|
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
|
|
|
|
September
30, 2006 and December 31, 2005
|
2
|
|
|
|
|
|
|
Consolidated
Condensed Statements of Income
|
|
|
|
Three
and Nine Months Ended September 30, 2006 and 2005
|
4
|
|
|
|
|
|
|
Consolidated
Condensed Statements of Cash Flows
|
|
|
|
Nine
Months Ended September 30, 2006 and 2005
|
5
|
|
|
|
|
|
|
Consolidated
Condensed Statements of Comprehensive Income
|
|
|
|
Three
and Nine Months Ended September 30, 2006 and 2005
|
6
|
|
|
|
|
|
|
Notes
to Consolidated Condensed Financial Statements
|
7
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
23
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial
|
|
|
|
Condition
and Results of Operations
|
24
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosure about Market Risk
|
41
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
41
|
|
|
|
|
|
|
PART
II. Other Information
|
|
|
Item
1.
|
Legal
Proceedings
|
42
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
42
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
42
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
42
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
42
|
|
|
|
|
|
Item
5.
|
Other
Information
|
42
|
|
|
|
|
|
Item
6.
|
Exhibits
|
42
|
|
|
|
|
|
Signatures
|
|
43
|
|
|
September
30,
|
|
|
|
December
31,
|
|
||
|
|
2006
|
|
|
|
2005
|
|
||
|
|
(In
thousands)
|
|
||||||
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
606
|
|
|
|
$
|
947
|
|
Restricted cash
|
|
|
18
|
|
|
|
|
268
|
|
Accounts receivable
|
|
|
203,535
|
|
|
|
|
199,765
|
|
Materials and supplies
|
|
|
23,152
|
|
|
|
|
14,108
|
|
Other
|
|
|
16,660
|
|
|
|
|
8,597
|
|
Total
current assets
|
|
|
243,971
|
|
|
|
|
223,685
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment:
|
|
|
|
|
|
|
|
|
|
Drilling equipment
|
|
|
742,623
|
|
|
|
|
626,913
|
|
Oil and natural gas properties, on the full cost
|
|
|
|
|
|
|
|
|
|
method:
|
|
|
|
|
|
|
|
|
|
Proved properties
|
|
|
1,191,130
|
|
|
|
|
995,119
|
|
Undeveloped leasehold not being amortized
|
|
|
51,164
|
|
|
|
|
38,421
|
|
Gas gathering and processing equipment
|
|
|
80,490
|
|
|
|
|
60,354
|
|
Transportation equipment
|
|
|
19,951
|
|
|
|
|
17,338
|
|
Other
|
|
|
16,030
|
|
|
|
|
12,935
|
|
|
|
|
2,101,388
|
|
|
|
|
1,751,080
|
|
Less
accumulated depreciation, depletion,
|
|
|
|
|
|
|
|
|
|
amortization and impairment
|
|
|
689,028
|
|
|
|
|
575,410
|
|
Net property and equipment
|
|
|
1,412,360
|
|
|
|
|
1,175,670
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
39,659
|
|
|
|
|
39,659
|
|
Other
Intangible Assets, Net
|
17,739
|
---
|
|||||||
Other
Assets
|
|
|
13,103
|
|
|
|
|
17,181
|
|
Total
Assets
|
|
$
|
1,726,832
|
|
|
|
$
|
1,456,195
|
|
|
|
September
30,
|
|
|
|
December
31,
|
|
||
|
|
2006
|
|
|
|
2005
|
|
||
|
|
(In
thousands)
|
|
||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
90,124
|
|
|
|
$
|
109,621
|
|
Accrued liabilities
|
|
|
35,727
|
|
|
|
|
32,819
|
|
Income taxes payable
|
|
|
2,863
|
|
|
|
|
16,941
|
|
Contract advances
|
|
|
10,677
|
|
|
|
|
5,548
|
|
Current portion of other liabilities
|
|
|
7,820
|
|
|
|
|
7,583
|
|
Total current liabilities
|
|
|
147,211
|
|
|
|
|
172,512
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt
|
|
|
145,100
|
|
|
|
|
145,000
|
|
|
|
|
|
|
|
|
|
|
|
Other
Long-Term Liabilities
|
|
|
53,710
|
|
|
|
|
41,981
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Income Taxes
|
|
|
306,250
|
|
|
|
|
259,740
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par value, 5,000,000
|
|
|
|
|
|
|
|
|
|
shares
authorized, none issued
|
|
|
---
|
|
|
|
|
---
|
|
Common stock, $.20 par value, 175,000,000
|
|
|
|
|
|
|
|
|
|
and
75,000,000 authorized, 46,278,990
|
|
|
|
|
|
|
|
|
|
and
46,178,162 shares issued, respectively
|
|
|
9,256
|
|
|
|
|
9,236
|
|
Capital in excess of par value
|
|
|
332,389
|
|
|
|
|
328,037
|
|
Accumulated other comprehensive income
|
|
491
|
|
|
|
|
485
|
|
|
Unearned compensation - restricted stock
|
|
|
---
|
|
|
|
|
(2,226
|
)
|
Retained earnings
|
|
|
732,425
|
|
|
|
|
501,430
|
|
Total shareholders’ equity
|
|
|
1,074,561
|
|
|
|
|
836,962
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
1,726,832
|
|
|
|
$
|
1,456,195
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
||||||||
|
September
30,
|
|
September
30,
|
|
||||||||
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
||||
|
|
(In
thousands except per share amounts)
|
|
|||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
drilling
|
$
|
182,461
|
|
$
|
119,873
|
|
$
|
519,799
|
|
$
|
322,379
|
|
Oil
and natural gas
|
|
91,238
|
|
|
83,979
|
|
|
267,518
|
|
|
202,819
|
|
Gas
gathering and processing
|
|
25,638
|
|
|
26,561
|
|
|
72,840
|
|
|
65,895
|
|
Other
|
|
557
|
|
|
635
|
|
|
2,894
|
|
|
1,402
|
|
Total
revenues
|
|
299,894
|
|
|
231,048
|
|
|
863,051
|
|
|
592,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
drilling:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
78,595
|
|
|
67,161
|
|
|
238,021
|
|
|
194,890
|
|
Depreciation
|
|
13,403
|
|
|
11,019
|
|
|
38,089
|
|
|
31,010
|
|
Oil
and natural gas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
21,560
|
|
|
15,913
|
|
|
58,854
|
|
|
40,916
|
|
Depreciation,
depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization
|
|
27,557
|
|
|
16,355
|
|
|
76,780
|
|
|
45,632
|
|
Gas
gathering and processing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
22,216
|
|
|
24,395
|
|
|
63,734
|
|
|
60,616
|
|
Depreciation
and
|
||||||||||||
amortization
|
|
1,637
|
|
|
902
|
|
|
4,019
|
|
|
2,267
|
|
General
and administrative
|
|
4,630
|
|
|
3,324
|
|
|
12,998
|
|
|
10,455
|
|
Interest
|
|
1,228
|
|
|
885
|
|
|
3,235
|
|
|
2,157
|
|
Total
expenses
|
|
170,826
|
|
|
139,954
|
|
|
495,730
|
|
|
387,943
|
|
Income
Before Income Taxes
|
|
129,068
|
|
|
91,094
|
|
|
367,321
|
|
|
204,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
26,442
|
|
|
19,628
|
|
|
89,741
|
|
|
41,185
|
|
Deferred
|
|
21,361
|
|
|
13,828
|
|
|
46,585
|
|
|
35,385
|
|
Total
income taxes
|
|
47,803
|
|
|
33,456
|
|
|
136,326
|
|
|
76,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
$
|
81,265
|
|
$
|
57,638
|
|
$
|
230,995
|
|
$
|
127,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.76
|
|
$
|
1.25
|
|
$
|
5.00
|
|
$
|
2.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
$
|
1.75
|
|
$
|
1.25
|
|
$
|
4.98
|
|
$
|
2.78
|
|
|
|
Nine
Months Ended
|
|
||||||
|
|
September
30,
|
|
||||||
|
|
2006
|
|
|
|
2005
|
|
||
|
|
(In
thousands)
|
|
||||||
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
230,995
|
|
|
|
$
|
127,982
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
provided (used) by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
119,422
|
|
|
|
|
79,520
|
|
Deferred tax expense
|
|
|
46,585
|
|
|
|
|
35,385
|
|
Other
|
|
|
5,843
|
|
|
|
|
2,647
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
increasing (decreasing) cash:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,840
|
)
|
|
|
|
(47,742
|
)
|
Accounts payable
|
|
|
(27,424
|
)
|
|
|
|
(17,892
|
)
|
Material and supplies inventory
|
|
|
(9,044
|
)
|
|
|
|
1,200
|
|
Accrued liabilities
|
|
|
(9,139
|
)
|
|
|
|
8,638
|
|
Contract advances
|
|
|
5,129
|
|
|
|
|
1,009
|
|
Other - net
|
|
|
(7,928
|
)
|
|
|
|
(895
|
)
|
Net cash provided by operating activities
|
|
|
349,599
|
|
|
|
|
189,852
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From (Used In) Investing Activities:
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(299,312
|
)
|
|
|
|
(222,157
|
)
|
Cash paid for acquisitions
|
(53,820
|
)
|
---
|
||||||
Proceeds from disposition of assets
|
|
|
5,865
|
|
|
|
|
4,772
|
|
Other-net
|
|
|
(241
|
)
|
|
|
|
(4,627
|
)
|
Net cash used in investing activities
|
|
|
(347,508
|
)
|
|
|
|
(222,012
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From (Used In) Financing Activities:
|
|
|
|
|
|
|
|
|
|
Borrowings under line of credit
|
|
|
183,200
|
|
|
|
161,800
|
||
Payments under line of credit
|
|
|
(183,100
|
)
|
|
|
|
(141,700
|
)
|
Net
change in other long-term liabilities
|
|
|
---
|
|
|
|
|
181
|
|
Proceeds from exercise of stock options
|
|
|
726
|
|
|
|
1,128
|
|
|
Tax
Benefit from stock options
|
290
|
---
|
|||||||
Book overdrafts
|
|
|
(3,548
|
)
|
|
|
|
10,814
|
|
Net cash from (used in) financing activities
|
|
|
(2,432
|
)
|
|
|
|
32,223
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(341
|
)
|
|
|
|
63
|
|
Cash
and Cash Equivalents, Beginning of Year
|
|
|
947
|
|
|
|
|
665
|
|
Cash
and Cash Equivalents, End of Period
|
|
$
|
606
|
|
|
$
|
728
|
|
|
|
Three
Months Ended
|
|
|
|
Nine
Months Ended
|
|
||||||||
|
|
September
30,
|
|
|
|
September
30,
|
|
||||||||
|
|
2006
|
|
2005
|
|
|
|
2006
|
|
2005
|
|
||||
|
|
(In
thousands)
|
|
||||||||||||
Net
Income
|
|
$
|
81,265
|
|
$
|
57,638
|
|
|
|
$
|
230,995
|
|
$
|
127,982
|
|
Other
Comprehensive Income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in value of cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
flow derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments used as
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash flow hedges
|
|
|
(106
|
)
|
|
(1,901
|
)
|
|
|
|
273
|
|
|
(2,353
|
)
|
Reclassification -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivative settlements
|
|
|
(148
|
)
|
|
786
|
|
|
|
|
(267
|
)
|
|
888
|
|
Comprehensive
Income
|
|
$
|
81,011
|
|
$
|
56,523
|
|
|
|
$
|
231,001
|
|
$
|
126,517
|
|
|
|
Three
|
|
|
Nine
|
|
||
|
|
Months
Ended
|
|
|
Months
Ended
|
|
||
|
|
September
30, 2005
|
|
|
September
30, 2005
|
|
||
|
|
(In
thousands except per
share amounts)
|
|
|||||
|
|
|
|
|
|
|
|
|
Net
Income, as Reported
|
|
$
|
57,638
|
|
|
$
|
127,982
|
|
Add
Stock-Based Employee Compensation
|
|
|
|
|
|
|
|
|
Expense Included in Reported Net
|
|
|
|
|
|
|
|
|
Income, Net of Tax
|
|
|
397
|
|
|
|
1,344
|
|
Less
Total Stock-Based
|
|
|
|
|
|
|
|
|
Employee Compensation Expense
|
|
|
|
|
|
|
|
|
Determined Under Fair Value Based
|
|
|
|
|
|
|
|
|
Method For All Awards
|
|
|
(956
|
)
|
|
|
(2,877
|
)
|
Pro
Forma Net Income
|
|
$
|
57,079
|
|
|
$
|
126,449
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings per Share:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.25
|
|
|
$
|
2.79
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
1.24
|
|
|
$
|
2.76
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings per Share:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.25
|
|
|
$
|
2.78
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
1.23
|
|
|
$
|
2.74
|
|
|
Nine
Months Ended
|
|
||||
|
|
September
30,
|
|
||||
|
|
2006
|
|
2005
|
|
||
|
|
|
|
|
|
|
|
Options
Granted
|
|
|
33,000
|
|
|
58,500
|
|
|
|
|
|
|
|
|
|
Estimated
Fair Value (In Millions)
|
|
$
|
0.8
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
Estimate
of Stock Volatility
|
|
|
0.38
|
|
0.51
to 0.55
|
|
|
|
|
|
|
|
|
|
|
Estimated
Dividend Yield
|
|
|
0
|
%
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Risk
Free Interest Rate
|
|
|
5.00
|
%
|
|
4.35
to 4.42
|
%
|
|
|
|
|
|
|
|
|
Expected
Life Range Based on
|
|
|
|
|
|
|
|
Prior Experience (In Years)
|
|
|
3
to 7
|
|
|
6
to 10
|
|
•
incentive stock options under Section 422 of the Internal
Revenue Code;
|
•
non-qualified stock options;
|
•
performance shares;
|
•
performance units;
|
•
restricted stock;
|
•
restricted stock units;
|
•
stock appreciation rights;
|
•
cash based awards; and
|
•
other stock-based awards.
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
||||||||
|
September
30,
|
|
September
30,
|
|
||||||||
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
||||
|
|
|
|
|||||||||
Number
of Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
390,470
|
|
|
467,913
|
|
434,713
|
|
553,750
|
|
||
Granted
|
|
---
|
|
|
---
|
|
5,000
|
|
|
34,000
|
|
|
Exercised
|
|
(3,320
|
)
|
|
(18,121
|
)
|
|
(52,563
|
)
|
|
(87,558
|
)
|
Forfeited
|
|
(800
|
)
|
|
(11,400
|
)
|
(800
|
)
|
|
(61,800
|
)
|
|
Outstanding
at End of Period
|
|
386,350
|
|
438,392
|
|
|
386,350
|
|
|
438,392
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Exercise Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
$
|
25.67
|
$
|
23.98
|
$
|
24.14
|
|
$
|
22.11
|
|
||
Granted
|
|
---
|
|
|
---
|
|
55.83
|
|
37.16
|
|||
Exercised
|
|
21.54
|
|
17.71
|
|
15.61
|
|
15.92
|
|
|||
Forfeited
|
|
37.83
|
|
30.86
|
|
37.83
|
|
|
25.03
|
|
||
Outstanding
at End of Period
|
$
|
25.68
|
|
$
|
24.11
|
$
|
25.68
|
$
|
24.11
|
|
|
|
Outstanding Options Under
The Stock
|
|
|||||||
|
|
Option
Plan At September 30, 2006
|
|
|||||||
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
Number
of
|
|
|
Contractual
|
|
|
Exercise
|
|
Exercise
Prices
|
|
|
Shares
|
|
|
Life
|
|
|
Price
|
|
$3.75
|
|
|
34,000
|
|
|
2.2
years
|
|
$
|
3.75
|
|
$8.75
|
|
|
2,500
|
|
0.2
years
|
|
$
|
8.75
|
|
|
$16.69
- $19.04
|
|
|
112,600
|
|
|
5.6
years
|
|
$
|
18.33
|
|
$21.50
- $26.28
|
|
|
89,810
|
|
|
7.2
years
|
|
$
|
22.96
|
|
$34.75
- $37.83
|
|
|
142,440
|
|
|
8.3
years
|
|
$
|
37.68
|
|
$53.90
- $60.32
|
|
|
5,000
|
|
9.5
years
|
|
$
|
55.83
|
|
|
|
Exercisable
Options Under The Stock
|
|
||||
|
|
Option
Plan At September 30, 2006
|
|
||||
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Number
of
|
|
|
Exercise
|
|
Exercise
Prices
|
|
|
Shares
|
|
|
Price
|
|
$3.75
|
|
|
34,000
|
|
$
|
3.75
|
|
$8.75
|
|
|
2,500
|
$
|
8.75
|
|
|
$16.69
- $19.04
|
|
|
73,800
|
|
$
|
17.96
|
|
$21.50
- $26.28
|
|
|
32,700
|
|
$
|
22.82
|
|
$34.75
- $37.83
|
|
|
26,840
|
|
$
|
37.67
|
|
$53.90
- $60.32
|
|
|
---
|
|
$
|
---
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
||||||||
|
September
30,
|
|
September
30,
|
|
||||||||
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
||||
|
|
|
|
|||||||||
Number
of Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
120,500
|
|
|
112,500
|
|
|
96,000
|
|
94,000
|
||
Granted
|
|
---
|
|
|
---
|
|
|
28,000
|
|
24,500
|
||
Exercised
|
|
---
|
|
|
(13,000
|
)
|
|
(3,500
|
)
|
|
(19,000
|
)
|
Forfeited
|
|
---
|
|
|
---
|
|
|
---
|
|
---
|
||
Outstanding
at End of Period
|
|
120,500
|
|
|
99,500
|
|
|
120,500
|
|
|
99,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Exercise Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
$
|
33.78
|
|
$
|
24.84
|
|
$
|
24.93
|
|
$
|
20.27
|
|
Granted
|
|
---
|
|
|
---
|
|
|
62.40
|
|
|
39.50
|
|
Exercised
|
|
---
|
|
20.25
|
|
20.10
|
|
|
17.99
|
|
||
Forfeited
|
|
---
|
|
---
|
|
|
---
|
|
|
---
|
|
|
Outstanding
at End of Period
|
$
|
33.78
|
|
$
|
25.44
|
|
$
|
33.78
|
|
$
|
25.44
|
|
|
|
Outstanding
Options Under The
|
|
|||||||
|
|
Directors'
Plans At September 30, 2006
|
|
|||||||
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
Number
of
|
|
|
Contractual
|
|
|
Exercise
|
|
Exercise
Prices
|
|
|
Shares
|
|
|
Life
|
|
|
Price
|
|
$6.90
|
|
|
5,000
|
|
|
2.6
years
|
|
$
|
6.90
|
|
$12.19
- $17.54
|
|
|
14,000
|
|
|
4.3
years
|
|
$
|
16.20
|
|
$20.10
- $20.46
|
|
|
31,500
|
|
|
6.1
years
|
|
$
|
20.30
|
|
$28.23
- $39.50
|
|
|
42,000
|
|
|
8.1
years
|
|
$
|
33.87
|
|
$62.40
|
|
|
28,000
|
|
|
9.4
years
|
|
$
|
62.40
|
|
|
|
Exercisable
Options Under The
|
|
||||
|
|
Directors'
Plans At September 30, 2006
|
|
||||
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
of
|
|
|
Average
|
|
Exercise
Prices
|
|
|
Shares
|
|
|
Exercise
Price
|
|
$6.90
|
|
|
5,000
|
|
$
|
6.90
|
|
$12.19
- $17.54
|
|
|
14,000
|
|
$
|
16.20
|
|
$20.10
- $20.46
|
|
|
31,500
|
|
$
|
20.30
|
|
$28.23
- $39.50
|
|
|
42,000
|
|
$
|
33.87
|
|
$62.40
|
|
|
---
|
|
$
|
---
|
|
|
|
|
|
Weighted
|
|
|
|
|||
|
|
Income
|
|
Shares
|
|
Per-Share
|
|
|||
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
|
|||
|
|
(In
thousands except per share amounts)
|
|
|||||||
For
the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
81,265
|
|
|
46,241
|
|
$
|
1.76
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
|
|||
and restricted stock bonus shares
|
|
|
---
|
|
|
203
|
|
|
(0.01
|
)
|
Diluted earnings per common share
|
|
$
|
81,265
|
|
|
46,444
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
57,638
|
|
|
45,959
|
|
$
|
1.25
|
|
Effect of dilutive stock options
|
|
|
---
|
|
|
270
|
|
|
---
|
|
Diluted earnings per common share
|
|
$
|
57,638
|
|
|
46,229
|
|
$
|
1.25
|
|
|
|
2006
|
|
|
|
2005
|
||
|
|
|
|
|
|
|
|
|
Options
|
|
|
33,000
|
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
Average
Exercise Price
|
|
$
|
61.40
|
|
|
|
$
|
---
|
|
|
|
|
Weighted
|
|
|
|
|||
|
|
Income
|
|
Shares
|
|
Per-Share
|
|
|||
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
|
|||
|
|
(In
thousands except per share amounts)
|
|
|||||||
For
the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
230,995
|
|
|
46,223
|
|
$
|
5.00
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
||||
and restricted stock bonus shares
|
|
|
---
|
|
|
206
|
|
|
(0.02
|
)
|
Diluted earnings per common share
|
|
$
|
230,995
|
|
|
46,429
|
|
$
|
4.98
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
127,982
|
|
|
45,873
|
|
$
|
2.79
|
|
Effect of dilutive stock options
|
|
|
---
|
|
|
235
|
|
|
(0.01
|
)
|
Diluted earnings per common share
|
|
$
|
127,982
|
|
|
46,108
|
|
$
|
2.78
|
|
|
|
2006
|
|
|
|
2005
|
||
|
|
|
|
|
|
|
|
|
Options
|
|
|
29,500
|
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
Average
Exercise Price
|
|
$
|
62.29
|
|
|
|
$
|
---
|
Working
Capital
|
$
|
337
|
||
Processing
Plant and Gathering System
|
3,422
|
|||
Amortizable
Intangible Assets
|
17,957
|
|||
Total
Consideration
|
$
|
21,716
|
|
|
September
30,
|
|
December
31,
|
|
||
|
|
2006
|
|
2005
|
|
||
|
|
(In
thousands)
|
|
||||
Revolving
Credit Facility,
|
|
|
|
|
|
|
|
with Interest at September 30, 2006 and
|
|
|
|
|
|
|
|
December 31, 2005 of 5.6% and 4.9%,
|
|
|
|
|
|
|
|
Respectively
|
|
$
|
145,100
|
|
$
|
145,000
|
|
Less
Current Portion
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Total
Long-Term Debt
|
|
$
|
145,100
|
|
$
|
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 credit 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 themost recently ended rolling four fiscal
quarters
|
of not greater than 3.25 to 1.0. |
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|||||
Separation
Benefit Plan
|
|
$
|
2,983
|
|
$
|
2,788
|
|
Deferred
Compensation Plan
|
|
|
2,547
|
|
|
2,611
|
|
Retirement
Agreement
|
|
|
1,484
|
|
|
1,676
|
|
Workers’
Compensation
|
|
|
21,590
|
|
|
19,394
|
|
Gas
Balancing Liability
|
|
|
1,080
|
|
|
1,080
|
|
Plugging
Liability
|
|
|
31,846
|
|
|
22,015
|
|
61,530
|
|
|
49,564
|
||||
Less
Current Portion
|
|
|
7,820
|
|
|
7,583
|
|
Total
Other Long-Term Liabilities
|
|
$
|
53,710
|
|
$
|
41,981
|
|
|
Nine
Months Ended September 30.
|
|
||||
|
|
2006
|
|
2005
|
|
||
|
|
(In
Thousands)
|
|
||||
Short-Term
Plugging Liability:
|
|
|
|
|
|
|
|
Liability at beginning of period
|
|
$
|
366
|
|
$
|
226
|
|
Accretion of discount
|
|
|
6
|
|
|
13
|
|
Liability incurred or assumed in the period
|
1
|
---
|
|||||
Liability settled in the period
|
|
|
(156
|
)
|
|
(145
|
)
|
Reclassification of liability from long-term
|
|
|
|
|
|
|
|
to short-term
|
|
|
456
|
|
|
247
|
|
Revision of estimates
|
|
|
(30
|
)
|
|
---
|
|
Plugging liability at end of period
|
|
$
|
643
|
|
$
|
341
|
|
|
|
|
|
|
|
|
|
Long-Term
Plugging Liability:
|
|
|
|
|
|
|
|
Liability at beginning of period
|
|
$
|
21,649
|
$
|
18,909
|
|
|
Accretion of discount
|
|
|
1,085
|
|
699
|
|
|
Liability incurred or assumed in the period
|
|
|
2,834
|
|
1,295
|
|
|
Reclassification of liability from long-term
|
|
|
|
|
|
||
to short-term
|
|
|
(456
|
)
|
|
(247
|
)
|
Revision of estimates
|
|
|
6,091
|
|
(833
|
)
|
|
Plugging liability at end of period
|
|
$
|
31,203
|
$
|
19,823
|
|
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
|
Oil
Collar Contract:
|
||||
Production
volume covered
|
1,000
Barrels/day
|
|||
Period
covered
|
April
through December of 2005
|
|||
Prices
|
Floor
of $45.00 and a ceiling of $69.25
|
•
Contract Drilling,
|
•
Oil and Natural Gas Exploration and Production and
|
•
Gas Gathering and Processing
|
|
|
Three
Months Ended
|
|
|
|
Nine
Months Ended
|
|
||||||||
|
|
September
30,
|
|
|
|
September
30,
|
|
||||||||
|
|
2006
|
|
2005
|
|
|
|
2006
|
|
2005
|
|
||||
|
|
(In
thousands)
|
|
||||||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract drilling
|
|
$
|
196,953
|
|
$
|
127,119
|
|
|
|
$
|
550,428
|
|
$
|
336,537
|
|
Elimination of inter-segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
revenue
|
|
|
14,492
|
|
|
7,246
|
|
|
|
|
30,629
|
|
|
14,158
|
|
Contract drilling net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
inter-segment revenue
|
|
|
182,461
|
|
|
119,873
|
|
|
|
|
519,799
|
|
|
322,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Oil and natural gas
|
|
|
91,238
|
|
|
83,979
|
|
|
|
|
267,518
|
|
|
202,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Gas gathering and processing
|
|
|
29,045
|
|
|
28,720
|
|
|
|
|
83,303
|
|
|
71,846
|
|
Elimination
of inter-segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
revenue
|
|
|
3,407
|
|
|
2,159
|
|
|
|
|
10,463
|
|
|
5,951
|
|
Gas gathering and processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
net
of inter-segment
|
|||||||||||||||
revenue
|
|
|
25,638
|
|
|
26,561
|
|
|
|
|
72,840
|
|
|
65,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Other (1)
|
|
|
557
|
|
|
635
|
|
|
|
|
2,894
|
|
|
1,402
|
|
Total revenues
|
|
$
|
299,894
|
|
$
|
231,048
|
|
|
|
$
|
863,051
|
|
$
|
592,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract drilling
|
|
$
|
90,463
|
$
|
41,693
|
|
|
|
$
|
243,689
|
$
|
96,479
|
|
||
Oil and natural gas
|
|
|
42,121
|
|
51,711
|
|
|
|
|
131,884
|
|
116,271
|
|
||
Gas gathering and processing
|
|
|
1,785
|
|
1,264
|
|
|
|
|
5,087
|
|
3,012
|
|
||
Total operating income
|
|
|
134,369
|
|
94,668
|
|
|
|
|
380,660
|
|
215,762
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
||||
expense
|
|
|
(4,630
|
)
|
|
(3,324
|
)
|
|
|
|
(12,998
|
)
|
|
(10,455
|
)
|
Interest expense
|
|
|
(1,228
|
)
|
|
(885
|
)
|
|
|
|
(3,235
|
)
|
|
(2,157
|
)
|
Other income
|
|
|
557
|
|
635
|
|
|
|
|
2,894
|
|
1,402
|
|
||
Income before income
|
|
|
|
|
|
|
|
|
|
|
|
||||
Taxes
|
|
$
|
129,068
|
$
|
91,094
|
|
|
|
$
|
367,321
|
$
|
204,552
|
|
•
contract drilling carried out by our subsidiary Unit Drilling
Company and
|
its
subsidiaries;
|
•
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. and its
subsidiaries.
|
•
the prices and demand 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.
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
Percent
|
|
||||
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
||||
|
|
(In
thousands except percent amounts)
|
||||||||||||
Working
Capital
|
|
$
|
96,760
|
|
$
|
56,998
|
|
|
70
|
%
|
||||
Long-Term
Debt
|
|
$
|
145,100
|
|
$
|
115,600
|
|
|
26
|
%
|
||||
Shareholders’
Equity
|
|
$
|
1,074,561
|
|
$
|
749,802
|
|
|
43
|
%
|
||||
Ratio
of Long-Term Debt to Total
|
|
|
|
|
|
|
|
|
||||||
Capitalization
|
|
|
12
|
%
|
13
|
%
|
|
(8
|
)%
|
|||||
Net
Income
|
|
$
|
230,995
|
|
$
|
127,982
|
|
|
80
|
%
|
||||
Net
Cash Provided by Operating Activities
|
|
$
|
349,599
|
|
$
|
189,852
|
|
|
84
|
%
|
||||
Net
Cash Used in Investing Activities
|
|
$
|
(347,508
|
)
|
$
|
(222,012
|
)
|
|
57
|
%
|
||||
Net
Cash Provided by (Used in) Financing
|
|
|
|
|
|
|
|
|
|
|||||
Activities
|
|
$
|
(2,432
|
)
|
$
|
32,223
|
|
|
(108
|
)%
|
|
|
September
30,
|
|
September
30,
|
|
|
Percent
|
|
||
|
|
2006
|
|
2005
|
|
|
Change
|
|
||
Oil
Production (MBbls)
|
|
|
1,062
|
|
|
788
|
|
|
35
|
%
|
Natural
Gas Production (MMcf)
|
|
|
32,350
|
|
|
24,055
|
|
|
34
|
%
|
Average
Oil Price Received
|
|
$
|
57.18
|
|
$
|
48.16
|
|
|
19
|
%
|
Average
Natural Gas Price Received
|
|
$
|
6.28
|
|
$
|
6.74
|
|
|
(7
|
)%
|
Average
Natural Gas Price Received Excluding Hedges
|
|
$
|
6.28
|
|
$
|
6.79
|
|
|
(8
|
)%
|
Average
Number of Our Drilling Rigs in Use During
|
|
|
|
|
|
|
|
|
||
the
Period
|
|
|
109.8
|
|
|
100.7
|
|
|
9
|
%
|
Total
Number of Drilling Rigs Available at the End
|
|
|
|
|
|
|
|
|
||
of
the Period
|
|
|
116
|
|
|
110
|
|
|
5
|
%
|
Average
Dayrate
|
|
$
|
18,442
|
|
$
|
11,583
|
|
|
59
|
%
|
Gas
Gathered—MMBtu/day
|
|
|
245,435
|
|
|
129,754
|
|
|
89
|
%
|
Gas
Processed—MMBtu/day
|
|
|
27,226
|
|
|
32,709
|
|
|
(17
|
)%
|
Number
of Active Natural Gas Gathering Systems
|
|
|
37
|
|
|
35
|
|
|
6
|
%
|
.
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 credit 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 themost 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)
|
$
|
155,893
|
$
|
8,089
|
$
|
147,804
|
$
|
---
|
$
|
---
|
||||||||
Retirement
Agreements (2)
|
|
|
|
|
1,484
|
|
|
694
|
|
|
790
|
|
|
---
|
|
|
---
|
|
Operating
Leases (3)
|
|
|
|
|
3,840
|
|
|
1,236
|
|
|
2,220
|
|
|
384
|
|
|
---
|
|
Drill
Pipe, Drilling Rigs and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equipment Purchases (4)
|
|
|
|
|
9,307
|
|
|
9,307
|
|
|
---
|
|
|
---
|
|
|
---
|
|
Total
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations
|
|
|
|
$
|
170,524
|
|
$
|
19,326
|
|
$
|
150,814
|
|
$
|
384
|
|
$
|
---
|
|
(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 facility agreement and includes interest calculated
at the
September 30, 2006 interest rate of 5.6% 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)
|
We
have committed to purchase approximately $1.8 million of
drill collars and
kellys and we have also committed to purchase $1.7 million
of additional
rig components. In April 2006, we committed $6.0 million
for the purchase
of major components to construct two drilling rigs with $1.2
million or
20% paid at the time of commitment. The remaining $4.8 million
will be
paid at delivery. These rigs should be placed into service
in the first
quarter of 2007. We have committed to purchase approximately
50 vehicles
within the next 9 months for $1.0
million.
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
$
|
2,547
|
|
|
Unknown
|
|
|
Unknown
|
|
|
Unknown
|
|
|
Unknown
|
|
Separation
Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreement (2)
|
|
|
|
|
|
$
|
2,983
|
|
$
|
289
|
|
|
Unknown
|
|
|
Unknown
|
|
|
Unknown
|
|
Plugging
Liability (3)
|
|
|
|
|
|
$
|
31,846
|
|
$
|
643
|
|
$
|
2,113
|
|
$
|
2,323
|
|
$
|
26,767
|
|
Gas
Balancing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability (4)
|
|
|
|
|
|
$
|
1,080
|
|
|
Unknown
|
|
|
Unknown
|
|
|
Unknown
|
|
|
Unknown
|
|
Repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations (5)
|
|
|
|
|
|
|
Unknown
|
|
|
Unknown
|
|
|
Unknown
|
|
|
Unknown
|
|
|
Unknown
|
|
Workers’
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability (6)
|
|
|
|
|
|
$
|
21,590
|
|
$
|
6,194
|
|
$
|
6,255
|
|
$
|
1,468
|
|
$
|
7,673
|
(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 of our exploration operations and most producing
property
acquisitions 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 $7,000, $4,000 and $14,000
in 2006,
2005 and 2004, 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
|
Oil
Collar Contract:
|
||||
Production
volume covered
|
1,000
Barrels/day
|
|||
Period
covered
|
April
through December of 2005
|
|||
Prices
|
Floor
of $45.00 and a ceiling of $69.25
|
|
|
|
|
Quarter
Ended
|
|
Quarter
Ended
|
|
|
|
||
|
|
|
|
September
30,
|
|
September
30,
|
|
Percent
|
|
||
|
|
|
|
2006
|
|
2005
|
|
Change
|
|
||
Total
Revenue
|
|
|
|
$
|
299,894,000
|
|
$
|
231,048,000
|
|
30
|
%
|
Net
Income
|
|
|
|
$
|
81,265,000
|
|
$
|
57,638,000
|
|
41
|
%
|
Drilling:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
$
|
182,461,000
|
|
$
|
119,873,000
|
|
52
|
%
|
Operating costs
|
|
|
|
$
|
78,595,000
|
|
$
|
67,161,000
|
|
17
|
%
|
Percentage of revenue from
|
|
|
|
|
|
|
|
|
|
|
|
daywork contracts
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
Average number of rigs in use
|
|
|
|
|
110.6
|
|
102.6
|
|
8
|
%
|
|
Average dayrate on daywork
|
|
|
|
|
|
|
|
|
|
|
|
contracts
|
|
|
|
$
|
19,559
|
|
$
|
13,117
|
|
49
|
%
|
Depreciation
|
|
|
|
$
|
13,403,000
|
|
$
|
11,019,000
|
|
22
|
%
|
Oil
and Natural Gas:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
$
|
91,238,000
|
|
$
|
83,979,000
|
|
9
|
%
|
Operating costs
|
|
|
|
$
|
21,560,000
|
|
$
|
15,913,000
|
|
35
|
%
|
Average natural gas price (Mcf)
|
|
|
|
$
|
6.02
|
|
$
|
8.13
|
|
(26
|
)%
|
Average oil price (Bbl)
|
|
|
|
$
|
59.55
|
|
$
|
54.60
|
|
9
|
%
|
Natural gas production (Mcf)
|
|
|
|
|
11,200,000
|
|
|
8,542,000
|
|
31
|
%
|
Oil production (Bbl)
|
|
|
|
|
376,000
|
|
|
251,000
|
|
50
|
%
|
Depreciation, depletion and
|
|
|
|
|
|
|
|
|
|
|
|
amortization rate (Mcfe)
|
|
|
|
$
|
2.04
|
|
$
|
1.62
|
|
26
|
%
|
Depreciation, depletion and
|
|
|
|
|
|
|
|
|
|
||
amortization
|
|
|
|
$
|
27,557,000
|
|
$
|
16,355,000
|
|
68
|
%
|
Gas
Gathering and Processing:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
$
|
25,638,000
|
|
$
|
26,561,000
|
|
(3
|
)%
|
Operating costs
|
|
|
|
$
|
22,216,000
|
|
$
|
24,395,000
|
|
(9
|
)%
|
Depreciation and amortization
|
|
|
|
$
|
1,637,000
|
|
$
|
902,000
|
|
81
|
%
|
Gas gathered - MMbtu/day
|
|
|
|
|
276,888
|
|
|
159,821
|
|
73
|
%
|
Gas processed - MMbtu/day
|
|
|
|
|
35,124
|
|
|
36,061
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
||
General
and Administrative Expense
|
|
|
|
$
|
4,630,000
|
|
$
|
3,324,000
|
|
39
|
%
|
Interest
Expense
|
|
|
|
$
|
1,228,000
|
|
$
|
885,000
|
|
39
|
%
|
Income
Tax Expense
|
|
|
|
$
|
47,803,000
|
|
$
|
33,456,000
|
|
43
|
%
|
Average
Interest Rate
|
|
|
|
|
6.04
|
%
|
|
4.89
|
%
|
24
|
%
|
Average Long-Term Debt | |||||||||||
Outstanding
|
|
|
|
$
|
131,948,000
|
|
$
|
104,817,000
|
|
26
|
%
|
|
|
|
|
Nine
Months Ended
|
|
Nine
Months Ended
|
|
|
|
||
|
|
|
|
September
30,
|
|
September
30,
|
|
Percent
|
|
||
|
|
|
|
2006
|
|
2005
|
|
Change
|
|
||
Total
Revenue
|
|
|
|
$
|
863,051,000
|
|
$
|
592,495,000
|
|
46
|
%
|
Net
Income
|
|
|
|
$
|
230,995,000
|
|
$
|
127,982,000
|
|
80
|
%
|
Drilling:
|
|
|
|
|
|
|
|
|
|
||
Revenue
|
|
|
|
$
|
519,799,000
|
|
$
|
322,379,000
|
|
61
|
%
|
Operating costs
|
|
|
|
$
|
238,021,000
|
|
$
|
194,890,000
|
|
22
|
%
|
Percentage of revenue from
|
|
|
|
|
|
|
|
|
|
||
daywork contracts
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
Average number of rigs in use
|
|
|
|
|
109.8
|
|
|
100.7
|
|
9
|
%
|
Average dayrate on daywork
|
|
|
|
|
|
|
|
|
|
||
contracts
|
|
|
|
$
|
18,442
|
|
$
|
11,583
|
|
59
|
%
|
Depreciation
|
|
|
|
$
|
38,089,000
|
|
$
|
31,010,000
|
|
23
|
%
|
Oil
and Natural Gas:
|
|
|
|
|
|
|
|
|
|
||
Revenue
|
|
|
|
$
|
267,518,000
|
|
$
|
202,819,000
|
|
32
|
%
|
Operating costs
|
|
|
|
$
|
58,854,000
|
|
$
|
40,916,000
|
|
44
|
%
|
Average natural gas price (Mcf)
|
|
|
|
$
|
6.28
|
|
$
|
6.74
|
|
(7
|
)%
|
Average oil price (Bbl)
|
|
|
|
$
|
57.18
|
|
$
|
48.16
|
|
19
|
%
|
Natural gas production (Mcf)
|
|
|
|
|
32,350,000
|
|
|
24,055,000
|
|
34
|
%
|
Oil production (Bbl)
|
|
|
|
|
1,062,000
|
|
|
788,000
|
|
35
|
%
|
Depreciation, depletion and
|
|
|
|
|
|
|
|
|
|
||
amortization rate (Mcfe)
|
|
|
|
$
|
1.97
|
|
$
|
1.58
|
|
25
|
%
|
Depreciation, depletion and
|
|
|
|
|
|
|
|
|
|
||
amortization
|
|
|
|
$
|
76,780,000
|
|
$
|
45,632,000
|
|
68
|
%
|
Gas
Gathering and Processing:
|
|
|
|
|
|
|
|
|
|
||
Revenue
|
|
|
|
$
|
72,840,000
|
|
$
|
65,895,000
|
|
11
|
%
|
Operating costs
|
|
|
|
$
|
63,734,000
|
|
$
|
60,616,000
|
|
5
|
%
|
Depreciation
|
|
|
|
$
|
4,019,000
|
|
$
|
2,267,000
|
|
77
|
%
|
Gas gathered - MMbtu/day
|
245,435
|
|
|
129,754
|
|
89
|
%
|
||||
Gas processed - MMbtu/day
|
27,226
|
|
|
32,709
|
|
(17
|
)%
|
||||
|
|
|
|
|
|
|
|
|
|
||
General
and Administrative Expense
|
|
|
|
$
|
12,998,000
|
|
$
|
10,455,000
|
|
24
|
%
|
Interest
Expense
|
|
|
|
$
|
3,235,000
|
|
$
|
2,157,000
|
|
50
|
%
|
Income
Tax Expense
|
|
|
|
$
|
136,326,000
|
|
$
|
76,570,000
|
|
78
|
%
|
Average
Interest Rate
|
|
|
|
|
5.76
|
%
|
|
4.46
|
%
|
29
|
%
|
Average
Long-Term Debt Outstanding
|
|
|
|
$
|
121,323,000
|
|
$
|
95,349,000
|
|
27
|
%
|
|
.
|
|
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:
November 2, 2006
|
By:
/s/
Larry D. Pinkston
|
|
|
LARRY
D. PINKSTON
|
|
|
Chief
Executive Officer and Director
|
|
|
|
|
Date:
November 2, 2006
|
By:
/s/
David T. Merrill
|
|
|
DAVID
T. MERRILL
|
|
|
Chief
Financial Officer and
|
|
|
Treasurer
|