Helmerich & Payne

Helmerich & Payne, Inc.

is the holding Company

H e l m e r i c h & P a y n e , I n c .
for Helmerich & Payne International Drilling Co., an
international drilling contractor with land and offshore
platform operations in the United States, South America, and
Africa. Holdings also include commercial real estate properties
in the Tulsa, Oklahoma, area and an energy-weighted portfolio
of publicly-traded securities valued at approximately $293
million as of September 30, 2005.

F I N A N C I A L H I G H L I G H T S

Operating Revenues

Net Income

Diluted Earnings per Share

Dividends Paid per Share

Capital Expenditures

Total Assets

Years Ended September 30,

2005

2004

(in thousands, except per share amounts)

$ 800,726

127,606

2.45

.33

86,805

1,663,350

$ 589,056

4,359

.09

.3225

90,212

1,406,844

To the Co-owners
of Helmerich & Payne, Inc.:

The Company’s 2005 performance represents an all-time high in our
85-year history in terms of income from continuing operations. We
reached another important milestone with the announcement of our
50th new-build order for FlexRigsT. Seventy-five percent of our fleet
has been built since 1995, and these new rigs will only improve on
that strength.

Our goal can be plainly stated and is consistent with a long-term,
Company-wide resolve: To provide our customers with the most
innovative and advanced rigs in the industry for the purpose of driving
their well costs down. Combined with best in field execution −
performance, safety, and reliability − we believe H&P delivers a
compelling value proposition.

Those satisfied customers, in turn, provide us with unique growth
opportunities and improved shareholder returns. The operators’
willingness to make long-term commitments provides an encouraging
lens on how customers perceive the unusual and potential longevity of
this current cycle. Our financial strength and ample liquidity also
enable us to fund organic growth going forward.

The meaningfulness of that internally generated growth is underscored
by these 50 new-builds, which will increase our total domestic land
fleet by more than 50 percent. Over 70 percent of our U.S. land fleet
will then be comprised of these 100 FlexRigs. That distinctive fleet

TFlexRig is a registered trademark of Helmerich & Payne, Inc.

profile allows us to present our customers an across the board quality
offering and fleet uniformity that I believe is unmatched in the land
drilling industry.

U.S. Land Operations
Compared to last year, the Company had approximately ten additional
rigs working for a full year in 2005, as average utilization increased
from 87 to 94 percent in our U.S. land operations segment. At the
close of 2005, the segment had only one uncommitted rig, and its fleet
was 97 percent utilized. Revenue and operating income increased by
52 percent and 363 percent, respectively, over the prior year. Dayrates
increased substantially in 2005, and they’ve continued to escalate
during the first quarter of 2006.

The Company’s 32 FlexRig3s consistently lead the industry in field
performance and strong pricing. The Company also announced 50
additional new-build orders, each with a three or four-year term
contract. These new rigs represent a 100 percent expansion of our
existing FlexRig fleet and a 56 percent expansion of our U.S. land rig
fleet. Prices for drilling machinery are increasing drastically, and the
Company is fortunate to have 50 FlexRigs in the field today and a
timely start on the next 50. Managing our assembly operation allows
us to better control total cost, delivery schedule, and field performance.
We plan to deliver the first new FlexRig in December and to continue
delivering FlexRigs at a rate of two per month. Our plans are to
increase the production rate to three FlexRigs per month in the spring
and to four FlexRigs per month in the summer of 2006.

U.S. Offshore Operations
Despite a slowdown in recent years, the Gulf of Mexico remains a
critical North American producing basin. Hurricanes Katrina and Rita,
and a year before them, Ivan, caused significant damage to the oil and
gas infrastructure in the Gulf, and this has caused considerable
uncertainty in commodity markets and with future investment plans.
The Company had five rigs active on customers’ offshore platforms at
the close of fiscal 2005, including H&P Rig 201, which was
significantly damaged by Hurricane Katrina. We do not anticipate that
Rig 201 will return to service during 2006.

Revenue increased only slightly in 2005, as rig activity was essentially
unchanged from 2004. Operating income was $17.7 million in 2005,
compared with a loss in 2004, which was due primarily to an asset
impairment charge. Three rigs were mobilized in the last quarter of
2005 and have commenced drilling operations during the first quarter
of 2006. Another rig is committed and is expected to start drilling
operations during the second fiscal quarter of 2006. The two
remaining rigs have been bid-on projects that could begin operations
by the fourth quarter of 2006.

International Operations
At the close of the year, the Company had 12 rigs in Venezuela, eight
in Ecuador, and two each in Argentina, Bolivia, and Colombia. The
Company also has a management contract for a platform rig offshore
Equatorial Guinea, West Africa. Approximately 21 land rigs worked
the full year, compared with 17 rigs in 2004. Accordingly, international
revenue and operating income increased 19 percent and 56 percent,
respectively, for the year. Ecuador and Venezuela continue to be the

most active markets and Colombia and Argentina experienced some
encouraging growth in 2005 as well. Two idle rigs will begin working
in Chile and Argentina during the first quarter of 2006, and two more
rigs will commence operations in Venezuela and Argentina during the
second quarter. In addition to South America, the Company continues
to pursue other international opportunities.

Summary
The progress made in 2005 is a credit to the inspiration, dedication,
and hard work of our employees. I want to thank all of our people for
their effort and also express appreciation to George Dotson, who will
retire March 1, 2006, for over 35 years of invaluable service and
leadership to the Company.

Sincerely,

Hans Helmerich
President

December 7, 2005

Financial & Operating Review

Years Ended September 30,

2005

2004

2003

SUMMARY OF CONSOLIDATED STATEMENTS OF INCOME*†

Operating Revenues
Operating Costs
Depreciation**
General and Administrative Expense
Operating Income (loss)
Interest, Dividend, and Other Income
Income from Investment and Asset Sales
Interest Expense
Income from Continuing Operations
Net Income
Diluted Earnings Per Common Share:
Income from Continuing Operations
Net Income

*$000’s omitted, except per share data
†All data excludes discontinued operations except net income.
**2004 includes an asset impairment of $51,516

SUMMARY FINANCIAL DATA*

Cash**
Working Capital**
Investments
Property, Plant, and Equipment, Net**
Total Assets
Long-term Debt
Shareholders’ Equity
Capital Expenditures
*$000’s omitted
**Excludes discontinued operations

RIG FLEET SUMMARY

Drilling Rigs –

U. S. Land – FlexRigs
U. S. Land – Highly Mobile
U. S. Land – Conventional
U. S. Offshore Platform
International

Total Rig Fleet

Rig Utilization Percentage –
U. S. Land – FlexRigs
U. S. Land – Highly Mobile
U. S. Land – Conventional
U. S. Land – All Rigs
U. S. Offshore Platform
International

$ 800,726
484,231
96,274
41,015
179,206
5,574
40,519
12,642
127,606
127,606

$ 589,056
417,716
145,941
37,661
(12,262)
2,162
30,795
12,695
4,359
4,359

$ 504,223
346,259
82,513
41,003
34,448
2,565
9,218
12,289
17,873
17,873

2.45
2.45

.09
.09

.35
.35

$ 288,752
410,316
178,452
981,965
1,663,350
200,000
1,079,238
86,805

$

65,296
185,427
161,532
998,674
1,406,844
200,000
914,110
90,212

$

38,189
110,848
158,770
1,058,205
1,417,770
200,000
917,251
242,912

50
12
29
11
26
128

100
99
82
94
53
77

48
11
28
11
32
130

99
91
67
87
48
54

43
11
29
12
32
127

97
89
58
81
51
39

2002

2001

2000

1999

1998

1997

1996

1995

$ 523,418
362,133
61,447
36,563
63,275
2,713
26,212
980
53,706
63,517

$ 528,187
331,063
49,532
28,180
119,412
9,876
5,390
1,701
80,467
144,254

$ 383,898
249,318
77,317
23,306
33,957
19,540
14,164
2,730
36,470
82,300

$ 430,475
288,969
70,092
24,629
46,785
2,823
4,786
5,389
32,115
42,788

$ 476,750
321,798
58,187
21,299
75,466
5,899
41,032
336
80,790
101,154

$351,710
227,921
48,291
15,636
59,862
5,779
6,575
34
48,801
84,186

$275,096
185,210
39,592
15,222
35,072
5,381
230
678
25,844
72,566

$227,646
159,073
37,364
14,019
17,190
6,455
6,752
407
18,464
9,751

1.07
1.26

1.58
2.84

.73
1.64

.65
.86

1.60
2.00

.97
1.67

.52
1.46

.38
.20

$

46,883
105,852
150,175
897,445
1,227,313
100,000
895,170
312,064

$ 128,826
223,980
203,271
650,051
1,300,121
50,000
1,026,477
184,668

$ 107,632
179,884
307,425
526,723
1,200,854
50,000
955,703
65,820

$

21,758
82,893
240,891
553,769
1,073,465
50,000
848,109
78,357

$

24,476
49,179
200,400
548,555
1,053,200
50,000
793,148
217,597

$ 27,963
65,802
323,510
392,489
987,432
—
780,580
114,626

$ 16,892
48,128
229,809
329,377
786,351
—
645,970
83,411

$ 19,543
50,038
156,908
286,678
707,061
—
562,435
89,709

26
11
29
12
33
111

96
97
70
84
83
51

13
11
25
10
37
96

100
89
99
97
98
56

6
10
22
10
40
88

99
95
77
85
94
47

6
11
23
10
39
89

79
90
61
69
95
53

6
7
23
10
44
90

100
100
92
94
99
88

—
7
22
9
39
77

—
100
99
99
63
91

—
7
23
11
36
77

—
87
88
88
70
85

—
8
22
11
35
76

—
76
72
73
66
84

Helmerich & Payne, Inc.

F O R M 1 0 - K , 2 0 0 5

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

F O R M 1 0 - K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005 OR

[

] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM

TO

COMMISSION FILE NUMBER 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization)

73-0679879
(I.R.S. employer
identification no.)

1437 S. BOULDER AVE., SUITE 1400, TULSA, OKLAHOMA 74119-3623

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code (918) 742-5531

Securities registered pursuant to Section 12(b) of the Act:

TITLE OF EACH CLASS

NAME OF EXCHANGE ON WHICH REGISTERED

Common Stock ($0.10 par value)

New York Stock Exchange

Common Stock Purchase Rights

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

At March 31, 2005, the aggregate market value of the voting stock held by non-affiliates was $1,945,419,202.

Number of shares of common stock outstanding at December 2, 2005: 52,011,465.

D O C U M E N T S I N C O R P O R AT E D B Y R E F E R E N C E
Certain portions of the following documents have been incorporated by reference into this Form 10-K as indicated:

Documents

(1) Annual Report to Stockholders for the fiscal year
ended September 30, 2005

(2) Proxy Statement for Annual Meeting of Stockholders
to be held March 1, 2006

10-K Parts

Parts I and II

Part III

D I S C L O S U R E R E G A R D I N G F O R W A R D - L O O K I N G S T A T E M E N T S

THIS REPORT INCLUDES “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE SECURITIES ACT OF 1933,

AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN

STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT, INCLUDING, WITHOUT LIMITATION, STATEMENTS

REGARDING THE REGISTRANT’S FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED COSTS

AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS.

IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING

TERMINOLOGY SUCH AS “MAY”, “WILL”, “EXPECT”, “INTEND”, “ESTIMATE”, “ANTICIPATE”, “BELIEVE”, OR “CONTINUE” OR

THE NEGATIVE THEREOF OR SIMILAR TERMINOLOGY. ALTHOUGH THE REGISTRANT BELIEVES THAT THE EXPECTATIONS

REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH

EXPECTATIONS WILL PROVE TO BE CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO

DIFFER MATERIALLY FROM THE REGISTRANT’S EXPECTATIONS ARE DISCLOSED IN THIS REPORT UNDER THE CAPTION

“RISK FACTORS” BEGINNING ON PAGE 7, AS WELL AS IN MANAGEMENT’S DISCUSSION & ANALYSIS OF RESULTS OF

OPERATIONS AND FINANCIAL CONDITION ON PAGES 32 THROUGH 56 OF THE COMPANY’S ANNUAL REPORT. ALL

SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE REGISTRANT, OR PERSONS

ACTING ON ITS BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH CAUTIONARY STATEMENTS. THE

REGISTRANT ASSUMES NO DUTY TO UPDATE OR REVISE ITS FORWARD-LOOKING STATEMENTS BASED ON CHANGES

IN INTERNAL ESTIMATES OR EXPECTATIONS OR OTHERWISE.

PART I

I T E M 1 . B U S I N E S S

Helmerich & Payne, Inc. (the “Company”), was incorporated under the laws of the State of Delaware on February 3,
1940, and is successor to a business originally organized in 1920. The Company is primarily engaged in contract
drilling of oil and gas wells for others. The contract drilling business accounts for almost all of the Company’s
operating revenues. The Company is also engaged in the ownership, development, and operation of commercial
real estate.

The Company is organized into two separate operating entities, contract drilling and real estate. Both businesses
operate independently of the other through wholly owned subsidiaries. Operating decentralization is balanced by
a centralized finance division, which handles all accounting, information technology, budgeting, insurance, cash
management, and related activities.

The Company’s contract drilling business is composed of three business segments: U.S. land drilling, U.S. offshore
platform drilling and international drilling. The Company’s U.S. land drilling is conducted primarily in Oklahoma,
Texas, Wyoming, Colorado, and Louisiana, and offshore from platforms in the Gulf of Mexico and California.
The Company also operated in seven international locations during fiscal 2005: Venezuela, Ecuador, Colombia,
Argentina, Bolivia, Equatorial Guinea, and Hungary. In addition, the Company provided drilling consulting services
for one customer in Russia.

The Company’s real estate investments are located in Tulsa, Oklahoma, where the Company maintains its executive offices.

Prior to October 1, 2002, the Company was engaged in the exploration, production and sale of crude oil and
natural gas business (“exploration and production business”). During fiscal 2002, the Company transferred the
assets and liabilities of its exploration and production business to its wholly owned subsidiary, Cimarex Energy Co.
On September 30, 2002, the Company distributed the common stock of Cimarex Energy Co. to the Company’s
stockholders and completed a merger of Key Production Company, Inc. with a subsidiary of Cimarex Energy Co.
As a result of this transaction, Cimarex Energy Co. became a separate publicly-traded company that owned and
operated the exploration and production business. The Company does not own any common stock of Cimarex
Energy Co.

C O N T R A C T D R I L L I N G

The Company believes that it is one of the major land and offshore platform drilling contractors in the western
hemisphere. Operating principally in North and South America, the Company specializes in medium to deep drilling
in major oil and gas producing basins of the United States and in drilling for oil and gas in international locations.
In the United States, the Company draws its customers primarily from the major oil companies and the larger
independents. In South America, the Company’s current customers include the Venezuelan state petroleum
company and major international oil companies.

In fiscal 2005, the Company received approximately 59 percent of its consolidated operating revenues from the
Company’s ten largest contract drilling customers. BP plc, ExxonMobil Corporation, and Petroleos de Venezuela
S.A. (respectively, “BP”, “ExxonMobil” and “PDVSA”), including their affiliates, are the Company’s three largest
contract drilling customers. The Company performs drilling services for BP and ExxonMobil on a world-wide basis
and PDVSA in Venezuela. Revenues from drilling services performed for BP, ExxonMobil and PDVSA in fiscal 2005
accounted for approximately 11 percent, 9 percent and 8 percent, respectively, of the Company’s consolidated
operating revenues for the same period.

1

The Company provides drilling rigs, equipment, personnel, and camps on a contract basis. These services are
provided so that the Company’s customers may explore for and develop oil and gas from onshore areas and from
fixed platforms, tension-leg platforms and spars in offshore areas. Each of the drilling rigs consists of engines,
drawworks, a mast, pumps, blowout preventers, a drillstring, and related equipment. The intended well depth and
the drilling site conditions are the principal factors that determine the size and type of rig most suitable for a
particular drilling job. A land drilling rig may be moved from location to location without modification to the rig. A
helicopter rig is one that can be disassembled into component part loads of approximately 4,000-20,000 pounds
and transported to remote locations by helicopter, cargo plane, or other means. A platform rig is specifically
designed to perform drilling operations upon a particular platform. While a platform rig may be moved from
its original platform, significant expense is incurred to modify a platform rig for operation on each subsequent
platform. In addition to traditional platform rigs, the Company operates self-moving minimum-space platform
drilling rigs and drilling rigs to be used on tension-leg platforms and spars. The minimum-space rig is designed
to be moved without the use of expensive derrick barges. The tension-leg platforms and spars allow drilling
operations to be conducted in much deeper water than traditional fixed platforms.

During fiscal 1998, the Company put to work a new generation of six highly mobile/depth flexible land drilling rigs
(individually the “FlexRigT”). The FlexRig has been able to significantly reduce average rig move times compared to
similar depth-rated traditional land rigs. In addition, the FlexRig allows a greater depth flexibility of between 8,000
to 18,000 feet and provides greater operating efficiency. The original six rigs were designated as FlexRig1 rigs.
Subsequently, the Company built and completed 12 new FlexRig2 rigs. During fiscal 2001, the Company announced
that it would build an additional 25 new FlexRigs. These new rigs, known as “FlexRig3”, were the next generation
of FlexRigs which incorporated new drilling technology and new environmental and safety design. This new design
included integrated top drive, AC electric drive, hydraulic BOP handling system, hydraulic tubular make-up and
break-out system, split crown and traveling blocks and an enlarged drill floor that enables simultaneous crew
activities. All 25 of these FlexRig3s were completed by June of 2003. Subsequently, the Company constructed
seven more FlexRig3s at an approximate cost of $11.2 million each. Construction of these rigs was completed
by March of 2004. All FlexRigs are available for work in the Company’s U.S. and international drilling operations.

During fiscal 2005 and the first quarter of fiscal 2006, the Company entered into separate drilling contracts with
12 exploration and production companies to build and operate a total of 50 new FlexRigs. Of the 50 FlexRigs, eight
are FlexRig3s and 42 are FlexRig4s (described below). Each of the drilling contracts provides for a minimum fixed
contract term of at least three years, with drilling services to be performed on a daywork contract basis. The
FlexRig3 construction cost is approximately $14 million each and the FlexRig4 cost is approximately $11 million
each. While the Company experienced an approximate 30-day construction schedule delay due to Hurricanes
Katrina and Rita, approximately 30 FlexRigs should be completed during fiscal 2006 and the remainder by the
end of fiscal 2007. This 50 rig new-build project represents the single largest rig construction project in the
Company’s history.

While the new FlexRig3s are similar to the Company’s existing FlexRig3s, the FlexRig4s are designed to efficiently
drill shallower depth wells of between 4,000 and 14,000 feet. The FlexRig4 design includes a trailerized version
and a skidding version, which incorporate new environmental and safety design. This new design includes a pipe
handling system which allows the rig to be operated by a reduced crew and eliminates the need for a casing
stabber in the mast.

While the trailerized version provides for more efficient well site to well site rig moves, the skidding version allows
for drilling of up to 22 wells from a single pad which will result in reduced environmental impact.

2

The Company utilizes a lean manufacturing process in the construction of its FlexRigs. This approach minimizes
the amount of equipment and supplies that must be inventoried. However, after experiencing delays resulting from
Hurricanes Katrina and Rita, the Company will temporarily inventory increased amounts of equipment and supplies
to reduce future delays.

The Company’s drilling contracts are obtained through competitive bidding or as a result of negotiations with
customers, and sometimes cover multi-well and multi-year projects. Each drilling rig operates under a separate
drilling contract. During fiscal 2005, all drilling services were performed on a “daywork” contract basis, under
which the Company charges a fixed rate per day, with the price determined by the location, depth and complexity
of the well to be drilled, operating conditions, the duration of the contract, and the competitive forces of the
market. The Company has previously performed contracts on a combination “footage” and “daywork” basis, under
which the Company charged a fixed rate per foot of hole drilled to a stated depth, usually no deeper than 15,000
feet, and a fixed rate per day for the remainder of the hole. Contracts performed on a “footage” basis involve a
greater element of risk to the contractor than do contracts performed on a “daywork” basis. Also, the Company
has previously accepted “turnkey” contracts under which the Company charges a fixed sum to deliver a hole to a
stated depth and agrees to furnish services such as testing, coring, and casing the hole which are not normally
done on a “footage” basis. “Turnkey” contracts entail varying degrees of risk greater than the usual “footage”
contract. The Company did not accept any “footage” or “turnkey” contracts during fiscal 2005. The Company
believes that under current market conditions “footage” and “turnkey” contract rates do not adequately compensate
contractors for the added risks. The duration of the Company’s drilling contracts are “well-to-well” or for a fixed
term. “Well-to-well” contracts are cancelable at the option of either party upon the completion of drilling at any
one site. Fixed-term contracts customarily provide for termination at the election of the customer, with an “early
termination payment” to be paid to the contractor if a contract is terminated prior to the expiration of the fixed
term. However, under certain limited circumstances such as destruction of a drilling rig or sustained unacceptable
performance, no early termination payment would be paid to the contractor.

Excluding the fixed term contracts covering the 50 FlexRig new-build project, the Company has 33 rigs under fixed
term contracts as of the end of November 2005. While the duration for these current fixed-term contracts are for
six month to three year periods, some fixed-term and well-to-well contracts are expected to be continued for longer
periods than the original terms. However, the contracting parties have no legal obligation to extend the contracts.
Contracts generally contain renewal or extension provisions exercisable at the option of the customer at prices
mutually agreeable to the Company and the customer. In most instances contracts provide for additional payments
for mobilization and demobilization.

U . S . L A N D D R I L L I N G

At the end of September, 2005 and 2004, the Company had 91 and 87, respectively, of its land rigs available for
work in the United States. The total number of rigs owned at the end of the period increased by a net of four rigs,
resulting from six rigs moving back from the Company’s international fleet during fiscal year 2005, and the sale
of two conventional rigs in November of 2004. The Company’s U.S. land operations contributed approximately
66 percent of the Company’s consolidated operating revenues during fiscal 2005, compared with approximately
59 percent of consolidated operating revenues during fiscal 2004 and approximately 54 percent of consolidated
operating revenues during fiscal 2003. Rig utilization in fiscal 2005 was approximately 94 percent, up from
approximately 87 percent in fiscal 2004. The Company’s fleet of FlexRigs and highly mobile rigs maintained an
average utilization of approximately 99 percent during fiscal 2005 while the Company’s conventional rigs had an
average utilization rate of approximately 82 percent. At the close of fiscal 2005, 87 land rigs were working out
of 91 available rigs.

3

U . S . O F F S H O R E P L A T F O R M D R I L L I N G

The Company’s offshore platform operations contributed approximately 11 percent of the Company’s consolidated
operating revenues during fiscal 2005, compared with approximately 14 percent of consolidated operating
revenues during fiscal 2004 and approximately 22 percent of consolidated operating revenues during fiscal 2003.
Rig utilization in fiscal 2005 was approximately 53 percent, up from approximately 48 percent in fiscal 2004. At the
end of this fiscal year, the Company had seven of its 11 offshore platform rigs (excluding Rig 201) under contract
and continued to work under management contracts for two customer-owned rigs. Revenues from drilling services
performed for the Company’s largest offshore platform drilling customer totaled approximately 73 percent of U.S.
offshore platform revenues during fiscal 2005.

The Company’s offshore platform Rig 201 sustained significant damage from Hurricane Katrina. Specific equipment
damage assessment has not been completed. The Company does not anticipate Rig 201 returning to service
during fiscal 2006. The rig was insured at a value that approximated replacement cost. Excluding Rig 201, seven
platform rigs are under contract as of the end of November 2005, and one additional rig is expected to be
contracted for work commencing the second fiscal quarter of 2006.

I N T E R N A T I O N A L D R I L L I N G

General

The Company’s international drilling operations began in 1958 with the acquisition of Sinclair Oil Company’s drilling
rigs in Venezuela. Helmerich & Payne de Venezuela, C.A., a wholly owned subsidiary of the Company, is one of
the leading drilling contractors in Venezuela. Beginning in 1972, with the introduction of its first helicopter rig, the
Company expanded into other Latin American countries.

The Company’s international operations contributed approximately 22 percent of the Company’s consolidated
operating revenues during fiscal 2005, compared with approximately 25 percent of consolidated operating
revenues during fiscal 2004 and approximately 22 percent of consolidated operating revenues during fiscal
2003. Rig utilization in fiscal 2005 was 77 percent, up from 54 percent in fiscal 2004.

Venezuela

Venezuelan operations continue to be a significant part of the Company’s operations. During fiscal 2005, the
Company moved a highly mobile rig to the United States, reducing the rig count to 12 in Venezuela. The Company
worked for the Venezuelan state petroleum company, PDVSA, during fiscal 2005 and revenues from this work
accounted for approximately 8 percent of the Company’s consolidated operating revenues during the fiscal year
and approximately 38 percent of international operating revenues. Revenues generated from all Venezuelan drilling
operations contributed approximately 8 percent of the Company’s consolidated operating revenues during 2005,
compared with approximately 10 percent of consolidated operating revenues during fiscal 2004 and 6 percent of
consolidated operating revenues during 2003. The Company had nine rigs working in Venezuela at the end of
fiscal 2005.

The Company’s rig utilization rate in Venezuela has increased from approximately 65 percent during fiscal 2004
to approximately 72 percent in fiscal 2005. The Company has contracted to return one idle rig back to work
during the second quarter of fiscal 2006. At this time, the Company is unable to predict future fluctuations in its
utilization rates.

4

Ecuador

At the end of fiscal 2005, the Company owned eight rigs in Ecuador. The Company’s utilization rate was
approximately 97 percent during fiscal 2005, up from approximately 74 percent in fiscal 2004. Revenues
generated by Ecuadorian drilling operations contributed approximately 8 percent of the Company’s consolidated
operating revenues during fiscal 2005, as compared with approximately 7 percent of consolidated operating
revenues during fiscal 2004 and approximately 10 percent of consolidated operating revenues during fiscal 2003.
Revenues from drilling services performed for the Company’s largest customer in Ecuador totaled approximately
3 percent of consolidated operating revenues and approximately 13 percent of international operating revenues
during fiscal 2005. The Ecuadorian drilling contracts are primarily with large international oil companies.

Colombia

During fiscal 2005, the Company owned two rigs in Colombia. The Company’s utilization rate in Colombia was
approximately 87 percent during fiscal 2005, up from approximately 13 percent in fiscal 2004. The revenues
generated by Colombian drilling operations contributed approximately 2 percent of the Company’s consolidated
operating revenues in fiscal 2005, as compared with approximately 1 percent of consolidated operating revenues
during fiscal 2004 and fiscal 2003. At the end of fiscal 2005, the Company was operating two rigs in Colombia.

Other Locations

In addition to its operations in Venezuela, Ecuador and Colombia, at the end of fiscal 2005, the Company owned two
rigs in Bolivia, and two rigs in Argentina. During fiscal 2005, one rig was moved to the United States from Hungary.

At the end of November 2005, two rigs were working in Argentina with an additional rig moving to Argentina from
the United States. This rig is under contract and expected to begin work during the second quarter of fiscal 2006.
One rig has moved from Bolivia to Chile and started drilling operations, and one rig is under contract in Bolivia. It is
expected to begin work during the second quarter of fiscal 2006.

During fiscal 2005, the Company continued operations under a management contract for a customer-owned
platform rig located offshore Equatorial Guinea. Also, during the fiscal year, the Company completed a drilling
consulting services contract in Russia. The Company continues to pursue opportunities in Russia.

R E A L E S T A T E O P E R A T I O N S

The Company’s real estate operations are conducted exclusively within the metropolitan area of Tulsa, Oklahoma.
Its major holding is Utica Square Shopping Center, consisting of 15 separate buildings, with parking and other
common facilities covering an area of approximately 30 acres. Utica Square contains approximately 441,588 usable
square feet, composed of retail space of 379,018 usable square feet, office space of 38,785 usable square feet,
storage space of 6,600 usable square feet and common area space of 17,185 usable square feet. The Company’s
real estate operations occupy approximately 4,140 square feet of general office and storage space within the
shopping center. Occupancy in the shopping center was approximately 91 percent in fiscal 2005 and fiscal 2004.

At the end of the 2005 fiscal year, the Company owned 11 of a total of 73 units in The Yorktown, a 16-story luxury
residential condominium with approximately 150,940 square feet of living area located on a six-acre tract adjacent
to Utica Square Shopping Center. Nine of the Company’s units are currently leased.

The Company owns and leases to third parties multi-tenant warehouse space. Three warehouses known as Space
Center, each containing approximately 165,000 square feet of net leasable space, are situated in the southeast
part of Tulsa at the intersection of two major limited-access highways. Present occupancy is approximately
89 percent, which is up from approximately 82 percent one year ago. The increase in occupancy is due to the

5

addition of three new tenants. The Company also owns approximately 1.5 acres of undeveloped land lying adjacent
to such warehouses.

Southpark is an undeveloped tract of land located in a high growth area of southeast Tulsa and is suitable for
mixed commercial and light industrial use. At the end of fiscal 2005, the Company owned approximately 218 acres
in Southpark consisting of approximately 205 acres of undeveloped real estate and approximately 13 acres of
multi-tenant warehouse area. The warehouse area is known as Space Center East and consists of two warehouses,
one containing approximately 90,000 square feet and the other containing approximately 112,500 square feet.
Occupancy increased to approximately 89 percent in 2005 from approximately 82 percent in fiscal 2004 due
to the addition of two new tenants. The Company believes that a high quality office park, with peripheral
commercial, office/warehouse, and hotel sites, is the best development use for the remaining land. The
Company has contracted with a professional engineering and planning firm to prepare a topographic survey
and preliminary site engineering plan to aid in the possible future development of Southpark.

The Company owns a five-building complex called Tandem Business Park. The property is located adjacent to and
east of the Space Center East facility and contains approximately six acres, with approximately 88,084 square
feet of office/warehouse space. Occupancy has increased from approximately 69 percent in 2004 to approximately
76 percent during fiscal 2005 due to the addition of three tenants. The Company also owns a 12-building complex,
consisting of approximately 204,600 square feet of office/warehouse space, called Tulsa Business Park. The
property is located south and east of the Space Center facility, separated by a city street, and contains
approximately 12 acres. During fiscal 2005, occupancy has decreased from approximately 81 percent to
approximately 69 percent due to the loss of one tenant.

The Company owns two service center properties located adjacent to arterial streets in south central Tulsa. The
first, called Maxim Center, consists of one office/warehouse building containing approximately 40,800 square feet
and is located on approximately 2.5 acres. During fiscal 2005, occupancy has decreased to approximately
56 percent from approximately 94 percent due to the loss of one large tenant. The second, called Maxim Place,
consists of one office/warehouse building containing approximately 33,750 square feet and is located on
approximately 2.25 acres. During fiscal 2005, occupancy has increased from approximately 44 percent to
approximately 63 percent with the addition of one new tenant. The Company’s offsite disaster recovery center
occupies approximately 3,517 square feet of office and computer equipment space in this property.

During fiscal 2005, the Company completed the demolition and site reclamation of its former headquarters
building. No development plans for the site are pending.

F I N A N C I A L

Information relating to revenues, total assets and operating income or loss by business segments may be found on
pages 82 through 86 of the Company’s Annual Report.

E M P L O Y E E S

The Company had 3,615 employees within the United States (six of which were part-time employees) and 1,186
employees in international operations as of September 30, 2005.

A V A I L A B L E I N F O R M A T I O N

Information relating to the Company’s internet address and the Company’s SEC filings may be found on page 88 of
the Company’s Annual Report.

6

R I S K F A C T O R S

In addition to the risk factors discussed elsewhere in this Report, the Company cautions that the following “Risk
Factors” could affect its actual results in the future.

1. Competition

Competition in the Contract Drilling Business

The contract drilling business is highly competitive. Competition in contract drilling involves such factors as price,
rig availability, efficiency, condition of equipment, reputation, operating safety, and customer relations. Competition
is primarily on a regional basis and may vary significantly by region at any particular time. Land drilling rigs can be
readily moved from one region to another in response to changes in levels of activity, and an oversupply of rigs in
any region may result, leading to increased price competition.

Although many contracts for drilling services are awarded based solely on price, the Company has been successful
in establishing long-term relationships with certain customers which have allowed the Company to secure drilling
work even though the Company may not have been the lowest bidder for such work. The Company has continued
to attempt to differentiate its services based upon its engineering design expertise, operational efficiency, and
safety and environmental awareness. This strategy is less effective when lower demand for drilling services
intensifies price competition and makes it more difficult or impossible to compete on any basis other than price.
Also, future improvements in operational efficiency and safety by the Company’s competitors could negatively
affect the Company’s ability to differentiate its services.

Competition in the Real Estate Business

The Company has numerous competitors in the multi-tenant leasing business. The size and financial capacity
of these competitors range from one property sole proprietors to large international corporations. The primary
competitive factors include price, location, and configuration of space. The Company’s competitive position is
enhanced by the location of its properties, its financial capability and the long-term ownership of its properties.
However, many competitors have financial resources greater than the Company and have more contemporary
facilities. Also, current economic conditions have encouraged prospective tenants to construct owner-occupied
buildings rather than lease third party space.

2. Operating and Rig Construction Risks

The drilling operations of the Company are subject to the many hazards inherent in the business, including
inclement weather, blowouts and well fires. These hazards could cause personal injury, suspend drilling operations,
seriously damage or destroy the equipment involved, and cause substantial damage to producing formations and
the surrounding areas. The Company’s offshore platform drilling operations are also subject to potentially greater
environmental liability, adverse sea conditions and platform damage or destruction due to collision with aircraft or
marine vessels.

The Company’s new-build rig assembly facility is located near the Houston, Texas ship channel. Also, certain of the
Company’s fabricators and other vendors are located in the Gulf Coast region. Due to their location, these facilities
are exposed to potentially greater hurricane damage.

7

3. Fixed Term Contract Risk

Fixed term drilling contracts customarily provide for termination at the election of the customer, with an “early
termination payment” to be paid to the Company if a contract is terminated prior to the expiration of the fixed
term. However, under certain limited circumstances, such as destruction of a drilling rig or sustained unacceptable
performance by the Company, no early termination payment would be paid to the Company.

4. Indemnification and Insurance Coverage

The Company has insurance coverage for comprehensive general liability, public liability, automobile liability,
worker’s compensation, employer’s liability, and property damage. Generally, deductibles range from $1 million
or $2 million per occurrence, depending on whether a claim occurs inside or outside of the United States. The
Company maintains certain other insurance coverages with $5 million deductibles. Insurance is purchased over
these deductibles to limit the Company’s exposure to catastrophic events. In fiscal 2005, the Company obtained
property insurance coverage for 85 percent of the aggregate estimated replacement cost of its land rigs in excess
of a $1 million deductible. The Company self-insured the remaining 15 percent of such land rig value. No insurance
is carried against loss of earnings or business interruption. The Company is unable to obtain significant amounts of
insurance to cover risks of underground reservoir damage; however, the Company is generally indemnified under its
drilling contracts from this risk.

The Company retains a significant portion of its expected losses under its worker’s compensation, general, and
automobile liability programs. The Company records estimates for incurred outstanding liabilities for unresolved
worker’s compensation, general liability claims and for claims that are incurred but not reported. Estimates are
based on historic experience and statistical methods that the Company believes are reliable. Nonetheless,
insurance estimates include certain assumptions and management judgments regarding the frequency and
severity of claims, claim development, and settlement practices. Unanticipated changes in these factors may
produce materially different amounts of expense that would be reported under these programs.

The majority of the Company’s insurance coverage has been purchased through fiscal 2006. Multiple hurricanes in
the Gulf of Mexico during August and September had a severe impact on the availability and price of the Company’s
rig property insurance coverage for 2006. As a result, the Company was able to place only 85 percent of its rig
property coverage excess of a $1 million per occurrence deductible. In addition, the Company could share in
losses up to a maximum of $5 million should loss levels exceed a set percentage of excess property premium. No
assurance can be given that all or a portion of the Company’s coverage will not be cancelled during fiscal 2006 or
that insurance coverage will continue to be available at rates considered reasonable. No assurance can be given
that the Company’s insurance and indemnification arrangements will adequately protect it against all liabilities that
could result from the hazards of its drilling operations. Incurring a liability for which the Company is not fully insured
or indemnified could materially affect the Company’s results of operations.

5. Availability of Equipment and Supplies

The contract drilling business is highly cyclical. During periods of increased demand for contract drilling services,
delays in delivery and shortages of drilling equipment and supplies can occur. These risks are intensified during
periods when the industry experiences significant new drilling rig construction or refurbishment.

6. Volatility of Oil and Gas Prices

The Company’s operations can be materially affected by low oil and gas prices. The Company believes that any
significant reduction in oil and gas prices could depress the level of exploration and production activity and result in
a corresponding decline in demand for the Company’s services. Worldwide military, political and economic events,

8

including initiatives by the Organization of Petroleum Exporting Countries, may affect both the demand for, and
the supply of, oil and gas. Fluctuations during the last few years in the demand and supply of oil and gas have
contributed to, and are likely to continue to contribute to, price volatility. Any prolonged reduction in demand for
the Company’s services could have a material and adverse effect on the Company.

7. International Uncertainties and Local Laws

International operations are subject to certain political, economic, and other uncertainties not encountered in U.S.
operations, including increased risks of terrorism, kidnapping of employees, expropriation of equipment as well as
expropriation of a particular oil company operator’s property and drilling rights, taxation policies, foreign exchange
restrictions, currency rate fluctuations, and general hazards associated with foreign sovereignty over certain areas in
which operations are conducted. There can be no assurance that there will not be changes in local laws, regulations,
and administrative requirements or the interpretation thereof which could have a material adverse effect on the
profitability of the Company’s operations or on the ability of the Company to continue operations in certain areas.

Because of the impact of local laws, the Company’s future operations in certain areas may be conducted through
entities in which local citizens own interests and through entities (including joint ventures) in which the Company
holds only a minority interest, or pursuant to arrangements under which the Company conducts operations under
contract to local entities. While the Company believes that neither operating through such entities nor pursuant to
such arrangements would have a material adverse effect on the Company’s operations or revenues, there can be
no assurance that the Company will in all cases be able to structure or restructure its operations to conform to
local law (or the administration thereof) on terms acceptable to the Company.

Although the Company attempts to minimize the potential impact of such risks by operating in more than one
geographical area, during fiscal 2005, approximately 22 percent of the Company’s consolidated operating
revenues were generated from the international contract drilling business. Approximately 85 percent of the
international operating revenues were from operations in South America and approximately 84 percent of
South American operating revenues were from Venezuela and Ecuador.

8. Currency Risk

General

Contracts for work in foreign countries generally provide for payment in United States dollars, except for amounts
required to meet local expenses. However, government owned petroleum companies are more frequently requesting
that a greater proportion of these payments be made in local currencies. Based upon current information, the
Company believes that exposure to potential losses from currency devaluation is minimal in Colombia, Ecuador,
Bolivia, and Equatorial Guinea. In those countries, all receivables and payments are currently in U.S. dollars. Cash
balances are kept at a minimum which assists in reducing exposure.

Argentina

In 2002, Argentina suffered a 60 percent devaluation of the peso. As a consequence, the Company secured
agreements with its customers that limited the portion of the accounts receivable that was paid in pesos with the
balance of such accounts receivable paid in U.S. dollars. The Company experienced minimal Argentine currency
losses in fiscal 2005.

9

Venezuela

The Company is exposed to risks of currency devaluation in Venezuela primarily as a result of bolivar receivable
balances and bolivar cash balances. In Venezuela, approximately 40 percent of the Company’s invoice billings are in
U.S. dollars and 60 percent are in the local currency, the bolivar. The significance of this arrangement is that even
though the dollar-based invoices may be paid in bolivares, the Company, historically, has usually been able to
convert the bolivares into U.S. dollars in a timely manner and thus avoid, in large measure, devaluation losses
pertaining to the dollar-based invoices. However, this arrangement is effective only in the absence of exchange
controls. In January 2003, the Venezuelan government put into effect exchange controls that fixed the exchange
rate and also prohibited the Company, as well as other companies, from converting the bolivar into U.S. dollars
through the Central Bank.

As part of the exchange controls regulation, the Venezuelan government provided a mechanism by which
companies could request conversion of bolivares into U.S. dollars. In compliance with such regulations, the
Company, in October of 2003, submitted a request to the Venezuelan government seeking permission to dividend
earnings, which would convert 14 billion bolivares into U.S. dollars. In January 2004, the Venezuelan government
approved the Company’s request to convert bolivar cash balances to U.S. dollars and allowed the remittance of
$8.8 million U.S. dollars as dividends to the U.S. based parent. As a consequence, the Company’s exposure to
currency devaluation was reduced by this amount.

As stated above, the Company is exposed to risks of currency devaluation in Venezuela primarily as a result of
bolivar receivable balances and bolivar cash balances. As a result of a 12 percent devaluation of the bolivar
during fiscal 2005, the Company experienced total devaluation losses of $0.6 million during that same period.

These devaluation losses may not be reflective of the actual potential for future devaluation losses because of
the exchange controls that are currently in place. While the Company is unable to predict future devaluation in
Venezuela, if fiscal 2006 activity levels are similar to fiscal 2005, and if a 10 percent to 20 percent devaluation
were to occur, the Company could experience potential currency devaluation losses ranging from approximately
$1.6 million to $2.9 million.

In late August 2003, the Venezuelan state petroleum company agreed, on a prospective basis, to pay a portion of
the Company’s dollar-based invoices in U.S. dollars. Were this agreement to end, the Company would again receive
these payments in bolivares and thus increase bolivar cash balances and exposure to devaluation.

On September 28, 2005, the Company made application with the Venezuelan government requesting the approval
to convert bolivar cash balances to U.S. dollars. Upon approval from the Venezuelan government, the Company’s
Venezuelan subsidiary will remit those dollars as a dividend to its U.S. based parent, thus reducing the Company’s
exposure to currency devaluation.

9. Governmental Instability in Venezuela

Venezuela has a history of governmental instability. In the event that extended labor strikes or turmoil occurs, the
Company could experience shortages in material and supplies necessary to operate some or all of its Venezuelan
drilling rigs.

During the mid-1970s, the Venezuelan government nationalized the exploration and production business. At the
present time it appears the Venezuelan government will not nationalize the contract drilling business. Any such
nationalization could result in the Company’s loss of all or a portion of its assets and business in Venezuela.

10

10. Government Regulation and Environmental Risks

Many aspects of the Company’s operations are subject to government regulation, including those relating to drilling
practices and methods and the level of taxation. In addition, the United States and various other countries have
environmental regulations which affect drilling operations. Drilling contractors may be liable for damages resulting
from pollution. Under United States regulations, drilling contractors must establish financial responsibility to cover
potential liability for pollution of offshore waters. Generally, the Company is indemnified under drilling contracts
from liability arising from pollution, except in certain cases of surface pollution. However, the enforceability of
indemnification provisions in foreign countries may be questionable.

The Company believes that it is in substantial compliance with all legislation and regulations affecting its operations
in the drilling of oil and gas wells and in controlling the discharge of wastes. To date, compliance has not materially
affected the capital expenditures, earnings, or competitive position of the Company, although these measures may
add to the costs of drilling operations. Additional legislation or regulation may reasonably be anticipated, and the
effect thereof on operations cannot be predicted.

11. Interest Rate Risk

The Company has a $200 million intermediate-term unsecured debt obligation with staged maturities from
August 2007 to August 2014, with varying fixed interest rates for each maturity series. There was $200 million
outstanding at September 30, 2005, of which $25 million is due in 2007 and the remaining $175 million is due
2009 through 2014. The average interest rate during the next four years on this debt is 6.4 percent, after which
it increases to 6.5 percent. The fair value of this debt at September 30, 2005 was approximately $215 million.

At September 30, 2005, the Company had in place a committed unsecured line of credit totaling $50 million with
no outstanding borrowings. The Company, as of September 30, 2005, had letters of credit totaling $14 million
outstanding against such line of credit. The Company’s line of credit interest rate is based on LIBOR plus 87.5 to
112.5 basis points or prime minus 175 to 150 basis points based on the Company’s EBITDA to net debt ratio. As
the Company draws on this line of credit, it is subject to the interest rates prevailing during the term at which the
Company had outstanding borrowings. Interest rates could rise for various reasons in the future and increase the
Company’s total interest expense, depending upon the amount borrowed against the credit line.

12. Equity Price Risk

At September 30, 2005, the Company owned stocks in other publicly held companies with a total market value of
$293.4 million. These securities are subject to a wide variety of market-related risks that could substantially reduce
or increase the market value of the Company’s holdings. Except for the Company’s holdings in Atwood Oceanics,
Inc., the portfolio is recorded at fair value on its balance sheet with changes in unrealized after-tax value reflected
in the equity section of its balance sheet. Any reduction in market value would have an impact on the Company’s
debt ratio and financial strength. In October 2004, the Company sold 1,000,000 shares of its position in Atwood
Oceanics, Inc. as part of a 2,175,000 share public offering by Atwood. The sale generated $15.9 million ($0.31
per diluted share) of net income in fiscal 2005. The Company currently owns 2,000,000 shares of Atwood.

13. Reliance on Small Number of Customers

In fiscal 2005, the Company received approximately 59 percent of its consolidated operating revenues from the
Company’s ten largest contract drilling customers and approximately 28 percent of its consolidated operating
revenues from the Company’s three largest customers (including their affiliates). The Company believes that its
relationship with all of these customers is good; however, the loss of one or more of its larger customers would
have a material adverse effect on the Company’s results of operations.

11

14. Key Personnel

The Company utilizes highly skilled personnel in operating and supporting its businesses. In times of high utilization,
it can be difficult to find qualified individuals. Although to date the Company’s operations have not been materially
affected by competition for personnel, an inability to obtain a sufficient number of qualified personnel could
materially impact the Company’s results of operations.

15. Changes in Technologies

Although the Company takes measures to ensure that it uses advanced oil and natural gas drilling technology,
changes in technology or improvements in competitors’ equipment could make the Company’s equipment less
competitive or require significant capital investments to keep its equipment competitive.

16. Concentration of Credit

The concentration of the Company’s customers in the energy industry could cause them to be similarly affected by
changes in industry conditions and, as a result, could impact the Company’s exposure to credit risk. The Company
cannot offer assurances that losses due to uncollectible receivables will be consistent with expectations.

I T E M 2 . P R O P E R T I E S

C O N T R A C T D R I L L I N G

The following table sets forth certain information concerning the Company’s U.S. drilling rigs as of September 30, 2005:

Location

FLEXRIGS

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Wyoming

Wyoming

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Oklahoma

Texas

Texas

Texas

Rig

Optimum Depth

Rig Type

Drawworks:
Horsepower

164

165

166

167

168

169

178

179

180

181

182

183

184

185

186

187

188

189

210

211

212

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

12

SCR (FlexRig1)

SCR (FlexRig1)

SCR (FlexRig1)

SCR (FlexRig1)

SCR (FlexRig1)

SCR (FlexRig1)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

SCR (FlexRig2)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

Location

Texas

Texas

Colorado

Texas

Texas

Texas

Texas

Texas

Louisiana

Oklahoma

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Texas

Colorado

Texas

Colorado

HIGHLY MOBILE RIGS

Oklahoma

Oklahoma

Texas

Wyoming

Texas

Texas

Oklahoma

Texas

Texas

Wyoming

Texas

Wyoming

Rig

213

214

215

216

217

218

219

220

221

222

223

224

225

226

227

228

229

230

231

232

233

234

235

236

237

238

239

240

241

140

158

156

159

141

142

143

145

155

146

147

154

Optimum Depth

Rig Type

Drawworks:
Horsepower

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

AC (FlexRig3)

Mechanical

SCR

Mechanical

Mechanical

Mechanical

Mechanical

Mechanical

Mechanical

SCR

SCR

SCR

SCR

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

900

900

1,200

1,200

1,200

1,200

1,200

1,200

1,200

1,200

1,200

1,500

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

18,000

10,000

10,000

12,000

12,000

14,000

14,000

14,000

14,000

14,000

16,000

16,000

16,000

13

Location

Rig

Optimum Depth

Rig Type

Drawworks:
Horsepower

CONVENTIONAL RIGS

Texas

Oklahoma

Texas

Oklahoma

Texas

Texas

Wyoming

Texas

Texas

Louisiana

Oklahoma

Texas

Oklahoma

Oklahoma

Oklahoma

Texas

Texas

Texas

Texas

Texas

Louisiana

Oklahoma

Texas

Texas

Louisiana

Texas

Louisiana

Louisiana

Texas*

OFFSHORE PLATFORM RIGS

Louisiana

Gulf of Mexico

Gulf of Mexico

Gulf of Mexico

Gulf of Mexico

Louisiana

Louisiana

Gulf of Mexico

Gulf of Mexico

Gulf of Mexico

Gulf of Mexico

110

96

118

119

120

171

172

122

162

79

80

89

92

94

98

173

97

99

137

149

72

73

125

134

136

157

161

163

139

91

203

205

206

100

105

106

107

201

202

204

* Rig moved to Argentina in November, 2005

SCR

SCR

SCR

SCR

SCR

Mechanical

Mechanical

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

Mechanical

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

Conventional

Self-Erecting

Tension-leg

Self-Erecting

Conventional

Conventional

Conventional

Conventional

Tension-leg

Tension-leg

Tension-leg

700

1,000

1,200

1,200

1,200

1,000

1,000

1,700

1,500

2,000

1,500

1,500

1,500

1,500

1,500

2,000

2,000

2,000

2,000

2,000

3,000

3,000

3,000

3,000

3,000

3,000

3,000

3,000

3,000

3,000

2,500

2,000

1,500

3,000

3,000

3,000

3,000

3,000

3,000

3,000

12,000

16,000

16,000

16,000

16,000

16,000

16,000

16,000

18,000

20,000

20,000

20,000

20,000

20,000

20,000

20,000

26,000

26,000

26,000

26,000

30,000

30,000

30,000

30,000

30,000

30,000

30,000

30,000

30,000+

20,000

20,000

20,000

20,000

30,000

30,000

30,000

30,000

30,000

30,000

30,000

14

The following table sets forth information with respect to the utilization of the Company’s U.S. land and offshore
drilling rigs for the periods indicated:

Years ended September 30,

2001

2002

2003

2004

2005

U.S. Land Rigs

Number of rigs owned at end of period
Average rig utilization rate during period(1)

U.S. Offshore Platform Rigs

Number of rigs owned at end of period
Average rig utilization rate during period(1)

49

97%

10

98%

66

84%

12

83%

83

81%

12

51%

87

87%

11

48%

91

94%

11

53%

(1) A rig is considered to be utilized when it is operated or being moved, assembled, or dismantled under contract.

The following table sets forth certain information concerning the Company’s international drilling rigs as of
September 30, 2005:

Location

Argentina

Argentina

Bolivia*

Bolivia

Colombia

Colombia

Ecuador

Ecuador

Ecuador

Ecuador

Ecuador

Ecuador

Ecuador

Ecuador

Venezuela

Venezuela

Venezuela

Venezuela

Venezuela

Venezuela

Venezuela

Venezuela

Venezuela

Venezuela

Venezuela

Venezuela

Rig

175

177

123

151

133

152

22

23

132

176

121

117

138

190

148

160

113

115

116

127

128

129

135

150

174

153

* Rig moved to Chile in the first quarter of fiscal 2006

Optimum Depth

Rig Type

Drawworks:
Horsepower

SCR

SCR

SCR

SCR

SCR

SCR

SCR (Heli Rig)

SCR (Heli Rig)

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

SCR

3,000

3,000

2,100

3,000

3,000

3,000

1,700

1,500

1,500

1,500

1,700

2,500

2,500

2,000

2,000

2,000

3,000

3,000

3,000

3,000

3,000

3,000

3,000

3,000

3,000

3,000

30,000

30,000

26,000

30,000+

30,000

30,000+

18,000

18,000

18,000

18,000

20,000

26,000

26,000

26,000

26,000

26,000

30,000

30,000

30,000

30,000

30,000

30,000

30,000

30,000

30,000

30,000+

15

The following table sets forth information with respect to the utilization of the Company’s international drilling rigs
for the periods indicated:

Years ended September 30,

2001

2002

2003

2004

2005

Number of rigs owned at end of period
Average rig utilization rate during period(1)(2)

37

56%

33

51%

32

39%

32

54%

26

77%

(1) A rig is considered to be utilized when it is operated or being moved, assembled, or dismantled under contract.

(2) Does not include rigs returned to United States for major modifications and upgrades.

R E A L E S T A T E O P E R A T I O N S

See Item 1. BUSINESS, pages 5 through 6 of this Report.

S T O C K P O R T F O L I O

Information required by this item regarding the stock portfolio held by the Company may be found on page 48 of
the Company’s Annual Report under the caption, “Management’s Discussion & Analysis of Results of Operations and
Financial Condition.”

I T E M 3 . L E G A L P R O C E E D I N G S

The Company is subject to various claims that arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions will not materially affect the financial
position, results of operations, or liquidity of the Company. The Company is not a party to, and none of its property
is subject to, any material pending legal proceedings.

I T E M 4 . S U B M I S S I O N O F M A T T E R S T O A V O T E O F

S E C U R I T Y H O L D E R S

None.

I T E M 4 A . E X E C U T I V E O F F I C E R S O F T H E C O M P A N Y

The following table sets forth the names and ages of the Company’s executive officers, together with all positions
and offices held with the Company by such executive officers. Officers are elected to serve until the meeting of the
Board of Directors following the next Annual Meeting of Stockholders and until their successors have been elected
and have qualified or until their earlier resignation or removal.

Douglas E. Fears, 56
Vice President and Chief Financial Officer
since 1988

Steven R. Mackey, 54
Vice President, Secretary and General Counsel
Secretary since 1990; Vice President and
General Counsel since 1988

W. H. Helmerich, III, 82
Chairman of the Board
Director since 1949; Chairman of the Board
since 1960

Hans Helmerich, 47
President and Chief Executive Officer
Director since 1987; President and Chief
Executive Officer since 1989

George S. Dotson, 64
Vice President
Director since 1990; Vice President since 1977
and President and Chief Operating Officer of
Helmerich & Payne International Drilling Co.
since 1977

16

Effective March 1, 2006, following the retirement of George S. Dotson, John W. Lindsay and M. Alan Orr will serve
as Executive Vice Presidents for Helmerich & Payne International Drilling Co. Mr. Lindsay will become Executive
Vice President, U.S. and International Operations, and Mr. Orr will serve as Executive Vice President, Engineering
and Development.

Mr. Lindsay, age 45, joined the Company in 1987 as a drilling engineer. He has since served in various positions
including operations manager for the Company’s Mid-Continent region and division manager of U.S. Land
Operations. In 1997, Mr. Lindsay was appointed to his present position of Vice President, U.S. Land Operations,
for Helmerich & Payne International Drilling Co. Mr. Lindsay graduated in 1986 from the University of Tulsa, where
he earned a Bachelor of Science degree in Petroleum Engineering.

Mr. Orr, age 54, joined the Company in 1975 as a roughneck. In his 30-year career, Mr. Orr has held various
supervisory positions in the Company’s domestic and international operations. In 1992, Mr. Orr was appointed to
his present position as Vice President and Chief Engineer for Helmerich & Payne International Drilling Co. Mr. Orr
graduated from the United States Military Academy at West Point in 1973, with a Bachelor of Science degree in
General Engineering.

17

PART II

I T E M 5 . M A R K E T F O R T H E C O M P A N Y ’ S C O M M O N S T O C K A N D

R E L A T E D S T O C K H O L D E R M A T T E R S A N D I S S U E R
P U R C H A S E S O F E Q U I T Y S E C U R I T I E S

The principal market on which the Company’s common stock is traded is the New York Stock Exchange under the
symbol “HP”. The high and low sale prices per share for the common stock for each quarterly period during the
past two fiscal years as reported in the NYSE-Composite Transaction quotations follow:

Quarter

First

Second

Third

Fourth

2004

High

Low

$28.37

$23.77

30.61

29.55

29.07

27.02

24.25

24.01

2005

High

Low

$34.16

$27.66

41.10

46.92

61.12

31.57

37.38

47.61

The Registrant paid quarterly cash dividends during the past two years as shown in the following table:

Quarter

First

Second

Third

Fourth

Paid per Share
Fiscal

Total Payment
Fiscal

2004

$ .080

.080

.080

.0825

2005

$.0825

.0825

.0825

.0825

2004

2005

$4,011,879

$4,165,965

4,017,204

4,032,709

4,160,221

4,213,594

4,226,835

4,259,852

The Company paid a cash dividend of $0.0825 per share on December 1, 2005, to shareholders of record on
November 15, 2005. Payment of future dividends will depend on earnings and other factors.

As of December 5, 2005, there were 808 record holders of the Company’s common stock as listed by the transfer
agent’s records.

S U M M A R Y O F A L L E X I S T I N G E Q U I T Y C O M P E N S A T I O N P L A N S

The following chart sets forth information concerning the equity compensation plans of the Company as of
September 30, 2005.

EQUITY COMPENSATION PLAN INFORMATION

Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))

Plan Category

Equity compensation plans

(a)

(b)

approved by security holders(1)

3,244,073

Equity compensation plans not

approved by security holders(2)

Total

—

3,244,073

$24.566

—

$24.566

(c)

754,505

—

754,505

(1) Includes the 1990 Stock Option Plan, the 1996 Stock Incentive Plan and the 2000 Stock Incentive Plan of the Company.

(2) The Company does not maintain any equity compensation plans that have not been approved by the stockholders.

18

I T E M 6 . S E L E C T E D F I N A N C I A L D A T A

The following table summarizes selected financial information and should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto and the related Management’s Discussion & Analysis of
Results of Operations and Financial Condition contained on pages 32 through 56 of the Company’s Annual Report.
On September 30, 2002, the Company spun off Cimarex Energy Co. The historical financial data for the business
conducted by Cimarex Energy Co. for 2002 has been reported as discontinued operations which is not included in
the five-year summary of selected financial data.

F I V E - Y E A R S U M M A R Y O F S E L E C T E D F I N A N C I A L D A T A

Operating revenues

Asset Impairment Charge

Other*

Income from continuing operations

Income from continuing operations per

common share:

Basic

Diluted

Total assets

Long-term debt

2001

2002

2003

2004

2005

(in thousands except per share amounts)

$ 528,187 $ 523,418 $ 504,223 $ 589,056 $ 800,726

—

15,266

80,467

—

28,925

53,706

—

11,783

17,873

51,516

32,957

—

46,093

4,359

127,606

1.61

1.58

1.08

1.07

0.36

0.35

0.09

0.09

2.50

2.45

1,300,121

1,227,313

1,417,770

1,406,844

1,663,350

50,000

100,000

200,000

200,000

200,000

Cash dividends declared per common share

0.30

0.31

0.32

0.3225

0.33

* Other includes gain on sale of assets and investment securities, interest income and dividend income.

I T E M 7 . M A N A G E M E N T ’ S D I S C U S S I O N & A N A LY S I S O F R E S U LT S
O F O P E R A T I O N S A N D F I N A N C I A L C O N D I T I O N

Information required by this item may be found on pages 32 through 56 of the Company’s Annual Report under the
caption “Management’s Discussion & Analysis of Results of Operations and Financial Condition.”

I T E M 7 A . Q U A N T I T A T I V E A N D Q U A L I T A T I V E D I S C L O S U R E S A B O U T

M A R K E T R I S K

Information required by this item may be found under the caption “Risk Factors” beginning on page 7 of this Report
and on the following pages of the Company’s Annual Report under Management’s Discussion & Analysis of Results
of Operations and Financial Condition and in Notes to Consolidated Financial Statements:

M A R K E T R I S K
• Foreign Currency Exchange Rate Risk
• Commodity Price Risk
• Interest Rate Risk
• Equity Price Risk

P A G E

53-55

55

55-56

56

19

I T E M 8 . F I N A N C I A L S T A T E M E N T S A N D S U P P L E M E N T A R Y D A T A

Information required by this item may be found on pages 58 through 87 of the Company’s Annual Report.

I T E M 9 . C H A N G E S I N A N D D I S A G R E E M E N T S W I T H A C C O U N T A N T S
O N A C C O U N T I N G A N D F I N A N C I A L D I S C L O S U R E

None.

I T E M 9 A . C O N T R O L S A N D P R O C E D U R E S

(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, the Company’s management, under the
supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer believe that:

• the Company’s disclosure controls and procedures are designed to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms; and

• the Company’s disclosure controls and procedures operate such that important information flows to
appropriate collection and disclosure points in a timely manner and are effective to ensure that such
information is accumulated and communicated to the Company’s management, and made known to the
Company’s Chief Executive Officer and Chief Financial Officer, particularly during the period when this Annual
Report on Form 10-K was prepared, as appropriate to allow timely decision regarding the required disclosure.

(b) Management’s Report of Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company’s internal control over financial reporting includes those policies and
procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions

and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and the Board of
Directors of the Company; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or

disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk

20

that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.

Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer,
conducted its evaluation of the effectiveness of internal controls over financial reporting based on the framework
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. This evaluation included review of the documentation of controls, evaluation of the design
effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation.
Although there are inherent limitations in the effectiveness of any system of internal controls over financial
reporting, based on the Company’s evaluation, management has concluded that the Company’s internal controls
over financial reporting were effective as of September 30, 2005.

The Company’s registered public accounting firm that audited the Company’s financial statements, Ernst & Young
LLP, has issued a report on management’s assessment of the Company’s internal control over financial reporting.
This report appears below.

21

Report of Independent
Registered Public Accounting Firm

Board of Directors and Shareholders of
Helmerich & Payne, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report of

Internal Control over Financial Reporting, that Helmerich & Payne, Inc. maintained effective

internal control over financial reporting as of September 30, 2005, based on criteria established in

Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of

the Treadway Commission (the COSO criteria). Helmerich and Payne, Inc.’s management is

responsible for maintaining effective internal control over financial reporting and for its assessment of

the effectiveness of internal control over financial reporting. Our responsibility is to express an

opinion on management’s assessment and an opinion on the effectiveness of the company’s internal

control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting

Oversight Board (United States). Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether effective internal control over financial reporting was maintained in

all material respects. Our audit included obtaining an understanding of internal control over financial

reporting, evaluating management’s assessment, testing and evaluating the design and operating

effectiveness of internal control, and performing such other procedures as we considered necessary in

the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements

for external purposes in accordance with generally accepted accounting principles. A company’s

internal control over financial reporting includes those policies and procedures that (1) pertain to the

maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company; (2) provide reasonable assurance that transactions are

recorded as necessary to permit preparation of financial statements in accordance with generally

accepted accounting principles, and that receipts and expenditures of the company are being made

only in accordance with authorizations of management and directors of the company; and (3)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,

22

use, or disposition of the company’s assets that could have a material effect on the financial

statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or

detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject

to the risk that controls may become inadequate because of changes in conditions, or that the degree

of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Helmerich & Payne, Inc. maintained effective internal

control over financial reporting as of September 30, 2005, is fairly stated, in all material respects,

based on the COSO criteria. Also, in our opinion, Helmerich & Payne, Inc. maintained, in all

material respects, effective internal control over financial reporting as of September 30, 2005, based

on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting

Oversight Board (United States), the consolidated balance sheets of Helmerich & Payne, Inc. as of

September 30, 2005 and 2004, and the related consolidated statements of income, shareholders’

equity, and cash flows for each of the three years in the period ended September 30, 2005 and our

report dated December 1, 2005, except for Note 15, as to which the date is December 7, 2005,

expressed an unqualified opinion thereon.

E R N S T & Y O U N G L L P

Tulsa, Oklahoma
December 1, 2005

(c) Changes in Internal Controls. There have been no changes in the Company’s internal controls over financial
reporting during the Company’s last fiscal quarter of 2005 that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.

23

I T E M 9 B . O T H E R I N F O R M A T I O N

None.

PART III

I T E M 1 0 . D I R E C T O R S A N D E X E C U T I V E O F F I C E R S O F

T H E C O M P A N Y

Information required under this item with respect to Directors and with respect to delinquent filers pursuant to Item
405 of Regulation S-K is incorporated by reference from the Company’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held March 1, 2006, to be filed with the Commission not later than 120 days after
September 30, 2005. The information required by this Item with respect to the Company’s Executive Officers
appears on pages 16 and 17 of this Report.

The Company has adopted a Code of Ethics for Principal Executive Officers and Senior Financial Officers. The
text of such Code is located on the Company’s website under “Investor Relations – Corporate Governance.”
The Company’s Internet address is www.hpinc.com.

I T E M 1 1 . E X E C U T I V E C O M P E N S A T I O N

This information is incorporated by reference from the Company’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held March 1, 2006, to be filed with the Commission not later than 120 days
after September 30, 2005.

I T E M 1 2 . S E C U R I T Y O W N E R S H I P O F C E R T A I N B E N E F I C I A L

O W N E R S A N D M A N A G E M E N T A N D R E L A T E D
S T O C K H O L D E R M A T T E R S

This information is incorporated by reference from the Company’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held March 1, 2006, to be filed with the Commission not later than 120 days
after September 30, 2005.

I T E M 1 3 . C E R T A I N R E L A T I O N S H I P S A N D R E L A T E D T R A N S A C T I O N S

This information is incorporated by reference from the Company’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held March 1, 2006, to be filed with the Commission not later than 120 days
after September 30, 2005.

I T E M 1 4 . P R I N C I P A L A C C O U N T A N T F E E S A N D S E R V I C E S

This information is incorporated by reference from the Company’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held March 1, 2006, to be filed with the Commission not later than 120 days
after September 30, 2005.

24

PART IV

I T E M 1 5 . E X H I B I T S A N D F I N A N C I A L S T A T E M E N T S C H E D U L E S

a) 1. Financial Statements: The following appear in the Company’s Annual Report on the pages indicated below and

are incorporated herein by reference:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at September 30, 2005 and 2004

Consolidated Statements of Income for the Years Ended

September 30, 2005, 2004 and 2003

Consolidated Statements of Shareholders’ Equity for the Years Ended

September 30, 2005, 2004 and 2003

Consolidated Statements of Cash Flows for the Years Ended

September 30, 2005, 2004 and 2003

Notes to Consolidated Financial Statements

57

58

59-

60

61

62

63-87

2. Financial Statement Schedules: All schedules are omitted as inapplicable or because the required information is

contained in the financial statements or included in the notes thereto.

3. Exhibits. The following documents are included as exhibits to this Annual Report. Exhibits incorporated by
reference or which are otherwise not included herein are available free of charge upon written request.

3.1 Restated Certificate of Incorporation and Amendment to Restated Certificate of Incorporation of the Company
are incorporated herein by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K to the Securities
and Exchange Commission for fiscal 1996, SEC File No. 001-04221.

3.2 Amended and Restated By-Laws of the Company are incorporated herein by reference to Exhibit 3.2 of the
Company’s Quarterly Report on Form 10-Q to the Securities and Exchange Commission for the quarter ended
March 31, 2002, SEC File No. 001-04221.

4.1 Rights Agreement dated as of January 8, 1996, between the Company and The Liberty National Bank and
Trust Company of Oklahoma City, N.A. is incorporated herein by reference to the Company’s Form 8-A, dated
January 18, 1996, SEC File No. 001-04221.

4.2 Amendment No. 1 to Rights Agreement dated December 8, 2005, between the Company and UMB Bank, N.A.
is incorporated herein by reference to Exhibit 4 of the Company’s Form 8-K filed on December 12, 2005.

*10.1 Consulting Services Agreement between W. H. Helmerich, III, and the Company effective January 1, 1990,
is incorporated herein by reference to Exhibit 10.3 of the Company’s Annual Report on Form 10-K to the Securities
and Exchange Commission for fiscal 1996, SEC File No. 001-04221.

*10.2 Supplemental Retirement Income Plan for Salaried Employees of Helmerich & Payne, Inc. is incorporated
herein by reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K to the Securities and Exchange
Commission for fiscal 1996, SEC File No. 001-04221.

*10.3 Helmerich & Payne, Inc. 1990 Stock Option Plan is incorporated herein by reference to Exhibit 10.7 of the
Company’s Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 1996, SEC File
No. 001-04221.

*10.4 Form of Nonqualified Stock Option Agreement for the 1990 Stock Option Plan is incorporated by reference
to Exhibit 99.2 to the Company’s Registration Statement No. 33-55239 on Form S-8, dated August 26, 1994.

25

*10.5 Supplemental Savings Plan for Salaried Employees of Helmerich and Payne, Inc. is incorporated herein
by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K to the Securities and Exchange
Commission for fiscal 1999, SEC File No. 001-04221.

*10.6 Helmerich & Payne, Inc. 1996 Stock Incentive Plan is incorporated herein by reference to Exhibit 99.1 to
the Company’s Registration Statement No. 333-34939 on Form S-8 dated September 4, 1997.

*10.7 Form of Nonqualified Stock Option Agreement for the Helmerich & Payne, Inc. 1996 Stock Incentive Plan is
incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement No. 333-34939 on Form S-8
dated September 4, 1997.

*10.8 Form of Restricted Stock Agreement for the Helmerich & Payne, Inc. 1996 Stock Incentive Plan is
incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K to the Securities and
Exchange Commission for fiscal 1997, SEC File No. 001-04221.

*10.9 Helmerich & Payne, Inc. 2000 Stock Incentive Plan is incorporated herein by reference to Exhibit 99.1 to
the Company’s Registration Statement No. 333-63124 on Form S-8 dated June 15, 2001.

*10.10 Form of Agreements for Helmerich & Payne, Inc. 2000 Stock Incentive Plan being (i) Restricted Stock
Award Agreement, (ii) Incentive Stock Option Agreement and (iii) Nonqualified Stock Option Agreement are
incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement No. 333-63124 on Form S-8
dated June 15, 2001.

*10.11 Form of Director Nonqualified Stock Option Agreement for the 2000 Helmerich & Payne, Inc. Stock
Incentive Plan is incorporated herein by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q
to the Securities and Exchange Commission for the quarter ended June 30, 2002, SEC File No. 001-04221.

*10.12 Form of Change of Control Agreement for Helmerich & Payne, Inc. is incorporated herein by reference to
Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q to the Securities and Exchange Commission for the
quarter ended June 30, 2002, SEC File No. 001-04221.

10.13 Credit Agreement, dated as of July 16, 2002, among Helmerich & Payne International Drilling Co.,
Helmerich & Payne, Inc., the several lenders from time to time party thereto, and Bank of Oklahoma, N.A.
is incorporated herein by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q to the
Securities and Exchange Commission for the quarter ended June 30, 2002, SEC File No. 001-04221.

10.14 First Amendment to Credit Agreement dated July 15, 2003, among Helmerich & Payne, Inc., Helmerich &
Payne International Drilling Co., and Bank of Oklahoma, N.A.

10.15 Second Amendment to Credit Agreement dated May 4, 2004, among Helmerich & Payne, Inc., Helmerich &
Payne International Drilling Co., and Bank of Oklahoma, N.A.

10.16 Third Amendment to Credit Agreement dated July 13, 2004, among Helmerich & Payne, Inc., Helmerich &
Payne International Drilling Co., and Bank of Oklahoma, N.A.

10.17 Fourth Amendment to Credit Agreement dated July 12, 2005, among Helmerich & Payne, Inc., Helmerich &
Payne International Drilling Co., and Bank of Oklahoma, N.A. is incorporated herein by reference to Exhibit 10.1 of
the Company’s Form 8-K filed on July 13, 2005, SEC File No. 001-04221.

10.18 Note Purchase Agreement dated as of August 15, 2002, among Helmerich & Payne International Drilling
Co., Helmerich & Payne, Inc. and various insurance companies is incorporated herein by reference to Exhibit 10.20
of the Company’s Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal 2002, SEC
File No. 001-04221.

26

10.19 Office Lease dated May 30, 2003, between K/B Fund IV and Helmerich & Payne, Inc. is incorporated herein
by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K to the Securities and Exchange
Commission for fiscal 2003, SEC File No. 001-04221.

*10.20 Helmerich & Payne, Inc. Director Deferred Compensation Plan is incorporated herein by reference to
Exhibit 10.1 of the Company’s Form 8-K filed on September 9, 2004.

10.21 Shareholders Agreement and Registration Rights Agreement dated July 19, 2004 between Helmerich &
Payne International Drilling Co. and Atwood Oceanics, Inc. is incorporated herein by reference to Exhibit 1.1 of
the Company’s Amended Schedule 13D filed on July 21, 2004.

10.22 Underwriting Agreement dated October 13, 2004, between Helmerich & Payne International Drilling Co.
and various underwriters is incorporated herein by reference to Exhibit 1.1 of the Company’s Form 8-K filed on
October 14, 2004.

*10.23 Amended and restated Helmerich & Payne, Inc. Annual Bonus Plan for Executive Officers, together with
fiscal 2005 Executive Officer Compensation, is incorporated herein by reference to Exhibit 10.1 of the Company’s
Form 8-K filed on December 9, 2005.

13. The Company’s Annual Report to Shareholders for fiscal 2005.

21. List of Subsidiaries of the Company.

23.1 Consent of Independent Registered Public Accounting Firm.

31.1 Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32. Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Management or Compensatory Plan or Arrangement.

27

28

C E R T I F I C A T I O N

I, Hans Helmerich, President and Chief Executive Officer of Helmerich & Payne, Inc. (the “Company”), certify that:

1.

2.

3.

4.

I have reviewed this Report on Form 10-K of the Company;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Company as
of, and for, the periods presented in this report;

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial

reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation;

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred
during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting; and

5.

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s Board
of Directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over

financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process,
summarize and report financial data information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant

role in the Company’s internal control over financial reporting.

Date: December 13, 2005

/s/ Hans Helmerich

Hans Helmerich
President and Chief Executive Officer

29

C E R T I F I C A T I O N

I, Douglas E. Fears, Vice President and Chief Financial Officer of Helmerich & Payne, Inc. (the “Company”), certify that:

1.

2.

3.

4.

I have reviewed this report on Form 10-K of the Company;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Company as
of, and for, the periods presented in this report;

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial

reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation;

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred
during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting; and

5.

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s Board
of Directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over

financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process,
summarize and report financial data information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant

role in the Company’s internal control over financial reporting.

Date: December 13, 2005

/s/ Douglas E. Fears

Douglas E. Fears
Vice President and Chief Financial Officer

30

Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Helmerich & Payne, Inc. (the “Company”) on Form 10-K for the period
ending September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), Hans Helmerich, as Chief Executive Officer of the Company, and Douglas E. Fears, as Chief Financial
Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1) The Report fully complies with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of

1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result

of operations of the Company.

/s/ Hans Helmerich
Hans Helmerich
Chief Executive Officer
December 13, 2005

/s/ Douglas E. Fears
Douglas E. Fears
Chief Financial Officer
December 13, 2005

31

Management’s Discussion & Analysis of
Results of Operations and Financial Condition

R I S K F A C T O R S A N D F O R WA R D - L O O K I N G S TAT E M E N T S
The following discussion should be read in conjunction with the
consolidated financial statements and related notes included elsewhere
herein. The Company’s future operating results may be affected by
various trends and factors, which are beyond the Company’s control.
These include, among other factors, fluctuations in oil and natural
gas prices, expiration or termination of drilling contracts, currency
exchange gains and losses, changes in general economic conditions,
rapid or unexpected changes in technologies, risks of foreign
operations, uninsured risks, and uncertain business conditions that
affect the Company’s businesses. Accordingly, past results and trends
should not be used by investors to anticipate future results or trends.

With the exception of historical information, the matters discussed
in Management’s Discussion & Analysis of Results of Operations
and Financial Condition include forward-looking statements. These
forward-looking statements are based on various assumptions. The
Company cautions that, while it believes such assumptions to be
reasonable and makes them in good faith, assumed facts almost
always vary from actual results. The differences between assumed
facts and actual results can be material. The Company is including
this cautionary statement to take advantage of the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995
for any forward-looking statements made by, or on behalf of, the
Company. The factors identified in this cautionary statement and
those factors discussed under Risk Factors beginning on page 7 of the
Company’s Annual Report on Form 10-K are important factors (but
not necessarily all important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement
made by, or on behalf of, the Company. The Company undertakes no

32

duty to update or revise its forward-looking statements based on
changes of internal estimates or expectations or otherwise.

E X E C U T I V E S U M M A R Y
Helmerich & Payne, Inc. is primarily a contract drilling company
which owned and operated a total of 128 drilling rigs at
September 30, 2005. The Company’s contract drilling business
includes the U.S. land rig business in which the Company owned
91 rigs, the U.S. offshore platform rig business in which the Company
owned 11 offshore platform rigs, and the international land rig
business in which the Company owned 26 rigs at year end. Crude oil
and natural gas prices have continued to rise due to the uncertainty
of both commodities. The recent hurricanes in the Gulf of Mexico
contributed to the instability of these markets because of a concern of
a possible shortage of deliverable natural gas to meet the prospective
total demand in the U.S. Because of these dynamics, the overall
demand for drilling rig services has increased in all segments.

R E S U L T S O F O P E R A T I O N S
All per share amounts included in the Results of Operations discussion
are stated on a diluted basis. Helmerich & Payne, Inc.’s net income
for 2005 was $127.6 million ($2.45 per share), compared with $4.4
million ($0.09 per share) for 2004 and $17.9 million ($0.35 per share)
for 2003. Included in 2004 net income was a pre-tax asset impairment
charge (discussed in detail later) of $51.5 million ($31.9 million
after-tax or $0.63 per share). Included in the Company’s net income,
but not related to its operations, were after-tax gains from the sale of
investment securities of $16.4 million ($0.32 per share) in 2005, $14.1
million ($0.28 per share) in 2004, and $3.3 million ($0.07 per share)
in 2003. In addition to income from security sales, the Company

33

recorded net income during 2004 of $1.5 million ($0.03 per share)
from non-monetary investment gains. Also included in net income
is the Company’s portion of income or loss from its equity affiliates,
Atwood Oceanics, Inc. and a 50-50 joint venture with Atwood called
Atwood Oceanics West Tuna Pty. Ltd. (dissolved in 2003). From
equity affiliates, the Company recorded net income of $0.05 per share
in 2005, $0.01 per share in 2004 and a loss of $0.03 per share in
2003. (See Liquidity section of MD&A for discussion of the sale of a
portion of the Company’s Atwood Oceanic stock in October 2004.)

Consolidated operating revenues were $800.7 million in 2005,
$589.1 million in 2004, and $504.2 million in 2003. Over the three-
year period, U.S. land revenues increased due to the addition of
FlexRigs combined with significant increases in dayrates. The average
number of U.S. land rigs available was 90 rigs in 2005, 86 rigs in
2004 and 76 rigs in 2003. U.S. land rig utilizations for the Company
were 94 percent in 2005, 87 percent in 2004 and 81 percent in 2003.
Revenue in the offshore platform business remained steady in 2005
from 2004 after a decline in 2003. International rig revenues increased
from 2003 to 2005, as rig utilizations improved from 39 percent in
2003, 54 percent in 2004 and 77 percent in 2005.

Gains from the sale of investment securities were $27.0 million in
2005, $25.4 million in 2004, and $5.5 million in 2003. Interest
and dividend income fell from $2.5 million in 2003 to $2.0 million
in 2004 due to reduced cash positions, lower interest rates, and a
reduction in the Company’s equity portfolio. In 2005, interest and
dividend income increased to $5.8 million due to increased cash
positions generated from the sale of equity securities, the sale of two
U.S. land rigs and increased cash flow.

34

Direct operating costs in 2005 were $484.2 million or 60 percent
of operating revenues, compared with $417.7 million or 71 percent
of operating revenues in 2004, and $346.3 million or 69 percent of
operating revenues in 2003. The 2005 expense to revenue percentage
decreased from 2004 and 2003 due to higher U.S. land revenue
per day.

Depreciation expense was $96.3 million in 2005, $94.4 million in
2004 and $82.5 million in 2003. Depreciation expense increased over
the three-year period as the Company placed into service 13 new rigs
in 2002, 19 new rigs in 2003, and 5 new rigs in 2004. The Company
anticipates 2006 depreciation expense to increase from 2005 as the rigs
currently under construction are placed into service. (See Liquidity and
Capital Resources.)

Yearly, management performs an analysis of the general industry
market conditions in each drilling segment. Based on this analysis,
management determines if an impairment is required. In 2005
and 2003, no impairment was recorded. In 2004, management
determined that the carrying value of certain offshore rigs exceeded
the estimated undiscounted future cash flows associated with these
assets. Accordingly, a pre-tax asset impairment charge of $51.5 million
was recorded in the fourth quarter of fiscal 2004 to reduce the carrying
value of the assets to their estimated fair value. The fair value of
drilling rigs is determined based on quoted market prices, if available.
Otherwise it is determined based upon estimated discounted future
cash flows and rig utilization. Cash flows are estimated by management
considering factors such as prospective market demand, recent changes
in rig technology and its effect on each rig’s marketability, any cash
investment required to make a rig marketable, suitability of rig size

35

and makeup to existing platforms, and new competitive dynamics due
to lower industry utilization.

General and administrative expenses totaled $41.0 million in 2005,
$37.7 million in 2004, and $41.0 million for 2003. The increase from
2004 to 2005 was the result of increases in employee benefits relating
to medical insurance and 401(k) matching expenses, professional
services associated with Sarbanes-Oxley and employee salaries and
bonuses. The decrease in total general and administrative expenses
from 2003 to 2004 was primarily from a reduction in pension expense
due to a decrease in the benefit accrual, reduced field training expense
as the FlexRig training program was completed, and lower salary and
bonus expense. These reductions were partially offset by increases in
property, casualty and health insurance expenses.

Interest expense was $12.6 million in 2005, $12.7 million in 2004 and
$12.3 million in 2003. The interest expense in each year is primarily
attributable to the $200 million of intermediate debt outstanding.
Included in 2004 and 2003 is interest for short-term borrowings.
Capitalized interest was $.3 million, $.5 million and $1.8 million
in 2005, 2004 and 2003, respectively.

The provision for income taxes totaled $87.5 million in 2005,
$4.4 million in 2004, and $14.6 million in 2003. Effective income
tax rates were 41 percent in 2005, 55 percent in 2004, and 43 percent
in 2003. Effective income tax rates are higher for the Company’s
international operations than for its U.S. operations. As a result,
the aggregate effective rate is higher in years when international
operations make up a higher percentage of financial operating income.
International operating income, as a percent of the Company’s total

36

operating income, was 11 percent in 2005, 31 percent in 2004
(excluding the asset impairment charge from total operating income),
and 14 percent in 2003. (See Note 4 of the Financial Statements for
additional income tax disclosures.)

C O M P A R I S O N O F T H E Y E A R S E N D E D S E P T E M B E R 3 0 , 2 0 0 5 A N D 2 0 0 4

U.S. LAND OPERATIONS

Operating revenues

Direct operating expenses

General and administrative expense

Depreciation
Operating income

Operating Statistics:

Activity days

Average rig revenue per day

Average rig expense per day

Average rig margin per day

Number of owned rigs at end of period

Rig utilization

2005

2004

% Change

(in thousands, except operating statistics)

$527,637

294,164

8,594

60,222
$164,657

30,968

$ 15,941

$ 8,403

$ 7,538

91

94%

$346,015

246,177

7,765

56,528
$ 35,545

27,472

$ 11,635

$ 8,001

$ 3,634

87

87%

52.5%

19.5

10.7

6.5
363.2

12.7%

37.0

5.0

107.4

4.6

8.0

Operating statistics for per day revenue, expense and margin do not include reimbursements of “out-of-pocket” expenses.

The Company’s U.S. land rig operating income increased to
$164.7 million in 2005 from $35.5 million in 2004. During the
fourth quarter of fiscal 2004, the Company began to experience an
improvement in revenue and margin per day due to higher levels of
U.S. land rig activity and higher dayrates. The improvement continued
during 2005, as crude oil and natural gas prices remained at historical
high levels. Rig utilization increased to 94 percent in 2005 from
87 percent in 2004. The increase in utilization is a result of higher
rig activity. Average rig expense per day increased 5 percent as the
energy industry experienced demands on both costs and labor. The
total number of rigs available at September 30, 2005 was 91 compared

37

to 87 rigs at September 30, 2004. The increase is due to six rigs
moving to U.S. land operations from the Company’s international fleet
during 2005 and the sale of two conventional rigs in November 2004.
Depreciation in 2005 increased 6.5 percent from 2004 due to the
increase in available rigs.

During 2005 and subsequent to September 30, 2005, the Company
announced plans to build 50 new FlexRigs. All of the new rigs will
be operated by the Company under minimum fixed contract term
agreements with at least a three-year term. The drilling services will be
performed on a daywork contract basis. The first new FlexRig will be
delivered to the field in December 2005, and thereafter at a rate of two
per month, with delivery expected to increase to four per month by the
fourth quarter of fiscal 2006. As a result of the new FlexRigs, the
Company anticipates depreciation expense to increase in fiscal 2006.

C O M PA R I S O N O F T H E Y E A R S E N D E D S E P T E M B E R 3 0 , 2 0 0 5 A N D 2 0 0 4

U.S. OFFSHORE OPERATIONS

Operating revenues

Direct operating expenses

General and administrative expense

Depreciation

Asset impairment charge
Operating income (loss)

Operating Statistics:

Activity days

Average rig revenue per day

Average rig expense per day

Average rig margin per day

Number of owned rigs at end of period

Rig utilization

2005

$84,921

52,786

3,825

10,602

—
$17,708

2,122

$29,228

$15,967

$13,261

11

53%

2004

% Change

(in thousands, except operating statistics)

$ 84,238

52,987

3,256

12,107

51,516
$(35,628)

2,088

$ 29,070

$ 16,509

$ 12,561

11

48%

.8%

(.4)

17.5

(12.4)

149.7

1.6%

.5

(3.3)

5.6

—

10.4

Operating statistics of per day revenue, expense and margin do not include reimbursements of “out-of-pocket” expenses and
exclude the effects of offshore platform management contracts.

38

Operating income in the Company’s U.S. offshore platform rig
operations increased from a loss of $35.6 million in 2004, to income
of $17.7 million in 2005. The loss in 2004 was due primarily to
the asset impairment charge of $51.5 million. Excluding the asset
impairment charge, operating income would have been $15.9 million
for 2004. Lower depreciation expense in 2005 was a result of the
asset impairment.

Operating income (loss), as reported

Asset impairment charge
Operating income, excluding asset
impairment charge

2005

$17.7

—

$17.7

2004

% Change

(in millions)

(35.6)

51.5

15.9

11.5%

Note: This table is a reconciliation of operating income (loss) for the offshore platform segment for fiscal 2005 and 2004,
which is provided to assist with yearly comparisons.

Operating income in the Company’s U.S. offshore operations,
excluding the asset impairment charge in fiscal 2004, increased
11.5 percent in 2005 from 2004. On September 30, 2004, one of
the Company’s older rigs was written down to its salvage value and
removed from the active rig count. As a result, rig utilization increased
to 53 percent in 2005, from 48 percent in 2004. During the fourth
quarter of fiscal 2005, the Company’s Rig 201 was damaged by
Hurricane Katrina. Fiscal 2005 operating income was negatively
impacted by approximately $.6 million due to the rig being removed
from service during the fourth quarter. The Company does not
anticipate Rig 201 returning to work during fiscal 2006. The rig was
insured at a value that approximated replacement cost and therefore
the Company expects to record a gain resulting from the receipt
of insurance proceeds. Because the damage assessment has not been
completed, the Company is unable to estimate the amount or timing
of the gain.

39

C O M PA R I S O N O F T H E Y E A R S E N D E D S E P T E M B E R 3 0 , 2 0 0 5 A N D 2 0 0 4

INTERNATIONAL OPERATIONS

Operating revenues

Direct operating expenses

General and administrative expense

Depreciation

Operating income

Operating Statistics:

Activity days

Average rig revenue per day

Average rig expense per day

Average rig margin per day

Number of owned rigs at end of period

Rig utilization

2005

2004

% Change

(in thousands, except operating statistics)

$177,480

135,837

2,563

20,107

$ 18,973

7,491

$ 19,332

$ 14,039

$ 5,293

26

77%

$148,788

113,988

2,144

20,530

$ 12,126

6,266

$ 19,580

$ 14,279

$ 5,301

32

54%

19.3%

19.2

19.5

(2.1)

56.5

19.5%

(1.3)

(1.7)

(.2)

(18.8)

42.6

Operating statistics of per day revenue, expense and margin do not include reimbursements of “out-of-pocket” expenses and
exclude the effects of management contracts and currency revaluation expense.

Operating income for the Company’s international operations
increased 56.5 percent from 2004 to 2005 due to higher rig activity.
Rig utilization for international operations averaged 77 percent in
2005, compared with 54 percent in 2004. Operations in Colombia
and Ecuador improved due to increased demand in these countries.
Two deep rigs worked in Colombia at 87 percent activity during 2005,
compared to 13 percent activity during the previous year. Ecuador’s rig
utilization was 97 percent for 2005, with an average of 7.8 rigs worked
during 2005, compared with 74 percent and an average of 5.9 rigs
worked in 2004. Despite the increase in operating income and rig
activity, rig margins for international operations decreased slightly in
2005. The decrease is attributable to higher labor costs, including a
fourth quarter expense due to the Company not having an adequate
reserve for government stipulated deferred compensation payments to
Venezuela rig employees.

40

In Venezuela, the Company had nine deep rigs working for PDVSA
at the end of fiscal 2005. One additional rig is under contract and
will begin operations in the second quarter of fiscal 2006. Two rigs
remain idle in Venezuela. Ecuador and Colombia remain at 100% rig
utilization. Argentina currently has two rigs working and a third rig is
relocating to Northern Argentina from the U.S. land operations and is
expected to begin work during the second quarter of fiscal 2006. Chile
began operations in the first quarter of fiscal 2006. Bolivia has one rig
contracted and is expected to begin work during the second quarter of
fiscal 2006. Operations in Hungary ceased in 2005.

C O M PA R I S O N O F T H E Y E A R S E N D E D S E P T E M B E R 3 0 , 2 0 0 5 A N D 2 0 0 4

REAL ESTATE

Operating revenues

Direct operating expenses

Depreciation
Operating income

2005

$10,688

3,622

2,352
$ 4,714

2004

% Change

(in thousands)

$10,015

4,564

2,253
$ 3,198

6.7%

(20.6)

4.4
47.4

Operating income in the Company’s Real Estate division increased
47.4 percent from 2004 to 2005. Direct operating expenses decreased
in 2005 from 2004 due to reduced building expenses and lower
demolition costs relating to the razing of the Company’s former
headquarters building, which started in 2004, and was completed
in 2005.

41

C O M PA R I S O N O F T H E Y E A R S E N D E D S E P T E M B E R 3 0 , 2 0 0 4 A N D 2 0 0 3

U.S. LAND OPERATIONS

Operating revenues

Direct operating expenses

General and administrative expense

Depreciation
Operating income

Operating Statistics:

Activity days

Average rig revenue per day

Average rig expense per day

Average rig margin per day

Number of owned rigs at end of period

Rig utilization

2004

2003

% Change

(in thousands, except operating statistics)

$346,015

246,177

7,765

56,528
$ 35,545

27,472

$ 11,635

$ 8,001

$ 3,634

87

87%

$273,179

201,398

9,304

44,726
$ 17,751

22,588

$ 11,400

$ 8,222

$ 3,178

83

81%

26.7%

22.2

(16.5)

26.4
100.2

21.6%

2.1

(2.7)

14.3

4.8

7.4

Operating statistics for per day revenue, expense and margin do not include reimbursements of “out-of-pocket” expenses.

The Company’s operating income in its U.S. land rig operations
increased by 100.2 percent from 2003 to 2004. This increase was due
to improved rig utilization experienced by the Company, the increased
number of rigs available during 2004, and the improvement in average
rig margin per day during the year. The improved margins were a
result of slightly increased average dayrates and lower expenses per rig
day experienced during 2004. The lower expense per day in 2004 was
due to the elimination of excess crew overages that occurred in 2003
in connection with placing 19 new rigs into service. During the fourth
quarter of fiscal 2004, the Company began to experience a more
significant improvement in revenue and margin per day due to higher
levels of U.S. land rig activity. The total number of rigs owned at the
end of 2004 as compared to 2003 increased by a net of four rigs,
resulting from five additional FlexRigs being completed during the year
and removing from service one older conventional rig. As a result of
the new rigs put in service, and a full year of depreciation of rigs put

42

in service during 2003, total U.S. land rig depreciation increased
26.4 percent from 2003 to 2004.

C O M PA R I S O N O F T H E Y E A R S E N D E D S E P T E M B E R 3 0 , 2 0 0 4 A N D 2 0 0 3

U.S. OFFSHORE OPERATIONS

Operating revenues

Direct operating expenses

General and administrative expense

Depreciation

Asset impairment charge
Operating income (loss)

Operating Statistics:

Activity days

Average rig revenue per day

Average rig expense per day

Average rig margin per day

Number of owned rigs at end of period

Rig utilization

2004

2003

% Change

(in thousands, except operating statistics)

$ 84,238

52,987

3,256

12,107

51,516
$(35,628)

2,088

$ 29,070

$ 16,509

$ 12,561

11

48%

$112,259

60,589

2,939

12,799

—
$ 35,932

2,233

$ 38,076

$ 17,823

$ 20,253

12

51%

(25.0)%

(12.5)

10.8

(5.4)

(199.2)

(6.5)

(23.7)

(7.4)

(38.0)

(8.3)

(5.9)

Operating statistics of per day revenue, expense and margin do not include reimbursements of “out-of-pocket” expenses and
exclude the effects of offshore platform management contracts.

Operating income in the Company’s U.S. offshore platform rig
operations fell from $35.9 million during 2003 to a loss of $35.6
million in 2004 due primarily to the asset impairment charge of
$51.5 million. Excluding the asset impairment charge, operating
income would have been $15.9 million for 2004 which is a
$20.0 million decline from 2003.

Financial performance during 2004 was hindered by continued softness
in the offshore platform rig market which kept rig utilizations at an
average of 48 percent for 2004. More importantly, total operating
revenues and revenue per day declined due to changes in the nature
of contract terms on several of the Company’s rigs. During 2003,

43

contracts for two of the Company’s newest rigs terminated and
were renegotiated at lower dayrates just prior to the end of the year.
Additionally, two other rigs that were working at full dayrates during
fiscal 2003 were changed to standby status, thereby reducing total
operating revenues and profitability. These specific transactions,
coupled with an overall softening in the market, caused average
rig revenue and margin per day to decline during 2004.

C O M PA R I S O N O F T H E Y E A R S E N D E D S E P T E M B E R 3 0 , 2 0 0 4 A N D 2 0 0 3

INTERNATIONAL OPERATIONS

Operating revenues

Direct operating expenses

General and administrative expense

Depreciation
Operating income

Operating Statistics:

Activity days

Average rig revenue per day

Average rig expense per day

Average rig margin per day

Number of owned rigs at end of period

Rig utilization

2004

2003

% Change

(in thousands, except operating statistics)

$148,788

113,988

2,144

20,530
$ 12,126

6,266

$ 19,580

$ 14,279

$ 5,301

32

54%

$109,517

81,461

3,110

20,092
$ 4,854

4,515

$ 19,538

$ 14,140

$ 5,398

32

39%

35.9%

39.9

(31.1)

2.2
149.8

38.8%

.2

1.0

(1.8)

—

38.5

Operating statistics of per day revenue, expense and margin do not include reimbursements of “out-of-pocket” expenses, the
effects of management contracts, or the effect of currency revaluation expense.

Operating income for the Company’s international operations increased
149.8 percent from 2003 to 2004 due to higher rig activity and lower
general and administrative expense resulting from reduced salary, bonus
and travel expense. Rig activity improved primarily due to increased
demand in the Company’s largest international operation in Venezuela.
Venezuelan operations improved substantially as the government-owned
oil company, PDVSA, increased their spending in an attempt to

44

improve overall production rates following the reduction in production
caused by workers’ strike and attempted coup in Venezuela during
2003. Despite overall improvement of conditions in Venezuela, the
currency there was devalued during the year, resulting in a loss of
$1.9 million for 2004. (See MD&A Section on Foreign Currency
Exchange Rate Risk for more discussion.)

C O M PA R I S O N O F T H E Y E A R S E N D E D S E P T E M B E R 3 0 , 2 0 0 4 A N D 2 0 0 3

REAL ESTATE

Operating revenues

Direct operating expenses

Depreciation
Operating income

2004

$10,015

4,564

2,253
$ 3,198

2003

% Change

(in thousands)

$9,268

2,811

2,535
$3,922

8.1%

62.4

(11.1)
(18.5)

Operating income decreased by 18.5 percent from 2003 to 2004
in the Company’s Real Estate division. Direct operating expenses
increased in 2004 due to demolition costs of over $.8 million relating
to the razing of the Company’s former headquarters building and an
increase in advertising expense. Depreciation in 2003 was higher than
2004 due to the acceleration of depreciation on the razed building.

L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S
The Company’s capital spending for operations was $86.8 million in
2005, $90.2 million in 2004, and $242.9 million in 2003. Net cash
provided from operating activities for those same time periods was
$212.2 million in 2005, $136.6 million in 2004 and $93.1 million
in 2003. In addition to the net cash provided by operating activities,
the Company also generated net proceeds from the sale of portfolio
securities of $46.7 million in 2005, $30.9 million in 2004, and
$18.2 million in 2003. The Company’s 2006 capital spending

45

estimate is approximately $500 million, an increase from the budgeted
$95 million in 2005, due to the construction of new FlexRigs.

During 2003, 19 rigs from the FlexRig3 program were completed
and another five were completed by March, 2004. During 2005
and subsequent to September 30, 2005, the Company announced
contracts to operate eight new FlexRig3s and 42 new FlexRig4s for
12 exploration and production companies. The first rig is scheduled
for completion in December 2005, with the remaining rigs expected
to be delivered at a rate of two per month, with delivery expected
to increase to four per month by the fourth quarter of fiscal 2006.
Projected rig construction is expected to average approximately
$11.0 million to $14.0 million per rig depending on equipment
requirements. Each agreement has at least a three-year commitment by
the operator under a minimum fixed contract. The drilling services will
be performed on a daywork contract basis.

Current cash, investments in short-term money market securities,
and projected cash generated from operating activities are anticipated
to meet the Company’s current estimated capital expenditures and
other expected cash requirements for fiscal 2006.

The Company has $200 million intermediate-term unsecured debt
obligations with staged maturities from August, 2007 to August, 2014.
The annual average interest rate through maturity will be 6.43 percent.
The terms of the debt obligations require the Company to maintain a
minimum ratio of debt to total capitalization.

On September 30, 2005, the Company had a committed unsecured
line of credit totaling $50 million, with no money drawn and letters

46

of credit totaling $14 million outstanding against the line. The line of
credit matures in 2006 and bears interest of LIBOR plus .875 percent
to 1.125 percent or prime minus 1.75 percent to prime minus
1.50 percent depending on certain financial ratios of the Company.
The Company must maintain certain financial ratios including debt
to total capitalization and debt to earnings before interest, taxes,
depreciation, and amortization, and a certain level of tangible
net worth.

Current ratios for September 30, 2005 and 2004 were 5.6 and 4.1,
respectively. The debt to total capitalization ratio was 16 percent and
18 percent at September 30, 2005 and 2004, respectively. Additionally,
the Company manages a portfolio of marketable securities that, at the
close of 2005, had a market value of $293.4 million. The Company’s
investments in Atwood Oceanics, Inc., and Schlumberger, Ltd., made
up almost 93 percent of the portfolio’s market value on September 30,
2005. The value of the portfolio is subject to fluctuation in the market
and may vary considerably over time. Excluding the Company’s equity-
method investments, the portfolio is recorded at fair value on the
Company’s balance sheet for each reporting period. In July 2004,
Atwood Oceanics, Inc., (Atwood) the Company’s equity affiliate, filed
a Registration Statement covering all 3,000,000 shares of Atwood stock
owned by Helmerich & Payne. On October 19, 2004, Atwood and
Helmerich & Payne closed a public offering in which Helmerich &
Payne sold 1,000,000 Atwood shares and received $45.6 million. The
Company now owns 2,000,000 shares or approximately 13.0 percent
of the outstanding shares of Atwood.

47

During 2005, the Company paid a dividend of $0.33 per share, or
a total of $16.9 million, representing the 33rd consecutive year of
dividend increases.

S T O C K P O R T F O L I O H E L D B Y T H E C O M PA N Y

September 30, 2005

Number of Shares

Cost Basis

Market Value

Atwood Oceanics, Inc.

Schlumberger, Ltd.

Other
Total

(in thousands, except share amounts)

2,000,000

1,230,000

$46,533

19,539

11,398
$77,470

$168,420

103,787

21,150
$293,357

M A T E R I A L C O M M I T M E N T S
The Company has no off balance sheet arrangements other than
operating leases. The Company’s contractual obligations as of
September 30, 2005, are summarized in the table below:

Payments Due By Year

Total

2006

2007

2008

2009

2010

After 2010

Long-term debt (a)

Operating leases (b)

$200,000

9,231

Total Contractual Obligations

$209,231

$ —

3,095

$3,095

$25,000

2,470

$27,470

$ —

1,615

$1,615

$25,000

1,569

$26,569

$ —

482

$482

$150,000

—

$150,000

(in thousands)

(a) See Note 3 “Notes Payable and Long-Term Debt” to the Company’s Consolidated Financial Statements.
(b) See Note 13 “Contingent Liabilities and Commitments” to the Company’s Consolidated Financial Statements.

The above table does not include obligations for the Company’s
pension plan, for which the recorded liability at September 30, 2005
is $27.1 million. Based on current information available from plan
actuaries, the Company anticipates contributions of approximately
$2.8 million will be made in 2006. Future contributions beyond
2006 are difficult to estimate due to multiple variables involved.

48

At September 30, 2005, the Company had commitments outstanding
of approximately $96.2 million for the purchase of contract drilling
equipment.

C R I T I C A L A C C O U N T I N G P O L I C I E S A N D E S T I M AT E S
The Company’s consolidated financial statements are impacted by
the accounting policies used and the estimates and assumptions
made by management during their preparation. On an on-going
basis, the Company evaluates the estimates, including those related
to inventories, long-lived assets, and accrued insurance losses. The
estimates are based on historical experience and on various other
assumptions that the Company believes to be reasonable under
the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. The
following is a discussion of the critical accounting policies, which
relate to property, plant and equipment, impairment of long-lived
assets, self-insurance accruals, and revenue recognition. Other
significant accounting policies are summarized in Note 1 in the
notes to the consolidated financial statements.

Property, plant and equipment, including renewals and betterments,
are stated at cost, while maintenance and repairs are expensed as
incurred. Interest costs applicable to the construction of qualifying
assets are capitalized as a component of the cost of such assets.
The Company provides for the depreciation of property, plant and
equipment using the straight-line method over the estimated useful
lives of the assets. Upon retirement or other disposal of fixed assets,
the cost and related accumulated depreciation are removed from

49

the respective accounts and any gains or losses are recorded in
net income.

The Company’s management assesses the potential impairment of
its long-lived assets whenever events or changes in conditions indicate
that the carrying value of an asset may not be recoverable. Changes
that trigger such an assessment may include equipment obsolescence,
changes in the market demand for a specific asset, periods of relatively
low rig utilizations, declining revenue per day, declining cash margin
per day, completion of specific contracts, and/or overall changes in
general market conditions. If a review of the long-lived assets indicates
that the carrying value of certain of these assets is more than the
estimated undiscounted future cash flows, an impairment charge is
made to adjust the carrying value to the estimated fair market value
of the asset. See additional discussion of impairment assumptions,
including determination of fair value, under Results of Operations.
Use of different assumptions could result in an impairment charge
different from that reported.

The Company is self-insured or maintains high deductibles for
certain losses relating to worker’s compensation, general, product,
and auto liabilities. Generally, deductibles range from $1.0 million or
$2.0 million per occurrence depending on whether a claim occurs
inside or outside of the United States. Insurance is also purchased on
rig properties and generally deductibles are $1.0 million per
occurrence. Excess insurance is purchased over these coverages to
limit the Company’s exposure to catastrophic claims, but there can
be no assurance that such coverage will respond or be adequate in all
circumstances. Retained losses are estimated and accrued based upon
our estimates of the aggregate liability for claims incurred, and using

50

the Company’s historical loss experience and estimation methods
that are believed to be reliable. Nonetheless, insurance estimates
include certain assumptions and management judgments regarding
the frequency and severity of claims, claim development, and
settlement practices. Unanticipated changes in these factors may
produce materially different amounts of expense that would be
reported under these programs.

The Company’s pension benefit costs and obligations are dependent
on various actuarial assumptions. The Company makes assumptions
relating to discount rates, rate of compensation increase, and expected
return on plan assets. The Company bases its discount rate assumption
on current yields on AA-rated corporate long-term bonds. The rate of
compensation increase assumption reflects actual experience and future
outlook. The expected return on plan assets is determined based on
historical portfolio results and future expectations of rates of return.
Actual results that differ from estimated assumptions are accumulated
and amortized over the estimated future working life of the plan
participants and could therefore affect expense recognized and
obligations in future periods.

Revenues and costs on daywork contracts are recognized daily as
the work progresses. For certain contracts, lump-sum payments are
received for the mobilization of rigs and other drilling equipment.
Revenues earned, net of direct costs incurred for the mobilization,
are deferred and recognized over the term of the related drilling
contract. Other lump-sum payments received from customers relating
to specific contracts are deferred and amortized to income as services
are performed. Costs incurred to relocate rigs and other drilling

51

equipment to areas in which a contract has not been secured are
expensed as incurred.

N E W A C C O U N T I N G S TA N D A R D
In December, 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123 (revised 2004), “Share-Based Payment”,
which is a revision of FASB Statement No. 123, “Accounting for
Stock-Based Compensation”. Statement 123(R) supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees” and
amends FASB Statement No. 95, “Statement of Cash Flows”. The
statement requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial
statements based on their fair value. The statement is effective at
the beginning of the first interim or annual period beginning after
June 15, 2005, with the SEC allowing for implementation at the
beginning of the first fiscal year beginning after June 15, 2005. The
Company plans to adopt the new standard the first quarter of fiscal
2006, beginning October 1, 2005, under the modified-prospective-
transition method. The Company will recognize compensation cost
for share-based payments to employees based on their grant-date
fair value from the beginning of the fiscal period in which the
recognition provisions are first applied. Measurement and attribution
of compensation cost for awards that were granted but not vested
prior to the date the Company adopts the new standard will be
based on the same estimate of the grant-date fair value and the same
attribution method used previously under Statement 123 for pro
forma disclosure. For those awards that are granted, modified or settled
after the Company adopts the Statement, compensation cost will be
measured and recognized in the financial statements in accordance
with the provision of Statement 123(R). The Company expects to

52

incur additional pre-tax compensation expense of approximately
$1.3 million related to options currently outstanding in the first
quarter of fiscal 2006 as a result of adopting Statement 123(R).
Statement 123(R) also requires that the benefits of tax deductions
in excess of recognized compensation cost be reported as a financing
cash flow, rather than an operating cash flow as required under current
literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after the effective date. The
Company cannot estimate what those amounts will be in the future
because they depend on, among other things, when employees exercise
stock options.

Q UA N T I TAT I V E A N D Q UA L I TAT I V E D I S C L O S U R E S A B O U T M A R K E T R I S K
Foreign Currency Exchange Rate Risk The Company has international
operations in several South American countries, as well as a labor
contract for work in Equatorial Guinea. With the exception of
Venezuela, the Company’s exposure to currency valuation losses is
usually minimal due to the fact that virtually all invoice billings and
receipts in other countries are in U.S. dollars.

The Company is exposed to risks of currency devaluation in Venezuela
primarily as a result of bolivar receivable balances and bolivar cash
balances. In Venezuela, approximately 40 percent of the Company’s
invoice billings to the Venezuelan state oil company, PDVSA, are in
U.S. dollars and 60 percent are in the local currency, the bolivar. In
compliance with applicable regulations the Company on October 1,
2003, submitted a request to the Venezuelan government seeking
permission to convert existing bolivar balances into U.S. dollars. In
January 2004, the Venezuelan government approved the conversion of
bolivar cash balances to U.S. dollars and the remittance of $8.8 million

53

U.S. dollars as dividends by the Company’s Venezuelan subsidiary to
the U.S. based parent. As a consequence, the Company’s exposure to
currency devaluation was reduced by this amount.

As stated above, the Company is exposed to risks of currency
devaluation in Venezuela primarily as a result of bolivar receivable
balances and bolivar cash balances. The exchange rate increased to
2150 bolivares during 2005 from 1920 bolivares at September 30,
2004. As a result of the 12 percent devaluation of the bolivar during
fiscal 2005 (from September 2004 through August 2005), the
Company experienced total devaluation losses of $.6 million during
that same period. This 12 percent devaluation loss may not be
reflective of the actual potential for future devaluation losses because of
the exchange controls that are currently in place. While the Company
is unable to predict future devaluation in Venezuela, if fiscal 2006
activity levels are similar to fiscal 2005 and if a 10 percent to 20
percent devaluation were to occur, the Company could experience
potential currency devaluation losses ranging from approximately
$1.6 million to $2.9 million.

In late August 2003, the Venezuelan state petroleum company agreed,
on a prospective basis, to pay a portion of the Company’s dollar-based
invoices in U.S. dollars. There is no guarantee as to how long this
arrangement will continue. Were this agreement to end, the Company
would revert back to receiving payments in bolivares and thus increase
bolivar cash balances and exposure to devaluation.

On September 28, 2005, the Company made application with the
Venezuelan government requesting the approval to convert bolivar
cash balances to U.S. dollars. Upon approval from the Venezuelan

54

government, the Company’s Venezuelan subsidiary will remit those
dollars as a dividend to its U.S. based parent, thus reducing the
Company’s exposure to currency devaluation.

Commodity Price Risk The demand for contract drilling services is a
result of exploration and production companies spending money to
explore and develop drilling prospects in search for crude oil and
natural gas. Their appetite for such spending is driven by their cash
flow and financial strength, which is very dependent on, among other
things, crude oil and natural gas commodity prices. Crude oil prices
are determined by a number of factors including supply and demand,
worldwide economic conditions, and geopolitical factors. Crude oil
and natural gas prices have been volatile and very difficult to predict.
This difficulty has led many exploration and production companies to
base their capital spending on much more conservative estimates of
commodity prices. As a result, demand for contract drilling services is
not always purely a function of the movement of commodity prices.

Interest Rate Risk The Company’s interest rate risk exposure results
primarily from short-term rates, mainly LIBOR-based on borrowings
from its commercial banks. The Company currently maintains all
of its debt portfolio in fixed-rate debt. Due to the fact that all of the
Company’s debt at year-end has fixed rate interest obligations, there is
no current risk due to interest rate fluctuation.

The following tables provide information as of September 30, 2005
and 2004 about the Company’s interest rate risk sensitive instruments:

55

I N T E R E S T R AT E R I S K A S O F S E P T E M B E R 3 0 , 2 0 0 5 (in thousands)

2006

2007

2008

2009

2010

After
2010

Total

Fair Value
@ 9/30/05

Fixed Rate Debt

— $25,000

— $25,000

— $150,000

$200,000

$215,000

Average Interest Rate

—

5.5%

—

5.9%

—

6.5%

6.4%

I N T E R E S T R AT E R I S K A S O F S E P T E M B E R 3 0 , 2 0 0 4 (in thousands)

2005

2006

2007

2008

2009

After
2009

Total

Fair Value
@ 9/30/04

Fixed Rate Debt

Average Interest Rate

—

—

— $25,000

— $25,000

$150,000

$200,000

$216,400

—

5.5%

—

5.9%

6.5%

6.3%

Equity Price Risk On September 30, 2005, the Company owned stocks
in other publicly held companies with a total market value of $293.4
million. The Company’s investments in Atwood Oceanics, Inc. and
Schlumberger, Ltd. made up almost 93 percent of the portfolio’s
market value at September 30, 2005. Although the Company sold
portions of its positions in Schlumberger in 2004 and Atwood in
the first quarter of fiscal 2005, the Company has no specific plans
to sell additional securities, but may sell additional securities based on
market conditions and other circumstances. These securities are subject
to a wide variety and number of market-related risks that could
substantially reduce or increase the market value of the Company’s
holdings. Except for the Company’s holdings in its equity affiliate,
Atwood Oceanics, Inc., the portfolio is recorded at fair value on its
balance sheet with changes in unrealized after-tax value reflected in
the equity section of its balance sheet. Any reduction in market value
would have an impact on the Company’s debt ratio and financial
strength. The total market value of the portfolio of securities was
$240.7 million at September 30, 2004.

56

Report of Independent
Registered Public Accounting Firm

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, 2005 and 2004, and the related consolidated statements of income, shareholders’

equity, and cash flows for each of the three years in the period ended September 30, 2005. These

financial statements are the responsibility of the Company’s management. Our responsibility is to

express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting

Oversight Board (United States). 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, 2005 and 2004, and

the consolidated results of its operations and its cash flows for each of the three years in the period

ended September 30, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting

Oversight Board (United States), the effectiveness of Helmerich & Payne Inc.’s internal control over

financial reporting as of September 30, 2005, based on criteria established in Internal Control –

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission and our report dated December 1, 2005 expressed an unqualified opinion thereon.

E R N S T & Y O U N G L L P

Tulsa, Oklahoma
December 1, 2005
except for Note 15, as to which the date is
December 7, 2005

57

Consolidated Balance Sheets

ASSETS

CURRENT ASSETS:

September 30,

2005

2004

(in thousands)

Cash and cash equivalents

$ 288,752

$

65,296

Accounts receivable, less reserve of $1,791 in 2005 and $1,265 in 2004

Inventories

Deferred income taxes

Prepaid expenses and other

Total current assets

162,646

21,313

8,765

18,321

499,797

133,262

20,826

4,346

21,600

245,330

INVESTMENTS

178,452

161,532

PROPERTY, PLANT AND EQUIPMENT, at cost:

Contract drilling equipment

Construction in progress

Real estate properties

Other

Less-Accumulated depreciation and amortization

Net property, plant and equipment

OTHER ASSETS

TOTAL ASSETS

The accompanying notes are an integral part of these statements.

1,549,112

1,531,937

34,774

57,489

96,614

1,228

56,307

93,640

1,737,989

1,683,112

756,024

981,965

684,438

998,674

3,136

1,308

$1,663,350

$1,406,844

58

LIABILITIES AND SHAREHOLDERS’ EQUITY

September 30,

2005

2004

(in thousands, except share data)

CURRENT LIABILITIES:

Accounts payable

Accrued liabilities

Total current liabilities

NONCURRENT LIABILITIES:

Long-term notes payable

Deferred income taxes

Other

Total noncurrent liabilities

SHAREHOLDERS’ EQUITY:

Common stock, $.10 par value, 80,000,000 shares authorized,

53,528,952 shares issued

Preferred stock, no par value, 1,000,000 shares authorized,

no shares issued

Additional paid-in capital

Retained earnings

Unearned compensation

Accumulated other comprehensive income

Less treasury stock, 1,594,362 shares in 2005 and

3,083,516 shares in 2004, at cost

Total shareholders’ equity

$

44,854

$

28,012

44,627
89,481

31,891
59,903

200,000

246,975

47,656
494,631

200,000

194,573

38,258
432,831

5,353

5,353

—

112,297

939,380

(134)

47,544

1,104,440

25,202

1,079,238

—

85,466

828,763

—

36,252

955,834

41,724

914,110

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$1,663,350

$1,406,844

The accompanying notes are an integral part of these statements.

59

Consolidated Statements of Income

Years Ended September 30,

2005

2004

2003

OPERATING REVENUES

Drilling – U.S. Land

Drilling – U.S. Offshore

Drilling – International

Real Estate

OPERATING COSTS AND EXPENSES

Operating costs

Depreciation

Asset impairment

General and administrative

Operating income (loss)

Other income (expense)

Interest and dividend income

Interest expense

Gain on sale of investment securities

Income from asset sales

Other

(in thousands, except per share amounts)

$527,637

$346,015

$273,179

84,921

177,480

10,688

800,726

484,231

96,274

—

41,015
621,520

84,238

148,788

10,015

589,056

417,716

94,425

51,516

37,661
601,318

112,259

109,517

9,268

504,223

346,259

82,513

—

41,003
469,775

179,206

(12,262)

34,448

5,809

(12,642)

26,969

13,550

(235)
33,451

1,965

(12,695)

25,418

5,377

197
20,262

8,000

4,365

724

2,467

(12,289)

5,529

3,689

98
(506)

33,942

14,649

(1,420)

Income before income taxes and equity in income (loss) of affiliates

212,657

Income tax provision

Equity in income (loss) of affiliates net of income taxes

87,463

2,412

NET INCOME

Earnings per common share:

Basic

Diluted

Average common shares outstanding (in thousands):

Basic

Diluted

The accompanying notes are an integral part of these statements.

$127,606

$ 4,359

$ 17,873

$

$

2.50

2.45

$

$

0.09

0.09

$

$

0.36

0.35

51,087

52,033

50,312

50,833

50,039

50,596

60

Consolidated Statements of Shareholders’ Equity

Common Stock

Shares

Amount

Additional
Paid-in
Capital

Retained
Earnings

Unearned
Compensation

Accumulated
Other
Comprehensive
Income (Loss)

Treasury Stock

Shares

Amount

Total

Balance, September 30, 2002

53,529

$5,353

$ 82,489

(in thousands, except per share amounts)
$16,180

$(190)

$838,929

3,518

$(47,591) $ 895,170

Comprehensive Income:

Net Income
Other comprehensive income:

Unrealized gains on available-

for-sale securities, net

Derivatives instruments
Amortization, net

Minimum pension liability adjustment, net

17,873

15,005

982
1,501

(16,026)

441
372

(129)

1,753

53,529

5,353

83,302

840,776

180
(10)

33,668

3,389

(45,838)

4,359

3,721

72
(1,209)

Total other comprehensive gain

Total comprehensive income
Cash dividends ($.3225 per share)
Exercise of stock options
Tax benefit of stock-based awards
Amortization of deferred compensation
Balance, September 30, 2004

(16,372)

813
1,351

(305)

4,114

53,529

5,353

85,466

828,763

10
—

36,252

3,084

(41,724)

Total other comprehensive gain

Total comprehensive income
Cash dividends ($.32 per share)
Exercise of stock options
Tax benefit of stock-based awards
Amortization of deferred compensation
Balance, September 30, 2003

Comprehensive Income:

Net Income
Other comprehensive income (loss):
Unrealized gains on available-

for-sale securities, net

Derivatives instruments
Amortization, net

Minimum pension liability adjustment, net

Comprehensive Income:

Net Income
Other comprehensive income (loss):
Unrealized gains on available-for-

sale securities, net

Minimum pension liability adjustment, net

Total other comprehensive gain

Total comprehensive income
Capital adjustment of equity investee
Stock issued under Restricted Stock

Award Plan

Cash dividends ($.33 per share)
Exercise of stock options
Tax benefit of stock-based awards
Amortization of deferred compensation
Balance, September 30, 2005

127,606

2,682

93

8,903
15,153

(16,989)

14,708
(3,416)

(160)

26
$(134)

(5)

(1,485)

$47,544

1,594

67

16,455

—
(16,989)
25,358
15,153
26
$(25,202) $1,079,238

17,873

15,005

982
1,501
17,488
35,361
(16,026)
2,194
372
180
917,251

4,359

3,721

72
(1,209)
2,584
6,943
(16,372)
4,927
1,351
10
914,110

127,606

14,708
(3,416)
11,292
138,898
2,682

The accompanying notes are an integral part of these statements.

61

53,529

$5,353

$112,297

$939,380

Consolidated Statements of Cash Flows

Years Ended September 30,

OPERATING ACTIVITIES:

Net income
Adjustments to reconcile income

to net cash provided by operating activities:

Depreciation
Asset impairment charge
Equity in (income) loss of affiliates before income taxes
Amortization of deferred compensation
Gain on sale of investment securities
Non-monetary investment gain
Gain on sale of assets
Deferred income tax expense
Other – net
Change in assets and liabilities:

Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable
Accrued liabilities
Deferred income taxes
Other noncurrent liabilities

Net cash provided by operating activities

INVESTING ACTIVITIES:
Capital expenditures
Proceeds from asset sales
Purchase of investments
Proceeds from sale of investments

Net cash provided by (used in) investing activities

FINANCING ACTIVITIES:

Proceeds from long-term debt
Decrease (increase) in short-term notes
Dividends paid
Proceeds from exercise of stock options

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

The accompanying notes are an integral part of these statements.

2005

2004

(in thousands)

2003

$127,606

$ 4,359

$ 17,873

96,274
—
(3,891)
26
(26,969)
—
(13,550)
38,014
(349)

(46,223)
(487)
1,451
8,517
12,736
16,557
2,526

84,632
212,238

(86,805)
28,992
(5,000)
65,539

2,726

—
—
(16,866)
25,358
8,492

223,456
65,296

94,425
51,516
(1,168)
10
(22,766)
(2,521)
(5,377)
5,934
(98)

(25,335)
1,707
24,142
(378)
2,870
2,323
6,997

132,281
136,640

(90,212)
7,941
—
14,033

(68,238)

—
(30,000)
(16,222)
4,927
(41,295)

27,107
38,189

82,513
—
2,290
180
(5,529)
—
(3,689)
41,391
336

1,516
251
(29,355)
(14,804)
(1,281)
(166)
1,589

75,242
93,115

(242,912)
6,720
—
18,215

(217,977)

100,000
30,000
(16,026)
2,194
116,168

(8,694)
46,883

$288,752

$ 65,296

$ 38,189

62

Notes to Consolidated Financial Statements

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Helmerich & Payne, Inc. (the Company), and its

wholly-owned subsidiaries. Fiscal years of the Company’s foreign consolidated operations end on August 31

to facilitate reporting of consolidated results. There were no significant intervening events which materially

affected the financial statements.

BASIS OF PRESENTATION

Certain amounts in the accompanying consolidated financial statements for prior periods have been

reclassified to conform to current year presentation.

TRANSLATION OF FOREIGN CURRENCIES
The Company has determined that the functional currency for its foreign subsidiaries is the U.S. dollar.
Foreign currency transaction gains (losses) were $(.8) million, $(2.2) million and $.4 million for 2005,
2004, and 2003, respectively. These amounts are included in direct operating costs.

USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation. Substantially all property,
plant and equipment are depreciated using the straight-line method based on the estimated useful lives of
the assets (contract drilling equipment, 4-15 years; real estate buildings and equipment, 10-50 years; and
other, 3-33 years). The Company charges the cost of maintenance and repairs to direct operating cost,
while betterments and refurbishments are capitalized.

CAPITALIZATION OF INTEREST

The Company capitalizes interest on major projects during construction. Interest is capitalized based on
the average interest rate on related debt. Capitalized interest for 2005, 2004, and 2003 was $.3 million,
$.5 million, and $1.8 million, respectively.

VALUATION OF LONG-LIVED ASSETS

The Company periodically evaluates the carrying value of long-lived assets to be held and used, including
intangible assets, when events or circumstances warrant such a review. The Company recognizes impairment
losses equal to the excess of the carrying value over the estimated fair value of long-lived assets used in

63

operations when indicators of impairment are present and the undiscounted cash flows expected to be

generated by the asset are not sufficient to recover the carrying amount of the asset.

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.

RESTRICTED CASH AND CASH EQUIVALENTS

The Company had restricted cash and cash equivalents of $4.2 million and $2.0 million at September 30,

2005 and 2004, respectively. All restricted cash is for the purpose of potential insurance claims in the

Company’s wholly-owned captive insurance company. Of the total, $2.0 million is from the initial capitalization

of the captive and management has elected to restrict an additional $2.2 million. The restricted amounts are

primarily invested in short-term money market securities.

The restricted cash and cash equivalents is reflected in the balance sheet as follows (in thousands):

September 30,
Other current assets
Other assets

2005
$2,195
$2,000

2004
$2,000
$ —

INVENTORIES AND SUPPLIES
Inventories and supplies are primarily replacement parts and supplies held for use in the Company’s drilling
operations. Inventories and supplies are valued at the lower of cost (moving average or actual) or market value.

DRILLING REVENUES
Contract drilling revenues are comprised primarily of daywork drilling contracts for which the related revenues
and expenses are recognized as work progresses. For certain contracts, the Company receives lump-sum
payments for the mobilization of rigs and other drilling equipment. Revenues earned, net of direct costs
incurred for the mobilization, are deferred and recognized over the term of the related drilling contract. Costs
incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are
expensed as incurred. Reimbursements received by the Company for out-of-pocket expenses are recorded as
revenues and direct costs.

RENT REVENUES

The Company enters into leases with tenants in its rental properties consisting primarily of retail and multi-
tenant warehouse space. The lease terms of tenants occupying space in the retail centers and warehouse
buildings range from one to eleven years. Minimum rents are recognized on a straight-line basis over the
term of the related leases. Overage and percentage rents are based on tenants’ sales volume. Recoveries

from tenants for property taxes and operating expenses are recognized as Real Estate revenues in the
Consolidated Statements of Income. The Company’s rent revenues are as follows:

64

Years Ended September 30,

Minimum rents

Overage and percentage rents

2005

$7,606

$1,162

2004

(in thousands)

$7,490

$1,207

2003

$7,333

$ 768

At September 30, 2005, minimum future rental income to be received on noncancelable operating leases

were as follows (in thousands):

Fiscal Year

2006

2007

2008

2009

2010

Thereafter
Total

Amount

$ 6,887

6,134

4,840

3,532

2,901

4,765
$29,059

Leasehold improvement allowances are capitalized and amortized over the lease term.

INVESTMENTS
The Company maintains investments in equity securities of unaffiliated companies. The cost of securities used
in determining realized gains and losses is based on the average cost basis of the security sold. Net income
in 2004 includes approximately $1.5 million, $0.03 per share on a diluted basis, on gains related to non-
monetary transactions within the Company’s available-for-sale investment portfolio which were accounted for
at fair value.

The Company regularly reviews investment securities for impairment based on criteria that include the extent
to which the investment’s carrying value exceeds its related market value, the duration of the market decline
and the financial strength and specific prospects of the issuer of the security. Unrealized losses that are other
than temporary are recognized in earnings.

Investments in companies owned from 20 to 50 percent are accounted for using the equity method with the

Company recognizing its proportionate share of the income or loss of each investee. The Company owned
approximately 21.7 percent of Atwood Oceanics, Inc. (Atwood) at September 30, 2004. In October 2004, the
Company sold 1,000,000 shares of its position in Atwood as part of a 2,175,000 share public offering of
Atwood. The sale generated $15.9 million ($0.31 per diluted share) of net income in fiscal 2005. As a result
of Atwood’s capital transaction, the Company’s equity investment increased by $4.3 million, deferred income

taxes payable increased $1.6 million and additional paid-in-capital increased $2.7 million. With its remaining
2,000,000 shares of Atwood, the Company owns approximately 13.0 percent of Atwood. The Company

65

continues to account for Atwood on the equity method as the Company continues to have significant influence

through its board of director seats.

The quoted market value of the Company’s investment was $168.4 million and $142.6 million at

September 30, 2005 and 2004, respectively. Retained earnings at September 30, 2005 and 2004 includes

approximately $24.3 million and $29.0 million, respectively of undistributed earnings of Atwood.

Summarized financial information of Atwood is as follows:

September 30,

Gross revenues

Costs and expenses
Net income (loss)

2005

$176,156

149,785
$ 26,371

2004

(in thousands)

$163,454

155,867
$ 7,587

2003

$144,766

157,568
$ (12,802)

Helmerich & Payne, Inc.’s equity in net income

(loss), net of income taxes

$ 2,412

$

724

$ (1,414)

Current assets

Noncurrent assets

Current liabilities

Noncurrent liabilities
Shareholders’ equity

$ 93,283

$ 92,966

$ 76,012

403,641

56,159

78,268
362,497

405,970

60,053

167,294
271,589

446,662

49,949

209,258
263,467

Helmerich & Payne, Inc.’s investment

$ 46,533

$ 57,824

$ 56,655

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.

POST EMPLOYMENT AND OTHER 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 worker’s compensation claims incurred. The liability for

other benefits to former or inactive employees after employment but before retirement is not material.

EARNINGS PER SHARE

Basic earnings per share is based on the weighted-average number of common shares outstanding during
the period. Diluted earnings per share includes the dilutive effect of stock options and restricted stock.

66

EMPLOYEE STOCK-BASED AWARDS

Employee stock-based awards are currently accounted for under Accounting Principles Board Opinion No. 25,

“Accounting for Stock Issued to Employees” and related interpretations. Fixed plan common stock options

generally do not result in compensation expense, because the exercise price of the options issued by the

Company equals the market price of the underlying stock on the date of grant. The plans under which the

Company issues stock based awards are described more fully in Note 5. The following table illustrates the

effect on net income and earnings per share as if the Company had applied the fair value recognition

provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”.

September 30,

2005

2004

2003

(in thousands, except per share amounts)

Net income, as reported

$127,606

$ 4,359

$17,873

Stock-based employee compensation expense
included in the Consolidated Statements of
Income, net of related tax effects

Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects

Pro forma net income

Earnings per share:

Basic-as reported

Basic-pro forma

Diluted-as reported

Diluted-pro forma

16

6

112

(3,563)
$124,059

$

$

$

$

2.50

2.43

2.45

2.34

(4,172)
$ 193

$ 0.09

$ 0.00

$ 0.09

$ 0.00

(4,387)
$13,598

$ 0.36

$ 0.27

$ 0.35

$ 0.27

These pro forma amounts may not be representative of future disclosures since the estimated fair value of
stock options is amortized to expense over the vesting period and additional options may be granted in
future years.

TREASURY STOCK
Treasury stock purchases are accounted for under the cost method whereby the cost of the acquired stock is
recorded as treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged
to additional paid-in-capital using the average-cost method.

NEW ACCOUNTING STANDARD

In December, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004),
“Share-Based Payment”, which is a revision of FASB Statement No. 123, “Accounting for Stock-Based
Compensation”. Statement 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to

Employees” and amends FASB Statement No. 95, “Statement of Cash Flows”. The statement requires all
share-based payments to employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair value. The statement is effective at the beginning of the first interim or
annual period beginning after June 15, 2005, with the SEC allowing for implementation at the beginning of the

67

first fiscal year beginning after June 15, 2005. The Company plans to adopt the new standard the first quarter

of fiscal 2006, beginning October 1, 2005, under the modified-prospective-transition method. The Company

will recognize compensation cost for share-based payments to employees based on their grant-date fair value

from the beginning of the fiscal period in which the recognition provisions are first applied. Measurement and

attribution of compensation cost for awards that were granted but not vested prior to the date the Company

adopts the new standard will be based on the same estimate of the grant-date fair value and the same

attribution method used previously under Statement 123 for pro forma disclosure. For those awards that

are granted, modified or settled after the Company adopts the Statement, compensation cost will be

measured and recognized in the financial statements in accordance with the provision of Statement 123(R).

The Company expects to incur additional pre-tax compensation expense of approximately $1.3 million related

to options currently outstanding in the first quarter of fiscal 2006 as a result of adopting Statement 123(R).

Statement 123(R) also requires that the benefits of tax deductions in excess of recognized compensation cost

be reported as a financing cash flow, rather than an operating cash flow as required under current literature.
This requirement will reduce net operating cash flows and increase net financing cash flows in periods after
the effective date. The Company cannot estimate what those amounts will be in the future because they
depend on, among other things, when employees exercise stock options.

NOTE 2 IMPAIRMENT OF LONG-LIVED ASSETS

The Company periodically evaluates long-lived assets when events or circumstances indicate, in management’s
judgment, that the carrying value of such assets may not be recoverable. Changes that could trigger such an
assessment may include a significant decline in revenue or cash margin per day, extended periods of low rig
utilization, changes in market demand for a specific asset, obsolescence, completion of specific contracts,
and/or overall general market conditions. If a review of the long-lived assets indicates that the carrying value
of certain of these assets is more than the estimated undiscounted future cash flows, an impairment charge
is made to adjust the carrying value to the estimated fair market value of the asset.

Based on its analysis, the Company recorded a $51.5 million pre-tax impairment charge to the Offshore
Platform segment in the fourth quarter of fiscal 2004. In conjunction with the impairment charge, the Company
retired rig 108 at September 30, 2004, which brought the number of available platform rigs to eleven. The
Company also reduced the depreciable lives of five platform rigs to four years and the salvage value of each
of the offshore rigs to $1.0 million. As a result of the impairment charge and the change in depreciable lives
and salvage values, depreciation expense in the Offshore Platform segment was reduced by approximately
$1.5 million in fiscal year 2005.

68

NOTE 3 NOTES PAYABLE AND LONG-TERM DEBT

At September 30, 2005, the Company had $200 million in unsecured long-term debt outstanding at fixed

rates and maturities as summarized in the following table.

Issue Amount

$25,000

$25,000

$75,000

$75,000

Maturity Date

August 15, 2007

August 15, 2009

August 15, 2012

August 15, 2014

Interest Rate

5.51%

5.91%

6.46%

6.56%

The terms of the debt obligations require the Company to maintain a minimum ratio of debt to total

capitalization. The debt is held by various entities, including $8 million held by a company affiliated
with one of the Company’s Board members.

At September 30, 2005, the Company had a committed unsecured line of credit totaling $50 million.
Letters of credit totaling $14 million were outstanding against the line, leaving $36 million available to borrow.
Under terms of the line of credit, the Company must maintain certain financial ratios including debt to total
capitalization and debt to earnings before interest, taxes, depreciation, and amortization, and a certain level
of tangible net worth. The interest rate varies based on LIBOR plus .875 to 1.125 percent or prime minus
1.75 percent to prime minus 1.50 percent depending on ratios described above. At September 30, 2005
and 2004, no balances were outstanding under the line of credit. The revolving credit commitment expires
July 11, 2006.

NOTE 4 INCOME TAXES

The components of the provision (benefit) for income taxes are as follows:

Years Ended September 30,

Current:

Federal

Foreign

State

Deferred:

Federal

Foreign

State

Total provision (benefit)

2004

(in thousands)

$(5,997)

4,622

(194)

(1,569)

4,037

1,902

(5)

5,934

$ 4,365

2003

$(34,495)

6,870

883

(26,742)

42,835

(3,383)

1,939

41,391

$ 14,649

2005

$39,139

8,185

2,125

49,449

31,573

4,863

1,578

38,014

$87,463

69

The amounts of domestic and foreign income before income taxes and equity in income (loss) of affiliates are

as follows:

Years Ended September 30,

Domestic

Foreign

2005

$195,978

16,679

$212,657

2004

(in thousands)

$ (2,565)

10,565

$ 8,000

2003

$31,638

2,304

$33,942

Deferred income taxes are provided for the temporary differences between the financial reporting basis and

the tax basis of the Company’s assets and liabilities.

The components of the Company’s net deferred tax liabilities are as follows:

September 30,

Deferred tax liabilities:

Property, plant and equipment

Available-for-sale securities

Equity investments

Other

Total deferred tax liabilities

Deferred tax assets:

Pension reserves

Insurance reserves

Net operating loss and foreign tax credit carryforwards

Minimum tax credit carryforwards

Financial accruals

Other

Total deferred tax assets

Valuation allowance

Net deferred tax assets

Net deferred tax liabilities

2005

2004

(in thousands)

$210,861

31,929

20,915

1,715

265,420

10,310

3,943

32,567

428

11,295

12

58,555

31,345

27,210

$188,240

28,203

17,793

1,714

235,950

7,283

4,452

56,213

3,748

7,848

1,315

80,859

35,136

45,723

$238,210

$190,227

Reclassifications have been made to the fiscal 2004 balances for certain components of deferred tax

assets and liabilities in order to conform to the current year’s presentation.

As of September 30, 2005 the Company had foreign net operating loss carryforwards for income tax

purposes of $4.9 million, of which a significant portion can be carried forward indefinitely, and foreign tax
credit carryforwards of approximately $31.0 million which will expire in years 2010 through 2014. The

valuation allowance is primarily attributable to foreign operating loss carryforwards and foreign tax credit
carryforwards for which utilization is uncertain. At this time the Company has no plans to utilize the
repatriation provision under the American Jobs Creation Act.

70

Effective income tax rates as compared to the U.S Federal income tax rate are as follows:

Years Ended September 30,

2005

2004

2003

U.S. Federal income tax rate

Effect of foreign taxes

State income taxes

Other
Effective income tax rate

35%

3

3

—
41%

35%

18

—

2
55%

35%

4

4

—
43%

NOTE 5 SHAREHOLDERS’ EQUITY

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. Restricted stock 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 market price of the underlying stock on the
date of grant. Stock options expire ten years after grant.

Vesting requirements are determined by the Human Resources Committee of the Company’s Board of Directors.
Options granted December 6, 1995, began vesting December 6, 1998, with 20 percent of the options vesting
for five consecutive years. Options granted December 4, 1996, began vesting December 4, 1997, with 20
percent of the options vesting for five consecutive years. Options granted since December 3, 1997, began
vesting one year after the grant date with 25 percent of the options vesting for four consecutive years.

In March 2001, the Company adopted the 2000 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock
Incentive Plan was effective December 6, 2000 and will terminate December 6, 2010. Under this plan, the
Company is authorized to grant options for up to 3,000,000 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 450,000
shares of the total authorized may be granted to participants as restricted stock awards. In 2005, 5,000 shares
of restricted stock awards were granted. There were no restricted stock grants in fiscal 2004 or 2003.

The following summary reflects the stock option activity for the Company’s common stock and related
information for 2005, 2004, and 2003 (shares in thousands):

2005

2004

2003

Outstanding at October 1,

Granted

Exercised

Forfeited/Expired

Outstanding on September 30,

Exercisable on September 30,

Shares available to grant

Weighted-Average
Exercise Price

$21.41

24.18

16.15

25.38

$22.03

$20.62

Options

4,327

469

(305)

(34)

4,457

2,997

1,158

Options

3,875

611

(130)

(29)

4,327

2,575

1,597

Weighted-Average
Exercise Price

$20.28

27.74

16.93

23.85

$21.41

$19.34

Options

4,457

463

(1,611)

(65)

3,244

2,027

755

Weighted-Average
Exercise Price

$22.03

32.02

19.57

27.22

$24.57

$22.74

71

The following table summarizes information about stock options at September 30, 2005 (shares in thousands):

Outstanding Stock Options

Exercisable Stock Options

Range of
Exercise Prices

$12.79 to $19.83

$22.66 to $24.59

$26.11 to $32.02

$12.79 to $32.02

Options

595

1,366

1,283

3,244

Weighted-Average
Remaining Life

Weighted-Average
Exercise Price

3.5

6.5

6.6

6.0

$16.35

$23.73

$29.26

$24.57

Options

595

867

565

2,027

Weighted-Average
Exercise Price

$16.35

$23.79

$27.86

$22.74

The weighted-average fair value of options at their grant date during 2005, 2004, and 2003 was $12.17,

$10.24, and $10.72, respectively. The estimated fair value of each option granted is calculated using the

Black-Scholes option-pricing model. The following summarizes the weighted-average assumptions used in

the model:

Risk-free interest rate

Expected stock volatility

Dividend yield

Expected years until exercise

2005

4.2%

40.3%

1.0%

5.0

2004

3.7%

44.0%

.8%

5.5

2003

3.1%

45.0%

.8%

4.5

On September 30, 2005, the Company had 51,934,590 outstanding common stock purchase rights (“Rights”)
pursuant to terms of the Rights Agreement dated January 8, 1996. Under the terms of the Rights Agreement
each Right entitled the holder thereof to purchase from the Company one half of one unit consisting of one
one-thousandth of a share of Series A Junior Participating Preferred Stock (“Preferred Stock”), without par
value, at a price of $90 per unit. The exercise price and the number of units of Preferred Stock issuable
on exercise of the Rights are subject to adjustment in certain cases to prevent dilution. The Rights will be
attached to the common stock certificates and are not exercisable or transferable apart from the common
stock, until ten business days after a person acquires 15 percent or more of the outstanding common stock
or ten business days following the commencement of a tender offer or exchange offer that would result in a
person owning 15 percent 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 percent of the Company’s assets or earning power is sold or
transferred, each holder of a Right shall have the right to receive, upon exercise of the Right, common stock
of the acquiring company having a value equal to two times the exercise price of the Right. The Rights are
redeemable under certain circumstances at $0.01 per Right and will expire, unless earlier redeemed, on
January 31, 2006. As long as the Rights are not separately transferable, the Company will issue one half
of one Right with each new share of common stock issued.

72

NOTE 6 EARNINGS PER SHARE

A reconciliation of the weighted-average common shares outstanding on a basic and diluted basis is as follows:

Basic weighted-average shares

Effect of dilutive shares:

Stock options

Restricted stock

Diluted weighted-average shares

2005

51,087

945

1
946
52,033

2004

(in thousands)

50,312

521

—
521
50,833

2003

50,039

555

2
557
50,596

At September 30, 2005, all options outstanding were included in the computation of diluted earnings per
common share.

At September 30, 2004, options to purchase 1,027,680 shares of common stock at a weighted-average
price of $27.84 were outstanding, but were not included in the computation of diluted earnings per common
share. Inclusion of these shares would be antidilutive.

At September 30, 2003, options to purchase 1,030,791 shares of common stock at a weighted-average
price of $27.86 were outstanding but were not included in the computation of diluted earnings per common
share. Inclusion of these shares would be antidilutive.

NOTE 7 FINANCIAL INSTRUMENTS

The Company had $200 million of long-term debt outstanding at September 30, 2005 which had an estimated
fair value of $215 million. The debt was valued based on the prices of similar securities with similar terms
and credit ratings. The Company used the expertise of an outside investment banking firm to assist with the
estimate of the fair value of the long-term debt. The Company’s line of credit and notes payable bear interest
at market rates and the cost of borrowings, if any, would approximate fair value. The estimated fair value of
the Company’s available-for-sale securities is primarily based on market quotes.

73

The following is a summary of available-for-sale securities, which excludes those accounted for under the

equity method of accounting (see Note 1) and assets held in a Non-qualified Supplemental Savings Plan:

Equity Securities:

September 30, 2005

September 30, 2004

Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Estimated Fair
Value

(in thousands)

$30,937

$27,811

$94,000

$70,448

$ —

$170

$124,937

$ 98,089

During the years ended September 30, 2005, 2004, and 2003, marketable equity available-for-sale

securities with a fair value at the date of sale of $46.7 million, $30.9 million, and $18.2 million, respectively,

were sold. For the same years, the gross realized gains on such sales of available-for-sale securities totaled

$27.0 million, $22.8 million, and $8.6 million, respectively, and the gross realized losses totaled $7 thousand

in fiscal 2004 and $3.1 million in fiscal 2003.

The assets held in a Non-qualified Supplemental Savings Plan are valued at fair market which totaled
$7.0 million and $5.6 million at September 30, 2005 and 2004, respectively.

The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of
those investments.

The carrying value of other assets, accrued liabilities and other liabilities approximated fair value at
September 30, 2005 and 2004.

74

NOTE 8 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The table below presents changes in the components of accumulated other comprehensive income (loss).

Unrealized Appreciation
(Depreciation)
on Securities

Interest Rate
Swap

Minimum Pension
Liability

Total

(in thousands)

Balance at September 30, 2002

$ 24,846

$(1,054)

$ (7,612)

$ 16,180

2003 Change:

Pre-income tax amount

Income tax provision

Amortization of swap

(net of $602 income tax benefit)

Realized gains in net income
(net of $2,101 income tax)

Balance at September 30, 2003
2004 Change:

Pre-income tax amount

Income tax provision

Amortization of swap

(net of $45 income tax benefit)

Realized gains in net income
(net of $9,659 income tax)

Balance at September 30, 2004
2005 Change:

Pre-income tax amount

Income tax provision

Realized gains in net income
(net of $328 income tax)

Balance at September 30, 2005

29,731

(11,298)

—

(3,428)
15,005
39,851

31,420

(11,940)

—

(15,759)
3,721

43,572

24,588

(9,343)

—

—

982

—
982
(72)

—

—

72

—
72

—

—

—

2,421

(920)

32,152

(12,218)

—

982

—
1,501
(6,111)

(1,951)

742

(3,428)
17,488
33,668

29,469

(11,198)

—

72

—
(1,209)

(7,320)

(5,510)

2,094

(15,759)
2,584

36,252

19,078

(7,249)

(537)
11,292
$ 47,544

(537)
14,708
$ 58,280

—
—
$ —

—
(3,416)
$(10,736)

75

NOTE 9 EMPLOYEE BENEFIT PLANS

The Company maintains a noncontributory defined pension plan for substantially all U.S. employees who

meet certain age and service requirements. In July 2003, the Company revised the Helmerich & Payne, Inc.

Employee Retirement Plan (“Pension Plan”) to close the Pension Plan to new participants effective October 1,

2003, and reduce benefit accruals for current participants through September 30, 2006 at which time

benefit accruals will be discontinued and the Pension Plan frozen.

The following table and other information in this footnote provide information at September 30 as to the

Company sponsored domestic defined pension plan as required by SFAS No. 132 (Revised 2003), “Employers’

Disclosures About Pensions and Other Postretirement Benefits”.

Change in benefit obligation:

Years Ended September 30,

Benefit obligation at beginning of year

Service cost

Interest cost

Actuarial loss

Benefits paid

Benefit obligation at end of year

Change in plan assets:

Years Ended September 30,

2005

2004

(in thousands)

$82,222

$71,174

3,480

4,617

3,408

(3,510)

$90,217

3,943

4,403

5,985

(3,283)

$82,222

2005

2004

(in thousands)

Fair value of plan assets at beginning of year

$ 56,650

$ 53,635

Actual gain on plan assets

Employer contribution

Benefits paid

7,565

2,250

(3,510)

6,298

—

(3,283)

Fair value of plan assets at end of year

$ 62,955

$ 56,650

Funded status of the plan

Unrecognized net actuarial loss

Unrecognized prior service cost

Accumulated other comprehensive loss (before tax)

Accrued benefit cost

$(27,262)

17,445

1

(17,317)

$(27,133)

$(25,572)

18,211

1

(11,807)

$(19,167)

Weighted-average assumptions:

Years Ended September 30,

Discount rate

Expected return on plan assets

Rate of compensation increase

2005

5.50%

8.00%

5.00%

2004

5.75%

8.00%

5.00%

2003

6.25%

8.00%

5.00%

76

The Company anticipates funding of its Pension Plan will be approximately $2.8 million in fiscal 2006.

COMPONENTS OF NET PERIODIC PENSION EXPENSE:

Years Ended September 30,

Service cost

Interest cost

Expected return on plan assets

Amortization of prior service cost

Recognized net actuarial loss

Curtailment gain

Net pension expense

2005

$ 3,480

4,617

(4,378)

—

987

—

2004

(in thousands)

$ 3,943

4,403

(4,232)

19

761

—

$ 4,706

$ 4,894

2003

$ 5,401

4,423

(3,807)

180

1,550

84

$ 7,831

The following table reflects the expected benefits to be paid from the Pension Plan in each of the next five
fiscal years, and in the aggregate for the five years thereafter.

2006

2007

2008

2009

2010

2011-2015

Total

Years Ended September 30,

$4,640

$4,606

$4,524

$4,558

$4,533

$26,368

$49,229

(in thousands)

Included in the Pension Plan is an unfunded supplemental executive retirement plan.

The accumulated benefit obligation for the defined Pension Plan was $90.1 million, $75.7 million and $66.1
million at September 30, 2005, 2004, and 2003, respectively.

The Company evaluates the Pension Plan to determine whether any additional minimum liability is required.
As a result of changes in the interest rates, an adjustment to the minimum pension liability was required. The
adjustment to the liability is recorded as a charge to accumulated other comprehensive loss, net of tax, in
shareholders’ equity in the consolidated balance sheets.

INVESTMENT STRATEGY AND ASSET ALLOCATION

The Company’s investment policy and strategies are established with a long-term view in mind. The investment
strategy is intended to help pay the cost of the Plan while providing adequate security to meet the benefits
promised under the Plan. The Company maintains a diversified asset mix to minimize the risk of a material
loss to the portfolio value that might occur from devaluation of any one investment. In determining the
appropriate asset mix, the Company’s financial strength and ability to fund potential shortfalls are considered.

The expected long-term rate of return on plan assets is based on historical and projected rates of return for
current and planned asset classes in the Plans’ investment portfolio after analyzing historical experience and
future expectations of the return and volatility of various asset classes.

77

The target allocation for 2006 and the asset allocation for the domestic Pension Plan at the end of fiscal

2005 and 2004, by asset category, follows:

Asset Category

U.S. equities

International equities

Fixed income

Real estate and other

Total

Target Allocation

Percentage of Plan Assets
At September 30,

2006

56%

14

25

5

100%

2005

58%

16

24

2

100%

2004

57%

15

27

1

100%

The fair value of plan assets was $63.0 million and $56.7 million at September 30, 2005 and 2004,
respectively, and the expected long-term rate of return on these plan assets was 8 percent in 2005 and 2004.

DEFINED CONTRIBUTION PLAN
Substantially all employees on the United States payroll of the Company may elect to participate in the
Company sponsored 401(k)/Thrift Plan by contributing a portion of their earnings. The Company contributes
amounts equal to 100 percent of the first 5 percent of the participant’s compensation subject to certain
limitations. Expensed Company contributions were $6.1 million, $5.6 million, and $5.6 million in 2005, 2004,
and 2003, respectively.

NOTE 10 SUPPLEMENTAL BALANCE SHEET INFORMATION

The following reflects the activity in the Company’s reserve for bad debt for 2005, 2004 and 2003:

September 30,

Reserve for bad debt:

Balance at October 1,

Provision for bad debt

Write-off of bad debt

Balance at September 30,

2005

$1,265

530

(4)

$1,791

2004

(in thousands)

2003

$1,319

$1,337

15

(69)

45

(63)

$1,265

$1,319

78

Accounts receivable, prepaid expenses, and accrued liabilities at September 30 consist of the following:

September 30,

Accounts receivable:

Trade receivables

Investment sales receivables

Prepaid expenses and other:

Prepaid value added tax

Restricted cash

Income tax asset

Prepaid insurance

Deferred mobilization

Other

Accrued liabilities:

Taxes payable – operations

Workers’ compensation liabilities

Payroll and employee benefits

Deferred income/prepays

Other

2005

2004

(in thousands)

$162,646

—

$162,646

$116,423

16,839

$133,262

$ 5,960

$ 1,514

2,195

2,080

1,949

654

5,483

2,000

5,831

1,329

2,846

8,080

$ 18,321

$ 21,600

$ 10,263

$ 6,531

3,830

20,277

—

10,257

$ 44,627

2,877

8,678

2,844

10,961

$ 31,891

NOTE 11 SUPPLEMENTAL CASH FLOW INFORMATION

Years Ended September 30,

Cash payments:

Interest paid, net of amounts capitalized

Income taxes paid

NOTE 12 RISK FACTORS

CONCENTRATION OF CREDIT

2005

$12,707

$29,715

2004

(in thousands)

$12,653

$ 7,010

2003

$11,375

$ 5,838

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily
of temporary cash investments and trade receivables. The Company places temporary cash investments with
established financial institutions and invests in a diversified portfolio of highly rated, short-term money market

instruments. The Company’s trade receivables are primarily with established companies in the oil and gas
industry and are typically not secured by collateral. The Company provides an allowance for doubtful accounts,
when necessary, to cover estimated credit losses. Such an allowance is based on management’s knowledge
of customer accounts. No significant credit losses have been experienced by the Company.

79

SELF-INSURANCE

The Company self-insures a significant portion of its expected losses under its worker’s compensation,

general, and automobile liability programs. Insurance coverage has been purchased for individual claims that

exceed $1 million or $2 million, depending on whether a claim occurs inside or outside of the United States.

The Company records estimates for incurred outstanding liabilities for unresolved worker’s compensation,

general liability claims and for claims that are incurred but not reported. Estimates are based on historic

experience and statistical methods that the Company believes are reliable. Nonetheless, insurance estimates

include certain assumptions and management judgments regarding the frequency and severity of claims, claim

development, and settlement practices. Unanticipated changes in these factors may produce materially

different amounts of expense that would be reported under these programs.

The Company formed a wholly-owned captive insurance company, White Eagle Assurance Company (White

Eagle), to provide property damage insurance for company-owned drilling rigs. The Company obtained 85
percent of land rig property insurance from a third party insurance provider in 2005 that carried a $1.0 million
deductible. The Company is self insured through White Eagle for the remaining 15 percent of land rig property
coverage and the $1.0 million deductible on all rig property. Additionally, the Company is self insured for
up to $1.0 million per occurrence deductible under workers compensation, general, and automobile liability
insurance policies for its international operations. Premiums paid to White Eagle by the drilling segments have
been included in the drilling segment expenses but eliminated, along with the premium earned income, in the
Consolidated Statements of Income.

CONTRACT DRILLING OPERATIONS
International drilling operations are significant contributors to the Company’s revenues and net profit. It is
possible that operating results could be affected by the risks of such activities, including economic conditions
in the international markets in which the Company operates, political and economic instability, fluctuations in
currency exchange rates, changes in international regulatory requirements, international employment issues,
and the burden of complying with foreign laws. These risks may adversely affect the Company’s future
operating results and financial position.

The Company is exposed to risks of currency devaluation in Venezuela primarily as a result of bolivar

receivable balances and bolivar cash balances. In Venezuela, approximately 40 percent of the Company’s
billings to the Venezuelan oil company, PDVSA, are in U.S. dollars and 60 percent are in the local currency, the
bolivar. In January 2003, the Venezuelan government put into effect exchange controls that fixed the exchange
rate at 1600 bolivares to one U.S. dollar and also prohibited the Company, as well as other companies, from
converting the bolivar into U.S. dollars. In compliance with applicable regulations, the Company on October 1,
2003 submitted a request to the Venezuelan government seeking permission to convert existing bolivar
balances into U.S. dollars. In January 2004, the Venezuelan government approved the conversion of bolivar

cash balances to U.S. dollars and the remittance of those U.S. dollars as dividends by the Company’s
Venezuelan subsidiary to the U.S. based parent. The Company was able to remit $8.8 million of such
dividends in January 2004. This reduced the Company’s exposure to currency devaluation in Venezuela.

80

As stated above, the Company is exposed to risks of currency devaluation in Venezuela primarily as a result

of bolivar receivable balances and bolivar cash balances. The exchange rate was 2150 bolivares and 1920

bolivares at September 30, 2005 and 2004, respectively. As a result of the 12 percent devaluation of the

bolivar during fiscal 2005 (from September 2004 through August 2005), the Company experienced total

devaluation losses of $.6 million during that same period. This 12 percent devaluation loss may not be

reflective of the potential for future devaluation losses because of the exchange controls that are currently

in place. However, the exact amount and timing of such devaluation is uncertain. While the Company is

unable to predict future devaluation in Venezuela, if fiscal 2006 activity levels are similar to fiscal 2005 and

if a 10 percent to 20 percent devaluation would occur, the Company could experience potential currency

devaluation losses ranging from approximately $1.6 million to $2.9 million.

In late August 2003, the Venezuelan state petroleum company agreed, on a go-forward basis, to pay a

portion of the Company’s dollar-based invoices in U.S. dollars. Were this agreement to end, the Company
would revert back to receiving these payments in bolivares and thus increase bolivar cash balances and
exposure to devaluation.

On September 28, 2005, the Company made application with the Venezuelan government requesting the
approval to convert bolivar cash balances to U.S. dollars. Upon approval from the Venezuelan government,
the Company’s Venezuelan subsidiary will remit those dollars as a dividend to its U.S. based parent, thus
reducing the Company’s exposure to currency devaluation.

Venezuela continues to experience significant governmental instability. In the event that extended labor strikes
occur or turmoil increases, the Company could experience shortages in material and supplies necessary to
operate some or all of its Venezuelan drilling rigs.

NOTE 13 CONTINGENT LIABILITIES AND COMMITMENTS

COMMITMENTS
During fiscal year 2005, the Company entered into separate drilling contracts with eight exploration and
production customers to build and operate a total of 25 new FlexRigs (see Note 15 Subsequent Events
regarding construction of an additional 25 new FlexRigs). The construction cost is estimated to average
approximately $11 million to $14 million per rig, depending on equipment requirements. The construction
began in the third quarter of fiscal 2005 and is estimated to continue into the fourth quarter of fiscal 2007.
During construction, rig construction costs will be recorded in construction in progress and then transferred
to contract drilling equipment when the rig is placed in the field for service. Equipment, parts and supplies
are ordered in advance to promote efficient construction progress. At September 30, 2005, the Company
had commitments outstanding of approximately $96.2 million for the purchase of drilling equipment.

81

LEASES

In May 2003, the Company signed a six-year lease for approximately 114,000 square feet of office space

near downtown Tulsa, Oklahoma. The lease agreement contains rent escalation clauses, which have been

included in the future minimum lease payments below, and a renewal option. Leasehold improvements

made at the inception of the lease were capitalized and are being amortized over the initial lease term. The

Company also conducts certain operations in leased premises and leases telecommunication equipment.

Future minimum lease payments required under noncancelable operating leases as of September 30, 2005

are as follows (in thousands):

Fiscal Year

2006

2007

2008

2009

2010

Thereafter

Total

Amount

$3,095

2,470

1,615

1,569

482

—

$9,231

Total rent expense was $2.3 million, $2.0 million and $1.1 million for 2005, 2004 and 2003, respectively.

CONTINGENCIES
In August 2005, the Company’s Rig 201, which operates on an operator’s tension-leg platform in the Gulf of
Mexico, lost its entire derrick and suffered significant damage as a result of Hurricane Katrina. Pre-tax cash
flow from the platform rig was approximately $5.4 million in fiscal 2005. The Company is still in the process
of assessing the damage to the rig and does not anticipate that it will return to service in 2006. The rig was
insured at a value that approximated replacement cost to cover the net book value and any additional losses.
Therefore, the Company expects to record a gain resulting from the receipt of insurance proceeds. Because
the damage assessment has not been completed, the Company is unable to estimate the amount or timing
of the gain. Capital costs incurred in conjunction with any repairs will be capitalized and depreciated as
described in Note 1 Summary of Significant Accounting Policies.

NOTE 14 SEGMENT INFORMATION

The Company operates principally in the contract drilling industry. The Company’s contract drilling business

includes the following operating segments: U.S. Land, U.S. Offshore Platform, and International. The contract
drilling operations consist mainly of contracting Company-owned drilling equipment primarily to major oil
and gas exploration companies. The Company’s primary international areas of operation include Venezuela,

Colombia, Ecuador, Argentina and Bolivia. The Company also has a Real Estate segment whose operations
are conducted exclusively in the metropolitan area of Tulsa, Oklahoma. The key areas of operations include

82

a shopping center and several multi-tenant warehouses. Each reportable segment is a strategic business unit

which is managed separately. Other includes investments and corporate operations.

The Company evaluates performance of its segments based upon operating income or loss from operations

before income taxes which includes:

•
•
•
•

revenues from external and internal customers
direct operating costs
depreciation
allocated general and administrative costs

but excludes corporate costs for other depreciation and other income and expense. General and administrative
costs are allocated to the segments based primarily on specific identification, and to the extent that such
identification is not practical, on other methods which the Company believes to be a reasonable reflection of the
utilization of services provided. The accounting policies of the segments are the same as those described in Note 1,
Summary of Significant Accounting Policies. Intersegment sales are accounted for in the same manner as sales to
unaffiliated customers.

83

Summarized financial information of the Company’s reportable segments for each of the years ended
September 30, 2005, 2004, and 2003 is shown in the following table:

(in thousands)

2005

Contract Drilling

U.S. Land

U.S. Offshore

International

Real Estate

Other

Eliminations

External
Sales

Inter-
Segment

Total
Sales

Operating
Income

Depreciation

Total
Assets

Additions
to Long-Lived
Assets

$527,637

$ — $527,637

$164,657

$60,222

$ 809,403

$ 70,297

84,921

177,480
790,038
10,688

—

—

—

—
—
761

—

84,921

177,480
790,038
11,449

17,708

18,973
201,338
4,714

0

(26,846)

(761)

(761)

—

10,602

20,107
90,931
2,352

2,991

—

95,108

239,087
1,143,598
32,203

487,549

—

1,058

12,438
83,793
1,517

1,495

—

Total

$800,726

$ — $800,726

$179,206

$96,274

$1,663,350

86,805

2004:

Contract Drilling

U.S. Land

U.S. Offshore

International

Real Estate

Other

Eliminations
Total

2003:

Contract Drilling

U.S. Land

U.S. Offshore

International

Real Estate

Other

Eliminations
Total

$346,015

$ — $346,015

$ 35,545

$56,528

$ 742,642

$ 69,920

84,238

148,788
579,041
10,015

—

—

—
—
897

—

84,238

(35,628)

148,788
579,041
10,912

12,126
12,043
3,198

—

(27,503)

12,107

20,530
89,165
2,253

3,007

102,557

261,893
1,107,092
33,044

266,708

1,512

9,513
80,945
3,538

5,729

—
$589,056

(897)

(897)
$ — $589,056

—
$ (12,262)

—
$94,425

—
$1,406,844

—
$ 90,212

$273,179

$ — $273,179

$ 17,751

$44,726

$ 730,642

$213,201

112,259

109,517

494,955
9,268

—

—

—

—
1,439

—

112,259

109,517

494,955
10,707

35,932

4,854

58,537
3,922

—

(28,011)

12,799

20,092

77,617
2,535

2,361

170,580

243,918

1,145,140
31,472

241,158

7,191

12,733

233,125
7,628

2,159

—
$504,223

(1,439)

(1,439)
$ — $504,223

—
$ 34,448

—
$82,513

—
$1,417,770

—
$242,912

84

The following table reconciles segment operating income to income before taxes and equity in income (loss) of
affiliates as reported in the Consolidated Statements of Income (in thousands).

Years Ended September 30,

Segment operating income (loss)

Other income (expense)

Interest and dividend income

Interest expense

Gain on sale of investment securities

Income from asset sales

Other

Total unallocated amounts

2005

$179,206

2004

$(12,262)

2003

$ 34,448

5,809

(12,642)

26,969

13,550

(235)

33,451

1,965

(12,695)

25,418

5,377

197

20,262

2,467

(12,289)

5,529

3,689

98

(506)

Income before income taxes and equity in income

(loss) of affiliates

$212,657

$ 8,000

$ 33,942

The following table presents revenues from external customers and long-lived assets by country based on the
location of service provided (in thousands).

Years Ended September 30,

2005

2004

2003

Revenues

United States

Venezuela

Ecuador

Colombia

Other Foreign

Total

Long-Lived Assets

United States

Venezuela

Ecuador

Colombia

Other Foreign

Total

$623,246

$440,268

$ 394,706

66,824

60,946

12,792

36,918
$800,726

56,297

43,363

3,698

45,430
$589,056

31,816

50,463

6,062

21,176
$ 504,223

$810,489

$799,207

$ 867,365

84,461

44,250

9,213

33,552
$981,965

85,336

46,809

9,336

57,986
$998,674

75,179

46,778

12,984

55,899
$1,058,205

Long-lived assets are comprised of property, plant and equipment.

Revenues from one company doing business with the contract drilling segment accounted for approximately 11.1
percent, 11.4 percent, and 16.0 percent of the total operating revenues during the years ended September 30,
2005, 2004, and 2003, respectively. Revenues from another company doing business with the contract drilling
segment accounted for approximately 8.7 percent, 11.3 percent, and 11.7 percent of total operating revenues in
the years ended September 30, 2005, 2004, and 2003, respectively. Revenues from a third company doing
business with the contract drilling segment accounted for approximately 7.7 percent, 8.9 percent, and 14.9 percent
of total operating revenues in the years ended September 30, 2005, 2004, and 2003, respectively. Collectively, the

85

receivables from these customers were approximately $38.5 million and $28.6 million at September 30, 2005 and
2004, respectively.

NOTE 15 SUBSEQUENT EVENTS

In October and November, 2005, the Company announced three-year term contracts had been reached with

five exploration and production companies to operate 20 new FlexRig4s and five new FlexRig3s. The rigs are

scheduled for delivery to the field beginning in the third quarter of fiscal 2006 through the fourth quarter of

fiscal 2007. With these contracts, the Company has now committed to build a total of 50 new FlexRigs.

On December 6, 2005, a cash dividend of $.0825 per share was declared for shareholders of record on

February 15, 2006, payable March 1, 2006.

On December 6, 2005, the Board of Directors approved Amendment No. 1 to the Rights Agreement dated
January 8, 1996. Among other things, Amendment No. 1 amends the Rights Agreement to extend the Final
Expiration Date of the Rights to January 31, 2016, and to increase the exercise price of the Rights to $250
per Right.

NOTE 16 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

2005

Operating revenues

Operating income

Net income

Basic net income per common share

Diluted net income per common share

(in thousands, except per share amounts)

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

$174,679

$185,450

$207,387

$233,210

30,919

39,310

.78

.77

37,586

22,350

.44

.43

50,818

29,825

.58

.57

59,883

36,121

.70

.68

2004

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Operating revenues

Asset impairment charge

Operating income (loss)

Net income (loss)

Basic net income (loss) per common share

Diluted net income (loss) per common share

$134,273

$143,024

$147,691

$164,068

—

9,122

6,588

.13

.13

—

4,883

6,048

.12

.12

—

8,679

4,347

.09

.09

51,516

(34,946)

(12,624)

(.25)

(.25)

The sum of earnings per share for the four quarters may not equal the total earnings per share for the year
due to changes in the average number of common shares outstanding.

86

In the first quarter of fiscal 2005, the net income includes an after-tax gain on sale of available-for-sale

securities of $16.0 million, $0.31 per share, on a diluted basis.

In the fourth quarter of fiscal 2005, the net income includes an after-tax gain on sale of available for-sale

securities of $.4 million, $0.01 per share, on a diluted basis.

In the first quarter of fiscal 2004, the net income includes a non-monetary investment gain on the conversion

of shares of common stock of a company investee pursuant to that investee being acquired of $1.2 million,

$0.02 per share, on a diluted basis.

In the fourth quarter of fiscal 2004, the net loss includes an after-tax gain on sale of available-for-sale

securities of $8.1 million, $0.16 per share, on a diluted basis.

In the fourth quarter of fiscal 2004, the net loss includes an after-tax asset impairment charge of
approximately $32.0 million, $0.63 per share, on a diluted basis.

87

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

W. H. Helmerich, III
Chairman of the Board
Tulsa, Oklahoma

Hans Helmerich
President and Chief Executive Officer
Tulsa, Oklahoma

William L. Armstrong**(***)
Chairman
Cherry Creek Mortgage Company
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

Paula Marshall-Chapman**(***)
Chief Executive Officer, The Bama
Companies, Inc., Tulsa, Oklahoma

Edward B. Rust, Jr.*(***)
Chairman and Chief Executive Officer
State Farm Mutual Automobile Insurance
Company
Bloomington, Illinois

John D. Zeglis*(**) (***)
Chairman and Chief Executive Officer, Retired
AT&T Wireless Services, Inc.
Basking Ridge, New Jersey

* Member, Audit Committee
** Member, Human Resources Committee
*** Member, Nominating and Corporate Governance Committee

88

Stockholders’ Meeting
The annual meeting of stockholders will be held
on March 1, 2006. A formal notice of the
meeting, together with a proxy statement and
form of proxy will be mailed to shareholders on or
about January 26, 2006.

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 5, 2005, there were 808 record
holders of Helmerich & Payne, Inc. common
stock as listed by the transfer agent’s records.

Our Transfer Agent is responsible for our
shareholder records, issuance of stock
certificates, and distribution of our dividends and
the IRS Form 1099. Your requests, as
shareholders, concerning these matters are most
efficiently answered by corresponding directly
with The Transfer Agent at the following address:

UMB Bank
Security Transfer Division
928 Grand Blvd., 13th Floor
Kansas City, MO 64106
Telephone: (800) 884-4225
(816) 860-5000

Available Information
Quarterly reports on Form 10-Q, earnings
releases, and financial statements are made
available on the investor relations section of the
Company’s Web site. Also located on the investor
relations section of the Company’s Web site are
certain corporate governance documents,
including the following: the charters of the
committees of the Board of Directors; the
Company’s Corporate Governance Guidelines and
Code of Business Conduct and Ethics; the Code
of Ethics for Principal Executive Officer and
Senior Financial Officers; certain Audit Committee
Practices and a description of the means by
which employees and other interested persons
may communicate certain concerns to the
Company’s Board of Directors, including the
communication of such concerns confidentially
and anonymously via the Company’s ethics hotline
at 1-800-205-4913. Quarterly reports, earnings
releases, financial statements and the various
corporate governance documents are also
available free of charge upon written request.

Annual CEO Certification
The annual CEO Certification required by Section
303A.12(a) of the New York Stock Exchange Listed
Company Manual was provided to the New York
Stock Exchange on or about March 22, 2005.

Direct Inquiries To:
Investor Relations
Helmerich & Payne, Inc.
1437 South Boulder Avenue
Tulsa, Oklahoma 74119
Telephone: (918) 742-5531

Internet Address: http://www.hpinc.com

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