<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, 1996
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.
Class Outstanding at August 8, 1996
----- -----------------------------
Common Stock, $.10 par value, 5,654,333
<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 1996 1996
------ ---- ----
<S> <C> <C>
Current Assets:
Cash $ 509,555 325,568
Receivables 670,655 541,319
Contract drilling in progress 157,846 234,527
Prepaid expenses 89,304 48,016
------------ ------------
Total current assets 1,427,360 1,149,430
------------ ------------
Property and equipment 11,350,873 11,110,070
Accumulated depreciation, depletion
and amortization 8,148,732 8,001,254
------------ ------------
Net property and equipment 3,202,141 3,108,816
------------ ------------
Investment in notes receivable 25,455 27,404
------------ ------------
Total assets 4,654,956 4,285,650
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term debt 100,000 200,000
Current installments, long-term debt 262,193 467,416
Accounts payable 921,299 1,255,505
Prepaid drilling contracts 214,575 99,000
Accrued expenses 134,343 232,337
------------ ------------
Total current liabilities 1,632,410 2,254,258
Long term debt 1,448,091 553,916
------------ ------------
Total liabilities 3,080,501 2,808,174
------------ ------------
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, 1996. 235,000 235,000
Common stock, $0.10 par value.
Authorized 15,000,000 shares;
issued and outstanding 5,654,333
at June 30 and 5,601,000 at
March 31, 1996. 565,433 560,100
Additional paid-in capital 15,913,894 15,899,227
Retained earnings (deficit) (15,009,967) (15,086,946)
------------ ------------
1,704,360 1,607,381
Less Treasury stock, at cost, 319,767 shares 129,905 129,905
------------ ------------
Total shareholders' equity 1,574,455 1,477,476
------------ ------------
Total Liabilities and shareholders equity $ 4,654,956 4,285,650
============ ============
</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,
------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Contract drilling $2,095,132 2,017,243
Oil and gas 105,271 111,066
Management fees and other 43,574 46,869
---------- ----------
Total operating revenues 2,243,977 2,175,178
---------- ----------
Costs and expenses:
Contract drilling 1,803,450 1,804,136
Oil and gas 46,636 35,479
Depreciation, depletion and amortization 147,478 139,702
General and administrative 135,320 121,071
---------- ----------
Total operating costs and expenses 2,132,884 2,100,388
---------- ----------
Earnings (loss) from operations 111,093 74,790
---------- ----------
Other income (expense):
Interest expense (37,810) (25,330)
Interest income 3,695 1,389
Gain on sale of assets - 24,000
Minority interest in earnings of partnership - (16,327)
---------- ----------
Total other income (expense) (34,115) (16,268)
---------- ----------
Earnings before income taxes 76,978 58,522
Income taxes - -
---------- ----------
Net earnings $ 76,978 $ 58,522
========== ==========
Net earnings per common and common equivalent share:
Earnings before extraordinary item $0.01 0.01
Extraordinary item 0.00 0.00
---------- ----------
Net earnings $ 0.01 $ 0.01
=========== ===========
Weighted average number of shares 5,316,788 5,408,000
=========== ===========
</TABLE>
NOTE: At June 30, 1996 the Company has a remaining net operating loss
carryforward of approximately $15,820,000 and investment credit
carryforward of approximately $671,000.
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,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 76,978 58,522
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation, depletion, amortization 147,478 139,702
Provision for doubtful accounts - -
Gain on sale of assets - (24,000)
Minority interest in equity of partnership - 16,327
Change in current assets and liabilities:
Accounts and notes receivable (127,388) (828,398)
Contract drilling in progress 76,681 118,148
Prepaid expenses (41,286) (16,120)
Accounts payable (334,206) 515,699
Prepaid drilling contracts 115,575 -
Accrued expenses (97,993) (62,794)
---------- ---------
Net cash used by operations (184,161) (82,914)
---------- ---------
Cash flows from financing activities:
Payments of debt (861,049) (429,416)
Proceeds from notes payable 1,470,000 812,724
---------- ---------
Net cash provided (used) in financing activities 608,951 383,308
---------- ---------
Cash flows from investing activities:
Purchase of property and equipment (240,803) (506,828)
Proceeds from sale of equipment - 24,000
---------- ---------
Net cash used in investing activities (240,803) (482,828)
---------- ---------
Net increase (decrease) in cash 183,987 (182,434)
Beginning cash and cash equivalents 325,568 221,816
---------- ---------
Ending cash and cash equivalents $ 509,555 39,382
========== =========
</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. At April 1, 1996, the Company had investment tax credit carryforwards
for Federal income tax purposes of approximately $671,000 (expiring 1996
through 2007) which are available to reduce future Federal income taxes. In
addition, the Company had net operating loss carryforwards of approximately
$15,820,000 (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, 1996, were $509,555 compared to
$325,568 at March 31, 1996. The current ratio at June 30, 1996 was 0.87:1
compared to 0.51:1 at March 31, 1996. Working capital increased to
($205,050) at June 30, 1996 from ($1,104,828) at March 31, 1996. One of the
main elements in this improvement in the Company's working capital position
was a restructuring of its debt which is discussed in detail below.
Accounts receivable increased to $670,655 at June 30, 1996 from $541,319 at
March 31, 1996. Contract drilling in progress decreased to $157,846 at June
30, 1996 from $234,527 at March 31, 1996.
Since March 31, 1996, property and equipment costs increased by
$240,803. Of this amount, $236,440 was spent on drilling equipment, and
$4,364 was spent on buildings and improvements. The primary element in the
increase in drilling equipment was the expenditure of $207,380 for the
acquisition of drill pipe.
Debt obligations in the form of notes payable, both short term and long
term, increased by $588,952 from March 31, 1996 to June 30, 1996. The
primary element of this increase was a restructuring of the Company's credit
facility. Through the restructuring, the Company acquired a $500,000
revolving line of credit secured by the Company's accounts receivable and a
$1,250,000 term loan which was used to pay off most of the Company's debt on
drilling equipment, provide capital for additional equipment purchases and
reduce the Company's accounts payable. The term loan is secured by the
Company's drilling equipment, transportation equipment, furniture and
fixtures and the yard facility in Kenedy, Texas. The revolving line of
credit carries
5
<PAGE> 6
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
an interest rate of prime (8.25% at June 30, 1996) plus 2.75% with interest
payable monthly. The term loan carries an interest rate of prime plus 3.0%
with monthly payments based on a seven year amortization. Through the
restructuring, the Company was able to reduce its working capital deficit
and to increase its current ratio.
Accounts payable at June 30, 1996 were $921,299, a decrease of $334,206
from $1,255,505 at March 31, 1996. This decrease in accounts payable
resulted from the use of funds acquired through the debt restructuring
discussed above. Accrued expenses decreased to $134,343 at June 30, 1996
from $232,337 at March 31, 1996.
Results of Operations
Contract drilling revenue for the quarter ended June 30, 1996 was
$2,095,132 compared to $2,017,243 in the same quarter a year earlier. This
increase in drilling revenue was attained in spite of a decrease in drilling
days. In the current quarter, the Company had 293 drilling days compared to
315 drilling days in the same quarter in fiscal 1996. During the current
quarter, the Company operated four rigs, while in fiscal 1996, the Company
operated five rigs. In decreasing the number of rigs it operated, the
Company increased its utilization rate to 80% in the current quarter from
77% 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 $7,151.00 compared
to $6,404.00 in the corresponding quarter of fiscal 1996.
Oil and gas revenue for the quarter ended June 30, 1996 was $105,271,
down $5,795 from revenue of $111,066 in the same quarter a year earlier.
This decrease in revenue in the current quarter was due to lower production
of both oil and gas. In the current quarter, production was the equivalent
of 6,098 barrels of oil, while in the same quarter a year earlier production
was the equivalent of 8,066 barrels of oil. In the current quarter, the
average prices received by the Company were $21.39 per barrel of oil and
$2.31 per mcf of gas. In the same quarter in fiscal 1996, the Company
received $18.06 per barrel of oil and $1.76 per mcf of gas.
Total operating costs and expenses for the quarter ended June 30, 1996
were $2,132,884, up $32,496, from operating costs and expenses of $2,100,388
in the same quarter a year earlier. When compared with the same quarter a
year earlier, contract drilling costs decreased $686 in the quarter ended
June 30, 1996. Although total contract drilling costs decreased, average
drilling costs per day in the current quarter were $6,155 compared to $5,727
in the same quarter a year earlier. Oil and gas costs and expenses were
$46,636 in the quarter ended June 30, 1996 compared with $35,479 in the same
quarter a year earlier. This increase of $11,157 was the result of
expenditures incurred in an effort to increase production from the wells.
Depreciation, depletion and amortization costs increased to $147,478 in the
quarter ended June 30, 1996 from $139,702 in the quarter ended June 30,
1995. The reason for this increase was an increase in depreciation expense
resulting from the addition of equipment since June 30, 1995. General and
administrative expenses increased to $135,320 in the current quarter from
$121,071 in the same quarter a year earlier. This increase was the result
of increased payroll costs and reduced legal and professional fees.
Other income and expense decreased to ($34,115) in the current quarter
from $(16,268) 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 a partnership. This partnership, a drilling
partnership, was in operation in fiscal 1996. However, operations were
terminated in December, 1995, and the partnership was dissolved in January,
1996.
6
<PAGE> 7
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 8, 1996, the Judge of the United States District Court for the
Western District of Texas, San Antonio Division, entered his decision in
Civil Action No. SA-95-CA-0736, Empire Fire and Marine Insurance Co. vs.
South Texas Drilling & Exploration, Inc. et al. This action was brought
against the Company by its automobile liability insurance carrier who denied
coverage in a personal injury case. The judge held that the injured party
was not an employee of the Company and thus the insurance company had a
contractual duty under the policy to indemnify its insured, the Company.
Under this decision, the Company would have no further obligation to pay the
injured party the remaining $140,000 awarded him and the Company would
recoup the $60,000 already paid to the injured party. On July 25, 1996, the
Company's attorney in the above case notified the Company that he was
informed by the attorney for the insurance company that the insurance
company intended to appeal the finding in the above case.
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: August 9, 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 August 9, 1996
- ---------------------------------------
Robert R. Marmor
/s/Wm. Stacy Locke President and Chief August 9, 1996
- --------------------------------------- Executive Officer and
Wm. Stacy Locke Director
/s/Chris F. Parma Vice President and August 9, 1996
- --------------------------------------- Chief 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 509,555
<SECURITIES> 0
<RECEIVABLES> 828,501
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,427,360
<PP&E> 11,350,873
<DEPRECIATION> 8,148,732
<TOTAL-ASSETS> 4,654,956
<CURRENT-LIABILITIES> 1,632,410
<BONDS> 0
<COMMON> 565,433
0
235,000
<OTHER-SE> 774,022
<TOTAL-LIABILITY-AND-EQUITY> 1,574,455
<SALES> 105,271
<TOTAL-REVENUES> 2,243,977
<CGS> 46,636
<TOTAL-COSTS> 2,132,884
<OTHER-EXPENSES> 34,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 76,978
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,978
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
