<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 June 30, 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 July 31, 2000, the Registrant had 8,488,994 shares of Common Stock, $0.015
Par Value, outstanding.
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PRIMA ENERGY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements
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........................................16
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
</TABLE>
<PAGE> 3
PRIMA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .......................... $ 15,861,000 $ 18,883,000
Available for sale securities, at market ........... 2,129,000 1,949,000
Receivables (net of allowance for doubtful
accounts: 6/30/00, $45,000; 12/31/99, $45,000).... 6,244,000 5,284,000
Tubular goods inventory ............................ 1,247,000 837,000
Other .............................................. 998,000 988,000
------------ ------------
Total current assets ......................... 26,479,000 27,941,000
------------ ------------
OIL AND GAS PROPERTIES, at cost, accounted
for using the full cost method ................... 90,331,000 77,700,000
Less accumulated depreciation,
depletion and amortization ....................... (40,728,000) (37,785,000)
------------ ------------
Oil and gas properties - net ................. 49,603,000 39,915,000
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Oilfield service equipment ......................... 7,508,000 6,814,000
Office furniture and equipment ..................... 700,000 659,000
Gas gathering system and facilities ................ 441,000 0
Field office, shop and land ........................ 488,000 481,000
------------ ------------
9,137,000 7,954,000
Less accumulated depreciation ...................... (3,884,000) (3,402,000)
------------ ------------
Property and equipment - net ................. 5,253,000 4,552,000
------------ ------------
OTHER ASSETS ....................................... 257,000 257,000
------------ ------------
$ 81,592,000 $ 72,665,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
PRIMA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT'D.)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable .................................. $ 1,236,000 $ 2,085,000
Amounts payable to oil and gas property owners .... 1,560,000 1,499,000
Ad valorem and production taxes payable ........... 2,100,000 1,210,000
Income taxes payable .............................. 35,000 1,051,000
Accrued and other liabilities ..................... 628,000 384,000
Current portion of notes payable .................. 0 304,000
------------ ------------
Total current liabilities ................... 5,559,000 6,533,000
AD VALOREM TAXES, non-current ..................... 1,267,000 1,516,000
DEFERRED TAX LIABILITY ............................ 8,219,000 5,708,000
------------ ------------
Total liabilities ........................... 15,045,000 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, 18,000,000 shares
authorized; 8,914,616 and 8,893,366 shares issued 134,000 133,000
Additional paid-in capital ........................ 6,071,000 5,693,000
Retained earnings ................................. 65,572,000 56,577,000
Accumulated other comprehensive loss .............. (201,000) (244,000)
Treasury stock, 425,622 and 322,305 shares at cost (5,029,000) (3,251,000)
------------ ------------
Total stockholders' equity .................. 66,547,000 58,908,000
------------ ------------
$ 81,592,000 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales ........................ $10,235,000 $ 4,597,000 $18,962,000 $ 8,423,000
Oilfield services ........................ 1,525,000 1,074,000 3,184,000 2,106,000
Trading revenues ......................... 0 664,000 0 1,081,000
Interest, dividends and other ............ 321,000 362,000 612,000 636,000
----------- ----------- ----------- -----------
12,081,000 6,697,000 22,758,000 12,246,000
----------- ----------- ----------- -----------
EXPENSES
Depreciation, depletion and amortization:
Depletion of oil and gas properties ... 1,492,000 1,159,000 2,943,000 2,301,000
Depreciation of other property ........ 285,000 188,000 551,000 355,000
Lease operating expense .................. 619,000 539,000 1,255,000 1,032,000
Ad valorem and production taxes .......... 753,000 418,000 1,484,000 720,000
Cost of oilfield services ................ 1,338,000 866,000 2,618,000 1,533,000
Cost of trading .......................... 0 747,000 0 1,101,000
General and administrative ............... 803,000 469,000 1,342,000 803,000
----------- ----------- ----------- -----------
5,290,000 4,386,000 10,193,000 7,845,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES ............... 6,791,000 2,311,000 12,565,000 4,401,000
PROVISION FOR INCOME TAXES ............... 1,980,000 535,000 3,570,000 1,110,000
----------- ----------- ----------- -----------
NET INCOME ............................... $ 4,811,000 $ 1,776,000 $ 8,995,000 $ 3,291,000
=========== =========== =========== ===========
BASIC NET INCOME PER SHARE ............... $ 0.57 $ 0.21 $ 1.06 $ 0.38
=========== =========== =========== ===========
DILUTED NET INCOME PER SHARE ............. $ 0.54 $ 0.20 $ 1.02 $ 0.38
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ..................... 8,477,123 8,514,744 8,486,668 8,566,615
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
ASSUMING DILUTION ...................... 8,878,369 8,692,831 8,856,368 8,709,579
=========== =========== =========== ===========
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET INCOME ........................... $ 4,811,000 $ 1,776,000 $ 8,995,000 $ 3,291,000
----------- ----------- ----------- -----------
Other comprehensive income:
Unrealized gain (loss)on
available-for-sale securities ...... 44,000 (93,000) 69,000 (233,000)
Deferred income tax expense
related to unrealized gain (loss)
on available-for-sale securities..... (17,000) 35,000 (26,000) 87,000
----------- ----------- ----------- -----------
27,000 (58,000) 43,000 (146,000)
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME ................. $ 4,838,000 $ 1,718,000 $ 9,038,000 $ 3,145,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................... $ 8,995,000 3,291,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization .............. 3,494,000 2,656,000
Deferred income taxes ................................. 2,515,000 731,000
Current taxes from sale of oil and gas properties ..... 0 (5,704,000)
Other ................................................. 173,000 (30,000)
Changes in operating assets and liabilities:
Receivables ......................................... (960,000) (31,000)
Inventory ........................................... (410,000) 96,000
Other current assets ................................ (39,000) 175,000
Accounts payable and payables to owners ............. (788,000) (168,000)
Ad valorem and production taxes payable ............. 641,000 (643,000)
Income taxes payable ................................ (1,016,000) 5,788,000
Accrued and other liabilities ....................... (60,000) (42,000)
------------ ------------
Net cash provided by operating activities ......... 12,545,000 6,119,000
------------ ------------
INVESTING ACTIVITIES
Additions to oil and gas properties ...................... (12,632,000) (5,561,000)
Purchases of other property .............................. (1,314,000) (1,650,000)
Purchases of available for sale securities ............... (186,000) (56,000)
Proceeds from sales of oil and gas and other property .... 144,000 27,421,000
------------ ------------
Net cash provided by (used in) investing activities (13,988,000) 20,154,000
------------ ------------
FINANCING ACTIVITIES
Treasury stock purchased ................................. (1,778,000) (1,283,000)
Proceeds from issuance of common stock ................... 199,000 23,000
Repayment of long term debt .............................. 0 (120,000)
------------ ------------
Net cash used in financing activities ............ (1,579,000) (1,380,000)
------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .................................. (3,022,000) 24,893,000
CASH AND CASH EQUIVALENTS, beginning of period ........... 18,883,000 2,522,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ................. $ 15,861,000 $ 27,415,000
============ ============
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 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, 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 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, 2000 and 1999.
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, 2000.
3. NOTES PAYABLE AND LINE OF CREDIT
The Company had two notes payable at December 31, 1999. Both notes
were paid in full during the six months ended June 30, 2000 pursuant to their
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 (9.5% at June 30, 2000), with interest payable
monthly. At December 31, 1999 and June 30, 2000, 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 did not hedge any of its production during
the first six months of 2000 and had no buy-for -resale transactions during that
period. The Company hedged approximately 57% of
8
<PAGE> 9
its oil production and 23% of its natural gas production during the first six
months of 1999. Net hedging gains were $13,000 for the six months ended June 30,
1999 and were included in oil and gas revenues at the time the hedged volumes
were sold. At June 30, 2000 and August 1, 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. COMMON STOCK
Pursuant to the provisions of the Prima Energy Corporation 1993 Stock
Incentive Plan, during the second quarter of 2000, 18,250 shares of Prima's
common stock were issued upon the exercise of stock options for total proceeds
of $169,000. Additionally, pursuant to the provisions of the Prima Energy
Corporation Non-Employee Directors' Stock Option Plan, 3,000 shares of common
stock were issued for total proceeds of $30,000 in June 2000. These transactions
increased the total number of shares of common stock outstanding to 8,488,994 as
of August 1, 2000.
During the six months ended June 30, 2000, the Company repurchased
103,317 shares of its common stock as treasury stock for $1,778,000 pursuant to
a stock repurchase program. 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 June 30, 2000, the Company had repurchased 4.8% of the
shares currently issued.
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 2000, the
shareholders of Prima approved an increase in the number of authorized shares of
common stock from 12,000,000 shares to 18,000,000 shares.
9
<PAGE> 10
6. 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 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.
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ---------- ----------
<S> <C> <C> <C>
Quarter Ended June 30, 2000:
Basic Net Income per Share...... $4,811,000 8,477,123 $ 0.57
==========
Effect of Stock Options ........ 401,246
---------- ----------
Diluted Net Income per Share.... $4,811,000 8,878,369 $ 0.54
========== ========== ==========
Quarter Ended June 30, 1999:
Basic Net Income per Share ..... $1,776,000 8,514,744 $ 0.21
==========
Effect of Stock Options ........ 178,087
---------- ----------
Diluted Net Income per Share.... $1,776,000 8,692,831 $ 0.20
========== ========== ==========
Six Months Ended June 30, 2000:
Basic Net Income per Share ..... $8,995,000 8,486,668 $ 1.06
==========
Effect of Stock Options ........ 369,700
---------- ----------
Diluted Net Income per Share.... $8,995,000 8,856,368 $ 1.02
========== ========== ==========
Six Months Ended June 30, 1999:
Basic Net Income per Share ..... $3,291,000 8,566,615 $ 0.38
==========
Effect of Stock Options ........ 142,964
---------- ----------
Diluted Net Income per Share.... $3,291,000 8,709,579 $ 0.38
========== ========== ==========
</TABLE>
10
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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 flow
generated from operating activities and existing cash and cash eqivalents. Net
cash provided by operating activities for the six months ended June 30, 2000 was
$12,545,000 compared to $6,119,000 for the same six month period of 1999. Net
working capital at June 30, 2000 was $20,920,000 compared to $21,408,000 at
December 31, 1999. The Company received $144,000 and $27,421,000 in proceeds
from the sales of oil and gas and other property during the six months ended
June 30, 2000 and 1999, respectively. The 1999 proceeds resulted primarily from
the disposition of the Bonny Field assets as previously reported.
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 $13,946,000 in property and equipment during the six
months ended June 30, 2000, compared to $7,211,000 for the 1999 six month
period. The Company expended $11,632,000 during the 2000 period for its
proportionate share of the costs of drilling, completing and refracturing wells,
$860,000 for undeveloped acreage, $140,000 for developed properties and
$1,314,000 for other property and equipment. These expenditures compare to
$4,432,000 for well costs, $1,030,000 for undeveloped acreage, $99,000 for
producing properties and $1,650,000 for other equipment in the 1999 period. The
Company also expended $1,778,000 for the purchase of 103,317 shares of treasury
stock during the first six months of 2000 and $1,283,000 for 146,228 treasury
shares during the 1999 period.
During the first six months of 2000, the Company refractured or
recompleted 38 gross (35.9 net) wells in the Wattenberg Field Area of the Denver
Basin. All of these operations have been successfully completed and the wells
are all back on production. Production increases have averaged 160 Mcf of
natural gas and 11 barrels of oil per day. Current plans are to refrac or
recomplete 25 to 30 additional wells in this area during the second half of
2000. As of August 4, 2000, three additional refrac wells have been completed
and placed on production.
During the first six months of 2000, the Company has drilled, completed
and placed on production 11 gross and net new Codell Formation wells in the
Wattenberg Field area. Prima plans to drill 20 to 25 additional Codell wells in
the second half of 2000. As of August 4, 2000, seven of these wells have been
drilled, with three on production and four in various stages of completion. The
Company anticipates these four wells will be on production by the end of August
2000.
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 1,130 Mcf
of natural gas and 24 barrels of oil per day, after being on production
approximately 145 days. The Company anticipates drilling two to three additional
9,500 foot Muddy Formation test wells in this area during the remainder of 2000.
11
<PAGE> 12
The Coalbed Methane play in the Powder River Basin of northeast Wyoming
("CBM") is prospective over approximately 3,000,000 acres. The development of
natural gas from coals in this play, ranging in depth from 200 to 2,000 feet, is
one of the largest, most active natural gas plays currently under development in
North America. According to the Wyoming Oil & Gas Commission, as of March 2000
there were 3,783 CBM wells drilled, with 2,486 wells reporting production of
333,258 Mcf per day. In this rapidly expanding play, there are an estimated 70
active CBM drilling rigs.
Prima currently holds 143,000 net acres within 28 prospect areas that it
believes has CBM potential. The Company's independent engineering firm estimated
net reserves to Prima's interest of 524 Bcf of natural gas from 2,048 identified
potential CBM drillsites on Prima's acreage at year-end 1999. Prima's estimated
reserves include 54 Bcf from 211 locations which were classified as proved
undeveloped, 266 Bcf from 919 locations classified as probable, and 204 Bcf from
918 locations classified as possible.
Through August 4, 2000, Prima has drilled 93 gross and net CBM wells, all
of which are waiting on completion and gathering facilities. Eighteen of these
wells were drilled prior to 2000, 51 were drilled in the first half of 2000, and
an additional 24 have been drilled to date in the third quarter. Of the 93 wells
drilled to date, 61 wells have been drilled in the Stones Throw prospect area,
located 33 miles north of Gillette, Wyoming, 16 in the Kingsbury prospect area
located 14 miles west of Gillette, and 16 wells have been drilled in other
prospect areas. During the remainder of 2000, the Company currently anticipates
drilling an additional 50 wells at Stones Throw, 12 wells at Kingsbury and 50
wells in three other prospect areas.
The Company has recently formed Arete Gathering Company, a wholly owned
subsidiary, to pursue gathering and mid-stream investment opportunities. Arete
is currently constructing the gathering facilities in the Stones Throw prospect
area. The capital expenditures to construct the facilities to hook-up
approximately 110 wells is budgeted at approximately $3,000,000. This expected
development encompasses approximately one half of Prima's 7,000 acres in the
Stones Throw area. The gathering facilities are being constructed in phases,
with Phase I expected to connect 20 wells by October 1, 2000. The remaining
phases are expected to connect the remaining existing and projected wells during
the fourth quarter of 2000 and the first quarter of 2001. Arete also expects to
offer gathering and compression services to third party operators in the area.
The Company expects the other CBM wells will, if successful, be completed and
hooked up to sales lines throughout 2001.
The Company continues to participate in development of the Cave Gulch
area in the Wind River Basin of Wyoming. Prima participated in the drilling of
two non-operated wells during the first half of 2000. The Cave Gulch 4-19LAK,
originally spud in July of 1998 and then converted to a relief well, was
re-entered in January 2000 to test the Frontier, Muddy and Lakota formations at
depths of 17,200 to 18,800 feet. A completion attempt is currently underway on
this well, in which Prima has an 11.24% working interest. The Cave Gulch #20 (6%
working interest) was drilled to a depth of 9,176 feet during the second quarter
of 2000 and is currently being completed.
The Company's capital expenditures budget for 2000 was recently increased
from $30 million to $35 million. Capital expenditures during the first half of
2000 of $15,724,000 were primarily funded from $15,177,000 of cash flows from
operating activities before working capital changes. The Company expects to fund
second half expenditures from internally generated cash flows and to the extent
necessary, from existing cash and available-for-sale securities ($17,990,000 at
June 30, 2000). The Company's liquid assets and unutilized bank line of credit
provide it with flexibility to pursue opportunities that are not budgeted.
12
<PAGE> 13
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 drilling,
completion and recompletion well costs, expansion of its service companies,
undeveloped leasehold acquisitions and stock re-purchases 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
Quarters Ended June 30, 2000 and 1999
For the quarter ended June 30, 2000, the Company earned net income of
$4,811,000, or $.54 per diluted share, on revenues of $12,081,000, compared to
net income of $1,776,000, or $.20 per diluted share, on revenues of $6,697,000
for the comparable quarter of 1999. Expenses were $5,290,000 for the 2000 second
quarter compared to $4,386,000 for the 1999 second quarter. Revenues increased
$5,384,000, or 80%, expenses increased $904,000, or 21%, and net income
increased $3,035,000, or 171%.
Oil and gas sales for the quarter ended June 30, 2000 were $10,235,000
compared to $4,597,000 for the same quarter of 1999, an increase of $5,638,000
or 123%. The increase is attributable to significantly higher oil and natural
gas prices, as well as increased production for both oil and natural gas. The
Company's net natural gas production was 2,244,000 Mcf and 1,796,000 Mcf for the
second quarters of 2000 and 1999, respectively, an increase of 448,000 Mcf or
25%. Its net oil production was 112,000 barrels compared to 79,000 barrels for
the same periods, an increase of 33,000 barrels or 42%. The average price
received for natural gas production was $3.19 per Mcf for the 2000 quarter
compared to $1.89 per Mcf for the 1999 quarter, an increase of $1.30 per Mcf or
69%. The average price received for oil in the second quarter of 2000 was $27.50
per barrel compared to $15.24 per barrel for the second quarter of 1999, an
increase of $12.26 per barrel or 80%. The Company did not hedge any of its
production during the second quarter of 2000. During the second quarter of 1999,
the Company hedged approximately 90% of its oil production and 20% of its
natural gas production. Hedging losses of $50,000 are included in oil and gas
revenues for this period, which decreased the average price received per barrel
of oil by $.63 and had no effect upon the price received per Mcf of natural gas.
The Company's depletion of oil and gas properties was $1,492,000 or $0.51
per Mcfe ($3.07 per BOE) on 2,915,000 equivalent Mcf (486,000 equivalent
barrels) produced during the second quarter of 2000, compared to $1,159,000 or
$0.51 per Mcfe ($3.07 per BOE) on 2,267,000 equivalent Mcf (378,000 equivalent
barrels) produced during the second quarter of 1999. Depreciation of other fixed
assets was $285,000 and $188,000 for the quarters ended June 30, 2000 and 1999,
respectively, and is attributable to depreciation of service equipment,
furniture and equipment and buildings. Depreciation expense on these assets
increased $97,000, or 52%, due primarily to acquisitions of oilfield service
equipment in calendar 1999 and during the first half of 2000.
Lease operating expenses ("LOE") were $619,000 for the quarter ended June
30, 2000 compared to $539,000 for the quarter ended June 30, 1999. Ad valorem
and production taxes were $753,000 and $418,000 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 13% of oil
and gas revenues and $0.47 per Mcfe ($2.82 per BOE) for the 2000 quarter
compared to 21% and $0.42 per Mcfe ($2.53 per BOE) for the 1999 quarter.
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<PAGE> 14
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 completion and
swab rigs, trucking, water hauling and rental equipment, and other related
activities. Revenues were $1,525,000 for the quarter ended June 30, 2000
compared to $1,074,000 for the comparable quarter of 1999, an increase of
$451,000, or 42%. For the quarter ended June 30, 2000, 34% of the fees billed by
the service companies were for Company owned wells compared to 19% for the
quarter ended June 30, 1999. The Company's share of fees paid to its service
companies on Company owned properties and the costs associated with providing
the services are eliminated in consolidation. Costs of oilfield services were
$1,338,000 for the quarter ended June 30, 2000 compared to $866,000 for the same
period of 1999, an increase of $472,000 or 55%.
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 six months of
2000. Trading revenues were $664,000 for the quarter ended June 30, 1999 from
the marketing of 396,000 MMBtus of natural gas. Costs of trading were $747,000
for the 1999 quarter.
General and administrative expenses ("G&A"), net of third party
reimbursements, were $803,000 for the quarter ended June 30, 2000 compared to
$469,000 for the quarter ended June 30, 1999, an increase of $334,000 or 71%. 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 $102,000 and $149,000
during the quarter ended June 30, 2000 and 1999, respectively. The Company's G&A
costs have otherwise increased due to expansion of the Company's activities and
operations.
The provision for income taxes was $1,980,000 for the quarter ended June
30, 2000 compared to $535,000 for the quarter ended June 30, 1999, an increase
of $1,445,000 or 270%. The Company's effective tax rate increased to 29.2% from
23.2%, primarily because income before income taxes increased $4,480,000 or 194%
for the 2000 quarter. The Company's effective tax rates are less than statutory
rates due to permanent differences in financial and taxable income, consisting
primarily of statutory depletion deductions, Section 29 tax credits and
compensation expense from the exercise of non-qualified stock options.
Six Months Ended June 30, 2000 and 1999
For the six months ended June 30, 2000, the Company earned net income of
$8,995,000, or $1.02 per diluted share, on revenues of $22,758,000, compared to
net income of $3,291,000, or $.38 per diluted share, on revenues of $12,246,000
for the six months ended June 30, 1999. Expenses were $10,193,000 for the 2000
six month period compared to $7,845,000 for the 1999 six month period. Revenues
increased $10,512,000, or 86%, expenses increased $2,348,000, or 30%, and net
income increased $5,704,000, or 173%.
Oil and gas sales for the six months ended June 30, 2000 were $18,962,000
compared to $8,423,000 for the six months ended June 30, 1999, an increase of
$10,539,000 or 125%. The Company's net natural gas production was 4,410,000 Mcf
and 3,544,000 Mcf for the first six months of 2000 and 1999, respectively, an
increase of 866,000 Mcf or 24%. Its net oil production was 224,000 barrels
compared to 159,000 barrels for the same six month periods, an increase of
65,000 barrels or 41%. The average price received for natural gas production was
$2.91 per Mcf for the six months ended June 30, 2000 compared to $1.78 per Mcf
for the six months ended June 30, 1999, an increase
14
<PAGE> 15
of $1.13 per Mcf or 63%. The average price received for oil for the first six
months of 2000 was $27.40 per barrel compared to $13.30 per barrel for the same
period of 1999, an increase of $14.10 per barrel or 106%. The Company did not
hedge any of its production during the six months ended June 30, 2000. During
the six months ended June 30, 1999, the Company hedged approximately 57% of its
oil production and 23% of its natural gas production. Net hedging gains of
$13,000 reduced the average price received per barrel of oil by $.26 and
increased the price received per Mcf of natural gas by $0.02.
The Company's depletion of oil and gas properties was $2,943,000 or $0.51
per Mcfe ($3.07 per BOE) on 5,754,000 equivalent Mcf (959,000 equivalent
barrels) produced during the first six months of 2000, compared to $2,301,000 or
$0.51 per Mcfe ($3.07 per BOE) on 4,501,000 equivalent Mcf (750,000 equivalent
barrels) produced during the first six months of 1999. Depreciation of other
fixed assets was $551,000 and $355,000 for the six months ended June 30, 2000
and 1999, respectively, an increase of $196,000, or 55%.
LOE was $1,255,000 for the six months ended June 30, 2000 compared to
$1,032,000 for the six months ended June 30, 1999. Ad valorem and production
taxes were $1,484,000 and $720,000 for the same periods. Total lifting costs
were 14% of oil and gas revenues and $0.48 per Mcfe ($2.86 per BOE) for the 2000
quarter compared to 21% and $0.39 per Mcfe ($2.34 per BOE) for 1999.
Oilfield services revenues were $3,184,000 for the six months ended June
30, 2000 compared to $2,106,000 for the comparable six month period of 1999, an
increase of $1,078,000 or 51%. For the six months ended June 30, 2000, 33% of
the fees billed by the service companies were for Company owned wells compared
to 22% for the six months ended June 30, 1999. Costs of oilfield services were
$2,618,000 for the six months ended June 30, 2000 compared to $1,533,000 for the
same period of 1999, an increase of $1,085,000 or 71%.
Trading revenues were $1,081,000 for the six months ended June 30, 1999
from the marketing of 576,000 MMBtus of natural gas. Costs of trading were
$1,101,000 for the 1999 six month period. Trading activities fluctuate with
natural gas markets and the Company's ability to identify markets that meet the
Company's trading criteria.
G&A was $1,342,000 for the six months ended June 30, 2000 compared to
$803,000 for the six months ended June 30, 1999, an increase of $539,000 or 67%.
Management and operator fees were $240,000 and $323,000 during the six months
ended June 30, 2000 and 1999, respectively. Management fees received from third
parties have decreased as the Company has acquired additional working interests
in operated wells and sold interests in properties it previously operated.
The provision for income taxes was $3,570,000 for the six months ended
June 30, 2000 compared to $1,110,000 for the same six month period of 1999.
Income before income taxes increased $8,164,000 for the 2000 six month period
and the effective tax rate increased to 28.4% from 25.2%.
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.
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<PAGE> 16
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.
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 decreases 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
August 1, 2000, the Company had no derivative positions in place.
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<PAGE> 17
During the first six months of 2000, the Company sold 224,000 barrels of
oil. A hypothetical decrease of $2.74 per barrel (10% of average prices for the
period) would have decreased the Company's production revenues by $614,000 for
the period. The Company sold 4,410,000 Mcf of natural gas during the same
period. A hypothetical decrease of $0.29 per Mcf (10% of average prices for the
period) would have decreased the Company's production revenues by $1,279,000 for
the period.
----------
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 "anticipate," "expect," "plan," "believe," "estimate" or
"budget" 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.
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<PAGE> 18
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 18, 2000, the Company held an annual meeting of stockholders. The
following table sets forth certain information relating to each matter voted
upon at the meeting.
<TABLE>
<CAPTION>
Votes
-------------------------------------------------------
Withheld/ Broker
Matters Voted Upon For Against Abstain Non-Votes
--------------------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Election of Richard H. Lewis 7,077,313 18,496
as Class III Director
Election of Catherine B. James 7,066,839 28,970
as Class III Director
Approval of an amendment to the 7,020,067 42,333 33,409
Certificate of Incorporation increasing
the number of authorized shares of
common stock to 18,000,000 shares
Ratification of the selection of 7,067,710 3,711 24,388
Deloitte & Touche LLP as
independent auditors for 2000
</TABLE>
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, 2000.
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<PAGE> 19
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 10, 2000 By /s/ Richard H. Lewis
------------------- ------------------------------------
Richard H. Lewis,
President and
Principal Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
---------- ---------
<S> <C>
27 Financial Data Schedules
</TABLE>
