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 June 30, 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 July 31, 1998 the Registrant had 5,772,556 shares of Common Stock,
$0.015 Par Value, outstanding.
<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 . . . . . . 12
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995. . . . . . 17
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
PRIMA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
CURRENT ASSETS
Cash and cash equivalents.................. $ 5,823,000 $ 5,644,000
Available for sale securities, at market... 2,321,000 1,866,000
Receivables (net of allowance for
doubtful accounts: 6/30/98, $48,000;
12/31/97, $49,000)....................... 4,035,000 5,681,000
Tubular goods inventory.................... 957,000 882,000
Other...................................... 78,000 183,000
---------- ----------
Total current assets.................... 13,214,000 14,256,000
---------- ----------
OIL AND GAS PROPERTIES, at cost, accounted
for using the full cost method........... 75,582,000 67,945,000
Less accumulated depreciation,
depletion and amortization............... (29,736,000) (26,875,000)
---------- ----------
Oil and gas properties - net......... 45,846,000 41,070,000
---------- ----------
PROPERTY AND EQUIPMENT, at cost
Oilfield service equipment................. 3,957,000 3,504,000
Office furniture and equipment............. 755,000 711,000
Field office, shop and land................ 433,000 356,000
---------- ----------
5,145,000 4,571,000
Less accumulated depreciation.............. (2,657,000) (2,460,000)
---------- ----------
Property and equipment - net......... 2,488,000 2,111,000
---------- ----------
OTHER ASSETS............................... 525,000 484,000
---------- ----------
$62,073,000 $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
------------------------------------
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
CURRENT LIABILITIES
Accounts payable........................... $ 892,000 $ 3,250,000
Amounts payable to oil and gas
property owners.......................... 1,267,000 1,220,000
Production taxes payable................... 1,540,000 1,279,000
Accrued and other liabilities.............. 246,000 421,000
Current portion of note payable............ 120,000 120,000
Deferred tax liability..................... 15,000 14,000
---------- ----------
Total current liabilities.............. 4,080,000 6,304,000
NOTE PAYABLE............................... 120,000 240,000
PRODUCTION TAXES, non-current.............. 477,000 1,280,000
DEFERRED TAX LIABILITY..................... 8,551,000 6,883,000
---------- ----------
Total liabilities...................... 13,228,000 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 shares issued.................. 87,000 87,000
Additional paid-in capital................. 4,408,000 4,385,000
Retained earnings.......................... 45,093,000 39,485,000
Unrealized gain on available for
sale securities.......................... 44,000 44,000
Treasury stock, 63,000 shares at cost...... (787,000) (787,000)
---------- ----------
Total stockholders' equity............. 48,845,000 43,214,000
---------- ----------
$62,073,000 $57,921,000
========== ==========
See accompanying notes to unaudited consolidated financial statements.
4<PAGE>
PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
REVENUES
Oil and gas sales...... $ 4,126,000 $ 4,216,000 $ 8,276,000 $ 9,894,000
Trading revenues....... 931,000 3,922,000 2,580,000 8,971,000
Oilfield services...... 989,000 868,000 2,117,000 1,645,000
Management and
operator fees........ 262,000 256,000 514,000 511,000
Interest and
dividend income...... 137,000 137,000 271,000 264,000
Other.................. (8,000) 61,000 3,857,000 88,000
---------- ---------- ---------- ----------
6,437,000 9,460,000 17,615,000 21,373,000
---------- ---------- ---------- ----------
EXPENSES
Depreciation, depletion
and amortization..... 1,634,000 1,382,000 3,139,000 2,693,000
Lease operating expense 517,000 416,000 1,021,000 898,000
Production taxes....... 319,000 369,000 664,000 756,000
Cost of trading........ 1,034,000 3,621,000 2,444,000 8,532,000
Cost of oilfield
services............. 593,000 576,000 1,457,000 1,193,000
General and
administrative....... 456,000 400,000 977,000 913,000
---------- ---------- ---------- ----------
4,553,000 6,764,000 9,702,000 14,985,000
---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES......... 1,884,000 2,696,000 7,913,000 6,388,000
PROVISION FOR
INCOME TAXES......... 415,000 742,000 2,305,000 1,757,000
---------- ---------- ---------- ----------
NET INCOME............. $ 1,469,000 $ 1,954,000 $ 5,608,000 $ 4,631,000
========== ========== ========== ==========
BASIC NET INCOME
PER SHARE............ $ 0.25 $ 0.34 $ 0.97 $ 0.80
========== ========== ========== ==========
DILUTED NET INCOME
PER SHARE............ $ 0.25 $ 0.33 $ 0.95 $ 0.79
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING... 5,772,556 5,773,512 5,771,410 5,781,987
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
ASSUMING DILUTION.... 5,896,239 5,886,126 5,897,216 5,896,362
========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
5<PAGE>
PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES
Net income ................................. $ 5,608,000 $ 4,631,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization.. 3,139,000 2,693,000
Deferred income taxes..................... 1,669,000 1,398,000
Other..................................... (853,000) (354,000)
Changes in current assets and liabilities:
Receivables.............................. 1,646,000 1,292,000
Inventory................................ (75,000) (485,000)
Other current assets..................... 105,000 426,000
Payables................................. (2,050,000) (2,278,000)
Accrued and other liabilities............ (175,000) (68,000)
---------- ----------
Net cash provided by
operating activities................... 9,014,000 7,255,000
---------- ----------
INVESTING ACTIVITIES
Additions to oil and gas properties......... (7,637,000) (4,559,000)
Purchases of other property................. (698,000) (871,000)
Purchases of available for sale securities.. (459,000) (61,000)
Proceeds from sales of property............. 52,000 215,000
Proceeds from sales of available for
sale securities............................ 4,000 112,000
---------- ----------
Net cash used in investing activities.... (8,738,000) (5,164,000)
---------- ----------
FINANCING ACTIVITIES
Borrowings.................................. 0 360,000
Proceeds from issuance of common stock...... 23,000 0
Repayment of long term debt................. (120,000) 0
Treasury stock purchased.................... 0 (404,000)
---------- ----------
Net cash used in financing activities... (97,000) (44,000)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS....... 179,000 2,047,000
CASH AND CASH EQUIVALENTS,
beginning of period....................... 5,644,000 7,029,000
---------- ----------
CASH AND CASH EQUIVALENTS, end of period.... $ 5,823,000 $ 9,076,000
========== ==========
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 unaudited 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 six 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 June 30, 1998 and 1997 covered thereby.
2. BASIS OF PRESENTATION
The accompanying unaudited 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 June 30, 1998.
3. NOTE PAYABLE
The Company has one note payable as follows:
June 30, December 31,
1998 1997
----------- -----------
Total............................. $ 240,000 $ 360,000
Less, current portion............. 120,000 120,000
-------- --------
Long term......................... $ 120,000 $ 240,000
======== ========
The note is dated June 10, 1997 and is due on June 10, 2000, with interest at
an annual rate of 8%. Payments of principal and accrued interest on the note
are to be made in three equal annual installments on the anniversary date of
the note. The note financed the purchase of oilfield service equipment by
Action Oilfield Services, Inc., a wholly owned subsidiary.
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 June 30, 1998), with interest payable
monthly. At December 31, 1997 and June 30, 1998, there were no amounts
outstanding under the line of credit.
7<PAGE>
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 43% of its oil production for the first six months of
1998 and 1997, respectively, and hedged approximately 47% and 39% of its
natural gas production in these same periods. Hedging gains and losses were
$(193,000) and $540,000 for the six months ended June 30, 1998 and 1997,
respectively, and were included in oil and gas revenues at the time the
hedged volumes were sold. At June 30, 1998, the Company had sold natural gas
futures contracts as follows:
Volume Unrealized
Remaining Term Price (MMBtu) Loss
-------------------------- ------- --------- ----------
July 1998 to October 1998 $ 1.600 200,000 $ (30,000)
July 1998 to October 1998 1.535 200,000 (43,000)
July 1998 to February 1999 1.855 1,600,000 (144,000)
In a typical futures contract agreement, the Company receives the
difference between a fixed price per unit of production and the index price,
if the index price is lower. If the index price is higher, the Company pays
the difference. Current hedging agreements are settled on a monthly basis.
All current contracts specify the third party index to be the "Inside FERC"
first of the month spot price for Colorado Interstate Gas Co.
At June 30, 1998, the Company had no open futures transactions that did
not correspond to anticipated physical transactions.
During June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to
as derivatives) and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
accounting for changes in the fair value of a derivative (gains and losses)
depends on the intended use of the derivative and the resulting designation.
The Company is required to adopt SFAS 133 on January 1, 2000. The Company
has not completed the process of evaluating the impact that will result from
adopting SFAS 133.
8<PAGE>
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. The
proceeds were included in other revenues in the statement of income for the
six months ended June 30, 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. The agreement specified a price of $2.72 per MMBtu from
January 1, 1998 through March 31, 1998, and 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 June 30, 1998 and 1997 was
$1,467,000 and $1,976,000, respectively, compared to net income for the three
months ended June 30, 1998 and 1997 of $1,469,000 and $1,954,000,
respectively. Prima's comprehensive income for the six months ended June 30,
1998 and 1997 was $5,608,000 and $4,663,000, respectively, compared to net
income for the six months ended June 30, 1998 and 1997 of $5,608,000 and
$4,631,000, respectively. The difference between comprehensive income and
net income is due to unrealized gains and losses in the Company's portfolio
of available for sale securities.
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 is
required to adopt SFAS 131 in its 1998 annual financial statements and in its
interim financial statements beginning in 1999. 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.
9<PAGE>
8. ISSUANCE OF COMMON STOCK
Pursuant to the provisions of the Prima Energy Corporation 1993 Stock
Incentive 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).
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 June 30, 1998:
Basic Net Income per Share..... $1,469,000 5,772,556 $ 0.25
Effect of Stock Options........ 123,683 =====
--------- ---------
Diluted Net Income per Share... $1,469,000 5,896,239 $ 0.25
========= ========= =====
Quarter Ended June 30, 1997:
Basic Net Income per Share..... $1,954,000 5,773,512 $ 0.34
Effect of Stock Options........ 112,614 =====
--------- ---------
Diluted Net Income per Share... $1,954,000 5,886,126 $ 0.33
========= ========= =====
10<PAGE>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Six Months Ended June 30, 1998:
Basic Net Income per Share..... $5,608,000 5,771,410 $ 0.97
Effect of Stock Options........ 125,806 =====
--------- ---------
Diluted Net Income per Share... $5,608,000 5,897,216 $ 0.95
========= ========= =====
Six Months Ended June 30, 1997:
Basic Net Income per Share..... $4,631,000 5,781,987 $ 0.80
Effect of Stock Options........ 114,375 =====
--------- ---------
Diluted Net Income per Share... $4,631,000 5,896,362 $ 0.79
========= ========= =====
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.
11
<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 operating activities and existing cash and cash equivalents.
Net cash provided by operating activities for the six months ended June 30,
1998 was $9,014,000 compared to $7,255,000 for the same six month period of
1997. Net working capital at June 30, 1998 was $9,134,000 compared to
$7,952,000 at December 31, 1997. Current liabilities at June 30, 1998
decreased from December 31, 1997 levels by $2,224,000 and current assets
decreased by $1,042,000 for the same period. The increase in working capital
of $1,182,000 was primarily generated by cash flows from operations during
the six months ended June 30, 1998. The Company also received proceeds from
the sales of securities and property totaling $56,000 during the period.
The Company has external borrowing capacity through an $8,000,000
unsecured line of credit with a commercial bank, all of which is available to
be drawn.
The Company invested $8,335,000 in property and equipment during the six
months ended June 30, 1998 compared to $5,430,000 for the 1997 six month
period. The Company expended $5,407,000 during the 1998 six month period for
its proportionate share of the costs of drilling, completing and
restimulating wells, $2,205,000 for undeveloped acreage, $25,000 for
purchases of producing properties and $698,000 for other property and
equipment. These expenditures compare to $3,755,000 for well costs, $778,000
for undeveloped acreage, $26,000 for purchases of producing properties and
$871,000 for other property and equipment in the 1997 six month period.
During the first six months of 1998, the Company participated in the
drilling of 28 wells and the restimulation or recompletion of nine wells. In
the Denver Basin, the Company commenced an approximate 35 well
recompletion/restimulation program in the Wattenberg Field. During the
second quarter, eight wells were restimulated and one was recompleted. All
wells have been successfully placed back on production. The Company
anticipates completing about 100 restimulations in the next 18 months. Prima
drilled one new well on its lease at Denver International Airport during the
second quarter of 1998, which is undergoing completion operations as of
August 10, 1998. A second wellbore was re-entered, but encountered
mechanical difficulties and was abandoned. At the Bonny Field in eastern
Colorado, refurbishment of the gathering and compression facilities was
completed. During the first six months of 1998, Prima has participated in
the drilling of 16 wells (3.4 net) at the Bonny Field, of which 14 are
productive and two have been plugged and abandoned. The Company intends to
participate in the ongoing development of the Bonny Field.
Prima increased its net acreage positions in the Powder River and Wind
River Basins of Wyoming and Montana by 42,000 acres during the first six
months of 1998. One exploratory well in the Powder River Basin, which was
drilling at December 31, 1997, was plugged and abandoned in January 1998.
One additional well in this area was drilled during the second quarter of
1998 and is currently waiting on completion. Two additional wells were
drilled subsequent to June 30. One was waiting on completion and one was
12<PAGE>
drilling as of August 10, 1998. Prima's Powder River Basin acreage includes
acreage within the emerging coal bed methane prospect. During the second
quarter of 1998, two wells were drilled within this area to begin to evaluate
this acreage. Further development will continue upon completion of an
environmental impact statement and proposed pipeline expansions.
During the first six months of 1998, the Company completed the NW Cave
Gulch 25-43 well in the Wind River Basin. Prima operates this well in which
it owns a 24% working interest. The well commenced production in late June,
and has produced at rates of 5,000 Mcf of natural gas and 70 barrels of oil
per day. The Company participated in the drilling of four non-operated wells
(0.32 net) in the Cave Gulch area in the first six months of 1998. Three of
the wells were development wells which commenced production in May and July
of 1998. The fourth well, the exploratory Cave Gulch Federal 1-29 LAK,
commenced production in February 1998. This well, in which Prima owns a 4.5%
working interest, blew out at approximately 2:00 a.m. local time on August
13, 1998. The well appears to be totally lost. During the second quarter of
1998, this well contributed 9% to Prima's natural gas production and 6% of
its oil and gas revenues. The well was producing about 45,000 Mcf of
natural gas per day at the time of the blowout. In July 1998, an offset to
this well, the Cave Gulch Federal 4-19 LAK, in which Prima has an 11.2%
working interest, commenced drilling.
A well in which Prima owns a 6.25% non-operated working interest in
California commenced drilling during the second quarter of 1998 and was still
drilling as of August 10, 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.
Year 2000 Disclosure
- --------------------
The Year 2000 Issue is the result of computer applications being written
using two digits rather than four to define the applicable year. As the year
2000 approaches, such applications may be unable to accurately process
certain data-based information. The Company has identified all significant
computer applications that will require modification to ensure Year 2000
compliance. Internal and external resources are being used to make the
required modifications and test compliance. Modification and compliance is
proceeding as scheduled and should be completed by December 31, 1998. The
cost of Year 2000 compliance has not been and is not anticipated to be
material to the Company's financial position or results of operations in any
given year.
An assessment of the readiness of external companies with whom the
Company does business, such as customers and vendors, is ongoing. Third
parties with whom the Company has material relationships have been contacted
regarding their Year 2000 issues and responses are being monitored to
determine the potential affect on Prima. The Company has not yet determined
the potential adverse affect that Year 2000 risks may have on its financial
condition, liquidity or results of operations.
13<PAGE>
Results of Operations
- ---------------------
For the quarter ended June 30, 1998, the Company earned net income of
$1,469,000, or $.25 per diluted share, on revenues of $6,437,000, compared to
net income of $1,954,000, or $.33 per diluted share, on revenues of
$9,460,000 for the comparable quarter of 1997. Expenses were $4,553,000 for
the 1998 second quarter compared to $6,764,000 for the 1997 second quarter.
Revenues decreased $3,023,000, or 32%, expenses decreased $2,211,000, or 33%,
and net income decreased $485,000, or 25%.
For the six months ended June 30, 1998, the Company earned net income of
$5,608,000, or $.95 per diluted share, on revenues of $17,615,000, compared
to net income of $4,631,000, or $.79 per diluted share, on revenues of
$21,373,000 for the six months ended June 30, 1997. Expenses were $9,702,000
for the 1998 six month period compared to $14,985,000 for the 1997 six month
period. Revenues decreased $3,758,000, or 18%, expenses decreased
$5,283,000, or 35%, and net income increased $977,000, or 21%.
Oil and gas sales for the quarter ended June 30, 1998 were $4,126,000
compared to $4,216,000 for the same quarter of 1997, a decrease of $90,000 or
2%. The Company's net natural gas production was 1,647,000 Mcf and 1,401,000
Mcf for the second quarters of 1998 and 1997, respectively, an increase of
246,000 Mcf or 18%. Its net oil production was 71,000 barrels compared to
66,000 barrels for the same periods, an increase of 5,000 barrels or 8%. The
average price received for natural gas production was $1.94 per Mcf for the
1998 quarter compared to $2.06 per Mcf for the 1997 quarter, a decrease of
$.12 per Mcf or 6%. Approximately 4.4% of natural gas production for the
three months ended June 30, 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 $1.76
per Mcf for the 1998 quarter compared to $1.87 per Mcf for the 1997 quarter.
The average price received for oil in the second quarter of 1998 was $13.11
per barrel compared to $19.98 per barrel for the second quarter of 1997, a
decrease of $6.87 per barrel or 34%. During the second quarter of 1998, the
Company hedged approximately 42% of its natural gas production. Hedging
losses of $67,000 are included in oil and gas revenues for this period, which
decreased the average price received per Mcf of natural gas by $0.04. No oil
was hedged during this period. During the second quarter of 1997, the
Company hedged approximately 15% of its oil production and 26% of its natural
gas production. Hedging gains of $77,000 increased the average price
received for oil by $0.64 per barrel and increased the average price received
for natural gas by $0.02 per Mcf.
Oil and gas sales for the six months ended June 30, 1998 were $8,276,000
compared to $9,894,000 for the six months ended June 30, 1997, a decrease of
$1,618,000 or 16%. The Company's net natural gas production was 3,157,000
Mcf and 2,745,000 Mcf for the first six months of 1998 and 1997,
respectively, an increase of 412,000 Mcf or 15%. Its net oil production was
139,000 barrels compared to 129,000 barrels for the same six month periods,
an increase of 10,000 barrels or 8%. The average price received for natural
gas production was $2.01 per Mcf for the six months ended June 30, 1998
compared to $2.61 per Mcf for the six months ended June 30, 1997, a decrease
of $.60 per Mcf or 23%. Approximately 4.6% of natural gas production for the
six months ended June 30, 1998 was attributable to production sold under the
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 $1.83
per Mcf for the six months ended June 30,1998 compared to $2.43 for the six
months ended June 30, 1997. The average price received for oil for the first
six months of 1998 was $13.78 per barrel compared to $21.21 per barrel for
14<PAGE>
the same period of 1997, a decrease of $7.43 per barrel or 35%. During the
six months ended June 30, 1998, the Company hedged approximately 47% of it
natural gas production. Hedging losses of $193,000 reduced the average price
received for natural gas by $0.06 per Mcf. No oil production was hedged
during this period. During the six months ended June 30, 1997, the Company
hedged approximately 43% of its oil production and 39% of its natural gas
production. Hedging gains of $540,000 are included in oil and gas revenues
for this period, which increased the average price received per barrel of oil
by $0.95 and the average price received per Mcf of natural gas by $0.15.
Lease operating expenses and production taxes ("LOE") were $836,000 for
the second quarter of 1998 compared to $785,000 for the 1997 quarter, an
increase of $51,000 or 6%. Depreciation, depletion and amortization ("DD&A")
was $1,634,000 and $1,382,000 for the same periods, an increase of $252,000
or 18%. Production for the quarter ended June 30, 1998 was 346,000 barrels
of oil equivalent ("BOE") compared to 300,000 BOE for the quarter ended June
30, 1997, an increase of 46,000 BOE or 15%. LOE per equivalent barrel of
production was $2.41 for the second quarter of 1998 compared to $2.62 for the
comparable quarter of 1997. 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 $146,000 and $128,000 for the quarters
ended June 30, 1998 and 1997, respectively.
LOE was $1,685,000 for the six months ended June 30, 1998 compared to
$1,654,000 for the 1997 period, an increase of $31,000 or 2%. DD&A was
$3,139,000 and $2,693,000 for the same periods, an increase of $446,000 or
17%. Production for the six months ended June 30, 1998 was 665,000 BOE
compared to 587,000 BOE for the six months ended June 30, 1997, an increase
of 78,000 BOE or 13%. LOE per equivalent barrel of production was $2.53 for
the first six months of 1998 compared to $2.82 for the comparable period of
1997. DD&A applicable to oil and gas properties was $4.30 per equivalent
barrel of production for the 1998 period compared to $4.18 per equivalent
barrel of production for the 1997 period. Depreciation of other property and
equipment was $278,000 and $240,000 for the six months ended June 30, 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 $931,000 for the quarter ended June 30,
1998 compared to $3,922,000 for the quarter ended June 30, 1997, a decrease
of $2,991,000 or 76%. The Company marketed 501,000 MMBtu's for the second
quarter of 1998 compared to 1,971,000 MMBtu's marketed during the comparable
quarter of 1997. Costs of trading were $1,034,000 for the 1998 quarter
compared to $3,621,000 for the 1997 quarter, a decrease of $2,587,000 or 71%.
Trading revenues were $2,580,000 for the six months ended June 30, 1998,
a decrease of $6,391,000 or 71% from the $8,971,000 reported for the six
months ended June 30, 1997. The Company marketed 1,099,000 MMBtu's for the
six month period of 1998 compared to 3,742,000 MMBtu's marketed during the
comparable period of 1997. Costs of trading were $2,444,000 for the 1998 six
month period compared to $8,532,000 for the 1997 six month period, a decrease
of $6,088,000 or 71%. Trading activities fluctuate with natural gas markets
and the Company's ability to develop markets that meet the Company's trading
criteria.
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 $989,000 for
15<PAGE>
the quarter ended June 30, 1998 compared to $868,000 for the comparable
quarter of 1997, an increase of $121,000, or 14%. Utilization rates in the
Wattenberg Field Area, where the service company is active, continued to
increase in the first six months of 1998. The Company has also purchased
additional service equipment which contributed to the increase in revenues.
For the quarter ended June 30, 1998, 25% of the fees billed by Action were
for Company owned wells compared to 18% for the quarter ended June 30, 1997.
Costs of oilfield services were $593,000 for the quarter ended June 30, 1998
compared to $576,000 for the same period of 1997, an increase of $17,000 or
3%.
Oilfield services revenues were $2,117,000 for the six months ended June
30, 1998 compared to $1,645,000 for the comparable six month period of 1997,
an increase of $472,000 or 29%. For the six months ended June 30, 1998, 17%
of the fees billed by Action were for Company owned wells compared to 19% for
the six months ended June 30, 1997. Costs of oilfield services were
$1,457,000 for the six months ended June 30, 1998 compared to $1,193,000 for
the same period of 1997, an increase of $264,000 or 22% The Company's share
of fees paid to Action on Company owned properties and the costs associated
with providing the services are eliminated in consolidation.
Management and operator fees are earned pursuant to the Company's roles
as operator for approximately 375 oil and natural gas wells 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 quarter ended June 30, 1998 were
$262,000 compared to $256,000 for the 1997 quarter, an increase of $6,000 or
2%. Fees for the six months ended June 30, 1998 were $514,000 compared to
$511,000 for the 1997 six month period, an increase of $3,000 or 1%.
General and administrative expenses ("G&A") were $456,000 for the
quarter ended June 30, 1998 compared to $400,000 for the quarter ended June
30, 1997, an increase of $56,000 or 14%. G&A was $977,000 for the six months
ended June 30, 1998 compared to $913,000 for the six months ended June 30,
1997, an increase of $64,000 or 7%. The Company's G&A costs have increased
due to expansion of the Company's areas of activity.
Settlement income and other for the six months ended June 30, 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 Unaudited 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 was $415,000 for the quarter ended June
30, 1998 compared to $742,000 for the quarter ended June 30, 1997. The
provision for the six months ended June 30, 1998 was $2,305,000 compared to
$1,757,000 for the same six month period of 1997. Income before income taxes
decreased $812,000 for the 1998 quarter, and the effective tax rate decreased
to 22.0% from 27.5%. Income before income taxes for the six month period of
1998 increased by $1,525,000, and the effective tax rate increased to 29.1%
16<PAGE>
from 27.5%. Effective tax rates are affected by amounts of permanent
differences in 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 contain "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 (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 "intends" 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 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, including availability of drilling rigs and other
equipment and services; 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.
------------------------------
17<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On May 13, 1998, the Company held an annual meeting of stockholders.
The following table sets forth certain information relating to each matter
voted upon at the meeting.
Votes
---------------------------------------
Withheld/ Broker
Matters Voted Upon For Against Abstain Non-Votes
- ----------------------------- --------- ------- -------- ---------
Election of George L. Seward 4,399,902 3,677
as Class I Director.
Ratification of the selection of 4,386,311 2,865 14,403
Deloitte & Touche LLP as
independent auditors for 1998.
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
-------------------
No reports on Form 8-K were filed during the Registrants' fiscal quarter
ended June 30, 1998.
18<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 August 14, 1998 By /s/ Richard H. Lewis
--------------- ---------------------------------
Richard H. Lewis,
President and
Principal Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR PRIMA ENERGY CORPORATION FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000318107
<NAME> PRIMA ENERGY CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,823,000
<SECURITIES> 2,321,000
<RECEIVABLES> 4,078,000
<ALLOWANCES> (43,000)
<INVENTORY> 957,000
<CURRENT-ASSETS> 13,214,000
<PP&E> 80,727,000
<DEPRECIATION> (32,393,000)
<TOTAL-ASSETS> 62,073,000
<CURRENT-LIABILITIES> 4,080,000
<BONDS> 120,000
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<COMMON> 87,000
<OTHER-SE> 48,758,000
<TOTAL-LIABILITY-AND-EQUITY> 62,073,000
<SALES> 10,856,000
<TOTAL-REVENUES> 17,615,000
<CGS> 7,268,000
<TOTAL-COSTS> 8,725,000
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<INCOME-PRETAX> 7,913,000
<INCOME-TAX> 2,305,000
<INCOME-CONTINUING> 5,608,000
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