===================================================================== ======
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 the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-9408
PRIMA ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 84-1097578
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1801 Broadway, Suite 500, Denver CO 80202
(Address of principal executive offices) (Zip Code)
(303) 297-2100
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed from last
report.)
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 [ ]
As of May 1, 1998, the Registrant had 5,772,556 shares of Common Stock,
$0.015 Par Value, outstanding.
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<PAGE>
PRIMA ENERGY CORPORATION
INDEX
-----
Part I - Financial Information Page
- ------------------------------
Item 1. Financial Statements
Unaudited consolidated balance sheets . . . . . . . . . . 3
Unaudited consolidated statements of income . . . . . . . 5
Unaudited consolidated statements of cash flows . . . . . 6
Notes to unaudited consolidated financial statements . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . 11
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995. . . . . . . . . . . . . . . . . . . . . . . . 14
Part II - Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
PRIMA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
CURRENT ASSETS
Cash and cash equivalents.................. $ 9,801,000 $ 5,644,000
Available for sale securities, at market... 1,898,000 1,866,000
Receivables (net of allowance for
doubtful accounts: 3/31/98, $49,000;
12/31/97, $49,000)....................... 4,326,000 5,681,000
Tubular goods inventory.................... 866,000 882,000
Other...................................... 119,000 183,000
---------- ----------
Total current assets.................... 17,010,000 14,256,000
---------- ----------
OIL AND GAS PROPERTIES, at cost, accounted
for using the full cost method........... 70,644,000 67,945,000
Less accumulated depreciation,
depletion and amortization............... (28,249,000) (26,875,000)
---------- ----------
Oil and gas properties - net............ 42,395,000 41,070,000
---------- ----------
PROPERTY AND EQUIPMENT, at cost
Oilfield service equipment................. 3,567,000 3,504,000
Furniture and equipment.................... 728,000 711,000
Field office, shop and land................ 433,000 356,000
---------- ----------
4,728,000 4,571,000
Less accumulated depreciation.............. (2,584,000) (2,460,000)
---------- ----------
Property and equipment - net............ 2,144,000 2,111,000
---------- ----------
OTHER ASSETS............................... 520,000 484,000
---------- ----------
$62,069,000 $57,921,000
========== ==========
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
PRIMA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (cont'd.)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
CURRENT LIABILITIES
Accounts payable........................... $ 1,127,000 $ 3,250,000
Amounts payable to oil and gas property
owners................................... 1,164,000 1,220,000
Ad valorem and production taxes payable.... 1,331,000 1,279,000
Accrued and other liabilities.............. 604,000 421,000
Current portion of note payable............ 120,000 120,000
Deferred tax liability..................... 15,000 14,000
---------- ----------
Total current liabilities............... 4,360,000 6,304,000
NOTE PAYABLE............................... 240,000 240,000
AD VALOREM TAXES, non-current.............. 1,655,000 1,280,000
DEFERRED TAX LIABILITY..................... 8,436,000 6,883,000
---------- ----------
Total liabilities....................... 14,691,000 14,707,000
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value,
2,000,000 shares authorized; no shares
issued or outstanding.................... 0 0
Common stock, $0.015 par value,
12,000,000 shares authorized;
5,835,556 and 5,833,056 shares issued.... 87,000 87,000
Additional paid-in capital................. 4,408,000 4,385,000
Retained earnings.......................... 43,624,000 39,485,000
Unrealized gain on available for
sale securities.......................... 46,000 44,000
Treasury stock, 63,000 shares at cost...... (787,000) (787,000)
---------- ----------
Total stockholders' equity.............. 47,378,000 43,214,000
---------- ----------
$62,069,000 $57,921,000
========== ==========
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
----------- -----------
REVENUES
Oil and gas sales.......................... $ 4,150,000 $ 5,678,000
Trading revenues........................... 1,649,000 5,049,000
Oilfield services.......................... 1,128,000 777,000
Management and operator fees............... 252,000 255,000
Interest and dividend income............... 134,000 127,000
Settlement income and other................ 3,865,000 27,000
---------- ----------
11,178,000 11,913,000
---------- ----------
EXPENSES
Depreciation, depletion and amortization... 1,505,000 1,311,000
Lease operating expense.................... 504,000 482,000
Production taxes........................... 345,000 387,000
Cost of trading............................ 1,410,000 4,911,000
Cost of oilfield services.................. 864,000 617,000
General and administrative................. 521,000 513,000
---------- ----------
5,149,000 8,221,000
---------- ----------
INCOME BEFORE INCOME TAXES................. 6,029,000 3,692,000
PROVISION FOR INCOME TAXES................. 1,890,000 1,015,000
---------- ----------
NET INCOME................................. $ 4,139,000 $ 2,677,000
========== ==========
BASIC NET INCOME PER SHARE................. $ 0.72 $ 0.46
========== ==========
DILUTED NET INCOME PER SHARE............... $ 0.70 $ 0.45
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.............................. 5,770,250 5,790,556
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION............ 5,897,404 5,910,262
========== ==========
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES
Net income ................................. $ 4,139,000 $ 2,677,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization.. 1,505,000 1,311,000
Deferred income taxes..................... 1,552,000 711,000
Other..................................... 338,000 523,000
Changes in current assets and liabilities:
Receivables............................. 1,355,000 1,471,000
Inventory............................... 16,000 (305,000)
Other current assets.................... 64,000 122,000
Payables................................ (2,128,000) (1,981,000)
Accrued and other liabilities........... 183,000 (11,000)
---------- ----------
Net cash provided by
operating activities................. 7,024,000 4,518,000
---------- ----------
INVESTING ACTIVITIES
Additions to oil and gas properties........ (2,699,000) (2,483,000)
Purchases of other property................ (178,000) (162,000)
Purchases of available for sale securities. (28,000) (35,000)
Proceeds from sales of available for
sale securities.......................... 0 112,000
Proceeds from sales of other property...... 15,000 0
---------- ----------
Net cash used by investing activities.. (2,890,000) (2,568,000)
---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of common stock..... 23,000 0
---------- ----------
Net cash provided by financing activities 23,000 0
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS...... 4,157,000 1,950,000
CASH AND CASH EQUIVALENTS,
beginning of period...................... 5,644,000 7,029,000
---------- ----------
CASH AND CASH EQUIVALENTS, end of period... $ 9,801,000 $ 8,979,000
========== ==========
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
PRIMA ENERGY CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The financial information contained herein is unaudited but includes all
adjustments (consisting of only normal recurring accruals) which, in the
opinion of management, are necessary to present fairly the information set
forth. The consolidated financial statements should be read in conjunction
with the Notes to Consolidated Financial Statements which are included in the
Annual Report on Form 10-K of Prima Energy Corporation for the year ended
December 31, 1997.
The results for interim periods are not necessarily indicative of
results to be expected for the fiscal year of the Company ending December 31,
1998. The Company believes that the three month report filed on Form 10-Q is
representative of its financial position, its results of operations and its
cash flows for the periods ended March 31, 1998 and 1997.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Prima Energy Corporation ("Prima") and its subsidiaries, herein
collectively referred to as the "Company." All significant intercompany
transactions have been eliminated. Certain amounts in prior years have been
reclassified to conform with the classifications at March 31, 1998.
3. LINE OF CREDIT
Prima maintains an $8,000,000 unsecured line of credit with a commercial
bank. The line of credit, which matures on May 1, 1999, bears interest at
the bank's prime rate (8.50% at March 31, 1998), with interest payable
monthly. At December 31, 1997 and March 31, 1998, there were no amounts
outstanding under the line of credit.
4. HEDGING ACTIVITIES
The Company's marketing and trading activities consist of marketing the
Company's own production, marketing the production of others from wells
operated by the Company, and natural gas trading activities that consist of
the purchase and resale of natural gas. Crude oil and natural gas futures,
options and swaps are used from time to time in order to hedge the price of
a portion of the Company's production, as well as to hedge the margins on
natural gas purchased for resale. This is done to mitigate the risk of
fluctuating oil and natural gas prices which can adversely affect operating
results. These transactions have been entered into with major financial
institutions, thereby minimizing credit risk. The Company hedged
approximately 0% and 71% of its oil production in the first quarters of 1998
and 1997, respectively, and hedged approximately 53% and 54% of its natural
gas production in these same periods. Hedging gains and losses were
$(126,000) and $463,000 for the quarters ended March 31, 1998 and 1997,
respectively, and were included in oil and gas revenues at the time the
7<PAGE>
hedged volumes were sold. At March 31, 1998, the Company had sold natural
gas futures contracts as follows:
Volume Unrealized
Remaining Term Price (MMBtu) Loss
- --------------------------- ------- --------- -----------
April 1998 to October 1998 $ 1.600 350,000 $ (101,500)
April 1998 to October 1998 1.535 350,000 (124,250)
April 1998 to February 1999 1.855 2,200,000 (352,000)
At March 31, 1998, the Company had no open futures transactions that
did not correspond to anticipated physical transactions.
5. TERMINATION OF NATURAL GAS SUPPLY CONTRACT
In December 1997, Prima agreed to terminate its long-term, fixed-price
with annual escalation contract to supply natural gas to Colorado Power
Partnership ("CPP"), effective October 31, 1998, for $3,850,000, and other
consideration. The payment and closing was completed in January 1998.
Initial sales to CPP began in the fall of 1990 and the contract was to expire
in the year 2005. From January 1, 1998 through October 31, 1998, Prima has
agreed to supply 100% of CPP's gas requirements. Prima received $2.72 per
MMBtu from January 1, 1998 through March 31, 1998, and will receive a spot
related index price from April 1, 1998 through October 31, 1998. After that
time, CPP and Prima have agreed to negotiate in good faith a new supply
contract through the year 2005, but neither party has an obligation to supply
or purchase from the other. Prima's substantial dedication of gas reserves
in the Wattenberg Area in northeast Colorado for the long-term contract will
be released effective October 31, 1998.
6. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Prima adopted SFAS 130 on January 1, 1998. Prima's
comprehensive income for the three months ended March 31, 1998 and March 31,
1997 was $4,141,000 and $2,687,000, respectively, compared to net income for
the three months ended March 31, 1998 and March 31, 1997 of $4,139,000 and
$2,677,000, respectively. The difference between comprehensive income and
net income is due to unrealized gains in the Company's portfolio of available
for sale securities.
8<PAGE>
7. SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders in the second year of
adoption. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Prima adopted
SFAS 131 on January 1, 1998. Prima has not completed the process of
evaluating the impact that will result from adopting SFAS 131 or the manner
that will be used to disclose the required information in its annual
financial statements.
8. ISSUANCE OF COMMON STOCK
Pursuant to the provisions of the Prima Energy Corporation 1993 Stock
Inventive Plan, during the first quarter of 1998, 2,500 shares of Prima's
common stock were issued upon the exercise of stock options for total
proceeds of $23,000.
9. EARNINGS PER SHARE
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 establishes standards for computing and presenting
earnings per share ("EPS"), and supersedes APB Opinion No. 15 and its related
interpretations. It replaces the presentation of primary EPS with a
presentation of basic EPS, which excludes dilution, and requires dual
presentation of basic and diluted EPS for all entities with complex capital
structures. Diluted EPS is computed similarly to fully diluted EPS pursuant
to Opinion No. 15. SFAS 128 is effective for periods ending after December
15, 1997, including interim periods, and requires restatement of all prior
period EPS data presented. The Company adopted SFAS 128 effective December
31, 1997, and has restated all prior period EPS data presented to give
retroactive effect to the new accounting standard.
Basic net income per share is computed by dividing net income by the
weighted average common shares outstanding during the period. Diluted net
income per share includes the potential dilution that could occur upon
exercise of options to acquire common stock, computed using the treasury
stock method. The treasury stock method assumes that the increase in the
number of shares issued is reduced by the number of shares which could have
been repurchased by the Company with the proceeds from the exercise of the
options (which were assumed to have been at the average market price of the
common shares during the reporting period).
9
<PAGE>
The following table reconciles the numerator and denominator used in the
calculation of basic and diluted net income per share.
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Quarter Ended March 31, 1998:
Basic Net Income per Share..... $4,139,000 5,770,250 $ 0.72
Effect of Stock Options........ 127,154 =====
--------- ---------
Diluted Net Income per Share... $4,139,000 5,897,404 $ 0.70
========= ========= =====
Quarter Ended March 31, 1997:
Basic Net Income per Share..... $2,677,000 5,790,556 $ 0.46
Effect of Stock Options........ 119,706 =====
--------- ---------
Diluted Net Income per Share... $2,677,000 5,910.262 $ 0.45
========= ========= =====
The Board of Directors of Prima approved a three for two stock split of
the Company's common stock, to shareholders of record on February 20, 1997,
distributed March 4, 1997. As a result, the number of shares of common stock
outstanding increased from 3,860,396 to 5,790,556 on the distribution date.
All share and per share amounts included in these financial statements have
been restated to show the retroactive effects of the stock split. During
1997, the shareholders of Prima approved an increase in the number of
authorized shares of common stock from 8,000,000 to 12,000,000 shares.
10
<PAGE>
PRIMA ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Company's principal internal sources of liquidity are cash flows
generated from operations and existing cash and cash equivalents. Net cash
provided by operating activities for the three months ended March 31, 1998
was $7,024,000 compared to $4,518,000 for the same three month period of
1997. Net working capital at March 31, 1998 was $12,650,000 compared to
$7,952,000 at December 31, 1997. Current liabilities at March 31, 1998
decreased from December 31, 1997 amounts by $1,944,000, while current assets
increased by $2,754,000 for the same period. The increase in working capital
of $4,698,000 was primarily generated by cash flows from operations during
the quarter ended March 31, 1998. Cash flow from operations benefitted from
a contract settlement payment of $3,850,000 during the first quarter of 1998,
as discussed in Note 5 of the Notes to Consolidated Financial Statements.
The Company has external borrowing capacity of $8,000,000 through an
unsecured line of credit with a commercial bank, all of which is available to
be drawn.
The Company invested $2,877,000 in property and equipment during the
quarter ended March 31, 1998, compared to $2,645,000 for the 1997 quarter.
The Company expended $2,315,000 during the 1998 quarter for its proportionate
share of the costs of drilling and completing wells, $384,000 for undeveloped
acreage and $178,000 for other property and equipment. These expenditures
compare to $2,227,000 for well costs, $246,000 for undeveloped acreage,
$10,000 for purchases of producing properties and $162,000 for other
equipment in the 1997 quarter.
During the first quarter of 1998, the Company participated in the
drilling of ten wells. One exploratory well (1.0 net) in the Powder River
Basin was plugged and abandoned in January 1998. One exploratory well (0.045
net) in the Cave Gulch Area of the Wind River Basin commenced production in
February 1998. Four development wells (0.5 net) were drilled at Cave Gulch
during the first quarter. As of May 8, 1998, one was being completed and
three were waiting on pipeline hook-up. Five development wells (1.0 net) at
the Bonny Field in northeastern Colorado were also drilled, completed and
placed on production during the first quarter of 1998. Five additional wells
were drilled in March 1998, resulting in one dry hole and four wells capable
of production. These wells are expected to be hooked-up and producing by
mid-May 1998.
The Company recently commenced an approximate 35 well
recompletion/refracture program in the Wattenberg Field in northeastern
Colorado. The Company currently expects to recomplete or refracture
approximately one well per week for the remainder of 1998 at an estimated
capital expenditure of $4,000,000. The Company is moving a rig on location
in mid-May 1998 to drill two wells on its lease at Denver International
Airport. One of the wells is an offset to a well drilled by the Company in
1997 and one is a step-out well. Prima will own 100% working interests in
these two wells, with an estimated cost of $650,000. The Company anticipates
11<PAGE>
spudding an offset well to its Cedar Draw Federal 15-6 well in the Powder
River Basin in Wyoming by the end of May 1998. The Company also expects to
participate in the drilling of six more wells at the Bonny Field by the end
of June 1998 and expects the well in which its owns a 6.25% non-operated
working interest in California to spud during the latter part of the second
quarter of 1998.
The Company regularly reviews opportunities for acquisition of assets or
companies related to the oil and gas industry which could expand or enhance
its existing business. The Company expects its operations, including
acquisition, drilling, completion and recompletion well costs, will be
financed by funds provided by operations, working capital, borrowings on the
line of credit, various cost-sharing arrangements, or from other financing
alternatives.
Results of Operations
- ---------------------
For the quarter ended March 31, 1998, the Company earned net income of
$4,139,000, or $.70 per diluted share, on revenues of $11,178,000, compared
to net income of $2,677,000, or $.45 per diluted share on revenues of
$11,913,000 for the comparable quarter of 1997. Expenses were $5,149,000 for
the 1998 quarter compared to $8,221,000 for the 1997 quarter. Revenues
decreased $735,000, or 6%, expenses decreased $3,072,000, or 37% and net
income increased $1,462,000, or 55%.
Oil and gas sales for the quarter ended March 31, 1998 were $4,150,000
compared to $5,678,000 for the same period of 1997, a decrease of $1,528,000
or 27%. The decrease is attributable to significantly lower oil and gas
prices, which were partially offset by increased production on a BOE basis.
The Company's net natural gas production was 1,510,000 Mcf and 1,344,000 Mcf
for the first quarters of 1998 and 1997, respectively, an increase of 166,000
Mcf or 12%. The Company's net oil production was 68,000 barrels compared to
63,000 barrels for the same periods, an increase of 5,000 barrels or 8%. Net
production on a BOE basis increased 11% from 287,000 BOE to 319,000 BOE.
The average price received for natural gas production was $2.10 per Mcf
for the 1998 quarter compared to $3.17 per Mcf for the 1997 quarter, a
decrease of $1.07 per Mcf or 34%. Approximately 5% of the natural gas
production at March 31, 1998 was attributable to production sold under a
fixed contract price of $5.90 per MMBtu. The average price for the Company's
natural gas production exclusive of the fixed price contract gas was $1.91
for the 1998 quarter compared to $3.02 for the 1997 quarter. The average
price received for oil in 1998 was $14.49 per barrel compared to $22.50 per
barrel for the same period of 1997, a decrease of $8.01 per barrel or 36%.
During the first quarter of 1998, the Company hedged approximately 53% of its
natural gas production. Hedging losses of $126,000 are included in oil and
gas revenues for this period, which decreased the average price received per
Mcf of natural gas by $0.08. No oil production was hedged during the first
quarter of 1998. During the first quarter of 1997, the Company hedged
approximately 71% of it oil production and 54% of its natural gas production.
Hedging gains of $463,000 increased the average price received per barrel of
oil by $1.27 and the average price received per Mcf of natural gas by $0.29
for this period.
Lease operating expenses and production taxes ("LOE") were $849,000 for
the 1998 quarter compared to $869,000 for the 1997 quarter, a decrease of
12<PAGE>
$20,000 or 2%. Depreciation, depletion and amortization ("DD&A") was
$1,505,000 for the first quarter of 1998 compared to $1,311,000 for the first
quarter of 1997, an increase of $194,000 or 15%. Production for the quarter
ended March 31, 1998 was 319,000 BOE compared to 287,000 BOE for the quarter
ended March 31, 1997. LOE per equivalent barrel of production was $2.66 for
the first quarter of 1998 compared to $3.03 for the comparable quarter of
1997. The rates for 1997 were higher than those experienced in 1998 due to
workover expenses and additional production taxes resulting from higher
product prices. DD&A applicable to oil and gas properties was $4.30 per
equivalent barrel of production for the 1998 quarter compared to $4.18 per
equivalent barrel of production for the 1997 quarter. Depreciation of other
property and equipment was $131,000 and $111,000 for the quarters ended March
31, 1998 and 1997, respectively.
Trading revenues and cost of trading represent the marketing of third
party natural gas by Prima Natural Gas Marketing, Inc., a wholly owned
subsidiary. Trading revenues were $1,649,000 for the three months ended
March 31, 1998, a $3,400,000, or 67% decrease from the $5,049,000 reported
for the three months ended March 31, 1997. The Company marketed 598,000
MMBtu's for the first quarter of 1998 compared to 1,771,000 MMBtu's marketed
during the comparable quarter of 1997, a decrease of 1,173,000 or 66%. Costs
of trading were $1,410,000 for the 1998 quarter compared to $4,911,000 for
the 1997 quarter, a decrease of $3,501,000 or 71%. Trading activities
fluctuate with natural gas markets and the Company's ability to develop
markets that meet the Company's trading criteria. The Company had contracts
in place during the first quarter of 1997 that terminated during that year
and were not renewed.
Oilfield services represent the revenues earned by Action Oilfield
Services, Inc., a wholly owned subsidiary. These revenues include well
servicing fees from completion and swab rigs, trucking, water hauling and
rental equipment, and other related activities. Revenues were $1,128,000 for
the quarter ended March 31, 1998 compared to $777,000 for the comparable
quarter of 1997. This $351,000, or 45%, increase in revenues was
attributable to increased activity in the Wattenberg Field area where the
service company is active and to additional equipment being in service. The
increase in activity was due at least in part to improved technologies in the
area, where the level of well re-works and recompletions has resulted in
strong utilization of service equipment. Costs of oilfield services were
$864,000 for the quarter ended March 31, 1998 compared to $617,000 for the
same quarter of 1997, an increase of $247,000 or 40%. For the quarter ended
March 31, 1998, 9% of the fees billed by Action were for Company owned wells
compared to 20% for the quarter ended March 31, 1997. The Company's share of
fees paid to Action on Company owned properties and the costs associated with
providing the services were eliminated in consolidation.
Management and operator fees are earned pursuant to the Company's roles
as operator for oil and natural gas wells (approximately 375 at March 31,
1998), located primarily in the Wattenberg Field area of Weld County,
Colorado and as managing venturer of a joint venture which owns gas gathering
and pipeline facilities in the Bonny Field in Yuma County, Colorado. The
Company is a working interest owner in each of the operated wells. The
Company is paid operating and management fees by the other working interest
owners in the properties. Fees fluctuate with the number of wells operated,
the percentage working interest in a property owned by third parties, and the
amount of drilling activity during the period. Fees for the first quarter of
1998 were $252,000 compared to $255,000 for the same period of 1997, a
decrease of $3,000 or 1%.
13
<PAGE>
General and administrative expenses were $521,000 for the quarter ended
March 31, 1998 compared to $513,000 for the quarter ended March 31, 1997, an
increase of $8,000 or 2%. The Company's general and administrative costs
have increased slightly due to expansion of the Company's areas of activity.
Settlement income and other for the quarter ended March 31, 1998
consisted primarily of the proceeds received from the termination of the
natural gas supply contract of $3,850,000, as more fully described in Note 5
of the Notes to Consolidated Financial Statements. Early termination of this
contract enabled Prima to monetize the value of the contract, effectively
remove a hedge against future production, release reserves from dedication,
and have funds available for new opportunities.
The provision for income taxes increased $875,000 to $1,890,000 for the
three months ended March 31, 1998 compared to $1,015,000 for the three months
ended March 31, 1997. The increase was attributable to the increase in income
before income taxes, which totaled $6,029,000 for the 1998 quarter compared
to $3,692,000 for the 1997 quarter, an increase of $2,337,000, or 63%. The
effective income tax rate increased to 31.4% for the 1998 quarter compared to
27.5% for the 1997 quarter. Effective tax rates are affected by amounts of
permanent differences between financial and taxable income, consisting
primarily of statutory depletion deductions and Section 29 tax credits.
Historically, oil and natural gas prices have been volatile and are
likely to continue to be volatile. Prices are affected by, among other
things, market supply and demand factors, market uncertainty, and actions of
the United States and foreign governments and international cartels. These
factors are beyond the control of the Company. To the extent that oil and
gas prices decline, the Company's revenues, cash flows, earnings and
operations would be adversely impacted. The Company is unable to accurately
predict future oil and natural gas prices.
The Company's primary source of revenues is from the sale of oil and
natural gas production. Levels of revenues and earnings are affected by
volumes of oil and natural gas production and by the prices at which oil and
natural gas are sold. As a result, the Company's operating results for any
period are not necessarily indicative of future operating results because of
fluctuations in oil and natural gas prices and production volumes.
------------------------------------------
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in Item 2 of this Report contains "forward-looking
statements" and are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. These statements include,
without limitation, statements relating to liquidity, financing of
operations, capital expenditures budget (both the amount and the source of
funds), continued volatility of oil and natural gas prices, future drilling
plans and other such matters. The words "anticipates," "expects" or
"estimates" and similar expressions identify forward-looking statements.
Such statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it
14
<PAGE>
believes are appropriate in the circumstances. Prima does not undertake to
update, revise or correct any of the forward-looking information. Factors
that could cause actual results to differ materially from the Company's
expectations expressed in the forward-looking statements include, but are not
limited to, the following: industry conditions; volatility of oil and
natural gas prices; hedging activities; operational risks (such as blowouts,
fires and loss of production); insurance coverage limitations; potential
liability imposed by government regulation (including environmental
regulation); the need to develop and replace its oil and natural gas
reserves; the substantial capital expenditures required to recover its
operations; risks related to exploration and developmental drilling; and
uncertainties about oil and natural gas reserve estimates. For a more
complete explication of these various factors, see "Cautionary Statement for
the Purposes of the 'Safe Harbor' Provisions of the Private Securities
Litigation Reform Act of 1995" included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, beginning on page 15.
------------------------------------------
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
The following exhibit is filed herewith pursuant to Rule 601 of
Regulation S-K.
Exhibit No. Document
27 Financial Data Schedules
(b) Reports on Form 8-K
-------------------
A report on Form 8-K was filed January 8, 1998, announcing the agreement
to terminate the long term natural gas supply contract with Colorado Power
Partners for $3,850,000. See Note 5 of the Notes to Consolidated Financial
Statements for additional discussion of this agreement.
15
<PAGE>
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.
PRIMA ENERGY CORPORATION
(Registrant)
Date May 14, 1998 By /s/ Richard H. Lewis
------------ ------------------------------
Richard H. Lewis,
President and
Principal Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR PRIMA ENERGY CORPORATION FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000318107
<NAME> PRIMA ENERGY CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,801,000
<SECURITIES> 1,898,000
<RECEIVABLES> 4,369,000
<ALLOWANCES> (43,000)
<INVENTORY> 866,000
<CURRENT-ASSETS> 17,010,000
<PP&E> 75,372,000
<DEPRECIATION> (30,833,000)
<TOTAL-ASSETS> 62,069,000
<CURRENT-LIABILITIES> 4,360,000
<BONDS> 240,000
0
0
<COMMON> 87,000
<OTHER-SE> 47,291,000
<TOTAL-LIABILITY-AND-EQUITY> 62,069,000
<SALES> 5,799,000
<TOTAL-REVENUES> 11,178,000
<CGS> 3,764,000
<TOTAL-COSTS> 4,628,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,029,000
<INCOME-TAX> 1,890,000
<INCOME-CONTINUING> 4,139,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,139,000
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.70
</TABLE>
