<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, 2000
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 29, 2000: Common stock, $.10 par value - 2,979,000
Preferred stock, no par value - None issued
________________________________________________________________
<PAGE>
CREDO PETROLEUM CORPORATION
Index to Form 10-QSB
For Quarter Ended January 31, 2000
________________________________________________________________
PART I - FINANCIAL INFORMATION (unaudited)
Consolidated Balance Sheets
As of January 31, 2000 and October 31, 1999
Consolidated Statements of Earnings and Changes in
Retained Earnings For the Three Month Periods
Ended January 31, 2000 and 1999
Consolidated Statements of Cash Flows
For the Three Month Periods Ended
January 31, 2000 and 1999
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-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,
2000 1999
---------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 489,000 $ 184,000
Short term investments 4,147,000 4,055,000
Receivables:
Trade 345,000 443,000
Accrued oil and gas sales 295,000 362,000
Other 536,000 77,000
----------- -----------
5,812,000 5,121,000
----------- -----------
OIL AND GAS PROPERTIES, net, at cost,
full cost method:
Unevaluated 870,000 788,000
Evaluated 4,972,000 5,126,000
----------- -----------
5,842,000 5,914,000
----------- -----------
OTHER, net 69,000 43,000
----------- -----------
$11,723,000 $11,078,000
=========== ===========
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 $ 701,000 $ 739,000
Income taxes payable 232,000 147,000
----------- -----------
933,000 886,000
----------- -----------
DEFERRED INCOME TAXES 1,333,000 1,227,000
----------- -----------
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 4,070,000 3,578,000
Treasury stock, at cost, 699,000
shares in 2000 and 1999 (1,215,000) (1,215,000)
----------- -----------
9,457,000 8,965,000
----------- -----------
$11,723,000 $11,078,000
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CREDO PETROLEUM CORPORATION
Consolidated Statements of Earnings And Changes in
Retained Earnings - Unaudited
Three Months Ended
January 31,
----------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 636,000 $ 643,000
Operating 110,000 116,000
Investment income and other 249,000 127,000
Non-recurring litigation settlement 349,000 -
---------- ----------
1,344,000 886,000
---------- ----------
COSTS AND EXPENSES:
Oil and gas production 254,000 204,000
Depreciation, depletion and
amortization 138,000 257,000
General and administrative 228,000 193,000
---------- ----------
620,000 654,000
---------- ----------
INCOME BEFORE
INCOME TAXES 724,000 232,000
INCOME TAXES (232,000) (81,000)
---------- ----------
NET INCOME 492,000 151,000
RETAINED EARNINGS,
BEGINNING OF PERIOD 3,578,000 2,967,000
---------- ----------
RETAINED EARNINGS,
END OF PERIOD $4,070,000 $3,118,000
========== ==========
BASIC AND DILUTED
NET INCOME PER SHARE $ .16 $ .05
===== =====
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CREDO PETROLEUM CORPORATION
Consolidated Statements of Cash Flows - Unaudited
Three Months Ended
January 31,
----------------------
2000 1999
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 492,000 $ 151,000
Non-cash expenses included in net income:
Depreciation, depletion and amortization 138,000 257,000
Deferred income taxes 106,000 81,000
Other 7,000 (3,000)
Changes in operating assets and liabilities:
Proceeds from short term investments 676,000 700,000
Purchase of short term investments (768,000) (1,578,000)
Trade receivables 98,000 (108,000)
Accrued oil and gas sales 67,000 (32,000)
Other current assets (459,000) 506,000
Income taxes payable 85,000 -
Accounts payable (38,000) 5,000
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 404,000 (21,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties, net (67,000) (107,000)
Changes in long-term assets (32,000) -
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (99,000) (107,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock - (72,000)
---------- ----------
NET CASH USED BY FINANCING ACTIVITIES - (72,000)
---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 305,000 (200,000)
CASH AND CASH EQUIVALENTS:
Beginning of Period 184,000 349,000
---------- ----------
End of Period $ 489,000 $ 149,000
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
CREDO PETROLEUM CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
January 31, 2000
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital and cash flow represent a
significant capital resource and source of liquidity. At January
31, 2000, working capital was $4,879,000, up 15% from the fiscal
year ended October 31, 1999. Cash flow from operating activities
before working capital changes totaled $743,000 for the three
months, up 53% from the same period last year. Cash flow was used
to fund net oil and gas property expenditures totaling $67,000.
Excess cash flow is reflected in the increase in working capital.
Existing working capital and anticipated cash flow are
expected to be sufficient to fund fiscal 2000 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 approximately
$500,000 at January 31, 2000. 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 OPERATIONS
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 major 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 and gains or losses recognized for financial
reporting purposes 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. All other futures transactions are accounted
for as speculative transactions and gains and losses are
immediately recognized.
<PAGE>
There were no hedging gains or losses for the quarter ended
January 31, 2000. Hedging gains, included in oil and gas income,
for the three months ended January 31, 1999 were approximately
$100,000. Hedging losses were approximately $49,000 for the
quarter ended October 31, 1999.
Oil and gas sales volume and price comparisons for the
indicated periods are set forth below.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Percent Percent
January 31, 2000 January 31, 1999 Volume Price
------------------ ------------------
Product Volume Price Volume Price Change Change
- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 173,800 $ 2.33 237,600 $ 2.32(1) - 27% + 1%
Oil (bbls) 9,500 $24.26 8,200 $11.29 + 16% +115%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Percent Percent
January 31, 2000 October 31, 1999 Volume Price
------------------ ------------------
Product Volume Price Volume Price Change Change
- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 173,000 $ 2.33 206,700 $ 2.20(2) - 16% + 6%
Oil (bbls) 9,500 $24.26 9,500 $20.08 0% + 21%
(1) Includes $.42/Mcf hedging gain.
(2) Includes $.24/Mcf hedging loss.
</TABLE>
For the quarter ended January 31, 2000, the decline in gas
production compared to the same quarter last year is primarily
due to lost production from the Tracy Federal #1 well, which was
sold in the fourth quarter of fiscal year 1999, and the decline
in production levels from the Cline #11-1 well as discussed
below. The increase in oil volumes is principally due to
production from the S.E. Hewett waterflood project which is
kicking'.
The decline in production for the first quarter of 2000
compared to the immediately preceding quarter is primarily caused
by production lost due to down-hole mechanical problems (as
discussed below) on the J.C. Carroll well, the company's largest
well in terms of production and reserves. Also as is discussed
below, production from the Cline #11-1 well declined
significantly between the periods.
The J.C. Carroll well, on which the company installed its
patented fluid lift technology in July, 1999 is now the company's
largest producing property. The company owns a 75% working
interest and a 60% net revenue interest in the well and is the
operator. The company had expected that production from the J.C.
Carroll well would replace production lost due to sale of the
Tracy Federal #1 well and production declines on the Cline #11-1
well. However, the Carroll well was down approximately one-half
of the first quarter for problems related to down-hole pressure
control related to the operations of the new fluid lift
technology installed on the well in the last half of 1999. The
well was successfully worked-over and returned to production in
mid-February, and is producing without recurrence of the
mechanical problems. During the quarter ended January 31, 2000,
the well accounted for approximately 19% of the company's total
gas production. The well has a very limited operating history
using the new production technology, and accordingly, production
levels and reserve estimates must be viewed as being subject to
significant change as more data about the well becomes available.
<PAGE>
The Cline 11-1 well was previously the company's largest
producing property. The company owns 49% of the well and is the
operator. Reserve estimates for the Cline #11-1 well must be
viewed as subject to significant change as more data about the
well becomes available. In the first quarter of fiscal 2000, the
well accounted for 10% of the company's total gas production
compared to 25% in fiscal 1999 and compared to 16% in the
immediately preceding quarter. The well was drilled and
completed in January 1998, and measured surface casing pressures
initially declined more rapidly than expected, indicating that
the reservoir is smaller than originally expected. However,
pressures have recently begun to stabilize with the well
producing at a rate of approximate 340 Mcfgd and minor amounts of
oil and water. Accordingly, the company is optimistic that the
severe production and pressure declines experienced over the past
18 months have stabilized.
During the fourth quarter of fiscal 1999, the company sold
its 78% interest in the Tracy Federal #1 well for $487,000. The
well had been producing at a daily rate of approximately 300
Mcfgd. Sale proceeds were recorded as a reduction to oil and gas
property costs. Proved reserves attributed to the well were
455,000 Mcfg and 6,000 barrels of condensate.
As previously reported, the company is participating in the
refinement and application of patented fluid lift technology.
The technology efficiently lifts fluids from wellbores using
down-hole pressure differentials, and is primarily applicable to
mature natural gas wells in low-pressure reservoirs. At January
31, 2000, the technology has been installed on five of the
company's gas wells, of which four have equaled or exceeded the
company's expectations. The latest installation, completed in
July 1999, resulted in restoring a non-producing well to current
daily production of approximately 600 to 650 Mcfg.
On the west side of Wyoming's Powder River Basin, the
company participated in a significant wildcat drilling play to
develop coal bed methane (CBM) reserves on its 13,000 gross acre
(1,253 net acre) Sheridan Prospect. Approximately 100 wells have
been drilled on the prospect. Including drilling and
installation of production infrastructure (gathering,
electricity, water disposal, etc.), the company estimates that
its share of costs incurred to date is approximately $600,000,
most of which was unbilled at first quarter-end. There has been
no significant production from the prospect, and the company's
share of estimated total costs could range up to $3,000,000.
After first quarter-end, the company sold its interest in the
Sheridan Prospect for approximately $375,000 plus assumption by
the buyer of all costs incurred from inception of the project.
The company also retained a small overriding royalty interest in
the prospect. The sale is scheduled to close in mid-March and
will result in payment to the company of $375,000 plus
reimbursement of approximately $90,000 of costs. The company has
retained its ownership of 17,000 gross (3,900 net ) acres of CBM
leases located on the eastern side of the Powder River Basin.
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.
<PAGE>
RESULTS OF OPERATIONS
Quarter Ended January 31, 2000 Compared to Quarter Ended January
31, 1999
Net income for the quarter ended January 31, 2000 increased
226% to $492,000 compared to $151,000 for the same quarter last
year.
Total revenues increased 52% to $1,344,000 in the first
quarter of 2000 compared to $886,000 last year. Oil and gas
sales decreased $7,000, or 1% to $636,000. Refer to the table
and discussion on pages 7 and 8 for details of oil and gas prices
and volumes for the applicable periods. Total gas price
realizations increased 1% to $2.33 per Mcf compared to $2.32 last
year. Hedging gains totaled $.42 per Mcf for the first quarter
of 1999. There were no hedging transactions during the first
quarter of 2000. Net wellhead prices increased 23% to $2.33 per
Mcf compared to $1.90 last year. Net wellhead oil price
realizations increased 115% to $24.26 per barrel compared to
$11.29 last year. The net effect of these price changes and
hedging transactions was to increase oil and gas sales $110,000.
Gas volumes declined 27% and oil volumes increased 16%. The net
effect of these volume changes was to decrease oil and gas sales
by $117,000. Operating income declined 5% due to the sale of
several marginal operated properties during 1999. Investment
income increased 96% due to an increase in the amount of
short-term investments and due to improved performance on certain
of the company's short-term investments.
Nonrecurring litigation settlement income of $349,000 is due
to partial recovery of investment losses incurred by the company
in 1990 by settlement of a lawsuit.
Total costs and expenses were $620,000 in the first quarter
of 2000, compared to $654,000 last year. General and
administrative expenses increased 18% primarily due to a broad
upward trend in the costs of administration. Depreciation,
depletion and amortization decreased 46% to $138,000 primarily
due to proceeds from sale of certain properties that reduced the
amortization base, completion of the amortization of certain
operating rights which had been accelerated into the first
quarter of 1999, and by decreased gas production compared to the
first quarter of 1999. The 24% increase in oil and gas
production expenses principally reflects costs associated with
timing of workovers and repairs.
Quarter Ended January 31, 2000, Compared to Quarter Ended
October 31, 1999
In the first quarter of fiscal 2000, net income increased
131% to $492,000 compared to $213,000 in the prior quarter.
Total revenues increased 73% to $1,344,000 compared to
$779,000 in the prior quarter. Oil and gas sales declined
$9,000, or 1% to $636,000. Refer to the table and discussion on
pages 7 and 8 for details of oil and gas prices and volumes for
the applicable periods. Total gas price realizations increased
6% to $2.33 per Mcf compared to $2.20 last quarter. Hedging
losses deducted $.24 per Mcf from fourth quarter 1999 price
realizations. There were no hedging transactions in the first
quarter of 2000. Net wellhead prices decreased 5% to $2.33 per
Mcf compared to $2.44 last quarter. Net wellhead oil price
realizations increased 21% to $24.26 per barrel compared to
$20.08 last quarter. The net effect of these price changes and
hedging transactions was to increase oil and gas sales by
$67,000. Gas volumes declined 16% to 173,800 Mcf compared to
206,700 last quarter. Oil volumes remained at 9,500 barrels for
both quarters. The net effect of gas volume changes was to
decrease oil and gas sales by $76,000. Operating income
increased $3,000 compared to the prior quarter. Investment
income increased $222,000 due to redistribution of the company's
short-term investments and elimination of certain short-term
investments that were not performing at an acceptable level.
<PAGE>
Total costs and expenses were $620,000 in the first quarter
of 2000, compared to $492,000 last quarter. Depreciation,
depletion and amortization increased to $138,000 compared to
$42,000 in the prior quarter due to sales of several properties
in the fourth quarter of 1999 which resulted in a reduction in
total fiscal year 1999 DD&A. The 12% increase in oil and gas
production expenses reflect costs associated with the timing
of workovers and repairs. General and administrative expenses
increased 1.5% compared to the prior quarter due to timing of
certain expenditures. Income taxes were provided at 32% and
25% for the quarters ended January 31, 2000 and October 31, 1999
respectively. The 25% rate in the prior quarter was due to
multiple transactions in the fourth quarter of 1999 that resulted
in a downward adjustment of the annual tax rate.
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 15, 2000 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-QSB 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-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 489,000
<SECURITIES> 4,147,000
<RECEIVABLES> 1,176,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,812,000
<PP&E> 13,739,000
<DEPRECIATION> (7,897,000)
<TOTAL-ASSETS> 11,723,000
<CURRENT-LIABILITIES> 933,000
<BONDS> 0
0
0
<COMMON> 367,000
<OTHER-SE> 9,090,000
<TOTAL-LIABILITY-AND-EQUITY> 11,723,000
<SALES> 636,000
<TOTAL-REVENUES> 1,344,000
<CGS> 254,000
<TOTAL-COSTS> 392,000
<OTHER-EXPENSES> 228,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 724,000
<INCOME-TAX> 232,000
<INCOME-CONTINUING> 492,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 492,000
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
