Helmerich & Payne
Annual Report 1994

Plain-text annual report

Helmerich & Payne, Inc. Annual Report for 1994 Highlights Years Ended September 30, 1994 1993 Revenues Net Income $ 329,001,000 $ 315,097,000 $ 24,971,000 $ 24,550,000 Earnings Per Share Dividends Paid Per Share $ 1.02 $ .485 $ 1.01 $ .48 Capital Expenditures $ 105,883,000 $ 54,209,000 Total Assets $ 624,827,000 $ 610,935,000 HELMERICH & PAYNE, INC. IS A DIVERSIFIED, ENERGY-ORIENTED COMPANY ENGAGED IN CONTRACT DRILLING, OIL AND GAS EXPLORATION AND PRO- DUCTION, CHEMICALS MANUFACTURING, AND REAL ESTATE DEVELOPMENT AND MANAGEMENT. THE COMPANY ALSO HOLDS SUBSTANTIAL EQUITY INVESTMENTS IN SEVERAL OTHER PUBLICLY OWNED CORPORATIONS. President’s Letter To the Co-owners of Helmerich & Payne, Inc. As never before in my lifetime, the American people sent shock waves through the halls of Congress. Now the new Republican- controlled House and Senate have a chance not only to reduce spending and allow workers to keep more of their earnings, but to address a more imposing challenge. By a margin of nearly two-to-one, voters said the problems facing this country were not primarily economic in nature, but were rooted in a dramatic social and moral decline. In part, Washington, D.C. was held accountable for the role it has played in contributing to this decline. George Will observed that the voters simply said “Something is amiss when a government that does not adequately deliver the mail delivers condoms to children.” Years of irresponsibility have recklessly damaged the reputation of Congress, leaving only nineteen percent of the people confident that their elected representatives will do the right thing. The first order of business for this Congress will be to earn back the trust of ordinary Americans. Whether the relationship is between representative government and the voters, between a business enterprise and its customers, or within our own families, the importance of trustworthiness and a good name is paramount to success. While a renewed commit- ment to these old-fashioned values would well serve the 104th Congress, it is also timely for us to reflect upon these values since 1995 marks the 75th anniversary of Helmerich & Payne, Inc. My grandfather landed in the oil business by accident. After spending World War I as a young officer and instructor pilot, he left the service to manage an aerial circus until his small fleet of bi-planes were all but lost in a West Texas thunderstorm. What little survived, he traded for three cable-tool rigs in South Bend, Texas, where he and his partner would drill a discovery well in 1920. 2 Growing up, I loved hearing stories of the rough and tumble oil patch where the Company’s history paralleled the early suc- cess of the industry in Oklahoma’s Osage, Tonkawa, and Oklahoma City fields; down into East Texas; and over to the first efforts of New Mexico’s Four Corners. Deals were done over a handshake and a man’s personal integrity was inseparable from the business enterprise itself. Even as the Company grew and prospered, keeping your word, working hard, doing the right thing, and caring about your people and the customer never went out of fashion. I have heard Dad say a thousand times that a good name is built over a lifetime, but lost in an instant. Today on drilling rigs all over the world, in operating and marketing hundreds of oil and gas wells in the United States, and in supporting chemical and real estate operations, there is a deep appreciation and sense of responsibility that is shared by all of us who carry a trusted name and a hard-earned reputation into our daily operations. Our pledge is to approach the next seventy-five years with these time-tested values etched clearly in our minds, remaining forever indebted to the thousands of loyal Helmerich & Payne, Inc. co- workers that have gone before us and kept the faith. December 15, 1994 Sincerely, Hans Helmerich President 3 Drilling H E L M E R I C H & PAY N E I N T E R N AT I O N A L D R I L L I N G C O. SUMMARY At the close of 1994, Helmerich & Payne International Drilling Co. owned 65 land rigs and 11 off- shore platform rigs which had an average utilization of 77 percent, compared with 69 percent the previous year. Higher domestic activity is credited for revenue and pre-tax income gains of 23 and 33 percent, respectively, in 1994. Pre-tax cash flow rose by 14 percent to $48.4 million, compared with $42.4 million in 1993. DOMESTIC OPERATIONS Domestic land rig utiliza- tion averaged 66 percent for the year, compared with 48 percent in 1993. An average of 19 domestic land rigs were fully utilized during 1994, compared with 15 land rigs in 1993. In the third quarter, the Company acquired substantially all of the equipment and property of Energy Service Co.’s domestic land drilling operation based in Alice, Texas. The purchase included 12 land rigs which helped increase the Company’s domestic land fleet to 36 rigs by year-end. Offshore operations consist of eight platform rigs in the Gulf of Mexico, and three platform rigs plus two management contracts for Exxon-owned platform rigs offshore California. Utilization averaged 79 percent this year for the Company’s 11 platform rigs, compared with 70 percent for nine rigs in 1993. A full year of activity for two additional rigs in the Gulf of Mexico and the Exxon management contracts contributed significantly to the improved financial performance in 1994. INTERNATIONAL OPERATIONS At year-end, the Company owned 29 land rigs in the countries of Venezuela (15), Colombia (8), Ecuador (4), Trinidad (1), and Yemen (1). Utilization averaged 88 percent in 1994, 4 compared with 68 percent in 1993. Although revenue increased nine percent to $98.1 million, pre-tax earnings declined by four percent due to higher operating costs in Colombia and foreign exchange losses suffered in Venezuela. In 1994, the Company moved one rig to Colombia which joined the work on BP Exploration’s Cusiana/Cupiagua development, one rig was added in Ecuador for Maxus, and two rigs were sent to Venezuela for Corpoven. For 1995, the Company received letters of intent for three- year contracts on three additional land rigs from BP Exploration in Colombia and one-year term contracts for three land rigs from Corpoven in Venezuela. The Company will utilize three existing domestic rigs as well as other equipment purchases for these projects. The Company recently began work on a joint venture with Atwood Oceanics, Inc., a 24 percent owned affiliate, to build a new generation offshore platform rig incorpo- rating the latest technology in instrumentation and remote control mechanization of drilling equipment. The Company will manage the design, construction, testing, and mobilization phases of the project. Rig operations are scheduled to begin in 1996, and will be managed by Atwood Oceanics, Inc., which has operated in Australia for a number of years. The Company is well positioned to perform in a depressed and competitive environment. Whether the work is of a conventional nature or entails complex design and logistics, the Company will continue to focus on delivering value to our customers. 5 Exploration & Production H E L M E R I C H & PAY N E , I N C . SUMMARY Helmerich & Payne, Inc. engages in the exploration, production, and acquisition of oil and natural gas reserves primarily in the states of Oklahoma, Kansas, Texas, and Louisiana. At the close of 1994, the Company had proved oil and natural gas reserves of 6.7 million barrels and 290.7 billion cubic feet (Bcf), respectively. This compares with reserves of 6.9 million barrels of oil and 289.4 Bcf of natural gas in 1993. PRODUCTION OVERVIEW In response to lower prices, the Company reduced its natural gas production to an average annual rate of 72,953 thousand cubic feet (Mcf) per day, from 78,023 Mcf per day in 1993. The average price received for natural gas fell to $1.72 per Mcf compared with $1.84 the prior year. Oil production increased slightly this year to 2,431 barrels per day from 2,399 barrels per day in 1993. However, the average price received for oil declined by over 15 percent to $14.83 per barrel in 1994. Lower commodity prices and natural gas production, coupled with higher exploration expenses, contributed to a significant decline in revenue and pre-tax income this year. ACQUISITIONS The Company invested $23.1 million in 1994 to purchase producing properties which had estimated reserves of 19.9 Bcf of natural gas and 159,580 barrels of oil. Tight sands tax credits, high BTU content natural gas, and several development opportunities are also associated with these properties. DRILLING AND EXPLORATION Of the 44 (15 net) wells which the Company participated in during the year, 37 (12.6 net) were classified as development and 6 seven (2.4 net) wells were classified as exploratory risks. Ten (4.7 net) wells were completed as oil wells, 29 (8.7 net) wells were completed as natural gas wells, and five (1.7 net) wells were dry holes. Exploration budget reductions by major oil companies in the lower 48 states have opened a number of attractive exploration opportunities in regions where technological advances like 3-D seismic have not been fully utilized. This is particularly true for some coastal regions in Louisiana where the Company has five new prospects. The Company added a total of six wildcat prospects in 1994 and participated in seven separate 3-D seismic programs. The actual drilling on many of these prospects will not begin until 1995. A dual-leg horizontal well was completed during the year in the Company’s Austin Chalk prospect in central Louisiana and it is apparent that the well is marginal. The Company is limiting its efforts to the western por- tion of this prospect where Occidental Petroleum Corporation has drilled a well which has produced significant hydrocarbons in the early stages. The Company intends to participate in an offset well in 1995 if the economic viability of Occidental’s discovery well becomes more certain. The strategy going forward remains focused on domestic onshore acquisition, development, and exploration opportunities, particularly in areas where the Company can employ new drilling and seismic technologies. 7 Real Estate H E L M E R I C H & PAY N E P R O P E R T I E S , I N C . SUMMARY Helmerich & Payne Properties, Inc. is engaged in the leasing, acquisition, and development of commercial real estate exclusively in the metropolitan area of Tulsa, Oklahoma. At the close of 1994, the Company’s property holdings consisted of approximately 1,652,311 leasable square feet which had an occupancy of 85 percent. Financial Highlights Years Ended September 30, 1994 1993 1992 Gross Revenues....................................................................... Pre-Tax Income ........................................................................ Depreciation Expense .............................................................. Capital Expenditures ................................................................ Year-End Book Value ............................................................... Average Occupancy ................................................................. $ 7,803 4,460 1,624 916 26,065 83% (in thousands) $ 7,630 4,149 1,679 458 27,006 86% $ 7,550 4,263 1,685 697 28,224 87% UTICA SQUARE SHOPPING CENTER Consisting of 15 separate buildings including an eight-story medical com- plex, Utica Square Shopping Center covers 30 landscaped acres located approximately five minutes from downtown Tulsa. Nearly 70 distinguished shops and restaurants make up Utica Square’s tenant roster, including Ann Taylor, The Gap, Laura Ashley, Miss Jackson’s, The Olive Garden, Saks Fifth Avenue, and Williams-Sonoma. A unique outdoor design allows Utica Square to host a number of seasonal events each year, some of which have become traditions in the Tulsa area. These attributes help make Utica Square a distinctive shopping environment and the cornerstone of the Company’s real estate portfolio. 8 INDUSTRIAL PROPERTIES The Company’s industrial properties and undeveloped land holdings are located in the southeastern part of Tulsa close to major transportation arteries and key growth areas. Two of the properties are classified as bulk warehouse developments and the remaining four are combination office/warehouse properties. Sluggish economic growth and an oversupply of industrial space continues to hamper the occupancy and the rate structure in this market segment. Occupancy for these properties slipped to an average of 76 percent in 1994 from 80 percent the prior year. The quality and location of the properties and land holdings place the Company in a unique position to benefit from growth in the Tulsa economy. Summary of Property Owned Property Name Utica Square Shopping Center Utica Square Offices and Medical Center Plaza Office Building Space Center Space Center East Tandem Business Park Tulsa Business Park Maxim Center Maxim Place Southpark Description Square Feet Upscale Retail Professional Offices Corporate Offices Industrial Warehouses Industrial Warehouses Office/Warehouse Complex Office/Warehouse Complex Office/Warehouse Complex Office/Warehouse Complex Undeveloped 257 Acres Total Square Feet 405,709 94,969 86,899 495,000 202,500 88,084 204,600 40,800 33,750 1,652,311 9 Chemicals N AT U R A L G A S O D O R I Z I N G , I N C . SUMMARY Natural Gas Odorizing, Inc. (NGO), a wholly- owned subsidiary of Helmerich & Payne, Inc., is a leading producer and marketer of mercaptan-based products used primarily as warning odorants in natural and liquified petroleum gas (LPG). The Company also produces simi- larly composed products used as feedstocks and sulfiding agents in other segments of the chemical industry. The Company’s Baytown, Texas, facility obtains its primary raw materials, hydrogen sulfide and olefins, from a neigh- boring refinery. Raw materials are reacted and fractionated, and then blended with other ingredients to yield the final products. NGO’s primary customers are LPG distributors and natural gas utility companies. Depending on the customer’s needs, products are delivered in Company- operated tank trucks or shipped in non-returnable containers or reusable cylinders. Approximately eight percent of the Company’s sales were made outside of North America in 1994, compared with 11 percent in 1993. Price increases on LPG odorants helped the Company achieve record financial results for the second consecutive year in 1994. Although revenue and pre-tax income increased over 1993 levels by 31 and 64 percent, respectively, LPG odorant prices are expected to stabilize in the coming year. Financial Highlights Years Ended September 30, 1994 Gross Revenues ................................................................................. Pre-Tax Income .................................................................................. Depreciation Expense..................................................................... Capital Expenditures .......................................................................... Pounds of Product Sold .................................................................. $ 18,849 5,994 654 619 8,071 1993 (in thousands) $ 14,374 3,665 594 630 7,930 1992 $ 13,461 2,831 560 158 8,452 10 Revenues and Income by Business Segments HELMERICH & PAYNE, INC. Years Ended September 30, 1994 1993 1992 (in thousands) SALES AND OTHER REVENUES: Contract Drilling - Domestic ...................................... Contract Drilling - International .................................. Total Contract Drilling Division ..................................... $ 86,521 98,111 184,632 $ 60,328 89,618 149,946 $ 41,171 72,250 113,421 Exploration and Production....................................... Natural Gas Marketing............................................. Total Oil and Gas Division .................................... Chemical Division ................................................... Real Estate Division ................................................ Investments and Other Income .................................. 58,884 51,889 110,773 18,849 7,803 6,944 69,795 63,858 133,653 14,374 7,630 9,494 54,525 40,535 95,060 13,461 7,550 10,208 Total Revenues ............................................................ $329,001 $315,097 $239,700 OPERATING PROFIT: Contract Drilling - Domestic ...................................... Contract Drilling - International .................................. Total Contract Drilling Division ............................... $ 5,874 14,645 20,519 $ 122 15,281 15,403 $ (5,358) 10,929 5,571 Exploration and Production....................................... Natural Gas Marketing............................................. Total Oil and Gas Division .................................... Chemical Division ................................................... Real Estate Division ................................................ Total Operating Profit ................................................... OTHER: Miscellaneous operating .......................................... Income from investments ......................................... General corporate expense ...................................... Interest expense..................................................... Corporate depreciation ............................................ Total Other ........................................................ INCOME BEFORE INCOME TAXES, EQUITY IN INCOME (LOSS) OF AFFILIATE, AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:........................ 3,245 1,525 4,770 5,994 4,460 35,743 (1,292) 6,303 (8,908) (385) (1,162) (5,444) 19,495 667 20,162 3,665 4,149 43,379 (687) 9,050 (6,820) (925) (766) (148) 9,764 1,864 11,628 2,831 4,263 24,293 (711) 9,202 (6,801) (632) (725) 333 $ 30,299 $ 43,231 $ 24,626 Note: This schedule is an integral part of Note 10 (page 27) of the financial statements that follow. 11 Management’s Discussion & Analysis of Results of Operations and Financial Condition HELMERICH & PAYNE, INC. Results of Operations Helmerich & Payne, Inc.’s net income for 1994 was $24,971,000 ($1.02 per share), compared with net income of $24,550,000 ($1.01 per share) in 1993, and $10,849,000 ($0.45 per share) in 1992. Net income in 1994 included a $4 million ($0.16 per share) one-time reduction in the Company’s deferred income taxes from the cumulative effect of adopting Statement of Financial Accounting Standards No. 109. Included in the Company’s net income, but not related to its operations, was net income from the sale of investment securities which was nominal in 1994, but totaled $1,780,000 ($0.07 per share) in 1993, and $1,193,000 ($0.05 per share) in 1992. Also included was the Company’s portion of income or losses of its equity affiliate, Atwood Oceanics, Inc., (“Atwood”) which were $0.04 per share of income in 1994, and per share losses of $0.02 in 1993, and $0.19 in 1992. Company revenues increased to $329,001,000 in 1994, from $315,097,000 in 1993, and $239,700,000 in 1992. The 31 percent increase in total revenues from 1992 to 1993 resulted from increased revenues in every operating segment of the Company. The greatest revenue increases during 1993 were from domestic drilling (47 percent), international drilling (24 percent), exploration and production (28 percent) and natural gas marketing (58 percent). Total revenue increased by 4 percent from 1993 to 1994, primarily as a result of increases in domestic drilling (43 percent), interna- tional drilling (9 percent), and chemical (31 percent) segments. Revenues from exploration and production (16 percent decrease) and natural gas marketing (19 percent decrease) fell appreciably in 1994 as oil and natural gas prices and natural gas production volume declined. Income from investments declined to $6,303,000 in 1994, from $9,050,000 in 1993, and $9,202,000 in 1992. From 1993 to 1994, dividend and interest income was stable, but income from the sale of investment securities dropped from $2,914,000 to $124,000 during that time. Interest and dividend income in 1994 was helped by higher market interest rates, even though cash 12 balances during the year were lower than the previous two years. From 1992 to 1993, dividend and interest income declined by $1,143,000 while income from investment securities rose by $991,000. Costs and expenses in 1994 were $298,702,000, 93 percent of total operating revenues, compared with 89 percent in 1993 and 93 percent in 1992. Operating costs as a percentage of operating revenues rose slightly to 66 percent in 1994, compared with 64 percent in 1993 and 63 percent in 1992. The increase from 1992 to 1993 was mainly due to Natural Gas Marketing revenues rising by $23,323,000, while cost percentages for that division remained very high. Other divisions’ operating cost percentages remained stable or improved. The operating cost percentages rose slightly in 1994 because of greater activity in the lower margin domestic land drilling business and an increase in operating expenses in the international contract drilling business. General and administrative expenses increased to $8,908,000 in 1994, from $6,820,000 in 1993. There was little change from 1992 to 1993. The increase in 1994 was due primarily to increased costs of employee healthcare benefits and, to a lesser degree, a net increase in pension expense. Income tax expense, as a percentage of pre-tax income, fell to 34 percent in 1994, from 42 percent in 1993, and 37 percent in 1992. The increase from 1992 to 1993 was the result of an increase in the corporate tax rate from 34 percent to 35 percent, a higher percentage of international income which is taxed at higher rates, and a decline in the deduction related to dividends received from domestic corpo- rations. The effective tax rate for 1994 was substantially lower because of the usage of foreign tax credit carryforwards, tight sands tax credits, and a reduction in Venezuelan taxes as a result of monetary correction tax laws enacted there. CONTRACT DRILLING DIVISION revenues increased by 23 per- cent from 1993 to 1994, and by 32 percent from 1992 to 1993. Domestic drilling pre-tax income increased to $5,874,000 in 1994, from a $5,358,000 pre-tax loss in 1992. During that period of time the U.S. offshore platform rig business has shown substantial improvement. The Company’s performance in its domestic land rig operations has also improved. It is anticipated that domestic operations will continue to improve as rig demand remains firm in both the offshore platform and the land rig markets. 13 International revenues climbed to $98,111,000 in 1994, from $89,618,000 in 1993, and $72,250,000 in 1992. Pre-tax income for the international contract drilling sector declined slightly to $14,645,000 in 1994, after increasing to $15,281,000 in 1993, from $10,929,000 in 1992. This year’s decline was due to increased operating expenses in the Company’s Colombian operations, and a significant foreign currency loss recorded in Venezuela. The Company anticipates its pre-tax income from inter- national operations will improve for the coming year based on higher activity levels in both Colombia and Venezuela. After the close of the year, the Company announced it was awarded letters of intent for three additional deep land rigs to work in Colombia on three-year term contracts and an additional three rigs for one-year term contracts in Venezuela. With these additions, rig counts in Colombia and Venezuela will increase to 11 and 18, respectively. OIL AND GAS DIVISION revenue and operating income declined significantly in 1994, after increasing substantially from 1992 to 1993. Exploration and production revenues increased 28 percent to $69,795,000 in 1993, from $54,525,000 in 1992, and pre-tax income increased to $19,495,000 from $9,764,000. The variation mirrored natural gas prices and production volumes for the respective years. From 1992 to 1993, natural gas prices increased from $1.39 per Mcf to $1.84 per Mcf, while production increased from 75.5 million cubic feet per day (MMcf/d) to 78.0 MMcf/d. From 1993 to 1994, natural gas prices fell to $1.72 per Mcf and production volumes declined to approximately 73.0 MMcf/d. Crude oil production increased 4 percent from 1992 to 1994, while the average price per barrel fell from $19.16 in 1992, to $17.58 in 1993, and to $14.83 in 1994. Consequently, exploration and production revenues decreased to $58,884,000 for 1994. Pre-tax income for 1994, which fell to $3,245,000, was also affected by higher geophysical expenses and an increase in leasehold abandonments, resulting primarily from a reduction in the carrying value of the Company’s leasehold position in its Austin Chalk prospect in south central Louisiana. It is anticipated that higher geophysical charges will continue for the coming year. Additionally, the Company intends to drill a higher percentage of exploratory wells during 1995 and could incur higher dry hole charges. 14 Natural gas marketing revenues, which are primarily derived from selling natural gas produced by other companies (third party), declined to $51,889,000 in 1994, from $63,858,000 in 1993. Revenues were $40,535,000 in 1992. Pre-tax income was $1,525,000 in 1994, $667,000 for 1993, and $1,864,000 for 1992. During 1993, the natural gas marketing industry consolidated, causing dramatic downward pressure on income derived from third party natural gas sales. Industry conditions improved slightly in 1994. The Company’s approach has been to use the existing capacity of its personnel and facilities to derive additional profit from matching its customers with third party producers when the marketing situation is not conducive for the sale of the Company’s own natural gas. It is expected that competition will continue to limit fees and premiums for third party natural gas sales. Therefore, the Company does not anticipate significant growth in income from third party sales in the coming year. CHEMICAL DIVISION revenues increased by 31 percent from 1993 to 1994, and by 7 percent from 1992 to 1993. Pre-tax income increased by 64 percent from 1993 to 1994, and by 29 percent from 1992 to 1993. Product price increases and improved margins account for the significant rise in revenues and income over the two years. It is anticipated that revenues and income will continue to improve during the coming year, but not as rapidly as this past year. REAL ESTATE DIVISION revenues and income for 1994 were up slightly due to the sale of a small parcel of land which resulted in a $450,000 gain. Revenues and income from operations were flat for the years 1993 and 1992. Occupancy and rental rates have been stable to soft over the past two years with no major changes expected for 1995. FINANCIAL CONDITION The Company has maintained a very strong balance sheet for many years. Current ratios for the last three years have exceeded 2.5, while long-term debt as a percentage of total capitalization has remained below 2 percent. During the first quarter of 1994, the Company paid off all of its remaining long-term debt. The only long-term liabilities that remain on the balance sheet are associated with workers compensation and general liability accruals, deferred income taxes, and other miscellaneous long-term payables and deferred items. 15 Net cash provided by operating activities was $79,909,000 in 1994, $74,619,000 in 1993, and $63,331,000 in 1992. Capital expenditures were $102,883,000 in 1994, $54,209,000 in 1993, and $82,498,000 in 1992. It is anticipated that capital expenditures in 1995 will exceed those of 1994. The Company has funded capital expenditures in excess of its cash flow internally over the past several years. However, the Company anticipates that it will either sell a portion of its investment portfolio or incur debt in order to fund planned capital expenditures for 1995. Capital expenditures budgeted for 1995 include expanded exploration activities, rig purchases and construction for Colombian and Venezuelan operations, as well as the Company’s investment in a joint venture with its equity affiliate, Atwood. The joint venture will construct a new generation offshore platform rig for work offshore Australia. The Company manages a large portfolio of marketable securities which had a book value of $87,414,000 at September 30, 1994, and a total market value at that time of $145,012,000, including its investment in Atwood. During 1994, the Company paid a dividend of $.485 per share which represented its 23rd consecutive year of dividend increases. Stock Portfolio Held by the Company September 30, 1994 Number of Shares Book Value Market Value Schlumberger, Ltd.................................................... Atwood Oceanics, Inc...................................................... Sun Company, Inc. .......................................................... Phillips Petroleum Company ............................................ Liberty Bancorp............................................................... Oryx Energy Company .................................................... Oneok............................................................................. Other .............................................................................. Total.................................................................... 740,000 1,600,000 907,164 300,000 500,000 675,000 225,000 (in thousands,except share amounts) $ 23,511 20,743 10,637 7,470 7,270 6,433 2,751 8,599 $ 87,414 $ 40,238 22,800 26,081 10,275 16,750 9,366 3,796 15,706 $145,012 16 Consolidated Statements of Income HELMERICH & PAYNE, INC. Years Ended September 30, 1994 1993 1992 (in thousands, except per share amounts) REVENUES: Sales and other operating revenues .................................... Income from investments .................................................. $322,698 6,303 $306,047 9,050 $230,498 9,202 COSTS AND EXPENSES: Operating costs .............................................................. Depreciation, depletion and amortization ............................. Dry holes and abandonments ............................................ Taxes, other than income taxes .......................................... General and administrative................................................ Interest ......................................................................... 329,001 315,097 239,700 213,427 50,068 10,369 15,545 8,908 385 194,856 48,609 6,893 13,763 6,820 925 145,778 47,738 3,214 10,911 6,801 632 298,702 271,866 215,074 INCOME BEFORE INCOME TAXES, EQUITY IN INCOME (LOSS) OF AFFILIATE AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ................................. 30,299 43,231 24,626 INCOME TAX EXPENSE .............................................................. 10,232 18,279 9,192 EQUITY IN INCOME (LOSS) OF AFFILIATE, net of income taxes ......................................................... 904 (402) (4,585) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ..................................................... 20,971 24,550 10,849 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ... 4,000 NET INCOME..................................................................... $ 24,971 $ 24,550 $ 10,849 PER COMMON SHARE: INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ........................................................ $ .86 $ 1.01 $ .45 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE .... .16 NET INCOME..................................................................................... $ 1.02 $ 1.01 $ .45 AVERAGE COMMON SHARES OUTSTANDING ......................... 24,416 24,307 24,210 The accompanying notes are an integral part of these statements. 17 Consolidated Balance Sheets HELMERICH & PAYNE, INC. Assets CURRENT ASSETS: September 30, 1994 1993 (in thousands) Cash and cash equivalents.................................................................. Short-term investments....................................................................... Accounts receivable, less reserve of $1,480 and $608 .............................. Inventories ....................................................................................... Prepaid expenses and other ................................................................ Total current assets ..................................................................... $ 29,447 8,997 59,897 20,995 3,603 122,939 $ 61,656 9,109 56,305 17,646 5,783 150,499 INVESTMENTS..................................................................................... 87,414 84,945 PROPERTY, PLANT AND EQUIPMENT, at cost: Contract drilling equipment .................................................................. Oil and gas properties ........................................................................ Real estate properties ........................................................................ Other .............................................................................................. Less__Accumulated depreciation, depletion and amortization..................... 444,432 389,100 47,827 61,743 943,102 542,451 418,004 350,186 47,502 57,630 873,322 514,524 Net property, plant and equipment .................................................. 400,651 358,798 OTHER ASSETS ................................................................................... 13,823 16,693 TOTAL ASSETS .................................................................................... $624,827 $610,935 The accompanying notes are an integral part of these statements. 18 Liabilities and Shareholders’ Equity September 30, 1994 1993 (in thousands) CURRENT LIABILITIES: Accounts payable .............................................................................. Accrued liabilities .............................................................................. Current maturities of long-term debt ...................................................... $ 22,645 24,056 Total current liabilities ................................................................ 46,701 $ 23,836 16,899 5,679 46,414 NONCURRENT LIABILITIES: Long-term debt, less current maturities .................................................. Deferred income taxes........................................................................ Other .............................................................................................. Total noncurrent liabilities............................................................ 44,462 9,330 53,792 3,600 44,723 7,271 55,594 SHAREHOLDERS’ EQUITY: Common stock, $.10 par value, 80,000,000 shares authorized, 26,764,476 shares issued. ............................................................... 2,677 2,677 Preferred stock, no par value, 1,000,000 shares authorized, no shares issued............................................................................ Additional paid-in capital ..................................................................... Retained earnings ............................................................................. Lesstreasury stock, 2,054,364 shares in 1994 and 2,126,994 shares in 1993, at cost ...... Total shareholders’ equity............................................................ 48,196 496,280 547,153 22,819 524,334 47,412 482,405 532,494 23,567 508,927 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY .................................. $624,827 $610,935 The accompanying notes are an integral part of these statements. 19 Consolidated Statements of Shareholders’ Equity HELMERICH & PAYNE, INC. Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Shares Amount (in thousands) Balance, September 30, 1991 ............................. 26,764 $2,677 $45,894 Cash dividends ($.47 per share)...................... Exercise of stock options ..................................... Stock issued under Restricted Stock Award Plan............................................................... Amortization of deferred compensation ............ Net income....................................................... 527 343 Balance, September 30, 1992 ............................. 26,764 2,677 46,764 Cash dividends ($.48 per share)...................... Exercise of stock options ................................... Lapse of restrictions on Restricted Stock Awards .......................................................... Amortization of deferred compensation ........... Net income....................................................... 888 (240) Balance, September 30, 1993 ............................. 26,764 2,677 47,412 Cash dividends ($.49 per share)...................... Exercise of stock options ................................. Lapse of restrictions on Restricted Stock Awards ............................................................ Stock issued under Restricted Stock Award Plan............................................................... Amortization of deferred compensation ............ Net income ..................................................... 549 (246) 481 $467,621 (11,533) 2,277 $(25,059) (64) (25) 675 275 2,188 (24,109) (61) 542 2,127 (23,567) (43) 415 (30) 333 (619) 1,636 10,849 467,954 (11,815) 1,716 24,550 482,405 (12,097) (814) 1,815 24,971 Balance, September 30, 1994 ............................. 26,764 $2,677 $48,196 $496,280 2,054 $(22,819) The accompanying notes are an integral part of these statements. 20 Consolidated Statements of Cash Flows HELMERICH & PAYNE, INC. Years Ended September 30, 1994 1993 1992 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................................................ Adjustments to reconcile net income to net cash provided by operating activities- $ 24,971 $ 24,550 $ 10,849 Depreciation, depletion and amortization........................... Dry holes and abandonments ......................................... Cumulative effect of change in accounting principle................ Equity in (income) loss of affiliate before income taxes ......... Amortization of deferred compensation ............................. Gain on sale of securities............................................... (Gain) loss on sale of fixed assets, other ........................... Change in assets and liabilities- Increase in accounts receivable.................................... Increase in inventories................................................ (Increase) decrease in prepaid expenses and other ............... Increase (decrease) in accounts payable........................ Increase (decrease) in accrued liabilities ........................ Increase (decrease) in deferred income taxes........................ Increase (decrease) in other noncurrent liabilities............. Total adjustments ...................................................... Net cash provided by operating activities..................... CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, including dry hole costs ........................... Proceeds from sale of property, plant and equipment .................. Purchase of investments....................................................... Proceeds from sale of investments.......................................... Purchase of short-term investments ........................................ Proceeds from sale of short-term investments ........................... Net cash used in investing activities............................ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt................................ Payments made on long-term debt.......................................... Dividends paid.................................................................... Proceeds from exercise of stock options................................... Net cash used in financing activities ........................... NET INCREASE (DECREASE) IN CASH AND CASH 50,068 10,369 (4,000) (1,458) 1,815 (124) (2,465) (3,592) (3,349) 5,050 (1,191) 1,617 3,739 (1,541) 54,938 79,909 (102,883) 5,971 (1,500) 373 (12) 124 (97,927) __ (3,139) (11,965) 913 (14,191) 48,609 6,893 __ 435 1,716 (2,914) (557) (13,486) (35) (492) 7,523 (1,619) 5,600 (1,604) 50,069 74,619 (54,209) 4,801 (2,400) 7,904 (3,036) 7,055 (39,885) 2,070 (2,180) (11,808) 1,254 (10,664) 47,738 3,214 __ 4,956 1,636 (1,923) 774 (5,287) (914) (4,092) 2,350 411 (2,900) 6,519 52,482 63,331 (82,498) 2,701 (761) 6,283 (5,204) 20,603 (58,876) 3,460 (1,657) (11,400) 1,201 (8,396) EQUIVALENTS................................................................... CASH AND CASH EQUIVALENTS, beginning of period ................. CASH AND CASH EQUIVALENTS, end of period ......................... (32,209) 61,656 $ 29,447 24,070 37,586 $ 61,656 (3,941) 41,527 $ 37,586 The accompanying notes are an integral part of these statements. 21 Notes to Consolidated Financial Statements HELMERICH & PAYNE, INC. September 30,1994,1993 and 1992 NOTE 1 SUMMARY OF ACCOUNTING POLICIES CONSOLIDATION - The consolidated financial statements include the accounts of Helmerich & Payne, Inc. (the Company), and all of its wholly-owned subsidiaries. Fiscal years of the Company’s foreign consolidated operations are August 31 to facilitate reporting of consolidated accounts. YEARS Contract drilling equipment ............................................. 4-10 Chemical plant and equipment ....................................... 10-25 Real estate buildings and equipment.............................. 10-50 Other ............................................................................... 3-33 TRANSLATION OF FOREIGN CURRENCIES - The Company has determined that the functional currency for its foreign subsidiaries is the U.S. dollar. Foreign cur- rency transaction losses for the years 1994, 1993 and 1992 were $2,764,000, $493,000 and $392,000, respec- tively. PROPERTY, PLANT AND EQUIPMENT - The Company follows the successful efforts method of accounting for oil and gas properties. Under this method, the Company capitalizes all costs to acquire mineral inter- ests in oil and gas properties, to drill and equip exploratory wells which find proved reserves and to drill and equip development wells. Geological and geophysical costs, delay rentals and costs to drill exploratory wells which do not find proved reserves are expensed. Capitalized costs of producing oil and gas properties are depreciated and depleted by the unit-of-production method based on proved developed oil and gas reserves determined by the Company and reviewed by independent engineers. The Company reserves for impairment of its oil and gas properties whenever the net capitalized costs of total oil and gas properties exceed the estimated undiscounted future net revenues from proved reserves. Additionally, the estimated undiscounted future revenues of high-cost proved properties, based on prices at the time of the esti- mate, are evaluated prior to start-up of commercial produc- tion and any significant impairment is recognized currently. Undeveloped leases are amortized based on management’s estimate of recoverability. Costs of surrendered leases are charged to the amortization reserve. Substantially all other property, plant and equipment is depreciated using the straight-line method based on the following estimated useful lives: CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash in banks and investments readily convertible into cash which mature within three months from the date of purchase. INVENTORIES - Inventories, primarily materials and supplies, are valued at the lower of cost (moving average or actual) or market. DRILLING REVENUE - Substantially all drilling contracts are daywork contracts and drilling revenues and expenses are recognized as work pro- gresses. GAS IMBALANCES - The Company recognizes revenues from gas wells on the sales method, and a liability is recorded for permanent imbal- ances. INVESTMENTS - Investments in companies owned less than 20 percent are carried at cost with income recognized as dividends are received. Investments in companies owned from 20 to 50 per- cent are accounted for using the equity method with the Company recognizing its proportionate share of the income or loss of each investee. The Company owned 24.3 percent of Atwood Oceanics, Inc. (Atwood) at September 30, 1994 and 1993. The quoted mar- ket value of the Company’s investment was $22,800,000 and $17,200,000 at September 30, 1994 and 1993, respectively. Retained earnings at September 30, 1994, include approxi- mately $8,563,000 of undistributed earnings of Atwood. Atwood is the only 20 to 50 percent owned affiliate at September 30, 1994 and 1993. 22 Summarized financial information of the affiliated company accounted for on the equity method is as follows: Gross revenues .............................................................. Costs and expenses ........................................................ Net income ( loss) ........................................................... Helmerich & Payne, Inc.’s equity in net income (loss) of affiliates, net of income taxes ............................ Current assets ................................................................ Noncurrent assets ........................................................... Current liabilities ............................................................. Noncurrent liabilities ........................................................ Shareholders’ equity ........................................................ Helmerich & Payne, Inc.’s investment................................... 1994 $ 68,045 (62,045) $ 6,000 $ 904 $ 37,965 115,065 13,752 53,000 86,278 $ 20,743 1993 (in thousands) $ 54,219 (56,010) $ (1,791) 1992 $ 47,525 (68,593) $ (21,068) $ (402) $ (4,585) $ 27,903 122,356 11,900 58,609 79,750 $ 19,285 $ 29,876 135,566 12,087 71,269 82,086 $ 19,720 INCOME TAXES - Effective October 1, 1993, the Company adopted FASB Statement No. 109, “Accounting for Income Taxes.” Under Statement No. 109, deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of assets and liabilities. For the years ended September 30, 1993 and 1992, deferred income taxes are computed using the deferred method and are provided on timing differences between financial and taxable income. OTHER POST EMPLOYMENT BENEFITS - The Company provides medical benefits to employees who retired before November 1, 1992. The Company does not provide any other benefits to these retirees and will not provide any post retirement benefits to any person retiring after that date. The liability for the benefits provided is not material. The Company has accrued a liability for estimated workers compensation claims incurred. The liability for other benefits to former or inactive employees after employment but before retirement is not material. EARNINGS PER SHARE - Earnings per share are based on the weighted average number of shares of common stock outstanding during the year. Common stock equivalents are insignificant, and therefore, have not been considered in the earnings per share computation. RECLASSIFICATIONS - Certain reclassifications have been made in the 1993 and 1992 financial statements to conform to the 1994 presentation. NOTE 2 LONG-TERM DEBT Notes payable and long term debt consist of the following: At September 30, 1994 1993 (in thousands) Mortgage notes payable (at interest rates ranging from 9.25% to 10%).................. Other long-term debt (at interest rates ranging from 6% to 7%) ............................ Less - Current maturities of long-term debt ...................................................... $ $ The Company has available a $20,000,000 bank line of credit under an agreement that expires March 15, 1995. $ 3,139 6,140 9,279 5,679 $ 3,600 23 NOTE 3 FEDERAL INCOME TAXES Effective October 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, “Accounting for Income Taxes.” The cumulative effect of adopting Statement No. 109 as of October 1, 1993 was to increase net income by $4,000,000. As permitted under the new rules, prior years financial statements have not been restated. The components of the provision for income taxes are as follows: Years Ended September 30, 1994 1993 1992 (in thousands) CURRENT: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DEFERRED: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL PROVISION: $ 3,645 2,763 777 7,185 (292) 3,430 (91) 3,047 10,232 $ $ 6,190 5,106 911 12,207 3,174 2,616 282 6,072 18,279 $ $ 4,690 6,985 551 12,226 (1,157) (1,834) (43) (3,034) 9,192 The amounts of domestic and foreign income are as follows: Years Ended September 30, 1994 1993 1992 INCOME BEFORE INCOME TAXES, EQUITY IN INCOME (LOSS) OF AFFILIATE, AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE: Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,513 12,786 30,299 $ $ 29,051 14,180 43,231 $ $ 12,993 11,633 24,626 Effective income tax rates as compared to the U.S. Federal income tax rate are as follows: Years Ended September 30, 1994 1993 1992 U.S. Federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends received deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess statutory depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of higher foreign tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% (2) (1) 3 (1) 35% (1) (1) 7 2 34% 42% 34% (4) - 5 2 37% The components of the Company’s net deferred tax liabilities are as follows: DEFERRED TAX LIABILITIES: Property, plant and equipment Pension provision Other Total deferred tax liabilities DEFERRED TAX ASSETS: Financial accruals Other Total deferred tax assets Valuation allowance Net deferred tax assets NET DEFERRED TAX LIABILITIES 24 September 30, 1994 $ 42,406 4,632 3,998 51,036 4,419 2,155 6,574 6,574 $ 44,462 The deferred income tax provision (benefit) for 1993 and 1992 results from timing differences in the recognition of revenue and expense for income tax and financial reporting purposes. The sources of these differences and the related income tax effect of each, are as follows: Years Ended September 30, 1993 1992 (in thousands) Effect of intangible development costs expensed for income tax purposes over (under) costs amortized for financial reporting purposes Financial under income tax depreciation ..................... Pension income ........................................................... Geophysical expense................................................... Insurance expense ...................................................... Amortization of deferred compensation ....................... Restricted stock options vesting .................................. Deferred mobilization revenues ................................... Sales of long-term investments ................................... Excess depletion.......................................................... Oil and gas revenue recognition timing differences ..... Other............................................................................ $ 1,302 2,134 128 (51) (36) (652) 609 566 484 589 262 737 $ 6,072 $(1,085) 857 246 (532) 376 (605) __ (1,745) (76) 519 184 (1,173) $(3,034) NOTE 4 STOCK OPTIONS, AWARD PLAN AND RIGHTS The Company has reserved 1,461,645 shares of its treasury stock to satisfy the exercise of stock options issued under the 1982 and 1990 Stock Option Plans. Options awarded under these plans are granted at prices equal to at least market price on the date of grant. Options granted under the 1982 plan have a term of nine years while options granted under the 1990 plan have a term of seven years. Options granted under both plans become exercisable in increments as outlined in the plans. Activity for the incentive stock option plans, was as follows: Years Ended September 30, Outstanding at October 1, ................................................ Granted............................................................................. Exercised.......................................................................... Cancelled ......................................................................... Outstanding at September 30, ......................................... Exercisable at September 30, .......................................... Weighted average exercise price of options outstanding . Weighted average exercise price of options exercised..... 1994 780,079 110,250 (46,510) (7,940) 835,879 70,889 $ 25.65 $ 21.77 1993 860,713 __ (67,112) (13,522) 780,079 19,782 $ 25.20 $ 21.53 1992 783,189 142,842 (65,318) __ 860,713 40,776 $ 24.93 $ 17.64 As of September 30, 1994, the Company has issued 360,000 shares of treasury stock under a Restricted Stock Award Plan (the “Plan”) including 30,000 shares during 1994. The Company recognized deferred compensation totalling $12,832,000, which was the fair market value of the stock at the time of issuance, as a reduction of retained earnings. Treasury stock was reduced by the book value of the shares issued, $4,058,000. The difference was recognized as an increase in paid-in capital. The deferred compensation is being amortized over a seven-year period as compensation expense. In both 1994 and 1993, restrictions lapsed with respect to 61,000 shares, and the shares were released to Plan participants. On September 30, 1994, the Company had 24,710,112 outstanding common stock purchase rights (“Rights”). Each Right entitles the holder thereof, until January 8, 1996, to buy one share of common stock at an exercise price of $60.00. The exercise price and the number of shares of common stock issuable upon the exercise of the Rights are subject to adjustment in certain cases to prevent dilution. The Rights are evidenced by the common stock certificates and are not exercisable or transferable apart from the common stock, until 15 days after a person acquires 15 percent or more of the common stock. In the event the Company is acquired in a merger or other business combination transaction (including one in which the Company is the surviving corporation), it is provided that each Right will entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of common stock of the surviving company, which at the time of such transaction, would have a market value of two times the exercise price of the Right. The Rights do not have any voting rights and are redeemable, at the option of the Company, at a price of $.05 per Right prior to any person or entity acquiring beneficial ownership of at least 15 percent of the common stock. The Rights expire on January 8, 1996. As long as the Rights are not separately transferable, the Company will issue one Right with each new share of common stock issued. NOTE 5 INVESTMENTS Short-term investments consist mainly of treasury notes carried at cost, which approximates fair value, and are pledged as collateral for a renewable letter of credit. The aggregate quoted market value of the marketable equity securities, excluding Atwood, was approxi- mately $122,212,000 and $135,175,000 at September 30, 1994 and 1993, respectively. Aggregate cost, which is also carrying value, was $66,671,000 and $65,660,000 at September 30, 1994 and 1993, respectively. At September 30, 1994, gross unrealized gains and unrealized losses applicable to the marketable equity securities were approximately $55,653,000 and $112,000, respectively. In 1994, 1993 and 1992, the Company realized gains from the sale of marketable equity secu- rities of approximately $124,000, $2,914,000 and $1,920,000, respectively. Effective October 1, 1994, the Company will be required to adopt FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” If the Company had adopted the new accounting standard effective September 30, 1994, investments would have increased $55,541,000, deferred tax liabilities would have increased $21,106,000 and shareholders’ equity would have increased $34,435,000. 25 NOTE 6 RETIREMENT PLANS Defined Benefit Plans: The Company has noncontributory pension plans covering substantially all of its employees, including certain employees in foreign countries. The Company makes annual contributions to the plans equal to the maximum amount allowable for tax reporting purposes. Future service benefits are determined using a 1.5 percent career average formula. The net periodic pension credit included the following components: Years Ended September 30, 1994 Service cost-benefits earned during the year .......................... Interest cost on projected benefit obligations .......................... Return on plan assets.............................................................. Net amortization and deferral .................................................. Net pension credit ........................................................... $ 1,557 1,191 (2,639) (302) $ (193) 1993 (in thousands) $ 1,304 1,105 (522) (2,477) $ (590) 1992 $ 1,172 896 (3,517) 726 $ (723) The discount rate used in determining the actuarial value of the projected benefit obligation for 1994, 1993 and 1992 was 7.5%, 7.0% and 7.5%, respectively. The average expected rate of return on plan assets was 8.5% for 1994, 1993 and 1992. The assumed rate of increase in compensation was 5.0% for 1994 and 5.5% for 1993 and 1992. The following table sets forth the plans’ funded status and amounts recognized in the balance sheet: Years Ended September 30, 1994 1993 (in thousands) Actuarial present value of benefit obligations: Vested benefit obligation .................................................................... Accumulated benefit obligation .......................................................... Projected benefit obligation................................................................ $ 13,323 $ 15,758 $ 17,755 $ 13,493 $ 15,649 $ 17,392 Plan assets at fair value, primarily listed stocks, U.S. Government securities and guaranteed insurance contracts ................................. $ 33,317 $ 31,427 Projected benefit obligation less than plan assets ..................................... Unrecognized net gain, including unrecognized net assets existing at October 1, 1987............................................... Unrecognized prior service cost ................................................................. Prepaid pension cost.................................................................................. $ 15,562 $ 14,035 (5,589) 2,216 $ 12,189 (4,493) 2,455 $ 11,997 Defined Contribution Plan: Substantially all employees on the United States payroll of the Company may elect to participate in the Company sponsored Thrift/401(K) Plan by contributing a portion of their earnings. The Company contributes amounts equal to 100 percent of the first five percent of the participant’s compensation subject to certain limitations. Expensed Company contributions were $1,588,000, $1,304,000 and $1,216,000 in 1994, 1993 and 1992, respectively. NOTE 7 ACCRUED LIABILITIES Accrued liabilities consist of the following: Years Ended September 30, Accrued royalties payable........................................................................... Accrued taxes payable ............................................................................... Accrued workers compensation claims ..................................................... Accrued equipment cost............................................................................. Other accrued liabilities .............................................................................. 1994 1993 (in thousands) $ 6,293 4,669 2,364 3,000 7,730 $ 24,056 $ 8,179 3,004 1,100 4,616 $ 16,899 26 NOTE 8 SUPPLEMENTAL CASH FLOW INFORMATION Years Ended September 30, 1994 1993 1992 Cash payments: Interest paid ............................................................................ Income taxes paid.................................................................... Noncash investing activity: Accrued equipment cost ..................................................... $ 371 9,516 $ 3,000 $ $ 370 15,924 $ 566 12,504 $ (in thousands) NOTE 9 CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit financial institutions and limits the amount of credit exposure to any one financial institution. The Company’s trade receivables are primarily with a variety of companies in the oil and gas industry. Management requires collateral for certain receivables of customers in its natural gas marketing operations. NOTE 10 SEGMENT INFORMATION The Company operates principally in the contract drilling and oil and gas industries. The contract drilling operations consist of contracting Company-owned drilling equipment primarily to major oil and gas exploration companies. Oil and gas activities consist of ownership of mineral interests in productive oil and gas leases and undeveloped leases located primarily in Oklahoma, Texas, Kansas and Louisiana. Intersegment sales, which are accounted for in the same manner as sales to unaffiliated customers, are not material. Operating profit is total revenue less operating expenses. In computing operating profit, the following items have not been considered: equity in earnings of Atwood Oceanics, Inc.; income from investments; general corporate expenses; interest expense; and domestic and foreign income taxes. Identifiable assets by segment are those assets that are used in the Company’s operations in each segment. Corporate assets are principally cash and cash equivalents, short-term investments and investments in marketable securities. Revenues from one company doing business with the contract drilling segment accounted for approximately 14 percent and 11.8 percent of the total consolidated revenues during the years ended September 30, 1994 and 1993, respectively. Collectively, revenues from three companies controlled by the Venezuelan government accounted for approximately 12.5 percent of total consolidated revenues for the year ended September 30, 1992. Summarized revenues and operating profit by industry segment for the years ended September 30, 1994, 1993 and 1992 are located on page 11. Additional financial information by industry segment is as follows: Years Ended September 30, 1994 1993 (in thousands) 1992 Identifiable assets: Contract drilling - Domestic .................................................. Contract drilling - International ............................................. Exploration and Production .................................................. Natural Gas Marketing ......................................................... Chemical division ................................................................. Real Estate division ............................................................. Corporate and other............................................................. Depreciation, depletion and amortization: Contract drilling - Domestic .................................................. Contract drilling - International ............................................. Exploration and Production .................................................. Natural Gas Marketing ......................................................... Chemical division ................................................................. Real Estate division ............................................................. Corporate and other............................................................. Intersegment elimination ...................................................... Capital expenditures: Contract drilling - Domestic .................................................. Contract drilling - International ............................................. Exploration and Production .................................................. Natural Gas Marketing ......................................................... Chemical division ................................................................. Real Estate division ............................................................. Corporate and other............................................................. $132,804 131,767 175,003 8,846 9,532 26,958 139,917 $624,827 $ 11,085 15,722 19,523 290 654 1,624 1,265 (95) $ 50,068 $ 31,692 25,723 45,809 76 619 916 1,048 $105,883 $112,435 113,844 162,618 13,289 9,753 27,845 171,151 $610,935 $ 10,126 16,929 18,294 279 594 1,679 864 (156) $ 48,609 $ 16,261 10,375 25,551 205 630 458 729 $ 54,209 $109,150 109,920 163,123 15,235 8,488 29,017 150,571 $585,504 $ 10,076 15,399 19,044 268 560 1,685 817 (111) $ 47,738 $ 14,956 34,971 30,757 58 158 697 901 $ 82,498 27 NOTE 11 SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES All of the Company’s oil and gas producing activities are located in the United States. Results of Operations from Oil and Gas Producing Activities - Years Ended September 30, 1994 Revenues ............................................................................ Production costs .................................................................. Exploration expense and valuation provisions ....................... Depreciation, depletion and amortization .............................. Income tax expense ............................................................. Total cost and expenses.................................................... Results of operations (excluding corporate overhead $58,884 18,854 17,262 19,523 890 56,529 and interest costs) ............................................................ $ 2,355 1993 (in thousands) $69,795 19,378 12,628 18,294 6,481 56,781 $13,014 1992 $54,525 18,492 7,225 19,044 3,173 47,934 $ 6,591 Capitalized Costs - At September 30, 1994 1993 (in thousands) Properties being amortized: Proved properties ................................................................................................. Unproved properties ............................................................................................. Total costs being amortized .............................................................................. Less-Accumulated depreciation, depletion and amortization................................... Net .................................................................................................................... $377,371 11,729 389,100 225,902 $163,198 $340,176 10,010 350,186 203,908 $146,278 Costs Incurred Relating to Oil and Gas Producing Activities - Years Ended September 30, 1994 1993 (in thousands) 1992 Property acquisition: Proved ............................................................................. Unproved.......................................................................... Exploration........................................................................... Development........................................................................ Total.............................................................................. $ 23,115 4,893 12,418 12,888 $53,314 $ 3,100 2,409 11,769 13,964 $31,242 $11,441 9,140 10,138 4,656 $35,375 28 Estimated Quantities of Proved Oil and Gas Reserves (Unaudited) - Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demon- strate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. The following is an analysis of proved oil and gas reserves as estimated by the Company and reviewed by independent engineers. OIL (Bbls.) GAS (Mmcf) Proved reserves at September 30, 1991 ................................................................... Revisions of previous estimates ................................................................................ Extensions, discoveries and other additions.............................................................. Production.................................................................................................................. Purchases of reserves-in-place ................................................................................. Sales of reserves-in-place ......................................................................................... Proved reserves at September 30, 1992 ................................................................... Revisions of previous estimates ................................................................................ Extensions, discoveries and other additions.............................................................. Production.................................................................................................................. Purchases of reserves-in-place ................................................................................. Sales of reserves-in-place ......................................................................................... Proved reserves at September 30, 1993 ................................................................... Revisions of previous estimates ................................................................................ Extensions, discoveries and other additions.............................................................. Production.................................................................................................................. Purchases of reserves-in-place ................................................................................. Sales of reserves-in-place ......................................................................................... 7,074,405 560,703 697,006 (854,124) 40,389 (10,793) 7,507,586 (15,550) 168,051 (875,713) 140,411 (41,586) 6,883,199 302,200 261,114 (887,455) 159,580 (8,427) 296,229 (211) 4,565 (27,622) 21,643 (8) 294,596 9,568 10,083 (28,479) 4,196 (519) 289,445 (819) 8,818 (26,628) 19,900 (64) Proved reserves at September 30, 1994 ................................................................... 6,710,211 290,652 Proved developed reserves at September 30, 1992............................................................................................... September 30, 1993............................................................................................... September 30, 1994............................................................................................... 6,477,661 6,882,783 6,649,672 277,169 282,033 267,688 Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves (Unaudited) - The “Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves” (Standardized Measure) is a disclosure requirement under Financial Accounting Standards Board Statement No. 69. The Standardized Measure does not purport to present the fair market value of a company’s proved oil and gas reserves. This would require consideration of expected future economic and operating conditions, which are not taken into account in calculating the Standardized Measure. Under the Standardized Measure, future cash inflows were estimated by applying year-end prices to the estimated future produc- tion of year-end proved reserves. Future cash inflows were reduced by estimated future production and development costs based on year-end costs to determine pre-tax cash inflows. Future income taxes were computed by applying the statutory tax rate to the excess of pre-tax cash inflows over the Company’s tax basis in the associated proved oil and gas properties. Tax credits and per- manent differences were also considered in the future income tax calculation. Future net cash inflows after income taxes were dis- counted using a ten percent annual discount rate to arrive at the Standardized Measure. At September 30, 1994 1993 Future cash inflows .................................................................................................... Future costs - Future production and development costs ............................................................ Future income tax expense ................................................................................... Future net cash flows................................................................................................. 10% annual discount for estimated timing of cash flows ........................................... Standardized Measure of discounted future net cash flows ...................................... (in thousands) $478,426 $651,369 (191,464) (71,320) 215,642 (91,019) $124,623 (207,633) (119,070) 324,666 (145,909) $178,757 29 Changes in Standardized Measure Relating to Proved Oil and Gas Reserves (Unaudited) _ Years Ended September 30, 1994 1993 1992 Standardized Measure - Beginning of year............................ Increases (decreases) - Sales, net of production costs ............................................ Net change in sales prices, net of production costs ........... Discoveries and extensions, net of related future development and production costs................................. Changes in estimated future development costs ............... Development costs incurred ............................................... Revisions of previous quantity estimates ........................... Accretion of discount .......................................................... Net change in income taxes ............................................... Purchases of reserves-in-place.......................................... Sales of reserves-in-place.................................................. Timing and other ................................................................ Standardized Measure - End of year ..................................... (in thousands) $178,757 $173,644 $124,776 (40,030) (80,347) 9,653 (14,571) 12,888 483 23,678 20,942 11,219 (62) 2,013 $124,623 (50,417) 16,292 12,439 (7,624) 13,964 6,820 22,619 (12,656) 3,820 (652) 508 $178,757 (36,033) 61,468 12,688 (2,252) 4,656 2,125 15,936 (17,964) 15,734 (57) (7,433) $173,644 NOTE 12 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Quarter Ended Dec. 31, March 31, June 30, Sept. 30, 1993 1994 1994 1994 (in thousands, except per share amounts) Revenues ............................................................................... $82,186 14,149 Gross profit ............................................................................ Income before cumulative effect of change in accouting principle.......................................................... Net income............................................................................. Earnings per common share before cumulative effect of change in accounting principle ............................. Earnings per share ................................................................ 7,253 11,253 .30 .46 $87,883 12,701 $78,698 8,688 $80,234 4,054 6,155 6,155 .25 .25 4,660 4,660 .19 .19 Quarter Ended 2,903 2,903 .12 .12 Dec. 31, March 31, June 30, Sept. 30, 1992 1993 1993 1993 (in thousands, except per share amounts) Revenues ............................................................................... $82,998 14,843 Gross profit ............................................................................ 7,219 Net income............................................................................. .30 Earnings per share ................................................................ $83,351 14,681 7,268 .30 $73,607 10,525 4,931 .20 $75,141 10,927 5,132 .21 Gross profit represents total revenues less operating costs, depreciation, depletion and amortization, dry holes and abandonments, and taxes, other than income taxes. 30 Report of Independent Auditors HELMERICH & PAYNE, INC. The Board of Directors and Shareholders Helmerich & Payne, Inc. We have audited the accompanying consolidated balance sheet of Helmerich & Payne, Inc. as of September 30, 1994, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated balance sheet as of September 30, 1993 and the consoli- dated statements of income, shareholder’s equity, and cash flows for each of the two years in the period ended September 30, 1993, were audited by other auditors whose report dated November 16, 1993, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing stan- dards. Those standards require that we plan and perform the audit to obtain rea- sonable assurance about whether the financial statements are free of material mis- statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by man- agement, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1994 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Helmerich & Payne, Inc. at September 30, 1994, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, effective October 1, 1993 the Company adopted Statement of Financial Accounting Standards No.109, “Accounting for Income Taxes.” Tulsa, Oklahoma November 22, 1994 Stock Price Information Closing Market Price Per Share 1994 1993 QUARTERS HIGH LOW HIGH First .................................................. Second ............................................. Third ................................................. Fourth............................................... $ 341/2 30 271/8 281/8 $ 261/2 26 251/8 255/8 $ 263/4 293/4 371/8 361/8 LOW $221/4 223/8 291/4 311/2 Dividend Information QUARTERS Paid Per Share Total Payment 1994 1993 1994 1993 First .................................................. $.120 $.120 .120 Second .............................................. .120 .120 .120 Third ................................................. .120 Fourth................................................ .125 $2,956,498 2,960,098 2,960,314 3,087,902 $2,949,291 2,949,291 2,953,006 2,956,378 STOCKHOLDERS’ MEETING The annual meeting of stockholders will be held on March 1, 1995. A formal notice of the meet- ing, together with a proxy statement and form of proxy, will be mailed to shareholders about January 26, 1995. STOCK EXCHANGE LISTING Helmerich & Payne, Inc. Common Stock is traded on the New York Stock Exchange with the ticker symbol “HP.” The newspaper abbreviation most commonly used for financial reporting is “HelmP.” Options on the Company’s stock are also traded on the New York Stock Exchange. STOCK TRANSFER AGENT AND REGISTRAR Our Transfer Agent is responsible for our share- holder records, issuance of stock certificates, and distribution of our dividends and the IRS Form 1099. Your requests, as shareholders, concerning these matters are most efficiently answered by corresponding directly with The Liberty Bank of Oklahoma City at the following address: The Liberty National Bank and Trust Company of Oklahoma City Stock Transfer Department P.O. Box 25848 Oklahoma City, Oklahoma 73125-0848 Telephone: (405) 231-6325 FORM 10-K The Company’s Annual Report on Form 10-K, which has been submitted to the Securities and Exchange Commission, is available free of charge upon written request. DIRECT INQUIRIES TO: President Helmerich & Payne, Inc. Utica at Twenty- First Tulsa, Oklahoma 74114 Telephone: (918) 742-5531 31 Eleven-Year Financial Review HELMERICH & PAYNE, INC. Years Ended September 30, 1994 1993 1992 REVENUES AND INCOME* Contract Drilling Revenues............................................................... Crude Oil Sales ................................................................................ Natural Gas Sales ............................................................................ Gas Marketing Revenues** .............................................................. Chemical Sales ................................................................................ Real Estate Revenues...................................................................... Dividend Income .............................................................................. Other Revenues ............................................................................... Total Revenues................................................................................. Net Cash Provided by Operating Activities†† .................................. Net Income†..................................................................................... 182,781 13,161 45,261 51,874 18,746 7,396 3,621 6,161 329,001 79,909 24,971 149,661 15,392 52,446 63,786 14,286 7,620 3,535 8,371 315,097 74,619 24,550 112,833 16,369 38,370 40,410 13,411 7,541 4,050 6,716 239,700 63,331 10,849 PER SHARE DATA Net Income†..................................................................................... Cash Dividends ................................................................................ Shares Outstanding*** ..................................................................... 1.02 .485 24,710 1.01 .48 24,637 .45 .465 24,576 FINANCIAL POSITION Net Working Capital* ........................................................................ Ratio of Current Assets to Current Liabilities ................................... Investments*..................................................................................... Total Assets* .................................................................................... Long-Term Debt* .............................................................................. Shareholders’ Equity*....................................................................... 76,238 2.63 87,414 624,827 524,334 CAPITAL EXPENDITURES* Contract Drilling Equipment ............................................................. Wells and Equipment ....................................................................... Chemical Plant and Equipment........................................................ Real Estate....................................................................................... Other Assets (includes undeveloped leases) ................................... Total Capital Outlays ........................................................................ 53,752 40,916 572 902 9,741 105,883 PROPERTY, PLANT AND EQUIPMENT AT COST* Contract Drilling Equipment ............................................................. Producing Properties ....................................................................... Undeveloped Leases........................................................................ Chemical Plant and Equipment........................................................ Real Estate....................................................................................... Other ................................................................................................ Total Property, Plant and Equipment................................................ 444,432 377,371 11,729 12,417 47,827 49,326 943,102 104,085 3.24 84,945 610,935 3,600 508,927 24,101 23,142 540 436 5,990 54,209 418,004 340,176 10,010 11,845 47,502 45,785 873,322 82,800 3.31 87,780 585,504 8,339 493,286 43,049 21,617 104 690 17,038 82,498 404,155 329,264 12,973 11,305 47,286 43,810 848,793 * Thousand of dollars ** Gas Marketing activities began in 1990 *** 000’s omitted †† Funds generated by operations for 1984-1985 † Includes cumulative effect of change in accounting for income taxes of $4,000,000 ($.16 per share) for 1994 32 1991 1990 1989 1988 1987 1986 1985 1984 105,364 17,374 35,628 10,055 12,674 7,542 5,285 20,024 213,946 52,110 21,241 90,974 16,058 37,697 10,566 12,067 7,636 7,402 56,144 238,544 55,422 47,562 78,315 14,821 33,013 __ 10,754 7,778 9,127 17,361 171,169 67,099 22,700 75,985 14,001 26,154 __ 11,265 7,878 10,069 15,213 160,565 57,967 20,150 64,718 15,223 17,251 __ 9,603 7,561 9,757 34,766 158,879 38,337 22,016 68,220 20,020 21,308 __ 8,471 6,839 11,033 29,244 165,135 54,756 7,025 90,647 32,447 28,335 __ 8,778 5,658 10,878 18,054 194,797 72,552 18,498 91,970 31,367 32,780 __ 8,473 5,282 11,008 10,727 191,607 66,927 21,439 .88 .46 24,488 1.97 .44 24,485 .94 .42 24,173 .83 .40 24,166 .91 .38 24,187 .28 .36 24,187 .74 .35 25,146 .85 .34 25,146 108,212 4.19 96,471 575,168 5,693 491,133 56,297 34,741 2,478 2,104 6,909 102,529 370,494 312,438 5,552 11,202 46,671 37,059 783,416 146,741 3.72 99,574 582,927 5,648 479,485 18,303 16,489 1,089 1,467 5,512 42,860 324,293 287,248 5,507 8,723 44,928 32,682 703,381 114,357 3.12 130,443 591,229 49,087 443,396 17,901 30,673 745 878 6,787 56,984 323,313 279,768 5,441 7,635 48,016 30,237 694,410 135,275 6.10 133,726 576,473 70,715 430,804 19,110 25,936 688 3,095 2,623 51,452 313,289 251,445 3,305 6,889 47,165 28,279 650,372 135,139 6.68 140,431 571,348 74,732 420,833 13,993 27,402 307 6,128 2,041 49,871 309,865 228,214 4,197 6,201 44,070 28,675 621,222 108,331 5.61 158,311 563,236 79,340 408,185 23,673 11,767 232 1,409 2,075 39,156 307,199 215,488 7,294 5,894 38,131 28,846 602,852 118,340 4.58 163,045 616,034 85,532 427,860 27,777 9,527 175 9,782 5,397 52,658 287,641 218,102 10,403 5,662 36,538 28,345 586,691 84,880 3.27 182,174 610,011 87,114 418,163 8,682 41,657 108 1,190 4,969 56,606 264,801 212,475 15,477 5,507 26,930 28,378 553,568 33 Eleven-Year Operating Review HELMERICH & PAYNE, INC. Years Ended September 30, 1994 1993 1992 CONTRACT DRILLING Drilling Rigs, United States ................................................................ Drilling Rigs, International.................................................................. Contract Wells Drilled, United States................................................. Total Footage Drilled, United States* ................................................. Average Depth per Well, United States ............................................. Percentage Rig Utilization, United States .......................................... Percentage Rig Utilization, International............................................ 47 29 162 1,842 11,367 69 88 42 29 128 1,504 11,746 53 68 39 30 100 1,085 10,853 42 69 PETROLEUM EXPLORATION AND DEVELOPMENT Gross Wells Completed ..................................................................... Net Wells Completed ......................................................................... Net Dry Holes .................................................................................... 44 15 1.7 42 15.9 4.3 54 17.8 4.3 PETROLEUM PRODUCTION Net Crude Oil and Natural Gas Liquids Produced (barrels daily)................................................................ Net Oil Wells Owned — Primary Recovery........................................ Net Oil Wells Owned — Secondary Recovery................................... Secondary Oil Recovery Projects ...................................................... Net Natural Gas Produced (thousands of cubic feet daily) ...................................................... Net Gas Wells Owned........................................................................ 2,431 202 71 14 72,953 341 2,399 202 71 14 78,023 307 2,334 220 74 14 75,470 289 NATURAL GAS ODORANTS AND OTHER CHEMICALS Chemicals Sold (pounds)* ................................................................. 8,071 7,930 8,452 REAL ESTATE MANAGEMENT Gross Leasable Area (square feet)* .................................................. Percentage Occupancy...................................................................... 1,652 83 1,656 86 1,656 87 TOTAL NUMBER OF EMPLOYEES Helmerich & Payne, Inc. and Subsidiaries† ....................................... 2,787 2,389 1,928 * 000’s omitted. † 1984-1989 include U.S. employees only 34 1991 1990 1989 1988 1987 1986 1985 1984 46 25 106 1,301 12,274 47 45 49 20 119 1,316 11,059 50 46 49 20 108 1,350 12,500 44 30 48 18 115 1,284 11,165 45 16 50 19 110 1,182 10,745 39 30 48 19 110 1,384 12,582 44 47 47 19 111 1,477 13,306 65 41 44 19 132 1,529 11,583 60 45 20.2 4.3 36 15.3 3.4 45 15.2 2.8 45 14.6 1.6 18 5.2 .5 27 10.3 3.6 42 19.5 9.7 41 17.1 8.0 2,152 227 55 12 66,617 278 2,265 223 46 12 65,147 194 2,486 201 214 17 57,490 205 2,463 202 222 21 45,480 197 2,578 199 237 20 31,752 180 3,077 234 235 18 32,392 180 3,388 234 259 19 35,288 174 3,033 233 126 18 37,316 173 8,155 8,255 7,702 8,507 8,165 7,554 9,123 9,288 1,664 86 1,664 85 1,669 90 1,670 90 1,595 94 1,433 95 1,333 93 1,238 91 1,758 1,864 1,100 1,156 1,026 844 1,126 1,242 35 Directors Officers W. H. Helmerich, III Chairman of the Board Hans Helmerich President and Chief Executive Officer Allen S. Braumiller Vice President, Exploration George S. Dotson Vice President, President of Helmerich & Payne International Drilling Co. Douglas E. Fears Vice President, Finance Steven R. Mackey Vice President, Secretary, and General Counsel James L. Payne Vice President, Real Estate Steven R. Shaw Vice President, Production W. H. Helmerich, III Chairman of the Board, Tulsa, Oklahoma Hans Helmerich President and Chief Executive Officer, Tulsa, Oklahoma William L. Armstrong Chairman, Ambassador Media Corporation, Denver, Colorado Glenn A. Cox* President and Chief Operating Officer, Retired, Phillips Petroleum Co., Bartlesville, Oklahoma George S. Dotson Vice President, President of Helmerich & Payne International Drilling Co., Tulsa, Oklahoma C. W. Flint, Jr.* Chairman, Flint Industries, Inc., Tulsa, Oklahoma George A. Schaefer Chairman and Chief Executive Officer, Retired, Caterpillar Inc., Peoria, Illinois Harry W. Todd Chairman, CEO, and President, Retired, Rohr Industries, Inc., Chula Vista, California John D. Zeglis Senior Vice President and General Counsel, American Telephone & Telegraph Co., Basking Ridge, New Jersey *Member, Audit Committee 36 Five-Year Production Review Years Ended September 30, 1993 1992 1991 Barrels 1990 1989 OIL AND LIQUIDS Annual Production ................................ 007,854,124 007,074,405 008,826,843 008,907,289 006,299,410 2,463 $15.54 6,299,410 Per Day Production ........................... Average Price per Barrel ...................... Year-end Proved Reserves .................. 2,486 $16.34 8,618,850 2,265 $19.42 8,102,761 2,334 $19.16 7,507,586 2,152 $22.12 7,074,405 NATURAL GAS Annual Production ................................ 16,600,054 Per Day Production ........................... 45,480 Average Price per Mcf ......................... $1.44 Year-end Proved Reserves .................. 294,596,000 296,229,000 279,923,000 291,630,000 279,562,000 24,310,155 66,617 $1.35 20,983,983 57,490 $1.48 23,778,690 65,147 $1.48 27,622,018 75,470 $1.39 Thousand Cubic Feet (mcf) Financial Highlights Years Ended September 30, 1993 (in thousands) Gross Revenues ............................................................... Pre-Tax Income ................................................................ Depreciation Expense....................................................... Capital Expenditures ......................................................... Year-end Book Value ........................................................ Average Occupancy ......................................................... $ 7,550 4,074 1,685 697 28,234 87% 1992 $ 7,558 3,722 1,633 2,190 29,194 86% Financial Highlights Years Ended September 30, 1993 1992 (in thousands) 1991 Gross Revenues ................................................................................. Pre-Tax Income .................................................................................. Non-Cash Charges......................................................................... Capital Expenditures .......................................................................... Pounds of Product Sold .................................................................. $ 7,550 4,074 1,685 697 28,234 $ 7,558 3,722 1,633 2,190 29,194 Summary of Property Owned Property Name Utica Square Shopping Center Utica Square Offices and Medical Center Plaza Office Building Space Center Space Center East Tandem Business Park Tulsa Business Park Maxim Center Maxim Place Southpark/100 East Industrial Park Description Square Feet Upscale Retail Professional Offices Corporate Offices Industrial Warehouses Industrial Warehouses Office/Warehouse Complex Office/Warehouse Complex Office/Warehouse Complex Office/Warehouse Complex Undeveloped 260 Acres Total Square Feet 406,260 94,969 90,156 495,000 202,500 88,084 204,600 40,800 33,750 1,656,119 37 Stock Portfolio Held by the Company September 30, 1993 Number of Shares Carrying Amount on Balance Sheet Market Value at End of Fiscal Year (in thousands,except share amounts) Schlumberger, Ltd.................................................... Atwood Oceanics, Inc...................................................... Sun Company, Inc. .......................................................... Phillips Petroleum Company. ........................................... Liberty Bancorp............................................................... Oryx Energy Company .................................................... Oneok............................................................................. Other .............................................................................. Total.................................................................... 740,000 1,600,000 907,164 300,000 500,000 700,000 225,000 $ 23,511 19,285 10,637 7,470 7,270 6,683 2,751 7,338 $ 84,945 $ 49,303 17,200 25,854 10,125 17,000 17,150 5,006 10,737 $152,375 On November 11, 1993 approximately 1,000 plaintiffs filed a lawsuit one of the Company’s subsidiaries, alleging person- al injury and property damage arising out of the operation of the subsidiary’s facility. The plaintiffs allege that the sub- sidiary released dangerous chemicals and waste into the air and ground water and are seeking actual damages of $500 million and punitive damages of $500 billion. This lawsuit is one of three lawsuits filed simultaneously. A similar lawsuit has been filed against another company and a class action lawsuit was filed against virtually every chemical plant and oil refinery in the area. Management believes that the lawsuit is without merit and that the ultimate monetary exposure is not material to the financial statements because they believe that the Company has complied in all material respects with applicable laws and regulations. The Company is also a defendant in other litigation arising out of operations in the normal course of business. In the opinion of management, after taking into account existing legal reserves, none of the various other pending lawsuits and proceedings should have a material adverse effect upon the consolidated financial position or results of opera- tions of the Company. 38 

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