UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
---------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission File Number 1-7796
TIPPERARY CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1236955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
633 Seventeenth Street, Suite 1550
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 293-9379
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding August 14 1996
- ---------------------------- ---------------------------
Common Stock, $.02 par value 13,050,271 shares
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
Page No.
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheet
June 30, 1996 and September 30, 1995 1
Consolidated Statement of Operations
Three months and nine months ended
June 30, 1996 and 1995 2
Consolidated Statement of Cash Flows
Nine months ended June 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,704 $ 4,193
Receivables 2,134 2,355
Inventory 190 190
Current portion of deferred income taxes,
net - 21
Other current assets 164 176
---------- ----------
Total current assets 5,192 6,935
---------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, full cost method 122,045 113,188
Other property and equipment 2,276 1,998
---------- ----------
124,321 115,186
Less accumulated depreciation, depletion and
amortization (84,491) (81,527)
---------- ----------
Property, plant and equipment, net 39,830 33,659
---------- ----------
Noncurrent portion of deferred income taxes, net 3,191 3,170
Investment in preferred stock 1,770 1,770
Investment in NGL fractionating plant 2,454 1,454
Other noncurrent assets 111 56
---------- ----------
$ 52,548 $ 47,044
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ -
Accounts payable 552 775
Accrued liabilities 240 194
Income taxes payable - 42
Production taxes payable 185 257
Royalties payable 172 212
---------- ----------
Total current liabilities 1,149 1,480
---------- ----------
Long-term debt, net of current portion 15,746 15,746
Commitments and contingencies (Note 2)
Stockholders' equity:
Common stock; par value $.02; 20,000,000
shares authorized; 12,641,404 issued
and 12,613,604 outstanding in 1996;
11,237,404 issued and 11,209,604
outstanding in 1995 253 225
Capital in excess of par value 104,498 98,424
Accumulated deficit (69,027) (68,760)
Treasury stock, at cost; 27,800 shares (71) (71)
---------- ----------
Total stockholders' equity 35,653 29,818
---------- ----------
$ 52,548 $ 47,044
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 3,084 $ 3,132 $ 8,401 $ 9,236
Costs and expenses:
Operating 1,404 1,468 4,102 4,293
General and administrative 380 335 1,071 987
Depreciation, depletion and
amortization 987 1,210 2,993 4,113
-------- -------- -------- --------
Total costs and expenses 2,771 3,013 8,166 9,393
-------- -------- -------- --------
Operating income (loss) 313 119 235 (157)
Other income (expense):
Interest income 66 42 177 86
Dividend income 21 22 65 66
Interest expense (226) (266) (731) (790)
Research and development expense - (12) (17) (24)
-------- -------- -------- --------
Total other expense (139) (214) (506) (662)
Income (loss) before
income tax 174 (95) (271) (819)
Income tax benefit (expense) 22 (48) 18 (48)
Income (loss) before equity in
loss of NGL fractionating plant 196 (143) (253) (867)
Equity in loss of NGL
fractionating plant (51) - (14) -
-------- -------- -------- --------
Net income (loss) $ 145 $ (143) $ (267) $ (867)
======== ======== ======== ========
Net income (loss) per share $ .01 $ (.01) $ (.02) $ (.08)
======== ======== ======== ========
Weighted average shares
outstanding 11,911 11,188 11,441 11,188
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
June 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (267) $ (867)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization 2,993 4,113
Equity in loss of NGL fractionating plant 14 -
Deferred lease obligation - (7)
Change in assets and liabilities:
Decrease in receivables 221 449
Decrease in other current assets 12 217
Increase (decrease) in accounts payable,
accrued liabilities, and production
and income taxes payable (291) 529
Decrease in royalties payable (40) (141)
Other (84) 36
-------- --------
Net cash provided by operating activities 2,558 4,329
-------- --------
Cash flows from investing activities:
Proceeds from asset sales 234 5,046
Investment in NGL fractionating plant (1,014) (717)
Capital expenditures (9,369) (5,386)
-------- --------
Net cash used in investing activities (10,149) (1,057)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock 6,102 -
-------- --------
Net cash provided by financing activities 6,102 -
-------- --------
Net increase (decrease) in cash and cash
equivalents (1,489) 3,272
Cash and cash equivalents at beginning of period 4,193 2,308
-------- --------
Cash and cash equivalents at end of period $ 2,704 $ 5,580
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 738 $ 790
Income taxes $ 11 $ 52
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIRIES
Notes to consolidated Financial Statements
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Representation
- ---------------------------
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments, which
are necessary for a fair presentation of the consolidated financial position of
Tipperary Corporation (the "Company") at June 30, 1996, and the results of its
operations for the three-month and nine-month periods ended June 30, 1996, and
1995. The consolidated financial statements include the accounts of Tipperary
Corporation and its subsidiaries, all wholly-owned, and its share of assets,
liabilities, revenues and expenses of unincorporated joint ventures and
partnerships. The Company's investments in limited liability companies, over
which it exercises significant influence, are accounted for under the equity
method. The accounting policies followed by the Company are included in Note 1
to the Consolidated Financial Statements in the Annual Report on Form 10-K for
the year ended September 30, 1995. These financial statements should be read in
conjunction with the Form 10-K.
Impact of New Accounting Pronouncements
- ---------------------------------------
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121
requires the write-down to recoverable value of certain long-lived assets. The
Company must apply SFAS 121 to all of its long-lived assets other than oil and
gas properties, which will continue to be accounted for using the full cost
method, by no later than its fiscal year ending September 30, 1997. The Company
has not determined the effect, if any, that the adoption of SFAS 121 will have
on its financial condition or results of operations.
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 requires the recording or disclosure of the value of stock
options or other equity instruments issued to employees. The Company must adopt
the provisions of SFAS 123 no later than its fiscal year ending September 30,
1997. The Company has not determined the effect, if any, that the adoption of
SFAS 123 will have on its financial condition or results of operations.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company is a Defendant in a lawsuit filed on September 20, 1991 styled
VALERO TRANSMISSION, L.P. V. J. L. DAVIS V. TIPPERARY CORPORATION, Cause No.
91-09-00357-CVF, in the 81st Judicial District, Frio County, Texas. The case
involves gas purchase contracts between Valero and Davis. The Company
previously owned 50% of Davis' interest in the contracts. Valero claimed it had
overpaid Davis under the contracts and requested damages for breach of contract
from Davis. Davis thereafter filed a third-party petition against the Company
requesting that the Company reimburse Davis for 50% of any amounts paid to
Valero on account of the claims made by Valero in its original petition. Valero
and Davis have now settled the claims between themselves, and Davis has
requested that the Company reimburse Davis for 50% of such settlement to the
extent that the settlement covers time periods in which Davis and the Company
each owned a 50% interest in the contracts. The Company has answered the
lawsuit, denying the claims of Davis, and the Company intends to vigorously
defend all claims made in the suit. The Company does not anticipate that this
matter will have a material adverse effect on its financial condition or results
of operations.
NOTE 3 - ISSUANCE OF COMMON STOCK
In May 1996, the Company sold 1,400,000 shares of its common stock to two
institutional investors. The proceeds of $6,102,000 were used to acquire from
an unaffiliated interest holder an additional 15.75% capital bearing interest in
the Comet Ridge coalbed methane project in Queensland, Australia. After this
acquisition, the Company's interest in the project bears 45.75% of capital costs
and 42.891% of operating expenses and its net revenue interest is 38.6016% prior
to project payout. Subsequent to project payout, the Company's interest will
bear 36.6% of capital and operating expenses and its net revenue interest will
be 32.94%.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
- -------------------
The Company had cash and cash equivalents of $2,704,000 as of June 30, 1996,
versus $4,193,000 as of September 30, 1995. During the nine months ended June
30, 1996, cash flows were provided primarily by financing activities. In May
1996, the Company received $6,102,000 from the sale of common stock and used the
proceeds to purchase an additional interest in the Comet Ridge coalbed methane
project in Queensland, Australia. During the nine months ended June 30, 1995,
cash flows were provided by the Company's producing oil and gas properties. Net
cash provided by operating activities was $2,558,000 and $4,329,000 for the nine
months ended June 30, 1996, and 1995, respectively. The decrease was
attributable primarily to declining revenues, and to payments of accrued
payables and other liabilities during the nine months ended June 30, 1996, as
compared to the corresponding period in fiscal 1995. The Company has continued
to utilize cash on hand, along with cash flows from producing properties and
cash proceeds from property sales, to fund its domestic and international
exploration projects and construction of the Alabama NGL fractionating plant.
The Company made no principal payments in either period on its long-term debt,
all of which was owed to the Company's commercial bank lender.
During the nine months ended June 30, 1996, the Company incurred $9,369,000 in
capital expenditures, and invested an additional $1,014,000 in two separate
limited liability companies for completion of the construction of the NGL
fractionating plant. Offsetting these, were proceeds of $234,000 from the sale
of miscellaneous producing oil and gas properties, resulting in net cash used in
investing activities of $10,149,000. The capital expenditures of $9,369,000
included $6,774,000 expended on the Comet Ridge project in Queensland,
Australia, of which $6,100,000 was used for the purchase of an additional 15.75%
capital bearing interest. Other capital expenditures during this period
included $586,000 on the Missouri River exploration project in Montana,
$599,000 in other Williston Basin leasehold costs, and $1,410,000 primarily
attributable to recompletions and other domestic drilling activities. During
the nine months ended June 30, 1995, capital expenditures of $5,386,000 and an
investment of $717,000 in the entities owning the NGL fractionating plant were
offset by proceeds from the sale of producing properties of $5,046,000,
resulting in net cash used in investing activities of $1,057,000. The capital
expenditures of $5,386,000 included $3,318,000 expended on the Comet Ridge
project, $758,000 attributable to the Missouri River project, and $1,310,000
expended for various other domestic drilling and recompletion projects and other
property, plant and equipment additions.
While the Company's cash flows are directly affected by oil and gas prices, the
Company's existing hedge positions serve to partially mitigate the effects of
lower oil prices. The Company presently has hedged, under swap agreements,
20,000 barrels per month (approximately 49%) of its projected fourth quarter
fiscal 1996 oil production. These swap agreements provide an average floor
price of approximately $16.88 per barrel as quoted on the New York Mercantile
Exchange ("NYMEX"), and allow upside participation percentages of 50% of price
increases above the specific floor level. Under similar swap agreements, the
Company has hedged 10,000 barrels per month (approximately 27%) of its projected
fiscal 1997 oil production at an average floor price of $17.70 per barrel. The
Company's actual price received at the wellhead during the nine months ended
June 30, 1996, averaged $2.46 per barrel below NYMEX prices. Oil revenues for
the nine months ended June 30, 1996, represented 76% of total oil and gas
revenues. None of the Company's gas production is currently hedged. Net
payments pursuant to the Company's hedging activities for the nine months ended
June 30, 1996, and 1995 were approximately $222,000 and $164,000, respectively.
Notwithstanding the Company's hedging positions, decreases in oil and gas prices
subsequent to June 30, 1996, could cause a significant reduction in cash flows
available for the funding of capital projects and reduction of bank debt, and
could negatively impact the Company's efforts to secure new financing.
The Company's bank credit agreement provides a maximum facility of $40,000,000,
subject to borrowing base limitations described below. At the Company's option,
interest on the revolving loan (the "revolver") is payable at either (i) the
bank's Base Rate or (ii) the London Interbank Offered Rate ("LIBOR") plus 1.5%.
The LIBOR-based option may be selected for periods not exceeding 90 days. At
June 30, 1996, the weighted average interest rate for amounts under the revolver
was 7.04%. The agreement also provides for a $10,000,000 fixed rate loan at
5.92%, with interest payable monthly and principal due in full on September 30,
1996. The bank and the Company have agreed that, upon maturity, the fixed rate
loan will convert to a revolving loan pursuant to the current terms of the
revolver. The total outstanding loan balance at June 30, 1996, was $15,746,000;
$10,000,000 under the fixed rate loan and $5,746,000 under the revolver. Upon
expiration of the revolver, the LIBOR/Base Rate loan was scheduled to convert to
a four-year term loan on April 5, 1997. This conversion date was extended to
October 5, 1997. It may be extended again, although the
5
<PAGE>
Company has no such guarantee. The maximum borrowing base is determined solely
by the bank and is based upon its assessment of the value of the Company's
properties. This bank valuation is based upon the bank's assumptions about
reserve quantities, oil and gas prices, operating expenses and other
assumptions, any of which may change from time to time and which may not agree
with the Company's assumptions. At September 30, 1995, the borrowing base was
$16,400,000, and was reset at $16,000,000 in February 1996. Should the
outstanding loan balance ever exceed the borrowing base, the Company is required
to either (i) make a cash payment to the bank equal to or greater than such
excess or (ii) provide additional collateral to the bank to increase the
borrowing base by the amount of the deficit. The Company anticipates further
reductions in the borrowing base and intends to use cash generated from the sale
of partial interests in its exploratory projects, proceeds from the sale of
minor value producing properties and cash received upon exercise of warrants
subsequent to June 30, 1996, to reduce the outstanding loan balance. The
Company is obligated to pay a commitment fee of 3/8% per annum on the difference
between the average outstanding loan balance and the borrowing base. The credit
agreement provides that the Company may not pay dividends without the prior
approval of the bank.
The Company currently has minimal remaining unused borrowing capacity, but if
efforts to establish additional oil and gas reserves through its exploration
projects are successful, the Company could increase its borrowing base with the
bank. The Company anticipates that in order to complete its capital projects
and sustain growth, internal cash flow and bank financing will have to be
supplemented with project financing and/or additional corporate debt or equity
offerings. The Company presently anticipates using cash on hand, existing cash
flows, additional bank financing and any additional external financing to pursue
both its domestic and international exploratory projects, to possibly purchase
additional producing oil and gas properties and to maintain a modest level of
developmental drilling.
Domestic Exploration
- --------------------
Missouri River Project. The Company owns an 87.5% undivided interest in
approximately 45,000 acres in its Missouri River project area in the Williston
Basin of Montana. During fiscal 1995, a 3-D seismic survey was conducted over
approximately 30% of the project area, resulting in the identification of
several drillable prospects. The Company drilled a dry hole on the first
prospect tested in February 1996. As of September 30, 1995, the Company's
investment in the project totaled approximately $1,815,000. An additional
$586,000 was incurred during the first nine months of fiscal 1996, bringing the
total investment to $2,401,000 as of June 30, 1996. The Company has had
discussions with potential drilling partners in the past, and will continue to
seek third party participants in this project.
Other Williston Basin Prospects. In different areas of the Williston Basin, the
Company has identified numerous other individual prospects and has acquired
leasehold acreage with the intent to conduct 3-D seismic surveys and commence
an exploratory drilling program. As of June 30, 1996, the Company had acquired
approximately 30,000 net acres on 29 prospects and had invested approximately
$656,000 in these areas. The Company is currently in discussions to secure
additional funding for these projects by involving industry partners as
participants.
International Exploration and Development
- -----------------------------------------
The Company owns a 45.75% nonoperating interest in the Comet Ridge coalbed
methane project in Queensland, Australia. The Company's interest bears 45.75%
of capital costs and 42.891% of operating expenses and its net revenue interest
is 38.6016% prior to project payout. Subsequent to project payout, the
Company's interest will bear 36.6% of capital and operating expenses and its net
revenue interest will be 32.94%. The Company increased its ownership interest
in the project from 30% to 45.75% in June 1996 with the acquisition of an
additional 15.75% capital bearing interest for approximately $6,100,000. The
purchase was financed through the May 1996 issuance of 1,400,000 shares of the
Company's common stock.
The joint venture conducting the project (the "Group") holds an Authority to
Prospect ("ATP") covering approximately 1,365,000 acres. The holder of the ATP
may apply for petroleum leases upon establishing to the satisfaction of the
Queensland government that commercial deposits of petroleum have been
discovered. The Group has been granted petroleum leases covering approximately
167,000 acres. The balance of acreage included within the ATP is subject to
contraction or relinquishment on certain dates in the future should the
Queensland Minister for Mines and Energy deem that insufficient exploration
activity has occurred. The Group intends to request extensions of any
contraction of the ATP based upon the significant level of investment and
activity conducted in the past two years and that planned for the future. The
next scheduled date to determine any contractions is November 1, 1996.
6
<PAGE>
As of June 30, 1996, the Group had drilled a total of 16 wells on the ATP. One
well, located on the northern portion of the ATP, has been drilled and is
awaiting further completion procedures. Fifteen of the wells located in the
Fairview area of the southern portion of the ATP have been completed and have
been production tested to varying degrees. Fourteen of the wells have been
producing for several months for the purpose of gathering data relative to gas
and water production rates and estimated recoverable gas reserves. No
additional wells have been drilled since September 30, 1995; however, the
Company anticipates resumption of drilling activity during the fourth quarter of
fiscal 1996, or early in the first quarter of fiscal 1997. Reservoir modeling,
combined with evaluation of actual production performance data, has allowed
independent reservoir engineers to assign technically recoverable reserve
volumes to the 14 wells in the core Fairview area. Although the Company has not
included these reserves in its proved reserves due to the present lack of a
sales contract and marketing facilities, the Company believes the property will
be commercially productive.
The Group has entered into an agreement to negotiate a gas contract with a
Brisbane-based utility. The agreement constitutes an intent to negotiate
specific terms in good faith for the delivery of approximately 57 petajoules, or
roughly 57 BCF, over 15 years beginning in January 1997, or as soon as a
pipeline connection can be made. The Group is currently receiving and reviewing
proposals from third party companies to build a pipeline from the Fairview area
to the Queensland Gas Pipeline. This pipeline, which was recently purchased
from the state of Queensland by Pacific Gas Transmission, can deliver gas into
the Brisbane and Gladstone market areas.
The Company cannot predict future capital requirements, but is currently
discussing project financing proposals being presented to the Group by third
parties. The Company will consider these proposals as well as corporate level
financing. The availability of capital resources may affect the Company's
timing for future development of the project and there can be no assurance that
the project will be developed as presently contemplated. As of June 30, 1996,
the Company's investment in the project totaled approximately $11,899,000.
Other Activities
- ----------------
NGL Fractionating Plant. On August 19, 1994, the Company entered into an
agreement with four other parties to form a Utah limited liability company
("Utah LLC") for the purpose of constructing a natural gas liquids ("NGL")
fractionating facility (the "Plant") in Alabama. The LLC simultaneously entered
into an agreement with two other parties to form an Alabama limited liability
company ("Alabama LLC") to construct and operate the Plant. The Company
initially committed to contribute $1,148,000 in cash in return for a 45%
interest in Plant profits prior to payout of its investment and a 27% interest
thereafter. During fiscal 1995, following certain cost overruns and
construction delays, the Company agreed to increase its investment in connection
with a restructuring of the Plant ownership. During the quarter ended March 31,
1996, the Company purchased the interest of one of the members of the Alabama
LLC. After this purchase, the Company owns an interest in the Plant of
approximately 55% prior to payout and approximately 47% thereafter. As a result
of the additional investment to cover cost overruns, the Company receives a
preferential distribution of an additional 3.999%.
The Plant commenced testing operations in late November 1995, and is now
operating at almost full capacity. As of September 30, 1995, the Company had
invested $1,454,000, which investment increased to $2,454,000 as of June 30,
1996. The investment at June 30, 1996, is net of a distribution of $83,000 and
includes a net loss of $14,000, which represents the Company's share of the net
loss from the Plant's operations from start-up through June 30, 1996. Before
depreciation, depletion and amortization ("DD&A"), the Company's share of income
was $117,000. The results of plant operations to date have been hindered by
weak product margins during the summer months and also to certain mechanical
inefficiencies. Certain of these mechanical inefficiencies have been corrected
and the others are currently being corrected. The Company and its co-owners
commissioned a study by a third party chemical engineering consultant who
concluded that the plant is capable of operating and performing as designed.
Research Project. The Company has funded a research project conducted by Texas
Tech University ("Texas Tech") for development of a clean-up technology designed
to biodegrade absorbent materials used in the clean-up of contaminants,
including oil. An environmental research team, which was retained by the
Company to determine commercial applications for the process, has reported that
the commercialization opportunities are likely greater with respect to removal
of contaminants other than oil. Subject to a 10% sales royalty to be paid to
Texas Tech, the Company may acquire licensing rights to the technology. Costs
incurred pursuant to this arrangement are expensed as incurred. During the
nine months ended June 30, 1996, the Company paid $17,000 for third party
consulting services.
7
<PAGE>
Management does not anticipate any significant further expenditures to be
incurred, and intends to explore the sale of the Company's rights to the
technology.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996, AND
1995
The Company reported net income of $145,000 for the three months ended June 30,
1996, compared to a net loss of $143,000 for the three months ended June 30,
1995. The $288,000 increase in net income for the third quarter of fiscal 1996,
compared to the third quarter of fiscal 1995, is primarily due to lower DD&A
expense in the fiscal 1996 quarter. Following are detailed comparisons of the
components of the respective periods.
Operating revenues for the three months ended June 30, 1996, decreased $48,000,
or 2%, to $3,084,000 from $3,132,000 in the corresponding fiscal 1995 period.
Oil volumes decreased 24,000 barrels, or 17%, to 121,000 barrels versus 145,000
barrels in the prior year period, decreasing revenue by $395,000. Gas volumes
decreased 97,000 Mcf, or 20%, to 396,000 Mcf in the current period compared to
493,000 Mcf in the three months ended June 30, 1995, resulting in a $139,000
decrease in revenues. The decreases in volumes produced are attributable to
both the sale of producing properties and to declining production rates.
Average oil prices increased 16% to $19.11 per barrel for the three months ended
June 30, 1996, from $16.45 per barrel for the corresponding prior year quarter,
resulting in a $322,000 increase in revenue. Gas prices increased 31% to $1.87
per Mcf in the current quarter versus $1.43 in the prior year quarter, resulting
in a $174,000 revenue increase. Saltwater disposal and other income decreased
$10,000 from the corresponding fiscal 1995 quarter.
Operating expenses decreased $64,000, or 4%, to $1,404,000 from $1,468,000
reported in fiscal 1995. The decrease was primarily attributable to the
disposition of producing properties. The Company's average lifting cost per
equivalent barrel increased 18%, however, to $7.38 in the three month period of
fiscal 1996 from $6.27 in the prior year period. This increase was attributable
primarily to declining production rates.
General and administrative expenses increased by $45,000, or 13%, to $380,000
during the three months ended June 30, 1996, compared to $335,000 for the prior
year period. The increase was attributable to increased payroll costs and
consulting fees.
DD&A expense for the three months ended June 30, 1996, decreased by $223,000, or
18%, to $987,000 from $1,210,000 reported for the comparable fiscal 1995 period.
The decrease is attributable to the sale of producing reserves and to lower
production volumes.
Interest income increased $24,000, or 57%, to $66,000 in the quarter ended June
30, 1996, from $42,000 in the corresponding prior year quarter. This increase
is due to an increase in the average balance of cash and cash equivalents.
Interest expense for the three months ended June 30, 1996, decreased by $40,000,
or 15%, to $226,000 from $266,000 for the three months ended June 30, 1995.
Prior to capitalization of interest, interest expense decreased by $14,000, or
5%. Such decrease is attributable to general decreases in interest rates.
Research and development expense decreased to $0 from $12,000 in the three
months ended June 30, 1996, as compared to the three months ended June 30, 1995.
The Company has met a contractual funding commitment, but has periodically made
voluntary payments for third party consulting services.
Current income tax expense decreased $70,000, or 146%, to a benefit of $22,000
from an expense of $48,000 in the prior year period. This decrease is due to a
decrease in taxable income.
The net income for the three months ended June 30, 1996, includes a loss of
$51,000 representing the Company's equity interest in the net loss of the
Alabama NGL fractionating plant. Before DD&A, this loss was $2,000. The
plant's loss is attributable to the seasonal reduction in product margins and
certain mechanical inefficiencies which have been or are now being corrected.
8
<PAGE>
RESULTS OF OPERATIONS - COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1996, AND
1995
The Company reported a net loss of $267,000 for the nine months ended June 30,
1996, and a net loss of $867,000 for the nine months ended June 30, 1995. The
$600,000 decrease in the net loss for the first nine months of fiscal 1996,
compared to the net loss reported for the corresponding period in fiscal 1995,
was due primarily to lower DD&A expense in the fiscal 1996 period. Following
are detailed comparisons of the components of the respective periods.
Operating revenues for the nine months ended June 30, 1996, decreased $835,000,
or 9%, to $8,401,000 from $9,236,000 in the corresponding fiscal 1995 period.
Oil volumes decreased 68,000 barrels, or 16%, to 363,000 barrels versus 431,000
barrels in the prior year period, decreasing revenue by $1,059,000. Gas volumes
decreased 468,000 Mcf, or 28%, to 1,184,000 Mcf in the current period compared
to 1,652,000 Mcf in the nine months ended June 30, 1995, resulting in a $679,000
decrease in revenues. The volume decreases are attributable to both the sale of
producing properties and to declining production rates. Average oil prices
increased 11% to $17.31 per barrel for the nine months ended June 30, 1996, from
$15.57 per barrel for the corresponding prior year period, resulting in a
$632,000 increase in revenue. Gas prices increased 16% to $1.68 per Mcf in the
current period versus $1.45 in the prior year period, resulting in a $272,000
revenue increase. Saltwater disposal and other income decreased $1,000 from the
corresponding fiscal 1995 period.
Operating expenses decreased $191,000, or 4%, to $4,102,000 from $4,293,000
reported in fiscal 1995. The decrease was primarily attributable to the
disposition of producing properties. However, the Company's average lifting
cost per equivalent barrel increased 18% to $6.95 in the first nine months of
fiscal 1996 from $5.90 in the prior year period. This increase was attributable
primarily to declining production rates.
General and administrative expenses increased by $84,000, or 9%, to $1,071,000
during the nine months ended June 30, 1996, compared to $987,000 for the prior
year period, primarily due to increased payroll costs and consulting fees.
DD&A expense for the nine months ended June 30, 1996, decreased by $1,120,000,
or 27%, to $2,993,000 from $4,113,000 reported for the comparable fiscal 1995
period. The decrease is attributable to the sale of producing reserves and to
lower production volumes.
Interest income increased $91,000, or 106%, to $177,000 in the nine months ended
June 30, 1996, from $86,000 in the corresponding prior year period. This
increase is primarily due to an increase in the average balance of cash and cash
equivalents.
Interest expense for the nine months ended June 30, 1996, decreased $59,000, or
7%, to $731,000 from $790,000 for the nine months ended June 30, 1995. Prior to
capitalization of interest, interest expense decreased by $19,000, or 2%. Such
decrease is attributable to general decreases in interest rates.
Research and development expense decreased $7,000, or 29%, to $17,000 from
$24,000 in the nine months ended June 30, 1996, as compared to the nine months
ended June 30, 1995. The Company has met a contractual funding commitment, but
has made voluntary payments for third party consulting services.
Current income tax expense decreased $66,000, or 138%, to a benefit of $18,000
from an expense of $48,000 in the prior year period. This decrease is due to a
decrease in taxable income.
The net loss for the nine months ended June 30, 1996, includes a loss of $14,000
representing the Company's equity interest in the net loss of the Alabama NGL
fractionating plant. Before DD&A, the Company's share of net income was
$117,000. The plant generated losses during start-up operations, which were
first commenced with testing operations in late November 1995. The plant was
profitable during the second quarter of fiscal 1996, and then generated losses
during the quarter ended June 30, 1996, due to the seasonal reduction in product
margins and certain mechanical inefficiencies which have been or are now being
corrected.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------
See Note 2 to the consolidated financial statements under
Part I - Item 1.
Item 2. Changes in Securities
- ------
See Note 3 to the consolidated financial statements under
Part I - Item 1.
Item 3. Defaults Upon Senior Securities
- ------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------
None
Item 5. Other Information
- ------
Effective July 11, 1996, James A. McAuley, 65, resigned from the
Company's Board of Directors, after serving as a Director for nine
years, in order to pursue other business interests. Kenneth L.
Ancell, 53, a petroleum engineer and a principal in the Houston-based
consulting engineering firm of Fairchild, Ancell and Wells, was
elected to the Board. Mr. Ancell has specialized in, and has
particular expertise in, coalbed methane development and oil and gas
recovery processes.
Item 6. Exhibits and Reports on Form 8-K
- ------
(a) Exhibits:
--------
Filed in Part I
None
Filed in Part II
27 Financial Data Schedule.
(b) Reports on Form 8-K:
-------------------
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tipperary Corporation
-------------------------------------
Registrant
Date: August 14, 1996 By: /s/ David L. Bradshaw
-------------------------------------
David L. Bradshaw, President, Chief
Executive Officer
Date: August 14, 1996 By: /s/ Paul C. Slevin
-------------------------------------
Paul C. Slevin, Chief Financial Officer
Date: August 14, 1996 By: /s/ Wayne W. Kahmeyer
-------------------------------------
Wayne W. Kahmeyer, Controller and
Principal Accounting Officer
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FOUND ON PAGES 1
AND 2 OF THE COMPANY'S FORM 10-Q FOR THE NINE MONTHS ENDED JUNE 30, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,704
<SECURITIES> 0
<RECEIVABLES> 2,134
<ALLOWANCES> 0
<INVENTORY> 190
<CURRENT-ASSETS> 5,192
<PP&E> 124,321
<DEPRECIATION> 84,491
<TOTAL-ASSETS> 52,548
<CURRENT-LIABILITIES> 1,149
<BONDS> 15,746
0
0
<COMMON> 253
<OTHER-SE> 35,400
<TOTAL-LIABILITY-AND-EQUITY> 52,548
<SALES> 8,401
<TOTAL-REVENUES> 8,401
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<TOTAL-COSTS> 4,102
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<INTEREST-EXPENSE> 731
<INCOME-PRETAX> (271)
<INCOME-TAX> (18)
<INCOME-CONTINUING> (267)
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<EXTRAORDINARY> 0
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<NET-INCOME> (267)
<EPS-PRIMARY> (.02)
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