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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-0679879
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
UTICA AT TWENTY-FIRST STREET, 74114
TULSA, OKLAHOMA (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code (918) 742-5531
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock ($0.10 par value) New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
At December 15, 1998, the aggregate market value of the voting stock held
by non-affiliates was $832,621,361.00.
Number of shares of common stock outstanding at December 15, 1998:
49,414,282.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the fiscal year ended September 30,
1998 -- Parts I, II, and IV.
(2) Proxy Statement for Annual Meeting of Security Holders to be held March 3,
1999 -- Part III.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN
THIS REPORT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
REGISTRANT'S FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED
COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE
FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY",
"WILL", "EXPECT", "INTEND", "ESTIMATE", "ANTICIPATE", "BELIEVE", OR "CONTINUE"
OR THE NEGATIVE THEREOF OR SIMILAR TERMINOLOGY. ALTHOUGH THE REGISTRANT BELIEVES
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE
CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE REGISTRANT'S EXPECTATIONS ARE DISCLOSED IN MANAGEMENT'S DISCUSSION &
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ON PAGES 10 THROUGH 18
IN REGISTRANT'S ANNUAL REPORT TO THE SHAREHOLDERS FOR FISCAL 1998 AND IN THE
REMAINDER OF THIS REPORT. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE REGISTRANT, OR PERSONS ACTING ON ITS BEHALF, ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. THE
REGISTRANT ASSUMES NO DUTY TO UPDATE OR REVISE ITS FORWARD-LOOKING STATEMENTS
BASED ON CHANGES IN INTERNAL ESTIMATES OR EXPECTATIONS OR OTHERWISE.
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HELMERICH & PAYNE, INC. AND SUBSIDIARIES
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 1998
PART I
Item 1. BUSINESS
Helmerich & Payne, Inc. (the "Registrant"), was incorporated under the
laws of the State of Delaware on February 3, 1940, and is successor to a
business originally organized in 1920. Registrant is primarily engaged in the
exploration, production, and sale of crude oil and natural gas and in contract
drilling of oil and gas wells for others. These activities account for the major
portion of its operating revenues. The Registrant is also engaged in the
ownership, development, and operation of commercial real estate.
The Registrant is organized into three separate autonomous operating
divisions being contract drilling; oil and gas exploration, production and
natural gas marketing; and real estate. While there is a limited amount of
intercompany activity, each division operates essentially independently of the
others. Each of the divisions, except exploration and production, conducts their
respective business through wholly owned subsidiaries. Operating
decentralization is balanced by a centralized finance division, which handles
all accounting, data processing, budgeting, insurance, cash management, and
related activities.
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Most of the Registrant's current exploration efforts are concentrated
in Louisiana, Oklahoma, Texas, and the Hugoton Field of western Kansas. The
Registrant also explores from time to time in the Rocky Mountain area, New
Mexico, Alabama, Michigan, and Mississippi. Substantially all of the
Registrant's gas production is sold to and resold by its marketing subsidiary.
This subsidiary also purchases gas from unaffiliated third parties for resale.
The Registrant's domestic contract drilling is conducted primarily in
Oklahoma, Texas, and Louisiana, and offshore from platforms in the Gulf of
Mexico and offshore California. The Registrant has also operated during fiscal
1998 in five international locations: Venezuela, Ecuador, Colombia, Peru and
Bolivia. In the first quarter of fiscal 1999, the Registrant operated two rigs
in Argentina.
The Registrant's real estate investments are located in Tulsa,
Oklahoma, where the Registrant has its executive offices.
CONTRACT DRILLING
The Registrant believes that it is one of the major land and offshore
platform drilling contractors in the western hemisphere. Operating principally
in North and South America, the Registrant specializes in deep drilling in major
gas producing basins of the United States and in drilling for oil and gas in
remote international areas. For its international operations, the Registrant
also constructs and operates rigs which are transportable by helicopter. In the
United States, the Registrant draws its customers primarily from the major oil
companies and the larger independents. The Registrant also drills for its own
oil and gas division. In South America, the Registrant's current customers
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include the Venezuelan state petroleum company and major international oil
companies.
Petroleos de Venezuela, British Petroleum Company, P.L.C. and Shell Oil
Co., including their affiliates, (respectively "PDVSA", "BP" and "Shell") are
the Registrant's three largest contract drilling customers. PDVSA is the
government-owned producing company in Venezuela. The Registrant performs
drilling services for PDVSA only in Venezuela and performs drilling services for
BP and Shell on a world-wide basis. While the Registrant believes that its
relationship with each of these customers is good, the loss of any of these
customers would have a material adverse effect on the drilling subsidiary and
the Registrant. Revenues from drilling services performed for PDVSA, BP and
Shell in fiscal 1998 accounted for approximately 16%, 15% and 10%, respectively,
of the Registrant's consolidated revenues for the same period.
The Registrant provides drilling rigs, equipment, personnel, and camps
on a contract basis. These services are provided so that Registrant's customers
may explore for and develop oil and gas from onshore areas and from fixed
platforms in offshore areas. Each of the drilling rigs consists of engines,
drawworks, a mast, pumps, blowout preventers, a drillstring, and related
equipment. The intended well depth and the drilling site conditions are the
principal factors that determine the size and type of rig most suitable for a
particular drilling job. A land drilling rig may be moved from location to
location without modification to the rig. Conversely, a platform rig is
specifically designed to perform drilling operations upon a particular platform.
While a platform rig may be moved from its original platform, significant
expense is incurred to modify a platform rig for operation on each subsequent
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platform. In addition to traditional platform rigs, Registrant operates
self-moving minimum space platform drilling rigs and drilling rigs to be used on
tension leg platforms. The minimum space rig is designed to be moved without the
use of expensive derrick barges. The tension leg platform rig allows drilling
operations to be conducted in much deeper water than traditional fixed
platforms. A helicopter rig is one that can be disassembled into component part
loads of approximately 4,000-20,000 pounds and transported to remote locations
by helicopter, cargo plane, or other means.
The Registrant's workover rigs are equipped with engines, drawworks, a
mast, pumps, and blowout preventers. A workover rig is used to complete a new
well after the hole has been drilled by a drilling rig, and to remedy various
downhole problems that occur in producing wells.
The Registrant's drilling contracts are obtained through competitive
bidding or as a result of negotiations with customers, and sometimes cover
multi-well and multi-year projects. Each drilling rig operates under a separate
drilling contract. Most of the contracts are performed on a "daywork" basis,
under which the Registrant charges a fixed rate per day, with the price
determined by the location, depth, and complexity of the well to be drilled,
operating conditions, the duration of the contract, and the competitive forces
of the market. The Registrant has previously performed contracts on a
combination "footage" and "daywork" basis, under which the Registrant charged a
fixed rate per foot of hole drilled to a stated depth, usually no deeper than
15,000 feet, and a fixed rate per day for the remainder of the hole. Contracts
performed on a "footage" basis involve a greater element of risk to the
contractor than do contracts performed on a "daywork" basis. Also, the
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Registrant has previously accepted "turnkey" contracts under which the
Registrant charges a fixed sum to deliver a hole to a stated depth and agrees to
furnish services such as testing, coring, and casing the hole which are not
normally done on a "footage" basis. "Turnkey" contracts entail varying degrees
of risk greater than the usual "footage" contract. Registrant has not accepted a
"footage" or "turnkey" contract during fiscal 1998. The Registrant believes that
under current market conditions "footage" and "turnkey" contract rates do not
adequately compensate contractors for the added risks. The duration of the
Registrant's drilling contracts are "well-to-well" or for a fixed term.
"Well-to-well" contracts are cancelable at the option of either party upon the
completion of drilling at any one site. Fixed-term contracts customarily provide
for termination at the election of the customer, with an "early termination
payment" to be paid to the contractor if a contract is terminated prior to the
expiration of the fixed term.
While current fixed term contracts are for one to three year periods,
some fixed term and well-to-well contracts are expected to be continued for
longer periods than the original terms. However, the contracting parties have no
legal obligation to extend the contracts. Contracts generally contain renewal or
extension provisions exercisable at the option of the customer at prices
mutually agreeable to the Registrant and the customer. In most instances
contracts provide for additional payments for mobilization and demobilization.
Contracts for work in foreign countries generally provide for payment in United
States dollars, except for amounts required to meet local expenses. However,
government owned petroleum companies are more frequently requesting that a
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greater proportion of these payments be made in local currencies. See
Regulations and Hazards, page I-8.
Domestic Drilling
The Registrant believes it is a major land and offshore platform
drilling contractor in the domestic market. At the end of September, 1998, the
Registrant had 44 (34 land rigs and 10 platform rigs) of its rigs operating in
the United States and had management contracts for three operator-owned rigs.
During 1998, construction was completed on four land drilling rigs and
one helicopter transportable rig. These rigs were constructed for initial use in
South America. Construction of six mobile land drilling rigs and one offshore
tension leg platform rig (TLP) was completed during fiscal 1998. The six mobile
land rigs are initially intended to be used in domestic operations and the TLP
rig will perform drilling operations for a major oil company in the Gulf of
Mexico.
International Drilling
The Registrant's international drilling operations began in 1958 with
the acquisition of the Sinclair Oil Company's drilling rigs in Venezuela.
Helmerich & Payne de Venezuela, C.A., a wholly owned subsidiary of the
Registrant, is one of the leading drilling contractors in Venezuela. Beginning
in 1972, with the introduction of its first helicopter rig, the Registrant
expanded into other Latin American countries.
Venezuelan operations continue to be a significant part of the
Registrant's operations. During fiscal 1998, the Registrant owned and operated
21 land drilling rigs and one platform rig in Venezuela with a utilization rate
of 92% for such fiscal year. As previously noted, the Registrant worked for
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PDVSA during fiscal 1998, and revenues from this work accounted for
approximately 16% of the Registrant's consolidated revenues during the fiscal
year.
During the first quarter of fiscal 1999, Registrant's rig utilization
rate in Venezuela has decreased to approximately 50%. At this time, the
Registrant is unable to predict future fluctuations in its utilization rates
during fiscal 1999.
The Venezuelan government, in early 1996, permitted foreign exploration
and production companies to acquire rights to explore for and produce oil and
gas in Venezuela. Registrant has performed contract drilling services in
Venezuela for five independent oil companies during fiscal 1998.
The Registrant presently owns and operates ten drilling rigs in
Colombia. The Registrant's utilization rate for such rigs was 93% during fiscal
1998. During fiscal 1998 the revenue generated by Colombian drilling operations
contributed approximately 12.5% of the Registrant's consolidated revenues.
In addition to its operations in Venezuela and Colombia, the Registrant
in fiscal 1998 owned and operated four rigs in Ecuador, one rig in Peru, and
four rigs in Bolivia. During the first quarter of fiscal 1999, Registrant owned
and operated one additional rig in Bolivia and two rigs in Argentina. In
Ecuador, Peru, Bolivia and Argentina, the contracts are with large international
oil companies.
Drilling operations continued during 1998 on a joint venture platform
rig in Australia. The rig is owned 50% by the Registrant and 50% by Registrant's
equity affiliate, Atwood Oceanics, Inc.
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Competition
The contract drilling business is highly competitive. Competition in
contract drilling involves such factors as price, rig availability, efficiency,
condition of equipment, reputation, and customer relations. Competition is
primarily on a regional basis and may vary significantly by region at any
particular time. Land drilling rigs can be readily moved from one region to
another in response to changes in levels of activity, and an oversupply of rigs
in any region may result.
Although many contracts for drilling services are awarded based solely
on price, the Registrant has been successful in establishing long-term
relationships with certain customers which have allowed the Registrant to secure
drilling work even though the Registrant may not have been the lowest bidder for
such work. The Registrant has continued to attempt to differentiate its services
based upon its engineering design expertise, operational efficiency, safety and
environmental awareness.
Regulations and Hazards
The drilling operations of the Registrant are subject to the many
hazards inherent in the business, including blowouts and well fires. These
hazards could cause personal injury, suspend drilling operations, seriously
damage or destroy the equipment involved, and cause substantial damage to
producing formations and the surrounding areas.
The Registrant believes that it has adequate insurance coverage for
comprehensive general liability, public liability, property damage (including
insurance against loss by fire and storm, blowout, and cratering risks), workers
compensation and employer's liability. No insurance is carried against loss
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of earnings or business interruption. The Registrant is unable to obtain
significant amounts of insurance to cover risks of underground reservoir damage;
however, the Registrant is generally indemnified under its drilling contracts
from this risk. The Registrant's present insurance coverage has been secured
through fiscal 1999. However, in view of conditions generally in the liability
insurance industry, no assurance can be given that the Registrant's present
coverage will not be cancelled during fiscal 1999 nor that insurance coverage
will continue to be available at rates considered reasonable.
International operations are subject to certain political, economic,
and other uncertainties not encountered in domestic operations, including risks
of expropriation of equipment as well as expropriation of a particular oil
company operator's property and drilling rights, taxation policies, foreign
exchange restrictions, currency rate fluctuations, and general hazards
associated with foreign sovereignty over certain areas in which operations are
conducted. There can be no assurance that there will not be changes in local
laws, regulations, and administrative requirements or the interpretation thereof
which could have a material adverse effect on the profitability of the
Registrant's operations or on the ability of the Registrant to continue
operations in certain areas. Because of the impact of local laws, the
Registrant's future operations in certain areas may be conducted through
entities in which local citizens own interests and through entities (including
joint ventures) in which the Registrant holds only a minority interest, or
pursuant to arrangements under which the Registrant conducts operations under
contract to local entities. While the Registrant believes that neither operating
through such entities nor pursuant to such arrangements would have a material
adverse effect on the
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Registrant's operations or revenues, there can be no assurance that the
Registrant will in all cases be able to structure or restructure its operations
to conform to local law (or the administration thereof) on terms acceptable to
the Registrant. The Registrant further attempts to minimize the potential impact
of such risks by operating in more than one geographical area and by attempting
to obtain indemnification from operators against expropriation, nationalization,
and deprivation.
During fiscal 1998, approximately 40% of the Registrant's consolidated
revenues were generated from international contract drilling operations. Over
89% of the international revenues were from Venezuela, Colombia, and Ecuador.
Exposure to potential losses from currency devaluation is minimal in the
countries of Colombia and Ecuador. In those countries, all receivables and
payments are currently in U.S. dollars. Cash balances are kept at a minimum
which assists in reducing exposure.
In Venezuela, approximately 60% of the Registrant's invoice billings
are in U.S. dollars and the other 40% are in the local currency, the bolivar.
The Registrant is exposed to risks of currency devaluation in Venezuela as a
result of bolivar receivable balances and necessary bolivar cash balances. In
1994, the Venezuelan government established a fixed exchange rate in hopes of
stemming economic problems caused by a high rate of inflation. During the first
week of December, 1995, the government established a new exchange rate,
resulting in further devaluation of the bolivar. In April of 1996, the bolivar
was again devalued when the government decided to abolish its fixed rate policy
and to allow a floating market exchange rate. During fiscal 1997, the Registrant
experienced losses of approximately US$579,000 and in fiscal 1998 it experienced
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losses of US$2,204,000 as a result of the devaluation of the bolivar. Registrant
is unable to predict with certainty future devaluation in Venezuela. However,
considering the recent presidential election in Venezuela, there appears to be
an increasing likelihood of significant devaluation. It is speculated that
within the first six months of calendar 1999, the new Venezuelan president may
devalue the bolivar by 25% or more. In the event a 25% to 50% devaluation
occurs, the Registrant could experience potential currency valuation losses
ranging from approximately US$1.5 million to US$2.7 million.
During the mid-1970s, the Venezuelan government nationalized the
exploration and production business. At the present time it appears the
Venezuelan government will not nationalize the contract drilling business. Any
such nationalization could result in Registrant's loss of all or a portion of
its assets and business in Venezuela.
Many aspects of the Registrant's operations are subject to government
regulation, including those relating to drilling practices and methods and the
level of taxation. In addition, various countries (including the United States)
have environmental regulations which affect drilling operations. Drilling
contractors may be liable for damages resulting from pollution. Under United
States regulations, drilling contractors must establish financial responsibility
to cover potential liability for pollution of offshore waters. Generally, the
Registrant is indemnified under drilling contracts from pollution, except in
certain cases of surface pollution. However, the enforceability of
indemnification provisions in foreign countries may be questionable.
The Registrant believes that it is in substantial compliance with all
legislation and regulations affecting its operations in the drilling of oil and
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gas wells and in controlling the discharge of wastes. To date, compliance has
not materially affected the capital expenditures, earnings, or competitive
position of the Registrant, although these measures may add to the costs of
operating drilling equipment in some instances. Additional legislation or
regulation may reasonably be anticipated, and the effect thereof on operations
cannot be predicted.
OIL AND GAS DIVISION
The Registrant engages in the origination of prospects; the
identification, acquisition, exploration, and development of prospective and
proved oil and gas properties; the production and sale of crude oil, condensate,
and natural gas; and the marketing of natural gas. The Registrant considers
itself a medium-sized independent producer. All of the Registrant's oil and gas
operations are conducted in the United States.
Most of the Registrant's current exploration and drilling effort is
concentrated in Oklahoma, Kansas, Texas, and Louisiana. The Registrant also
explores from time to time in New Mexico, Alabama, Michigan, Mississippi, and
the Rocky Mountain area.
The Registrant's exploration and production division includes seven
geographical exploitation teams comprised of geological, engineering, and land
personnel. These personnel primarily develop in-house oil and gas prospects as
well as review outside prospects and acquisitions for their respective
geographical areas. The Registrant believes that this structure allows each team
to gain greater expertise in its respective geographical area and reduces risk
in the development of prospects. During fiscal 1998, two experienced
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geologists were hired. These geologists focus on developing and reviewing
prospects in Louisiana and Texas Onshore Gulf Coast.
Continued success in the Registrant's Mountain Front play has brought
gas production to 42.9 BCF and 117 MMCF of gas per day for fiscal 1998. Since
its discovery in May of 1996, the Rocky East Prospect has produced approximately
15.6 BCF gross, 12.1 BCF net to Registrant of gas and is currently producing
approximately 13.5 MMCF gross, 10.8 MMCF net to Registrant of gas per day. The
Kiowa Flats Field, which is twelve miles east of Rocky East Prospect, has
produced approximately 14.4 BCF gross, 7.2 BCF net to Registrant and is
currently producing approximately 55.6 MMCF gross, 31.0 MMCF net to Registrant
of gas per day. Registrant's working interests in the Kiowa Flats Field range
from 11% to 100% in all wells drilled. Approximately $12.4 million has been
spent in the Kiowa Flats Field for drilling and completion of wells in fiscal
1998. Continued development of the Kiowa Flats Field is expected during 1999.
During fiscal 1998, the Registrant participated in three large 3D
seismic surveys. The Registrant owns 32% of a 77 square mile survey in
southwestern Louisiana, 25% of a 94 square mile survey in southeast Texas, and
7% of a 63 square mile survey in east Texas. These surveys are in areas of
significant hydrocarbon production. The Registrant anticipates that oil and gas
prospects will be identified and drilled based on results from these surveys. In
addition, the Registrant is in the process of conducting a 65 square mile survey
in west Texas and is completing the purchase of a 33.33% working interest in
three 3D surveys which will cover approximately 185 square miles in southeast
Texas.
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After participating in the Louisiana Austin Chalk area since the early
1990's, the Registrant sold all of its oil and gas interests, together with
related gathering and processing interests effective November 1, 1997. Although
the Registrant did experience some successes in its exploration and development
efforts, the profitability of Registrant's efforts were hampered by high finding
costs as well as high lifting costs. The sales price of $10,600,000 was slightly
higher than Registrant's book value. Book value reflects approximately $3.3
million of associated Austin Chalk drilling costs for the 1998 fiscal year.
Approximately 600 barrels of oil per day and approximately 2,000 MCF of gas per
day were associated with the Austin Chalk area during fiscal 1997.
The Registrant's exploration and development program has covered a
range of prospects, from shallow "bread and butter" programs to deep expensive,
high risk/high return wells. During fiscal 1998, the Registrant participated in
51 development and/or wildcat wells, which resulted in new discoveries of
approximately 20.8 BCF of gas and 175,265 barrels of oil and condensate. The
Registrant participated in 17 additional development wells, which resulted in
the development of approximately 3.3 BCF of gas which was previously classified
as proved undeveloped or proved developed nonproducing reserves. A total of
$43,590,450 was spent in the Registrant's exploration and development program
during fiscal 1998. This figure includes $6,039,470 of geophysical expense, but
is exclusive of expenditures for acreage and acquisition of proved oil and gas
reserves. The approximate four-fold increase in geophysical expense from fiscal
1997 to fiscal 1998 is primarily due to increased seismic and related expenses.
The Registrant's total company-wide acquisition cost for acreage in fiscal 1998
was approximately $9 million.
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The Registrant spent $106,736 for the acquisition of proved oil and gas
reserves during fiscal 1998. The reserves associated with these acquisitions
were 188,269 MCF and 2,890 barrels of crude oil.
In November of 1998, Registrant sold all of its oil and gas interests
and related gathering facilities in its Southwest Mayfield, Oklahoma field.
Approximately 28 wells and two salt water disposal wells were included in the
sale. The sales price of approximately $5.6 million was approximately $4.5
million higher than Registrant's book value. The reserves associated with this
sale were approximately 2.1 BCF and 292 barrels of crude oil. In addition to the
Austin Chalk and Southwest Mayfield sales, Registrant sold certain miscellaneous
properties for $346,627. The reserves associated with these sales were
approximately 147,361 MCF of natural gas and 29,666 barrels of crude oil.
The Registrant's fiscal 1999 exploration and production budget of
approximately $64 million is 25% greater than its actual exploration and
production expenditures in fiscal 1998.
Market for Oil and Gas
The Registrant does not refine any of its production. The availability
of a ready market for such production depends upon a number of factors,
including the availability of other domestic production, price, crude oil
imports, the proximity and capacity of oil and gas pipelines, and general
fluctuations in supply and demand. The Registrant does not anticipate any
unusual difficulty in contracting to sell its production of crude oil and
natural gas to purchasers and end-users at prevailing market prices and under
arrangements that are usual and customary in the industry. The Registrant and
its subsidiary, Helmerich & Payne Energy Services, Inc., have successfully
developed markets with
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end-users, local distribution companies, and natural gas brokers for gas
produced from successful wildcat wells and development wells. The Registrant is
of the opinion that the current state of approximate equilibrium between supply
and demand will continue in the short term. During this short term equilibrium
period, Registrant expects greater natural gas price volatility. This volatility
will be caused in part by seasonal demands (both heating and cooling loads) and
by more efficient use of gas storage. Registrant believes that the recent drop
in natural gas prices is primarily due to unseasonably warm weather. Long term
pricing will obviously react to these short term factors, as well as other
causes affecting supply/demand. Other causes affecting supply/demand imbalances
may be continued growth of the United States economy; consumption of natural gas
for generation of electricity; federal regulation of the market; large
quantities of developed gas reserves in Canada (and subsequent pipeline
expansions) and Mexico available for export by pipelines to the United States;
fuel switching between fuel oil and natural gas; development of coalbed methane;
and development of large quantities of liquefied natural gas in Trinidad and
Tobago and Africa available for export to the United States.
Historically, the Registrant has had no long-term sales contracts for
its crude oil and condensate production. The Registrant continues its practice
of contracting for the sale of its Kansas and Oklahoma and portions of its west
Texas crude oil for terms of six to twelve months in an attempt to assure itself
of the best price in the area for crude oil production. During fiscal 1998, the
price that Registrant received for the sale of its crude oil has steadily
declined. Registrant's average per barrel crude oil sales price in fiscal 1998
for each of the
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first through fourth quarters was $18.50, $14.53, $12.89 and $12.25,
respectively.
Competition
The Registrant competes with numerous other companies and individuals
in the acquisition of oil and gas properties and the marketing of oil and gas.
The Registrant believes that it should continue to prepare for increased
exploration activity without committing to a definite drilling timetable. The
Registrant also believes that competition for the acquisition of gas producing
properties will continue. Considering the Registrant's conservative acquisition
strategy, the Registrant believes that it may be unable to acquire significant
proved developed producing reserves from third parties. The Registrant intends
to continue its review of properties in areas where the Registrant has
expertise. The Registrant's competitors include major oil companies, other
independent oil companies, and individuals. Many of these competitors have
financial resources, staffs, and facilities substantially larger than those of
the Registrant. The effect of these competitive factors on the Registrant cannot
be predicted with certainty.
Title to Oil and Gas Properties
The Registrant undertakes title examination and performs curative work
at the time properties are acquired. The Registrant believes that title to its
oil and gas properties is generally good and defensible in accordance with
standards acceptable in the industry.
Oil and gas properties in general are subject to customary royalty
interests contracted for in connection with the acquisitions of title, liens
incident to operating agreements, liens for current taxes, and other burdens and
minor encumbrances, easements, and restrictions. The
I - 17
20
Registrant believes that the existence of such burdens will not materially
detract from the general value of its leasehold interests.
Governmental Regulation in the Oil and Gas Industry
The Registrant's domestic operations are affected from time to time in
varying degrees by political developments and federal and state laws and
regulations. In particular, oil and gas production operations and economics are
affected by price control, tax, and other laws relating to the petroleum
industry; by changes in such laws; and by constantly changing administrative
regulations. Most states in which the Registrant conducts or may conduct oil and
gas activities regulate the production and sale of oil and natural gas,
including regulation of the size of drilling and spacing units or proration
units, the density of wells which may be drilled, and the unitization or pooling
of oil and gas properties. In addition, state conservation laws establish
maximum rates of production from oil and natural gas wells, generally prohibit
the venting or flaring of natural gas, and impose certain requirements regarding
the ratability of production. The effect of these regulations is to limit the
amounts of oil and natural gas the Registrant can produce from its wells, and to
limit the number of wells or locations at which the Registrant can drill. In
addition, legislation affecting the natural gas and oil industry is under
constant review. Inasmuch as such laws and regulations are frequently expanded,
amended, or reinterpreted, the Registrant is unable to predict the future cost
or impact of complying with such regulations. The Registrant believes that
compliance with existing federal, state and local laws, rules and regulations
will not have a material adverse effect upon its capital expenditures, earnings
or competitive position.
I - 18
21
Regulatory Controls
Historically, the transportation and sale for resale of natural gas in
interstate commerce have been regulated under the Natural Gas Act ("NGA") and
the Natural Gas Policy Act of 1978 ("NGPA") and the regulations promulgated
thereunder.
The Natural Gas Wellhead Decontrol Act of 1989 amended both the price
and non-price decontrol provisions of the NGPA for the purpose of providing
complete decontrol of first sales of natural gas by January 1, 1993. The
Registrant believes that substantially all of its gas is decontrolled.
Commencing in April, 1992, the Federal Energy Regulatory Commission
("FERC") issued Order 636, Order 636-A, and Order 636-B (collectively, "Order
636") which requires interstate pipelines to provide transportation unbundled
from their sales of gas. Also, such pipelines must provide open-access
transportation on a basis that is equal for all gas supplies. Although Order 636
has provided the Registrant with additional market access and more fairly
applied transportation service rates, it has also subjected the Registrant to
more restrictive pipeline imbalance tolerances and greater penalties for
violation of those tolerances. Order 636 has been largely upheld by the United
States Court of Appeals for the District of Columbia Circuit. Because further
review of certain aspects of Order 636 is still possible and other appeals in
individual pipeline proceedings and related dockets remain pending, it is
difficult for the Registrant to predict what effect, if any, the ultimate
outcome of these regulatory and judicial review proceedings will have on the
FERC's open-access regulations or the Registrant's
I - 19
22
operations. The Registrant presently believes that it will benefit from the
provisions of such Order.
The FERC regularly reviews its natural gas transportation and related
policies and regulations. In July, 1998, it issued proposed rules governing
short term transportation which, among other matters, would eliminate cost-based
regulation for such transportation, allow pipelines to negotiate rates and terms
of service, and require the allocation of all short term pipeline capacity
through a competitive auction process. In addition, the FERC has requested
comments on certain issues related to its regulation of long term
transportation. While any resulting FERC action would affect the Registrant only
indirectly, these inquiries are intended to further enhance competition in the
natural gas markets.
Under the NGA, natural gas gathering facilities are exempt from FERC
jurisdiction. The Registrant believes that its gathering systems meet the
traditional tests that the FERC has used to establish a pipeline's status as a
gatherer. In recent years, the FERC has slightly narrowed its statutory tests
for establishing gathering status. A number of states have either enacted new
laws or are considering the adequacy of existing laws affecting gathering rates
and/or services. For example, in May, 1997, Kansas enacted new gathering
oversight legislation that, among other matters, requires reporting of gathering
prices and authorizes the Kansas Corporation Commission ("KCC") to oversee open
access on gathering systems to assure it is just, reasonable, and
non-discriminatory. Thus, natural gas gathering may receive greater regulatory
scrutiny by state agencies. In addition, the FERC has approved several transfers
by interstate pipelines of gathering
I - 20
23
facilities to unregulated gathering companies, including affiliates. This could
allow such companies to compete more effectively with independent gatherers. It
is not possible at this time to predict the ultimate effect of the policy,
although it could affect access to and rates charged for interstate gathering
services. However, the Registrant does not presently believe the status of its
facilities would be materially affected by modification to the statutory
criteria.
In February, 1994, the KCC issued an order which modified allowables
applicable to wells within the Hugoton Gas Field so that those proration units
upon which infill wells had been drilled would be assigned a larger allowable
than those units without infill wells. As a consequence of this order, the
Registrant has drilled 130 infill wells and believes that it will be necessary
in fiscal 1999 to drill an additional 10 infill wells at a total estimated cost
of $1,045,000.
In September, 1997, the FERC ruled that ad valorem tax levied by the
State of Kansas was not a severance tax within the meaning of Section 110 of the
NGPA. Therefore, to the extent that first sellers collected revenues in excess
of the maximum lawful price as a result of reimbursement of Kansas ad valorem
taxes, then first sellers would be required to make refunds with interest for
such excess revenues on tax bills rendered during the period October 4, 1983
through June 28, 1988. Based upon schedules provided to Registrant by certain
interstate pipelines, the total reimbursement obligation of all working interest
owners in Registrant-operated wells approximated $13 million as of November,
1997. During this period, Registrant estimated that its reimbursement obligation
totaled approximately $6.7 million, being approximately $2.7 million of
principal and $4.0 million of interest. Approximately 12.5% of such amount would
be owed by Registrant's royalty owners.
I - 21
24
Neither the FERC nor Congress has provided the first sellers with any
generic relief on this issue to date. However, the FERC did permit the filing of
individual adjustment proceedings by each first seller. Registrant has filed
such adjustment proceedings requesting that its ad valorem tax refund obligation
be reduced. The FERC has not ruled in any of Registrant's adjustment
proceedings.
During the period February through July, 1998, Registrant paid, under
protest, approximately $1,379,000 to four interstate pipelines as partial ad
valorem tax reimbursement and escrowed approximately $6,370,000 pending the
FERC's decision in Registrant's adjustment proceedings. The escrowed amount
includes Registrant's share of the amount of reimbursement obligation allegedly
owed by Registrant's royalty owners. The final outcome of this matter cannot be
predicted at this time.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before the Congress, the FERC, and the courts. The
Registrant cannot predict when or whether any such proposals may become
effective. In the past, the natural gas industry has been very heavily
regulated. There is no assurance that the current regulatory approach pursued by
the FERC will continue. Notwithstanding the foregoing, it is anticipated that
compliance with existing federal, state and local laws, rules and regulations
will not have a material adverse effect upon the capital expenditures, earnings
or competitive position of the Registrant.
I - 22
25
Federal Income Taxation
The Registrant's oil and gas operations, and the petroleum industry in
general, are affected by certain federal income tax laws. The Registrant has
considered the effects of such federal income tax laws on its operations and
does not anticipate that there will be any material impact on the capital
expenditures, earnings or competitive position of the Registrant.
Environmental Laws
The Registrant's activities are subject to existing federal and state
laws and regulations governing environmental quality and pollution control. Such
laws and regulations may substantially increase the costs of exploring,
developing, or producing oil and gas and may prevent or delay the commencement
or continuation of a given operation. In the opinion of the Registrant's
management, its operations substantially comply with applicable environmental
legislation and regulations. The Registrant believes that compliance with
existing federal, state, and local laws, rules, and regulations regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment will not have any material effect upon the capital
expenditures, earnings, or competitive position of the Registrant.
Natural Gas Marketing
Helmerich & Payne Energy Services, Inc., ("HPESI") continues into its
tenth year of business with emphasis on the purchase and marketing of the
Registrant's natural gas production. In addition, HPESI purchases third-party
gas for resale and provides compression, gathering services and processing for a
fee. During fiscal year 1998, HPESI's sales of third-party gas constituted
approximately 8.4% of the Registrant's consolidated revenues.
I - 23
26
HPESI sells natural gas to markets in the Midwest and Rocky Mountain
areas. Term gas sales contracts are for varied periods ranging from three months
to seven years. However, recent contracts have tended toward shorter terms. The
remainder of the Registrant's gas is sold under spot market contracts having a
duration of 30 days or less. For fiscal 1999, HPESI's term gas sales contracts
provide for the sale of approximately 6 BCF of gas at prices which are indexed
to market prices. HPESI presently intends to fulfill such term sales contracts
with a portion of the gas reserves purchased from the Registrant as well as from
its purchases of third-party gas. See pages I-15 through I-23 regarding the
market, competition, and regulation of natural gas.
REAL ESTATE OPERATIONS
The Registrant's real estate operations are conducted exclusively
within the metropolitan area of Tulsa, Oklahoma. Its major holding is Utica
Square Shopping Center, consisting of fifteen separate buildings, with parking
and other common facilities covering an area of approximately 30 acres. Fourteen
of these buildings provide approximately 405,709 square feet of net leasable
retail sales and storage space (97% of which is currently leased) and
approximately 18,590 square feet of net leasable general office space (99% of
which is currently leased). Approximately 24% of the general office space is
occupied by the Registrant's real estate operations. The fifteenth building is
an eight-story medical office building which provides approximately 76,379
square feet of net leasable medical office space (76% of which is currently
leased). The Registrant has a two-level parking garage located in the southwest
corner of Utica Square that can accommodate approximately 250 cars.
I - 24
27
As a result of a confidential settlement of a lawsuit with a Utica
Square Shopping Center tenant, approximately 30,000 square feet of retail space
will be vacated during the second quarter of fiscal 1999. While the settlement
resulted in a one-time payment to the tenant and certain forgiveness of rent and
other charges, the Registrant believes it will receive increased rentals from
new tenants.
At the end of the 1998 fiscal year the Registrant owned 15 of a total
of 73 units in The Yorktown, a 16-story luxury residential condominium with
approximately 150,940 square feet of living area located on a six-acre tract
adjacent to Utica Square Shopping Center. Three condominium units were sold
during fiscal 1998. Twelve of the Registrant's units are currently leased.
The Registrant owns an eight-story office building located diagonally
across the street from Utica Square Shopping Center, containing approximately
87,000 square feet of net leasable general office and retail space. This
building houses the Registrant's principal executive offices. Approximately 11%
of this building was leased to third parties during fiscal 1998. During fiscal
1998, Registrant leased approximately 29,000 square feet of office space in
Tulsa and relocated Registrant's oil and gas division to such offices. The
vacated space within Registrant's office building will be used to accommodate
the growth of the remaining segments of its businesses.
The Registrant is also engaged in the business of leasing multi-tenant
warehouse space. Three warehouses known as Space Center, each containing
approximately 165,000 square feet of net leasable space, are situated in the
southeast part of Tulsa at the intersection of two major limited-access
I - 25
28
highways. Present occupancy is 98%. The Registrant also owns approximately 1.5
acres of undeveloped land lying adjacent to such warehouses.
The Registrant received approximately $380,000 for its sale of certain
rights of way and temporary easements to the Oklahoma Department of
Transportation. These rights of way and temporary easements burden certain of
Registrant's lands which are in or near to a high-growth area of southeast Tulsa
known as Southpark. After the sale, Registrant owned approximately 253.5 acres
in Southpark consisting of approximately 240.5 acres of undeveloped real estate
and approximately 13 acres of multi-tenant warehouse area. The warehouse area is
known as Space Center East and consists of two warehouses, one containing
approximately 90,000 square feet and the other containing approximately 112,500
square feet. Occupancy has remained at 100%. The Registrant believes that a high
quality office park, with peripheral commercial, office/warehouse, and hotel
sites, is the best development use for the remaining land. However, no
development plans are currently pending.
The Registrant also owns a five-building complex called Tandem Business
Park. The project is located adjacent to and east of the Space Center East
facility and contains approximately six acres, with approximately 88,084 square
feet of office/warehouse space. Occupancy has increased from 93% to 96% during
fiscal 1998 due primarily to the addition of one new tenant. The Registrant also
owns a twelve-building complex, consisting of approximately 204,600 square feet
of office/warehouse space, called Tulsa Business Park. The project is located
south of the Space Center facility, separated by a city street, and contains
approximately 12 acres. During fiscal 1998, occupancy has increased from 88% to
96% due to the addition of three new tenants.
I - 26
29
The Registrant also owns two service center properties located adjacent
to arterial streets in south central Tulsa. The first, called Maxim Center,
consists of one office/warehouse building containing approximately 40,800 square
feet and located on approximately 2.5 acres. During fiscal 1998, occupancy
increased from 86% to 100% due to the addition of one new tenant. The second,
called Maxim Place, consists of one office/warehouse building containing
approximately 33,750 square feet and located on approximately 2.25 acres. During
fiscal 1998, occupancy increased from 81% to 100% due to the expansion of an
existing tenant.
Registrant believes that there has been a recent increase in demand for
multi-tenant warehouse space in the Tulsa market. Registrant is unable to
determine how long this increase in demand will continue.
Competition.
The Registrant has numerous competitors in the multi-tenant leasing
business. The size and financial capacity of these competitors range from one
property sole proprietors to Fortune 500 companies. The primary competitive
factors include price, location and configuration of space. Registrant's
competitive position is enhanced by the location of its properties, its
financial capability and the long-term ownership of its properties. However,
many competitors have financial resources greater than Registrant and have more
contemporary facilities.
FINANCIAL
Information relating to Revenue and Income by Business Segments may be
found on page 9 of the Registrant's Annual Report to Shareholders for fiscal
1998, which is incorporated herein by reference.
I - 27
30
EMPLOYEES
The Registrant had 1,946 employees within the United States (11 of
which were part-time employees) and 1,394 employees in international operations
as of September 30, 1998.
Item 2. PROPERTIES
CONTRACT DRILLING
The following table sets forth certain information concerning the
Registrant's domestic drilling rigs as of September 30, 1998:
I - 28
31
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
- ----------- -------------- ------------- --------
110 Medium Depth 12,000 Texas
141 Medium Depth 14,000 Texas
142 Medium Depth 14,000 Texas
143 Medium Depth 14,000 Texas
145 Medium Depth 14,000 Texas
155 Medium Depth 14,000 Texas
164 Medium Depth 16,000 Texas
165 Medium Depth 16,000 Texas
166 Medium Depth 16,000 Texas
167 Medium Depth 16,000 Texas
168 Medium Depth 16,000 Texas
169 Medium Depth 16,000 Texas
95 Medium Depth 16,000 Texas
96 Medium Depth 16,000 Oklahoma
104 Medium Depth 18,000 Offshore California
108 Medium Depth 18,000 Gulf of Mexico
118 Medium Depth 16,000 Texas
119 Medium Depth 16,000 Texas
120 Medium Depth 16,000 Texas
147 Medium Depth 16,000 Texas
154 Medium Depth 19,000 Texas
79 Deep 20,000 Louisiana
80 Deep 20,000 Oklahoma
89 Deep 20,000 Texas
92 Deep 20,000 Oklahoma
94 Deep 20,000 Texas
98 Deep 20,000 Oklahoma
105 Deep 30,000 Gulf of Mexico
162 Deep 20,000 Texas
201 Deep 30,000 Gulf of Mexico
202 Deep 30,000 Gulf of Mexico
203 Deep 20,000 Gulf of Mexico
204 Deep 30,000 Gulf of Mexico
97 Deep 26,000 Texas
99 Deep 26,000 Texas
100 Deep 30,000 Gulf of Mexico
106 Deep 30,000 Gulf of Mexico
107 Deep 30,000 Gulf of Mexico
122 Deep 26,000 Louisiana
137 Deep 26,000 Texas
149 Deep 26,000 Louisiana
157 Deep 30,000 Texas
72 Very Deep 30,000 Louisiana
73 Very Deep 30,000 Louisiana
161 Very Deep 30,000 Louisiana
163 Very Deep 30,000 Texas
I - 29
32
The following table sets forth information with respect to the
utilization of the Registrant's domestic drilling rigs for the periods
indicated:
Years ended September 30,
-------------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
Number of rigs owned at end of
period 47 41 41 38 46
Average rig utilization rate
during period (1) 69% 71% 82% 88% 95%
(1) A rig is considered to be utilized when it is operated or being moved,
assembled, or dismantled under contract.
The following table sets forth certain information concerning the
Registrant's international drilling rigs as of September 30, 1998:
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
----------- -------------- ------------- -----------
14 Workover/drilling 6,000 Venezuela
19 Workover/drilling 6,000 Venezuela
20 Workover/drilling 6,000 Venezuela
140 Medium Depth 10,000 Venezuela
158 Medium Depth 10,000 Venezuela
159 Medium Depth 12,000 Venezuela
156 Medium Depth 12,000 Venezuela
132 Medium Depth 18,000 Ecuador
171 Medium Depth 16,000 Bolivia
172 Medium Depth 16,000 Bolivia
176 Medium Depth 18,000 Ecuador
22 Deep (helicopter rig) 18,000 Peru
23 Deep (helicopter rig) 18,000 Ecuador
91 Deep (platform) 20,000 Venezuela
121 Deep 20,000 Colombia
173 Deep 20,000 Bolivia
170 Deep (helicopter rig) 26,000 Venezuela
45 Deep 26,000 Venezuela
82 Deep 26,000 Venezuela
83 Deep 26,000 Venezuela
117 Deep 26,000 Venezuela
123 Deep 26,000 Bolivia
138 Deep 26,000 Ecuador
148 Deep 26,000 Venezuela
160 Deep 26,000 Venezuela
113 Very Deep 30,000 Venezuela
115 Very Deep 30,000 Venezuela
116 Very Deep 30,000 Venezuela
125 Very Deep 30,000 Colombia
I - 30
33
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
----------- -------------- ------------- --------
127 Very Deep 30,000 Venezuela
128 Very Deep 30,000 Venezuela
129 Very Deep 30,000 Venezuela
133 Very Deep 30,000 Colombia
134 Very Deep 30,000 Colombia
135 Very Deep 30,000 Colombia
136 Very Deep 30,000 Colombia
150 Very Deep 30,000 Venezuela
151 Very Deep 30,000 Colombia
152 Very Deep 30,000 Colombia
153 Very Deep 30,000 Colombia
174 Very Deep 30,000 Argentina
175 Very Deep 30,000 Bolivia
177 Very Deep 30,000 Argentina
139 Super Deep 30,000+ Colombia
Joint Venture Rig:
200 Deep 20,000 JV w/Atwood Australia
The following table sets forth information with respect to the
utilization of the Registrant's international drilling rigs for the periods
indicated:
Years ended September 30,
---------------------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
Number of rigs owned at end of
period 29 35 36 39 44
Average rig utilization rate
during period (1) 88% 84% 85% 91% 88%
(1) A rig is considered to be utilized when it is operated or being moved,
assembled, or dismantled under contract.
OIL AND GAS DIVISION
All of the Registrant's oil and gas operations and holdings are located
within the continental United States.
Crude Oil Sales
The Registrant's net sales of crude oil and condensate for the fiscal
years 1996 through 1998 are shown below:
I - 31
34
Average Sales Average Lifting
Year Net Barrels Price per Barrel Cost per Barrel
---- ----------- ---------------- ---------------
1996 809,571 $19.00 $7.90
1997 985,633 $20.77 $6.98
1998 701,180 $14.74 $7.40
Natural Gas Sales
The Registrant's net sales of natural and casinghead gas for the three
fiscal years 1996 through 1998 are as follows:
Average Sales Average Lifting
Year Net Barrels Price per Barrel Cost per Barrel
---- ----------- ---------------- ---------------
1996 34,535,184 $1.75 $0.3292
1997 40,463,374 $2.23 $0.3213
1998 42,862,300 $2.04 $0.3110
Following is a summary of the net wells drilled by the Registrant for
the fiscal years ended September 30, 1996, 1997, and 1998:
Exploratory Wells Development Wells
-------------------------------- --------------------------------
1996 1997 1998 1996 1997 1998
-------- -------- -------- -------- -------- --------
Productive 4.448 0.500 1.910 23.625 39.239 29.614
Dry 5.250 8.459 2.900 2.000 1.136 1.310
On September 30, 1998, the Registrant was in the process of drilling or
completing four gross or 2.94 net wells.
I - 32
35
Acreage Holdings
The Registrant's holdings of acreage under oil and gas leases, as of
September 30, 1998, were as follows:
Developed Acreage Undeveloped Acreage
------------------------ ------------------------
Gross Net Gross Net
---------- ---------- ---------- ----------
Arkansas 3,068.23 1,725.11 -0- -0-
Colorado -0- -0- 320.00 160.00
Kansas 120,303.07 84,662.60 17,444.35 15,625.45
Louisiana 1,567.79 899.84 10,876.31 3,877.51
Michigan -0- -0- 15,206.16 15,130.88
Montana 2,037.19 449.21 3,508.95 683.50
Nebraska 480.00 168.00 -0- -0-
Nevada -0- -0- 8,224.04 8,223.85
New Mexico 1,002.91 83.77 121.88 40.22
North Dakota 200.00 11.52 -0- -0-
Oklahoma 136,296.85 52,335.83 27,338.61 17,104.33
Texas 89,685.59 42,220.60 158,108.54 45,792.12
Wyoming -0- -0- 440.00 105.59
---------- ---------- ---------- ----------
Total 354,641.63 182,556.48 241,588.84 106,743.45
Acreage is held under leases which expire in the absence of production
at the end of a prescribed primary term, and is, therefore, subject to
fluctuation from year to year as new leases are acquired, old leases expire, and
other leases are allowed to terminate by failure to pay annual delay rentals. As
shown in the above table, the Registrant has a significant portion of its
undeveloped acreage in Texas, with five major prospects accounting for 39,700
net acres. The average minimum remaining term of leases in these five prospects
is approximately 30 months.
I - 33
36
Productive Wells
The Registrant's total gross and net productive wells as of September
30, 1998, were as follows:
Oil Wells Gas Wells
------------- -------------
Gross Net Gross Net
----- ----- ----- -----
3,452 176 956 436
Additional information required by this item with respect to the
Registrant's oil and gas operations may be found on pages I-12 through I-24 of
Item 1. BUSINESS, and pages 24 through 34 of the Registrant's Annual Report to
Shareholders for fiscal 1998, "Notes to Consolidated Financial Statements" and
"Note 14 Supplementary Financial Information for Oil and Gas Producing
Activities."
Estimates of oil and gas reserves, future net revenues, and present
value of future net revenues were audited by Lee Keeling and Associates, Inc.,
15 East 5th Street, Suite 3500, Tulsa, Oklahoma 74103. Total oil and gas reserve
estimates do not differ by more than 5% from the total reserve estimates filed
with any other federal authority or agency.
REAL ESTATE OPERATIONS
See Item 1. BUSINESS, pages I-24 through I-27.
STOCK
As of December 15, 1998:
The Registrant owned 312,546 shares of the common stock of SUNOCO, Inc.
and 500,000 shares of Oryx Energy Company, Inc.
I - 34
37
The Registrant owned 3,000,000 shares of the common stock of Atwood
Oceanics, Inc., a Houston, Texas based company engaged in offshore contract
drilling. The Registrant's ownership of Atwood is approximately 22%.
The Registrant owned 1,480,000 shares of the common stock of
Schlumberger, Ltd.
The Registrant owned 240,000 shares of the common stock of Phillips
Petroleum Company, Inc.
The Registrant owned 1,000,000 shares of the common stock of Occidental
Petroleum Corporation, Inc.
The Registrant owned 200,000 shares of the common stock of Banc One
Corporation.
The Registrant owned 225,000 shares of the common stock of ONEOK Inc.
The Registrant also owned lesser holdings in several other publicly
traded corporations.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Registrant.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of the Registrant's
executive officers, together with all positions and offices held with the
Registrant by such executive officers. Officers are elected to serve until the
meeting of the Board of Directors following the next Annual Meeting of
Stockholders and until their successors have been elected and have qualified or
until their earlier resignation or removal.
I - 35
38
W. H. Helmerich, III, 75 Director since 1949; Chairman of the Board
Chairman of the Board since 1960
Hans Helmerich, 40 Director since 1987; President and Chief
President Executive Officer since 1989
George S. Dotson, 57 Director since 1990; Vice President, Drilling,
Vice President since 1977 and President and Chief Operating
Officer of Helmerich & Payne International
Drilling Co. since 1977
Douglas E. Fears, 49 Vice President, Finance, since 1988
Vice President
Steven R. Mackey, 47 Secretary since 1990; Vice President and
Vice President and General Counsel since 1988
Secretary
Steven R. Shaw, 47 Vice President, Production, since 1985; Vice
Vice President President, Exploration and Production since
1996
Gordon K. Helm, 45 Chief Accounting Officer of the Registrant;
Controller Controller since December 10, 1993
I - 36
39
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information provided in this Item 5 has been restated to reflect
the Registrant's December 15, 1997, 2-for-1 common stock split.
The principal market on which the Registrant's common stock is traded
is the New York Stock Exchange. The high and low sale prices per share for the
common stock for each quarterly period during the past two fiscal years as
reported in the NYSE - Composite Transaction quotations follow:
1997 1998
------------------- ------------------
Quarter High Low High Low
------- ---- --- ---- ---
First 27.56 21.94 44.97 31.06
Second 27.44 21.00 33.19 24.56
Third 29.63 21.81 33.25 21.56
Fourth 40.00 29.47 24.38 16.25
The Registrant paid quarterly cash dividends during the past two years
as shown in the following table:
Paid per Share Total Payment
------------------- -------------------------
Fiscal Fiscal
------------------- -------------------------
Quarter 1997 1998 1997 1998
------- ------ ------ ---------- ----------
First $0.065 $0.065 $3,239,007 $3,256,874
Second 0.065 0.070 3,239,892 3,519,195
Third 0.065 0.070 3,242,952 3,521,332
Fourth 0.065 0.070 3,248,275 3,504,269
The Registrant paid a cash dividend of $0.070 per share on December 1,
1998, to shareholders of record on November 13, 1998. Payment of future
dividends will depend on earnings and other factors.
II-1
40
As of December 15, 1998, there were 1,465 record holders of the
Registrant's common stock as listed by the transfer agent's records.
Item 6. SELECTED FINANCIAL DATA
The information provided in this Item 6 has been restated to reflect
the Registrant's December 15, 1997, 2-for-1 common stock split.
Five-year Summary of Selected Financial Data
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
Sales, operating,
and other revenues $ 310,152 $ 306,721 $ 393,255 $ 517,859 $ 636,640
Income from con-
tinuing operations 17,108 5,788 45,426 84,186 101,154
Income from con-
tinuing operations
per common share:
Basic 0.35 0.12 0.92 1.69 2.03
Diluted 0.35 0.12 0.91 1.67 2.00
Total assets 621,689 707,061 821,914 1,033,595 1,090,430
Long-term debt -0- -0- -0- -0- 50,000
Cash dividends
declared per
common share 0.245 0.25 0.255 0.26 0.275
The Five-year Summary of Selected Financial Data described above
excludes results of Natural Gas Odorizing, Inc. ("NGO") operations. Registrant,
on August 30, 1996, sold its wholly-owned subsidiary, NGO, to Occidental
Petroleum Corporation.
II-2
41
The following Five-year Summary of Selected Financial Data includes
only the results of NGO operations.
Five-year Summary of Selected Financial Data for NGO
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------
Sales, operating,
and other revenues $ 18,849 $ 19,055 $ 19,540 $ -0- $ -0-
Income from discon-
tinued operations 3,863 3,963 3,090 -0- -0-
Income from discon-
tinued operations
per common share:
Basic 0.08 0.08 0.06 -0- -0-
Diluted 0.08 0.08 0.06 -0- -0-
Item 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Information required by this item may be found on pages 10 through 18,
Management's Discussion & Analysis of Results of Operations, and Financial
Condition in the Registrant's Annual Report to Shareholders for fiscal 1998,
which is incorporated herein by reference.
Item 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item may be found on the following pages
of Management's Discussion & Analysis of Results of Operations, and Financial
Condition in the Registrant's Annual Report to Shareholders for fiscal 1998,
which is incorporated herein by reference:
II-3
42
Market Risk Page
----------- ----
o Foreign Currency Exchange Rate Risk 12
o Commodity Price Risk 13
o Interest Rate Risk 17
o Equity Price Risk 18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item may be found on pages 19 through 34
in the Registrant's Annual Report to Shareholders for fiscal 1998, which is
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
II-4
43
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item with respect to Directors and with
respect to delinquent filers pursuant to Item 405 of Regulation S-K is
incorporated by reference from the Registrant's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held March 3, 1999, to be filed with
the Commission not later than 120 days after September 30, 1998. See pages I-35
through I-36 for information covering the Registrant's Executive Officers.
Item 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held
March 3, 1999, to be filed with the Commission not later than 120 days after
September 30, 1998.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held
March 3, 1999, to be filed with the Commission not later than 120 days after
September 30, 1998.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held
March 3, 1999, to be filed with the Commission not later than 120 days after
September 30, 1998.
III-1
44
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Document List
1. The financial statements called for by Item 8 are incorporated
herein by reference from the Registrant's Annual Report to
Shareholders for fiscal 1998.
2. Exhibits required by Item 601 of Regulation S-K:
Exhibit Number:
3.1 Restated Certificate of Incorporation and Amendment
to Restated Certificate of Incorporation of the
Registrant are incorporated herein by reference to
Registrant's Annual Report on Form 10-K to the
Securities and Exchange Commission for fiscal 1996.
3.2 By-Laws of the Registrant are incorporated herein by
reference to Registrant's Annual Report on Form 10-K
to the Securities and Exchange Commission for fiscal
1996.
4.1 Rights Agreement dated as of January 8, 1996, between
the Registrant and The Liberty National Bank and
Trust Company of Oklahoma City, N.A. is incorporated
herein by reference to the Registrant's Form 8-A,
dated January 17, 1996.
* 10.1 Incentive Stock Option Plan is incorporated herein by
reference to Exhibit 4.2 to the Registrant's
Registration Statement No. 33-16771 on Form S-8.
* 10.2 Form of Incentive Stock Option Plan Stock Option
Contract for the Incentive Stock Option Plan is
incorporated herein by reference to Registrant's
Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
* 10.3 Consulting Services Agreement between W. H.
Helmerich, III, and the Registrant effective January
1, 1990, as amended is incorporated herein by
reference to Registrant's Annual Report on Form 10-K
to the Securities and Exchange Commission for fiscal
1996.
- -----------------------
* Compensatory Plan or Arrangement.
IV-1
45
* 10.4 Restricted Stock Plan for Senior Executives of
Helmerich & Payne, Inc. is incorporated herein by
reference to Registrant's Annual Report on Form 10-K
to the Securities and Exchange Commission for fiscal
1996.
* 10.5 Form of Restricted Stock Award Agreement for the
Restricted Stock Plan for Senior Executives of
Helmerich & Payne, Inc., together with all amendments
thereto is incorporated herein by reference to
Registrant's Annual Report on Form 10-K to the
Securities and Exchange Commission for fiscal 1996.
* 10.6 Supplemental Retirement Income Plan for Salaried
Employees of Helmerich & Payne, Inc. is incorporated
herein by reference to Registrant's Annual Report on
Form 10-K to the Securities and Exchange Commission
for fiscal 1996.
* 10.7 Helmerich & Payne, Inc. 1990 Stock Option Plan is
incorporated herein by reference to Registrant's
Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
* 10.8 Form of Nonqualified Stock Option Agreement for the
1990 Stock Option Plan is incorporated by reference
to Exhibit 99.2 to the Registrant's Registration
Statement No. 33-55239 on Form S-8, dated August 24,
1994.
* 10.9 Supplemental Savings Plan for Salaried Employees of
Helmerich and Payne, Inc., is incorporated herein by
reference from Registrant's Annual Report on Form
10-K to the Securities and Exchange Commission for
fiscal 1993.
* 10.10 Helmerich & Payne, Inc. 1996 Stock Incentive Plan is
incorporated herein by reference to Registrant's
Registration Statement No. 333-34939 on Form S-8
dated September 4, 1997.
* 10.11 Form of Nonqualified Stock Option Agreement for
Helmerich & Payne, Inc. 1996 Stock Incentive Plan is
incorporated by reference to Exhibit 99.2 to
Registrant's Registration Statement on Form S-8 dated
September 4, 1997.
* 10.12 Form of Restricted Stock Agreement for Helmerich &
Payne, Inc. 1996 Stock Incentive Plan is incorporated
by reference from Registrant's Annual Report on Form
10-K to the Securities and Exchange Commission for
fiscal 1997.
- -----------------------
* Compensatory Plan or Arrangement.
IV-2
46
* 10.13 Helmerich & Payne, Inc. Non-Employee Directors Stock
Compensation Plan is hereby incorporated by reference
to Exhibit "B" of Registrant's Proxy Statement dated
January 27, 1997.
13. The Registrant's Annual Report to Shareholders for
fiscal 1998.
22. Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
27. Financial Data Schedule.
(b) Report on Form 8-K
None.
- -----------------------
* Compensatory Plan or Arrangement.
IV-3
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized:
HELMERICH & PAYNE, INC.
By /s/ HANS HELMERICH
--------------------------------
Hans Helmerich, President
(Chief Executive Officer)
Date: December 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
By /s/ WILLIAM L. ARMSTRONG By /s/ GLENN A. COX
-------------------------------- -----------------------------------
William L. Armstrong, Director Glenn A. Cox, Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ GEORGE S. DOTSON By /s/ HANS HELMERICH
-------------------------------- -----------------------------------
George S. Dotson, Director Hans Helmerich, Director and CEO
Date: December 18, 1998 Date: December 18, 1998
By /s/ W. H. HELMERICH, III By /s/ L. F. ROONEY, III
-------------------------------- -----------------------------------
W. H. Helmerich, III, Director L. F. Rooney, III, Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ EDWARD B. RUST, JR. By /s/ GEORGE A. SCHAEFER
-------------------------------- -----------------------------------
Edward B. Rust, Jr., Director George A. Schaefer, Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ JOHN D. ZEGLIS By /s/ DOUGLAS E. FEARS
-------------------------------- -----------------------------------
John D. Zeglis, Director Douglas E. Fears
Date: December 18, 1998 (Principal Financial Officer)
Date: December 18, 1998
By /s/ GORDON K. HELM
--------------------------------
Gordon K. Helm, Controller
(Principal Accounting Officer)
Date: December 18, 1998
48
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation and Amendment to Restated
Certificate of Incorporation of the Registrant are incorporated
herein by reference to Registrant's Annual Report on Form 10-K to
the Securities and Exchange Commission for fiscal 1996.
3.2 By-Laws of the Registrant are incorporated herein by reference to
Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
4.1 Rights Agreement dated as of January 8, 1996, between the
Registrant and The Liberty National Bank and Trust Company of
Oklahoma City, N.A. is incorporated herein by reference to the
Registrant's Form 8-A, dated January 17, 1996.
* 10.1 Incentive Stock Option Plan is incorporated herein by reference
to Exhibit 4.2 to the Registrant's Registration Statement No.
33-16771 on Form S-8.
* 10.2 Form of Incentive Stock Option Plan Stock Option Contract for
the Incentive Stock Option Plan is incorporated herein by
reference to Registrant's Annual Report on Form 10-K to the
Securities and Exchange Commission for fiscal 1996.
* 10.3 Consulting Services Agreement between W. H. Helmerich, III, and
the Registrant effective January 1, 1990, as amended is
incorporated herein by reference to Registrant's Annual Report on
Form 10-K to the Securities and Exchange Commission for fiscal
1996.
* 10.4 Restricted Stock Plan for Senior Executives of Helmerich & Payne,
Inc. is incorporated herein by reference to Registrant's Annual
Report on Form 10-K to the Securities and Exchange Commission for
fiscal 1996.
* 10.5 Form of Restricted Stock Award Agreement for the Restricted Stock
Plan for Senior Executives of Helmerich & Payne, Inc., together
with all amendments thereto is incorporated herein by reference
to Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
* 10.6 Supplemental Retirement Income Plan for Salaried Employees of
Helmerich & Payne, Inc. is incorporated herein by reference to
Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1996.
* 10.7 Helmerich & Payne, Inc. 1990 Stock Option Plan is incorporated
herein by reference to Registrant's Annual Report on Form 10-K to
the Securities and Exchange Commission for fiscal 1996.
* 10.8 Form of Nonqualified Stock Option Agreement for the 1990 Stock
Option Plan is incorporated by reference to Exhibit 99.2 to the
Registrant's Registration Statement No. 33-55239 on Form S-8,
dated August 24, 1994.
* 10.9 Supplemental Savings Plan for Salaried Employees of Helmerich and
Payne, Inc., is incorporated herein by reference from
Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1993.
* 10.10 Helmerich & Payne, Inc. 1996 Stock Incentive Plan is incorporated
herein by reference to Registrant's Registration Statement No.
333-34939 on Form S-8 dated September 4, 1997.
* 10.11 Form of Nonqualified Stock Option Agreement for Helmerich &
Payne, Inc. 1996 Stock Incentive Plan is incorporated by
reference to Exhibit 99.2 to Registrant's Registration Statement
on Form S-8 dated September 4, 1997.
* 10.12 Form of Restricted Stock Agreement for Helmerich & Payne, Inc.
1996 Stock Incentive Plan is incorporated by reference from
Registrant's Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1997.
* 10.13 Helmerich & Payne, Inc. Non-Employee Directors Stock Compensation
Plan is hereby incorporated by reference to Exhibit "B" of
Registrant's Proxy Statement dated January 27, 1997.
13. The Registrant's Annual Report to Shareholders for fiscal 1998.
22. Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
27. Financial Data Schedule.
(b) Report on Form 8-K
None.
- -----------------------
* Compensatory Plan or Arrangement.