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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-610
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EQUITY OIL COMPANY
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(Exact name of registrant as specified in its charter)
COLORADO 87-0129795
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(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
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(Address of principal executive offices)
(Zip Code)
(801) 521-3515
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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
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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
<PAGE>
ITEM I: Financial Statements
EQUITY OIL COMPANY
Statements of Operations
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
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REVENUES
Oil and gas sales ...................... $ 16,818,425 $ 10,422,320
Interest income ........................ 130,887 32,543
Other .................................. 1,295,153 162,149
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18,244,465 10,617,012
EXPENSES
Operating costs ........................ 5,032,304 4,271,325
Depreciation, depletion and
amortization ......................... 3,000,000 3,100,000
Equity loss in
Symskaya Exploration, Inc. ....... 101,890 130,203
3D seismic ............................. 590,769 11,702
Exploration ............................ 1,523,754 1,037,755
General and administrative ............. 1,467,340 1,310,126
Interest ............................... 885,183 911,636
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12,601,240 10,772,747
Income (loss) before
income taxes ..................... 5,643,225 (155,735)
Provision for (benefit from)
income taxes ..................... 2,067,666 (117,513)
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NET INCOME (LOSS) ........................... $ 3,575,559 $ ( 38,222)
============ ============
Net income (loss) per share
Basic .............................. $ .28 $ (.00)
Diluted ............................ $ .28 $ (.00)
Weighted average shares outstanding
Basic .............................. 12,643,440 12,643,440
Diluted ............................ 12,932,233 12,643,440
The accompanying notes are an integral part of these statements.
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EQUITY OIL COMPANY
Statements of Operations
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
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REVENUES
Oil and gas sales ....................... $ 6,027,006 $ 4,303,735
Interest income ......................... 55,236 13,348
Other ................................... 142,284 90,953
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6,224,526 4,408,036
EXPENSES
Operating costs ......................... 1,747,786 1,615,929
Depreciation, depletion and
amortization .......................... 1,000,000 1,050,000
Equity loss in
Symskaya Exploration, Inc. ........ 18,931 23,997
3D seismic .............................. 59,976 11,702
Exploration ............................. 734,810 285,251
General and administrative .............. 495,783 391,720
Interest ................................ 270,616 319,002
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4,327,902 3,697,601
Net income before income taxes ............... 1,896,624 710,435
Provision for income taxes ................... 682,597 287,903
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NET INCOME ................................... $ 1,214,027 $ 422,532
=========== ===========
Net income per common share:
Basic ................................... $ 0.10 $ 0.03
Diluted ................................. $ 0.09 $ 0.03
Weighted average shares outstanding:
Basic ................................... 12,643,440 12,638,696
Diluted ................................. 12,860,825 12,673,319
The accompanying notes are an integral part of these statements.
3
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EQUITY OIL COMPANY
Balance Sheet
as of September 30, 2000 and December 31, 1999
(Unaudited)
September 30, December 31,
ASSETS 2000 1999
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Current assets:
Cash and cash equivalents .............. $ 2,188,734 $ 1,006,602
Accounts and advances receivable ....... 3,966,258 3,382,361
Income taxes receivable ................ 160,264 221,199
Deferred income taxes .................. 19,632 19,632
Other current assets ................... 85,035 277,595
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6,419,923 4,907,389
Property and equipment ................... 105,304,081 103,574,626
Less accumulated depreciation,
depletion and amortization .............. 65,719,526 62,800,100
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39,584,555 40,774,526
Other assets:
Other assets ........................... 388,769 435,420
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388,769 435,420
TOTAL ASSETS ............................. $ 46,393,247 $ 46,117,335
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................... $ 2,039,857 $ 1,541,834
Accrued liabilities .................... 119,895 177,550
Federal, state and foreign
income taxes payable ................. 158,776 321,981
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2,318,528 2,041,365
Revolving credit facility ................ 9,500,000 15,000,000
Deferred income taxes .................... 3,587,649 1,667,648
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13,087,649 16,667,648
Stockholders' equity:
Common stock ........................... 12,811,040 12,808,040
Paid in capital ........................ 3,719,932 3,719,743
Less cost of treasury stock ............ (528,302) (528,302)
Retained earnings ...................... 14,984,400 11,408,841
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30,987,070 27,408,322
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $ 46,393,247 $ 46,117,335
============= =============
The accompanying notes are an integral part of these statements.
4
<PAGE>
EQUITY OIL COMPANY
Statement of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ......................... $ 3,575,559 $ (38,222)
Adjustments:
Depreciation, depletion and
amortization ................... 3,000,000 3,100,000
Loss (gain) on
property dispositions .......... (499,965) 29,954
Equity loss in
Symskaya Exploration, Inc. . 101,890 130,203
Change in other assets ........... 72,786 15,224
Common stock issued for services . -- 19,250
Change in deferred income taxes .. 1,920,001 (146,428)
Increase (decrease) from changes in:
Accounts and advances receivable . (583,897) (658,234)
Other current assets ............. 192,560 111,288
Accounts payable and accrued
liabilities .................... 440,368 (1,051,941)
Income taxes receivable/payable .. (102,269) 213,559
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Net cash provided
by operating activities .......... 8,117,033 1,724,653
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of properties ... 513,298 --
Advances to Symskaya Exploration ... (101,890) (130,203)
Capital expenditures ............... (1,823,362) (1,196,900)
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Net cash used in
investing activities ........... (1,411,954) (1,327,103)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan fees ............... (26,136) (180,327)
Stock option proceeds .............. 3,189 --
Payments on credit facility ........ (5,500,000) --
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Net cash used in financing
activities ...................... (5,522,947) (180,327)
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NET INCREASE (DECREASE) IN CASH ....... 1,182,132 217,223
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ............. 1,006,602 444,476
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD ................... $ 2,188,734 $ 661,699
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The accompanying notes are an integral part of these statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of Equity Oil Company ("Equity " or
"the Company ") have not been audited by independent accountants, except for the
Balance Sheet as of December 31, 1999. 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, 2000, and the results of its
operations for the three and nine month periods ended September 30, 2000 and
1999, and its cash flows for the nine month periods ended September 30, 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, and the
Company's Form 10-Q for the first and second quarters of 2000.
The results for the three and nine month periods ended September 30, 2000
are not necessarily indicative of future results.
NOTE 2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share was computed by dividing the net income
(loss) by the weighted average number of common shares outstanding. Diluted net
income (loss) per share was computed by dividing the net income (loss) by the
sum of the weighted average number of common shares and the effect of dilutive
unexercised stock options. Dilutive options to purchase approximately 536,500
shares of common stock at prices of $1.06 to $1.71 per share were outstanding
during the three and nine month periods ending September 30, 2000 and were
included in the computation of diluted net income per share for those periods.
Dilutive options to purchase approximately 318,500 shares of common stock at a
price of $1.06 per share were outstanding during the three month period ending
September 30, 1999, and were included in the computation of diluted net income
per share for that period. Options outstanding for the nine month period ended
September 30, 1999 were not included in the computation of diluted net loss per
share because the effect would have been antidilutive.
NOTE 3. RECLASSIFICATIONS
Certain balances in the September 30, 1999 financial statements have been
reclassified to conform to the current year presentation. These changes had no
effect on the previously reported net income (loss), total assets, liabilities
or stockholders' equity.
6
<PAGE>
PART I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
RESULTS OF OPERATIONS
FINANCIAL RESULTS
Higher oil and gas prices during the third quarter of 2000 helped the
Company realize its third consecutive quarter of record net income, strengthen
its balance sheet, and generate additional cash to fund its future drilling
programs. For the quarter ended September 30, 2000, Equity recorded net income
of $1,214,027, or $.10 per basic share, compared to net income of $422,532, or
$.03 per basic share, in the third quarter of 1999. Revenues in the 2000 third
quarter were $ 6,224,526, up 41% from revenues of $4,408,036 in the 1999 third
quarter. Cash flow from operating activities in the third quarter of 2000 of
$3,262,879 was 266% higher than the third quarter 1999 cash flow of $890,292,
enabling the Company to further reduce its long-term debt by $3.5 million.
Net income for the first nine months of 2000 was $3,575,559, or $.28 per
basic share, compared to a net loss of $(38,222), or $.(00) per basic share
reported in the first nine months of 1999. Total revenues of $18,244,465 were
72% higher than total revenues of $10,617,012 recorded in the first nine months
of 1999. Cash flow from operating activities in the first nine months of 2000 of
$8,117,033 was 371% higher than 1999 nine months cash flow of $1,724,653.
OPERATING ACTIVITIES
A principal focus of the Company's exploration efforts continues to be 3D
seismic driven projects in the Sacramento Basin of California. A new focus area
is the 25 square mile Rancho Colusa prospect in Colusa County, where Equity has
14,000 acres under lease and recently completed a 3D seismic survey. The survey
indicates more than twenty Forbes anomalies, some number of which may evolve
into drillable prospects. The survey is just north of the prolific West Grimes
gas field where over 60 BCF of natural gas has been recovered from a six-section
area.
In order to pursue this opportunity aggressively, while minimizing drilling
risks and recovering land and seismic costs, the company sold a 45% interest in
the survey and leasehold to an industry partner, entering into a joint operating
agreement naming Equity, which retained 55% of the project, as the operator. The
first well at the prospect, drilled in October, was a dry hole. The second well
is currently drilling, a third well will spud in mid-November.
During the first nine months of 2000, the Company and its partners
successfully completed all three non-operated wells drilled in the Sacramento
Basin. These three wells tested at a combined rate of 5 MMCFD, and are awaiting
pipeline hookup, which should occur early in the fourth quarter. Two additional
non-operated wells will commence shortly.
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<PAGE>
In addition to the activity in the Sacramento Basin, the Company is using
its higher cash flows to expand drilling in other focus areas. The Company began
shooting a 25 square mile 3D shoot in the Beaver Creek area in North Dakota
during September, and is conducting a multi-well workover program in the Big
Horn basin in an effort to enhance production from existing properties.
The Company's workover program in the Big Horn Basin continues to yield
positive results. Through September 30, the Company has increased its net oil
production by 50 barrels of oil per day.
The Company also participated in two successful low-cost development wells
at its Cessford prospect in western Canada, with an initial combined production
rate of approximately 30 net barrels of oil per day. The Company recently
committed to four additional wells to be drilled before year-end 2000.
The Company continues to conduct operations with respect to Symskaya
Exploration in a maintenance mode. Drilling operations have resumed at the
Averinskaya - 150 well, an exploratory well that is being drilled near the town
of Yeniseysk in Eastern Siberia by the regional geological committee. 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. The well has reached its total depth of 4,750
meters, and is currently being logged and tested.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents totaled $2,188,734 as of September 30, 2000, an
increase of 117% since year-end 1999. Working capital at September 30, 2000
improved to $4,101,395, compared to $2,866,024 at December 31, 1999. The
Company's ratio of current assets to current liabilities improved to 2.77 to 1
at September 30, 2000, compared to 2.40 to 1 at December 31, 1999.
These improvements in cash balances and working capital come despite the
fact that the Company has reduced its outstanding debt by $5.5 million during
2000 to $9.5 million at September 30, 2000. Higher cash flows have enabled the
Company to aggressively manage its balance sheet. Cash provided by operating
activities before working capital changes increased by almost 375%, from
$1,724,653 in the first nine months of 1999 to $8,172,033 recorded during the
same period of 2000.
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, as of September 30, 2000, the Company had $7.5 million of
availability on the facility. The Company is in compliance with all of its
facility covenants.
8
<PAGE>
Investment in property and equipment for the first nine months of 2000
totaled $1,823,362, a 52% increase from the amount recorded during the
corresponding nine months of 1999. Higher cash flows have enabled the Company to
increase the size of its 2000 drilling and workover programs.
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.
COMPARISON OF THIRD QUARTER 2000 WITH THIRD QUARTER 1999
Higher oil and gas prices, coupled with increased oil production, resulted
in a 40% increase in oil and gas sales for the third quarter of 2000. Revenues
were also increased by higher interest and overhead income. Total revenues for
the period were $6,224,526, compared to $4,408,036 during the same period of
1999.
Revenues were reduced by $426,076 in the third quarter of 2000 by costs
associated with the Company's hedging program, which was instituted in 1999 as a
requirement of its bank financing program. The Company had 400 barrels of oil
per day hedged under a costless collar, with a floor of $18.00 and a ceiling of
$25.30, which terminated on September 30, 2000; the Company has no current plans
to replace this hedge. The Company has an additional 500 barrels of oil per day
hedged under a second costless collar, with a floor of $18.00 and a ceiling of
$27.22. This collar terminates on December 31, 2000. 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 costs discussed above, average
oil prices received in the third quarter were $28.34 per barrel, up 49% from
$19.04 per barrel in the third quarter of 1999. Gas prices were also up sharply,
averaging $3.84 per Mcf in the third quarter of 2000 compared to $2.29 per Mcf
in 1999. Oil production increased 2% to 165,000 barrels in 2000 compared to
162,000 barrels during the same period of 1999. Gas production in the 2000
quarter decreased to 370,000 Mcf compared to 530,000 Mcf in the comparable
period last year. The reduction in gas production was due in part to the
Company's reduced drilling program in California during 1999. In addition, due
to some unexpected lengthy repair work on a 14 mile section of a PG&E main line,
the Company had approximately 1 MMCFD shut-in for most of the third quarter of
2000. This production should recommence shortly.
Total expenses in 2000 increased 17% over 1999 third quarter levels, caused
by higher operating, exploration, and overhead costs. Operating costs rose 8%
from 1999 levels, primarily as a result of higher value-based production taxes
resulting from hgher oil and gas prices.
Higher dry holes costs associated with the Company's expanded drilling
program in 2000 drove the increase in exploration costs. General and
administrative expenses increased 27% from 1999 third quarter levels due to
higher compensation, shareholder, and employee relocation costs associated with
opening the Cody, Wyoming office.
Lower interest costs in 2000 reflect the lower amount of debt outstanding
under the Company's credit facility.
9
<PAGE>
COMPARISON OF FIRST NINE MONTHS OF 2000 WITH FIRST NINE MONTHS OF 1999
Higher oil production, combined with sharply higher oil prices, produced a
61% increase in oil and gas sales for the first nine months of 2000. Total
revenues for the period were $18,244,465, compared to $10,617,012 during the
first nine months of 1999.
Average oil prices received by the Company in the first nine months of
2000, net of hedging costs of $835,562, were $26.10 per barrel, compared to
$15.36 per barrel during the same period of 1999. Average gas prices received
during the first nine months of 2000 were $3.07 per Mcf, which compared to $2.00
per Mcf during the same period of 1999. Through the first nine months of 2000,
oil production of 505,000 barrels was up from 1999 production of 480,000
barrels. Natural gas production decreased from 1,550,000 Mcf in 1999 to
1,200,000 Mcf in 2000 for reasons discussed previously.
Included in the 2000 nine month revenues is $505,000 in non- recurring
property sales recognized in the first quarter of the year. Revenues also
include approximately $300,000 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 on an ongoing basis. The Company also
recognized gains on the sale of securities and revenue from property promotions.
Higher revenues were offset by higher operating costs, 3D seismic expenses,
exploration costs, and administrative costs. Operating costs rose 18% 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.
Expenses in the first nine months of 2000 include 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 of significance during the first nine months of 1999.
Exploration costs rose as the Company's increased drilling program produced
higher dry hole costs. Through the first nine months of 2000, the Company
incurred $455,000 in dry hole costs compared to $175,000 incurred during the
same period of 1999.
General and administrative expenses increased 12% from 1999 levels. The
increase was due to higher compensation, employee relocation, and shareholder
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 $120,000, an amount which should
continue to be recognized on an ongoing basis.
Lower interest costs in 2000 reflect the lower amount of debt outstanding
under the Company's credit facility.
10
<PAGE>
OTHER ITEMS
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
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.
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,
drilling results, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The answers to items listed under Item 3 are inapplicable or negative.
11
<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 thereunto duly authorized.
EQUITY OIL COMPANY
(Registrant)
DATE: October 19, 2000 By /s/ Paul M. Dougan
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Paul M. Dougan
President
DATE: October 19, 2000 By /s/ Clay Newton
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Clay Newton
Chief Financial Officer
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