<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
/ / Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from N/A to
------------------- --------------------
Commission File Number 2-70145
SOUTH TEXAS DRILLING & EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2088619
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9310 Broadway, Bldg. 1, San Antonio, Texas 78217
(Address of principal executive offices)
(Zip Code)
210-828-7689
(Registrant's telephone number, including area code)
---------------------------------------------------------------------------
(Former name, address and former fiscal year, if changed since 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 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. N/A
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT AUGUST 4, 1995
----- -----------------------------
<S> <C>
Common Stock, $.10 par value 5,458,000
</TABLE>
<PAGE> 2
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS 1995 1995
---- ----
<S> <C> <C>
Current Assets:
Cash $ 39,382 221,816
Receivables 1,039,104 208,988
Contract drilling in progress 319,414 437,563
Prepaid expenses 76,126 60,006
------------ -----------
Total current assets 1,474,026 928,373
------------ -----------
Property and equipment 10,759,900 10,266,040
Accumulated depreciation, depletion
and amortization 7,895,535 7,751,704
------------ -----------
Net property and equipment 2,864,545 2,514,336
------------ -----------
Note receivable 28,832 30,549
------------ -----------
Total assets 4,367,403 3,473,258
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments, long-term debt 785,172 624,841
Accounts payable 1,279,290 763,591
Accrued expenses 135,546 198,340
------------ -----------
Total current liabilities 2,200,008 1,586,772
Long term debt 310,600 87,623
Minority interest 257,434 258,024
------------ -----------
Total liabilities 2,768,042 1,932,419
------------ -----------
Shareholders' equity:
Preferred stock, noncumulative, $1.00
par value. Authorized 1,000,000
shares; issued and outstanding
235,000 shares at June 30,
and March 31, 1995. 235,000 235,000
Common stock, $0.10 par value.
Authorized 10,000,000 shares;
issued and outstanding 5,408,000
at June 30 and March 31, 1995. 540,800 540,800
Additional paid-in capital 15,854,757 15,854,757
Retained earnings (deficit) (15,031,196) (15,089,718)
------------ -----------
Total shareholders' equity 1,599,361 1,540,839
------------ -----------
Total Liabilities and shareholders
equity $ 4,367,403 3,473,258
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE> 3
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Contract drilling $2,017,243 1,035,922
Oil & gas 135,366 118,923
Management fees and others 22,569 4,252
---------- ---------
Total operating revenues 2,175,178 1,159,097
---------- ---------
Costs and expenses:
Contract drilling 1,804,136 917,850
Oil and gas 35,479 37,157
Depreciation, depletion and
amortization 139,702 99,525
General and administrative 121,071 105,876
---------- ---------
Total Operating Costs & Expenses 2,100,388 1,160,408
---------- ---------
Earnings (loss) from operations 74,790 (1,311)
---------- ---------
Other income (expense):
Interest expense (25,330) (17,325)
Interest income 1,389 1,925
Gain on sale of assets 24,000 32,557
Minority interest in earnings
of partnership (16,327) -
---------- ---------
Total other income (expense) (16,268) 17,157
---------- ---------
Earnings before income taxes
and extraordinary item 58,522 15,846
Income taxes - -
---------- ---------
Earnings before extraordinary
item 58,522 15,846
Extraordinary item - -
---------- ---------
Net earnings $ 58,522 15,846
========== =========
Net earnings
per common and common equivalent
share:
Earnings before extra-
ordinary item $ 0.01 0.00
Extraordinary item 0.00 0.00
---------- ---------
Net earnings $ 0.01 0.00
========== =========
Weighted average number of shares 5,408,000 5,120,667
========== =========
</TABLE>
NOTE: At June 30, 1995 the Company has a remaining net operating loss
carryforward of approximately $16,160,000 and investment credit
carryforward of approximately $789,000.
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 58,522 15,846
Adjustments to reconcile net earnings
to net cash provided (used) by
operating activities:
Depreciation, depletion, amortization 139,702 99,525
Stock issued to directors as compensation - 5,740
Gain on sale of assets (24,000) (32,557)
Minority interest in equity
of partnership 16,327 -
Changes in current assets and
liabilities:
Accounts and notes receivable (828,398) 261,054
Contract drilling in progress 118,148 (152,846)
Prepaid expenses (16,120) (26,105)
Accounts payable 515,699 (281,113)
Prepaid drilling contracts - -
Accrued expenses (62,794) 4,697
--------- --------
Net cash provided (used) by operations (82,914) (105,759)
--------- --------
Cash flows from financing activities:
Payments of debt (429,416) (216,867)
Proceeds from notes payable 812,724 50,000
--------- --------
Net cash provided (used) in financing
activities 383,308 (166,867)
--------- --------
Cash flows from investing activities:
Purchase of property and equipment (506,828) (136,774)
Proceeds from sale of equipment 24,000 32,557
--------- --------
Net cash used in investing activities (482,828) (104,217)
--------- --------
Net increase (decrease) in cash (182,434) (376,843)
Beginning cash and cash equivalents 221,816 788,172
--------- --------
Ending cash and cash equivalents $ 39,382 411,329
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements include the accounts of
South Texas Drilling & Exploration, Inc. and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated
in consolidation.
2. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
3. The Company uses the asset and liability method of Statement 109 for
accounting for income taxes. Pursuant to this method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
4. The Company has determined the cumulative effect of the change to
Statement 109 in accounting for income taxes is insignificant as the
deferred tax liabilities generated by temporary differences are completely
offset by deferred tax benefits generated by temporary differences and
available net operating loss carryforwards. Additionally, the net deferred
tax benefits resulting from the excess of net operating loss carryforwards
over the net deferred tax liability will not be recorded due to
uncertainties relating to the Company's ability to generate sufficient
future taxable income before the expiration of the net operating loss
carryforwards.
At April 1, 1995, the Company had investment tax credit carryforwards for
Federal income tax purposes of approximately $789,000 (expiring 1995 through
2007) which are available to reduce future Federal income taxes. In addition,
the Company had net operating loss carryforwards of approximately
5
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$16,160,000 (expiring 1998 through 2006) which are also available to reduce
future Federal income taxes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 1995, were $39,382 compared to
$221,816 at March 31, 1995. The current ratio at June 30, 1995 was 0.67:1
compared to 0.59:1 at March 31, 1995. Working capital decreased to
($725,982) at June 30, 1995 from ($658,399) at March 31, 1995. Accounts
receivable increased to $1,039,104 at June 30, 1995 from $208,988 at March
31, 1995. This increase was the result of increased utilization of four
rigs operated at the beginning of the current quarter and the addition of a
fifth rig midway through the quarter. During the same quarter a year
earlier, the Company operated three rigs. Contract drilling in progress
decreased to $319,414 at June 30, 1995 from $437,563 at March 31, 1995.
Since March 31, 1995, property and equipment costs increased by
$493,860. Of this amount, $443,640 was spent on drilling equipment, $3,759
was spent on investment in oil and gas properties, $41,590 was spent on
transportation equipment, and $4,871 was spent on office furniture and
equipment. The increase in drilling equipment was primarily the result of
the acquisition of a fifth land drilling rig. The purchase of this rig was
accomplished through a cash payment of $45,000 and seller financing of
$300,000.
Current debt obligations in the form of notes payable increased by
$160,331 from March 31, 1995 to June 30, 1995. The elements of this
increase were the purchase of the rig for a debt of $300,000, purchase of
transportation equipment with related debt of $31,575, conversion of a trade
vendor's open account to a short term note in the amount of $94,393, the
borrowing of $106,641 for the cost of drilling a well in the last quarter of
fiscal 1995 and payments on debt during the quarter.
Accounts payable at June 30, 1995 were $1,279,290, an increase of
$515,699 from $763,591 at March 31, 1995. This increase in accounts payable
resulted from increased drilling activity in the quarter, the granting of
extended terms to some drilling customers resulting in slower payment of
accounts payable, unusually high repair and maintenance costs on drilling
6
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equipment, and the lingering effects of a $228,000 uncollectible account
from one of the Company's drilling customers in fiscal 1995. Accrued
expenses decreased to $135,546 at June 30, 1995 from $198,340 at March 31,
1995.
RESULTS OF OPERATIONS
Contract drilling revenue for the quarter ended June 30, 1995 was
$2,017,243 compared to $1,035,922 in the same quarter a year earlier. This
increase was due to increased drilling activity, 315 drilling days in the
current quarter compared to 177 drilling days in the same quarter in fiscal
1995. During the current quarter, the Company operated five rigs, while in
fiscal 1995, the Company operated three rigs. In increasing the number of
rigs it operated, the Company increased its utilization rate to 77% in the
current quarter from 65% in the same quarter a year earlier. During the
current quarter, both contract drilling revenue and the average daily
drilling rate increased. In the current quarter, the average daily drilling
rate was $6,404.00 compared to $5,853.00 in the corresponding quarter of
fiscal 1995.
Oil and gas revenue for the quarter ended June 30, 1995 was $135,366, up
$16,443 from revenue of $118,923 in the same quarter a year earlier. This
increase in revenue was due to higher market prices for oil and lower market
prices for gas produced by the Company. In the current quarter, production
was the equivalent of 8,066 barrels of oil, while in the same quarter a year
earlier production was the equivalent of 6,584 barrels of oil. In the
current quarter, the average prices received by the Company were $18.06 per
barrel of oil and $1.76 per mcf of gas. In the same quarter in fiscal 1995,
the Company received $16.89 per barrel of oil and $1.97 per mcf of gas.
Total operating costs and expenses for the quarter ended June 30, 1995
were $2,100,388, up $939,980 or 81%, from operating costs and expenses of
$1,160,408 in the same quarter a year earlier. When compared with the same
quarter a year earlier, contract drilling costs increased $886,286 in the
quarter ended June 30, 1995. This increase was the result of a 78% increase
in the number of drilling days. Oil and gas costs and expenses were $35,479
in the quarter ended June 30, 1995 compared with $37,157 in the same quarter
a year earlier. Depreciation, depletion and amortization costs increased to
$139,702 in the quarter ended June 30, 1995 from $99,525 in the quarter
ended June 30, 1994. The reasons for this increase were an increase in
depletion expense resulting from a higher estimated depletion cost per unit
7
<PAGE> 8
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
in effect for the current quarter when compared with the estimated depletion
cost per unit in effect for the same quarter a year earlier and an increase
in depreciation expense resulting from the addition of equipment since June
30, 1994. General and administrative expenses increased to $121,071 in the
current quarter from $105,876 in the same quarter a year earlier. This
increase was the result primarily of increased legal and professional fees
incurred in evaluating investment prospects, defending lawsuits and
attempting to find alternative sources of financing.
Other income and expense decreased to ($16,268) in the current quarter
from $17,157 in the same quarter a year earlier. The reasons for this
decrease were an increase in interest expense, a decrease in the amount of
obsolete and excess equipment sold and the elimination of the minority
interest in the earnings of the partnership.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in several personal injury lawsuits of a type
which the Company considers routine for the contract drilling industry.
These lawsuits arose out of injuries to personnel under lease from third
party employee leasing companies. These lawsuits are being defended either
by the Company's general liability insurance carrier under what the Company
considers to be adequate coverage, or pursuant to an Indemnity Agreement
between the Company and the employee leasing company which employed the
Plaintiff. The Company believes that the employee leasing company has
adequate insurance coverage to cover those claims.
The following lawsuits have been settled as described below since the
close of the Company's fiscal year on March 31, 1995:
1. JOSE C. RODRIGUEZ AND MARGARITA RODRIGUEZ VS. EMPLOYER'S SELECT
MANAGEMENT, INC. AND SOUTH TEXAS DRILLING & EXPLORATION, INC., Cause No.
93-CI-05512, 150th District Court, Bexar County, Texas. Personal injury by
employee of Employer Select Management, Inc. South Texas Drilling was
defended by the Company's automobile liability insurer under a reservation
of rights letter. This case was tried in May, 1995, under a partial
settlement agreement and release between the Plaintiffs and the Company
under which the Company's liability was limited by
8
<PAGE> 9
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
agreement to $200,000, payable in eleven (11) quarterly payments of $15,000
each and a final quarterly payment totaling $35,000, payments to commence
within thirty (30) days of the entry of judgment. Under the terms of the
agreement, to the extent the amount of any judgment is collected from the
Company's automobile insurer, the $200,000 payable by the Company shall be
reduced. Although no final written judgment has been entered, the Court has
issued findings of fact and conclusions of law after a non- jury trial which
the Company anticipates will result in a judgment in the approximate amount
of $380,000. The findings of fact include a finding that the plaintiff was
the employee of the company's employee leasing company and merely an invitee
of the Company at the time of his injuries. The Company's insurer has taken
the position that the plaintiff was an employee of the company at the time
the injuries complained occurred and that the insurer is not liable for the
amount of the judgment as the result of an employee exclusion in its policy.
The Company believes that the facts support the finding of the court with
regard to the employee status of the plaintiff and anticipates that the
judgment will be payable by the company's automobile liability insurer.
The insurer has brought a declaratory judgment action against the company
and the Plaintiff in order to establish that the damages found are not
covered by the Company's policy with the insurer. Whether or not the
insurer prevails, the Company's liability is limited to the above-described
payment of $200,000 over a three-year period.
2. JUAN JULIAN PESQUEDA AND YSABEL R. PESQUEDA V. EMPLOYER'S SELECT
MANAGEMENT, INC. AND SOUTH TEXAS DRILLING & EXPLORATION, INC., Cause No.
93-CI-12195, 285th District Court, Bexar County, Texas. This case has
been settled for $100,000 with the Company contributing approximately
$12,000 as the result of a $5,000 deductible and $7,000 payable in lieu
of an insolvent Lloyds underwriter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
9
<PAGE> 10
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
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.
SOUTH TEXAS DRILLING & EXPLORATION, INC.
/s/ Robert R. Marmor
----------------------------------------
Robert R. Marmor
Chairman of the Board
Dated: August 4, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Robert R. Marmor Chairman of the August 4, 1995
-------------------- Board
Robert R. Marmor
/s/Wm. Stacy Locke President and Chief August 4, 1995
-------------------- Executive Officer
Wm. Stacy Locke
/s/Chris F. Parma Controller August 4, 1995
--------------------
Chris F. Parma
</TABLE>
10
<PAGE> 11
INDEX TO EXHIBITS
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000320575
<NAME> SOUTH TEXAS DRILLING & EXPLORATION, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 39,382
<SECURITIES> 0
<RECEIVABLES> 1,039,104
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,474,026
<PP&E> 10,759,900
<DEPRECIATION> 7,895,535
<TOTAL-ASSETS> 4,367,403
<CURRENT-LIABILITIES> 2,200,008
<BONDS> 0
<COMMON> 540,800
0
235,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,367,403
<SALES> 135,366
<TOTAL-REVENUES> 2,175,178
<CGS> 35,479
<TOTAL-COSTS> 2,100,388
<OTHER-EXPENSES> (16,268)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 58,522
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,522
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
