UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For
the quarterly period ended September 30, 1996
Commission file number 0-19766
THE HOME-STAKE OIL & GAS COMPANY (Exact
name of small business issuer as specified in its
charter)
Oklahoma 73-0288030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
(Address of principal executive offices)
(918) 583-0178
Registrant's telephone number
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
The number of shares outstanding of the Registrants's common stock, all of
which comprise a single class with $20 par value, as of November 12, 1996, the
latest practicable date, was 89,509.
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THE HOME-STAKE OIL & GAS COMPANY
FORM 10-QSB
SEPTEMBER 30, 1996
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets ............................ 4
Consolidated Condensed Statements of Income and Accumulated
Deficit for the Nine Months ended September 30, 1996.............. 5
Consolidated Condensed Statements of Income and Accumulated
Deficit for the Three Months ended September 30, 1996............. 6
Consolidated Condensed Statements of Cash Flow ................... 7
Notes to Consolidated Condensed Financial Statements ............. 8
Item 2. Management's Discussion and Analysis ............................. 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 12
Item 2. Changes in Securities ............................................ 12
Item 3. Defaults upon Senior Securities .................................. 12
Item 4. Submission of Matters to a Vote of Security Holders .............. 12
Item 5. Other Information ................................................ 13
Item 6. Exhibits and Reports on Form 8-K ................................. 13
SIGNATURES ................................................................ 14
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PART I - FINANCIAL INFORMATION
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<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1996 1995
---- ----
Current assets:
Cash........................................... $ 413,697 $ 227,144
Accounts receivable............................ 578,014 552,149
Prepaid expenses............................... 43,484 81,404
----------- ------------
Total current assets...................... 1,035,195 860,697
Investments (Note 2)............................. 2,492,517 2,407,552
Property and equipment, at cost:................. 27,699,041 27,704,111
Less accumulated depreciation,
depletion and amortization............. 18,694,672 17,961,108
----------- -----------
Net property and equipment................ 9,004,369 9,743,003
Other assets..................................... 23,408 20,499
----------- -----------
$12,555,489 $13,031,751
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities....... $ 353,833 $ 446,168
Deferred compensation payable.................. 46,733 57,518
Payable to affiliate........................... 8,085 195,320
Income taxes payable........................... 31,595 2,610
Bonus payable.................................. 45,000 32,710
Current note payable (Note 3).................. 1,369,320 1,369,320
----------- -----------
Total current liabilities....... 1,854,566 2,103,646
Long-term note payable (Note 3).................. 3,309,190 4,564,423
Deferred income taxes............................ 174,574 71,167
Contingencies (Note 4)
Stockholders' equity:
Preferred stock, $1 par value -
200,000 shares authorized; none issued
Common stock, $20 par value -
100,000 shares authorized and issued......... 2,000,000 2,000,000
Additional paid-in capital..................... 8,055,613 8,055,613
Accumulated Deficit............................ (1,354,437) (2,279,081)
----------- ------------
8,701,176 7,776,532
Less treasury stock, at cost - 10,491 shares... 1,484,017 1,484,017
----------- ------------
Total stockholders' equity...... 7,217,159 6,292,515
----------- ------------
$12,555,489 $13,031,751
=========== ============
See accompanying notes.
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THE HOME-STAKE OIL & GAS COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
AND ACCUMULATED DEFICIT
Nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Revenues:
Oil sales...................................... $ 3,369,514 $ 2,741,222
Gas sales...................................... 1,716,274 1,306,070
Lease bonuses and rentals...................... 13,418 17,051
Interest and dividends......................... 18,824 16,892
Gain on sales of assets........................ 12,908 65,437
Income from equity affiliates.................. 205,855 119,509
Other.......................................... 124,797 139,500
----------- -----------
5,461,590 4,405,681
Costs and expenses:
Lease operating expenses....................... 1,594,693 962,039
Production taxes............................... 491,583 335,680
Depreciation, depletion and amortization....... 1,012,059 916,887
Dry hole costs................................. 46,684 132,371
Condemned and abandoned properties............. 19,724 54,864
General and administrative expense............. 579,593 833,208
Interest expense............................... 341,810 365,599
Property, franchise and other taxes............ 79,034 85,492
----------- -----------
4,165,180 3,686,140
Income before provision for income taxes......... 1,296,410 719,541
Provision for income taxes:
Current........................................ 89,341 39,156
Deferred....................................... 103,407 49,803
----------- -----------
192,748 88,959
----------- -----------
Net income....................................... 1,103,662 630,582
Accumulated deficit at beginning of period....... (2,279,081) (2,393,985)
Cash dividends ($2.00 per share - 1996,
$2.75 per share - 1995)..................... (179,018) (246,150)
----------- -----------
Accumulated deficit at end of period............. $(1,354,437) $(2,009,553)
=========== ===========
Weighted average number of common
shares outstanding.......................... 89,509 89,509
====== ======
Net income per share............................. $12.33 $ 7.04
====== ======
See accompanying notes.
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THE HOME-STAKE OIL & GAS COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
AND ACCUMULATED DEFICIT
Three months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Revenues:
Oil sales...................................... $ 1,111,848 $ 841,383
Gas sales...................................... 592,938 430,369
Lease bonuses and rentals...................... 5,955 4,782
Interest and dividends......................... 8,786 9,398
Gain (loss) on sales of assets................. 10,043 (2,662)
Income from equity affiliates.................. 89,961 44,137
Other.......................................... 50,570 82,535
----------- -----------
1,870,101 1,409,942
Costs and expenses:
Lease operating expenses....................... 562,968 351,984
Production taxes............................... 168,893 106,552
Depreciation, depletion and amortization....... 337,353 299,247
Dry hole costs................................. 566 12,901
Condemned and abandoned properties............. 24,799 13,829
General and administrative expense............. 112,838 229,114
Interest expense............................... 103,526 144,463
Property, franchise and other taxes............ 21,797 22,399
----------- -----------
1,332,740 1,180,489
Income before provision for income taxes......... 537,361 229,453
Provision for income taxes:
Current........................................ 34,641 16,056
Deferred....................................... (91,281) (35,527)
----------- -----------
(56,640) (19,471)
----------- -----------
Net income....................................... 594,001 248,924
Accumulated deficit at beginning of period....... (1,903,684) (2,191,345)
Cash dividends ($.50 per share - 1996,
$.75 per share - 1995)...................... (44,754) (67,132)
----------- -----------
Accumulated deficit at end of period............. $(1,354,437) $(2,009,553)
=========== ===========
Weighted average number of common
shares outstanding.......................... 89,509 89,509
====== ======
Net income per share............................. $ 6.64 $ 2.78
====== ======
See accompanying notes.
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<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Operating activities:
Oil and gas sales, net of production taxes..... $ 4,521,703 $ 3,604,068
Lease bonuses and rentals...................... 13,418 17,051
Interest and dividends......................... 18,824 16,892
Other.......................................... 124,797 139,500
------------ -----------
4,678,742 3,777,511
Cash paid to suppliers and employees........... 2,338,802 2,074,860
Interest expense............................... 341,810 380,520
Property, franchise and other taxes............ 79,034 85,492
Income taxes paid.............................. 36,142 (14,753)
------------ -----------
2,795,788 2,526,119
Net cash provided by operating activities.... 1,882,954 1,251,392
Investing activities:
Proceeds from sales of property and equipment.. 13,043 114,834
Acquisition of property and equipment.......... (323,783) (3,022,043)
Dividends/distributions from equity affiliates. 48,449 53,834
------------ -----------
Net cash used in investing activities........ (262,291) (2,853,375)
Financing activities:
Proceeds from notes payable.................... -- 2,685,680
Note payments.................................. (1,255,233) (703,884)
Cash dividends paid............................ (178,878) (246,077)
------------ -----------
Net cash used in financing activities........ (1,434,111) 1,735,719
------------ -----------
Net increase in cash............................. 186,552 133,736
Cash at beginning of period...................... 227,144 45,677
------------ -----------
Cash at end of period............................ $ 413,696 $ 179,413
============ ===========
See accompanying notes.
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THE HOME-STAKE OIL & GAS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - General
The unaudited financial information provided in this report includes all normal
recurring adjustments which are, in the opinion of management, necessary to
fairly present the financial position, result of operations and cash flows of
the Company. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. The Company believes that the
disclosures herein are adequate to make the information presented not
misleading; however, these financial statements should be read in conjunction
with the audited financial statements and related notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for the full year.
Note 2- Summarized financial information of equity investees
Summarized income statement information for the nine months ended September 30,
1996 and 1995 for The Home-Stake Royalty Corporation ("HSRC") and Alden Pipeline
Company is presented below:
1996 1995
---- ----
Income Statement data:
Revenues.............................. $ 5,811,624 $ 4,629,621
Income before income taxes............ 1,726,594 997,514
Net income (1)........................ 1,417,179 819,529
(1) Includes $212,440 and $182,092 in 1996 and 1995, respectively,
attributable to the equity earnings of the Company recorded by HSRC.
Note 3 - Note payable
Note payable at September 30, 1996, represents the amounts due under the
Company's financing agreement which is due May 1, 1998 and provides for monthly
maturities of $114,110, plus interest at bank prime. In addition, the Company
has a line of credit in the amount of $500,000 available until May 1, 1997 which
provides for monthly payments of interest on the outstanding borrowings at bank
prime. There is no balance currently outstanding under this line, however the
Company has issued letters of credit in the amount of $60,000 which are
guaranteed by this line.
The notes payable and line of credit described above are collateralized by the
11,963 shares of common stock of HSRC owned by the Company and certain of the
Company's producing properties.
Note 4 - Contingencies
In August 1995, the Company was notified that a property in which it owns a 9%
working interest was subject to certain claims by surface owners regarding
possible saltwater contamination. The operator of the property, Mobil Oil
Corporation, has settled some claims and is currently pursuing resolution of
this matter with other surface owners. It is currently estimated that the
Company's share of the total claims and related costs may be approximately
$300,000. On June 13, 1996, the Company and HSRC (collectively "the Companies")
filed suit in the United States District Court for the Eastern District of
Oklahoma, against Mobil Oil Corporation and Mobil Exploration & Production U.S.,
Inc. (collectively "Mobil"). This suit is styled The Home-Stake Royalty
Corporation and The Home-Stake Oil & Gas Company v Mobil Oil Corporation and
Mobil Exploration & Production U.S., Inc. (Case No. CIV-6- 271-S). This action
alleges Mobil's breach of the related Unit Agreement; breach of fiduciary duty;
gross negligence and willful misconduct; and fraud in connection with Mobil's
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<PAGE>
Note 4 - Contingencies (continued)
operation of the property. The Companies are seeking actual damages, punitive
damages and equitable relief in this matter, including a declaration that Mobil
is barred from charging costs related to certain saltwater contamination claims
and other related costs to the Companies. Mobil has counter claimed for the
Companies share of environmental costs which the Companies have not paid. Mobil
has also filed a Motion for Summary Judgement, to which the Companies have filed
a response. Discovery is ongoing in this matter, which is tentatively set for
jury trial in January, 1997. At this time management cannot estimate the
financial impact of the litigation. Operations of the property are being
reviewed as a result of the contamination claims and a determination of the
effects thereof on the carrying value of the assets affected will be made in the
fourth quarter of 1996.
The Company is involved in various other legal actions arising in the normal
course of business. In the opinion of management, the Company's liabilities, if
any, in these matters will not have a material effect on the Company's financial
position or the results of operations.
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<PAGE>
Item 2. Management's Discussion and Analysis.
Results of Operations - First nine months of 1996 compared with first nine
months of 1995
Net income for the first nine months increased $473,080 from $630,582 in 1995
to $1,103,662 in 1996. The principal reasons for this increase are asfollows:
Oil sales increased 23% ($628,292) as a result of an increase in the average
price from $16.09 per barrel to $19.20 per barrel, coupled with an increase in
production volumes of 5,201 barrels. This increase in production was primarily a
result of new drilling activities and property acquisitions during 1995.
Gas sales increased $410,204 (31%) due to an increase in the average gas price
per mcf from $1.40 in 1995 to $1.96 in 1996, partially offset by a decrease in
production volumes from 994,954 mcf to 923,796 mcf.
Interest income increased $1,932 from 1995 primarily as a result of greater
excess funds available for investment.
Gains on sales of assets were lower in 1996 (decrease of $52,529). In 1995 the
Company sold several marginal properties for which there were no comparable
transactions in 1996.
Income from equity affiliates increased $86,346. The Company's principal equity
investee, HSRC, reported income of $1,433,259 in 1996 compared to $819,529 in
1995.
Lease operating expenses increased $632,654 (66%) in 1996. This increase is
principally attributable to operating costs associated with properties acquired
in 1995.
Production taxes increased $155,903 as a result of higher production values
described above.
Dry hole costs decreased $85,687 in 1996. In 1995 there were 3 dry holes (.59
net) drilled at an average gross cost of $224,358 per well; in 1996 there were 3
dry holes (.18 net) drilled at an average gross cost of $259,355 per well.
Condemned and abandoned property expense decreased $35,140. 1996 expense
includes salvage credits of $12,488 received on a property abandoned during the
first quarter. 1995 expense was unusually high due to the non-recurring
abandonment of acreage costs associated with three dry holes, coupled with the
expiration of leases on certain non-producing acreage owned by the Company.
General and administrative expense decreased $253,615. 1995 operations included
$139,187 associated with the Company's unsuccessful merger with The Home-Stake
Royalty Corporation. 1996 operations include a reduction of $82,500 related to a
settlement agreement reached with the Federal Insurance Company (see Part II,
Item 1, Legal Proceedings).
Results of Operations - Third quarter 1996 compared with third quarter 1995
Net income for the third quarter increased $345,077 from $248,924 in 1995 to
$594,001 in 1996. The principal reasons for this increase are as follows:
Oil sales increased 32% ($270,465) due to higher average prices which increased
from $14.89 per barrel in 1995 to $19.61 per barrel in 1996, coupled with a
slight increase in production volumes from 56,515 barrels to 56,710 barrels.
Gas sales increased $162,569 (38%) due to higher average prices which increased
from $1.42 per mcf in 1995 to $2.04 per mcf in 1996, partially offset by a
decrease in production volumes from 304,022 mcf to 291,158 mcf.
Gains on sales of assets in 1996 increased $12,705. In the third quarter 1996
the Company certain properties for which there were no comparable transactions
in 1995.
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<PAGE>
Lease operating expenses increased $210,984 (60%). This increase in principally
attributable to operating costs associated with properties acquired in 1995.
Production taxes increased $62,341 as a result of higher production values
described above.
Condemned and abandoned property expense increased $10,970 due to an increase in
the number of non-producing leaseholds whose lease terms expired in the third
quarter of 1996, as compared to 1995.
General and administrative expense decreased $116,276. 1995 operations included
$19,866 associated with the Company's unsuccessful merger with The Home-Stake
Royalty Corporation. 1996 operations include a reduction of $82,500 related to a
settlement agreement reached with the Federal Insurance Company (see Part II,
Item 1, Legal Proceedings).
Financial Condition and Liquidity
The Company's operating activities have traditionally been self-financed through
internally generated cash flows. The principal uses of cash flows have been to
fund the Company's exploration and production activities and for the payment of
dividends to stockholders. The use of borrowed funds has generally been limited
to the acquisition of producing oil & gas properties where future revenues from
such purchases are expected to fund the debt.
The Company has an exploration and development budget for 1996 of $930,000. The
Company has spent approximately $495,700 in the first three quarters of 1996 and
has current commitments of approximately $267,500 for the remainder of the year.
In addition, the Company is actively pursuing acquisition opportunities when
they arise.
The Company has a revolving line-of-credit with Boatmen's National Bank of
Oklahoma in the amount of $500,000 which expires May 1, 1997. There is no
balance currently outstanding under this line, however the Company has issued
letters of credit in the amount of $60,000 which are guaranteed by this line.
The working capital deficit of $1,242,949 at December 31, 1995 has been reduced
to $819,371 at September 30, 1996 since the Company has used cash flows to
reduce current liabilities. Product prices remain above 1995 levels and the
Company's drilling commitments are $166,700 below budget. Excess cash flows will
be used to reduce the bank note payable and fund future business operations.
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<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
There is a complete discussion of legal proceedings in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995 (the "Form 10-KSB").
During the third quarter of 1996 there have been the following material changes
in the status of such matters.
(a) In connection with the Company's and HSRC's (collectively "the
Companies") action against Federal Insurance Company ("Federal") in
the United States District Court for the Northern District of
Oklahoma, the Companies entered into a settlement agreement with
Federal on August 5, 1996, pursuant to which, the Companies received
an aggregate of $165,000 ($82,500 each company) and each party agreed
to dismiss all of their respective claims against each other.
(b) In connection with HSRC's dispute with the Bureau of Indian Affairs,
the Interior Board of Land Appeals of the United States Department of
the Interior (the "Appeals Board") ruled on September 17, 1996 on
HSRC's petition for clarification and reconsideration of certain
aspects of the Appeal Board's earlier ruling. The Appeals Board
determined that royalty payments are due to the Kiowa Indians on 100%
of sales from the date of first production. As a result, there will be
additional royalties, as well as Kiowa severance tax, due on this
production. HSRC is still reviewing this decision, its impact on the
owners of the affected properties and whether to appeal the ruling
through a federal court action. At September 30, 1996, the Company
accrued $38,187, representing its share of additional royalties and
severance taxes.
(c) In connection with the matter discussed in the Company's Form 10-KSB
described as "saltwater contamination claims", the Companies filed
suit in the United States District Court for the Eastern District of
Oklahoma on June 13, 1996, against Mobil Oil Corporation and Mobil
Exploration & Production U.S., Inc. (collectively "Mobil"). This suit
is styled The Home-Stake Royalty Corporation and The Home-Stake Oil &
Gas Company v Mobil Oil Corporation and Mobil Exploration & Production
U.S., Inc. (Case No. CIV-96-271-S). This action alleges Mobil's breach
of the Unit Agreement; breach of fiduciary duty; gross negligence and
willful misconduct; and fraud in connection with Mobil's operation of
a property in which the Companies each own a 9% working interest. The
Companies are seeking actual damages, punitive damages and equitable
relief in this matter, including a declaration that Mobil is barred
from charging costs related to certain saltwater contamination claims
and other related costs to the Companies. Mobil has counter claimed
for the Companies share of environmental costs which the Companies
have not paid. Mobil has also filed a Motion for Summary Judgement, to
which the Companies have filed a response. Discovery is ongoing in
this matter, which is set for jury trial in January, 1997.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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<PAGE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following documents are included as exhibits to this Form 10-QSB.
Exhibit
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September
30, 1996.
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<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Home-Stake Oil & Gas Company
(Registrant)
Date: November 13, 1996 By: /s/ Robert C. Simpson
----------------------------
Robert C. Simpson
Chairman of the Board, C.E.O.,
President and Treasurer
Date: November 13, 1996 By: /s/ Chris K. Corcoran
----------------------------
Chris K. Corcoran
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 413,697
<SECURITIES> 0
<RECEIVABLES> 578,014
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,035,195
<PP&E> 27,699,041
<DEPRECIATION> 18,694,672
<TOTAL-ASSETS> 12,555,489
<CURRENT-LIABILITIES> 1,854,566
<BONDS> 3,309,190
0
0
<COMMON> 2,000,000
<OTHER-SE> 8,055,613
<TOTAL-LIABILITY-AND-EQUITY> 12,555,489
<SALES> 5,099,206
<TOTAL-REVENUES> 5,461,590
<CGS> 0
<TOTAL-COSTS> 2,086,276
<OTHER-EXPENSES> 66,408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341,810
<INCOME-PRETAX> 1,296,410
<INCOME-TAX> 192,748
<INCOME-CONTINUING> 1,103,662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,103,662
<EPS-PRIMARY> 12.33
<EPS-DILUTED> 12.33
</TABLE>
