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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For Quarter Ended April 30, 1998
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, 1998: Common stock, $.10 par value - 3,035,000
Preferred stock, no par value - None issued
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<PAGE>
CREDO PETROLEUM CORPORATION
Index to Form 10-Q/A
For Quarter Ended April 30, 1998
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PART I - FINANCIAL INFORMATION (unaudited)
Consolidated Balance Sheets
As of April 30, 1998 and October 31, 1997
Consolidated Statements of Earnings and Changes in
Retained Earnings For the Six and Three Month
Periods Ended April 30, 1998 and 1997
Consolidated Statements of Cash Flows
For the Six Month Periods Ended April 30, 1998 and 1997
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Not Applicable
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The financial information furnished in this Form 10-Q/A 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>
<TABLE>
<CAPTION>
CREDO PETROLEUM CORPORATION
Consolidated Balance Sheets
A S S E T S
April 30, October 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 152,000 $ 635,000
Temporary cash investments 2,008,000 2,698,000
Receivables:
Trade 339,000 318,000
Accrued oil and gas sales 289,000 324,000
Accrued interest 1,000 3,000
Other 31,000 55,000
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2,820,000 4,033,000
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OIL AND GAS PROPERTIES, at cost,
full cost method:
Unevaluated 1,260,000 867,000
Evaluated 5,682,000 5,477,000
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6,942,000 6,344,000
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LONG-TERM ASSETS:
Operating rights and other
intangible assets, net 97,000 140,000
Other, net 45,000 29,000
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142,000 169,000
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$9,904,000 $ 10,546,000
============= ============
L I A B I L I T I E S A N D S T O C K H O L D E R S '
E Q U I T Y
CURRENT LIABILITIES:
Accounts payable $ 591,000 $ 1,442,000
Income taxes payable 16,000 16,000
----------- ------------
607,000 1,458,000
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DEFERRED INCOME TAXES 987,000 903,000
----------- ------------
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 2,786,000 2,639,000
Treasury stock, at cost,
631,000 shares in 1998 and
624,000 shares in 1997 (1,078,000) (1,056,000)
----------- -----------
8,310,000 8,185,000
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COMMITMENTS - -
----------- -----------
$ 9,904,000 $10,546,000
=========== ===========
</TABLE>
See accompanying notes.
<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,
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 920,000 $1,159,000 $ 484,000 $ 479,000
Operating 239,000 222,000 116,000 109,000
Interest and other 120,000 86,000 44,000 48,000
---------- ---------- ----------- ----------
1,279,000 1,467,000 644,000 636,000
---------- ---------- ----------- ----------
COSTS AND EXPENSES:
General and
administrative 334,000 311,000 171,000 155,000
Depreciation,
depletion and
amortization 350,000 300,000 190,000 155,000
Oil and gas
production 364,000 400,000 182,000 187,000
---------- ---------- ----------- ----------
1,048,000 1,011,000 543,000 497,000
---------- ---------- ----------- ----------
INCOME BEFORE
INCOME TAXES 231,000 456,000 101,000 139,000
INCOME TAXES (84,000) (160,000) (38,000) (49,000)
---------- ---------- ---------- ----------
NET INCOME 147,000 296,000 63,000 90,000
RETAINED EARNINGS,
BEGINNING OF PERIOD 2,639,000 2,200,000 2,723,000 2,406,000
---------- ---------- ---------- ----------
RETAINED EARNINGS,
END OF PERIOD $2,786,000 $2,496,000 $2,786,000 $2,496,000
========== ========== ========== ==========
NET INCOME PER SHARE $ .05 $ .10 $ .02 $ .03
========== ========== ========== ==========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING DURING
THE PERIOD 3,038,000 3,059,000 3,035,000 3,056,000
=========== ========== ========== ==========
</TABLE>
See accompanying notes.<PAGE>
<TABLE>
<CAPTION>
CREDO PETROLEUM CORPORATION
Consolidated Statements of Cash Flows - Unaudited
Six Months Ended
April 30,
------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 147,000 $ 296,000
Noncash expenses included in net income:
Depreciation, depletion and amortization 350,000 300,000
Deferred income taxes 84,000 160,000
Other 6,000 6,000
Changes in assets and liabilities:
Trade receivables (21,000) 33,000
Accrued oil and gas sales 35,000 (114,000)
Accrued interest 2,000 -
Other 24,000 (1,000)
Accounts payable (851,000) (293,000)
Income taxes payable - -
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (224,000) 387,000
--------- ---------
INVESTING ACTIVITIES:
Oil and gas properties, net (906,000) (326,000)
Purchase of certificates of deposit
and other investments (1,191,000) (690,000)
Proceeds from certificates of deposit
and other investments 1,884,000 646,000
Changes in long-term assets (25,000) (2,000)
---------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (238,000) (372,000)
---------- ----------
FINANCING ACTIVITIES:
Purchase of treasury stock (21,000) (41,000)
--------- ----------
NET CASH USED BY FINANCING ACTIVITIES (21,000) (41,000)
--------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (483,000) (26,000)
CASH AND CASH EQUIVALENTS:
Beginning of Period 635,000 344,000
---------- ----------
End of Period $ 152,000 $ 318,000
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
CREDO PETROLEUM CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
April 30, 1998
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 $2,213,000. Cash flow from
operating activities before working capital changes totaled
$587,000 for the six months. Cash flow and working capital were
used to fund net oil and gas property expenditures.
Existing working capital and anticipated cash flow are
expected to be sufficient to fund fiscal 1998 operations.
However, if the company were to make one or more major
acquisition 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.
Gas price decontrol, the advent of an active spot market for
natural gas, and increased energy commodity market trading have
resulted in gas prices received by the company being subject to
significant monthly fluctuations. Gas prices generally
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.
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 NYMEX futures
market. This is done when the price relationship (the basis)
between the futures markets and the cash markets where the
company sells its gas is stable within historical ranges, and
when, in the company's opinion, the current price of a product is
adequate to insure reasonable returns and downside price risks
appear to be substantial. Hedges are expected to be closed by
purchasing offsetting long positions in the futures markets as
related production occurs. However, hedges 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 expected
correlations in price movements as discussed above do not occur,
and thus, that gains or losses in one market are not fully offset
to opposite moves in the other market.
The company's hedging decisions are based on a number of
very subjective factors which include its oil and gas price
outlook, futures market prices available to implement a hedge,
and maintenance of historical cash and futures market price
relationships. At April 30, 1998, the company's hedge position
was not significant, and net gains and losses on hedges during
the six months ended April 30, 1998 were not significant.
<PAGE>
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, 1998 Ended April 30, 1997 Volume Price
-------------------- --------------------
Product Volume Price Volume Price Change Change
- ------- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 324,300 $ 2.12 287,900 $ 2.47 +13% -17%
Oil (bbls) 17,700 $14.46 20,500 $21.84 -13% -34%
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months Percent Percent
Ended April 30, 1998 Ended April 30, 1997 Volume Price
-------------------- --------------------
Product Volume Price Volume Price Change Change
- ------- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 188,800 $ 1.96 144,500 $ 1.91 +31% + 3%
Oil (bbls) 8,200 $13.94 10,200 $19.99 -19% -30%
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months Percent Percent
Ended April 30, 1998 Ended January 31, 1998 Volume Price
-------------------- ----------------------
Product Volume Price Volume Price Change Change
- ------- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 188,800 $ 1.96 138,100 $ 2.14 +37% - 8%
Oil (bbls) 8,200 $13.94 8,600 $16.52 - 4% -16%
</TABLE>
Gas volumes increased in the six month and quarter periods
despite loss of production in July 1997 from the Tracy Federal #1
well, formerly the company's largest producing well. Production
from the well ceased during a workover to install coil tubing in
the well when a substance consisting of iron minerals leaked from
above the packer and covered the perforations plugging off
production. In an effort to restore production, during
February 1998, stage one of a two stage operation was
successfully completed to remove the packer from the wellbore and
to clean the iron material out of the wellbore to below the
perforations. Stage two of the work commenced in April 1998 and
involves drying out the formation and then either re-perforating
the producing formation or injecting solvent to clean out the
existing perforations, and then installing a proprietary
production system to assist in lifting liquids from the wellbore.
The well is currently producing about 140 thousand cubic feet of
gas per day and is being assisted by artificial gas injection in
order to lift fluids out of the wellbore. Although management is
optimistic that production from the Tracy can be re-established,
there are substantial risks that the work will not successfully
restore commercial production.
Lost Tracy Federal well production was more than offset by
production added form new wells drilled or re-worked during the
first half of 1998. In particular, the Cline #11-1 well, which
was placed on production during the second quarter of 1998,
produced more gas in the second quarter of 1998 than the Tracy
well produced during the entire first half of 1997. The Cline
well is presently producing at about three times the gas rate at
which the Tracy well produced during the first half of the prior
year, and thus has more than offset the lost production from the
Tracy well.
The Cline #11-1 well is an 8,900 foot Morrow sand well
located in Ellis County, Oklahoma in which the company owns a 48%
working interest and is the operator. The well encountered five
separate productive Morrow sand intervals but is completed
naturally (without acid or fracture stimulation) in only the
lower-most of the five sands. As of June 1998, the well is
producing at a daily rate of approximately 1.7 million cubic feet
of gas, 17 barrels of condensate and no water on an 11/64-inch
choke at a flowing tubing pressure of 2,220 psi and a flowing
casing pressure of 2,320 psi.
The decline in oil volumes is primarily due to loss of oil
production from the Tracy Federal #1 well and divestiture of a
non-core waterflood property.
The interest rate earned on short-term investments averaged
approximately 5.8% for the six month periods ended April 30, 1998
and 1997. The interest rate earned in the second quarter of 1998
did not significantly vary from the same quarter last year or the
immediately preceding quarter. Current interest rates available
to the company are under 6%.
<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, 1998 Compared to Six Months Ended
April 30, 1997
For the first half of 1998, net income was $147,000 compared
to $296,000 last year. The decline primarily reflects
significantly lower oil and gas prices compared to last year.
Total revenues fell 13% to $1,279,000 in the first half of
1998 compared to $1,467,000 last year. Oil and gas sales
decreased $239,000, or 21%, to $920,000. Refer to the table on
page 7 for details of oil and gas prices and volumes for the
applicable periods. Total gas price realizations fell 17% to
$2.05 per Mcf in 1998 compared to $2.47 last year. Oil price
realizations fell 34% to $14.46 per barrel compared to $21.84
last year The net effect of these price declines was to reduce
oil and gas sales by $273,000. Gas volumes increased 13% and oil
volumes declined 13%. The net effect of these volume changes was
to increase oil and gas sales by $34,000. Oil and gas volume
variances are discussed below the table on page 7. Operating
income increased as a result of additional operated wells added
through drilling and acquisitions. Interest and other income
decreased in the current period due to a reduction in short term
investments.
Total costs and expenses were $1,048,000 in the first half
of 1998 compared to $1,011,000 last year. General and
administrative expenses increased due to inflationary pressures
and the timing of certain expenditures. Increased depreciation,
depletion and amortization expense reflects increased production
volumes as well as increased costs. The decline in oil and gas
production expenses primarily reflect expenses associated with a
non-core waterflood property which was sold in 1997. Income
taxes were provided at 35% in both periods.
<PAGE>
Quarter Ended April 30, 1998 Compared to Quarter Ended
April 30, 1997
In the second quarter of fiscal 1998, net income was $63,000
compared to $90,000 in the same period last year.
Total revenues increased slightly to $644,000 in the second
quarter compared to $636,000 last year. Oil and gas sales
increased 1% to $484,000. 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 3% to $1.96 per
Mcf compared to $1.91 last year. Oil price realizations fell 30%
to $13.94 per barrel compared to $19.99 last year. The net
effect of these price changes was to decrease oil and gas sales
by $55,000. Gas volumes increased by 31% while oil volumes
declined 19%. The net effect of these volume changes was to
increase oil and gas sales by $60,000. Oil and gas volume
variances are discussed below the table on page 7. 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 a reduction in short term
investments.
Total costs and expenses were $543,000 in the second quarter
of 1998, compared to $497,000 last year. General and
administrative expenses increased due to inflationary pressures
and the timing of certain expenditures. Increased depreciation,
depletion and amortization expense reflects increased production
volumes as well as increased costs. Oil and gas production
expenses did not vary significantly between the quarters. Income
taxes were provided at 35% in both quarters.
Quarter Ended April 30, 1998, Compared to Quarter Ended
January 31, 1998
In the second quarter of fiscal 1998, net income was $63,000
compared to $84,000 in the prior quarter.
Total revenues increased slightly to $644,000 in the second
quarter compared to $635,000 in the prior quarter. Oil and gas
sales increased 11% to $484,000. Refer to the table on page 7
for details of oil and gas prices and volumes for the applicable
periods. Total gas price realizations fell 8% to $1.96 per Mcf
compared to $2.14 in the prior quarter. Oil price realizations
fell 16% to $13.94 per barrel compared to $16.52 last quarter.
The net effect of these price changes was to decrease oil and gas
sales by $47,000. Gas volumes increased by 37% and oil volumes
decreased 4%. The net effect of these volume changes was to
increase oil and gas sales by $95,000. Oil and gas volume
variances are discussed below the table on page 7. Operating
income decreased slightly due to the shut in of wells that became
uneconomic at current oil prices. Interest and other income
decreased in the current quarter due to a reduction in short term
investments.
Total costs and expenses were $543,000 in the second quarter
of 1998 compared to $505,000 in the prior quarter. General and
administrative expenses increased due to inflationary pressures
and the timing of certain expenditures. Increased depreciation,
depletion and amortization expense reflects increased production
volumes as well as increased costs. Oil and gas production
expenses did not vary significantly between the quarters. 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 12, 1998 By: /s/ James T. Huffman
-------------------------
James T. Huffman
President and
Chief Executive Officer
By: /s/ Alford B. Neely
------------------------
Alford B. Neely
Vice President and
Chief Financial Officer
