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HELMERICH & PAYNE, INC. ANNUAL REPORT FOR 1999
Revenue Breakdown for 1999
[CHART]
FINANCIAL HIGHLIGHTS
Years Ended September 30, 1999 1998
--------------- ---------------
Revenues $ 564,319,000 $ 636,640,000
Net Income $ 42,788,000 $ 101,154,000
Diluted Earnings Per Share $ .86 $ 2.00
Dividends Paid Per Share $ .28 $ .275
Capital Expenditures $ 122,951,000 $ 266,299,000
Total Assets $ 1,109,699,000 $ 1,090,430,000
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PRESIDENT'S LETTER
To the Co-owners of Helmerich & Payne, Inc.
At the closing of this century, dubbed by some "The Century of Oil," energy
continues to play a fascinating role on the world stage. Wars have been waged
over its control and strategic advantage. Great machines of commerce, defense,
and development have been fueled by its availability and abundance. It is hard
to imagine turning through the pages of history for the last hundred years
without the oil patch occupying a prominent place.
Your Company has been privileged to play a part of that story for eighty years.
Perhaps by now, we should be able to figure out where things are going. But true
to character, predicting the future of the energy business remains elusive.
Earlier this year, prices plunged to a fifty-year, inflation-adjusted low,
prompting seasoned observers, notably The Economist, to predict the specter of
prolonged pricing pain in a range of $5 per barrel. Within mere months, oil
prices threatened to reach a $30 threshold on the strength of OPEC solidarity
and recovering worldwide demand. These dramatic price swings reflect the
unprecedented shifts occurring in the industry at the change of the century.
What can be said as we move into the new millennium?
While no one is suggesting "The Century of Oil, Part Two," future worldwide
energy needs will continue to grow, even in a world of less steel and more
E-commerce.
The global economy's appetite for more energy will be met primarily from OPEC's
low cost supplies. While OPEC's market share will certainly grow, the non-OPEC
countries must still provide around half of the demand, and their major fields
continue to mature and deplete. New production will be supplied from expensive
frontier and deepwater exploration efforts.
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The need for new drilling is even more profound for declining natural gas
production. Over the next ten years, the United States is expected to burn half
again our current domestic reserves. Going forward, an emerging cycle of strong
supply and demand fundamentals is taking shape. Like always before, there will
be ups and downs and unforeseen surprises.
Predictably, financial strength and flexibility will be needed to cope with the
industry's cyclicality and constant change. Technology will continue to be a key
driver in delivering added value and reducing costs. Yet the challenge that will
determine the clearest strategic advantage is on the people side of the
business.
From the beginning, our Company has succeeded on the skill, experience, and
creative contributions of its people. At the same time, we operate in an
industry that has lost over half of its workforce during the last twenty years
and continues to suffer from an immeasurable drain of institutional knowledge.
Thankfully, that is not the case at Helmerich & Payne, Inc. We are stronger and
more talented throughout the organization than ever before. No annual report can
capture the enterprise value found in the culture, shared values, and loyalty of
its people. Perhaps that story is best told by customers, partners, suppliers,
and competitors who know us best and with whom we earn our reputation everyday.
As the calendar turns to the year 2000, your Company is confident and excited
about the future.
Sincerely,
/s/ HANS HELMERICH
Hans Helmerich
December 15, 1999 President
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DRILLING HELMERICH & PAYNE INTERNATIONAL DRILLING CO.
SUMMARY Helmerich & Payne International Drilling Co. is a leading drilling
contractor with a fleet of 89 drilling rigs worldwide. The Company owns 79 land
rigs, 40 of which were located in the United States at year-end, and 39 located
in the countries of Venezuela (18), Colombia (10), Bolivia (5), Ecuador (4), and
Argentina (2). Additionally, the Company owns 10 offshore platform rigs in the
Gulf of Mexico and jointly owns, with Atwood Oceanics, Inc., an offshore
platform rig located in Australia. Helmerich & Payne International Drilling Co.
also provides management services for two Exxon-owned platform rigs operating
offshore California.
Low oil prices had a considerable negative impact on the financial performance
of the Company, as well as on the contract drilling industry worldwide. Total
contract drilling revenues slipped eight percent in 1999, interrupting a string
of consecutive increases which began over a decade ago in 1987. Earnings before
interest, taxes, depreciation, and amortization (EBITDA) fell ten percent to
$127.3 million, and pre-tax operating profit fell to $60 million, from $86.7
million in 1998.
INTERNATIONAL OPERATIONS Rig utilization fell to an average of 53 percent in
1999, compared to 88 percent in 1998. The Company's Venezuelan operation was the
hardest hit during the year as rig activity fell to less than half of the
previous year's level, resulting in revenue and EBITDA declines of 55 percent
and 65 percent, respectively, in that country. As a leading member of OPEC,
Venezuela sharply curtailed production and development activities in its effort
to adhere to the revised quota arrangement set forth by the cartel. During 1999,
the Company transferred four land rigs and one offshore platform rig from
Venezuela to the United
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States. One of the land rigs and the platform rig began working in the U.S.
market during 1999, and another land rig is committed to stay in the U.S. Out of
the two remaining land rigs, one was returned to Venezuela in November after
refurbishment, and the other will return to the international market at the
earliest opportunity.
The Company's operations in Colombia also slowed, with revenues and EBITDA there
decreasing 23 percent and 18 percent, respectively. Improvements in the
Venezuelan and Colombian drilling markets will likely correlate highly with the
health of the world oil market. Additionally, both of these countries grapple
with considerable socioeconomic and political challenges, which could also have
a significant impact on the speed at which oil exploration and development
activities resume to levels the Company has experienced in years past.
Increased activity in Argentina and Bolivia helped offset part of the decline
experienced internationally in 1999. A significant portion of the drilling in
Argentina and Bolivia is aimed at developing natural gas supplies for growing
markets in the southern cone region of South America.
The Company completed the rig construction phase of Mobil's Jade project, which
made a significant contribution to revenues and EBITDA during 1999. Separately,
Helmerich & Payne International Drilling Co. was awarded a management contract
for the Jade offshore platform, which is scheduled to begin early in calendar
year 2000 in Equatorial Guinea, West Africa.
UNITED STATES OPERATIONS The weak crude oil market also factored into the U.S.
drilling market during
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1999, resulting in lower activity levels and dayrates. Utilization averaged 75
percent in 1999, compared with 95 percent in 1998. Lower activity, coupled with
decreased dayrates, caused domestic land drilling revenues and EBITDA to decline
by 26 percent and 64 percent, respectively. The U.S. land drilling market is
becoming increasingly skewed toward natural gas, so future activity levels are
likely to become more dependent on the price of this commodity and less on the
price of crude oil. During 1999, the Company's active rigs drilled almost
exclusively for natural gas.
The Company's ten offshore platform rigs remained highly active through most of
the year, averaging a utilization rate of 95 percent. Domestic offshore revenues
and EBITDA increased 24 percent and 39 percent, respectively, over the 1998
level.
OUTLOOK Two important factors drive the Company's operating strategy going
forward. First, financial strength and flexibility are important in an industry
where cycles are as severe as the one recently experienced. Second, customers
will increasingly demand better rig equipment and technology, and higher
standards for safety and operating performance in their drilling programs. Even
under depressed industry conditions, when the dayrate seems to reign as the
paramount component in a bid, the Company has quantified the significant impact
that quality performance can have on the ultimate cost of a well. Safety and
training programs, high standards for rig maintenance, and design, engineering,
and construction experience are in and of themselves sound investments. The
return on these investments comes in new projects, solid, long-term customer
relationships, a well-recognized reputation for quality performance, and the
highest rig utilization among our peers in key drilling markets.
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EXPLORATION & PRODUCTION HELMERICH & PAYNE, INC.
SUMMARY Helmerich & Payne, Inc. explores for and produces crude oil and natural
gas primarily in the states of Kansas, Louisiana, Oklahoma, and Texas.
Additionally, the Company provides natural gas marketing services through its
wholly-owned subsidiary, Helmerich & Payne Energy Services, Inc.
Helmerich & Payne, Inc. produced an average of 1,779 barrels of oil per day in
1999, compared with 1,921 barrels per day in 1998. Although oil prices fell in
1999 to their lowest point in many years, the average price the Company received
declined only slightly to $14.60 per barrel, from $14.74 per barrel in 1998.
Natural gas production increased to 121,206 thousand cubic feet (Mcf) per day,
from 117,431 Mcf per day. The average price received for natural gas fell ten
percent to $1.83 per Mcf, from $2.04 per Mcf in 1998. Reductions in both oil
production and natural gas prices pushed revenues down three percent, to $96
million. Additionally, higher depreciation, geophysical, and lease abandonment
expenses reduced operating profit to $11.2 million in 1999, compared with $28.1
million in 1998.
NATURAL GAS MARKETING Helmerich & Payne Energy Services, Inc. realized a three
percent increase in revenues and an 83 percent increase in operating profit in
1999. The dramatic increase in operating profit resulted from favorable forward
prices contracted on a small portion of marketed production prior to last year's
mild winter.
EXPLORATION ACTIVITIES Helmerich & Payne, Inc. participated in the drilling of
49 (23.9 net) wells in 1999, of which 33 (15.5 net) were completed as natural
gas wells, two (1.3 net) as oil wells, and 14 (7.1 net) as dry holes. A total of
15 (5.5 net) wells were exploratory and the remaining 34 (18.4 net) were
development wells. Proved reserves at year-end were 4.8 million barrels of oil
and 239.6 billion cubic feet (Bcf) of natural gas.
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Over the past two years, the Company has focused on prospect development
utilizing 3D seismic technology. The Company is presently involved in a number
of 3D seismic surveys covering over 850 square miles in Texas and Louisiana.
Three of these surveys encompassed 185 square miles in Jefferson County, Texas,
where the Company has an acreage position with working interests ranging from 54
percent to 66 percent. Four successful wells were drilled in this area during
1999. The Company also participated in 65 square miles of 3D seismic in West
Texas and a 94 square mile survey in Galveston County, Texas. Five wells were
drilled on these prospects in 1999; two of four Galveston County wells were
successful and the West Texas well was in progress at year-end. The Company also
participated in a 200 square mile, 3D seismic survey on another south Texas
prospect where a wildcat well was drilling at year-end. The Company could
potentially participate in more than 20 wells in its Texas prospect areas alone
during the first half of fiscal 2000.
In Louisiana, the Company purchased a 42 percent working interest in a prospect
in Calcasieu Parish, as well as 50 square miles of 3D seismic in the area. At
calendar year-end, the first wildcat well was nearing completion and a second
well was about to spud.
OUTLOOK Due to the nature of the exploration business, many projects can take
years to come to fruition. This makes it challenging to gauge the overall
success of an effort, particularly when looking at annual reserve replacement
and finding cost data. Over the past two years, the Company has invested almost
$35 million in acreage and seismic to develop a larger and more
technologically-focused portfolio of promising prospects. With this significant
amount of spadework completed, the Company is poised to participate in more
exploratory drilling in fiscal 2000 than it has in several years.
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Revenues and Operating Profit by Business Segments HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997
--------- --------- ---------
(in thousands)
SALES AND OTHER REVENUES:
Contract Drilling - Domestic .......... $ 213,647 $ 177,059 $ 140,294
Contract Drilling - International ..... 182,987 253,072 176,651
--------- --------- ---------
Total Contract Drilling ............ 396,634 430,131 316,945
--------- --------- ---------
Exploration and Production ............ 95,953 98,696 111,512
Natural Gas Marketing ................. 55,259 53,499 69,015
--------- --------- ---------
Total Oil and Gas Operations ....... 151,212 152,195 180,527
--------- --------- ---------
Real Estate ........................... 8,671 8,922 8,641
Other ................................. 7,802 45,392 11,746
--------- --------- ---------
Total Revenues ........................... $ 564,319 $ 636,640 $ 517,859
========= ========= =========
OPERATING PROFIT:
Contract Drilling - Domestic .......... $ 30,154 $ 35,817 $ 24,437
Contract Drilling - International ..... 29,845 50,834 43,118
--------- --------- ---------
Total Contract Drilling ............ 59,999 86,651 67,555
--------- --------- ---------
Exploration and Production ............ 11,245 28,088 55,191
Natural Gas Marketing ................. 4,418 2,418 3,363
--------- --------- ---------
Total Oil and Gas Operations ....... 15,663 30,506 58,554
--------- --------- ---------
Real Estate ........................... 5,338 5,371 5,615
--------- --------- ---------
Total Operating Profit ............. 81,000 122,528 131,724
--------- --------- ---------
OTHER:
Income from investments ............... 7,757 44,603 11,437
General and administrative expense .... (14,198) (11,762) (9,346)
Interest expense ...................... (6,481) (942) (4,212)
Corporate depreciation ................ (1,565) (1,280) (919)
Other corporate expense ............... (1,575) (927) (1,269)
--------- --------- ---------
Total Other ........................ (16,062) 29,692 (4,309)
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATE ......... $ 64,938 $ 152,220 $ 127,415
========= ========= =========
- --------------------------------------------------------------------------------
Note: See Note 13 (pages 31 and 32) for complete segment disclosure.
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Management's Discussion & Analysis of
Results of Operations and Financial Condition
HELMERICH & PAYNE, INC.
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
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,
fluctuations in oil and natural gas prices, expiration or termination of
drilling contracts, currency exchange gains and losses, 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 in
Management's Discussion & Analysis of Results of Operations and Financial
Condition include forward-looking statements. These forward-looking statements
are based on various assumptions. The Company cautions that, while it believes
such assumptions to be reasonable and makes them in good faith, assumed facts
almost always vary from actual results. The differences between assumed facts
and actual results can be material. The Company is including this cautionary
statement to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. The factors identified in this cautionary
statement are important factors (but not necessarily all important factors) that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
RESULTS OF OPERATIONS
All per share amounts included in the Results of Operations discussion are
stated on a diluted basis. Helmerich & Payne, Inc.'s net income for 1999 was
$42,788,000 ($0.86 per share), compared with net income of $101,154,000 ($2.00
per share) in 1998, and $84,186,000 ($1.67 per share) in 1997. Included in the
Company's net income, but not related to its operations, were after-tax gains
from the sale of investment securities of $1,562,000 ($0.03 per share) in 1999,
$23,417,000 ($0.46 per share) in 1998, and $2,870,000 ($0.06 per share) in 1997.
Also included is the Company's portion of income from its equity affiliate,
Atwood Oceanics, Inc., which was $0.07 per share in 1999, $0.11 per share in
1998, and $0.05 per share in 1997. Net income also included non-cash charges of
$6,237,000 ($0.13 per share) in 1999 and $3,356,000 ($0.07 per share) in 1998
related to the write-down of producing properties in accordance with 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.
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Consolidated revenues were $564,319,000 in 1999, $636,640,000 in 1998, and
$517,859,000 in 1997. The 11 percent decline from 1998 to 1999 was primarily due
to the $70,085,000 reduction in international contract drilling revenues. An
increase in domestic contract drilling revenues of $36,588,000 was offset by a
decline in investment revenues of $36,846,000. The 23 percent increase from 1997
to 1998 was due to higher dayrates and utilization in the contract drilling
division and higher capital gains from the sales of equity securities.
Significant increases in these areas helped offset lower revenues from the
Exploration and Production Division due to lower crude oil and natural gas
prices.
Revenues from investments were $7,757,000 in 1999, $44,603,000 in 1998, and
$11,437,000 in 1997. Included in revenues from investments were pre-tax gains
from the sale of investment securities of $2,547,000 in 1999, $38,421,000 in
1998, and $4,697,000 in 1997. Interest income was stable during 1999, 1998, and
1997, but dividend income declined slightly as the Company sold shares of
dividend paying stocks during the last two years.
Costs and expenses in 1999 were $499,381,000, 88 percent of revenues, compared
with 76 percent in 1998, and 75 percent in 1997. Operating costs, as a
percentage of operating revenues, were 60 percent in 1999, 58 percent in 1998,
and 55 percent in 1997.
Depreciation, depletion, and amortization (DD&A) expense increased by
approximately 24 percent in each of the last two years, due primarily to
increases in capital investment made by the Company during the last several
years. Also included in DD&A are SFAS 121 impairment charges of $10,059,000 in
1999 and $5,413,000 in 1998. There were no such charges in 1997.
General and administrative expenses increased by 21 percent to $14,198,000 in
1999, compared with $11,762,000 in 1998, and $9,346,000 in 1997. Higher overall
payroll costs and additional information technology staffing were primary
reasons for the increases the last two years. Because of the impact of foreign
taxes, income tax expense rose to 40 percent of pre-tax income in 1999, from 37
percent in 1998, and 36 percent in 1997.
Interest expense rose to $6,481,000 in 1999, from $942,000 in 1998, and
$4,212,000 in 1997. Outstanding bank loans rose at the end of 1998 and into the
first half of 1999 as the Company completed a substantial capital expenditure
program and, in 1998, repurchased some of its stock.
CONTRACT DRILLING DIVISION revenues, which include both domestic and
international segment revenues, declined eight percent to $396,634,000 during
1999, from $430,131,000 in 1998. Revenues for 1998 were up 36 percent over the
previous year. Division operating profit declined 31 percent to $59,999,000
during 1999, compared with a 28 percent increase from 1997 to 1998.
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Domestic segment revenues were $213,647,000 in 1999, $177,059,000 in 1998, and
$140,294,000 in 1997. Domestic segment operating profit was $30,154,000 in 1999,
$35,817,000 in 1998, and $24,437,000 in 1997. Domestic segment revenues were up
for 1999 mainly due to $40,790,000 of revenues from the Mobil Jade rig
construction project and increased offshore platform rig revenues. Domestic
operating profit was down because of lower land rig utilization and dayrates.
However, operating profit for 1999 was bolstered by several non-recurring items
such as income from the Jade construction project and from several capital
reimbursements from operators for new rig equipment on existing rigs.
Approximately $7.5 million of operating profit from these sources will likely
not occur in fiscal 2000. Domestic segment revenues and operating profit for
1998 increased over 1997 because of improved dayrates from both U.S. land and
offshore rig operations and higher utilization of the Company's offshore
platform rigs. Rig utilization for the U.S. land fleet was 69 percent in 1999,
94 percent in 1998, and 99 percent in 1997. Domestic platform rig utilization
was 95 percent in 1999, 99 percent in 1998, and 63 percent in 1997. Revenues and
operating profit for domestic operations could be lower in 2000 if rig demand
remains soft.
International segment revenues fell 28 percent to $182,987,000 during 1999, from
$253,072,000 in 1998. Revenues were $176,651,000 in 1997. Operating profit for
the international segment declined to $29,845,000 in 1999, from $50,834,000 in
1998, and $43,118,000 in 1997. International rig utilization averaged 53 percent
during 1999, 88 percent in 1998, and 91 percent in 1997. Revenues and operating
profit increased significantly from 1997 to 1998 due to additional rigs and
increased dayrates in Venezuela, Ecuador, Peru, and Bolivia. However, as crude
oil prices declined, rig activity and profitability declined rapidly during the
last half of 1999, particularly in Venezuela. It is anticipated that during
2000, international revenues and operating profit will be down substantially
compared with 1999, because of low rig utilization, dayrates and profit margins,
particularly in Venezuela and Colombia.
The Company has international operations in several South American countries.
With the exception of Venezuela, the Company's exposure to currency valuation
losses is immaterial due to the fact that virtually all billings and payments
are in U.S. dollars. In Venezuela, approximately 60 percent of the Company's
billings are in U.S. dollars and 40 percent are in bolivars, the local currency.
As a result, the Company is exposed to risks of currency devaluation in
Venezuela because of the bolivar denominated receivables. During 1999, the
Company experienced a loss of $711,566 due to devaluation of the bolivar,
compared with a $2,204,000 loss in 1998, and a $579,000 loss in 1997. The
Company anticipates additional devaluation losses in Venezuela during 2000, but
it is unable to predict the extent of either the devaluation, or its financial
impact. Should Venezuela experience a 25 to 50 percent devaluation, Company
losses could range from approximately $350,000 to $600,000. Using the same
assumptions in 1998 resulted in the Company estimating foreign currency losses
in Venezuela for 1999 ranging from $1,500,000 to $2,700,000.
OIL AND GAS DIVISION includes operating results from its Exploration and
Production segment, as depicted in the following table, and its Natural Gas
Marketing segment.
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Exploration & Production 1999 1998 1997
-------- -------- ---------
Revenues (in 000's) ....................... $ 95,953 $ 98,696 $ 111,512
Operating Profit (in 000's) ............... $ 11,245 $ 28,088 $ 55,191
Natural Gas Production (mmcf per day) ..... 121.2 117.4 110.9
Average Natural Gas Price (per mcf) ....... $ 1.83 $ 2.04 $ 2.23
Crude Oil Production (barrels per day) .... 1,779 1,921 2,700
Average Crude Oil Price (per barrel) ...... $ 14.60 $ 14.74 20.77
Exploration and Production segment revenues and operating profit have declined
the past two years as both crude oil and natural gas prices have fallen. Natural
gas production increased slightly over the last two years, while oil production
has decreased substantially. Much of the decline in oil production was due to
the sale of the Company's, Austin Chalk production in the first quarter of 1998.
Operating profit has been impacted the last three years by the Company's efforts
to increase the quantity and quality of its exploration projects. Accordingly,
geophysical expense and reserve for capitalized costs of undeveloped leases have
increased. Also, the Company incurred pre-tax impairment charges as required by
SFAS 121 of $10,059,000 in 1999 and $5,413,000 in 1998. No impairment charges
were incurred in 1997.
During 2000, the Company intends to increase its capital spending over the
previous year in order to participate in more exploratory opportunities.
Therefore, operating profit for the coming year will be impacted by the results
of those efforts. Geophysical expense, reserve for capitalized costs of
undeveloped leases, and dry hole expense could be higher as a result of more
exploration activity. Also, it is difficult to predict the movement of crude oil
and natural gas prices and their impact on operating profit.
The Company's Natural Gas Marketing segment, Helmerich & Payne Energy Services,
Inc., (HPESI) derives most of its revenues from selling natural gas produced by
other unaffiliated companies. Total Natural Gas Marketing segment revenues were
$55,259,000 in 1999, $53,499,000 in 1998, and $69,015,000 in 1997. Operating
profit was $4,418,000 in 1999, $2,418,000 in 1998, and $3,363,000 in 1997. Most
of the natural gas owned and produced by the Exploration and Production segment
is sold through HPESI to third parties at variable prices based on industry
pricing publications or exchange quotations. Revenues for the Company's own
natural gas production are reported by the Exploration and Production segment
with the Natural Gas Marketing segment retaining a market-based fee from the
sale of such production. HPESI sells most of its natural gas with monthly or
daily contracts tied to industry market indices, such as Inside FERC Gas Market
Report. The Company, through HPESI, has natural gas delivery commitments for
periods of less than a year for approximately 35 percent of its total natural
gas production. At times, HPESI may enter into fixed price natural gas sales
contracts on a small portion (less than ten percent) of its natural gas sales
for periods of less than twelve months to guarantee a certain price. In 1999,
HPESI had approximately 2.3 percent of its natural gas sales portfolio dedicated
to such fixed price contracts. As of September 30, 1999, HPESI had fixed price
contracts for approximately 10 percent of its projected monthly sales
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for the months of November, 1999 through March, 2000, and fixed price contracts
for less than four percent of its projected sales for the remainder of fiscal
year 2000. There were no fixed price contracts in effect at September 30, 1998.
REAL ESTATE DIVISION revenues totaled $8,671,000 for 1999, $8,922,000 for 1998,
and $8,641,000 for 1997. Operating profit was $5,338,000 in 1999, $5,371,000 in
1998, and $5,615,000 in 1997. The general economy in Tulsa continued to grow
during the year resulting in occupancy rates, revenues, and operating profit
remaining strong. Revenues and operating profit for 1997 also reflected the sale
of a small parcel of land for a gain of $400,000. No material changes are
anticipated in the Real Estate Division in 2000.
YEAR 2000 COMPLIANCE
The Company's State of Readiness
THE FOLLOWING INFORMATION SHALL CONSTITUTE THE COMPANY'S "YEAR 2000 READINESS
DISCLOSURE" WITHIN THE MEANING OF THE YEAR 2000 INFORMATION READINESS ACT.
The Company has undertaken various initiatives in an attempt to ensure that its
hardware, software and equipment will function properly with respect to dates
before and after January 1, 2000. For this purpose, the phrase "hardware,
software and equipment" includes systems that are commonly thought of as
Information Technology ("IT") systems, as well as those Non-Information
Technology ("Non-IT") systems and equipment that include embedded technology. IT
systems include computer hardware and software, and other related systems.
Non-IT systems include certain oil and gas drilling and production equipment,
security systems and other miscellaneous systems. The Non-IT systems present the
greatest compliance challenge since identification of embedded technology is
difficult and because the Company is, to a great extent, reliant on third
parties for Non-IT compliance.
The Company has formed a Year 2000 ("Y2K") Project team that is chaired by the
Director of IT. The team includes IT staff, corporate staff and representatives
from the Company's business units. The Company has organized its compliance
efforts into a four-phase approach as follows:
Phase 1: Identification - Identify and inventory mission critical components
of Company operations and systems that may be affected.
Phase 2: Assessment - Determine which hardware, software and equipment must be
modified, upgraded or replaced.
Phase 3: Remediation - Modify, upgrade or replace non-compliant hardware,
software and equipment.
Phase 4: Testing - Fully test all IT systems which are material to the
Company's operations. Selectively test those Non-IT systems and
equipment which are material to the Company's operations.
For the purposes of the Y2K Project material items are those items the Company
believes to have a risk involving safety of individuals, damage to the
environment, material effect on revenues or material damage to property.
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The following represents the status of the Company's IT and Non-IT Y2K
Compliance:
STATUS OF
IT COMPLETION
o Core accounting and operational Phases 1, 2, 3 & 4
(mainframe) systems Completed
o Human Resources & Payroll Systems Phases 1, 2, 3 & 4
Completed
o Network Phases 1, 2, 3 & 4
Completed
o Desktop Computer Hardware Phases 1, 2, 3 & 4
Completed
o Standard Company Desktop
Computer Software Phases 1, 2, 3 & 4
Completed
o Business Unit User Software Phases 1, 2, 3 & 4
Completed
NON-IT
o Systems and Equipment Phases 1, 2, 3 & 4
Completed
As reflected in the above table, the Company has completed the process of
identifying embedded technology and determining the extent to which such
technology is Y2K compliant. As part of this process, the Company mailed letters
to its significant vendors and service providers to confirm that the products
and services purchased from or by such entities are Y2K compliant. Also, the
Company has obtained information from significant customers regarding the extent
to which Y2K issues may affect the amount of business the Company currently
conducts with such customers. As a result of these activities, the Company
conducted discussions with the vendors or manufacturers of such mission critical
equipment to determine the most effective solutions to Y2K compliance issues.
The Cost to Address Y2K Issues
The cost of the Company's Y2K compliance Project was approximately $800,000
which was well below the $1,000,000 budgeted for this purpose. This cost
included costs of employees working on the Y2K Project. Costs for new hardware
and equipment are being capitalized, and other costs were expensed as incurred.
The costs relating to the Company's Y2K Project were paid from the Company's
general funds. This expenditure mainly relates to repair, upgrading or
replacement of existing software and hardware, and solicitation and evaluation
of information received from significant vendors, service providers, or
customers. The total cost included the costs of independent consultants engaged
to review selected Y2K issues.
The Company's Contingency Plan
The Company has refined its contingency plans on a business unit and
departmental basis. These contingency plans include, but are not limited to:
backup and recovery procedures for IT Systems; remediation of existing systems
or equipment; installation
15
16
of new systems or equipment; stockpiling of Y2K compliant goods and supplies;
stockpiling old equipment which does not contain embedded technology;
replacement of current services with temporary manual processes; finding
non-technological alternatives or sources for information; or identification of
alternative customers, suppliers or outsourcing subcontractors who stand ready
to receive or provide critical goods, equipment and services. The Company has
engaged a computer recovery services contractor as a source of alternative
computer systems as part of its contingency plan.
The Risks of The Company's Y2K Issues
The Company completed an analysis of the operational problems and costs
(including loss of revenues) that would be reasonably likely to result from the
failure by the Company and certain third parties to complete efforts necessary
to achieve Y2K compliance on a timely basis. The Company presently believes that
the Y2K issue will not pose significant operational problems for the Company.
However, if all significant Y2K issues were not properly identified or assessed,
there can be no assurance that the Y2K issue will not materially and adversely
impact the Company's results of operations, liquidity and financial condition or
materially and adversely affect the Company's relationships with customers,
vendors, or others. Additionally, there can be no assurance that the lack of Y2K
compliance by other entities will not have a material and adverse impact on the
Company's operations or financial condition.
The preceding Y2K disclosure is based upon certain forward-looking information.
This forward-looking information is based on Management's good faith estimates.
These estimates were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party plans and
other factors. Due to the general uncertainty inherent in Y2K issues, including
the uncertainty of third party Y2K compliance, the Company cannot ensure its
ability to timely and cost-effectively resolve problems associated with Y2K
issues that may affect its operations and business, or expose it to third party
liability.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital spending for 1999 was $122,951,000, less than half of 1998
capital expenditures of $266,299,000, and 24 percent less than the $161,177,000
spent in 1997. Net cash provided from operating activities for those same time
periods were $158,694,000 in 1999, $113,533,000 in 1998, and $165,568,000 in
1997. In addition to the net cash provided by operating activities, the Company
also generated net proceeds from the sale of portfolio securities of $2,803,000
in 1999, $73,949,000 in 1998, and $8,557,000 in 1997. In June 1998, the board of
directors authorized the Company to repurchase up to 2,000,000 shares of its own
stock during a period of one year. A total of 999,100 shares were repurchased in
1998 at a total cost of $19,112,000. The Company plans to increase capital
spending during 2000 in its Exploration and Production segment. The increase
will likely be offset by a decrease in capital spending in the Company's
Contract Drilling Division. The potential for new contract drilling projects
requiring large amounts of capital is difficult to predict at this time.
16
17
Due to the need for additional funds during 1998 resulting from a reduction in
operating cash flow, a significant increase in capital expenditures, and the
stock buyback program, the Company increased its available short-term lines of
credit and obtained long-term financing. On September 30, 1999, the Company had
$5 million in short-term debt borrowings, which had a weighted average maturity
of 19 days and a weighted average interest rate of approximately 5.73 percent.
As further described in Note 2 of Notes to Consolidated Financial Statements, in
October 1998, the Company obtained an additional $50 million in long-term debt
proceeds which was used to pay off a portion of its short-term borrowings. The
$50 million of long-term debt matures in October 2003. The interest rate on this
debt fluctuates based on 30-day London Interbank Offered Rate (LIBOR), however,
simultaneous to receiving the $50 million in long-term debt proceeds, the
Company entered into a $50 million interest rate swap agreement with a major
national bank. The swap effectively fixes the interest rate on this facility at
5.38 percent for the entire 5-year term of the note. The estimated fair value of
the interest rate swap is $2,574,000 at September 30, 1999. The Company's
interest rate risk exposure is limited to its short-term borrowings and results
predominately from fluctuations in short-term interest rates as measured by
30-day LIBOR. The Company generally borrows for 30-day time periods, and can fix
its interest rate for 30-day increments at spreads ranging from 35 to 50 basis
points over LIBOR.
The strength of the Company's balance sheet is substantial, with current ratios
for 1999 and 1998 at 2.2 and 1.5, respectively, and with total bank borrowings
only 5 percent of total assets at September 30, 1999. Additionally, the Company
manages a large portfolio of marketable securities that, at the close of 1999,
had a market value of $289,005,000, with a cost basis of $117,214,000. The
portfolio, heavily weighted in energy stocks, is subject to fluctuation in the
market and may vary considerably over time. The portfolio is marked to market on
the Company's balance sheet for each reporting period. During 1999, the Company
paid a dividend of $0.28 per share, or a total of $13,849,000, representing the
28th consecutive year of dividend increases.
- --------------------------------------------------------------------------------
Stock Portfolio Held by the Company
- --------------------------------------------------------------------------------
Number of
September 30, 1999 Shares Book Value Market Value
------------------ ---------- ---------- ------------
(in thousands, except share amounts)
Occidental Petroleum Corporation .... 1,000,000 $ 23,775 $ 23,125
Atwood Oceanics, Inc. ............... 3,000,000 41,157 91,687
Schlumberger, Ltd. .................. 1,480,000 23,511 92,223
Sunoco, Inc. ........................ 312,546 3,192 8,556
Phillips Petroleum Company .......... 240,000 5,976 11,700
Bank One Corporation ................ 175,000 1,969 6,092
Kerr-McGee Corporation .............. 184,500 4,899 10,159
ONEOK, Inc. ......................... 225,000 2,751 6,820
Other ............................... 9,984 38,643
---------- -----------
Total ................... $ 117,214 $ 289,005
========== ===========
17
18
CONSOLIDATED BALANCE SHEETS
HELMERICH & PAYNE, INC.
- ---------------------------
ASSETS
September 30, 1999 1998
- ------------------------------------------------------------------------ ---------- ----------
(in thousands)
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 21,758 $ 24,476
Accounts receivable, less reserve of $2,908 and $1,908 ........ 99,598 119,395
Inventories ................................................... 25,187 25,401
Prepaid expenses and other .................................... 14,081 15,073
---------- ----------
Total current assets ................................. 160,624 184,345
---------- ----------
INVESTMENTS ............................................................ 238,475 200,400
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Contract drilling equipment ................................... 881,269 829,217
Oil and gas properties ........................................ 446,889 435,747
Real estate properties ........................................ 49,065 48,451
Other ......................................................... 71,139 65,120
---------- ----------
1,448,362 1,378,535
Less--Accumulated depreciation, depletion and amortization .... 757,147 686,164
---------- ----------
Net property, plant and equipment ......................... 691,215 692,371
---------- ----------
OTHER ASSETS ........................................................... 19,385 13,314
---------- ----------
TOTAL ASSETS ........................................................... $1,109,699 $1,090,430
---------- ----------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
18
19
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, 1999 1998
----------- -----------
(in thousands,
except share data)
CURRENT LIABILITIES:
Accounts payable .............................................................................. $ 25,704 $ 41,851
Accrued liabilities ........................................................................... 41,200 38,833
Notes payable ................................................................................. 5,000 44,800
----------- -----------
Total current liabilities ............................................................... 71,904 125,484
----------- -----------
NONCURRENT LIABILITIES:
Long-term notes payable ....................................................................... 50,000 50,000
Deferred income taxes ......................................................................... 116,588 103,469
Other ......................................................................................... 23,098 18,329
----------- -----------
Total noncurrent liabilities ............................................................ 189,686 171,798
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, 80,000,000 shares authorized,
53,528,952 shares issued .................................................................... 5,353 5,353
Preferred stock, no par value, 1,000,000 shares authorized,
no shares issued ........................................................................... -- --
Additional paid-in capital .................................................................... 61,411 59,004
Retained earnings ............................................................................. 745,956 716,875
Unearned compensation ......................................................................... (4,487) (5,605)
Accumulated other comprehensive income ........................................................ 75,182 54,689
----------- -----------
883,415 830,316
Less treasury stock, 3,903,286 shares in 1999 and 4,146,120 shares in 1998, at cost ........... 35,306 37,168
----------- -----------
Total shareholders' equity .............................................................. 848,109 793,148
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................................................... $ 1,109,699 $ 1,090,430
=========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
19
20
CONSOLIDATED STATEMENTS OF INCOME
HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997
-------- -------- --------
(in thousands,
except per share amounts)
REVENUES:
Sales and other operating revenues .......... $556,562 $592,037 $506,422
Income from investments ..................... 7,757 44,603 11,437
-------- -------- --------
564,319 636,640 517,859
-------- -------- --------
COSTS AND EXPENSES:
Operating costs ............................. 332,330 346,066 276,094
Depreciation, depletion and amortization .... 109,167 88,350 71,691
Dry holes and abandonments .................. 11,727 11,572 7,783
Taxes, other than income taxes .............. 25,478 25,728 21,318
General and administrative .................. 14,198 11,762 9,346
Interest .................................... 6,481 942 4,212
-------- -------- --------
499,381 484,420 390,444
-------- -------- --------
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATE ............... 64,938 152,220 127,415
INCOME TAX EXPENSE ................................... 25,706 56,677 45,511
EQUITY IN INCOME OF AFFILIATE
net of income taxes ......................... 3,556 5,611 2,282
-------- -------- --------
NET INCOME ........................................... $ 42,788 $101,154 $ 84,186
======== ======== ========
EARNINGS PER COMMON SHARE:
BASIC ....................................... $ 0.87 $ 2.03 $ 1.69
DILUTED ..................................... $ 0.86 $ 2.00 $ 1.67
AVERAGE COMMON SHARES OUTSTANDING:
BASIC ....................................... 49,243 49,948 49,779
DILUTED ..................................... 49,817 50,565 50,561
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
20
21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
HELMERICH & PAYNE, INC.
Common Stock Additional
---------------------- Paid-in Unearned Retained
Shares Amount Capital Compensation Earnings
-------- ------------- --------- ------------ ----------
Balance, Sept. 30, 1996 ................ 53,529 $ 5,353 $ 47,734 $ $ 557,543
Comprehensive Income:
Net Income ............................ -- -- -- -- 84,186
Other comprehensive income,
net of tax unrealized gains on
available-for-sale securities ........ -- -- -- -- --
Comprehensive income ................... -- -- -- -- --
Cash dividends ($.26 per share) ........ -- -- -- -- (12,987)
Exercise of Stock Options .............. -- -- 3,306 -- --
Lapse of restrictions on
Restricted Stock Awards .............. -- -- 276 -- --
Amortization of deferred
Compensation ......................... -- -- -- -- 820
---------- ---------- --------- --------- ----------
Balance, Sept. 30, 1997 ................ 53,529 5,353 51,316 -- 629,562
Comprehensive Income:
Net Income ........................... -- -- -- -- 101,154
Other comprehensive loss, net of
tax--unrealized losses on
available-for-sale securities ....... -- -- -- -- --
Comprehensive income ................... -- -- -- -- --
Cash dividends ($.275 per share) ....... -- -- -- -- (14,007)
Exercise of Stock Options .............. -- -- 1,833 -- --
Purchase of stock for treasury ......... -- -- -- -- --
Lapse of restrictions on
Restricted Stock Awards ............... -- -- 98 -- --
Stock issued under Restricted
Stock Award Plan ...................... -- -- 5,757 (6,791) --
Amortization of deferred
Compensation .......................... -- -- -- 1,186 166
---------- ---------- --------- --------- ----------
Balance, Sept. 30, 1998 ................ 53,529 5,353 59,004 (5,605) 716,875
Comprehensive Income:
Net Income ............................ -- -- -- -- 42,788
Other comprehensive income,
net of tax unrealized gains on
available-for-sale securities ........ -- -- -- -- --
Comprehensive income ................... -- -- -- -- --
Cash dividends ($.28 per share) ........ -- -- -- -- (13,866)
Exercise of Stock Options .............. -- -- 2,201 -- --
Lapse of restrictions on
Restricted Stock Awards ............... -- -- 69 -- --
Stock issued under Restricted
Stock Award Plan ...................... -- -- 137 (289) --
Amortization of deferred
Compensation .......................... -- -- -- 1,407 159
---------- ---------- --------- --------- ----------
Balance, Sept. 30, 1999 ................ 53,529 $ 5,353 $ 61,411 $ (4,487) $ 745,956
========== ========== ========= ========= ==========
Accumulated
Treasury Stock Other
---------------------- Comprehensive
Shares Amount Income (Loss) Total
--------- --------- ------------- ---------
(in thousands, except per share amounts)
Balance, Sept. 30, 1996 ................ 3,758 $ (21,210) $ 56,550 $ 645,970
Comprehensive Income:
Net Income ............................ -- -- -- 84,186
Other comprehensive income,
net of tax unrealized gains on
available-for-sale securities ........ -- -- 57,904 57,904
---------
Comprehensive income ................... -- -- -- 142,090
---------
Cash dividends ($.26 per share) ........ -- -- -- (12,987)
Exercise of Stock Options .............. (257) 1,105 -- 4,411
Lapse of restrictions on
Restricted Stock Awards .............. -- -- -- 276
Amortization of deferred
Compensation ......................... -- -- -- 820
--------- --------- ------------- ---------
Balance, Sept. 30, 1997 ................ 3,501 (20,105) 114,454 780,580
Comprehensive Income:
Net Income ........................... -- -- -- 101,154
Other comprehensive loss, net of
tax--unrealized losses on
available-for-sale securities ....... -- -- (59,765) (59,765)
---------
Comprehensive income ................... -- -- -- 41,389
---------
Cash dividends ($.275 per share) ....... -- -- -- (14,007)
Exercise of Stock Options .............. (174) 1,015 -- 2,848
Purchase of stock for treasury ......... 999 (19,112) -- (19,112)
Lapse of restrictions on
Restricted Stock Awards ............... -- -- -- 98
Stock issued under Restricted
Stock Award Plan ...................... (180) 1,034 -- --
Amortization of deferred
Compensation .......................... -- -- -- 1,352
--------- --------- ------------- ---------
Balance, Sept. 30, 1998 ................ 4,146 (37,168) 54,689 793,148
Comprehensive Income:
Net Income ............................ -- -- -- 42,788
Other comprehensive income,
net of tax unrealized gains on
available-for-sale securities ........ -- -- 20,493 20,493
---------
Comprehensive income ................... -- -- -- 63,281
---------
Cash dividends ($.28 per share) ........ -- -- -- (13,866)
Exercise of Stock Options .............. (226) 1,710 -- 3,911
Lapse of restrictions on
Restricted Stock Awards ............... -- -- -- 69
Stock issued under Restricted
Stock Award Plan ...................... (17) 152 -- --
Amortization of deferred
Compensation .......................... -- -- -- 1,566
--------- --------- ------------- ---------
Balance, Sept. 30, 1999 ................ 3,903 $ (35,306) $ 75,182 $ 848,109
========= ========= ============= =========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
21
22
Consolidated Statements of Cash Flows
HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997
--------- --------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 42,788 $ 101,154 $ 84,186
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization ...................... 109,167 88,350 71,691
Dry holes and abandonments .................................... 11,727 11,572 7,783
Equity in income of affiliate before income taxes ............. (5,735) (9,050) (3,680)
Amortization of deferred compensation ......................... 1,566 1,352 820
Gain on sale of securities .................................... (2,547) (38,421) (4,697)
Gain on sale of property, plant and equipment ................. (6,900) (2,951) (4,545)
Other - net ................................................... 2,148 974 1,897
Change in assets and liabilities:
Accounts receivable ........................................ 19,797 (20,698) (23,323)
Inventories ................................................ 214 (5,762) (2,724)
Prepaid expenses and other ................................. (5,079) (4,682) (5,020)
Accounts payable ........................................... (16,147) (194) 18,619
Accrued liabilities ........................................ 2,367 (8,692) 15,582
Deferred income taxes ...................................... 559 (1,231) 7,506
Other noncurrent liabilities ............................... 4,769 1,812 1,473
--------- --------- ---------
115,906 12,379 81,382
--------- --------- ---------
Net cash provided by operating activities .............. 158,694 113,533 165,568
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including dry hole costs ..................... (122,951) (266,299) (161,177)
Proceeds from sale of property, plant and equipment ............... 9,990 15,414 9,432
Purchase of investments ........................................... (537) 1,056 (1,404)
Proceeds from sale of securities .................................. 2,803 73,949 8,557
--------- --------- ---------
Net cash used in investing activities .................. (110,695) (175,880) (144,592)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ................................ 102,000 169,800 34,000
Payments made on notes payable ............................. (141,800) (80,000) (34,000)
Dividends paid ............................................. (13,849) (13,802) (12,970)
Purchases of stock for treasury ............................ -- (19,112) --
Proceeds from exercise of stock options .................... 2,932 1,974 3,065
--------- --------- ---------
Net cash provided by (used in) financing activities .... (50,717) 58,860 (9,905)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ (2,718) (3,487) 11,071
CASH AND CASH EQUIVALENTS, beginning of period ...................... 24,476 27,963 16,892
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period ............................ $ 21,758 $ 24,476 $ 27,963
========= ========= =========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
22
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HELMERICH & PAYNE, INC. September 30, 1999,1998 and 1997
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. The foreign currency transaction loss for 1999,
1998 and 1997 was $21,000, $1,953,000 and $452,000, respectively.
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. Reserves are
recorded for capitalized costs of undeveloped leases based on management's
estimate of recoverability. Costs of surrendered leases are charged to the
reserve.
In accordance with 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", the Company recognizes impairment losses for long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the carrying amount of the
asset. In 1999, the Company recognized an impairment charge of approximately
$10.1 million for proved Exploration and Production properties which is included
in depreciation, depletion and amortization expense. After-tax, the impairment
charge reduced 1999 net income by approximately $6.2 million, $0.13 per share on
a diluted basis. In 1998, the Company recognized an impairment charge of
approximately $5.4 million for proved Exploration and Production properties
which is included in depreciation, depletion and amortization expense.
After-tax, the impairment charge reduced 1998 net income by approximately $3.4
million, $0.07 per share on a diluted basis. The Company evaluates impairment of
exploration and production assets on a field by field basis. Fair value 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 -
Contract drilling revenues are comprised primarily of daywork drilling contracts
for which the related revenues and expenses are recognized as work progresses.
Fiscal 1999 contract drilling revenues also include revenues of $40,790,000 from
a rig construction contract for which revenues were recognized based on the
percentage-of-completion method, measured by the percentage that incurred costs
to date bear to total estimated costs. The rig construction contract was
complete by September 30, 1999.
GAS IMBALANCES -
The Company recognizes revenues from gas wells on the sales method, and a
liability is recorded for permanent imbalances.
INVESTMENTS -
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 approximately 22 percent of Atwood
Oceanics, Inc. (Atwood) at both September 30, 1999 and 1998. The quoted market
value of the Company's investment was $91,687,500 and $62,437,500 at September
30, 1999 and 1998, respectively. Retained earnings at September 30, 1999
includes approximately $18,697,000 of undistributed earnings of Atwood.
23
24
Summarized financial information of Atwood is as follows:
1999 1998 1997
-------- -------- --------
(in thousands)
Gross revenues ..................................... $150,009 $151,809 $ 89,082
Costs and expenses ................................. 122,289 112,445 73,463
-------- -------- --------
Net income ......................................... $ 27,720 $ 39,364 $ 15,619
======== ======== ========
Helmerich & Payne, Inc.'s equity in net income,
net of income taxes ............................. $ 3,556 $ 5,611 $ 2,282
======== ======== ========
Current assets ..................................... $ 50,532 $ 51,587 $ 47,961
Noncurrent assets .................................. 243,072 230,150 168,279
Current liabilities ................................ 19,013 26,723 19,621
Noncurrent liabilities ............................. 82,362 91,248 73,930
Shareholders' equity ............................... 192,229 163,766 122,689
======== ======== ========
Helmerich & Payne, Inc.'s investment ............... $ 41,157 $ 35,422 $ 28,895
======== ======== ========
INCOME TAXES -
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 to participate in the plan 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 -
Basic earnings per share is based on the weighted-average number of common
shares outstanding during the period. Diluted earnings per share includes the
dilutive effect of stock options and restricted stock.
EMPLOYEE STOCK-BASED AWARDS -
Employee stock-based awards are accounted for under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
information. Fixed plan common stock options do not result in compensation
expense, because the exercise price of the stock equals the market price of the
underlying stock on the date of grant.
TREASURY STOCK -
Treasury stock purchases are accounted for under the cost method whereby the
entire cost of the acquired stock is recorded as treasury stock. Gains and
losses on the subsequent reissuance of shares are credited or charged to
additional paid-in-capital using the average-cost method.
DERIVATIVES -
As described in Note 2, the Company entered into an interest rate swap agreement
in fiscal 1999. This agreement involves the exchange of an amount based on a
fixed interest rate for an amount based on a variable interest rate without an
exchange of the notional amount upon which the payments are based. The
difference to be paid or received is accrued and recognized as an adjustment of
interest expense. Gains and losses from termination of interest rate swap
agreements are deferred and amortized as an adjustment to interest expense over
the original term of the terminated swap agreement.
NOTE 2 NOTES PAYABLE AND LONG-TERM DEBT
At September 30, 1999, the Company had committed bank lines totaling $120
million; $50 million expires October 2003 and $70 million expires May 2000.
Additionally, the Company had uncommitted credit facilities totaling $60
million. Collectively, the Company had $55 million in outstanding borrowings and
outstanding letters of credit totaling $8.4 million against these lines at
September 30, 1999. Concurrent with the $50 million borrowing under the facility
that expires October 2003, the Company entered into an interest rate swap with a
notional value of $50 million. The swap effectively converts this $50 million
facility from a floating rate to a fixed effective rate of 5.38 percent. The
interest rate swap closely correlates with the terms and maturity of the $50
million facility. Excluding the impact of the interest rate swap, the average
interest rate for the borrowings at September 30, 1999, was approximately 5.9
percent. The interest rate swap reduces the average rate to approximately 5.4
percent on year-end borrowings.
Under the various credit agreements, the Company must meet certain requirements
regarding levels of debt, net worth and earnings.
24
25
NOTE 3 INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
Years Ended September 30, 1999 1998 1997
------------------------- ------- -------- --------
(in thousands)
CURRENT:
Federal .......................... $ 9,684 $ 36,705 $ 18,582
Foreign .......................... 15,963 18,728 17,214
State ............................ 1,744 4,751 2,190
------- -------- --------
27,391 60,184 37,986
------- -------- --------
DEFERRED:
Federal (842) (4,108) 6,349
Foreign (771) 927 603
State (72) (326) 573
------- -------- --------
(1,685) (3,507) 7,525
------- -------- --------
TOTAL PROVISION: $25,706 $ 56,677 $ 45,511
======= ======== ========
The amounts of domestic and foreign income are as follows:
Years Ended September 30, 1999 1998 1997
------------------------- ------- -------- --------
(in thousands)
INCOME BEFORE INCOME TAXES AND
EQUITY IN INCOME OF AFFILIATE:
Domestic ............ $41,693 $106,228 $ 84,723
Foreign ............. 23,245 45,992 42,692
------- -------- --------
$64,938 $152,220 $127,415
======= ======== ========
Effective income tax rates on income as compared to the U.S. Federal income tax
rate are as follows:
Years Ended September 30, 1999 1998 1997
------------------------- ---- ---- ----
U.S. Federal income tax rate ........................ 35% 35% 35%
Dividends received deduction ........................ (1) - (1)
Effect of higher foreign tax rates .................. 5 2 1
Non-conventional fuel source credits utilized ....... (1) - -
Other, net .......................................... 2 - 1
-- -- --
Effective income tax rate ........................... 40% 37% 36%
== == ==
The components of the Company's net deferred tax liabilities are as follows:
September 30, 1999 1998
-------- --------
(in thousands)
DEFERRED TAX LIABILITIES:
Property, plant and equipment $ 59,695 $ 59,413
Available-for-sale securities 53,651 41,154
Pension provision 3,951 4,602
Equity investment 10,759 9,006
Other 923 --
-------- --------
Total deferred tax liabilities 128,979 114,175
-------- --------
DEFERRED TAX ASSETS:
Financial accruals 8,832 8,853
Other 3,559 1,853
-------- --------
Total deferred tax assets 12,391 10,706
-------- --------
NET DEFERRED TAX LIABILITIES $116,588 $103,469
======== ========
25
26
NOTE 4 SHAREHOLDERS' EQUITY
In June 1998, the board of directors authorized the repurchase of up to
2,000,000 shares of its common stock in open market or private transactions. The
repurchased shares will be held in treasury and used for general corporate
purposes including use in the Company's benefit plans. During fiscal 1998, the
Company purchased 999,100 shares at a total cost of approximately $19 million.
The Company did not purchase any shares in fiscal 1999.
The Company has several plans providing for common stock-based awards to
employees and to non-employee directors. The plans permit the granting of
various types of awards including stock options and restricted stock. Awards may
be granted for no consideration other than prior and future services. The
purchase price per share for stock options may not be less than the market price
of the underlying stock on the date of grant. Stock options expire 10 years
after grant.
The Company has reserved 1,307,638 shares of its treasury stock to satisfy the
exercise of stock options issued under the 1982 and 1990 Stock Option Plans.
Effective December 4, 1996, additional options are no longer granted under these
plans. Options granted under the 1982 plan vest over a period of nine years
while options granted under the 1990 plan generally vest over a seven year
period. Options granted under both plans become exercisable in increments as
outlined in the plans.
In March 1997, the Company adopted the 1996 Stock Incentive Plan (the "Stock
Incentive Plan"). The Stock Incentive Plan was effective December 4, 1996, and
will terminate December 3, 2006. Under this plan the Company is authorized to
grant options for up to 4,000,000 shares of the Company's common stock at an
exercise price not less than the fair market value of the common stock on the
date of grant. Up to 600,000 shares of the total authorized may be granted to
participants as restricted stock awards. Options granted under the 1996 plan
vest over a four-year period. On September 30, 1999, 2,537,000 shares were
available for grant under the Stock Incentive Plan.
On September 30, 1999, 403,000 shares were available for grant under the Stock
Incentive Plan as restricted stock awards. In fiscal 1999 and 1998, 17,000 and
180,000 shares of restricted stock, respectively, were granted at a
weighted-average price of $17.00 and $37.73, respectively, which approximated
fair market value at the date of grant. Unearned compensation of $289,000 and
$6,791,000 for fiscal 1999 and 1998, respectively, is being amortized over a
five-year vesting period as compensation expense.
The following summary reflects the stock option activity and related information
(shares in thousands):
1999 1998 1997
------------------------- ----------------------- ------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
Outstanding at October 1, 2,090 $22.09 1,745 $16.44 1,708 $13.63
Granted 726 16.81 544 36.84 393 26.07
Exercised (238) 14.28 (175) 12.15 (270) 13.03
Forfeited/Expired (4) 13.51 (24) 17.54 (86) 14.89
----- ------ ----- ------ ----- ------
Outstanding on September 30, 2,574 $21.34 2,090 $22.09 1,745 $16.44
----- ------ ----- ------ ----- ------
Exercisable on September 30, 782 $20.13 453 $15.63 135 $12.22
----- ------ ----- ------ ----- ------
Shares available on September 30,
for options that may be granted 2,537 3,280 4,000
----- ----- -----
The following table summarizes information about stock options at September 30,
1999 (shares in thousands):
Outstanding Stock Options Exercisable Stock Options
----------------------------------------- -------------------------
Weighted-Average
Range of Remaining Contractural Weighted-Average Weighted-Average
Exercise Prices Options Life Exercise Price Options Exercise Price
--------------- ------- ---------------------- ---------------- ------- ----------------
$12.00 to $14.00 812 5.1 years $13.59 431 $13.42
$14.01 to $16.50 117 0.9 years $16.34 66 $16.34
$16.51 to $26.50 1,105 8.5 years $19.99 150 $26.06
$26.51 to $37.00 540 8.2 years $36.84 135 $36.84
====== ====== ===== ========= ====== === ======
$12.00 to $37.00 2,574 7.0 years $21.34 782 $20.13
====== ====== ===== ========= ====== === ======
The following table reflects pro forma net income and earnings per share had the
Company applied the fair value method of SFAS No. 123, "Accounting for
Stock-Based Compensation", in measuring compensation cost beginning with 1997
employee stock-based awards.
26
27
Years Ended September 30, 1999 1998 1997
------------------------- ---- ---- ----
(in thousands, except per share data)
Net Income:
As reported ......................... $42,788 $101,154 $84,186
Pro forma ........................... 40,268 99,437 83,531
Basic earnings per share:
As reported ......................... .87 2.03 1.69
Pro forma ........................... .82 1.99 1.68
Diluted earnings per share:
As reported ......................... .86 2.00 1.67
Pro forma ........................... .81 1.97 1.65
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
The weighted-average fair values of options at their grant date during 1999,
1998 and 1997 were $6.81, $14.63, and $9.50, respectively. The estimated fair
value of each option granted is calculated using the Black-Scholes
option-pricing model. The following summarizes the weighted-average assumptions
used in the model:
1999 1998 1997
---- ---- ----
Expected years until exercise .......... 5.5 7.0 6.7
Expected stock volatility .............. 38% 34% 27%
Dividend yield ......................... 1.2% 1.6% 1.0%
Risk-free interest rate ................ 6.0% 5.9% 6.1%
On September 30, 1999, the Company had 49,625,666 outstanding common stock
purchase rights ("Rights") pursuant to terms of the Rights Agreement dated
January 8, 1996. Under the terms of the Rights Agreement each Right entitled the
holder thereof to purchase from the Company one half of one 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 half of one Right with each new share
of common stock issued.
NOTE 5 EARNINGS PER SHARE
A reconciliation of the weighted-average common shares outstanding on a basic
and diluted basis is as follows:
(in thousands) 1999 1998 1997
-------------- ---- ---- ----
Basic weighted-average shares .......... 49,243 49,948 49,779
Effect of dilutive shares:
Stock options ....................... 561 595 747
Restricted stock .................... 13 22 35
------ ------ ------
574 617 782
------ ------ ------
Diluted weighted-average shares .......... 49,817 50,565 50,561
====== ====== ======
Restricted stock of 180,000 shares at a weighted-average price of $37.73 and
options to purchase 540,000 shares of common stock at a price of $36.84 were
outstanding at September 30, 1999, but were not included in the computation of
diluted earnings per common share. Inclusion of these shares would be
antidilutive, as the exercise prices of the options exceed the average market
price of the common shares.
NOTE 6 FINANCIAL INSTRUMENTS
Notes payable bear interest at market rates and are carried at cost which
approximates fair value. The estimated fair value of the Company's interest rate
swap is $2,574,000 at September 30,1999, based on forward-interest rates derived
from the year-end yield curve as calculated by the financial institution that is
a counterparty to the swap. The estimated fair value of the Company's
available-for-sale securities is primarily based on market quotes.
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, 1999 $76,057 $122,369 $1,108 $197,318
September 30, 1998 $76,770 $ 93,364 $5,156 $164,978
27
28
During the years ended September 30, 1999, 1998, and 1997, marketable equity
available-for-sale securities with a fair value at the date of sale of
$2,803,000, $62,792,000 and $8,557,000, respectively, were sold. The gross
realized gains on such sales of available-for-sale securities totaled
$2,547,000, $30,820,000 and $4,697,000, respectively, and the gross realized
losses totaled $0, $1,034,000 and $0 respectively.
NOTE 7 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The table below presents changes in the components of accumulated other
comprehensive income (loss).
Years Ended September 30, 1999 1998 1997
------------------------- ---- ---- ----
(in thousands)
Balance, beginning of period ................. $ 54,689 $114,454 $ 56,550
Unrealized gains (losses) on
available-for-sale securities ............ 35,600 (66,610) 98,091
Less: Reclassification adjustment
for net gains realized in net income ..... (2,547) (29,786) (4,697)
-------- -------- --------
Net unrealized gains (losses) ......... 33,053 (96,396) 93,394
Tax benefit (expense) ...................... (12,560) 36,631 (35,490)
-------- -------- --------
Net-of-tax amount ..................... 20,493 (59,765) 57,904
-------- -------- --------
Balance, end of period ....................... $ 75,182 $ 54,689 $114,454
======== ======== ========
NOTE 8 EMPLOYEE BENEFIT PLANS
The following tables set forth the Company's disclosures required by SFAS No.
132, "Employers' Disclosures About Pensions and Other Postretirement Benefits".
CHANGE IN BENEFIT OBLIGATION:
Years ended September 30, 1999 1998
------------------------- ---- ----
(in thousands)
Benefit obligation at beginning of year ......... $ 36,954 $ 33,913
Service cost .................................... 3,700 2,836
Interest cost ................................... 2,468 2,430
Actuarial (gain) loss ........................... (4,468) 231
Benefits paid ................................... (1,659) (2,456)
-------- --------
Benefit obligation at end of year ............... $ 36,995 $ 36,954
======== ========
CHANGE IN PLAN ASSETS:
Years Ended September 30, 1999 1998
(in thousands)
Fair value of plan assets at beginning of year .. $ 51,572 $ 53,834
Actual return on plan assets .................... 8,604 194
Benefits paid ................................... (1,659) (2,456)
-------- --------
Fair value of plan assets at end of year ........ $ 58,517 $ 51,572
======== ========
Funded status of the plan ....................... $ 21,522 $ 14,618
Unrecognized net actuarial gain ................. (10,127) (1,647)
Unrecognized prior service cost ................. 1,025 1,263
Unrecognized net transition asset ............... (1,619) (2,159)
-------- --------
Prepaid benefit cost $ 10,801 $ 12,075
======== ========
WEIGHTED-AVERAGE ASSUMPTIONS:
Years Ended September 30, 1999 1998 1997
------------------------- ---- ---- ----
Discount rate 7.50% 6.75% 7.25%
Expected return on plan 9.00% 8.50% 9.00%
Rate of compensation increase 5.00% 5.00% 5.50%
28
29
COMPONENTS OF NET PERIODIC (BENEFIT) COST:
Years Ended September 30, 1999 1998 1997
------------------------- ---- ---- ----
(in thousands)
Service cost ............................. $ 3,700 $ 2,836 $ 2,114
Interest cost ............................ 2,468 2,430 1,797
Expected return on plan assets ........... (4,606) (4,542) (3,592)
Amortization of prior service cost ....... 238 238 239
Amortization of transition asset ......... (540) (540) (540)
Recognized net actuarial gain ............ 14 (65) (66)
------- ------- -------
Net pension expense (credit) ............. $ 1,274 $ 357 $ (48)
======= ======= =======
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 $3,315,000, $3,009,000
and $2,255,000 in 1999, 1998 and 1997, respectively.
NOTE 9 ACCRUED LIABILITIES
Accrued liabilities consist of the following:
September 30, 1999 1998
------------- -------- --------
(in thousands)
Royalties payable ................. $ 9,625 $ 6,997
Taxes payable - operations ........ 6,990 6,502
Ad valorem tax .................... 7,177 5,907
Income taxes payable .............. 3,278 4,487
Workers compensation claims ....... 3,122 3,000
Payroll and employee benefits ..... 3,970 5,576
Other ............................. 7,038 6,364
-------- --------
$ 41,200 $ 38,833
======== ========
NOTE 10 SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended September 30, 1999 1998 1997
------------------------- ---- ---- ----
(in thousands)
Cash payments:
Interest paid ............. $ 5,705 $ 1,721 $ 357
Income taxes paid ......... $ 27,843 $ 61,056 $ 36,347
NOTE 11 RISK FACTORS
CONCENTRATION 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
companies in the oil and gas industry. The Company normally does not require
collateral except for certain receivables of customers in its natural gas
marketing operations.
CONTRACT DRILLING 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.
During fiscal 1999, the Company's rig utilization rate decreased compared to the
previous two years primarily as a result of reduced demand caused by a decline
in the price of oil. The Company believes that its rig fleet is not currently
impaired based on an assessment of future cash flows of the assets in question.
However, it is possible that the Company's assessment that it will recover the
carrying amount of its rig fleet from future operations may change in the near
term.
OIL AND GAS OPERATIONS -
In estimating future cash flows attributable to the Company's exploration and
production assets, certain assumptions are made with regard to commodity prices
received and costs incurred. Due to the volatility of commodity prices, it is
possible that the Company's assumptions used in estimating future cash flows for
exploration and production assets may change in the near term.
29
30
NOTE 12 NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", (SFAS 133). This
statement is effective for fiscal years beginning after June 15, 2000 and
requires that all derivatives be recognized as assets or liabilities in the
balance sheet and that these instruments be measured at fair value. The Company
has not completed the process of evaluating the impact of adopting SFAS 133.
The American Institute of Certified Public Accountants (AICPA) issued Statement
of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities",
effective for fiscal years beginning after December 15, 1998. The SOP requires
that all start-up costs be expensed and that the effect of adopting the SOP be
reported as the cumulative effect of a change in accounting principle. The
Company will adopt this SOP effective October 1, 1999. The effect of this SOP on
the Company's results of operations and financial position will not be material.
NOTE 13 SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures About Segments of an Enterprise and Related Information", during
the fourth quarter of fiscal 1999. SFAS No. 131 establishes standards for
reporting information about segments and related disclosures about products and
services, geographical areas, and major customers. Prior year financial
statements and notes have been reclassified to conform to the requirements of
SFAS No. 131.
The Company operates principally in the contract drilling industry, which
includes a Domestic segment and an International segment, and in the oil and gas
industry, which includes an Exploration and Production segment and a Natural Gas
Marketing segment. 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, Ecuador, Argentina and Bolivia. Oil and gas activities
include the exploration for and development of productive oil and gas properties
located primarily in Oklahoma, Texas, Kansas and Louisiana, as well as, the
marketing of natural gas for third parties. The Natural Gas Marketing segment
also markets most of the natural gas produced by the Exploration and Production
segment retaining a market based fee from the sale of such production. The
Company also has a Real Estate segment whose operations are conducted
exclusively in the metropolitan area of Tulsa, Oklahoma. The primary areas of
operations include a major shopping center and several multi-tenant warehouses.
Each reportable segment is a strategic business unit which is managed separately
as an autonomous business. Other includes investments in available-for-sale
securities, equity owned investments, as well as corporate operations.
The Company evaluates performance of its segments based upon operating profit or
loss from operations before income taxes which includes revenues from external
and internal customers; operating costs; depreciation, depletion and
amortization; dry holes and abandonments and taxes other than income taxes. The
accounting policies of the segments are the same as those described in Note 1,
Summary of Accounting Policies. Intersegment sales are accounted for in the same
manner as sales to unaffiliated customers.
Summarized financial information of the Company's reportable segments for each
of the years ended September 30, 1999, 1998, and 1997 is shown in the following
table:
Depreciation Additions
External Inter- Total Operating Depletion & Total to Long-Live
(in thousands) Sales Segment Sales Profit (Loss) Amortization Assets Assets
---------- ---------- ---------- ------------- ------------ ---------- ----------
1999:
CONTRACT DRILLING
Domestic $ 213,647 $ 2,457 $ 216,104 $ 30,154 $ 31,164 $ 371,766 $ 57,975
International 182,987 -- 182,987 29,845 36,178 271,746 17,293
---------- ---------- ---------- ---------- ---------- ---------- ----------
396,634 2,457 399,091 59,999 67,342 643,512 75,268
---------- ---------- ---------- ---------- ---------- ---------- ----------
OIL & GAS OPERATIONS
Exploration and Production 95,953 -- 95,953 11,245 38,658 151,898 44,333
Natural Gas Marketing 55,259 -- 55,259 4,418 174 15,156 261
---------- ---------- ---------- ---------- ---------- ---------- ----------
151,212 -- 151,212 15,663 38,832 167,054 44,594
---------- ---------- ---------- ---------- ---------- ---------- ----------
REAL ESTATE 8,671 1,531 10,202 5,338 1,427 22,816 1,445
OTHER 7,802 -- 7,802 -- 1,566 276,317 1,644
ELIMINATIONS -- (3,988) (3,988) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 564,319 $ -- $ 564,319 $ 81,000 $ 109,167 $1,109,699 $ 122,951
========== ========== ========== ========== ========== ========== ==========
30
31
Depreciation Additions
External Inter- Total Operating Depletion & Total to Long-Live
(in thousands) Sales Segment Sales Profit (Loss) Amortization Assets Assets
---------- ---------- ---------- ------------- -------------- ---------- ----------
1998:
CONTRACT DRILLING
Domestic $ 177,059 $ 4,084 $ 181,143 $ 35,817 $ 23,771 $ 351,193 $ 130,237
International 253,072 -- 253,072 50,834 31,689 303,907 83,843
---------- ---------- ---------- ---------- ---------- ---------- ----------
430,131 4,084 434,215 86,651 55,460 655,100 214,080
---------- ---------- ---------- ---------- ---------- ---------- ----------
OIL & GAS OPERATIONS
Exploration and Production 98,696 -- 98,696 28,088 29,817 156,582 48,066
Natural Gas Marketing 53,499 -- 53,499 2,418 292 15,069 636
---------- ---------- ---------- ---------- ---------- ---------- ----------
152,195 -- 152,195 30,506 30,109 171,651 48,702
---------- ---------- ---------- ---------- ---------- ---------- ----------
REAL ESTATE 8,922 1,526 10,448 5,371 1,501 22,937 875
OTHER 45,392 -- 45,392 -- 1,280 240,742 2,642
ELIMINATIONS -- (5,610) (5,610) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 636,640 $ -- $ 636,640 $ 122,528 $ 88,350 $1,090,430 $ 266,299
========== ========== ========== ========== ========== ========== ==========
1997:
CONTRACT DRILLING
Domestic $ 140,294 $ 2,218 $ 142,512 $ 24,437 $ 17,916 $ 257,505 $ 95,277
International 176,651 -- 176,651 43,118 26,458 210,976 16,900
---------- ---------- ---------- ---------- ---------- ---------- ----------
316,945 2,218 319,163 67,555 44,374 468,481 112,177
---------- ---------- ---------- ---------- ---------- ---------- ----------
OIL & GAS OPERATIONS
Exploration and Production 111,512 -- 111,512 55,191 24,627 152,892 43,381
Natural Gas Marketing 69,015 -- 69,015 3,363 258 18,884 3,170
---------- ---------- ---------- ---------- ---------- ---------- ----------
180,527 -- 180,527 58,554 24,885 171,776 46,551
---------- ---------- ---------- ---------- ---------- ---------- ----------
REAL ESTATE 8,641 1,498 10,139 5,615 1,412 23,310 1,161
OTHER 11,746 -- 11,746 -- 1,020 370,028 1,288
ELIMINATIONS -- (3,716) (3,716) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 517,859 $ -- $ 517,859 $ 131,724 $ 71,691 $1,033,595 $ 161,177
========== ========== ========== ========== ========== ========== ==========
The following table reconciles segment operating profit (loss) per the table on
page 31 and 32 to income before taxes and equity in income of affiliate as
reported on the Consolidated Statements of Income (in thousands).
Years Ended September 30, 1999 1998 1997
----------- ----------- -----------
Segment operating profit .................... $ 81,000 $ 122,528 $ 131,724
Unallocated amounts:
Income from investments ................... 7,757 44,603 11,437
General corporate expense ................. (14,198) (11,762) (9,346)
Interest expense .......................... (6,481) (942) (4,212)
Corporate depreciation .................... (1,565) (1,280) (919)
Other corporate expense ................... (1,575) (927) (1,269)
----------- ----------- -----------
Total unallocated amounts ............... (16,062) 29,692 (4,309)
----------- ----------- -----------
Income before income taxes and equity in
Income of affiliate ....................... $ 64,938 $ 152,220 $ 127,415
=========== =========== ===========
The following tables present revenues from external customers and long-lived
assets by country based on the location of service provided (in thousands).
Years Ended September 30, 1999 1998 1997
---------- ---------- ----------
Revenues
United States ................... $ 381,332 $ 383,568 $ 341,208
Venezuela ....................... 59,481 131,137 77,858
Colombia ........................ 60,838 79,675 78,370
Other Foreign ................... 62,668 42,260 20,423
---------- ---------- ----------
Total ......................... $ 564,319 $ 636,640 $ 517,859
========== ========== ==========
Long-Lived Assets
United States ................... $ 479,753 $ 475,832 $ 384,861
Venezuela ....................... 62,931 85,703 50,336
Colombia ........................ 46,621 59,848 69,340
Other Foreign ................... 101,910 70,988 34,488
---------- ---------- ----------
Total ......................... $ 691,215 $ 692,371 $ 539,025
========== ========== ==========
Long-lived assets are comprised of property, plant and equipment.
31
32
Revenues from one company doing business with the contract drilling segment
accounted for approximately 17.5 percent, 14.5 percent and 17 percent of the
total consolidated revenues during the years ended September 30, 1999, 1998 and
1997, respectively. Revenues from another company doing business with the
contract drilling segment accounted for approximately 12 percent and 10 percent
of total consolidated revenues in the years ended September 30, 1999 and 1998.
Collectively, revenues from companies controlled by the Venezuelan government
accounted for approximately 5.6 percent, 16 percent and 12 percent of total
consolidated revenues for the years ended September 30, 1999, 1998 and 1997,
respectively. Collectively, the receivables from these customers were
approximately $35.6 million and $60.6 million at September 30, 1999 and 1998,
respectively.
NOTE 14 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, 1999 1998 1997
------------ ------------ ------------
(in thousands)
Revenues ......................................... $ 95,953 $ 98,696 $ 111,512
------------ ------------ ------------
Production costs ................................. 23,058 21,786 21,750
Exploration expense and valuation provisions ..... 22,992 19,005 9,943
Depreciation, depletion and amortization ......... 38,658 29,817 24,628
Income tax expense ............................... 3,437 9,415 19,327
------------ ------------ ------------
Total cost and expenses ........................ 88,145 80,023 75,648
------------ ------------ ------------
Results of operations (excluding corporate
overhead and interest costs) ................... $ 7,808 $ 18,673 $ 35,864
============ ============ ============
Capitalized Costs -
September 30, 1999 1998
---------- ----------
(in thousands)
Proved properties ................................ $ 421,552 $ 414,770
Unproved properties .............................. 25,337 20,977
---------- ----------
Total costs .................................... 446,889 435,747
Less - Accumulated depreciation, depletion
and amortization ............................ 312,644 295,045
---------- ----------
Net ............................................ $ 134,245 $ 140,702
========== ==========
Costs Incurred Relating to Oil and Gas Producing Activities -
Years Ended September 30, 1999 1998 1997
---------- ---------- ----------
(in thousands)
Property acquisition:
Proved ......................... $ 89 $ 107 $ 47
Unproved ....................... 14,385 9,096 8,358
Exploration ...................... 22,292 18,107 9,656
Development ...................... 19,167 28,259 27,808
---------- ---------- ----------
Total .......................... $ 55,933 $ 55,569 $ 45,869
========== ========== ==========
32
33
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, 1996 ............ 6,468,116 272,301
Revisions of previous estimates .................. 92,863 6,178
Extensions, discoveries and other additions ...... 419,795 25,762
Production ....................................... (985,633) (40,463)
Purchases of reserves-in-place ................... 120 6
Sales of reserves-in-place ....................... (189,875) (548)
--------- -------
Proved reserves at September 30, 1997 ............ 5,805,386 263,236
Revisions of previous estimates .................. (331,280) 10,877
Extensions, discoveries and other additions ...... 175,265 20,819
Production ....................................... (701,180) (42,862)
Purchases of reserves-in-place ................... 2,890 188
Sales of reserves-in-place ....................... (189,768) (632)
--------- -------
Proved reserves at September 30, 1998 ............ 4,761,313 251,626
Revisions of previous estimates .................. 570,126 11,771
Extensions, discoveries and other additions ...... 151,829 22,491
Production ....................................... (649,370) (44,240)
Purchases of reserves-in-place ................... -- 77
Sales of reserves-in-place ....................... -- (2,105)
--------- -------
Proved reserves at September 30, 1999 ............ 4,833,898 239,620
========= =======
Proved developed reserves at
September 30, 1997 ...................... 5,787,116 256,443
========= =======
September 30, 1998 ...................... 4,754,319 249,376
========= =======
September 30, 1999 ...................... 4,828,071 229,765
========= =======
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 "Disclosures About Oil and
Gas Producing Activities". 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.
At September 30, 1999 1998
----------- -----------
(in thousands)
Future cash inflows ........................................ $ 688,766 $ 404,549
Future costs -
Future production and development costs .................. (188,579) (137,068)
Future income tax expense ................................ (135,763) (70,890)
----------- -----------
Future net cash flows ...................................... 364,424 196,591
10% annual discount for estimated timing of cash flows ..... (131,806) (70,664)
----------- -----------
Standardized Measure of discounted future net cash flows ... $ 232,618 $ 125,927
=========== ===========
33
34
Changes in Standardized Measure Relating to Proved Oil and Gas Reserves
(Unaudited) -
Years Ended September 30, 1999 1998 1997
------------ ------------ ------------
(in thousands)
Standardized Measure - Beginning of year ................... $ 125,927 $ 205,035 $ 153,864
Increases (decreases) -
Sales, net of production costs ........................... (72,895) (76,910) (89,762)
Net change in sales prices, net of production costs ...... 142,970 (97,938) 77,789
Discoveries and extensions, net of related future
Development and production costs ...................... 38,164 21,922 42,741
Changes in estimated future development costs ............ (11,095) (14,142) (16,570)
Development costs incurred ............................... 16,558 25,149 27,509
Revisions of previous quantity estimates ................. 17,713 5,089 6,146
Accretion of discount .................................... 16,700 28,012 20,691
Net change in income taxes ............................... (40,671) 30,436 (29,397)
Purchases of reserves-in-place ........................... 96 65 2
Sales of reserves-in-place ............................... (1,390) (2,875) (1,551)
Other .................................................... 541 2,084 13,573
------------ ------------ ------------
Standardized Measure - End of year ......................... $ 232,618 $ 125,927 $ 205,035
============ ============ ============
NOTE 15 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share amounts)
1st 2nd 3rd 4th
1999 Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
Revenues .......................... $ 143,864 $ 155,374 $ 131,799 $ 133,282
Gross profit ...................... 25,071 16,924 23,532 20,090
Net income ........................ 12,811 7,352 12,196 10,429
Basic net income per share ........ .26 .15 .25 .21
Diluted net income per share ...... .26 .15 .24 .21
1st 2nd 3rd 4th
1998 Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
Revenues .......................... $ 151,823 $ 142,389 $ 177,136 $ 165,292
Gross profit ...................... 47,351 32,869 55,098 29,606
Net income ........................ 29,165 19,337 33,861 18,791
Basic net income per share ........ .58 .39 .68 .38
Diluted net income per share ...... .57 .38 .67 .38
Gross profit 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 1998 includes an after-tax charge of $3.1
million ($0.06 per share, on a diluted basis) related to the write-down of
producing properties in accordance with SFAS No. 121.
Net income in the second quarter of 1999 includes an after-tax charge of $5.5
million ($0.11 per share, on a diluted basis) in connection with the drilling
and completion of a pinnacle reef well with reserve values significantly below
its carrying cost.
34
35
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, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended September 30, 1999. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1999, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Tulsa, Oklahoma
November 19, 1999
STOCKHOLDERS' MEETING
The annual meeting of stockholders will be held on March 1, 2000. 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, 2000.
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 15, 1999, there were 1,306 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 Transfer Agent at the following
address:
UMB Bank
Security Transfer Division
928 Grand Blvd., 13th Floor
Kansas City, MO 64106
Telephone: (800) 884-4225
(816) 860-5000
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
Internet Address: http://www.hpinc.com
STOCK PRICE INFORMATION
Closing Market Price Per Share
---------------------------------------------------
1999 1998
----------------------- -----------------------
QUARTERS HIGH LOW HIGH LOW
--------- --------- --------- ---------
First .............. $24.50 $16.75 $44.97 $31.06
Second ............. 23.94 16.06 33.19 24.56
Third .............. 26.75 20.38 33.25 21.56
Fourth ............. 30.19 23.00 24.38 16.25
DIVIDEND INFORMATION
Paid Per Share Total Payment
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
QUARTERS
First .............. $ .070 $ .065 $ 3,457,626 $ 3,256,874
Second ............. .070 .070 3,459,168 3,519,195
Third .............. .070 .070 3,464,109 3,521,332
Fourth ............. .070 .070 3,468,377 3,504,269
35
36
ELEVEN-YEAR FINANCIAL REVIEW
HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997
------- ------- -------
REVENUES AND INCOME*(2)
Contract Drilling Revenues ...................... 394,715 427,713 315,327
Crude Oil Sales ................................. 9,479 10,333 20,475
Natural Gas Sales ............................... 81,533 87,646 87,737
Gas Marketing Revenues .......................... 54,263 52,469 66,306
Real Estate Revenues ............................ 8,663 8,587 8,224
Dividend Income ................................. 3,569 4,117 5,268
Other Revenues .................................. 12,097 45,775 14,522
Total Revenues++................................. 564,319 636,640 517,859
Net Cash Provided by Continuing Operations++..... 158,694 113,533 165,568
Income from Continuing Operations ............... 42,788 101,154 84,186
Net Income ...................................... 42,788 101,154 84,186
--------- --------- ---------
PER SHARE DATA
Income from Continuing Operations(1):
Basic ......................................... .87 2.03 1.69
Diluted ....................................... .86 2.00 1.67
Net Income(1):
Basic ......................................... .87 2.03 1.69
Diluted ....................................... .86 2.00 1.67
Cash Dividends .................................. .28 .275 .26
Shares Outstanding* ............................. 49,626 49,383 50,028
--------- --------- ---------
FINANCIAL POSITION
Net Working Capital* ............................ 88,720 58,861 62,837
Ratio of Current Assets to Current Liabilities .. 2.23 1.47 1.66
Investments* .................................... 238,475 200,400 323,510
Total Assets* ................................... 1,109,699 1,090,430 1,033,595
Long-Term Debt* ................................. 50,000 50,000 --
Shareholders' Equity* ........................... 848,109 793,148 780,580
--------- --------- ---------
CAPITAL EXPENDITURES*
Contract Drilling Equipment ..................... 68,639 206,794 109,036
Wells and Equipment ............................. 29,947 38,970 35,024
Real Estate ..................................... 1,435 854 1,095
Other Assets (includes undeveloped leases) ...... 22,930 19,681 16,022
Discontinued Operations ......................... -- -- --
Total Capital Outlays ........................... 122,951 266,299 161,177
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT AT COST*
Contract Drilling Equipment ..................... 881,269 829,217 643,619
Producing Properties ............................ 421,552 414,770 395,812
Undeveloped Leases .............................. 25,337 20,977 14,109
Real Estate ..................................... 49,065 48,451 47,682
Other ........................................... 71,139 65,120 59,659
Discontinued Operations ......................... -- -- --
Total Property, Plant and Equipment ............. 1,448,362 1,378,535 1,160,881
--------- --------- ---------
* 000's omitted.
++ Chemical operations were sold August 30, 1996. Prior year amounts have been
restated to exclude discontinued operations.
(1) Includes $13.6 million ($.28 per share, on a diluted basis) effect of
impairment charge for adoption of SFAS No. 121 in 1995 and cumulative
effect of change in accounting for income taxes of $4,000,000 ($.08 per
share, on a diluted basis) in 1994.
(2) See Note 13 for segment presentation of revenues.
36
37
1996 1995 1994 1993 1992 1991 1990 1989
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
244,338 203,325 182,781 149,661 112,833 105,364 90,974 78,315
15,378 13,227 13,161 15,392 16,369 17,374 16,058 14,821
60,500 33,851 45,261 52,446 38,370 35,628 37,697 33,013
57,817 34,729 51,874 63,786 40,410 10,055 10,566 --
8,076 7,560 7,396 7,620 7,541 7,542 7,636 7,778
3,650 3,389 3,621 3,535 4,050 5,285 7,402 9,127
3,496 10,640 6,058 8,283 6,646 20,020 56,131 17,371
393,255 306,721 310,152 300,723 226,219 201,268 226,464 160,425
121,420 84,010 74,463 72,493 60,414 50,006 53,288 65,474
45,426 5,788 17,108 22,158 8,973 19,608 45,489 20,715
72,566 9,751 24,971 24,550 10,849 21,241 47,562 22,700
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
.92 .12 .35 .46 .19 .41 .94 .43
.91 .12 .35 .45 .19 .41 .93 .43
1.47 .20 .51 .51 .22 .44 .98 .47
1.46 .20 .51 .50 .22 .44 .98 .47
.2525 .25 .2425 .24 .2325 .23 .22 .21
49,771 49,529 49,420 49,275 49,152 48,976 48,971 48,346
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
51,803 50,038 76,238 104,085 82,800 108,212 146,741 114,357
1.83 1.74 2.63 3.24 3.31 4.19 3.72 3.12
229,809 156,908 87,414 84,945 87,780 96,471 99,574 130,443
821,914 707,061 621,689 610,504 585,504 575,168 582,927 591,229
-- -- -- 3,600 8,339 5,693 5,648 49,087
645,970 562,435 524,334 508,927 493,286 491,133 479,485 443,396
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
79,269 80,943 53,752 24,101 43,049 56,297 18,303 17,901
21,142 19,384 40,916 23,142 21,617 34,741 16,489 30,673
752 873 902 436 690 2,104 1,467 878
7,003 9,717 9,695 5,901 16,984 6,793 5,448 6,717
1,581 859 618 629 158 2,594 1,153 815
109,747 111,776 105,883 54,209 82,498 102,529 42,860 56,984
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
568,110 501,682 444,432 418,004 404,155 370,494 324,293 323,313
392,562 384,755 377,371 340,176 329,264 312,438 287,248 279,768
9,242 8,051 11,729 10,010 12,973 5,552 5,507 5,441
46,970 46,642 47,827 47,502 47,286 46,671 44,928 48,016
53,547 55,655 48,612 45,085 43,153 36,423 32,135 29,716
-- 13,937 13,131 12,545 11,962 11,838 9,270 8,156
1,070,431 1,010,722 943,102 873,322 848,793 783,416 703,381 694,410
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
37
38
ELEVEN-YEAR OPERATING REVIEW
HELMERICH & PAYNE, INC.
Years Ended September 30, 1999 1998 1997
------- ------- -------
CONTRACT DRILLING
Drilling Rigs, United States ................. 50 46 38
Drilling Rigs, International ................. 39 44 39
Contract Wells Drilled, United States ........ 273 242 246
Total Footage Drilled, United States* ........ 3,078 2,938 2,753
Average Depth per Well, United States ........ 11,275 12,142 11,192
Percentage Rig Utilization, United States .... 75 95 88
Percentage Rig Utilization, International .... 53 88 91
------- ------- -------
PETROLEUM EXPLORATION AND DEVELOPMENT
Gross Wells Completed ........................ 49 62 100
Net Wells Completed .......................... 23.9 35.7 49.3
Net Dry Holes ................................ 7.1 4.2 9.6
------- ------- -------
PETROLEUM PRODUCTION
Net Crude Oil and Natural Gas Liquids
Produced (barrels daily) ..................... 1,779 1,921 2,700
Net Oil Wells Owned N Primary Recovery ....... 124 124 133
Net Oil Wells Owned N Secondary Recovery ..... 54 53 49
Secondary Oil Recovery Projects .............. 5 5 5
Net Natural Gas Produced
(thousands of cubic feet daily) ............ 121,206 117,431 110,859
Net Gas Wells Owned .......................... 439 436 410
------- ------- -------
REAL ESTATE MANAGEMENT
Gross Leasable Area (square feet)* ........... 1,652 1,652 1,652
Percentage Occupancy ......................... 95 97 95
------- ------- -------
TOTAL NUMBER OF EMPLOYEES
Helmerich & Payne, Inc. and Subsidiaries ..... 3,440 3,340 3,627
------- ------- -------
* 000's omitted.
+ 1988-1989 include U.S. employees only
38
39
1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------
41 41 47 42 39 46 49 49
36 35 29 29 30 25 20 20
233 212 162 128 100 106 119 108
2,499 1,933 1,842 1,504 1,085 1,301 1,316 1,350
10,724 9,119 11,367 11,746 10,853 12,274 11,059 12,500
82 71 69 53 42 47 50 44
85 84 88 68 69 69 45 46
------ ------ ------ ------ ------ ------ ------ ------
63 59 44 42 54 45 36 45
35.3 27.4 15 15.9 17.8 20.2 15.3 15.2
7.3 5.9 1.7 4.3 4.3 4.3 3.4 2.8
------ ------ ------ ------ ------ ------ ------ ------
2,212 2,214 2,431 2,399 2,334 2,152 2,265 2,486
176.9 186 202 202 220 227 223 201
63.8 64 71 71 74 55 46 214
12 12 14 14 14 12 12 17
94,358 72,387 72,953 78,023 75,470 66,617 65,147 57,490
378 354 341 307 289 278 194 205
------ ------ ------ ------ ------ ------ ------ ------
1,654 1,652 1,652 1,656 1,656 1,664 1,664 1,669
94 87 83 86 87 86 85 90
------ ------ ------ ------ ------ ------ ------ ------
3,309 3,245 2,787 2,389 1,928 1,758 1,864 1,100
------ ------ ------ ------ ------ ------ ------ ------
39
40
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
WILLIAM L. ARMSTRONG** Vice President,
Chairman President of Helmerich & Payne
Transland Financial Services, Inc. International Drilling Co.
Denver, Colorado
DOUGLAS E. FEARS
GLENN A. COX* Vice President and
President and Chief Operating Officer, Chief Financial Officer
Retired
Phillips Petroleum Company STEVEN R. MACKEY
Bartlesville, Oklahoma Vice President, Secretary,
and General Counsel
GEORGE S. DOTSON
Vice President, STEVEN R. SHAW
President of Helmerich & Payne Vice President,
International Drilling Co. Exploration & Production
Tulsa, Oklahoma
L.F. ROONEY, III*
Chief Executive Officer
Manhattan Construction Company
Tulsa, Oklahoma
EDWARD B. RUST, JR.
Chairman and Chief Executive Officer
State Farm Insurance Companies
Bloomington, Illinois
GEORGE A. SCHAEFER**
Chairman and Chief Executive Officer, Retired
Caterpillar Inc.
Peoria, Illinois
JOHN D. ZEGLIS**
President
AT&T
Basking Ridge, New Jersey
* Member, Audit Committee
** Member, Human Resources Committee
40