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 September 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 October 30, 1998
Common Stock 4,071,652 shares
(par value $.01 per share)
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(September 30, 1998 and December 31, 1997)
Consolidated Statements of Operations 4
(Three months ended September 30, 1998 and 1997
and nine months ended September 30, 1998 and 1997)
Consolidated Statements of Cash Flows 5
(Nine months ended September 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 12
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 125,699 $ 490,385
Trade receivables, net 566,995 521,934
Inventories 350,591 288,264
Prepaid expenses 39,282 31,422
Investments 33,756 25,966
Total current assets 1,116,323 1,357,971
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 19,047,701 17,997,596
Properties not subject to amortization 137,212 124,672
Leonardite plant and equipment 3,206,217 3,211,825
Other 704,357 702,068
23,095,487 22,036,161
Less accumulated depreciation, depletion,
amortization and impairment (16,133,561) (15,510,109)
Net property, plant and
equipment 6,961,926 6,526,052
OTHER ASSETS:
Mortgage loan receivable, related party 103,321 103,321
Other 48,098 44,984
Total other assets 151,419 148,305
TOTAL ASSETS $ 8,229,668 $ 8,032,328
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 484,092 $ 770,204
Current maturities of long-term debt 388,697 457,097
Accrued expenses 95,860 112,430
Total current liabilities 968,649 1,339,731
LONG-TERM DEBT, less current maturities 1,590,753 666,000
DEFERRED INCOME TAXES 325,000 335,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued and
outstanding, 4,071,652 and
4,097,714 shares, respectively 40,717 40,972
Additional paid-in capital 846,787 880,797
Retained earnings 4,457,762 4,769,828
Total stockholders' equity 5,345,266 5,691,597
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,229,668 $ 8,032,328
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
OPERATING REVENUES:
Oil and gas sales $ 397,390 $ 880,062 $1,276,076 $2,491,252
Leonardite sales 182,033 268,308 573,459 580,720
579,423 1,148,370 1,849,535 3,071,972
OPERATING COSTS AND EXPENSES:
Oil and gas production 249,063 284,886 693,402 915,223
Cost of leonardite sold 150,702 149,678 452,143 442,464
Depreciation and depletion 200,039 247,816 629,061 657,355
Selling, general and
administrative 100,019 79,524 332,776 340,578
699,823 761,904 2,107,382 2,355,620
Operating income (loss) (120,400) 386,466 (257,847) 716,352
OTHER INCOME (EXPENSE):
Interest expense (39,845) (34,269) (95,584) (89,307)
Interest income 2,362 7,685 14,810 20,007
Other income and losses, net 5,325 6,225 16,555 16,675
(32,158) (20,359) (64,219) (52,625)
Income (loss) before
income taxes (152,558) 366,107 (322,066) 663,727
Income tax (expense) benefit -- (20,331) 10,000 (63,509)
Net income (loss) $ (152,558) $ 345,776 $ (312,066) $ 600,218
EARNINGS PER SHARE:
Net income (loss),
basic and diluted $ (.04) $ .08 $ (.08) $ .15
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (312,066) $ 600,218
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 629,061 657,355
Deferred income taxes (10,000) 56,000
Issuance of common stock as compensation -- 30,600
Other 5,513 1,644
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables (45,061) 244,700
Inventories (62,327) (29,639)
Prepaid expenses and other (7,860) (17,932)
Investments (7,790) 22,122
Increase (decrease) in:
Accounts payable (241,303) (356,233)
Accrued expenses (16,570) (81,953)
Net cash provided by (used in)
operating activities (68,403) 1,126,882
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant
and equipment (1,109,744) (1,818,944)
Other -- (87)
Net cash used in investing
activities (1,109,744) (1,819,031)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 1,200,000 425,000
Principal payments on long-term debt (343,647) (212,400)
Issuance of common stock 47,000 12,180
Debt issue costs (8,627) --
Purchase of stock for retirement (81,265) --
Net cash provided by (used in)
financing activities 813,461 224,780
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (364,686) (467,369)
CASH AND EQUIVALENTS, beginning of period 490,385 754,888
CASH AND EQUIVALENTS, end of period $ 125,699 $ 287,519
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 95,584 $ 89,307
Income taxes 11,521 7,509
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 September 30, 1998, and the results of operations and cash flows
for the three months and nine months ended September 30, 1998 and
1997.
The results of operations for the periods ended September 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 1995, 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 Nine Months Ended September
30,1998, compared to Three Months and Nine Months Ended September 30, 1997.
Information concerning the Company's oil and gas operations for the
three months and nine months ended September 30, 1998, is set forth in the
table below:
Oil and Gas Operations
% Increase % Increase
Three Months (Decrease) Nine Months (Decrease)
Ended From 1997 Ended From 1997
Sept. 30, 1998 Period Sept. 30, 1998 Period
Oil and gas production
sold (BOE) 44,245 (22%) 132,770 (13%)
Average price per BOE $ 8.98 (42%) $ 9.61 (41%)
Oil and gas revenue $ 397,390 (55%) $1,276,076 (49%)
Production costs $ 249,063 (13%) $ 693,402 (24%)
Average production cost
per BOE $ 5.63 12% $ 5.22 (13%)
Oil and gas production sold, expressed in barrels of oil equivalent
(BOE), was lower by 12,300 BOE or 22% and 19,600 BOE or 13% for the three-
and nine-month periods ended September 30, 1998, compared to the same
periods in 1997. The lower volumes of oil and gas production sold during
both periods were due to three primary factors: 1.) Production sold in the
third quarter of 1997 was unusually high due to the flush production from
two horizontal wells that impacted that period, 2.) In 1998, the Company
reduced oil production sold by shutting in approximately 20 marginal wells
in an effort to reduce production costs. About 13,000 barrels of oil
attributable to those wells is being held in inventory at September 30,
1998 and, 3.) Production declines from the existing horizontal wells have
not been replaced because the company is not drilling additional horizontal
wells at current oil prices. Management expects oil production to
stabilize somewhat in the fourth quarter of 1998 and first quarter of 1999,
because deliveries of 75 barrels of oil per day (BOPD) under a forward-oil-
sale agreement expire on December 1, 1998. This will add 75 BOPD to the
Company's production after the first of December.
Oil and gas revenue decreased $483,000 or 55% during the third
quarter of 1998 compared to the same quarter in 1997. This decrease
resulted from the 22% production decrease previously discussed and a 42%
lower average oil price in the third quarter 1998 compared to the third
quarter 1997. The third quarter 1998 average oil price was the lowest
average price the Company had received thus far in 1998. Oil and gas
revenue for the nine months ended September 30, 1998, declined $1,215,000
or 49% compared to the same period in 1997. This decrease resulted from
the 13% production decrease discussed above combined with a 41% lower
average oil price for the nine months ended September 30, 1998, compared to
the same period in 1997.
Oil and gas production costs decreased $35,800 or 13% and $221,800
or 24% for the three- and nine-month periods, respectively, when compared
to the same periods in 1997. These decreases in production costs were the
result of lower production taxes from lower oil production levels in the
first three quarters of 1998 and efforts to reduce production costs by
shutting in marginal wells. Production costs expressed on a per equivalent
barrel basis, however, were 12% higher for the three-month period and 13%
lower for the nine-month period when compared to the same periods in 1997.
Per barrel production costs were unusually low in the 1997 three-month
period, because much of the production in that quarter was flush production
from two horizontal wells which had lower per barrel production costs.
Information concerning the Company's leonardite operations for the
three months and nine months ended September 30, 1998, is set forth in the
table below:
Leonardite Operations
% Increase % Increase
Three Months (Decrease) Nine Months (Decrease)
Ended From 1997 Ended From 1997
Sept. 30, 1998 Period Sept. 30, 1998 Period
Leonardite production
sold (tons) 2,130 (26%) 6,106 (7%)
Average revenue per ton $ 85.46 (9%) $ 93.92 6%
Leonardite revenue $ 182,033 (32%) $ 573,459 (1%)
Cost of leonardite sold $ 150,702 1% $ 452,143 2%
Average production cost
per ton $ 70.75 36% $ 74.05 10%
Leonardite production sold decreased 741 tons or 26% and 438 tons or
7%, respectively, for the three- and nine-month periods ended September 30,
1998, compared to the equivalent periods in 1997. Management believes
these lower production levels result from moderate declines in domestic oil
and gas drilling activity, which in turn decreased demand for the Company's
leonardite products.
Leonardite revenue decreased $86,300 or 32% and decreased $7,300 or
1%, respectively, for the three- and nine-month periods ended September 30,
1998, compared to the same periods in 1997. The lower revenue in the three-
month period was primarily due to the lower product sales discussed above.
Average revenue per ton for the nine months ended September 30, 1998, was
essentially stable, but the three-month period was 9% lower due to a larger
percentage of basic product sales that occurred in the first quarter of
1998. The Company's basic product has lower processing costs and selling
prices.
Cost of leonardite sold was relatively unchanged for the three- and
nine-month periods ended September 30, 1998, compared to the same periods
in 1997. Cost of leonardite sold did not decrease related to the lower
production volumes in the three-month period due to some unusual mining
equipment repair costs that offset lower production costs. Average per ton
production costs increased 36% and 10%, respectively, for the three- and
nine-month periods ended September 30, 1998, compared to the same periods
in 1997 due to the mining equipment repair costs incurred in the third
quarter.
Consolidated Analysis
Total operating revenues decreased $569,000 or 50% and $1,222,000
or 40%, respectively, for the three- and nine-month periods ended September
30, 1998, compared to the same periods in 1997. These decreases were due
to the lower oil and leonardite sales previously discussed. Total
operating expenses decreased $62,000 or 8% and $248,000 or 11% for the
three- and nine-month periods of 1998, respectively, compared to the same
periods in 1997. These decreases were primarily due to the lower oil and
gas production costs discussed above coupled with lower depreciation and
depletion expense related to lower oil production. As a result of
substantially lower operating revenues and somewhat lower expenses, an
operating loss of $120,400 and $257,900, respectively, was incurred for the
three- and nine-month periods ended September 30, 1997, compared to
operating income of $386,500 and 716,400 for the same periods in 1997.
Nonoperating expenses for the three- and nine-month periods ended
September 30, 1998, increased $11,800 and $11,600, respectively, when
compared with the prior year's periods. As a result, the loss before taxes
was $152,558 and $322,066, respectively, for the three- and nine-month
periods ended September 30, 1998, compared to income of $366,107 and
$663,727 for the same periods in 1997.
Income tax benefit was $10,000 for the 1998 nine-month period
compared to a tax expense of $63,500, for the same period in 1997. Income
taxes primarily consist of the effect of the net changes in the Company's
deferred tax assets and liabilities and therefore bear little relationship
to income.
After income taxes, consolidated operations yielded a net loss of
$152,600 or $.04 per share for the third quarter of 1998 compared to net
income of $345,800 or $.08 per share for the third quarter of 1997. The
net loss for the nine months ended September 30, 1998, was $312,100 or $.08
per share compared to $600,200 or $.15 per share of net income in the same
period of 1997.
Liquidity and Capital Resources
At September 30, 1998, the Company had working capital of $147,700
compared to working capital of $18,200 at December 31, 1997. The Company's
current ratio was 1.15 to 1 at September 30, 1998, compared to 1.01 to 1 at
year-end 1997.
Net cash used in operating activities was $68,400 for the nine
months ended September 30, 1998, compared to net cash provided by operating
activities of $1,127,000 for the same period in 1997. The decrease in 1998
operating cash flows was primarily due to the substantial reduction in oil
prices. In 1998 cash was utilized to make payments of $1,110,000 for
additions to property, plant and equipment primarily for the drilling and
completion of the Ballantyne-State/Steinhaus H1 and the Oscar Fossum H4
wells and $343,600 for payments on long-term debt.
Management believes the Company's future cash requirements can be
met by cash flows from operations or cash flows coupled with other
potential means of capital funding. Future cash requirements might 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.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) For a list of exhibits of the Company, see Item 14(c) of its Annual
Report on Form 10K for the fiscal year ended December 31, 1997, which is
specifically incorporated herein by reference. A financial date schedule
(Exhibit 27 is attached hereto.) All other required exhibits are
inapplicable or information required thereby is readily apparent in the
Form 10-Q.
(b) No reports on Form 8-K were filed during the fiscal quarter ended
September 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.
November 9, 1998
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer
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