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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT UNDER 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
For the transition period from to
------------ ------------
Commission file number 0-22664
PATTERSON ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 75-2504748
incorporation or organization) (I.R.S. Employer Identification No.)
P.O. BOX 1416, 4510 LAMESA HIGHWAY, SNYDER, TEXAS, 79550
(Address of principal executive offices) (Zip Code)
(915) 573-1104
(Registrant's telephone number, including area code)
No change
(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 [ ]
As of May 11, 2000 the issuer had outstanding 32,794,880 shares of common stock,
$0.01 par value, its only class of voting stock.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
INDEX
PAGE
Report of Independent Accountants................................................................ 3
Part I - Financial Information
Item 1. Financial Statements
Unaudited condensed consolidated balance sheets............................ 4
Unaudited condensed consolidated statements of operations.................. 6
Unaudited condensed consolidated statement of stockholders' equity......... 7
Unaudited condensed consolidated statements of cash flows.................. 8
Notes to unaudited condensed consolidated financial statements............. 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................... 15
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995......................... 16
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K............................................... 17
Signatures....................................................................................... 21
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REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
of Patterson Energy, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Patterson Energy, Inc. and its subsidiaries as of March 31, 2000 and the related
condensed consolidated statements of operations and of cash flows for each of
the three month periods ended March 31, 2000 and 1999 and the related condensed
consolidated statement of stockholders' equity for the three month period ended
March 31, 2000. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with accounting principles generally accepted in the United
States.
We previously audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1999, and the related
consolidated statements of operations and of cash flows for the year then ended
(not presented herein), and in our report dated February 24, 2000, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 1999 is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
May 15, 2000
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FOLLOWING UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INCLUDE ALL ADJUSTMENTS WHICH IN THE OPINION OF MANAGEMENT ARE NECESSARY IN
ORDER TO MAKE SUCH FINANCIAL STATEMENTS NOT MISLEADING.
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
December 31, March 31,
1999 2000
------------ ------------
(in thousands, except
share data)
Current assets:
Cash and cash equivalents ................................ $ 8,792 $ 10,455
Accounts receivable:
Trade, less allowance for doubtful accounts of $365,000
at December 31, 1999 and March 31, 2000 .............. 41,571 50,151
Oil and natural gas sales ............................. 803 879
Costs of uncompleted drilling contracts in
excess of related billings ............................ 87 44
Inventory ................................................ 1,970 1,754
Deferred income taxes .................................... 964 1,192
Undeveloped oil and natural gas properties held for resale 2,658 3,396
Other current assets ..................................... 1,919 2,714
------------ ------------
Total current assets ................................. 58,764 70,585
Property and equipment, at cost, net ......................... 133,824 142,538
Intangible assets, net ....................................... 41,818 41,077
Other assets ................................................. 1,851 2,751
------------ ------------
Total assets ......................................... $ 236,257 $ 256,951
============ ============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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5
PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
December 31, March 31,
1999 2000
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(in thousands, except share data)
Current liabilities:
Current maturities of notes payable ......................... $ -- $ 2,073
Accounts payable:
Trade .................................................... 23,676 29,288
Revenue distribution ..................................... 2,407 3,058
Other .................................................... 1,201 1,620
Accrued federal income taxes payable ........................ -- 700
Accrued expenses ............................................ 4,432 6,187
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Total current liabilities ............................... 31,716 42,926
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Deferred income taxes, net ...................................... 1,688 1,646
Deferred liabilities ............................................ 65 59
Notes payable, less current maturities .......................... 50,000 57,835
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51,753 59,540
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Commitments and contingencies ................................... -- --
Stockholders' equity:
Preferred stock, par value $.01; authorized 1,000,000 shares,
no shares issued .......................................... -- --
Common stock, par value $.01; authorized 50,000,000 shares
with 32,675,678 and 32,760,400 issued at December 31, 1999
and March 31, 2000, respectively .......................... 327 330
Additional paid-in capital ................................... 117,597 120,030
Retained earnings ............................................ 34,864 35,775
Treasury stock, at cost, 300,000 shares at March 31, 2000 .... -- (1,650)
------------ ------------
Total stockholders' equity .............................. 152,788 154,485
------------ ------------
Total liabilities and stockholders' equity .............. $ 236,257 $ 256,951
============ ============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
----------------------------
1999 2000
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(in thousands, except per share data)
Operating revenues:
Drilling ............................... $ 22,457 $ 51,157
Drilling fluids ........................ 2,933 4,365
Oil and natural gas sales .............. 936 2,484
Other .................................. 412 560
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26,738 58,566
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Operating costs and expenses:
Direct drilling costs .................. 19,890 41,835
Drilling fluids ........................ 2,517 3,547
Lease operating and production ......... 321 632
Exploration costs ...................... 155 168
Dry holes and abandonments ............. 3 --
Depreciation, depletion and amortization 7,086 7,717
General and administrative expense ..... 1,637 2,196
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31,609 56,095
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Operating income (loss) .................... (4,871) 2,471
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Other income (expense):
Net gain on sale of assets ............. 58 43
Interest income ........................ 100 113
Interest expense ....................... (1,053) (1,193)
Other .................................. 17 (20)
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(878) (1,057)
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Income (loss) before income taxes .......... (5,749) 1,414
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Income tax expense (benefit):
Current ................................ (3,214) 731
Deferred ............................... 1,328 (228)
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(1,886) 503
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Net income (loss) .......................... $ (3,863) $ 911
============ ============
Net income (loss) per common share:
Basic .................................. $ (0.12) $ 0.03
============ ============
Diluted ................................ $ (0.12) $ 0.03
============ ============
Weighted average number of common shares
outstanding:
Basic .................................. 32,240 32,553
============ ============
Diluted ................................ 32,240 33,972
============ ============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
Common Stock
---------------------------------
Number of Additional Retained Treasury
Shares Amount paid-in capital earnings Stock Total
--------------- --------------- --------------- --------------- --------------- ------------
Balance, December 31, 1999... 32,676 $ 327 $ 117,597 $ 34,864 $ -- $ 152,788
Issuance of common stock .... 384 3 2,433 -- -- 2,436
Treasury stock acquired ..... (300) -- -- -- (1,650) (1,650)
Net income .................. -- -- -- 911 -- 911
--------------- --------------- --------------- --------------- --------------- ------------
Balance, March 31, 2000 ..... 32,760 $ 330 $ 120,030 $ 35,775 $ (1,650) $ 154,485
=============== =============== =============== =============== =============== ============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
----------------------------
1999 2000
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(in thousands)
Cash flows from operating activities:
Net income (loss) ................................................ $ (3,863) $ 911
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation, depletion and amortization ........................ 7,086 7,717
Net gain on sale of assets ...................................... (58) (43)
Deferred income tax expense (benefit) ........................... 1,328 (228)
Decrease in deferred compensation liabilities ................... (6) (6)
Change in operating assets and liabilities:
(Increase) decrease in trade accounts receivable ... 4,756 (7,440)
Increase in oil and natural gas sales receivable ... (238) (76)
Decrease in inventory............................... 320 225
Increase in accrued federal income taxes
receivable .................................. (715) --
Increase in undeveloped oil and natural gas
properties .................................. (285) (738)
(Increase) decrease in other current assets ........ (320) 656
Increase (decrease) in trade accounts payable ...... (803) 4,984
Increase in revenue distribution payable ........... 251 651
Increase in accrued expenses ....................... 233 1,488
Increase in accrued federal income taxes payable.... -- 700
Increase in other current payables ................. 37 419
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Net cash provided by operating activities ...... 7,723 9,220
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Cash flows from investing activities:
Purchase of fixed assets through acquisitions ................... -- (2,933)
Purchases of other assets through acquisition ................... -- (2,328)
Purchases of property and equipment ............................. (2,260) (11,271)
Sales of property and equipment ................................. 112 55
Change in other assets .......................................... 1 (234)
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Net cash used in investing activities ................. (2,147) (16,711)
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Cash flows from financing activities:
Purchase of treasury stock ...................................... -- (1,650)
Proceeds from notes payable ..................................... -- 9,908
Payments of notes payable ....................................... (2,143) --
Proceeds from exercise of stock options ......................... -- 896
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Net cash provided by (used in)
financing activities ............................... (2,143) 9,154
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Net increase in cash and cash equivalents ............. 3,433 1,663
Cash and cash equivalents at beginning of period ..................... 8,986 8,792
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Cash and cash equivalents at end of period ........................... $ 12,419 $ 10,455
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ...................................................... $ 1,053 $ 1,193
Income taxes .................................................. $ -- $ --
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS- CONTINUED
(Unaudited)
Supplemental disclosure of cash flow information - continued:
During the first quarter of 2000, the Company issued 53,000 shares of
its common stock valued at $29.0625 per share as partial consideration for 100%
of the outstanding stock of WEK Drilling Co., Inc. In addition, $5.66 million of
proceeds provided by the Company's credit facility were used to fund the
acquisition for a total purchase price of $7.2 million (See Note 2).
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Patterson
Energy, Inc. ("Patterson") and its wholly-owned subsidiaries, Patterson (GP)
LLC, Patterson (LP) LLC, Patterson Drilling Company LP, LLLP, Lone Star Mud LP,
LLLP, Patterson Petroleum LP, LLLP, and Patterson Petroleum Trading Company LP,
LLLP (collectively referred to hereafter as the "Company"). All significant
intercompany accounts and transactions have been eliminated.
The interim condensed consolidated financial statements have been
prepared by management of the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company believes the
disclosures included herein are adequate to make the information presented not
misleading. In the opinion of management, all adjustments (consisting of only
normal recurring accruals) considered necessary for presentation of the
information have been included. The unaudited condensed consolidated balance
sheet as of December 31, 1999, as presented herein, was derived from the audited
balance sheet, but does not include all disclosures required by generally
accepted accounting principles.
The Company provides a dual presentation of its earnings per share;
Basic Earnings per Share ("Basic EPS") and Diluted Earnings per Share ("Diluted
EPS"). Basic EPS is based on the weighted average number of shares outstanding
during the year. Diluted EPS includes common stock equivalents, which are
dilutive to earnings per share. For the three months ended March 31, 2000, the
dilutive securities, consisting of certain stock options and warrants, were
approximately 1.4 million. Dilutive securities of approximately 1.4 million were
excluded from the March 31, 1999 calculation of Diluted EPS as a result of the
Company's net loss for that three-month period.
The results of operations for the three months ended March 31, 2000,
are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 1999 consolidated
financial statements in order for them to conform with the 2000 presentation.
2. RECENT ACQUISITION
On March 31, 2000, the Company acquired 100% of the outstanding stock of
WEK Drilling Co., Inc., a privately held, non-affiliated drilling company with
its principal operations in southeast New Mexico, for an aggregate purchase
price of $7.2 million. The assets acquired included four operable contract
drilling rigs and other related equipment and working capital of approximately
$1.2 million. Three of the rigs have depth capacities greater than 12,000 feet
with the other rig having a depth rating of 10,500 feet. The acquisition was
funded using $5.66 million of proceeds from the Company's credit facility and
53,000 shares of the Company's common stock valued at $29.0625 per share.
Certain assets, unrelated to the contract drilling business, were sold back to
one of the previous owners for a cash payment of $1.0 million. The acquisition
was accounted for as a purchase and the related results of operations and cash
flows have been included in the condensed consolidated financial statements
since the date of acquisition.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
3. STOCKHOLDERS' EQUITY
On February 1, 2000, in accordance with the Asset Purchase Agreement
between the Company and Padre Industries, Inc., the Company exercised its option
to buy back 300,000 shares at $5.50 per share, of the 800,000 shares initially
given as consideration for the Company's acquisition of the drilling assets of
Padre Industries, Inc.
On March 31, 2000, the Company issued 53,000 shares of its common stock as
partial consideration for the acquisition of 100% of the outstanding stock of
WEK Drilling Co. (See Note 2). The common stock was recorded at its fair market
value on the date of the transaction of $29.0625 per share.
4. BUSINESS SEGMENTS
The Company conducts its business through three distinct operating
activities: contract drilling of oil and natural gas wells, oil and natural gas
exploration, development, acquisition and production and providing drilling
fluid services to operators in the oil and natural gas industry. Separate
financial data for each of the Company's three business segments is provided
below.
MARCH 31, MARCH 31,
1999 2000
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(in thousands)
Revenues:
Contract drilling ............... $ 22,457 $ 51,157
Oil and natural gas ............. 1,348 3,044
Drilling fluids ................. 2,933 4,365
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Total operating revenues ............ $ 26,738 $ 58,566
========== ==========
Income (loss) from operations:
Contract drilling ............... $ (4,288) $ 2,011
Oil and natural gas ............. (132) 750
Drilling fluids ................. (434) (310)
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(4,854) 2,451
Net gain on sale of assets .......... 58 43
Interest income ..................... 100 113
Interest expense .................... (1,053) (1,193)
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Income (loss) before income taxes ... $ (5,749) $ 1,414
========== ==========
5. RECENTLY ISSUED ACCOUNTING STANDARD
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS No. 133") in June 1998. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement, as amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The provisions of SFAS No. 133 are
not expected to have a material impact to the Company's consolidated financial
statements.
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PATTERSON ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
6. SUBSEQUENT EVENT
On April 3, 2000, Patterson entered into a merger agreement with High
Valley Drilling, Inc., a privately owned entity based in Oklahoma City,
Oklahoma. The assets of High Valley consist of eight drilling rigs and other
related drilling equipment. Four of the rigs are diesel electric and four are
mechanical. Consideration for the rigs and equipment will consist of 1,150,000
unregistered shares of Patterson's common stock and three-year warrants to
acquire an additional 127,000 shares at an exercise price of $22.00 per share.
Patterson will provide certain registration rights with respect to the shares
and the warrant shares. Consummation of the acquisition is subject to, among
other matters, expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. The eight drilling rigs
range from 1,000 to 2,500 horsepower with drilling depth capacities ranging from
10,000 to 25,000 feet.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had working capital of approximately
$28.0 million and cash and cash equivalents of $10.5 million compared to working
capital of $27.0 million and cash and cash equivalents of $8.8 million at
December 31, 1999. For the three months ended March 31, 2000, the Company
generated net cash from operations of $9.2 million, which was partially
attributable to the Company's increased drilling activity in response to its
improved utilization rate of 65% for the quarter and the recovery of the market
price for the underlying commodities, and sold property and equipment for
proceeds of approximately $55,000. These funds were used primarily to acquire
and refurbish drilling and other related equipment of approximately $9.4 million
and to fund leasehold acquisition, exploration and development of $1.9 million.
On March 31, 2000, the Company acquired 100% of the outstanding stock
of WEK Drilling Co., Inc., a privately held, non-affiliated drilling company
with its principal operations in southeast New Mexico, for an aggregate purchase
price of $7.2 million. The assets acquired included four operable contract
drilling rigs and other related equipment and working capital of approximately
$1.2 million. Three of the rigs have depth capacities greater than 12,000 feet
with the other rig having a depth rating of 10,500 feet. The acquisition was
funded using $5.66 million of proceeds from the Company's credit facility with
Transamerica Equipment Financial Services Corporation and 53,000 shares of the
Company's common stock valued at $29.0625 per share. Certain assets, unrelated
to the contract drilling business, were sold back to one of the previous owners
for a cash payment of $1.0 million.
Management believes that the current level of cash and cash equivalents,
together with cash generated from operations should be sufficient to meet the
Company's immediate capital needs. From time to time, the Company reviews
acquisition opportunities relating to its business. The timing, size or success
of any acquisition and the associated capital commitments are unpredictable.
Should further opportunities for growth requiring capital arise, the Company
believes it would be able to satisfy these needs through a combination of
working capital, cash from operations, and either debt or equity financing.
However, there can be no assurance that such capital would be available.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2000 and 1999
For the three months ended March 31, 2000, contract drilling revenues
increased 128% from $22.5 million in the first quarter of 1999 to $51.2 million
in the same period of 2000. This increase in revenues was driven by a rise in
average rig utilization from 32% for the aforementioned period in 1999 to 65%
for that in 2000. Direct contract drilling expenses for the three months ended
March 31, 2000, were $41.8 million, or 82% of the contract drilling revenues ,
as compared to $19.9 million, or 89% of the contract drilling revenues for the
same period in 1999. General and administrative expense increased 22% for the
contract drilling segment, from $815,000 for the three months ended March 31,
1999, to approximately $1.0 million for the same period in 2000. Depreciation
and amortization expense for the contract drilling segment was $6.3 million for
the three months ended March 31, 2000, as compared to $6.1 million for the same
period in 1999. Combining these results for the contract drilling segment
presents operating income of $2.0 million for the three months ended March 31,
2000, as compared to an operating loss of $4.3 million for the same period in
1999. These results are reflective of increased productivity in the contract
drilling industry as evidenced by the increase in utilization, which is
primarily attributable to increases in oil prices as indicated below.
Oil and natural gas sales revenues were approximately $2.5 million for
the three months ended March 31, 2000, as compared to $936,000 in 1999. The
volume of oil and natural gas sold increased by 16% for the first three months
in 2000, as compared to the same three-month period in 1999. The average price
per Bbl of crude oil received was $28.47 in 2000, as compared to $10.08 in 1999,
and the average price per Mcf of natural gas was $2.62 in 2000, as compared to
$1.71 in 1999. General and administrative expenses for our oil and natural gas
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segment were $342,000 and $258,000 for the three month's ended March 31, 2000
and 1999, respectively. Exploration costs increased to $168,000 as of March 31,
2000, from $155,000 as of March 31, 1999. Depreciation and depletion expense was
$1.2 million in 2000, as compared to $744,000 in 1999. Other revenues generated
by our oil and natural gas segment, consisting primarily of fees generated from
lease operating activities, were $560,000 and $412,000 for the three-months
ended March 31, 2000 and 1999, respectively. Combining these results for the oil
and natural gas segment generates income from operations of $750,000 for the
three month period in 2000, as compared to a loss of $132,000 for that of 1999.
The increase in the segment's operating results was primarily attributable to
the increased commodity prices and production as stated above.
Operating revenues from the Company's drilling fluid services were
approximately $4.4 million and $2.9 million for the quarters ended March 31,
2000 and 1999, respectively. Related operating costs incurred were $3.5 million
for the first three months of 2000 as compared to $2.5 million in 1999. The
slight increase in operating margin was principally attributable to the upturn
in the oil and gas industry resulting from increased commodity prices as
discussed in the oil and gas section above. For the three months ended March 31,
2000, depreciation and amortization expense was $285,000 as compared to $289,000
in 1999. General and administrative expense for the drilling fluids segment
increased 46% to $822,000 for the three months ended March 31, 2000. For the
fiscal quarter ended March 31, 2000, the drilling fluids segment generated a net
loss from operations of approximately $310,000 as compared to a net operating
loss of approximately $434,000 for the comparative three-month period in 1999.
For the three months ended March 31, 2000, interest expense was $1.2
million as compared to $1.1 million for the same period in 1999. Interest income
for the first three months of 2000 was $113,000 as compared to $100,000 in 1999.
VOLATILITY OF OIL AND NATURAL GAS PRICES AND ITS IMPACT ON OPERATIONS
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and natural gas, both
with respect to its contract drilling and its oil and natural gas segments.
Historically, oil and natural gas prices and markets have been extremely
volatile. Prices are affected by market supply and demand factors as well as
actions of state and local agencies, the United States and foreign governments
and international cartels. All of these are beyond the control of the Company.
Any significant or extended decline in oil and/or natural gas prices will have a
material adverse effect on the Company's financial condition and results of
operations. Low level commodity prices beginning in the fourth quarter of 1997
and continuing into mid-1999 have adversely impacted the Company's operations.
Although there has been significant improvement in oil and natural gas prices
since mid-1999, Patterson expects oil and natural gas prices to continue to be
volatile and therefore to affect the financial condition and operations of
Patterson and its ability to access capital sources.
IMPACT OF INFLATION
The Company believes that inflation will not have a significant impact
on its financial position.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS No. 133") in June 1998. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement, as amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The provisions of SFAS No. 133 are
not expected to have a material impact on the Company's consolidated financial
statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to market risk associated with the floating
rate portion of the interest charged on the $50.0 million outstanding under its
credit facility and $9.4 million outstanding under additional notes with
Transamerica Equipment Financial Services Corporation. These instruments, which
mature on January 1, 2006, bear interest at LIBOR plus 3.51%. The Company's
exposure to interest rate risk due to changes in LIBOR is not expected to be
material and at March 31, 2000, the fair value of the obligation approximates
its related carrying value because the obligation bears interest at the current
market rate.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 2 of this Report contains
forward-looking statements which are made pursuant to the "safe harbor"
provisions of The Private Securities Litigation Reform Act of 1995. These
statements include, without limitation, statements relating to: liquidity;
financing of operations; continued volatility of oil and natural gas prices;
source and sufficiency of funds required for immediate capital needs and
additional rig acquisitions (if further opportunities arise); and such other
matters. The words "believes," "plans," "intends," "expected," "estimates" or
"budgeted" and similar expressions identify forward-looking statements. The
forward-looking statements are based on certain assumptions and analyses made by
the Company in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate in the circumstances. The Company does not undertake to update,
revise or correct any of the forward-looking information. Factors that could
cause actual results to differ materially from the Company's expectations
expressed in the forward-looking statements include, but are not limited to, the
following: intense competition in the contract drilling industry; low oil prices
and/or natural gas prices; adverse market conditions for contract drilling
services; drill-pipe shortages; labor shortages, primarily qualified drilling
rig personnel; insurance coverage limitations and requirements; inability to
acquire additional drilling rigs on terms favorable to the Company and the loss
of key personnel, particularly Cloyce A. Talbott and A. Glenn Patterson, the
Chairman and Chief Executive Officer and the President and Chief Operating
Officer of the Company, respectively. For a more complete explanation of these
various factors and others, see "Cautionary Statement for Purposes of the 'Safe
Harbor' Provisions of the Private Securities Litigation Reform Act of 1995"
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999, beginning on page 13.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The following exhibits are filed herewith or incorporated by reference:
2.1 Plan and Agreement of Merger dated October 14, 1993, between Patterson
Energy, Inc., a Texas corporation, and Patterson Energy, Inc., a
Delaware corporation, together with related Certificates of Merger. (1)
2.2 Agreement and Plan of Merger, dated April 22, 1996 among Patterson
Energy, Inc., Patterson Drilling Company and Tucker Drilling Company,
Inc. (2)
2.2.1 Amendment to Agreement and Plan of Merger, dated May 16, 1996 among
Patterson Energy, Inc., Patterson Drilling Company and Tucker Drilling
Company, Inc. (3)
2.3 Asset Purchase Agreement, dated June 4, 1997, among Patterson Energy
Inc., Patterson Drilling Company and Wes-Tex Drilling Company. (5)
2.3.1 Amendment to Asset Purchase Agreement, dated June 4, 1997, among
Patterson Energy Inc., Patterson Drilling Company and Wes-Tex Drilling
Company. (5)
2.4 Agreement and Plan of Merger, dated January 20, 1998, among Patterson
Energy, Inc., Patterson Onshore Drilling Company and Robertson Onshore
Drilling Company. (7)
2.5 Stock Purchase Agreement, dated January 5, 1998, among Patterson
Energy, Inc., Spencer D. Armour, III. And Richard G. Price. (19)
2.6 Stock Purchase Agreement, dated September 17, 1998, among Lone Star
Mud, Inc. and Mark Campbell (shareholder of Tejas Drilling Fluids,
Inc.). (4)
2.7 Asset Purchase Agreement, dated January 27, 1999, among Patterson
Energy, Inc., Patterson Drilling Company and Padre Industries, Inc.
(4)
2.8 Agreement and Plan of Merger, dated April 3, 2000, among Patterson
Energy, Inc. and High Valley Drilling, Inc.
3.1 Restated Certificate of Incorporation. (8)
3.1.1 Certificate of Amendment to the Certificate of Incorporation. (9)
3.2 Bylaws. (1)
4.1 Excerpt from Restated Certificate of Incorporation of Patterson Energy,
Inc. regarding authorized Common Stock and Preferred Stock. (10)
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10.1 Loan and Security Agreement dated December 21, 1999 among Patterson
Drilling Company and Transamerica Equipment Financial Services
Corporation. (18)
10.1.1 Promissory Note dated December 21, 1999 between Patterson Drilling
Company and Transamerica Equipment Financial Services Corporation. (18)
10.1.2 Corporate guarantees of Lone Star Mud, Inc. and Patterson Energy, Inc.
(18)
10.2 Aircraft Lease, dated December 20, 1999, (effective January 1, 2000)
between Talbott Aviation, Inc. and Patterson Energy, Inc. (18)
10.3 Participation Agreement, dated October 19, 1994, between Patterson
Petroleum Trading Company, Inc. and BHT Marketing, Inc. (12)
10.3.1 Participation Agreement dated October 24, 1995, between Patterson
Petroleum Trading Company, Inc. and BHT Marketing, Inc. (13)
10.4 Crude Oil Purchase Contract, dated October 19, 1994, between Patterson
Petroleum, Inc. and BHT Marketing, Inc. (12)
10.4.1 Crude Oil Purchase Contract, dated October 24, 1995, between Patterson
Petroleum, Inc. and BHT Marketing, Inc. (13)
10.5 Patterson Energy, Inc. 1993 Stock Incentive Plan, as amended. (15)
10.6 Patterson Energy, Inc. Non-Employee Directors' Stock Option Plan, as
amended. (16)
10.7 Model Form Operating Agreement. (17)
10.8 Form of Drilling Bid Proposal and Footage Drilling Contract. (17)
10.9 Form of Turnkey Drilling Agreement. (17)
15.1 Awareness Letter of Independent Accountants - PricewaterhouseCoopers
LLP
21.1 Subsidiaries of the registrant. (18)
27.1 Financial Data Schedule as of March 31, 2000 and for the three months
then ended.
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(1) Incorporated herein by reference to Item 27, "Exhibits" to Amendment
No. 2 to Registration Statement on Form SB-2 (File No. 33-68058-FW);
filed October 28, 1993.
(2) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated April 22, 1996 and filed on April 30, 1996.
(3) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated May 16, 1996 and filed on May 22, 1996.
(4) Incorporated herein by reference to Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K", to Form 10-K dated
December 31, 1998.
(5) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits", to Form 8-K dated June 3, 1997; filed June 11, 1997.
(6) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated November 14, 1997 and filed December 24,
1997.
(7) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits", to Form 8-K dated January 23, 1998; filed February 3, 1998.
(8) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended June 30,
1996; filed August 12, 1996.
(9) Incorporated herein by reference to Item 6. "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended June 30, 1997;
filed August 14, 1997.
(10) Incorporated herein by reference to Item 16, "Exhibits" to Registration
Statement on Form S-3 filed with the Securities Exchange Commission on
December 18, 1996.
(11) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits", to Form 8-K dated September 12, 1997; filed September 19,
1997.
(12) Incorporated herein by reference to Item 27, "Exhibits" to Post
Effective Amendment No. 1 to Registration Statement on Form SB-2 (File
No. 33-68058-FW).
(13) Incorporated by reference to Item 7, "Financial Statements and
Exhibits" to Form 10-KSB for the year ended December 31, 1995.
(14) Incorporated by reference to Item 5, "Other Items" to Form 8-K dated
December 1, 1995 and filed on January 16, 1996.
(15) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 333-47917); filed March 13, 1998.
(16) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471); filed November 4, 1997.
(17) Incorporated by reference to Item 27, "Exhibits" to Registration
Statement filed with the Securities and Exchange Commission on August
30, 1993.
(18) Incorporated by reference to Item 14, "Exhibits, Financial Statement
Schedules and Reports on Form 8-K" to Form 10-K dated December 31,
1999.
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(19) Incorporated herein by reference to Item 16, "Exhibits" to Registration
Statement on Form S-3 filed with the Securities Exchange Commission on
January 5, 1998.
(b) REPORTS ON FORM 8-K.
The following reports on Form 8-k were filed:
(1) Report dated March 31, 2000 announcing the Company's
consummation of the stock purchase agreement with WEK Drilling
Co., Inc. filed March 31, 2000.
(2) Report dated February 24, 2000 announcing the Company's
results from operations for the period ended December 31, 1999
filed February 24, 2000.
(3) Report dated February 7, 2000 announcing the Company's
acquisition of High Valley Drilling, Inc. filed February 7,
2000.
(4) Report dated February 3, 2000 announcing the Company's
repurchasing of 300,000 shares filed February 3, 2000.
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SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PATTERSON ENERGY, INC.
By: /s/ Cloyce A. Talbott
--------------------------------------
Cloyce A. Talbott
Chairman of the Board and
Chief Executive Officer
By: /s/ Jonathan D. Nelson
--------------------------------------
Jonathan D. (Jody) Nelson
Vice President-Finance
Chief Financial Officer
DATED: May 15, 2000
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
2.8 Agreement and Plan of Merger, dated April 3, 2000, among
Patterson Energy, Inc. and High Valley Drilling, Inc.
15.1 Awareness Letter of Independent Accountants,
PricewaterhouseCoopers LLP
27.1 Financial Data Schedule as of March 31, 2000 and for the
three months then ended.