U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from to
-------- ---------
Commission File No. 0-25386
FRONTIER OIL EXPLORATION COMPANY
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0504461
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3006 Highland Drive, Suite 206
Salt Lake City, Utah 84106
(Address of principal executive offices)
(801) 486-5555
(Issuer's telephone number)
NONE
(Former name, former address and former fiscal
year, if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
----
State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date: 8,702,096 shares of $.001 par value
common stock outstanding as of May 13, 1996.
Transitional Small Business Disclosure Format: Yes No X
----
FRONTIER OIL EXPLORATION COMPANY AND SUBSIDIARIES
INDEX
Page
Number
PART I. Financial Information
Item 1. - Financial Statements
Consolidated Balance Sheet (unaudited) 3
Consolidated Statement of Operations (unaudited) 5
Consolidated Statement of Cash Flows (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. Other Information 13
Signatures 14
FRONTIER OIL EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
March 31, 1996
---------------
Current assets:
Cash and cash equivalents $ 559,171
Cash-restricted 300,000
Receivables:
Accrued oil sales 283,713
Due from joint interest owners 125,888
Inventory 14,634
Other current assets 74,943
-----------
Total current assets 1,358,349
-----------
Property and equipment, at cost:
Oil and gas properties (successful
efforts method):
Proved 6,138,853
Unproved 1,715,523
Other property and equipment 1,698,747
-----------
9,553,123
Less accumulated depreciation,
depletion and amortization (993,151)
------------
8,559,972
------------
Other assets:
Certificates of deposit 217,400
Loan origination and organizational
costs, net of accumulated
amortization of $110,975 12,752
-----------
Total other assets 230,152
-----------
TOTAL ASSETS $10,148,473
===========
- Continued -
The accompanying notes are an integral part
of the consolidated financial statements.
FRONTIER OIL EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
- Continued -
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1996
--------------
Current liabilities:
Accounts payable $ 361,579
Accounts payable - related parties 35,551
Accrued liabilities 382,103
Current portion of long-term debt 180,062
------------
Total current liabilities 959,295
Long-term debt 3,438,691
------------
Total liabilities 4,397,986
------------
Stockholders' equity:
Preferred stock, $.001 par value,
5,000,000 shares authorized,
17,500 shares issued and
outstanding, $17,500 liquidation
preference 18
Common stock, $.001 par value,
20,000,000 shares authorized,
8,460,485 shares issued and
outstanding 8,460
Additional paid-in capital 10,664,681
Stock subscription receivable (90,000)
Accumulated deficit (4,832,672)
-------------
Total stockholders' equity 5,750,487
------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 10,148,473
============
The accompanying notes are an integral part
of the consolidated financial statements.
FRONTIER OIL EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the three months
ended
March 31,
------------------------
1996 1995
----------- -----------
Revenues:
Oil sales $504,933 $515,794
Drilling revenue 475 4,749
Prospect sales 0 60,000
--------- ---------
Total revenues 505,408 580,543
--------- ---------
Operating costs and
expenses:
Production taxes 31,948 73,181
Production and operating
expenses 293,243 264,749
Drilling expenses 24,270 11,623
Depreciation, depletion
and amortization 138,286 106,161
Exploration costs 188,860 93,936
General and
administrative 365,859 275,977
---------- ---------
Total operating costs
and expenses 1,042,466 825,627
---------- ---------
Operating loss (537,058) (245,084)
----------- ----------
Other income (expense):
Interest and other
income 35,640 10,222
Interest expense (81,519) (110,795)
Minority interest: Non-
cash dividends on FX
Producing preferred
stock 0 (54,686)
---------- ----------
Total other expense (45,879) (155,259)
----------- -----------
Net loss $(582,937) $(400,343)
========== ==========
Net loss per common
share ($0.07) ($0.14)
======== =========
Weighted average number
of shares outstanding 8,086,025 2,810,976
========= ==========
The accompanying notes are an integral part
of the consolidated financial statements.
FRONTIER OIL EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended
March 31,
---------------------------
1996 1995
------------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(582,937) $(400,343)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation, depletion
and amortization 138,286 120,309
Minority interest: Non-
cash dividends on FX
Producing preferred stock 0 54,686
Common stock issued for
services 113,750 14,000
Increase (decrease) from
changes in:
Receivables (23,437) (203,650)
Inventory 1,317 1,150
Other current assets (42,849) (16,487)
Accounts payable and
accrued liabilities (351,136) 366,673
---------- ---------
Net cash used in
operating activities (747,006) (63,662)
---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to oil and gas
properties (89,032) (56,727)
Additions to other property
and equipment (58,183) (3,448)
Additions to other assets 0 (67,199)
Proceeds from sale of
interest in unproved
property 100,000 0
--------- ---------
Net cash used in
investing activities (47,215) (127,374)
--------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term debt (83,389) (78,287)
Proceeds from issuance of
FX Producing convertible
preferred stock 0 111,000
Proceeds from issuance of
common stock, net of
offering costs 993,060 394,932
--------- ---------
Net cash provided by
financing activities 909,671 427,645
--------- ---------
Increase in cash and cash
equivalents 115,450 236,609
Cash and cash equivalents
at beginning of period 743,721 288,872
--------- ---------
Cash and cash equivalents
(including restricted cash
of $300,000 as of March
31, 1996) at end of period $ 859,171 $ 525,481
========= =========
The accompanying notes are an integral part
of the consolidated financial statements.
FRONTIER OIL EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The interim financial data are unaudited; however, in the opinion of the
management of Frontier Oil Exploration Company and Subsidiaries ("Frontier" or
the "Company"), the interim data include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the interim periods. The financial statements should be read in conjunction
with Frontier's audited consolidated financial statements as of December 31,
1995, and notes thereto included in its Form 10-KSB.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation. At March 31, 1996, the
Company owned 100% of the voting common stock of its subsidiaries, including FX
Producing Company, Inc. ("FX Producing").
Effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
The Company has elected to continue to apply the current stock based
compensation methods pursuant to APB 25 and to furnish the additional
disclosures required by SFAS No. 123. The Company also adopted, as of January
1, 1996, SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of. The adoption of SFAS No. 121 had no
impact on the Company's financial statements.
NOTE 2: CASH - RESTRICTED
In accordance with an amendment to the Company's bank loan agreement in the
first quarter of 1996, the Company is required to purchase a certificate of
deposit in the amount of $300,000 in lieu of making its normal principal
reduction payments of $25,000 per month for the period from March 1 to September
30, 1996. The certificate of deposit was purchased in April 1996 and matures on
November 1, 1996. The certificate of deposit is pledged as collateral to the
bank note through its maturity date of November 1, 1996.
NOTE 3: INCOME TAXES
The Company recognized no income tax benefit from the losses generated in
1996 and 1995.
NOTE 4: COMMON STOCK
During the quarter ended March 31, 1996, the Company sold 359,893 shares
(of which 30,000 were subscribed at March 31, 1996) of common stock at $3.00 per
share resulting in net proceeds to the Company of $1,031,281, of which $90,000
was received in April 1996.
During the three months ended March 31, 1996, the following transactions in
the Company's common stock also occurred:
. sold 12,500 shares of common stock for $25,000
. holders of preferred stock converted 120,000 shares into 120,000 shares of
common stock
. 46,000 shares, valued at $113,750, were issued for services rendered
. 1,093 shares, valued at $2,186, were exchanged for an interest in oil
properties
In connection with the purchase of the Companys' producing oil properties
and well servicing equipment in 1994, the Company agreed to issue to the former
owners up to 400,000 shares of Company common stock in semi-annual increments of
50,000 shares each beginning October 1, 1994 on the attainment of certain levels
of oil production from the properties acquired. Production levels as of April
1, 1996, had not attained required levels and thus 200,000 shares which might
have been issued through April 1, 1996, had not been issued. Accordingly, the
number of shares which may be issued in the future has been reduced to 200,000
shares.
NOTE 5: LONG-TERM DEBT
The Company's bank loan agreement was amended in 1995. As part of that
amendment, principal reductions of $25,000 per month were suspended for the
period from March 1 through September 30, 1996 resulting in a decrease in the
current portion of long-term debt as of March 31, 1996. On May 13, 1996 the
bank amended the loan agreement to extend the maturity date of the note to
October 1, 1997.
NOTE 6: STOCK OPTIONS AND WARRANTS
During the quarter ended March 31, 1996, 22,004 warrants were exercised for
cash proceeds of $26,407. No warrants or options were issued during the
quarter.
NOTE 7: SUBSEQUENT EVENTS
During April and May 1996 the Company sold 156,111 shares of common stock
at an offering price of $4.50, resulting in net proceeds of approximately
$680,000.
On May 3, 1996, the Company entered into an agreement with RWE-DEA
Aktiengesellschaft fur Mineraloel und Chemie, Hamburg, Germany ("RWE-DEA"),
which provides for joint operations on the Company's approximately 2.4 million
acre on-shore Baltic Platform concession area in northern Poland.
This agreement grants to RWE-DEA the right to earn a 50% interest in the
concession area by paying the Company $250,000 in cash as of reimbursement of
cost incurred to date, paying up to $1,000,000 (plus 10% contingency) for a
seismic survey now being initiated on the Gladysze and two other structures
within the concession area, and bearing up to $1,000,000 (plus 10% contingency)
of the cost of an exploratory well scheduled for the last half of 1996 at a
location to be designated by RWE-DEA. Should the costs of the planned seismic
or drilling of the first exploratory well in 1996 exceed the amounts RWE-DEA is
obligated to pay, the Company will be required to pay 50% of the excess. In
order to obtain necessary funds, the Company may have to seek amounts of
additional equity, or funding through an industry-formed drilling and
development group. The Company is designated as the operator of all joint
operations.
The agreement with RWE-DEA is subject to approval by the Polish
authorities. Based on informal discussions between the Company, RWE-DEA, and
the Polish authorities, the Company expects that such approval will be obtained.
If such required approval is not obtained, the Company is required to return the
initial $250,000 cash payment and reimburse all of RWE-DEA's direct
expenditures.
FRONTIER OIL EXPLORATION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Working Capital.
The Company had working capital of $399,054 at March 31, 1996. For the
three months ended March 31, 1996, net cash of $747,006 was used in operating
activities compared to $63,662 in the same period of 1995 primarily as result of
using proceeds from the sale of common stock to pay accounts payable and accrued
liabilities. In order to meet its capital requirements, the Company will need
funds in addition to cash flows from operations and thus will continue to rely
on its ability to raise funds through exploration groups formed with others, the
sale of securities, bank loans, or the sale of interests in one or more project.
Financing Activities.
During the first three months of 1996, the Company sold 372,393 shares of
common stock resulting in net proceeds to the Company of $1,056,653, of which
$90,000 was received in April 1996. During the same period 22,004 warrants were
exercised resulting in proceeds to the Company of $26,407. In the first quarter
of 1995, the Company received $394,932 in net proceeds from sale of common stock
and $111,000 from issuance of FX Producing convertible preferred stock.
In April and May 1996 the Company sold 156,111 shares of common stock
resulting in net proceeds of approximately $680,000 and received $120,000 from
the exercise of 80,000 options to purchase common stock.
In the first quarter of 1996, the Company made principal payments of
$83,389 on its long-term debt as compared to $78,287 in the same period of 1995.
The Company continues to investigate the availability of additional sources
of equity, third-party debt or similar financing for development of its
producing properties, exploration activities and ongoing operations.
Investing Activities.
During the first three months of 1996, the Company expended $89,032,
primarily on its Montana oil properties, and $58,183 on well servicing equipment
as compared to $56,727 on its Montana oil properties and $3,448 on well
servicing equipment in the same period of 1995. The increased expenditures in
1996 were primarily attributable to the Companys' infill drilling program on its
Montana properties.
In the quarter ended March 31, 1996, the Company sold an interest in
unproved property for $100,000 which was recorded as a recovery of capitalized
cost.
On May 3, 1996, the Company entered into an agreement with RWE-DEA
Aktiengesellschaft fur Mineraloel und Chemie, Hamburg, Germany ("RWE-DEA"),
which provides for joint operations on the Company's approximately 2.4 million
acre on-shore Baltic Platform concession area in northern Poland.
This agreement grants to RWE-DEA the right to earn a 50% interest in the
concession area by paying the Company $250,000 in cash as of reimbursement of
cost incurred to date, paying up to $1,000,000 (plus 10% contingency) for a
seismic survey now being initiated on the Gladysze and two other structures
within the concession area, and bearing up to $1,000,000 (plus 10% contingency)
of the cost of an exploratory well scheduled for the last half of 1996 at a
location to be designated by RWE-DEA. Should the costs of the planned seismic
or drilling of the first exploratory well in 1996 exceed the amounts RWE-DEA is
obligated to pay, the Company will be required to pay 50% of the excess. In
order to obtain necessary funds, the Company may have to seek amounts of
additional equity, or funding through an industry-formed drilling and
development group. The Company is designated as the operator of all joint
operations.
The agreement with RWE-DEA is subject to approval by the Polish
authorities. Based on informal discussions between the Company, RWE-DEA, and
the Polish authorities, the Company expects that such approval will be obtained.
If such required approval is not obtained, the Company is required to return the
initial $250,000 cash payment and reimburse all of RWE-DEA's direct
expenditures.
The Company has initiated pre-drilling seismic work in the second quarter
of 1996 on its on-shore Baltic Platform concession in Poland and believes that
the planned seismic work will be completed in time to initiate test drilling in
the third quarter of 1996.
Unproved oil and gas properties include property acquisition costs
attributable to various individual exploration prospects. The Company's
capitalized costs of unproved properties are concentrated in two main prospects,
namely Lake Valley and Poland. In accordance with generally accepted accounting
principles, should the Company determine that the prospects' capitalized costs
are not recoverable following unsuccessful exploration drilling or otherwise,
the Company would record an impairment charge which may materially and adversely
affect the Company's results of operations for the period during which such
impairment is recognized.
Upon verification that the 1995 infill drilling program on its Montana
properties is increasing production as anticipated, the Company plans to
continue with that program in 1996 with the goal of generating revenue
sufficient to meet the Company's future ongoing operating requirements,
excluding discretionary exploration and development expenditures. Further debt
or equity financing will be necessary for continuation of the planned
development of the Montana properties in 1996.
Additional exploration in the U.S. Rocky Mountain area will be pursued as
funding permits.
RESULTS OF OPERATIONS
Comparison of First Quarter 1996 to First Quarter 1995
Oil revenues decreased 2% in the first quarter of 1996 as compared to the
same quarter of 1995. The decrease was due to a decrease in production of 2,628
barrels to 31,598 for the first quarter 1996, compared to 34,226 for the same
quarter in 1995. The decrease in production was offset by an average increase
of approximately $1.06 per barrel in the price of oil sold during the first
quarter 1996 as compared to the first quarter 1995. The average price for crude
oil from the Southwest Cut Bank Sand Unit during the first quarter of 1996 was
$16.49 per barrel, compared to $15.11 during the same quarter of 1995, an
increase of 9%.
Drilling revenues were not significant in the first quarter of 1996 or 1995
as no drilling was performed by the Company's drilling rig during the periods.
In the first quarter of 1995 the Company sold an interest in undeveloped
acreage and recognized revenues of $60,000 related to the sale. During the
first quarter of 1996, the Company sold an interest in an unproved property for
$100,000. However, the proceeds from the 1996 sale were treated as a recovery
of costs of the overall project and accordingly no revenues were recorded.
Production taxes decreased $41,233 to $31,948 in the first quarter of 1996
as compared to $73,181 in the same quarter of 1995. The decrease was primarily
due to an exemption, effective July 1, 1995, for certain stripper well
production affecting most of the Company's Montana production. Effective
January 1, 1996, another production tax of approximately 5.5% was eliminated on
most of the Montana production. The elimination of these two production taxes
will continue in the future.
Production and operating expenses in the first quarter of 1996 increased
$28,494 over the same period in 1995. Factors which contributed to the increase
were record cold weather conditions in the first quarter of 1996 resulting in
increased costs as compared to the same period in 1995 and a continuation of
concerted efforts to perform increased maintenance on the Southwest Cut Bank
Sand Unit in conjunction with the Company's overall plan to enhance production
of the field.
Drilling expenses were minimal during the first quarters of 1996 and 1995
as no drilling projects were in process during the respective quarters.
Drilling expenses during the quarters relate to maintenance and carrying costs
associated with the Company's drilling rig which may vary from period to period.
Depreciation, depletion and amortization increased $32,125 to $138,286 in
the first quarter 1996, and compared to $106,161 in the first quarter of 1995.
The increase is primarily attributable to two items, an increase in capitalized
oil and gas property costs of approximately $1,260,000 as of March 31, 1996 as
compared to March 31, 1995 and a reduction of total proved reserves used to
calculate depreciation, depletion, and amortization for the quarter ended March
31, 1996 compared to the quarter ended March 31, 1995.
Exploration costs increased $94,924 in the first quarter of 1996 as
compared to the same period of 1995, primarily attributable to the Company's
continued exploration efforts in Poland.
General and administrative expenses were $365,859 in the first quarter of
1996 as compared to $275,977 in the same quarter of 1995, an increase of
$89,882. The increase is due to additional administrative requirements of the
Company in 1996 due to expansion of the Company's activities after its' public
offering and becoming a reporting company in late 1995.
Interest and other income increased in the first quarter of 1996 as
compared to 1995 primarily due to increased interest income due to an increase
in average cash on hand during 1996 and a one time distribution from an old
partnership interest of $15,416.
Interest expense decreased $29,276 to $81,519 for the quarter ended March
31, 1996 as compared to $110,795 for the quarter ended March 31, 1995. The
decrease is primarily due to a decrease in the average outstanding balance of
the Company's long-term debt for the first quarter of 1996 as compared to the
same quarter of 1995.
During the quarter ended March 31, 1995 the Company paid non-cash (stock)
dividends of $54,686 on preferred stock of its oil-producing subsidiary, FX
Producing. All preferred shares of FX Producing had been converted into common
stock of the Company as of December 31, 1995 and accordingly there was no
dividend payment on the preferred stock in the first quarter of 1996 nor will
there be in the future.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K.
None.
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.
FRONTIER OIL EXPLORATION COMPANY
(Registrant)
Date: May 13, 1996 By:/s/ David N. Pierce, Chief Executive
Officer, President, Chief Financial
Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET
AS OF MARCH 31, 1996, AND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 859,171
<SECURITIES> 0
<RECEIVABLES> 409,601
<ALLOWANCES> 0
<INVENTORY> 14,634
<CURRENT-ASSETS> 1,358,349
<PP&E> 9,553,123
<DEPRECIATION> 993,151
<TOTAL-ASSETS> 10,148,473
<CURRENT-LIABILITIES> 959,295
<BONDS> 0
<COMMON> 8,460
0
18
<OTHER-SE> 5,742,009
<TOTAL-LIABILITY-AND-EQUITY> 10,148,473
<SALES> 504,933
<TOTAL-REVENUES> 505,408
<CGS> 0
<TOTAL-COSTS> 1,042,466
<OTHER-EXPENSES> (35,640)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,519
<INCOME-PRETAX> (582,937)
<INCOME-TAX> 0
<INCOME-CONTINUING> (582,937)
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<NET-INCOME> (583,937)
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