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 June 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
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
<PAGE>
ITEM I: Financial Statements
EQUITY OIL COMPANY
Statement of Operations
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
REVENUES
Oil and gas sales .................. $ 10,791,419 $ 6,118,585
Other .............................. 1,228,520 90,391
------------ ------------
12,019,939 6,208,976
EXPENSES
Operating costs .................... 3,284,518 2,655,396
Depreciation, depletion and
amortization ..................... 2,000,000 2,050,000
3D seismic ......................... 530,793 --
Exploration ........................ 871,903 858,710
General and administrative ......... 971,557 918,406
Interest ........................... 614,567 592,634
------------ ------------
8,273,338 7,075,146
Income (loss) before income taxes ........... 3,746,601 (866,170)
Provision for (benefit from)
income taxes ...................... 1,385,069 (405,416)
------------ ------------
NET INCOME (LOSS) ........................... $ 2,361,532 $ (460,754)
============ ============
Net income (loss) per share
Basic .............................. $ .19 $ (.04)
Diluted ............................ $ .18 $ (.04)
Weighted average shares outstanding
Basic .............................. 12,643,440 12,636,671
Diluted ............................ 12,810,911 12,636,671
The accompanying notes are an integral part of these statements.
2
<PAGE>
EQUITY OIL COMPANY
Statement of Operations
For the Three Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
REVENUES
Oil and gas sales .................. $ 5,403,396 $ 3,507,733
Other .............................. 477,612 51,233
------------ ------------
5,881,008 3,558,966
EXPENSES
Operating costs .................... 1,641,595 1,369,238
Depreciation, depletion and
amortization ..................... 975,000 950,000
3D seismic ......................... 339,115 --
Exploration ........................ 434,451 441,032
General and administrative ......... 456,875 490,136
Interest ........................... 275,121 294,307
------------ ------------
4,122,157 3,544,713
Income before income taxes .................. 1,758,851 14,253
Provision for (benefit from)
income taxes ...................... 650,069 (97,692)
------------ ------------
NET INCOME .................................. $ 1,108,782 $ 111,945
============ ============
Net income per share
Basic .............................. $ .09 $ .01
Diluted ............................ $ .09 $ .01
Weighted average shares outstanding
Basic .............................. 12,643,440 12,633,075
Diluted ............................ 12,853,717 12,705,020
The accompanying notes are an integral part of these statements.
3
<PAGE>
EQUITY OIL COMPANY
Balance Sheet
as of June 30, 2000, and December 31, 1999
(Unaudited)
June 30, December 31,
ASSETS 2000 1999
------ ---------- -----------
Current assets:
Cash and cash equivalents .............. $ 2,847,911 $ 1,006,602
Accounts and advances receivable ....... 4,045,650 3,382,361
Income taxes receivable ................ 157,446 221,199
Deferred income taxes .................. 19,632 19,632
Other current assets ................... 85,035 277,595
------------- -------------
7,155,674 4,907,389
Property and equipment ................... 104,857,743 103,574,626
Less accumulated depreciation,
depletion and amortization .............. 64,725,385 62,800,100
---------- ----------
40,132,358 40,774,526
Other assets ............................. 458,554 435,420
------------- -------------
TOTAL ASSETS ............................. $ 47,746,586 $ 46,117,335
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................... $ 1,811,199 $ 1,541,834
Accrued liabilities .................... 106,761 177,550
Income taxes payable ................... 156,124 321,981
------------- -------------
2,074,084 2,041,365
Revolving credit facility ................ 13,000,000 15,000,000
Deferred income taxes .................... 2,902,648 1,667,648
------------- -------------
15,902,648 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 ...................... 13,770,373 11,408,841
------------- -------------
29,769,854 27,408,322
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $ 47,746,586 $ 46,117,335
============= =============
The accompanying notes are an integral part of these statements.
4
<PAGE>
EQUITY OIL COMPANY
Statement of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................... $ 2,361,532 $ (460,754)
Adjustments
Depreciation, depletion and
amortization .......................... 2,000,000 2,050,000
(Gain) loss on
property dispositions ............. (504,082) 8,854
Change in deferred income taxes ......... 1,235,000 (396,676)
Equity loss in
Symskaya Exploration .............. 82,959 106,206
Change in other assets .............. 53,001 6,057
Common stock issued for services .... -- 19,250
----------- -----------
Net cash provided before changes in
working capital items .................. 5,228,410 1,332,937
Increase (decrease) from changes in:
Accounts and advances receivable ...... (663,289) (311,306)
Other current assets .................. 192,560 96,288
Accounts payable and accrued
liabilities ......................... 198,576 (429,189)
Income taxes receivable/payable ....... (102,103) 145,631
Net cash provided ----------- -----------
by operating activities ................. 4,854,154 834,361
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Symskaya Exploration .......... (82,959) (106,206)
Proceeds from sale of properties .......... 513,298 --
Change in other assets .................... (50,000) --
Capital expenditures ...................... (1,367,048) (680,990)
----------- -----------
Net cash used in investing
activities .............................. (986,709) (787,196)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of credit facility fees ........... (26,136) --
Payments on credit facility ............... (2,000,000) --
----------- -----------
Net cash used in
financing activities ................... (2,026,136) --
----------- -----------
NET INCREASE IN CASH ......................... 1,841,309 47,165
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD .................... 1,006,602 444,476
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD .......................... $ 2,847,911 $ 491,641
=========== ===========
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. In the opinion
of the Company's management, the financial statements reflect the adjustments,
all of which are of a normal and recurring nature, necessary to present fairly
the financial position of the Company as of June 30, 2000, and the results of
its operations for the three and six month periods ended June 30, 2000 and 1999,
and its cash flows for the six month periods ended June 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 quarter of 2000.
The results for the three and six month periods ended June 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 210,000
and 167,000 shares of common stock at prices of $1.06 to $1.71 per share were
outstanding during the three and six month periods ending June 30, 2000,
respectively, and were included in the computation of diluted net income per
share for those periods. Dilutive options to purchase approximately 72,000
shares of common stock at a price of $1.06 per share were outstanding during the
three period ending June 30, 1999, and were included in the computation of
diluted net income per share for that period. 1,116,000 and 884,000 options
outstanding for the three and six months periods ended June 30, 2000 and 1999,
respectively, were not included in the computation of diluted net income (loss)
per share because the effect would have been antidilutive.
Note 3. Reclassifications
Certain balances in the June 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 enabled the Company to report higher net income
in both the first six months and second quarter of 2000 compared to the same
periods of 1999. During the first six months of 2000, the Company recorded net
income of $2,361,532, or $.19 per basic share, compared to a net loss of
$(460,754) during the corresponding period of 1999. Total revenues of
$12,019,939 were 94% higher than total revenues of $6,208,976 recorded in the
first half of 1999.
The Company recorded net income in the second quarter of 2000 of
$1,108,782, or $.09 per basic share, compared to second quarter 1999 net income
of $111,945, or $.01 per share. Second quarter revenues in 2000 of $5,881,008
were 65% higher than the $3,558,966 reported in the second quarter of 1999.
OPERATING RESULTS
The 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 that 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 recently announced that
it sold a 45% interest in the survey and leasehold to an industry partner, and
has plans to drill up to five wells this year. The two companies entered into a
joint operating agreement naming Equity, which retained 55% of the project, as
the operator.
In addition to the activity at the Rancho Colusa project, the Company is
using its higher cash flows to expand drilling in other focus areas in the
second half of 2000. Including the Rancho Colusa wells, the Company may drill up
to 15 wells between July and December. The Company is also planning to begin a
25 square mile 3D shoot in the Beaver Creek area in North Dakota in August, and
recently began a multi-well workover program in the Big Horn basin in an effort
to enhance production from existing properties.
The Company has participated in a total of seven wells to date in 2000, six
of which are either producing or waiting on completion. Four of the seven wells
are located in the Sacramento Basin. Two oil wells, drilled in July, are located
at the Company's Cessford prospect in western Canada.
7
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents totaled $2,841,911 as of June 30, 2000, an
increase of 183% since year-end 1999. Working capital at June 30, 2000 improved
to $5,081,590, compared to $2,866,024 at December 31, 1999. The Company's ratio
of current assets to current liabilities likewise improved to 3.45 to 1 at June
30, 2000, compared to 2.40 to 1 at December 31, 1999. Cash provided by operating
activities before working capital changes increased by almost 300%, from
$1,332,937 in the first six months of 1999 to $5,228,410 recorded during the
same period of 2000.
Investment in property and equipment for the first six months of 2000
totaled $1,367,048, a 101% increase from the amount recorded during the
corresponding six months of 1999. Higher oil prices have enabled to Company to
increase the size of its 2000 capital program. The bulk of the Company's current
year drilling remains to take place during the second half of the year.
Higher cash flows enabled the Company to make $2,000,000 in principal
payments on its credit facility during the first half of 2000, reflecting the
Company's plan of using these higher cash flows 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, as of June 30, 2000, the Company had $4 million of remaining
availability on the facility. The Company is in compliance with all of 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.
8
<PAGE>
COMPARISON OF SECOND QUARTER 2000 WITH SECOND QUARTER 1999
Higher oil and gas prices, coupled with increased oil production, resulted
in a 54% increase in oil and gas sales for the second quarter of 2000. Revenues
were also increased by higher overhead income and gains on the sale of
securities and property promotions. Total revenues for the period were
$5,881,008, compared to $3,558,966 during the same period of 1999.
Revenues were decreased by $210,316 in the second quarter of 2000 by losses
associated with the Company's hedging program, which was instituted in 1999 as
part of its bank financing program. The Company has 400 barrels of oil per day
hedged under a costless collar, with a floor of $18.00 and a ceiling of $25.30,
which will terminate on September 30, 2000. 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 losses discussed earlier,
average oil prices received in the second quarter were $25.03 per barrel, up 62%
from $15.50 per barrel in the second quarter of 1999. Gas prices were also up
sharply, averaging $3.08 per Mcf in the second quarter of 2000 compared to $1.95
per Mcf in 1999. Oil production increased 4% to 170,000 barrels in 2000 compared
to 164,000 barrels during the same period of 1999. Gas production in the 2000
quarter decreased to 380,000 Mcf compared to 475,000 Mcf in the comparable
period last year. The reduction was due primarily to the Company's reduced
drilling program in California during 1999.
Total expenses in 2000 increased 16% over 1999 second quarter levels,
caused primarily by higher operating costs. Operating costs rose 20% 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.
The Company also incurred $339,115 in 3D costs in the second quarter of
2000 while incurring no such costs during the same period of 1999. The 3D costs
are associated with the Company's Rancho Colusa survey in the Sacramento Basin
and it's Beaver Creek prospect in North Dakota.
General and administrative expenses decreased 7% from 1999 second quarter
levels. Lower interest costs in 2000 reflect the lower amount of debt
outstanding under the Company's credit facility.
9
<PAGE>
COMPARISON OF FIRST HALF 2000 WITH FIRST HALF OF 1999
Higher oil production combined with sharply higher oil prices to produce a
76% increase in oil and gas sales for the first half of 2000. Total revenues for
the period were $12,019,939, compared to $6,208,976 during the first six months
of 1999.
Average oil prices received by the Company in the first six months of
2000, net of hedging losses, were $25.22 per barrel, compared to $13.40 per
barrel during the same period of 1999. Average gas prices received during the
first six months of 2000 were $2.69 per Mcf, which compared to $1.80 per Mcf
during the same period of 1999. Through the first six months of 2000, oil
production of 340,000 barrels was up from 1999 production of 318,000 barrels.
Natural gas production decreased from 1,025,000 Mcf in 1999 to 830,000 Mcf in
2000. The reduction was due primarily to the Company's reduced drilling program
in California during 1999.
Included in first half 2000 revenues was $505,000 in non-recurring
property sales recognized in the first quarter of the year. First half revenues
also include approximately $200,000 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 property promotions.
Revenues were decreased by $406,486 in the 2000 first half by losses associated
with the Company's hedging program.
Higher revenues were offset by higher operating costs, 3D seismic
expenses, and administrative costs. Operating costs rose 24% 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.
First half expenses 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
during the first half of 1999.
General and administrative expenses increased slightly from 1999 first
half 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 $80,000, an amount
which should continue to be recognized on an ongoing basis.
Higher interest costs in 2000 reflect higher interest rates applied to a
reduced 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
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, drilling results, 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.
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,
except as shown below.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's annual meeting, held on May 10, 2000, shareholders were
asked to elect Mr. Randolph G. Abood, Mr. William D. Forster, and Mr. William P.
Hartl to the staggered board to serve three year terms expiring in 2003, and to
approve the Equity Oil Company 2000 Stock Option Plan. Based on the votes
received, each director nominee was elected to the board, and the Stock Option
Plan was approved. The following votes were recorded for each item.
ELECTION OF DIRECTORS. Each director nominee received at least 95% of the
shares voted at the meeting.
Abood Forster
----- -------
Affirmative votes 9,942,725 9,927,519
Withhold authority 446,524 461,730
Hartl
-----
Affirmative votes 9,946,580
Withhold authority 442,669
EQUITY OIL COMPANY 2000 STOCK OPTION PLAN
# of votes
----------
Affirmative votes 4,718,456
Negative votes 1,581,037
Abstentions/Not voted 4,089,756
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUITY OIL COMPANY
(Registrant)
DATE: August 4, 2000 By /s/ Paul M. Dougan
---------------------- ---------------------
Paul M. Dougan, President
DATE: August 4, 2000 By /s/ Clay Newton
---------------------- ---------------------
Clay Newton, Treasurer
Principal Accounting Officer
12
