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, 2000.
_______ 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 28, 2000
Common Stock 3,961,352 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, 2000 and December 31, 1999)
Consolidated Statements of Operations 4
(Three months ended June 30, 2000 and 1999
and six months ended June 30, 2000 and 1999)
Consolidated Statements of Cash Flows 5
(Six months ended June 30, 2000 and 1999)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure about Market Risks 12
PART II. OTHER INFORMATION 12
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2000 1999
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 594,754 $ 423,361
Trade receivables, net 974,242 991,153
Inventories 310,172 297,029
Prepaid expenses 12,707 17,257
Investments 106 106
Total current assets 1,891,981 1,728,906
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 19,915,997 19,664,222
Properties not subject to amortization 77,782 143,413
Leonardite plant and equipment 3,222,675 3,206,217
Other 733,813 709,443
23,950,267 23,723,295
Less accumulated depreciation, depletion,
amortization and impairment (18,589,534) (18,271,169)
Net property, plant and equipment 5,360,733 5,452,126
OTHER ASSETS:
Mortgage loan receivable, related party 103,321 103,321
Other 43,362 44,487
Total other assets 146,683 147,808
TOTAL ASSETS $ 7,399,397 $ 7,328,840
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 490,600 $ 747,557
Current maturities of long-term debt 179,375 175,000
Accrued expenses 164,096 167,800
Total current liabilities 834,071 1,090,357
LONG-TERM DEBT, less current maturities 1,255,625 1,610,008
DEFERRED INCOME TAXES 222,000 166,000
Total liabilities 2,311,696 2,866,365
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares;
issued and outstanding, 3,964,152
and 4,005,352 shares, respectively 39,642 40,054
Additional paid-in capital 721,860 776,259
Retained earnings 4,326,199 3,646,162
Total stockholders' equity 5,087,701 4,462,475
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,399,397 $ 7,328,840
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,
2000 1999 2000 1999
OPERATING REVENUES:
Oil and gas sales $ 1,011,032 $ 599,881 $ 2,125,330 $ 933,603
Leonardite sales 191,725 158,888 318,645 254,021
1,202,757 758,769 2,443,975 1,187,624
OPERATING COSTS AND EXPENSES:
Oil and gas production 386,500 278,139 820,167 477,369
Cost of leonardite sold 144,090 116,091 280,263 241,487
Depreciation and depletion 156,232 142,558 318,364 287,925
Selling, general and
administrative 114,429 77,812 215,242 150,059
801,251 614,600 1,634,036 1,156,840
Operating income 401,506 144,169 809,939 30,784
OTHER INCOME (EXPENSE):
Interest expense (42,931) (41,870) (84,388) (82,404)
Interest income 8,165 4,521 12,636 7,569
Other income, net 4,525 6,841 9,850 14,666
(30,241) (30,508) (61,902) (60,169)
Income (loss) before
income taxes 371,265 113,661 748,037 (29,385)
Income tax expense (34,000) (10,000) (68,000) --
Net income (loss) $ 337,265 $ 103,661 $ 680,037 $ (29,385)
EARNINGS PER SHARE:
Net income (loss),
basic and diluted $ .08 $ .03 $ .17 $ (.01)
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 680,037 $ (29,385)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and depletion 318,364 287,925
Deferred income taxes 56,000 --
Other 1,125 1,130
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables 16,911 (97,407)
Inventories (13,143) 87,388
Prepaid expenses and other 4,550 (1,016)
Investments -- (54,855)
Increase (decrease) in:
Accounts payable (248,417) 157,504
Accrued expenses (3,704) (891)
Net cash provided by
operating activities 811,723 350,393
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (235,511) (82,698)
Net cash used in investing activities (235,511) (82,698)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 160,000
Principal payments on long-term debt (350,008) (183,498)
Purchase of stock for retirement (54,811) (42,448)
Net cash used in financing activities (404,819) (65,946)
NET INCREASE IN CASH AND EQUIVALENTS 171,393 201,749
CASH AND EQUIVALENTS, beginning of period 423,361 40,673
CASH AND EQUIVALENTS, end of period $ 594,754 $ 242,422
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 84,388 $ 82,404
Income taxes 1,250 1,325
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In our opinion, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly our financial position as of June 30,
2000, and the results of operations and cash flows for the three
months and six months ended June 30, 2000, and 1999.
The results of operations for the periods ended June 30, 2000, 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 our Annual Report on Form 10-K for the year ended December 31,
1999.
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.
3. We assess performance and allocate resources based upon our products
and the nature of our production processes which consist principally of oil
and gas exploration and production and the mining and processing of
leonardite. There are no sales or other transactions between these two
operating segments, and all operations are conducted within the United
States. Certain corporate costs, assets and capital expenditures that are
considered to benefit the entire organization are not allocated to our
operating segments. Interest income, interest expense and income taxes are
also not allocated to operating segments. There are no significant
accounting differences between internal segment reporting and consolidated
external reporting.
Presented below are our identifiable net assets as of June 30, 2000,
and December 31, 1999:
2000 1999
Oil and gas $ 4,860,936 $ 4,894,495
Leonardite 1,335,738 1,417,100
General corporate activities 1,202,723 1,017,245
$ 7,399,397 $ 7,328,840
Presented below is information concerning our operating segments for
the three- and six-month periods ended June 30, 2000, and 1999:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenue:
Oil and gas $ 1,011,032 $ 599,881 $ 2,125,330 $ 933,603
Leonardite 191,725 158,888 318,645 254,021
$ 1,202,757 $ 758,769 $ 2,443,975 $ 1,187,624
Income (loss) before income taxes:
Oil and gas $ 498,226 $ 208,313 $ 1,046,519 $ 226,667
Leonardite 15,782 11,918 (23,120) (47,437)
General corporate
activities (112,502) (76,062) (213,460) (148,446)
Other income and
expenses (30,241) (30,508) (61,902) (60,169)
$ 371,265 $ 113,661 $ 748,037 $ (29,385)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion and analysis of financial condition and results of
operations, and other sections of this report, contain forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995, that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the oil, gas and leonardite
industry, the economy and about us. Words such as "may," "will," "expect,"
"anticipate," "estimate" or "continue," or comparable words are intended to
identify forward-looking statements. These statements are not guarantees
of future performance and involve risks, uncertainties and assumptions that
are difficult to predict with regard to timing, extent, likelihood and
degree of occurrence. Therefore, our actual results and outcomes may
materially differ from what may be expressed or forecasted in our forward-
looking statements. Furthermore, we undertake no obligation to update,
amend or clarify forward-looking statements; whether as a result of new
information, future events or otherwise.
The following discussion should be read in conjunction with our
consolidated financial statements and related notes included elsewhere
herein. Important factors that could cause actual results to differ
materially from the forward-looking statements include, but are not limited
to, changes in production volumes; worldwide supply and demand which affect
commodity prices for oil; the timing and extent of our success in
discovering, acquiring, developing and producing oil, natural gas and
leonardite reserves; risks inherent in the drilling and operation of oil
and natural gas wells and the mining and processing of leonardite products;
future production and development costs; the effect of existing and future
laws, governmental regulations and the political and economic climate of
the United States; and conditions in the capital markets.
We caution 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, 1999, could affect our 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, 2000,
compared to Three Months and Six Months Ended June
30, 1999
Information concerning our oil and gas operations for the three
months and six months ended June 30, 2000, is set forth in the table below:
Oil and Gas Operations
% Increase % Increase
Three Months (Decrease) Six Months (Decrease)
Ended From 1999 Ended From 1999
June 30, 2000 Period June 30, 2000 Period
Oil and gas production
sold (BOE) 40,224 (19%) 83,790 (5%)
Average price per BOE $ 25.14 108% $ 25.36 141%
Oil and gas revenue $ 1,011,032 69% $ 2,125,330 128%
Production costs $ 386,500 39% $ 820,167 72%
Average production cost
per BOE $ 9.61 72% $ 9.79 82%
Oil and gas production sold for the three months ended June 30,
2000, was 9,000 barrels lower or 19% less than it was in the same period in
1999 for two primary reasons. The first is that production sold was at its
highest quarterly level during the second quarter 1999 when we were selling
oil from lease tank inventory after prices had increased from their lower
levels in 1999. Second, we have not drilled a new well for additional oil
production since the Oscar Fossum H4 in the fall of 1997, and the steady
normal decline of our wells lowers production over time. During 1998 and
1999, production was maintained with additional oil from acquisitions, and
we expect these acquisitions will keep 2000 production in the range of what
it had been in the last two years. Production sold for the six months ended
June 30, 2000, was 4,800 barrels lower or 5% less than it was in the same
period in 1999. We believe the decrease in first half 2000 production sold
was much less affected by sales of oil from inventory than was second
quarter alone and should better reflect what we expect oil volumes to do
during the remainder of the year. The average oil price for the second
quarter 2000 advanced to $25.14 per BOE or 108% higher than the same period
in 1999. Stable high prices this year brought the 2000 first half average
oil price up to $25.36 or 141% higher than it was in the same period in
1999.
Oil and gas revenue increased $411,000 or 69% for the three months
ended June 30, 2000, compared to the same period in 1999. This increase
was due to the 108% higher average price per BOE, and in spite of the 19%
lower volumes sold, previously discussed. Oil and gas revenue for the six
months ended June 30, 2000, increased $1,192,000 or 128% compared to the
same period in 1999. This increase was also due to the higher oil price
and the nearly stable volume sold in the first half 2000 compared to that
same period in 1999. The fluctuation in oil prices for the three- and six-
month periods ended June 30, 2000, resulted from steadily increasing world
oil prices throughout all of 1999 that reached relatively stable high
levels of about $30 per barrel on the NYMEX (New York Mercantile Exchange)
during the entire first half of 2000. We expect our average oil price for
the rest of 2000 could easily decline somewhat from first half 2000 levels
but do not believe any moderate change in prices would have a large
negative impact on our operations or financial condition.
Production costs for the three months ended June 30, 2000, increased
$108,000 or 39% compared to the same period in 1999 due largely to
production taxes which increase proportionately with the oil selling price
and due to our desire to dedicate more funds to repairs and maintenance of
existing wells and facilities while oil prices remained high. Production
costs for the 2000 six-month period increased $342,000 or 72% over the same
period in 1999 for the same two reasons the three-month period costs were
higher, but they increased to a greater extent because first quarter 2000
production costs were even higher due to the additional factor or having
significantly more wells producing in first quarter 2000 compared to first
quarter 1999. Production costs expressed on a per equivalent barrel basis
for the three-and six-month periods were 72% and 82% higher, respectively,
due to the production costs factors discussed above.
Readers should be advised that the revenue and cost comparisons
existing in the second quarter and first half of 2000 compared to the same
two periods in 1999 are significantly skewed due to radically opposed oil
price environments. During the 1999 periods, oil prices were relatively
low compared to those in recent years and the 2000 periods had oil prices
higher than have been typical for many years. These results demonstrate
the significant impact that widely fluctuating oil prices have on our
operations.
Through June 30, 2000, we have not initiated any drilling for the
year; however, we did acquire two additional productive properties both
effective June 1, 2000, in two separate transactions. We continue to
evaluate both further acquisitions and the drilling of new wells to
increase reserves and production. During the second quarter 2000, we also
maintained water injection into our South Starbuck Madison Unit (SSMU),
which is a secondary recovery waterflood designed to increase production
from one of the fields we acquired in 1998. No increased oil production
has resulted from this project yet, but our expectation is that we could
see that start by the end of this year.
Information concerning our leonardite operations for the three months and
six months ended June 30, 2000, is set forth in the table below:
Leonardite Operations
% Increase % Increase
Three Months (Decrease) Six Months (Decrease)
Ended From 1999 Ended From 1999
June 30, 2000 Period June 30, 2000 Period
Leonardite production
sold (tons) 2,164 21% 3,680 24%
Average revenue per ton $ 88.60 -- $ 86.59 1%
Leonardite revenue $ 191,725 21% $ 318,645 25%
Cost of leonardite sold $ 144,090 24% $ 280,263 16%
Average production cost
per ton $ 66.59 3% $ 76.16 (6%)
Leonardite production sold increased 371 tons or 21% and 708 tons or
24%, respectively, for the three- and six-month periods ended June 30,
2000, compared to the equivalent periods in 1999. We believe these
increases are due to increased product demand associated with rigs drilling
in the gulf coast area.
Leonardite revenue increased $33,000 or 21% and $65,000 or 25%,
respectively, for the three- and six-month periods ended June 30, 2000.
These increases are due to the higher sales discussed above. Revenue per
ton for the three- and six- month periods ended June 30, 2000, were
essentially stable with the same periods in 1999.
Cost of leonardite sold increased $28,000 or 24% and $39,000 or 16%
for the three- and six-month periods, respectively. Most of the cost
increases were related to the higher volume of leonardite sold in both
periods. Inventory levels were also reduced due to the increased demand.
Average per ton production costs for the three months ended June 30, 2000,
increased $2 per ton or 3%. Average per ton production costs for the six
months ended June 30, 2000, decreased $5 per ton or 6%, due to the effects
of fixed costs on higher sales levels.
Consolidated Analysis
Total operating revenues increased $444,000 or 59% and $1,256,000
or 106% for the three- and six-month periods ended June 30, 2000, compared
to the same periods in 1999. This increase was due to higher oil prices,
previously discussed. Total operating expenses increased $187,000 or 30%
and $477,000 or 41% for the three- and six-month periods of 2000,
respectively, compared to the same periods in 1999. These increases were
primarily due to increased oil and gas expenses discussed above. Operating
income increased to $402,000 and $810,000, respectively, for the three- and
six-month periods ended June 30, 2000, compared to an operating income of
$144,000 and $31,000 for the same periods in 1999.
After provisions for the non-operating expenses and income taxes,
the result of consolidated operations yielded a net income of $337,000 or
$.08 per share and $680,000 or $.17 per share for the three- and six-month
periods ended June 30, 2000, compared to a net income of $104,000 or $.03
per share and a net loss of $29,000 or $.01 per share for the same periods
in 1999.
Liquidity and Capital Resources
At June 30, 2000, we had working capital of $1,058,000 compared to
working capital of $639,000 at December 31, 1999. Our current ratio was
2.27 to 1 at June 30, 2000, compared to 1.59 to 1 at year-end 1999.
Net cash provided by operating activities was $812,000 for the six
months ended June 30, 2000, compared to $350,000 for the same period in
1999. Cash was utilized to make payments of $236,000 for additions to
property, plant and equipment, $350,000 for payments on long-term debt and
$55,000 for stock repurchases. The $350,000 payment on long-term debt
included a prepayment of $263,000 to payoff our 1995 oil and gas loan.
We believe our future cash requirements can be met by cash flows
from operations and, if necessary, borrowings on our existing line-of-
credit. Future cash requirements might also be provided by possible forward
sales of oil reserves or additional debt or equity financing.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risks
Because we qualify as a small business issuer, disclosure regarding
this item is not required.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 12, 1989, we 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
us into modifying the contract. The defendants answered the Complaint on
June 1, 1989. Afterward, no further materials were filed with the court,
but we believed that the case remained pending. We 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, we
contacted the court in September 1996 and were informed by the court that
the case had been dismissed in 1991. On January 15, 1997, we refiled our
action against MDU Resources Group, Inc. We cannot predict the outcome of
this action, although we intend to pursue its available remedies.
Other than the foregoing legal proceeding, we are not a party, nor
is any of our property subject to, any pending material legal proceedings.
We know of no legal proceedings contemplated or threatened against us.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Securities Holders.
Our Annual Meeting was held on June 8, 2000. Directors elected were
Duane Ashley, Dennis Hoffelt, Paul Krile, Cathy Kruse, and J. P. Vickers.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) For a list of our exhibits, see Item 14(c) of our Annual Report on
Form 10K for the fiscal year ended December 31, 1999, which is specifically
incorporated herein by reference. A financial data 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
June 30, 2000.
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 11, 2000
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer
