<PAGE> 1
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 June 30, 1996
[ ] 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 (IRS 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 August 10, 1996, 169,290.73 shares of the Registrant's $.50 par value
common stock were outstanding.
Transitional Small Business Disclosure Format (check one) Yes No X
----- -----
<PAGE> 2
PART I
FINANCIAL INFORMATION
1
<PAGE> 3
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------- -------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 440,731 $ 175,014
Available for Sale Securities 2,731,919 2,689,546
Trading Securities 391,229 372,705
Receivables 250,446 154,012
Prepayments & Deferred Income Taxes 1,875 8,577
----------------- -------------
3,816,200 3,399,854
----------------- -------------
Investments
Partnership and Limited
Liability Companies 490,014 495,379
Other 16,230 11,430
----------------- -------------
506,244 506,809
----------------- -------------
Property, Land & Equipment
Oil and Gas Properties, at Cost Based on the
Successful Efforts Methods of Accounting
Unproved Properties 504,477 488,859
Proved Properties 4,629,389 4,660,881
----------------- -------------
5,133,866 5,149,740
Less - Valuation Allowance and
Accumulated Depreciation,
Depletion and Amortization 3,409,485 3,270,087
----------------- -------------
1,724,381 1,879,653
----------------- -------------
Other Property & Equipment, at Cost 323,136 323,136
Less - Accumulated Depreciation,
Depletion & Amortization 179,698 176,460
----------------- -------------
143,438 146,676
----------------- -------------
1,867,819 2,026,329
----------------- -------------
Other Assets 262,145 267,089
----------------- -------------
$ 6,452,408 $ 6,200,081
================= =============
</TABLE>
(Continued)
See Accompanying Notes
2
<PAGE> 4
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
(Concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- --------------
<S> <C> <C>
Current Liabilities;
Accounts Payable $ 37,572 $ 86,229
Income Taxes Payable 48,279 16,280
Other Current Liabilities
Gas Balancing Commitments 53,401 53,401
Dividends Payable, Current Portion 10,000 10,000
Deferred Income Taxes 7,948 ---
--------------- --------------
157,200 165,910
--------------- --------------
Dividends Payable 130,439 119,277
--------------- --------------
Deferred Income Taxes 50,392 54,864
--------------- --------------
Commitments & Contingencies (Note 2):
Stockholders' Equity
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 6,113,439 5,854,105
--------------- --------------
6,270,807 6,011,473
Less: Treasury Stock, at Cost 156,430 151,443
--------------- --------------
6,114,377 5,860,030
--------------- --------------
$ 6,452,408 $ 6,200,081
=============== ==============
</TABLE>
See Accompanying Notes
3
<PAGE> 5
THE RESERVE PETROLEUM COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------------
1996 1995 1996 1995
----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating Revenues:
Oil & Gas Sales $ 880,948 $ 281,110 $ 1,510,868 $ 533,472
Lease Bonuses & Rentals 640 1,291 720 1,291
Prospect Sales 26,899 19,695 26,899 37,695
----------- -------------- --------------- ---------------
908,487 302,096 1,538,487 572,458
----------- -------------- --------------- ---------------
Operating Costs & Expense:
Production Costs 143,298 79,252 235,829 148,331
Exploration & Development Costs 52,636 1,315 103,337 22,443
Depreciation, Depletion, Amortization
& Valuation Provisions 82,463 58,867 471,743 113,469
General Administrative &
Other Expenses 160,686 131,928 375,876 285,180
----------- -------------- --------------- ---------------
439,083 271,362 1,186,785 569,423
----------- -------------- --------------- ---------------
Income from Operations 469,404 30,734 351,702 3,035
Other Income, Net 142,120 57,743 163,563 101,859
----------- -------------- --------------- ---------------
Income Before Income Taxes 611,524 88,477 515,265 104,894
Provision For Income Taxes 173,370 25,213 86,428 28,002
----------- -------------- --------------- ---------------
Net Income $ 438,154 $ 63,264 $ 428,837 $ 76,892
=========== ============== =============== ===============
Per Share Data:
Net Income $ 2.59 $ .37 $ 2.53 $ .45
=========== ============== =============== ===============
Cash Dividends $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ============== =============== ===============
Weighted Average Shares Outstanding 169,327 169,699 169,393 169,773
=========== ============== =============== ===============
</TABLE>
See Accompanying Notes
4
<PAGE> 6
THE RESERVE PETROLEUM COMPANY
STATEMENTS OF CASH FLOW
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 680,248 $ 97,517
Cash Flows from Investing Activities:
Sale and Maturity of Available
for Sale Securities 788,456 258,310
Purchase of Available for Sale Securities (830,829) ----
Property Dispositions 166,049 16,081
Property Additions (391,578) (213,923)
Cash Distributions from Equity Investments 21,500 ----
Cash Payments for Equity Investments (4,800) (6,250)
----------- ----------
Net Cash (Applied to) Provided by
Investing Activities (251,202) 54,218
----------- ----------
Cash Flows from Financing Activities:
Payments of Dividends (158,341) (160,425)
Purchase of Treasury Stock (4,987) (6,737)
----------- ----------
Net Cash Applied to Financing Activities (163,328) (167,162)
----------- ----------
Net Change in Cash and Cash Equivalents 265,718 (15,427)
Cash and Cash Equivalents, Beginning of Period 175,013 112,564
----------- ----------
Cash and Cash Equivalents, End of Period $ 440,731 $ 97,137
=========== ==========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Periods For:
Interest $ 3,750 $ 3,752
Income Taxes $ 48,000 $ 8,000
</TABLE>
See Accompanying Notes
5
<PAGE> 7
THE RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(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 of 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 trial was held starting August 5,
1996, and on August 8, 1996, the jury returned a verdict for the
Company. Approximately $850,000 of proceeds from oil and gas sales are
held in suspense by the unit operator. These proceeds will be recorded
as revenue by the Company when released by the Unit Operator. It is
not known if the defendants will appeal or when the proceeds will be
released.
Note 3 - CHANGE IN ACCOUNTING PRINCIPAL
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. Statements 121
also addresses the accounting for long-lived assets that are expected
to be disposed of. The statement is effective for fiscal years
beginning after December 15, 1995.
As a result of this change in accounting principal, certain oil and
gas producing properties are deemed to be impaired because the
assets are not expected to recover their entire carrying value through
future cash flows. An impairment loss totaling $297,000 was included
in the Statement of Operations for the quarter ended March 31, 1996, in
the Depreciation, Depletion, Amortization and Valuation Provisions.
6
<PAGE> 8
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1996
This 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, 1995, Form 10-KSB 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
The Company's net working capital at June 30, 1996, was $3,659,000 an
amount which, along with the cash flow from operations, is adequate to
fund all currently budgeted investing and financing activities.
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-KSB for
December 31, 1995, would not be representative of the Company's current
position.
2. Material Changes in Results of Operations Six Months Ended June 30, 1996,
Compared with Six Months Ended June 30, 1995,
Operating Revenues. Oil and gas sales increased $977,396 (183%) to
$1,510,868. Other operating revenues were comparatively insignificant.
Crude oil sales increased $218,924 (91%) to $460,788. The volume of
crude oil sales increased 9,887 barrels (Bbls) to 24,866 resulting in a
favorable volume variance of $159,677, and the price of crude oil
increased $2.38 per Bbl to $18.53 resulting in a favorable price variance
of $59,247. For the most part, the increase in volume of crude oil sales
was the result of royalty production from the Austin Chalk area of Texas.
Production from these horizontally drilled properties was first received
in the first quarter of 1996. Most Austin Chalk production declines very
rapidly; therefore, it is anticipated that revenues from these properties
will decline significantly in the last half of 1996. The increase in
crude oil price was the result of industry market forces.
Natural gas sales increased $758,872 (262%) to $1,048,201. The volume of
natural gas sales increased 355,128 thousand cubic feet (MCF) to 545,147
MCF resulting in a favorable volume variance of $828,623. For the most
part, the increase in volume was the result of initial receipts from the
#1 Brounkowski, a Robertson County, Texas royalty interest well, which
contributed $562,100 to revenues. Also, production from the Austin Chalk
royalties discussed above contributed to the positive volume variance.
Natural gas sales increased $219,578 as a result of a $.40 per MCF
increase in the average price received to $1.92 per MCF. The price
increase resulted from market forces.
7
<PAGE> 9
Operating Costs and Expenses. Production costs increased $87,498 (59%)
mostly as the result of production tax and transportation cost related to
new royalty interest production. Exploration and development costs
increased $80,894 because of additional geological and geophysical
expense related to the Company's exploration program. Depreciation,
depletion, amortization and valuation provisions increased $358,274 to
$471,743 as a result of a change in accounting principal as discussed in
Note 3 to the Condensed Financial Statements as well as a $63,528
increase in depletion and depreciation of oil and gas producing
properties. General, administrative and other expenses increased $90,696
(32%) to $375,876 as the result of additional legal fees of $71,673
mostly related to the quiet title action discussed in Note 2 to Condensed
Financial Statements, as well as $16,987 additional employee costs.
Other Income, Net. The most significant factor contributing to the
$61,704 (61%) increase was a $59,000 gain on the sale of some older,
marginal producing oil and gas properties.
Provision for Income Taxes. The estimated annualized income tax rate was
16.8% for six months ended June 30, 1996 as compared to 26.7% for the six
months ended June 30, 1995. For the most part, the decreased rate
resulted because computed taxable income in 1996 allowed the utilization
of statutory depletion, whereas a computed taxable loss in 1995 did not.
3. Material Changes in Results of Operations Quarter Ended June 30, 1996,
Compared with Quarter Ended June 30, 1995.
There were no material changes between the quarters which were not
discussed in item 2, above, for the six months.
8
<PAGE> 10
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders' was held on Tuesday, May 7, 1996.
A brief description of each matter voted on at the meeting is given
in the paragraphs below.
The registrant's board of directors was re-elected in its entirety. A
summary of voting by individual directors follows:
<TABLE>
<CAPTION>
RESULTS OF VOTE
------------------------------------------------------------
BY PROXY IN PERSON
------------------------ --------------------------
WITHHELD WITHHELD
FOR AUTHORITY FOR AUTHORITY
------ ------------ ------ -------------
<S> <C> <C> <C> <C>
MASON McLAIN 40,375 338 47,600 ---
R.T. McLAIN 40,601 112 47,600 ---
M.D. RALSTON 40,627 86 47,600 ---
LOYD TERRY 40,627 86 47,600 ---
ROBERT SAVAGE 40,692 21 47,600 ---
MARVIN E. HARRIS 40,572 141 47,600 ---
JERRY L. CROW 40,607 106 47,600 ---
</TABLE>
The stockholders approved all actions of the directors since the
stockholders' annual meeting on Tuesday May 2, 1995. The stockholders
cast 88,313 votes for the proposal. There were no abstentions,
broker non-votes or votes cast against the proposal.
Item 6. Exhibits and Reports on Form 8K.
(a) Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K have been filed with the Securities
and Exchange Commission during the Six Months Ended June
30, 1996 as follows:
<TABLE>
<CAPTION>
Item Reported Report Date Financial Statement Filed
------------- ----------- -------------------------
<S> <C> <C>
5. Other Events May 1, 1996 No
</TABLE>
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: August 12, 1996 /s/ MASON MCLAIN
------------------------------------------
Mason McLain, President
Date: August 12, 1996 /s/ JERRY L. CROW
------------------------------------------
Jerry L. Crow
Principal Financial and Accounting Officer
9
<PAGE> 11
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS FORM
10-QSB FOR THE QUARTERLY PERIOD ENDING JUNE 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 440,731
<SECURITIES> 3,123,148
<RECEIVABLES> 391,229
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,816,200
<PP&E> 5,457,002
<DEPRECIATION> 3,589,183
<TOTAL-ASSETS> 6,452,408
<CURRENT-LIABILITIES> 157,200
<BONDS> 0
<COMMON> 92,368
0
0
<OTHER-SE> 6,022,009
<TOTAL-LIABILITY-AND-EQUITY> 6,452,408
<SALES> 1,510,868
<TOTAL-REVENUES> 1,538,487
<CGS> 0
<TOTAL-COSTS> 235,829
<OTHER-EXPENSES> 575,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 515,265
<INCOME-TAX> 86,428
<INCOME-CONTINUING> 428,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 428,837
<EPS-PRIMARY> 2.53
<EPS-DILUTED> 2.53
</TABLE>
