<PAGE> 1
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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, 2000
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 April 28, 2000, the Registrant had 8,473,244 shares of Common Stock,
$0.015 Par Value, outstanding.
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PRIMA ENERGY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
<S> <C>
Unaudited consolidated balance sheets ..................................... 3
Unaudited consolidated statements of income ............................... 5
Unaudited consolidated statements of comprehensive income ................. 6
Unaudited consolidated statements of cash flows ........................... 7
Notes to unaudited consolidated financial statements ...................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......................... 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ...................................................... 14
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995 ............................ 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................................... 16
Signatures ..................................................................... 17
</TABLE>
<PAGE> 3
PRIMA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................. $ 16,387,000 $ 18,883,000
Available for sale securities, at market .............. 2,002,000 1,949,000
Receivables (net of allowance for doubtful
accounts: 3/31/00, $45,000; 12/31/99, $45,000) ...... 5,871,000 5,284,000
Tubular goods inventory ............................... 758,000 837,000
Other ................................................. 845,000 988,000
------------- -------------
Total current assets ............................ 25,863,000 27,941,000
------------- -------------
OIL AND GAS PROPERTIES, at cost, accounted
for using the full cost method ...................... 85,491,000 77,700,000
Less accumulated depreciation,
depletion and amortization .......................... (39,236,000) (37,785,000)
------------- -------------
Oil and gas properties - net .................... 46,255,000 39,915,000
------------- -------------
PROPERTY AND EQUIPMENT, at cost
Oilfield service equipment ............................ 7,208,000 6,814,000
Furniture and equipment ............................... 666,000 659,000
Field office, shop and land ........................... 486,000 481,000
------------- -------------
8,360,000 7,954,000
Less accumulated depreciation ......................... (3,625,000) (3,402,000)
------------- -------------
Property and equipment - net .................... 4,735,000 4,552,000
------------- -------------
OTHER ASSETS .......................................... 257,000 257,000
------------- -------------
$ 77,110,000 $ 72,665,000
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
PRIMA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT'D.)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable ........................................... $ 1,714,000 $ 2,085,000
Amounts payable to oil and gas property owners ............. 1,554,000 1,499,000
Ad valorem and production taxes payable .................... 1,253,000 1,210,000
Income taxes payable ....................................... 1,380,000 1,051,000
Accrued and other liabilities .............................. 599,000 384,000
Current portion of notes payable ........................... 120,000 304,000
------------- -------------
Total current liabilities ............................ 6,620,000 6,533,000
AD VALOREM TAXES, non-current .............................. 2,301,000 1,516,000
DEFERRED TAX LIABILITY ..................................... 6,859,000 5,708,000
------------- -------------
Total liabilities .................................... 15,780,000 13,757,000
------------- -------------
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; 8,893,366 shares issued ...................... 133,000 133,000
Additional paid-in capital ................................. 5,693,000 5,693,000
Retained earnings .......................................... 60,761,000 56,577,000
Accumulated other comprehensive income (loss) .............. (228,000) (244,000)
Treasury stock, 425,622 and 322,305 shares at cost ......... (5,029,000) (3,251,000)
------------- -------------
Total stockholders' equity ........................... 61,330,000 58,908,000
------------- -------------
$ 77,110,000 $ 72,665,000
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
REVENUES
Oil and gas sales ..................................... $ 8,727,000 3,826,000
Oilfield services ..................................... 1,659,000 1,032,000
Trading revenues ...................................... 0 417,000
Interest, dividend and other income ................... 291,000 274,000
------------- -------------
10,677,000 5,549,000
------------- -------------
EXPENSES
Depreciation, depletion and amortization:
Depletion of oil and gas properties ................ 1,451,000 1,142,000
Depreciation of property and equipment ............. 266,000 167,000
Lease operating expense ............................... 636,000 493,000
Ad valorem and production taxes ....................... 731,000 302,000
Cost of oilfield services ............................. 1,280,000 667,000
Cost of trading ....................................... 0 354,000
General and administrative ............................ 539,000 334,000
------------- -------------
4,903,000 3,459,000
------------- -------------
INCOME BEFORE INCOME TAXES ............................ 5,774,000 2,090,000
PROVISION FOR INCOME TAXES ............................ 1,590,000 575,000
------------- -------------
NET INCOME ............................................ $ 4,184,000 1,515,000
============= =============
BASIC NET INCOME PER SHARE ............................ $ 0.49 $ 0.18
============= =============
DILUTED NET INCOME PER SHARE .......................... $ 0.48 $ 0.17
============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ......................................... 8,496,213 8,619,061
============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION ....................... 8,806,867 8,749,889
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net income ....................................................... $ 4,184,000 $ 1,515,000
------------- -------------
Other comprehensive income:
Unrealized gain (loss) on available-for-sale securities .......... 25,000 (140,000)
Deferred income tax expense related to unrealized
gain on available-for-sale securities ........................... (9,000) 52,000
------------- -------------
16,000 (88,000)
------------- -------------
COMPREHENSIVE INCOME ............................................. $ 4,200,000 $ 1,427,000
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ....................................................... $ 4,184,000 $ 1,515,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization ...................... 1,717,000 1,309,000
Deferred income taxes ......................................... 1,155,000 254,000
Other ......................................................... (10,000) 0
Changes in operating assets and liabilities:
Receivables ................................................. (587,000) 1,029,000
Inventory ................................................... 79,000 64,000
Other current assets ........................................ 130,000 257,000
Accounts payable and payables to owners ..................... (316,000) (1,381,000)
Production taxes payable .................................... 828,000 313,000
Income taxes payable ........................................ 329,000 115,000
Accrued and other liabilities ............................... 31,000 61,000
------------- -------------
Net cash provided by operating activities ................. 7,540,000 3,536,000
------------- -------------
INVESTING ACTIVITIES
Additions to oil and gas properties .............................. (7,792,000) (3,361,000)
Purchases of other property ...................................... (467,000) (763,000)
Purchases of available for sale securities ....................... (28,000) (28,000)
Proceeds from sales of oil & gas and other property .............. 29,000 26,281,000
------------- -------------
Net cash provided by (used in) investing activities ....... (8,258,000) 22,129,000
------------- -------------
FINANCING ACTIVITIES
Treasury stock purchased ......................................... (1,778,000) (1,240,000)
------------- -------------
Net cash used in financing activities ..................... (1,778,000) (1,240,000)
------------- -------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ........................................... (2,496,000) 24,425,000
CASH AND CASH EQUIVALENTS, beginning of period ................... 18,883,000 2,522,000
------------- -------------
CASH AND CASH EQUIVALENTS, end of period ......................... $ 16,387,000 $ 26,947,000
============= =============
Supplemental schedule of noncash investing and financing activities:
The Company purchased oilfield service assets in March 1999. A summary of the transaction is
as follows:
Fair value of assets acquired .................................... $ 460,000
Cash paid ........................................................ 276,000
-------------
Note payable issued to seller .................................... $ 184,000
=============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
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,
1999.
The results for interim periods are not necessarily indicative of
results to be expected for the fiscal year of the Company ending December 31,
2000. 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, 2000 and 1999.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Prima Energy Corporation and its subsidiaries, herein collectively referred
to as "Prima" or 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, 2000.
3. NOTES PAYABLE AND LINE OF CREDIT
The Company's notes payable consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Total ...................................................... $ 120,000 $ 304,000
Less, current portion ................................... 120,000 304,000
------------- -------------
Long term ............................................... $ 0 $ 0
============= =============
</TABLE>
The Company had two notes payable at December 31, 1999. The first note
is dated June 10, 1997 and is due on June 10, 2000. Payments of principal and
accrued interest (8% per annum) 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. The note balance
was $120,000 at March 31, 2000 and December 31, 1999. The second note for
$184,000 was paid in full during the quarter ended March 31, 2000 pursuant to
its terms.
Prima maintains an $8,000,000 unsecured line of credit with a
commercial bank. The line of credit, which matures on May 1, 2001, bears
interest at the bank's prime rate (8.50% at March 31, 2000) with interest
payable monthly. At December 31, 1999 and March 31, 2000, there were no amounts
outstanding under the line of credit.
8
<PAGE> 9
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 did not hedge any of its oil or natural gas production in the
first quarter of 2000, and did not hedge any of its oil production in the first
quarter of 1999. Approximately 21% of its natural gas production was hedged
during the quarter ended March 31, 1999, with hedging gains of $55,000 included
in oil and gas revenues at the time the hedged volumes were sold. At March 31,
2000, the Company had no open positions.
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, 2001. Although the Company has not completed the process of evaluating the
impact that will result from adopting SFAS 133, management does not believe it
would have a material impact on financial position or results of operations.
5. EARNINGS PER SHARE
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. Repurchases 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.
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
<S> <C> <C> <C>
Quarter Ended March 31, 2000:
Basic Net Income per Share .................. $ 4,184,000 8,496,213 $ 0.49
=============
Effect of Stock Options ..................... 310,654
------------- -------------
Diluted Net Income per Share ................ $ 4,184,000 8,806,867 $ 0.48
============= ============= =============
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
<S> <C> <C> <C>
Quarter Ended March 31, 1999:
Basic Net Income per Share ....................... $ 1,515,000 8,619,061 $ 0.18
=============
Effect of Stock Options .......................... 130,828
------------- -------------
Diluted Net Income per Share ..................... $ 1,515,000 8,749,889 $ 0.17
============= ============= =============
</TABLE>
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 10, 2000,
distributed February 24, 2000. As a result, the number of shares of common stock
outstanding increased from 5,645,341 to 8,467,744 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 the quarter ended March 31, 2000, the Company repurchased
103,317 shares for $1,778,000 as treasury stock pursuant to a stock repurchase
program whereby the Board of Directors has authorized the repurchase of up to 5%
of the Company's common stock, depending upon market conditions, the Company's
financial condition, anticipated capital requirements and liquidity, among other
factors. At March 31, 2000, the Company had repurchased 4.8% of the shares
currently outstanding.
10
<PAGE> 11
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, 2000 was
$7,540,000 compared to $3,536,000 for the same three month period of 1999. Net
working capital at March 31, 2000 was $19,243,000 compared to $21,408,000 at
December 31, 1999.
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 $8,259,000 in property and equipment during the
quarter ended March 31, 2000, compared to $4,124,000 for the 1999 quarter. The
Company expended $7,457,000 during the 2000 quarter for its proportionate share
of the costs of drilling, completing and refracturing wells, $335,000 for
undeveloped acreage and $467,000 for oilfield service equipment. These
expenditures compare to $2,605,000 for well costs, $689,000 for undeveloped
acreage, $67,000 for developed properties and $763,000 for other equipment in
the 1999 quarter. The Company also expended $1,778,000 for the purchase of
103,317 shares of treasury stock during the first quarter of 2000.
During the first quarter of 2000, the Company participated in the
drilling of 11 gross and net wells and the refracturing of 22 gross (20.2 net)
wells in the Wattenberg Area of the Denver Basin. All of these wells have been
successfully completed and placed on production. Current plans are to drill 15
to 20 new wells in the Wattenberg Area and on leases at Denver International
Airport and to refrac or recomplete approximately 40 additional wells in this
area during the remainder of 2000. To date in the second quarter, four
additional refracs and one recompletion have been completed and placed on
production.
Prima drilled 18 gross and net coalbed methane wells in the Powder
River Basin of Wyoming during the first quarter of 2000, and an additional 14
gross and net wells to date in the second quarter. These wells are waiting on
completion and pipeline hook-up. The Company anticipates drilling 150 to 200
coalbed methane wells in 2000, with initial production anticipated late in the
third or early in the fourth quarter of the year. The Company expects
construction of the gathering lines to hook up several of these wells to begin
in the next 30 days.
The Company drilled and completed an offset well in the Cedar Draw area
of the Powder River Basin of Wyoming during the first quarter of 2000. This
well, the Cedar Draw Federal 11-31, in which Prima owns a 100% working interest
and 86.5% net revenue interest, is currently producing approximately 1,500 Mcf
of natural gas and 35 barrels of oil per day, after being on production
approximately 45 days. The Company anticipates drilling two to three additional
10,000 foot Muddy Formation test wells in this area during the remainder of
2000.
11
<PAGE> 12
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, 2000, the Company earned net income of
$4,184,000, or $.48 per diluted share, on revenues of $10,677,000, compared to
net income of $1,515,000, or $.17 per diluted share on revenues of $5,549,000
for the comparable quarter of 1999. Expenses were $4,903,000 for the 2000
quarter compared to $3,459,000 for the 1999 quarter. Revenues increased
$5,128,000, or 92%, expenses increased $1,444,000, or 42% and net income
increased $2,669,000, or 176%.
Oil and gas sales for the quarter ended March 31, 2000 were $8,727,000
compared to $3,826,000 for the same period of 1999, an increase of $4,901,000 or
128%. The increase is attributable to significantly higher oil and gas prices,
as well as increased production for both oil and natural gas. The Company's net
natural gas production was 2,165,000 Mcf and 1,748,000 Mcf for the first
quarters of 2000 and 1999, respectively, an increase of 417,000 Mcf or 24%. The
Company's net oil production was 112,000 barrels compared to 81,000 barrels for
the same periods, an increase of 31,000 barrels or 38%. Net production on an
equivalent basis increased 27% (converted on the basis of one barrel of oil
being the equivalent of six Mcf of natural gas) .
The average price received for natural gas production was $2.62 per Mcf
for the 2000 quarter compared to $1.66 per Mcf for the 1999 quarter, an increase
of $0.96 per Mcf or 58%. The average price received for oil in 2000 was $27.29
per barrel compared to $11.42 per barrel for the same period of 1999, an
increase of $15.87 per barrel or 139%. No oil or natural gas production was
hedged during the first quarter of 2000. During the first quarter of 1999, the
Company hedged approximately 21% of its natural gas production. Hedging gains of
$55,000 are included in oil and gas revenues for this period, which increased
the average price received per Mcf of natural gas by $0.03. No oil production
was hedged during the first quarter of 1999.
The Company's depletion of oil and gas properties was $1,451,000 or
$0.51 per Mcfe ($3.07 per BOE) on 2,839,000 equivalent Mcf (473,000 equivalent
barrels) produced during the first quarter of 2000, compared to $1,142,000 or
$0.51 per Mcfe ($3.07 per BOE) on 2,234,000 equivalent Mcf (372,000 equivalent
barrels) produced during the first quarter of 1999. Depreciation of other fixed
assets was $266,000 and $167,000 for the quarters ended March 31, 2000 and 1999,
respectively, and is attributable to depreciation of service equipment,
furniture and equipment and buildings. Depreciation expense on these assets
increased $99,000, or 59%, due primarily to acquisitions of oilfield service
equipment in 1999 and 2000.
Lease operating expenses ("LOE") were $636,000 for the quarter ended
March 31, 2000 compared to $493,000 for the quarter ended March 31, 1999. Ad
valorem and production taxes were $731,000 and $302,000 for the same periods.
Production taxes increase with higher production volumes and increased product
prices. Total lifting costs (LOE plus ad valorem and production taxes) were 16%
of oil and gas revenues and $0.48 per Mcfe ($2.89 per BOE) for the 2000 quarter
compared to 21% and $0.36 per Mcfe ($2.13 per BOE) for 1999.
12
<PAGE> 13
Oilfield services represent the revenues earned by Action Oilfield
Services, Inc. (Colorado) and Action Energy Services (Wyoming), wholly owned
subsidiaries. These revenues include well servicing fees from drilling,
completion and swab rigs, trucking, water hauling, rental equipment, and other
related activities. Revenues from third parties were $1,659,000 for the quarter
ended March 31, 2000 compared to $1,032,000 for the comparable quarter of 1999.
This $627,000, or 61%, increase in revenues was primarily attributable to the
formation of Action Energy Services in March of 1999. For the quarter ended
March 31, 2000, 31% of the fees billed by the service companies were for Company
owned wells compared to 26% for the quarter ended March 31, 1999. The Company's
share of fees paid to its service companies and the costs associated with
providing the services are eliminated in the consolidated financial statements.
Costs of oilfield services were $1,280,000 for the quarter ended March 31, 2000
compared to $667,000 for the same quarter of 1999, an increase of $613,000 or
92%.
Trading revenues and cost of trading represent the marketing of third
party natural gas by Prima Natural Gas Marketing, Inc., a wholly owned
subsidiary. The Company had no trading activity during the first quarter of
2000. Trading revenues were $417,000 for the three months ended March 31, 1999
from the marketing of 180,000 MMBtus of natural gas. Costs of trading were
$354,000 for the 1999 quarter. Trading activities fluctuate with natural gas
markets and the Company's ability to develop markets that meet the Company's
trading criteria.
General and administrative expenses ("G&A"), net of third party
reimbursements, were $539,000 for the quarter ended March 31, 2000 compared to
$334,000 for the quarter ended March 31, 1999, an increase of $205,000 or 61%.
In prior periods, the Company has presented management and operator fees as
revenue. Currently, these fees have been reclassified and presented as
reductions in G&A. Management and operator fees were $138,000 and $240,000
during the quarters ended March 31, 2000 and 1999, respectively. Otherwise, the
Company's G&A has increased due to expansion of the Company's activities and
operations.
The provision for income taxes increased $1,015,000 to $1,590,000 for
the three months ended March 31, 2000 compared to $575,000 for the three months
ended March 31, 1999. The increase was attributable to the increase in income
before income taxes, which totaled $5,774,000 for the 2000 quarter compared to
$2,090,000 for the 1999 quarter, an increase of $3,684,000, or 176%. The
effective income tax rate was 27.5% for both the 2000 and the 1999 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.
13
<PAGE> 14
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risks relate to changes in the prices
received from sales of oil and natural gas. The Company's primary risk
management strategy is to partially mitigate the risk of adverse changes in its
cash flows caused by deceases in oil and natural gas prices by entering into
derivative commodity instruments, including commodity futures contracts and
price swaps. By hedging only a portion of its market risk exposures, the Company
is able to participate in the increased earnings and cash flows associated with
increases in oil and natural gas prices; however, it is exposed to risk on the
unhedged portion of its oil and natural gas production.
Historically, the Company has attempted to hedge the exposure related
to its forecasted oil and natural gas production in amounts which it believes
are prudent based on the prices of available derivatives and, in the case of
production hedges, the Company's deliverable volumes. The Company does not use
or hold derivative instruments for trading purposes nor does it use derivative
instruments with leveraged features. The Company's derivative instruments are
designed and effective as hedges against its identified risks, and do not of
themselves expose the Company to market risk because any adverse change in the
cash flows associated with the derivative instrument is accompanied by an
offsetting change in the cash flows of the hedged transaction.
Note 4 to the unaudited consolidated financial statements provides
further disclosure with respect to derivatives and related accounting policies.
All derivative activity is carried out by personnel who have
appropriate skills, experience and supervision. The personnel involved in
derivative activity must follow prescribed trading limits and parameters that
are regularly reviewed by the Company's Chief Executive Officer. All hedges or
open positions are reviewed by the Chief Executive Officer before they are
committed to, and significant positions are reviewed by the Company's Board of
Directors. The Company uses only well-known, conventional derivative instruments
and attempts to manage its credit risk by entering into financial contracts with
reputable financial institutions.
Following are disclosures regarding the Company's market risk
instruments. Investors and other users are cautioned to avoid simplistic use of
these disclosures. Users should realize that the actual impact of future
commodity price movements will likely differ from the amounts disclosed below
due to ongoing changes in risk exposure levels and concurrent adjustments to
hedging positions. It is not possible to accurately predict future movements in
oil and natural gas prices.
The Company periodically hedges a portion of the price risk associated
with the sale of its oil and natural gas production through the use of
derivative commodity instruments, which consist of commodity futures contracts
and price swaps. These instruments reduce the Company's exposure to decreases in
oil and natural gas prices on the hedged portion of its production by enabling
it to effectively receive a fixed price on its oil and natural gas sales. As of
May 10, 2000, the Company had no derivative positions in place.
During the first quarter of 2000, the Company sold 112,000 barrels of
oil. A hypothetical decrease of $2.73 per barrel (10% of average first quarter
prices) would have decreased the Company's production revenues by $306,000 for
that period. The Company sold 2,165,000 Mcf of natural gas during the first
quarter of 2000. A hypothetical decrease of $0.26 per Mcf (10% of average first
quarter prices) would have decreased the Company's production revenues by
$563,000 for that period.
14
<PAGE> 15
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 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 fund its operations; risks related to exploration and developmental drilling;
and uncertainties about oil and natural gas reserve estimates. For a more
complete explanation 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, 1999, beginning on page 17.
15
<PAGE> 16
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.
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
<S> <C>
27 Financial Data Schedules
(b) Reports on Form 8-K
</TABLE>
The Company filed a Report on Form 8-K dated January 27, 2000,
reporting the declaration of a three for two stock split of the Company's common
stock. Record date for the stock split was February 10, 2000 and the
distribution date was February 24, 2000. The Company filed a Report on Form 8-K
dated February 24, 2000, reporting year end 1999 oil and natural gas reserve
information, the Company's estimated year 2000 budget, and a summary of 1999
capital expenditures.
16
<PAGE> 17
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 15, 2000 By /s/ Richard H. Lewis
---------------------------- --------------------------
Richard H. Lewis,
President and
Principal Financial Officer
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR
PRIMA ENERGY CORPORATION FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 16,387,000
<SECURITIES> 2,002,000
<RECEIVABLES> 5,916,000
<ALLOWANCES> (45,000)
<INVENTORY> 758,000
<CURRENT-ASSETS> 25,863,000
<PP&E> 93,851,000
<DEPRECIATION> (42,861,000)
<TOTAL-ASSETS> 77,110,000
<CURRENT-LIABILITIES> 6,620,000
<BONDS> 0
0
0
<COMMON> 133,000
<OTHER-SE> 61,197,000
<TOTAL-LIABILITY-AND-EQUITY> 77,110,000
<SALES> 8,727,000
<TOTAL-REVENUES> 10,677,000
<CGS> 3,084,000
<TOTAL-COSTS> 4,364,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,774,000
<INCOME-TAX> 1,590,000
<INCOME-CONTINUING> 4,184,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,184,000
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.48
</TABLE>
