FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[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 to
Commission file number: 0-610
EQUITY OIL COMPANY
(Exact name of registrant as specified in its charter)
COLORADO 87-0129795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 806, #10 West Third South, Salt Lake City, Utah 84101
(Address of principal executive offices)
(Zip Code)
(801) 521-3515 Registrant's telephone number, including area code
----------------------------------------------------------------
(Former name, former 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 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
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. 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: 12,528,100
<PAGE>
ITEM I: Financial Statements
EQUITY OIL COMPANY
Statement of Operations
For the Six Months Ended June 30, 1995 and 1994
(Unaudited)
1995 1994
--------- ---------
REVENUES
Oil and gas sales $6,128,107 $5,554,823
Partnership income 150,000 151,100
Interest income 125,218 149,787
Other 307,865 20,557
--------- ---------
6,711,190 5,876,267
EXPENSES
Operating costs 2,360,568 2,352,828
Depreciation, depletion and
amortization 2,250,000 2,200,000
Leasehold abandonments 25,500 23,650
3-D seismic 237,604 -
Exploration 697,558 804,281
General and administrative 982,262 825,896
Interest 29,545 43,410
--------- ---------
6,583,037 6,250,065
Income (loss) before income taxes 128,153 (373,798)
(Benefit) for income taxes (44,057) (161,055)
---------- -----------
NET INCOME (LOSS) $ 172,210 $ (212,743)
========== ===========
Net income (loss) per common share $ 0.01 $(0.02)
========== ==========
Cash dividends declared per share $.00 $.00
Weighted average shares outstanding 12,535,130 12,536,721
The accompanying notes are an integral part of these statements.
<PAGE>
EQUITY OIL COMPANY
Statement of Operations
For the Three Months Ended June 30, 1995 and 1994
(Unaudited)
1995 1994
--------- ---------
REVENUES
Oil and gas sales $3,105,505 $2,932,381
Partnership income 75,000 76,800
Interest income 64,959 81,900
Other 129,312 17,518
--------- ---------
3,374,776 3,108,599
EXPENSES
Operating costs 1,207,430 1,157,797
Depreciation, depletion and
amortization 1,100,000 1,150,000
Leasehold abandonments 14,300 9,800
Exploration 388,859 378,824
General and administrative 579,817 415,696
Interest 15,539 22,614
--------- ---------
3,305,945 3,134,731
Income (loss) before income taxes 68,831 (26,132)
Provision (benefit) for income taxes 6,726 (50,347)
---------- ---------
NET INCOME $ 62,105 $ 24,215
========== =========
Net income per common share $ 0.00 $ 0.00
Cash dividends declared per share $.00 $.00
Weighted average shares outstanding 12,529,314 12,535,753
The accompanying notes are an integral part of these statements.
<PAGE>
EQUITY OIL COMPANY
Balance Sheet
as of June 30, 1995, and December 31, 1994
(Unaudited)
June 30, December 31,
ASSETS 1995 1994
- ------ ---------- -----------
Current assets:
Cash and cash equivalents $ 428,802 $ 363,342
Temporary cash investments 1,502,544 2,466,728
Accounts and advances receivable 3,153,270 3,434,955
Income taxes receivable 293,440 293,440
Deferred income taxes 48,281 48,281
Other current assets 448,103 389,613
---------- ----------
5,874,440 6,996,359
Property and equipment 96,863,531 95,048,505
Less accumulated depletion,
depreciation and amortization 56,486,588 54,236,588
---------- ----------
40,376,943 40,811,917
Other assets:
Investment in and note receivable
from Symskaya Exploration 4,361,865 3,415,123
Investment in Raven Ridge
Pipeline Partnership 604,360 684,937
Other assets 182,690 -
---------- ----------
5,148,915 4,100,060
TOTAL ASSETS $51,400,298 $51,908,336
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 915,160 $ 1,156,611
Accrued liabilities 152,089 151,948
Accrued profit sharing 65,700 157,073
Income taxes payable 215,928 50,931
Deferred lease rental revenue - 178,553
Current portion - note payable - 460,000
--------- ---------
1,348,877 2,155,116
Note payable - 460,000
Revolving credit facility 924,830 -
Deferred income taxes 9,800,531 10,088,189
---------- ----------
10,725,361 10,548,189
Stockholders' equity
Common stock 12,593,631 12,593,631
Paid in capital 2,934,792 2,934,792
Retained earnings 23,961,028 23,788,818
Less cost of treasury stock (163,391) (112,210)
---------- ----------
39,326,060 39,205,031
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $51,400,298 $51,908,336
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
EQUITY OIL COMPANY
Statement of Cash Flows
For the Six Months Ended June 30, 1995 and 1994
(Unaudited)
1995 1994
----------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 172,210 $ (212,743)
Adjustments
Depreciation, depletion and
amortization 2,250,000 2,200,000
Partnership distribution in
excess of income 80,577 72,762
Leasehold abandonments 25,500 23,650
Decrease in deferred income taxes (287,658) (161,278)
Increase (decrease) from changes in:
Accounts and advances receivable 281,685 (134,870)
Other current assets (58,490) (48,063)
Deferred lease revenue (178,553) -
Accounts payable and accrued
liabilities (241,310) (65,204)
Income taxes receivable/payable 164,997 (150,144)
Accrued profit sharing (91,373) (74,550)
--------- ---------
Net cash provided
by operating activities 2,117,585 1,449,560
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Symskaya Exploration (946,742) (376,243)
Sale of temporary cash investments 964,184 -
Capital expenditures (1,840,526) (1,972,061)
--------- ---------
Net cash used in investing
activities (1,823,084) (2,348,304)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of note payable (920,000) (230,000)
Purchase of treasury stock (51,181) (18,235)
Increase in other assets (182,690) -
Revolving credit facility 924,830 -
--------- ---------
Net cash used in financing
activities (229,041) (248,235)
--------- ---------
NET INCREASE (DECREASE) IN CASH 65,460 (1,146,979)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 363,342 5,194,013
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 428,802 $ 4,047,034
========== ==========
CASH, CASH EQUIVALENTS AND
TEMPORARY CASH INVESTMENTS
AT END OF PERIOD $ 1,931,346 $ 4,047,034
========== ==========
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Income Taxes $ 90,950 $ -
Interest $ 29,545 $ 43,410
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying financial statements of Equity Oil Company (the Company) have
not been audited by independent accountants, except for the Balance Sheet at
December 31, 1994. In the opinion of the Company's management, the financial
statements reflect the adjustments, all of which are of a normal and recurring
nature, necessary to present fairly the financial position of the Company as of
June 30, 1995, and the results of its operations for the three and six month
periods ended June 30, 1995 and 1994, and its cash flows for the six month
periods ended June 30, 1995 and 1994.
The financial statements and the accompanying notes to financial statements have
been prepared according to rules and regulations of the Securities and Exchange
Commission. Accordingly, certain notes and other information have been condensed
or omitted from the interim financial statements presented in this Quarterly
Report on From 10-Q. These financial statements should be read in conjunction
with the Company's 1994 Annual Report on Form 10-K, and the Company's Form 10-Q
for the first quarter of 1995.
The results for the three and six month periods ended June 30, 1995 are not
necessarily indicative of future results.
Note 2. Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of common
shares outstanding during the period. Primary and fully diluted earnings per
share are essentially the same.
Note 3. Reclassifications
Certain balances in the June 30, 1994 financial statements have been
reclassified to conform with the current year presentation. These changes had no
effect on previously reported net income, total assets, liabilities or
stockholders' equity.
Note 4. Revolving Credit Facility
In March of 1995, the Company obtained a $20 million borrowing base credit
facility, with an initial commitment of $10 million. The facility calls for
interest payments only, at the lower of prime or LIBOR plus 2%, for 2 years, at
which time it converts to a 3 year term note. Credit facility fees, which are
reflected as other assets in the accompanying Balance Sheet, will be amortized
on a straight line basis over 60 months.
<PAGE>
PART I
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
Continued stronger oil prices through most of the second quarter of
1995 combined with increases in other income and an income tax benefit to enable
the Company to record net income of $172,210, or $.01 per share, for the six
months ended June 30, 1995. This compares to a net loss in the same period of
1994 of $(212,743), or $(.02) per share. Total revenues for the first half of
1995 were $6,711,190, compared to $5,876,267 during the same period of 1994.
Second quarter 1995 net income was $62,105, or $.00 per share, on total revenues
of $3,374,776. 1995 results improved from second quarter 1994 net income of
$24,215, or $.00 per share, on total revenues of $3,108,599.
Posted prices for Western Colorado crude oil, which accounts for 64% of
the Company's total oil production, averaged $18.88 during the first half of
1995, an increase of 18% from $16.00 during the same period of 1994.
GROWTH STRATEGY
In February, the Company announced a new growth strategy, encompassing a
balanced approach in four areas. Those areas included 1) acquisitions, 2)
focused exploration drilling, 3) development drilling and exploitation of
existing assets, and 4) international exploration. The Company is making good
progress in each of the areas.
ACQUISITIONS. During the first half of 1995, several acquisition
opportunities have been evaluated, with offers made on selected packages that
fit strategically with other Company assets. The Company expects to close
shortly on the acquisition of an additional 5% working interest in the Cessford
field in Alberta, Canada, which will be effective May 1st. This purchase will
add approximately 100,000 proved developed barrels of oil equivalent at a total
purchase price of approximately $400,000. Discovered in 1972, this field has
produced in excess of 3.8 million barrels of oil, and is currently being
evaluated for waterflood potential. Two successful wells were drilled at the
field in 1994, and four new infill locations are currently being drilled at the
field. Prior to this acquisition, the Company had a 45% working interest in the
field, which currently has 17 producing wells.
FOCUSED EXPLORATION DRILLING. Total expenses increased somewhat over 1994
first half levels, in part due to 3-D seismic expenses incurred in connection
with the Company's California exploration programs. The largest of these 3-D
programs is a 41.5 square mile survey for which data acquisition was completed
in March of 1995. Processing and interpretation of the data is now being
completed, and the permitting of locations will begin shortly. The Company
expects to begin drilling on as many as 4 wells in California during the last
half of 1995.
DEVELOPMENT DRILLING. During the first half of 1995, the Company has
participated in the drilling of six development wells. Drilling began at the
Company's Retlaw prospect in Alberta, Canada, where a second well was drilled to
accelerate recovery from 2,000 Mcf per day to 11,000 Mcf per day. The increased
production has the potential to increase Equity's 1995 gas production by 500,000
Mcf. Equity has a net working interest of 14.1% in the wells.
The development drilling at the Company's Cessford field, mentioned
previously, began in July of 1995. There are currently 4 wells in various stages
of progress.
The Company also participated in an offset to a successful gas well
drilled in 1994 in Rio Blanco County, Colorado. Mitchell Energy is currently
completing the #1-35-2-104 Park Mountain Federal well, which found over 40 feet
of Dakota pay. The well is expected to be hooked up to a gathering system for
1995 winter sales. The Company has a 30% working interest in this well.
Development drilling at the Company's Siberia Ridge area will continue
pending drilling permit approval by the BLM.
INTERNATIONAL EXPLORATION. Emphasizing that a good deal of additional
testing will be required in order to develop more complete information, on June
28, 1995 the Company reported oil shows at the Lemok No. 1 well being drilled in
Eastern Siberia by Symskaya Exploration, Inc., fifty percent owned by Equity and
fifty percent owned by Leucadia National Corporation. The oil shows occurred
between 6,890 and 6,985 feet in a dolomite section of probable Cambrian age. The
well is the first exploratory test to be drilled on Symskaya's 1.1 million acre
License in the Symskaya area of the Krasnoyarsk Krai.
Further evaluation of the section is being conducted, but information
relating to the extent and productivity of this section, if any, will only be
available following the drilling of the well to its estimated total depth of
14,500 feet. Drilling is continuing, and it is estimated that total depth should
be reached during the fourth quarter of 1995 if no problems are encountered.
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents, and temporary cash investments totaled
$1,931,346 as of June 30, 1995, a decrease of $898,724 since year-end 1994.
Working capital at June 30, 1995 was $4,525,563, down slightly from $4,841,243
at December 31, 1994.
Cash provided by operating activities was $2,117,585 in the first six
months of 1995, 46% higher than the same period of 1994. Cash provided by
operating activities was aided in 1995 by the higher net income discussed
earlier, and a net increase in cash flow from working capital items. The
Company's ratio of current assets to current liabilities improved from 3.25 to 1
at December 31, 1994 to 4.35 to 1 at June 30, 1995.
Investment in property and equipment for the first six months of 1995,
coupled with advances the Company made to Symskaya Exploration, totaled
$2,787,268, a 19% increase from the amount recorded during the corresponding six
months of 1994. Approximately $950,000 was advanced to Symskaya during the first
half of 1995, compared to approximately $375,000 during the same period of 1994.
The increased level of advances reflects the commencement of the drilling phase
of the project. The Company expects that advances to Symskaya will continue at
their current levels for the balance of 1995.
In 1995, the Company used proceeds from its revolving credit facility
to retire its previously outstanding note payable. In 1994, the Company make the
scheduled principal payments on this note payable.
The Company believes that existing cash balances, cash flow, and the
aapproximate $9.0 million of borrowing capacity under the revolving credit
facility will provide adequate resources to meet its capital, exploration, and
acquisition spending objectives.
COMPARISON OF SECOND QUARTER 1995 WITH SECOND QUARTER 1994
Oil and gas sales increased 6% in the second quarter of 1995 to
$3,105,505, compared to $2,932,381 in the same quarter of last year. This
increase was brought about principally by higher oil prices that prevailed
during the second quarter of 1995. The average posted price for crude at the
Rangely Weber Sand Unit during the quarter was $19.16 per barrel, compared to
$17.44 during the second quarter of 1994, an increase of 10%.
Total production increased year-to-year on an equivalent barrel basis.
Oil production increased slightly from 152,000 barrels in the second quarter of
1994 to 156,000 during the same quarter of 1995. Gas production rose from
311,000 Mcf in 1994 to 334,000 Mcf in 1995.
During the second quarter of 1995, the Company received $71,000 as its
share of a settlement relating to prior production litigation which caused the
significant increase in other income. There was no corresponding settlement in
1994.
Slight increases in operating costs were offset by equal decreases in
DD&A charges for the current quarter. Decreased DD&A charges reflect the
positive impact on reserve volumes of higher product prices, offset by higher
production volumes.
Higher exploration expenses are a reflection of increased geological
and geophysical costs associated with the Company's current exploration
prospects.
Internal costs associated with property acquisition activities, as well
as increases in legal fees and investor relations expenses caused administrative
costs to increase during the second quarter of 1995 over 1994.
The Company's tax provision for the second quarter of 1995 is lower
than the statutory rate because of excess allowable percentage depletion and the
use of foreign tax credits.
<PAGE>
COMPARISON OF FIRST HALF 1995 WITH FIRST HALF 1994
The higher year-to-year oil prices discussed earlier paved the way to
higher revenues for the first half of 1995. Oil and gas sales increased 10% in
the first half of 1995 to $6,128,107 versus $5,554,823 in the same period of
last year.
The Company recorded increases in both oil and gas production during
the first half of 1995. Oil production of 305,000 barrels was up from 1994
production of 301,000 barrels. Natural gas production increased from 554,000 Mcf
in 1994 to 645,000 Mcf in 1995.
Other income includes the recognition in the first quarter of 1995 of
income arising from a lease option agreement that was deferred in 1994, as well
as the second quarter 1995 litigation settlement proceeds discussed earlier.
Total expenses increased 5% over 1994 first half levels, due in part to
$237,600 of 3-D seismic expenses incurred in 1995 in connection with the
Company's California exploration programs. The seismic expenses were offset to a
large degree by lower exploration expenses. Through the first six months of
1994, the Company had expensed approximately $230,000 in dry holes costs. No dry
holes costs have been incurred during the first half of 1995.
As mentioned previously, internal costs associated with property
acquisition activities, as well as increases in personnel expenses, legal fees
and investor relations expenses caused administrative costs to increase during
the first half of 1995 over 1994.
The Company's tax provision for the first half of 1995 is lower than
the statutory rate because of excess allowable percentage depletion and the use
of foreign tax credits.
OTHER ITEMS
The Company is currently evaluating SFAS 121, Accounting for the Impairment of
Long-Lived Assets, to determine the impact, if any, of its future adoption.
<PAGE>
PART II
OTHER INFORMATION
The answers to items listed under Part II are inapplicable or negative,
except as shown below.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's annual meeting, held on May 10, 1995, stockholders
were asked to elect Mr. Paul M. Dougan, Mr. Douglas W. Brandrup, and Mr. Joseph
C. Bennett to serve three year terms on the Board of Directors, to amend the
Articles of Incorporation to reduce voting requirements below two-thirds in
certain situations, and to amend the Articles of Incorporation to limit
Directors' liability in certain cases. The following votes were recorded for
each item.
ELECTION OF DIRECTORS. Each director nominee received at least 96% of the
shares voted at the meeting.
Dougan Brandrup Bennett
Affirmative votes 10,536,756 10,456,647 10,536,756
Withhold authority 267,051 258,160 267,051
AMENDMENT TO REDUCE VOTING REQUIREMENTS.
# of votes %
Affirmative votes 7,414,641 59.1
Negative votes 773,633 6.2
Abstentions/Not voted 4,353,326 34.7
This proposal did not receive the necessary amount of affirmative votes for
passage.
AMENDMENT TO REDUCE DIRECTORS' LIABILITY.
# of votes %
Affirmative votes 9,019,169 71.9
Negative votes 1,389,407 11.1
Abstentions/Not voted 2,133,024 17.0
This proposal received the necessary amount of affirmative votes for passage,
and was therefore approved by the stockholders.
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.
EQUITY OIL COMPANY
(Registrant)
DATE: August 11, 1995 By /s/ Paul M. Dougan
Paul M. Dougan, President
DATE: August 11, 1995 By /s/ Clay Newton
Clay Newton, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 428,802
<SECURITIES> 0
<RECEIVABLES> 3,153,270
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,874,440
<PP&E> 96,863,531
<DEPRECIATION> 56,486,588
<TOTAL-ASSETS> 51,400,298
<CURRENT-LIABILITIES> 1,348,877
<BONDS> 0
<COMMON> 12,593,631
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 51,400,298
<SALES> 6,128,107
<TOTAL-REVENUES> 6,711,190
<CGS> 0
<TOTAL-COSTS> 6,583,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,545
<INCOME-PRETAX> 128,153
<INCOME-TAX> (44,057)
<INCOME-CONTINUING> 172,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,210
<EPS-PRIMARY> .01
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</TABLE>
