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 June 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 (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 August 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 1
FINANCIAL INFORMATION
1
<PAGE>
THE RESERVE PETROLEUM COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
--------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 255,570 $ 339,015
Available for Sale Securities 4,635,201 4,538,772
Trading Securities 487,561 450,768
Receivables 176,854 152,460
Prepayments & Deferred Income Taxes 2,142 13,127
------------------ ------------------
5,557,328 5,494,142
------------------ ------------------
Investments:
Partnership and Limited
Liability Companies 458,297 462,951
Other 19,048 19,048
------------------ ------------------
477,345 481,999
------------------ ------------------
Property, Plant & Equipment:
Oil & Gas Properties, at Cost Based on the
Successful Efforts Method of Accounting
Unproved Properties 707,688 668,332
Proved Properties 4,238,456 4,189,787
------------------ ------------------
4,946,144 4,858,119
Less - Valuation Allowance and Accumulated
Depreciation, Depletion & Amortization 3,914,872 3,751,113
------------------ ------------------
1,031,272 1,107,006
------------------ ------------------
Other Property & Equipment, at Cost 324,104 324,104
Less - Accumulated Depreciation & Amortization 182,629 179,192
------------------ ------------------
141,475 144,912
------------------ ------------------
1,172,747 1,251,918
------------------ ------------------
Other Assets 479,260 407,569
------------------ ------------------
$ 7,686,680 $ 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>
June 30, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 38,073 $ 45,656
Income Taxes Payable 51,230 49,331
Other Current Liabilities
Gas Balancing Commitment 41,410 41,410
Other 15,000 15,000
------------------ ------------------
145,713 151,397
------------------ ------------------
Dividends Payable 136,233 125,210
------------------ ------------------
Stockholders' Equity:
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 7,435,181 7,388,288
------------------ ------------------
7,592,549 7,545,656
Less - Treasury Stock, at Cost 187,815 186,635
------------------ ------------------
7,404,734 7,359,021
------------------ ------------------
$ 7,686,680 $ 7,635,628
================== ==================
</TABLE>
See Accompanying Notes
3
<PAGE>
THE RESERVE PETROLEUM COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
1999 1998 1999 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Operating Revenues:
Oil & Gas Sales $ 335,415 $ 449,793 $ 675,003 $ 950,365
Lease Bonuses & Other 639 335 40,466 1,183
------------- ------------ ------------- -------------
336,054 450,128 715,469 951,548
------------- ------------ ------------- -------------
Operating Costs & Expenses:
Production Costs 70,723 100,421 137,353 190,408
Exploration and Development Costs 11,087 4,714 17,076 33,556
Depreciation, Depletion, Amortization
and Valuation Provisions 114,665 49,138 171,621 118,285
General, Administrative & Other Expenses 155,220 154,179 319,483 331,387
------------- ------------ ------------- -------------
351,695 308,452 645,533 673,636
------------- ------------ ------------- -------------
Income (Loss) From Operations (15,641) 141,676 69,936 277,912
Other Income, Net 79,275 74,966 208,309 133,794
------------- ------------ ------------- -------------
Income Before Income Taxes 63,634 216,642 278,245 411,706
Provision For Income Taxes 25,967 65,414 63,622 118,337
------------- ------------ ------------- -------------
Net Income $ 37,667 $ 151,228 $ 214,623 $ 293,369
============= ============ ============= =============
Per Share Data:
Net Income $ .22 $ .90 $ 1.28 $ 1.75
Cash Dividends $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============ ============= =============
Weighted Average Shares Outstanding 167,704 167,930 167,717 168,119
============= ============ ============= =============
</TABLE>
See Accompanying Notes
4
<PAGE>
THE RESERVE PETROLEUM COMPANY
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 219,474 $ 277,899
------------------ ------------------
Cash Flows from Investing Activities:
Sale and Maturity of Available
for Sale Securities 3,664,191 236,131
Purchase of Available for Sale Securities (3,760,619) (333,987)
Property Dispositions 11,068 11,867
Property Additions (117,762) (196,374)
Cash Distributions from Equity Investments 54,000 61,500
------------------ ------------------
Net Cash Applied to Investing Activities (149,122) (220,863)
------------------ ------------------
Cash Flows from Financing Activities:
Payments of Dividends (152,617) (161,356)
Purchase of Treasury Stock (1,180) (10,520)
------------------ ------------------
Net Cash Applied to Financing Activities (153,797) (171,876)
------------------ ------------------
Net Change in Cash and Cash Equivalents (83,445) (114,840)
Cash and Cash Equivalents, Beginning of Period 339,015 313,540
------------------ ------------------
Cash and Cash Equivalents, End of Period $ 255,570 $ 198,700
================== ==================
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Periods For:
Interest $ 3,750 $ 3,750
Income Taxes $ 107,000 $ 60,000
</TABLE>
See Accompanying Notes
5
<PAGE>
THE RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 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 of the interim periods presented.
6
<PAGE>
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 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 June 30, 1999, was $5,411,615 , 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, 1998,
would not be representative of the Company's current position.
2. Material Changes in Results of Operations Six Months Ended June 30, 1999
---------------------------------------------------------------------------
Compared with Six Months Ended June 30, 1998.
---------------------------------------------
Operating Revenue. Crude oil and natural gas sales declined $275,362 (29%)
to $675,003 as a result of a decrease in oil sales of $75,485 (29%) to
$187,732 and a decrease in gas sales of $197,602 (29%) to $482,284. The
decrease in oil sales happened because of a negative volume variance of
$57,053 and a negative price variance of $18,432. The volume of oil sales
fell 4,015 barrels (Bbls) to 14,513 Bbls as the result of a decline in
older production. The average price per barrel received for oil sales
declined $1.27 to $12.94.
Revenues from gas sales fell as the result of a negative volume variance of
$125,310 and a negative price variance of $72,292. The volume of gas sales
decreased 63,288 thousand cubic feet (MCF), or 18% to 297,325 MCF, mostly
as a result of a decline in production from older properties. The negative
price variance resulted from a decline in average price per MCF of $.25 to
$1.73.
Operating Costs and Expenses. Production costs fell $53,055 (28%) in 1999
to $137,353. Lease operating expense, including hauling and compression,
declined $29,680, mostly because of reduced costs relating to downhole
maintenance and repairs. Gross production taxes dropped $23,375 because of
the decrease in revenues from oil and gas sales, as well as state tax
credits on qualifying wells.
Exploration and development costs incurred in 1999 were $119,746 of which
$17,076 was charged to expense, and the remaining $102,670 recorded as an
asset. The foregoing compares to $195,877 incurred in 1998 of which $33,556
were charged to expense, and $162,321 were recorded as an asset.
The provision for depreciation and depletion of oil and gas properties
declined $35,754 to $50,877, to a great extent, because the decline in oil
and gas production resulted in a decrease in units-of-production
depreciation and depletion. The drop in depreciation and depletion was more
than offset by a $90,651 increase in the provision for impairment of
non-producing leaseholds which totaled $117,306 in 1999. The increased
provision for 1999 was the result of accelerated amortization of leaseholds
that were impaired when testing produced less than anticipated results.
7
<PAGE>
General, administrative and other expenses decreased $11,904 to $319,483.
The most significant item contributing to the decrease was a $16,636
decline in legal fees as the result of finalization of major legal
proceedings in 1998.
Other Income Net. The $74,515 increase was, to a great extent, the result
of a $20,000 settlement with a pipeline company, an increase of $20,330
upon an equity investment's finalization of an Oklahoma real estate sale,
and an increase in realized and unrealized gain on trading securities of
$35,380.
Provision for Income Taxes. The provision for income taxes decrease $54,715
to $63,622 from $118,337 in 1998. In 1999, the Company had a calculated
deferred tax benefit of $45,277 as offset by a calculated current tax
expense of $108,899. In 1998, the Company had a calculated deferred tax
expense of $16,371 in addition to a calculated current tax expense of
$101,966.
3. Material Changes in Results of Operations Three Months Ended June 30,1999,
---------------------------------------------------------------------------
Compared with Three Months Ended June 30, 1998.
----------------------------------------------
Operating Revenues. Oil and gas sales decreased $114,378 (25%) to $335,415.
Oil sales fell $26,931 (21%) to $104,190. Oil volume declined 2,985 Bbls to
6,791 Bbls resulting in a negative volume variance of $40,029. The average
price received for oil sales increased $1.93 per Bbl to $15.34 creating a
positive price variance of $13,098.
Sales of gas declined $87,358 (28%) to $228,311. The volume of sales
decreased 25,640 MCF to 132,416 MCF for a negative volume variance of
$51,280. The average price received for gas sales declined $.28 per MCF to
$1.72. The decline resulted in a $36,078 decrease in sales.
Operating Costs and Expense. Production costs decreased $29,698 (29%)
because of a $16,512 (21%) reduction in lease operating, hauling and
compression expense as well as a $13,186 (60%) decline in gross production
tax. The drop in gross production tax was more than the decrease in oil and
gas sales would indicate because of state tax credits on wells qualifying
for exemptions.
Depreciation, depletion, amortization and valuation provisions increased
$65,527 (133%). The increase was the result of $74,493 additional provision
for non-producing leasehold impairment as offset $8,966 by declines in
depreciation and depletion. See Item 2, above for further information.
Provision for Income Taxes. In 1999, the Company had a calculated provision
for income taxes of $25,967 because of net deferred tax benefit of $36,532
less current tax expense of $62,499. In 1998, the Company had a calculated
provision from income tax of $65,414 as the result of a deferred tax
expense of $13,702 plus a current tax expense of $51,712.
4. Year 2000 Issue Update.
----------------------
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 the week of August 2,
1999, and will be installed shortly.
8
<PAGE>
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 4, 1999. 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 AUTHORITY
------- --------- ------ ----------
<S> <C> <C> <C> <C>
MASON McLAIN 50,658 766 51,988 ---
R.T. McLAIN 50,658 766 51,988 ---
LOYD TERRY 50,645 779 51,988 ---
ROBERT SAVAGE 50,645 779 51,988 ---
MARVIN E. HARRIS 50,667 757 51,988 ---
JERRY L. CROW 50,667 757 51,988 ---
WILLIAM (BILL) SMITH 50,667 757 51,988 ---
</TABLE>
The stockholders approved all actions of the directors since the stockholders'
annual meeting on Tuesday, May 5, 1998. The stockholders cast 103,412 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 thereto duly authorized.
THE RESERVE PETROLEUM COMPANY
------------------------------
(Registrant)
Date: August 12, 1999 /s/ Mason McLain
----------------- ------------------------------
Mason McLain,
President
Date: August 12, 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 SIX MONTHS ENDING JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 255,570
<SECURITIES> 5,122,762
<RECEIVABLES> 176,854
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,557,328
<PP&E> 5,270,248
<DEPRECIATION> 4,097,501
<TOTAL-ASSETS> 7,686,680
<CURRENT-LIABILITIES> 145,713
<BONDS> 0
0
0
<COMMON> 92,368
<OTHER-SE> 7,312,366
<TOTAL-LIABILITY-AND-EQUITY> 7,686,680
<SALES> 675,003
<TOTAL-REVENUES> 715,469
<CGS> 0
<TOTAL-COSTS> 137,353
<OTHER-EXPENSES> 188,697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 278,245
<INCOME-TAX> 63,622
<INCOME-CONTINUING> 214,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,623
<EPS-BASIC> 1.280
<EPS-DILUTED> 1.280
</TABLE>
