SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, 1996 or
[ ] 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 0-5704
MAYNARD OIL COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 75-1362284
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(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8080 N. Central Expressway, Suite 660, Dallas, Tx 75206
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214)891-8880
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.10 Par Value
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(Title of class)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
While it is difficult to determine the number of shares owned by non-
affiliates (within the meaning of the term under the applicable regulations
of the Securities and Exchange Commission), the Registrant estimates that the
aggregate market value of its Common Stock held by non-affiliates on March
18, 1997 was $28,181,000 (based upon an estimate that 43.5% of the shares are
so owned by non-affiliates and upon the closing price for the Common Stock as
reported by NASDAQ (NMS)).
The number of shares outstanding of the Registrant's $.10 par value common
stock as of March 18, 1997 was 4,889,450 shares.
The following documents are incorporated into this Form 10-K by reference:
Proxy Statement for Annual Meeting of Stockholders to be held on May 21,
1997 - Part III of Form 10K.
PART I.
ITEM 1. BUSINESS
THE COMPANY
Maynard Oil Company is a Delaware corporation which was organized in
1971 to continue the oil and gas operations conducted on an individual basis
by its founders, including Mr. James G. Maynard, its Chairman of the Board
and Chief Executive Officer. The Company's principal executive office is
located at 8080 N. Central Expressway, Suite 660, Dallas, Texas 75206, and
its telephone number is (214) 891-8880. Unless the context requires
otherwise, as used herein the term "Company" refers to Maynard Oil Company
and its subsidiaries.
The Company's principal line of business is the production and sale of,
and exploration and development of, crude oil and natural gas. The Company's
oil and gas operations are conducted exclusively in the United States,
primarily in the states of Texas and Oklahoma.
RECENT ACTIVITIES
During 1996, the Company sold its interests in approximately 130
producing wells in Texas and Oklahoma for cash totaling $8,865,731. The
wells selected for sale were considered non-strategic assets due to the
following criteria:
(1) no significant economic upside,
(2) probable non-recurring operating cost exposure in the near future,
(3) above average environmental concerns,
(4) remote geographic location to the Company's major operating areas
in Southern Oklahoma and West Texas.
The properties sold represented proved reserves of approximately 269,000
barrels of oil and 4.5 billion cubic feet of gas.
OIL AND GAS OPERATIONS
The Company is an independent oil and gas company, engaged primarily in
the production and exploration phases of the oil and gas business. Company
operations include acquiring, exploring, developing, and operating crude oil
and natural gas properties.
The Company seeks to accomplish its overall goal of increasing
hydrocarbon reserves and cash flow by selectively acquiring and exploiting
producing oil and gas properties. When possible, the Company acquires
producing properties on which it can act as operator, and thus, supervise
production and development activities. Although the Company was unsuccessful
during 1996 in its quest for reserve acquisitions, the year did bring the
opportunity to build cash reserves for additional acquisitions in future
years.
The availability of a ready market for the sale of oil and gas from the
Company's wells depends on numerous factors beyond the control of the
Company, including the amount of domestic production, the importation of oil,
the proximity of the Company's property to natural gas pipelines and the
capacity of such pipelines, the market for other competitive fuels,
fluctuations in seasonal demand, and governmental regulations relative to
hydrocarbon production and pricing. The production of oil and gas is also
subject to the laws of supply and demand, and therefore, is subject to
purchaser cutbacks and price reductions during periods of oversupply. At
December 31, 1996 almost 79% of the Company's estimated proved reserves, as<PAGE>
well as 72% of the Company's 1996 production, were attributable to crude oil
and condensate on a net equivalent barrel basis (net equivalent barrel "NEB"
uses a conversion ratio of six thousand cubic feet of gas (MCF) to one net
equivalent barrel of oil) and consequently, the Company is primarily impacted
by oil markets.
The market price for natural gas has fluctuated significantly from month
to month and year to year for the past several years. The Company cannot
predict gas price movements with any certainty.
During the year ended December 31, 1996, two customers, Total Petroleum
and Amoco Production Company, accounted for approximately 16%, and 10%,
respectively, of consolidated revenues. The Company does not believe it
would be adversely affected by the loss of any of its oil or gas purchasers.
Except for curtailed exploration and production activity occasionally
experienced in severe weather and normal curtailments of gas sales in summer
months, the Company does not consider its business to be seasonal and does
not carry significant amounts of inventory.
During 1996, a total of twelve wells were drilled, three exploratory
wells, and nine development wells. Below is a brief description of the work
completed during the year and the results thereof.
Fullerton Field, Andrews County, Texas - two productive development
wells were drilled on this secondary recovery project which is owned 100% by
the Company. These wells tested oil at a cumulative rate of 98 barrels of
oil per day (BOPD).
Of the remaining seven development wells, two were lease line
cooperative wells being drilled to extend a secondary recovery project at
Shafter Lake in Andrews County, Texas.
Five other successful development wells were drilled in Burleson, Duval,
Garza and Fisher Counties, Texas. Each tested in commercial quantities, one
at the rate of 503 BOPD in which the Company owns a 2.5% working interest,
the second at the rate of one thousand cubic feet of gas per day (MCFD) where
the Company owns a 7.2% working interest and two infill drilling wells where
the Company owns less than 1% working interest. The fifth development well
was horizontally drilled in Garza County, Texas. Production rates have
leveled off at 70 BOPD of which the Company owns a 100% working interest.
Three exploratory wells were drilled in 1996, two of which were
successful oil wells, and the third a dry hole. The first producer was
drilled in Dawson County, Texas on a prospect the Company farmed out to
another operator. This well tested at 168 BOPD and the Company retained a
6.25% working interest. The second successful exploratory well was drilled
in Wayne County, Mississippi. The well tested at 183 BOPD and the Company
owns a 15% working interest.
GENERAL
The oil and gas business involves intense competition in all of its
phases and, because of its size, the Company is not a significant competitive
factor in the industry. In its efforts to acquire property rights, the
Company competes with many companies having access to substantially greater
financial resources and larger technical staffs.
The Company's oil and gas exploration effort often involves exploratory
drilling on unproven acreage involving high risks. There is no assurance
that any oil or gas production will be obtained, or that such production, if
obtained, will be profitable. The cost of drilling, completing and operating
wells is often uncertain. Drilling may be curtailed or delayed as a result<PAGE>
of many factors, including title problems, weather conditions, delivery
delays, and shortages of pipe and equipment.
The Company's operations are subject to potential hazards, inherent in
the exploration for and production of hydrocarbons, including blowouts and
fires. These and other events can cause a suspension of drilling operations,
severe damage to equipment or surrounding property, personal injury, and
perhaps even a loss of life. The Company may be subject to liability for
pollution and other damages and is subject to statutes and regulations
relating to environmental and other matters. While the Company maintains
insurance against certain of these risks, there are certain risks against
which it cannot insure, or which it may elect not to insure due to premium
costs, or for other reasons. Substantial uninsured liabilities to third
parties may be incurred.
The oil and gas operations of the Company are subject to local, state
and federal environmental regulations. To date, compliance with these
regulations by the Company has had no material effect on the Company's
capital expenditures. The Company is unable to assess or predict at this
time the impact that compliance with such environmental regulations may have
on its future capital expenditures, earnings and competitive position. The
Company presently estimates that it will not make any material capital
expenditures for environmental control facilities for its fiscal year ending
December 31, 1997.
Many facets of the Company's operations are subject to governmental
regulations. All of the Company's oil and gas properties are located in
states in which oil and gas production is regulated by state production and
conservation laws and regulations. These laws and regulations in many
instances also require permits for the drilling of wells, the spacing of
wells, prevention of waste, conservation of oil and natural gas and various
other requirements.
The Company's activities are subject to taxation at all levels of
government, including taxes on income, severance of minerals, and payroll.
Laws governing taxation, protection of the environment, crude oil and natural
gas operations and production, and other crucial areas are all subject to
modification at any time.
At March 18, 1997, the Company employed approximately 37 persons,
including one geologist and five petroleum engineers.
ITEM 2. PROPERTIES
The Company's executive offices are presently located at 8080 N. Central
Expressway, Suite 660, Dallas, Texas occupying approximately 11,300 square
feet of space under a lease agreement which expires in April, 2000.
The Company's principal property holdings consist of leasehold interests
in oil and gas properties located in the United States, primarily in Oklahoma
and Texas. The leaseholds are continued in force so long as production from
lands under lease is maintained. The Company believes that it has
satisfactory title to its oil and gas properties. Such properties are
subject to customary royalty interests, liens incident to operating
agreements, liens for current taxes, and other burdens and minor
encumbrances, easements, and restrictions. The Company believes that such
burdens do not materially detract from the value of the properties or
materially interfere with their use in the operation of the Company's
business. The Company has pledged certain of its oil and gas properties to
secure its term loan.
ESTIMATED PROVED RESERVES,
FUTURE NET REVENUES AND PRESENT VALUE
Reflected below are the estimated quantities of proved developed and
undeveloped reserves of crude oil and natural gas owned by the Company as of
December 31, 1996, 1995, and 1994. Such reserve information has been
prepared by the Company's staff of petroleum engineers and audited by the
independent petroleum consulting firm of Netherland, Sewell, and Associates,
Inc. No reserve reports with respect to the Company's proved net oil or gas
reserves were filed with any federal authority or agency during the fiscal
year ended December 31, 1996.
<TABLE>
<CAPTION>
December 31
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Oil(MB) Gas(MMCF) Oil(MB) Gas(MMCF) Oil(MB) Gas(MMCF)
Proved Developed 8,650.0 13,442.2 8,712.8 18,214.8 5,485.9 14,355.6
Proved Undeveloped 324.4 1,143.0 159.7 649.2 667.2 595.8
-------- -------- ------- -------- ------- --------
Total Proved Reserves 8,974.4 14,585.2 8,872.5 18,864.0 6,153.1 14,951.4
</TABLE>
The following table summarizes the future net revenues, using current
prices and costs as of the dates indicated, as well as the present value,
discounted at 10%, of such future net revenues from estimated production of
proved reserves of crude oil and natural gas as of December 31, 1996, 1995,
and 1994. Oil and gas prices used in the tabulation of the amounts below are
based on the price received for each lease at December 31, of the appropriate
year. The weighted average prices at December 31, 1996, 1995, and 1994
respectively, used in the estimates were $24.66, $18.13, and $16.06 per
barrel of oil and $3.59, $1.65, and $1.62 per mcf of natural gas. Lease and
well operating costs are based upon actual operating expense records.
<TABLE>
<CAPTION>
December 31
1996 1995 1994
----------------------- ---------------------- --------------------
Future Present Future Present Future Present
Net Value Net Value Net Value
Expressed in 000's Revenue @ 10% Revenue @ 10% Revenue @ 10%
-------- ------- -------- ------- ------- -------
<S> <S> <S> <S> <S> <S> <S>
Proved Developed $152,508 $98,184 $96,297 $65,235 $54,057 $36,798
Proved Undeveloped 8,101 4,026 2,478 1,075 5,673 3,159
-------- -------- ------- ------- ------- -------
Total Proved Reserves $160,609 $102,210 $98,775 $66,310 $59,730 $39,957
Amounts presented in the tables above are before the effects of taxes.
</TABLE>
PRODUCTION, SALES PRICES AND COSTS
The following table sets forth the Company's net oil and gas production,
average sales prices and production costs for the three years ended
December 31, 1996.
<TABLE>
<CAPTION>
December 31
1996 1995 1994
<S> <C> <C> <C>
Production:
Oil (MB) 1,212.4 957.9 558.3
Gas (MMCF) 2,890.1 2,720.4 2,390.3
Average Sales Prices:
Oil (per BBL) $20.39 $16.98 $15.47
Gas (per MCF) $ 2.03 $ 1.57 $ 1.94
Average Production Costs:
Per net equivalent barrel of oil (1)(2) $ 5.95 $ 5.98 $ 5.20
(1) Six MCF of gas equals one net equivalent barrel ("NEB").
(2) Production costs are comprised of severance and advalorem taxes, if
applicable, and lease operating expenses,which include workover costs.
</TABLE>
PRODUCTIVE WELLS AND ACREAGE
As of December 31, 1996, the Company owned an interest in approximately
1,207 gross (293.5 net) wells, of which 1,176 gross (287.5 net) are oil wells
and 31 gross (6.0 net) are gas wells, located on approximately 31,293 gross
(13,142 net) producing acres.
UNDEVELOPED ACREAGE
The following table sets forth the Company's gross and net undeveloped
acreage as of December 31, 1996.
Undeveloped Acreage
Gross Net
Colorado . . . . . . . . . . . . . . . . . 80 10
Louisiana . . . . . . . . . . . . . . . . . 80 40
Mississippi . . . . . . . . . . . . . . . . 120 18
North Dakota . . . . . . . . . . . . . . . 62 4
Oklahoma . . . . . . . . . . . . . . . . . 5,492 869
Texas . . . . . . . . . . . . . . . . . . . 5,342 2,118
Wyoming . . . . . . . . . . . . . . . . . . 2,256 794
------ -----
Total 13,432 3,853
====== =====
DRILLING ACTIVITY
The following table sets forth the results of the Company's drilling
activity during the three years ended December 31, 1996.
<TABLE>
<CAPTION>
Exploratory Development Total
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Productive 1 .063 9 3.856 10 3.919
Dry 1 .333 0 .000 1 .333
Total 2 .396 9 3.856 11 4.252
December 31, 1995
Productive 3 .563 12 5.465 15 6.028
Dry 2 .250 0 .000 2 .250
Total 5 .813 12 5.465 17 6.278
December 31, 1994
Productive 3 .750 19 17.049 22 17.799
Dry 8 3.130 0 .000 8 3.130
Total 11 3.880 19 17.049 30 20.929
At March 18, 1997 and December 31, 1996, the Company had one gross
(.15 net) exploratory well in the process of being drilled.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in minor lawsuits that have arisen in the
ordinary course of business. The Company does not expect any of these to
have a material adverse effect on the Company's consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's executive officers as of
March 18, 1997, is set forth in the table below.
Name Position Age Since
James G. Maynard Chairman of the Board, 70 1971
Chief Executive Officer
and Treasurer
Glenn R. Moore President and Chief 59 1982
Operating Officer
L. Brent Carruth Vice President of 63 1984
Operations
Kenneth W. Hatcher Vice President of 53 1983
Finance
Linda K. Burgess Corporate Secretary 48 1984
and Controller
Mr. Maynard has been a director since 1971 and engaged in oil and gas
exploration as an independent operator and private investor for the past 40
years.
Mr. Moore has over 30 years experience in domestic and foreign oil and
gas exploration and production. Prior to joining the Company in November,
1982, Mr. Moore served as President of Shannon Oil and Gas, Inc. and Hanover
Petroleum Corporation.
Mr. Carruth has over 30 years of petroleum engineering experience.
Prior to joining the Company in January, 1984, he served for one year as Vice
President of Operations of Cordova Resources. Preceding that, Mr. Carruth
was a petroleum consultant for three years and served as Manager of
Engineering of Texas Pacific Oil Company for eight years.
Mr. Hatcher has over 25 years of finance and accounting experience in
the oil and gas industry and is a Certified Public Accountant. Prior to
joining the Company in February, 1983, Mr. Hatcher served as Controller and
Vice President of Finance of Shannon Oil and Gas, Inc. for three years and as
Controller and Vice President of Hanover Petroleum Corporation for four
years.
Ms. Burgess has in excess of 20 years of oil and gas accounting
experience. Prior to joining the Company in May, 1984, Ms. Burgess served as
Controller for Trans-Western Exploration Inc. for four years and as
Controller for Energy Resources Oil and Gas for three years.
Each officer's term of office expires on the date of the next annual
meeting of the Board of Directors, or until his earlier resignation or
removal. There are no family relationships among the executive officers
listed, and there are no arrangements or understandings pursuant to which any
of them were elected or appointed as officers.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market,
NASDAQ trading symbol "MOIL". The high and low sales prices for each
quarterly period during the two years ended December 31, 1996, were as
follows:
1996 High Low 1995 High Low
First Quarter $ 8 1/2 $6 3/4 First Quarter $5 $4 1/8
Second Quarter 8 3/4 7 1/8 Second Quarter 6 1/2 4 1/2
Third Quarter 11 8 3/8 Third Quarter 6 1/2 5 3/4
Fourth Quarter 22 9 5/8 Fourth Quarter 7 5 3/4
As of March 18, 1997, the Company had approximately 968 shareholders of
record.
The Company has not paid any dividends on its Common Stock in the past,
nor does it plan to pay dividends in the foreseeable future. The Company's
ability to pay dividends is currently restricted under its Loan Agreement
with Bank One, Texas.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data to
highlight significant trends in the Company's financial condition and
operating results for the periods indicated. The selected financial
information presented should be read in conjunction with the consolidated
financial statements and related notes appearing elsewhere in this Report and
the Management's Discussion and Analysis of Financial Condition and Results
of Operations set forth under Item 7 below. All amounts are expressed in
thousands, except per share information.
<TABLE>
<CAPTION>
December 31<F1>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total revenue from
oil and gas $30,583 $20,540 $13,265 $14,861 $17,066
Income before income
taxes and discontinued
operations 15,758 4,354 1,196 1,452 3,669
Income (loss) from
discontinued operations -- -- -- -- (1,182)
Income before accounting
change 9,954 3,023 943 867 1,569
Net income 9,954 3,023 943 2,254 1,569
Per share income 2.04 .62 .19 .46 .32
Total assets 81,257 72,838 48,071 43,798 43,846
Long-term debt 16,250 21,250 5,250 2,000 4,000
Shareholders' equity 49,054 39,104 36,137 35,203 33,025
Per share 10.03 8.00 7.39 7.19 6.73
Net working capital 12,942 (370) 4,079 9,510 10,630
Net cash provided by
operating activities 13,921 11,558 5,696 6,738 9,092
<F1> The Company disposed of its contract drilling operations in August,
1992. Total revenues and income (loss) before income taxes have been
restated to eliminate the effects of contract drilling operations.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company sold its interest in approximately 130
producing oil and gas wells in Texas and Oklahoma for cash totaling
$8,865,731 which resulted a pre-tax gain in excess of $6,000,000. Company
management considered this group of properties not to be a major contributor
to the future earning capacity of the Company, and thus, opted to sell these
properties while searching for additional acquisitions which represent a
better geographic and economic fit with the Company's core properties in
southern Oklahoma and west Texas.
Although the Company was not successful in 1996 in making an
acquisition, it has positioned itself for future acquisition transactions by
having over 26% of its year end assets in cash and additional borrowing
capacity with its lender.
Net cash provided by operating activities before changes in assets and
liabilities rose approximately 19% to $11,741,897. Higher crude oil sales
more than offset the net revenues given up from the sale of property referred
to above.
Net working capital at December 31, 1996 was $12,942,000 compared with
a negative $370,000 at the end of 1995.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Net income for 1996 more than tripled 1995 levels, rising from
$3,023,107 for 1995 to $9,953,783, primarily as a result of gains from the
disposition of assets. The gain from disposals in 1995 was $991,875 versus
$6,202,473 during the current year.
The earnings increase was also aided by higher oil and gas revenues,
which rose 49% to $30,583,133. Higher revenues were the result of increased
production volumes and prices. Oil volumes rose almost 27% to 1,212,369
barrels and gas volumes over 6% to 2,890,061 mcf, both a result of the late
1995 producing property acquisition and prior year drilling. Pricing also
shot up with oil selling at $20.39 per barrel compared to $16.98 per barrel a
year ago and gas selling at $2.03 per mcf compared with $1.57 per mcf in<PAGE>
1995. These price increases will probably not be sustained during the first
half of 1997, but are definitely a welcome addition to the Company.
Lease operating expenses increased $1,636,482 over 1995 levels.
However, on a net equivalent barrel (NEB) basis lifting costs actually
declined three cents per equivalent barrel.
Exploration costs were 67% lower in 1996, totaling $201,509, versus
$609,279 due to decreased exploratory activity. Very little seismic activity
was performed in 1996, and only 3 exploratory wells were drilled during the
current year.
General and administrative expenses rose $974,586 from $925,822 in
1995 to $1,900,408 in 1996. The majority of this increase, $888,884, is
represented by charges for an employee benefit plan whose value appreciates
as the Company's common stock price rises. These charges represent a
liability on the Company's books which will not be converted into cash until
the various employees covered by this plan terminate their employment with
the Company.
Depreciation and amortization expense increased on a dollar basis from
$6,879,672 in 1995 to $7,894,388. However, when converted to a net
equivalent barrel basis, this amount actually declined from $4.87 per net
equivalent barrel (NEB) a year ago to $4.66 per NEB currently as a result of
oil and gas reserve additions and revisions during the current period.
Interest expense increased $692,542 due to the additional bank
borrowings utilized to finance the properties acquired in 1995.
Income tax expense rose to $5,804,370 in 1996 from $1,330,500 in 1995
due to improved earnings and the additional gain generated from the sale of
properties during the current year. The Company had anticipated deferring
tax expense on a substantial portion of the 1996 gain via the like-kind
exchange rules. Qualified escrow accounts amounting to over $6,200,000 were
established and replacement property was identified. However, the Company
was unable to consummate the transaction, and subsequently, paid the tax due
on the gain.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities before changes in assets and
liabilities increased 50% in 1995 to $9,870,251. Higher crude oil sales was
the principal reason for this sharp rise in operating cash flow. In the
fourth quarter of 1994 and in the second quarter of 1995, the Company was
successful in consummating two significant property acquisitions, which were
largely responsible for the substantial increases in oil production. 1995
operating cash flow was also favorably impacted by higher crude oil prices,
lower exploration costs (which include dry holes and abandonments and lease
rentals and seismic) and general and administrative costs, which was
partially offset by higher lease operating and interest expense.
In March and December, 1995 the Company completed the acquisition of
working interests in 200 and 250 producing properties, respectively, in the
Permian Basin of West Texas. These two acquisitions were financed with $6.75
million of the Company's cash resources and $22.5 million in additional bank
financing. Thus, total bank debt at the end of 1995 was $26.1 million. A
restated loan agreement was put into place on December 20, 1995 in connection
with the second property acquisition. This new loan has a term of five years
with principal and interest to be paid quarterly and with a maturity date of
January 1, 2001. The loan agreement allows the Company to choose between
three interest rate options ranging from Bank One prime rate to its
certificate of deposit rate to a LIBOR rate. The loan is secured by certain<PAGE>
producing properties, but the Company also has significant groups of
properties remaining unmortgaged should the opportunity arise to make
additional property acquisitions.
Net working capital at December 31, 1995 was a negative $370,000
compared to $4,079,000 at December 31, 1994. Negative working capital is
attributable to the second property acquisition, which closed on December 20,
1995, and the current portion of long-term debt outstanding at that time.
The Company's cash position grew over $300,000 during 1995 while significant
amounts were spent on property acquisitions, development drilling, and debt
repayment. The year end cash position was $6.1 million, and the Company
believes it will generate sufficient cash in 1996 to support its debt
service, fund its capital expenditure program, and pursue other acquisition
candidates.
The Company's recent drilling and acquisition activities have
increased its reserve base and its productive capacity and ultimately its
potential cash flow. Each outstanding share of common stock is supported by
2.46 net equivalent barrels ("NEB") of oil compared with 1.8 and 1.3 NEB
respectively, for the prior two years. Management of the Company intends to
continue to acquire and develop oil and gas properties in its areas of
activity as allowed by market conditions and financial ability.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
Net income for 1995 more than tripled 1994 levels, rising from
$943,216 to $3,023,107, representing sixty two cents per share for 1995
versus nineteen cents per share in 1994.
This earnings increase was fueled by higher oil and gas revenues,
which rose 55% to $20,710,243. Higher revenues were the result of a 72%
increase in oil production and a 14% increase in natural gas production.
These sharp increases reflect the late 1994 acquisition of waterflood
properties in Carter and Stephens Counties, Oklahoma, and the March 1995
acquisition of Permian Basin properties in West Texas, as well as results
from 1995 drilling activities.
In 1995, oil prices averaged $16.98 per barrel compared to $15.47
during 1994, a $1.51 per barrel increase. Natural gas prices experienced a
19% decline in 1995, from an average price of $1.94 per thousand cubic feet
of gas sold (MCF) in 1994 to $1.57 per MCF in 1995. Natural gas prices
reflect the country's mild weather conditions and excess domestic supply.
A gain from the sale of property totaling $991,875 was generated
during 1995 compared to only $66,367 in 1994.
Lease operating expenses rose $3,472,960 in 1995. On a net equivalent
barrel (NEB) basis, lifting costs rose seventy-eight cents per barrel in 1995
to $5.98 per barrel, reflecting higher costs associated with waterflood
properties which were acquired in fourth quarter 1994 and first quarter 1995.
Exploration costs were 48% lower in 1995, totaling $609,279, versus
$1,169,680 primarily due to reduced activity in the three dimensional seismic
program, which the Company had utilized to establish exploratory drilling
projects for the last two years.
Depreciation and amortization expense grew almost 46% in 1995 to
$6,879,672. This significant increase was principally attributable to the
addition of properties in late 1994 and first quarter 1995, which added
approximately $20 million to the Company's depletable costs.
The Company accounts for overhead charges billed to working interest
owners, including the Company, as a reduction to general and administrative
expenses. The Company's proportionate share of the amounts billed are
included in lease operating expenses. Since the number of operated
properties increased due to the recent acquisitions, the amounts billed out
in 1995 resulted in a 45% reduction in general and administrative expenses
from $1,676,228 to $925,822.
Interest expense grew $844,702 in 1995 due to bank borrowings to
finance the properties acquired.
Income tax expense rose to $1,330,500 in 1995 from $252,482 in 1994,
due primarily to improved earnings and additional state taxes arising from an
audit assessment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is included on pages 19 through 36
of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
PART III
The information required by Part III (Items 10 through 13) is set
forth in the Company's Proxy Statement for the annual meeting of stockholders
to be held on May 21, 1997, and is incorporated herein by reference.
Information with respect to the Company's executive officers as of March 18,
1997, is set forth commencing on pages 8 and 9 hereof under the caption
"Executive Officers of the Registrant".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
FINANCIAL STATEMENTS AND SCHEDULES
See Index to Consolidated Financial Statements and Schedules on page
18 of this Report.
REPORTS ON FORM 8-K
On October 15, 1996, the Company filed a Form 8-K with the Securities
and Exchange Commission, to report the sale of producing oil and gas
properties. Pro forma financial information was included in the report.
EXHIBITS
3.1(a) Certificate of Incorporation, as amended, filed as Exhibit 3.1
to the Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 1980 (the "1980 Form 10-K"), and
incorporated herein by reference.
(b) Certificate of Amendment of Certificate of Incorporation dated
May 19, 1981, filed as Exhibit 3.1(b) to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31,
1981 (the "1981 form 10-K"), and incorporated herein by
reference.
(c) Certificate of Amendment of Certificate of Incorporation dated
May 22, 1987, filed as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1987, and
incorporated herein by reference.
(d) Certificate of Amendment of Certificate of Incorporation dated
June 3, 1993, filed as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1993, and
incorporated herein by reference.
3.2(a) By-Laws, as amended, filed as Exhibit 3.2(b) to the 1981 Form
10-K and incorporated herein by reference.
(b) Amendment to the By-Laws, filed as Exhibit 3.2(b) to the 1981
Form 10-K and incorporated herein by reference.
(c) Amendment to the By-Laws, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1984, and incorporated herein by reference.
(d) Amendment to the By-Laws, filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1987, and incorporated herein by reference.
(e) Amendment to the By-Laws, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1993 and incorporated herein by reference.
4.1 Credit agreement ($10,000,000 Term Facility) dated October 1,
1990 between Maynard Oil Company and First City, Texas -
Dallas, filed as Exhibit 4.2 to the Company's Annual Report on
Form 10-K for its fiscal year ended December 31, 1990, and
incorporated herein by reference.
4.2 First Amendment to Loan Agreement dated November 19, 1991
between Maynard Oil Company and First City, Texas - Dallas,
filed as Exhibit 4.2 to the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 1992, and
incorporated herein by reference.
4.3 Second Amendment to Loan Agreement, dated February 1, 1993
between Maynard Oil Company and Bank One, Texas, N.A. filed as
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1993, and incorporated herein by
reference.
4.4 Third Amendment to Loan Agreement, dated December 22, 1994
between Maynard Oil Company and Bank One, Texas, N.A., filed
as Exhibit 4.4 to the Company's Annual Report on Form 10-K for
its fiscal year ended December 31, 1994, and incorporated
herein by reference.
4.5 Fourth Amendment to Loan Agreement, dated March 29, 1995
between Maynard Oil Company and Bank One, Texas, N.A., filed
as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1995, and incorporated herein
by reference.
4.6 Restated Loan Agreement, dated December 20, 1995 between
Maynard Oil Company and Bank One, Texas, N.A., filed as
Exhibit 4.6 to the Company's Annual Report on Form 10-K for
its fiscal year ended December 31, 1995, and incorporated
herein by references.
10.1 1989 Stock Participation Plan, filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1995 and incorporated herein by reference.
11.1 Computation of per share earnings, filed herewith.
21.1 List of subsidiaries of the Company as of December 31, 1996,
filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MAYNARD OIL COMPANY
By \s\ James G. Maynard
--------------------------
James G. Maynard
Chairman of the Board
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the date indicated in multiple counterparts with the same force and
effect as if each person executing a separate counterpart has joined in
execution of the same counterpart.
/s/ James G. Maynard Chairman of the Board, March 31, 1997
-------------------- Chief Executive Officer
James G. Maynard & Treasurer
/s/ Glenn R. Moore President and Chief March 31, 1997
-------------------- Operating Officer
Glenn R. Moore
/s/ Kenneth W. Hatcher Vice President of Finance March 31, 1997
-------------------- (Principal Financial
Kenneth W. Hatcher and Accounting Officer)
/s/ Robert B. McDermott Director March 31, 1997
--------------------
Robert B. McDermott
/s/ Ralph E. Graham Director March 31, 1997
--------------------
Ralph E. Graham
MAYNARD OIL COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Page
Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Three years ended
December 31, 1996
Consolidated Statements of Shareholders' Equity - Three
years ended December 31, 1996
Consolidated Statements of Cash Flows - Three years
ended December 31, 1996
Notes to Consolidated Financial Statements
Financial Statement Schedules for the Three years
ended December 31, 1996
II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or Notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Maynard Oil Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Maynard Oil Company and its subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
March 25, 1997
Dallas, Texas
<TABLE>
<CAPTION>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,817,447 $ 6,138,903
Accounts receivable, trade 4,274,439 3,297,933
Other current assets 585,021 465,426
Total current assets 26,676,907 9,902,262
Property and equipment, at cost:
Oil and gas properties, successful
efforts method 103,223,604 111,473,388
Other property and equipment 540,736 507,953
103,764,340 111,981,341
Less accumulated depreciation and
amortization (49,183,946) ( 49,045,024)
Net property and equipment 54,580,394 62,936,317
$ 81,257,301 $ 72,838,579
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 5,000,000 $ 4,812,500
Accounts payable 3,592,404 4,126,013
Accrued expenses 1,710,681 920,653
Income taxes payable 3,431,476 412,695
Total current liabilities 13,734,561 10,271,861
Deferred income taxes 2,219,000 2,212,510
Long-term debt 16,250,000 21,250,000
Shareholders' equity:
Preferred stock of $.50 par value.
Authorized 1,000,000 shares; none
issued -- --
Common stock of $.10 par value.
Authorized 20,000,000 shares;
4,889,450 and 4,889,970 shares
issued and outstanding 488,945 488,997
Additional paid-in capital 18,831,138 18,831,138
Retained earnings 29,733,657 19,784,073
Total shareholders' equity 49,053,740 39,104,208
Contingencies and commitments (note 9)
$ 81,257,301 $ 72,838,579
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Oil and gas sales and royalties $30,583,133 $20,539,738 $13,265,075
Interest and other 732,660 671,551 554,012
Gain on disposition of assets 6,202,473 991,875 66,367
37,518,266 22,203,164 13,885,454
Costs and expenses:
Operating expenses 10,079,948 8,443,466 4,970,506
Exploration, dry holes and
abandonments 201,509 609,279 1,169,680
General and administrative 1,900,408 925,822 1,676,228
Depreciation and amortization 7,894,388 6,879,672 4,726,726
Interest and other 1,683,860 991,318 146,616
21,760,113 17,849,557 12,689,756
Income before income taxes 15,758,153 4,353,607 1,195,698
Income tax expense 5,804,370 1,330,500 252,482
Net income $ 9,953,783 $ 3,023,107 $ 943,216
Weighted average number of common
shares outstanding 4,889,690 4,890,708 4,891,592
Net income per common share $2.04 $ .62 $ .19
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Common Stock Additional
Paid-in Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,891,744 $489,174 $18,672,753 $16,041,810 $35,203,737
Net income -- -- -- 943,216 943,216
Exercise of common stock
options 11,500 1,150 52,785 -- 53,935
Purchase and retirement of
common stock (11,865) (1,186) -- (62,465) (63,651)
Balance at December 31, 1994 4,891,379 489,138 18,725,538 16,922,561 36,137,237
Net income -- -- -- 3,023,107 3,023,107
Exercise of common stock
options 24,000 2,400 105,600 -- 108,000
Purchase and retirement of
of common stock (25,409) (2,541) -- (161,595) (164,136)
Balance at December 31, 1995 4,889,970 488,997 18,831,138 19,784,073 39,104,208
Net income -- -- -- 9,953,783 9,953,783
Purchase and retirement
of common stock (520) (52) -- (4,199) (4,251)
Balance at December 31, 1996 4,889,450 $488,945 $18,831,138 $29,733,657 $49,053,740
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $9,953,783 $3,023,107 $ 943,216
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,894,388 6,879,672 4,726,726
Deferred income taxes 6,490 480,000 867,510
Dry holes and abandonments 180,230 573,737 837,360
Current year costs of dry holes and
abandonments (90,521) (94,390) (725,836)
Gain on disposition of assets (6,202,473) (991,875) (66,367)
(Increase) decrease in current assets:
Accounts receivable (976,506) (886,482) (316,855)
Other current assets (119,595) 316,661 (41,974)
Increase (decrease) in current liabilities:
Accounts payable (533,609) 1,514,804 64,471
Accrued expenses 790,028 330,515 (59,587)
Income taxes payable 3,018,781 412,695 (532,385)
Net cash provided by operating
activities 13,920,996 11,558,444 5,696,279
Cash flows from investing activities:
Proceeds from disposition of assets 8,884,691 3,426,499 119,405
Purchase price adjustment 874,245 -- --
Additions to property and equipment (3,184,637) (33,688,793) (15,373,776)
Net cash provided (used) by
investing activities 6,574,299 (30,262,294) (15,254,371)
Cash flows from financing activities:
Proceeds from issuance of
long-term debt -- 22,500,000 5,000,000
Principal payments on long-term debt (4,812,500) (3,437,500) (2,000,000)
Purchase of common stock (4,251) (164,136) (63,651)
Exercise of stock options -- 108,000 53,935
Net cash provided (used) by
financing activities (4,816,751) 19,006,364 2,990,284
Net increase (decrease) in cash and
cash equivalents 15,678,544 302,514 (6,567,808)
Cash and cash equivalents at beginning
of year 6,138,903 5,836,389 12,404,197
Cash and cash equivalents at end of year $21,817,447 $ 6,138,903 $ 5,836,389
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Business Activity
The Company is engaged in the production and sale of and the
acquisition, exploration and development of crude oil and natural gas in
the Continental United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Maynard
Oil Company (Company) and its subsidiaries, all of which are wholly-
owned. All significant intercompany balances and transactions have been
eliminated in consolidation.
Property and Equipment
The Company follows the "successful efforts" method of accounting for
its costs of acquisition, exploration and development of oil and gas
properties. Intangible drilling and development costs related to
development wells and successful exploratory wells are capitalized,
whereas the costs of exploratory wells which do not find proved reserves
are expensed. Costs of acquiring unproved leases are evaluated for
impairment until such time as the leases are proved or abandoned. All
geological and geophysical costs not reimbursed are expensed as
incurred.
Depreciation and amortization of producing properties is computed using
the unit-of-production method based upon estimated proved recoverable
reserves. Depreciation of other property and equipment is calculated by
the straight-line method based upon estimated useful lives ranging from
two to ten years.
Maintenance and repairs are charged to expense as incurred. Renewals
and betterments are capitalized. When assets are sold, retired or
otherwise disposed of, the applicable costs and accumulated depreciation
and amortization are removed from the accounts, and the resulting gain
or loss is recognized.
Overhead Reimbursement Fees
Overhead charges billed to working interest owners including the Company
of $1,870,752, $1,892,370, and $805,982, for the three years ended
December 31, 1996, respectively, have been classified as a reduction of
general and administrative expenses in the accompanying Consolidated
Statements of Income. The Company's working interest portion of the
amounts billed are included in lease operating expenses.
Deferred Income Taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
tax and financial reporting bases of the Company's assets and
liabilities by applying enacted tax rates.<PAGE>
Income per Common Share
Income per common share is computed using the weighted average number of
common shares outstanding during each year. The difference between
primary and fully diluted earnings per share, which assumes the exercise
of stock options in 1994, was not significant. During 1995, all
outstanding stock options were exercised, and consequently, primary and
fully diluted earnings per share are the same for 1996 and 1995.
Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
and accounts payable approximate fair value because of the short
maturity of these instruments. The carrying amount of long-term debt,
including the current portion, approximates fair value because the
interest rate on this instrument changes with market interest rates.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash
equivalents and accounts receivable. The Company places its cash and
cash equivalents with high credit quality institutions. With respect to
accounts receivable, these financial instruments primarily pertain to
oil and gas sales and joint interest billings. These accounts
receivable are due from small to mid-size companies engaged principally
in oil and gas activities. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. Payment terms are on a
short-term basis and in accordance with industry standards.
The Use of Estimates in Preparing Financial Statements
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, liabilities,
revenues, expenses, disclosure of gain and loss contingencies at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Since estimates are made based on
all information available at the time, it is reasonably possible that,
in the near term, a change in an estimate may occur or that actual
amounts may differ from estimated amounts.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ( FASB ) issued
Statement of Financial Accounting Standards ( SFAS ) No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of. This statement requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted the provisions of SFAS 121 on January
1, 1996, and such adoption did not have a material effect on the
Company's consolidated financial position or results of operations.
Reclassifications
Certain reclassifications of prior period statements have been made to
conform with the 1996 presentation.
(2) Acquisitions and Dispositions (Reserve information is unaudited)
During 1996, the Company sold its interest in approximately 130
producing wells in Texas and Oklahoma for cash totaling $8,865,731. The
Company considered these properties to be non strategic assets. Proved<PAGE>
reserves sold were estimated to be approximately 269,000 barrels of oil
and 4.9 billion cubic feet of gas (BCF).
During 1995, the Company consummated two separate producing property
acquisitions for an aggregate price of $29,250,000. On March 29, 1995,
the Company acquired working interests in 200 producing wells in the
Permian Basin of West Texas. Estimated proved reserves associated with
this transaction approximated .99 million barrels of oil and 7.2 BCF of
gas. Total consideration paid was $10,500,000. At December 31, 1996,
the Company maintains ownership in approximately 1 million barrels of
oil and 3.4 BCF of gas acquired in this transaction.
On December 20, 1995, the Company purchased working interests in 250
producing wells located in Garza County, Texas. Total consideration
paid was $18,750,000, $13,000,000 of which was borrowed under a new term
loan arrangement with Bank One, Texas. Proved reserves were estimated
to be 2.46 million barrels of oil and .3 BCF of gas. In 1996, the
Company received cash proceeds of $874,245, which represented a purchase
price adjustment on this acquisition.
The following table presents unaudited pro forma operating results as if
the acquisitions and dispositions had occurred on January 1, 1995.
Years ended December 31,
1996 1995
Amounts in thousands, except per
share amounts
Revenues $28,706 $31,676
Net income 5,234 7,461
Net income per common share 1.07 1.53
(3) Cash Flow Data
Cash in excess of daily requirements is invested in marketable
securities, consisting of repurchase agreements, certificates of
deposit, money market funds, and commercial paper, with maturities of
three months or less. At December 31, 1996 and 1995, such investments
totaled $22,246,554 and $6,300,000, respectively, and are considered to
be cash equivalents, which approximate their fair value.
Supplemental cash flow information for the three years ended December
31, 1996 is summarized as follows:
1996 1995 1994
Cash paid (received):
Interest expense $1,735,416 $ 853,247 $ 175,319
Income taxes paid $2,779,099 $ 121,674 $ 28,016
Income taxes refunded $ -- $ -- $(369,528)
(4) Long-term Debt
Long-term debt at December 31, 1996 and 1995 is summarized as follows:
1996 1995
Term note due in 20 equal quarterly
installments of $1,250,000 commencing
April 1, 1996 plus one payment of
$1,062,500 made January 1, 1996.
Interest paid quarterly at varying
rates. Secured by certain oil and
gas properties with a net book value
of $30,345,000. $21,250,000 26,062,500
Less current installments 5,000,000 4,812,500
Long-term debt $16,250,000 $21,250,000
Effective December 21, 1995, the Company executed a new loan agreement
with Bank One, Texas, increasing its outstanding loan from $13,062,500
to $26,062,500 in connection with the acquisition of producing
properties discussed in Note 2.
The term note permits the Company to choose between three interest rate
options and to specify what portion of the loan is covered by a specific
interest rate option and the applicable funding period to which the
interest rate option is to apply. The interest rate options are as
follows:
(1) Bank's prime lending rate
(2) Bank's certificate of deposit rate
(3) London interbank eurodollar rate (Eurodollar)
At December 31, 1996, interest on the bank term loan was at a rate of
approximately 7.22%.
The credit agreement contains various financial covenants related to
working capital, net worth, and cash flow. Additionally, the debt
agreement places certain limitations on the incurrence of additional
debt and prohibits the payment of dividends.
(5) Employee Incentive Plans
In August 1989, an employee incentive plan was adopted, whereby stock
participation units might be granted to officers and key employees.
Such stock participation units will entitle a participant to a cash
payment following termination of employment in an amount equal to the
excess, if any, of the fair market value of one share of the Company's
common stock over a share price specified on the date of grant,
multiplied by the number of vested units. The units vest over a five
year period with 25% vesting after two years and the remainder in three
equal annual installments. For the year ended December 31, 1989, 73,000
units were awarded to certain employees at a price of $4.50 per share of
which 49,500 units remain outstanding at December 31, 1996, all of which
are 100% vested. During August 1993, 52,000 additional units were
awarded at $5.625 per share of which 26,000 units are vested. Earnings
are charged over the life of the units for increases in stock prices (if
any) over $4.50 per share and $5.625 per share. During the years ended
December 31, 1996 and 1995, operations were charged $594,000 and
$76,183, respectively, in regard to the stock participation units
granted in 1989. During 1996 and 1995, operations were also charged
$294,887 and $15,676, respectively for the units awarded in 1993. There
were no such charges in 1994.
In March 1982, an employee incentive plan was adopted whereby stock
options and stock appreciation rights might be granted to officers and
key employees. A total of 281,517 shares were initially reserved for
issuance. This plan terminated in March 1992 and no further grants may
be made under this plan. The options became exercisable cumulatively in
five equal installments, beginning on the first anniversary of the date
of grant. The option price for shares granted pursuant to the plan was
not less than the fair market value of the shares at the date of grant.
A summary of stock option activity for the 1982 plan for 1994 and 1995
is as follows:
Number
of Option Price
Shares per Share
------- --------------
Outstanding at December 31, 1993 40,600 $4.50 to $6.50
Granted -0- --
Exercised (11,500) $4.69
Cancelled (5,100) $4.50 to $6.50
Outstanding at December 31, 1994 24,000 $4.50
Exercised (24,000) $4.50
Outstanding at December 31, 1995 -0-
During September 1995, options for 24,000 shares were exercised. Common
stock was credited for $2,400 and additional paid-in capital was
credited for $105,600. The Company simultaneously repurchased and
cancelled 23,500 of the shares exercised for $6.50 per share. Common
stock was debited for $2,350 and retained earnings charged $150,400 in
regard to the repurchased shares.
(6) Income Taxes
Income tax expense (benefit) consists of the following:
Years ended December 31,
1996 1995 1994
Federal
Current $5,397,880 $ 620,500 $(615,028)
Deferred 6,490 480,000 867,510
State 400,000 230,000 --
$5,804,370 $1,330,500 $ 252,482
Income tax expense for the three years ended December 31, 1996 differs
from the amount computed by applying the applicable U.S. corporate
income tax rate (35% in 1996 and 34% in 1995 and 1994) to income before
income taxes. The reasons for this difference are as follows:
Year ended December 31,
1996 1995 1994
Income tax expense at
U.S. statutory rate $5,515,354 $1,480,226 $ 406,537
State income taxes 400,000 230,000 --
Allowable depletion in
excess of cost depletion (223,197) (281,526) --
Rate differential 33,996 -- --
Items not related to current
year earnings -- (89,198) (294,528)
Net operating loss
not utilized -- -- 88,000
All other items 78,217 (9,002) 52,473
Income tax expense $5,804,370 $1,330,500 $ 252,482
The components of the net deferred tax liability were as follows:
December 31,
1996 1995 1994
Depreciable assets $ 48,500 $ 61,510 29,210
Depletable assets 111,500 14,400 (6,100)
Intangible drilling
and development costs 2,572,000 2,542,600 2,115,400
Employee benefit
obligations (346,000) -- --
Tax credit
carryforwards (167,000) (406,000) (406,000)
Net deferred tax
liability $2,219,000 $2,212,510 $1,732,510
In November 1995 the Oklahoma State Tax Commission completed an
examination of the 1990 through 1993 state income tax returns for
Maynard Oil Company. Taxes on the adjustments amounted to $149,690.
The Company had followed a three factor apportionment formula (sales,
property, and payroll) as allowed and utilized by the majority of
taxpayers in calculating their Oklahoma tax liability. However, the
Oklahoma Tax Commission requires a separate accounting theory to
calculate the state tax liability.
As of December 31, 1996, the Company has alternative minimum tax credit
carryforwards of approximately $167,000 available for Federal income tax
purposes. No valuation allowance has been provided for this deferred
tax asset.
(7) Employee Benefit Plans
Effective January 1, 1985 the Company adopted a noncontributory defined
contribution retirement plan for all full-time employees age 21 or older
who have completed one year of service. The plan provides for a minimum
annual contribution by the Company equal to 3% of an employee's base
salary plus overtime compensation. At its discretion the Company may
also make supplemental contributions to the plan. Under this plan,
amounts equal to retirement plan expense are funded annually, which
amounted to $53,965, $40,777, and $28,298, respectively, for the years
ended December 31, 1996, 1995, and 1994. The contributions for the same
three year period have been reduced by $648, $1,818, and $10,407,
respectively, for forfeitures attributable to employees terminated in
prior years.
Effective February 1, 1991, the Company adopted a profit sharing plan
pursuant to Section 401 of the Internal Revenue Code, whereby
participants may contribute a percentage of compensation. The Plan
provides for a matching contribution by the Company equal to one-half of
the employee's percentage contribution up to the first 10% of
compensation for 1996, 1995, and 1994. During this same three year
period, the Company's matching portion amounted to $79,879, $59,579, and
$52,710, respectively.
(8) Major Customers
During the years ended December 31, 1996 and 1994, oil and gas sales to
two customers, amounting to approximately $6,059,000 and $3,898,000 and
$5,166,000 and $1,500,000, respectively, each accounted for more than
10% of total consolidated revenues. During the year ended December 31,
1995, oil and gas sales to three customers, amounting to approximately
$4,377,000, $3,746,000, and $2,946,000, each accounted for more than 10%
of total consolidated revenues.
(9) Contingencies and Commitments
The Company is a defendant in certain non-environmental litigation
arising from operations in the normal course of business. While it is
not feasible to determine the outcome of these actions, it is the<PAGE>
Company's opinion that the ultimate outcome of the litigation will have
no material adverse effect in the financial position or results of
operations of the Company.
The Company leases office space and certain equipment under various
operating leases which expire over the next five years. All leases
require the payment of taxes and insurance, and the office lease
requires the Company to pay its pro rata share of increases in
maintenance expense above that prevailing in base years. Management
expects that in the normal course of business, leases will be renewed or
replaced by other leases. The Company extended its office space lease,
which was scheduled to terminate April 30, 1996, for an additional four
years, such that the expiration date is now April 30, 2000. Rent
expense for the three years ended December 31, 1996 was $314,743,
$298,371, and $266,967, respectively.
Minimum payments for operating leases having initial or noncancellable
terms in excess of one year are as follows:
1997 $ 243,059
1998 231,828
1999 217,301
2000 74,269
Total minimum payments $ 766,457
(10) Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended December 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Revenues $7,331,742 $8,257,476 $13,920,810 $8,008,238
Net Income 1,143,454 1,819,180 6,883,228 107,921
Net Income Per Common Share .23 .37 1.41 .02
Year Ended December 31, 1995
Revenues $4,491,487 $5,991,160 $6,149,316 $5,571,201
Net Income 583,589 1,113,360 1,214,186 111,972
Net Income Per Common Share .12 .23 .25 .02
</TABLE>
During the fourth quarter of 1996, the Company recorded an additional
$3,104,370 in income tax expense related to the third quarter gain on
the disposition of assets. The Company had anticipated deferring tax
expense on a substantial portion of this gain via the like-kind exchange
rules, but was unable to consummate the transaction. Additionally,
fourth quarter results included approximately $650,000 additional
compensation expense in connection with an employee benefit plan which
appreciates in value as the price of the Company's common stock rises.
During the fourth quarter of 1995, the Company recorded an impairment of
$491,051 to unproved leasehold costs relating to the Company's three-
dimensional seismic program. The effect of this impairment is included
in Dry holes and abandonments on the Consolidated Statements of Income.
(11) Supplemental Oil and Gas Disclosures (Unaudited)
Capitalized Costs
A summary of the Company's aggregate capitalized property and
equipment costs relating to oil and gas exploration and development
activities follows:
December 31,
1996 1995
Undeveloped leaseholds and
royalties $ 105,385 $ 124,924
Producing properties 103,118,219 111,348,464
103,223,604 111,473,388
Accumulated depreciation and
amortization 48,906,086 48,807,308
Net capitalized costs $ 54,317,518 $ 62,666,080
Costs Incurred
A summary of costs incurred in oil and gas acquisition, exploration
and development activities follows:
Years ended December 31,
1996 1995 1994
Acquisition of properties
Undeveloped $ 104,846 $ 59,010 $ 293,472
Proved -- 29,234,607 9,679,619
Exploration costs 125,963 413,632 1,473,571
Development costs 2,980,849 3,949,882 4,972,784
$3,211,658 $33,657,131 $16,419,446
Results of Operations
The results of operations from oil and gas producing activities are
as follows:
Years ended December 31,
1996 1995 1994
Sales $30,583,133 $20,539,738 $13,265,075
Production costs (b) (10,079,948) (8,443,466) (4,970,506)
Exploration expenses (340,913) (661,319) (2,093,756)
Depreciation and
amortization (7,816,674) (6,801,115) (4,671,569)
12,345,598 4,633,838 1,529,244
Income tax expense (4,408,531) (1,478,000) (408,000)
Results of operations
from oil and gas
producing activities $7,937,067 $3,155,838 $ 1,121,244
(b) Includes lifting costs, severance taxes and advalorem taxes.
Oil and Gas Reserve Quantities
The following unaudited tables represent the Company's estimates of its
proved oil and gas reserves. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new discoveries
are more imprecise than those of producing oil and gas properties.
Accordingly, the estimates are expected to change as future information
becomes available. The estimates were evaluated by the Company's staff<PAGE>
of petroleum engineers and audited by independent petroleum engineers.
It is their opinions that the reserve quantity and present value
information in the following tables complies with the applicable rules
and regulations of the SEC. All of the Company's reserves are located
within the United States.
<TABLE>
<CAPTION>
Proved Developed and Oil Gas
Undeveloped Reserves (Barrels) (MCF)
-------------------- --------- ----------
<S> <C> <C>
Total as of December 31, 1993 4,014,025 15,858,640
Revisions of previous estimates 310,471 290,761
Purchases of reserves 1,618,491 806,119
Extensions and discoveries 778,924 395,184
Production (558,295) (2,390,298)
Sales of reserves in place (10,554) (8,946)
Total as of December 31, 1994 6,153,062 14,951,460
Revisions of previous estimates (113,124) (291,417)
Purchases of reserves 3,399,040 7,951,973
Extensions and discoveries 455,693 969,038
Production (957,873) (2,720,441)
Sales of reserves in place (64,283) (1,996,593)
Total as of December 31, 1995 8,872,515 18,864,020
Revisions of previous estimates 1,150,114 3,100,882
Purchases of reserves -- --
Extensions and discoveries 432,789 463,296
Production (1,212,369) (2,890,061)
Sales of reserves in place (268,663) (4,952,957)
Total as of December 31, 1996 8,974,386 14,585,180
Proved Developed Reserves
December 31, 1994 5,485,909 14,355,633
December 31, 1995 8,712,835 18,214,860
December 31, 1996 8,649,996 13,442,204
</TABLE>
Standardized Measure
The standardized measure of discounted future cash flows from proved oil
and gas reserves determined in accordance with rules prescribed by the
Financial Accounting Standards Board is summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
(000's) (000's) (000's)
<S> <C> <C> <C>
Future cash inflows $273,644 $192,794 $123,865
Future production costs (110,123) (92,873) (61,969)
Future development costs (2,912) (1,146) (2,166)
160,609 98,775 59,730
Future income tax expenses (38,610) (14,464) (8,590)
Future net cash flows 121,999 84,311 51,140
10% annual discount for estimated<PAGE>
timing of cash flows (44,361) (27,710) (16,929)
Standardized measure of discounted
future net cash flows $ 77,638 $ 56,601 $ 34,211
</TABLE>
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows.
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
(000's) (000's) (000's)
<S> <C> <C> <C>
Standardized measure - beginning of year $56,601 $34,211 $22,936
Sales of oil and gas produced,
net of production costs (20,503) (12,267) (8,388)
Net changes in prices and production costs 36,421 5,396 3,065
Extensions, discoveries, and improved
recovery, less related costs 3,876 3,514 5,317
Changes in future development costs (617) 135 (57)
Development costs incurred 182 850 2,809
Revisions of previous quantity estimates 14,503 (867) 1,694
Accretion of discount 6,631 3,996 2,578
Purchase of proved reserves -- 27,801 6,517
Sale of proved reserves (4,669) (2,065) 7
Net change in income taxes (14,861) (3,964) (2,901)
Other 74 (139) 634
Standardized measure - end of year $77,638 $56,601 $34,211
</TABLE>
Schedule II
<TABLE>
<CAPTION>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended December 31, 1996
Charged to
Beginning Cost and Ending
Description Balance Expenses Deductions Balance
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts - (a)
December 31, 1994 $ 43,000 -- -- $43,000
December 31, 1995 $ 43,000 -- -- $43,000
December 31, 1996 $ 43,000 -- $ 7,000 $50,000
(a) Valuation account deducted in the balance sheet from trade accounts
receivable.
</TABLE>
<TABLE>
<CAPTION>
Exhibit 11.1
MAYNARD OIL COMPANY AND SUBSIDIARIES
Computations of Primary and Fully Diluted Earnings Per Share
Three years ended December 31, 1996
Year ended
December 31,
COMPUTATIONS OF PRIMARY EARNINGS PER SHARE 1996 1995 1994
<S> <C> <C> <C>
Net income $9,953,783 $3,023,107 $ 943,216
Weighted average common shares
outstanding 4,889,690 4,890,708 4,891,592
Net income per common share $2.03567 $.61813 $.19282
COMPUTATIONS OF FULLY DILUTED EARNINGS PER SHARE
Net income $9,953,783 $3,023,107 $ 943,216
Weighted average common shares outstanding 4,889,690 4,890,708 4,891,592
Increase in weighted average common shares
outstanding from assumed exercise of
common stock options -- -- 21,600
Weighted average common and common
equivalent shares 4,889,690 4,890,708 4,913,192
Net income per common and common
equivalent shares $2.03567 $.61813 $.19198
</TABLE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
OF THE COMPANY AS OF
December 31, 1996
Percentage of
Jurisdiction of Voting Securities
Name Incorporation Owned by Company
- ---- -------------- -----------------
M.O.C. Resources, Inc. Nevada 100%
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,817
<SECURITIES> 0
<RECEIVABLES> 4,324
<ALLOWANCES> 50
<INVENTORY> 0
<CURRENT-ASSETS> 26,677
<PP&E> 103,764
<DEPRECIATION> 49,184
<TOTAL-ASSETS> 81,257
<CURRENT-LIABILITIES> 13,735
<BONDS> 0
0
0
<COMMON> 489
<OTHER-SE> 48,565
<TOTAL-LIABILITY-AND-EQUITY> 81,257
<SALES> 30,583
<TOTAL-REVENUES> 37,518
<CGS> 10,080
<TOTAL-COSTS> 21,760
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,677
<INCOME-PRETAX> 15,758
<INCOME-TAX> 5,804
<INCOME-CONTINUING> 9,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,954
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.04
</TABLE>
