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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, 1999
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, TULSA, OKLAHOMA 74114
(Address of principal executive offices) (Zip code)
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, 1999, the aggregate market value of the voting stock held
by non-affiliates was $964,657,219.
Number of shares of common stock outstanding at December 15, 1999:
49,642,750.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the fiscal year ended September 30,
1999 -- Parts I, II, and IV.
(2) Proxy Statement for Annual Meeting of Security Holders to be held March
1, 2000 -- 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 17
IN REGISTRANT'S ANNUAL REPORT TO THE SHAREHOLDERS FOR FISCAL 1999 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, 1999
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 & gas operations; 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
1999 in six international locations: Venezuela, Ecuador, Colombia, Peru,
Argentina and Bolivia. In the second quarter of fiscal 2000, the Registrant
expects to operate a customer-owned offshore platform rig in Equatorial Guinea.
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
operates certain 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.
In fiscal 1999, Registrant received approximately 57% of its
consolidated revenues from the Registrant's ten largest contract drilling
customers. BP Amoco and Shell Oil Co., including their affiliates,
(respectively, "BPA" and "Shell") are the Registrant's two largest contract
drilling customers. The Registrant performs drilling services for BPA and Shell
on a world-wide basis. Revenues from drilling services performed for BPA and
Shell in fiscal 1999 accounted for approximately 18% and 12%, respectively, of
the Registrant's consolidated revenues for the same period. While the Registrant
believes that its relationship with all of these customers is good, the loss of
BPA or Shell or a simultaneous loss of several of its larger customers would
have a material adverse effect on the drilling subsidiary and the Registrant.
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 1999. 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, 1999, the
Registrant had 50 (40 land rigs and 10 platform rigs) of its rigs operating in
the United States and had management contracts for two customer-owned rigs.
During fiscal 1999, four land rigs and one platform rig were relocated
from the Registrant's operations in Venezuela to the Registrant's domestic
operations. In November of 1999, Registrant returned one of such land rigs to
Venezuela. In addition, one of the Registrant's older platform rigs was sold.
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. At the end of fiscal 1999, the Registrant owned and
operated 18 land drilling rigs in Venezuela with a utilization rate of 36% for
such fiscal year. The Registrant worked for the Venezuelan State Petroleum
Company during fiscal 1999, and revenues from this work accounted for
approximately 6% of the Registrant's consolidated revenues during the fiscal
year.
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Registrant's rig utilization rate in Venezuela has decreased from
approximately 92% during the 1998 fiscal year to approximately 36% in fiscal
1999. This reduction in utilization is primarily due to curtailed production and
development activities resulting from a reduction in worldwide oil prices. At
this time, the Registrant is unable to predict future fluctuations in its
utilization rates during fiscal 2000.
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 six independent oil companies during fiscal 1999.
At the end of fiscal 1999, the Registrant owned and operated ten
drilling rigs in Colombia. The Registrant's utilization rate was 71% during
fiscal 1999. During fiscal 1999 the revenue generated by Colombian drilling
operations contributed approximately 10.8% of the Registrant's consolidated
revenues.
In addition to its operations in Venezuela and Colombia, the Registrant
in fiscal 1999 owned and operated four rigs in Ecuador, five rigs in Bolivia,
and two rigs in Argentina. In Ecuador, Bolivia and Argentina, the contracts are
with large international oil companies.
Drilling operations ended during 1999 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.
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
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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 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
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through fiscal 2000. 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 2000 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 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
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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 1999, approximately 32% of the Registrant's consolidated
revenues were generated from the international contract drilling business. Over
95% of the international revenues were from Venezuela, Colombia, Bolivia,
Ecuador and Argentina. Exposure to potential losses from currency devaluation is
minimal in the above-mentioned countries except for Venezuela. 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 1998, the Registrant
experienced losses of approximately US$2,204,000 and in fiscal 1999 it
experienced losses of US$712,000 as a result of the devaluation of the bolivar.
Registrant is unable to predict future devaluation in Venezuela. In the event a
25% to 50% devaluation would occur, the Registrant could experience potential
currency valuation losses ranging from approximately US$350,000 to US$600,000.
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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 liability arising 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
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.
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OIL & GAS OPERATIONS
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.
The Registrant continued its involvement in the Mountain Front play
during 1999, spending $10.2 million drilling and completing extensional and
development wells in both its Rocky and Kiowa Flats fields. In 1999, Registrant
drilled 13 wells, of which seven were completed as producing wells. Current
producing rates from the two fields are 63 MMCFD gross and 40 MMCFD net. The
Mountain Front area is located in Kiowa and Washita Counties, Oklahoma.
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During fiscal 1998 and 1999, the Registrant has focused on developing
prospects using 3D seismic technology. Currently, the Registrant is involved in
3D surveys covering more than 850 square miles. Approximately 700 square miles
of land covered by such surveys is located near the Texas and Louisiana onshore
Gulf Coast. This is Registrant's first major exploration effort in the Gulf
Coast area. The following summarizes the Registrant's activities, during fiscal
1999, on the lands covered by these 3D surveys.
During fiscal 1999, the Registrant participated in or purchased three
3D seismic surveys covering approximately 185 square miles of lands in Jefferson
County, Texas. After successfully drilling four consecutive producing wells, the
Company extended these seismic surveys by approximately 42 square miles.
Registrant's working interests in the lands covered by this survey range from
54% to 66%. In addition, one well is currently being drilled in West Texas on
lands covered by a 65 square mile 3D survey.
Four wells have been drilled in Galveston County, Texas, based upon a
94 square mile 3D survey. Two of the wells were completed as producers. This 3D
survey was extended by 27 square miles during the 1999 fiscal year. Registrant's
working interests in this area range from 25% to 87%.
The Registrant recently completed the purchase of a 42% working
interest in a 50 square mile 3D survey in Calcasieu Parish, Louisiana. A wildcat
well is in the process of being completed. The purchase of a 35% working
interest in a 200 square mile 3D shoot in South Texas has also been finalized.
One wildcat well is currently being drilled on these lands.
The Registrant's exploration and development program has covered a
range of prospects, from shallow "bread and butter" programs to deep expensive,
high
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risk/high return wells. During fiscal 1999, the Registrant participated in 49
development and/or wildcat wells, which resulted in new discoveries of
approximately 22.5 BCF of gas and 151,829 barrels of oil and condensate. The
Registrant participated in five additional development wells, which resulted in
the development of approximately 1.2 BCF of gas which was previously classified
as proved undeveloped or proved developed nonproducing reserves. A total of
$36,613,104 was spent in the Registrant's exploration and development program
during fiscal 1999. This figure includes $8,216,501 of geophysical expense, but
is exclusive of expenditures for acreage and acquisition of proved oil and gas
reserves. The Registrant's total company-wide acquisition cost for acreage in
fiscal 1999 was approximately $14.4 million.
The Registrant spent $88,997 for the acquisition of proved oil and gas
reserves during fiscal 1999. The reserves associated with these acquisitions
were 77,826 MCF.
The Registrant's fiscal 2000 exploration and production budget of
approximately $80 million is 70% greater than its actual exploration and
production expenditures in fiscal 1999. This increase is necessary to exploit
the additional amounts of acreage acquired in fiscal years 1998 and 1999.
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
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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 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
natural gas market will continue to experience high volatility. This high
volatility (as evidenced by the mid-summer increase in natural gas prices, and
the subsequent price reductions during early November, 1999) is a result of ever
changing perceptions throughout the industry centered around supply and demand.
Pricing perceptions constantly change as members of the natural gas industry
weigh the impacts of decline in deliverability of domestic supply; increased use
of natural gas for electrical generation; continued U.S. economic growth;
increased usage and better management of natural gas storage; seasonal usage;
fuel switching; usage of gas as a feed stock; and importation of gas from Canada
and Mexico. Registrant presently believes that natural gas price volatility will
continue for the next three to five years as the natural gas industry reacts to
these factors. Long term pricing will obviously react to these short term
factors, as well as other considerations affecting supply/demand.
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 1999, the
price that Registrant received
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for the sale of its crude oil has steadily increased. Registrant's average per
barrel crude oil sales price in fiscal 1999 for each of the first through fourth
quarters was $11.26, $11.21, $15.77 and $19.67, 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.
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,
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liens incident to operating agreements, liens for current taxes, and other
burdens and minor encumbrances, easements, and restrictions. The 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
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have a material adverse effect upon its capital expenditures, earnings or
competitive position.
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 and numerous related orders pertaining
to individual pipelines have been largely upheld by the Courts. However, certain
appeals remain pending, and the FERC continues to review and modify open access
regulations.
In particular, the FERC recently issued new rules and policies
pertaining to interstate pipeline certificates which require notification
I - 18
21
of landowners affected by proposed pipeline construction, and which presume
incremental pricing is appropriate for new construction. The FERC also has
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 facilities to unregulated gathering
companies, including affiliates. This could allow such companies to compete more
effectively with
I - 19
22
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 137 infill wells and believes that it will be necessary
in fiscal 2000 to drill an additional 3 infill wells at a total estimated cost
of $360,000.
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 - 20
23
Neither the FERC nor Congress has provided the first sellers with any
generic relief on this issue. However, the FERC has permitted 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.
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
I - 21
24
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 1999, HPESI's sales of third-party gas constituted
approximately 10% of the Registrant's consolidated revenues.
HPESI sells natural gas to markets in the Midwest and Rocky Mountain
areas. Term gas sales contracts are for varied periods ranging from
I - 22
25
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 2000, HPESI's term
gas sales contracts provide for the sale of approximately 16 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-14
through I-22 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 (93% 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 (64% 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.
Registrant has completed two phases of a three-phase renovation for
major existing tenants in Utica Square Shopping Center. This renovation
I - 23
26
has resulted in a temporary occupancy reduction of approximately 4%. During
fiscal 2000, occupancy is expected to reach approximately 97%.
At the end of the 1999 fiscal year the Registrant owned 12 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 1999. 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 1999. Registrant has
leased approximately 29,000 square feet of office space in Tulsa and relocated
Registrant's oil and gas division from Registrant's office building to such
leased office space. The vacated space within Registrant's office building has
been 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
highways. Present occupancy is 100%. The Registrant also owns approximately 1.5
acres of undeveloped land lying adjacent to such warehouses.
I - 24
27
Registrant owns 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
decreased from 100% to 96% due to the loss of one tenant. 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 decreased from 96% to 93% during
fiscal 1999 due primarily to the loss of one 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 1999, occupancy has remained at 96%.
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 1999, occupancy has
remained at 100%. The second, called Maxim Place, consists of one
office/warehouse building containing
I - 25
28
approximately 33,750 square feet and located on approximately 2.25 acres. During
fiscal 1999, occupancy has remained at 100%.
Registrant believes that the recent increase in demand for multi-tenant
warehouse space in the Tulsa market will continue. 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 large international corporations. 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 Operating Profit by Business
Segments may be found on pages 9 and 30 through 31 of the Registrant's Annual
Report to Shareholders for fiscal 1999, which is incorporated herein by
reference.
EMPLOYEES
The Registrant had 2,162 employees within the United States (16 of
which were part-time employees) and 1,278 employees in international
operations as of September 30, 1999.
Item 2. PROPERTIES
CONTRACT DRILLING
The following table sets forth certain information concerning the
Registrant's domestic drilling rigs as of September 30, 1999:
I - 26
29
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
- ----------- -------------- ------------- --------
140 Medium Depth 10,000 Texas
158 Medium Depth 10,000 Texas
110 Medium Depth 12,000 Texas
156 Medium Depth 12,000 Texas
159 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
95 Medium Depth 16,000 Texas
96 Medium Depth 16,000 Oklahoma
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 16,000 Texas
162 Medium Depth 16,000 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
108 Medium Depth 18,000 Gulf of Mexico
79 Deep 20,000 Louisiana
80 Deep 20,000 Texas
89 Deep 20,000 Texas
91 Deep 20,000 Gulf of Mexico
92 Deep 20,000 Oklahoma
94 Deep 20,000 Texas
98 Deep 20,000 Oklahoma
122 Deep 20,000 Louisiana
203 Deep 20,000 Gulf of Mexico
97 Deep 26,000 Texas
99 Deep 26,000 Texas
137 Deep 26,000 Texas
149 Deep 26,000 Texas
72 Very Deep 30,000 Alabama
73 Very Deep 30,000 Texas
100 Very Deep 30,000 Gulf of Mexico
105 Very Deep 30,000 Gulf of Mexico
106 Very Deep 30,000 Gulf of Mexico
107 Very Deep 30,000 Gulf of Mexico
157 Very Deep 30,000 Texas
161 Very Deep 30,000 Texas
163 Very Deep 30,000 Louisiana
201 Very Deep 30,000 Gulf of Mexico
202 Very Deep 30,000 Gulf of Mexico
204 Very Deep 30,000 Gulf of Mexico
I - 27
30
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,
-----------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Number of rigs owned at end of
period 41 41 38 46 50
Average rig utilization rate
during period (1) 71% 82% 88% 95% 75%
(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, 1999:
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
171 Medium Depth 16,000 Bolivia
172 Medium Depth 16,000 Bolivia
22 Medium Depth (Heli Rig) 18,000 Ecuador
23 Medium Depth (Heli Rig) 18,000 Colombia
132 Medium Depth 18,000 Ecuador
176 Medium Depth 18,000 Ecuador
121 Deep 20,000 Venezuela
173 Deep 20,000 Bolivia
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
170 Deep (Heli Rig) 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
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
I - 28
31
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
----------- -------------- ------------- --------
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,
----------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Number of rigs owned at end of
period 35 36 39 44 39
Average rig utilization rate
during period (1) 84% 85% 91% 88% 53%
(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 1997 through 1999 are shown below:
Average Sales Average Lifting
Year Net Barrels Price per Barrel Cost per Barrel
---- ----------- ---------------- ---------------
1997 985,633 $20.77 $6.98
1998 701,180 $14.74 $7.40
1999 649,370 $14.60 $7.02
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32
Natural Gas Sales
The Registrant's net sales of natural and casinghead gas for the three
fiscal years 1997 through 1999 are as follows:
Average Sales Average Lifting
Year Net MCF Price per MCF Cost per MCF
---- ------- ------------- ---------------
1997 40,463,374 $2.23 $0.3213
1998 42,862,300 $2.04 $0.3110
1999 44,240,332 $1.83 $0.3300
Following is a summary of the net wells drilled by the Registrant for
the fiscal years ended September 30, 1997, 1998, and 1999:
Exploratory Wells Development Wells
------------------ --------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
Productive 0.500 1.910 2.917 39.239 29.614 13.846
Dry 8.459 2.900 2.615 1.136 1.310 4.502
On September 30, 1999, the Registrant was in the process of drilling or
completing three gross or 2.868 net wells.
I - 30
33
Acreage Holdings
The Registrant's holdings of acreage under oil and gas leases, as of
September 30, 1999, 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 121,983.07 85,662.60 16,603.87 14,422.30
Louisiana 1,584.77 910.66 7,099.56 2,275.77
Michigan -0- -0- 13,684.68 13,281.84
Montana 2,037.19 423.37 3,428.95 984.37
Nebraska 480.00 168.00 -0- -0-
Nevada -0- -0- 5,264.04 5,064.04
New Mexico 1,002.91 99.54 121.88 40.22
North Dakota 200.00 11.52 -0- -0-
Oklahoma 129,722.88 50,880.80 13,207.79 8,211.65
Texas 94,184.45 42,833.35 284,001.91 69,756.18
Wyoming -0- -0- 440.00 105.59
---------- ---------- ---------- ----------
Total 354,263.50 182,714.95 344,172.68 114,301.96
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 - 31
34
Productive Wells
The Registrant's total gross and net productive wells as of September
30, 1999, were as follows:
Oil Wells Gas Wells
------------ ------------
Gross Net Gross Net
----- --- ----- ---
3,577 178 962 439
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-23 of
Item 1. BUSINESS, and pages 23 through 34 of the Registrant's Annual Report to
Shareholders for fiscal 1999, "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-23 through I-26.
STOCK
As of December 15, 1999:
The Registrant owned 312,546 shares of the common stock of SUNOCO, Inc.
and 184,500 shares of Kerr McGee Corporation which the Registrant received in a
stock merger for Registrant's 500,000 shares of Oryx Energy Company, Inc.
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 owns approximately 22% of Atwood.
I - 32
35
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 175,000 shares of the common stock of Banc One
Corporation.
The Registrant owned 225,000 shares of the common stock of ONEOK Inc.
The Registrant owned 150,000 shares of the common stock of Citrix
Systems, Inc.
The Registrant owned 190,000 shares of the common stock of Legato
Systems, 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 - 33
36
W. H. Helmerich, III, 76 Director since 1949; Chairman of the Board
Chairman of the Board since 1960
Hans Helmerich, 41 Director since 1987; President and Chief
President Executive Officer since 1989
George S. Dotson, 58 Director since 1990; Vice President,
Vice President Drilling since 1977 and President and
Chief Operating Officer of Helmerich &
Payne International Drilling Co. since 1977
Douglas E. Fears, 50 Vice President, Finance, since 1988
Vice President
Steven R. Mackey, 48 Secretary since 1990; Vice President and
Vice President and General Counsel since 1988
Secretary
Steven R. Shaw, 48 Vice President, Production, since 1985;
Vice President Vice President, Exploration and Production
since 1996
Gordon K. Helm, 46 Chief Accounting Officer of the Registrant;
Controller Controller since December 10, 1993
I - 34
37
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
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:
1998 1999
----------------- -----------------
Quarter High Low High Low
------- ---- ---- ---- ----
First 44.97 31.06 24.50 16.75
Second 33.19 24.56 23.94 16.06
Third 33.25 21.56 26.75 20.38
Fourth 24.38 16.25 30.19 23.00
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 1998 1999 1998 1999
------- ------ ------ ---------- ----------
First $0.065 $0.070 $3,256,874 $3,457,626
Second 0.070 0.070 3,519,195 3,459,168
Third 0.070 0.070 3,521,332 3,464,109
Fourth 0.070 0.070 3,504,269 3,468,377
The Registrant paid a cash dividend of $0.07 per share on December 1,
1999, to shareholders of record on November 15, 1999. Payment of future
dividends will depend on earnings and other factors.
As of December 15, 1999, there were 1,306 record holders of the
Registrant's common stock as listed by the transfer agent's records.
II - 1
38
Item 6. SELECTED FINANCIAL DATA
The Five-year Summary of Selected Financial Data described below
excludes results of Natural Gas Odorizing, Inc. ("NGO") operations. Registrant,
on August 30, 1996, sold its wholly-owned subsidiary, NGO, to Occidental
Petroleum Corporation.
Five-year Summary of Selected Financial Data
-------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands)
Sales, operating,
and other revenues $306,721 $393,255 $517,859 $636,640 $564,319
Income from con-
tinuing operations 5,788 45,426 84,186 101,154 42,788
Income from con-
tinuing operations
per common share:
Basic 0.12 0.92 1.69 2.03 0.87
Diluted 0.12 0.91 1.67 2.00 0.86
Total assets 707,061 821,914 1,033,595 1,090,430 1,109,699
Long-term debt -0- -0- -0- 50,000 50,000
Cash dividends
declared per
common share 0.25 0.255 0.26 0.275 0.28
II - 2
39
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
----------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands)
Sales, operating,
and other revenues $19,055 $19,540 $ -0- $ -0- $ -0-
Income from discon-
tinued operations 3,963 3,090 -0- -0- -0-
Income from discon-
tinued operations
per common share:
Basic 0.08 0.06 -0- -0- -0-
Diluted 0.08 0.06 -0- -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 17,
Management's Discussion & Analysis of Results of Operations and Financial
Condition, in the Registrant's Annual Report to Shareholders for fiscal 1999,
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 1999,
which is incorporated herein by reference:
II - 3
40
Market Risk Page
----------- ----
o Foreign Currency Exchange Rate Risk 12
o Commodity Price Risk 12-14
o Interest Rate Risk 17
o Equity Price Risk 17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item may be found on pages 18 through 34
in the Registrant's Annual Report to Shareholders for fiscal 1999, which is
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
II - 4
41
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 1, 2000, to be filed with
the Commission not later than 120 days after September 30, 1999. See pages I-33
and I-34 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 1, 2000, to be filed with the Commission not later than 120 days after
September 30, 1999.
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 1, 2000, to be filed with the Commission not later than 120 days after
September 30, 1999.
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 1, 2000, to be filed with the Commission not later than 120 days after
September 30, 1999.
III - 1
42
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 1999.
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
43
* 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.
* 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
44
* 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 1999.
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
45
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 17, 1999
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 17, 1999 Date: December 17, 1999
By /s/ George S. Dotson By /s/ Hans Helmerich
------------------------------ --------------------------------
George S. Dotson, Director Hans Helmerich, Director and CEO
Date: December 17, 1999 Date: December 17, 1999
By /s/ W. H. Helmerich, III By /s/ L. F. Rooney, III
------------------------------ --------------------------------
W. H. Helmerich, III, Director L. F. Rooney, III, Director
Date: December 17, 1999 Date: December 17, 1999
By /s/ Edward B. Rust, Jr. By /s/ George A. Schaefer
------------------------------ --------------------------------
Edward B. Rust, Jr., Director George A. Schaefer, Director
Date: December 17, 1999 Date: December 17, 1999
By /s/ John D. Zeglis By /s/ Douglas E. Fears
------------------------------ --------------------------------
John D. Zeglis, Director Douglas E. Fears
Date: December 17, 1999 (Principal Financial Officer)
Date: December 17, 1999
By /s/ Gordon K. Helm
------------------------------
Gordon K. Helm, Controller
(Principal Accounting Officer)
Date: December 17, 1999
46
EXHIBIT INDEX
EXHIBIT
NUMBER 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.
- ----------------
* Compensatory Plan or Arrangement.
47
* 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.
* 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.
48
* 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 1999.
22. Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
27. Financial Data Schedule.
- ----------------
* Compensatory Plan or Arrangement.