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 March 31, 1998
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: 12,615,440
<PAGE>
ITEM I: Financial Statements
EQUITY OIL COMPANY
Statement of Operations
For the three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
------- -------
REVENUES
Oil and gas sales .................. $ 3,500,460 $ 4,842,278
Partnership income ................. 8,000 75,000
Interest income .................... 34,029 54,926
Other .............................. 34,956 114,800
------------ ------------
3,577,445 5,087,004
EXPENSES
Operating costs .................... 1,648,930 1,542,768
Depreciation, depletion and
amortization ..................... 1,250,000 1,100,000
3D Seismic ......................... 409,743 --
Exploration ........................ 390,128 656,857
Equity loss in
Symskaya Exploration ............. 83,498 85,725
General and administrative ......... 438,578 558,817
Interest ........................... 279,534 150,323
------------ ------------
4,500,411 4,094,490
Income (loss) before income taxes ........... (922,966) 992,514
Provision for (benefit from)
income taxes ....................... (280,960) 212,139
------------ ------------
NET INCOME (LOSS) ........................... $ (642,006) $ 780,375
============ ============
Basic and diluted net
income (loss) per common share ..... $ (.05) $ 0.06
============ ============
Cash dividends per share declared ........... $ .00 $ .00
============ ============
Weighted average shares outstanding ......... 12,610,179 12,717,311
The accompanying notes are an integral part of these statements.
<PAGE>
EQUITY OIL COMPANY
Balance Sheet
as of March 31, 1998, and December 31, 1997
March 31, December 31,
ASSETS 1998 1997
------------- -------------
(Unaudited)
Current assets:
Cash and cash equivalents .................. $ 324,981 $ 378,801
Accounts and advances receivable ........... 3,461,648 3,641,535
Income taxes receivable .................... 39,058 88,174
Deferred income taxes ...................... 18,934 18,934
Other current assets ....................... 611,195 514,713
------------- -------------
4,455,816 4,642,157
Property and equipment ....................... 114,331,942 113,371,891
Less accumulated depreciation,
depletion and amortization .................. 66,031,078 64,846,514
---------- ----------
48,300,864 48,525,377
Other assets:
Investment in Raven Ridge
Pipeline Partnership ..................... 214,140 268,821
Other assets ............................... 105,284 105,284
------------- -------------
319,424 374,105
TOTAL ASSETS ................................. $ 53,076,104 $ 53,541,639
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $ 1,144,468 $ 1,327,120
Accrued liabilities ........................ 132,990 120,039
Federal, state and foreign
income taxes payable ..................... 447,182 354,002
Accrued profit sharing ..................... -- 188,973
------------- -------------
1,724,640 1,990,134
Revolving credit facility .................... 14,778,830 13,978,830
Deferred income taxes ........................ 4,446,580 4,851,966
------------- -------------
19,225,410 18,830,796
Stockholders' Equity:
Common stock ............................... 12,780,040 12,761,100
Paid in capital ............................ 3,696,118 3,667,707
Less cost of treasury stock ................ (528,302) (528,302)
Retained earnings .......................... 16,178,198 16,820,204
------------- -------------
32,126,054 32,720,709
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....................... $ 53,076,104 $ 53,541,639
============= =============
The accompanying notes are an integral part of these statements.
<PAGE>
EQUITY OIL COMPANY
Statement of Cash Flows
For the three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................... $ (642,006) $ 780,375
Adjustments
Depreciation, depletion and
amortization .......................... 1,250,000 1,100,000
Partnership distributions
in excess of income ................... 54,681 41,408
Property dispositions ................... -- 18,440
Common stock issued for services .... 47,350 --
Change in other assets .............. -- 10,529
Equity loss in Symskaya ............. 83,498 85,725
Decrease in deferred income taxes ....... (405,386) (132,967)
-------- --------
Net cash provided before changes in
working capital items ................... 388,137 1,903,510
Increase (decrease) from changes in:
Accounts and advances receivable ....... 179,887 (11,412)
Other current assets ................... (96,482) 35,299
Accounts payable and accrued
liabilities ......................... (169,701) (403,132)
Income taxes receivable/payable ........ 142,296 319,648
Accrued profit sharing ................. (188,973) (131,100)
----------- -----------
Net cash provided
by operating activities ................. 255,164 1,712,813
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................... (1,025,486) (1,466,951)
Advances to Symskaya Exploration ........... (83,498) (85,725)
Sale of temporary cash investments ......... -- 49,802
--------- ---------
Net cash used in investing activities ...... (1,108,984) (1,502,874)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock ................. -- (56,647)
Proceeds from revolving credit facility .... 800,000
----------- -----------
Net cash provided by (used in)
financing activities ............... 800,000 (56,647)
----------- -----------
NET INCREASE (DECREASE) IN CASH .............. (53,820) 153,292
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ..................... 378,801 787,961
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ........................... $ 324,981 $ 941,253
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying consolidated financial statements of Equity Oil Company
(the Company) have not been audited by independent accountants, except for the
Balance Sheet at December 31, 1997. In the opinion of the Company's management,
the financial statements reflect the necessary adjustments, all of which are of
a normal and recurring nature, to present fairly the financial position of the
Company as of March 31, 1998, and the results of its operations and its cash
flows for the three month periods ended March 31, 1998 and 1997.
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 1997 Annual Report on Form 10-K.
The results for the three month period ended March 31, 1998 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. Basic and diluted earnings per
share are the same.
Note 3. Reclassifications
Certain balances in the March 31, 1997 financial statements have been
reclassified to conform with the current year presentation. These changes had no
effect on the previously reported net income, total assets, liabilities or
stockholders' equity.
<PAGE>
PART I
ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Severely depressed oil prices offset increases in oil and gas production,
resulting in a 30% decline in total revenues for the first quarter of 1998.
Total revenues for the period were $3,577,445, compared to $5,087,004 during the
first quarter of 1997. As a result of the lower revenues, the Company recorded a
net loss for the 1998 quarter of $(642,006), or $(.05) per share. This compares
to net income for the first quarter of 1997 of $780,375, or $.06 per share.
As a result of its acquisition and drilling activities in 1997, the Company
recorded increases in both oil and gas production in 1998. Oil production of
170,000 barrels was up 6% from 161,000 barrels in 1997. Gas production increased
from 502,000 Mcf produced in 1997 to 620,000 Mcf produced during the first
quarter of 1998, an increase of 24%.
Average prices received for oil during the first quarter of 1998 declined
35% from first quarter 1997 levels. Average crude prices received in 1998 were
$13.25 per barrel, compared to $20.30 per barrel received during the same period
of 1997. Gas prices also decreased during the first quarter of 1998, averaging
$1.95 per Mcf, compared to $2.68 per Mcf received during the first quarter of
1997.
Other income decreased by approximately $80,000 during the first quarter of
1998. Other income in 1997 included approximately $70,000 received from the sale
of certain mineral rights. There was no similar transaction during the first
quarter of 1998.
Total expenses in 1998 increased 10% over 1997 first quarter levels. Higher
production levels contributed to higher lease operating costs and depreciation,
depletion, and amortization (DD&A) charges. While lease operating costs
increased 7%, per BOE costs declined from $6.31 per BOE to $6.03 per BOE. DD&A
per unit charges increased slightly from $4.50 per BOE to $4.57 per BOE in 1998.
The decrease in exploration expense was primarily due to lower dry hole
costs in 1998. During the first quarter of 1997, the Company participated in two
dry holes. There were no dry holes drilled during 1998. The Company incurred 3D
seismic charges of $409,743 in 1998 associated with its Sequoia project in the
San Joaquin Basin of California. The initial well at Sequoia is scheduled to
drill during the third quarter of 1998. The Company did not participate in any
3D seismic programs during the first quarter of 1997.
General and administrative expenses decreased 22% from 1997 first quarter
levels. The decrease was due to reduced compensation, insurance, and other
administrative expenses. Higher interest costs in 1998 reflect the higher amount
of debt outstanding under the Company's credit facility.
During the first quarter of 1998, the Company participated in the drilling
of 3 wells, all of which have been completed as producing wells. Included in the
1998 well count is an exploratory well drilled in California on the Company's
Merlin 3-D seismic project. The #1-15 Henning, located in Glenn County,
California, tested at a rate of 1.4 million cubic feet per day from perforations
at 5,565 - 5,568 feet in the Cretaceous Forbes formation and 5.9 million cubic
feet per day from 5,518 to 5,556 feet. The well is currently on production at a
rate of 3 MMCFD. Equity operates and has a 50% working interest in the well and
the Merlin project.
Another exploratory well successfully completed in 1998 was the #24-15
Beaver Creek well in Golden Valley County, North Dakota. The well, in which
Equity has a 32.5% working interest, was drilled to a total depth of 12,550
feet, and has been completed as an oil well in the Duperow formation at 10,856 -
10,878 feet. The well is now on production at an initial daily rate of 390
barrels of oil, 130 MCF of gas and 67 barrels of water per day. In addition to
the Duperow, well logs and drill stem tests conducted during the drilling of the
well indicate that as many as three other zones in the well may be productive.
Westport Oil & Gas Company operates the well and holds the remaining working
interest.
The Company also drilled an additional successful development well in 1998
at its Siberia Ridge field in Sweetwater County, Wyoming. The well was placed on
production at a rate of 700 MCFD per day. The Company has a 50% interest in the
well.
<PAGE>
The Company is continuing to pursue additional outside financing for its
Symskaya project in Russia. The Company recently announced that its 50% owned
subsidiary, Symskaya Exploration, Inc. has entered into a Bottom Hole
Contribution Agreement with the Committee for Natural Resources of the
Krasnoyarsk Krai in Eastern Siberia to support the drilling of the Averinskaya -
150 well, an exploratory well that is being drilled near the town of Yeniseysk.
The well is adjacent to the southern block of acreage that Symskaya holds as
part of its 1.1 million acre exploration, development and production License.
The well is being drilled to evaluate the oil and gas potential of the same
geologic section that Symskaya targeted in the drilling of its Lemok No. 1 well
on the northern acreage block of its License area.
In exchange for a nominal payment, Symskaya will receive all pre-drilling
data from the well, drilling data acquired during the drilling of the well, and
all final reports on the well including logs, test results, core and drill
cutting samples, and samples of any oil, water or gas recovered during drilling.
In addition, Symskaya personnel will have complete access to the drill site
during drilling, the right to collect drill cuttings and other samples, and the
right to witness all coring and testing. The well is projected to be drilled to
a total depth of 11,500 feet.
Costs associated with the Symskaya project are expected to be minimal
during 1998, with expenses similar to those incurred in 1997.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents were $324,981 at March 31, 1998, down from
$378,801 at year-end 1997. Working capital at March 31, 1998 was $2,731,176,
compared to working capital of $2,652,023 at December 31, 1997. The net loss
brought about by reduced oil prices also led to sharply reduced cash flows. For
the first three months of 1998, net cash provided before working capital changes
decreased by 80% over the same period of 1997.
Investment in property and equipment for the first three months of 1997
totaled $1,025,486, a 30% decrease from the amount recorded during the
corresponding three months of 1997. As a result of the severely depressed oil
prices, and their negative effects on cash flows, the Company has reduced its
1998 capital budget to ensure that the bulk of its projects will be paid from
discretionary cash flows. The Company has high-graded both exploratory and
development projects based on their assumed risks and rewards, and balanced this
with projects that have specific lease related drilling commitments. Other
projects have been delayed or deferred until oil prices strengthen, and cash
flows increase. The Company's revised budget includes 17 exploration projects
and 7 development and exploitation projects. The bulk of the Company's drilling
should occur during the third and fourth quarters of the year.
During the three months ended March 31, 1997, the Company purchased 18,000
shares of treasury stock for a total price of $56,600. No treasury stock has
been purchased during the first quarter of 1998. The Company borrowed $800,000
on its credit facility during the first quarter of 1998, primarily for working
capital purposes. The Company did not draw down any funds on its line of credit
during the first quarter of 1997. On March 30, 1998, the Company amended its
credit agreement, increasing the current commitment from $15 million to $18
million.
The Company believes that existing cash balances, cash flow, and funds
available under the Company's credit facility will provide adequate resources to
meet all of its current capital and exploration spending objectives for 1998.
<PAGE>
OTHER ITEMS
In June of 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. This Statement is effective for fiscal
years beginning after December 15, 1997. The adoption of this Statement did not
have a material effect on the Company's financial statements.
The Company has reviewed all 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.
<PAGE>
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 there unto duly authorized.
EQUITY OIL COMPANY
(Registrant)
DATE: May 13, 1998 By /s/ Paul M. Dougan
---------------------- -------------------
Paul M. Dougan, President
DATE: May 13, 1998 By /s/ Clay Newton
----------------------- ----------------
Clay Newton, Treasurer
Principal Accounting Officer
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
(Replace this text with the legend)
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 324,981
<SECURITIES> 0
<RECEIVABLES> 3,461,648
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,455,816
<PP&E> 114,331,942
<DEPRECIATION> 66,031,078
<TOTAL-ASSETS> 53,076,104
<CURRENT-LIABILITIES> 1,724,640
<BONDS> 0
0
0
<COMMON> 12,780,040
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 53,076,104
<SALES> 3,500,460
<TOTAL-REVENUES> 3,577,445
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,220,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279,534
<INCOME-PRETAX> (922,966)
<INCOME-TAX> (280,960)
<INCOME-CONTINUING> (642,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (642,006)
<EPS-PRIMARY> $(.05)
<EPS-DILUTED> $(.05)>
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