SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-8157
THE RESERVE PETROLEUM COMPANY
(Exact name of small business issuer as specified in its charter)
Delaware 73-0237060
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
6801 N. Broadway, Suite 300, Oklahoma City, Oklahoma 73116-9092
(Address of principal executive offices)
(405)848-7551
(Registrant's telephone number, including area code)
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
As of November 10, 1995, 169,575.73 shares of the Registrant's $.50 par
value common stock were outstanding.
Transitional Small Business Disclosure Format (check one) Yes No X
<PAGE>
PART I
FINANCIAL INFORMATION
<PAGE>
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1995 1994
Current Assets:
Cash $ 165,949 $ 112,564
Available for Sale Securities 2,141,256 2,715,502
Trading Securities 387,847 87,574
Receivables 150,825 163,729
Refundable Income Taxes 14,467 1,449
Prepayments and Other 7,478 6,042
---------- ----------
2,867,822 3,086,860
---------- ----------
Investments:
Partnerships and Limited
Liability Company 465,954 459,251
Other 11,430 11,430
---------- ----------
477,384 470,681
---------- ----------
Property, Plant & Equipment:
Oil & Gas Properties,
at Cost Based on the
Successful Efforts
Method of Accounting
Unproved Properties 499,460 444,831
Proved Properties 4,774,597 4,977,386
------------ -----------
5,274,057 5,422,217
Less - Valuation Allowance
and Accumulated
Depreciation, Depletion
& Amortization 3,289,688 3,580,350
------------ -----------
1,984,369 1,841,867
------------ -----------
Other Property & Equipment, at Cost 323,136 329,431
Less - Accumulated Depreciation,
Depletion & Amortization 173,978 172,634
----------- -----------
149,158 156,797
----------- -----------
2,133,527 1,998,664
----------- -----------
Other Assets 266,713 241,881
----------- -----------
$5,745,446 $ 5,798,086
=========== ===========
(Continued)
See Accompanying Notes
<PAGE>
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
(concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1995 1994
Current Liabilities:
Accounts Payable $ 53,237 $ 51,676
Other Current Liabilities
Gas Balancing Liabilities 57,858 57,858
Current Dividends Payable 10,000 10,000
--------- ---------
121,095 119,534
--------- ---------
Dividends Payable 119,266 115,066
--------- ---------
Deferred Federal Income Taxes 135,069 119,329
--------- ---------
Stockholders' Equity:
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 5,364,090 5,430,847
---------- ----------
5,521,458 5,588,215
Less - Treasury Stock, at cost 151,442 144,058
---------- ----------
5,370,016 5,444,157
---------- ----------
$5,745,446 $5,798,086
========== ==========
See Accompanying Notes
<PAGE>
THE RESERVE PETROLEUM COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
Operating Revenues:
Oil & Gas Sales $ 264,583 $418,130 $798,055 $1,049,433
Lease Bonuses & Rentals 813 28,023 2,105 36,113
Oil & Gas Prospects, Net 5,467 --- 43,161 ---
--------- -------- -------- ----------
270,863 446,153 843,321 1,085,546
--------- -------- -------- ---------
Operating Costs & Expenses:
Production Costs 83,113 71,654 231,444 240,794
Exploration & Development Expense 27,997 8,604 50,440 98,367
Depreciation, Depletion,
and Amortization 94,346 108,292 207,815 255,977
General Administrative and
Other Expenses 106,687 122,625 391,867 476,652
--------- --------- --------- ---------
312,143 311,175 881,566 1,071,790
--------- --------- --------- ---------
Income (Loss) From Operations (41,280) 134,978 (38,245) 13,756
Other Income, Net 55,589 170,873 157,448 181,258
--------- --------- ---------- ---------
Income Before Income Taxes 14,309 305,851 119,203 195,014
Provision For (Benefit from)
Income Taxes (11,822) 18,437 16,180 (1,573)
--------- --------- --------- ---------
Net Income $ 26,131 $ 287,414 $ 103,023 $ 196,587
========= ========= ========= =========
Per Share Data:
Net Income $ .15 $ 1.69 $ .61 $ 1.16
========= ========= ========= =========
Cash Dividends $ ---- $ ---- $ 1.00 $ 1.00
========= ========= ========= =========
Weighted Average Shares
Outstanding 169,599 170,078 169,714 170,198
========= ======== ========= =========
See Accompanying Notes
<PAGE>
THE RESERVE PETROLEUM COMPANY
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended
SEPTEMBER 30,
1995 1994
Net Cash Provided by
Operating Activities $ 228,189 $ 116,982
---------- ----------
Cash Flows from Investing Activities:
Available for Sale Securities -
Sales 315,309 734,260
Purchases ---- (193,163)
Contributions (to) from
Limited Partnership (11,250) (19,800)
Property Dispositions 29,397 77,009
Property Additions (335,296) (492,277)
--------- ---------
Net Cash Provided from (Applied to)
Investing Activities (1,840) 106,029
--------- ---------
Cash Flows from Financing Activities:
Payment of Dividends (165,579) (161,562)
Purchase of Treasury Stock (7,385) (5,005)
--------- ---------
Net Cash Applied to Financing Activities (172,964) (166,567)
--------- ---------
Net Change in Cash and
Cash Equivalents 53,385 56,444
Cash and Cash Equivalents,
Beginning of Period 112,564 98,553
---------- ----------
Cash and Cash Equivalents,
End of Period $ 165,949 $ 154,997
========== ==========
Supplemental Disclosures of
Cash Flow Information:
Cash Paid during the Periods For-
Interest $ 11,252 $ 7,540
Income Taxes $ 12,974 $ 12,111
See Accompanying Notes
<PAGE>
RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
Note 1 - ADJUSTMENTS
In the opinion of Management, the accompanying financial statements reflect
all adjustments which are necessary for a fair statement of the results for
the interim periods presented.
Note 2 - MATERIAL CONTINGENCY.
In August 1993, the Company filed an action in the District Court of Leon
County, Texas to quiet title to its 13/32nd interest in approximately 203
mineral acres associated with two producing oil and gas wells completed in
1988. The Company claims title through deeds recorded in 1932; the defendants
claim title under a deed dated nine year prior to the Company's deeds, but not
recorded until seven years after the Company's deeds were recorded.
Approximately $835,000 of proceeds from oil and gas sales were held in
suspense by the unit operator at September 30,1995, and have not been recorded
as revenue by the Company. The Company has expended $415,000 in drilling,
completion and operating costs for these wells of which $240,500 was included
in the Company's net investment in oil and gas properties at September 30,
1995. If the Company is successful in quieting title to its mineral interests
in this litigation and recovers the suspended oil and gas proceeds, management
believes the outcome will have a material favorable effect on the Company and
its financial condition. If the Company is unsuccessful in this litigation,
management believes that such outcome will not have a material adverse effect
on the Company's financial condition. The case is set for trial in early
February, 1996.
Note 3 - SUBSEQUENT EVENT
In October 1995, the Company entered into a paid up oil and gas lease
agreement relating to a block of its non-producing minerals. As a result,
lease bonus income of $413,000 was received and will be recorded as income in
the fourth quarter of 1995. The effect of this lease bonus, after related
Federal income tax, is an increase in net income for the year of approximately
$1.60 per share of common stock outstanding.
<PAGE>
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1995
(unaudited)
The discussion and analysis of financial condition and results of operations
should be read with reference to a similar discussion in the Company's December
31, 1994, Form 10-K filed with the Securities and Exchange Commission, as well
as the condensed financial statements included in this Form 10-QSB.
1. LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations is currently estimated to approximate $700,000 for
the year to end December 31, 1995, as opposed to $400,000 which was projected
in the December 31, 1994, Form 10-K. For the most part, the increase is the
result of the November 1995, receipt of lease bonuses as discussed in Note 3,
to the accompanying condensed financial statements.
Also, Cash to be applied to exploration and development activities in the
current year is estimated at approximately $520,000, a $240,000 reduction from
the $760,000 reported in the Company's December 31, 1994, Form 10-K. Prospect
development is requiring more time than originally estimated causing some of
the expenditures projected for 1995 to be deferred until 1996.
Other than the above disclosures, management is unaware of any material
trends, demands, commitments, events or uncertainties which would impact
liquidity and capital resources to the extent that the discussion presented in
Form 10-K for December 31, 1994, would not be representative of the Company's
current position.
2. MATERIAL CHANGES IN RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30,
1995, COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1994.
Net income for 1995 declined $93,564, or $.55 per share as both revenues and
expenses decreased. A discussion of material changes in the statements of
operations line items follows.
OPERATING REVENUES. Oil and gas sales fell $251,378, or 24%, from 1994 to
1995. Natural gas sales decreased $269,500 (38%) to $415,150 in 1995. The
decrease was the combined result of a 46,814 thousand cubic feet (MCF) decline
in volume and a $.61 decline in average price per MCF to $1.51 in 1995. The
decline in volume was the result of a production shut in for pipe line
construction to accommodate new gas purchases as well as the natural decline
of older producing properties. The decrease in average price was the result
of the expiration of a gas contract in November of 1994, with a sales price
in excess of $4.00 per MCF and a general decline in the spot market price.
Oil sales increased $9,158 or 3%, to $367,535 in 1995. A 1461 barrel
decrease in volume was more than offset be a $1.36 increase in the average
price per barrel. The volume decrease resulted because the normal production
decline of mature properties more than offset new production that came on
line. The increase in average price received resulted from market forces.
<PAGE>
OPERATING COSTS AND EXPENSES. The decrease in exploration and development
costs was to a great extent the result of reduced costs associated with
unsuccessful drilling.
Depreciation, depletion, amortization and valuation provisions declined
$48,162 (19%). Units-of-production depreciation and depletion of oil and
gas properties fell $54,299 (28%) because of the 1994 rapid depreciation of
wells with initial flush production and marginal wells which were fully
reserved in 1994.
General, administrative and other expenses fell $84,785 (18%). Legal fees
decreased $42,627 because of reduced fees relating to the Leon County, Texas
quiet title litigation discussed in Note 2., to the accompanying condensed
financial statements. Taxes other than income declined $17,635, mostly as the
result of the receipt and payment of a 1993 assessed tax statement in 1994.
Substantially all of the remaining decline occurred because of an increase in
the percentage of shared costs allocated to affiliated entities.
OTHER INCOME NET. The decrease in other income, net of $23,810 (13%) resulted
from a number of changes in its components, the most significant of which will
be discussed below. In 1994, the Company received $120,272 related to
settlement of litigation. Although there was no such receipt in 1995, the
decline was offset $96,172 by increased interest income on available for sale
securities and adjustment of trading securities to market value.
PROVISIONS FOR INCOME TAXES. The utilization of tax credits eliminated
current tax expenses from the provision for income taxes in both 1995 and
1994. Recognition of deferred taxes resulted in a provision of $16,180 in
1995 as compared to a benefit of $1,573 in 1994. For the most part, the
provision increase of $17,753 between the periods resulted from a net increase
in intangible develop-ment costs. Such costs are capitalized and depreciated
for financial statement purposes and expensed currently for Federal and state
income tax purposes.
3. MATERIAL CHANGES IN RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30 1995,
COMPARED WITH QUARTER ENDED SEPTEMBER 30, 1994.
In summary, the decrease in net income of $261,283 between the periods was to
a great extent the result of the receipt of $219,037 in settlement of
litigation in the third quarter of 1994. Of the total, $98,765 was reported
as gas sales in operating revenues, and $120,272 was reported in other income,
net. Also, gas sales fell another $56,594 in 1995 as the combined result of a
decrease in average sales price of $.24 per MCF and a decrease in volume of
19,021 MCF.
Other than the disclosures in the above paragraph, there were no material
changes between the quarters which were not discussed in Item 2, above, for
the nine months.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule
(b) No reports on Form 8-K were required to be filed by the Registrant for
the nine months ended September 30, 1995.
SIGNATURES
Pursuant to the requirements 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.
THE RESERVE PETROLEUM COMPANY
(Registrant)
Date: NOVEMBER 10, 1995 MASON MCLAIN
Mason McLain
President
Date: NOVEMBER 10, 1995 JERRY L. CROW
Jerry L. Crow
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 165,949
<SECURITIES> 2,529,103
<RECEIVABLES> 150,825
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,867,822
<PP&E> 5,423,215
<DEPRECIATION> 3,463,666
<TOTAL-ASSETS> 5,745,446
<CURRENT-LIABILITIES> 121,095
<BONDS> 0
<COMMON> 92,368
0
0
<OTHER-SE> 5,277,648
<TOTAL-LIABILITY-AND-EQUITY> 5,745,446
<SALES> 798,055
<TOTAL-REVENUES> 843,321
<CGS> 0
<TOTAL-COSTS> 231,444
<OTHER-EXPENSES> 258,255
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 119,203
<INCOME-TAX> 16,180
<INCOME-CONTINUING> 103,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,023
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
