<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ------------------------------------------------------------------------------
FORM 10-K
- ------------------------------------------------------------------------------
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For The Fiscal Year Ended October 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF SECURITIES EXCHANGE
- --- ACT OF 1934
For the transition period to
------------- --------------
Commission File Number 0-8877
- ------------------------------------------------------------------------------
CREDO PETROLEUM CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Colorado 84-0772991
(State of incorporation) (I.R.S. employer identification number)
1801 Broadway, Suite 900, Denver, Colorado 80202-3837
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (303) 297-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value
3,130,000 Shares Outstanding, Net of Treasury Stock,
at the Close of Business on December 31, 1995
(Title of class and shares outstanding)
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 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. X
-----
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
----- -----
As of December 31, 1995, the aggregate market value of common stock held by
non-affiliates of the registrant was approximately $3,879,000.
DOCUMENTS INCORPORATED BY REFERENCE into Part III hereof - Proxy Statement to
be filed with the Commission in connection with the company's 1996 Annual
Meeting.
<PAGE>
PART I.
ITEM 1. BUSINESS
General
CREDO Petroleum Corporation ("CREDO") was incorporated in Colorado in 1978.
CREDO and its wholly owned subsidiaries, SECO Energy Corporation and United
Oil Corporation ("SECO", "United" and collectively "the company"), are Denver,
Colorado based independent oil and gas companies which engage in oil and gas
acquisition, exploration, development and production activities mostly in the
Mid-Continent and Rocky Mountain regions of the United States. The company
operates in nine states and has nine employees. References to years as used
in this report indicate fiscal years ended October 31.
In 1988, CREDO purchased all of the outstanding stock of United, then an
Oklahoma City based oil and gas exploration and production company. United
operates exclusively in Oklahoma. In 1987, CREDO purchased all of the
outstanding common stock of SECO, then a Casper, Wyoming based oil and gas
company. SECO is primarily a royalty company with both developed and
undeveloped property interests in major producing basins in the Rocky Mountain
Region. Both United and SECO are now based in Denver, Colorado and operate as
separate corporations and hold property title in their respective corporate
names.
The company's primary business activities are (i) oil and gas production, (ii)
operations of oil and gas properties for the company's interest and for the
interests of third parties, (iii) purchasing producing oil and gas properties,
and (iv) exploration for and development of oil and gas reserves.
Oil and Gas Operations
Operations are conducted primarily in the Mid-Continent and Rocky Mountain
regions of the United States. The company owns producing and non-producing
property interests in nine states.
The company's staff oversees the operations of existing properties and
evaluates property acquisition opportunities and drilling prospects.
Operations are concentrated on shallow to medium depth properties. A portion
of the funds necessary for acquisition, exploration or development of
properties is raised through farmouts, joint ventures, or other similar types
of cost sharing arrangements. Involvement of outside participants reduces the
company's return on individual successful ventures. However, it limits the
company's risk to unsuccessful ventures and provides exposure to a larger
volume of activities than would otherwise be possible.
The company acts as "operator" of 73 producing, water injection and water
disposal wells pursuant to standard industry Operating Agreements. In
addition, the company is general partner of six private limited partnerships.
The Partnerships are in the production stage of operations.
Markets and Customers
Marketing of the company's oil and gas production is influenced by many
factors which are beyond the company's control and the exact effect of which
cannot be accurately predicted. These factors include changes in supply and
demand, changes in market prices, regulatory changes, and actions of major
foreign producers.
<PAGE>
The company sells its oil production to crude oil purchasing companies at
competitive field prices. Crude oil and condensate production are readily
marketable. Crude oil is cost efficiently transportable from production
centers to demand centers and is, therefore, subject to world-wide supply and
demand. Oil prices are primarily dependent upon available oil supplies which
can vary significantly depending on production and pricing policies of OPEC
and other major producing countries and on significant events in major
producing regions such as the Persian Gulf War in 1991.
Deregulation of natural gas pricing and transportation have resulted in
far-reaching and fundamental changes in the producing, transportation and
marketing segments of the natural gas industry. Gas price decontrol and the
advent of an active spot market for natural gas have resulted in prices
received by the company being subject to significant fluctuations. Prices
tend to rise in peak demand periods such as fall and winter and to decline
during lower demand periods. The company presently sells most of its gas
through short-term contracts with terms of one year or less which are designed
to obtain the best available prices and deliverabilities. Virtually all of
the company's gas contracts provide for prices based on monthly spot prices
for the applicable market area. These prices are reduced ("netted") by the
costs of gathering and transporting the gas.
The company periodically hedges the price of a portion of its natural gas and
crude oil production by forward selling in the futures markets. Information
concerning hedging activities is contained in Note (1) to the Consolidated
Financial Statements.
Information concerning the company's major customers is included in Note (6)
to the Consolidated Financial Statements. The company's ability to market its
oil and gas is generally not dependent on a single purchaser.
Refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for further information regarding oil and gas markets
and prices.
Competition and Regulation
The oil and gas industry is intensively competitive. The company competes
with larger more well established oil and gas companies including, on
occasion, major companies. The significant areas of competition are in
acquiring oil and gas reserves, acquiring leases for drilling or development,
and selling natural gas. The primary competitive factors for acquisitions are
the price the company is willing to pay and the financial resources readily
available to the company to fund acquisitions. The primary factors which
affect the company's ability to sell its natural gas include proximity to
markets, proximity to and capacity of natural gas pipelines and transportation
and processing facilities, and quantities of gas which can be aggregated for
sale. Although both oil and gas are generally readily saleable at market
prices, they compete for market share with each other and with other energy
sources such as coal and nuclear power.
Oil and gas drilling and production operations are regulated by various
Federal, state and local agencies. These agencies issue binding rules and
regulations which increase the company's cost of doing business and which
carry penalties, often substantial, for failure to comply. It is anticipated
that the aggregate burden on the company of Federal, state and local
regulation will continue to increase particularly in the area of rapidly
changing environmental laws and regulations. The company believes that its
present operations substantially comply with applicable regulations. To date,
such regulations have not had a material effect on the company's operations,
or the costs thereof. There are no known environmental or other regulatory
matters related to the company's operations which are reasonably expected to
<PAGE>
result in material liability to the company. The company does not believe
that capital expenditures related to environmental control facilities or other
regulatory matters will be material in fiscal 1996.
No prediction can be made as to what legislation or regulations may be enacted
or what additional legislation or regulations may be proposed. However, it is
anticipated that the aggregate burden of Federal, state and local taxes and
regulations will continue to increase.
ITEM 2. PROPERTIES
General
During 1995, the company participated in drilling and new zone recompletions
on six gas wells and three oil wells located in Oklahoma and Wyoming of which
seven were successful and two resulted in dry holes. The company purchased
new or additional interests in 48 wells located mostly in areas of Oklahoma
where it has existing operations. Undeveloped acreage was acquired mostly in
areas of Wyoming and Utah which are known for natural gas reserve potential.
Total 1995 property expenditures were $710,000. During the year, the company
sold its interest in 34 marginally economic wells all of which were company
operated. In addition, the company sold, or farmed out for drilling, its
interest in several undeveloped leases. Sales proceeds received totaled
$191,000.
During 1994, the company purchased interests in 48 producing wells in Oklahoma
including a 7% interest in 13 gas wells located in the Southfork Field of
Woods County, Oklahoma. In addition, the company participated, with interests
ranging up to 50%, in drilling three gas wells in Oklahoma all of which were
successful. The company also purchased acreage on approximately 15 gas
drilling prospects in Oklahoma and four gas drilling prospects in southwest
Wyoming. Total 1994 property expenditures were $1,065,000.
In 1993, the company expanded its producing property base in Oklahoma through
purchasing interests in 20 separate wells. These purchases included a 100%
interest in Pine Cary Sand Unit located in Okfuskee County, Oklahoma. The
company also purchased acreage on several natural gas drilling prospects in
southwest Wyoming mostly for the Frontier and Dakota sands at 7,000 to 9,000
feet. Total 1993 property expenditures were $470,000.
Approximately 61% of the value of the company's estimated reserves is
represented by 40 producing properties which are located in 23 separate fields
in six states. The most significant producing property is Bear Creek Field
located in Converse County, Wyoming, in which the company owns a 52.2% working
interest. The company's share of 1995 production from this one well field was
1,800 barrels of oil and 91 million cubic feet of gas. The company's share of
estimated proved developed reserves attributable to the field at November 1,
1995 was 17,900 barrels of oil and 773 million cubic feet of gas. Bear Creek
Field is primarily a gas property with associated condensate production. It
is a mature producing property having produced over six billion cubic feet of
gas and 500,000 barrels of oil over its thirty year life.
Estimated Proved Oil and Gas Reserves and Future Net Revenues
In 1995, 1994 and 1993, McCartney Engineering, Inc., an independent petroleum
engineering firm, estimated proved reserves for the company's significant
properties which represented 60%, 61% and 53%, respectively, of the total
estimated future value of estimated reserves. Remaining reserves were
estimated by the company in all years.
At October 31, 1995, oil represented 29% and natural gas represented 71% of
total reserves denominated in equivalent barrels using a six Mcf of gas to one
barrel of oil conversion ratio.
The following table sets forth, as of October 31 of the indicated year,
information regarding the company's proved reserves which is based on the
assumptions set forth in Note (6) to the Consolidated Financial Statements
<PAGE>
where additional reserve information is provided. The average price used to
calculate estimated future net revenues was $16.31, $16.22 and $15.45 per
barrel for oil and $1.34, $1.38 and $1.61 per Mcf for gas as of October 31,
1995, 1994 and 1993, respectively. Amounts do not include estimates of
future Federal and state income taxes.
<TABLE>
<CAPTION>
Estimated Future
Oil Gas Estimated Future Net Revenues
Year (bbls) (Mcf) Net Revenues Discounted at 10%
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 363,000* 5,364,000* $7,781,000 $4,842,000
1994 363,000* 5,188,000* $7,877,000 $4,885,000
1993 382,000 3,654,000 $6,695,000 $4,165,000
<FN>
* Of 1995 and 1994 amounts, proved developed reserves were 363,000 and
363,000 barrels of oil and 5,112,000 and 4,936,000 Mcf of gas, respectively.
</TABLE>
Production, Average Sales Prices and Average Production Costs
The company's net production quantities and average sales price per unit
for the indicated years are set forth below.
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------
Product Volume Price Volume Price Volume Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 458,000 $ 1.65* 403,000 $ 1.66 398,000 $ 1.74
Oil (bbls) 5,000** $16.43 49,000 $14.86 49,000 $17.06
<FN>
* Includes natural gas hedging gains totaling $.35 per Mcf.
** Decline in oil production mostly due to sale of 34 marginal
oil wells during the year.
</TABLE>
Average production costs, including production taxes, per unit of production
(using a six to one conversion ratio of Mcfs to barrels) were $5.13, $5.15
and $5.23 per barrel in 1995, 1994 and 1993, respectively.
Productive Wells and Developed Acreage
Developed acreage at October 31, 1995 totaled 13,200 net and 74,200 gross
acres. At October 31, 1995, the company owned working interests in 41.53
net (136 gross) wells consisting of 21.73 net (55 gross) oil wells and
19.37 net (81 gross) gas wells. In addition, the company owned royalty
and production payment interests in approximately 167 oil and gas wells.
In 1995, the company divested of 17.04 net (34 gross) wells. In the same
period, the company acquired interests in .60 net (3 gross) wells in which
it did not previously own an interest, and 3.24 net (45 gross) wells where
the company previously owned an interest.
Undeveloped Acreage
The following table sets forth the number of undeveloped acres which will
expire during the next five fiscal years (and thereafter) unless production
is established in the interim. Undeveloped acres "held-by-production"
represent the undeveloped portions of producing leases which will not expire
until commercial production ceases. A "Net Royalty Acre" is the equivalent
of a 12.5% royalty or production payment interest in one net working interest
acre under lease.
<TABLE>
<CAPTION>
Working
Royalty Interest Acreage Interest Acreage
- -----------------------------------------------------------------------
Expiration Net
Year Ending Royalty
October 31 Gross Net Acres Gross Net
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 2,600 2,600 300 1,400 1,200
1997 1,900 1,900 - 2,200 600
1998 - - - 1,300 300
1999 4,000 4,000 - 8,400 3,800
2000 - - - 7,800 3,500
Thereafter 5,300 5,300 - 40,000 13,700
Held-By-Production 105,400 84,400 7,600 7,000 1,700
- -----------------------------------------------------------------------
119,200 98,200 7,900 68,100 24,800
=======================================================================
</TABLE>
<PAGE>
The acreage in the above table is located in nine states including Oklahoma,
Texas, Colorado, Wyoming, North Dakota and Utah.
In general, "royalty" and "production payment" interests are non-operated
interests which are not burdened by costs of exploration or lease operations,
while "working interests" have operating rights and participate in such
costs. Operating rights in leases underlying the company's royalties are
held by others and, therefore, the company cannot compel exploration or
development of the leases nor can it control costs of operations. For
purposes hereof, royalty and production payment interests are referred to
collectively as royalty interests.
Drilling and New Zone Recompletions
The following tables set forth the number of gross and net oil and gas
wells in which the company has participated and the results thereof for
the periods indicated.
<TABLE>
<CAPTION>
Gross Wells
- ------------------------------------------------------------------------------
Year Ended Total Gross Exploratory Development
---------------- ------------------
October 31 Wells Oil Gas Dry Oil Gas Dry
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 9 2 2 2 - 3 -
1994 3 - 1 - - 2 -
1993 1 - - 1 - - -
1978-1992 119 7 24 66 15 3 4
- ------------------------------------------------------------------------------
132 9 27 69 15 8 4
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Net Wells
- -------------------------------------------------------------------------
Year Ended Total Net Exploratory Development
------------------ ----------------
October 31 Wells Oil Gas Dry Oil Gas Dry
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 2.168 .150 .475 .975 - .568 -
1994 .616 - .500 - - .116 -
1993 .235 - - .235 - - -
1978-1992 18.906 .791 2.776 9.270 4.350 .235 1.484
- -------------------------------------------------------------------------
21.925 .941 3.751 10.480 4.350 .919 1.484
=========================================================================
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The company is not a party to any material pending legal proceedings. No
such proceedings have been threatened and none are contemplated by the
company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1995
PART II.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The company's common stock is traded on the National Association of
Securities Dealers Automated Quotation System under the symbol "CRED".
<PAGE>
Market quotations shown below were reported by the National Association of
Securities Dealers, Inc. and represent prices between dealers excluding
retail mark-up or commissions.
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------
Fiscal Quarter Ended High Low High Low
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 31 $1.75 $1.56 $2.06 $1.63
April 30 1.88 1.63 1.88 1.63
July 31 1.88 1.63 1.81 1.63
October 31 1.75 1.50 1.81 1.63
</TABLE>
At December 31, 1995, the company had 4,830 shareholders of record. The
company has never paid a dividend and does not expect to pay any dividends
in the foreseeable future. Earnings are reinvested in business activities.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
October 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $2,129,000 $1,931,000 $2,123,000 $2,064,000 $1,890,000
Net income (loss)
before accounting
change and
extraordinary item 251,000 150,000 (375,000)* (126,000)* 293,000
Net income (loss) 251,000 150,000 (576,000)** (126,000) 293,000
Per share amounts:
Before tax
accounting change $.08 $.05 $(.11)* $(.04)* $.08
After tax
accounting change .08 .05 (.17)** (.04) .08
Total assets $8,718,000 $9,150,000 $8,447,000 $9,159,000 $9,620,000
Long-term debt - - - - -
Stockholders'
equity 7,688,000 7,615,000 7,577,000 8,235,000 8,485,000
<FN>
* Includes a $556,000, net of tax, non-cash write-down in the carrying value of
oil and gas properties in 1993, and a $280,000 write-down in 1992.
** In addition to the non-cash write-down discussed above, 1993 includes a one
time, non-cash accounting charge of $201,000 for the effect of adopting
Statement of Financial Standards No. 109, Accounting for Income Taxes.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The company's working capital and cash flow represent a significant capital
resource and source of liquidity. At fiscal year-end, October 31, 1995,
working capital was $2,575,000, up 8% from last year. Cash generated by
operating activities totaled $827,000 in 1995. Working capital and cash
flow were used primarily to fund oil and gas acquisition and development
expenditures totaling $710,000 and to purchase treasury stock for $178,000.
Existing working capital and anticipated cash flow are expected to be
sufficient to fund fiscal 1996 operations. However, if the company were
to make one or more major acquisitions during the coming year, issuance of
additional stock, bank borrowings or other forms of debt financing might be
considered. At fiscal year-end, the company had no lines of credit or other
bank financing arrangements. Because earnings are anticipated to be
reinvested in operations, cash dividends are not expected to be paid in
the foreseeable future.
<PAGE>
Commitments for future capital expenditures were not material at fiscal
year-end. The timing of most capital expenditures for exploration and
development is relatively discretionary. Therefore, the company can
normally plan expenditures to coincide with available funds.
The company has no defined benefit plans and no obligations for post
retirement employee benefits.
Product Prices, Production and Interest Rates
As discussed in Item I., Markets and Customers, numerous uncertainties
exist in the oil and gas industry which could adversely affect the company
and which are beyond the company's ability to predict with reasonable
accuracy.
Deregulation of natural gas pricing and transportation have resulted in
far-reaching and fundamental changes in the producing, transportation and
marketing segments of the natural gas industry. Gas price decontrol and
the advent of an active spot market for natural gas have resulted in gas
prices received by the company being subject to significant fluctuations.
Prices tend to rise in peak demand periods such as the fall and winter,
and to decline during lower demand periods.
Uncertainties also exist with respect to the supply of oil available to
world markets. OPEC and world events such as the Persian Gulf War
significantly influence world-wide supply and prices for petroleum products.
Volatile gas and oil prices have increasingly become a reality for the
energy business. Although product prices are key to the company's ability
to operate profitably and to budget capital expenditures, they are beyond
the company's control and are difficult to predict. Since 1991, the company
has occasionally hedged product prices by forward selling a portion of its
production in the futures market. This is done when, in the company's
opinion, the current price of a product is adequate to insure reasonable
returns and when downside price risks appear to be substantial. At
October 31, 1995, the company had no significant hedge positions. During
fiscal 1995, the company hedged a substantial portion of its gas production.
Hedging gains for fiscal 1995 totaled $161,000, or $.35 per Mcf of gas
produced. The hedging gain is included in revenues from oil and gas sales.
The company closes its hedges by purchasing offsetting "long" positions in
the futures market at then prevailing prices. Accordingly, the gain or loss
on the hedge position will depend on futures prices at the time offsetting
"long" positions are purchased.
Oil and gas sales volume and price comparisons for the indicated years ended
October 31 are set forth below.
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------
Product Volume Price Volume Price Volume Price
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 458,000 $ 1.65* 403,000 $ 1.66 398,000 $ 1.74
Oil (bbls) 45,000** $16.43 49,000 $14.86 49,000 $17.06
<FN>
* Includes natural gas hedging gains totaling $.35 per Mcf.
** Decline in oil production due to sale of 34 marginal oil
wells during the year.
</TABLE>
The average interest rate earned on short-term investments was 6.4% in 1995,
4.1% in 1994, and 4.7% in 1993. Current interest rates available to the
company are approximately the same as the prior year.
Acquisitions and Exploration
During 1995, the company participated in drilling and new zone recompletions
on six gas wells and three oil wells located in Oklahoma and Wyoming of which
seven were successful and two resulted in dry holes. The company purchased
new or additional interests in 48 wells located mostly in areas of Oklahoma
where it has existing operations. Undeveloped acreage was acquired mostly
in areas of Wyoming and Utah which are known for natural gas reserve
potential. Total 1995 property expenditures were $710,000. During the year,
<PAGE>
the company sold its interest in 34 marginally economic wells all of which
were company operated. In addition, the company sold, or farmed out for
drilling, its interest in several undeveloped leases. Sales proceeds received
totaled $191,000.
During 1994, the company purchased interests in 48 producing wells in Oklahoma
including a 7% interest in 13 gas wells located in the Southfork Field of
Woods County, Oklahoma. In addition, the company participated, with interests
ranging up to 50%, in drilling three gas wells in Oklahoma all of which were
successful. The company also purchased acreage on approximately 15 gas
drilling prospects in Oklahoma and four gas drilling prospects in southwest
Wyoming. Total 1994 property expenditures were $1,065,000.
Results of Operations
In 1995, total revenues rose 10% to $2,129,000 compared to $1,931,000 in 1994
with oil and gas sales accounting for 49% of the increase. As the above oil
and gas price/volume table shows gas price realizations fell slightly to $1.65
per Mcf and oil price realizations rose 11% to $16.43 per barrel. The net
effect of these price changes was to increase oil and gas sales by $91,000.
Net wellhead gas prices averaged $1.30 per Mcf for 1995 but were supplemented
by gas hedging gains of $.35 per Mcf. Gas volumes increased 14% and oil
volumes declined 8%. The net effect of these volume changes was to increase
oil and gas sales by $6,000. The gas volume increase was primarily due to
wells placed on stream early in fiscal 1995 together with production from
acquisitions made in the fourth fiscal quarter of last year. Gas volume
increases were partially offset by periodic shut-in of some large gas
properties during the year due primarily due to low gas prices. The decline
in oil volumes is mostly due to sale of 34 gross (17 net) marginal oil wells
during the year and loss of oil volumes associated with curtailed gas
production. Operating income increased slightly. Interest and other income
increased due to higher yields on temporary cash investments.
Total revenues for 1994 declined 13% to $1,931,000 compared to $2,123,000 in
1993 with oil and gas sales accounting for 74% of the decline. As the above
oil and gas price/volume table shows, the $146,000, or 9%, decline in oil and
gas sales was due solely to 13% lower oil prices and a 5% decline in gas
prices. Operating income decreased $37,000 due primarily to several one-time
revenue items included in 1993. Interest and other income declined $9,000 due
to lower average interest rates received in 1994 compared to 1993.
In 1995, total costs and expenses increased 3% to $1,751,000 compared to
$1,702,000 in 1994. Depreciation, depletion and amortization ("DD&A") for
1995 increased 3% compared to 1994 due primarily to increased production in
1995 resulting from acquisitions and drilling. Oil and gas production
expenses increased 4% due mostly to additions of interests in wells where the
company already owned an interest. General and administrative expenses
increased slightly primarily as a result of inflationary pressures on
administrative costs. The effective tax rate was approximately 35% for both
years.
In 1994, total costs and expenses (before the impairment of property costs in
1993) decreased 9% to $1,702,000 compared to $1,864,000 in 1993. DD&A for
1994 decreased 25% compared to 1993 due primarily to increased reserves in
1994 resulting from acquisitions and drilling, and higher than normal DD&A in
1993. Oil and gas production expenses decreased 2% from 1993. General and
administrative expenses increased 4% primarily as a result of inflationary
pressures on administrative costs. The effective tax rate declined from 38%
to 35%.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Page
-----
Consolidated Balance Sheets, October 31, 1995 and 1994 11
Consolidated Statements of Operations for the Three Years Ended
October 31, 1995 12
Consolidated Statements of Stockholders' Equity for
the Three Years Ended October 31, 1995 13
Consolidated Statements of Cash Flows for the Three Years
Ended October 31, 1995 14
Notes to Consolidated Financial Statements 15
Independent Auditors' Reports 21
<PAGE>
CONSOLIDATED BALANCE SHEETS
October 31, 1995 and 1994
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 130,000 $ 331,000
Temporary cash investments 2,580,000 2,731,000
Receivables:
Trade 129,000 145,000
Accrued oil and gas sales 169,000 196,000
Accrued interest 6,000 13,000
Other 34,000 63,000
- --------------------------------------------------------------------------------
3,048,000 3,479,000
- --------------------------------------------------------------------------------
Oil and gas properties, net, at cost,
using full cost method:
Unevaluated 709,000 564,000
Evaluated 4,601,000 4,671,000
- --------------------------------------------------------------------------------
5,310,000 5,235,000
- --------------------------------------------------------------------------------
Long-term assets:
Operating rights and other
intangible assets, net 312,000 397,000
Other, net 48,000 39,000
- --------------------------------------------------------------------------------
360,000 436,000
- --------------------------------------------------------------------------------
$8,718,000 $9,150,000
================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 473,000 $ 650,000
Note payable - 455,000
- --------------------------------------------------------------------------------
473,000 1,105,000
- --------------------------------------------------------------------------------
Deferred income taxes 557,000 430,000
- --------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, without par value, 5,000,000
shares authorized, none issued - -
Common stock, $.10 par value, 20,000,000
shares authorized, 3,666,000 shares issued 366,000 366,000
Capital in excess of par value 6,236,000 6,236,000
Retained earnings 1,940,000 1,689,000
Treasury stock, at cost, 507,000 shares in
1995 and 400,000 shares in 1994 (854,000) (676,000)
- --------------------------------------------------------------------------------
7,688,000 7,615,000
- --------------------------------------------------------------------------------
Commitments
- --------------------------------------------------------------------------------
$8,718,000 $9,150,000
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Years Ended October 31, 1995
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Oil and gas sales $1,493,000 $1,396,000 $1,542,000
Operating 416,000 414,000 451,000
Interest and other 220,000 121,000 130,000
- --------------------------------------------------------------------------------
2,129,000 1,931,000 2,123,000
- --------------------------------------------------------------------------------
Costs and expenses:
General and administrative 600,000 593,000 572,000
Depreciation, depletion and
amortization 529,000 512,000 680,000
Impairment of property costs - - 860,000
Oil and gas production 622,000 597,000 612,000
- --------------------------------------------------------------------------------
1,751,000 1,702,000 2,724,000
- --------------------------------------------------------------------------------
Income (loss) before
income taxes and change
in accounting principal 378,000 229,000 (601,000)
Income taxes (127,000) (79,000) 226,000
- --------------------------------------------------------------------------------
Income (loss) before effect
of change in accounting
principle 251,000 150,000 (375,000)
Cumulative effect of income
tax accounting change - - (201,000)
- --------------------------------------------------------------------------------
Net income (loss) $ 251,000 $ 150,000 $ (576,000)
================================================================================
Income (loss) per share
before cumulative effect
of change in accounting
principle $.08 $.05 $(.11)
Cumulative effect of income
tax accounting change - - (.06)
- --------------------------------------------------------------------------------
Net income (loss) per share $.08 $.05 $(.17)
================================================================================
Weighted average common shares
outstanding during the period 3,203,000 3,308,000 3,336,000
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Years Ended October 31, 1995
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital In Total
Common Stock Excess Of Retained Treasury Stockholders'
-------------------
Shares Amount Par Value Earnings Stock Equity
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
November 1, 1993 3,655,000 $365,000 $6,237,000 $2,115,000 $(482,000) $8,235,000
Purchase of treasury
stock - - - - (82,000) (82,000)
Shares issued on
exercise of stock
option 60,000 6,000 79,000 - - 85,000
Shares received
and canceled
on exercise of
stock option (49,000) (5,000) (80,000) - - (85,000)
Net loss - - - (576,000) - (576,000)
- ------------------------------------------------------------------------------------------
Balances,
October 31, 1993 3,666,000 366,000 6,236,000 1,539,000 (564,000) 7,577,000
Purchase of treasury
stock - - - - (112,000) (112,000)
Net income - - - 150,000 - 150,000
- ------------------------------------------------------------------------------------------
Balances,
October 31, 1994 3,666,000 366,000 6,236,000 1,689,000 (676,000) 7,615,000
Purchase of treasury
stock - - - - (178,000) (178,000)
Net income - - - 251,000 - 251,000
- ------------------------------------------------------------------------------------------
Balances,
October 31, 1995 3,666,000 $366,000 $6,236,000 $1,940,000 $(854,000)$7,688,000
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended October 31, 1995
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) before effect of
change in accounting principle $ 251,000 $ 150,000 $ (375,000)
Noncash expenses included in
net income (loss):
Depreciation, depletion and
amortization 529,000 512,000 680,000
Impairment of property costs - - 860,000
Deferred income taxes 127,000 123,000 (301,000)
Other 18,000 16,000 15,000
Changes in assets and liabilities:
Trade receivables 16,000 82,000 (72,000)
Accrued oil and gas sales 27,000 41,000 (21,000)
Accrued interest 7,000 (7,000) 8,000
Other current assets 29,000 (35,000) 5,000
Accounts payable (177,000) 162,000 (31,000)
Income taxes payable - (75,000) 75,000
- --------------------------------------------------------------------------------
Net cash provided by operating activities 827,000 969,000 843,000
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Increase in oil and gas properties, net (519,000) (1,065,000) (470,000)
Purchases of certificates of deposit
and other investments (1,475,000) (2,849,000) (3,172,000)
Proceeds from certificates of deposit
and other investments 1,966,000 2,750,000 2,974,000
Investments in managed fund (340,000) (347,000) (100,000)
Other (27,000) (13,000) 1,000
- --------------------------------------------------------------------------------
Net cash used in investing activities (395,000) (1,524,000) (767,000)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Purchase of treasury stock (178,000) (112,000) (82,000)
Proceeds from (payment of) short-term
note payable (455,000) 455,000 -
- --------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (633,000) 343,000 (82,000)
- --------------------------------------------------------------------------------
Decrease in cash
and cash equivalents (201,000) (212,000) (6,000)
Cash and cash equivalents:
Beginning of year 331,000 543,000 549,000
- --------------------------------------------------------------------------------
End of year $ 130,000 $ 331,000 $ 543,000
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1995
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of CREDO Petroleum
Corporation and its wholly owned subsidiaries (the "company"). The company
engages in oil and gas acquisition, exploration, development and production
activities in the United States. Certain operations are conducted through six
private limited partnerships (the "Partnerships") which, as general partner,
the company manages and controls. The company's general and limited partner
interests in the Partnerships are combined on the proportionate share basis in
accordance with accepted industry practice. All significant intercompany
transactions have been eliminated. Certain reclassifications have been made
to prior year amounts.
Cash Equivalents and Temporary Cash Investments
Cash equivalents include highly liquid investments with original maturities of
three months or less. Temporary cash investments are certificates of deposit
and U.S. Treasury notes which are reasonably expected to mature or to be
liquidated within twelve months. Market value approximates cost.
Oil and Gas Properties
The company follows the full cost method of accounting for its oil and gas
operations. Under this method all costs incurred in the acquisition,
exploration, and development of oil and gas properties are capitalized in one
cost center, including certain internal costs directly associated with such
activities which totaled $108,000 in 1995 and 1994. Proceeds from sales of oil
and gas properties are credited to the cost center with no gain or loss
recognized unless such adjustments would significantly alter the relationship
between capitalized costs and proved oil and gas reserves. Estimated
dismantlement, restoration, and abandonments costs are approximately offset by
estimated residual values of lease and well equipment. Accordingly, no accrual
for such costs has been recorded.
If capitalized costs, less related accumulated amortization and deferred
income taxes, exceed the "full cost ceiling", the excess is expensed in the
period such excess occurs. The full cost ceiling includes an estimated
discounted value of future net revenues attributable to proved reserves using
current product prices and operating costs, and an estimate of the value of
unproved properties which are included in the cost center. During 1993, the
company recorded an $860,000 non-cash write-down of the carrying value of its
oil and gas properties due to this limitation on capitalized costs. The
Financial Accounting Standards Board has recently issued a statement which
governs determining impairment of long-lived assets. The company does not
believe that the standard will have a material effect on the financial
statements.
Cost of oil and gas properties are amortized using the units of production
method. The company's composite depreciation, depletion and amortization rate
per equivalent barrel produced was $3.66 in 1995, $3.68 in 1994 and $5.09 in
1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1995
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
Unevaluated properties consist primarily of lease acquisition and maintenance
costs. Evaluation normally takes three to five years. Of the unevaluated
property costs, $145,000 and $373,000 were incurred in 1995 and 1994,
respectively.
Operating Rights And Other Intangible Assets
Operating rights represent contractual agreements designating the company to
conduct and supervise the day to day operations of a well in return for a
specified monthly fee. Amortization of purchased operating rights is based on
the relationship of the number of months of operations to the estimated
economic lives of the wells. Amortization was $85,000 in each of the three
years ended October 31, 1995. Accumulated amortization was $592,000 and
$507,000 at October 31, 1995 and 1994, respectively.
Natural Gas And Crude Oil Price Hedging
The company periodically hedges the price of its oil and gas production.
Hedging transactions relate to anticipated production volumes and take the
form of forward, or "short", selling all or part of such volumes in the
futures market. Hedges are closed by purchasing offsetting "long" positions.
The company may hedge its production when the potential for significant
downward price movement is anticipated. Hedges are generally expected to be
closed as related production occurs but may be closed earlier if the
anticipated downward price movement occurs or if company believes that the
potential for such movement has abated. The company's most significant
hedging risk is that cash prices in markets where the company sells its
products will not move in tandem with futures market prices, and thus, that
gains or losses in one market will not be fully offset by opposite moves in
the other market. Hedging gains or losses are recognized as adjustments to oil
and gas sales as the hedged product is produced. Hedging gains totaled
$161,000 in 1995 and were not significant in 1994.
Per Share Amounts
Per share amounts are computed on the basis of the weighted average number of
common shares outstanding during the year. The assumed exercise of stock
options is not included because the effect would be immaterial.
(2) COMMON STOCK AND PREFERRED STOCK
During fiscal 1995 and 1994, the company acquired 107,000 and 67,000 shares of
its common stock at a total cost of $178,000 and $112,000, respectively.
These transactions have been recorded as treasury stock.
The company has authorized 5,000,000 shares of preferred stock which may be
issued in series and with preferences as determined by the company's Board of
Directors. Approximately 100,000 shares of the company's authorized but
unissued preferred stock have been reserved for issuance pursuant to the
provisions of the company's Shareholders' Rights Plan.
A non-qualified stock option plan and an incentive stock option plan (ISO),
approved by the company's shareholders, authorize granting of options to
directors, officers and employees to purchase shares of common stock. As of
October 31, 1995 210,000 shares had been reserved for issuance under the
plans. Options under both plans are granted at the fair market value of the
company's common stock on the date of grant. Options granted under the non
qualified plan become exercisable in annual increments of 25% beginning with
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1995
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
the date of grant and expire on the sixth anniversary date if unexercised.
Options granted under the ISO plan become exercisable in annual increments of
25% beginning with the first anniversary date of the grant and expire on the
fifth anniversary date if unexercised. There were no option transactions
in 1995. During 1994, options to purchase 60,000 shares at $1.31 were
purchased by the company and allowed to expire, and no options were granted
or canceled. At October 31, 1995, options to purchase 75,000 shares were
outstanding at $1.88 per share and all such options were exercisable.
The Financial Accounting Standards Board has recently issued a statement which
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options, and other equity instruments to employees
based on fair value. The company does not presently intend to adopt such fair
value accounting but will make the related disclosures as required by the
statement.
(3) COMMITMENTS
The company leases office facilities under a five year lease agreement
effective May 1, 1991 which was amended effective January 1, 1996. The lease
agreement requires payments of $40,000 in 1996 escalating ratably over five
years to $45,000 in 2001. Total rental expense in fiscal 1995, 1994 and 1993
was $41,000, $38,000 and $41,000, respectively. The company has no capital
leases and no other operating lease commitments.
(4) INCOME TAXES
The company follows the asset and liability method of accounting for deferred
income taxes. Deferred tax assets and liabilities are determined based on the
temporary differences between the financial statement and tax basis of assets
and liabilities. Deferred tax assets or liabilities at the end of each period
are determined using the tax rate in effect at that time. Accordingly, income
tax provisions increase or decrease in the same year in which a change in tax
rates is enacted.
The company adopted the asset and liability method of accounting for deferred
income taxes effective November 1, 1992, and recorded a $201,000, or $.06 per
share, charge against 1993 earnings for the cumulative effect of the change.
The income tax expense (credit) recorded in the Consolidated Statements of
Operations consists of the following:
<TABLE>
<CAPTION>
Years Ended October 31 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ - $(44,000) $ 75,000
Deferred 127,000 123,000 (301,000)
- --------------------------------------------------------------------------------
$ 127,000 $ 79,000 $(226,000)
================================================================================
</TABLE>
The effective income tax rate differs from the U.S. Federal statutory income
tax rate due to the following:
<TABLE>
<CAPTION>
Years Ended October 31 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate (benefit) 34% 34% (34)%
Effect of graduated tax rates 2 10 (2)
State income taxes 2 5 (2)
Percentage depletion (5) (14) (2)
Other, net 1 (1) 2
- --------------------------------------------------------------------------------
34% 34% (38)%
================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1995
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The principal sources of temporary differences resulting in deferred tax
assets and tax liabilities at October 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
October 31 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Percentage depletion carryforwards $ 231,000 $ 202,000
Alternative minimum tax carryforwards 45,000 45,000
Net operating loss carryforwards 53,000 66,000
Investment tax credit carryforwards 20,000 20,000
- --------------------------------------------------------------------------------
Total deferred tax assets 349,000 333,000
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Intangible drilling, leasehold and
other exploration costs capitalized
for financial reporting purposes but
deducted for tax purposes (842,000) (709,000)
State taxes and other (64,000) (54,000)
- --------------------------------------------------------------------------------
Total gross deferred tax liabilities (906,000) (763,000)
- --------------------------------------------------------------------------------
Net deferred tax liability $(557,000) $(430,000)
================================================================================
</TABLE>
At October 31, 1995, the company had net operating loss carryforwards of
$200,000 for regular tax purposes, which expire in varying amounts through
2007. For tax purposes, investment tax credit carryforwards totaled $20,000
and expire in varying amounts through 2001, and statutory depletion
carryforwards totaled $877,000.
(5) SHORT-TERM NOTE PAYABLE
The $455,000 note payable at October 31, 1994 carried interest at the rate of
6% and was fully paid in January 1995.
(6) SUPPLEMENTARY OIL AND GAS INFORMATION
Capitalized Costs
<TABLE>
<CAPTION>
October 31 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Unproved properties not being
amortized $ 709,000 $ 564,000 $ 191,000
Properties being amortized 10,000,000 9,626,000 8,934,000
Accumulated depreciation,
depletion and amortization (5,399,000) (4,955,000) (4,529,000)
- --------------------------------------------------------------------------------
</TABLE>
Acquisition, Exploration and Development Costs Incurred
<TABLE>
<CAPTION>
Years Ended October 31 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Property acquisition costs,
net of sales proceeds:
Proved $ 37,000 $ 592,000 $ 279,000
Unproved (5,000) 298,000 33,000
Exploration costs 184,000 149,000 114,000
Development costs 303,000 26,000 44,000
- --------------------------------------------------------------------------------
Total cost incurred $ 519,000 $ 1,065,000 $ 470,000
================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1995
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Major Customers and Operating Region
The company operates exclusively within the United States. Except for cash
investments, all of the company's assets are employed in, and all its revenues
are derived from, the oil and gas industry. The company had sales in excess
of 10% of total revenues to oil and gas purchasers as follows: Total
Petroleum, Inc. 23% in 1995; Koch Oil Company 23% in 1994 and 1993; Scurlock
Permian Corporation 10% in 1994; and Western Gas Resources Inc.
10% in 1995, 15% in 1994, and 11% in 1993.
Oil and Gas Reserve Data (Unaudited)
In 1995, 1994 and 1993, independent petroleum engineers estimated proved
reserves for the company's significant properties which represented 60%, 61%
and 53%, respectively, of total estimated future net revenues. The remaining
reserves were estimated by the company. Reserve definitions and pricing
requirements prescribed by the Securities and Exchange Commission were used.
The determination of oil and gas reserve quantities involves numerous
estimates which are highly complex and interpretive. The estimates are
subject to continuing re-evaluation and reserve quantities may change as
additional information becomes available. Estimated values of proved reserves
were computed by applying prices in effect at October 31 of the indicated
year. The average price used was $16.31, $16.22 and $15.45 per barrel for oil
and $1.34, $1.38 and $1.61 per Mcf for gas in 1995, 1994 and 1993,
respectively. Estimated future costs were calculated assuming continuation
of costs and economic conditions at the reporting date.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1995
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Total estimated proved reserves and the changes therein are set forth below for
the indicated fiscal year.
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------
Gas(Mcf) Oil(bbls) Gas(Mcf) Oil(bbls) Gas(Mcf) Oil(bbls)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Balance, November 1 5,188,000 363,000 3,654,000 382,000 3,960,000 425,000
Revisions of
previous estimates 116,000 37,000 456,000 3,000 (22,000)*(63,000)*
Extensions and
discoveries 459,000 3,000 245,000 - - -
Purchases of
reserves in place 97,000 29,000 1,236,000 27,000 114,000 69,000
Sales of reserves
in place (38,000) (24,000) - - - -
Production (458,000) (45,000) (403,000) (49,000) (398,000) (49,000)
- -------------------------------------------------------------------------------------
Balance, October 31 5,364,000 363,000 5,188,000 363,000 3,654,000 382,000
=====================================================================================
Proved developed reserves:
Beginning of period 4,936,000 363,000 3,654,000 382,000 3,960,000 425,000
=====================================================================================
End of period 5,112,000 363,000 4,936,000 363,000 3,654,000 382,000
=====================================================================================
<FN>
* Approximately 84%, or 53,000 barrels, of the downward oil revision
and all of the downward gas revision are attributable to the 22%
decline in oil prices to $15.45 per barrel at fiscal year end
1993 which shortened the economic lives of oil properties
thereby reducing the reserves estimated to be recoverable.
</TABLE>
The standardized measure of discounted future net cash flows from reserves is
set forth below as of October 31 of the indicated fiscal year.
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Future cash inflows $13,102,000 $13,159,000 $11,802,000
Future production and
development costs (5,322,000) (5,282,000) (5,107,000)
Future income tax expense (1,050,000) (994,000) (1,091,000)
- --------------------------------------------------------------------------------
Future net cash flows 6,730,000 6,883,000 5,604,000
10% discount factor (2,557,000) (2,589,000) (2,118,000)
- --------------------------------------------------------------------------------
Standardized measure of
discounted future net
cash flows $ 4,173,000 $ 4,294,000 $ 3,486,000
================================================================================
</TABLE>
The principal sources of change in the standardized measure of discounted
future cash flows are set forth below for the indicated fiscal year.
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, November 1 $ 4,294,000 $ 3,486,000 $ 5,178,000
Sales of oil and gas
produced, net of
production costs (709,000) (799,000) (930,000)
Net changes in prices,
production and development
costs (590,000) (577,000) (1,845,000)
Revisions of quantity
estimates and other 363,000 572,000 (102,000)
Purchases of reserves in place 243,000 1,008,000 355,000
Sales of reserves in place (151,000) - -
Extensions and discoveries,
net of future development
and production costs 329,000 195,000 -
Accretion of discount 429,000 349,000 518,000
Net change in income taxes (35,000) 60,000 312,000
- --------------------------------------------------------------------------------
Balance, October 31 $ 4,173,000 $ 4,294,000 $ 3,486,000
================================================================================
</TABLE>
<PAGE>
<Audit-report>
INDEPENDENT AUDITORS' REPORTS
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders
CREDO Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of CREDO
Petroleum Corporation and subsidiaries as of October 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CREDO
Petroleum Corporation and subsidiaries as of October 31, 1995 and 1994, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
Denver, Colorado HEIN + ASSOCIATES LLP
January 4, 1996
The Board of Directors and Stockholders
CREDO Petroleum Corporation:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of CREDO Petroleum Corporation and
subsidiaries for the year ended October 31, 1993. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations of CREDO
Petroleum Corporation and subsidiaries and their cash flows for the year ended
October 31, 1993 in conformity with generally accepted accounting principles.
As discussed in note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Denver, Colorado KPMG Peat Marwick LLP
January 18, 1994
</Audit-report>
<PAGE>
- --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Hein + Associates LLP was engaged by the company in November 1994. There were
no disagreements between the company and its former accountants.
PART III.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to the company's Proxy Statement to be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of the
company's fiscal year 1995.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
Incorporated by reference to the company's Proxy Statement to be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of the
company's fiscal year 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the company's Proxy Statement to be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of the
company's fiscal year 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the company's Proxy Statement to be filed with
the Commission pursuant to Regulation 14A within 120 days of the end of the
company's fiscal year 1995.
PART IV.
ITEM 14. FINANCIAL STATEMENTS AND SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K
(a) The Index to Financial Statements is set forth under Item 8.
(c) Exhibits
3(a)(i) Articles of Incorporation of CREDO Petroleum Corporation
& 4(a) (incorporated by reference to Form 10-K dated October 31, 1982).
3(a)(ii) Articles of Amendment of Articles of Incorporation, dated March 9,
1982 (incorporated by reference to Form 10-K dated October 31, 1982).
3(a)(iii)Articles of Amendment of Articles of Incorporation, dated
October 28, 1982 (incorporated by reference to Form 10-K dated
October 31, 1982).
3(a)(iv) Articles of Amendment of Articles of Incorporation dated April 18,
1984 (incorporated by reference to Form 10-K dated October 31, 1984).
3(a)(v) Articles of Amendment of Articles of Incorporation dated April 18,
1984 (incorporated by reference to Form 10-K dated October 31, 1984).
<PAGE>
- -------------------------------------------------------------------------------
3(a)(vi) Articles of Amendment of Articles of Incorporation dated April 2,
1985 (incorporated by reference to Form 10-K dated October 31,
1985).
3(a)(vii)Articles of Amendment of Articles of Incorporation dated
March 25, 1986 (incorporated by reference to Form 10-K dated
October 31, 1986).
3(a)(viii)Articles of Amendment of Articles of Incorporation dated March 24,
1988 (incorporated by reference to Form 10-K dated October 31,
1989).
3(a)(ix) Articles of Amendment to Articles of Incorporation dated May 11,
1990.
3(b)(i) By-Laws of CREDO Petroleum Corporation, as amended May 27, 1981
(incorporated by reference to Form 10-K dated October 31, 1981).
3(b)(ii) By-Laws of CREDO Petroleum Corporation, as amended May 27, 1981 and
January 30, 1985 (incorporated by reference to Form 10-K dated
October 31, 1985).
3(b)(iii)By-Laws of CREDO Petroleum Corporation, as amended October 30, 1986
(incorporated by reference to Form 10-K dated October 31, 1986).
3(b)(iv) Amendment to Article X of CREDO Petroleum Corporation's By-Laws
dated March 24, 1988 (incorporated by reference to the company's
definitive proxy dated February 5, 1988).
4(i) Shareholders' Rights Plan, dated April 11, 1989.
10(a) CREDO Petroleum Corporation Non-qualified Stock Option Plan, dated
January 13, 1981 (incorporated by reference to Amendment No. 1 to
Form S-1 dated February 2, 1981).
10(b) CREDO Petroleum Corporation Incentive Stock Option Plan, dated
October 2, 1981 (incorporated by reference to the company's
definitive proxy statement, dated January 22, 1982).
10(c) Model of Director and Officer Indemnification Agreement provided
for by Article X of CREDO Petroleum Corporation's By-Laws
(incorporated by reference to Form 10-K dated October 31, 1987).
22 CREDO Petroleum Corporation (a Colorado corporation) and its
subsidiaries SECO Energy Corporation (a Nevada corporation) and
United Oil Corporation (an Oklahoma corporation) are located at
1801 Broadway, Suite 900, Denver, CO 80202-3837.
<PAGE>
- -------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CREDO PETROLEUM CORPORATION
By:/s/ James T. Huffman
----------------------------
James T. Huffman,
Chief Executive Officer
By:/s/ Byron J. Sullivan
----------------------------
Byron J. Sullivan,
Vice President-Finance
Date: January 5, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Date Signature Title
---------------- ------------------------- ------------------------
January 5, 1996 /s/ William N. Beach Director
-------------------------
William N. Beach
January 5, 1996 /s/ Otto P. Butterly Director
-------------------------
Otto P. Butterly
January 5, 1996 /s/ William D. Howell Director
-------------------------
William D. Howell
January 5, 1996 /s/ James T. Huffman Chairman of the Board,
-------------------------
James T. Huffman President, Treasurer
January 5, 1996 /s/ William F. Skewes Director, Corporate
-------------------------
William F. Skewes Sec., General Counsel
January 5, 1996 /s/ Richard B. Stevens Director
-------------------------
Richard B. Stevens
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
IN THE COMPANY'S 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
ACCOMPANYING FOOTNOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> 130,000
<SECURITIES> 2,580,000
<RECEIVABLES> 129,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,048,000
<PP&E> 10,709,000<F1>
<DEPRECIATION> 5,399,000
<TOTAL-ASSETS> 8,718,000
<CURRENT-LIABILITIES> 473,000
<BONDS> 0
<COMMON> 366,000
0
0
<OTHER-SE> 7,322,000
<TOTAL-LIABILITY-AND-EQUITY> 8,718,000
<SALES> 1,493,000
<TOTAL-REVENUES> 2,129,000
<CGS> 622,000
<TOTAL-COSTS> 1,151,000
<OTHER-EXPENSES> 600,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 378,000
<INCOME-TAX> 127,000
<INCOME-CONTINUING> 251,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 251,000
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
<FN>
<F1>OIL AND GAS PROPERTIES, AT COST, USING FULL COST METHOD.
</FN>
</TABLE>
