UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 1997
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
COMMISSION FILE NUMBER 0-9946
GOLDEN OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 84-0836562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
550 POST OAK BOULEVARD, SUITE 550, HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
(713) 622-8492
(Registrants telephone number, including area code)
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 [ ] NO [X]
As of May 1, 1997, the Registrant had outstanding 1,424,291 shares of
common stock, par value $.01 per share and 22,254 shares of Class B common
stock, par value $.01 per share.
Page 1 of 18
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CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated Statements of Operations..................... 3
- Consolidated Balance Sheets............................... 4
- Consolidated Statements of Cash Flows..................... 6
- Notes to Consolidated Financial Statements................ 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 17
Page 2 of 18
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GOLDEN OIL COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
----------- -----------
Revenues:
Oil and gas production ...................... $ 422,364 $ 277,657
Other ....................................... 6,336 7,006
----------- -----------
Total revenues ............................. 428,700 284,663
----------- -----------
Costs and expenses:
Production costs ............................ 306,576 192,471
Depreciation, depletion
and amortization ........................... 81,563 102,156
General and administrative .................. 65,708 49,842
----------- -----------
Total costs and expenses ................... 453,847 344,469
----------- -----------
(25,147) (59,806)
Equity in net loss of investments ............ (1,263) (2,800)
Interest income .............................. 262 312
Interest expense ............................. (5,338) (4,863)
Other income (expense) ....................... 893 334
----------- -----------
Net earnings (loss) before cumulative
effect of accounting change ................. (30,593) (66,823)
Cumulative effect of accounting
change (Note 1) ............................. -- (39,770)
----------- -----------
Net earnings (loss) .......................... $ (30,593) $ (106,593)
=========== ===========
Per share data:
Net earnings (loss) before
cumulative effect of accounting change ..... (0.02) (0.04)
Cumulative effect of accounting change ....... -- (0.03)
----------- -----------
Net earnings (loss) per common share ........ $ (0.02) $ (0.07)
=========== ===========
Weighted average number of
common shares and common
share equivalents outstanding .............. 1,424,291 1,424,291
=========== ===========
See Notes to Consolidated Financial Statements.
Page 3 of 18
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GOLDEN OIL COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents .............. $ 129,041 $ 165,209
Short-term investments ................. 25,480 25,000
Accounts receivable, net ............... 314,349 370,136
Prepaid expenses and other ............. 34,680 35,997
----------- -----------
Total current assets ................ 503,550 596,342
----------- -----------
Property and equipment, at cost:
Oil and gas properties
(using the successful efforts
method of accounting)
Producing properties .................. 5,787,009 5,781,349
Non-producing properties .............. 105,000 105,000
----------- -----------
Total oil and gas properties .......... 5,892,009 5,886,349
----------- -----------
Pipeline, field and other well
equipment .............................. 241,502 242,902
Other property and equipment ............. 472,978 468,911
----------- -----------
6,606,489 6,598,162
Less accumulated depreciation,
depletion and amortization ............. (3,648,309) (3,566,746)
----------- -----------
Net property and equipment ............. 2,958,180 3,031,416
----------- -----------
Investments, real estate ................. 194,971 196,234
Other assets ............................. 1,481 1,481
----------- -----------
$ 3,658,182 $ 3,825,473
=========== ===========
(Continued)
See Notes to Consolidated Financial Statements.
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GOLDEN OIL COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and
current portion of long-term debt ............ $ 118,203 $ 130,546
Accounts payable .............................. 1,212,171 1,322,896
Accrued expenses .............................. 104,692 131,496
------------ ------------
Total current liabilities .................... 1,435,066 1,584,938
------------ ------------
Long-term debt ................................. 40,416 69,383
Other liabilities .............................. 127,364 85,223
Commitments and contingencies (Notes 4 and 5)
Stockholders' equity:
Preferred stock, par value $.01;
authorized 10,000,000 shares, none issued
Common stock, par value $.01
authorized 15,000,000 shares,
issued and outstanding 1,424,291
shares at March 31, 1997
and December 31, 1996 ........................ 14,243 14,243
Class B common stock, par value $.01;
(convertible share for share into common
stock) authorized 3,500,000 shares, issued
and outstanding 22,254 shares at
March 31, 1997 and December 31, 1996 ......... 223 223
Additional paid-in capital .................... 13,864,479 13,864,479
Accumulated deficit ........................... (11,823,609) (11,793,016)
------------ ------------
Total stockholders' equity ................ 2,055,336 2,085,929
------------ ------------
$ 3,658,182 $ 3,825,473
============ ============
See Notes to Consolidated Financial Statements.
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GOLDEN OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net earnings (loss) ............................. $ (30,593) $(106,593)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, depletion
and amortization ............................... 81,563 102,156
Equity in net loss of
investment in commercial realty ................ 1,263 2,800
Cumulative effect of accounting
change ......................................... -- 39,770
Changes in components of working capital:
(Increase) decrease in accounts
receivable, net ............................... 55,787 91,537
(Increase) decrease in prepaid
expenses and other ............................ 1,317 6,593
Increase (decrease) in accounts
payable ....................................... (110,725) (60,127)
Increase (decrease) in accrued
expenses ...................................... (26,804) (19,913)
Increase (decrease) in
other liabilities ............................. 42,141 --
--------- ---------
Net cash provided by (used
in) operating activities ........................ $ 13,949 $ 56,223
--------- ---------
(Continued)
See Notes to Consolidated Financial Statements.
Page 6 of 18
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GOLDEN OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
--------- --------
Cash flows from investing activities:
Additions of oil and gas properties .......... $ (5,660) $(28,618)
Additions of other property and
equipment ................................... (2,667) (562)
Decrease (increase) in short-term
investments ................................. (480) --
--------- --------
Net cash provided by (used in)
investing activities ......................... $ (8,807) $(29,180)
--------- --------
Cash flows from financing activities:
Payment of long-term debt .................... (41,310) (22,572)
--------- --------
Net cash provided by (used in)
financing activities ......................... $ (41,310) $(22,572)
--------- --------
Net increase (decrease) in cash and
cash equivalents ............................. (36,168) 4,471
Cash and cash equivalents at
beginning of period .......................... 165,209 67,599
--------- --------
Cash and cash equivalents at
end of period ................................ $ 129,041 $ 72,070
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest expense was $5,596 and $6,661 for the three
months ended March 31, 1997 and 1996, respectively. No cash was paid for income
taxes during the same corresponding periods.
See Notes to Consolidated Financial Statements.
Page 7 of 18
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GOLDEN OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
For a summary of significant accounting principles, see Notes to
Consolidated Financial Statements and Note 1 thereof contained in the
Annual Report on Form 10-K of Golden Oil Company ("Golden" or "Company")
for the year ended December 31, 1996. The Company follows the same
accounting policies during interim periods as it does for annual
reporting purposes.
The accompanying consolidated financial statements are condensed
and unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). In the
opinion of management, the unaudited interim financial statements
reflect such adjustments as are necessary to present a fair statement of
the financial position and results of operations for the interim periods
presented. Interim results are not necessarily indicative of a full year
of operations. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations; however, the Company believes
that the disclosures made are adequate to make the information presented
not misleading. These financial statements should be read in conjunction
with the financial statements and the notes thereto included in the
Company's Form 10- K for the year ended December 31, 1996.
On January 1, 1996 the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." There
was no effect on the financial position or results of operations from
the adoption of this standard. In the future, however, pursuant to SFAS
No. 121, material negative adjustments could be required to the carrying
value of the Company's producing oil and gas properties should prices
for oil and gas decline significantly or if the Company were to revise
its estimates of recoverable oil and gas reserves.
RECLASSIFICATIONS
Certain amounts from prior periods have been reclassified to
conform to the presentation format for the 1997 Consolidated Financial
Statements with no effect on reported results of operations.
Page 8 of 18
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GOLDEN OIL COMPANY
ACCOUNTS RECEIVABLE
Amounts shown as accounts receivable are net of $91,718 at March
31, 1997 and at December 31, 1996, respectively, to reflect estimated
provisions for doubtful collection of certain non-recourse obligations
primarily in connection with certain working interest participants and
drilling arrangements of a Company subsidiary. Accounts receivable
reflect net amounts due from affiliates of $55,880 at March 31, 1997 and
$55,803 at December 31, 1996
INVESTMENTS
The Company's short-term investments at March 31, 1997 and
December 31, 1996 consisted of a certificate of deposit held by a
federally insured bank. Certificate of deposits are held until maturity
and, accordingly, are carried at cost.
The Company holds a limited partnership interest in its
headquarters office building. The Company accounts for this investment
using the equity method and, accordingly, the Company recognizes its
pro-rata share of net income or loss of the limited partnership in its
current operating statements.
ACCOUNTING CHANGE
Effective January 1, 1996 the Company changed its depletion
method on producing oil and gas properties from the property-by-property
basis to the field basis of applying the unit-of-production method. The
field basis provides for the aggregation of wells that have a common
geological reservoir or field. The Company believes the field basis
provides a better matching of expenses with revenues over the productive
life of the properties and, therefore, the Company believes the field
basis method is preferable to the property-by-property basis method. The
cumulative negative effect of this change in accounting method of
$39,770 ($.03 per share) is reported separately in the accompanying
consolidated statements of operations. At the date of the change in
accounting method, the net effect of the change was a $21,600 decrease
in depletion and depreciation expense and a $21,600 increase in net
income ($.02 per share) reported for the three months ended March 31,
1996.
(2) CERTAIN FIXED PRICE SALE AGREEMENTS
In order to plan Company operations and to provide protection
against sudden declines in oil and gas prices, from time to time the
Company enters into fixed price oil contracts. During the first quarter
of 1997 the Company maintained fixed price arrangements for
approximately 60% of its monthly oil production. These arrangements
extend through July 1997 at an average wellhead price of approximately
$22 per barrel. The Company believes it has entered into these fixed
price arrangements with financially capable purchasers and does not
anticipate nonperformance by the counterparties to such transactions. In
the event of nonperformance by any of the counterparties, the Company
believes that,
Page 9 of 18
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GOLDEN OIL COMPANY
subject to future market prices, it will be able to market its
production to other parties under similar or then market value terms and
conditions.
(3) DEVELOPMENT OF SOUTH DOG CREEK FIELD
In March 1993, an agreement was reached between the Company and Calumet
Oil Company, the principal operators in the South Dog Creek, Oklahoma
field, aimed at enhancing and extending the producing life of the field
by injection of water into the Mississippian formation in ten wells
covering four separate quarter section leases. The operators filed for a
water injection permit with the EPA, and during October 1993, a
field-wide water injection permit was granted by the EPA to the Company
and another interest holder and operator. During the fourth quarter of
1995 the Company initiated a limited waterflood injection program on one
of its operated leases believed to have demonstrated engineering
potential for success. The program involved converting certain
marginally producing and water supply wells to water injectors and
reworking producing wells and well equipment to increase the wells'
fluid volume capacity. The cost of the initial phase of the waterflood
project on this lease through March 1997 was approximately $205,000,
exclusive of operating fees charged by the Company, of which the
Company's share was approximately $152,000. The Company funded its share
through internal cash flows with the balance paid by outside working
interest owners who elected to join in the project. The Company is
gradually increasing the injection of water into the formation pursuant
to the waterflood plan. The Company is continuing to evaluate the
results of current development before determining whether to undertake
additional development. The Company does not anticipate significant
increases in production volumes unless further development occurs and is
successful. If sufficient production response is achieved, the Company
will pursue a field-wide implementation of the waterflood plan subject
to, among other things, engineering advice and the availability of
additional financing. At this time due to the variable cost factors
involved and the stage of completion of development, as discussed above,
the Company is currently reviewing its estimate of the total cost of the
waterflood project which is presently projected to be $750,000,
inclusive of costs already incurred.
(4) ENVIRONMENTAL MATTERS
In 1994, the Bureau of Land Management implemented new
regulations nationally for the handling and maintenance of produced
water from wells to minimize the environmental impact of oil and gas
operations on surrounding soil and groundwater. The regulations require
oil and gas companies to eliminate the use of unlined surface pits in
the operation of wells. These regulations provided for implementation on
a region-by-region basis. In January 1997, the affected regions were
expanded to include the Company's New Mexico field of operations.
Consequently, the Company has been required to develop a pit remediation
plan. The Bureau of Land Management and the Jicarilla Environmental
Protection Office approved the initial phase of the plan ("the approved
plan") in May. The approved plan provided for the closure of 14 surface
pits located at the well sites by June 30, 1997. Well site costs for
this stage are estimated to vary by well site between $1,500 to $3,500
per well site, or approximately $50,000 in total, as to which the
Company's share will be
Page 10 of 18
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GOLDEN OIL COMPANY
approximately $18,500, exclusive of operating fees charged by the
Company. Work is currently in progress on the initial phase of the plan.
The required work on all well sites operated by the Company in New
Mexico is currently required to be completed by December 1998.
Presently, numerous oil and gas producers in the region, including the
Company, are seeking an extension to such date but have not yet received
such extension. The total cost of such work is subject to a number of
variable expense factors including, among others, the cost and manner of
disposal of removed soil and the amounts of soil that may be required to
be removed. The approved plan allows relatively broad soil disposal
options, however, the Company is considering soil disposal alternatives
which may prove to be more costly if it determines such alternatives
will further limit the Company's future environmental exposure.
Accordingly, at this time, the Company cannot reasonably estimate the
total cost of the pit closures however, such costs could be significant.
The Company has accrued its pro rata share of the estimated cost of the
initial plan.
(5) INDEBTEDNESS
In April 1996, the Company entered into a new credit agreement
with a commercial bank in Albuquerque, New Mexico under which the
Company increased the borrowings available to it from $150,000 to
$400,000. In addition, the maturity schedule of the Company's debt was
extended to four years, subject to certain conditions. Such credit
facility was required to be independently guaranteed and is
collateralized by the Company's New Mexico oil and gas properties.
Proceeds from the new credit facility have been utilized to
refinance short-term debt then outstanding, to acquire additional
interests in oil and gas properties offered to the Company by working
interest holders on leases in which the Company is operator, and to pay
other payables. At March 31, 1996 the Company had a working capital
deficit of approximately $1,000,000. In order to obtain the new
financing the Company was required by the lending bank to provide a
personal guarantee from a principal officer of the Company for repayment
in full to the bank of all principal, interest and related costs. As a
result of its financial position, the Company was not able to pay a cash
fee for the personal guarantee required by the lender as a condition of
extending credit to the Company. In lieu of cash payment, the Company
proposed to pay the financing fee by delivering to the guarantor
warrants to purchase unregistered shares of its common stock. On March
29, 1996 the Board of Directors approved execution by the Company of the
bank credit agreement and the payment and delivery to the guarantor of
warrants to purchase 250,000 unregistered shares of common stock of the
Company through March 2006 for an exercise price of $.20 per share. As
of March 28, 1997, the guarantor had exercised rights to purchase
100,000 shares of common stock granted for the warrants. At March 31,
1997, the shares had not been issued by the Company and delivered by the
Company's transfer agent. Accordingly, such transaction will be
reflected in the financial statements in the second quarter of 1997.
Under the Company's new credit agreement, the Company is
required to make monthly payments of principal and interest, of
approximately $10,400 through April 2000. As of May 15, 1997, the
Company had borrowed $277,000 and had $123,000 remaining available under
the new credit agreement.
Page 11 of 18
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GOLDEN OIL COMPANY
The Company also maintained a credit facility in the original
amount of $100,000 with a commercial bank in Tulsa, Oklahoma and had
borrowed $70,000 under such line of credit facility. In March 1996, the
Company began reducing the principal amount borrowed under this credit
facility by $5,000 each month. Such line of credit has been fully paid
as of April 1997.
(6) STRATEGIC CONSIDERATIONS
In earlier stages of its development, the Company's strategic
emphasis focused on oil and gas production and development, particularly
of the substantial potential value possibly recoverable by waterflood of
the South Dog Creek field in Oklahoma and of the high quality but higher
fixed cost production in the San Juan Basin, New Mexico. The Company has
acquired and will continue to acquire oil and gas properties offered to
it on economically attractive terms. However, beginning in 1993 the
Company determined that a number of material adverse changes were
occurring in the industry including more extreme price volatility,
increasing costs of operation and a significantly more restricted market
for the acquisition of oil and gas properties or of other independent
oil and gas companies. These adverse developments have affected in
particular small oil and gas companies whose operations were not
diversified into other business sectors. In response to the changed
operating environment, the Company is actively considering transactions
by which its operations may be further diversified. In this process the
Company may reduce its oil and gas operations while adding significantly
to its participation in real estate, financial services or other
sectors.
During late 1993 and 1994, the Company diversified outside of
the energy sector through acquisition of ownership interests in the
commercial real estate sector, in particular, the office building in
Houston, Texas where the Company maintains its principal offices. The
Company is actively reviewing more substantial transactions outside the
energy sector. While such diversification appears to offer more
attractive long-term opportunities than are offered by the oil and gas
sector currently, the Company's ability to arrange financing to enter
into a material transaction is subject to a number of other factors,
certain of which are difficult to predict or are beyond management's
control. Such factors include the degree of the Company's future success
in development of its proved undeveloped reserves; the respective future
performance of oil and gas prices; and the availability to the Company
of financing for other businesses.
End of Notes to Consolidated Financial Statements.
Page 12 of 18
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GOLDEN OIL COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a diversified enterprise whose current operations
emphasize oil and gas production and development. Over the last several years,
the Company has increased the size and scope of its oil and gas operations
through a number of corporate transactions, primarily involving asset purchases
and mergers. Corporate transactions also have been undertaken or considered in
other business sectors. To date, an investment has been made in the real estate
sector through acquisition of a limited partnership interest in the Company's
headquarters office building in Houston, Texas. The Company is seeking new
operations and is actively reviewing transactions involving diversification
outside the energy sector.
The Company's operations during 1996 and to date during 1997 have been
funded primarily through internally generated funds from operating activities,
and from existing working capital and borrowings under its credit facilities.
Management anticipates that the Company will meet ordinary operating needs for
working capital from internal sources. However, the Company will require
additional financing in order to complete development of its proved undeveloped
reserves, or to make acquisitions either within or outside of the oil and gas
sector. The Company may arrange new financing through public or private
offerings of the Company's securities, asset sales, joint ventures, or other
means. If the Company is successful in its financing efforts, a significant use
of proceeds will be to improve its current working capital position.
During the second quarter of 1996, the Company completed negotiations to
obtain new credit from a commercial bank, as a result of which the Company
increased its available borrowings to $400,000. Under its new credit agreement
the maturity schedule of the Company's debt was extended to four years, subject
to certain conditions. Such credit facility was required to be personally
guaranteed by a financially capable party, and is collateralized by the
Company's New Mexico oil and gas properties.
Proceeds from the new credit facility have been utilized to refinance
short-term debt then outstanding, to acquire additional interests in oil and gas
properties offered to the Company by working interest holders on leases in which
the Company is operator, and to pay other payables. At March 31, 1996 the
Company had a working capital deficit of approximately $1,000,000. In order to
obtain the new financing the Company was required by the lending bank to provide
a personal guarantee from a principal officer of the Company for repayment in
full to the bank of all principal, interest and related costs. As a result of
its financial position, the Company was not able to pay a cash fee for the
personal guarantee required by the lender as a condition of extending credit to
the Company. In lieu of cash payment, the Company proposed to pay the financing
fee by delivering to the guarantor warrants to purchase unregistered shares of
its common stock. On March 29, 1996 the Board of Directors approved execution by
the Company of the bank credit agreement and the payment and delivery to the
guarantor of warrants to purchase 250,000 unregistered shares of common stock of
the Company through March
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GOLDEN OIL COMPANY
2006 for an exercise price of $.20 per share. As of March 28, 1997, the
guarantor had exercised rights to purchase 100,000 shares of common stock
granted for the warrants. At March 31, 1997, the shares had not been issued by
the Company. Accordingly, such transaction is expected to be reflected in the
financial statements in the second quarter of 1997.
Under the Company's new credit agreement, the Company is required to
make monthly payments of principal and interest, of approximately $10,400
through April 2000. As of May 15, 1997, the Company had borrowed $277,000 and
had $123,000 remaining available under the new credit agreement.
The Company also maintains a credit facility in the original amount of
$100,000 with a commercial bank in Tulsa, Oklahoma and had borrowed $70,000
under such line of credit facility. In March 1996, the Company began reducing
the principal amount borrowed under this credit facility by $5,000 each month.
Such line of credit has been fully paid as of April 1997.
Cash flow generated by operating activities was $13,949 for the first
three months of 1997 compared to cash generated by operating activities of
$56,223 the first three months of 1996. The decrease from the first three months
of 1996 primarily reflects a decrease in accounts payable as a result of
reducing amounts outstanding to vendors. Such decrease is partially offset by an
increase in oil and gas revenues due to an increase in oil and gas prices and
increased production volumes derived from the purchase of additional interests
in Company-operated properties in New Mexico partially offset by an increase in
production costs as a result of such purchases and an increase in workovers
during the first quarter of 1997.
In order to plan Company operations and to provide protection against
sudden declines in oil and gas prices, from time to time the Company enters into
fixed price oil contracts. During the first quarter of 1997 the Company
maintained fixed price arrangements for approximately 60% of its monthly oil
production. These arrangements extend through July 1997 at an average wellhead
price of approximately $22 per barrel. The Company believes it has entered into
these fixed price arrangements with financially capable purchasers and does not
anticipate nonperformance by the counterparties to such transactions. In the
event of nonperformance by any of the counterparties, the Company believes that,
subject to future market prices, it will be able to market its production to
other parties under similar or then market value terms and conditions.
In March 1993, an agreement was reached between the Company and Calumet
Oil Company, the principal operators in the South Dog Creek, Oklahoma field,
aimed at enhancing and extending the producing life of the field by injection of
water into the Mississippian formation in ten wells covering four separate
quarter section leases. The operators filed for a water injection permit with
the EPA, and during October 1993, a field-wide water injection permit was
granted by the EPA to the Company and another interest holder and operator.
During the fourth quarter of 1995 the Company initiated a limited waterflood
injection program on one of its operated leases believed to have demonstrated
engineering potential for success. The program involves converting certain
marginally producing and water supply wells to water injectors and reworking
producing wells and well equipment to increase the wells' fluid volume capacity.
The cost of the
Page 14 of 18
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GOLDEN OIL COMPANY
initial phase of the waterflood project on this lease through March 1997 was
approximately $205,000, exclusive of operating fees charged by the Company, of
which the Company's share was approximately $152,000. The Company funded its
share through internal cash flows with the balance paid by outside working
interest owners who elected to join in the project. The Company is gradually
increasing the injection of water into the formation pursuant to the waterflood
plan. The Company is continuing to evaluate the results of current development
before determining whether to undertake additional development. The Company does
not anticipate significant increases in production volumes unless further
development occurs and is successful. If sufficient production response is
achieved, the Company will pursue a field-wide implementation of the waterflood
plan subject to, among other things, engineering advice and the availability of
additional financing. At this time due to the variable cost factors involved and
the stage of completion of development, as discussed above, the Company is
currently reviewing its estimate of the total cost of the waterflood project
which is presently projected to be $750,000, inclusive of costs already
incurred.
In 1994, the Bureau of Land Management implemented new regulations
nationally for the handling and maintenance of produced water from wells to
minimize the environmental impact of oil and gas operations on surrounding soil
and groundwater. The regulations require oil and gas companies to eliminate the
use of unlined surface pits in the operation of wells. These regulations
provided for implementation on a region-by-region basis. In January 1997, the
affected regions were expanded to include the Company's New Mexico field of
operations. Consequently, the Company has been required to develop a pit
remediation plan. The Bureau of Land Management and the Jicarilla Environmental
Protection Office approved the initial phase of the plan ("the approved plan")
in May. The approved plan provided for the closure of 14 surface pits located at
the well sites by June 30, 1997. Well site costs for this stage are estimated to
vary by well site between $1,500 to $3,500 per well site, or approximately
$50,000 in total, as to which the Company's share will be approximately $18,500,
exclusive of operating fees charged by the Company. Work is currently in
progress on the initial phase of the plan. The required work on all well sites
operated by the Company in New Mexico is currently required to be completed by
December 1998. Presently, numerous oil and gas producers in the region,
including the Company, are seeking an extension to such date but have not yet
received such extension. The total cost of such work is subject to a number of
variable expense factors including, among others, the cost and manner of
disposal of removed soil and the amounts of soil that may be required to be
removed. The approved plan allows relatively broad soil disposal options,
however, the Company is considering soil disposal alternatives which may prove
to be more costly if it determines such alternatives will further limit the
Company's future environmental exposure. Accordingly, at this time, the Company
cannot reasonably estimate the total cost of the pit closures however, such
costs could be significant. The Company has accrued its pro rata share of the
estimated cost of the initial plan.
At March 31, 1997, the Company had a working capital deficit of $931,516
compared to a working capital deficit of $988,596 at December 31, 1996, and a
current ratio of .35 to 1.00 as of March 31, 1997 compared to a current ratio of
.38 to 1.00 as of December 31, 1996. The decrease in the working capital deficit
at March 31, 1997 primarily reflects a decrease in vendor payables and a
reduction in receivables from working interest participants.
Due to factors including changes in tax laws, adverse changes in the
economics of exploration drilling and the availability to the Company of
alternative uses of capital, during the late 1980s the Company curtailed
exploration activities. If the Company commences such programs in the future, it
intends to continue its previous policy of sharing exploration risks with third
party drilling participants. Certain of the Company's oil and gas leases provide
for ongoing drilling arrangements for periodic development of proved reserves.
The Company's principal development obligations under such agreements have been
suspended pending clarification of title assignments on certain federal leases.
The Company expects to obtain drilling participation from industry partners so
as to reduce the amount of the Company's required drilling commitments.
Page 15 of 18
<PAGE>
GOLDEN OIL COMPANY
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 WITH THE THREE MONTHS ENDED
MARCH 31, 1996.
REVENUES
Revenues from oil and gas production increased from $277,657 during the
first quarter of 1996 to $422,364 in the comparable 1997 quarter, an increase of
$144,707. The increase is primarily attributable to an increase in average oil
price of $5.54 per barrel from $17.46 per barrel during the first quarter of
1996 to $23.00 per barrel during the first quarter of 1997. Additionally,
average gas prices increased $1.57 per mcf from $1.06 per mcf during the first
quarter of 1996 to $2.63 per mcf during the first quarter of 1997. The increase
in oil and gas prices was partially offset by a slight decline in average
production volumes due to the Company performing substantial fieldwork in its
San Juan basin field in New Mexico during the first quarter of 1997.
Other revenue was $6,336 for the first quarter of 1997 compared to
$7,006 for the comparable period in 1996, primarily due to a decrease in gas
gathering and operating fees.
COSTS AND EXPENSES
Oil and gas production costs increased by $114,105 from $192,471 for the
first quarter of 1996 to $306,576 for the same period in 1997. Such increases
are primarily due to the production costs associated with the purchases of
additional interests in Company-operated properties and performing an
above-average number of well workovers in its San Juan Basin field in New Mexico
during the first quarter of 1997. The Company does not anticipate this level of
expenditures for workovers throughout the remainder of 1997. General and
administrative expenses increased by $15,866 from $49,842 for the first quarter
of 1996 to $65,708 for the same period in 1997. This increase is primarily due
to reduced operating fees allocable to outside interest owners resulting from
the Company purchasing such interests in Company-operated properties in New
Mexico.
Depreciation, depletion and amortization expenses decreased from
$102,156 for the first quarter of 1996 to $81,563 for the comparable period of
1997.
Interest expense increased by $475 from $4,863 for the first quarter of
1996 to $5,338 for the same period in 1997 due to an increase in average
outstanding borrowings.
As discussed more fully in Note 1 to the Consolidated Financial
Statements, the Company recognized a nonrecurring noncash charge during the
first quarter of 1996 for the cumulative effect of a change in the accounting
method for depletion of $39,770.
Primarily reflecting the factors discussed above, the Company reported a
net loss for the three months ended March 31, 1997 of $30,593 compared to a net
loss of $106,593 for the same period of 1996.
Page 16 of 18
<PAGE>
GOLDEN OIL COMPANY
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (MATERIAL EVENT).
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
Page 17 of 18
<PAGE>
GOLDEN OIL COMPANY
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN OIL COMPANY
Date: May 15, 1997 By: /S/ RALPH T. MCELVENNY, JR.
Chief Executive Officer
By: /S/ JEFFREY V. HOUSTON
Chief Financial and Accounting Officer
Page 18 of 18
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 129,041
<SECURITIES> 25,480
<RECEIVABLES> 314,349
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 503,550
<PP&E> 6,606,489
<DEPRECIATION> (3,648,309)
<TOTAL-ASSETS> 3,658,182
<CURRENT-LIABILITIES> 1,435,066
<BONDS> 0
0
0
<COMMON> 14,466
<OTHER-SE> 2,040,870
<TOTAL-LIABILITY-AND-EQUITY> 3,658,182
<SALES> 422,364
<TOTAL-REVENUES> 428,700
<CGS> 306,576
<TOTAL-COSTS> 453,847
<OTHER-EXPENSES> 108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,338
<INCOME-PRETAX> (30,593)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,593)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,593)
<EPS-PRIMARY> (.02)
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