<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 ended March 31, 1998
[ ] 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 No.)
6801 N. Broadway, Suite 300, Oklahoma City OK 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) 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 May 5, 1998, 167,908.73 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 1
FINANCIAL INFORMATION
2
<PAGE> 3
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 113,388 $ 313,540
Available for Sale Securities 3,594,318 3,306,740
Trading Securities 469,851 447,266
Receivables 291,992 278,741
Refundable Income Taxes 25,170 75,424
Prepayments 3,750 5,625
---------- ----------
4,498,469 4,427,336
---------- ----------
Investments:
Partnership and Limited
Liability Companies 475,321 490,587
Other 16,230 16,230
---------- ----------
491,551 506,817
---------- ----------
Property, Plant & Equipment
Oil & Gas Properties, at Cost Based on the
Successful Efforts Method of Accounting
Unproved Properties 629,689 597,284
Proved Properties 4,268,694 4,228,063
---------- ----------
4,898,383 4,825,347
Less - Valuation Allowance and Accumulated
Depreciation, Depletion & Amortization 3,454,538 3,427,157
---------- ----------
1,443,845 1,398,190
---------- ----------
Other Property & Equipment, at Cost 324,104 324,104
Less - Accumulated Depreciation & Amortization 171,695 169,195
---------- ----------
152,409 154,909
---------- ----------
1,596,254 1,553,099
---------- ----------
Other Assets 483,452 478,137
---------- ----------
$7,069,726 $6,965,389
========== ==========
</TABLE>
(continued)
See Accompanying Notes
3
<PAGE> 4
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
(Concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1997 1997
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 56,416 $ 93,044
Other Current Liabilities
Gas Balancing Commitment 45,344 45,344
Other 13,741 13,741
------------ ------------
115,501 152,129
------------ ------------
Dividends Payable 131,658 132,094
------------ ------------
Commitments & Contingencies
Stockholders' Equity
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 6,840,914 6,698,773
------------ ------------
6,998,282 6,856,141
Less - Treasury Stock at Cost 175,715 174,975
------------ ------------
6,822,567 6,681,166
------------ ------------
$ 7,069,726 $ 6,965,389
============ ============
</TABLE>
See Accompanying Notes
4
<PAGE> 5
THE RESERVE PETROLEUM COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating Revenues:
Oil and Gas Sales $ 500,572 $ 952,408
Lease Bonuses and Other 848 3,294
------------ ------------
501,420 955,702
------------ ------------
Operating Costs and Expenses:
Production 89,987 93,814
Exploration 28,842 51,141
Depreciation, Depletion, Amortization
and Valuation Provisions 69,147 91,223
General, Administrative and Other 177,208 193,236
------------ ------------
365,184 429,414
------------ ------------
Income from Operations 136,236 526,288
Other Income, Net 58,827 30,906
------------ ------------
Income Before Income Taxes 195,063 557,194
Provision for
Income Taxes 52,923 141,700
------------ ------------
Net Income $ 142,140 $ 415,494
============ ============
Per Share Data
Net Income, Basic and Diluted $ .84 $ 2.47
============ ============
Weighted Average Shares
Outstanding, Basic and Diluted 168,310 168,466
============ ============
</TABLE>
See Accompanying Notes
5
<PAGE> 6
THE RESERVE PETROLEUM COMPANY
STATEMENTS OF CASH FLOW
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 224,637 $ 495,410
------------ ------------
Cash Flows from Investing Activities:
Sale and Maturity of Available
for Sale Securities -- 276,928
Purchase of Available for Sale Securities (287,578) (592,295)
Property Dispositions 837 18,426
Property Additions (150,373) (182,598)
Cash Distributions from Equity Investments 13,500 19,500
------------ ------------
Net Cash Applied to Investing Activities (423,614) (460,039)
------------ ------------
Cash Flows from Financing Activities:
Decrease in Dividends Payable (435) (2,081)
Purchase of Treasury Stock (740) (560)
------------ ------------
Cash Applied to Financing Activities (1,175) (2,641)
------------ ------------
Net Change in Cash and Cash Equivalents (200,152) 32,730
Cash and Cash Equivalents,
Beginning Period 313,540 385,136
------------ ------------
Cash and Cash Equivalents,
End of Period $ 113,388 $ 417,866
============ ============
Supplemental Disclosures of
Cash Flow Information,
Cash Paid During the Periods for:
Interest $ 3,750 $ 3,750
Income Taxes $ -- $ 190,000
</TABLE>
See Accompanying Notes
6
<PAGE> 7
THE RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1998
(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 CONTINGENCIES
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 in favor of the Company on all its
claims. Certain defendants appealed the judgment to the Texas Court
of Appeals. On February 11, 1998, the appellate court affirmed the
judgment in all respects as to the issues affecting the Company's
mineral interests, but denied recovery of attorney's fees awarded by
the trial court. On April 1, 1998, one defendant filed a petition
for review in the Supreme Court of the State of Texas. Approximately
$854,000 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 $448,500 in drilling, completion and operating costs
for these wells of which $195,422 was included in the Company's net
investment in oil and gas properties at March 31, 1998.
An action was filed in the District Court of Robertson County, Texas,
seeking a declaration that the Plaintiff owns an additional interest
in the Brounkowski Gas Unit. The Company was added as a Defendant
in this action in December, 1997, because it owns minerals included
in the Brounkowski Unit. Plaintiff does not assert claims directly
against the Company and the information available to the Company at
this time appears to indicate that if the Plaintiff were successful
in this action, the minerals he claims are currently in the name of
parties other than the Company. In February, 1998, the operator
suspended payment of proceeds from gas sales after filing of
Plaintiff's amended petition. The Company's management is taking
steps to obtain current payments from the operator and believe the
long-term suspension, if any, will not exceed 10% of the Company's
interest in production, or approximately $3,500 per month. The
Company has recorded an estimated 90% of the suspended proceeds as
oil and gas sales for the quarter ended March 31, 1998. As a result,
oil and gas sales were increased by $100,350 and net income was
increased by $60,009 ($.36 per share).
7
<PAGE> 8
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1998
(Unaudited)
The discussion and analysis of financial condition and results of
operations should be read with reference to the Company's December 31,
1997, 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 March 31, 1998, was $4,382,968, an
amount which, along with the cash flow from operations, is adequate to fund
all currently budgeted investing and financing activities.
For the quarter ended March 31, 1998, cash flows from operations declined
$270,773 (55%) to $224,637 from $495,410 for the quarter ended March 31,
1997. To a great extent, the decline was the result of falling prices
received for the Company's crude oil and natural gas sales as well as
suspended payment of proceeds from a natural gas royalty interest. See
Note 2, to the accompanying Condensed Financial Statements for a discussion
of the suspended payments. Management is unaware of any additional
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, 1997, would not be representative
of the Company's current position.
2. Material Changes in Results of Operations Three Months Ended March 31,
1998 Compared with Three Months Ended March 31, 1997.
Oil and gas sales decreased $451,836 (47%) to $500,572 as a result of a
decline in both price and volume. Revenues from oil sales fell $99,203
(42%) to $140,001. The volume of oil sales declined 1,490 barrels (Bbls)
to 9,238 Bbls resulting in a negative volume variance of $33,227. The
average price received for oil sales fell $7.14 per Bbl to $15.16 per Bbl
resulting in a negative price variance of $66,000. At May 5, 1998, the
Oklahoma State spot market for Oklahoma sweet and West Texas intermediate
crude oil was $13 per Bbl. Management anticipates the depressed prices
will prevail through the second quarter, at a minimum.
Revenues from natural gas sales declined $352,294 (48%) to $356,315 in
1998 from $708,609 in 1997. The average price per thousand cubic feet
(MCF) fell $.99 from $3.18 per MCF in 1997 to $2.19 per MCF in 1998,
resulting in a negative price variance of $160,540. The volume of gas sold
decreased 60,300 MCF (25%) from 222,607 MCF in 1997 to 162,307 MCF in 1998.
Of the net decrease in volume of 60,300 MCF, a decline in production of a
Robertson County, Texas royalty interest accounted for 50,102 (83%) of
the decline as well as $119,062 (34%) of the total $352,294 decrease in gas
sales. See Note 2 to the accompanying Condensed Financial Statements,
which provide information regarding the operator's suspension of gas runs
from the Texas royalty interest.
8
<PAGE> 9
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 March 31, 1998.
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 thereto duly authorized.
THE RESERVE PETROLEUM COMPANY
-----------------------------
(Registrant)
Date: May 8, 1998 /s/ Mason McLain
--------------- ------------------------------------------
Mason McLain,
President
Date: May 8, 1998 /s/ Jerry L. Crow
--------------- ------------------------------------------
Jerry L. Crow
Principal Financial and Accounting Officer
9
<PAGE> 10
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-QSB FOR THE THREE MONTHS ENDING MARCH 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 113,388
<SECURITIES> 4,064,169
<RECEIVABLES> 291,992
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,498,469
<PP&E> 5,222,487
<DEPRECIATION> 3,626,233
<TOTAL-ASSETS> 7,069,726
<CURRENT-LIABILITIES> 115,501
<BONDS> 0
0
0
<COMMON> 92,368
<OTHER-SE> 6,730,199
<TOTAL-LIABILITY-AND-EQUITY> 7,069,726
<SALES> 500,572
<TOTAL-REVENUES> 501,420
<CGS> 0
<TOTAL-COSTS> 89,987
<OTHER-EXPENSES> 97,989
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 195,063
<INCOME-TAX> 52,923
<INCOME-CONTINUING> 142,140
<DISCONTINUED> 142,140
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142,140
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
