<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995 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 0-13305
--------------------------
PARALLEL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1971716
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Marienfeld Place, Suite 465,
Midland, Texas 79701
(Address of principal executive offices) (Zip Code)
(915) 684-3727
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes 'X' No
At September 30, 1995 14,854,108 shares of common stock, par value $.01,
were outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Reference is made to the succeeding pages for the following financial
statements:
- Balance Sheets as of December 31, 1994 and September 30, 1995
- Statements of Operations for the three months ended September
30, 1994 and 1995 and nine months ended September 30, 1994 and
1995
- Statements of Cash Flows for the nine months ended September 30,
1994 and September 30, 1995
- Notes to Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
/a/ Exhibits
27. Financial Data Schedule
/b/ Reports on Form 8-K
No reports were filed on Form 8-K during the quarterly period
ended September 30, 1995.
<PAGE> 3 PARALLEL PETROLEUM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30, 1995
1994* (Unaudited)
------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 598,465 $ 191,222
Accounts receivable:
Oil & Gas 470,000 648,000
Other, net of allowance for doubtful
accounts of $28,094 in 1994
and 1995 242,886 110,710
Affiliate 2,349 1,595
----------- -----------
715,235 760,305
Prepaid expenses and other 12,581 43,381
Undeveloped leases held for sale 463,922 413
----------- -----------
Total current assets 1,790,203 995,321
----------- -----------
Property and equipment, at cost:
Oil and gas properties, full cost
method 27,657,884 29,428,470
Other 298,040 311,715
----------- -----------
27,955,924 29,740,185
Less accumulated depreciation and
depletion 7,232,197 8,314,475
----------- -----------
Net property and equipment 20,723,727 21,425,710
----------- -----------
Other assets net of accumulated amortization of
$20,000 in 1994 and $55,562 in 1995 246,799 72,255
----------- -----------
$22,760,729 $22,493,286
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities:
Trade $ 1,696,338 $ 737,195
Affiliate 327,325 14,471
----------- -----------
Total current liabilities 2,023,663 751,666
----------- -----------
Long-term debt 11,000,000 10,439,625
Deferred revenue 49,632 49,632
Deferred income taxes 358,528 428,528
Stockholders' equity:
Preferred stock - par value of $.10 per
share, authorized 40,000,000 shares,
none issued -- --
Common stock - par value of $.01 per share,
authorized 100,000,000 shares, issued and
outstanding 14,174,958 in 1994 and
14,854,108 in 1995 141,750 148,541
Additional paid-in surplus 10,300,260 11,650,639
Accumulated deficit (1,113,104) (975,345)
----------- -----------
Total stockholders' equity 9,328,906 10,823,835
----------- -----------
$22,760,729 $22,493,286
=========== ===========
</TABLE>
*The balance sheet as of December 31, 1994 has been derived from the Company's
audited financial statements.The accompanying notes are an integral part
of these financial statements.
<PAGE> 4
PARALLEL PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1994 and 1995
Nine Months Ended September 30, 1994 and 1995
(Unaudited)
<TABLE>
<CAPTION> Three Months Nine Months
1994 1995 1994 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and gas revenues $1,252,541 $1,104,579 $3,681,679 $3,420,657
---------- ---------- ---------- ----------
Cost and expenses:
Lease operating expense 363,195 360,723 1,030,324 1,066,158
General and administrative 65,556 67,903 152,141 162,133
Public reporting, auditing and
legal 17,503 63,322 121,308 152,512
Depreciation, depletion and
amortization 365,303 365,709 1,069,432 1,094,566
----------- ---------- ---------- ----------
811,557 857,657 2,373,205 2,475,369
----------- ---------- ---------- ----------
Operating income 440,984 246,922 1,308,474 945,288
----------- ---------- ---------- ----------
Other income (expense), net:
Interest income -- -- 322 --
Other income 42,550 12,528 101,993 36,787
Interest expense (198,831) (254,106) (469,439) (772,386)
Other expense (196) (761) (3,343) (1,930)
---------- ---------- ---------- ----------
Total other expense, net (156,477) (242,339) (370,467) (737,529)
---------- ---------- ---------- ----------
Income before income taxes 284,507 4,583 938,007 207,759
Income tax expense - deferred 97,000 2,100 319,000 70,000
---------- ---------- ---------- ----------
Net income $ 187,507 $ 2,483 $ 619,007 $ 137,759
========== ========== ========== ==========
Net income per common share $ .013 $ -- $ .042 $ .009
========== ========== ========== ==========
Weighted average common shares
and common stock equivalents
outstanding 14,785,349 15,389,679 14,827,697 15,307,572
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE> 5
PARALLEL PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1994 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 619,007 $ 137,759
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,069,432 1,094,566
Incomes taxes 319,000 70,000
Other, net (127,152) 174,544
Changes in assets and liabilities:
Increase in accounts receivable (400,194) (45,070)
Increase in prepaid expenses and other (13,767) (30,800)
Increase (decrease) in accounts payable and
accrued liabilities 559,385 (1,271,997)
---------- ----------
Net cash provided by operating activities 2,025,711 129,002
---------- ----------
Cash flows from investing activities:
Additions of property and equipment (6,359,774) (2,487,696)
Proceeds from disposition of assets 269,124 1,260,671
Acquisition of undeveloped leases
held for sale (91,043) (106,015)
---------- ----------
Net cash used in investing activities (6,181,693) (1,333,040)
---------- ----------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 4,187,600 1,050,000
Payment of long-term debt -- (1,610,375)
Proceeds from exercise of options 17,187 36,694
Stock Offering costs -- (289,899)
Proceeds from common stock issuance -- 1,610,375
---------- ----------
Net cash provided by financing activities 4,204,787 796,795
---------- ----------
Net increase (decrease) in cash
and cash equivalents 48,805 (407,243)
Beginning cash and cash equivalents 123,293 598,465
---------- ----------
Ending cash and cash equivalents $ 172,098 $ 191,222
========== ==========
</TABLE>
<PAGE> 6
PARALLEL PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. OPINION OF MANAGEMENT
The financial information included herein is unaudited; however, such
information includes all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of the results of operations for the interim periods.
NOTE 2. LONG TERM DEBT
The Company's Loan Agreement with its bank lender provides for a two
year revolving credit facility, converting to a four year term loan on June 1,
1997. The loan agreement requires interest to be paid on the outstanding
principal balance of the revolving facility on the last day of each month
through and including May 31, 1997. The revolving loan automatically converts
to a four - year term loan on June 1, 1997, payable in 48 equal installments
of principal plus accrued and unpaid interest, with the final payment being
due and payable on May 31, 2001. The aggregate principal amount of the
Company's borrowings outstanding at any one time are limited to the lesser of
$25,000,000 or the borrowing base then in effect. At September 30, 1995, the
borrowing base was $11,250,000 and the aggregate principal amount outstanding
at the same date was approximately $10,440,000. Commitment fees of .5% per
annum on the difference between the commitment and the average daily amount of
the loan are payable quarterly. The borrowing base is redetermined by the Bank
semi-annually on or about May 1, and November 1 of each year. The note bears
interest at the bank's prime rate plus 3/4% and is secured by substantially
all of the Company's oil and gas properties. The loan agreement contains
various restrictive covenants and compliance requirements, which include
maintenance of certain financial ratios, limiting the incurrence of additional
indebtedness and prohibiting payment of dividends.
NOTE 3. COMMON STOCK OFFERING
On February 7, 1995, the Company completed a private placement of its
common stock. The Company sold 644,150 shares of its common stock at $2.50 per
share, of which 50,000 shares were purchased by certain Directors (or their
affiliates) of the Company. Proceeds received, net of related expenses, were
approximately $1,320,500. Such proceeds were applied to the partial repayment
of the Company's bank debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(1) MATERIAL CHANGES IN FINANCIAL CONDITION
LIQUIDITY
Working Capital increased $477,115 as of September 30, 1995 compared to
December 31, 1994. Current assets exceed current liabilities by $243,655 at
September 30, 1995 compared to a deficit of $233,460 at December 31, 1994.
Current assets decreased primarily due to decreases of $407,243 in cash and
$463,509 in undeveloped leases held for sale. Current liabilities decreased
$1,271,997 due to the payment of trade payables accrued as of December 31, 1994.
CAPITAL RESOURCES
The Company incurred net costs of $1,333,040 net proceeds of $1,260,671 of
the disposition of assets, in its oil and gas property acquisition,
development, and enhancement activities for the nine months ended Sepember 30,
1995. Such costs were financed by the utilization of the Company's cash
position, funds provided from its line of credit, and proceeds from
disposition of certain undeveloped leases held for resale.
<PAGE> 7
Historically, the Company concentrated most of its drilling activities
onshore in Texas in exploratory prospects. However, starting in 1988 the
Company followed a policy of deemphasizing exploratory drilling and committing
most of its available funds to the acquisition and enhancement of producing oil
and gas properties and development drilling. Beginning in 1992, the Company
expanded its acquisition and enhancement efforts through the use of three-
dimensional seismic technology. Based on the Company's projected oil and gas
revenues and related expenses, Management believes that its internally
generated cash flow, coupled with proceeds from borrowings under the
Company's lending facility, will be sufficient to fund its current
operations. In addition, the Company continually reviews and considers
alternative methods of financing.
TREND AND PRICES
During the first quarter of 1994 oil prices dropped to a five year low
of approximately $12.50 per barrel; however, oil prices have recently increased
to $17.50 per barrel. Conversely, during the winter of 1993 and early first
quarter of 1994, natural gas spot market prices increased to a five year high
of approximately $2.25 to $2.50 per Mcf, but have since declined to
approximately $1.45 per Mcf.
The Company has no way of accurately predicting domestic or worldwide
political events or the effects of such events on the prices received by the
Company for its oil and natural gas.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS
Because of the Company's ever-changing reserve base and sources of
production, year to year or quarter to quarter comparisons of the Company's
results of operations can be difficult. This situation is further complicated
by significant changes in product mix (oil vs. gas volumes) and related price
fluctuations for both oil and gas. For these reasons, the following compares
the results of operations on an EBO (equivalent barrel of oil) basis for the
period indicated.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
3-31-95 6-30-95 9-30-95 9-30-94 9-30-95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Production and Prices:
Oil (Bbl) 43,216 36,172 22,819 33,115 22,819
Natural Gas (Mcf) 321,947 346,356 469,554 396,350 469,554
Equivalent Barrels of
Oil (EBO) 96,874 93,898 101,078 99,173 101,078
Oil Price (per Bbl) $16.55 $17.78 $17.36 $17.64 $17.36
Gas Price (per Mcf) $ 1.40 $ 1.42 $ 1.45 $ 1.68 $ 1.45
Price per EBO $12.05 $12.23 $10.93 $12.63 $10.93
Results of Operations per EBO (Equivalent Barrel of Oil)
Oil and gas revenues $12.05 $12.23 $10.93 $12.63 $10.93
Costs and expenses:
Lease operating expense 3.47 3.93 3.57 3.66 3.57
General and administrative .39 .61 .67 .66 .67
Public reporting, auditing
and legal .44 .49 .63 .18 .63
Depreciation and depletion 3.77 3.87 3.62 3.68 3.62
------ ------ ------ ------ ------
8.07 8.90 8.49 8.18 8.49
------ ------ ------ ------ ------
Operating income 3.98 3.33 2.44 4.45 2.44
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
3-31-95 6-30-95 9-30-95 9-30-94 9-30-95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Other income (expense):
Interest expense (2.69) (2.75) (2.51) (2.00) (2.51)
Other income (expense) .12 .12 .12 .42 .12
------- ------ ------ ------ ------
Income before income taxes $ 1.41 $ .70 $ .05 $ 2.87 $ .05
====== ====== ====== ====== ======
Net cash flow before working
capital adjustments $ 5.18 $ 4.57 $ 3.67 $ 6.55 $ 3.67
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
9-30-93 9-30-94 9-30-95
--------- --------- ---------
<S> <C> <C> <C>
Production and Prices:
Oil (Bbl) 72,775 124,414 102,207
Natural Gas (Mcf) 641,873 1,037,211 1,137,857
Equivalent Barrels of Oil (EBO) 179,754 297,282 291,850
Oil Price (per Bbl) $17.80 $15.21 $17.17
Gas Price (per MCF) $ 1.89 $ 1.72 $ 1.46
Price per EBO $13.98 $12.38 $11.72
</TABLE>
Results of Operations per EBO (Equivalent Barrel of Oil)
<TABLE>
<CAPTION>
Nine Months Ended
9-30-93 9-30-94 9-30-95
--------- --------- ---------
<S> <C> <C> <C>
Oil and gas revenues $13.98 $12.38 $11.72
Costs and expenses:
Lease operating expense 5.10 3.46 3.65
General and administrative .78 .51 .56
Public reporting, auditing
and legal .54 .41 .52
Depreciation and depletion 3.30 3.60 3.75
------ ------ ------
9.72 7.98 8.48
------ ------ ------
Operating income 4.26 4.40 3.24
Other income (expense)
Interest expense (1.86) (1.58) (2.65)
Other income (expense) .42 .33 .12
------ ------ ------
Income before income taxes $ 2.82 $ 3.15 $ .71
====== ====== ======
Net cash flow before working
captial adjustment $ 6.12 $ 6.75 $ 4.46
====== ====== ======
</TABLE>
<PAGE> 9
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1994:
During the three months ended September 30, 1995, the following opera-
tional items changed relative to the corresponding three month period ended
September 30, 1994:
Income before taxes decreased $279,924 (98%) to $4,583 primarily due to
a $147,962 decrease in oil and gas revenues, a $45,819 increase in public
reporting costs and a $55,275 increase in interest expense.
Net cash flow from operations, before working capital adjustments,
decreased $279,518 (43%) to $370,292. Oil and gas revenues decreased $147,962
(12%) to $1,104,579 in 1995 compared to $1,252,541 in 1994. The EBO
(equivalent barrels of oil) sold in 1995 increased by 1,905 (2%) to 101,078
compared to 99,173 in 1994.
Costs and expenses increased $46,100 (6%) to $857,657 due to the
following:
1. Lease operating expense decreased $2,472 (1%) to $360,723
due to the slight increase in EBO sold. The operating expense
per EBO decreased 2% to $3.57 compared to $3.66 in 1994. The
lease operating expense per EBO is expected to decrease as
production increases disproportionately to lease operating expense
on certain of the Company's recent completions which are flowing.
2. General and administrative expense increased $2,347 (4%) to
$67,903 in 1995. Such increase represents $.67 per EBO sold in 1995
compared to $.66 per EBO sold in 1994.
3. Public reporting, auditing and legal expense increased $45,819
(261%) to $63,322 in 1995 due to increases in shareholder communication
costs, tax return preparation and legal expense.
4. Depreciation, depletion and amortization expense (DD&A) increased
$406 (.1%) to $365,709. The DD&A rate per EBO in 1995 is $3.62
compared to $3.68 in 1994.
Interest expense increased $55,275 (28%) to $254,106 because of the
Company's increased borrowings to finance its oil and gas property
acquisitions, enhancements, development drilling and three dimensional
seismic technology activities.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1994:
During the nine months ended September 30, 1995, the following operational
items changed relative to the corresponding nine month period ended September
30, 1994.
Income before taxes decreased $730,248 (78%) to $207,759 primarily due to
a $261,022 decrease in oil and gas revenues and a $302,947 increase in interest
expense.
Net cash flow from operations, before working capital adjustments,
decreased $705,114 (35%) to $1,302,325. Oil and gas revenues decreased
$261,022 (7%) to $3,420,657 in 1995 compared to $3,681,679 in 1994. The EBO
(equivalent barrels of oil) sold in 1995 decreased by 5,432 (2%) to 291,850
compared to 297,282 in 1994. The sales price per EBO decreased 5% to $11.72
in 1995 compared to $12.38 in 1994.
Costs and expenses increased $102,164 (4%) to $2,475,369 due to the
following:
1. Lease operating expense increased $35,834 (3%) to $1,066,158. The
operating cost per EBO increased 5% to $3.65 in 1995 compared to $3.46 in 1994.
The lease operating expense per EBO is expected to decrease as production
increases disproportionately to lease operating expense on certain of the
Company's recent completions which are flowing.
<PAGE> 10
2. General and administrative expense increased $9,992 (6%) to $162,133
in 1995, such increase represents $.56 per EBO sold in 1995 compared to
$.51 per EBO in 1994. General and administrative expenses have remained
fairly stable with no real increases or decreases noted in any particular
category.
3. Public reporting, auditing and legal expense increased $31,204 (26%)
to $152,512 primarily due to increases in shareholder communication costs,
tax return preparation and legal expense.
4. Depreciation, depletion and amortization expense (DD&A) increased
$25,134 (2%) to $1,094,566 in 1995. The DD&A rate per EBO in 1995 is
$3.75 compared to $3.60 in 1994.
Interest expense increased $302,947 (64%) to $772,386 because of the
Company's increased borrowings to finance its producing property acquisition,
enhancement and development drilling activities. Interest expense increased
68% per EBO sold in 1995 to $2.65 compared to $1.58 per EBO sold in 1994.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended September
30, 1995.
<PAGE> 11
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PARALLEL PETROLEUM CORPORATION
Date: November 7, 1995 /s/ THOMAS R. CAMBRIDGE
------------------------------
THOMAS R. CAMBRIDGE,
CHIEF EXECUTIVE OFFICER
Date: November 7, 1995 /s/ LARRY C. OLDHAM
------------------------------
LARRY C. OLDHAM,
PRESIDENT AND
PRINCIPAL FINANCIAL OFFICER
<PAGE> 12
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
- ------ ----------------------
*27 Financial Data Schedule
- -------------------------
* Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 191,222
<SECURITIES> 0
<RECEIVABLES> 788,399
<ALLOWANCES> 28,094
<INVENTORY> 413
<CURRENT-ASSETS> 995,321
<PP&E> 29,740,185
<DEPRECIATION> 8,314,475
<TOTAL-ASSETS> 22,493,286
<CURRENT-LIABILITIES> 751,666
<BONDS> 10,439,625
<COMMON> 148,541
0
0
<OTHER-SE> 10,675,294
<TOTAL-LIABILITY-AND-EQUITY> 22,493,286
<SALES> 0
<TOTAL-REVENUES> 3,420,657
<CGS> 0
<TOTAL-COSTS> 2,475,369
<OTHER-EXPENSES> (34,857)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 772,386
<INCOME-PRETAX> 207,759
<INCOME-TAX> 70,000
<INCOME-CONTINUING> 137,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,759
<EPS-PRIMARY> .009
<EPS-DILUTED> .009
