------- ---------
Total revenues 223,730 11,519 -- 235,249
Operating costs and expenses
Production expenses 14,397 2,293 -- 16,690
Production taxes 4,915 328 -- 5,243
Exploration expense 4,171 275 -- 4,446
Crude oil marketing purchases and expenses 132,095 -- -- 132,095
Gathering, marketing and processing 20,299 -- -- 20,299
Oil and gas service operations 3,049 17 -- 3,066
Depreciation, depletion and amortization 12,266 1,554 3,357 (7) 17,177
General and administrative 5,381 790 -- 6,171
--------- --------- --------- ---------
Total operating costs and expense 196,573 5,257 3,357 205,187
Operating income 27,157 6,262 (3,357) 30,062
Other income and expense
Interest income 413 108 -- 521
Interest expense (7,206) (5) (1,313)(8) (8,524)
Other income 1,986 315 -- 2,301
--------- --------- --------- ---------
Total other (expense) income (4,807) 418 (1,313) (5,702)
Income before income taxes 22,350 6,680 (4,670) 24,360
Federal and state income taxes benefit (expense) -- -- -- --
NET INCOME $ 22,350 $ 6,680 $ (4,670) $ 24,360
========= ========= ========= =========
Earnings (loss) per common share
Basic $ 1.56 $ 1.69
Diluted $ 1.55 $ 1.68
See accompanying notes to unaudited pro forma financial statements.
Continental Resources, Inc. and Subsidiaries
Unaudited Pro Forma Statements of Operations
For the Year Ended December 31, 2000
Continental Farrar Oil Pro Forma
Resources, Inc. Company Pro Forma Continential
(As Reported) (As Reported) Adjustments Resources, Inc.
------------- ------------- ----------- ---------------
(Dollars in thousands)
Revenue
Oil and gas sales $ 115,478 $ 19,229 -- $ 134,707
Crude oil marketing sales 279,834 -- -- 279,834
Gathering, marketing and processing 32,758 -- -- 32,758
Oil and gas service operations 7,656 235 -- 7,891
--------- --------- --------- ---------
Total revenues 435,726 19,464 -- 455,190
Operating costs and expenses
Production expenses 20,301 4,561 -- 24,862
Production taxes 9,506 491 -- 9,997
Exploration expense 13,321 188 -- 13,509
Crude oil marketing purchases and expenses 278,809 -- -- 278,809
Gathering, marketing and processing 27,593 -- -- 27,593
Oil and gas service operations 5,582 184 -- 5,766
Depreciation, depletion and amortization 21,945 3,586 6,463 (7) 31,994
General and administrative 10,358 1,250 -- 11,608
--------- --------- --------- ---------
Total operating costs and expense 387,415 10,260 6,463 404,138
Operating income 48,311 9,204 (6,463) 51.052
Other income and expense
Interest income 756 66 -- 822
Interest expense (15,786) (176) (2,886)(8) (18,848)
Other income 4,499 (119) -- 4,380
--------- --------- --------- ---------
Total other (expense) income (10,531) (229) (2,886) (13,646)
Income before income taxes 37,780 8,975 (9,349) 37,406
Federal and state income taxes benefit (expense) -- -- -- --
NET INCOME $ 37,780 $ 8,975 $ (9,349) $ 37,406
========= ========= ========= =========
Earnings per common share
Basic $ 2.63 $ 2.60
Diluted $ 2.62 $ 2.59
See accompanying notes to unaudited pro forma financial statements.
CONTINENTAL RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Method of accounting for the acquisition
Continental Resources accounted for the asset purchase using the purchase
method of accounting for business combinations. Accordingly, Farrar's assets
acquired and liabilities assumed by Continental were revalued and recorded at
their estimated fair market values. In the acquisition, Continental purchased
the oil and gas assets of Farrar and its subsidiary and is entitled to the net
cash flow of the assets subsequent to the transaction's effective date, May 15,
2001. Continental did not acquire any of Farrar's non oil and gas related assets
or working capital and did not assume any long-term debt.
PRO FORMA ADJUSTMENTS
1. This adjustment eliminates assets not included in the assets purchased by
the Company.
2. This adjustment reflects the allocation of the purchase price to the assets
acquired by the Company as follows (in thousands):
Current assets - inventories $ 950
Producing properties 30,603
Non-producing properties 1,117
Service properties, equipment and other 1,000
--------
Total purchase price $ 33,670
========
The purchase price allocation is subject to changes in:
o The fair value of the net cash flow of the acquired assets subsequent to
the effective date
o Satisfactory cure of identified title defects by the seller, and
o The actual costs incurred in connection with the asset purchase.
Management does not believe the final purchase price will differ materially
from the estimated purchase price allocation.
3. This adjustment eliminates the accumulated depreciation recorded prior to
the acquisition by the Company.
4. This adjustment eliminates liabilities not assumed in the acquisition of
the Farrar Oil Company assets.
5. This adjustment reflects borrowings under the Company's revolving credit
agreement to fund the purchase of the assets of Farrar Oil Company.
6. This adjustment eliminates the historical equity of Farrar Oil Company to
reflect the Company's asset purchase.
7. To adjust depreciation and amortization to reflect estimated pro forma
depreciation based upon the Company's allocated purchase price basis in the
fixed assets.
8. This adjustment increases interest expense to reflect estimated pro forma
interest expense on the $33.7 million borrowed by the Company to finance
the acquisition of the assets of Farrar Oil Company.
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.
Continental Resources, Inc.
(Registrant)
Date September 21, 2001 By ROGER V. CLEMENT
Roger V. Clement
Senior Vice President and
Chief Financial Officer