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 September 30, 2000
[ ] 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 November 10, 2000, 167,521.73 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>
September 30, December 31,
2000 1999
------------- ------------
Current Assets:
<S> <C> <C>
Cash and Cash Equivalents $ 452,659 $ 367,963
Available for Sale Securities 4,604,505 4,372,573
Trading Securities 585,711 562,176
Receivables 282,189 256,647
Refundable Income Taxes - 75,964
Prepayments 7,500 58,735
------------ ------------
5,932,564 5,694,058
------------ ------------
Investments:
Partnership and Limited
Liability Companies 466,773 430,302
Other 15,298 19,048
------------ ------------
482,071 449,350
------------ ------------
Property, Plant & Equipment:
Oil & Gas Properties, at Cost Based on the
Successful Efforts Method of Accounting
Unproved Properties 598,897 662,765
Proved Properties 4,473,113 4,157,016
------------ ------------
5,072,010 4,819,781
Less - Valuation Allowance and
Accumulated Depreciation,
Depletion & Amortization 3,911,470 3,896,557
------------ ------------
1,160,540 923,224
------------ ------------
Other Property & Equipment, at Cost 337,474 337,474
Less - Accumulated Depreciation
& Amortization 173,384 165,996
------------ -------------
164,090 171,478
------------ -------------
1,324,630 1,094,702
------------ -------------
Other Assets 468,805 490,738
------------ -------------
$ 8,208,070 $ 7,728,848
============ =============
</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,
2000 1999
------------- ------------
Current Liabilities:
<S> <C> <C>
Accounts Payable $ 96,212 $ 28,504
Income Taxes Payable 28,988 -
Other Current Liabilities
Gas Balancing Commitment 38,839 38,839
Other 26,201 20,439
------------ -------------
190,240 87,782
------------ -------------
Dividends Payable 138,476 127,008
------------ -------------
Stockholders' Equity:
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 7,928,612 7,545,405
Accumulated Other Comprehensive Loss (14,911) -
----------- -------------
8,071,069 7,702,773
Less - Treasury Stock, at Cost 191,715 188,715
----------- -------------
7,879,354 7,514,058
----------- -------------
$ 8,208,070 $ 7,728,848
=========== =============
</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,
------------------ ----------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
Operating Revenues:
<S> <C> <C> <C> <C>
Oil & Gas Sales $659,267 $399,231 $1,511,336 $1,074,234
Lease Bonuses & Other 13,803 - 30,491 40,466
-------- -------- ---------- ----------
673,070 399,231 1,541,827 1,114,700
-------- -------- ---------- ----------
Operating Costs & Expenses:
Production Costs 104,906 74,424 264,148 211,778
Exploration and Development Costs 54,104 97,740 229,374 114,816
Depreciation, Depletion,
Amortization and Valuation
Provisions 45,440 81,817 137,847 253,439
General, Administrative &
Other Expenses 132,910 145,004 437,916 464,485
-------- -------- ---------- ----------
337,360 398,985 1,069,285 1,044,518
-------- -------- ---------- ----------
Income From Operations 335,710 246 472,542 70,182
Other Income, Net 45,331 36,781 257,498 245,090
-------- -------- ---------- ----------
Income Before Income Taxes 381,041 37,027 730,040 315,272
Provision For (Benefit From)
Income Taxes 98,787 (9,723) 179,223 53,899
-------- -------- ---------- ----------
Net Income $282,254 $ 46,750 $ 550,817 $ 261,373
======== ======== ========== ==========
Per Share Data:
Net Income $ 1.68 $ .28 $ 3.29 $ 1.56
Cash Dividends $ - $ - $ 1.00 $ 1.00
======== ======== ========== ==========
Weighted Average
Shares Outstanding 167,536 167,671 167,585 167,701
======== ======== ========== ==========
</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>
Nine Months Ended
September 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 745,433 $ 304,612
----------- -----------
Cash Flows from Investing Activities:
Sale and Maturity of Available
for Sale Securities 3,248,817 4,538,772
Purchase of Available for Sale Securities (3,503,340) (4,659,311)
Cash Distributions from Equity Investments 12,000 90,345
Property Dispositions 17,823 42,405
Property Additions (276,895) (191,305)
----------- -----------
Net Cash Applied to Investing Activities (501,595) (179,094)
----------- -----------
Cash Flows from Financing Activities:
Payments of Dividends (156,142) (158,327)
Purchase of Treasury Stock (3,000) (1,180)
----------- -----------
Net Cash Applied to Financing Activities (159,142) (159,507)
----------- -----------
Net Change in Cash and Cash Equivalents 84,696 (33,989)
Cash and Cash Equivalents, Beginning of Period 367,963 339,015
----------- -----------
Cash and Cash Equivalents, End of Period $ 452,659 $ 305,026
=========== ===========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Periods For:
Interest $ 7,500 $ 7,506
Income Taxes $ - $ 167,917
</TABLE>
See Accompanying Notes
5
<PAGE>
THE RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
Note 1 - BASIS OF PRESENTATION
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. The results of operations for
the current interim periods are not necessarily indicative of the
operating results for the full year.
Note 2 - COMPREHENSIVE INCOME
Total comprehensive income was $310,189 for the three months and
$535,906 for the nine months ended September 30, 2000. Total
comprehensive income was $46,750 for the three months and $261,373 for
the nine months ended September 30, 1999.
Note 3 - UNREALIZED GAIN ON TRADING SECURITIES
The condensed statement of operations for the period ended September 30,
2000, included unrealized gains on trading securities of $38,609. There
were no subsequent sales of trading securities in inventory at September
30, 2000. The fair value of trading securities on hand at September 30,
2000, and still in inventory at October 27, 2000, had declined $25,214.
6
<PAGE>
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 2000
(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, 1999, 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 cash, cash equivalents and available for sale securities at
September 30, 2000, totaled $5,057,164, an amount which, along with the cash
flow from operations, is adequate to fund all currently budgeted investing and
financing activities. As disclosed in the condensed statements of cash flow
included with the financial statements elsewhere in this 10-QSB, for the nine
months ending September 30, 2000, cash provided from operations was $745,433,
cash from property dispositions was $17,823, and cash distributions from equity
investees was $12,000. This total of $775,256 was $84,696 in excess of the
amount required to fund the net increase in available for sale securities,
property additions and financing activities. The excess was used to increase
cash and cash equivalents.
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, 1999,
would not be representative of the Company's current position.
2. Material Changes in Results of Operations Nine Months Ended September 30,
-----------------------------------------------------------------------------
2000 Compared with Nine Months Ended September 30, 1999.
--------------------------------------------------------
Operating Revenue. Revenues from oil and gas sales increased $437,102 (41%) to
$1,511,336. Oil sales increased $164,966 (52%) to $477,725, gas sales increased
$261,086 (35%) to $1,013,440 and plant and miscellaneous product sales increased
$11,051 (121%) to $20,171.
The $164,966 increase in oil sales was the net result of an increase in the
price received as offset by a decline in volume produced. The average unit price
per barrel (Bbl) of oil sold increased $13.11 to $28.06 per Bbl resulting in a
positive price variance of $223,136. However, the volume of production fell
3,891 Bbls to 17,023 Bbls resulting in a negative volume variance of $58,170.
Also, the $261,086 additional gas sales resulted from an increase in price
received as offset by a decrease in volume produced. The price per thousand
cubic feet (MCF) increased $1.10 to $2.95 per MCF causing a positive price
variance of $375,964. The volume of production declined 62,096 MCF to 343,863
MCF for a negative volume variance of $114,878.
For the most part, the decrease in volume of both oil and gas was the result of
a normal decline in production.
7
<PAGE>
Operating Costs and Expenses. Production costs increased $52,370 (25%) to
$264,148. To a great extent, the increase was a result of additional gross
production taxes. Generally, these state taxes tend to fluctuate with the change
in revenues from oil and gas sales.
Exploration and development costs incurred in 2000 were $548,699 of which
$229,374 was charged to expense, and the remaining $319,325 recorded as an
asset. The foregoing compares to $285,304 incurred in 1999 of which $114,816 was
charged to expense, and $170,488 was recorded as an asset. To a significant
degree, the additional costs incurred resulted as prospects which had been
deferred because of depressed oil and (to a lesser extent) gas prices in 1999
are now being re-evaluated and worked along with new prospects.
Depreciation, depletion, amortization and valuation provisions declined $115,592
(46%) to $137,847. For the most part, the decline was the result of a decrease
of $111,247 (64%) in the provision for impairment of undeveloped leaseholds. In
1999, the provision was increased because of accelerated amortization of
undeveloped leaseholds that were impaired when testing produced less than
anticipated results.
Other Income Net. The net increase of $12,408 (5%) to $257,498 was the result of
numerous changes in the components of this line item, the most significant of
which will be summarized below. Gain on sale of assets increased $18,042 to
$16,913, for the most part, as the result of the sale of condemned undeveloped
leaseholds at salvage prices. Interest income increased $26,383 to $190,662
because of an increase in both interest bearing investments and the rate of
interest received. The realized and unrealized gains on trading securities
declined $17,598 to $19,949. The receipt of a $20,142 settlement with a
pipeline company in 1999 was not repeated in 2000.
Provision for Income Taxes. This line item increased $125,324 to $179,223, and
the effective tax rate increased to 24.5% in 2000 from 17.1% in 1999. For the
most part the provision for income taxes for both 2000 and 1999 was less than
the statutory U.S. Federal income tax rate of 35% because of allowable depletion
for tax purposes in excess of depletion for financial statements. In 2000, the
Company had a calculated deferred tax expense of $74,181 in addition to a
calculated current tax expense of $105,042. In 1999, the Company had a
calculated current tax expense of $90,174 as offset by a calculated deferred tax
benefit of $36,275.
3. Material Changes in Results of Operations Three Months Ended September 30,
-----------------------------------------------------------------------------
2000, Compared with Three Months Ended September 30, 1999.
----------------------------------------------------------
Operating Revenues. Oil and gas sales increased $260,036 (65%) to $659,267 in
2000. Crude oil sales increased $54,701 (44%) to $179,727 as a result of an
increase in average price as partially offset by a decrease in Bbls produced.
The average price per Bbl of oil sold in the third quarter increased $10.29 per
Bbl to $29.82 resulting in a positive price variance of $62,025. The volume of
oil produced declined 375 Bbls to 6,026 Bbls resulting in a negative volume
variance of $7,324.
Natural gas sales increased $202,932 (75%) to $473,004, as the net result of a
positive price variance of $206,334 as offset by a negative volume variance of
$3,402. The positive price variance was the result of an increase in the average
price received of $1.65 per MCF to $3.78 per MCF. The negative volume variance
resulted because of a 1,597 MCF decline in volume produced to 125,037 MCF.
8
<PAGE>
Other Income, Net. The $8,550 (23%) increase in this line item was the net
result of various changes in its components. Gain from sale of assets increased
$3,877 to $16,913 and interest income increased $9,417 to $65,810. Also, equity
earnings in investees increased $55,392 to $33,823 mostly because of a real
estate sale. The above increases were offset by a decline in realized and
unrealized gains in trading securities of $60,484 to a loss of $59,111.
Provision for Income Taxes. For the three months ended September 30, 2000, the
Company had an estimated provision for income taxes of $98,787 as estimated
current tax expense of $70,406 was increased by estimated deferred tax expense
of $28,381. For the comparable period in 1999, the Company had an estimated
benefit from income tax of $9,723 as an estimated current tax benefit of $18,725
was decreased by a deferred tax expense of $9,002.
There were no additional material changes between the quarters which were not
covered in the discussion in Item 2, above for the nine months.
9
<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 filed by the Registrant for the three
months ended September 30, 2000.
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: November 10, 2000 /s/ Mason McLain
----------------------------------------------
Mason McLain,
President
Date: November 10, 2000 /s/ Jerry L. Crow
----------------------------------------------
Jerry L. Crow
Principal Financial and Accounting Officer
10
