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, 1997
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 13, 1997,
the latest practicable date, was 89,509.
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THE HOME-STAKE OIL & GAS COMPANY
FORM 10-QSB
SEPTEMBER 30, 1997
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, 1997............. 5
Consolidated Condensed Statements of Income and Accumulated
Deficit for the Three Months ended September 30, 1997............ 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,
1997 1996
Current assets:
Cash and cash equivalents...................... $ 296,200 $ 350,772
Accounts receivable............................ 430,616 1,089,063
Prepaid expenses............................... 29,728 133,213
----------- -----------
Total current assets............ 756,544 1,573,048
Investments (Note 2)............................. 2,813,465 2,733,595
Property and equipment, at cost:................. 23,773,483 24,804,033
Less accumulated depreciation,
depletion and amortization................... 15,565,520 16,201,676
----------- -----------
Net property and equipment...... 8,207,963 8,602,357
Other assets..................................... 23,087 23,327
----------- -----------
$11,801,059 $12,932,327
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities....... $ 264,367 $ 827,272
Payable to affiliate........................... 158,683 66,213
Income taxes payable........................... 44,686 15,971
Bonus payable.................................. 34,050 15,929
Current note payable (Note 3).................. 1,369,320 1,369,320
----------- -----------
Total current liabilities....... 1,871,106 2,294,705
Long-term note payable (Note 3).................. 797,570 2,738,640
Deferred income taxes............................ 606,091 392,566
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............................ (45,304) (1,065,180)
----------- -----------
10,010,309 8,990,433
Less treasury stock, at cost - 10,491 shares... 1,484,017 1,484,017
----------- -----------
Total stockholders' equity...... 8,526,292 7,506,416
----------- -----------
$11,801,059 $12,932,327
=========== ===========
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, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Revenues:
Oil sales...................................... $ 3,053,455 $ 3,369,514
Gas sales...................................... 1,940,746 1,716,274
Lease bonuses and rentals...................... 58,707 13,418
Interest and dividends......................... 19,060 18,824
Gain on sales of assets........................ 111,076 12,908
Income from equity affiliates.................. 242,683 205,855
Other.......................................... 126,852 124,797
----------- -----------
5,552,579 5,461,590
Costs and expenses:
Lease operating expenses....................... 1,203,595 1,594,693
Production taxes............................... 416,335 491,583
Depreciation, depletion and amortization....... 846,023 1,012,059
Dry hole costs................................. 336,740 46,684
Condemned and abandoned properties............. 42,767 19,724
General and administrative expense............. 832,910 579,593
Interest expense............................... 195,165 341,810
Property, franchise and other taxes............ 95,828 79,034
----------- -----------
3,969,363 4,165,180
Income before provision for income taxes......... 1,583,216 1,296,410
Provision for income taxes:
Current........................................ 215,552 89,341
Deferred....................................... 213,525 103,407
----------- -----------
429,077 192,748
----------- -----------
Net income....................................... 1,154,139 1,103,662
Accumulated deficit at beginning of period....... (1,065,180) (2,279,081)
Cash dividends ($1.50 per share - 1997,
$2.00 per share - 1996)..................... (134,263) (179,018)
----------- -----------
Accumulated deficit at end of period............. $ (45,304) $(1,354,437)
=========== ===========
Weighted average number of
common shares outstanding.................... 89,509 89,509
====== ======
Net income per share.............................. $12.89 $12.33
====== ======
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, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Revenues:
Oil sales...................................... $ 822,535 $ 1,111,848
Gas sales...................................... 551,213 592,938
Lease bonuses and rentals...................... 17,881 5,955
Interest and dividends......................... 5,260 8,786
Gain (loss) on sales of assets................. 11,368 10,043
Income from equity affiliates.................. 76,694 89,961
Other.......................................... 39,975 50,570
----------- -----------
1,524,926 1,870,101
Costs and expenses:
Lease operating expenses....................... 430,219 562,968
Production taxes............................... 116,200 168,893
Depreciation, depletion and amortization....... 212,008 337,353
Dry hole costs................................. 61,626 566
Condemned and abandoned properties............. 8,096 24,799
General and administrative expense............. 296,070 112,838
Interest expense............................... 49,247 103,526
Property, franchise and other taxes............ 24,625 21,797
----------- -----------
1,198,091 1,332,740
Income before provision for income taxes......... 326,835 537,361
Provision for income taxes:
Current........................................ 60,066 34,641
Deferred....................................... 54,293 (91,281)
----------- -----------
114,359 (56,640)
----------- -----------
Net income....................................... 212,476 594,001
Accumulated deficit at beginning of period....... (213,026) (1,903,684)
Cash dividends ($.50 per share).................. (44,754) (44,754)
----------- -----------
Accumulated deficit at end of period............. $ (45,304) $(1,354,437)
=========== ===========
Weighted average number of
common shares outstanding................... 89,509 89,509
====== ======
Net income per share............................. $ 2.37 $ 6.64
====== ======
See accompanying notes.
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THE HOME-STAKE OIL & GAS COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Operating activities:
Oil and gas sales, net of production taxes..... $ 4,820,641 $ 4,521,703
Lease bonuses and rentals...................... 58,707 13,418
Interest and dividends......................... 19,060 18,824
Other.......................................... 126,852 124,797
----------- -----------
5,028,260 4,678,742
Cash paid to suppliers and employees........... 1,885,843 2,338,802
Interest paid.................................. 195,165 341,810
Property, franchise and other taxes............ 95,828 79,034
Income taxes paid.............................. 186,837 36,142
----------- -----------
2,363,673 2,795,788
Net cash provided by operating activities.... 2,661,587 1,882,954
Investing activities:
Proceeds from sales of property and equipment.. 245,554 13,043
Acquisition of property and equipment.......... (922,779) (323,783)
Dividends/distributions from equity affiliates. 36,331 48,449
----------- -----------
Net cash used in investing activities........ (640,894) (262,291)
Financing activities:
Note payments.................................. (1,941,070) (1,255,233)
Cash dividends paid............................ (134,195) (178,878)
----------- -----------
Net cash used in financing activities........ (2,075,265) (1,434,111)
----------- -----------
Net increase (decrease) in cash
and cash equivalents........................ (54,572) 186,552
Cash and cash equivalents at
beginning of period......................... 350,772 227,144
----------- -----------
Cash and cash equivalents at end of period....... $ 296,200 $ 413,696
=========== ===========
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, 1996.
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,
1997 and 1996 for The Home-Stake Royalty Corporation ("HSRC") and Alden Pipeline
Company is presented below:
1997 1996
---- ----
Income Statement data:
Revenues..................... $ 6,000,533 $ 5,811,624
Income before income taxes... 1,938,921 1,726,594
Net income (1)............... 1,470,826 1,417,179
(1) Includes $333,541 and $212,440 in 1997 and 1996, respectively,
attributable to the equity earnings of the Company recorded by HSRC.
During the first quarter of 1997, the Company sold its interest in the N.E.
Alden Field, including Alden Pipeline Company. This sale was effective January
1, 1997. Accordingly, the 1997 information presented above does not include
amounts attributable to the operations of Alden Pipeline Company; amounts
included for 1996 operations are not material to the totals shown.
Note 3 - Note payable
Note payable at September 30, 1997, represents the amounts due under the
Company's financing agreement which is due May 1, 1999 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, 1998 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 a letter of credit in the amount of $60,000 which is
guaranteed by this line.
The note payable and line of credit described above are collateralized by
certain of the Company's producing properties.
Note 4 - Contingencies
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 1997 compared with first nine
months of 1996
Net income for the first nine months increased $50,477, from $1,103,662 in 1996
to $1,154,139 in 1997. The principal reasons for this increase are as follows:
Oil sales decreased 9% ($316,059) as a result of a decrease in the average oil
price from $19.20 per barrel to $19.07 per barrel, coupled with an decrease in
production volumes of 15,398 barrels. This decrease in production volumes was
primarily a result of property dispositions during 1996 and early 1997.
Gas sales increased $224,472 (13%) due to an increase in the average gas price
per mcf from $1.96 in 1996 to $2.31 in 1997, partially offset by a decrease in
production volumes from 875,402 mcf in 1996 to 840,305 mcf in 1997.
Lease rentals and bonuses increased $45,289 due to higher leasing activity in
1997 than in 1996.
Gains on sales of assets increased $98,168 in 1997, following the Company's sale
of their interest in the N.E. Alden Field. There were no comparable sales in
1996.
Income from equity affiliates increased $36,828 in 1997. The Company's principal
equity investee, The Home-Stake Royalty Corporation, reported net income of
$1,470,826 in 1997 and $1,433,259 in the same period of 1996. In addition, the
Company's ownership in The Home-Stake Royalty Corporation increased from 17.1%
to 19.3% in November 1996.
Lease operating expenses decreased $391,098 (25%) from 1996. This decrease is
principally attributable to environmental remediation expenses in 1996
associated with a waterflood property in which the Company has a 9% working
interest, coupled with an insurance reimbursement in 1997 of certain of such
costs of approximately $145,250.
Production taxes decreased $75,248 as a result of lower production values
described above.
Dry hole costs increased $290,056 in 1997 due to the greater incidence of dry
holes and higher average costs per well. In 1996 there were 3 dry holes (.18
net) drilled at an average gross cost of $259,355 per well; in 1997 there were 8
dry holes (.73 net) drilled at an average gross cost of $461,288 per well.
Condemned and abandoned property expense increased $23,043. 1996 expense
includes salvage credits of $12,488 received on a property abandoned during the
first quarter. 1997 expense was also higher due to the abandonment of acreage
costs associated with eight dry holes in 1997, compared to only three in 1996.
General and administrative expense increased $253,317. 1997 operations includes
$80,712 associated with the Company's proposed merger with The Home-Stake
Royalty Corporation (see Item 5 below). In addition, the Company added certain
full-time and contract employees in late 1996 and early 1997, in connection with
its exploration activities. 1996 operations include a reduction of $82,500
related to a settlement agreement reached with the Company's insurance carrier
for its officers and directors liability coverage.
Interest expense decreased $146,65 in 1997, reflecting the Company's lower
average borrowings.
Results of Operations - Third quarter 1997 compared with third quarter 1996
Net income for the third quarter decreased $381,525, from $594,001 in 1996 to
$212,475 in 1997. The principal reasons for this increase are as follows:
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<PAGE>
Oil sales decreased 26% ($289,313) due to lower average oil prices, which
decreased from $19.61 per barrel in 1996 to $16.85 per barrel in 1997, coupled
with a decrease in production volumes from 56,710 barrels to 48,830 barrels.
Gas sales decreased $41,725 (7%) due to a decrease in production volumes from
291,158 mcf to 268,941 mcf, partly offset by slightly higher average gas prices,
which increased from $2.04 per mcf in 1996 to $2.05 per mcf in 1997.
Lease operating expenses decreased $132,749 (24%). This decrease is principally
attributable to environmental remediation expenses in 1996 associated with a
waterflood property in which the Company has a 9% working interest, coupled with
an insurance reimbursement in 1997 of certain of such costs of approximately
$145,250.
Production taxes decreased $52,693 as a result of lower production values
described above.
Dry hole costs increased $61,060. There were three dry holes drilled in 1997 and
none in 1996.
General and administrative expense increased $183,232. 1997 operations includes
$60,577 associated with the Company's proposed merger with The Home-Stake
Royalty Corporation (see Item 5 below). In addition, the Company added certain
full-time and contract employees in late 1996 and early 1997, in connection with
its exploration activities. 1996 operations include a reduction of $82,500
related to a settlement agreement reached with the Company's insurance carrier
for its officers and directors liability coverage.
Interest expense decreased $54,279 in 1997, reflecting the Company's lower
average borrowings.
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 a capital expenditures budget for 1997 of $1 million. The
Company has spent approximately $776,000 in the first three quarters of 1997 and
has current commitments of approximately $400,000 for the remainder of the year.
In addition, the Company is actively pursuing acquisition opportunities when
they arise.
The Company's working capital deficit at September 30, 1997 was approximately
$1.1 million. Since the beginning of 1997, product prices have decreased
approximately 25% for oil and 36% for natural gas. Despite these decreases, the
Company expects to finance its working capital deficit and budgeted 1997
drilling activities from internally generated cash flows. In addition, the
Company has a revolving line-of-credit with NationsBank, N.A,. in the amount of
$500,000 which expires May 1, 1998. 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 Company does not engage, nor does it expect to engage, in any hedging or
other similar transactions which are intended to manage risks relating to
movements in oil and natural gas prices.
The Company does not expect its costs of addressing the "Year 2000" problem to
be significant. Nor is this problem expected to cause any disruption in the
operations or business activities of the Company.
Statement of Financial Accounting Standards No. 128, Earnings Per Share, will
become effective for periods ending after December 15, 1997. Adoption of this
statement will not have a material effect on the Company's results of
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, 1996
(the "Form 10-KSB"). Since the date of that report there have been no
material changes in the status of such matters.
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.
Item 5. Other Information.
At a special meeting of stockholders scheduled to be held on December
11, 1997, stockholders will be asked to consider and vote on a
proposal to approve and adopt a Merger Agreement between the Company
and The Home-Stake Royalty Corporation ("HSRC"), pursuant to which
HSRC will be merged with and into the Company and the common stock of
the Company will be split on a 30-for-1 basis ("new stock"). The
terms of the Merger Agreement provide that the holders of HSRC common
stock will receive 48.66 shares of the Company's new stock for each
share of HSRC common stock owned at the effective time of the Merger,
and that holders of the Company's common stock will receive 30 shares
of new stock for each share they own at the effective time of the
Merger. The terms of the Merger Agreement also provide that the
Company's Certificate of Incorporation will be amended to increase
the number of authorized shares of the Company's capital stock in
order to accomplish the Merger. In addition, stockholders will also
be asked to approve certain other changes to the Company's
Certificate of Incorporation and to approve the HSOG 1997 Incentive
Stock Plan.
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, 1997.
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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 14, 1997 By: /s/ Robert C. Simpson
-------------------------------
Robert C. Simpson
Chairman of the Board, C.E.O.,
President and Treasurer
Date: November 14, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 296,200
<SECURITIES> 0
<RECEIVABLES> 430,616
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 756,544
<PP&E> 23,773,483
<DEPRECIATION> 15,565,520
<TOTAL-ASSETS> 11,801,059
<CURRENT-LIABILITIES> 1,871,106
<BONDS> 797,570
0
0
<COMMON> 2,000,000
<OTHER-SE> 8,055,613
<TOTAL-LIABILITY-AND-EQUITY> 11,801,059
<SALES> 5,052,908
<TOTAL-REVENUES> 5,552,579
<CGS> 0
<TOTAL-COSTS> 1,519,930
<OTHER-EXPENSES> 379,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,165
<INCOME-PRETAX> 1,583,216
<INCOME-TAX> 429,077
<INCOME-CONTINUING> 1,154,139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,154,139
<EPS-PRIMARY> 12.89
<EPS-DILUTED> 12.89
</TABLE>
