|
Delaware
|
73-1283193
|
|
(State
or other jurisdiction of incorporation)
|
(I.R.S.
Employer Identification No.)
|
7130
South Lewis, Suite 1000, Tulsa, Oklahoma
|
74136
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(918)
493-7700
|
|
(Registrant’s
telephone number, including area
code)
|
None
|
|
(Former
name, former address and former fiscal year,
|
|
if
changed since last report)
|
Yes
[x]
|
No
[ ]
|
Large
accelerated filer [x]
|
Accelerated
filer [ ]
|
Non-accelerated
filer [ ]
|
Yes
[ ]
|
No
[x]
|
Page
|
|||
Number
|
|||
PART
I. Financial Information
|
|||
Item
1.
|
Financial
Statements (Unaudited)
|
||
Consolidated
Condensed Balance Sheets
|
|||
March
31, 2006 and December 31, 2005
|
2
|
||
Consolidated
Condensed Statements of Income
|
|||
Three
Months Ended March 31, 2006 and 2005
|
4
|
||
Consolidated
Condensed Statements of Cash Flows
|
|||
Three
Months Ended March 31, 2006 and 2005
|
5
|
||
Consolidated
Condensed Statements of Comprehensive Income
|
|||
Three
Months Ended March 31, 2006 and 2005
|
6
|
||
Notes
to Consolidated Condensed Financial Statements
|
7
|
||
Report
of Independent Registered Public Accounting Firm
|
19
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial
|
||
Condition
and Results of Operations
|
20
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
33
|
|
Item
4.
|
Controls
and Procedures
|
33
|
|
PART
II. Other Information
|
|||
Item
1.
|
Legal
Proceedings
|
36
|
|
Item
1A.
|
Risk
Factors
|
36
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
36
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
36
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
36
|
|
Item
5.
|
Other
Information
|
36
|
|
Item
6.
|
Exhibits
|
36
|
|
Signatures
|
37
|
|
|
March
31,
|
|
|
|
December
31,
|
|||
2006
|
2005
|
||||||||
(In
thousands)
|
|||||||||
ASSETS
|
|||||||||
Current
Assets:
|
|||||||||
Cash
and cash equivalents
|
$
|
821
|
$
|
947
|
|||||
Restricted
cash
|
1,018
|
268
|
|||||||
Accounts
receivable
|
182,081
|
199,765
|
|||||||
Materials
and supplies
|
16,171
|
14,108
|
|||||||
Other
|
7,847
|
8,597
|
|||||||
Total
current assets
|
207,938
|
223,685
|
|||||||
|
|||||||||
Property
and Equipment:
|
|||||||||
Drilling
equipment
|
659,748
|
626,913
|
|||||||
Oil
and natural gas properties, on the full cost
|
|
||||||||
method:
|
|||||||||
Proved
properties
|
1,044,743
|
995,119
|
|||||||
Undeveloped
leasehold not being amortized
|
38,604
|
38,421
|
|||||||
Gas
gathering and processing equipment
|
64,268
|
60,354
|
|
||||||
Transportation
equipment
|
18,219
|
17,338
|
|||||||
Other
|
13,757
|
12,935
|
|||||||
1,839,339
|
1,751,080
|
||||||||
Less
accumulated depreciation, depletion, amortization
|
|||||||||
and
impairment
|
611,889
|
575,410
|
|||||||
Net
property and equipment
|
1,227,450
|
1,175,670
|
|||||||
Goodwill
|
39,659
|
39,659
|
|||||||
Other
Assets
|
18,106
|
17,181
|
|||||||
Total
Assets
|
$
|
1,493,153
|
$
|
1,456,195
|
March
31,
|
|
|
|
December
31,
|
|
||||
|
|
2006
|
|
|
|
2005
|
|
||
|
|
(In
thousands)
|
|||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||||
Current
Liabilities:
|
|||||||||
Accounts
payable
|
$
|
84,409
|
$
|
109,621
|
|||||
Accrued
liabilities
|
29,682
|
32,819
|
|
||||||
Income
taxes payable
|
32,625
|
16,941
|
|||||||
Contract
advances
|
10,886
|
5,548
|
|||||||
Current
portion of other liabilities
|
6,094
|
7,583
|
|||||||
Total
current liabilities
|
163,696
|
172,512
|
|||||||
Long-Term
Debt
|
90,300
|
145,000
|
|||||||
|
|||||||||
Other
Long-Term Liabilities
|
51,781
|
41,981
|
|||||||
Deferred
Income Taxes
|
273,965
|
259,740
|
|||||||
Shareholders’
Equity:
|
|||||||||
Preferred
stock, $1.00 par value, 5,000,000 shares
|
|||||||||
authorized,
none issued
|
---
|
---
|
|||||||
Common
stock, $.20 par value, 75,000,000 shares
|
|||||||||
authorized,
46,257,646 and 46,178,162 shares
|
|||||||||
issued,
respectively
|
9,242
|
9,236
|
|||||||
Capital
in excess of par value
|
327,167
|
328,037
|
|||||||
Accumulated
other comprehensive income
|
659
|
|
485
|
||||||
Unearned
compensation - restricted stock
|
---
|
(2,226
|
)
|
||||||
Retained
earnings
|
576,343
|
501,430
|
|||||||
Total
shareholders’ equity
|
913,411
|
836,962
|
|||||||
Total
Liabilities and Shareholders’ Equity
|
$
|
1,493,153
|
$
|
1,456,195
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
(In
thousands except per share amounts)
|
|||||||
Revenues:
|
|||||||
Contract
drilling
|
$
|
161,430
|
$
|
96,681
|
|||
Oil
and natural gas
|
94,326
|
56,864
|
|||||
Gas
gathering and processing
|
25,482
|
18,230
|
|||||
Other
|
1,570
|
(195
|
)
|
||||
Total
revenues
|
282,808
|
171,580
|
|||||
Expenses:
|
|||||||
Contract
drilling:
|
|||||||
Operating
costs
|
80,309
|
63,431
|
|||||
Depreciation
|
11,841
|
9,610
|
|||||
Oil
and natural gas:
|
|||||||
Operating
costs
|
18,306
|
12,413
|
|||||
Depreciation,
depletion and amortization
|
24,182
|
14,432
|
|||||
Gas
gathering and processing:
|
|||||||
Operating
costs
|
22,801
|
16,834
|
|||||
Depreciation
|
1,150
|
638
|
|||||
General
and administrative
|
3,966
|
3,971
|
|||||
Interest
|
990
|
687
|
|||||
Total
expenses
|
163,545
|
122,016
|
|||||
Income
Before Income Taxes
|
119,263
|
49,564
|
|||||
Income
Tax Expense:
|
|||||||
Current
|
30,158
|
9,417
|
|||||
Deferred
|
14,192
|
9,417
|
|||||
Total
income taxes
|
44,350
|
18,834
|
|||||
Net
Income
|
$
|
74,913
|
$
|
30,730
|
|||
Net
Income per Common Share:
|
|||||||
Basic
|
$
|
1.62
|
$
|
0.67
|
|||
Diluted
|
$
|
1.61
|
$
|
0.67
|
Three
Months Ended
|
|||||||||
March
31,
|
|
||||||||
|
|
2006
|
|
|
|
2005
|
|
||
|
|
(In
thousands)
|
|||||||
Cash
Flows From Operating Activities:
|
|||||||||
Net
income
|
$
|
74,913
|
$
|
30,730
|
|||||
Adjustments
to reconcile net income to net cash
|
|||||||||
provided
(used) by operating activities:
|
|||||||||
Depreciation,
depletion and amortization
|
37,340
|
24,874
|
|||||||
Deferred
tax expense
|
14,192
|
9,417
|
|||||||
Other
|
1,492
|
1,246
|
|||||||
Changes
in operating assets and liabilities
|
|||||||||
increasing
(decreasing) cash:
|
|
||||||||
Accounts
receivable
|
16,614
|
(10,448
|
)
|
||||||
Accounts
payable
|
(20,177
|
)
|
(10,781
|
)
|
|||||
Materials
and supplies inventory
|
(2,063
|
)
|
(1,078
|
)
|
|||||
Accrued
liabilities
|
12,324
|
13,277
|
|||||||
Contract
advances
|
5,338
|
(1,145
|
)
|
||||||
Other
- net
|
876
|
(198
|
)
|
||||||
Net
cash provided by operating activities
|
140,849
|
55,894
|
|||||||
Cash
Flows From (Used In) Investing Activities:
|
|||||||||
Capital
expenditures (including drilling rig acquisitions)
|
(82,709
|
)
|
(47,121
|
)
|
|||||
Proceeds
from disposition of assets
|
2,889
|
2,328
|
|||||||
Other-net
|
(1,339
|
)
|
(207
|
)
|
|||||
Net
cash used in investing activities
|
(81,159
|
)
|
(45,000
|
)
|
|||||
|
|
||||||||
Cash
Flows From (Used In) Financing Activities:
|
|||||||||
Borrowings
under line of credit
|
21,500
|
26,400
|
|||||||
Payments
under line of credit
|
(76,200
|
)
|
(43,900
|
)
|
|||||
Net
change in other long-term
|
|||||||||
liabilities
|
---
|
276
|
|||||||
Proceeds
from exercise of stock options
|
625
|
517
|
|||||||
Book
overdrafts
|
(5,741
|
)
|
5,618
|
||||||
Net
cash from financing activities
|
(59,816
|
)
|
(11,089
|
)
|
|||||
Net
Decrease in Cash and Cash Equivalents
|
(126
|
)
|
(195
|
)
|
|||||
|
|||||||||
Cash
and Cash Equivalents, Beginning of Year
|
947
|
665
|
|||||||
Cash
and Cash Equivalents, End of Period
|
$
|
821
|
$
|
470
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
(In
thousands)
|
|||||||
Net
Income
|
$
|
74,913
|
$
|
30,730
|
|||
Other
Comprehensive Income,
|
|||||||
Net
of Taxes:
|
|||||||
Change
in value of cash
|
|||||||
flow
derivative
|
|||||||
instruments
used as
|
|||||||
cash
flow hedges
|
224
|
(1,464
|
)
|
||||
Reclassification
-
|
|||||||
derivative
settlements
|
(50
|
)
|
28
|
||||
Comprehensive
Income
|
$
|
75,087
|
$
|
29,294
|
Three
|
|
|||
|
|
Months
Ended
|
|
|
|
|
March
31, 2005
|
|
|
|
|
(In
thousands except
|
|
|
|
|
per
share amounts)
|
||
Net
Income, as Reported
|
$
|
30,730
|
||
Add
Stock-Based Employee Compensation
|
||||
Expense
Included in Reported Net
|
||||
Income,
Net of Tax
|
549
|
|||
Less
Total Stock-Based
|
||||
Employee
Compensation Expense
|
||||
Determined
Under Fair Value Based
|
||||
Method
For All Awards
|
(1,030
|
)
|
||
Pro
Forma Net Income
|
$
|
30,249
|
||
Basic
Earnings per Share:
|
||||
As
reported
|
$
|
0.67
|
||
Pro
forma
|
$
|
0.66
|
||
Diluted
Earnings per Share:
|
||||
As
reported
|
$
|
0.67
|
||
Pro
forma
|
$
|
0.66
|
Three
Months Ended
|
|
||||||
|
|
March
31,
|
|
||||
|
|
2006
|
|
2005
|
|||
Options
Granted
|
---
|
4,000
|
|||||
Estimated
Fair Value (In Millions)
|
---
|
$
|
0.1
|
||||
Estimate
of Stock Volatility
|
---
|
0.55
|
|||||
Estimated
Dividend Yield
|
---
|
0%
|
|||||
Risk
Free Interest Rate
|
---
|
4.42%
|
|||||
Expected
Life Range Based on
|
|||||||
Prior
Experience (In Years)
|
---
|
1
to 10
|
|
Number
of Shares
|
|
|
||||||||
Three
Months Ended
|
Weighted Average Exercise | ||||||||||
March
31,
|
Price
|
||||||||||
|
2006
|
2005
|
|
2006
|
|
|
2005
|
|
|||
Outstanding
at Beginning of Period
|
434,713
|
553,750
|
$
|
24.14
|
|
$
|
22.11
|
|
|||
Granted
|
---
|
4,000
|
|
---
|
|
34.78
|
|
||||
Exercised
|
(29,043
|
)
|
(67,577
|
)
|
|
19.01
|
|
15.26
|
|
||
Forfeited
|
---
|
(2,000
|
)
|
|
---
|
|
37.83
|
|
|||
Outstanding
at End of Period
|
405,670
|
488,173
|
$
|
24.50
|
$
|
23.10
|
|
Outstanding Options at
|
||||||||||
|
|
March
31, 2006
|
|
|||||||
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
Number
of
|
|
|
Contractual
|
|
|
Exercise
|
|
Exercise
Prices
|
|
|
Shares
|
|
|
Life
|
|
|
Price
|
|
$3.75
|
|
|
34,000
|
|
|
2.7
years
|
|
$
|
3.75
|
|
$8.75
|
|
|
21,500
|
|
|
0.7
years
|
|
$
|
8.75
|
|
$16.69
- $19.04
|
|
|
115,200
|
|
|
6.1
years
|
|
$
|
18.33
|
|
$21.50
- $26.28
|
|
|
91,330
|
|
|
7.7
years
|
|
$
|
22.99
|
|
$34.75
- $37.83
|
|
|
143,640
|
|
|
8.8
years
|
|
$
|
37.68
|
|
Exercisable
Options At
|
|||||||
|
|
March
31, 2006
|
|
||||
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Number
of
|
|
|
Exercise
|
|
Exercise
Prices
|
|
|
Shares
|
|
|
Price
|
|
$3.75
|
|
|
34,000
|
|
$
|
3.75
|
|
$8.75
|
|
|
21,500
|
|
$
|
8.75
|
|
$16.69
- $19.04
|
|
|
76,400
|
|
$
|
17.97
|
|
$21.50
- $26.28
|
|
|
32,420
|
|
$
|
22.86
|
|
$34.75
- $37.83
|
|
|
22,240
|
|
$
|
37.72
|
|
|
Number
of Shares
|
|
|
||||||||
Three
Months Ended
|
Weighted Average Exercise | ||||||||||
March
31,
|
Price
|
||||||||||
|
2006
|
2005
|
|
2006
|
|
|
2005
|
|
|||
Outstanding
at Beginning of Period
|
96,000
|
94,000
|
$
|
24.93
|
|
$
|
20.27
|
|
|||
Granted
|
---
|
---
|
|
---
|
|
---
|
|
||||
Exercised
|
(3,500
|
)
|
(6,000
|
)
|
|
20.10
|
|
13.10
|
|
||
Forfeited
|
---
|
---
|
|
---
|
|
---
|
|
||||
Outstanding
at End of Period
|
92,500
|
88,000
|
$
|
25.11
|
$
|
20.76
|
|
Outstanding
and Exercisable
|
||||||||||
|
|
Options
at March 31, 2006
|
|
|||||||
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
Number
of
|
|
|
Contractual
|
|
|
Exercise
|
|
Exercise
Prices
|
|
|
Shares
|
|
|
Life
|
|
|
Price
|
|
$6.90
|
|
|
5,000
|
|
|
3.1
years
|
|
$
|
6.90
|
|
$12.19
- $17.54
|
|
|
14,000
|
|
|
4.8
years
|
|
$
|
16.20
|
|
$20.10
- $20.46
|
|
|
31,500
|
|
|
6.7
years
|
|
$
|
20.30
|
|
$28.23
- $39.50
|
|
|
42,000
|
|
|
8.6
years
|
|
$
|
33.87
|
|
|
|
Weighted
|
|
|
|
|||||
|
|
Income
|
|
Shares
|
|
Per-Share
|
|
|||
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
|
|||
|
|
(In
thousands except per share amounts)
|
||||||||
For
the Three Months Ended
|
||||||||||
March
31, 2006:
|
||||||||||
Basic
earnings per common share
|
$
|
74,913
|
46,200
|
$
|
1.62
|
|||||
Effect
of dilutive stock options and grants
|
--
|
214
|
(0.01
|
)
|
||||||
|
||||||||||
Diluted
earnings per common share
|
$
|
74,913
|
46,414
|
$
|
1.61
|
|||||
For
the Three Months Ended
|
||||||||||
March
31, 2005:
|
||||||||||
Basic
earnings per common share
|
$
|
30,730
|
45,800
|
$
|
0.67
|
|||||
Effect
of dilutive stock options
|
--
|
250
|
--
|
|||||||
|
||||||||||
Diluted
earnings per common share
|
$
|
30,730
|
46,050
|
$
|
0.67
|
March
31,
|
|
December
31,
|
|
||||
|
|
2006
|
|
2005
|
|
||
|
|
(In
thousands)
|
|||||
Revolving
Credit Loan,
|
|||||||
with
Interest at March 31, 2006 and
|
|||||||
December
31, 2005 of 5.8% and 4.9%,
|
|||||||
Respectively
|
$
|
90,300
|
$
|
145,000
|
|||
|
|||||||
Less
Current Portion
|
--
|
--
|
|||||
Total
Long-Term Debt
|
$
|
90,300
|
$
|
145,000
|
.
|
the
payment of dividends (other than stock dividends) during
any fiscal year
in excess of 25% of the company’s consolidated net income for the
preceding fiscal year,
|
.
|
the
incurrence of additional debt with certain limited exceptions,
and
|
.
|
the
creation or existence of mortgages or liens, other than those
in the
ordinary course of business, on any of the company’s property, except in
favor of the company’s banks.
|
.
|
consolidated
net worth of at least $350 million,
|
.
|
a
current ratio (as defined in the loan agreement) of not less
than 1 to 1,
and
|
.
|
a
leverage ratio of long-term debt to consolidated EBITDA (as
defined in the
credit agreement) for the most recently ended rolling four
fiscal quarters
of no greater than 3.25 to 1.0.
|
March
31,
|
|||||||
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|||||
Separation
Benefit Plan
|
|
$
|
2,844
|
|
$
|
2,898
|
|
Deferred
Compensation Plan
|
|
|
2,618
|
|
|
2,334
|
|
Retirement
Agreement
|
|
|
1,613
|
|
|
1,856
|
|
Workers’
Compensation
|
|
|
20,122
|
|
|
17,526
|
|
Gas
Balancing Liability
|
|
|
1,080
|
|
|
1,080
|
|
Plugging
Liability
|
|
|
29,598
|
|
|
19,496
|
|
|
|
|
57,875
|
|
|
45,190
|
|
Less
Current Portion
|
|
|
6,094
|
|
|
7,635
|
|
Total
Other Long-Term Liabilities
|
|
$
|
51,781
|
|
$
|
37,555
|
|
Three
Months Ended
|
|
||||||
|
|
2006
|
|
2005
|
|
||
|
|
(In
thousands)
|
|||||
Short-Term
Plugging Liability:
|
|||||||
Liability
at beginning of period
|
$
|
366
|
$
|
226
|
|||
Accretion
of discount
|
2
|
8
|
|||||
Liability
settled in the period
|
(18
|
)
|
(23
|
)
|
|||
Reclassification
of liability from long-term
|
|||||||
to
short-term
|
81
|
23
|
|||||
Revision
of estimates
|
46
|
---
|
|||||
Plugging
liability at end of period
|
$
|
477
|
$
|
234
|
|||
Long-Term
Plugging Liability:
|
|||||||
Liability
at beginning of period
|
$
|
21,649
|
$
|
18,909
|
|||
Accretion
of discount
|
308
|
234
|
|||||
Liability
incurred in the period
|
323
|
144
|
|||||
Reclassification
of liability from long-term
|
|||||||
to
short-term
|
(81
|
)
|
(23
|
)
|
|||
Revision
of estimates
|
6,922
|
(2
|
)
|
||||
Plugging
liability at end of period
|
$
|
29,121
|
$
|
19,262
|
First
Contract:
|
||||
Production
volume covered
|
10,000
MMBtus/day
|
|||
Period
covered
|
April
through October of 2005
|
|||
Prices
|
Floor
of $5.50 and a ceiling of $7.19
|
|||
Second
Contract:
|
||||
Production
volume covered
|
10,000
MMBtus/day
|
|||
Period
covered
|
April
through October of 2005
|
|||
Prices
|
Floor
of $5.50 and a ceiling of $7.30
|
|
|
Three
Months Ended
|
|
||||
|
|
March
31,
|
|
||||
|
|
2006
|
|
2005
|
|
||
|
|
(In
thousands)
|
|||||
Revenues:
|
|||||||
Contract
drilling
|
$
|
167,682
|
$
|
99,320
|
|||
Elimination
of inter-segment revenue
|
6,252
|
2,639
|
|||||
Contract
drilling net of
|
|||||||
inter-segment
revenue
|
161,430
|
96,681
|
|||||
|
|||||||
Oil
and natural gas
|
94,326
|
56,864
|
|||||
Gas
gathering and processing
|
29,238
|
20,088
|
|||||
Elimination
of inter-segment revenue
|
3,756
|
1,858
|
|||||
Gas
gathering and processing
|
|
||||||
net
of inter-segment revenue
|
25,482
|
18,230
|
|||||
Other
(1)
|
1,570
|
(195
|
)
|
||||
Total
revenues
|
$
|
282,808
|
$
|
171,580
|
|||
Operating
Income (2):
|
|||||||
Contract
drilling
|
$
|
69,280
|
$
|
23,640
|
|||
Oil
and natural gas
|
51,838
|
30,019
|
|||||
Gas
gathering and processing
|
1,531
|
758
|
|||||
Total
operating income
|
122,649
|
54,417
|
|||||
General
and administrative
|
|||||||
expense
|
(3,966
|
)
|
(3,971
|
)
|
|||
Interest
expense
|
(990
|
)
|
(687
|
)
|
|||
Other
income (loss) - net
|
1,570
|
(195
|
)
|
||||
Income
before income taxes
|
$
|
119,263
|
$
|
49,564
|
(1) | Includes a $1.0 million gain from insurance proceeds on the loss of a drilling rig from |
a blow out and fire in January 2006. |
(2) |
Operating
income is total operating revenues less operating expenses,
depreciation,
|
depletion and amortization and does not include non-operating revenues, general |
corporate expenses, interest expense or income taxes. |
. |
•
contract drilling carried out by our subsidiaries Unit Drilling
Company,
Unit Texas Drilling, L.L.C.
|
|
and Service Drilling Southwest, L.L.C.; | ||
. |
•
oil and natural gas exploration, carried out by our subsidiary
Unit
Petroleum Company; and
|
|
. |
•
natural gas buying, selling, gathering and processing carried
out by our
subsidiary Superior Pipeline
|
|
Company,
L.L.C.
|
|
. |
•
the prices we receive for our natural gas production and,
to a lesser
extent, the prices we receive for our oil
|
production; | ||
. |
•
the quantity of natural gas and oil we produce;
|
|
. |
•
the demand for and the dayrates we receive for our drilling
rigs; and
|
|
. |
•
the margins we obtain from our natural gas gathering and
processing
contracts.
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
Percent
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
(In
thousands except percent amounts)
|
|||||||||
Working
Capital
|
|
$
|
44,242
|
|
$
|
31,981
|
|
|
38
|
%
|
Long-Term
Debt
|
$
|
90,300
|
$
|
78,000
|
16
|
%
|
||||
Shareholders’
Equity
|
|
$
|
913,411
|
|
$
|
639,968
|
|
|
43
|
%
|
Ratio
of Long-Term Debt to Total Capitalization
|
|
|
9
|
%
|
|
111
|
%
|
|
(18
|
)%
|
Net
Income
|
|
$
|
74,913
|
|
$
|
30,730
|
|
|
144
|
%
|
Net
Cash Provided by Operating Activities
|
|
$
|
140,849
|
|
$
|
55,894
|
|
|
152
|
%
|
Net
Cash Used in Investing Activities
|
|
$
|
(81,159
|
)
|
$
|
(45,000
|
)
|
|
80
|
%
|
Net
Cash Used In Financing Activities
|
|
$
|
(59,816
|
)
|
$
|
(11,089
|
)
|
|
439
|
%
|
|
|
March
31,
|
|
March
31,
|
|
|
Percent
|
|
||
|
|
2006
|
|
2005
|
|
|
Change
|
|
||
Oil
Production (MBbls)
|
|
|
327
|
|
|
280
|
|
|
17
|
%
|
Natural
Gas Production (MMcf)
|
|
|
10,713
|
|
|
7,653
|
|
|
40
|
%
|
Average
Oil Price Received
|
|
$
|
54.53
|
|
$
|
44.56
|
|
|
22
|
%
|
Average
Oil Price Received Excluding Hedges
|
|
$
|
54.53
|
|
$
|
44.56
|
|
|
22
|
%
|
Average
Natural Gas Price Received
|
|
$
|
7.04
|
|
$
|
5.69
|
|
|
24
|
%
|
Average
Natural Gas Price Received Excluding Hedges
|
|
$
|
7.04
|
|
$
|
5.69
|
|
|
24
|
%
|
Average
Number of Our Drilling Rigs in Use During
|
||||||||||
the
Period
|
|
|
108.6
|
|
|
99.3
|
|
|
9
|
%
|
Total
Number of Drilling Rigs Available at the End
|
||||||||||
of
the Period
|
|
|
111
|
|
|
102
|
|
|
9
|
%
|
Average
Dayrate
|
$
|
17,122
|
$
|
10,253
|
67
|
%
|
||||
Gas
Gathered—MMBtu/day
|
|
|
215,341
|
|
|
107,254
|
|
|
101
|
%
|
Gas
Processed—MMBtu/day
|
|
|
23,616
|
|
|
30,336
|
|
|
(22
|
)%
|
Number
of Active Natural Gas Gathering Systems
|
|
|
36
|
|
|
32
|
|
|
13
|
%
|
.
|
the
payment of dividends (other than stock dividends) during
any fiscal year
in excess of 25% of our consolidated net income for the preceding
fiscal
year,
|
.
|
the
incurrence of additional debt with certain limited exceptions,
and
|
.
|
the
creation or existence of mortgages or liens, other than those
in the
ordinary course of business, on any of our property, except
in favor of
our banks.
|
.
|
consolidated
net worth of at least $350 million,
|
.
|
a
current ratio (as defined in the loan agreement) of not less
than 1 to 1,
and
|
.
|
a
leverage ratio of long-term debt to consolidated EBITDA (as
defined in the
loan agreement) for the most recently ended rolling four
fiscal quarters
of no greater than 3.25 to 1.0.
|
|
|
|
|
Payments
Due by Period
|
|
|||||||||||||
|
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|||||
Contractual
|
|
|
|
|
|
Than
1
|
|
2-3
|
|
4-5
|
|
After
5
|
|
|||||
Obligations
|
|
|
|
Total
|
|
Year
|
|
Years
|
|
Years
|
|
Years
|
||||||
(In
thousands)
|
||||||||||||||||||
Bank
Debt (1)
|
$
|
98,227
|
$
|
4,318
|
$
|
93,909
|
$
|
---
|
$
|
---
|
||||||||
Retirement
Agreements (2)
|
1,788
|
506
|
1,207
|
75
|
|
---
|
||||||||||||
Operating
Leases (3)
|
3,157
|
1,099
|
1,472
|
586
|
|
---
|
||||||||||||
Drill
Pipe, Drilling Rigs and
|
||||||||||||||||||
Equipment
Purchases (4)
|
35,613
|
35,613
|
---
|
---
|
---
|
|||||||||||||
Casing
and Tubing (5)
|
16,263
|
16,263
|
---
|
---
|
---
|
|||||||||||||
SerDrilco
Inc. Earn-Out
|
||||||||||||||||||
Agreement
(6)
|
7,644
|
7,644
|
---
|
---
|
---
|
|||||||||||||
Total
Contractual
|
||||||||||||||||||
Obligations
|
$
|
162,692
|
$
|
65,443
|
$
|
96,588
|
$
|
661
|
$
|
---
|
(1)
|
See
the previous discussion in Management Discussion and Analysis
regarding
bank debt. This obligation is presented in accordance with
the terms of
the credit agreement and includes interest calculated at
the March 31,
2006 interest rate of 5.8% including the effect of the interest
rate swap
related to $50.0 million of the outstanding
debt.
|
(2)
|
In
the second quarter of 2001, we recorded $1.3 million in additional
employee benefit expense for the present value of a separation
agreement
made in connection with the retirement of King Kirchner from
his position
as Chief Executive Officer. The liability associated with
this expense,
including accrued interest, will be paid in monthly payments
of $25,000
starting in July 2003 and continuing through June 2009. In
the first
quarter of 2004, we acquired a liability for the present
value of a
separation agreement between PetroCorp Incorporated and one
of its
previous officers. The liability associated with this agreement
will be
paid in quarterly payments of $12,500 through December 31,
2007. In the
first quarter of 2005, we recorded $0.7 million in additional
employee
benefit expense for the present value of a separation agreement
made in
connection with the retirement of John Nikkel from his position
as Chief
Executive Officer. The liability associated with this expense,
including
accrued interest, will be paid in monthly payments of $31,250
starting in
November 2006 and continuing through October 2008. These
liabilities as
presented above are undiscounted.
|
(3)
|
We
lease office space in Tulsa and Woodward, Oklahoma; Houston,
Midland, and
Weatherford, Texas; Pinedale, Wyoming and Denver, Colorado
under the terms
of operating leases expiring through January 31, 2010. Additionally,
we
have several equipment leases and lease space on short-term
commitments to
stack excess rig equipment and production inventory.
|
(4)
|
Due
to the potential for limited availability of new drill pipe
within the
industry, we have committed to purchase approximately $19.9 million
of drill pipe and drill collars. We have committed to purchase
$5.1
million of additional rig components for the construction
of new rigs. We
have also committed $15.2 million for the purchase of two
drilling rigs
with $4.6 million paid before March 31,
|
2006 and the remainder due at delivery. The first of these new drilling rigs should be delivered in May 2006 and the second drilling rig is expected to be delivered in June 2006. | ||
(5) | We have made commitments to purchase $16.3 million of tubing and casing during 2006. | |
On
December 8, 2003, the company acquired SerDrilco Incorporated
and its
subsidiary, Service Drilling Southwest, L.L.C., for $35.0
million in cash.
The terms of the acquisition include an earn-out provision
allowing the
sellers to receive one-half of the cash flow in excess of
$10.0 million
for each of the three years following the acquisition. For
the year ending
December 31, 2005, the second year of the earn-out period,
the drilling
rigs included in the earn-out provision had cash flow providing
an
earn-out of approximately $7.6 million which was paid in
April
2006.
|
|
|
|
|
|
|
|
|
Amount
of Commitment Expiration
|
|
|||||||||||
|
|
|
|
|
|
|
|
Per
Period
|
|
|||||||||||
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
Committed
|
|
Less
|
|
|
|
|
|
|
|
|||||
Other
|
|
|
|
|
|
Or
|
|
Than
1
|
|
2-3
|
|
4-5
|
|
After
5
|
|
|||||
Commitments
|
|
|
|
|
|
Accrued
|
|
Year
|
|
Years
|
|
Years
|
|
Years
|
|
|||||
|
|
|
|
|
|
|
|
(In
thousands)
|
||||||||||||
Deferred
Compensation
|
||||||||||||||||||||
Agreement
(1)
|
$
|
2,618
|
Unknown
|
Unknown
|
Unknown
|
Unknown
|
||||||||||||||
Separation
Benefit
|
||||||||||||||||||||
Agreement
(2)
|
$
|
2,844
|
$
|
386
|
Unknown
|
Unknown
|
Unknown
|
|||||||||||||
Plugging
Liability (3)
|
$
|
29,598
|
$
|
477
|
$
|
1,985
|
$
|
1,787
|
$
|
25,349
|
||||||||||
Gas
Balancing
|
||||||||||||||||||||
Liability
(4)
|
$
|
1,080
|
Unknown
|
Unknown
|
Unknown
|
Unknown
|
||||||||||||||
Repurchase
|
||||||||||||||||||||
Obligations
(5)
|
Unknown
|
Unknown
|
Unknown
|
Unknown
|
Unknown
|
|||||||||||||||
Workers’
Compensation
|
||||||||||||||||||||
Liability
(6)
|
$
|
20,122
|
$
|
4,725
|
$
|
3,715
|
$
|
1,317
|
$
|
10,365
|
(1)
|
We
provide a salary deferral plan which allows participants
to defer the
recognition of salary for income tax purposes until actual
distribution of
benefits, which occurs at either termination of employment,
death or
certain defined unforeseeable emergency hardships. We recognize
payroll
expense and record a liability, included in other long-term
liabilities in
our consolidated condensed balance sheet, at the time of
deferral.
|
(2)
|
Effective
January 1, 1997, we adopted a separation benefit plan (“Separation Plan”).
The Separation Plan allows eligible employees whose employment
with us is
involuntarily terminated or, in the case of an employee who
has completed
20 years of service, voluntarily or involuntarily terminated,
to receive
benefits equivalent to 4 weeks salary for every whole year
of service
completed with the company up to a maximum of 104 weeks.
To receive
payments the recipient must waive any claims against us in
exchange for
receiving the separation benefits. On October 28, 1997, we
adopted a
Separation Benefit Plan for Senior Management (“Senior Plan”). The Senior
Plan provides certain officers and key executives of the
company with
benefits generally equivalent to the Separation Plan. The
Compensation
Committee of the Board of Directors has absolute discretion
in the
selection of
|
|
the individuals covered in this plan. On May 5, 2004 we also adopted the Special Separation Benefit Plan (“Special Plan”). This plan is identical to the Separation Benefit Plan with the exception that the benefits under the plan vest on the earliest of a participant’s reaching the age of 65 or serving 20 years with the company. In January 2006, the compensation committee elected to allow 33 employees to participate in the plan. | ||
(3)
|
On
January 1, 2003 we adopted Financial Accounting Standards
No. 143,
“Accounting for Asset Retirement Obligations” (FAS
143). FAS 143 establishes an accounting standard requiring the
recording of the fair value of liabilities associated with
the retirement
of long-lived assets (mainly plugging and abandonment costs
for our
depleted wells) in the period in which the liability is incurred
(at the
time the wells are drilled or acquired).
|
|
(4) | We have recorded a liability for certain properties where we believe there are insufficient oil and natural gas reserves available to allow the under-produced owners to recover their under-production from future production volumes. | |
(5)
|
We
formed The Unit 1984 Oil and Gas Limited Partnership and
the 1986 Energy
Income Limited Partnership along with private limited partnerships
(the
“Partnerships”) with certain qualified employees, officers and directors
from 1984 through 2006, with a subsidiary of ours serving
as general
partner. The Partnerships were formed for the purpose of
conducting oil
and natural gas acquisition, drilling and development operations
and
serving as co-general partner with us in any additional limited
partnerships formed during that year. The Partnerships participated
on a
proportionate basis with us in most drilling operations and
most producing
property acquisitions commenced by us for our own account
during the
period from the formation of the Partnership through December
31 of that
year. These partnership agreements require, on the election
of a limited
partner, that we repurchase the limited partner’s interest at amounts to
be determined by appraisal in the future. Such repurchases
in any one year
are limited to 20% of the units outstanding. We made repurchases
of
$4,000, $14,000 and $106,000 in 2005, 2004 and 2003,
respectively.
|
|
(6)
|
We
have recorded a liability for future estimated payments related
to
workers’ compensation claims primarily associated with our contract
drilling segment.
|
First
Contract:
|
||||
Production
volume covered
|
10,000
MMBtus/day
|
|||
Period
covered
|
April
through October of 2005
|
|||
Prices
|
Floor
of $5.50 and a ceiling of $7.19
|
|||
Second
Contract:
|
||||
Production
volume covered
|
10,000
MMBtus/day
|
|||
Period
covered
|
April
through October of 2005
|
|||
Prices
|
Floor
of $5.50 and a ceiling of $7.30
|
Quarter
Ended
|
|
Quarter
Ended
|
|
|
|
||||||
|
|
|
|
March
31,
|
|
March
31,
|
|
Percent
|
|
||
|
|
|
|
2006
|
|
2005
|
|
Change
|
|||
Total
Revenue
|
$
|
282,808,000
|
$
|
171,580,000
|
65
|
%
|
|||||
Net
Income
|
$
|
74,913,000
|
$
|
30,730,000
|
144
|
%
|
|||||
Drilling:
|
|||||||||||
Revenue
|
$
|
161,430,000
|
$
|
96,681,000
|
67
|
%
|
|||||
Operating
costs
|
$
|
80,309,000
|
$
|
63,431,000
|
27
|
%
|
|||||
Percentage
of revenue from
|
|||||||||||
daywork
contracts
|
100
|
%
|
100
|
%
|
---
|
||||||
Average
number of rigs in use
|
108.6
|
99.3
|
9
|
%
|
|||||||
Average
dayrate on daywork
|
|
||||||||||
contracts
|
$
|
17,122
|
|
$
|
10,253
|
67
|
%
|
||||
Depreciation
|
$
|
11,841,000
|
$
|
9,610,000
|
23
|
%
|
|||||
Oil
and Natural Gas:
|
|||||||||||
Revenue
|
$
|
94,326,000
|
$
|
56,864,000
|
66
|
%
|
|||||
Operating
costs
|
$
|
18,306,000
|
$
|
12,413,000
|
47
|
%
|
|||||
Average
natural gas price (Mcf)
|
$
|
7.04
|
$
|
5.69
|
24
|
%
|
|||||
Average
oil price (Bbl)
|
$
|
54.53
|
$
|
44.56
|
22
|
%
|
|||||
Natural
gas production (Mcf)
|
10,713,000
|
7,653,000
|
40
|
%
|
|||||||
Oil
production (Bbl)
|
327,000
|
280,000
|
17
|
%
|
|||||||
Depreciation,
depletion and
|
|
|
|||||||||
amortization
rate (Mcfe)
|
$
|
1.90
|
$
|
1.54
|
|
23
|
%
|
||||
Depreciation,
depletion and
|
|||||||||||
amortization
|
$
|
24,182,000
|
$
|
14,432,000
|
68
|
%
|
|||||
Gas
Gathering and Processing:
|
|||||||||||
Revenue
|
$
|
25,482,000
|
$
|
18,230,000
|
40
|
%
|
|||||
Operating
costs
|
$
|
22,801,000
|
$
|
16,834,000
|
35
|
%
|
|||||
Depreciation
|
$
|
1,150,000
|
$
|
638,000
|
80
|
%
|
|||||
Gas
gathered - MMbtu/day
|
215,341
|
107,254
|
101
|
%
|
|||||||
Gas
processed - MMbtu/day
|
23,616
|
30,336
|
(22
|
)%
|
|||||||
|
|
||||||||||
General
and Administrative Expense
|
$
|
3,966,000
|
$
|
3,971,000
|
---
|
%
|
|||||
Interest
Expense
|
$
|
990,000
|
$
|
687,000
|
44
|
%
|
|||||
Income
Tax Expense
|
$
|
44,350
|
$ |
18,834
|
135
|
%
|
|||||
Average
Interest Rate
|
5.41
|
%
|
3.74
|
%
|
45
|
%
|
|||||
Average
Long-Term Debt Outstanding
|
$
|
113,599,000
|
$
|
94,056,000
|
21
|
%
|
|
•
|
|
the
amount and nature of our future capital expenditures;
|
|
•
|
|
wells
to be drilled or reworked;
|
|
•
|
|
prices
for oil and natural gas;
|
|
•
|
|
demand
for oil and natural gas;
|
|
•
|
|
exploitation
and exploration prospects;
|
|
•
|
|
estimates
of proved oil and natural gas reserves;
|
|
•
|
|
oil
and natural gas reserve potential;
|
|
•
|
|
development
and infill drilling potential;
|
|
•
|
|
drilling
prospects;
|
|
•
|
|
expansion
and other development trends of the oil and natural gas industry;
|
|
•
|
|
business
strategy;
|
|
•
|
|
production
of oil and natural gas reserves;
|
|
•
|
|
growth
potential for our gathering and processing operations;
|
|
•
|
|
gathering
systems and processing plants to be constructed or acquired;
|
|
•
|
|
volumes
and prices for natural gas gathered and processed;
|
|
•
|
|
expansion
and growth of our business and operations; and
|
|
•
|
|
demand
for our drilling rigs and drilling rig rates.
|
|
•
|
|
the
risk factors discussed in this report and in the documents
we incorporate
by reference;
|
|
•
|
|
general
economic, market or business conditions;
|
|
•
|
|
the
nature or lack of business opportunities that we pursue;
|
|
•
|
|
demand
for our land drilling services;
|
|
•
|
|
changes
in laws or regulations; and
|
|
•
|
|
other
factors, most of which are beyond our control.
|
15
|
Letter
re: Unaudited Interim Financial
Information.
|
31.1
|
Certification
of Chief Executive Officer under Rule 13a - 14(a) of the
Exchange Act.
|
31.2
|
Certification
of Chief Financial Officer under Rule 13a - 14(a) of the
Exchange
Act.
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer under
Rule 13a -
14(a) of the Exchange Act and 18 U.S.C. Section 1350, as
adopted under
Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
Unit Corporation
|
|
Date:
May 5, 2006
|
By:/s/
Larry D. Pinkston
|
|
LARRY
D. PINKSTON
|
||
Chief
Executive Officer and Director
|
||
Date:
May 5, 2006
|
By:/s/
David T. Merrill
|
|
DAVID
T. MERRILL
|
||
Chief
Financial Officer and
|
||
Treasurer
|