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, 1998.
___ 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, 1998
Common Stock 4,081,314 shares
(par value $.01 per share)
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(June 30, 1998 and December 31, 1997)
Consolidated Statements of Operations 4
(Three months ended June 30, 1998 and 1997
and six months ended June 30, 1998 and 1997)
Consolidated Statements of Cash Flows 5
(Six months ended June 30, 1998 and 1997)
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,
1998 1997
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 104,389 $ 490,385
Trade receivables, net 510,992 521,934
Inventories 350,448 288,264
Prepaid expenses 24,911 31,422
Investments 63,150 25,966
Total current assets 1,053,890 1,357,971
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 18,876,957 17,997,596
Properties not subject to amortization 129,664 124,672
Leonardite plant and equipment 3,206,217 3,211,825
Other 704,357 702,068
22,917,195 22,036,161
Less accumulated depreciation, depletion,
amortization and impairment (15,933,522) (15,510,109)
Net property, plant and
equipment 6,983,673 6,526,052
OTHER ASSETS:
Mortgage loan receivable, related party 103,321 103,321
Other 49,613 44,984
Total other assets 152,934 148,305
TOTAL ASSETS $ 8,190,497 $ 8,032,328
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 494,102 $ 770,204
Current maturities of long-term debt 411,497 457,097
Accrued expenses 107,325 112,430
Total current liabilities 1,012,924 1,339,731
LONG-TERM DEBT, less current maturities 1,332,502 666,000
DEFERRED INCOME TAXES 325,000 335,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued and
outstanding, 4,090,114 shares and
4,097,714 shares, respectively 40,901 40,972
Additional paid-in capital 868,850 880,797
Retained earnings 4,610,320 4,769,828
Total stockholders' equity 5,520,071 5,691,597
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,190,497 $ 8,032,328
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,
1998 1997 1998 1997
OPERATING REVENUES:
Oil and gas sales $ 447,763 $ 784,809 $ 878,686 $1,611,190
Leonardite sales 209,237 119,438 391,426 312,412
657,000 904,247 1,270,112 1,923,602
OPERATING COSTS AND EXPENSES:
Oil and gas production 206,006 285,663 444,339 630,337
Cost of leonardite sold 136,617 120,901 301,441 292,786
Depreciation and depletion 252,927 239,172 429,022 409,539
Selling, general and
administrative 120,893 145,246 232,757 261,054
716,443 790,982 1,407,559 1,593,716
Operating income (loss) (59,443) 113,265 (137,447) 329,886
OTHER INCOME (EXPENSE):
Interest expense (29,796) (28,310) (55,739) (55,038)
Interest income 6,256 5,652 12,448 12,322
Other income, net 5,874 6,025 11,230 10,450
(17,666) (16,633) (32,061) (32,266)
Income (loss) before
income taxes (77,109) 96,632 (169,508) 297,620
Income tax (expense) benefit -- (25,678) 10,000 (43,178)
Net income (loss) $ (77,109) $ 70,954 $ (159,508) $ 254,442
EARNINGS PER SHARE:
Net income (loss),
basic and diluted $ (.02) $ .02 $ (.04) $ .06
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (159,508) $ 254,442
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and depletion 429,022 409,539
Deferred income taxes (10,000) 42,000
Other 3,998 1,096
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables 10,942 444,859
Inventories (62,184) 11,834
Prepaid expenses and other 6,511 (10,567)
Investments (37,184) 21,041
Increase (decrease) in:
Accounts payable 138,523 (873,421)
Accrued expenses (5,105) (65,682)
Net cash provided by
operating activities 315,015 235,141
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant
and equipment (1,301,268) (340,302)
Other -- 136
Net cash used in
investing activities (1,301,268) (340,166)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 850,000 425,000
Principal payments on long-term debt (229,098) (141,600)
Debt issue costs (8,627) --
Purchase of stock for retirement (59,018) --
Issuance of stock 47,000 --
Net cash provided by (used in)
financing activities 600,257 283,400
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (385,996) 178,375
CASH AND EQUIVALENTS, beginning of period 490,385 754,888
CASH AND EQUIVALENTS, end of period $ 104,389 $ 933,263
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 55,739 $ 55,038
Income taxes 960 1,178
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, 1998, and the results of operations and cash flows for the
three months and six months ended June 30, 1998 and 1997.
The results of operations for the periods ended June 30, 1998, 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 Form 10-K for the year ended
December 31, 1997.
2. Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation
in the current-year financial statements.
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Information contained in the following discussion of results of
operations and financial condition of the Company contains forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1955, which can be identified by the use of words such as "may,"
"will," "expect," "anticipate," "estimate," or "continue," or variations
thereon or comparable terminology. In addition, all statements other than
statements of historical facts that address activities, events or
developments that the Company expects, believes or anticipates, will or may
occur in the future, and other such matters, are forward-looking
statements.
The following discussion should be read in conjunction with the
Company's consolidated financial statements and related notes included
elsewhere herein. The Company's future operating results may be affected
by various trends and factors which are beyond the Company's control.
These include, among other factors, the competitive environment in which
the Company operates, prices for oil, both domestically and
internationally, demand for leonardite in the drilling industry, dependence
upon key management personnel, the speculative nature of the oil and gas
business in general, availability of drilling equipment and other uncertain
business conditions that may affect the Company's business.
The Company cautions the reader that a number of important factors
discussed herein, and in other reports filed with the Securities and
Exchange Commission, particularly the Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1997, could affect the Company's actual
results and cause actual results to differ materially from those discussed
in forward-looking statements.
Results of Operations - Three Months and Six Months Ended June 30, 1998
compared to Three Months and Six Months Ended June 30, 1997
Information concerning the Company's oil and gas operations for the
three months and six months ended June 30, 1998, is set forth in the table
below:
Oil and Gas Operations
% Increase % Increase
Three Months (Decrease) Six Months (Decrease)
Ended From 1997 Ended From 1997
June 30, 1998 Period June 30, 1998 Period
Oil and gas production
sold (BOE) 46,474 (8%) 88,525 (8%)
Average price per BOE $ 9.63 (38%) $ 9.93 (41%)
Oil and gas revenue $ 447,763 (43%) $ 878,686 (45%)
Production costs $ 206,006 (28%) $ 444,339 (30%)
Average production cost
per BOE $ 4.43 (21%) $ 5.02 (24%)
Oil and gas production sold for the three months ended June 30,
1998, decreased 4,200 barrels or 8% compared to the same period in 1997.
Production sold for the six months ended June 30, 1998, decreased 7,200
barrels or 8% compared to the same period in 1997. Both of these decreases
were primarily due to the Company continuing to hold some of its oil
production from many of its more marginal wells in lease tanks as inventory
in lieu of selling it at current prices. As a result, at June 30, 1998,
oil held in inventory was approximately 11,000 barrels higher than it was
at December 31, 1997, and 4,200 barrels higher than it was at the end of
the first quarter of 1998. As the marginal well lease tanks become full,
the Company has been shutting in those wells in an effort to control
production costs. As of June 30, 1998, the Company had stopped producing
("shut in") approximately 20 gross oil wells. Management reviews the
Company's wells periodically to determine if additional wells will be shut
in or returned to production.
Oil and gas revenue decreased $337,000 or 43% for the three months
ended June 30, 1998, compared to the same period in 1997. This decrease
was due primarily to the 38% lower average price per BOE in the second
quarter of 1998 compared to the second quarter 1997. Oil and gas revenue
for the six months ended June 30, 1998, decreased $733,000 or 45% compared
to the same period in 1997. This decrease was also due primarily to the
41% lower average price per BOE that existed in the first half of 1998
compared to 1997. The fluctuation in oil prices for the three- and six-
month periods ended June 30, 1998, resulted from shifting world oil markets
during the fourth quarter of 1997 and continuing throughout the first half
of 1998.
Production costs for the three months ended June 30, 1998, decreased
$80,000 or 28% compared to the same period in 1997 due to lower production
taxes, the shutting in of marginal wells to reduce production costs and the
elimination of workover activity. Production costs for the 1998 six-month
period decreased $186,000 or 30% over the same period in 1997 for the same
reasons the three-month period costs were lower. Production costs
expressed on a per equivalent barrel basis for the three-and six-month
periods were 21% and 24% lower, respectively, due to the Company's efforts
to reduce per barrel costs by shutting in marginal wells and other cost
cutting measures.
Information concerning the Company's leonardite operations for the
three months and six months ended June 30, 1998, is set forth in the table
below:
Leonardite Operations
% Increase % Increase
Three Months (Decrease) Six Months (Decrease)
Ended From 1997 Ended From 1997
June 30, 1998 Period June 30, 1998 Period
Leonardite production
sold (tons) 2,290 78% 3,976 8%
Average revenue per ton $ 91.37 (2%) $ 98.45 16%
Leonardite revenue $ 209,237 75% $ 391,426 25%
Cost of leonardite sold $ 136,617 13% $ 301,441 3%
Average production cost
per ton $ 59.66 (37%) $ 75.82 (5%)
Leonardite production sold increased 1,007 tons or 78% and 303 tons
or 8%, respectively, for the three- and six-month periods ended June 30,
1998, compared to the equivalent periods in 1997. The substantially higher
percentage sales level for the three-month period resulted partially from
that period being compared with unusually low sales levels in the same
quarter of 1997 caused by inadequate rail car availability. Management
believes higher leonardite sales levels in the three- and six-month periods
are also the result of moderately increased drilling for gas in the Gulf of
Mexico.
Leonardite revenue increased $90,000 or 75% and $79,000 or 25%,
respectively, for the three- and six-month periods ended June 30, 1998.
These increases are due in part to the higher sales discussed above.
Revenue per ton for the three months ended June 30, 1998, was essentially
stable, but the six-month period was higher due to a larger percentage of
specialty product sales that occurred in the second quarter of 1998. The
Company's specialty products have higher processing costs and selling
prices.
Cost of leonardite sold increased $16,000 or 13% and $9,000 or 3%
for the three- and six-month periods, respectively. These increases were
due to the higher sales levels previously discussed. Average per ton
production costs for the three months ended June 30, 1998, decreased $35
per ton or 37% due to the increase in sales which spread fixed costs over
substantially more tons sold. Average per ton production costs for the six
months ended June 30, 1998, decreased $4 per ton or 5%, also due to the
effects of higher sales levels on fixed costs.
Consolidated Analysis
Total operating revenues decreased $247,000 or 27% and $653,000 or
34%, respectively, for the three- and six-month periods ended June 30,
1998, compared to the same periods in 1997. These decreases were due
primarily to lower oil prices. Total operating expenses decreased $75,000
or 9% and $186,000 or 12% for the three- and six-month periods of 1998,
respectively, compared to the same periods in 1997. These decreases were
primarily due to lower oil and gas production costs. As a result of lower
revenues, and to a lesser extent lower expenses, the Company incurred an
operating loss of $59,000 for the three months ended June 30, 1998,
compared to an operating income of $113,000 for the same quarter in 1997
and an operating loss of $137,000 compared to an operating income of
$330,000 for the six-month periods ended 1998 and 1997, respectively.
After provisions for non-operating expenses and income taxes, the
result of consolidated operations incurred a net loss of $77,000 or $.02
per share for the second quarter of 1998 compared to a net income of
$71,000 or $.02 per share for the second quarter 1997. Net loss for the
first half of 1998 was $160,000 or $.04 per share compared to a net income
of $254,000 or $.06 per share for the first half of 1997.
Liquidity and Capital Resources
At June 30, 1998, the Company had working capital of $41,000
compared to working capital of $18,000, at December 31, 1997. The
Company's current ratio was 1.04 to 1 at June 30, 1998, compared to 1.01 to
1 at year-end 1997.
Net cash provided by operating activities was $315,000 for the six
months ended June 30, 1998, compared to $235,000 for the same period in
1997. Cash and bank borrowings were utilized to make payments of
$1,301,000 for additions to property, plant and equipment and $229,000 for
payments on long-term debt.
The continuation of relatively low oil prices will adversely
affect the Company's ability to achieve net income. Management cannot
predict the prices of oil, but will attempt to keep costs as low as
possible during periods of low oil prices, as discussed above. Management
believes the Company's future cash requirements can be met by cash flows
from operations and, if necessary, borrowings on the Company's existing
line-of-credit. Future cash requirements might also be provided by
possible forward sales of oil reserves or additional debt or equity
financing.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 12, 1989, the Company filed an action in Burleigh County
District Court, North Dakota, against MDU Resources Group, Inc., a Delaware
corporation, and Williston Basin Interstate Pipeline Company, a Delaware
corporation. The Complaint related to, among other things, breaches of a
take or pay natural gas contract and attempts by the defendants to coerce
the Company into modifying the contract. The defendants answered the
Complaint on June 1, 1989. Afterwards, no further materials were filed
with the court, but the Company believed that the case remained pending.
The Company contacted the attorney who filed the action to assess the
status and request further prosecution of the case. After several months
of inaction regarding the case, the Company contacted the court in
September 1996 and was informed by the court that the case had been
dismissed in 1991. On January 15, 1997, the Company refiled its action
against MDU Resources Group, Inc. Management cannot predict the outcome of
this action, although the Company intends to pursue its available remedies.
Other than the foregoing legal proceeding, 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 11, 1998.
Directors elected were Paul Krile, 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. No reports on Form 8-K were filed during the fiscal quarter
ended June 30, 1998.
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 13, 1998
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer
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