Helmerich & Payne
Annual Report 1997

Plain-text annual report

Helmerich & Payne, Inc. Annual Report for 1997 Revenue Breakdown for 1997 Domestic 27% Contract Drilling International 34% Exploration and Production 22% Oil and Gas Natural Gas Marketing 13% Real Estate 2% Investments and Other Income 2% Financial Highlights Years Ended September 30, 1997 1996 Revenues $ 517,859,000 $ 393,255,000 Income from Continuing Operations $ 84,186,000 $ 45,426,000 Income per Share from Continuing Operations Net Income Net Income Per Share Dividends Paid Per Share $ 1.69 $ .92 $ 84,186,000 $ 72,566,000 $ 1.69 $ .26 $ 1.47 $ .2525 Capital Expenditures $ 159,578,000 $ 109,747,000 Total Assets $ 1,033,595,000 $ 821,914,000 President’s Letter To the Co-owners of Helmerich & Payne, Inc. During 1997, Americans achieved the dubious distinction of bearing the heaviest tax burden in our country’s history. Compounding the confiscatory levels of taxation is the com- plexity and confusion a taxpayer faces in figuring out some seven million words of tax law. Again this year, we will spend over five billion hours and 225 billion dollars simply preparing our tax returns. Senator Don Nickles commented, “The present tax code is about 10 times longer than the Bible, a lot more complicated and, unlike the Bible, contains no good news.” In fact, it is bad news when the average American family shells out more for taxes than for food, clothing, shelter, and trans- portation combined. It is bad news when that same family’s savings and stock market holdings are punished through double and triple taxation; first from a layer of corporate taxes with rates up to 35 percent, then again the same dollar is taxed as high as 39.6 percent when received as a dividend. Finally, as those investments share in asset value growth, they are sub- jected to another bite through a capital gains tax. It is more bad news when the American family is betrayed by their elected representatives and the tax code becomes an exclusive feeding trough of special-interest politics. Business and union campaign contributions are too often rewarded by loopholes and favored tax treatment. We have arrived at the place where injury has been inflicted beyond the sizable pocketbook damage. Harm has also fallen upon the great American spirit of enterprise. This great engine of creativity, innovation, entrepreneurial risk taking, 2 and diligence has produced an unprecedented record of accom- plishment, but is forced to labor under heavy disincentives. What repair can be made to a tax system that holds funda- mental property rights in such low esteem and disregards the basic liberty to keep and dispose of the fruit of one’s labor and intellect? The New York Times expressed early concerns with the new income tax all the way back in 1909, predicting, “When men get in the habit of helping themselves to the property of others, they cannot easily be cured of it.” The time is right to take a step toward that cure by replacing what is clearly broken with the simplicity and fairness of a flat tax. Sincerely, December 15, 1997 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 Increased U.S. land activity, the activation of two new offshore platform rigs, and continued high utilization in international markets resulted in a 30 percent increase in revenues in 1997. Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 45 percent to $111.9 million, and pre-tax operating profit rose 64 percent to $67.6 million. For the second consecutive year, revenues were at an all-time high for Helmerich & Payne International Drilling Co. and the overall pre-tax operating profit margin of 21 percent was at its highest level since 1983. FIVE YEAR FINANCIAL SUMMARY 1997 1996 1995 1994 1993 (in thousands) $ 140,294 176,651 $ 108,336 135,695 $ 93,890 110,695 $ 86,521 98,111 $ 60,328 89,618 316,945 244,031 204,585 184,632 149,946 24,437 43,118 10,066 31,176 7,127 21,110 5,874 14,645 122 15,281 67,555 41,242 28,237 20,519 15,403 Revenue Domestic International Total Revenue Pre-tax Operating Profit Domestic International Total Pre-tax Operating Profit Capital Expenditures $112,177 $ 81,805 $ 87,547 $ 57,415 $ 26,636 At the close of 1997, the Company’s domestic rig fleet con- sisted of 29 land rigs and nine offshore platform rigs. Internationally, the Company has a total of 38 land rigs in the countries of Venezuela (20), Colombia (10), Bolivia (4), Ecuador (3), and Peru (1). The Company also has one plat- form rig offshore Venezuela and owns a one-half interest in a platform rig offshore Australia. Total fleet utilization averaged 89 percent in 1997, compared with 84 percent in 1996. UNITED STATES LAND OPERATIONS statistics collected by Baker Hughes, total rig activity in the United States increased 24 percent during the Company’s According to 4 fiscal year. Almost 60 percent of these gains resulted from increased activity in the states of Texas and Louisiana, the Company’s primary domestic land drilling markets. The Company’s land rig utilization remained at 100 percent for most of the year, with an average of 28 rigs working continu- ously compared with 24 in 1996. During the year, the Company announced plans to refurbish two 3,000 horsepower rigs and to further expand the fleet with an order for six new 1,500 horsepower rigs. The new rigs will be capable of drilling to depths of 18,000 feet and are configured to minimize space and mobilization time. Designed by Helmerich & Payne International Drilling Co. with the latest technological, environmental, and safety advances in mind, the rigs will be marketed to both domestic and international customers. UNITED STATES OFFSHORE OPERATIONS At the close of the year, the Company had eight offshore platform rigs in the Gulf of Mexico, one platform rig offshore California, and labor contracts on three Exxon-owned platform rigs offshore California. During 1997, rigs 202 and 203 began operations for Shell Offshore, Inc. (SOI) in the Gulf of Mexico. Rig 202 is on the Ram/Powell tension leg platform (TLP) and represents the second of three rigs built by Helmerich & Payne International Drilling Co. for SOI deepwater developments. The third, rig 204, is nearing completion and is scheduled to begin operations on Shell’s Ursa TLP in 1998. Rig 203, a minimum-area, self- moving platform rig was installed on SOI’s Enchilada platform during the year. The Company retired three offshore platform rigs in 1997, one of which worked almost continually since being constructed in 1983. INTERNATIONAL OPERATIONS revenues increased 30 percent over last year due largely to higher dayrates. International drilling 5 Venezuela continues to be a very active area for the Company with two expansion opportunities announced during the year. BP Exploration de Venezuela, S.A. awarded the Company a two-year contract for offshore platform rig 91. Approximately $15 million was spent to upgrade the rig for operations which began in December of 1997. The Company also received a letter of intent for a multi-well contract from Agencia Operadora Guarapiche S.A., on behalf of BP Exploration Orinoco Limited, Amoco Venezuela Energy Company B.V. and Maxus Guarapiche Ltd. A new 3,000 horsepower, helicopter- transportable rig is being built for the endeavor at an approxi- mate cost of $20 million. Drilling operations are scheduled to begin in May of 1998. In the fourth quarter of the year, the Company purchased three land rigs and related drilling assets from Serpetbol Perforaciones, S.A. in Bolivia. Recent legislative changes have increased Bolivia’s potential as a very active drilling market, and this purchase increases the Company’s presence in the country from one rig to four. The industry’s response to increasing U.S. OUTLOOK demand confronts shortages in experienced or skilled per- sonnel in several sectors critical to building, operating, and maintaining the industry’s rig fleet. Attracting, training, and retaining new employees in an already competitive labor market is perhaps the most significant challenge going for- ward. This year, the Company placed the first significant new land rig order since the early 1980s. The decision to build new rigs rather than to buy used is in keeping with the strategy of having the most technologically advanced fleet, which can add significant value to a customer’s drilling project. As important as good equipment is to a quality operation, ultimately H&P personnel make the difference in achieving project success. 6 Exploration & Production H E L M E R I C H & PAY N E , I N C . Helmerich & Payne, Inc. explores for, develops, SUMMARY and produces oil and natural gas primarily in the states of Kansas, Louisiana, Oklahoma, and Texas. Through its wholly- owned subsidiary, Helmerich & Payne Energy Services, Inc., the Company also provides natural gas marketing services for itself and third party customers. At the close of 1997, the Company had proved natural gas reserves of 263 billion cubic feet (Bcf) and proved oil reserves of 5.8 million barrels. Revenues and operating profit from exploration and production activities were up sharply in 1997, the result of higher prices and increased production volumes for both natural gas and oil. The average price received this year for natural gas was $2.23 per thousand cubic feet (Mcf), compared with $1.75 per Mcf in 1996. This 27 percent increase in price was aug- mented by a 17 percent increase in producing volumes, which averaged 110,859 Mcf per day in 1997. Oil prices also increased to an average of $20.77 per barrel, compared with $19 per barrel in 1996. Oil production averaged 2,700 bar- rels per day in 1997, compared with 2,212 barrels in 1996. Revenues from exploration and production activities increased 45 percent for the year and pre-tax operating profit more than doubled to $55.2 million. The Company participated EXPLORATION ACTIVITIES in 100 (49.3 net) wells during the year, 84 (39.2 net) of which were completed as natural gas wells, two (.5 net) were oil wells, and 14 (9.6 net) were dry holes. Approximately 20 percent more reserves were added through drilling efforts in 1997, than in the previous year. These efforts fell short of replacing reserves, but that objective was significantly larger this year given that natural gas production was at a record level and oil production was at its highest level in 10 years. The most significant reserve additions this year came from the Company’s Mountain Front prospect area in western Oklahoma, 7 which was discovered in 1996. The Rocky East field, discovered in 1996, is currently producing an average of 15,000 Mcf per day, and has produced over 10 Bcf of natural gas since the first well was completed. Southeast of the Rocky East field the Company has a significant interest in the Kiowa Flats field, which was discovered during the year in Kiowa County, Oklahoma. The Company has participated in nine wells in the prospect, with working interests ranging from 11 to 100 percent. Current production from the field is averaging 19,000 Mcf per day. The Company has approximately 7,200 net acres under lease in the prospect, half of which have been developed with the remainder to be drilled as success war- rants in the coming year. The Company participated in a number of wells drilled and completed in the Louisiana Austin Chalk during the year and most of them have been disap- pointments. The Company is considering a sharp reduction in its involvement in this area during 1998. Considerable progress was made during the year to put together future exploration prospects. Wildcat drilling began in four prospect areas shortly after the close of the fiscal year. Two of the wells are in east Texas; one a Cotton Valley Lime prospect and the second a Pinnacle Reef prospect. The remaining two wildcats are being drilled in Louisiana and Oklahoma. Record natural gas production and higher nat- OUTLOOK ural gas prices combined to make 1997 an excellent year financially; however, the measurements of long-term success remain centered on reserve growth and finding cost reduction. The Company seeks to generate the majority of its prospects internally using geographically focused exploration teams to develop an expertise in key areas. To that end, considerable progress was made in the Rocky East and Kiowa Flats fields, as well as in the development of future prospects resulting in increased exploration drilling for the coming year. 8 Revenues and Income by Business Segments HELMERICH & PAYNE, INC. Years Ended September 30, 1997 1996 1995 (in thousands) SALES AND OTHER REVENUES: Contract Drilling - Domestic ...................................... Contract Drilling - International .................................. Total Contract Drilling Division ............................... $140,294 176,651 316,945 $108,336 135,695 244,031 $ 93,890 110,695 204,585 Exploration and Production....................................... Natural Gas Marketing............................................. Total Oil and Gas Division .................................... Real Estate Division ................................................ Investments and Other Income .................................. 111,512 69,015 180,527 8,641 11,746 76,643 58,507 135,150 8,082 5,992 47,986 35,301 83,287 7,570 11,279 Total Revenues ............................................................ $517,859 $393,255 $306,721 OPERATING PROFIT (LOSS): Contract Drilling - Domestic ...................................... Contract Drilling - International .................................. Total Contract Drilling Division ............................... $ 24,437 43,118 67,555 $ 10,066 31,176 41,242 $ 7,127 21,110 28,237 Exploration and Production....................................... Natural Gas Marketing............................................. Total Oil and Gas Division .................................... Real Estate Division ................................................ Total Operating Profit........................................... OTHER: Miscellaneous operating .......................................... Income from investments ......................................... General corporate expense ...................................... Interest expense..................................................... Corporate depreciation ............................................ Total Other ........................................................ 55,191 3,363 58,554 5,615 131,724 (1,269) 11,437 (9,346) (4,212) (919) (4,309) 26,333 3,415 29,748 5,055 76,045 (1,663) 5,782 (9,083) (678) (860) (6,502) (23,961) 1,892 (22,069) 2,157 8,325 (1,624) 10,846 (8,801) (407) (851) (837) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE ........................................ $127,415 $ 69,543 $ 7,488 Note: This schedule is an integral part of Note 12 (page 27) of the financial statements that follow. 9 Management’s Discussion & Analysis of Results of Operations and Financial Condition HELMERICH & PAYNE, INC. Business Environment and Risk Factors The following discussion should be read in conjunction with the consolidated financial statements and related notes included else- where herein. The Company’s future operating results may be affected by various trends and factors which are beyond the Company’s control. These include, among other factors, fluctua- tions in oil and natural gas prices, expiration or termination of drilling contracts, currency exchange losses, changes in general economic conditions, rapid or unexpected changes in technolo- gies, and uncertain business conditions that affect the Company’s businesses. Accordingly, past results and trends should not be used by investors to anticipate future results or trends. With the exception of historical information, the matters dis- cussed below under the headings “Results of Operations” and “Liquidity and Capital Resources” may include forward-looking statements that involve risks and uncertainties. The Company wishes to caution readers that a number of important factors dis- cussed in this report and in the Company’s other reports filed with the Securities and Exchange Commission could affect the Company’s actual results and cause actual results to differ materially from those in the forward-looking statements. Results of Operations On December 3, 1997, the Board of Directors declared a two-for- one common stock split, effective December 15, 1997 (the “Record Date”). All references to share and per share amounts have been restated to reflect the two-for-one stock split and distribution. Helmerich & Payne, Inc.’s net income for 1997 was $84,186,000 ($1.69 per share), compared with net income of $72,566,000 ($1.47 per share) in 1996, and $9,751,000 ($0.20 per share) in 1995. Included in 1996 income is a $24,050,000 ($0.49 per share) gain from the sale of the Company’s chemical subsidiary, Natural Gas Odorizing, Inc. (NGO). Net income in 1995 included a non-cash, non-recurring charge of $13,600,000 ($0.28 per share) as a result of the Company’s adoption of Statement of 10 Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Included in the Company’s net income, but not related to its operations, were after-tax gains from the sale of investment secu- rities of $2,870,000 ($0.06 per share) in 1997, $346,000 ($0.01 per share) in 1996, and $3,481,000 ($0.07 per share) in 1995. Also included was the Company’s portion of income of its equity affiliate, Atwood Oceanics, Inc., which was $0.05 per share in 1997, $0.03 per share in 1996, and $0.02 per share in 1995. Consolidated revenues increased to $517,859,000 in 1997, from $393,255,000 in 1996, and $306,721,000 in 1995. The 32 percent increase from 1996 to 1997 was a result of increased dayrates for contract drilling services and a significant increase in oil and gas revenues due to higher commodity prices and production vol- umes. Consolidated revenues increased by 28 percent from 1995 to 1996 as a result of revenue increases in the exploration and production, natural gas marketing, international drilling, and domestic drilling segments. Revenues from investments were $11,437,000 in 1997, up from $5,782,000 in 1996, and $10,846,000 in 1995. Included in revenues from investments were pre-tax gains from the sale of investment securities of $4,697,000 in 1997, $566,000 in 1996, and $5,697,000 in 1995. Interest income was stable during 1997, 1996, and 1995, but dividend revenue increased in 1997 due to the addition of 2,018,928 shares of Occidental Petroleum Corporation common stock to the investment portfolio. During the first quarter of fiscal 1998, the Company sold 600,000 shares of Occidental Petroleum Corporation stock. Costs and expenses in 1997 were $390,444,000, 75 percent of total revenues, compared with 82 percent in 1996, and 98 per- cent in 1995. Total costs for 1995 were abnormally high due to the adoption of SFAS No. 121 which resulted in a total pre-tax impairment charge of $22,000,000 recorded as additional depreciation, depletion, and amortization. Operating costs as a percentage of operating revenues declined to 55 percent in 1997, compared with 59 percent in 1996, and 64 percent in 1995. General and administrative expenses increased by three percent to $9,346,000 in 1997, from $9,083,000 in 1996, and $8,801,000 11 in 1995. Income tax expense, as a percentage of pre-tax income was 36 percent in 1997, and 37 percent for 1996 and 1995. CONTRACT DRILLING DIVISION revenues increased by 30 per- cent from 1996 to 1997, and by 19 percent from 1995 to 1996. Total operating profit rose by 64 percent over last year to $67,555,000 in 1997, from $41,242,000 in 1996, and $28,237,000 in 1995. Domestic drilling operating profit increased to $24,437,000 in 1997, from $10,066,000 in 1996, and from $7,127,000 in 1995. Domestic contract drilling revenues and operating profit for both 1997 and 1996 increased, primarily due to significant improvements in revenues and margins from U.S. land rig operations, the addition of offshore platform rigs for Shell’s tension leg platforms, and increased revenues and earnings from the Company’s three offshore labor contracts. Rig utilization for the U.S. land fleet was 99 percent in 1997, 88 percent in 1996, and 73 percent in 1995. Domestic platform rig utilization was 63 percent in 1997, 70 percent in 1996, and 66 percent in 1995. International revenues climbed to $176,651,000 in 1997, from $135,695,000 in 1996, and $110,695,000 in 1995. Operating profit for the international contract drilling sector improved by 38 percent over last year to $43,118,000 in 1997, compared with $31,176,000 in 1996, and $21,110,000 for 1995. Increases during 1997 were primarily due to a full year of activity for three additional rigs sent to Venezuela in 1996, increased dayrates in Venezuela and Colombia, and increased activity in Ecuador. During the fourth quarter of fiscal 1997, three additional rigs were purchased in Bolivia, bringing total rigs located there to four and the total international rig count to 39. During 1995, six additional rigs were shipped to Venezuela and three to Colombia, which helped boost revenues and earnings significantly in 1996. In Venezuela, approximately 50 percent of the Company’s billings are in U.S. dollars and the other 50 percent are in boli- vars, the local currency. As a result, the Company is exposed to risks of currency devaluation in Venezuela because of the bolivar receivables created by billings in that currency. Over the past three years, total net devaluation losses in Venezuela have not been material. Although devaluation losses may occur again in 1998, the Company does not presently believe that such losses 12 will have a material impact on the Company. However, if the country experiences extreme economic difficulty, accompanied by severe devaluation and/or inflation, the Company could experience material losses. OIL AND GAS DIVISION revenues and operating profit increased dramatically this year as average prices received for the Company’s production rose to $20.77 per barrel of oil and $2.23 per Mcf of natural gas from $19.00 per barrel and $1.75 per Mcf last year. In 1995, average prices were $16.37 per barrel and $1.27 per Mcf. Average natural gas production increased by 17 percent over last year to 110.9 million cubic feet per day (Mmcf/d) during 1997, compared with 94.4 Mmcf/d in 1996, and 72.4 Mmcf/d in 1995. Oil production rose to an average of 2,700 bar- rels per day in 1997 from approximately 2,200 barrels per day in both 1996 and 1995. The Company’s natural gas production has grown over the past two years as a result of allowing more of its existing reserves to be delivered to the market and by virtue of dis- coveries and production of new natural gas reserves. Due to the significant increases in product prices and production volumes, exploration and production revenues increased by 45 percent over last year to $111,512,000 in 1997, from $76,643,000 in 1996, and $47,986,000 in 1995. Exploration and production operating profit increased by 110 percent over last year to $55,191,000 in 1997, from $26,333,000 in 1996, compared with a loss of $23,961,000 in 1995. In 1997, the Company recorded a one-time net income reduction as a result of a recent Federal Energy Regulatory Commission (FERC) order which requires certain Kansas producers of natural gas to make certain refunds of ad valorem tax reim- bursement, with interest, for tax bills rendered between October 4, 1983 and June 28, 1988. The Company’s total pre-tax adjustment of $6,700,000 includes a reduction of exploration and production revenues of $2,700,000 and $4,000,000 of interest charges. Earnings for 1996 were aided by lower dry hole and abandon- ment charges, lower geophysical expense and reduced depletion per production unit than in the previous year. During the past three years, the Company has not hedged any of its oil or natural gas production and does not intend to do so during 1998. 13 Therefore, increases or decreases in its product prices will affect its ongoing results accordingly. In 1995, the Company elected to adopt SFAS No. 121, resulting in a pre-tax, non-cash charge of $19,982,000 to the Oil and Gas Division. Natural gas marketing revenues, which are primarily derived from selling natural gas produced by other unaffiliated companies, increased to $69,015,000 in 1997, from $58,507,000 in 1996, and $35,301,000 in 1995. Operating profit was $3,363,000 in 1997, $3,415,000 in 1996, and $1,892,000 in 1995. The Company’s approach has been to derive additional profit from matching its customers with third party producers when the marketing situation is not conducive to the sale of the Company’s own natural gas. Although revenues are likely to increase during periods of rising natural gas prices, it is expected that competition will continue to limit fees and premiums for third party natural gas sales. REAL ESTATE DIVISION revenues totaled $8,641,000 for 1997, $8,082,000 for 1996, and $7,570,000 for 1995. Revenues and operating profit were up in 1997, primarily due to the sale of a small parcel of land for a gain of $400,000. Operating profits for 1995 were down from normal levels due to a $2,000,000 charge to two properties in connection with the adoption of SFAS No. 121. No major changes are anticipated in the Real Estate Division for 1998. Liquidity and Capital Resources The Company has maintained a very strong balance sheet for many years, with current ratios above 1.6 for the last three years. During the past three years, the Company has main- tained a line of credit with its bank group that has ranged from $40 to $75 million in order to fund short-term cash needs. The Company had borrowings under its line of credit totaling $5,000,000 at the end of both fiscal 1997 and 1996, and line of credit borrowings totaling $21,700,000 at the end of fiscal 1995. Capital expenditures for each of the last three years were over $100 million and exceeded the funds generated internally during 1995. Cash provided by operating activities totaled $165,568,000 for 1997, $124,923,000 for 1996, and $88,572,000 for 1995. It is anticipated that during 1998, capital expenditures will be approximately $200 million. Capital expenditures budgeted for 14 1998 include exploration and development drilling and major off- shore platform rig construction projects for Gulf of Mexico opera- tions. Capital expenditure totals could be significantly increased by additional projects now being considered. Additional borrow- ings and/or portfolio liquidations would be used to fund capital expenditures exceeding internally generated capital. The Company manages a large portfolio of marketable securi- ties which had a cost basis of $138,906,000 at September 30, 1997, and a total market value at that time of $474,815,000 including its investment in Atwood Oceanics, Inc. During 1995, the Company adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, which resulted in a balance sheet adjustment to market values for investments in companies of which the Company owned less than 20 percent. Accordingly, at the end of each reporting period, a deferred tax estimate is calculated from pre-tax unrealized changes in the portfolio market value and posted to deferred taxes under the liability section of the balance sheet. Net unrealized holding gains are reflected in the shareholders’ equity section of the bal- ance sheet and not in the statement of income. Those unrealized gains were $114,454,000, $56,550,000, and $38,004,000 at the end of fiscal years 1997, 1996, and 1995, respectively. During 1997, the Company paid a dividend of $0.26 per share which represented the 26th consecutive year of dividend increases. Stock Portfolio Held by the Company September 30, 1997 Number of Shares Book Value (in thousands,except share amounts) Market Value Occidental Petroleum Corporation . . . . . . . . . . . . . . . . . . Atwood Oceanics, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . Schlumberger, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sun Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sun Company PFD A . . . . . . . . . . . . . . . . . . . . . . . . . . . Phillips Petroleum Company . . . . . . . . . . . . . . . . . . . . . . BANC ONE CORPORATION. . . . . . . . . . . . . . . . . . . . . . Oryx Energy Company . . . . . . . . . . . . . . . . . . . . . . . . . . ONEOK INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,600,000 1,480,000 300,000 329,053 240,000 464,125 500,000 225,000 $ 47,550 28,895 23,511 3,512 3,192 5,976 5,743 4,899 2,751 12,877 $138,906 $ 51,875 180,200 124,597 13,144 11,928 12,390 25,991 12,719 7,341 34,630 $474,815 15 Consolidated Balance Sheets HELMERICH & PAYNE, INC. Assets CURRENT ASSETS: September 30, 1997 1996 (in thousands) Cash and cash equivalents.................................................................. $ Short-term investments....................................................................... Accounts receivable, less reserve of $1,308 and $712............................... Inventories ....................................................................................... Prepaid expenses and other ................................................................ Total current assets ..................................................................... 27,963 1,318 98,697 19,639 10,387 158,004 $ 16,892 1,005 75,374 16,915 4,182 114,368 INVESTMENTS..................................................................................... 323,510 229,809 PROPERTY, PLANT AND EQUIPMENT, at cost: Contract drilling equipment .................................................................. Oil and gas properties ........................................................................ Real estate properties ........................................................................ Other .............................................................................................. Less__Accumulated depreciation, depletion and amortization..................... 643,619 409,921 47,682 59,659 568,110 401,804 46,970 53,547 1,160,881 621,856 1,070,431 606,935 Net property, plant and equipment .................................................. 539,025 463,496 OTHER ASSETS ................................................................................... 13,056 14,241 TOTAL ASSETS .................................................................................... $ 1,033,595 $ 821,914 The accompanying notes are an integral part of these statements. 16 Liabilities and Shareholders’ Equity September 30, 1997 1996 (in thousands) CURRENT LIABILITIES: Accounts payable .............................................................................. $ 42,642 47,525 Accrued liabilities .............................................................................. 5,000 Notes payable................................................................................... 95,167 Total current liabilities ................................................................ $ 25,622 31,943 5,000 62,565 NONCURRENT LIABILITIES: Deferred income taxes........................................................................ Other .............................................................................................. Total noncurrent liabilities............................................................ 141,331 16,517 157,848 98,335 15,044 113,379 SHAREHOLDERS’ EQUITY: Common stock, $.10 par value, 80,000,000 shares authorized, 53,528,952 shares issued ................................................................ 5,353 5,353 Preferred stock, no par value, 1,000,000 shares authorized, no shares issued............................................................................ Additional paid-in capital ..................................................................... Net unrealized holding gains ................................................................ Retained earnings ............................................................................. Lesstreasury stock, 3,500,698 shares in 1997 and 3,757,680 shares in 1996, at cost...... Total shareholders’ equity............................................................ 51,316 114,454 629,562 800,685 20,105 780,580 47,734 56,550 557,543 667,180 21,210 645,970 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY .................................. $1,033,595 $821,914 Note: Certain amounts have been restated to reflect the effect of the two-for-one common stock split and distribution as discussed in Note 4. The accompanying notes are an integral part of these statements. 17 Consolidated Statements of Income HELMERICH & PAYNE, INC. Years Ended September 30, 1997 1996 1995 (in thousands, except per share amounts) REVENUES: Sales and other operating revenues .............................................. $506,422 11,437 Income from investments ............................................................... $387,473 5,782 $295,875 10,846 517,859 393,255 306,721 COSTS AND EXPENSES: Operating costs .............................................................................. Depreciation, depletion and amortization ....................................... Dry holes and abandonments ........................................................ Taxes, other than income taxes ...................................................... General and administrative............................................................. Interest............................................................................................ 276,094 71,691 7,783 21,318 9,346 4,212 229,584 59,442 7,986 16,939 9,083 678 188,497 76,443 10,095 14,990 8,801 407 390,444 323,712 299,233 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE ........................ 127,415 69,543 7,488 INCOME TAX EXPENSE..................................................................... 45,511 25,803 2,786 EQUITY IN INCOME OF AFFILIATE net of income taxes ........................................................................ INCOME FROM CONTINUING OPERATIONS................................... INCOME FROM DISCONTINUED OPERATIONS .............................. GAIN ON SALE OF DISCONTINUED OPERATIONS......................... 2,282 84,186 1,686 45,426 3,090 24,050 1,086 5,788 3,963 NET INCOME ...................................................................................... $ 84,186 $ 72,566 $ 9,751 PER COMMON SHARE: INCOME FROM CONTINUING OPERATIONS................................... $ INCOME FROM DISCONTINUED OPERATIONS .............................. GAIN ON SALE OF DISCONTINUED OPERATIONS......................... 1.69 $ $ $ $ .12 .08 .92 .06 .49 NET INCOME ........................................................................................ $ 1.69 $ 1.47 $ .20 AVERAGE COMMON SHARES OUTSTANDING.................................. 49,779 49,380 49,072 Note: Certain amounts have been restated to reflect the effect of the two-for-one common stock split and distribution as discussed in Note 4. The accompanying notes are an integral part of these statements. 18 Consolidated Statements of Shareholders’ Equity HELMERICH & PAYNE, INC. Additional Unrealized Net Common Stock Shares Amount Paid-In Capital Holding Gains Retained Earnings Treasury Stock Shares Amount (in thousands except per share data) Balance, September 30, 1994 ............. 53,529 $5,353 $45,520 $ $496,280 4,109 $(22,819) Adjustment to beginning balance for change in accounting method, net of income taxes of $21,106..... Change in net unrealized holding gains, net of income taxes of $2,187....................................... Cash dividends ($.25 per share) ...... Exercise of stock options.................... Lapse of restrictions on Restricted Stock Awards............... Forfeiture of Restricted Stock Award Amortization of deferred compensation ............................... Net income ....................................... 34,435 3,569 859 (229) (390) (12,372) (139) 615 560 30 (170) 1,473 9,751 Balance, September 30, 1995 ............. 53,529 5,353 45,760 38,004 495,692 4,000 (22,374) Change in net unrealized holding gains, net of income taxes of $11,367..................................... Cash dividends ($.255 per share). Exercise of stock options ................... Lapse of restrictions on Restricted Stock Awards............... Forfeiture of Restricted Stock Award . Amortization of deferred compensation ............................... Net income ....................................... 18,546 (12,670) 2,197 (61) (162) (262) 1,274 272 20 (110) 1,683 72,566 Balance, September 30, 1996 ............. 53,529 5,353 47,734 56,550 557,543 3,758 (21,210) Change in net unrealized holding gains, net of income taxes of $35,490 ................................... Cash dividends ($.26 per share) ...... Exercise of stock options.................. Lapse of restrictions on Restricted Stock Awards ................ Amortization of deferred compensation ............................... Net income ...................................... 57,904 (12,987) (257) 1,105 3,306 276 820 84,186 Balance, September 30, 1997 ............. 53,529 $5,353 $51,316 $114,454 $629,562 3,501 $(20,105) Note: Certain amounts have been restated to reflect the effect of the two-for-one common stock split and distribution as discussed in Note 4. The accompanying notes are an integral part of these statements. 19 Consolidated Statements of Cash Flows HELMERICH & PAYNE, INC. Years Ended September 30, 1997 1996 1995 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................................................ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization........................... Dry holes and abandonments ......................................... Equity in income of affiliate before income taxes ................. Amortization of deferred compensation ............................. Gain on sale of investments............................................ Loss (gain) on sale of property, plant and equipment ........... Discontinued operations ................................................ Other ......................................................................... Change in assets and liabilities: Accounts receivable ................................................... Inventories ............................................................... Prepaid expenses and other ........................................ Accounts payable ...................................................... Accrued liabilities ...................................................... Deferred income taxes ................................................. Other noncurrent liabilities........................................... Total adjustments ...................................................... Net cash provided by continuing operations ................. Net cash provided by discontinued operations................ Net cash provided by operating activities........................ $ 84,186 $ 72,566 $ 9,751 71,691 7,783 (3,680) 820 (4,697) (4,545) 1,897 (23,323) (2,724) (5,020) 18,619 15,582 7,506 1,473 81,382 165,568 165,568 59,442 7,986 (2,720) 1,683 (566) 303 (27,140) 473 (18,340) 2,435 1,706 (1,115) 14,237 6,668 3,802 48,854 121,420 3,503 124,923 76,443 10,095 (1,752) 1,473 (5,697) (1,205) (3,963) 10 275 86 (2,768) 3,030 (2,701) (1,630) 2,563 74,259 84,010 4,562 88,572 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.......................................... Discontinued operations ....................................................... Purchase of short-term investments ........................................ Proceeds from sale of short-term investments ........................... Net cash used in investing activities............................ (161,177) 9,432 (1,091) 8,557 (313) (144,592) (109,985) 3,987 (1,196) 619 (2,746) (109,901) 2,923 (12,858) 11,713 (977) 7,984 (101,337) 7 (109,093) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable................................................. Payments made on notes payable........................................... Dividends paid.................................................................... Proceeds from exercise of stock options................................... Net cash provided by (used in) financing activities ......... 34,000 (34,000) (12,970) 3,065 (9,905) 35,000 (51,700) (12,530) 2,993 (26,237) 37,100 (15,400) (12,365) 1,282 10,617 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................................................... CASH AND CASH EQUIVALENTS, beginning of period ................. CASH AND CASH EQUIVALENTS, end of period ......................... 11,071 16,892 $ 27,963 (2,651) 19,543 $ 16,892 (9,904) 29,447 $ 19,543 The accompanying notes are an integral part of these statements. 20 Notes to Consolidated Financial Statements HELMERICH & PAYNE, INC. September 30, 1997,1996 and 1995 NOTE 1 SUMMARY OF ACCOUNTING POLICIES CONSOLIDATION - The consolidated financial statements include the accounts of Helmerich & Payne, Inc. (the Company), and all of its wholly-owned subsidiaries. Fiscal years of the Company’s foreign consolidated operations end on August 31 to facili- tate reporting of consolidated results. TRANSLATION OF FOREIGN CURRENCIES - The Company has determined that the functional currency for its foreign subsidiaries is the U.S. dollar. The foreign cur- rency transaction loss for 1997 was $452,000, with a gain for 1996 and 1995 of $764,000 and $1,845,000, respectively. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires manage- ment to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. PROPERTY, PLANT AND EQUIPMENT - The Company follows the successful efforts method of accounting for oil and gas properties. Under this method, the Company capitalizes all costs to acquire mineral 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. Reserves are recorded for capitalized costs of undeveloped leases based on management’s estimate of recoverability. Costs of surrendered leases are charged to the reserve. Effective July 1, 1995, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are pre- sent and the undiscounted cash flows are not sufficient to recover the carrying amount of the asset. Adoption of SFAS No. 121 resulted in a before-tax impairment charge of $22 million which is included in depreciation, depletion and amortization expense. After-tax, the impairment charge reduced 1995 net income by $13.6 million, $.28 per share. The before-tax impairment charges included $20 million for proved Exploration and Production properties and $2 million for Real Estate properties. The Company evaluates impairment of exploration and production assets on a field by field basis. Fair values on all long-lived assets are based on discounted future cash flows or information provided by sales and purchases of similar assets. Substantially all property, plant and equipment other than oil and gas properties is depreciated using the straight-line method based on the following estimated useful lives: YEARS Contract drilling equipment ............................................. 4-10 Real estate buildings and equipment.............................. 10-50 Other ............................................................................... 3-33 CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash in banks and investments readily convertible into cash which mature within three months from the date of purchase. INVENTORIES - Inventories, primarily materials and supplies, are valued at the lower of cost (moving average or actual) or market. DRILLING REVENUE - Substantially all drilling contracts are daywork contracts and drilling revenues and expenses are recognized as work progresses. GAS IMBALANCES - The Company recognizes revenues from gas wells on the sales method, and a liability is recorded for permanent imbalances. INVESTMENTS - The Company adopted SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, effective October 1, 1994. SFAS No. 115 requires that available-for-sale securities be carried at their fair value determined based on quoted market prices. Upon adoption of SFAS No. 115, the Company recorded an increase to shareholders’ equity of $34 million, which was net of income taxes of $21 million. The cost of securities used in determining realized gains and losses is based on average cost of the security sold. Investments in companies owned from 20 to 50 percent are accounted for using the equity method with the Company recog- nizing its proportionate share of the income or loss of each investee. The Company owned 23.6 percent and 23.9 percent of Atwood Oceanics, Inc. (Atwood) at September 30, 1997 and 1996, respectively. The quoted market value of the Company’s investment was $180,200,000 and $70,400,000 at September 30, 1997 and 1996, respectively. Retained earnings at September 30, 1997 include approximately $16,715,000 of undistributed earnings of Atwood. 21 Summarized financial information of Atwood is as follows: Gross revenues .............................................................. Costs and expenses ........................................................ Net income .................................................................... Helmerich & Payne, Inc.’s equity in net income, net of income taxes .................................................... Current assets ................................................................ Noncurrent assets ........................................................... Current liabilities ............................................................. Noncurrent liabilities ........................................................ Shareholders’ equity ........................................................ Helmerich & Payne, Inc.’s investment................................... 1997 1996 (in thousands) $ 89,082 73,463 $ 15,619 $ 2,282 $ 47,961 168,279 19,621 73,930 122,689 $ 28,895 $ 84,760 73,392 $ 11,368 $ 1,686 $ 44,170 115,139 18,019 35,736 105,554 $ 25,215 1995 $ 77,315 70,255 $ 7,060 $ 1,086 $ 34,266 118,587 20,505 37,456 94,892 $ 22,495 INCOME TAXES - Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of the Company’s assets and liabilities. OTHER POST EMPLOYMENT BENEFITS - The Company sponsors a health care plan that provides post retirement medical benefits to retired employees. Employees who retire after November 1, 1992 and elect to participate in the plan pay the entire estimated cost of such benefits. The Company has accrued a liability for estimated workers compensation claims incurred. The liability for other benefits to former or inactive employees after employment but before retirement is not material. NET INCOME PER SHARE - Net income per share is computed using the weighted average number of common shares outstanding during the period. The number of shares for 1996 and 1995 have been restated to reflect the effect of a two-for-one stock split and distribution (see Note 4). Common stock equivalents are insignificant, and therefore, have not been considered in the net income per share computation. DERIVATIVES - The Company does not utilize financial or commodity derivative instruments to hedge its market risks. NOTE 2 SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS The Company maintains a line of credit agreement with certain banks which provides for maximum borrowing of $40,000,000 at adjustable interest rates. Under the agreement, $40,000,000 may be borrowed through May 1998, and $10,000,000 may be borrowed through May 1999. As of September 30, 1997, the Company had borrowed $5,000,000 at a rate of 6.0375% and had letters of credit outstanding in the amount of $7,671,000, leaving $27,329,000 available. Under the line of credit agreement the Company must meet certain requirements regarding levels of debt, net worth and earnings. The Company has an additional $14.5 million line of credit with a bank to be used primarily for letters of credit. As of September 30, 1997, the Company had letters of credit outstanding in the amount of $1,347,222 leaving, $13,152,778 available. 22 NOTE 3 INCOME TAXES The components of the provision (credit) for income taxes from continuing operations are as follows: Years Ended September 30, 1997 1996 (in thousands) CURRENT: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,582 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,214 2,190 State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,986 DEFERRED: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,349 603 573 7,525 TOTAL PROVISION: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,511 $ 8,909 11,037 1,050 20,996 3,757 725 325 4,807 $ 25,803 1995 $ (802) 6,104 276 5,578 (3,083) 534 (243) (2,792) $ 2,786 The amounts of domestic and foreign income are as follows: Years Ended September 30, 1997 1996 (in thousands) 1995 INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN INCOME OF AFFILIATE: Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,723 42,692 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $127,415 $ 41,299 28,244 $ 69,543 $ (11,399) 18,887 7,488 $ Effective income tax rates on income from continuing operations as compared to the U.S. Federal income tax rate are as follows: Years Ended September 30, 1997 1996 1995 U.S. Federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends received deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess statutory depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of higher foreign tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-conventional fuel source credits utilized . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% ( 1 ) - 1 - 1 36% 35% (1) - 2 (1) 2 37% 35% (8) (3) 19 (8) 2 37% The components of the Company’s net deferred tax liabilities are as follows: 1997 September 30, 1996 (in thousands) DEFERRED TAX LIABILITIES: Property, plant and equipment Available-for-sale securities Pension provision Equity investment Other Total deferred tax liabilities DEFERRED TAX ASSETS: Financial accruals Other Total deferred tax assets $ 56,328 85,378 4,738 6,238 308 $ 152,990 8,929 2,730 11,659 $ 46,706 49,889 4,720 4,840 709 $ 106,864 5,213 3,316 8,529 NET DEFERRED TAX LIABILITIES $ 141,331 $ 98,335 23 NOTE 4 SHAREHOLDERS’ EQUITY On December 3, 1997, the Board of Directors of the Company declared a two-for-one stock split and distribution; approximately 26.8 million shares will be issued on December 31, 1997 to stockholders of record on December 15, 1997. All references in the financial statements and notes to the number of common shares outstanding, options and per share amounts reflect the impact of the split. The Company has several plans providing for common stock-based awards to employees and to non-employee directors. The plans permit the granting of various types of awards including stock options and restricted stock. Awards may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than the market price of the underlying stock on the date of grant. Stock options expire 10 years after grant. The Company has reserved 1,745,502 shares of its treasury stock to satisfy the exercise of stock options issued under the 1982 and 1990 Stock Option Plans. Effective December 4, 1996 additional options are no longer granted under these plans. Options granted under the 1982 plan vest over a period of nine years while options granted under the 1990 plan generally vest over a seven year period. Options granted under both plans become exercisable in increments as outlined in the plans. In March 1997, the Company adopted the 1996 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan was effective December 4, 1996 and will terminate December 3, 2006. Under this plan, the Company is authorized to grant options for up to 4,000,000 shares of the Company’s common stock at an exercise price not less than the fair market value of the common stock on the date of grant. Up to 600,000 shares of the total authorized may be granted to participants as restricted stock awards. There was no activity under this plan during fiscal 1997. The following summary reflects the stock option activity and related information (shares in thousands): 1997 1996 1995 Shares Weighted-Average Exercise Price Shares Weighted-Average Exercise Price Shares Weighted-Average Exercise Price Outstanding on October 1, Granted Exercised Forfeited/Expired Outstanding on September 30, Exercisable on September 30, Shares available on September 30, for options that may be granted 1,708 393 (270) (86) 1,745 135 4,000 $13.63 26.07 13.03 14.89 $16.44 $12.22 $13.20 14.00 11.76 13.53 $13.63 $13.07 1,682 494 (280) (188) 1,708 148 652 1,672 216 (156) (50) 1,682 221 1,040 $12.83 13.44 9.84 12.41 $13.20 $12.05 The following table summarizes information about stock options at September 30, 1997 (shares in thousands): Range of Exercise Prices $10.00 to $12.00 $12.01 to $14.00 $14.01 to $16.50 $16.51 to $26.50 $10.00 to $26.50 Shares 94 1,017 252 382 1,745 Outstanding Stock Options Exercisable Stock Options Weighted-Average Remaining Contractural Weighted-Average Life .9 years 6.9 years 2.4 years 9.2 years 6.4 years Exercise Price $10.88 $13.50 $15.75 $26.07 $16.44 Shares 34 97 4 Weighted-Average Exercise Price $10.88 $12.53 $16.35 135 $12.22 In 1995, the Financial Accounting Standards Board issued SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). As permitted by SFAS 123, the Company continues to apply the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). As stock options issued by the Company are equal to at least market price on the date of grant, no compensation expense is recognized under APB 25. The differences between the recognition and measurement provisions of SFAS 123 and APB 25 are not significant to net income or per common share amounts. On September 30, 1997, the Company had 50,028,254 outstanding common stock purchase rights (“Rights”) pursuant to terms of the Rights Agreement dated January 8, 1996. Under the terms of the Rights Agreement each Right entitled the holder there- of to purchase from the Company one half of one unit consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock (“Preferred Stock”), without par value, at a price of $90 per unit. The exercise price and the num- ber of units of Preferred Stock issuable on exercise of the Rights are subject to adjustment in certain cases to prevent dilution. The Rights will be attached to the common stock certificates and are not exercisable or transferrable apart from the common stock, until 10 business days after a person acquires 15% or more of the outstanding common stock or 10 business days follow- ing the commencement of a tender offer or exchange offer that would result in a person owning 15% or more of the outstanding common stock. In the event the Company is acquired in a merger or certain other business combination transactions (including one in which the Company is the surviving corporation), or more than 50% of the Company’s assets or earning power is sold or transferred, each holder of a Right shall have the right to receive, upon exercise of the Right, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The Rights are redeemable under certain circum- stances at $.01 per Right and will expire, unless earlier redeemed, on January 31, 2006. As long as the Rights are not sepa- rately transferable, the Company will issue one half of one Right with each new share of common stock issued. 24 NOTE 5 FINANCIAL INSTRUMENTS Short-term investments consist mainly of U.S. treasury notes carried at cost, which approximates fair value. Notes payable bear interest at market rates and are carried at cost, which approximates fair value. The following is a summary of available-for-sale securities, which excludes those accounted for under the equity method of accounting (see Note 1): Equity Securities: September 30, 1997 September 30, 1996 Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value (in thousands) $110,011 $113,384 $184,708 $ 92,081 $104 $871 $294,615 $204,594 During the years ended September 30, 1997, 1996, and 1995, marketable equity available-for-sale securities with a fair value at the date of sale of $8,557,000, $619,000, and $11,713,000, respectively, were sold. The gross realized gains on such sales of available- for-sale securities totaled $4,697,000, $596,000, and $5,734,000, respectively, and the gross realized losses totaled $0, $30,000, and $37,000, respectively. NOTE 6 DISCONTINUED OPERATIONS Effective August 30, 1996, the Company exchanged all of the common stock of its wholly-owned subsidiary, Natural Gas Odorizing, Inc. (NGO), to Occidental Petroleum Corporation (OPC) for 2,018,928 shares of OPC common stock with a fair mar- ket value of approximately $48 million. The sale yielded a gain of $24.1 million (net of deferred income taxes of approximately $14.8 million) which is reported as gain on sale of discontinued operations. NGO comprised the Company’s chemical opera- tions. Prior period operating results for such operations are reported as discontinued operations. Income from discontinued operations has been reduced for income taxes by $2,566,000 and $2,258,000 for 1996 and 1995, respectively. NOTE 7 EMPLOYEE BENEFIT PLANS Defined Benefit Plans: The Company has noncontributory pension plans covering substantially all of its employees, including certain employees in foreign countries. The Company makes annual contributions to the plans equal to the maximum amount allowable, subject to regulatory fund- ing limitations. Future service benefits are determined using a 1.5 percent career average formula. The net pension expense (credit) included the following components: Years Ended September 30, 1997 1996 1995 Service cost-benefits earned during the year ............................... Interest cost on projected benefit obligations................................ Return on plan assets ................................................................... Net amortization and deferral........................................................ Net pension expense (credit) ............................................... $ 2,114 1,797 (3,592) (367) (48) $ (in thousands) $ 1,979 1,553 (3,214) (304) $ 14 $ 1,589 1,301 (2,798) (301) $ (209) The discount rate used in determining the actuarial value of the projected benefit obligation for 1997 and 1996 was 7.25% and 7.75%, respectively. The average expected rate of return on plan assets was 9.0%, 8.5% and 8.5% for 1997, 1996 and 1995, respectively. The assumed rate of increase in compensation was 5.5% for 1997 and 5.0% for 1996. The following table sets forth the plans’ funded status and amounts recognized in the balance sheet: September 30, 1997 1996 (in thousands) Actuarial present value of benefit obligations: Vested benefit obligation.......................................................................... Accumulated benefit obligation ................................................................ Projected benefit obligation...................................................................... Plan assets at fair value, primarily listed stocks, U.S. Government securities and guaranteed insurance contracts ....................................... Plan assets in excess of projected benefit obligation ....................................... Unrecognized net gain, including unrecognized net assets existing at October 1, 1987..................................................... Unrecognized prior service cost ....................................................................... Prepaid pension cost ........................................................................................ $ 23,392 $ 27,988 $ 33,913 $ 53,834 $ 19,921 (8,989) 1,501 $ 12,433 $ 17,376 $ 20,675 $ 23,534 $ 42,609 $ 19,075 (8,430) 1,740 $12,385 25 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 $2,255,000, $1,908,000 and $1,735,000 in 1997, 1996 and 1995, respectively. NOTE 8 ACCRUED LIABILITIES Accrued liabilities consist of the following: September 30, 1997 1996 (in thousands) Accrued royalties payable ................................................................................. Accrued taxes payable - operations.................................................................. Accrued income taxes payable ......................................................................... Accrued interest payable .................................................................................. Accrued workers compensation claims ........................................................... Accrued equipment cost ................................................................................... Other ................................................................................................................. $ 8,687 9,240 9,371 4,056 3,087 598 12,486 $ 47,525 $ 7,709 4,645 4,915 200 2,561 2,197 9,716 $ 31,943 NOTE 9 SUPPLEMENTAL CASH FLOW INFORMATION Years Ended September 30, 1997 1996 1995 Cash payments: Interest paid ............................................................................ Income taxes paid: Continuing operations .......................................................... Discontinued operations....................................................... Noncash investing activity: (in thousands) $ 357 36,347 $ 798 $ 408 15,491 2,563 2,102 2,522 Accrued equipment cost ...................................................... $ 598 $ 2,197 $ 4,016 NOTE 10 RISK FACTORS CONCENTRATIONS OF CREDIT - Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments and trade receivables. The Company places its temporary cash investments with high quality financial institutions and limits the amount of credit exposure to any one financial institution. The Company’s trade receivables are primarily with a variety of companies in the oil and gas industry. Management requires collateral for certain receivables of customers in its natural gas marketing operations. INTERNATIONAL OPERATIONS - International drilling operations are significant contributors to the Company’s revenues and net profit. It is possible that operating results could be affected by the risks of such activities, including economic conditions in the international markets in which the Company operates, political and economic instability, fluctuations in currency exchange rates, changes in international regulatory requirements, international employment issues, and the burden of complying with foreign laws. These risks may adversely affect the Company’s future operating results and financial position. NOTE 11 NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued SFAS No. 128 “Earnings per Share”, effective for financial statement reporting periods ending after December 15, 1997. Management does not believe that earnings per share calculated under this standard would differ significantly from amounts reported in the Consolidated Statements of Income. The Financial Accounting Standards Board has issued two new accounting standards, SFAS No. 130, “Reporting Comprehensive Income”, (SFAS 130) and SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, (SFAS 131) both effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for the reporting and display of comprehensive income. While the Company does have certain comprehensive income items, management does not believe that adopting SFAS 130 will materially change the Company’s financial reporting and disclosures. SFAS 131 establishes standards for reporting financial and descriptive information about a company’s operating segments. Management is currently analyzing the impact of SFAS 131, but does not expect the standard to materially change its current segment reporting disclosures. 26 NOTE 12 SEGMENT INFORMATION The Company operates principally in the contract drilling and oil and gas industries. The contract drilling operations consist of contracting Company-owned drilling equipment primarily to major oil and gas exploration companies. The Company’s primary international areas of operation include Venezuela, Colombia and Ecuador. Oil and gas activities consist of ownership of mineral interests in productive oil and gas leases and undeveloped leases located primarily in Oklahoma, Texas, Kansas and Louisiana. Intersegment sales, which are accounted for in the same manner as sales to unaffiliated customers, are not material. Operating profit is total revenue less operating expenses. In computing operating profit, the following items have not been considered: equity in income of affiliate; income from investments; general corporate expenses; interest expense; and domestic and foreign income taxes. Identifiable assets by segment are those assets that are used in the Company’s operations in each segment. Corporate assets are principally cash and cash equivalents, short-term investments and investments in marketable securities. Revenues from one company doing business with the contract drilling segment accounted for approximately 17 percent, 19 percent, and 18 percent of the total consolidated revenues during the years ended September 30, 1997, 1996 and 1995, respectively. Collectively, revenues from three companies controlled by the Venezuelan government accounted for approximately 12 percent, 12.8 percent and 13.4 percent of total consolidated revenues for the years ended September 30, 1997, 1996, and 1995, respectively. Summarized revenues and operating profit by industry segment for the years ended September 30, 1997, 1996 and 1995 are located on page 9. Additional financial information by industry segment is as follows: Years Ended September 30, 1997 1996 1995 Net Income (loss): Contract Drilling - Domestic ................................................. Contract Drilling - International ............................................ Exploration and Production .................................................. Natural Gas Marketing ......................................................... Real Estate Division ............................................................. Other .................................................................................... Equity in income of affiliate .................................................. $ Income from Continuing Operations ................................ Discontinued operations .......................................................... Net Income .............................................................................. Identifiable assets: Contract drilling - Domestic .................................................. Contract drilling - International ............................................. Exploration and Production .................................................. Natural Gas Marketing ......................................................... Real Estate Division ............................................................. Corporate and other............................................................. Discontinued operations....................................................... 15,508 26,848 35,719 2,172 3,448 (1,791) 2,282 84,186 $ 84,186 $ 257,505 210,976 152,892 18,884 23,310 370,028 (in thousands) $ 6,796 17,693 17,335 2,247 3,121 (3,452) 1,686 45,426 27,140 $ 72,566 $169,363 213,171 141,058 15,602 23,628 259,092 $1,033,595 $821,914 Depreciation, depletion and amortization: Contract drilling - Domestic .................................................. Contract drilling - International ............................................. Exploration and Production .................................................. Natural Gas Marketing ......................................................... Real Estate Division ............................................................. Corporate and other............................................................. Continuing operations...................................................... Discontinued operations .................................................. Capital expenditures: Contract drilling - Domestic .................................................. Contract drilling - International ............................................. Exploration and Production .................................................. Natural Gas Marketing ......................................................... Real Estate Division ............................................................. Corporate and other............................................................. Continuing operations...................................................... Discontinued operations .................................................. $ 17,916 26,458 24,627 258 1,412 1,020 71,691 $ 71,691 $ 95,277 16,900 41,782 3,170 1,161 1,288 159,578 $ 159,578 $ 13,879 22,120 20,299 725 1,455 964 59,442 754 $ 60,196 $ 57,004 24,801 24,320 435 776 830 108,166 1,581 $109,747 $ 4,506 12,106 (13,906) 1,230 1,324 (558) 1,086 5,788 3,963 $ 9,751 $138,359 188,587 142,474 10,192 24,380 196,233 6,836 $707,061 $ 12,111 19,557 39,895 298 3,623 959 76,443 672 $ 77,115 $ 32,503 55,044 20,956 252 907 1,255 110,917 859 $111,776 27 NOTE 13 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, 1997 1996 1995 Revenues ............................................................................ Production costs .................................................................. Exploration expense and valuation provisions ....................... Depreciation, depletion and amortization .............................. Income tax expense (benefit)................................................ Total cost and expenses.................................................... Results of operations (excluding corporate overhead $111,512 21,750 9,943 24,628 19,327 75,648 (in thousands) $ 76,643 20,080 9,931 20,299 9,187 59,497 $ 47,986 18,035 14,017 39,895 (7,243) 64,704 and interest costs) ............................................................ $ 35,864 $ 17,146 $ (16,718) Capitalized Costs - September 30, 1997 1996 (in thousands) Properties being amortized: Proved properties ................................................................................................. Unproved properties ............................................................................................. Total costs being amortized .............................................................................. Less - Accumulated depreciation, depletion and amortization................................. Net .................................................................................................................... $395,812 14,109 409,921 268,572 $141,349 $392,562 9,242 401,804 269,994 $131,810 Costs Incurred Relating to Oil and Gas Producing Activities - Years Ended September 30, 1997 1996 1995 Property acquisition: Proved ............................................................................. Unproved.......................................................................... Exploration........................................................................... Development........................................................................ Total.............................................................................. $ 47 8,358 9,656 27,808 $ 45,869 (in thousands) $ 256 3,178 9,874 14,131 $ 27,439 $ 1,228 1,565 13,497 9,703 $ 25,993 Estimated Quantities of Proved Oil and Gas Reserves (Unaudited) - Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. The following is an analysis of proved oil and gas reserves as estimated by the Company and reviewed by independent engineers. OIL (Bbls.) GAS (Mmcf) Proved reserves at September 30, 1994 ................................................................... 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, 1995 ................................................................... Revisions of previous estimates ................................................................................ Extensions, discoveries and other additions.............................................................. Production.................................................................................................................. Purchases of reserves-in-place ................................................................................. Sales of reserves-in-place ......................................................................................... 6,710,211 124,361 328,539 (808,058) 310 (26,251) 6,329,112 629,154 298,986 (809,571) 21,912 (1,477) 290,652 5,222 8,775 (26,421) 1,934 (116) 280,046 5,098 21,311 (34,535) 647 (266) 28 OIL (Bbls.) GAS (Mmcf) Proved reserves at September 30, 1996 ................................................................... Revisions of previous estimates ................................................................................ Extensions, discoveries and other additions.............................................................. Production.................................................................................................................. Purchases of reserves-in-place ................................................................................. Sales of reserves-in-place ......................................................................................... 6,468,116 92,863 419,795 (985,633) 120 (189,875) 272,301 6,178 25,762 (40,463) 6 (548) Proved reserves at September 30, 1997 ................................................................... 5,805,386 263,236 Proved developed reserves at September 30, 1995............................................................................................... September 30, 1996............................................................................................... September 30, 1997............................................................................................... 6,270,216 6,441,803 5,787,116 262,319 261,519 256,443 Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves (Unaudited) - The “Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves” (Standardized Measure) is a disclosure requirement under Financial Accounting Standards Board Statement No. 69. The Standardized Measure does not purport to present the fair market value of a company’s proved oil and gas reserves. This would require consideration of expected future economic and operating conditions, which are not taken into account in calculating the Standardized Measure. Under the Standardized Measure, future cash inflows were estimated by applying year-end prices to the estimated future production of year-end proved reserves. Future cash inflows were reduced by estimated future production and development costs based on year-end costs to determine pre-tax cash inflows. Future income taxes were computed by applying the statutory tax rate to the excess of pre-tax cash inflows over the Company’s tax basis in the associated proved oil and gas properties. Tax credits and permanent differences were also considered in the future income tax calculation. Future net cash inflows after income taxes were discounted using a ten percent annual discount rate to arrive at the Standardized Measure. September 30, 1997 1996 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) $656,698 $549,033 (187,672) (134,892) 334,134 (129,099) $205,035 (193,047) (98,158) 257,828 (103,964) $153,864 Changes in Standardized Measure Relating to Proved Oil and Gas Reserves (Unaudited)- Years Ended September 30, 1997 1996 1995 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standardized Measure - End of Year . . . . . . . . . . . . . . . . . . . . . (in thousands) $153,864 $110,934 $124,623 (89,762) 77,789 42,741 (16,570) 27,509 6,146 20,691 (29,397) 2 (1,551) 13,573 $205,035 (56,563) 59,479 29,189 (6,651) 14,050 5,731 14,362 (31,158) 643 (124) 13,972 $153,864 (29,951) (12,917) 8,179 (4,672) 9,703 2,825 16,171 (7,538) 1,202 (51) 3,360 $110,934 29 NOTE 14 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 1997 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . Earnings per share . . . . . . . . . . . . . . . . . . 1996 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations . . . . . Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of discontinued operations . Net income . . . . . . . . . . . . . . . . . . . . . . . . Earnings (loss) per share: Continuing operations . . . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . . Gain on sale of discontinued operations Net income . . . . . . . . . . . . . . . . . . . . . . (in thousands, except per share amounts) 1st Quarter 2nd Quarter 3rd Quarter $118,262 $132,479 $129,812 33,643 20,125 .41 1st Quarter 36,863 22,418 .45 2nd Quarter 37,513 23,648 .47 3rd Quarter $ 88,427 $ 95,213 $101,358 16,971 9,468 1,625 11,093 .19 .04 .23 17,897 9,802 1,225 11,027 .20 .02 .22 23,256 12,650 508 13,158 .26 .01 .27 4th Quarter $137,306 32,954 17,995 .36 4th Quarter $108,257 21,180 13,506 (268) 24,050 37,288 .27 (.01) .49 .75 Gross profit (loss) represents total revenues less operating costs, depreciation, depletion and amortization, dry holes and abandonments, and taxes, other than income taxes. Per share amounts have been restated to reflect the effect of the two-for-one common stock split and distribution (see Note 4). Net income in the fourth quarter of 1997 includes a provision of $6.7 million ($.08 per share after income taxes) for a Federal Energy Regulatory Commission ordered repayment of ad valorem taxes reimbursed to the Company during the period 1983- 1988. The provision includes $2.7 million for ad valorem taxes (reduced revenues) and $4.0 million for interest. Net income in the fourth quarter of 1996 includes the gain from sale of discontinued operations (see Note 6). 30 Report of Independent Auditors HELMERICH & PAYNE, INC. The Board of Directors and Shareholders Helmerich & Payne, Inc. We have audited the accompanying consolidated balance sheets of Helmerich & Payne, Inc. as of September 30, 1997 and 1996, and the related consolidated state- ments of income, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 1997. These financial statements are the responsi- bility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Helmerich & Payne, Inc. at September 30, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, effective July 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets to be Disposed Of”. Tulsa, Oklahoma December 4, 1997 Stock Price Information* Closing Market Price Per Share 1997 1996 QUARTERS HIGH LOW HIGH First .................................................. Second ............................................. Third ................................................. Fourth............................................... $27.56 27.44 29.63 40.00 $21.94 21.00 21.81 29.47 $15.06 17.25 19.13 21.81 LOW $12.25 13.50 16.50 17.38 Dividend Information* QUARTERS Paid Per Share Total Payment 1997 1996 1997 1996 First .................................................. $.065 $.0625 $3,239,007 3,239,892 Second .............................................. .065 3,242,952 .065 Third ................................................. 3,248,275 Fourth................................................ .065 .0625 .0625 .065 $3,095,578 3,100,568 3,104,724 3,229,596 *Restated to reflect the effect of the two-for-one common stock split and distribution (see Note 4). STOCKHOLDERS’ MEETING The annual meeting of stockholders will be held on March 4, 1998. A formal notice of the meet- ing, together with a proxy statement and form of proxy, will be mailed to shareholders on or about January 27, 1998. STOCK EXCHANGE LISTING Helmerich & Payne, Inc. Common Stock is traded on the New York Stock Exchange with the ticker symbol “HP.” The newspaper abbreviation most commonly used for financial reporting is “HelmP.” Options on the Company’s stock are also traded on the New York Stock Exchange. STOCK TRANSFER AGENT AND REGISTRAR As of December 15, 1997, there were 1,467 record holders of Helmerich & Payne, Inc. com- mon stock as listed by the transfer agent’s records. 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 Transfer Agent at the following address: Bank One Trust Company, N.A. Stock Transfer Department P.O. Box 25848, OK1-1096 Oklahoma City, Oklahoma 73125-0848 Telephone: (405) 231-6325 800-395-2662, Extension 6598 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, 1997 1996 1995 REVENUES AND INCOME* Contract Drilling Revenues............................................................... Crude Oil Sales ................................................................................ Natural Gas Sales ............................................................................ Gas Marketing Revenues................................................................. Real Estate Revenues...................................................................... Dividend Income .............................................................................. Other Revenues ............................................................................... Total Revenues††............................................................................. Net Cash Provided by Continuing Operations††.............................. Income from Continuing Operations ................................................ Net Income3 ..................................................................................... 315,327 20,475 87,737 66,306 8,224 5,268 14,522 517,859 165,568 84,186 84,186 244,338 15,378 60,500 57,817 8,076 3,650 3,496 393,255 121,420 45,426 72,566 PER SHARE DATA** Income from Continuing Operations ................................................ Net Income3...................................................................................... Cash Dividends ................................................................................ Shares Outstanding* ........................................................................ 1.69 1.69 .26 50,028 .92 1.47 .2525 49,771 FINANCIAL POSITION 62,837 Net Working Capital* ........................................................................ 1.66 Ratio of Current Assets to Current Liabilities ................................... 323,510 Investments*..................................................................................... Total Assets* .................................................................................... 1,033,595 Long-Term Debt* .............................................................................. Shareholders’ Equity*....................................................................... 780,580 __ CAPITAL EXPENDITURES* Contract Drilling Equipment ............................................................. Wells and Equipment ....................................................................... Real Estate....................................................................................... Other Assets (includes undeveloped leases) ................................... Discontinued Operations .................................................................. Total Capital Outlays ........................................................................ 109,036 33,425 1,095 16,022 __ 159,578 51,803 1.83 229,809 821,914 __ 645,970 79,269 21,142 752 7,003 1,581 109,747 203,325 13,227 33,851 34,729 7,560 3,389 10,640 306,721 84,010 5,788 9,751 .12 .20 .25 49,529 50,038 1.74 156,908 707,061 __ 562,435 80,943 19,384 873 9,717 859 111,776 PROPERTY, PLANT AND EQUIPMENT AT COST* Contract Drilling Equipment ............................................................. Producing Properties ....................................................................... Undeveloped Leases........................................................................ Real Estate....................................................................................... Other ................................................................................................ Discontinued Operations .................................................................. Total Property, Plant and Equipment................................................ 1,160,881 643,619 395,812 14,109 47,682 59,659 __ 568,110 392,562 9,242 46,970 53,547 __ 1,070,431 501,682 384,755 8,051 46,642 55,655 13,937 1,010,722 * 000’s omitted ** Per share data and shares outstanding are restated to reflect the effect of a two-for-one stock split and distribution as discussed in Note 4. †† Chemical operations were sold August 30, 1996 (see note 6). Prior year amounts have been restated to exclude discontinued operations. 3 Includes $13.6 million ($.28 per share) effect of impairment charge for adoption of SFAS No. 121 in 1995 and cumulative effect of change in accounting for income taxes of $4,000,000 ($.08 per share) in 1994. 32 1994 1993 1992 1991 1990 1989 1988 1987 182,781 13,161 45,261 51,874 7,396 3,621 6,058 310,152 74,463 17,108 24,971 149,661 15,392 52,446 63,786 7,620 3,535 8,283 300,723 72,493 22,158 24,550 .35 .51 .2425 49,420 .46 .51 .24 49,275 76,238 2.63 87,414 621,689 __ 524,334 53,752 40,916 902 9,695 618 105,883 444,432 377,371 11,729 47,827 48,612 13,131 943,102 104,085 3.24 84,945 610,935 3,600 508,927 24,101 23,142 436 5,901 629 54,209 418,004 340,176 10,010 47,502 45,085 12,545 873,322 112,833 16,369 38,370 40,410 7,541 4,050 6,646 226,219 60,414 8,973 10,849 .19 .22 .2325 49,152 82,800 3.31 87,780 585,504 8,339 493,286 43,049 21,617 690 16,984 158 82,498 404,155 329,264 12,973 47,286 43,153 11,962 848,793 105,364 17,374 35,628 10,055 7,542 5,285 20,020 201,268 50,006 19,608 21,241 .41 .44 .23 48,976 108,212 4.19 96,471 575,168 5,693 491,133 56,297 34,741 2,104 6,793 2,594 102,529 370,494 312,438 5,552 46,671 36,423 11,838 783,416 90,974 16,058 37,697 10,566 7,636 7,402 56,131 226,464 53,288 45,489 47,562 78,315 14,821 33,013 __ 7,778 9,127 17,371 160,425 65,474 20,715 22,700 75,985 14,001 26,154 __ 7,878 10,069 15,206 149,293 54,959 17,746 20,150 64,718 15,223 17,251 __ 7,561 9,757 34,757 149,267 36,999 20,575 22,016 .94 .98 .22 48,971 .43 .47 .21 48,346 .37 .42 .20 48,331 .43 .46 .19 48,374 146,741 3.72 99,574 582,927 5,648 479,485 18,303 16,489 1,467 5,448 1,153 42,860 324,293 287,248 5,507 44,928 32,135 9,270 703,381 114,357 3.12 130,443 591,229 49,087 443,396 17,901 30,673 878 6,717 815 56,984 323,313 279,768 5,441 48,016 29,716 8,156 694,410 135,275 6.10 133,726 576,473 70,715 430,804 19,110 25,936 3,095 2,496 815 51,452 313,289 251,445 3,305 47,165 27,798 7,370 650,372 135,139 6.68 140,431 571,348 74,732 420,833 13,993 27,402 6,128 2,012 336 49,871 309,865 228,214 4,197 44,070 28,274 6,602 621,222 33 Eleven-Year Operating Review HELMERICH & PAYNE, INC. Years Ended September 30, 1997 1996 1995 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............................................ 38 39 246 2,753 11,192 88 91 41 36 233 2,499 10,724 82 85 PETROLEUM EXPLORATION AND DEVELOPMENT Gross Wells Completed ..................................................................... Net Wells Completed ......................................................................... Net Dry Holes .................................................................................... 100 49.3 9.6 63 35.3 7.3 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 2,700 133 49 5 (thousands of cubic feet daily) ...................................................... Net Gas Wells Owned........................................................................ 110,859 410 2,212 176.9 63.8 12 94,358 378 41 35 212 1,933 9,119 71 84 59 27.4 5.9 2,214 186 64 12 72,387 354 NATURAL GAS ODORANTS AND OTHER CHEMICALS†† Chemicals Sold (pounds)* ................................................................. 9,823 7,670 REAL ESTATE MANAGEMENT Gross Leasable Area (square feet)* .................................................. Percentage Occupancy...................................................................... 1,652 95 1,654 94 1,652 87 TOTAL NUMBER OF EMPLOYEES Helmerich & Payne, Inc. and Subsidiaries† ....................................... 3,627 3,309 3,245 * 000’s omitted. † 1987-1989 include U.S. employees only †† Chemical operations were sold August 30, 1996 (see note 6). Treated as discontinued operations in Financial Statements for all years presented. 34 1994 1993 1992 1991 1990 1989 1988 1987 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 46 25 106 1,301 12,274 47 69 49 20 119 1,316 11,059 50 45 49 20 108 1,350 12,500 44 46 48 18 115 1,284 11,165 45 30 50 19 110 1,182 10,745 39 16 44 15 1.7 42 15.9 4.3 54 17.8 4.3 45 20.2 4.3 36 15.3 3.4 45 15.2 2.8 45 14.6 1.6 18 5.2 .5 2,431 202 71 14 72,953 341 2,399 202 71 14 78,023 307 2,334 220 74 14 75,470 289 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 8,071 7,930 8,452 8,155 8,255 7,702 8,507 8,165 1,652 83 1,656 86 1,656 87 1,664 86 1,664 85 1,669 90 1,670 90 1,595 94 2,787 2,389 1,928 1,758 1,864 1,100 1,156 1,026 35 Directors Officers W. H. Helmerich, III Chairman of the Board Hans Helmerich President and Chief Executive Officer George S. Dotson Vice President, President of Helmerich & Payne International Drilling Co. Douglas E. Fears Vice President and Chief Financial Officer Steven R. Mackey Vice President, Secretary and General Counsel Steven R. Shaw Vice President Exploration & 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 Company Bartlesville, Oklahoma George S. Dotson Vice President President of Helmerich & Payne International Drilling Co. Tulsa, Oklahoma L. F. Rooney, III* Chief Executive Officer Manhattan Construction Company Tulsa, Oklahoma Edward B. Rust, Jr. President and Chief Executive Officer State Farm Insurance Companies Bloomington, Illinois George A. Schaefer Chairman and Chief Executive Officer, Retired Caterpillar Inc. Peoria, Illinois John D. Zeglis President AT&T Basking Ridge, New Jersey *Member, Audit Committee 36 

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