FORM 10Q
UNITED STATES
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 September 30, 1997
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: 12,671,100
<PAGE>
ITEM I: Financial Statements
EQUITY OIL COMPANY
Statements of Operations
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
REVENUES 1997 1996
---- ----
Oil and gas sales ...................... $ 12,504,373 $ 11,542,851
Partnership income ..................... 225,000 225,000
Interest income ........................ 113,339 104,952
Other .................................. 747,620 245,554
13,590,332 12,118,357
EXPENSES
Operating costs ........................ 4,520,122 4,110,248
Depreciation, depletion and
amortization ......................... 3,300,000 2,850,000
Leasehold abandonments ................. 82,420 31,642
Equity loss in
Symskaya Exploration, Inc. ........... 236,589 5,250,000
3D seismic ............................. -- 457,536
Exploration ............................ 1,930,692 1,418,578
General and administrative ............. 1,575,129 1,630,706
Interest ............................... 550,458 --
12,195,410 15,748,710
Income (loss) before income taxes ........... 1,394,922 (3,630,353)
Provision (benefit) for income taxes ........ 501,495 (1,691,138)
NET INCOME (LOSS) ........................... $ 893,427 $ (1,939,215)
Net income (loss) per common share .......... $ 0.07 $ (0.15)
Cash dividends declared per share ........... $ .00 $ .00
Weighted average shares outstanding ......... 12,696,093 12,734,711
The accompanying notes are an integral part of these statements.
<PAGE>
EQUITY OIL COMPANY
Statements of Operations
For the Three Months Ended September 30, 1997 and 1996
(Unaudited)
REVENUES 1997 1996
Oil and gas sales ..................... $ 3,758,655 $ 3,974,173
Partnership income .................... 75,000 75,000
Interest income ....................... 29,821 34,047
Other ................................. 195,463 122,480
4,058,939 4,205,700
EXPENSES
Operating costs ....................... 1,481,187 1,488,321
Depreciation, depletion and
amortization ........................ 1,100,000 1,050,000
Leasehold abandonments ................ 41,468 16,550
Equity loss in
Symskaya Exploration, Inc. .......... 92,752 5,250,000
3D seismic ............................ -- 153,439
Exploration ........................... 702,645 492,098
General and administrative ............ 467,111 411,734
Interest expense ...................... 226,286 --
4,111,449 8,862,142
Loss before income taxes ................... (52,510) (4,656,442)
Benefit for income taxes ................... (4,352) (1,896,171)
NET LOSS ................................... $ (48,158) $ (2,760,271)
Net loss per common share .................. $ (0.00) $ (0.22)
Cash dividends declared per share .......... $ .00 $ .00
Weighted average shares outstanding ........ 12,678,883 12,746,339
The accompanying notes are an integral part of these statements.
<PAGE>
EQUITY OIL COMPANY
Balance Sheet
as of September 30, 1997 and December 31, 1996
(Unaudited)
September 30, December 31,
ASSETS 1997 1996
Current assets:
Cash and cash equivalents ........ $ 285,321 $ 787,961
Temporary cash investments ....... -- 49,802
Accounts and advances receivable . 3,370,932 3,660,670
Income taxes receivable .......... 44,311 311,393
Deferred tax assets .............. 31,053 31,053
Other current assets ............. 445,428 372,701
Total current assets 4,177,045 5,213,580
Property and equipment ............. 109,357,426 106,147,145
Less accumulated depletion,
depreciation and amortization .... 63,715,369 61,732,014
Total property and equipment 45,642,057 44,415,131
Other assets:
Investment in and note receivable
from Symskaya Exploration ...... -- --
Investment in Raven Ridge
Pipeline Partnership ........... 299,014 405,328
Other assets ..................... 115,812 147,398
Total other assets 414,826 552,726
TOTAL ASSETS ....................... $ 50,233,928 $ 50,181,437
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................. $ 805,892 $ 1,880,420
Accrued liabilities .............. 110,822 153,467
Accrued profit sharing ........... 144,000 179,100
Income taxes payable ............. 270,675 191,509
Total current liabilities 1,331,389 2,404,496
Revolving credit facility .......... 9,578,830 8,878,830
Deferred income taxes .............. 5,231,475 5,565,973
Non-current liabilities 14,810,305 14,444,803
Stockholders' equity
Common stock ..................... 12,761,100 12,751,100
Paid in capital .................. 3,667,708 3,648,333
Retained earnings ................ 17,924,785 17,031,358
Less cost of treasury stock ...... (261,359) (98,653)
Total stockholders' equity 34,092,234 33,332,138
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ............. $ 50,233,928 $ 50,181,437
The accompanying notes are an integral part of these statements.
<PAGE>
EQUITY OIL COMPANY
Statement of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................. $ 893,427 $(1,939,215)
Adjustments
Depreciation, depletion and
amortization ................... 3,300,000 2,850,000
Partnership distributions in
excess of income ............... 106,314 108,553
(Gain) loss on
property dispositions .......... (210,063) 31,642
Equity loss in
Symskaya Exploration ........... 236,589 5,250,000
Change in other assets ........... 31,586 31,585
Common stock issued for services . 29,375 103,313
Decrease in deferred income taxes (334,498) (2,031,251)
Net cash provided before changes in
working capital items ........... 4,052,730 4,404,627
Increase (decrease) from changes in:
Accounts and advances receivable . 289,738 282,826
Other current assets ............. (72,727) 125,733
Accrued profit sharing ........... (35,100) (4,771)
Accounts payable and accrued
liabilities .................... (1,117,173) 98,516
Income taxes receivable/payable .. 346,248 154,075
Net cash provided
by operating activities .......... 3,463,716 5,061,006
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Symskaya Exploration ... (236,589) (2,793,811)
Proceeds from sale of properties ... 339,385 --
Sale of temporary cash investments . 49,802 756,645
Capital expenditures ............... (4,656,248) (5,945,334)
Net cash used in
investing activities ........... (4,503,650) (7,982,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock ......... (162,706) (43,056)
Net borrowings on
revolving credit facility ....... 700,000 2,860,000
Exercise of incentive
stock options ................... -- 84,375
Net cash provided by financing
activities ...................... 537,294 2,901,319
NET INCREASE (DECREASE) IN CASH ....... (502,640) (20,175)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ............. 787,961 511,252
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ................... $ 285,321 $ 491,077
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Income taxes ................ $ 607,694 $ 175,745
Interest ................... $ 550,458 $ -
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, 1996. 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
September 30, 1997, and the results of its operations for the three and nine
month periods ended September 30, 1997 and 1996, and its cash flows for the nine
month periods ended September 30, 1997 and 1996.
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 Form 10-Q. These financial statements should be read in conjunction
with the Company's 1996 Annual Report on Form 10-K, and the Company's Form
10-Q's for the first and second quarters of 1997.
The results for the three and nine month periods ended September 30, 1997 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. Investment in Symskaya Exploration
In the third quarter of 1996, Symskaya Exploration, Inc, the Company's 50% owned
subsidiary, charged the costs of drilling the Lemok No. 1 well in Russia to
expense. The Company's equity share of the loss was $5.25 million ($3.3 million
after taxes). Further discussion of this item can be found under Results of
Operations in Item 2.
<PAGE>
PART I
ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operation
RESULTS OF OPERATIONS
Financial Results
The Company recorded net income for the first nine months of 1997 in the
amount of $893,427, or $.07 per share, compared to a net loss during the same
period of 1996 in the amount of $(1,939,215), or $(.15) per share. Included in
the 1996 figures is an equity loss in Symskaya Exploration, Inc. of $5,250,000
$(3,309,075 net of taxes). Total revenues for the first nine months of 1997 were
$13,590,332, an increase of 12% over revenues of $12,118,357 recorded during the
same period of 1996.
The Company recorded a net loss for the third quarter of 1997 in the amount
$(48,158), or $(.00) per share on revenues of $4,058,939. This compared to a net
loss during the third quarter of 1996 of $(2,760,271), or $(.22) per share, on
revenues of $4,205,700, which included the equity loss in Symskaya Exploration,
Inc.
Operating Activities
The Company has participated in a total of 22 wells year to date in 1997,
completing 14 as oil and gas wells, with the remaining wells being plugged and
abandoned. Included in the well count are 17 exploratory wells. Nine of those
wells have been completed as oil or gas wells, and 8 were dry holes.
Fourteen wells have been drilled at the Company's 3D projects in the
Sacramento Basin of California, 8 of which have been successful. The dry holes
included the first test at the company's Davis Ranch 3-D project in the
Sacramento Basin. Current plans call for 7 additional wells to be drilled in
California during the fourth quarter of 1997.
Effective July 1, 1997, the Company purchased a 50% working interest in the
Merlin Prospect, Glenn County, California for $200,000. The prospect, which the
Company now operates, includes more than 5,000 acres under lease, a producing
well, a shut-in well, a gas gathering system and 15.5 square miles of 3-D
seismic data. Under the terms of the agreement, the Company will be required to
drill two wells during the fourth quarter of 1997.
The Company recently began its exploitation and exploration program on
certain Big Horn Basin properties acquired in 1995. The initial well, a
developmental test of the Madison formation, is in the process of being
completed as an oil well. Two additional exploratory wells will be drilled in
the fourth quarter. Pending results of this drilling, the Company is currently
planning additional drilling and production enhancing workovers in 1998.
The Company has recorded a 100% success rate in development drilling
projects in 1997, completing all 5 wells drilled. Two of the wells were drilled
at the Company's Siberia Ridge field in Wyoming, where plans call for two
additional wells to be drilled in 1998.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents, and temporary cash investments totaled $285,321 as
of September 30, 1997, a decrease of $552,442 since year-end 1996. Working
capital at September 30, 1997 was $2,845,656, up slightly from $2,809,084 at
December 31, 1996. The Company's ratio of current assets to current liabilities
was 3.14 to 1 at September 30, 1997, compared to 2.17 to 1 at December 31, 1997.
Cash provided by operating activities before working capital changes was
$4,052,730 in the first nine months of 1997, 8% lower than the same period of
1996.
Cash flow from operating activities decreased from $5,061,006 during the
first nine months of 1996 to $3,463,716 in the same period of 1997. The
principal cause of the decline is the reduction in Accounts Payable balances,
which is mainly a function of timing.
Investment in property and equipment for the first nine months of 1997,
including proved property acquisitions, totaled $4,656,248. Investment in
property and equipment for the same period of 1996, including advances to
Symskaya Exploration and proved property acquisitions, totaled $5,945,334.
Approximately $2.8 million was advanced to Symskaya during the first nine months
of 1996, compared to approximately $236,000 during the same period of 1997. The
Company spent $1.8 million on proved property acquisitions during the first nine
months of 1996, compared to only $160,000 during the first nine months of 1997.
Costs expended on the Company's domestic drilling programs during the first nine
months of 1997 increased 8% in 1997 to $4,496,248, compared to $4,149,334 in the
same period of 1996. The investment activity was partially funded by proceeds
from the sale of properties in 1997, and by the sale of temporary cash
investments in both years.
The Company purchased 51,000 shares of its stock on the open market during
the first nine months of 1997, at an average price of $3.19 per share. The
purchases were made pursuant to a share repurchase program adopted by the
Company in June of 1997. The Company purchased 12,000 shares of its stock during
the same period of 1996.
The Company has drawn down its credit facility by $700,000 during 1997,
compared to $2.86 million in 1996, with funds being used for property
acquisitions and other working capital needs. On October 17, 1997, the Company
amended its credit agreement, increasing the current commitment from $10 million
to $15 million.
The Company believes that existing cash balances, cash flow from operating
activities, and the remaining borrowing capacity under the revolving credit
facility, which is approximately $10.4 million, will provide adequate resources
to meet its capital, exploration, and acquisition spending objectives.
COMPARISON OF THIRD QUARTER 1997 WITH THIRD QUARTER 1996
Oil and gas sales decreased 5% in the third quarter of 1997 to $3,758,655
versus $3,974,173 in the same quarter of last year. Lower revenues were caused
by lower oil prices, which offset increases in oil and gas production and gas
prices. Total revenues decreased 3% from year to year.
Oil production increased 4% in the third quarter of 1997. Oil production
for the quarter was 159,400 barrels, compared to 154,000 barrels in the third
quarter of 1996. Gas production increased 33% from 395 Mmcf in 1996 to 524 Mmcf
in 1997. The increase in gas production is a result of the Company's continued
successful exploration program in northern California.
Average prices received for crude oil were $17.99 per barrel during the
third quarter of 1997, down 20% from the $22.48 received in 1996. Gas prices
increased to $1.78 per Mcf in 1997, compared to $1.30 in 1996, an increase of
37%.
During the third quarter of 1997, the Company sold its minority interest in
an oil field technology research company. In connection with the sale, the
Company recognized a gain of $175,000, which is included in other income.
Higher exploration expenses in 1997 result from higher dry hole costs in
the third quarter, reflecting the Company's increased pace of exploratory
drilling. During the period, the Company drilled 4 dry holes, incurring costs of
$337,000. Dry holes during the same quarter of 1996 were only $79,999. Higher
dry hole costs were partially offset by lower 3D seismic charges in 1997. During
the third quarter of 1996, the Company incurred 3-D charges of $153,000, while
no such expenses were incurred during the same period of 1997.
General and administrative expenses increased year-to-year, primarily due
to increased investor relations expenses.
<PAGE>
As discussed previously, during the third quarter of 1996 Symskaya
Exploration, Inc, the Company's 50% owned subsidiary, abandoned the Lemok No. 1
well. As a consequence, Symskaya charged the costs of drilling the Lemok No. 1
to expense at September 30, 1996. The Company's equity share of the loss was
$5.25 million ($3.3 million after taxes).
During 1996, because of its ongoing exploration project in Russia, the
Company was required to capitalize all interest paid. With activity in Russia
curtailed in 1997 as a result of the Lemok #1 being abandoned in 1996, interest
is now being expensed. Interest expense during the third quarter of 1997 was
$226,286, compared to no interest expense during the third quarter of 1996.
The income tax benefits recorded for both periods result primarily from the
deferred tax benefits associated with net losses reported.
COMPARISON OF FIRST NINE MONTHS OF 1997 WITH FIRST NINE MONTHS OF 1996
Oil and gas sales increased 8% in the first nine months of 1997 to
$12,504,373 versus $11,542,851 in the same period of last year. This increase
was brought about principally by increased oil and gas production and higher
natural gas prices. Oil production for the first nine months was 476,000
barrels, up slightly from 1996 production of 468,000 barrels. Gas production for
the period increased 6% to 1,526 Mmcf from 1,440 Mmcf in 1996. Production
increases reflect the ongoing success of the Company's drilling programs.
Gas prices increased to $1.90 per Mcf in 1997, compared to $1.35 in 1996,
an increase of 41%. Higher gas prices were partially offset by lower crude
prices. Average prices received for crude oil were $19.52 per barrel during the
first nine months of 1997, compared to $20.51 received in 1996, a decrease of
5%.
The increase in oil and gas sales for the period was augmented by an
increase in other income. During the first half of 1997, the Company recorded a
gain on the sale of certain oil and gas properties of approximately $325,000.
The properties sold had reserves of less than 15,000 barrels of oil. There was
no corresponding event in 1996. In addition, during the third quarter of 1997,
the Company sold its minority interest in an oil field technology research
company. In connection with the sale, the Company recognized a gain of $175,000.
Total expenses, excluding the equity loss in Symskaya Exploration, Inc.
increased 16% over 1996 nine month levels. Lease operating costs increased 10%,
primarily as a result of increased oil production and non-recurring workover
expenses. Depreciation, depletion and amortization increased 16%, primarily due
to increased oil production in 1997 and the new properties added to the
depletion base during 1997 and 1996.
Exploration expense increased slightly from year to year, as lower 3-D
seismic expenses were offset by higher dry hole costs. General and
administrative expenses decreased by 3% from 1996 nine month levels. The
decrease was mainly due to reduced compensation expense during 1997.
As discussed earlier, during the third quarter of 1996 Symskaya
Exploration, Inc, the Company's 50% owned subsidiary, abandoned the Lemok No. 1
well. As a consequence, Symskaya charged the costs of drilling the Lemok No. 1
to expense at September 30, 1996. The Company's equity share of the loss was
$5.25 million ($3.3 million after taxes).
During 1996, because of its ongoing exploration project in Russia, the
Company was required to capitalize all interest paid. With activity in Russia
curtailed in 1997, interest is now being expensed. Interest expense during the
first nine months of 1997 was $550,458, compared to no interest expense during
the same period of 1996.
Income tax expense for the first nine months of 1997 includes additional
taxes arising from an audit of the Company's Canadian tax returns. The
adjustment resulted in the accrual of approximately $175,000 in additional
Canadian taxes related to prior years.
<PAGE>
OTHER ITEMS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. This statement
establishes standards for computing and presenting earnings per share ("EPS")
and applies to entities with publicly-held common stock or potential common
stock. This statement simplifies the standards for computing EPS and makes them
comparable to international EPS standards. This statement is effective for
financial statements for both interim and annual periods ending after December
15, 1997. The Company is currently evaluating the impact of the recently issued
statement and will adopt the requirements for the year ending December 31, 1997.
The Company has reviewed all other recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on the results
of operations or financial position of the Company. Based on that review, the
Company believes that none of these pronouncements will have a significant
effect on current or future earnings or operations.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-Q, future filings by the Company
with the Securities and Exchange Commission, the Company's press releases and
oral statements by authorized officers of the Company are intended to be subject
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that all forward-looking statements involve risks
and uncertainty, including without limitation, the risk of a significant natural
disaster, the inability of the Company to ensure against certain risks, the
adequacy of its loss reserves, fluctuations in commodity prices, the inherent
limitations in the inability to estimate oil and gas reserves, changing
government regulations, as well as general market conditions, competition and
pricing. The Company believes that forward-looking statements made by it are
based upon reasonable expectations. However, no assurances can be given that
actual results will not differ materially from those contained in such
forward-looking statements. The words "estimate", "anticipate",
"expect","predict", "believe" and similar expressions are intended to identify
forward-looking statements.
PART II
OTHER INFORMATION
The answers to items listed under Part II are inapplicable or negative.
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: November 13, 1997 /s/ Paul M. Dougan
------------------------
Paul M. Dougan, President
DATE: November 13, 1997 /s/ Clay Newton
------------------------
Clay Newton, Treasurer
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<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 285,321
<SECURITIES> 0
<RECEIVABLES> 3,370,932
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<COMMON> 12,761,100
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<SALES> 12,504,373
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<CGS> 0
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<INCOME-CONTINUING> 893,427
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