U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-QSB
/X/ Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended June 30, 2000
or
/ / Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period From __________ to ___________
______________________
Commission File Number 0-7406
______________________
PrimeEnergy Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
84-0637348
(IRS employer identification number)
One Landmark Square, Stamford, Connecticut 06901
(Address of principal executive offices)
(203) 358-5700
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past
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 / /
The number of shares outstanding of each class of the Registrant's Common
Stock as of August 10, 2000 was: Common Stock, $0.10 par value, 4,197,795
shares.
<PAGE>
PrimeEnergy Corporation
Index to Form 10-QSB
June 30, 2000
Part I - Financial Information
Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999 3-4
Consolidated Statements of Operations for the six months
ended June 30, 2000 and 1999 5
Consolidated Statements of Operations for the three months
ended June 30, 2000 and 1999 6
Consolidated Statement of Stockholders' Equity for the
six months ended June 30, 2000 7
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 8
Notes to Consolidated Financial Statements 9-17
Management's Discussion and Analysis of Financial Condition
and Results of Operations 18-21
Part II - Other Matters 22
Signatures 23
2
<PAGE>
PrimeEnergy Corporation
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
June 30, December 31,
2000 1999
(Unaudited) (Audited)
ASSETS:
Current assets:
Cash and cash equivalents $ 794,000 $ 1,771,000
Restricted cash and cash
equivalents (Note 2) 1,291,000 1,854,000
Accounts receivable (Note 3 and Note 9) 4,577,000 3,635,000
Due from related parties (Note 9) 3,602,000 2,844,000
Other current assets 197,000 204,000
Prepaid expenses 59,000 84,000
---------- ----------
Total current assets 10,520,000 10,392,000
---------- ----------
Property and equipment, at cost (Notes 1 and 4):
Oil and gas properties (successful
efforts method):
Developed 51,070,000 49,249,000
Undeveloped 434,000 235,000
Furniture, fixtures and equipment
including leasehold improvements 7,601,000 6,395,000
---------- ----------
59,105,000 55,879,000
Accumulated depreciation and depletion (39,382,000) (36,742,000)
---------- ----------
Net property and equipment 19,723,000 19,137,000
---------- ----------
Other assets (Note 9) 195,000 621,000
Due from affiliates (Note 9) 325,000 325,000
---------- ----------
Total assets $ 30,763,000 $30,475,000
========== ==========
3
<PAGE>
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
June 30, December 31,
2000 1999
(Unaudited) (Audited)
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 6,075,000 $ 7,900,000
Current portion of other long-term
obligations (Note 6) 4,000 4,000
Accrued liabilities:
Payroll, benefits and related items 1,204,000 798,000
Taxes 257,000 53,000
Interest and other 552,000 626,000
Due to related parties (Note 9) 1,533,000 943,000
---------- ----------
Total current liabilities 9,625,000 10,324,000
---------- ----------
Long-term bank debt (Note 5) 18,500,000 19,200,000
Other long-term obligations (Note 6) 15,000 17,000
---------- ----------
Total liabilities 28,140,000 29,541,000
---------- ----------
Stockholders' equity:
Preferred stock, $.10 par, authorized
5,000,000 shares; none issued -- --
Common stock, $.10 par value, authorized
10,000,000 shares; issued 7,607,970
in 2000 and 1999 761,000 761,000
Paid in capital 10,902,000 10,902,000
Accumulated deficit (1,009,000) (2,859,000)
---------- ----------
10,654,000 8,804,000
Treasury stock, at cost, 3,303,765
common shares in 2000 and 3,266,063
common shares in 1999 (8,031,000) (7,870,000)
---------- ----------
Total stockholders' equity 2,623,000 934,000
---------- ----------
Total liabilities and equity $ 30,763,000 $30,475,000
========== ==========
4
<PAGE>
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Consolidated Statements of Operations
Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
Revenue:
Oil and gas sales $ 9,079,000 $ 4,471,000
District operating income 6,335,000 5,862,000
Administrative revenue (Note 9) 783,000 845,000
Reporting and management fees (Note 9) 165,000 156,000
Interest and other income 156,000 102,000
---------- ----------
Total revenue 16,518,000 11,436,000
---------- ----------
Costs and expenses:
Lease operating expense 3,891,000 2,727,000
District operating expense 5,325,000 4,237,000
Depreciation and depletion of
oil and gas properties 2,314,000 2,237,000
General and administrative expense 2,000,000 1,251,000
Exploration costs 124,000 821,000
Interest expense (Note 5) 773,000 656,000
---------- ----------
Total costs and expenses 14,427,000 11,929,000
---------- ----------
Income (loss) from operations 2,091,000 (493,000)
Gain on sale and exchange of assets 11,000 14,000
---------- ----------
Net income (loss) before income taxes 2,102,000 (479,000)
Provision (benefit) for income taxes 252,000 (31,000)
---------- ----------
Net income (loss) $ 1,850,000 $ (448,000)
========== ==========
Basic income (loss) per common
share (Notes 1 and 10) $0.43 $(0.10)
==== ====
Diluted income (loss) per common
share (Notes 1 and 10) $0.37 $(0.10)
==== ====
5
<PAGE>
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Consolidated Statements of Operations
Three Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
Revenue:
Oil and gas sales $ 4,899,000 $ 2,542,000
District operating income 3,335,000 3,004,000
Administrative revenue (Note 9) 408,000 446,000
Reporting and management fees (Note 9) 86,000 71,000
Interest and other income 81,000 57,000
---------- ----------
Total revenue 8,809,000 6,120,000
---------- ----------
Costs and expenses:
Lease operating expense 1,997,000 1,362,000
District operating expense 2,859,000 2,217,000
Depreciation and depletion of
oil and gas properties 1,241,000 1,432,000
General and administrative expense 814,000 629,000
Exploration costs 2,000 134,000
Interest expense (Note 5) 395,000 349,000
---------- ----------
Total costs and expenses 7,308,000 6,123,000
---------- ----------
Income (loss) from operations 1,501,000 (3,000)
Gain on sale and exchange of assets 13,000 11,000
---------- ----------
Net income before income taxes 1,514,000 8,000
Provision for income taxes 182,000 7,000
---------- ----------
Net income $ 1,332,000 $ 1,000
========== ==========
Basic income per common
share (Notes 1 and 10) $0.31 $0.00
==== ====
Diluted income per common
share (Notes 1 and 10) $0.27 $0.00
==== ====
6
<PAGE>
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated Treasury
Shares Amount Capital Deficit Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 7,607,970 $761,000 $10,902,000 ($2,859,000) ($7,870,000) $934,000
Purchased 37,702 shares of
common stock (161,000) (161,000)
Net income 1,850,000 1,850,000
--------- -------- ----------- ----------- ------------ ----------
Balance at June 30, 2000 7,607,970 $761,000 $10,902,000 ($1,009,000) ($8,031,000) $2,623,000
========= ======== =========== ============ ============ ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE>
PrimeEnergy Corporation
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
Net cash provided by
operating activities $3,485,000 $ 2,637,000
---------- ----------
Cash flows from investing activities:
Capital Expenditures,
including dry hole costs (3,622,000) (4,690,000)
Proceeds from sale of property
and equipment 23,000 37,000
Proceeds from payments on note receivable -- 10,000
---------- ----------
Net cash used in investing
activities (3,599,000) (4,643,000)
---------- ----------
Cash flows from financing activities:
Purchase of treasury stock (161,000) (96,000)
Increase in long-term bank debt and
other long-term obligations 12,350,000 12,255,000
Repayment of long-term bank debt and
other long-term obligations (13,052,000) (10,260,000)
---------- ----------
Net cash provided by (used in)
financing activities (863,000) 1,899,000
---------- ----------
Net decrease in cash and cash
equivalents (977,000) (107,000)
Cash and cash equivalents at the
beginning of the period 1,771,000 1,167,000
---------- ----------
Cash and cash equivalents at the
end of the period $ 794,000 $ 1,060,000
========== ==========
8
<PAGE>
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Notes to Consolidated Financial Statements
June 30, 2000
1) Description of Operations and Significant Accounting Policies:
Nature of Operations-
PrimeEnergy Corporation ("PEC"), a Delaware corporation, was
organized in March 1973. PrimeEnergy Management Corporation
("PEMC"), a wholly-owned subsidiary, acts as the managing general
partner, providing administration, accounting and tax preparation
services for 53 private and publicly-held limited partnerships and
trusts (collectively, the "Partnerships"). PEC owns Eastern Oil
Well Service Company ("EOWSC") and Southwest Oilfield Construction
Company ("SOCC"), both of which perform oil and gas field
servicing. PEC also owns Prime Operating Company ("POC") which
serves as operator for most of the producing oil and gas properties
owned by the Company and affiliated entities. PrimeEnergy
Corporation and its wholly-owned subsidiaries are herein referred
to as the "Company".
The Company is engaged in the development, acquisition and
production of oil and natural gas properties. The Company owns
leasehold, mineral and royalty interests in producing and non-
producing oil and gas properties across the continental United
States, primarily in Texas, Oklahoma, and West Virginia. The
Company operates over 1,600 wells and owns non-operating interests
in over 800 additional wells. Additionally, the Company provides
well-servicing support operations, site preparation and
construction services for oil and gas drilling and re-working
operations, both in connection with the Company's activities and in
providing contract services for third parties. The Company is
publicly traded on NASDAQ under the symbol "PNRG".
The markets for the Company's products and services are highly
competitive, as oil and gas are commodity products and prices
depend upon numerous factors beyond the control of the Company,
such as economic, political and regulatory developments and
competition from alternative energy sources.
Certain items on the prior year income and cash flow statements
have been reclassified to conform with current year classification.
Principles of Consolidation-
The consolidated financial statements include the accounts of
PrimeEnergy Corporation and its wholly-owned subsidiaries. All
material inter-company accounts and transactions between these
entities have been eliminated. Oil and gas properties include
ownership interests in the Partnerships. The statement of
operations includes the Company's proportionate share of revenue
9
<PAGE>
and expenses related to oil and gas interests owned by the
Partnerships.
Use of Estimates-
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Estimates of oil and gas reserves, as determined by independent
petroleum engineers, are continually subject to revision based on
price, production history and other factors. Depletion expense,
which is computed based on the units of production method, could be
significantly impacted by changes in such estimates. Additionally,
SFAS No. 121 requires that, if the expected future cash flow from
an asset is less than its carrying cost, that asset must be written
down to its fair market value. As the fair market value of a
property is generally substantially less than the total future cash
flow expected from the asset, small changes in the estimated future
net revenue from an asset could lead to the necessity of recording
a significant impairment of that asset.
The Company has significant deferred tax assets which have been
fully reserved against based upon the assumption that, considering
both current and expected future levels of taxable income and the
Section 29 credits and other tax benefits the Company expects to
generate, the availability of these carryforwards will not lead to
significant reductions in the Company's tax liability as compared
to what it would pay if such carryforwards did not exist. Increases
in estimates of future taxable income could lead to significant
reductions in the amount of this reserve, which could have a
material effect on the net income of the Company.
Property and Equipment-
The Company follows the "successful efforts" method of accounting
for its oil and gas properties. Under the successful efforts
method, costs of acquiring undeveloped oil and gas leasehold
acreage, including lease bonuses, brokers' fees and other related
costs are capitalized. Provisions for impairment of undeveloped oil
and gas leases are based on periodic evaluations. Annual lease
rentals and exploration expenses, including geological and
geophysical expenses and exploratory dry hole costs, are charged
against income as incurred.
All other property and equipment are carried at cost. Depreciation
and depletion of oil and gas production equipment and properties
are determined under the unit-of-production method based on
estimated proved recoverable oil and gas reserves. Depreciation of
all other equipment is determined under the straight-line method
using various rates based on useful lives. The cost of assets and
10
<PAGE>
related accumulated depreciation is removed from the accounts when
such assets are disposed of, and any related gains or losses are
reflected in current earnings.
Income Taxes-
The Company records income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". SFAS No. 109 is an asset and liability approach to
accounting for income taxes, which requires the recognition of
deferred tax assets and liabilities for the expected future
consequences of events that have been recognized in the Company's
financial statements or tax returns.
Deferred tax liabilities or assets are established for temporary
differences between financial and tax reporting bases and are
subsequently adjusted to reflect changes in the rates expected to
be in effect when the temporary differences reverse. A valuation
allowance is established for any deferred tax asset for which
realization is not likely.
General and Administrative Expenses-
General and administrative expenses represent costs and expenses
associated with the operation of the Company. Certain of the
Partnerships and joint ventures sponsored by the Company reimburse
general and administrative expenses incurred on their behalf.
Income per share-
Income per share of common stock has been computed based on the
weighted average number of common shares and common stock
equivalents outstanding during the respective periods in accordance
with SFAS No. 128, "Earnings per Share".
Statements of cash flows-
For purposes of the consolidated statements of cash flows, the
Company considers short-term, highly liquid investments with
original maturities of less than ninety days to be cash
equivalents.
Concentration of Credit Risk-
The Company maintains significant banking relationships with
financial institutions in the State of Texas. The Company limits
its risk by periodically evaluating the relative credit standing
of these financial institutions. The Company's oil and gas
production purchasers consist primarily of independent marketers
and major gas pipeline companies.
Hedging-
From time to time, the Company may enter into futures contracts in
order to reduce its exposure related to changes in oil and gas
11
<PAGE>
prices. In accordance with Statement of Financial Accounting
Standards No. 80, any gain or loss on such contracts is treated as
an adjustment to oil and gas revenue. Cash activity related to
hedging transactions is treated as operating activity on the
Statements of Cash Flows.
Recently Issued Accounting Standards-
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability
measured at its fair value. It also requires that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000 and cannot be applied retroactively. The
Company has not yet quantified the impacts of adopting SFAS No. 133
on its financial statements and has not determined the timing of or
method of adoption of SFAS No. 133. However, SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
(2) Restricted Cash and Cash Equivalents:
Restricted cash and cash equivalents includes $1,291,000 and
$1,854,000 at June 30, 2000 and December 31, 1999, respectively, of
cash primarily pertaining to unclaimed royalty payments. There were
corresponding accounts payable recorded at June 30, 2000 and
December 31, 1999 for these liabilities.
(3) Accounts Receivable:
Accounts receivable at June 30, 2000 and December 31, 1999
consisted of the following:
12
<PAGE>
June 30, December 31,
2000 1999
Joint Interest Billing $ 1,255,000 $ 1,738,000
Trade Receivables 883,000 550,000
Oil and Gas Sales 1,933,000 1,423,000
Current loans receivable (Note 9) 453,000 --
Other 190,000 61,000
--------- ---------
4,714,000 3,772,000
Less, Allowance for doubtful
accounts (137,000) (137,000)
--------- ---------
$ 4,577,000 $ 3,635,000
========= =========
(4) Property and equipment:
Property and equipment at June 30, 2000 and December 31, 1999
consisted of the following:
June 30, December 31,
2000 1999
Developed oil and gas
properties at cost $51,070,000 $49,249,000
Undeveloped oil and gas
properties at cost 434,000 235,000
Less, accumulated depletion
and depreciation (34,646,000) (32,342,000)
------------ ------------
16,858,000 17,142,000
------------ ------------
Furniture, fixtures and
equipment 7,601,000 6,395,000
Less, accumulated depreciation (4,736,000) (4,400,000)
---------- ----------
2,865,000 1,995,000
---------- ----------
Total net property and
equipment $19,723,000 $19,137,000
========== ==========
5) Long-Term Bank Debt:
At the beginning of 1999, the Company was party to a line of
credit agreement with a bank with a non-reducing borrowing base of
$20 million. In February 1999, the credit agreement was revised to
require that the $20 million borrowing base, reestablished on
October 14, 1998, would begin reducing monthly by $300,000
13
<PAGE>
beginning February 1, 1999. Effective September 22, 1999, the
credit agreement was amended, revising the borrowing base to $23.7
million, reducing monthly by $350,000 beginning on October 1,
1999. The credit agreement provides for interest on outstanding
borrowings at the bank's base rate, as defined, payable monthly,
or at rates ranging from 1 1/2% to 2% over the London Inter-Bank
Offered Rate (LIBO rate) depending upon the Company's utilization
of the available line of credit, payable at the end of the
applicable interest period.
Advances pursuant to the agreement are limited to the borrowing
base as defined in the agreement. Most of the Company's oil and
gas properties as well as certain receivables and equipment are
pledged as security under this agreement. Under the Company's
credit agreement, the Company is required to maintain, as defined,
a minimum current ratio, tangible net worth, debt coverage ratio
and interest coverage ratio, and restrictions are placed on the
payment of dividends. As of June 30, 2000, the Company had
$18,500,000 outstanding against a line of credit of $20,550,000.
(6) Other Long-Term Obligations:
Other long term obligations at June 30, 2000 and December 31, 1999
consist of the following:
June 30, December 31,
2000 1999
Capital lease obligations $ 19,000 $ 21,000
Less: current portion 4,000 4,000
______ ______
$ 15,000 $ 17,000
====== ======
(7) Contingent Liabilities:
PEMC, as managing general partner of the affiliated Partnerships is
responsible for all Partnership activities, including the review
and analysis of oil and gas properties for acquisition, the
drilling of development wells and the production and sale of oil
and gas from productive wells. PEMC also provides the
administration, accounting and tax preparation work for the
Partnerships and is liable for all debts and liabilities of the
affiliated Partnerships, to the extent that the assets of a given
limited Partnership are not sufficient to satisfy its obligations.
The Company is subject to environmental laws and regulations.
Management believes that future expenses, before recoveries from
third parties, if any, will not have a material effect on the
Company's financial condition. This opinion is based on expenses
incurred to date for remediation and compliance with laws and
regulations which have not been material to the Company's results
of operations.
14
<PAGE>
As a general partner, PEMC is committed to offer to purchase the
limited partners' interests in certain of its managed Partnerships
at various annual intervals. Under the terms of a partnership
agreement, PEMC is not obligated to purchase an amount greater than
10% of the total partnership interest outstanding. In addition,
PEMC will be obligated to purchase interests tendered by the
limited partners only to the extent of one hundred fifty (150)
percent of the revenues received by it from such partnership in the
previous year. Purchase prices are based upon annual reserve
reports of independent petroleum engineering firms discounted by a
risk factor. Based upon historical production rates and prices,
management estimates that if all such offers were to be accepted,
the maximum annual future purchase commitment would be
approximately $500,000.
(8) Stock Options and Other Compensation:
In May 1989, non-statutory stock options were granted by the
Company to four key executive officers for the purchase of shares
of common stock. Such options are exercisable, on a cumulative
basis, as to twenty percent of the shares subject to option in each
year, beginning one year after the granting of the option. At June
30, 2000 and 1999, options on 767,500 and 802,500 shares,
respectively, were outstanding and exercisable at prices ranging
from $1.00 to $1.25.
On January 27, 1983, the Company adopted the 1983 Incentive Stock
Option Plan. At June 30, 2000 and 1999, options on 87,000 and
111,000 shares were exercisable at $1.50 per share, respectively,
and no additional shares were available for granting.
PEMC has a marketing agreement with its current President to
provide assistance and advice to PEMC in connection with the
organization and marketing of oil and gas partnerships and joint
ventures and other investment vehicles of which PEMC is to serve as
general or managing partner. The Company had a similar agreement
with its former Chairman. Although that agreement has expired, the
former Chairman is still entitled to receive certain payments
relating to partnerships formed during the time the agreement was
in effect. The President is entitled to a percentage of the
Company's carried interest depending on total capital raised and
annual performance of the Partnerships and joint ventures.
(9) Related Party Transactions:
PEMC is a general partner in several oil and gas Partnerships in
which certain directors have limited and general partnership
interests. As the managing general partner in each of the
Partnerships, PEMC receives approximately 5% to 12% of the net
revenues of each Partnership as a carried interest in the
Partnerships' properties.
The Partnership agreements allow PEMC to receive management fees
for various services provided to the Partnerships as well as
15
<PAGE>
reimbursement for property acquisition and development costs
incurred on behalf of the Partnerships and general and
administrative overhead, which is reported in the statements of
operations as administrative revenue.
In 1991, the Company loaned approximately $325,000 at 12% interest
to a real estate limited partnership of which a Company Director is
a general partner. This loan was secured by a mortgage on the
underlying real estate in the partnership and the Company received
a 23% equity participation in the partnership. The loan agreement
provided for interest payments on a quarterly basis provided the
cash flow from operations of the limited partnership were
sufficient to pay interest for the quarter. If cash flows were not
sufficient, the accrued interest was added to the principal. As of
December 31, 1999, the amounts due, included in other non-current
assets on the balance sheet, were $442,000. In July of 2000, the
loan was paid in full. Therefore, as of June 30, 2000 amounts due
of $453,000 are included in accounts receivable on the balance
sheet and disclosed separately in Note 3.
Due to related parties at June 30, 2000 and December 31, 1999
primarily represent receipts collected by the Company, as agent,
from oil and gas sales net of expenses. Receivables from affiliates
consist of reimbursable general and administrative costs, lease
operating expenses and reimbursements for property acquisitions,
development and related costs.
(10) Income per share:
Basic earnings per share are computed by dividing earnings
available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per
share reflect per share amounts that would have resulted if
dilutive potential common stock had been converted to common
stock. The following reconciles amounts reported in the financial
statements:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
Net Number of Per Share Net Number of Per Share
Income Shares Amount Loss Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) per
common share $1,850,000 4,327,079 $ 0.43 $(448,000) 4,438,368 $ (0.10)
Effect of dilutive
securities: Options ** 652,158
___________ _________ _______ ________ _________ ________
Diluted net income (loss)
per common share $ 1,850,000 4,979,237 $ 0.37 $(448,000) 4,438,368 $ (0.10)
=========== ========= ======= ========= ========= ========
</TABLE>
** For the six months ended June 30, 1999, the number of options excluded
from diluted loss per common share calculations were 715,323 as the conversion
of these would have an anti-dilutive effect on net loss per share.
16
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
Net Number of Per Share Net Number of Per Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Net income per
common share $1,332,000 4,315,399 $ 0.31 $1,000 4,433,241 $ 0.00
Effect of dilutive
securities: Options ** 643,353 702,877
---------- --------- -------- -------- -------- --------
Diluted net income
per common share $1,332,000 4,958,752 $ 0.27 $1,000 5,136,118 $ 0.00
========= ========== ======== ======= ========= ========
</TABLE>
17
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the financial
statements of the Company and notes thereto. The Company's subsidiaries
are defined in Note 1 of the financial statements. PEMC is the managing
general partner or managing trustee in several Limited Partnerships and
Trusts (collectively, the "Partnerships").
LIQUIDITY AND CAPITAL RESOURCES
The Company feels that it has the ability to generate sufficient amounts
of cash to meet long-term liquidity needs, as well as debt service. The
Company's goal is to generate increased cash flows by increasing its
reserve base through continued acquisition, exploration and development.
By increasing its reserve base, the Company's borrowing ability is
increased due to additional properties available as collateral. Capital
expenditures during 2000 were financed by borrowings and internally
generated funds coupled with cash balances available at the prior year-
end.
At the beginning of 1999, the Company was party to a line of credit
agreement with a bank with a non-reducing borrowing base of $20
million. In February 1999, the credit agreement was revised to require
that the $20 million borrowing base, reestablished on October 14, 1998,
would begin reducing monthly by $300,000 beginning February 1, 1999.
Effective September 22, 1999, the credit agreement was amended,
revising the borrowing base to $23.7 million, reducing monthly by
$350,000 beginning on October 1, 1999. The credit agreement provides
for interest on outstanding borrowings at the bank's base rate, as
defined, payable monthly, or at rates ranging from 1 1/2% to 2% over
the London Inter-Bank Offered Rate (LIBO rate) depending upon the
Company's utilization of the available line of credit, payable at the
end of the applicable interest period. Advances pursuant to the
agreement are limited to the borrowing base as defined in the
agreement. Most of the Company's oil and gas properties as well as
certain receivables and equipment are pledged as security under this
agreement. Under the Company's credit agreement, the Company is
required to maintain, as defined, minimum current, tangible net worth,
debt coverage and interest coverage ratios, and the payment of
dividends is restricted. As of June 30, 2000, the Company had
$18,500,000 outstanding against a line of credit of $20,550,000.
Advances pursuant to the agreement are limited to the borrowing base as
defined in the agreement. Most of the Company's oil and gas properties
as well as certain receivables and equipment are pledged as security
under this agreement. Under the Company's credit agreement, the Company
is required to maintain, as defined, minimum current, tangible net
worth, debt coverage and interest coverage ratios.
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The Company spent approximately $2,286,000 on the acquisition,
exploration and development of oil and gas properties in the first half
of 2000, including $389,000 spent to repurchase limited partner
interests from investors in the oil and gas partnerships.
The Company also spent approximately $1,281,000 on field service
equipment, including $583,000 to expand it's servicing operations in
Midland Texas, and $40,000 on computer hardware and software in the
first half of 2000.
The Company spent $161,000 in the first half of 2000 to acquire
treasury stock in open market transactions. On August 8, 2000 the
Company spent $287,000 to purchase 49,000 shares of it's treasury
stock, and on August 10, 55,000 shares were purchased at a cost of
$316,000.
Most of the Company's capital spending is discretionary and the
ultimate level of spending will be dependent on the Company's
assessment of the oil and gas business, the availability of capital,
the number of oil and gas prospects, and oil and gas business
opportunities in general.
In July of 2000 the Company received $453,000 in full payment of a note
from Alabama Shopping Center Associates.
RESULTS OF OPERATIONS
The Company had income of $1,850,000 for the six months ended June 30,
2000 as compared to a loss of $448,000 in the first half of 1999. The
Company had income of $1,332,000 in the second quarter of 2000 as
compared to income of $1,000 in the second quarter of 1999. The
improvement in results is attributable to a combination of sharply
higher oil and gas prices, increased production, and a decline in
exploration costs from $821,000 in the first half of 1999 to $124,000
in 2000.
Oil and gas sales of $9,079,000 for the first half of 2000 represented
a 103% increase over sales in the first half of 1999. In the first half
of 2000 average oil and gas prices were $26.97 per barrel and $2.98 per
Mcf as compared to $13.07 per barrel and $2.02 per Mcf in the first
half of 1999. Production for the first six months of 2000 totaled
143,498 barrels of oil and 1,749,782 Mcf of gas as compared to 118,113
barrels of oil and 1,448,452 Mcf of gas during the comparable period in
1999.
Second quarter 2000 oil and gas sales of $4,899,000 represented a 93%
increase over sales in the second quarter of 1999. Second quarter 2000
average oil and gas prices were $27.06 per barrel and $3.21 per Mcf as
compared to $15.20 per barrel and $2.14 per Mcf in the second quarter
of 1999. Production for the second quarter of 2000 totaled 73,098
barrels of oil and 909,831 Mcf of gas as compared to 60,020 barrels of
oil and 762,174 Mcf of gas during the comparable period in 1999.
In November of 1999, the Company purchased interests in approximately
131 oil and gas wells located in Oklahoma. The Company already owned
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working interests in, and was the operator of, the majority of the
wells. These interests contributed production of 18,000 barrels of oil
and 240,000 Mcf of gas to production if the first half of 2000, and a
total of $1,113,000 of oil and gas revenue.
In the second quarter of 2000 the Company completed the Brooks Trust #
1 well in Bee County, Texas. This well had first production in late
June, and is currently producing at a rate of approximately 2,000 Mcf
per day. The Company owns a 41.4% net revenue interest in this well.
In August of 2000 the Company had first sales from a well drilled and
completed on the East Wakita Prospect in Oklahoma. This well, in which
the Company owns a 68% net revenue interest, is currently producing
about 1,900 Mcf per day.
District operating income increased by $473,000 or 8%, between the
first half of 2000 and the first half of 1999, and by $331,000, or 11%
in the second quarter of 2000 as compared to the same period in 1999.
Both increases reflect the Company's efforts to increase the amount of
field service work it performs on wells not operated by the Company,
particularly through expanding it's operations in the Midland, Texas
area.
Administrative revenue for the first half of 2000 was $783,000 as
compared to $845,000 in 1999, a decline of 7%. Amounts received in both
years from certain Partnerships are substantially less than the amounts
allocable to those Partnerships under the Partnership agreements. The
lower amounts reflect PEMC's efforts to limit costs incurred and the
amounts allocated to the Partnerships.
Lease operating expense for the first half of 2000 increased by 43% or
$1,164,000 compared to the first half of 1999, primarily due to higher
volumes produced and a greater amount of repair and fix up work
performed in 2000 than in 1999, when prices were extremely depressed.
The higher volumes were primarily attributable to the additional
interests in Oklahoma properties purchased in November of 1999.
The Company receives reimbursement for costs incurred related to the
evaluation, acquisition and development of properties in which
interests are owned by its joint venture partners, related
partnerships, and trusts. To the extent that these costs are expended
at the district level, the reimbursements reduce total district
operating expenses. To the extent such expenses are incurred by PEMC,
such reimbursements reduce total general and administrative expenses.
Such reimbursement totaled approximately $500,000 in the first half of
2000 as compared to $800,000 for the same period in 1999.
District operating expense increased by $1,088,000 or 26%, in the first
half of 2000 as compared to the same period in 1999, and by $642,000 or
29% in second quarter of 2000 as compared to the second quarter of
1999. Both increases reflect the Company's efforts to increase the
amount of field service work it performs on wells not operated by the
Company, and startup costs incurred in connection with the expansion of
its operations in the Midland, Texas area.
General and administrative expenses increased 60% to $2,000,0000 in the
first half of 2000 as compared to $1,251,000 in 1999. The change in
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cost reimbursement, previously discussed, combined with nonrecurring
compensation and employee benefit costs related to the resignation of a
company employee, are the primary components of this increase. Also,
the Companys share of administrative expenses from the partnerships
increased by $142,000 between the two years, primarily due to the
purchase of additional interests in these properties.
Exploration costs were $124,000 in the first half of 2000 as compared
to $821,000 during the same period in 1999. The 1999 costs consisted
primarily of the cost of two dry holes drilled in the first quarter of
1999 as part of the Company's 1998 Drilling Program.
Interest expense during the first half of 2000 increased approximately
18% to $773,000 due to higher interest rates in that period.
The Company experienced no disruptions as a result of the Year 2000
date change. The Company expenditures for addressing Year 2000 issues
were not material, nor does the Company expect to incur any significant
costs addressing Year 2000 issues in the future.
This Report contains forward-looking statements that are based on
management's current expectations, estimates and projections. Words
such as "expects," "anticipates," "intends," "plans," "believes,"
"projects" and "estimates," and variations of such words and similar
expressions are intended to identify such forward-looking statements.
These statements constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, and are subject
to the safe harbors created thereby. These statements are not
guarantees of future performance and involve risks and uncertainties
and are based on a number of assumptions that could ultimately prove
inaccurate and, therefore, there can be no assurance that they will
prove to be accurate. Actual results and outcomes may vary materially
from what is expressed or forecast in such statements due to various
risks and uncertainties. These risks and uncertainties include, among
other things, the possibility of drilling cost overruns and technical
difficulties, volatility of oil and gas prices, competition, risks
inherent in the Company's oil and gas operations, the inexact nature of
interpretation of seismic and other geological and geophysical data,
imprecision of reserve estimates, and the Company's ability to replace
and expand oil and gas reserves. Accordingly, stockholders and
potential investors are cautioned that certain events or circumstances
could cause actual results to differ materially from those projected.
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PART II - OTHER MATTERS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 19,
2000. One matter submitted to the stockholders was the election of
thirteen Directors (named below), nominated by management, all of whom
were currently serving as Directors. Proxies were solicited pursuant
to Regulation 14A under the Securities Act of 1934, definitive copies
of which were filed with the Commission. There was no solicitation in
opposition to management's nominees, and all of the Directors nominated
for the re-election were elected. The number of shares of the
Company's common stock outstanding and entitled to vote at the Annual
Meeting was 4,335,097. Those persons nominated and elected as
Directors, and the number of shares voting for or withheld and broker
non-votes for each, is shown below. There were no abstentions.
Broker
For Withheld Non-votes
Samuel R. Campbell 3,421,639 3,301 200
James E. Clark 3,421,489 3,451 350
Beverly A. Cummings 3,421,689 3,251 150
Charles E. Drimal, Jr. 3,421,689 3,251 150
Matthias Eckenstein 3,421,639 3,301 200
H. Gifford Fong 3,421,839 3,101 -
Thomas S. T. Gimbel 3,421,739 3,201 100
Clint Hurt 3,421,839 3,101 -
Robert de Rothschild 3,421,839 3,101 -
Jarvis J. Slade 3,421,539 3,401 300
Jan K. Smeets 3,421,839 3,101 -
Gaines Wehrle 3,421,739 3,201 100
Michael H. Wehrle 3,421,589 3,351 250
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Item 5. OTHER INFORMATION
Exhibit 27 - Financial Data Schedule is attached to the electronic
filing of this report only.
Item 6. EXHIBITS AND REPORTS ON FORM 8K
No reports on form 8K were filed by the Company during the six months
ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PrimeEnergy Corporation
(Registrant)
August 14, 2000 /s/ Charles E. Drimal,Jr.
(Date) --------------------------
Charles E. Drimal, Jr.
President
Principal Executive Officer
August 14, 2000 /s/ Beverly A. Cummings
(Date) --------------------------
Beverly A. Cummings
Executive Vice President
Principal Financial and
Accounting Officer
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