<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For Quarter Ended April 30, 1997
Commission File Number 0-8877
CREDO PETROLEUM CORPORATION
Colorado 84-0772991
(State of Incorporation) (IRS Employer Identification)
1801 Broadway, Suite 900 80202
Denver, Colorado (Zip Code)
(Address of principal executive office)
303-297-2200
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, net of treasury stock, as of May 31,
1997: Common stock, $.10 par value - 3,044,000
Preferred stock, no par value - None issued
- -----------------------------------------------------------------
<PAGE>
<PAGE>
CREDO PETROLEUM CORPORATION
Index to Form 10-Q
For Quarter Ended April 30, 1997
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PART I - FINANCIAL INFORMATION (unaudited)
Consolidated Balance Sheets
As of April 30, 1997 and October 31, 1996
Consolidated Statements of Earnings and Changes in Retained Earnings
For the Six and Three Month Periods Ended April 30, 1997 and 1996
Consolidated Statements of Cash Flows
For the Six Month Periods Ended April 30, 1997 and 1996
Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Not Applicable
-----------------------------------
The financial information furnished in this Form 10-Q reflects
all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position of
the company for the periods presented.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CREDO PETROLEUM CORPORATION
Consolidated Balance Sheets
ASSETS
April 30, October 31,
1997 1996
------- ---------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ 318,000 $ 344,000
Temporary cash investments . . . . . . . . 2,573,000 2,529,000
Receivables:
Trade. . . . . . . . . . . . . . . . . . 92,000 125,000
Accrued oil and gas sales. . . . . . . . 367,000 253,000
Accrued interest . . . . . . . . . . . . 6,000 6,000
Other. . . . . . . . . . . . . . . . . . . 31,000 30,000
---------- ----------
3,387,000 3,287,000
---------- ----------
OIL AND GAS PROPERTIES, at Cost, Full
Cost Method:
Unevaluated. . . . . . . . . . . . . . . . 831,000 733,000
Evaluated. . . . . . . . . . . . . . . . . 4,874,000 4,903,000
---------- ----------
5,705,000 5,636,000
---------- ----------
LONG-TERM ASSETS:
Operating rights and other
intangible assets, net . . . . . . . . . 183,000 226,000
Other, net . . . . . . . . . . . . . . . . 34,000 38,000
---------- ----------
217,000 264,000
---------- ----------
$9,309,000 $9,187,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . $ 418,000 $ 711,000
Income taxes payable . . . . . . . . . . . 6,000 6,000
--------- ----------
424,000 717,000
--------- ----------
DEFERRED INCOME TAXES. . . . . . . . . . . . 841,000 681,000
--------- ----------
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. . . . . . . . . . . . . 2,496,000 2,200,000
Treasury stock, at cost, 617,000
shares in 1997 and 601,000 in 1996 (1,054,000) (1,013,000)
---------- ----------
8,044,000 7,789,000
---------- ----------
COMMITMENTS. . . . . . . . . . . . . . . . .
---------- ----------
$9,309,000 $9,187,000
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CREDO PETROLEUM CORPORATION
Consolidated Statements of Earnings And Changes in
Retained Earnings - Unaudited
Six Months Six Months Quarter Quarter
Ended Ended Ended Ended
April 30, April 30, April 30, April 30,
1997 1996 1997 1996
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales. . . . . . $1,159,000 $ 798,000 $ 479,000 $ 452,000
Operating. . . . . . . . 222,000 206,000 109,000 104,000
Interest and other . . . . . 86,000 80,000 48,000 20,000
---------- ---------- --------- ---------
1,467,000 1,084,000 636,000 576,000
---------- ---------- --------- ---------
COSTS AND EXPENSES:
General and
administrative. . . . . . . 311,000 306,000 155,000 148,000
Depreciation,
depletion and
amortization. . . . . . . . 300,000 276,000 155,000 145,000
Oil and gas
production. . . . . . . . . 400,000 344,000 187,000 189,000
--------- --------- --------- ---------
1,011,000 926,000 497,000 482,000
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAXES . . . . . . . . 456,000 158,000 139,000 94,000
INCOME TAXES . . . . . . . . . (160,000) (55,000) (49,000) (33,000)
--------- --------- --------- --------
NET INCOME . . . . . . . . . . 296,000 103,000 90,000 61,000
RETAINED EARNINGS,
BEGINNING OF PERIOD 2,200,000 1,940,000 2,406,000 1,982,000
--------- ---------- --------- ---------
RETAINED EARNINGS,
END OF PERIOD. . . . . . . . $2,496,000 $2,043,000 $2,496,000 $2,043,000
========== ========== ========== ==========
NET INCOME PER SHARE $ .10 $ .03 $ .03 $ .02
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
DURING THE PERIOD 3,059,000 3,122,000 3,056,000 3,106,000
========== ========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CREDO PETROLEUM CORPORATION
Consolidated Statements of Cash Flows - Unaudited
Six Months Ended
April 30,
----------------
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . $ 296,000 $ 103,000
Noncash expenses included in net income:
Depreciation, depletion and amortization . 300,000 276,000
Deferred income taxes. . . . . . . . . . . 160,000 55,000
Other. . . . . . . . . . . . . . . . . . . 6,000 8,000
Changes in assets and liabilities:
Trade receivables. . . . . . . . . . . . . 33,000 (111,000)
Accrued oil and gas sales. . . . . . . . . (114,000) (80,000)
Accrued interest . . . . . . . . . . . . . - -
Other. . . . . . . . . . . . . . . . . . . (1,000) -
Accounts payable . . . . . . . . . . . . . (293,000) (71,000)
Income taxes payable . . . . . . . . . . . - -
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . 387,000 180,000
--------- ---------
INVESTING ACTIVITIES:
Oil and gas properties . . . . . . . . . . . . (326,000) (194,000)
Purchase of certificates of deposit and
other investments . . . . . . . . . . . . . . (690,000) (1,400,000)
Proceeds from certificates of deposit
and other investments . . . . . . . . . . . . 646,000 1,595,000
Changes in long-term assets. . . . . . . . . . (2,000) (2,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES. . . . . (372,000) (1,000)
--------- ---------
FINANCING ACTIVITIES:
Purchase of treasury stock . . . . . . . . . . (41,000) (91,000)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES. . . . . (41,000) (91,000)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . (26,000) 88,000
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . 344,000 130,000
--------- ----------
END OF PERIOD. . . . . . . . . . . . . . . . $ 318,000 $ 218,000
========= ==========
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
CREDO PETROLEUM CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
April 30, 1997
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital and cash flow represent a
significant capital resource and source of liquidity.
At second quarter-end, working capital was $2,963,000, up
15% from fiscal year ended October 31, 1996. Cash flow from
operating activities before working capital changes totaled
$762,000 for the six months. Cash flow was used primarily to
fund net oil and gas property expenditures and purchases of
treasury stock.
Existing working capital and anticipated cash flow are
expected to be sufficient to fund fiscal 1997 operations.
However, if the company were to make one or more major
acquisitions during the coming year, bank borrowing, issuance of
additional stock, or other forms of debt financing would be
considered. Because earnings are anticipated to be reinvested in
operations, cash dividends are not expected to be paid in the
foreseeable future.
Commitments for future capital expenditures were not
material at second quarter-end. The timing of most capital
expenditures for exploration and development is relatively
discretionary. Therefore, the company can plan expenditures to
coincide with available funds in order to minimize business
risks.
PRODUCT PRICES, PRODUCTION AND INTEREST RATES
Numerous uncertainties exist in the oil and gas exploration
and production industry 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
transportation and marketing segments of the natural gas
industry. Gas price decontrol, the advent of an active spot
market for natural gas, and commodity trading have resulted in
gas prices received by the company being subject to significant
monthly fluctuations. Sales and prices accelerate in peak demand
periods such as the winter months and subside during lower demand
periods.
Uncertainties also exist with respect to the supply of oil
available to world markets. OPEC and other foreign producers
exercise considerable influence over the worldwide oil supply
which in turn affects prices for petroleum products.
<PAGE>
The company periodically hedges the price of its oil and gas
production. Hedging transactions relate to anticipated
production volumes and generally take the form of forward, or
"short", selling all or part of such volumes in the futures
market. Hedges are generally 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 the 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.
The company's hedging decisions are based on a number of
very subjective factors which include its gas price outlook,
futures market prices available to implement a hedge, and
maintenance of historical cash and futures market price
relationships.
In the first quarter of fiscal 1996, the basis differential
between the NYMEX futures market and the company's Mid-Continent
and Rocky Mountain cash markets unexpectedly expanded causing the
company to close all hedge positions. The company did not enter
into any significant hedges after the first quarter of 1996, and
its ability and/or willingness to hedge in the future is
presently uncertain due primarily to basis risk and market
volatility.
Oil and gas sales volume and price comparisons for the
indicated periods are set forth below.
<TABLE>
<CAPTION>
Six Months Six Months Percent Percent
Ended April 30, 1997 Ended April 30, 1996 Volume Price
-------------------- --------------------
Product Volume Price Volume Price Change Change
- ------- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 287,900 $ 2.47 269,200 $ 1.51(1) + 7% +64%
Oil (bbls) 20,500 $ 21.84 21,300 $ 18.34 - 4% +19%
Three Months Three Months Percent Percent
Ended April 30, 1997 Ended April 30, 1996 Volume Price
-------------------- --------------------
Product Volume Price Volume Price Change Change
- ------- ------ ----- ------ ----- ------ ------
Gas (Mcf) 144,500 $ 1.91 141,800 $ 1.70 +2% +12%
Oil (bbls) 10,200 $ 19.99 10,400 $ 19.87 -2% + 1%
Three Months Three Months Percent Percent
Ended April 30, 1997 Ended January 31, 1997 Volume Price
-------------------- ----------------------
Product Volume Price Volume Price Change Change
- ------- ------ ----- ------ ----- ------ ------
Gas (Mcf) 144,500 $ 1.91 143,400 $ 3.04 +1% -37%
Oil (bbls) 10,200 $ 19.99 10,300 $ 23.67 -1% -16%
(1) Includes a $.09 per Mcf hedging loss.
</TABLE>
The interest rate earned on short-term investments averaged
approximately 5.8% and 6.0% for the six months ended April 30,
1997 and 1996, respectively. For the second quarter, the rate
averaged 5.8% compared to 5.7% for the same quarter last year and
5.7% in the immediately proceeding quarter. Current interest
rates available to the company are approximately 6.0%.
<PAGE>
INCOME TAXES
The company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109), which requires 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.
The total future deferred income tax liability under SFAS 109
is extremely complicated for any oil company to calculate due in
part to the long-lived nature of depleting oil and gas reserves.
Accordingly, the liability is subject to continual recalculation,
revision of the numerous estimates required, and may change
significantly in the event of such things as major acquisitions,
divestitures, changes in reserve estimates, changes in reserve
lives, and changes in tax rates or tax laws.
RESULTS OF OPERATIONS
Six Months Ended April 30, 1997 Compared to Six Months Ended
April 30, 1996
For the first half of 1997, net income was $296,000 compared
to $103, 000 last year. The improved results were driven by
higher natural gas prices.
Total revenues increased 35% to $1,467,000 in the first half
of 1997 compared to $1,084,000 in the same period last year. Oil
and gas sales increased $361,000, or 45%. Refer to the table on
page 7 for details of oil and gas prices and volumes for the
applicable periods. Total gas price realizations, which reflect
the effect of hedging transactions, increased to $2.47 per Mcf in
1997 compared to $1.51 per Mcf last year. Hedging transactions
resulted in a $.09 per Mcf loss in the prior year period. Oil
price realizations rose 19% to $21.84 per barrel. The net effect
of these product price changes was to increase oil and gas sales
by $333,000. Gas volumes increased 7% while oil volumes declined
4%. The gas volume increase is due to production added from
successful drilling and producing property acquisitions. The net
effect of these volume changes was to increase oil and gas sales
by $28,000. Operating income increased as a result of additional
operated wells added through drilling and acquisitions. Interest
and other income increased due to improved net returns on certain
of the company's short term investments.
Total costs and expenses were $1,011,000 in the first half of
1997 up 9% from the $926,000 in the same period last year.
General and administrative expenses increased due to inflationary
pressures and the timing of certain expenditures. Depreciation,
depletion and amortization increased due to higher production
levels. The increase in oil and gas production expenses reflects
the additional operating costs associated with recently acquired
properties and significantly higher production taxes as a result
of the higher oil and gas revenues.
Income taxes were provided at 35% in both periods.
<PAGE>
Quarter Ended April 30, 1997 Compared to Quarter Ended April 30,1996
In the second quarter of fiscal 1997, net income was $90,000
compared to $61,000 in the same period last year.
Total revenues increased 10% to $636,000 in the second
quarter of 1997 compared to $576,000 in the same period last
year. Oil and gas sales increased 6% to $479,000. Refer to the
table on page 7 for details of oil and gas prices and volumes for
the applicable periods. Total gas price realizations increased
12% to $1.91 Mcf in 1997 compared to $1.70 last year. Oil price
realizations increased 1% to $19.99 per barrel compared to $19.87
last year. The net effect of these price changes was to increase
oil and gas sales by $34,000. Gas volumes increased 2% and oil
volumes declined 2%. The net effect of these volume changes was
to decrease oil and gas sales by $7,000. Operating income
increased as a result of additional operated wells added through
drilling and acquisitions. Interest and other income increased
in the current quarter due to stable yields on cash investments
and improved net returns on the company's other investments.
Total costs and expenses were $497,000 in the second quarter
of 1997, up 3% from $482,000 in the same period last year.
General and administrative expenses increased due to inflationary
pressures and the timing of certain expenditures. The increased
depreciation, depletion and amortization expense reflects an
increase in the production volume and minor adjustments to the
reserve base. The decrease in oil and gas production expenses
reflects last year's higher level of remedial work.
Income taxes were provided at 35% in both quarters.
Quarter Ended April 30, 1997 Compared to Quarter Ended January 31, 1997
In the second quarter of fiscal 1997, net income was $90,000
compared to $206,000 in the prior quarter.
Total revenues decreased 23% to $636,000 in the second
quarter compared to $831,000 in the prior quarter. Oil and gas
sales decreased 30% to $479,000. Refer to the table on page 7
for details of oil and gas prices and volumes for the applicable
periods. Total gas price realizations decreased 37% to $1.91 per
Mcf compared to $3.04 last quarter. Oil price realizations
decreased 16% to $19.99 per barrel compared to $23.67 in the
prior quarter. The net effect of these price changes was to
decrease oil and gas sales by $200,000. Gas volumes increased 1%
and oil volumes declined 1%. The net effect of these volume
changes was to increase oil and gas sales by $1,000. Operating
income decreased 4% as a result of a one-time well service
revenues included in the first quarter. Interest and other
income increased in the current quarter due to stable yields on
cash investments and improved returns on other investments.
Total costs and expenses were $497,000 in the second quarter
of 1997 compared to $514,000 in the immediately preceding
quarter. General and administrative expenses were substantially
the same in the two quarters. Depreciation, depletion and
amortization increased from the prior quarter due to an increase
in production volume and minor adjustments to the reserve base.
Oil and gas production costs decreased principally due to higher
production taxes based on the significantly higher oil and gas
revenues in the previous quarter.
Income taxes were provided at 35% in both quarters.
SIGNATURES
Pursuant to the requirements 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.
Date: June 13, 1997 By: /s/ James T. Huffman
-------------------------
James T. Huffman
President and Chief Executive Officer
By: /s/ B. J. Sullivan
-------------------------
B. J. Sullivan, Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS FOUND
ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 318,000
<SECURITIES> 2,573,000
<RECEIVABLES> 465,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,387,000
<PP&E> 11,851,000
<DEPRECIATION> 6,146,000
<TOTAL-ASSETS> 9,309,000
<CURRENT-LIABILITIES> 424,000
<BONDS> 0
<COMMON> 366,000
0
0
<OTHER-SE> 7,678,000
<TOTAL-LIABILITY-AND-EQUITY> 9,309,000
<SALES> 1,159,000
<TOTAL-REVENUES> 1,467,000
<CGS> 400,000
<TOTAL-COSTS> 700,000
<OTHER-EXPENSES> 311,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 456,000
<INCOME-TAX> 160,000
<INCOME-CONTINUING> 296,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 296,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
