<PAGE>
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For Quarter Ended January 31, 1999
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 February
28, 1999: Common stock, $.10 par value - 2,992,000
Preferred stock, no par value - None issued
_________________________________________________________________
<PAGE>
CREDO PETROLEUM CORPORATION
Index to Form 10-QSB
For Quarter Ended January 31, 1999
_________________________________________________________________
PART I - FINANCIAL INFORMATION (unaudited)
Consolidated Balance Sheets
As of January 31, 1999 and October 31, 1998
Consolidated Statements of Earnings and Changes in
Retained Earnings For the Three Month Periods Ended
January 31, 1999 and 1998
Consolidated Statements of Cash Flows For the
Three Month Periods Ended January 31, 1999 and 1998
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 5. Other Information
_____________________________________
The financial information furnished in this Form 10-QSB 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
January 31, October 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 149,000 $ 349,000
Short term investments 3,069,000 2,186,000
Receivables:
Trade 380,000 272,000
Accrued oil and gas sales 304,000 272,000
Other 35,000 541,000
----------- -----------
3,937,000 3,620,000
----------- -----------
OIL AND GAS PROPERTIES, net, at cost,
full cost method:
Unevaluated 639,000 616,000
Evaluated 5,766,000 5,885,000
----------- -----------
6,405,000 6,501,000
----------- -----------
Other, net 30,000 85,000
----------- -----------
$10,372,000 $10,206,000
=========== ===========
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 $ 667,000 $ 662,000
Income taxes payable 51,000 51,000
----------- -----------
718,000 713,000
----------- -----------
DEFERRED INCOME TAXES 1,126,000 1,044,000
----------- -----------
COMMITMENTS - -
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, without par
value 5,000,000 shares
authorized, none issued - -
Common stock, $.10 par value,
20,000,000 shares authorized,
3,667,000 shares issued 367,000 367,000
Capital in excess of par value 6,235,000 6,235,000
Retained earnings 3,118,000 2,967,000
Treasury stock, at cost,
687,000 shares in 1999 and
648,000 shares in 1998 (1,192,000) (1,120,000)
----------- -----------
8,528,000 8,449,000
----------- -----------
$10,372,000 $10,206,000
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
CREDO PETROLEUM CORPORATION
Consolidated Statements of Earnings And Changes in
Retained Earnings - Unaudited
Three Months Ended
January 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 643,000 $ 436,000
Operating 116,000 123,000
Investment income and other 127,000 76,000
---------- ---------
886,000 635,000
---------- ---------
COSTS AND EXPENSES:
Oil and gas production 204,000 182,000
Depreciation, depletion and
amortization 257,000 160,000
General and administrative 193,000 163,000
---------- ---------
654,000 505,000
---------- ---------
INCOME BEFORE
INCOME TAXES 232,000 130,000
INCOME TAXES (81,000) (46,000)
---------- ---------
NET INCOME 151,000 84,000
RETAINED EARNINGS,
BEGINNING OF PERIOD 2,967,000 2,639,000
---------- ---------
RETAINED EARNINGS,
END OF PERIOD $3,118,000 $2,723,000
========== ==========
BASIC AND DILUTED INCOME PER SHARE $ 0.05 $ 0.03
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
CREDO PETROLEUM CORPORATION
Consolidated Statements of Cash Flows - Unaudited
Three Months Ended
January 31,
1999 1998
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 151,000 $ 84,000
Noncash expenses included in net income:
Depreciation, depletion and amortization 257,000 160,000
Deferred income taxes 81,000 46,000
Other (3,000) 3,000
Changes in operating assets and liabilities:
Proceeds from short term investments 700,000 888,000
Purchase of short term investments (1,578,000) (200,000)
Trade receivables (108,000) (61,000)
Accrued oil and gas sales (32,000) 3,000
Other current assets 506,000 24,000
Accounts payable 5,000 (736,000)
Income taxes payable - -
--------- ---------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (21,000) (211,000)
--------- ---------
INVESTING ACTIVITIES:
Oil and gas properties, net (107,000) (396,000)
Other - (20,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (107,000) (416,000)
--------- ---------
FINANCING ACTIVITIES:
Purchase of treasury stock (72,000) -
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (72,000) -
--------- ---------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (200,000) (205,000)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 349,000 635,000
--------- ---------
END OF PERIOD $ 149,000 $ 430,000
========= =========
</TABLE>
See accompanying notes.
<PAGE>
CREDO PETROLEUM CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
January 31, 1999
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital and cash flow represent a
significant capital resource and source of liquidity.
At January 31, 1999, working capital was $3,218,000. Cash flow
from operating activities before working capital changes totaled
$486,000 for the three months. Cash flow and working capital
were used to fund net oil and gas property expenditures and
purchases of short term investments and treasury stock.
Existing working capital and anticipated cash flow are
expected to be sufficient to fund fiscal 1999 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 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.
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. The
company periodically hedges the price of its oil and gas
production when the potential for significant downward price
movement is anticipated. Hedging transactions take the form of
forward, or short', selling in the NYMEX futures market, and are
closed by purchasing offsetting long' positions. Such hedges do
not exceed anticipated production volumes, are expected to have
reasonable correlation between price movements in the futures
market and the cash markets where the company's production is
located, and are authorized by the company's Board of Directors.
Hedges are 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. All other futures transactions are
accounted for as speculative transactions and gains and losses
are immediately recognized.
<PAGE>
At January 31, 1999, the company had hedged approximately
80% of its expected natural gas production through August, 1999,
approximately 420,000 Mcfg, (thousand cubic feet gas) at an
average hedge price of $2.16. Hedging gains and losses are
recognized as adjustments to oil and gas sales as the hedged
product is produced. Hedging gains were approximately $100,000
and $32,000 for the three months ended January 31, 1999 and
October 31, 1998, and gains and losses on speculative
transactions were immaterial in all periods. The unrealized gain
on the company's open hedge positions at January 31, 1999 was
$130,000.
Oil and gas sales volume and price comparisons for the
indicated periods are set forth below.
<TABLE>
<CAPTION>
Three Months Three Months
Ended January 31, 1999 Ended January 31, 1998 Percent Percent
---------------------- ---------------------- Volume Price
Product Volume Price Volume Price Change Change
- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 237,600 $ 2.32(1) 138,100 $ 2.14 + 72.0% + 8.6%
Oil (bbls) 8,200 $11.29 8,600 $16.52 - 4.0% -31.7%
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months
Ended January 31, 1999 Ended October 31, 1998 Percent Percent
---------------------- ---------------------- Volume Price
Product Volume Price Volume Price Change Change
- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 237,600 $ 2.32(1) 233,500 $ 1.81 + 1.8% +28.2%
Oil (bbls) 8,200 $11.29 9,100(2) $12.65 - 9.9% -10.8%
</TABLE>
(1) Includes $.42 Mcf hedging gain.
(2) For comparative purposes, excludes 5,200 barrels of oil from
the S.E. Hewitt waterflood project which were deferred
(together with all revenues and costs) during the initial
stages of the project when it was classified as an
unevaluated property. These barrels were recognized in the
fourth quarter of 1998 when the project was transferred to
evaluated properties.
Significant increases in gas production compared to prior
year reflect (i) sales from the wells placed on production during
1998, (ii) three wells on which the company's new fluid lift
technology was installed during the last year and in which the
company owns a 75% or greater interest, and (iii) production from
the company's Tracy Federal #1 well which has been returned to
commercial production.
Over the past 18-24 months, the company has participated in
development of new fluid lift technology for which patents are
pending. The technology is designed to efficiently lift fluids
from wellbores using pressure differentials, and is primarily
applicable to mature natural gas wells in low pressure
reservoirs. At January 31, 1999, the company has installed the
technology on four of its gas wells. All of the applications
have initially resulted in gas production rates which have
equaled or exceed the company's expectations. The U.S. Patent
Office has indicated that the patent application for the
technology has been allowed, and the patent will issue shortly.
During 1998 the company successfully returned the Tracy
Federal #1 well to production at a daily rate of approximately
300 Mcfg, three to four barrels of oil and four to six barrels of
water. The company intends to produce the well at that rate
through the winter of 1998/99, and then to evaluate installing
its proprietary fluid lift system on the well in the spring of
1999.
The decline in oil volumes is due to normal declines and
certain wells being shut-in due to low oil prices.
Investment and other income increased due to increased
investment levels and improved performance on certain of the
company's short term investments.
<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
Quarter Ended January 31, 1999 Compared to Quarter Ended
January 31, 1998
In the first quarter of fiscal 1999, net income was $151,000
compared to $84,000 in the same period last year. The increase
reflects significantly higher natural gas production in the
current quarter compared to the year ago period, due primarily to
the Cline #11-1 and return of the Tracy Federal #1 to commercial
production levels.
Total revenues increased 40% to $886,000 in the first
quarter of 1999 compared to $635,000 in the same period last
year. Oil and gas sales increased $207,000, or 47%, to $643,000.
Refer to the table on page 7 for details of oil and gas prices
and volumes for the applicable periods. Total gas price
realizations rose 4% to $2.32 per Mcf compared to $2.24 last
year. Hedging transaction added $.42 per Mcf, or 22%, to first
quarter 1999 price realizations. Net wellhead prices for gas
fell 15% to $1.90 per Mcf compared to $2.24 last year. Net
wellhead oil price realizations plummeted 32% to $11.29 per
barrel compared to $16.52 per barrel last year. The net effect
of these price changes was to reduce oil and gas sales by
$19,000. Gas volumes increased 72% and oil volumes declined 5%.
The net effect of volume changes was to increase oil and gas
sales by $226,000. Operating income declined due to certain
wells being shut-in due to low prices. Investment income
increased due to higher levels of investment and improved
performance of professionally managed investments.
Total costs and expenses were $654,000 in the first quarter
of 1999, compared to $505,000 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 significantly higher
gas production levels and the accelerated write-off of the
remaining value of certain operating rights. The increase in oil
and gas production expenses principally reflects costs associated
with higher production levels and timing of workovers and
repairs. Income taxes were provided at 35% in both quarters.
<PAGE>
Quarter Ended January 31, 1999 Compared to Quarter Ended
October 31, 1998
In the first quarter of fiscal 1999, net income was $151,000
compared to $101,000 in the prior quarter.
Total revenues increased 8% to $886,000 in the first quarter
compared to $824,000 in the prior quarter. Oil and gas sales
increased 5% to $643,000. Refer to the table on page 7 for
details of oil and gas prices and volumes for the applicable
periods. Total gas price realizations rose 28% to $2.32 per Mcf
compared to $1.81 last quarter. Hedging transactions added $.42,
or 22%, to first quarter 1999 price realizations. Net wellhead
prices for gas rose 5% to $1.90 per Mcf compared to $1.81 last
quarter. Oil price realizations fell 11% to $11.29 per barrel
compared to $12.65 in the prior quarter. The net effect of these
price changes was to increase oil and gas sales by $108,000. Gas
volumes increased 2% and oil volumes (excluding the S.E. Hewitt
waterflood project -- see Note (2) to table on page 7) declined
10%. The net effect of these volume changes was immaterial. The
effect of the S.E. Hewitt waterflood project was an $81,000
reduction in oil revenue in the first quarter of 1999 compared to
the fourth quarter of 1998. Operating income remained virtually
unchanged. Investment income increased due to improved
performance on certain professionally managed investments.
Total costs and expenses were $654,000 in the first quarter
of 1999 compared to $667,000 in the immediately preceding
quarter. General and administrative expense was substantially
the same in the two quarters. Depreciation, depletion and
amortization increased approximately $35,000 due to the
accelerated write off of the remaining value of certain operating
rights. The change in oil and gas production costs (excluding
the S.E. Hewitt waterflood project -- see Note (2) to the table
on page 7) was immaterial between the periods. The effect of the
S.E. Hewitt waterflood project was a $54,000 reduction in oil and
gas production costs in the first quarter of 1999 compared to the
fourth quarter of 1998. Income taxes were provided at 35% in
both quarters.
<PAGE>
PART II
ITEM 5. OTHER INFORMATION
AMENDMENT TO RIGHTS AGREEMENT
Dated as of April 11, 1989
Between CREDO Petroleum Corporation and
American Securities Transfer, Incorporated
as Rights Agent
Whereas, the Board of Directors ( Board') of CREDO Petroleum
Corporation ( Company') believes that an effective shareholder
rights plan is in the best interest of the Company's
shareholders, and
Whereas, the Company currently has an effective shareholder
rights plan known as the RIGHTS AGREEMENT DATED AS OF
APRIL 11, 1989 BETWEEN CREDO PETROLEUM CORPORATION AND AMERICAN
SECURITIES TRANSFER, INCORPORATED AS RIGHTS AGENT ( Agreement'),
and
Whereas, Section 7.(a). of the Agreement provides that the
Final Expiration Date of the Rights is April 28, 1999, and
Whereas, the Board has considered the merits of extending or
re-adopting the Rights Agreement and, through the Company's
management, has discussed the matter with the Company's legal
counsel, Davis, Graham and Stubbs, and
Whereas, the Board has fully reconsidered the merits of the
Company having an effective shareholder rights plan including
information contained by certain recent studies of effective
shareholder rights plans, and
Whereas, the Board has concluded that the provisions of the
Agreement continue to be applicable and proper, and
Whereas, the Board has concluded that it is in the best
interest of the shareholders of the Company to extend the term of
the Rights,
Now Therefore, the Agreement is amended as follows:
1. Section 7.a. of the RIGHTS AGREEMENT DATED AS OF
APRIL 11, 1989 BETWEEN CREDO PETROLEUM CORPORATION
AND AMERICAN SECURITIES TRANSFER, INCORPORATED AS
RIGHTS AGENT is deleted in its entirety.
2. The following is added to Section 7.a. of the RIGHTS
AGREEMENT DATED AS OF APRIL 11, 1989 BETWEEN CREDO
PETROLEUM CORPORATION AND AMERICAN SECURITIES
TRANSFER, INCORPORATED AS RIGHTS AGENT:
The registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at
any time after the Distribution Date upon surrender
of the Right Certificate, with the form of election
to purchase on the reverse side thereof duly
executed, to the Rights Agent at the shareholder
services office of the Rights Agent, together with
payment of the Purchase Price for each one
one-hundredth of a Preferred Share as to which the
Rights are exercised, at or prior to the earlier of
(i) the close of business on April 28, 2009 (the
Final Expiration Date'), or (ii) the time at which
the Rights are redeemed as provided in Section 23
hereof (the Redemption Date').'
<PAGE>
3. The effective date of this Amendment is
February 24, 1999.
WITNESS, the signatures of the proper officers of the
Company and its corporate seal.
ATTEST: CREDO PETROLEUM CORPORATION
/s/ Alford B. Neely By: /s/ James T. Huffman
- ------------------------ -------------------------
Alford B. Neely James T. Huffman
Secretary President
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: March 12, 1999 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
<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-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 149,000
<SECURITIES> 3,069,000
<RECEIVABLES> 719,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,937,000
<PP&E> 13,714,000
<DEPRECIATION> 7,309,000
<TOTAL-ASSETS> 10,372,000
<CURRENT-LIABILITIES> 718,000
<BONDS> 0
0
0
<COMMON> 367,000
<OTHER-SE> 8,161,000
<TOTAL-LIABILITY-AND-EQUITY> 10,372,000
<SALES> 643,000
<TOTAL-REVENUES> 886,000
<CGS> 204,000
<TOTAL-COSTS> 461,000
<OTHER-EXPENSES> 193,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 232,000
<INCOME-TAX> 81,000
<INCOME-CONTINUING> 151,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,000
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
