<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1995 OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
or 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
The number of shares outstanding of each of the issuer's classes
of common stock was 14,819,038 shares of common stock, par value
$.01, outstanding as of March 31, 1995.
<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 March 31, 1995
- Statements of Operations for the three months ended March 31,
1994 and 1995
- Statements of Cash Flows for the three months ended March 31,
1994 and March 31, 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 March 31, 1995.
<PAGE> 3
PARALLEL PETROLEUM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION> December 31, March 31, 1995
1994* (Unaudited)
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 598,465 $ 78,402
Accounts receivable:
Oil & Gas 470,000 608,000
Other, net of allowance for doubtful
accounts of $28,094 in 1995 and 1994 242,886 776,406
Affiliate 2,349 1,117
----------- -----------
715,235 1,385,523
Prepaid expenses and other 12,581 42,367
Undeveloped leases held for sale 463,922 509,937
----------- -----------
Total current assets 1,790,203 2,016,229
----------- -----------
Property and equipment, at cost:
Oil and gas properties, full cost method 27,657,884 27,925,905
Other 298,040 298,864
----------- -----------
27,955,924 28,224,769
Less accumulated depreciation and depletion 7,232,197 7,597,500
----------- -----------
Net property and equipment 20,723,727 20,627,269
----------- -----------
Other assets net of accumulated amortization of
$32,625 in 1995 and $20,000 in 1994 246,799 95,247
----------- -----------
$22,760,729 $22,738,745
=========== ===========
<PAGE> 4
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities:
Trade $ 1,696,338 $ 1,086,525
Affiliate 327,325 18,736
----------- -----------
Total current liabilities 2,023,663 1,105,261
----------- -----------
Long-term debt 11,000,000 10,439,625
Deferred revenue 49,632 49,632
Deferred income taxes 358,528 404,528
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 14,819,038 in 1995 and
14,174,888 in 1994 141,749 148,191
Additional paid-in surplus 10,300,261 11,614,295
Accumulated deficit (1,113,104) (1,022,787)
----------- -----------
Total stockholders' equity 9,328,906 10,739,699
Contingencies ----------- -----------
$22,760,729 $22,738,745
=========== ===========
</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> 5
PARALLEL PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1994 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Oil and gas revenues $ 1,173,398 $ 1,167,278
----------- -----------
Cost and expenses:
Lease operating expense 333,611 336,498
General and administrative 36,612 37,389
Public reporting, auditing and legal 43,252 43,050
Depreciation, depletion and amortization 344,826 365,303
----------- -----------
758,301 782,240
----------- -----------
Operating income 415,097 385,038
----------- -----------
Other income (expense), net:
Interest income 322 --
Other income 30,000 11,744
Interest expense (109,249) (260,352)
Other expense (502) (113)
----------- -----------
Total other expense, net (79,429) (248,721)
----------- -----------
Income before income taxes 335,668 136,317
Income tax expense - deferred 114,000 46,000
----------- -----------
Net income $ 221,668 $ 90,317
=========== ===========
Net income per common share $ .02 $ .01
=========== ===========
Weighted average common shares and common stock
equivalents outstanding 14,075,165 15,170,977
=========== ===========
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE> 6
PARALLEL PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1994 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 221,668 $ 90,317
Adjustments to reconcile net income to
net cash required by operating activities:
Depreciation, depletion and amortization 344,826 365,303
Incomes taxes 114,000 46,000
Other, net (1,858) 151,552
Changes in assets and liabilities:
Decrease (increase) in trade receivables 177,504 (670,288)
Increase in prepaid expenses and other (26,603) (29,786)
Decrease in accounts payable and accrued
liabilities (938,545) (918,402)
---------- ----------
Net cash required by operating activities (109,008) (965,304)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (814,318) (799,016)
Proceeds from disposition of property and equipment -- 530,171
Acquisition of undeveloped leases
held for sale (46,154) (46,015)
---------- ----------
Net cash required by investing activities (860,472) (314,860)
---------- ----------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 855,000 1,050,000
Payments of long-term debt -- (1,610,375)
Proceeds from exercise of options 17,187 --
Stock offering costs -- (289,899)
Proceeds from common stock issuance -- 1,610,375
Reduction in deferred income (3,347) --
---------- ----------
Net cash provided by financing activities 868,840 760,101
---------- ----------
Net decrease in cash and cash equivalents (100,640) (520,063)
Beginning cash and cash equivalents 123,293 598,465
---------- ----------
Ending cash and cash equivalents $ 22,653 $ 78,402
========== ==========
</TABLE>
<PAGE> 7
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 Loan Agreement, as amended, 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, 1996. Under the credit facility,
as amended, the revolving loan will convert to a four - year term loan on
June 1, 1996, payable in 48 equal installments of principal plus accrued
and unpaid interest, with the final payment being due and payable on May 31,
2000. The aggregate principal amount of the Company's borrowings outstanding
at any one time are limited to the lesser of $15,000,000 or the borrowing
base then in effect. At March 31, 1995, the borrowing base was $11,250,000
and the aggregate principal amount outstanding at the same date was
approximately $10,439,000. Commitment fees of .5% per annum on the difference
between the commitment and the average daily amount of the loan are due
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 amended loan agreement contains various
restrictive covenants and compliance requirements, which include maintenance
of certain financial ratios, limiting the incurrence of additional
indebtedness and no payment of dividends.
NOTE 3. COMMON STOCK OFFERING
On February 7, 1995, the Company completed a private placement offering
dated November 7, 1994. The Company sold 644,150 shares of its common stock
at $2.50 per share of which 50,000 shares were beneficially purchased by
certain Directors of the Company. Proceeds received, net of related expenses,
were $1,320,476. 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 $1,144,428 as of March 31, 1995 compared to
December 31, 1994. Current assets exceeded current liabilities by $910,968
at March 31, 1995 compared to a deficit of $233,460 at December 31, 1994.
Current assets increased primarily due to an increase of $670,288 in accounts
receivable, $46,015 in undeveloped leases held for sale and $29,786 in prepaid
expenses offset by a decrease in cash of $520,063. The decrease in cash
resulted primarily due to the Company's investments in oil and gas drilling
activities and payment of trade payables accrued as of December 31, 1994.
The Company continues to concentrate its drilling activities on certain
prospects related to the Company's 3-D seismic technology.
<PAGE> 8
CAPTIAL RESOURCES
The Company incurred net costs of $314,860 in its oil and gas property
acquisition, development, and enhancement activities for the three months
ended March 31, 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 properties.
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 $18.50 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 $1.50 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
9-30-94 12-31-94 3-31-95 3-31-94 3-31-95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Production and Prices:
Oil (Bbl) 33,116 24,894 43,216 45,147 43,216
Natural Gas (Mcf) 396,350 354,635 321,947 313,889 321,947
Equivalent Barrels of Oil (EBO) 99,174 84,000 96,874 97,462 96,874
Oil Price (per Bbl) $17.64 $18.78 $16.55 $13.70 $16.55
Gas Price (per Mcf) $ 1.68 $ 1.53 $ 1.40 $ 1.77 $ 1.40
Price per EBO $12.63 $12.04 $12.05 $12.04 $12.05
</TABLE>
<PAGE> 9
Results of Operations per EBO (Equivalent Barrel of Oil)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
9-30-94 12-31-94 3-31-95 3-31-94 3-31-95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Oil and gas revenues $12.63 $12.04 $12.05 $12.04 $12.05
Costs and expenses:
Lease operating expense 3.66 5.48 3.47 3.42 3.47
General and administrative .66 .62 .39 .38 .39
Public reporting, auditing
and legal .18 .18 .44 .44 .44
Depreciation and depletion 3.68 5.98 3.77 3.54 3.77
------ ------ ------ ------ ------
8.18 12.26 8.07 7.78 8.07
------ ------ ------ ------ ------
Operating income 4.45 (.22) 3.98 4.26 3.98
Other income (expense):
Interest expense (2.00) (2.88) (2.69) (1.12) (2.69)
Other income (expense) .43 .37 .12 .30 .12
------ ------ ------ ------ ------
Income before income taxes $ 2.88 $(2.73) $ 1.41 $ 3.44 $ 1.41
====== ====== ====== ====== ======
Net cash flow before working
capital adjustments $ 6.56 $ 3.25 $ 5.18 $ 6.98 $ 5.18
====== ====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1995 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1994:
During the three months ended March 31, 1995, the following operational
items changed relative to the corresponding three month period ended March 31,
1994:
Net income after tax decreased $131,351 (59%) to $90,317 primarily due
to a $151,103 increase in interest expense.
Net cash flow from operations, before working capital adjustments,
decreased $178,874 (26%) to $501,620. Oil and gas revenues decreased $6,120
(.52%) to $1,167,278 in 1995 compared to $1,173,398 in 1994. The EBO
(equivalent barrels of oil) sold in 1995 decreased by 588 (.6%) to 96,874
compared to 97,462 in 1994.
Costs and expenses increased $23,939 (3%) to $782,240 due to the
following:
1. Lease operating expense increased $2,887 (.86%) to $336,498
primarily due to due to stable sales volume. The operating expense
per EBO increased 2% to $3.47 compared to $3.42 in 1994.
2. General and administrative expense increased $777 (2%) to $37,389
in 1995. Such increase represents $.39 per EBO sold in 1995 compared
to $.38 per EBO sold in 1994. General and administrative costs have
remained fairly stable with no real increases noted in any particular
category.
<PAGE> 10
3. Public reporting, auditing and legal expense decreased $202 (.47%)
to $43,050 with no real increases noted in any particular category.
4. Depreciation, depletion and amortization expense (DD&A) increased
$20,477 (5.9%) to $365,303. The DD&A rate per EBO in 1995 is $3.77
compared to $3.54 in 1994.
Interest expense increased $151,103 (138%) to $260,352 because of the
Company's increased borrowings to finance its oil and gas property
acquisitions, enhancements, development drilling and three dimensional
seismic technology activities.
<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: May 9, 1995 /s/ THOMAS R. CAMBRIDGE
------------------------------
THOMAS R. CAMBRIDGE,
CHIEF EXECUTIVE OFFICER
Date: May 9, 1995 /s/ LARRY C. OLDHAM
------------------------------
LARRY C. OLDHAM,
PRESIDENT
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 78,402
<SECURITIES> 0
<RECEIVABLES> 1,413,617
<ALLOWANCES> 28,094
<INVENTORY> 509,937
<CURRENT-ASSETS> 2,016,229
<PP&E> 28,224,769
<DEPRECIATION> 7,597,500
<TOTAL-ASSETS> 22,738,745
<CURRENT-LIABILITIES> 1,105,261
<BONDS> 10,439,625
<COMMON> 148,191
0
0
<OTHER-SE> 10,591,508
<TOTAL-LIABILITY-AND-EQUITY> 22,738,745
<SALES> 0
<TOTAL-REVENUES> 1,167,278
<CGS> 0
<TOTAL-COSTS> 782,240
<OTHER-EXPENSES> (11,631)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 260,352
<INCOME-PRETAX> 136,317
<INCOME-TAX> 46,000
<INCOME-CONTINUING> 90,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,317
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
