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 Quarter ended June 30, 1996.
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 - 0-8041
GeoResources, Inc.
(Exact name of Registrant as specified in its charter)
Colorado 84-0505444
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1407 West Dakota Parkway, Suite 1-B, Williston, North Dakota 58801
(Address of Principal executive offices) (Zip Code)
(Registrant's telephone number including area code) (701) 572-2020
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 .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common Stock 4,060,714 shares
(par value $.01 per share)
(12 pages total, with exhibit)
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(June 30, 1996 and December 31, 1995)
Consolidated Statements of Operations 4
(Three months ended June 30, 1996 and 1995
and six months ended June 30, 1996 and 1995)
Consolidated Statements of Cash Flows 5
(Six months ended June 30, 1996 and 1995)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION 11
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 285,975 $ 392,078
Trade receivables, net 454,786 590,330
Inventories 268,774 285,018
Prepaid expenses 13,531 17,460
Investments 31,165 10,119
Total current assets 1,054,231 1,295,005
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being depleted 15,441,246 15,272,170
Properties not being depleted 59,447 88,759
Leonardite plant and equipment 3,214,762 3,199,797
Other 674,989 672,546
19,390,444 19,233,272
Less accumulated depreciation,
depletion and valuation allowance (14,368,510) (14,045,602)
Net property, plant and
equipment 5,021,934 5,187,670
OTHER ASSETS:
Mortgage loans receivable, related party 103,321 103,321
Other 112,952 104,289
216,273 207,610
$6,292,438 $6,690,285
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 347,671 $ 856,823
Current maturities of long-term debt 399,094 511,594
Accrued expenses 53,855 98,537
Total current liabilities 800,620 1,466,954
LONG-TERM DEBT, less current maturities 815,036 958,330
DEFERRED INCOME TAXES 169,000 151,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued
and outstanding, 4,060,714 and
4,035,714 shares, respectively 40,607 40,357
Additional paid-in capital 829,757 803,807
Retained earnings 3,637,418 3,269,837
Total stockholders' equity 4,507,782 4,114,001
$6,292,438 $6,690,285
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
OPERATING REVENUES:
Oil and gas sales $ 758,346 $ 617,973 $1,467,321 $1,076,613
Leonardite sales 210,096 191,876 394,273 345,488
968,442 809,849 1,861,594 1,422,101
OPERATING COSTS AND EXPENSES:
Oil and gas production 235,471 216,216 492,116 433,963
Cost of leonardite sold 154,170 158,025 321,249 296,753
Depreciation and depletion 116,277 146,364 335,269 262,376
Selling, general and
administrative 116,559 81,846 240,642 167,401
672,477 602,451 1,389,276 1,160,493
Operating income 295,965 207,398 472,318 261,608
OTHER INCOME (EXPENSE):
Interest expense (30,423) (29,199) (63,431) (61,409)
Interest income 3,888 2,919 7,746 5,713
Other income and losses, net (8,865) 19,020 (31,052) 3,547
(35,400) (7,260) (86,737) (52,149)
Income before income
taxes 260,565 200,138 385,581 209,459
Income tax expense 7,000 -- 18,000 --
Net income $ 253,565 $ 200,138 $ 367,581 $ 209,459
EARNINGS PER SHARE:
Net income per
common share $ .06 $ .05 $ .09 $ .05
Weighted average number of
shares outstanding 4,060,714 4,035,714 4,051,785 4,030,742
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 367,581 $ 209,459
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 335,269 262,376
Deferred income taxes 18,000 --
Other 27,296 19,500
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables 135,544 (37,119)
Inventories 16,244 (21,717)
Prepaid expenses and other (17,117) 9,783
Increase (decrease) in:
Accounts payable (482,120) 152,902
Accrued expenses (44,682) (18,361)
Net cash provided by
operating activities 356,015 576,823
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (196,565) (916,283)
Other (6,823) (26,649)
Net cash used in
investing activities (203,388) (942,932)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 415,000
Principal payments on long-term debt (255,794) (159,628)
Debt issue costs (2,936) --
Net cash provided by (used in)
financing activities (258,730) 255,372
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (106,103) (110,737)
CASH AND EQUIVALENTS, beginning of period 392,078 222,677
CASH AND EQUIVALENTS, end of period $ 285,975 $ 111,940
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 63,431 $ 61,409
Income taxes 1,946 --
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the management of GeoResources, Inc. (the "Company"),
the accompanying unaudited financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position of the Company as of June 30, 1996, and the results
of operations and cash flows for the three months and six months ended
June 30, 1996 and 1995.
The results of operations for the periods ended June 30, 1996, are not
necessarily indicative of the results to be expected for the full fiscal
year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, it is
suggested that these financial statements be read in connection with the
audited consolidated financial statements and the notes included in the
Company's Annual Report on SEC Form 10-K for the year ended December 31,
1995.
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the financial
statements and notes contained in the Company's Annual Report on SEC Form 10-K
for the year ended December 31, 1995.
Results of Operations
Information concerning the Company's oil and gas operations for the
three months and six months ended June 30, 1996, and the respective percent
increase (decrease) from the same period in the prior year, is set forth in
the table below:
Oil and Gas Operations
Three Months % Change Six Months % Change
Ended From 1995 Ended From 1995
June 30, 1996 Period June 30, 1996 Period
Oil and gas production
sold (BOE) 42,251 2% 86,517 17%
Average price per BOE $ 17.95 20% $ 16.96 16%
Oil and gas revenue $ 758,346 23% $1,467,321 36%
Production costs $ 235,471 9% $ 492,116 13%
Average production cost
per BOE $ 5.57 7% $ 5.69 (3%)
Oil and gas production sold for the three months ended June 30, 1996,
increased 800 barrels or 2% compared to the same period in 1995. Production
sold for the six months ended June 30, 1996, increased 12,700 barrels or 17%
compared to the same period in 1995. Both of these increases were primarily
due to new production from the Company's Oscar Fossum H2 horizontal well
(.67 net) that was completed and put on production in December 1995.
Oil and gas revenue increased $140,000 or 23% for the three months
ended June 30, 1996, compared to the same period in 1995. This increase was
due to the 2% higher sales volume and 20% higher average price per BOE in the
second quarter of 1996 compared to second quarter 1995. Oil and gas revenue
for the six months ended June 30, 1996, increased $391,000 or 36% compared to
the same period in 1995. This increase was due to the 17% higher sales volume
and 16% higher average price per BOE that existed in the first half of 1996
compared to 1995. The higher average oil prices for the three- and six-month
periods ended June 30, 1996, resulted from relative strength in world oil
markets during the first half of 1996.
Production costs for the three months ended June 30, 1996, increased
$19,000 or 9% compared to the same period in 1995 due primarily to increased
production taxes from higher oil prices. Production costs for the 1996
six-month period increased $58,000 or 13% over the same period in 1995 due to
higher production taxes in each of the first two quarters of 1996 and to higher
winter-related production costs in the first quarter. Production costs
expressed on a per equivalent barrel basis were essentially stable in both the
three- and six-month periods ended June 30, 1996. The 7% higher average
production cost per BOE for the second quarter of 1996 compared to the same
period in 1995 resulted from unusually low workover costs in the 1995 period.
Information concerning the Company's leonardite operations for the
three months and six months ended June 30, 1996, and the respective percent
increase (decrease) from the same period in the prior year, is set forth in
the table below:
Leonardite Operations
Three Months % Change Six Months % Change
Ended From 1995 Ended From 1995
June 30, 1996 Period June 30, 1996 Period
Leonardite production
sold (tons) 2,261 14% 4,051 12%
Average revenue per ton $ 92.92 (4%) $ 97.33 2%
Leonardite revenue $ 210,096 9% $ 394,273 14%
Cost of leonardite sold $ 154,170 (2%) $ 321,249 8%
Average production cost
per ton $ 68.19 (14%) $ 79.30 (3%)
Leonardite production increased 14% and 12%, respectively, for the
three- and six-month periods ended June 30, 1996, compared to the equivalent
periods in 1995. Management believes these higher production levels are the
result of moderate increases in domestic oil and gas drilling activity in the
first half of 1996 which in turn increased demand for the Company's leonardite
products.
Leonardite revenue for the three months ended June 30, 1996, increased
$18,000 or 9% compared to the same period in 1995 and increased $49,000 or 14%
for the six months ended June 30, 1996, compared to the same period in 1995
due to the higher production discussed above. Fluctuations in average revenue
per ton for the three- and six-month periods are due to normal variations in
the ratio of basic products to specialty products, the latter having higher
processing costs and selling prices.
Although leonardite production was higher, the cost of leonardite sold
was 2% lower for the 1996 three-month period compared to the same period in
1995 due to equipment repair costs that made costs in the 1995 three-month
period unusually high.
Cost of leonardite sold increased 8% for the 1996 six-month period
compared to the same period in 1995 primarily as a result of the increased
production discussed above. Average production cost per ton declined 14% for
the 1996 three-month period compared to the same period in 1995, again,
primarily due to the unusually high equipment repair costs in the 1995 period.
Consolidated Analysis
Total operating revenues increased $159,000 or 20% and $439,000 or 31%,
respectively, for the three- and six-month periods ended June 30, 1996,
compared to the same periods in 1995. These increases were due to the
increased oil production, higher oil prices and increased leonardite production
previously discussed. Total operating expenses increased $70,000 or 12% and
$229,000 or 20% for the three- and six-month periods of 1996, respectively,
compared to the same periods in 1995. These increases were primarily due to
significant increases in selling, general and administrative (SG&A),
depreciation and depletion and, to a lessor extent, the increases in production
costs discussed earlier. The higher SG&A expenses resulted from a combination
of increases including costs for 1996 corporate publicity, increased
shareholder communication expenses and a general increase in selling and
administrative costs related to increased product sales and office activities.
The higher depreciation and depletion expense was due to increased depletion
resulting from increased oil production. Although total operating expenses
increased materially, they were significantly less than revenue increases,
resulting in operating income increases of $89,000 or 43% and $211,000 or 81%,
respectively, for the three- and six-month periods ended June 30, 1996,
compared to the same periods in 1995.
Nonoperating expenses for both the three- and six-month periods ended
June 30, 1996, were higher primarily due to increased expenses related to oil
price hedging activities. At June 30, 1996, the Company had a 34,000 barrel
hedge position against future oil production with the last position expiring
in the first quarter 1997.
After a provision for income taxes, the result of consolidated
operations yielded net income of $253,565 or $.06 per share for the second
quarter of 1996 compared to $200,138 or $.05 per share for second quarter 1995.
Net income for the first half of 1996 was $367,581 or $.09 per share compared
to $209,459 or $.05 per share for the first half of 1995.
Liquidity and Capital Resources
At June 30, 1996, the Company had working capital of $254,000 compared
to negative working capital of ($172,000), at December 31, 1995. The
Company's current ratio was 1.32 to 1 at June 30, 1996, compared to .88 to 1
at year end 1995. The $426,000 change in working capital in the first half of
1996 was primarily because of the Company reducing payables with cash flow
provided by the Oscar Fossum H2 "flush" production.
Net cash provided by operating activities was $356,000 for the six
months ended June 30, 1996, compared to $577,000 for the same period in 1995.
The decrease in 1996 operating cash flows was primarily because of the paying
down of accounts payable. Cash was also utilized to make payments of $197,000
for additions to property, plant and equipment and $256,000 for payments on
long-term debt. The payments made on long-term debt in the first six months
of 1996 were as much as the Company borrowed in December 1995 to drill the
Oscar Fossum H2 well.
The Company made minor proved property acquisitions in the first half
of 1996 using approximately $10,000 of cash. Management believes acquisitions
of proved property will continue to be a relatively small portion of the
Company's capital requirements as it continues to pursue horizontal development
drilling.
Management also believes the Company's future cash needs, be they
drilling or acquisitions, can be met by cash flows from operations, its
ability, if necessary, to borrow on its existing line-of-credit or other
means of capital funding.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Part I, Item 3 of the Company's Annual Report on
SEC Form 10-K for the fiscal year ended December 31, 1993, concerning legal
proceedings for discussion on the matter of GeoResources, Inc., vs. MDU
Resources Group, Inc., et al. That discussion is specifically incorporated
herein by reference. Other than the foregoing legal matter, the Company is
not a party, nor is any of its property subject to, any pending material legal
proceedings. The Company knows of no legal proceedings contemplated or
threatened against it.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Securities Holders.
The Annual Meeting of the Registrant was held on June 27, 1996.
Directors elected were R. C. Vickers, Dennis Hoffelt, J. P. Vickers, Cathy
Kruse, and Joseph Montalban.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
June 30, 1996.
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.
GEORESOURCES, INC.
August 9, 1996
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 285,975
<SECURITIES> 31,165
<RECEIVABLES> 454,786
<ALLOWANCES> 0
<INVENTORY> 268,774
<CURRENT-ASSETS> 1,054,231
<PP&E> 19,390,444
<DEPRECIATION> (14,368,510)
<TOTAL-ASSETS> 6,292,438
<CURRENT-LIABILITIES> 800,620
<BONDS> 815,036
0
0
<COMMON> 40,607
<OTHER-SE> 4,467,175
<TOTAL-LIABILITY-AND-EQUITY> 6,292,438
<SALES> 1,861,594
<TOTAL-REVENUES> 1,838,288
<CGS> 813,365
<TOTAL-COSTS> 1,389,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,431
<INCOME-PRETAX> 385,581
<INCOME-TAX> 18,000
<INCOME-CONTINUING> 367,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 367,581
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
