<PAGE>
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 January 31, 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 January 31,
1997: Common stock, $.10 par value - 3,063,000
Preferred stock, no par value - None issued
<PAGE>
CREDO PETROLEUM CORPORATION
Index to Form 10-Q
- ----------------------------------------------------------------------
PART I - FINANCIAL INFORMATION (unaudited) Page
----
Consolidated Balance Sheets
As of January 31, 1997 and October 31, 1996 3
Consolidated Statements of Earnings and Changes in Retained Earning
For the Three Month Periods Ended January 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
For the Three Month Periods Ended January 31, 1997 and 1996 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
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>
CREDO PETROLEUM CORPORATION
Consolidated Balance Sheets
A S S E T S
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 71,000 $ 344,000
Temporary cash investments 2,424,000 2,529,000
Receivables:
Trade 216,000 125,000
Accrued oil and gas sales 588,000 253,000
Accrued interest 6,000 6,000
Other 30,000 30,000
---------- ----------
3,335,000 3,287,000
---------- ----------
OIL AND GAS PROPERTIES, at Cost,
Full Cost Method:
Unevaluated 790,000 733,000
Evaluated 4,992,000 4,903,000
---------- ----------
5,782,000 5,636,000
---------- ----------
LONG-TERM ASSETS:
Operating rights and other
intangible assets, net 205,000 226,000
Other, net 35,000 38,000
---------- ----------
240,000 264,000
---------- ----------
$9,357,000 $9,187,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 568,000 $ 711,000
Income taxes payable 6,000 6,000
---------- ----------
574,000 717,000
---------- ----------
DEFERRED INCOME TAXES 792,000 681,000
---------- ----------
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 2,406,000 2,200,000
Treasury stock, at cost,
603,000 shares in 1997 and
601,000 in 1996 (1,017,000) (1,013,000)
---------- ----------
7,991,000 7,789,000
---------- ----------
COMMITMENTS
---------- ----------
$9,357,000 $9,187,000
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
CREDO PETROLEUM CORPORATION
Consolidated Statements of Earnings And Changes in
Retained Earnings - Unaudited
<TABLE>
<CAPTION>
Three Months Ended
January 31,
------------------
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Oil and gas sales $ 680,000 $ 346,000
Operating 113,000 102,000
Interest and other 38,000 60,000
--------- ----------
831,000 508,000
--------- ----------
COSTS AND EXPENSES:
General and administrative 156,000 158,000
Depreciation, depletion and
amortization 145,000 131,000
Oil and gas production 213,000 155,000
---------- ----------
514,000 444,000
---------- ----------
INCOME BEFORE INCOME TAXES 317,000 64,000
INCOME TAXES (111,000) (22,000)
---------- ----------
NET INCOME 206,000 42,000
RETAINED EARNINGS,
BEGINNING OF PERIOD 2,200,000 1,940,000
---------- ----------
RETAINED EARNINGS,
END OF PERIOD $2,406,000 $1,982,000
========== ==========
NET INCOME PER SHARE $ .07 $ .01
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING DURING
THE PERIOD 3,065,000 3,138,000
========= ==========
</TABLE>
See accompanying notes.
<PAGE>
CREDO PETROLEUM CORPORATION
Consolidated Statements of Cash Flows - Unaudited
<TABLE>
<CAPTION>
Three Months Ended
January 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 206,000 $ 42,000
Noncash expenses included in net income:
Depreciation, depletion and amortization 145,000 131,000
Deferred income taxes 111,000 22,000
Other 3,000 4,000
Changes in assets and liabilities:
Trade receivables (91,000) (12,000)
Accrued oil and gas sales (335,000) (38,000)
Accrued interest - (2,000)
Other - (33,000)
Accounts payable (143,000) (60,000)
Income taxes payable - -
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (104,000) 54,000
-------- ---------
INVESTING ACTIVITIES:
Oil and gas properties (270,000) (51,000)
Purchase of certificates of deposit
and other investments (362,000) (498,000)
Proceeds from certificates of deposit
and other investments 467,000 619,000
Changes in long-term assets - 2,000
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (165,000) 72,000
--------- ---------
FINANCING ACTIVITIES:
Purchase of treasury stock (4,000) ( 63,000)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (4,000) (63,000)
-------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (273,000) 63,000
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 344,000 130,000
-------- --------
END OF PERIOD $ 71,000 $ 193,000
========= =========
</TABLE>
See accompanying notes.
<PAGE>
CREDO PETROLEUM CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
January 31, 1997
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital and cash flow represent a
significant capital resource and source of liquidity.
At first quarter-end, working capital was $2,761,000, up 7% from
fiscal year ended October 31, 1996. Cash flow from operating
activities before working capital changes totaled $465,000 for the
three 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
first 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.
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.
<PAGE>
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>
Three Months Three Months Percent Percent
Ended January 31, 1997 Ended January 31, 1996 Volume Price
---------------------- ----------------------
Product Volume Price Volume Price Change Change
- ------- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 143,400 $ 3.04 125,400 $ 1.52(1) +14% +100%
Oil (bbls) 10,300 $23.67 10,900 $16.88 - 6% + 40%
Three Months Three Months Percent Percent
Ended January 31, 1997 Ended October 31, 1996 Volume Price
---------------------- ----------------------
Product Volume Price Volume Price Change Change
- ------- ------ ----- ------ ----- ------ ------
Gas (Mcf) 143,400 $ 3.04 140,100 $ 1.66 + 2% +83%
Oil (bbls) 10,300 $23.67 10,400 $22.52 - 1% + 5%
</TABLE>
(1) Includes a $.20 per Mcf hedging loss.
The interest rate earned on short-term investments averaged
approximately 5.7% for the three months ended January 31, 1997
compared to 6.5% in the same period of 1996. Current interest rates
available to the company are approximately 5.7%.
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.
<PAGE>
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
QUARTER ENDED JANUARY 31, 1997 COMPARED TO QUARTER ENDED JANUARY 31,
1996
In the first quarter of fiscal 1997, net income was $206,000
compared to $42,000 in the same period last year.
Total revenues increased 64% to $831,000 in the first quarter of
1997 compared to $508,000 in the same period last year. Oil and gas
sales increased 97% to $680,000. Refer to the table on page 7 for
details of oil and gas prices and volumes for the applicable periods.
Total gas price realizations, which reflect the effect of hedging
transactions, increased 100% $3.04 per Mcf in 1997 compared to $1.52
last year. Hedging transactions resulted in a $.20 per Mcf loss in
the year earlier quarter. Oil price realizations increased 40% to
$23.67 per barrel compared to $16.88 last year. The net effect of
these price changes was to increase oil and gas sales by $289,000.
Gas volumes increased 14% and oil volumes declined 6%. 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 $45,000. Operating
income increased as a result of additional operated wells added
through drilling and acquisitions. Interest and other income
decreased in the current quarter due to lower yields on cash
investments and lower net returns on the company's other investments.
Total costs and expenses were $514,000 in the first quarter of
1997, up 16% from the $444,000 in the same period last year. General
and administrative expenses were substantially unchanged. Increased
depreciation, depletion and amortization reflects the 8% increase in
gas-equivalent production. 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 quarters.
QUARTER ENDED JANUARY 31, 1997 COMPARED TO QUARTER ENDED OCTOBER 31,
1996
In the first quarter of fiscal 1997, net income was $206,000
compared to $110,000 in the prior quarter.
Total revenues increased 33% to $831,000 in the first quarter
compared to $627,000 in the prior quarter. Oil and gas sales
increased 46% to $680,000. 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 83% to $3.04 per Mcf compared to
$1.66 last quarter. Oil price realizations increased 5% to $23.67 per
barrel compared to $22.52 in the prior quarter. The net effect of
these price changes was to increase oil and gas sales by $204,000.
Gas volumes increased 2% and oil volumes declined 1%. The net effect
of these volume changes was to increase oil and gas sales by $11,000.
Operating income increased 2% from last quarter. Interest and other
income decreased in the current quarter due to lower yields on cash
investments and lower returns on other investments.
<PAGE>
Total costs and expenses increased 12% to $514,000 in the first
quarter of 1997 compared to $457,000 in the immediately preceding
quarter. General and administrative expenses were substantially the
same in the two quarters. Depreciation, depletion and amortization
declined 7% compared to the previous quarter due to minor adjustments
last quarter resulting from finalization of year-end reserve
estimates. Oil and gas production costs increased principally due to
higher production taxes as a result of the higher oil and gas revenues
and an ad valorem tax adjustment included 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: January 17, 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> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 71,000
<SECURITIES> 2,424,000
<RECEIVABLES> 216,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,335,000
<PP&E> 11,795,000
<DEPRECIATION> 6,013,000
<TOTAL-ASSETS> 9,357,000
<CURRENT-LIABILITIES> 574,000
<BONDS> 0
<COMMON> 366,000
0
0
<OTHER-SE> 7,625,000
<TOTAL-LIABILITY-AND-EQUITY> 9,357,000
<SALES> 680,000
<TOTAL-REVENUES> 831,000
<CGS> 213,000
<TOTAL-COSTS> 358,000
<OTHER-EXPENSES> 156,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 317,000
<INCOME-TAX> 111,000
<INCOME-CONTINUING> 206,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,000
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
