<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 September 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 (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 11, 1996, 168,884.73 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>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 327,527 $ 175,014
Available for Sale Securities 2,985,720 2,689,546
Trading Securities 418,102 372,705
Receivables 272,989 154,012
Prepayments & Deferred Income Taxes -- 8,577
------------ ------------
4,004,338 3,399,854
------------ ------------
Investments:
Partnership and Limited
Liability Companies 486,322 495,379
Other 16,230 11,430
------------ ------------
502,552 506,809
------------ ------------
Property, Land & Equipment:
Oil and Gas Properties, at Cost Based on the
Successful Efforts Methods of Accounting
Unproved Properties 484,352 488,859
Proved Properties 4,517,125 4,660,881
------------ ------------
5,001,477 5,149,740
Less - Valuation Allowances and
Accumulated Depreciation,
Depletion and Amortization 3,254,707 3,270,087
------------ ------------
1,746,770 1,879,653
------------ ------------
Other Property & Equipment, at Cost 322,398 323,136
Less - Accumulated Depreciation,
Depletion & Amortization 171,519 176,460
------------ ------------
150,879 146,676
------------ ------------
1,897,649 2,026,329
------------ ------------
Other Assets 352,674 267,089
------------ ------------
$ 6,757,213 $ 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>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 65,906 $ 86,229
Income Taxes Payable 181,311 16,280
Other Current Liabilities
Gas Balancing Commitments 53,401 53,401
Dividends Payable, Current Portion 10,000 10,000
Deferred Income Taxes 15,413 --
------------ ------------
326,031 165,910
------------ ------------
Dividends Payable 127,162 119,277
------------ ------------
Deferred Income Taxes -- 54,864
------------ ------------
Commitments & Contingencies (Note 2):
Stockholders' Equity:
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 6,303,362 5,854,105
------------ ------------
6,460,730 6,011,473
Less: Treasury Stock, at Cost 156,710 151,443
------------ ------------
6,304,020 5,860,030
------------ ------------
$ 6,757,213 $ 6,200,081
============ ============
</TABLE>
See Accompanying Notes
3
<PAGE> 5
THE RESERVE PETROLEUM COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Revenues:
Oil & Gas Sales $ 614,337 $ 264,583 $ 2,125,205 $ 798,055
Lease Bonuses & Rentals 6,907 813 7,627 2,105
Oil & Gas Prospects, Net 22,747 5,467 49,646 43,161
----------- ----------- ----------- -----------
643,991 270,863 2,182,478 843,321
----------- ----------- ----------- -----------
Operating Costs & Expenses:
Production 80,796 83,113 316,625 231,444
Exploration & Development 161,587 27,997 264,924 50,440
Depreciation, Depletion, Amortization
and Valuation Provisions 49,840 94,346 521,583 207,815
General, Administrative and
Other 198,791 106,687 574,667 391,867
----------- ----------- ----------- -----------
491,014 312,143 1,677,799 881,566
----------- ----------- ----------- -----------
Income (Loss) From Operations 152,977 (41,280) 504,679 (38,245)
Other Income, Net 63,702 55,589 227,265 157,448
----------- ----------- ----------- -----------
Income Before Income Taxes 216,679 14,309 731,944 119,203
Provision For (Benefit from)
Income Taxes 26,756 (11,822) 113,184 16,180
----------- ----------- ----------- -----------
Net Income $ 189,923 $ 26,131 $ 618,760 $ 103,023
=========== =========== =========== ===========
Per Share Data:
Net Income $ 1.12 $ .15 $ 3.65 $ .61
Cash Dividends $ -- $ -- $ 1.00 $ 1.00
=========== =========== =========== ===========
Weighted Average Shares
Outstanding 169,287 169,599 169,358 169,714
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
4
<PAGE> 6
THE RESERVE PETROLEUM COMPANY
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net Cash Provided by
Operating Activities $ 865,455 $ 228,189
------------ ------------
Cash Flows from Investing Activities:
Available for Sale Securities -
Sales 1,182,283 315,309
Purchases (1,478,457) --
Cash Distributions from Equity Investments 41,750 --
Cash Payments for Equity Investments (4,800) (11,250)
Property Dispositions 179,058 29,397
Property Additions (465,889) (335,296)
------------ ------------
Net Cash Applied to Investing Activities (546,055) (1,840)
------------ ------------
Cash Flows from Financing Activities:
Payment of Dividends (161,618) (165,579)
Purchase of Treasury Stock (5,268) (7,385)
------------ ------------
Net Cash Applied to Financing Activities (166,886) (172,964)
------------ ------------
Net Change in Cash and
Cash Equivalents 152,514 53,385
Cash and Cash Equivalents,
Beginning of Period 175,013 112,564
------------ ------------
Cash and Cash Equivalents,
End of Period $ 327,527 $ 165,949
============ ============
Supplemental Disclosures of
Cash Flow Information:
Cash Paid during the Periods For:
Interest $ 3,750 $ 11,252
Income Taxes $ 68,469 $ 12,974
</TABLE>
See Accompanying Notes
5
<PAGE> 7
RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 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 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 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
September 30, 1996
(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, 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 September 30, 1996, was $3,678,307,
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 Nine Months Ended September
30, 1996 Compared with Nine Months Ended September 30, 1995.
Operating Revenues. Oil and gas sales increased $1,327,150, (166%) to
$2,125,205. Other operating revenues are comparatively insignificant.
Crude oil sales increased $282,593 (77%) to $650,043 as a result of an
increase in both volume sold and average unit price. The volume sold
increased 11,361 barrels (Bbls) to 33,952 Bbls in 1996 resulting in a
favorable volume variance of $184,616. Properties which first produced
in 1996 contributed 16,068 Bbls to current year volume. The new
production includes 10,464 Bbls produced from rapidly declining royalty
interests in the Austin Chalk area of Texas. The production from
properties which first produced in 1996 was offset 4,707 Bbls by the
normal decline in older properties, including the sale or abandonment of
properties which had reached their economic limit. The average unit
price received for crude oil sales increased $2.90 per Bbl to $19.15
resulting in a favorable price variance of $97,977. The increase in
crude oil price was the result of favorable industry market forces.
Natural gas sales increased $1,043,806 (249%) to $1,462,605, The volume
of natural gas sales increased 467,737 thousand cubic feet (MCF) to
747,278 MCF resulting in a favorable volume variance of $701,604. 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 $756,364 to revenues. Also, production from the
Austin Chalk royalties discussed above contributed to the positive
volume variance. As with crude oil sales, the volume variance was
negatively affected by the normal decline of production from older
properties as well as the sale or abandonment of some
7
<PAGE> 9
properties. Natural gas sales increased $342,202 as a result of $.46
per MCF increase in the average price received to $1.96 per MCF. The
price increase resulted from favorable market forces.
Operating Costs and Expenses. Production costs increased $85,181 (37%)
to $316,625 mostly as the result of production tax and transportation
cost related to new royalty interest production. Exploration and
development costs increased $214,484 (475%) because of $85,988 (241%)
additional geological and geophysical expenses related to the
development of seismic data for exploratory prospects, as well as an
increase in the costs of unsuccessful exploratory drilling of $128,496
to $143,329. Depreciation, depletion, amortization and valuation
provisions increased $313,768 which, for the most part, was the result
of a change in accounting principal as discussed in Note 3 to the
Condensed Financial Statements. General, administrative and other
expenses increased $182,800 (47%) as the result of additional legal fees
of $150,543 mostly related to the quiet title action discussed in Note 2
to the Condensed Financial Statements, as well as additional employee
costs of approximately $27,000.
Other Income Net. The $69,817 (44%) increase includes various
components. The most significant items include a net gain from the sale
of assets of $35,895; an increase in interest income from available for
sale securities of $12,824; increased estimated income from equity
investments of $14,345; and additional realized and unrealized income
from trading securities of $7,546.
Provisions for Income Taxes. In 1995, the Company had a calculated
provision for income taxes as a result of a net increase in deferred
tax liabilities of $16,180. The net increase in taxable temporary
differences plus permanent differences more than offset financial net
income. In 1996, a net increase in deferred tax assets of $120,316 was
more than offset by Federal income tax payable of $233,500 resulting in
a provision for income tax of $113,184.
3. Material Changes in Results of Operations Quarter Ended September 30,
1996, Compared with Quarter Ended September 30, 1995.
Production costs decreased $1,317, or 3% between the quarters as
compared to a 37% increase for the nine months. The above resulted
because an increase of $20,250 in production taxes and transportation
costs between the quarters was offset by a $22,567 decline in lease
operating expense. The lease operating expense decline was mostly the
result of sale or retirement of marginal producing working interest
properties.
Depreciation, depletion, amortization and valuation provisions declined
$44,506 (47%) between the quarters because of a $26,849 decrease in the
provision for impairment of non-producing leaseholds as well as a
$14,617 (17%) decline in depreciation and depletion of producing oil and
gas properties.
Other than the disclosures in the above paragraphs, there were no
material changes between the quarters which were not discussed in Item
2, above, for the nine months.
8
<PAGE> 10
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 three months ended September 30, 1996
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 11, 1996 MASON MCLAIN
------------------ ----------------------------------------
Mason McLain
President
Date: November 11, 1996 JERRY L. CROW
------------------ ----------------------------------------
Jerry L. Crow
Principal Financial and
Accounting Officer
9
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 327,527
<SECURITIES> 3,403,822
<RECEIVABLES> 272,989
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,004,338
<PP&E> 5,323,875
<DEPRECIATION> 3,426,226
<TOTAL-ASSETS> 6,757,213
<CURRENT-LIABILITIES> 326,031
<BONDS> 0
0
0
<COMMON> 92,368
<OTHER-SE> 6,211,652
<TOTAL-LIABILITY-AND-EQUITY> 6,757,213
<SALES> 2,125,205
<TOTAL-REVENUES> 2,182,478
<CGS> 0
<TOTAL-COSTS> 316,625
<OTHER-EXPENSES> 786,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 731,944
<INCOME-TAX> 113,184
<INCOME-CONTINUING> 618,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 618,760
<EPS-PRIMARY> 3.65
<EPS-DILUTED> 3.65
</TABLE>
