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HELMERICH & PAYNE, INC. ANNUAL REPORT FOR 1996
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[REVENUE BREAKDOWN FOR 1996 PIE CHART]
International Contract Drilling - 34%
Domestic Contract Drilling - 28%
Oil & Gas Exploration & Production - 19%
Natural Gas Marketing - 15%
Investments and Other Income - 2%
Real Estate - 2%
FINANCIAL HIGHLIGHTS
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Years Ended September 30, 1996 1995
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Revenues $393,255,000 $306,721,000
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Income from Continuing Operations $ 45,426,000 $ 5,788,000
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Income per Share from
Continuing Operations $ 1.84 $ .24
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Net Income $ 72,566,000 $ 9,751,000
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Earnings Per Share $ 2.94 $ .40
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Dividends Paid Per Share $ .505 $ .50
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Capital Expenditures $109,747,000 $111,776,000
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Total Assets $821,914,000 $707,061,000
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President's Letter
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To the Co-owners of Helmerich & Payne, Inc.
The character issue was supposed to play a deciding role in the 1996
presidential election. Yet while nearly two-thirds of the electorate expressed
deep concerns over character flaws and the lack of truthfulness, Bill Clinton
was returned to the White House. With a strong economy at home and relative
peace abroad, our Faustian bargain seemed somewhat offset by the counterforce
of a Republican Congress. But an uneasy feeling lingers as we wonder if we did
the right thing.
Stretching for a positive spin, The New York Times said, "Scandals present an
opportunity in the second term for Bill Clinton to get back in touch with
integrity and honesty." If only it were that easy. Those virtues are
foundational building blocks of strong character, not last minute add-ons. It
is sad that we have come to expect so little from our political leadership.
Neither party was able to win the trust of the voter, and the widespread
cynicism produced the lowest turnout since 1928.
In the real world, character is important. We make careful judgment calls on a
person's character because it is the primary predictor of future performance.
Our own future performance as a Company is invariably linked to the measure of
our character. As we focus on growing the Company, we must continue to win and
retain customers by diligently earning their confidence and trust. That means
making sure we match our words with our actions on a daily basis. If mistakes
are made, they are faced up to and made right, not endlessly rationalized
away. Doing our best to correct problems, working hard to exceed expectations,
and dealing with people honestly wins customer loyalty.
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New technology and better solutions are transforming the oil patch. The best
companies look hard for innovative ideas and productive alliances. They know
finding a trustworthy partner that can complement their own team's effort
provides the best opportunity to create value. Delivering on that value
requires that we continue to excel at building the right team.
From the very beginning, we interview potential employees knowing how much
character matters. Once on the team, they will play a role in winning our
customers' trust, so first they must win ours. Of course, that works both
ways. Before we can hope to build relationships based on trust with customers,
trust must be shared within the Company. That happens on a daily basis, one
brick at a time.
Like building the house on the rock, we still believe holding one another to
high personal standards of character is the right thing to do.
Sincerely,
Hans Helmerich
December 15, 1996 President
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DRILLING HELMERICH & PAYNE INTERNATIONAL DRILLING CO.
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SUMMARY Helmerich & Payne International Drilling Co., a wholly-owned
subsidiary of Helmerich & Payne, Inc., owns and operates a drilling rig fleet
consisting of 66 land rigs located in the United States and South America, and
11 offshore platform rigs located in the Gulf of Mexico and offshore
California. Revenues and operating profit increased 19 and 46 percent
respectively in 1996, and earnings before interest, taxes, depreciation, and
amortization (EBITDA) increased 29 percent. Over the past decade, the Company
has put over $400 million back into its contract drilling business,
maintaining a modern and technologically advanced fleet of drilling rigs in
each of its key markets. The Company also continues to have a leadership
position in the U.S. offshore platform rig market and has established a
dominant and expanding presence in the active South American land drilling
markets of Venezuela and Colombia.
OFFSHORE OPERATIONS At the close of the year, the Company had 11 offshore
platform rigs, eight in the Gulf of Mexico and three offshore California.
Utilization averaged 70 percent in 1996, compared with 66 percent in 1995. In
addition, the Company has labor contracts on three Exxon-owned platform rigs
offshore California and, with Atwood Oceanics, Inc., is half owner of a newly
constructed and highly automated platform rig scheduled to begin operations in
1997 for Esso in the Bass Straits offshore Australia.
Rig 201, the Company's first rig to be deployed on a tension leg platform
(TLP), began work in May on Shell Offshore Inc.'s (SOI) Mars TLP in 2,933 feet
of water. TLP technology utilizes a hull structure which floats on the surface
of the water and is tied with flexible steel tendons to a foundation which has
been piled into the sea floor. TLP technology opens up several oil and gas
prospects around the world which were previously thought to be undevelopable
because of water depth. The Company is in the design and construction process
for two additional platform
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rigs for SOI TLPs in the Gulf of Mexico. The Ram/Powell TLP (rig 202) will
begin work in 1997 in 3,200 feet of water, and the Ursa TLP (rig 204) is
scheduled to begin operations in 1998 in approximately 4,000 feet of water.
Each of the new TLP rigs will be outfitted with the leading drilling
technology including top-drives and automated tubular handling systems.
Additionally, the Company received a third contract in 1996 to design, build,
and operate a minimum area, self-moving rig for an SOI fixed platform which
will be located in the Garden Banks block in the Gulf of Mexico. Rig 203 is
scheduled to deploy in early 1997 and will be used to develop SOI's subsalt
discovery called Enchilada.
UNITED STATES LAND OPERATIONS The U.S. land market remains the largest single
drilling market in the world with over 700 active land rigs. Consequently this
market is very competitive, and while margins are significantly better today
than they were ten years ago, most of the active rigs continue to earn at
levels insufficient to replenish the dwindling asset base. Recent census
figures show that the number of operable land rigs in the U.S. is less than
half that of a decade ago. Equipment wear and tear and migration toward more
profitable international markets will continue to reduce the number of land
rigs in the U.S., but because the market is large and has few barriers to
entry, a quick and sustainable return to high levels of profitability is
unlikely.
An average of 24 of the Company's land rigs worked continuously throughout
1996, and in the last month of the year 27 rigs out of the fleet of 30 were
working. The Company's rig fleet ranks among the newest and most modern in the
United States, and although the market is difficult in terms of profitability,
several operators are demanding the kinds of premium services provided by
Helmerich & Payne International Drilling Co.
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INTERNATIONAL OPERATIONS The proliferation of drilling activity in South
America, coupled with the Company's long experience in the region, has
provided ample opportunities for expansion over the past ten years. At the
close of 1996, Helmerich & Payne International Drilling Co. had 36 land rigs
in the countries of Venezuela (21), Colombia (10), Ecuador (3), and Bolivia
(2), with an average utilization of 85 percent. Revenues and operating profit
increased 23 percent and 48 percent respectively over the 1995 mark, largely
the result of a full year of service from new rigs sent to Colombia and
Venezuela during 1995.
Approximately 48 percent of international revenues comes from Colombia, where
the Company has ten rigs working on BP Exploration's Cusiana/Cupiagua field
development. Another 42 percent of international revenues comes from
activities in Venezuela where the major customers are Corpoven, S.A., and
Lagoven, S.A., subsidiaries of Petroleos de Venezuela, S.A. A growing number
of customers in Venezuela are international companies who have recently
started operations after the country reopened portions of its prolific reserve
basin to foreign investment. The Company moved three additional rigs to
Venezuela during 1996, two from the U.S. and one from Trinidad. At the close
of the year, helicopter rig 22 was in the process of being relocated from
Bolivia to Peru and is scheduled to begin working in January under a
multi-well contract with Shell Prospecting and Development Peru B.V.
SUMMARY Keeping the focus on the customer and providing the highest quality in
personnel, safety, service, and equipment will remain the Company's major
objective. There have been definite improvements in the industry, but the
environment is still very competitive across all market segments. Sustaining
growth and profitability will continue to require exemplary performance and
the commitment of human and financial resources that our customers have come
to expect from Helmerich & Payne International Drilling Co.
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EXPLORATION & PRODUCTION HELMERICH & PAYNE, INC.
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Helmerich & Payne, Inc. explores for, acquires, and produces oil and natural
gas primarily in the states of Kansas, Louisiana, Oklahoma, and Texas. Higher
oil and natural gas prices combined with a 31 percent increase in natural gas
sales volumes produced a 60 percent increase in exploration and production
revenues in 1996, compared with 1995. Operating profit increased sharply to
$26.3 million in 1996, compared with a loss of $24 million in 1995, which
included an impairment charge of $20 million under Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets."
Earnings before interest, taxes, depreciation, and impairment charges
increased nearly three-fold to $47 million in 1996, from $16 million in 1995.
The Company also engages in natural gas marketing activities through its
wholly-owned subsidiary Helmerich & Payne Energy Services, Inc., which matches
purchasers of natural gas with production belonging to the Company and other
third party producers. Revenues and operating profit from this Division also
increased sharply in 1996.
EXPLORATION AND DRILLING ACTIVITIES At the close of the year, the Company had
proved reserves of approximately 272.3 billion cubic feet (Bcf) of natural gas
and 6.5 million barrels of oil. The Company participated in the drilling of 63
(35 net) wells in 1996, 55 (28 net) of which were productive and 8 (7 net)
were dry holes. The highlight of the year was the Rocky East prospect which is
located in Washita County, Oklahoma, along a subterranean mountain front known
as the Wichita Uplift. The Company drilled six wells in the prospect with an
average working interest of 93 percent. Cumulative net production from the
Rocky East prospect was 2.6 Bcf of natural gas in 1996, approximately seven
percent of the year's total natural gas production. At the close of the year,
these wells were flowing at a combined gross rate approximating 20,000
thousand cubic feet (Mcf) per day. The Company is in the early stages of
exploring a
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geologically similar prospect southeast of Rocky East called Oakdale South. An
initial exploration well is being drilled and the Company has a 12.5 percent
working interest. Helmerich & Payne, Inc. has a significant acreage position
in the area with offset working interests ranging from 40 to 100 percent.
The Company continues to hold an acreage position in two Louisiana Austin
Chalk prospect areas. The Company has been involved in five wells in the
Masters Creek prospect located in Rapides Parish, Louisiana. The results from
these wells led the Company to participate in two additional wells with 16
percent working interests. West of Masters Creek is the Artillery Range
prospect where the Company is participating with carried interests in two
wells, and has plans for a third in 1997. The drilling in each of these areas
is deep, complex, and expensive, but the results so far have been encouraging
enough to warrant additional participation in the coming year. The Company has
net undeveloped leasehold interests in 2,300 acres in the Masters Creek
prospect area and 13,000 net undeveloped acres in the Artillery Range.
SUMMARY At the end of 1995, the Company began to restructure its exploration
and production group into geographically focused teams which are responsible
for exploring and developing key regions, primarily in the Mid-continent and
Gulf Coast areas. Although one year is not sufficient time to gauge the
outcome of the new structure, much has been accomplished during this period.
The 1996 exploration and development program led to the addition of more
reserves through drilling than in any other year this past decade. The
Company's strategic focus will continue to be the profitable growth of its
reserve base and production capacity, primarily from exploration and
development drilling.
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REAL ESTATE AND CHEMICALS
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Helmerich & Payne Properties, Inc., a wholly-owned subsidiary of Helmerich &
Payne, Inc., owns, manages, and develops commercial real estate exclusively in
the Tulsa, Oklahoma, area. The Company's properties have approximately 1.7
million square feet of leasable space and include one retail shopping center,
two office buildings, and six industrial warehouse and combination
office-warehouse developments. Overall occupancy improved to an average of 94
percent in 1996, compared with 87 percent in 1995. Revenue increased seven
percent, with most of the improvement coming from the six warehouse
developments where average occupancy jumped to 94 percent from 82 percent the
prior year. Operating profit increased 134 percent to $5.1 million in 1996,
compared with $2.2 million in 1995 which included a $2 million charge related
to Statement of Financial Accounting Standards No. 121.
The key holding in the Company's real estate portfolio is Utica Square
Shopping Center, which has approximately 400,000 square feet of retail space
and is centrally located in midtown Tulsa near Helmerich & Payne, Inc.
headquarters. During the year, Bath & Body Works and Gloria Jean's Gourmet
Coffee joined the many fine merchants in Utica Square which include
Williams-Sonoma, Saks Fifth Avenue, Miss Jackson's, Ann Taylor, and Banana
Republic.
Effective August 30, 1996, Helmerich & Payne, Inc. sold Natural Gas Odorizing,
Inc. (NGO) to a wholly-owned subsidiary of Occidental Petroleum Corporaton in
exchange for 2,018,928 shares of Occidental common stock. The divestiture
coincides with increasing capital demands in the Company's contract drilling
and exploration and production businesses and closes a very productive and
profitable relationship with NGO which spanned almost four decades. The impact
of this transaction is reflected as discontinued operations in the Company's
consolidated financial statements.
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REVENUES AND INCOME BY BUSINESS SEGMENTS
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HELMERICH & PAYNE, INC.
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Years Ended September 30, 1996 1995 1994
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(in thousands)
SALES AND OTHER REVENUES:
Contract Drilling - Domestic ................ $ 108,336 $ 93,890 $ 86,521
Contract Drilling - International ........... 135,695 110,695 98,111
--------- --------- ---------
Total Contract Drilling Division ......... 244,031 204,585 184,632
--------- --------- ---------
Exploration and Production .................. 76,643 47,986 58,884
Natural Gas Marketing ....................... 58,507 35,301 51,889
--------- --------- ---------
Total Oil and Gas Division ............... 135,150 83,287 110,773
--------- --------- ---------
Real Estate Division ........................ 8,082 7,570 7,803
Investments and Other Income ................ 5,992 11,279 6,944
--------- --------- ---------
Total Revenues ........................... $ 393,255 $ 306,721 $ 310,152
========= ========= =========
OPERATING PROFIT (LOSS):
Contract Drilling - Domestic ................ $ 10,066 $ 7,127 $ 5,874
Contract Drilling - International ........... 31,176 21,110 14,645
--------- --------- ---------
Total Contract Drilling Division ......... 41,242 28,237 20,519
--------- --------- ---------
Exploration and Production .................. 26,333 (23,961) 3,245
Natural Gas Marketing ....................... 3,415 1,892 1,525
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Total Oil and Gas Division ............... 29,748 (22,069) 4,770
--------- --------- ---------
Real Estate Division ........................ 5,055 2,157 4,460
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Total Operating Profit ................... 76,045 8,325 29,749
--------- --------- ---------
OTHER:
Miscellaneous operating ..................... (1,663) (1,624) (1,292)
Income from investments ..................... 5,782 10,846 6,303
General corporate expense ................... (9,083) (8,801) (8,908)
Interest expense ............................ (678) (407) (385)
Corporate depreciation ...................... (860) (851) (1,162)
--------- --------- ---------
Total Other .............................. (6,502) (837) (5,444)
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INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EQUITY IN INCOME OF AFFILIATE
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ........................ $ 69,543 $ 7,488 $ 24,305
========= ========= =========
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Note: This schedule is an integral part of Note 11 (pages 27-28) of the
financial statements that follow.
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MANAGEMENT'S DISCUSSION & ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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HELMERICH & PAYNE, INC.
BUSINESS ENVIRONMENT AND RISK FACTORS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. The
Company's future operating results may be affected by various trends and
factors which are beyond the Company's control. These include, among other
factors, changes in general economic conditions, rapid or unexpected changes
in technologies and uncertain business conditions that affect the Company's
businesses. Accordingly, past results and trends should not be used by
investors to anticipate future results or trends.
With the exception of historical information, the matters discussed below
under the headings "Results of Operations" and "Liquidity and Capital
Resources" may include forward-looking statements that involve risks and
uncertainties. The Company wishes to caution readers that a number of
important factors discussed in this report and in the Company's other reports
filed with the Securities and Exchange Commission, could affect the Company's
actual results and cause actual results to differ materially from those in the
forward-looking statements.
RESULTS OF OPERATIONS
Helmerich & Payne, Inc.'s net income for 1996 was $72,566,000 ($2.94 per
share), compared with net income of $9,751,000 ($.40 per share) in 1995, and
$24,971,000 ($1.02 per share) in 1994. Included in 1996 is $24,050,000 ($0.97
per share) of income from the sale of the Company's chemical subsidiary,
Natural Gas Odorizing, Inc. (NGO). Net income in 1995 included a non-cash,
non-recurring charge of $13,600,000 ($0.55 per share) as a result of the
Company's adoption of Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. Results for 1994 included $4 million ($0.16 per
share) of income due to a one-time reduction in the Company's deferred income
taxes from the cumulative effect of adopting SFAS No. 109, Accounting for
Income Taxes.
Included in the Company's net income, but not related to its operations, were
after-tax gains from the sale of investment securities of $346,000 ($0.01 per
share) in 1996, and $3,481,000 ($0.14 per share) in 1995. Also included was
the Company's portion of income of its equity affiliate,
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Atwood Oceanics, Inc., which was $0.07 per share of income in 1996 and $0.04
per share in both 1995 and 1994.
Company revenues from continuing operations increased to $393,255,000 in 1996,
from $306,721,000 in 1995, and $310,152,000 in 1994. Total revenues increased
by 28 percent from 1995 to 1996 as a result of increases in exploration and
production (60 percent), natural gas marketing (66 percent), international
drilling (23 percent) and domestic drilling (15 percent) segments. Contract
drilling revenues rose by 11 percent from 1994 to 1995. Oil and gas division
revenues declined by almost 25 percent for the same time period due primarily
to lower natural gas prices and production volumes.
Revenues from investments declined to $5,782,000 in 1996, after increasing to
$10,846,000 in 1995, from $6,303,000 in 1994. Gains from the sale of
investment securities were $566,000 in 1996, $5,697,000 in 1995, and $124,000
in 1994. Dividend income was stable during 1996, 1995 and 1994, but interest
income steadily decreased as cash balances and interest rates declined during
these periods.
Costs and expenses from continuing operations in 1996 were $323,712,000, 82
percent of total revenues, compared with 98 percent in 1995, and 92 percent in
1994. Total costs for 1995 were abnormally high due to the adoption of SFAS
No. 121 which resulted in a total pre-tax impairment charge of $22,000,000
recorded as additional depreciation, depletion, and amortization. Operating
costs as a percentage of operating revenues declined to 59 percent in 1996,
compared to 64 percent in 1995, and 66 percent in 1994.
General and administrative expenses increased to $9,083,000 (3 percent) in
1996, from $8,801,000 in 1995, and $8,908,000 in 1994. Income tax expense, as
a percentage of pre-tax income, remained at 37 percent for 1996 and 1995. A
lower effective tax rate of 33 percent in 1994 was caused by the usage of
foreign tax credit carryforwards, tight sands tax credits, and a reduction in
Venezuelan taxes as a result of the monetary correction tax law enacted there.
CONTRACT DRILLING DIVISION revenues increased by 19 percent from 1995 to 1996,
following an 11 percent increase from 1994 to 1995. Domestic drilling
operating profit increased to $10,066,000 in 1996, from $7,127,000 in 1995,
and $5,874,000 in 1994. The Company's total domestic revenues and operating
earnings increased this past year due primarily to the addition of offshore
platform rig 201 (which commenced operations in May for Shell's Mars Tension
Leg Platform (TLP)); increased revenues and earnings from the Company's three
offshore labor contracts; and a slight improvement in revenues and
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margins from U.S. land rig operations. This year's revenues and earnings
increased in both the offshore platform and lang rig segments as rig
utilizations for 1996 were 70 percent and 88 percent, respectively. From 1994
to 1995, offshore platform rig revenues and earnings declined as utilization
fell from 79 percent in 1994 to 66 percent in 1995. However, U.S. land rig
dayrates and margins improved as utilization for that segment rose from 66
percent in 1994, to 73 percent in 1995.
During the fourth quarter of 1996, three of the Company's platform rigs became
inactive. Another became inactive during the first quarter of fiscal 1997. Due
to the negative impact of those rigs not working, it is anticipated that
domestic contract drilling revenues and operating profit for the first half of
1997 could be the same or lower than that of the last half of 1996.
Revenues and operating profit should improve during the last half of 1997 with
the commencement of work in the spring for H&P rig 203 on Shell's Enchilada
platform and for H&P rig 202 on Shell's Ram/Powell TLP. Additionally, it is
anticipated that operating costs and dayrates for U.S. land rigs will increase
during the year as costs to maintain adquate rig crews will likely increase.
Most, if not all, of these costs will be passed on to customers through
increased dayrates. It is uncertain at this time whether dayrates can be
increased enough to improve land rig profit margins.
International revenues climbed to $135,695,000 in 1996, from $110,695,000 in
1995, and $98,111,000 in 1994. Operating profit for the international contract
drilling sector improved by 48 percent to $31,176,000 for 1996, compared with
$21,110,000 for 1995, and $14,645,000 for 1994. During 1995, six additional
rigs were shipped to Venezuela and three to Colombia. In 1996, three more rigs
were shipped to Venezuela. Revenues and operating profits generated by these
new rigs accounted for a significant portion of the international revenue and
earning increases the past two years. Additionally, H&P offshore platform rig
200, a joint venture with the Company's investment affiliate, Atwood Oceanics,
began receiving a standby rate during the year which helped increase profits.
Although the Company expects international revenues and earnings to continue
to grow, it does not anticipate the level of growth experienced during 1995
and 1996 to occur in 1997 because the Company does not expect to ship as many
rigs to international markets this year.
In Venezuela, approximately 65 percent of the Company's billings are in U.S.
dollars and the other 35 percent are in bolivars, the local currency. As a
result, the Company is exposed to risks of currency devaluation in Venezuela
because of the positive bolivar net working capital balances
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created by the local currency billings. Over the past three years, total net
devaluation losses in Venezuela have not been material because the Company has
been able to offset such losses through the purchase of Brady Bonds. A Brady
Bond is a dollar-denominated Venezuelan government debt that is guaranteed by
the U.S. government and traded on the world's major stock markets during
periods when Venezuela's currency was set at fixed exchange rates. Gains on
the bonds were realized because, soon after their initial availability, they
were trading at a premium of 30 to 50 percent above the official exchange
rate. Brady Bonds are no longer available and the currency is again allowed,
within a range, to float at market rates. Although devaluation losses will
likely occur, the Company does not presently believe that such losses will
have a material impact on the Company. However, if the country experiences
extreme economic difficulty, accompanied by severe devaluation and/or
inflation, the Company could experience material losses.
OIL AND GAS DIVISION revenues and operating profit increased dramatically this
year as average prices received for the Company's production rose to $19.00
per barrel of oil and $1.75 per Mcf of natural gas, from $16.37 per barrel and
$1.27 per Mcf last year. In 1994, average prices were $14.83 per barrel and
$1.72 per Mcf. Although oil production was flat over the past two years,
average natural gas production increased by 31 percent over last year to 94.4
million cubic feet per day (Mmcf/d) during 1996, compared with 72.4 Mmcf/d in
1995, and 73 Mmcf/d in 1994. The Company's natural gas production grew as a
result of allowing more of its existing reserves to be delivered to the market
and by virtue of discoveries and production of new natural gas reserves. The
most significant discovery was in southwestern Oklahoma in the Rocky East
field where a total of six wells were completed by the end of 1996 which added
a combined average of approximately 15 Mmcf/d of total net production to the
Company. Due to the significant increases in product prices and natural gas
production volume, exploration and production revenues increased by 60 percent
to $76,643,000 in 1996, from $47,986,000 in 1995, and $58,884,000 in 1994.
Exploration and production operating profit increased to $26,333,000 in 1996,
compared with a loss of $23,961,000 in 1995, and a profit of $3,245,000 in
1994.
In 1995, the Company elected to adopt SFAS No. 121, resulting in a pre-tax,
non-cash charge of $19,982,000 to the Oil and Gas Division. Earnings for 1996
were also aided by lower dry hole and abandonment charges, lower geophysical
expense and reduced depletion per production unit than in the previous two
years. During the past three years the Company has not hedged any of its oil
or natural gas production and does not intend to do so during 1997. Therefore,
increases or decreases in its product prices will affect its ongoing results
accordingly.
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A lawsuit was filed in an Oklahoma state court in November of 1995 against
Helmerich & Payne, Inc., in which five named plaintiffs, on behalf of
themselves and other unnamed plaintiffs, are demanding their royalty share of
a gas contract settlement. The plaintiffs are attempting to certify a class
which would contain certain of the Company's lessors and certain other mineral
owners who own an interest in wells covered by such gas contract settlement.
If a certified class is awarded a royalty share of the gas contract
settlement, then any such award could have a material impact on income from
continuing operations for the applicable quarter. Management believes that any
such award should not exceed approximately $2.7 million.
Natural gas marketing revenues, which are primarily derived from selling
natural gas produced by other companies (third party), increased to
$58,507,000 in 1996, from $35,301,000 in 1995, and $51,889,000 in 1994.
Operating profit was $3,415,000 in 1996, $1,892,000 in 1995, and $1,525,000 in
1994. The Company's approach has been to use the existing capacity of its
personnel and facilities to derive additional profit from matching its
customers with third party producers when the marketing situation is not
conducive to the sale of the Company's own natural gas. Although revenues are
likely to increase during periods of rising natural gas prices, it is expected
that competition will continue to limit fees and premiums for third party
natural gas sales.
REAL ESTATE DIVISION revenues of $8,082,000 for 1996 were up slightly over
1995 and 1994, and operating profit improved to $5,055,000 during 1996 as
occupancy levels increased, particularly in the Company's industrial
properties. Operating profit for 1995 was down from normal levels due to a
$2,000,000 charge to two properties in connection with the adoption of SFAS
No. 121. No major changes are anticipated in the Real Estate Division for
1997.
On August 30 of this year, the Company exchanged all of the stock in its
wholly-owned subsidiary and chemical division, Natural Gas Odorizing, Inc.
(NGO), for 2,018,928 shares of Occidental Petroleum Corporation common stock
in a tax-free transaction valued at $48 million. The sale yielded a gain of
$24.1 million (net of deferred income taxes of approximately $14.8 million)
which is reported as gain on sale of discontinued operations. Prior period
operating results for the division are reported as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has maintained a very strong balance sheet for many years with
current ratios above 1.74 for the last three years. During 1996, the Company
reduced its committed line of credit from $75 million
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to $50 million. At year-end, the Company had borrowed $5,000,000 under this
line of credit and had letters of credit outstanding in the amount of
$6,991,000. At the end of 1995, the Company had borrowed $21,700,000. The
borrowing in 1995 was the first time the Company had gone to outside sources
for capital funding since the early 1980's.
Capital expenditures for each of the last three years were over $100 million
and exceeded the funds generated internally during 1994 and 1995. Cash
provided by operating activities totaled $124,923,000 for 1996, $88,572,000
for 1995, and $79,909,000 for 1994. It is anticipated that during 1997 capital
expenditures will be approximately $130 million and, although internally
generated cash is projected to be slightly higher in 1997 than in 1996,
additional borrowing may be necessary. Capital expenditures budgeted for 1997
include continued exploration and development drilling activities and major
offshore platform rig construction projects for Gulf of Mexico operations.
Capital expenditure totals could be significantly increased by additional
projects now being considered. Additional borrowings and/or portfolio
liquidations would fund the potential increase in spending.
The Company manages a large portfolio of marketable securities which had a
cost basis of $138,599,000 at September 30, 1996, and a total market value at
that time of $274,994,000, including its investment in Atwood Oceanics, Inc.
During 1995, the Company adopted SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, which resulted in a balance sheet
adjustment to market values for investments in companies owned less than 20
percent. Accordingly, a deferred tax estimate was added to deferred taxes
under the liability section and the net unrealized holding gains were
reflected in the shareholders' equity section of the balance sheet. During
1996, the Company paid a dividend of $.505 per share which represented the
25th consecutive year of dividend increases.
- --------------------------------------------------------------------------------
STOCK PORTFOLIO HELD BY THE COMPANY
- --------------------------------------------------------------------------------
Number of
September 30, 1996 Shares Book Value Market Value
- --------------------------------------------------------------------------------
(in thousands,except share amounts)
Occidental Petroleum ................... 2,018,928 $ 48,000 $ 47,192
Atwood Oceanics, Inc. .................. 1,600,000 25,215 70,400
Schlumberger, Ltd. ..................... 740,000 23,511 62,530
Sun Company, Inc. ...................... 466,451 5,742 10,728
Sun Company PFD A ...................... 329,053 3,192 7,897
Phillips Petroleum Company ............. 240,000 5,976 10,260
Liberty Bancorp ........................ 395,000 5,743 15,010
Oryx Energy Company .................... 625,000 6,032 11,094
Oneok .................................. 225,000 2,751 6,188
Other .................................. 12,437 33,695
---------- ----------
Total ............................ $ 138,599 $ 274,994
========== ==========
16
17
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
HELMERICH & PAYNE, INC.
- ------------------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------
(in thousands,
except per share amounts)
REVENUES:
Sales and other operating revenues ................... $387,473 $295,875 $303,849
Income from investments .............................. 5,782 10,846 6,303
------------------------------
393,255 306,721 310,152
------------------------------
COSTS AND EXPENSES:
Operating costs ...................................... 229,584 188,497 201,637
Depreciation, depletion and amortization ............. 59,442 76,443 49,414
Dry holes and abandonments ........................... 7,986 10,095 10,369
Taxes, other than income taxes ....................... 16,939 14,990 15,134
General and administrative ........................... 9,083 8,801 8,908
Interest ............................................. 678 407 385
------------------------------
323,712 299,233 285,847
------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES, EQUITY IN INCOME OF AFFILIATE AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ............. 69,543 7,488 24,305
INCOME TAX EXPENSE ..................................... 25,803 2,786 8,101
EQUITY IN INCOME OF AFFILIATE
net of income taxes .................................. 1,686 1,086 904
------------------------------
INCOME FROM CONTINUING OPERATIONS ...................... 45,426 5,788 17,108
INCOME FROM DISCONTINUED OPERATIONS .................... 3,090 3,963 3,863
GAIN ON SALE OF DISCONTINUED OPERATIONS ................ 24,050 -- --
------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ................................. 72,566 9,751 20,971
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE .... -- -- 4,000
------------------------------
NET INCOME ............................................. $ 72,566 $ 9,751 $ 24,971
==============================
PER COMMON SHARE:
INCOME FROM CONTINUING OPERATIONS ...................... $ 1.84 $ .24 $ .70
INCOME FROM DISCONTINUED OPERATIONS .................... .13 $ .16 $ .16
GAIN ON SALE OF DISCONTINUED OPERATIONS ................ .97 -- --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE .... -- -- .16
------------------------------
NET INCOME ............................................. $ 2.94 $ .40 $ 1.02
==============================
AVERAGE COMMON SHARES OUTSTANDING ...................... 24,690 24,536 24,416
=========================================================================================
The accompanying notes are an integral part of these statements.
17
18
CONSOLIDATED BALANCE SHEETS
================================================================================
HELMERICH & PAYNE, INC.
ASSETS
- -------------------------------------------------------------------------------------------------
September 30, 1996 1995
- -------------------------------------------------------------------------------------------------
(in thousands)
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 16,892 $ 19,543
Short-term investments ............................................. 1,005 8,989
Accounts receivable, less reserve of $712 and $489 ................. 75,374 57,034
Inventories ........................................................ 16,915 19,329
Prepaid expenses and other ......................................... 4,182 5,628
Net assets of discontinued operations .............................. 6,836
-----------------------
Total current assets ........................................... 114,368 117,359
-----------------------
INVESTMENTS .......................................................... 229,809 156,908
-----------------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Contract drilling equipment ........................................ 568,110 501,682
Oil and gas properties ............................................. 401,804 392,806
Real estate properties ............................................. 46,970 46,642
Other .............................................................. 53,547 55,655
-----------------------
1,070,431 996,785
Less--Accumulated depreciation, depletion and amortization ......... 606,935 578,492
-----------------------
Net property, plant and equipment .............................. 463,496 418,293
-----------------------
OTHER ASSETS ......................................................... 14,241 14,501
-----------------------
TOTAL ASSETS ......................................................... $ 821,914 $ 707,061
=======================
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
18
19
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
September 30, 1996 1995
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
CURRENT LIABILITIES:
Accounts payable ...................................................................... $ 25,622 $ 25,462
Accrued liabilities ................................................................... 31,943 20,159
Notes payable ......................................................................... 5,000 21,700
-------------------
Total current liabilities ......................................................... 62,565 67,321
-------------------
NONCURRENT LIABILITIES:
Deferred income taxes ................................................................. 98,335 66,062
Other ................................................................................. 15,044 11,243
-------------------
Total noncurrent liabilities ....................................................... 113,379 77,305
-------------------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, 80,000,000 shares authorized,
26,764,476 shares issued ........................................................... 2,677 2,677
Preferred stock, no par value, 1,000,000 shares authorized,
no shares issued
Additional paid-in capital ............................................................ 50,410 48,436
Net unrealized holding gains .......................................................... 56,550 38,004
Retained earnings ..................................................................... 557,543 495,692
-------------------
667,180 584,809
Lesstreasury stock, 1,878,840 shares in 1996 and 1,999,856 shares in 1995, at cost .... 21,210 22,374
-------------------
Total shareholders' equity ...................................................... 645,970 562,435
-------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................................... $821,914 $707,061
===================
- -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
19
20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
===============================================================================
HELMERICH & PAYNE, INC.
Net
Common Stock Additional Unrealized Treasury Stock
------------------- Paid-In Holding Retained ----------------
Shares Amount Capital Gains Earnings Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Balance, September 30, 1993 ............. 26,764 $ 2,677 $ 47,412 $-- $ 482,405 2,127 $ (23,567)
Cash dividends ($.49 per share) ....... -- -- -- -- (12,097) -- --
Exercise of stock options ............. -- -- 549 -- -- (43) 415
Lapse of restrictions on
Restricted Stock Awards ............ -- -- (246) -- -- -- --
Stock issued under Restricted
Stock Award Plan ................... -- -- 481 -- (814) (30) 333
Amortization of deferred
compensation ....................... -- -- -- -- 1,815 -- --
Net income ............................ -- -- -- -- 24,971 -- --
-------------------------------------------------------------------------------------
Balance, September 30, 1994 ............. 26,764 2,677 48,196 -- 496,280 2,054 (22,819)
Adjustment to beginning balance
for change in accounting method,
net of income taxes of $21,106 ..... -- -- -- 34,435 -- -- --
Change in net unrealized holding
gains, net of income taxes
of $2,187 .......................... -- -- -- 3,569 -- -- --
Cash dividends ($.50 per share) ....... -- -- -- -- (12,372) -- --
Exercise of stock options ............. -- -- 859 -- -- (69) 615
Lapse of restrictions on
Restricted Stock Awards ............ -- -- (229) -- -- -- --
Forfeiture of Restricted Stock Award .. -- -- (390) -- 560 15 (170)
Amortization of deferred
compensation ...................... -- -- -- -- 1,473 -- --
Net income ............................ -- -- -- -- 9,751 -- --
-------------------------------------------------------------------------------------
Balance, September 30, 1995 ............. 26,764 2,677 48,436 38,004 495,692 2,000 (22,374)
Change in net unrealized holding
gains, net of income taxes
of $11,367 ........................ -- -- -- 18,546 -- -- --
Cash dividends ($.51 per share) ....... -- -- -- -- (12,670) -- --
Exercise of stock options ............. -- -- 2,197 -- -- (131) 1,274
Lapse of restrictions on
Restricted Stock Awards ........... -- -- (61) -- -- -- --
Forfeiture of Restricted Stock Award .. -- -- (162) -- 272 10 (110)
Amortization of deferred
compensation ...................... -- -- -- -- 1,683 -- --
Net income ............................ -- -- -- -- 72,566 -- --
-------------------------------------------------------------------------------------
Balance, September 30, 1996 ............. 26,764 $ 2,677 $ 50,410 $ 56,550 $ 557,543 1,879 $ (21,210)
=====================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
20
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
HELMERICH & PAYNE, INC.
- ----------------------------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . $ 72,566 $ 9,751 $ 24,971
Adjustments to reconcile net income to net
cash provided by operating activities-
Discontinued operations . . . . . . . . (27,140) (3,963) (3,863)
Depreciation, depletion and
amortization . . . . . . . . . . . . 59,442 76,443 49,414
Dry holes and abandonments . . . . . . 7,986 10,095 10,369
Cumulative effect of change in
accounting principle . . . . . . . . -- -- (4,000)
Equity in income of affiliate before
income taxes . . . . . . . . . . . . (2,720) (1,752) (1,458)
Amortization of deferred compensation 1,683 1,473 1,815
Gain on sale of securities . . . . . . (566) (5,697) (124)
Loss (gain) on sale of property,
plant and equipment, other . . . . . 776 (1,195) (2,539)
Change in assets and liabilities:
Accounts receivable . . . . . . . . (18,340) 275 (3,864)
Inventories . . . . . . . . . . . . 2,435 86 (3,260)
Prepaid expenses and other . . . . . 1,706 (2,768) 5,047
Accounts payable . . . . . . . . . . (1,115) 3,030 (1,317)
Accrued liabilties . . . . . . . . . 14,237 (2,701) 1,023
Deferred income taxes . . . . . . . 6,668 (1,630) 4,106
Other noncurrent liabilities . . . 3,802 2,563 (1,857)
-----------------------------------------------
Total adjustments . . . . . . . . . 48,854 74,259 49,492
-----------------------------------------------
Net cash provided by continuing
activities . . . . . . . . . . . 121,420 84,010 74,463
Net cash provided by discontinued
operations . . . . . . . . . . . 3,503 4,562 5,446
-----------------------------------------------
Net cash provided by operating
activities . . . . . . . . . . . 124,923 88,572 79,909
-----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including dry hole
costs, from continuing operations . . . . (109,985) (109,901) (102,264)
Proceeds from sale of property, plant and
equipment . . . . . . . . . . . . . . . . 3,987 2,923 5,971
Purchase of investments . . . . . . . . . . (1,196) (12,858) (1,500)
Proceeds from sale of investments . . . . . 619 11,713 373
Discontinued operations . . . . . . . . . . (2,746) (977) (619)
Purchase of short-term investments . . . . -- -- (12)
Proceeds from sale of short-term
investments 7,984 7 124
-----------------------------------------------
Net cash used in investing
activities . . . . . . . . . . . . (101,337) (109,093) (97,927)
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term debt . . . . . . -- -- (3,139)
Proceeds from notes payable . . . . . . . . 35,000 37,100 --
Payments made on notes payable . . . . . . (51,700) (15,400) --
Dividends paid . . . . . . . . . . . . . . (12,530) (12,365) (11,965)
Proceeds from exercise of stock options . . 2,993 1,282 913
-----------------------------------------------
Net cash provided by (used in)
financing activities . . . . . . . . (26,237) 10,617 (14,191)
-----------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . (2,651) (9,904) (32,209)
CASH AND CASH EQUIVALENTS, beginning of
period . . . . . . . . . . . . . . . . . . 19,543 29,447 61,656
-----------------------------------------------
CASH AND CASH EQUIVALENTS, end of period . . $ 16,892 $ 19,543 $ 29,447
===============================================
- ----------------------------------------------------------------------------------------------------
21
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
HELMERICH & PAYNE, INC. September 30, 1996,1995 and 1994
- -------------------------------------------------------------------------------
NOTE 1 SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
CONSOLIDATION -
The consolidated financial statements include the accounts of Helmerich &
Payne, Inc. (the Company), and all of its wholly-owned subsidiaries. Fiscal
years of the Company's foreign consolidated operations end on August 31 to
facilitate reporting of consolidated results.
TRANSLATION OF FOREIGN CURRENCIES -
The Company has determined that the functional currency for its foreign
subsidiaries is the U.S. dollar. Foreign currency transaction gains for 1996
and 1995 were $764,000 and $1,845,000, respectively, with a loss of $2,764,000
for 1994.
USE OF ESTIMATES -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
PROPERTY, PLANT AND EQUIPMENT -
The Company follows the successful efforts method of accounting for oil and gas
properties. Under this method, the Company capitalizes all costs to acquire
mineral interests in oil and gas properties, to drill and equip exploratory
wells which find proved reserves and to drill and equip development wells.
Geological and geophysical costs, delay rentals and costs to drill exploratory
wells which do not find proved reserves are expensed. Capitalized costs of
producing oil and gas properties are depreciated and depleted by the
unit-of-production method based on proved developed oil and gas reserves
determined by the Company and reviewed by independent engineers. Undeveloped
leases are amortized based on management's estimate of recoverability. Costs of
surrendered leases are charged to the amortization reserve.
Effective July 1, 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", which requires impairment losses
to be evaluated for long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover the assets carrying amount. Adoption of SFAS No. 121 resulted in a
before-tax impairment charge of $22 million which is included in depreciation,
depletion and amortization expense. After-tax, the impairment charge reduced
1995 net income by $13.6 million, $.55 per share. The before-tax impairment
charges included $20 million for proved Exploration and Production properties
and $2 million for Real Estate properties. The Company evaluates impairment of
exploration and production assets on a field by field basis. Fair values on
all long-lived assets are based on discounted future cash flows or information
provided by sales and purchases of similar assets.
Substantially all property, plant and equipment other than oil and gas
properties is depreciated using the straight-line method based on the
following estimated useful lives:
- ----------------------------------------------------
YEARS
- ----------------------------------------------------
Contract drilling equipment ................. 4-10
Real estate buildings and equipment ......... 10-50
Other ....................................... 3-33
- ----------------------------------------------------
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents consist of cash in banks and investments readily
convertible into cash which mature within three months from the date of
purchase.
INVENTORIES -
Inventories, primarily materials and supplies, are valued at the lower of cost
(moving average or actual) or market.
DRILLING REVENUE -
Substantially all drilling contracts are daywork contracts and drilling
revenues and expenses are recognized as work progresses.
GAS IMBALANCES -
The Company recognizes revenues from gas wells on the sales method, and a
liability is recorded for permanent imbalances.
INVESTMENTS -
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", effective October 1, 1994. SFAS No. 115 requires that
available-for-sale securities be carried at their fair value determined based
on quoted market prices. Upon adoption of SFAS No. 115, the Company recorded an
increase to shareholders' equity of $34 million, which was net of income taxes
of $21 million.
The cost of securities used in determining realized gains and losses is based
on average cost of the security sold.
Investments in companies owned from 20 to 50 percent are accounted for using
the equity method with the Company recognizing its proportionate share of the
income or loss of each investee. The Company owned 23.9 percent and 24.14
percent of Atwood Oceanics, Inc. (Atwood) at September 30, 1996 and 1995,
respectively. The quoted market value of the Company's investment was
$70,400,000 and $32,100,000 at September 30, 1996 and 1995, respectively.
Retained earnings at September 30, 1996 include approximately $13,034,000 of
undistributed earnings of Atwood.
- --------------------------------------------------------------------------------
22
23
Summarized financial information of Atwood is as follows:
- ----------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------
(in thousands)
Gross revenues ........................................ $ 84,760 $ 77,315 $ 68,045
Costs and expenses .................................... 73,392 70,255 62,045
-------- -------- --------
Net income ............................................ $ 11,368 $ 7,060 $ 6,000
======== ======== ========
Helmerich & Payne, Inc.'s equity in net income,
net of income taxes ............................. $ 1,686 $ 1,086 $ 904
======== ======== ========
Current assets ........................................ $ 44,170 $ 34,266 $ 37,965
Noncurrent assets ..................................... 115,139 118,587 115,065
Current liabilities ................................... 18,019 20,505 13,752
Noncurrent liabilities ................................ 35,736 37,456 53,000
Shareholders' equity .................................. 105,554 94,892 86,278
======== ======== ========
Helmerich & Payne, Inc.'s investment .................. $ 25,215 $ 22,495 $ 20,743
======== ======== ========
- ----------------------------------------------------------------------------------------
INCOME TAXES -
Effective October 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement No. 109, deferred income taxes
are computed using the liability method and are provided on all temporary
differences between the financial basis and the tax basis of the Company's
assets and liabilities.
OTHER POST EMPLOYMENT BENEFITS -
The Company sponsors a health care plan that provides post retirement medical
benefits to retired employees. Employees who retire after November 1, 1992 and
elect the Company's coverage pay the entire estimated cost of such benefits.
The Company has accrued a liability for estimated workers compensation claims
incurred. The liability for other benefits to former or inactive employees
after employment but before retirement is not material.
EARNINGS PER SHARE -
Earnings per share are based on the weighted average number of shares of
common stock outstanding during the year. Common stock equivalents are
insignificant, and therefore, have not been considered in the earnings per
share computation.
- -------------------------------------------------------------------------------
NOTE 2 SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS
- -------------------------------------------------------------------------------
The Company maintains a line of credit agreement with certain banks which
provides for maximum borrowing of $50,000,000 at adjustable interest rates.
Under the agreement, $50,000,000 may be borrowed through May 1997, and
$10,000,000 may be borrowed through May 1998. As of September 30, 1996, the
Company had borrowed $5,000,000 at a rate of 8.25% and had letters of credit
outstanding in the amount of $6,991,000, leaving an unused portion of
$38,009,000. Under the line of credit agreement the Company must meet certain
requirements regarding levels of debt, net worth and earnings.
The Company has an additional $14.0 million line of credit with a bank to be
used primarily for letters of credit. As of September 30, 1996, the Company had
letters of credit outstanding in the amount of $2,547,222 leaving an unused
portion of $11,452,778.
- -------------------------------------------------------------------------------
NOTE 3 INCOME TAXES
- -------------------------------------------------------------------------------
Effective October 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes." The cumulative effect of
adopting Statement No. 109 as of October 1, 1993 was to increase net income by
$4,000,000.
The components of the provision (credit) for income taxes from continuing
operations are as follows:
- -------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- -------------------------------------------------------------------------------
(in thousands)
CURRENT:
Federal ........................ $ 8,909 $ (802) $ 1,451
Foreign ........................ 11,037 6,104 2,677
State .......................... 1,050 276 649
--------------------------------
20,996 5,578 4,777
--------------------------------
DEFERRED:
Federal ........................ 3,757 (3,083) (29)
Foreign ........................ 725 534 3,430
State ............................. 325 (243) (77)
--------------------------------
4,807 (2,792) 3,324
--------------------------------
TOTAL PROVISION: .................. $ 25,803 $ 2,786 $ 8,101
================================
- -------------------------------------------------------------------------------
23
24
- --------------------------------------------------------------------------------
The amounts of domestic and foreign income are as follows:
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES, EQUITY IN INCOME OF AFFILIATE AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:
Domestic ......................................... $ 41,299 $(11,399) $ 11,885
Foreign .......................................... 28,244 18,887 12,420
-------------------------------
$ 69,543 $ 7,488 $ 24,305
===============================
- ----------------------------------------------------------------------------------------
Effective income tax rates on income from continuing operations as compared to
the U.S. Federal income tax rate are as follows:
- -------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- -------------------------------------------------------------------------------
U.S. Federal income tax rate ..................... 35% 35% 35%
Dividends received deduction ..................... (1) (8) (3)
Excess statutory depletion ....................... -- (3) (1)
Effect of higher foreign tax rates ............... 2 19 4
Non-conventional fuel source credits utilized .... (1) (8) (2)
Other, net ....................................... 2 2 --
--------------------
Effective income tax rate ........................ 37% 37% 33%
====================
- -------------------------------------------------------------------------------
The components of the Company's net deferred tax liabilities are as follows:
- -------------------------------------------------------------------------------
At September 30, 1996 1995
- -------------------------------------------------------------------------------
(in thousands)
DEFERRED TAX LIABILITIES:
Property, plant and equipment ............. $ 46,706 $ 39,921
Available-for-sale securities ............. 49,889 23,293
Pension provision ......................... 4,720 4,774
Equity investment ......................... 4,840 3,920
Other ..................................... 709 919
-------- --------
Total deferred tax liabilities ......... 106,864 72,827
-------- --------
DEFERRED TAX ASSETS:
Financial accruals ........................ 5,213 4,733
Other ..................................... 3,316 2,032
-------- --------
Total deferred tax assets .............. 8,529 6,765
-------- --------
NET DEFERRED TAX LIABILITIES ................ $ 98,335 $ 66,062
======== ========
- -------------------------------------------------------------------------------
NOTE 4 STOCK OPTIONS, AWARD PLAN AND RIGHTS
- -------------------------------------------------------------------------------
The Company has reserved 1,179,962 shares of its treasury stock to satisfy the
exercise of stock options issued under the 1982 and 1990 Stock Option Plans.
Options awarded under these plans are granted at prices equal to at least
market price on the date of grant. Options granted under the 1982 plan have a
term of nine years while options granted under the 1990 plan have a term of
seven years. Options granted under both plans become exercisable in increments
as outlined in the plans.
Activity for the incentive stock option plans, was as follows:
- ----------------------------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
Outstanding at October 1, ....................................... 841,271 835,879 780,079
Granted ......................................................... 247,000 107,750 110,250
Exercised ....................................................... (140,015) (78,094) (46,510)
Cancelled ....................................................... (94,146) (24,264) (7,940)
-------- -------- --------
Outstanding at September 30, .................................... 854,110 841,271 835,879
======== ======== ========
Exercisable at September 30, .................................... 74,224 110,399 70,889
======== ======== ========
Weighted average exercise price of options outstanding .......... $ 27.25 $ 26.39 $ 25.65
======== ======== ========
Weighted average exercise price of options exercised ............ $ 23.51 $ 19.68 $ 21.77
======== ======== ========
- ----------------------------------------------------------------------------------------------------
24
25
- -------------------------------------------------------------------------------
The Financial Accounting Standards Board has issued a new accounting standard,
FAS No. 123 "Accounting for Stock-Based Compensation", effective for fiscal
years beginning after December 15, 1995. As provided for in the standard, the
Company will not adopt the recognition provisions and will provide the pro
forma net income and earnings-per-share disclosures required by the standard
in its annual financial statements for the year ending September 30, 1997. The
Company currently follows Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees". Under this standard, because the
exercise price of the Company's fixed plan common stock options equals the
market price of the underlying stock on the date of the grant, no compensation
expense is recognized.
As of September 30, 1996, the Company has issued 360,000 shares of treasury
stock under a Restricted Stock Award Plan (the "Plan"). The Company recognized
deferred compensation totalling $12,832,000, which was the fair market value
of the stock at the time of issuance, as a reduction of retained earnings.
Treasury stock was reduced by the book value of the shares issued, $4,058,000.
The difference was recognized as an increase in paid-in capital. The deferred
compensation is being amortized over a seven-year period as compensation
expense. The unamortized balance at September 30, 1996 and 1995 was $1,235,000
and $3,189,000, respectively. Restrictions lapsed with respect to 68,000
shares, 61,000 shares and 61,000 shares in 1996, 1995 and 1994, respectively,
and the shares were released to Plan participants. There were forfeitures of
10,000 and 15,000 shares in 1996 and 1995, respectively.
On January 8, 1996, the Company extended the benefits afforded by its existing
rights plan by adopting a new stockholder rights plan. On September 30, 1996,
the Company had 24,885,636 outstanding common stock purchase rights
("Rights"). Under the terms of the new plan each Right entitled the holder
thereof to purchase from the Company a unit consisting of one one-thousandth
of a share of Series A Junior Participating Preferred Stock ("Preferred
Stock"), without par value, at a price of $90 per unit. The exercise price and
the number of units of Preferred Stock issuable on exercise of the Rights are
subject to adjustment in certain cases to prevent dilution. The Rights will be
attached to the common stock certificates and are not exercisable or
transferrable apart from the common stock, until 10 business days after a
person acquires 15% or more of the outstanding common stock or 10 business
days following the commencement of a tender offer or exchange offer that would
result in a person owning 15% or more of the outstanding common stock. In the
event the Company is acquired in a merger or certain other business
combination transactions (including one in which the Company is the surviving
corporation), or more than 50% of the Company's assets or earning power is
sold or transferred, each holder of a Right shall have the right to receive,
upon exercise of the Right, common stock of the acquiring company having a
value equal to two times the exercise price of the Right. The Rights are
redeemable under certain circumstances at $.01 per Right and will expire,
unless earlier redeemed, on January 31, 2006. As long as the Rights are not
separately transferrable, the Company will issue one Right with each new share
of common stock issued.
- -------------------------------------------------------------------------------
NOTE 5 FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------
Short-term investments consist mainly of U.S. treasury notes carried at cost,
which approximates fair value. Notes payable bear interest at market rates and
are carried at cost which approximates fair value.
The following is a summary of available-for-sale securities, which excludes
those accounted for under the equity method of accounting (see Note 1):
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------
(in thousands)
Equity Securities:
September 30, 1996 $ 113,384 $92,081 $871 $204,594
September 30, 1995 $ 64,804 $61,455 $158 $126,101
During the years ended September 30, 1996, 1995, and 1994, marketable equity
available-for-sale securities with a fair value at the date of sale of
$619,000, $11,713,000 and $373,000, respectively, were sold. The gross realized
gains on such sales of available-for-sale securities totaled $596,000,
$5,734,000 and $124,000, respectively, and the gross realized losses totaled
$30,000, $37,000 and $0, respectively.
- -------------------------------------------------------------------------------
NOTE 6 DISCONTINUED OPERATIONS
- -------------------------------------------------------------------------------
Effective August 30, 1996, Helmerich & Payne, Inc. exchanged all of the common
stock of its wholly-owned subsidiary, Natural Gas Odorizing, Inc. (NGO), to
Occidental Petroleum Corporation (OPC) for 2,018,928 shares of OPC common
stock with a fair market value of approximately $48 million. The sale yielded
a gain of $24.1 million (net of deferred income taxes of approximately $14.8
million) which is reported as gain on sale of discontinued operations. NGO
comprised the Company's chemical operations. Prior period operating results
for such operations are reported as discontinued operations. Summarized
operating results of discontinued operations are as follows:
- -------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- -------------------------------------------------------------------------------
(in thousands)
Revenues .................................... $19,540 $19,055 $18,849
Operating Profit ............................ 5,656 6,221 5,994
Provision for income taxes .................. 2,566 2,258 2,131
Income from discontinued operations ......... 3,090 3,963 3,863
The assets and liabilities that were transferred to OPC in the sale are
presented in the Consolidated Balance Sheet on a net basis at September 30,
1995. Net assets consist of current assets ($4.5 million), net property, plant
and equipment ($5.4 million), less current liabilities ($2.3 million) and other
liabilities ($0.8 million).
- -------------------------------------------------------------------------------
25
26
- -------------------------------------------------------------------------------
NOTE 7 EMPLOYEE BENEFIT PLANS
- -------------------------------------------------------------------------------
DEFINED BENEFIT PLANS:
The Company has noncontributory pension plans covering substantially all of its
employees, including certain employees in foreign countries. The Company makes
annual contributions to the plans equal to the maximum amount allowable for tax
reporting purposes. Future service benefits are determined using a 1.5 percent
career average formula.
The net periodic pension expense (credit) included the following components:
- ----------------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- ----------------------------------------------------------------------------------------
(in thousands)
Service cost-benefits earned during the year .......... $ 1,979 $ 1,589 $ 1,557
Interest cost on projected benefit obligations ........ 1,553 1,301 1,191
Return on plan assets ................................. (3,214) (2,798) (2,639)
Net amortization and deferral ......................... (304) (301) (302)
------- ------- -------
Net pension expense (credit) .................. $ 14 $ (209) $ (193)
======= ======= =======
The discount rates used in determining the actuarial value of the projected
benefit obligation for 1996, 1995 and 1994 were 7.75%, 7.25% and 7.5%,
respectively. The average expected rate of return on plan assets was 8.5% for
1996, 1995 and 1994. The assumed rate of increase in compensation was 5.0% for
1996, 1995 and 1994.
The following table sets forth the plans' funded status and amounts recognized
in the balance sheet:
- ----------------------------------------------------------------------------------------------
At September 30, 1996 1995
- ----------------------------------------------------------------------------------------------
(in thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation .......................................... $ 17,376 $ 16,199
======== ========
Accumulated benefit obligation ..................................... $ 20,675 $ 19,215
======== ========
Projected benefit obligation ....................................... $ 23,534 $ 21,735
======== ========
Plan assets at fair value, primarily listed stocks, U.S. Government
securities and guaranteed insurance contracts ...................... $ 42,609 $ 38,114
======== ========
Projected benefit obligation less than plan assets .................... $ 19,075 $ 16,379
Unrecognized net gain, including unrecognized
net assets existing at October 1, 1987 ............................. (8,430) (5,959)
Unrecognized prior service cost ....................................... 1,740 1,978
-------- --------
Prepaid pension cost .................................................. $ 12,385 $ 12,398
======== ========
- ----------------------------------------------------------------------------------------------
DEFINED CONTRIBUTION PLAN:
Substantially all employees on the United States payroll of the Company may
elect to participate in the Company sponsored Thrift/401(K) Plan by
contributing a portion of their earnings. The Company contributes amounts equal
to 100 percent of the first five percent of the participant's compensation
subject to certain limitations. Expensed Company contributions were $1,908,000,
$1,735,000 and $1,588,000 in 1996, 1995 and 1994, respectively.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 8 ACCRUED LIABILITIES
- -------------------------------------------------------------------------------
Accrued liabilities consist of the following:
- -------------------------------------------------------------------------------
At September 30, 1996 1995
- -------------------------------------------------------------------------------
(in thousands)
Accrued royalties payable ................... $ 7,709 $ 5,977
Accrued taxes payable - operations .......... 4,645 2,521
Accrued income taxes payable ................ 4,915 388
Accrued workers compensation claims ......... 2,561 1,280
Accrued equipment cost ...................... 2,197 4,017
Other ....................................... 9,916 5,976
------- -------
$31,943 $20,159
======= =======
- -------------------------------------------------------------------------------
26
27
- -------------------------------------------------------------------------------
NOTE 9 SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- -------------------------------------------------------------------------------
(in thousands)
Cash payments:
Interest paid ..................... $ 798 $ 408 $ 371
Income taxes paid:
Continuing operations ........... 15,491 2,102 7,059
Discontinued operations ......... 2,563 2,522 2,457
Noncash investing activity:
Accrued equipment cost ............ $ 2,197 $ 4,016 $ 3,000
- -------------------------------------------------------------------------------
NOTE 10 RISK FACTORS
- -------------------------------------------------------------------------------
CONCENTRATIONS OF CREDIT -
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high
quality financial institutions and limits the amount of credit exposure to any
one financial institution. The Company's trade receivables are primarily with
a variety of companies in the oil and gas industry. Management requires
collateral for certain receivables of customers in its natural gas marketing
operations.
INTERNATIONAL OPERATIONS -
International drilling operations are significant contributors to the
Company's revenues and net profit. It is possible that operating results could
be affected by the risks of such activities, including economic conditions in
the international markets in which the Company operates, political and
economic instability, fluctuations in currency exchange rates, changes in
international regulatory requirements, international employment issues, and
the burden of complying with foreign laws. These risks may adversely affect
the Company's future operating results and financial position.
- -------------------------------------------------------------------------------
NOTE 11 SEGMENT INFORMATION
- -------------------------------------------------------------------------------
The Company operates principally in the contract drilling and oil and gas
industries. The contract drilling operations consist of contracting
Company-owned drilling equipment primarily to major oil and gas exploration
companies. The Company's primary international areas of operation include
Venezuela, Colombia and Ecuador. Oil and gas activities consist of ownership
of mineral interests in productive oil and gas leases and undeveloped leases
located primarily in Oklahoma, Texas, Kansas and Louisiana. Intersegment
sales, which are accounted for in the same manner as sales to unaffiliated
customers, are not material. Operating profit is total revenue less operating
expenses. In computing operating profit, the following items have not been
considered: equity in income of affiliate; income from investments; general
corporate expenses; interest expense; and domestic and foreign income taxes.
Identifiable assets by segment are those assets that are used in the Company's
operations in each segment. Corporate assets are principally cash and cash
equivalents, short-term investments and investments in marketable securities.
Revenues from one company doing business with the contract drilling segment
accounted for approximately 19 percent, 18 percent, and 14 percent of the
total consolidated revenues during the years ended September 30, 1996, 1995
and 1994, respectively. Collectively, revenues from three companies controlled
by the Venezuelan government accounted for approximately 12.8 percent and 13.4
percent of total consolidated revenues for the year ended September 30, 1996
and 1995, respectively.
Summarized revenues and operating profit by industry segment for the years
ended September 30, 1996, 1995 and 1994 are located on page 10. Additional
financial information by industry segment is as follows:
- --------------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- --------------------------------------------------------------------------------------
(in thousands)
Net Income (loss):
Contract Drilling - Domestic ................... $ 6,796 $ 4,506 $ 3,697
Contract Drilling - International .............. 17,693 12,106 8,459
Exploration and Production ..................... 17,335 (13,906) 2,710
Natural Gas Marketing .......................... 2,247 1,230 869
Real Estate Division ........................... 3,121 1,324 2,751
Other .......................................... (3,452) (558) (2,282)
Equity in income of affiliate .................. 1,686 1,086 904
-------- -------- --------
Net income from Continuing Operations ........ $ 45,426 $ 5,788 $ 17,108
Change in accounting principle ................. -- -- 4,000
Discontinued operations ........................ 27,140 3,963 3,863
-------- -------- --------
Net Income ..................................... $ 72,566 $ 9,751 $ 24,971
======== ======== ========
- --------------------------------------------------------------------------------------
27
28
- -------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- -------------------------------------------------------------------------------
(in thousands)
Identifiable assets:
Contract drilling - Domestic ............... $169,363 $138,359 $132,804
Contract drilling - International .......... 213,171 188,587 131,767
Exploration and Production ................. 141,058 142,474 175,003
Natural Gas Marketing ...................... 15,602 10,192 8,846
Real Estate division ....................... 23,628 24,380 26,958
Corporate and other ........................ 259,092 196,233 133,442
Discontinued operations .................... -- 6,836 12,869
-------- -------- --------
$821,914 $707,061 $621,689
======== ======== ========
Depreciation, depletion and amortization:
Contract drilling - Domestic ............... $ 13,879 $ 12,111 $ 10,990
Contract drilling - International .......... 22,120 19,557 15,722
Exploration and Production ................. 20,299 39,895 19,523
Natural Gas Marketing ...................... 725 298 290
Real Estate division ....................... 1,455 3,623 1,624
Corporate and other ........................ 964 959 1,265
-------- -------- --------
Continuing operations .................... 59,442 76,443 49,414
Discontinued operations .................. 754 672 654
-------- -------- --------
$ 60,196 $ 77,115 $ 50,068
======== ======== ========
Capital expenditures:
Contract drilling - Domestic ............... $ 57,004 $ 32,503 $ 31,692
Contract drilling - International .......... 24,801 55,044 25,723
Exploration and Production ................. 24,320 20,956 45,809
Natural Gas Marketing ...................... 435 252 76
Real Estate division ....................... 776 907 916
Corporate and other ........................ 830 1,255 1,048
-------- -------- --------
Continuing operations .................... 108,166 110,917 105,264
Discontinued operations .................. 1,581 859 619
-------- -------- --------
$109,747 $111,776 $105,883
======== ======== ========
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 12 SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING
ACTIVITIES
- -------------------------------------------------------------------------------
All of the Company's oil and gas producing activities are located in the United
States.
Results of Operations from Oil and Gas Producing Activities -
- -----------------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- -----------------------------------------------------------------------------------------
(in thousands)
Revenues .............................................. $ 76,643 $ 47,986 $ 58,884
-------- -------- --------
Production costs ...................................... 20,080 18,035 18,854
Exploration expense and valuation provisions .......... 9,931 14,017 17,262
Depreciation, depletion and amortization .............. 20,299 39,895 19,523
Income tax expense (benefit) .......................... 9,187 (7,243) 890
-------- -------- --------
Total cost and expenses ............................. 59,497 64,704 56,529
-------- -------- --------
Results of operations (excluding corporate overhead
and interest costs) ................................. $ 17,146 $(16,718) $ 2,355
======== ======== ========
- -----------------------------------------------------------------------------------------
Capitalized Costs -
- ---------------------------------------------------------------------------------------
At September 30, 1996 1995
- ---------------------------------------------------------------------------------------
(in thousands)
Properties being amortized:
Proved properties ............................................. $392,562 $384,755
Unproved properties ........................................... 9,242 8,051
-------- --------
Total costs being amortized ................................. 401,804 392,806
Less - Accumulated depreciation, depletion and amortization ..... 269,994 257,988
-------- --------
Net ....................................... $131,810 $134,818
======== ========
- ---------------------------------------------------------------------------------------
28
29
- -------------------------------------------------------------------------------
Costs Incurred Relating to Oil and Gas Producing Activities -
- -------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- -------------------------------------------------------------------------------
(in thousands)
Property acquisition:
Proved .................. $ 256 $ 1,228 $23,115
Unproved ................ 3,178 1,565 4,893
Exploration ............... 9,874 13,497 12,418
Development ............... 14,131 9,703 12,888
------- ------- -------
Total ................... $27,439 $25,993 $53,314
======= ======= =======
- -------------------------------------------------------------------------------
Estimated Quantities of Proved Oil and Gas Reserves (Unaudited) -
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 those which are expected to be recovered through existing wells with
existing equipment and operating methods. The following is an analysis of
proved oil and gas reserves as estimated by the Company and reviewed by
independent engineers.
- -------------------------------------------------------------------------------------
OIL (Bbls.) GAS (Mmcf)
- -------------------------------------------------------------------------------------
Proved reserves at September 30, 1993 ................. 6,883,199 289,445
Revisions of previous estimates ....................... 302,200 (819)
Extensions, discoveries and other additions ........... 261,114 8,818
Production ............................................ (887,455) (26,628)
Purchases of reserves-in-place ........................ 159,580 19,900
Sales of reserves-in-place ............................ (8,427) (64)
--------- -------
Proved reserves at September 30, 1994 ................. 6,710,211 290,652
Revisions of previous estimates ....................... 124,361 5,222
Extensions, discoveries and other additions ........... 328,539 8,775
Production ............................................ (808,058) (26,421)
Purchases of reserves-in-place ........................ 310 1,934
Sales of reserves-in-place ............................ (26,251) (116)
--------- -------
Proved reserves at September 30, 1995 ................. 6,329,112 280,046
Revisions of previous estimates ....................... 629,154 5,098
Extensions, discoveries and other additions ........... 298,986 21,311
Production ............................................ (809,571) (34,535)
Purchases of reserves-in-place ........................ 21,912 647
Sales of reserves-in-place ............................ (1,477) (266)
--------- -------
Proved reserves at September 30, 1996 ................. 6,468,116 272,301
========= =======
Proved developed reserves at
September 30, 1994 .................................. 6,649,672 267,688
========= =======
September 30, 1995 .................................. 6,270,216 262,319
========= =======
September 30, 1996 .................................. 6,441,803 261,519
========= =======
- -------------------------------------------------------------------------------------
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves (Unaudited) -
The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure
requirement under Financial Accounting Standards Board Statement No. 69. The
Standardized Measure does not purport to present the fair market value of a
company's proved oil and gas reserves. This would require consideration of
expected future economic and operating conditions, which are not taken into
account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by applying
year-end prices to the estimated future production of year-end proved
reserves. Future cash inflows were reduced by estimated future production and
development costs based on year-end costs to determine pre-tax cash inflows.
Future income taxes were computed by applying the statutory tax rate to the
excess of pre-tax cash inflows over the Company's tax basis in the associated
proved oil and gas properties. Tax credits and permanent differences were also
considered in the future income tax calculation. Future net cash inflows after
income taxes were discounted using a ten percent annual discount rate to
arrive at the Standardized Measure.
- -------------------------------------------------------------------------------
29
30
- -------------------------------------------------------------------------------------
At September 30, 1996 1995
- -------------------------------------------------------------------------------------
(in thousands)
Future cash inflows ........................................ $ 549,033 $ 429,259
Future costs -
Future production and development costs .................. (193,047) (173,633)
Future income tax expense ................................ (98,158) (63,183)
--------- ---------
Future net cash flows ...................................... 257,828 192,443
10% annual discount for estimated timing of cash flows ..... (103,964) (81,509)
--------- ---------
Standardized Measure of discounted future net cash flows ... $ 153,864 $ 110,934
========= =========
- -------------------------------------------------------------------------------------
Changes in Standardized Measure Relating to Proved Oil and Gas Reserves
(Unaudited)-
- -----------------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- -----------------------------------------------------------------------------------------
(in thousands)
Standardized Measure - Beginning of year ................ $110,934 $124,623 $178,757
Increases (decreases) -
Sales, net of production costs ........................ (56,563) (29,951) (40,030)
Net change in sales prices, net of production costs ... 59,479 (12,917) (80,347)
Discoveries and extensions, net of related future
development and production costs .................... 29,189 8,179 9,653
Changes in estimated future development costs ......... (6,651) (4,672) (14,571)
Development costs incurred ............................ 14,050 9,703 12,888
Revisions of previous quantity estimates .............. 5,731 2,825 483
Accretion of discount ................................. 14,362 16,171 23,678
Net change in income taxes ............................ (31,158) (7,538) 20,942
Purchases of reserves-in-place ........................ 643 1,202 11,219
Sales of reserves-in-place ............................ (124) (51) (62)
Other ................................................. 13,972 3,360 2,013
-------- -------- --------
Standardized Measure - End of year ...................... $153,864 $110,934 $124,623
======== ======== ========
- -----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 13 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------
(in thousands, except per share amounts)
- -------------------------------------------------------------------------------
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter
- ---------------------------------------------- ---------------------------------------
Revenues ..................................... $ 88,427 $ 95,213 $101,358 $108,257
Gross profit ................................. 16,971 17,897 23,256 21,180
Income from continuing operations ............ 9,468 9,802 12,650 13,506
Income (loss) from discontinued operations ... 1,625 1,225 508 (268)
Gain on sale of discontinued operations ...... -- -- -- 24,050
Net income ................................... 11,093 11,027 13,158 37,288
Earnings (loss) per share:
Continuing operations ...................... .38 .40 .51 .55
Discontinued operations .................... .07 .05 .02 (.01)
Gain on sale of discontinued operations .... -- -- -- .97
Net income ................................. .45 .45 .53 1.51
============================================== =======================================
1st 2nd 3rd 4th
1995 Quarter Quarter Quarter Quarter
- ---------------------------------------------- ----------------------------------------
Revenues ..................................... $ 73,993 $ 73,350 $ 74,648 $ 84,730
Gross profit (loss) .......................... 6,273 8,818 8,760 (7,155)
Income (loss) from continuing operations ..... 2,736 4,127 4,114 (5,189)
Income from discontinued operations .......... 1,680 1,693 470 120
Net income (loss) ............................ 4,416 5,820 4,584 (5,069)
Earnings (loss) per share:
Continuing operations ..................... .11 .17 .17 (.21)
Discontinued operations ................... .07 -- .02 --
Net income ................................ .18 .24 .19 (.21)
- ---------------------------------------------- -----------------------------------------
Gross profit (loss) represents total revenues less operating costs,
depreciation, depletion and amortization, dry holes and abandonments, and
taxes, other than income taxes.
- -------------------------------------------------------------------------------
Net income in the fourth quarter of 1996 includes the gain from sale of
discontinued operations (see Note 6). All quarters presented have been restated
to reflect discontinued operations. Net loss from continuing operations for the
fourth quarter of 1995 includes an after-tax charge of $13.6 million ($.55 per
share) related to the Company adopting SFAS No 121 (see note 1).
- -------------------------------------------------------------------------------
30
31
REPORT OF INDEPENDENT AUDITORS
HELMERICH & PAYNE, INC.
===============================================================================
The Board of Directors and Shareholders
Helmerich & Payne, Inc.
We have audited the accompanying consolidated balance sheets of Helmerich &
Payne, Inc. as of September 30, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Helmerich &
Payne, Inc. at September 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, effective July 1, 1995,
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of". As discussed in Note 1 to the financial statements,
effective October 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" and as discussed in Note 3
to the financial statements, effective October 1, 1993, the Company adopted
SFAS No. 109, "Accounting for Income Taxes."
/s/ ERNST & YOUNG L.L.P.
Tulsa, Oklahoma
November 15, 1996
STOCK PRICE INFORMATION
===============================================================
Closing Market Price Per Share
------------------------------------------------
1996 1995
------------------------------------------------
QUARTERS HIGH LOW HIGH LOW
First......... $ 30 1/8 $ 24 1/2 $ 31 1/4 $25 5/8
Second........ 34 1/2 27 27 1/2 24 1/2
Third......... 38 1/4 33 31 26 5/8
Fourth........ 43 5/8 34 3/4 30 27 5/8
DIVIDEND INFORMATION
====================================================================
Paid Per Share Total Payment
----------------------------------------------
1996 1995 1996 1995
- --------------------------------------------------------------------
QUARTERS
First............ $.125 $.125 $3,095,578 $3,089,758
Second........... .125 .125 3,100,568 3,087,958
Third............ .125 .125 3,104,724 3,092,973
Fourth........... .130 .125 3,229,596 3,094,813
- --------------------------------------------------------------------
===============================================================================
STOCKHOLDERS' MEETING
The annual meeting of stockholders will be held on March 5, 1997. A formal
notice of the meeting, together with a proxy statement and form of proxy, will
be mailed to shareholders on or about January 27, 1997.
===============================================================================
STOCK EXCHANGE LISTING
Helmerich & Payne, Inc. Common Stock is traded on the New York Stock Exchange
with the ticker symbol "HP." The newspaper abbreviation most commonly used for
financial reporting is "HelmP." Options on the Company's stock are also traded
on the New York Stock Exchange.
===============================================================================
STOCK TRANSFER AGENT AND REGISTRAR
As of December 16, 1996, there were 1,514 record holders of Helmerich & Payne,
Inc. common stock as listed by the transfer agent's records.
Our Transfer Agent is responsible for our shareholder records, issuance of
stock certificates, and distribution of our dividends and the IRS Form 1099.
Your requests, as shareholders, concerning these matters are most efficiently
answered by corresponding directly with The Liberty Bank of Oklahoma City at
the following address:
The Liberty National Bank and Trust Company of Oklahoma City
Stock Transfer Department
P.O. Box 25848
Oklahoma City, Oklahoma 73125-0848
Telephone: (405) 231-6325
===============================================================================
FORM 10-K
The Company's Annual Report on Form 10-K, which has been submitted to the
Securities and Exchange Commission, is available free of charge upon written
request.
DIRECT INQUIRIES TO:
President
Helmerich & Payne, Inc.
Utica at Twenty- First
Tulsa, Oklahoma 74114
Telephone: (918) 742-5531
===============================================================================
31
32
ELEVEN-YEAR FINANCIAL REVIEW
===============================================================================
HELMERICH & PAYNE, INC.
- ---------------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- ---------------------------------------------------------------------------------------
REVENUES AND INCOME*
Contract Drilling Revenues ..................... 244,338 203,325 182,781
Crude Oil Sales ................................ 15,378 13,227 13,161
Natural Gas Sales .............................. 60,500 33,851 45,261
Gas Marketing Revenues ......................... 57,817 34,729 51,874
Real Estate Revenues ........................... 8,076 7,560 7,396
Dividend Income ................................ 3,650 3,389 3,621
Other Revenues ................................. 3,496 10,640 6,058
Total Revenues++ ............................... 393,255 306,721 310,152
Net Cash Provided by Continuing Operations++ ... 121,420 84,010 74,463
Income from Continuing Operations .............. 45,426 5,788 17,108
Net Income(3)................................... 72,566 9,751 24,971
- ---------------------------------------------------------------------------------------
PER SHARE DATA
Income from Continuing Operations .............. 1.84 .24 .70
Net Income(3)................................... 2.94 .40 1.02
Cash Dividends ................................. .505 .50 .485
Shares Outstanding* ............................ 24,886 24,765 24,710
- ---------------------------------------------------------------------------------------
FINANCIAL POSITION
Net Working Capital* ........................... 51,803 50,038 76,238
Ratio of Current Assets to Current Liabilities . 1.83 1.74 2.63
Investments* ................................... 229,809 156,908 87,414
Total Assets* .................................. 821,914 707,061 621,689
Long-Term Debt* ................................ -- -- --
Shareholders' Equity* ............................. 645,970 562,435 524,334
- ---------------------------------------------------------------------------------------
CAPITAL EXPENDITURES*
Contract Drilling Equipment .................... 79,269 80,943 53,752
Wells and Equipment ............................ 21,142 19,384 40,916
Real Estate .................................... 752 873 902
Other Assets (includes undeveloped leases) ..... 7,003 9,717 9,695
Discontinued Operations ........................ 1,581 859 618
Total Capital Outlays .......................... 109,747 111,776 105,883
- ---------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT AT COST*
Contract Drilling Equipment .................... 568,110 501,682 444,432
Producing Properties ........................... 392,562 384,755 377,371
Undeveloped Leases ............................. 9,242 8,051 11,729
Real Estate .................................... 46,970 46,642 47,827
Other .......................................... 53,547 55,655 48,612
Discontinued Operations ........................ -- 13,937 13,131
Total Property, Plant and Equipment ............... 1,070,431 1,010,722 943,102
- ---------------------------------------------------------------------------------------
* 000's omitted
++ Chemical operations were sold August 30, 1996 (see note 6). Prior year
amounts have been restated to exclude discontinued operations.
(3) Includes $13.6 million (.55 per share) effect of impairment charge for
adoption of SFAS No. 121 in 1995 and cumulative effect of change in accounting
for income taxes of $4,000,000 ($.16 per share) in 1994.
32
33
- -----------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------
149,661 112,833 105,364 90,974 78,315 75,985 64,718 68,220
15,392 16,369 17,374 16,058 14,821 14,001 15,223 20,020
52,446 38,370 35,628 37,697 33,013 26,154 17,251 21,308
63,786 40,410 10,055 10,566 -- -- -- --
7,620 7,541 7,542 7,636 7,778 7,878 7,561 6,839
3,535 4,050 5,285 7,402 9,127 10,069 9,757 11,033
8,283 6,646 20,020 56,131 17,371 15,206 34,757 29,261
300,723 226,219 201,268 226,464 160,425 149,293 149,267 156,681
72,493 60,414 50,006 53,288 65,474 54,959 36,999 53,477
22,158 8,973 19,608 45,489 20,715 17,746 20,575 6,249
24,550 10,849 21,241 47,562 22,700 20,150 22,016 7,025
- -----------------------------------------------------------------------------
.91 .37 .81 1.88 .86 .73 .85 .25
1.01 .45 .88 1.97 .94 .83 .91 .28
.48 .465 .46 .44 .42 .40 .38 .36
24,637 24,576 24,488 24,485 24,173 24,166 24,187 24,187
- -----------------------------------------------------------------------------
104,085 82,800 108,212 146,741 114,357 135,275 135,139 108,331
3.24 3.31 4.19 3.72 3.12 6.10 6.68 5.61
84,945 87,780 96,471 99,574 130,443 133,726 140,431 158,311
610,935 585,504 575,168 582,927 591,229 576,473 571,348 563,236
3,600 8,339 5,693 5,648 49,087 70,715 74,732 79,340
508,927 493,286 491,133 479,485 443,396 430,804 420,833 408,185
- -----------------------------------------------------------------------------
24,101 43,049 56,297 18,303 17,901 19,110 13,993 23,673
23,142 21,617 34,741 16,489 30,673 25,936 27,402 11,767
436 690 2,104 1,467 878 3,095 6,128 1,409
5,901 16,984 6,793 5,448 6,717 2,496 2,012 2,026
629 158 2,594 1,153 815 815 336 281
54,209 82,498 102,529 42,860 56,984 51,452 49,871 39,156
- -----------------------------------------------------------------------------
418,004 404,155 370,494 324,293 323,313 313,289 309,865 307,199
340,176 329,264 312,438 287,248 279,768 251,445 228,214 215,488
10,010 12,973 5,552 5,507 5,441 3,305 4,197 7,294
47,502 47,286 46,671 44,928 48,016 47,165 44,070 38,131
45,085 43,153 36,423 32,135 29,716 27,798 28,274 28,454
12,545 11,962 11,838 9,270 8,156 7,370 6,602 6,286
873,322 848,793 783,416 703,381 694,410 650,372 621,222 602,852
- -----------------------------------------------------------------------------
33
34
ELEVEN-YEAR OPERATING REVIEW
===============================================================================
HELMERICH & PAYNE, INC.
- -------------------------------------------------------------------------------
Years Ended September 30, 1996 1995 1994
- -------------------------------------------------------------------------------
CONTRACT DRILLING
Drilling Rigs, United States ................ 41 41 47
Drilling Rigs, International ................ 36 35 29
Contract Wells Drilled, United States ....... 233 212 162
Total Footage Drilled, United States* ....... 2,499 1,933 1,842
Average Depth per Well, United States ....... 10,724 9,119 11,367
Percentage Rig Utilization, United States ... 82% 71 69
Percentage Rig Utilization, International ... 85% 84 88
PETROLEUM EXPLORATION AND DEVELOPMENT
Gross Wells Completed ....................... 63 59 44
Net Wells Completed ......................... 35.3 27.4 15
Net Dry Holes ............................... 7.3 5.9 1.7
PETROLEUM PRODUCTION
Net Crude Oil and Natural Gas Liquids
Produced (barrels daily) .................. 2,212 2,214 2,431
Net Oil Wells Owned-- Primary Recovery ...... 176.9 186 202
Net Oil Wells Owned-- Secondary Recovery .... 63.8 64 71
Secondary Oil Recovery Projects ............. 12 12 14
Net Natural Gas Produced
(thousands of cubic feet daily) ........... 94,358 72,387 72,953
Net Gas Wells Owned ......................... 378 354 341
NATURAL GAS ODORANTS AND
OTHER CHEMICALS++
Chemicals Sold (pounds)* .................... 9,823 7,670 8,071
REAL ESTATE MANAGEMENT
Gross Leasable Area (square feet)* .......... 1,654 1,652 1,652
Percentage Occupancy ........................ 94 87 83
TOTAL NUMBER OF EMPLOYEES
Helmerich & Payne, Inc. and Subsidiaries+ ... 3,309 3,245 2,787
- -------------------------------------------------------------------------------
* 000's omitted.
+ 1986-1989 include U.S. employees only
++ Chemical operations were sold August 30, 1996 (see note 6).
34
35
- -------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986
- -------------------------------------------------------------------------------
42 39 46 49 49 48 50 48
29 30 25 20 20 18 19 19
128 100 106 119 108 115 110 110
1,504 1,085 1,301 1,316 1,350 1,284 1,182 1,384
11,746 10,853 12,274 11,059 12,500 11,165 10,745 12,582
53 42 47 50 44 45 39 44
68 69 69 45 46 30 16 30
- -------------------------------------------------------------------------------
42 54 45 36 45 45 18 27
15.9 17.8 20.2 15.3 15.2 14.6 5.2 10.3
4.3 4.3 4.3 3.4 2.8 1.6 .5 3.6
- -------------------------------------------------------------------------------
2,399 2,334 2,152 2,265 2,486 2,463 2,578 3,077
202 220 227 223 201 202 199 234
71 74 55 46 214 222 237 235
14 14 12 12 17 21 20 18
78,023 75,470 66,617 65,147 57,490 45,480 31,752 32,392
307 289 278 194 205 197 180 180
- -------------------------------------------------------------------------------
7,930 8,452 8,155 8,255 7,702 8,507 8,165 7,554
- -------------------------------------------------------------------------------
1,656 1,656 1,664 1,664 1,669 1,670 1,595 1,433
86 87 86 85 90 90 94 95
- -------------------------------------------------------------------------------
2,389 1,928 1,758 1,864 1,100 1,156 1,026 844
- -------------------------------------------------------------------------------
35
36
DIRECTORS OFFICERS
================================================================================
W. H. HELMERICH, III W. H. HELMERICH, III
Chairman of the Board, Chairman of the Board
Tulsa, Oklahoma
HANS HELMERICH
HANS HELMERICH President and Chief Executive Officer
President and Chief Executive Officer,
Tulsa, Oklahoma GEORGE S. DOTSON
Vice President,
WILLIAM L. ARMSTRONG President of Helmerich & Payne
Chairman, Ambassador Media Corporation, International Drilling Co.
Denver, Colorado
DOUGLAS E. FEARS
GLENN A. COX* Vice President,
President and Chief Operating Officer, Retired, Finance
Phillips Petroleum Co.,
Bartlesville, Oklahoma STEVEN R. MACKEY
Vice President, Secretary,
GEORGE S. DOTSON and General Counsel
Vice President,
President of Helmerich & Payne STEVEN R. SHAW
International Drilling Co., Vice President,
Tulsa, Oklahoma Exploration & Production
L. F. ROONEY, III*
Chairman,
Manhattan Construction Company
Tulsa, Oklahoma
GEORGE A. SCHAEFER
Chairman and Chief Executive Officer, Retired,
Caterpillar Inc.,
Peoria, Illinois
JOHN D. ZEGLIS
Senior Vice President and General Counsel,
American Telephone & Telegraph Co.,
Basking Ridge, New Jersey
*Member, Audit Committee
36