UNITED STATES
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, 2000
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: 12,643,440
1
<PAGE>
ITEM I: Financial Statements
EQUITY OIL COMPANY
Statements of Operations
For the three months ended March 31, 2000 and 1999
(Unaudited)
2000 1999
------------ ------------
REVENUES
Oil and gas sales .................. $ 5,388,023 $ 2,610,852
Other .............................. 750,908 39,158
------------ ------------
6,138,931 2,650,010
EXPENSES
Operating costs .................... 1,642,923 1,286,158
Depreciation, depletion and
amortization ..................... 1,025,000 1,100,000
3D Seismic ......................... 191,678 --
Exploration ........................ 437,452 417,678
General and administrative ......... 514,682 428,270
Interest ........................... 339,446 298,327
------------ ------------
4,151,181 3,530,433
Income (loss) before income taxes ........... 1,987,750 (880,423)
Provision for
(benefit from) income taxes ........ 735,000 (307,724)
------------ ------------
NET INCOME (LOSS) ........................... $ 1,252,750 $ (572,699)
============ ============
Net income (loss) per share
Basic .............................. $ .10 $ (.05)
Diluted ............................ $ .10 $ (.05)
Weighted average shares outstanding
Basic .............................. 12,643,440 12,629,440
Diluted ............................ 12,966,440 12,629,440
The accompanying notes are an integral part of these statements.
2
<PAGE>
EQUITY OIL COMPANY
Balance Sheets
as of March 31, 2000 and December 31, 1999
March 31, December 31,
ASSETS 2000 1999
- ------ ------------- -------------
(Unaudited)
Current assets:
Cash and cash equivalents .............. $ 1,937,659 $ 1,006,602
Accounts and advances receivable ....... 3,593,923 3,382,361
Income taxes receivable ................ 290,332 221,199
Deferred income taxes .................. 19,632 19,632
Other current assets ................... 361,133 277,595
------------- -------------
6,202,679 4,907,389
Property and equipment ................... 103,920,643 103,574,626
Less accumulated depreciation,
depletion and amortization .............. 63,752,091 62,800,100
------------- -------------
40,168,552 40,774,526
Other assets ............................. 478,338 435,420
------------- -------------
TOTAL ASSETS ............................. $ 46,849,569 $ 46,117,335
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable ....................... $ 1,562,380 $ 1,541,834
Accrued liabilities .................... 134,562 177,550
Income taxes payable ................... 238,907 321,981
------------- -------------
1,935,849 2,041,365
Revolving credit facility ................ 14,000,000 15,000,000
Deferred income taxes .................... 2,252,648 1,667,648
------------- -------------
16,252,648 16,667,648
Stockholders' Equity:
Common stock ........................... 12,808,040 12,808,040
Paid in capital ........................ 3,719,743 3,719,743
Less cost of treasury stock ............ (528,302) (528,302)
Retained earnings ...................... 12,661,591 11,408,841
------------- -------------
28,661,072 27,408,322
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $ 46,849,569 $ 46,117,335
============= =============
The accompanying notes are an integral part of these statements.
3
<PAGE>
EQUITY OIL COMPANY
Statements of Cash Flows
For the three months ended March 31, 2000 and 1999
(Unaudited)
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................ $ 1,252,750 $ (572,699)
Adjustments
Depreciation, depletion and
amortization ............................ 1,025,000 1,100,000
(Gain) loss on property sales ......... (505,789) --
Change in other assets ................ 33,217 3,028
Equity loss in Symskaya Exploration ... 42,363 43,425
Change in deferred income taxes ........... 585,000 (308,400)
----------- -----------
2,432,541 265,354
Increase (decrease) from changes in:
Accounts and advances receivable ......... (211,562) 407,834
Other current assets ..................... (83,538) 13,325
Accounts payable and accrued
liabilities ........................... (22,442) (536,650)
Income taxes receivable/payable .......... (152,206) 75,590
----------- -----------
Net cash provided
by operating activities ................... 1,962,793 225,453
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................... (426,535) (172,831)
Proceeds from property sales ................. 513,298 --
Change in other assets ....................... (50,000) --
Advances to Symskaya Exploration ............. (42,363) (43,425)
----------- -----------
Net cash used in investing activities ........ (5,600) (216,256)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of credit facility fees .............. (26,136) --
Payments on credit facility .................. (1,000,000) --
----------- -----------
Net cash used in
financing activities ................. (1,026,136) --
----------- -----------
NET INCREASE IN CASH ........................... 931,057 9,197
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ....................... 1,006,602 444,476
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ............................. $ 1,937,659 $ 453,673
=========== ===========
The accompanying notes are an integral part of these statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
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, 2000, and
the results of its operations and its cash flows for the three month periods
ended March 31, 2000 and 1999.
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 1999 Annual Report on Form 10-K.
The results for the three month period ended March 31, 2000 are not necessarily
indicative of future results.
Note 2. Net Income (Loss) Per Share
Income (loss) per share for all periods presented reflects the adoption of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 requires companies to present basic earnings per share, and if
applicable, diluted earnings per share, instead of primary and fully diluted
earnings per share. Basic earnings per share excludes dilution and is computed
by dividing net earnings available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if options to issue
common stock were exercised into common stock.
Options to purchase approximately 1,347,000 shares of common stock at prices of
$1.06 to $6.00 per share were outstanding during the first three months of 2000,
323,000 of which were included in the computation of diluted net income per
share for the period. Options to purchase approximately 1,024,000 shares of
common stock at prices of $2.50 to $6.00 per share were outstanding during the
first three months of 1999, none of which were included in the computation of
net loss per share at March 31, 1999 because the effect would have been
antidilutive.
Note 3. Reclassifications
Certain balances in the March 31, 1999 financial statements have been
reclassified to conform to the current year presentation. These changes had no
effect on the previously reported net loss, total assets, liabilities or
stockholders' equity.
5
<PAGE>
PART I
ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Sharply higher oil prices combined with increased oil production to
produce a 106% increase in oil and gas sales for the first quarter of 2000.
Total revenues for the period were $6,138,931, compared to $2,650,010 during the
first quarter of 1999. The Company recorded net income for the 2000 first
quarter of $1,252,750, or $.10 per share. This compares to a net loss for the
first quarter of 1999 of $(572,699), or $(.05) per share.
Oil production in the 2000 first quarter was 170,000 barrels, compared
to 154,000 in the same period last year. The increase was attributable to
production from low-margin wells that were shut-in during early 1999. Gas
production decreased to 450 million cubic feet in 2000 from 550 million cubic
feet in 1999. The reduction was due primarily to the Company's reduced drilling
program in California during 1999.
Revenues were decreased by $196,170 in losses associated with the
Company's hedging program, which was instituted in 1999 to help manage oil price
volatility. The Company has 900 barrels of oil per day hedged under costless
collars. The collars have floors of $18.00 per barrel and a weighted average
ceiling of $26.37 per barrel. The floor and ceilings are based on the average
near month WTI price on the New York Mercantile Exchange (NYMEX).
After taking into consideration the hedging losses, average crude prices
received in the first quarter this year were $25.40 per barrel, compared to
$11.29 per barrel received during the same period of 1999. Gas prices also
increased in the first quarter of 2000, averaging $2.37 per Mcf, compared to
$1.58 per Mcf received during the first quarter of 1999.
Included in first quarter 2000 revenues was $506,000 in property sales
due to the sale of a small, non-core oil property effective February 1, 2000.
First quarter revenues also include approximately $100,000 in overhead income
associated with the Company's newly operated properties in the Big Horn Basin.
This level of overhead income should continue to be recognized each quarter for
the forseeable future.
Higher revenues were offset by higher operating costs, 3D seismic
expenses, and administrative costs. Operating costs rose 28% from 1999 levels,
as the Company returned its higher-cost, lower-margin oil properties to full
production. In addition, higher oil prices resulted in higher value-based
production taxes.
6
<PAGE>
First quarter expenses include the initial costs associated with two new
Company operated 3D seismic surveys, one in the Sacramento Basin of California
and one in North Dakota. The Company did not participate in any 3D seismic
programs during the first quarter of 1999.
General and administrative expenses increased slightly from 1999 first
quarter levels. The increase was due to higher compensation and other
administrative expenses. During the low oil price environment of early 1999, the
Company froze salaries, reduced employee benefits, and made other compensation
reductions. As oil prices have increased, the Company has restored some of these
previous reductions. In addition, the Company recorded overhead expenses
associated with its new Cody, Wyoming office of approximately $40,000, an amount
which should continue to be expensed each quarter for the forseeable future.
Higher interest costs in 2000 reflect higher interest rates applied to
the amount of debt outstanding under the Company's credit facility.
CAPITAL RESOURCES AND LIQUIDITY
Improved financial results have led to a strengthening in the Company's
financial position at March 31, 2000. The Company's cash balances increased by
92% from December 31, 1999. Working capital at March 31, 2000 was 106% higher
than that at December 31, 1999. The Company's ratio of current assets to current
liabilities also improved, reaching 3.20 to 1 at March 31, 2000, compared to
2.40 to 1 at the end of 1999. Cash flow from operating activities in the first
quarter of 2000 increased by more than 700% over 1999 levels.
Investment in property and equipment for the first three months of 2000
totaled $426,535, a 146% increase from the amount recorded during the
corresponding three months of 1999. As a result of severely depressed oil prices
in early 1999, and their negative effects on cash flows, the Company reduced its
1999 capital budget to ensure that the bulk of its projects would be funded by
discretionary cash flows. Higher cash flows in 2000 will allow the Company to
continue to expand its exploration and exploitation activities. The bulk of the
Company's drilling should occur during the second through fourth quarters of the
year.
Higher cash flows during the quarter enabled the Company to make
further reductions in its long-term debt. Debt outstanding at March 31, 2000 was
$14 million, down $1 million from year-end 1999 amounts, reflecting the
Company's plan of using excess cash flow to aggressively manage its balance
sheet. The Company's commitment under its credit facility is subject to a
redetermination as of May 1 and November 1 of each year, with estimated future
oil and gas prices used in the evaluation determined by the Company's lender.
The Company's current commitment under its credit facility is $17 million.
Accordingly,
7
<PAGE>
as of March 31, 2000, the Company had $3 million of remaining availability on
the facility. The Company is in compliance with all its facility covenants.
The Company believes that existing cash balances, cash flow from
operating activities, and funds available under the Company's credit facility
will provide adequate resources to meet its capital and exploration spending
objectives for 2000.
OTHER ITEMS
In June 1998, the Financial Accounting Standards Board released
Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities
Information." As amended by Statement No. 137 issued in June 1999, this
statement, which must be adopted beginning no later than January 1, 2001 for
calendar year companies such as the Company, establishes accounting and
reporting standards for derivative instruments. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
financial statements and measure those instruments at fair value, and it defines
the accounting for changes in the fair value of the derivatives depending on the
intended use of the derivative. The Company is in the process of determining the
impact of this statement on its financial statements.
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
The preceding discussion and analysis should be read in conjunction
with the consolidated financial statements, including the notes thereto,
appearing in the Company's annual report on Form 10-K. Except for the historical
information contained herein, the matters discussed in this report contain
forward- looking statements within the meaning of Section 27a of the Securities
Act of 1933, as amended, and Section 2le of the Securities Exchange Act of 1934,
as amended, that are based on management's beliefs and assumptions, current
expectations, estimates, and projections. Statements that are not historical
facts, including without limitation statements which are preceded by, followed
by or include the words "believes," "anticipates," "plans," "expects," "may,"
"should" or similar expressions are forward-looking statements. Many of the
factors that will determine the Company's future results are beyond the ability
of the Company to control or predict. These statements are subject to risks and
uncertainties and, therefore, actual results may differ materially. The Company
disclaims any obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise.
8
<PAGE>
Important factors that may effect future results include, but are not
limited to: the risk of a significant natural disaster, the inability of the
Company to insure against certain risks, fluctuations in commodity prices, the
inherent limitations in the ability to estimate oil and gas reserves, changing
government regulations, as well as general market conditions, competition and
pricing, and other risks detailed from time to time in the Company's SEC
reports, copies of which are available upon request from the Company's investor
relations department.
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 12, 2000 By /s/ Paul M. Dougan
---------------------- ---------------------
Paul M. Dougan, President
DATE: May 12, 2000 By /s/ Clay Newton
----------------------- ---------------------
Clay Newton, Treasurer
Principal Accounting Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
EQUITY OIL COMPANY FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,937,659
<SECURITIES> 0
<RECEIVABLES> 3,593,923
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,202,679
<PP&E> 103,920,643
<DEPRECIATION> 63,752,091
<TOTAL-ASSETS> 46,849,569
<CURRENT-LIABILITIES> 1,935,849
<BONDS> 0
0
0
<COMMON> 12,808,040
<OTHER-SE> 3,719,743
<TOTAL-LIABILITY-AND-EQUITY> 46,849,569
<SALES> 5,388,023
<TOTAL-REVENUES> 6,138,931
<CGS> 0
<TOTAL-COSTS> 3,811,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 339,446
<INCOME-PRETAX> 1,987,750
<INCOME-TAX> 735,000
<INCOME-CONTINUING> 1,252,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,252,750
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
