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 March 31, 1999
Commission file number 0-19766
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 Registrant's common stock, all
of which comprise a single class with $ .01 par value, as of May 14, 1999, the
latest practicable date, was 4,273,827.
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HOME-STAKE OIL & GAS COMPANY
FORM 10-QSB
MARCH 31, 1999
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - March 31, 1999 and
December 31, 1998......................................... 4
Condensed Statements of Income and Retained
Earnings - three months ended March 31, 1999 and 1998 .... 5
Condensed Statements of Cash Flows - three months ended
March 31, 1999 and 1998 .................................. 6
Notes to Condensed Financial Statements .................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 12
Item 2. Changes in Securities and Use of Proceeds .................. 12
Item 3. Defaults upon Senior Securities ............................ 12
Item 4. Submission of Matters to a Vote of Security Holders ........ 12
Item 5. Other Information .......................................... 12
Item 6. Exhibits and Reports on Form 8-K ........................... 12
SIGNATURES ......................................................... 13
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
1999 1998
---- ----
Current assets:
Cash and cash equivalents..................... $ 11,637 $ 212,031
Accounts receivable........................... 1,147,947 1,476,995
------------ ------------
Prepaid expenses.............................. 212,697 238,253
------------ ------------
Total current assets................... 1,372,281 1,927,279
Property and equipment, at cost:................ 48,091,822 48,080,346
Less accumulated depreciation,
depletion and amortization................ 25,450,877 24,727,189
------------ ------------
Net property and equipment............. 22,640,945 23,353,157
Other assets.................................... 240,555 237,781
------------ ------------
$ 24,253,781 $ 25,518,217
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...... $ 599,296 $ 897,720
Income taxes payable.......................... 12,671 -
Current notes payable (Note 3)................ 1,520,000 1,945,000
------------ -------------
Total current liabilities.............. 2,131,967 2,842,720
Long-term notes payable (Note 3)................ 3,740,000 4,290,000
Deferred income taxes........................... 2,920,646 2,914,813
Stockholders' equity:
Preferred stock, $1 par value -
2,000,000 shares authorized;
none issued Common stock, $ .01 par value -
12,000,000 shares authorized,
4,517,363 shares issued..................... 45,174 45,174
Additional paid-in capital.................... 15,460,621 15,460,621
Retained earnings............................. 1,263,429 1,272,945
------------ ------------
16,769,224 16,778,740
Less treasury stock, at cost - 243,536 shares. (1,308,056) (1,308,056)
------------ ------------
Total stockholders' equity............. 15,461,168 15,470,684
------------ ------------
$ 24,253,781 $ 25,518,217
============ ============
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Three months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Revenues:
Oil and gas sales............................. $ 2,167,572 $ 2,324,919
Gain on sales of assets....................... 3,325 -
Other income.................................. 76,414 95,988
------------ ------------
2,247,311 2,420,907
Costs and expenses:
Production.................................... 733,205 913,133
Exploration................................... 23,953 23,559
General and administrative.................... 455,862 636,569
Depreciation, depletion and amortization...... 770,800 677,000
Interest...................................... 113,105 1,587
Property and other taxes...................... 55,902 50,822
------------ ------------
2,152,827 2,302,670
Income before provision for income taxes........ 94,484 118,237
Provision for income taxes:
Current....................................... 12,690 5,288
Deferred...................................... 5,833 23,326
------------ ------------
18,523 28,614
------------ ------------
Net income...................................... 75,961 89,623
Retained earnings at beginning of year.......... 1,272,945 6,359,862
Cash dividends ($ .02 per share)................ (85,477) (90,347)
------------ ------------
Retained earnings at end of period.............. $ 1,263,429 $ 6,359,138
============ ============
Weighted average number of shares outstanding:
Basic......................................... 4,273,827 4,517,363
============ ============
Diluted....................................... 4,273,827 4,772,613
============ ============
Net income per common share:
Basic......................................... $ .02 $ .02
===== =====
Diluted....................................... $ .02 $ .02
===== =====
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Operating activities:
Oil and gas sales, net of production taxes.... $ 1,900,703 $ 2,357,367
Other......................................... 76,414 95,988
------------ ------------
1,977,117 2,453,355
Cash paid to suppliers and employees.......... 797,201 1,435,231
Interest paid................................. 113,105 1,587
Property and other taxes...................... 55,902 50,822
Income taxes paid............................. - 199,983
------------ ------------
966,208 1,687,623
------------ ------------
Net cash provided by operating activities... 1,010,909 765,732
Investing activities:
Proceeds from sales of property and equipment. 3,325 19,548
Acquisition of property and equipment......... (155,621) (7,405,273)
------------ ------------
Net cash used in investing activities....... (152,296) (7,385,725)
Financing activities:
Loan proceeds................................. - 6,600,000
Note payments................................. (975,000) -
Cash dividends paid........................... (84,007) (83,022)
------------ ------------
Net cash provided by (used in)
financing activities....................... (1,059,007) 6,516,978
------------ ------------
Net decrease in cash and cash equivalents....... (200,394) (103,015)
Cash and cash equivalents at beginning of year.. 212,031 1,507,782
------------ ------------
Cash and cash equivalents at end of period...... $ 11,637 $ 1,404,767
============ ============
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Description of business
Home-Stake Oil & Gas Company ("HSOG" or the "Company") is an independent oil and
gas producer actively engaged in the acquisition, exploration, development and
production of oil and gas properties. Oil and gas exploration and production
activities are subject to numerous risks inherent in the business. These include
the volatility of oil and gas prices, environmental concerns and governmental
regulations, general business risks and hazards involving the acquisition and
operation of oil and gas properties, the ability to continue to find new
reserves to replace those being depleted and the highly competitive nature of
the business. Its principal geographic operating areas lie within the states of
Oklahoma, Montana, New Mexico and Texas.
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, results 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, 1998.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for the full year.
Note 2 - Net income per share
In accordance with Statement of Financial Accounting Standards No. 128, "Earning
per Share", net income per common share is computed using two calculations;
basic net income per share and diluted income per share. Basic net income per
share is calculated based on the weighted-average shares outstanding during the
period. Diluted net income per share includes the dilutive effect of stock
options. Options to purchase 231,250 shares of common stock at an exercise price
of $4.50 per share were outstanding at March 31, 1999, but were not included in
the computation of diluted net income per share as their inclusion would be
antidilutive.
Note 3 - Notes payable
Notes payable at March 31, 1999 consisted of the following balances:
Bank note due May 1, 2000, requiring monthly principal payments of
$110,000, plus interest at prime less 1/2%
(7 1/4% at March 31, 1999).................................... $ 5,060,000
Bank note due May 1, 1999, requiring monthly payments of
interest at prime less 1% (6 3/4% at March 31, 1999) ......... 200,000
------------
5,260,000
Less current portion............................................ 1,520,000
------------
$ 3,740,000
============
The Company has a revolving term line-of-credit in the amount of $5,000,000
available until May 1, 1999 which provides for monthly payments of interest on
the outstanding borrowings at bank prime less 1%. The Company expects this
line-of-credit to be extended until May 1, 2000. At March 31, 1999, the Company
had $200,000 borrowed under this line-of-credit. In connection with this line of
credit, the Company pays a commitment fee of one-half of one per cent (1/2%) per
annum on the unused portion of the line.
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HOME-STAKE OIL & GAS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Contingencies
The Company is involved in various 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, results of operations or cash flows.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations - First quarter 1999 compared with first quarter 1998
Net income for the first quarter decreased $13,662 from $89,623 in 1998 to
$75,961 in 1999. The principal reasons for this decrease are as follows:
Oil sales decreased $257,041 (21%), due principally to the decrease in the
average oil price from $13.80 per barrel in 1998 to $10.21 per barrel in 1999.
This price decrease was partially offset by an increase in oil production from
86,732 barrels in 1998 to 92,013 barrels in 1999. The increased production
volume is primarily attributable to higher production on the Company's Montana
operations and new wells completed in late 1998.
Gas sales increased 9% ($102,848), primarily due to the increase in sales
volumes which increased from 540,604 Mcf in 1998 to 713,614 Mcf in 1999. This
increase is primarily attributable to the first quarter acquisition in 1998 of
18 non-operated producing gas properties from Sid R. Bass, Inc. et al (The "Bass
Properties"). This increase however, was partially offset by lower average gas
prices which decreased from $2.04 in 1998 to $1.69 in 1999.
Production expenses decreased $179,928, due primarily to a lower incidence of
workover and maintenance costs in 1999.
General and administrative expenses decreased $180,707, from $636,569 in 1998 to
$455,862 in 1999. The primary reason for this decrease is a reduction of
$105,000 in salaries and contract geological fees, due to a reduction in the
number of such employees. 1998 expense also included approximately $33,000
attributable to the merger of The Home-Stake Royalty Corporation with and into
the Company, for which there are no comparable amounts in the first quarter of
1999.
Depreciation, depletion and amortization increased $93,800. This increase is
attributable to the added property and equipment resulting from the $6.6 million
acquisition of the Bass Properties in the first quarter of 1998.
Interest expense increased $111,518 in 1999. There were no outstanding loans in
1998 until March 31, 1998, when the Company borrowed $6.6 million to finance the
purchase of the Bass Properties.
Financial Condition and Liquidity
The Company's operating activities have traditionally been self-financed through
internally generated cash flows. The principal use of cash flows has generally
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 and gas properties where future
revenues from such purchases are expected to fund the debt.
The Company's capital budget for 1999 is $1.2 million. During the first quarter
the Company had capital expenditures of approximately $82,500 and has remaining
drilling commitments for 1999 of approximately $500,000. The Company is also
continuing to actively pursue opportunities for the acquisition of producing
properties whenever possible. In April 1999, the Company acquired interests in
two producing gas properties at a cost of $632,500 and exercised their
preferential purchase right to acquire additional interest in a producing oil
well operated by the Company. Cost for this additional interest was
approximately $182,000. In connection with these acquisitions, the Company
borrowed $625,000 under its revolving line-of-credit with the bank.
The working capital deficit at March 31, 1999 was $760,000. Product prices were
severely depressed during most of the first quarter, but began a gradual
increase in late March. There is no certainty as to whether these increases will
continue or prices may again drop to their previous low levels. However, the
Company's working capital and internally generated cash flows from operations
are expected to be sufficient to finance the Company's note payments and
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budgeted 1999 exploration and development activities. In addition, the Company
has a $5 million revolving line-of-credit which is expected to be extended until
May 1, 2000. Outstanding borrowings under this line-of-credit total $825,000 at
May 14, 1999.
Year 2000 Readiness
The Company began addressing the impact of Year 2000 (Y2K) on its operations in
mid 1997. This problem exists for certain computer systems due to the use of a
two digit year in most computer software. If left unchanged, beginning on
January 1, 2000, those computers would interpret the year as 1900 instead of
2000. Although the primary affects of this problem will be related to computer
systems, the problem has the potential of affecting other office equipment such
as copiers, facsimile machines, telephone system, postage metering equipment and
any other equipment or devices which might contain date-dependent embedded
computer processor chips.
The Company has already completed the modification of all in-house generated
computer software to make it Y2K compliant. This includes all phases of the
Company's financial and property accounting systems. Each individual computer
processor has been evaluated and determined to be Y2K compliant. All office
equipment including copiers, facsimile machines, phone system and postage
metering equipment has also been found to be Y2K compliant.
Certain pieces of field equipment used by the Company might contain
date-dependent embedded computer processors. This equipment is currently being
evaluated for Y2K compliancy. To the best of the Company's knowledge, all of
this equipment allows for manual operation of the electronic system in case of a
power or internal system failure thus permitting the Company to bypass any
problem which might occur.
The Company is in the process of requesting compliancy information from major
third-party suppliers, field equipment manufacturers and other companies from
whom it receives revenues. All third party vendor responses to-date have
indicated that they anticipate total compliance of all critical systems prior to
the end of the year. As for those vendors who have not yet responded, the
Company has requested that they respond prior to the end of the second quarter
of 1999.
All Y2K compliance modifications and confirmations have been or will be done by
existing Company personnel in the ordinary performance of their duties, without
incurring the expense of outside consultants or additional employees. The
Company is unable to estimate its internal costs associated with its Y2K
readiness efforts.
The Company's contingency plans include the complete backup of all computer
systems and data at December 31, 1999 and the possibility of manual over-rides
of any affected field operations. Services of any major outside third-party that
indicates expected non-compliance at year-end will be moved to compliant service
providers wherever possible.
The Company believes the most likely worst-case scenario would involve limited
failures by third party vendors and is making every effort to ensure compliance
with third party vendors. The Company does not expect any significant disruption
in its operations or business activities. However, the Company's operations are
part of an industry that is heavily dependent on an interconnected network of
companies and transportation facilities that are beyond the control of the
Company and which could be adversely affected by Y2K problems. In a recent
survey by the oil and gas working group of the President's Council on Year 2000
Conversion, 94% of the 1,000 responding companies reported that they would be
Y2K ready by September 30, 1999. Given the nature of the Company's activities
and reliance on outside third-parties, the Company cannot guarantee that some
Y2K problems will not arise. If Y2K problems do arise, there is no assurance
that such problems might not have a material adverse impact on the Company's
financial condition or results of operations.
The above information is designated as "Year 2000 Readiness Disclosure" pursuant
to the Year 2000 Information and Readiness Disclosure Act, Public Law No.
105-271, 1998. The Year 2000 Readiness Disclosure Act does not insulate the
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Company from liability under the Federal securities laws with respect to
disclosures relating to Y2K information.
Inflation
In recent years inflation has not had a significant impact on the Company's
operations or financial condition. The general economic pressures limiting oil
and gas prices in recent years have generally been accompanied by corresponding
downward pressure on costs to develop and operate oil and gas properties as well
as the costs of drilling and completing wells. The impact of inflation on the
Company in the future will depend on the relative increases, if any, in the
selling price of oil and gas and in the Company's operating, development and
drilling costs.
Forward-Looking Statements
Certain statements included in this report which are not historical facts are
"forward-looking statements", including statements with respect to oil and gas
reserves, the number and anticipated costs of wells to be drilled, future
capital expenditures (including the amount and nature thereof), anticipated date
of repayment of bank debt, extension of existing line-of-credit, Y2K readiness
and other such matters. These forward-looking statements are based on current
expectations, estimates, assumptions and beliefs of management; and words such
as "expects", "believes", "anticipates", "intends", "plans" and similar
expressions are intended to identify such forward-looking statements. These
forward-looking statements involve risks and uncertainties, including, but not
limited to: dependence upon the prices for oil and natural gas which prices are
subject to significant fluctuations in response to relatively minor changes in
supply and demand for such products, market uncertainty, political conditions in
oil producing regions, domestic and foreign government regulations, the price
and availability of alternative fuels and a variety of other factors;
competition in the acquisition of oil and gas properties and the development,
production and marketing of oil and natural gas; operating hazards typically
associated with the exploration, development, production and transportation of
oil and natural gas; federal, state and local laws relating to the exploration,
development, production and marketing of oil and natural gas, including
environmental and safety matters; changes in laws and regulations; and other
factors, most of which are beyond the control of the Company. Accordingly,
actual results and developments may differ materially from those expressed in
the forward-looking statements. The Company assumes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
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Part II. Other Information
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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
March 31, 1999.
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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.
Home-Stake Oil & Gas Company
(Registrant)
Date: May 14, 1999 By: /s/ Robert C. Simpson
-----------------------------------------------
Robert C. Simpson
Chairman of the Board, C.E.O.
and President
Date: May 14, 1999 By: /s/ Chris K. Corcoran
-----------------------------------------------
Chris K. Corcoran
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 11,637
<SECURITIES> 0
<RECEIVABLES> 1,147,947
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,372,281
<PP&E> 48,091,822
<DEPRECIATION> 25,450,877
<TOTAL-ASSETS> 24,253,781
<CURRENT-LIABILITIES> 2,131,967
<BONDS> 3,740,000
0
0
<COMMON> 45,174
<OTHER-SE> 15,460,621
<TOTAL-LIABILITY-AND-EQUITY> 24,253,781
<SALES> 2,167,572
<TOTAL-REVENUES> 2,247,311
<CGS> 0
<TOTAL-COSTS> 733,205
<OTHER-EXPENSES> 23,953
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,105
<INCOME-PRETAX> 94,484
<INCOME-TAX> 18,523
<INCOME-CONTINUING> 75,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,961
<EPS-PRIMARY> .02
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