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, 1999
[ ] 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 10, 1999, 167,670.73 shares of the Registrant's $.50 par value
common stock were outstanding.
Transitional Small Business Disclosure Format (check one) Yes No X
--- ---
<PAGE>
PART I
FINANCIAL INFORMATION
1
<PAGE>
THE RESERVE PETROLEUM COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 305,026 $ 339,015
Available for Sale Securities 4,659,311 4,538,772
Trading Securities 490,009 450,768
Receivables 236,160 152,460
Prepayments & Deferred Income Taxes 42,640 13,127
------------------ ------------------
5,733,146 5,494,142
------------------ ------------------
Investments:
Partnership and Limited
Liability Companies 407,478 462,951
Other 19,048 19,048
------------------ ------------------
426,526 481,999
------------------ ------------------
Property, Plant & Equipment:
Oil & Gas Properties, at Cost Based on the
Successful Efforts Method of Accounting
Unproved Properties 617,107 668,332
Proved Properties 4,155,429 4,189,787
------------------ ------------------
4,772,536 4,858,119
Less - Valuation Allowance and Accumulated
Depreciation, Depletion & Amortization 3,858,154 3,751,113
------------------ ------------------
914,382 1,107,006
------------------ ------------------
Other Property & Equipment, at Cost 324,104 324,104
Less - Accumulated Depreciation & Amortization 184,346 179,192
------------------ ------------------
139,758 144,912
------------------ ------------------
1,054,140 1,251,918
------------------ ------------------
Other Assets 473,252 407,569
------------------ ------------------
$ 7,687,064 $ 7,635,628
================== ==================
</TABLE>
(continued)
See Accompanying Notes
2
<PAGE>
THE RESERVE PETROLEUM COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- ----------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 44,557 $ 45,656
Income Taxes Payable ---- 49,331
Other Current Liabilities -
Gas Balancing Commitment 41,410 41,410
Other 15,000 15,000
----------------- ----------------
100,967 151,397
----------------- ----------------
Dividends Payable 134,613 125,210
----------------- ----------------
Commitments & Contingencies
Stockholders' Equity:
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 7,481,931 7,388,288
----------------- ----------------
7,639,299 7,545,656
Less - Treasury Stock, at Cost 187,815 186,635
----------------- ----------------
7,451,484 7,359,021
----------------- ----------------
$ 7,687,064 $ 7,635,628
================= ================
</TABLE>
See Accompanying Notes
3
<PAGE>
THE RESERVE PETROLEUM COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues:
Oil & Gas Sales $ 399,231 $ 465,976 $ 1,074,234 $ 1,416,341
Lease Bonuses and Other ---- 33,353 40,466 34,537
------------ ------------ ------------ ------------
399,231 499,329 1,114,700 1,450,878
------------ ------------ ------------ ------------
Operating Costs & Expenses:
Production 74,424 85,998 211,778 276,407
Exploration & Development 97,740 63,395 114,816 96,951
Depreciation, Depletion, Amortization
and Valuation Provisions 81,817 77,884 253,439 196,169
General, Administrative and
Other 145,004 159,239 464,485 490,627
------------ ------------ ------------ ------------
398,985 386,516 1,044,518 1,060,154
------------ ------------ ------------ ------------
Income From Operations 246 112,813 70,182 390,724
Other Income, Net 36,781 37,757 245,090 171,552
------------ ------------ ------------ ------------
Income Before Income Taxes 37,027 150,570 315,272 562,276
Provision For (Benefit From) Income Taxes (9,723) 6,300 53,899 124,637
------------ ------------ ------------ ------------
Net Income $ 46,750 $ 144,270 $ 261,373 $ 437,639
============ ============ ============ ============
Per Share Data:
Net Income $ .28 $ .86 $ 1.56 $ 2.60
============ ============ ============ ============
Cash Dividends $ ---- $ --- $ 1.00 $ 1.00
============ ============ ============ ============
Weighted Average Shares
Outstanding 167,671 167,787 167,701 168,007
============ ============ ============ ============
</TABLE>
See Accompanying Notes
4
<PAGE>
THE RESERVE PETROLEUM COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Net Cash Provided by
Operating Activities $ 304,612 $ 375,650
------------------ ------------------
Cash Flows from Investing Activities:
Available for Sale Securities -
Sales 4,538,772 439,765
Purchases (4,659,311) (513,131)
Cash Distributions from Equity Investments 90,345 84,000
Property Dispositions 42,405 13,931
Property Additions (191,305) (290,442)
------------------ ------------------
Net Cash Applied to Investing Activities (179,094) (265,877)
------------------ ------------------
Cash Flows from Financing Activities:
Payment of Dividends (158,327) (161,342)
Purchase of Treasury Stock (1,180) (10,520)
------------------ ------------------
Net Cash Applied to Financing Activities (159,507) (171,862)
------------------ ------------------
Net Change in Cash and
Cash Equivalents (33,989) (62,089)
Cash and Cash Equivalents,
Beginning of Period 339,015 313,540
------------------ ------------------
Cash and Cash Equivalents,
End of Period $ 305,026 $ 251,451
================== ==================
Supplemental Disclosures of
Cash Flow Information:
Cash Paid during the Periods For:
Interest $ 7,506 $ 11,250
Income Taxes $ 167,917 $ 120,056
</TABLE>
See Accompanying Notes
5
<PAGE>
RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1999
(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.
6
<PAGE>
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1999
(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, 1998, 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, 1999, was $5,632,179, a
$289,434 increase from December 31, 1998. For the nine months ended
September 30, 1999, cash flow from operations, exclusive of exploration and
development costs charged to operations, was $354,935, a decrease of
$76,025 from the comparable period in 1998. 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, 1998, would not be representative
of the Company's current position.
2. Material Changes in Results of Operations Nine Months Ended September 30,
---------------------------------------------------------------------------
1999 Compared with Nine Months Ended September 30, 1998.
-------------------------------------------------------
Operating Revenues. Revenues from oil and gas sales decreased $342,107
(24%) to $1,074,234 in 1999 from $1,416,341 in 1998. The above overall
decrease resulted from a decline in crude oil sales of $23,612, and natural
gas sales of $318,257.
The $23,612 decrease in crude oil sales was the result of a positive price
variance of $38,836, as the average price per barrel (Bbl) rose $1.85 to
$14.95 per Bbl, offset by a negative volume variance of $62,448 caused by a
decrease in Bbls sold of 4,767 to 20,914 Bbls. The decrease in volume was
the result of a decline in production from older wells of 5,964 Bbls as
offset 1,197 Bbls from wells which first produced in 1999.
The $318,257 decline in natural gas sales was the combined result of a
negative price variance of $62,207 and a negative volume variance of
$256,050. The negative price resulted because the average price per
thousand cubic feet (MCF) fell $0.16 to $1.85 per MCF. The negative volume
variance was the result of a decrease in production from older wells of
134,595 MCF as offset by 7,207 MCF from production by wells which came on
line in 1999.
Operating Costs and Expenses. Production costs fell $64,629 (23%) to
$211,778. Lease operating expense decreased $31,369 (18%) mostly because of
reduced costs relating to downhole maintenance and repairs. Gross
production tax declined $21,172 (32%) and hauling and compressing expense
decreased $12,087 (29%) because of production decline.
Exploration and development costs incurred in 1999 were $285,304 of which
$114,816 was charged to expense, and the remaining $170,488 recorded as an
asset. The foregoing compares to $422,440 incurred in 1998 of which $96,951
were charged to expense, and $325,489 were recorded as an asset.
7
<PAGE>
Depreciation, Depletion, Amortization and Valuation provisions increased
$57,270 (29%). The provision for non-producing leasehold impairment
increased $118,070 (215%) of which $42,818 was the result of normal
amortization and $75,252 the result of accelerated amortization of
leaseholds when testing produced less than the anticipated results. The
above increase was offset $60,800, to a great extent, because the decline
in oil and gas production resulted in a decrease in units-of-production
depreciation and depletion.
General, administrative and other expenses fell $26,142 (5%), for the most
part, because of a $42,996 (89%) decrease in legal fees as offset $11,561
by an increase in Texas franchise taxes.
Other Income, Net. The $73,538 (43%) increase was, to a great extent, the
result of a $25,238 rise in interest income, settlements of $20,150 from
pipeline companies and an increase of $50,944 of realized and unrealized
gain from securities trading as offset by an $11,645 decline in gains on
asset sales and a decrease in income from equity investments of $7,703.
Provisions for Income Taxes. The provision for income taxes decreased
$70,738 to $53,899 from $124,637 in 1998. In 1999, the Company had a
calculated deferred tax benefit of $36,275 as offset by a calculated
current tax expense of $90,174. In 1998, the Company had a calculated
deferred tax benefit of $34,619 as offset by a calculated current tax
expense of $159,256.
3. Material Changes in Results of Operations Quarter Ended September 30, 1999,
---------------------------------------------------------------------------
Compared with Quarter Ended September 30, 1998.
----------------------------------------------
Operating Revenues. Oil and gas sales decreased $66,745 (14%) to $399,231.
Oil sales increased $51,874 (71%) to $125,026. The average price received
for oil sales increased $8.51 per Bbl to $19.53 creating a positive price
variance of $59,529; however, the volume of oil sales fell 752 Bbls to 6401
creating a negative volume variance of $7,655.
Sales of gas declined $119,994 (31%) to $270,071. The volume of sales
decreased 61,889 MCF to 126,634 MCF for a negative volume variance of
$128,110. The average price received for gas sales increased $.06 per MCF
to $2.13 resulting in a $8,116 increase in sales.
Provisions for Income Taxes. In 1999 the Company had a calculated benefit
from income taxes of $9,723 because of a net current tax benefit of $18,725
less deferred tax provisions of $9,002. In 1998 the Company had a
calculated provision for income taxes of $6,300 as the result of a current
tax expense of $57,290 less a deferred tax benefit of $50,990.
There were no additional material changes between the quarters which were
not discussed in Item 2, above, for the nine months.
4. Year 2000 Issues.
----------------
In the continuing review and testing of its internal computer system,
company personnel uncovered a possible year 2000 problem with its main
operating system. A correction packet was received and installed in the
third quarter.
8
<PAGE>
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, 1999
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, 1999 /s/ Mason McLain
---------------------- ------------------------
Mason McLain
President
Date: November 11, 1999 /s/ Jerry L. Crow
---------------------- ------------------------
Jerry L. Crow
Principal Financial and
Accounting Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS FORM
10-QSB FOR THE NINE MONTHS ENDING SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 305,026
<SECURITIES> 5,149,320
<RECEIVABLES> 236,160
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,733,146
<PP&E> 5,096,640
<DEPRECIATION> 4,042,500
<TOTAL-ASSETS> 7,687,064
<CURRENT-LIABILITIES> 100,967
<BONDS> 0
0
0
<COMMON> 92,368
<OTHER-SE> 7,359,116
<TOTAL-LIABILITY-AND-EQUITY> 7,687,064
<SALES> 1,074,234
<TOTAL-REVENUES> 1,114,700
<CGS> 0
<TOTAL-COSTS> 211,778
<OTHER-EXPENSES> 368,255
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 315,272
<INCOME-TAX> 53,899
<INCOME-CONTINUING> 261,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 261,373
<EPS-BASIC> 1.56
<EPS-DILUTED> 1.56
</TABLE>
