<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 December 31, 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. I, 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 February 12, 1996
----- --------------------------------
<S> <C>
Common Stock, $.10 par value 5,601,000
</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>
December 31, March 31,
ASSETS 1995 1995
------ ---- ----
<S> <C> <C>
Current Assets:
Cash $ 244,696 221,816
Receivables 1,206,919 208,988
Contract drilling in progress - 437,563
Prepaid expenses 30,268 60,006
----------- -----------
Total current assets 1,481,883 928,373
----------- -----------
Property and equipment 10,828,838 10,266,040
Accumulated depreciation, depletion and amortization 7,896,352 7,751,704
----------- -----------
Net property and equipment 2,932,486 2,514,336
----------- -----------
Investment in notes receivable 27,404 30,549
----------- -----------
Total assets 4,441,773 3,473,258
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term debt 686,254 622,025
Current installments, long-term debt 110,471 2,816
Accounts payable 1,281,973 763,591
Prepaid drilling contracts 113,700 -
Accrued expenses 120,589 198,340
----------- -----------
Total current liabilities 2,312,987 1,586,772
Long term debt 366,154 87,623
Minority interest 36,943 258,024
----------- -----------
Total liabilities 2,716,084 1,932,419
----------- -----------
Shareholders' equity:
Preferred stock, noncumulative, $1.00 par value.
Authorized 1,000,000 shares; issued and out-
standing 235,000 shares at December 31, and
March 31, 1995. 235,000 235,000
Common stock, $0.10 par value.
Authorized 15,000,000 shares; issued and out-
standing 5,601,000 at December 31 and
5,408,000 at March 31, 1995. 560,100 540,800
Additional paid-in capital 15,899,227 15,854,757
Retained earnings (deficit) (14,838,733) (15,089,718)
----------- -----------
1,855,594 1,540,839
Less Treasury stock, at cost, 319,767 shares 129,905 -
----------- -----------
Total shareholders' equity 1,725,689 1,540,839
----------- -----------
Total Liabilities and shareholders equity $ 4,441,773 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 Nine Months Ended
December 31, December 31,
------------------------------- -----------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Contract drilling $ 1,847,471 1,663,805 5,190,226 4,139,166
Oil & gas 109,928 119,793 367,980 371,505
Management fees and others (701) 27,817 27,761 70,140
Subsidiary/Partnership income - - - -
------------ ------------ ------------ ------------
Total operating revenues 1,956,698 1,811,415 5,585,967 4,580,811
------------ ------------ ------------ ------------
Costs and expenses:
Contract drilling 1,429,620 1,455,315 4,488,045 3,559,297
Oil and gas 48,039 55,337 125,477 127,364
Depreciation, depletion and amortization 146,658 107,450 436,649 325,268
General and administrative 117,739 89,787 387,362 330,077
Doubtful accounts - - - 113,800
------------ ------------ ------------ ------------
Total Operating Costs & Expenses 1,742,056 1,707,889 5,437,533 4,455,806
------------ ------------ ------------ ------------
Earnings from operations 214,642 103,526 148,434 125,005
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (29,666) (14,539) (82,920) (47,673)
Interest income 1,448 1,681 3,473 5,317
Gain on sale of assets 141,423 1,759 165,406 34,797
Minority interest in earnings of partnership (15,408) (24,706) 16,592 (37,249)
------------ ------------ ------------ ------------
Total other income (expense) 97,797 (35,805) 102,551 (44,808)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes and
extraordinary item 312,439 67,721 250,985 80,197
Income taxes - - - -
------------ ------------ ------------ ------------
Earnings (loss) before extraordinary item 312,439 67,721 250,985 80,197
Extraordinary item - - - -
------------ ------------ ------------ ------------
Net earnings (loss) $ 312,439 67,721 250,985 80,197
============ ============ ============ ============
Net earnings (loss) per common and common
equivalent share:
Earnings (loss) before extraordinary item $ 0.05 0.01 0.04 0.01
Extraordinary item 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------
Net earnings (loss) $ 0.05 0.01 0.04 0.01
============ ============ ============ ============
Weighted average number of shares 5,534,333 5,510,000 5,441,693 5,414,222
============ ============ ============ ============
</TABLE>
NOTE: At December 31, 1995 the Company has a remaining net operating loss
carryforward of approximately $16,660,000 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>
Nine Months Ended
December 31,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 250,985 80,198
Adjustments to reconcile net earnings
to net cash provided (used) by operating activities:
Depreciation, depletion, amortization 436,649 325,268
Provision for doubtful accounts - 113,800
Stock issued to directors as compensation 13,340 40,770
Gain on sale of assets (165,407) (34,796)
Minority interest in equity of partnership (16,591) -
Changes in current assets and liabilities:
Accounts and note receivable (994,785) (79,337)
Contract drilling in progress 437,563 (318,317)
Prepaid expenses 29,737 (46,658)
Notes payable-trade creditors - -
Accounts payable 518,382 (32,113)
Prepaid drilling contracts 113,700 190,000
Accrued expenses (77,751) (67,806)
----------- -----------
Net cash provided by operations 545,822 171,009
----------- -----------
Cash flows from financing activities:
Payments of debt (1,171,229) (742,408)
Proceeds from notes payable 1,621,644 349,000
Proceeds from exercise of warrants and options 47,300 -
----------- -----------
Net cash provided (used) by financing activities 497,715 (393,408)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (1,063,494) (535,422)
Proceeds from sale of equipment 42,837 283,252
----------- -----------
Net cash (used) in investing activities (1,020,657) (252,170)
----------- -----------
Net increase (decrease) in cash 22,880 (474,569)
Beginning cash and cash equivalents 221,816 788,172
----------- -----------
Ending cash and cash equivalents $ 244,696 313,603
=========== ===========
</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 $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 December 31, 1995, were $244,696
compared to $221,816 at March 31, 1995. The current ratio at December
31, 1995 was 0.64:1 compared to 0.59:1 at March 31, 1995. Working
capital decreased to a negative $831,104 at December 31, 1995 from a
negative $658,399 at March 31, 1995. Accounts receivable increased to
$1,206,919 at December 31, 1995 from $208,988 at March 31, 1995.
Contract drilling in progress decreased to zero at December 31, 1995
from $437,563 at March 31, 1995 as all the rigs had completed drilling
contracts in the latter part of December, 1995 and had not yet started
on new contracts.
Since March 31, 1995, property and equipment costs increased by
$562,798. Of this amount, a net of $254,302 was spent on drilling
equipment, $5,587 was spent on investment in oil and gas properties,
$22,367 was spent on transportation equipment, $273,098 was spent on
land, buildings and improvements, and $7,444 was spent on office
furniture and equipment. The increase in drilling equipment resulted
from the acquisition of an additional land drilling rig and the sale of
the Company's one-half interest in another land drilling rig. The
5
<PAGE> 6
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
purchase of the one rig was accomplished through a cash payment of
$45,000 and seller financing of $300,000. The Company's one-half
interest in the other rig was sold to the owner of the other one-half
interest for 319,767 shares of the Company's common stock. The sale was
accomplished through the dissolution of the partnership which owned and
operated the rig. In the dissolution, each partner received a one-half
interest in the rig. The Company's subsidiary, which was the general
partner in the partnership, then sold its one-half interest in the rig
to the other partner for the Company's common stock. The subsidiary's
investment in the Company's stock is treated as treasury stock and
reduces the Company's shareholders' equity. The increase in land,
buildings and improvements was the result of the purchase of the office
building which the Company occupies as its headquarters in San Antonio.
The 5,000 square foot building was purchased through a combination of
$245,000 in bank and government financing and cash of $20,000. The
Company had leased the building since February, 1993.
Current and long-term debt obligations in the form of notes payable
increased by $450,415 from March 31, 1995 to December 31, 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, the purchase of the
office building for $245,000 and payments on debt during the quarter.
The bank financing secured by the office building contains a demand
clause which, under generally accepted accounting principles, requires
that the debt be classified as current even though it is payable over
ten years. The Small Business Administration financing secured by the
office building contains no demand clause and is payable over twenty
years.
Accounts payable at December 31, 1995 were $1,281,973, an increase
of $518,382 from $763,591 at March 31, 1995. This increase in accounts
payable resulted from increased drilling activity in the period, the
granting of extended terms to some drilling customers resulting in
slower payment of accounts payable, unusually high repair and
maintenance costs on drilling 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 $120,589 at
December 31, 1995 from $198,340 at March 31, 1995.
Results of Operations
While contract drilling revenue for the quarter ended December 31,
1995 increased 11% to $1,847,471 compared to $1,663,805 in the same
quarter a year earlier and oil and gas revenue decreased 8.2% to
$109,928 from $119,793, cash flow from operations remained positive.
Earnings before interest, taxes, depreciation, depletion and
amortization (EBITDA) was $361,300 in the current quarter compared to
$210,976 in the same quarter a year earlier and $585,083 for nine months
ended December 31, 1995 compared to $450,273 for nine months ended
December 31, 1994.
The increase in drilling revenue was due to increased drilling
activity, 285 drilling days in the current quarter compared to 253
drilling days in the same quarter in fiscal 1995. Rig utilization
declined to 63% in the current quarter from 69% in the same quarter a
year earlier. The utilization rate shows a decline even though there
was an increase in the number of drilling days because the Company
operated five rigs in the current quarter compared to four rigs in the
same quarter a year earlier.
In the current quarter, oil and natural gas production declined
7.5% to an equivalent of 6,339 barrels of oil, while in the same quarter
a year earlier production was the equivalent of 6,855 barrels of oil.
Average prices for oil increased 4% to $17.10 per barrel in the current
quarter from $16.45 in the same quarter a year earlier and natural gas
prices declined 2.6% to $1.85 per mcf in this quarter compared to $1.90
in the same quarter a year earlier.
6
<PAGE> 7
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
While total revenues increased by 8%, total operating costs and
expenses for the quarter ended December 31, 1995 increased 2% to
$1,742,056, up $34,167 from operating costs and expenses of $1,707,889
in the same quarter a year earlier. Drilling costs, when compared with
the same quarter a year earlier, decreased 2% and oil and gas costs
decreased 13%. This decrease in drilling costs was the result of lower
maintenance costs and the elimination of some personnel. With the
increase in the number of drilling days and drilling revenue coupled
with the decrease in drilling costs, the Company's average daily
drilling margin (drilling revenue less drilling costs) increased to
$1,466 per day in the current quarter from $824 per day in the same
quarter a year earlier.
Increases in depreciation and depletion and general and
administrative expenses further impacted operating earnings.
Depreciation, depletion and amortization costs increased 36% to $146,658
in the quarter ended December 31, 1995 from $107,450 in the quarter
ended December 31, 1994. This increase was due to an increase in the
estimated depletion cost per unit for the current quarter when compared
with the estimated depletion cost per unit for the same quarter a year
earlier and to an increase in depreciation expense resulting from the
addition of equipment since December 31, 1994. General and
administrative expenses increased to $117,739 in the current quarter
from $89,787 in the same quarter a year earlier. This increase was
primarily payroll related.
Other income and expense increased to $79,345 in the current
quarter from a negative $35,805 in the same quarter a year earlier. The
primary reason for this increase was the dissolution of a drilling
partnership and the resulting sale of the Company's remaining one-half
interest in a drilling rig. The Company originally sold a one-half
interest in the rig in August, 1994. However, since the Company was
still involved in the operations and management of the rig, the gain on
the sale was deferred. With the final disposition of the rig, the
Company is now able to recognize the full gain on the sale of the rig.
The total compensation received for the rig was $250,000 in cash,
received in August, 1994, and 319,767 shares of the Company's common
stock, received in December, 1995.
PART 11. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
7
<PAGE> 8
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: February 12, 1996
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 Board February 12, 1996
-------------------------------
Robert R. Marmor
/s/Wm Stacy Locke President and Chief
------------------------------- Executive Officer February 12, 1996
Wm. Stacy Locke
/s/Chris F. Parma Vice President and Chief February 12, 1996
-------------------------------- Financial Officer
Chris F. Parma
</TABLE>
8
<PAGE> 9
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 244,696
<SECURITIES> 0
<RECEIVABLES> 1,206,919
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,481,883
<PP&E> 10,828,838
<DEPRECIATION> 7,896,352
<TOTAL-ASSETS> 4,441,773
<CURRENT-LIABILITIES> 2,312,987
<BONDS> 0
<COMMON> 560,100
0
235,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,441,773
<SALES> 367,980
<TOTAL-REVENUES> 5,585,967
<CGS> 125,477
<TOTAL-COSTS> 5,437,533
<OTHER-EXPENSES> (102,551)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 250,985
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250,985
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
