<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, 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 (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 1, 1997, 168,438.73 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,
1997 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 361,200 $ 385,136
Available for Sale Securities 3,022,611 2,942,004
Trading Securities 424,590 414,751
Receivables 208,324 309,147
Prepayments & Deferred Income Taxes 14,603 5,625
------------ ------------
4,031,328 4,056,663
------------ ------------
Investments:
Partnership and Limited
Liability Companies 464,280 448,908
Other 16,230 16,230
------------ ------------
480,510 465,138
Property, Plant & Equipment
Oil & Gas Properties, at Cost Based on the
Successful Efforts Method of Accounting
Unproved Properties 590,171 543,454
Proved Properties 4,710,679 4,704,113
------------ ------------
5,300,850 5,247,567
Less - Valuation Allowance and Accumulated
Depreciation, Depletion & Amortization 3,585,173 3,399,478
------------ ------------
1,715,677 1,848,089
------------ ------------
Other Property & Equipment, at Cost 326,403 322,398
Less - Accumulated Depreciation & Amortization 166,359 173,190
------------ ------------
160,044 149,208
------------ ------------
1,875,721 1,997,297
------------ ------------
Other Assets 425,476 344,518
------------ ------------
$ 6,813,035 $ 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>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 44,640 $ 25,342
Income Taxes Payable -- 187,272
Other Current Liabilities
Gas Balancing Commitment 49,333 49,333
Other 10,418 11,502
------------ ------------
104,391 273,449
------------ ------------
Dividends Payable 138,797 128,474
------------ ------------
Commitments & Contingencies (Note 2)
Stockholders' Equity
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 6,584,934 6,475,980
------------ ------------
6,742,302 6,633,348
Less - Treasury Stock, at Cost 172,455 171,655
------------ ------------
6,569,847 6,461,693
------------ ------------
$ 6,813,035 $ 6,863,616
============ ============
</TABLE>
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,
------------------------ -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues:
Oil & Gas Sales $ 570,410 $ 880,948 $1,522,818 $1,510,868
Prospect Sales & Other 6,976 27,539 10,270 27,619
---------- ---------- ---------- ----------
577,386 908,487 1,533,088 1,538,487
---------- ---------- ---------- ----------
Operating Costs & Expense:
Production Costs 86,289 143,298 180,103 235,829
Exploration & Development Costs 420,213 52,636 471,354 103,337
Depreciation, Depletion, Amortization
& Valuation Provisions 210,203 82,463 301,426 471,743
General, Administrative &
Other Expenses 195,448 160,686 388,684 375,876
---------- ---------- ---------- ----------
912,153 439,083 1,341,567 1,186,785
---------- ---------- ---------- ----------
Income (Loss) from Operations (334,767) 469,404 191,521 351,702
Other Income, Net 93,433 142,120 124,339 163,563
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes (241,334) 611,524 315,860 515,265
Provision For (Benefit From)
Income Taxes (103,233) 173,370 38,467 86,428
---------- ---------- ---------- ----------
Net Income (Loss) $ (138,101) $ 438,154 $ 277,393 $ 428,837
========== ========== ========== ==========
Per Share Data:
Net Income (Loss) $ (.82) $ 2.59 $ 1.65 $ 2.53
========== ========== ========== ==========
Cash Dividends $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Weighted Average Shares Outstanding 168,442 169,327 168,454 169,393
========== ========== ========== ==========
</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,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 504,925 $ 680,248
---------- ----------
Cash Flows from Investing Activities:
Sale and Maturity of Available
for Sale Securities 621,529 788,456
Purchase of Available for Sale Securities (702,136) (830,829)
Property Dispositions 24,667 166,049
Property Additions (333,505) (391,578)
Cash Distributions from Equity Investments 19,500 21,500
Cash Payments for Equity Investments -- (4,800)
---------- ----------
Net Cash Applied to Investing Activities (369,945) (251,202)
---------- ----------
Cash Flows from Financing Activities:
Payments of Dividends (158,116) (158,341)
Purchase of Treasury Stock (800) (4,987)
---------- ----------
Net Cash Applied to Financing Activities (158,916) (163,328)
---------- ----------
Net Change in Cash and Cash Equivalents (23,936) 265,718
Cash and Cash Equivalents, Beginning of Period 385,136 175,013
---------- ----------
Cash and Cash Equivalents, End of Period $ 361,200 $ 440,731
========== ==========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Periods For:
Interest $ 3,750 $ 3,750
Income Taxes $ 310,000 $ 48,000
</TABLE>
See Accompanying Notes
5
<PAGE> 7
THE RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 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 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. 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 $219,423 was included in the
Company's net investment in oil and gas properties at June 30, 1997.
6
<PAGE> 8
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1997
This discussion and analysis of financial condition and results of
operations should be read with reference to 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 June 30, 1997, was $3,926,937 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 Six Months Ended June 30,
1997, Compared with Six Months Ended June 30, 1996,
Operating Revenues. Revenues from oil and gas sales were flat between
the periods; however, a price-volume analysis disclosed some
significant changes. Crude oil sales increased $5,442 to $466,230 as
the result of a favorable price variance of $54,732 as offset by an
unfavorable volume variance of $49,290. The favorable price variance
resulted from an increase in the average price per barrel of $2.49 to
$21 in 1997 as compared to $18.53 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 were $1,048,855 in 1997 as compared to $1,048,201
in 1996. The volume of gas production declined 124,788 thousand cubic
feet (MCF), or 23% to 420,359 MCF resulting in an unfavorable volume
variance of $239,593. Of the 124,788 MCF decline, 110,967 MCF was
from the Brounkowski #1, a Robertson County, Texas royalty interest
well. The average price per MCF increased $.58 to $2.50 resulting in
a favorable price variance of $240,247.
Operating Expenses. Production costs declined $55,726 (24%) TO
$180,103. The most significant items contributing to the decrease was
a $21,566 (20%) decline in lease operating expense to $85,185, a
$8,603 (11%) decline in gross production taxes to $68,173 and a
$22,141 (37%) decline in transportation costs to $36,368. The decline
in lease operating expense was mostly the result of the sale or
retirement of some high cost producing properties in 1995 and 1996.
Gross production taxes declined because of Texas State incentives
which reduced or eliminated the tax on some royalty interest
production. Transportation costs are mostly related to production
from the Brounkowski #1, a Robertson County, Texas royalty interest
well which declined because of a decline in production.
7
<PAGE> 9
Exploration and development expense increased $368,017 (356%) to
$471,354. A decrease in geological and geophysical expense of $42,556
(44%) to $54,470 was offset be a $410,648 increase in costs of
unsuccessful drilling to $416,884. The increase in cost of
unsuccessful drilling was the result of two 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 well in which the Company had a 15.07% working
interest was drilled in southern Oklahoma at a cost of $57,175. The
remaining costs relate to late 1996 drilling.
Depreciation, depletion, amortization and valuation provisions
declined $170,317 (36%) to $301,426. A $322,325 decline in impairment
loss related to long-lived oil and gas assets was off-set by a
$150,192 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 a southern Oklahoma
producing leasehold.
General, administrative and other expenses increased $12,808 (3%) to
$388,684. To a great extent, the change was the result of a $59,502
decrease in legal fees, mostly related to the quiet title action
discussed in Note 2 to the financial statements, as offset be an
increase in payroll costs of $13,174 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 factor contributing to the
$39,224 (24%) decrease was a decline in gain from the sale of some
marginal producing oil and gas producing properties.
Provision for Income Taxes. The calculated provision for income taxes
declined $47,961 (55%) to $38,467. For the most part, the decline
resulted because of a 1997 deferred tax benefit of $71,532, as
compared to a 1996 deferred tax provision of $6,428. Also of
significance, the current tax provision increased $30,000 to $110,000
in 1997.
3. Material Changes in Results of Operations Three Months Ended June 30,
1997, Compared with Three Months Ended June 30, 1996.
Operating Revenues. Oil and gas sales decreased $310,538 (35%) to
$570,410 because of volume declines for both oil and gas and a price
decline for gas. Oil volume declined 2,412 Bbls (17%) to 11,478
resulting in an unfavorable volume variance of $46,453. The volume
variance was offset by a favorable price variance of $5,922 as
average price per Bbl increased $.52 to $19.78. The above resulted in
a decrease in oil sales of $40,533 (15%) to $227,025.
Sales of gas declined $269,779 (44%) to $340,246. Sales volumes
decreased 105,743 MCF (44%) to 197,752 MCF resulting in an
unfavorable variance of $212,543. A decline in the average price per
MCF of $.29 to $1.72 resulted in an unfavorable price variance of
$57,236. The Brounkowski #1, a Robertson County, Texas royalty
interest well, was responsible for $162,287 of the decrease in gas
sales as production declined 58,094 MCF.
8
<PAGE> 10
Operating Expenses. Depreciation, depletion, amortization and
valuation provisions increased $127,740 (155%) to $210,203. To a
great extent, the increase resulted from accelerated amortization of
southern Oklahoma producing leaseholds.
General, administrative and other expenses increased $34,762 (22%) to
$195,448 as Texas franchise taxes increased $22,209 and payroll costs
increased $7,433.
Provision for Income Taxes. In 1997, the Company had a calculated
benefit from income taxes of $103,233 as the result of a deferred tax
benefit of $93,233 and a current tax benefit of $10,000. In 1996, the
calculated provision was $173,370 as the result of a deferred tax
provision of $158,919 and current tax provision of $14,452.
There were no other material changes between the quarters which were
not discussed in item 2, above for the six months.
9
<PAGE> 11
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 6, 1997.
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 FOR AUTHORITY
------ ------------- ------ ---------
<S> <C> <C> <C> <C>
MASON McLAIN 62,577 749 40,637 ---
R.T. McLAIN 62,528 798 40,637 ---
M.D. RALSTON 62,226 1,100 40,637 ---
LOYD TERRY 62,187 1,139 40,637 ---
ROBERT SAVAGE 62,226 1,100 40,637 ---
MARVIN E. HARRIS 62,226 1,100 40,637 ---
JERRY L. CROW 62,226 1,100 40,637 ---
</TABLE>
The stockholders approved all actions of the directors since the
stockholders' annual meeting on Tuesday May 5, 1996. The stockholders
cast 103,963 votes for the proposal. There were no abstentions,
broker non-votes or votes cast against the proposal.
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)
/s/ Mason McLain
---------------------------------------
Date: August 4, 1997 Mason McLain, President
/s/ Jerry L. Crow
---------------------------------------
Date: August 4, 1997 Jerry L. Crow
Principal Financial and
Accounting Officer
10
<PAGE> 12
EXHIBIT INDEX
EXHIBIT
NUMBER 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 SIX MONTHS ENDING JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 361,200
<SECURITIES> 3,447,201
<RECEIVABLES> 208,324
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,031,328
<PP&E> 5,627,253
<DEPRECIATION> 3,751,532
<TOTAL-ASSETS> 6,813,035
<CURRENT-LIABILITIES> 104,319
<BONDS> 0
0
0
<COMMON> 92,368
<OTHER-SE> 6,477,479
<TOTAL-LIABILITY-AND-EQUITY> 6,813,035
<SALES> 1,522,818
<TOTAL-REVENUES> 1,533,088
<CGS> 0
<TOTAL-COSTS> 180,103
<OTHER-EXPENSES> 772,780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 315,860
<INCOME-TAX> 38,467
<INCOME-CONTINUING> 277,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277,393
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.65
</TABLE>
