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 March 31, 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 May 12, 2000 was: Common Stock, $0.10 par value, 4,311,705
shares.
PrimeEnergy Corporation
Index to Form 10-QSB
March 31, 2000
Part I - Financial Information
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999 3-4
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 5
Consolidated Statement of Stockholders' Equity for the
three months ended March 31, 2000 6
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8-15
Management's Discussion and Analysis of Financial Condition
and Results of Operations 16-19
Part II - Other Matters 20
Signatures 21
PrimeEnergy Corporation
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
March 31, December 31,
2000 1999
(Unaudited) (Audited)
ASSETS:
Current assets:
Cash and cash equivalents $ 506,000 $ 1,771,000
Restricted cash and cash
equivalents (Note 2) 1,273,000 1,854,000
Accounts receivable (Note 3) 3,710,000 3,635,000
Due from related parties (Note 9) 3,189,000 2,844,000
Other current assets 178,000 204,000
Prepaid expenses 49,000 84,000
---------- ----------
Total current assets 8,905,000 10,392,000
---------- ----------
Property and equipment, at cost (Notes 1 and 4):
Oil and gas properties (successful
efforts method):
Developed 49,548,000 49,249,000
Undeveloped 375,000 235,000
Furniture, fixtures and equipment
including leasehold improvements 7,183,000 6,395,000
---------- ----------
57,106,000 55,879,000
Accumulated depreciation and depletion (37,978,000) (36,742,000)
---------- ----------
Net property and equipment 19,128,000 19,137,000
---------- ----------
Other assets (Note 9) 635,000 621,000
Due from affiliates (Note 9) 325,000 325,000
---------- ----------
Total assets $ 28,993,000 $30,475,000
========== ==========
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
March 31, December 31,
2000 1999
(Unaudited) (Audited)
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 5,922,000 $ 7,900,000
Current portion of other long-term
obligations (Note 6) 4,000 4,000
Accrued liabilities:
Payroll, benefits and related items 1,032,000 798,000
Taxes 117,000 53,000
Interest and other 554,000 626,000
Due to related parties (Note 9) 1,126,000 943,000
---------- ----------
Total current liabilities 8,755,000 10,324,000
---------- ----------
Long-term bank debt (Note 5) 18,800,000 19,200,000
Other long-term obligations (Note 6) 16,000 17,000
---------- ----------
Total liabilities 27,571,000 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 (2,341,000) (2,859,000)
---------- ----------
9,322,000 8,804,000
Treasury stock, at cost, 3,272,373
common shares in 2000 and 3,266,063
common shares in 1999 (7,900,000) (7,870,000)
---------- ----------
Total stockholders' equity 1,422,000 934,000
---------- ----------
Total liabilities and equity $ 28,993,000 $30,475,000
========== ==========
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
Revenue:
Oil and gas sales $ 4,181,000 $ 1,929,000
District operating income 3,000,000 2,858,000
Administrative revenue (Note 9) 375,000 399,000
Reporting and management fees (Note 9) 79,000 84,000
Interest and other income 77,000 44,000
---------- ----------
Total revenue 7,712,000 5,314,000
---------- ----------
Costs and expenses:
Lease operating expense 1,894,000 1,364,000
District operating expense 2,466,000 2,020,000
Depreciation and depletion of
oil and gas properties 1,074,000 805,000
General and administrative expense 1,187,000 621,000
Exploration costs 122,000 687,000
Interest expense (Note 5) 378,000 307,000
---------- ----------
Total costs and expenses 7,121,000 5,804,000
---------- ----------
Income (loss) from operations 591,000 (490,000)
Gain (loss) on sale and exchange of assets (2,000) 3,000
- ---------- ---------- ---------
Net income (loss) before income taxes 589,000 (487,000)
Provision (benefit) for income taxes 71,000 (37,000)
---------- ----------
Net income (loss) $ 518,000 $ (450,000)
========== ==========
Basic income (loss) per common
share (Notes 1 and 10) $0.12 $(0.10)
==== ====
Diluted income (loss) per common
share (Notes 1 and 10) $0.10 $(0.10)
==== ====
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 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 6,310 shares of
common stock (30,000) (30,000)
Net income 518,000 518,000
Balance at March 31, 2000 7,607,970 $761,000 $10,902,000 ($2,341,000) ($7,900,000) $1,422,000
</TABLE>
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
Net cash provided by (used in)
operating activities $ 720,000 $ (569,000)
---------- ----------
Cash flows from investing activities:
Capital Expenditures,
including dry hole costs (1,564,000) (2,035,000)
Proceeds from sale of property
and equipment 10,000 3,000
Proceeds from payments on note receivable -- 5,000
---------- ----------
Net cash used in investing
activities (1,554,000) (2,027,000)
---------- ----------
Cash flows from financing activities:
Purchase of treasury stock (30,000) (61,000)
Increase in long-term bank debt and
other long-term obligations 7,915,000 7,565,000
Repayment of long-term bank debt and
other long-term obligations (8,316,000) (4,995,000)
---------- ----------
Net cash provided by (used in)
financing activities (431,000) 2,509,000
---------- ----------
Net decrease in cash and cash
equivalents (1,265,000) (87,000)
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 $ 506,000 $ 1,080,000
========== ==========
See accompanying notes to the consolidated financial statements.
PrimeEnergy Corporation
Notes to Consolidated Financial Statements
March 31, 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 1,659 wells and owns non-operating interests in
843 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 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
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 at current
and expected future levels of taxable income, and considering the
Section 29 credits 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
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
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. The Company did not have any open hedging
transactions at March 31, 2000.
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 $1,273,000 and
$1,854,000 at March 31, 2000 and December 31, 1999, respectively,
of cash primarily pertaining to unclaimed royalty payments. There
were corresponding accounts payable recorded at March 31, 2000 and
December 31, 1999 for these liabilities.
(3) Accounts Receivable:
Accounts receivable at March 31, 2000 and December 31, 1999
consisted of the following:
March 31, December 31,
2000 1999
Joint Interest Billing $ 1,709,000 $ 1,738,000
Trade Receivables 575,000 550,000
Oil and Gas Sales 1,463,000 1,423,000
Other 100,000 61,000
--------- ---------
3,847,000 3,772,000
Less, Allowance for doubtful
accounts (137,000) (137,000)
--------- ---------
$ 3,710,000 $ 3,635,000
========= =========
(4) Property and equipment:
Property and equipment at March 31, 2000 and December 31, 1999
consisted of the following:
March 31, December 31,
2000 1999
Developed oil and gas
properties at cost $49,548,000 $49,249,000
Undeveloped oil and gas
properties at cost 375,000 235,000
Less, accumulated depletion
and depreciation (33,427,000) (32,342,000)
------------ ------------
16,496,000 17,142,000
------------ ------------
Furniture, fixtures and
equipment 7,183,000 6,395,000
Less, accumulated depreciation (4,551,000) (4,400,000)
---------- ----------
2,632,000 1,995,000
---------- ----------
Total net property and
equipment $19,128,000 $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
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.
(6) Other Long-Term Obligations:
Other long term obligations at March 31, 2000 and December 31,
1999 consist of the following:
March 31, December 31,
2000 1999
Capital lease obligations $ 20,000 $ 21,000
Less: current portion 4,000 4,000
______ ______
$ 16,000 $ 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.
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
March 31, 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 March 31, 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
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 is 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
provides for interest payments on a quarterly basis provided the
cash flow from operations of the limited partnership are sufficient
to pay interest for the quarter. If cash flows are not sufficient,
the accrued interest is added to the principal. Amounts due,
included in other non-current assets on the balance sheet, were
$455,000 and $442,000 at March 31, 2000 and December 31, 1999,
respectively.
Due to related parties at March 31, 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>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 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 $518,000 4,338,759 $ 0.12 $(450,000) 4,443,561 $ (0.10)
Effect of dilutive securities:
Options ** 660,257
_________ _________ ________ __________ _________ __________
Diluted net income (loss)
per common share $518,000 4,999,016 $ 0.10 $(450,000) 4,443,561 $ (.10)
======== ========= ======== ========== ========= ==========
</TABLE>
** For the three months ended March 31, 1999, the number of
options excluded from diluted loss per common share calculations
were 726,721 as the conversion of these would have an anti-
dilutive effect on net loss per share.
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 the first quarter of 2000
were financed by 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 March 31, 2000, the Company had
$18,800,000 outstanding against a line of credit of $21,600,000.
In November of 1999 the Company purchased from a third party working
interest owner additional interests in approximately 131 producing oil
and gas oil and gas wells located in Oklahoma. The purchase price was
$1,831,000. The Company already owned interests in, and was the
operator of, the majority of the wells in which interests were
purchased. These additional interests are expected to contribute
significantly to oil and gas revenues and to cash flow in 2000.
The Company spent approximately $686,000 on the acquisition,
exploration and development of oil and gas properties in the first
quarter of 2000, including $75,000 spent to repurchase limited partner
interests in the Partnerships. The Company spent $31,000 on computer
hardware and software, and $30,000 to repurchase treasury stock in open
market transactions in the first quarter of 2000.
In February of 2000 the Company spent approximately $537,000 to
purchase three service rigs as part of an effort to expand its oil and
gas well servicing operations in Midland Texas. In total, the Company
spent $844,000 on equipment and vehicles used in its field service
operations in the first quarter of 2000.
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.
RESULTS OF OPERATIONS
The Company had an income of $518,000 in the first quarter of 2000 as
compared to a loss of $450,000 in the first quarter of 1999. The first
quarter 1999 loss was attributable to extremely low oil and gas prices
during that period, as well as $687,000 in exploration costs which were
incurred primarily in the drilling of two dry holes. The Company had
one dry hole and total exploration costs of $122,000 in the first
quarter of 2000, and oil and gas prices were substantially higher.
Oil and gas revenue more than doubled to $4,181,000 in the first
quarter of 2000 as compared to $1,929,000 in 1999, due to a combination
of increased production and sharply higher prices. Average prices
received for both oil and gas increased significantly in the first
quarter of 2000 as compared to the same period in 1999, to $26.88 per
barrel as compared to $10.87 in the case of oil, and to $2.72 per Mcf
as compared to $1.86 in the case of gas. Oil production increased to
70,400 barrels as compared to 58,100, and gas production increased to
840,000 Mcf as compared to 686,000 Mcf. The additional interests in
the Oklahoma wells purchased in November 1999 contributed 10,000
barrels of oil and 132,000 Mcf of gas to first quarter 2000 production,
and the Company's share of the Partnerships production increased by
5,500 barrels of oil and 30,000 Mcf of gas due to additional interests
in these entities purchased during the year.
District operating income increased 5%, to $3,000,000 in the first
quarter of 2000. As discussed previously, the company purchased
additional field service equipment for its Oklahoma and Midland, Texas
field offices during the first quarter of 2000. As this equipment was
being readied for use during the quarter, the ownership of this
equipment did not contribute significantly to income in the current
quarter, but the Company expects to increase its district operating
income through the utilization of this equipment during the remainder
of the year.
Administrative revenue of $375,000 in the first quarter of 2000
represents a 6% decrease from the first quarter 1999 amount. Amounts
received in both years from certain Partnerships are substantially less
than amounts allocable to those partnerships under the applicable
agreements. The lower amounts reflect the Company's efforts to limit
costs incurred and the amounts allocable to the partnerships.
Lease operating expense increased to $1,894,000 in the first quarter of
2000, a 39% increase over the 1999 amount of $1,364,000. This increase
reflects both significantly increased production, and lower spending on
the maintenance of oil and gas properties in the first quarter of 1999
due to extremely depressed prices at that time.
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 and the Partnerships.
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 $200,000 in the first quarter of 2000 as compared to
$500,000 for the same period in 1999. This decline reflects the
reduction in both drilling activity and time spent evaluating possible
acquisitions of producing properties.
District operating expense increased 22% or $446,000 in the first
quarter of 2000 as compared to the same period in 1999, due primarily
to the additional employees hired in association with the equipment
purchased for use in Midland Texas, as well as lower property
acquisition cost reimbursement.
General and administrative expenses increased 91% to $1,187,000 in the
first quarter of 2000 as compared to $621,000 in 1999. The change in
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.
Depletion, depreciation and amortization expense increased 33% to
$1,074,000 in the first quarter of 2000 as compared to $805,000 in
1999, primarily due to increased production volume.
Interest expense increased by 23% to $378,000 in the first quarter of
2000 as compared to $307,000 in 1999, due to a combination of higher
rates and higher average outstanding borrowings.
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.
PART II - OTHER MATTERS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
period covered by this report.
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 three months
ended March 31, 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)
May 12, 2000 /s/ Charles E. Drimal,Jr.
(Date) --------------------------
Charles E. Drimal, Jr.
President
Principal Executive Officer
May 12, 2000 /s/ Beverly A. Cummings
(Date) --------------------------
Beverly A. Cummings
Executive Vice President
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary finanacial data extracted from the
PrimeEnergy Corporation first quarter 2000 Form 10QSB, and is
qualified in entirety by reference to that document
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,779
<SECURITIES> 0
<RECEIVABLES> 3,847
<ALLOWANCES> 137
<INVENTORY> 0
<CURRENT-ASSETS> 8,905
<PP&E> 57,106
<DEPRECIATION> 37,978
<TOTAL-ASSETS> 28,993
<CURRENT-LIABILITIES> 8,755
<BONDS> 18,820
0
0
<COMMON> 761
<OTHER-SE> 661 <F1>
<TOTAL-LIABILITY-AND-EQUITY> 28,993
<SALES> 4,181
<TOTAL-REVENUES> 7,712
<CGS> 0
<TOTAL-COSTS> 6,743
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378
<INCOME-PRETAX> 589
<INCOME-TAX> 71
<INCOME-CONTINUING> 518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 518
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.10
<FN>
<F1> Retained Earnings (2,341)
<F1> Treasury Stock (7,900)
<F1> Additional Paid-In Capital 10,902
</FN>
</TABLE>
