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, 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 August 9, 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
<PAGE>
THE RESERVE PETROLEUM COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
Current Assets:
<S> <C> <C>
Cash and Cash Equivalents $ 329,061 $ 367,963
Available for Sale Securities 4,317,971 4,372,573
Trading Securities 644,024 562,176
Receivables 242,461 256,647
Refundable Income Taxes 41,328 75,964
Prepayments 1,875 58,735
------------ ------------
5,576,720 5,694,058
------------ ------------
Investments:
Partnership and Limited
Liability Companies 432,950 430,302
Other 15,298 19,048
------------ ------------
448,248 449,350
------------ ------------
Property, Plant & Equipment:
Oil & Gas Properties, at Cost Based on the
Successful Efforts Method of Accounting
Unproved Properties 629,607 662,765
Proved Properties 4,402,181 4,157,016
------------ ------------
5,031,788 4,819,781
Less - Valuation Allowance and Accumulated
Depreciation, Depletion & Amortization 3,900,008 3,896,557
------------ ------------
1,131,780 923,224
------------ ------------
Other Property & Equipment, at Cost 337,474 337,474
Less - Accumulated Depreciation &
Amortization 170,922 165,996
------------ ------------
166,552 171,478
------------ ------------
1,298,332 1,094,702
------------ ------------
Other Assets 496,572 490,738
------------ ------------
$ 7,819,872 $7,728,848
============ ============
</TABLE>
(continued)
See Accompanying Notes
2
THE RESERVE PETROLEUM COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
Current Liabilities:
<S> <C> <C>
Accounts Payable $ 47,115 $ 28,504
Other Current Liabilities
Gas Balancing Commitment 38,839 38,839
Other 23,747 20,439
------------ ------------
109,701 87,782
------------ ------------
Dividends Payable 138,946 127,008
------------ ------------
Stockholders' Equity:
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 7,646,358 7,545,405
Accumulated Other Comprehensive Loss (42,846) ----
------------ ------------
7,760,880 7,702,773
Less - Treasury Stock, at Cost 189,655 188,715
------------ ------------
7,571,225 7,514,058
------------ ------------
$ 7,819,872 $ 7,728,848
============ ============
</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,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Operating Revenues:
<S> <C> <C> <C> <C>
Oil & Gas Sales $433,123 $335,415 $852,069 $675,003
Lease Bonuses & Other 7,975 639 16,688 40,466
------- ------- ------- -------
441,098 336,054 868,757 715,469
------- ------- ------- -------
Operating Costs & Expenses:
Production Costs 75,535 70,723 159,241 137,353
Exploration and Development Costs 110,639 11,087 175,271 17,076
Depreciation, Depletion,
Amortization and Valuation
Provisions 45,024 114,665 92,407 171,621
General, Administrative & Other
Expenses 151,127 155,220 305,006 319,483
------- ------- ------- -------
382,325 351,695 731,925 645,533
------- ------- ------- -------
Income (Loss) From Operations 58,773 (15,641) 136,832 69,936
Other Income, Net 36,547 79,275 212,166 208,309
------- ------- ------- -------
Income Before Income Taxes 95,320 63,634 348,998 278,245
Provision For Income Taxes 11,472 25,967 80,436 63,622
------- ------- ------- -------
Net Income $ 83,848 $ 37,667 $268,562 $214,623
======= ======= ======= =======
Per Share Data:
Net Income $ .50 $ .22 $ 1.60 $ 1.28
Cash Dividends $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Weighted Average Shares Outstanding 167,598 167,704 167,611 167,717
======= ======= ======= =======
</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,
----------------
2000 1999
--------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 328,231 $ 219,474
---------- ----------
Cash Flows from Investing Activities:
Sale and Maturity of Available
for Sale Securities 2,350,125 3,664,191
Purchase of Available for Sale Securities (2,360,442) (3,760,619)
Property Dispositions 14,918 11,068
Property Additions (227,122) (117,762)
Cash Distributions from Equity Investments 12,000 54,000
---------- ----------
Net Cash Applied to Investing Activities (210,521) (149,122)
---------- ----------
Cash Flows from Financing Activities:
Payments of Dividends (155,672) (152,617)
Purchase of Treasury Stock (940) (1,180)
---------- ----------
Net Cash Applied to Financing Activities (156,612) (153,797)
---------- ----------
Net Change in Cash and Cash Equivalents (38,902) (83,445)
Cash and Cash Equivalents, Beginning of Period 367,963 339,015
---------- ----------
Cash and Cash Equivalents, End of Period $ 329,061 $ 255,570
========== ==========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Periods For:
Interest $ ---- $ 3,750
Income Taxes $ ---- $ 107,000
</TABLE>
See Accompanying Notes
5
<PAGE>
THE RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 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 $84,152 for the three months and
$225,716 for the six months ended June 30, 2000. Total comprehensive
income was $37,667 for the three months and $214,623 for the six months
ended June 30, 1999.
Note 3 - UNREALIZED GAIN ON TRADING SECURITIES
The condensed statement of operations for the period ended June 30,
2000, included unrealized gains on trading securities of $94,013.
Subsequent sales of trading securities in inventory at June 30, 2000,
resulted in net realized losses of $5,787. The fair value of trading
securities on hand at June 30, 2000, and still in inventory at July 31,
2000, had declined $97,326.
6
<PAGE>
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 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
June 30, 2000, totaled $4,647,032, 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 six months ending June 30, 2000, cash provided from operations was
$328,231, cash from property dispositions was $14,918, and cash
distributions from equity investees was $12,000. This total of $355,149
was $38,902 short of the amount required to fund the net increase in
available for sale securities of $10,317, property additions of $227,122
and net cash applied to financing activities of $156,612. The shortage was
covered by a reduction of cash and cash equivalents by $38,902.
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, 1999,
would not be representative of the Company's current position.
2. Material Changes in Results of Operations Six Months Ended June 30, 2000
---------------------------------------------------------------------------
Compared with Six Months Ended June 30, 1999.
---------------------------------------------
Operating Revenue. Oil and gas sales increased $177,066 (26%) to $852,069
as a result of an increase in crude oil sales of $110,266 (59%) to
$297,998, an increase in natural gas sales of $58,152 (12%) to $540,436
and an increase in plant and miscellaneous product sales of $8,648 to
$13,635.
The $110,266 increase in oil sales was the net result of an increase in the
price received as offset for the decline in volume produced. The average
unit price per barrel (Bbl) of oil sold increased $14.16 to $27.10 per Bbl
resulting in a positive price variance of $155,776. However, the volume of
production fell 3,517 Bbls to 10,996 Bbls resulting in a negative volume
variance of $45,510. Also, the $58,152 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 $.74 to $2.47 per MCF
causing a positive price variance of $162,815. The volume of production
declined 60,499 MCF to 218,826 MCF for a negative volume variance of
$104,663.
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 $21,888 (16%)
to $159,241. To a great extent, the increase was caused by an increase in
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 $422,665 of which
$175,271 was charged to expense, and the remaining $247,394 recorded as an
asset. The foregoing compares to $119,746 incurred in 1999 of which
$17,076 was charged to expense, and $102,670 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 lessor extent)
gas prices in 1999 are now being re-evaluated and worked along with new
prospects.
Depreciation, depletion, amortization and valuation provisions declined
$79,214 (46%) to $92,407. For the most part, the decline was the result of
a decrease of $76,570 (65%) 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. Although the overall increase in this line item was
small, there were significant changes in its components. Equity earnings
in investees declined $45,543 to $10,898 mostly because of a decrease in
golf course net income and real estate sales. The receipt of a $20,142
settlement with a pipeline Company in 1999 was not repeated in 2000.
Offsetting the above noted declines was an increase in realized and
unrealized gain on trading securities of $42,886 as well as an increase in
interest income of $16,967 and gain on sale of assets of $14,165.
Provision for Income Taxes. This line item increased $16,814 (26%) to
$80,436, but remained at approximately 23% of income before income taxes.
For the most part the provision for income taxes for both 2000 and 1999 was
less than the statutory US 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
$45,800 in addition to a calculated current tax expense of $34,636. In
1999, the Company had a calculated deferred tax benefit of $45,277 as
offset by a calculated current tax expense of $108,899.
Forward-Looking Summary. Refer to page 3 of the Company's December 31,
1999, Form 10-KSB filed with the Securities and Exchange Commission for a
summary of the risks and uncertainities that may affect this forward-
looking summary.
A McClain County, Oklahoma, exploratory well in which the Company has an
18% working interest was begun in January, 2000, and completed as an oil
producer in April, 2000. The well, which originally was producing at
a rate of approximately 70 barrels per day, had fallen to around 30 barrels
per day by mid-July. Additional potential producing zones will be
perforated in an attempt to increase production. Additional exploratory
drilling on the prospect is under evaluation.
The initial test well on a second McClain County, Oklahoma prospect is
drilling at August 7, 2000.
A Cimarron County, Oklahoma, exploratory well in which the Company has a
28% working interest began drilling in February 2000, and was completed in
April as a gas producer. It is a shallow, low cost well with decent
production and the prospect has room for several development wells. An
acceptable gas contract has been negotiated by the operator. Current
information indicates the prospect can be marginally profitable.
8
<PAGE>
3. Material Changes in Results of Operations Three Months Ended June 30, 2000,
---------------------------------------------------------------------------
Compared with Three Months Ended June 30, 1999.
-----------------------------------------------
Operating Revenues. Oil and gas sales increased $97,708 (29%) to $433,123
in 2000. Crude oil sales increased $37,671 (36%) to $141,861 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 second quarter
increased $12.10 per Bbl to $27.44 resulting in a positive price variance
of $62,537. The volume of oil produced declined 1,621 Bbls to 5,170 Bbls
resulting in a negative volume variance of $24,866.
Natural gas sales increased $57,436 (25%) to $285,747. The increase was
the net result of a $106,349 increase because the average price per MCF
sold rose $1.03 to $2.75. This positive price variance was offset by
$48,913 because of a negative volume variance of 28,438 MCF as the volume
of sales fell to 103,978 MCF.
Other Income, Net. The $42,728 (54%) decline in this line item was the
result of changes in various components. A decrease in equity earnings of
investees of $17,956 and a drop in realized and unrealized gain on trading
securities of $41,125 was partially offset by a $4,291 increase in gain
from sale of assets and a $11,421 increase in the interest income.
Provision for Income Taxes. For the three months ended June 30, 2000, the
Company had an estimated provision for income taxes of $11,472 as
estimated current tax expense of $25,296 was decreased by estimated
deferred tax benefit of $13,824. For the comparable period in 1999, the
Company had an estimated provision for income tax of $25,967 as estimated
current tax expense of $62,499 was decreased by a deferred tax benefit of
$36,532.
There were no additional material changes between the quarters which were
not covered in the discussion in Item 2, above for the six months.
9
<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 2, 2000. 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 except for
Loyd Terry, who chose not to stand for re-election. Doug Fuller was elected in
his stead. 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 54,572 451 55,340 ---
R.T. McLAIN 54,828 195 55.340 ---
ROBERT SAVAGE 54,837 186 55,340 ---
MARVIN E. HARRIS 54,876 147 55,340 ---
JERRY L. CROW 54,837 186 54,340 ---
WILLIAM (BILL) SMITH 54,809 214 54,340 ---
DOUG FULLER 54,809 214 54.340 ---
</TABLE>
The stockholders approved all actions of the directors since the stockholders'
annual meeting on Tuesday, May 4, 1999. 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 11, 2000 /s/ Mason McLain
----------------- ----------------------------------------
Mason McLain,
President
Date: August 11, 2000 /s/ Jerry L. Crow
----------------- ----------------------------------------
Jerry L. Crow
Principal Financial and Accounting Officer
10
