<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, 1997
[ ] 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, 1997, 168,312.73 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,
1997 1996
------------- ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 163,927 $ 385,136
Available for Sale Securities 3,295,621 2,942,004
Trading Securities 448,384 414,751
Receivables 214,184 309,147
Prepaid Income Taxes and Other 74,025 5,625
---------- ----------
4,196,141 4,056,663
---------- ----------
Investments:
Partnership and Limited
Liability Companies 457,548 448,908
Other 16,230 16,230
---------- ----------
473,778 465,138
---------- ----------
Property, Plant & Equipment
Oil & Gas Properties, at Cost Based on the
Successful Efforts Method of Accounting
Unproved Properties 610,941 543,454
Proved Properties 4,499,575 4,704,113
---------- ----------
5,110,516 5,247,567
Less - Valuation Allowance and Accumulated
Depreciation, Depletion & Amortization 3,267,150 3,399,478
---------- ----------
1,843,366 1,848,089
---------- ----------
Other Property & Equipment, at Cost 326,404 322,398
Less - Accumulated Depreciation & Amortization 168,886 173,190
---------- ----------
157,518 149,208
---------- ----------
2,000,884 1,997,297
---------- ----------
Other Assets 372,799 344,518
---------- ----------
$7,043,602 $6,863,616
========== ==========
</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,
1997 1996
------------- ------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 153,247 $ 25,342
Income Taxes Payable -- 187,272
Other Current Liabilities
Gas Balancing Commitment 49,333 49,333
Other 17,124 11,502
---------- ----------
219,704 273,449
---------- ----------
Dividends Payable 135,668 128,474
---------- ----------
Commitments & Contingencies (Note 2)
Stockholders' Equity
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 6,705,517 6,475,980
---------- ----------
6,862,885 6,633,348
Less - Treasury Stock, at Cost 174,655 171,655
---------- ----------
6,688,230 6,461,693
---------- ----------
$7,043,602 $6,863,616
========== ==========
</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,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues:
Oil & Gas Sales $ 511,397 614,337 $2,034,215 2,125,205
Oil & Gas Prospects and Other 2,714 29,654 12,984 57,273
---------- ---------- ---------- ----------
514,111 643,991 2,047,199 2,182,478
---------- ---------- ---------- ----------
Operating Costs & Expenses:
Production 84,135 80,796 264,238 316,625
Exploration & Development 110,287 161,587 581,640 264,924
Depreciation, Depletion, Amortization
and Valuation Provisions 114,453 49,840 415,879 521,583
General, Administrative and
Other 155,696 198,791 544,381 574,667
---------- ---------- ---------- ----------
464,571 491,014 1,806,138 1,677,799
---------- ---------- ---------- ----------
Income From Operations 49,540 152,977 241,061 504,679
Other Income, Net 141,982 63,702 266,321 227,265
---------- ---------- ---------- ----------
Income Before Income Taxes 191,522 216,679 507,382 731,944
Provision For Income Taxes 70,939 26,756 109,406 113,184
---------- ---------- ---------- ----------
Net Income $ 120,583 $ 189,923 $ 397,976 $ 618,760
========== ========== ========== ==========
Per Share Data:
Net Income $ .72 $ 1.12 $ 2.36 $ 3.65
Cash Dividends $ -- $ -- $ 1.00 $ 1.00
========== ========== ========== ==========
Weighted Average Shares
Outstanding 168,394 169,287 168,434 169,358
========== ========== ========== ==========
</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,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net Cash Provided by
Operating Activities $ 658,148 $ 865,455
----------- -----------
Cash Flows from Investing Activities:
Available for Sale Securities -
Sales 355,291 1,182,283
Purchases (708,908) (1,478,457)
Cash Distributions from Equity Investments 99,000 41,750
Cash Payments for Equity Investments (6,000) (4,800)
Property Dispositions 27,187 179,058
Property Additions (481,684) (465,889)
----------- -----------
Net Cash Applied to Investing Activities (715,114) (546,055)
----------- -----------
Cash Flows from Financing Activities:
Payment of Dividends (161,243) (161,618)
Purchase of Treasury Stock (3,000) (5,268)
----------- -----------
Net Cash Applied to Financing Activities (164,243) (166,886)
----------- -----------
Net Change in Cash and
Cash Equivalents (221,209) 152,514
Cash and Cash Equivalents,
Beginning of Period 385,136 175,013
----------- -----------
Cash and Cash Equivalents,
End of Period $ 163,927 $ 327,527
=========== ===========
Supplemental Disclosures of
Cash Flow Information:
Cash Paid during the Periods For:
Interest $ 3,750 $ 3,750
Income Taxes $ 370,000 $ 68,469
</TABLE>
See Accompanying Notes
5
<PAGE> 7
RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1997
(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. Following a jury trial held in August, 1996, a judgment was
entered for the Company. Some defendants have perfected the right to
appeal. The Company does not know when the appellate proceedings will be
completed.
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. The Company has
expended approximately $440,000 drilling, completion and operating costs
for these wells of which $217,498 was included in the Company's net
investment in oil and gas properties at September 30, 1997.
6
<PAGE> 8
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1997
(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, 1996, 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, 1997, was $3,976,437, 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, 1996,
would not be representative of the Company's current position.
2. Material Changes in Results of Operations Nine Months Ended September 30,
1997 Compared with Nine Months Ended September 30, 1996.
Operating Revenues. The decrease in revenues from oil and gas sales of
$90,990 (4%) was the net result of both price and volume variances. Crude
oil sales decreased $76,982 to $573,061 as the result of a favorable price
variance of $29,244 as offset by an unfavorable volume variance of
$106,226. The favorable price variance resulted from an increase in the
average price per barrel of $1.03 to $20.18 in 1997 as compared to $19.15
in 1996. The unfavorable volume variance resulted because new production
which came on line was less than the decline in older production, the most
significant of which was rapidly declining royalty production from the
Austin Chalk area of Texas.
Natural gas sales decreased $11,485 to $1,451,120. The volume of gas
production declined 129,996, thousand cubic feet (MCF) or 17%, to 617,282
MCF resulting in an unfavorable volume variance of $254,792. Substantially
all of the volume decline was from the Brounkowski #1, a Robertson County,
Texas royalty interest well. The average price per MCF increased $.39 to
$2.35 resulting in a favorable price variance of $243,307.
Operating Costs and Expenses. Production costs declined $52,387 (17%) to
$264,238. The most significant items contributing to the decrease was a
$27,405 (18%) decline in lease operating expense
7
<PAGE> 9
to $126,331, a $9,703 (10%) decline in gross production taxes to $92,387
and a $12,860 (18%) decline in transportation costs to $59,007. To a
significant degree, the decline in lease operating expense was the result
of the sale or retirement of some high cost producing properties in 1995
and 1996. Gross production taxes declined mostly because of Texas State
incentives which reduced or eliminated the tax on some royalty interest
production. To a great extent, transportation costs are related to
production from the Brounkowski #1, a Robertson County, Texas royalty
interest well. These costs declined because of a decline in production.
Exploration and development expense increased $316,716 (120%) to $581,640.
A decrease in geological and geophysical expense of $54,877 (45%) to
$66,659 was offset by a $371,928 (259%) increase in costs of unsuccessful
drilling to $515,257. The increase in cost of unsuccessful drilling was the
result of four exploratory wells which were plugged and abandoned during
the period. One South Texas well in which the Company had a 6% working
interest was in process at year end 1996. The Company has incurred a total
cost of $328,170 in this well. The other wells were drilled in southern
Oklahoma at a cost of $171,760. The remaining costs relate to late 1996
drilling.
Depreciation, depletion, amortization and valuation provisions declined
$105,704 (20%) to $415,879. A $334,856 decline in impairment loss related
to long-lived oil and gas assets was off-set by a $224,291 increase in
depreciation, depletion and amortization of oil and gas producing, and non
producing properties. Most of this increase was the result of accelerated
amortization of older Oklahoma producing and non producing leaseholds.
General, administrative and other expenses decreased $30,286 (5%) to
$544,381. To a great extent, the change was the result of a $103,625
decrease in legal fees, mostly related to the quiet title action discussed
in Note 2 to the financial statements, as offset by an increase in payroll
costs of $21,052 and Texas franchise and producing minerals taxes of
$53,221. The increased Texas taxes were the result of increased Texas oil
and gas revenues.
Other Income Net. The most significant factors contributing to the $39,056
(17%) increase was an increase in estimated income from equity investments
of $67,506 as offset by a decline in gain from the sale of some marginal
producing oil and gas producing properties.
Provisions for Income Taxes. The calculated provision for income taxes
declined $3,778 (3%) to $109,406. A decline in the current tax provision of
$117,134 to $116,366 in 1997 was partially offset by a decrease in the
deferred tax benefit of $113,356 to $6,960 in 1997.
3. Material Changes in Results of Operations Quarter Ended September 30, 1997,
Compared with Quarter Ended September 30, 1996.
Operating Revenues. Oil and gas sales declined $102,940 (17%). A
price-volume analysis disclosed declines for both oil and gas in average
unit price and volume of sales. Crude oil sales decreased $21,592 as a
result of a drop in average price per barrel of $2.85 to $17.97, and
$31,431 because of a decrease in barrels sold of 1,509 to 7,576. Natural
gas sales fell $9,889 because of a drop in the average price per MCF of
$.05 to $2.00, and $35,860 because of a decrease in volume sold of 12,669
MCF to 189,462.
8
<PAGE> 10
Operating Costs and Expenses. Production costs increased $3,339 (4%)
between the quarters. The increase is counter to the decline between the
nine months periods. For the most part, the increase was the result of
reduced transportation costs in 1996. The reduction occurred because of an
operator's adjustment of costs related to the Brounkowski #1, a Robertson
County, Texas royalty interest well.
Exploration and development expense decreased $51,300 (32%) between the
quarters. The decrease was the result of a $12,321 decline in geological
and geophysical expense and a $38,719 decline in exploration and
development costs charged to expense.
The $64,613 (130%) increase in depreciation, depletion and valuation
provisions resulted from accelerated amortization of older Oklahoma
producing and non-producing leaseholds.
Provisions for Income Taxes. The calculated provision for income taxes
increased $44,183 between the quarters because a $147,135 decrease in the
estimated current tax provision was offset by a $191,318 increase in the
estimated deferred tax provision.
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.
9
<PAGE> 11
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, 1997
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, 1997 /s/ Mason McLain
-------------------------- ------------------------------
Mason McLain
President
Date: November 11, 1997 /s/ Jerry L. Crow
-------------------------- ------------------------------
Jerry L. Crow
Principal Financial and
Accounting Officer
10
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS FORM
10-KSB FOR THE NINE MONTHS ENDING SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 163,927
<SECURITIES> 3,744,005
<RECEIVABLES> 214,184
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,196,141
<PP&E> 5,436,920
<DEPRECIATION> 3,436,036
<TOTAL-ASSETS> 7,043,602
<CURRENT-LIABILITIES> 219,704
<BONDS> 0
0
0
<COMMON> 92,368
<OTHER-SE> 6,595,862
<TOTAL-LIABILITY-AND-EQUITY> 7,043,602
<SALES> 2,034,215
<TOTAL-REVENUES> 2,047,199
<CGS> 0
<TOTAL-COSTS> 264,238
<OTHER-EXPENSES> 997,519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 507,382
<INCOME-TAX> 109,406
<INCOME-CONTINUING> 397,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 397,976
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.36
</TABLE>
