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 March 31, 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 May 14, 1996
- ---------------------------- ------------------------
Common Stock, $.02 par value 11,209,604 shares
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
<TABLE>
<CAPTION>
Page No.
<C> <S> <C>
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheet
March 31, 1996 and September 30, 1995 1
Consolidated Statement of Operations
Three months and six months ended
March 31, 1996 and 1995 2
Consolidated Statement of Cash Flows
Six months ended March 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security
Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,796 $ 4,193
Receivables 2,102 2,355
Inventory 190 190
Current portion of deferred income taxes,
net 22 21
Other current assets 186 176
------------ -------------
Total current assets 5,296 6,935
------------ -------------
Property, plant and equipment, at cost:
Oil and gas properties, full cost method 114,863 113,188
Other property and equipment 2,262 1,998
------------ -------------
117,125 115,186
Less accumulated depreciation, depletion and
amortization (83,513) (81,527)
------------ -------------
Property, plant and equipment, net 33,612 33,659
------------ -------------
Noncurrent portion of deferred income
taxes, net 3,169 3,170
Investment in preferred stock 1,770 1,770
Investment in NGL fractionating plant 2,476 1,454
Other noncurrent assets 98 56
------------ -------------
$ 46,421 $ 47,044
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ -
Accounts payable 655 775
Accrued liabilities 137 194
Income taxes payable 41 42
Production taxes payable 250 257
Royalties payable 186 212
------------ -------------
Total current liabilities 1,269 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; 11,237,404 issued and
11,209,604 outstanding 225 225
Capital in excess of par value 98,424 98,424
Accumulated deficit (69,172) (68,760)
Treasury stock, at cost; 27,800 shares (71) (71)
------------ -------------
Total stockholders' equity 29,406 29,818
------------ -------------
$ 46,421 $ 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 Six months ended
March 31, March 31,
------------------ -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 2,686 $ 3,163 $ 5,317 $ 6,104
Costs and expenses:
Operating 1,400 1,451 2,698 2,825
General and administrative 342 315 691 652
Depreciation, depletion and
amortization 978 1,472 2,006 2,903
------- ------- ------- -------
Total costs and expenses 2,720 3,238 5,395 6,380
------- ------- ------- -------
Operating loss (34) (75) (78) (276)
Other income (expense):
Interest income 43 24 111 44
Dividend income 22 22 44 44
Interest expense (249) (264) (505) (524)
Research and development expense (17) - (17) (12)
------- ------- ------- -------
Total other expense (201) (218) (367) (448)
------- ------- ------- -------
Loss before income tax (235) (293) (445) (724)
Income tax expense (1) - (4) -
------- ------- ------- -------
Loss before equity in earnings of
NGL fractionating plant (236) (293) (449) (724)
Equity in earnings of NGL
fractionating plant 65 - 37 -
------- ------- ------- -------
Net loss $ (171) $ (293) $ (412) $ (724)
======= ======= ======= =======
Net loss per share $ (.02) $ (.02) $ (.04) $ (.06)
======= ======= ======= =======
Weighted average shares outstanding 11,210 11,188 11,210 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>
Six months ended
March 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (412) $ (724)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation, depletion and amortization 2,006 2,903
Equity in earnings of NGL fractionating plant (37) -
Deferred lease obligation - (5)
Change in assets and liabilities:
Decrease in receivables 253 470
(Increase) decrease in other current assets (11) 275
Decrease in accounts payable, accrued liabilities,
and production and income taxes payable (185) (345)
Decrease in royalties payable (26) (163)
Other (61) 19
------- -------
Net cash provided by operating activities 1,527 2,430
------- -------
Cash flows from investing activities:
Proceeds from asset sales 234 575
Investment in NGL fractionating plant (985) (717)
Capital expenditures (2,173) (3,051)
------- -------
Net cash used in investing activities (2,924) (3,193)
------- -------
Net decrease in cash and cash equivalents (1,397) (763)
Cash and cash equivalents at beginning of period 4,193 2,308
------- -------
Cash and cash equivalents at end of period $ 2,796 $ 1,545
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 511 $ 521
Income taxes $ 4 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
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 March 31, 1996, and the results of its
operations for the three-month and six-month periods ended March 31, 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 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") and Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company must adopt the provisions of SFAS 121
and SFAS 123 no later than its fiscal year ending September 30, 1997. SFAS 121
requires the write-down to market value of certain long-lived assets. SFAS 123
requires the recording or disclosure of the value of stock options or other
equity instruments issued to employees. The Company has not determined the
effect, if any, that the adoption of either SFAS 121 or SFAS 123 will have on
its financial condition or results of operations.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
In August 1995, Tri-Star Petroleum Company ("Tri-Star"), the operator of the
Comet Ridge coalbed methane project in Australia, filed a declaratory judgment
action against the Company and another participant in the project, styled
TRI-STAR PETROLEUM COMPANY V. AMERIND OIL COMPANY, LTD., AND TIPPERARY OIL & GAS
CORPORATION, Cause No. 40689, in the 238th Judicial District, Midland County,
Texas. Tri-Star contended that the two parties had forfeited their interest in
the project except for their interest in existing wells due to alleged
non-payment for certain seismic operations. This litigation was settled on
May 3, 1996, pursuant to an agreement that provides that the Company will
continue to own its interest in the project which existed before the litigation
and will pay for its ongoing share of joint interest billings.
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 - SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Company acquired and exercised an option to
purchase an additional 15.75% working interest in the Comet Ridge coalbed
methane project in Queensland, Australia from an unaffiliated interest holder.
The purchase price is approximately $6.1 million and is to be financed through
the issuance of 1,400,000 shares
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to consolidated Financial Statements
(unaudited)
of its common stock at $4.50 per share to two institutional investors. The
exercise of the option to acquire the additional interest is subject to the
negotiation and execution of a definitive purchase agreement. Upon execution of
the purchase agreement, the Company's interest in the project would bear 45.75%
of capital costs and 42.891% of operating expenses and its net revenue interest
would be 38.6016% prior to project payout. Subsequent to project payout, the
Company's interest would bear 36.6% of capital and operating expenses and its
net revenue interest would be 32.94%. The acquired interest would be subject to
the terms of the existing operating agreement.
<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 $2,796,000 as of March 31, 1996,
versus $4,193,000 as of September 30, 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.
Cash flows were provided primarily by the Company's producing oil and gas
properties during both the six months ended March 31, 1996, and 1995. Net cash
provided by operating activities was $1,527,000 and $2,430,000 for the six
months ended March 31, 1996, and 1995, respectively. The decrease was
attributable primarily to declining revenues, and to higher prepaid expenses and
payments of accrued payables and other liabilities during the six months ended
March 31, 1996, as compared to the corresponding period in fiscal 1995. 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 six months ended March 31, 1996, the Company incurred $2,173,000 in
capital expenditures, invested an additional $985,000 in the construction of the
NGL fractionating plant, and received proceeds of $234,000 from the sale of
producing oil and gas properties, resulting in net cash used in investing
activities of $2,924,000. The capital expenditures of $2,173,000 included
$574,000 expended on the Missouri River exploration project in Montana, $357,000
in other Williston Basin leasehold costs, $344,000 expended on the Comet Ridge
project in Queensland, Australia, with the balance primarily attributable to
other domestic drilling activities. During the six months ended March 31, 1995,
net cash used in investing activities of $3,193,000 included $1,633,000 of
expenditures on the Comet Ridge project, $1,418,000 attributable to the Missouri
River project and various other domestic drilling activities, $717,000 advanced
for the construction of the NGL fractionating plant and proceeds of $575,000
from the sale of producing oil and gas properties.
While the Company's cash flows are directly affected by oil and gas prices, the
Company's existing hedge positions would serve to partially mitigate the effects
of lower oil prices. The Company presently has hedged, under swap agreements,
an average of 20,000 barrels per month (approximately 53%) of its projected
fiscal 1996 oil production subsequent to March 31, 1996. 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. The
Company's actual price received at the wellhead during the six months ended
March 31, 1996, averaged $2.44 per barrel below NYMEX prices. None of the
Company's gas production is currently hedged. Net payments pursuant to the
Company's hedging activities for the six months ended March 31, 1996, and 1995
were approximately $80,000 and $90,000, respectively. Notwithstanding the
Company's hedging positions, decreases in oil and gas prices subsequent to March
31, 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 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 March 31, 1996, the
weighted average interest rate for amounts under the revolver was 6.99%. 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 March 31, 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. During the quarter ended March 31, 1996, this
conversion date was extended to October 5, 1997. It may be extended again,
although the 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
<PAGE>
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 is obligated to pay a commitment fee of 3/8% per annum on the difference
between the average outstanding loan balance and the nominated 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. Subsequent to March 31, 1996, the Company entered into
an agreement to sell 1,400,000 shares of its common stock at $4.50 per share to
two institutional investors. The proceeds are intended to be used to purchase
an additional interest in the Comet Ridge coalbed methane project in Queensland,
Australia. The Company's capital investment has been directed primarily to the
following projects.
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 permitted and staked well locations
to test two of the prospects, and 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 $574,000 was
incurred during the first six months of fiscal 1996, bringing the total
investment to $2,389,000 as of March 31, 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 begun
acquiring leasehold acreage with the intent to conduct 3-D seismic surveys and
commence an exploratory drilling program. As of March 31, 1996, the Company
had acquired approximately 17,000 net acres on 25 prospects in these areas and
had invested approximately $414,000 in leasehold costs. It is anticipated that
the Company will seek to secure additional funding for these projects by
involving an industry partner as a participant.
International Exploration and Development
- -----------------------------------------
The Company owns a 30% nonoperating interest in the Comet Ridge coalbed methane
project in Queensland, Australia. The Company's interest bears 30% of capital
costs and 28.125% of operating expenses and its net revenue interest is 25.3125%
prior to project payout. Subsequent to project payout, the Company's interest
bears 24% of capital and operating expenses and its net revenue interest is
21.6%. Subsequent to March 31, 1996, the Company acquired an option to purchase
an additional 15.75% working interest, which option was exercised on May 10,
1996. The purchase price is approximately $6.1 million and is to be financed
through the issuance of 1,400,000 shares of the Company's common stock at $4.50
per share to two institutional investors. The exercise of the option to acquire
the additional interest is subject to the negotiation and execution of a
definitive purchase agreement. Upon execution of the purchase agreement, the
Company's interest in the project would bear 45.75% of capital costs and 42.891%
of operating expenses and its net revenue interest would be 38.6016% prior to
project payout. Subsequent to project payout, the Company's interest would bear
36.6% of capital and operating expenses and its net revenue interest would be
32.94%. The acquired interest would be subject to the terms of the existing
operating agreement.
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. As of March 31, 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. Most of the wells have been produced for several
<PAGE>
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. Reservoir modeling, combined with evaluation
of actual production performance data, has allowed independent reservoir
engineers to assign technically recoverable reserve volumes to the 14 core
Fairview area wells. 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.
During the quarter ended March 31, 1996, the Group was 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 of Mines 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.
In August 1995, Tri-Star Petroleum Company ("Tri-Star"), the operator of this
property, initiated litigation against the Company and another participant in
the project alleging that the two parties had forfeited their interest in the
project except for their interest in existing wells due to alleged non-payment
for certain seismic operations. On May 3, 1996, the Company entered into a
settlement agreement which provides that the Company will continue to own its
interest in the project which existed before the litigation and will pay for its
ongoing share of joint interest billings. See Note 2 to the Company's
Consolidated Financial Statements. Subsequent to March 31, 1996, Tri-Star
notified the Company that it had agreed 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. The Company does not
presently know when drilling will resume on the project, but anticipates that
it will be in the near future. The Company cannot predict future capital
requirements, but expects project financing proposals to be 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
March 31, 1996, the Company's investment in the project totaled approximately
$5,469,000.
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
("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 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. Subsequent to the restructuring, the Company owns an interest
in the Plant of approximately 55% prior to payout and approximately 47%
thereafter. The Plant commenced testing operations in late November 1995, and
is now operating at full capacity. The Company's share of monthly cash flow
from the Plant ranges between $30,000 and $50,000. As of September 30, 1995,
the Company had invested $1,454,000, which investment increased to $2,476,000 as
of March 31, 1996. The investment at March 31, 1996, includes net earnings of
$37,000, which represents the Company's share of net earnings from the Plant's
operations from start-up through March 31, 1996.
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 has the right to acquire licensing rights to the
technology at no cost. Costs incurred pursuant to this arrangement are expensed
as incurred. During the quarter ended March 31, 1996, the Company paid $17,000
for third party consulting services. 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.
<PAGE>
RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996, AND
1995
The Company reported a net loss of $171,000 for the three months ended March 31,
1996, compared to a net loss of $293,000 for the three months ended March 31,
1995. The $122,000 decrease in net loss for the second quarter of fiscal 1996,
compared to the second quarter of fiscal 1995, is primarily due to lower
depreciation, depletion and amortization ("DD&A") expense and the Company's
equity in earnings of the NGL fractionating plant in the fiscal 1996 quarter.
Following are detailed comparisons of the components of the respective periods.
Operating revenues for the three months ended March 31, 1996, decreased
$477,000, or 15%, to $2,686,000 from $3,163,000 in the corresponding fiscal 1995
period. Oil volumes decreased 24,000 barrels, or 17%, to 119,000 barrels versus
143,000 barrels in the prior year period, decreasing revenue by $381,000. Gas
volumes decreased 215,000 Mcf, or 36%, to 381,000 Mcf in the current period
compared to 596,000 Mcf in the three months ended March 31, 1995, resulting in
an $314,000 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 7% to $16.96 per barrel for the
three months ended March 31, 1996, from $15.87 per barrel for the corresponding
prior year quarter, resulting in a $130,000 increase in revenue. Gas prices
increased 16% to $1.70 per Mcf in the current quarter versus $1.46 in the prior
year quarter, resulting in a $91,000 revenue increase. Saltwater disposal and
other income decreased $3,000 from the corresponding fiscal 1995 quarter.
Operating expenses decreased $51,000, or 4%, to $1,400,000 from $1,451,000
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 24%, however, to $7.19 in the three month period of
fiscal 1996 from $5.82 in the prior year period. This increase was attributable
primarily to declining production rates.
General and administrative expenses increased by $27,000, or 9%, to $342,000
during the three months ended March 31, 1996, compared to $315,000 for the prior
year period. The increase was attributable to increased payroll costs.
DD&A expense for the three months ended March 31, 1996, decreased by $494,000,
or 34%, to $978,000 from $1,472,000 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 $19,000, or 79%, to $43,000 in the quarter ended March
31, 1996, from $24,000 in the corresponding prior year quarter. This increase
is due to an increase in cash and cash equivalents.
Interest expense for the three months ended March 31, 1996, decreased $15,000,
or 6%, to $249,000 from $264,000 for the three months ended March 31, 1995.
Such decrease is attributable to general decreases in interest rates.
Research and development expense increased to $17,000 from $0 in the three
months ended March 31, 1996, as compared to the three months ended March 31,
1995. The Company met its contractual funding commitment in the fourth quarter
of fiscal 1994, but has made voluntary payments for third party consulting
services.
The net loss for the three months ended March 31, 1996, includes income of
$65,000 representing the Company's equity interest in the income of the Alabama
NGL fractionating plant. The plant commenced testing operations in late
November 1995 and became profitable during the second quarter of fiscal 1996.
RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 1996, AND
1995
The Company reported a net loss of $412,000 for the six months ended March 31,
1996, and a net loss of $724,000 for the six months ended March 31, 1995. The
$312,000 decrease in the net loss for the first half of fiscal 1996, compared to
the net loss reported for the first half of 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 six months ended March 31, 1996, decreased $787,000,
or 13%, to $5,317,000 from $6,104,000 in the corresponding fiscal 1995 period.
Oil volumes decreased 44,000 barrels, or 15%, to 242,000 barrels versus 286,000
barrels in the prior year period, decreasing revenue by $665,000. Gas volumes
decreased 371,000 Mcf, or 32%, to 788,000 Mcf in the current period compared to
1,159,000 Mcf in the six months ended March 31, 1995,
<PAGE>
resulting in a $542,000 decrease in revenues. The volume decreases are
attributable to both the sale of producing properties and to declining
production rates. Average oil prices increased 9% to $16.41 per barrel for the
six months ended March 31, 1996, from $15.12 per barrel for the corresponding
prior year period, resulting in a $312,000 increase in revenue. Gas prices
increased 9% to $1.59 per Mcf in the current period versus $1.46 in the prior
year period, resulting in a $102,000 revenue increase. Saltwater disposal and
other income increased $6,000 from the corresponding fiscal 1995 period.
Operating expenses decreased $127,000, or 4%, to $2,698,000 from $2,825,000
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 17% to $6.73 in the first six months of
fiscal 1996 from $5.73 in the prior year period. This increase was attributable
primarily to declining production rates.
General and administrative expenses increased by $39,000, or 6%, to $691,000
during the six months ended March 31, 1996, compared to $652,000 for the prior
year period, primarily due to increased payroll costs.
DD&A expense for the six months ended March 31, 1996, decreased by $897,000, or
31%, to $2,006,000 from $2,903,000 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 $67,000, or 152%, to $111,000 in the six months ended
March 31, 1996, from $44,000 in the corresponding prior year period. This
increase is primarily due to an increase in cash and cash equivalents.
Interest expense for the six months ended March 31, 1996, decreased $19,000, or
4%, to $505,000 from $524,000 for the six months ended March 31, 1995. Such
decrease is attributable to general decreases in interest rates.
The net loss for the six months ended March 31, 1996, includes income of $37,000
representing the Company's equity interest in the income of the Alabama NGL
fractionating plant. The plant commenced testing operations in late November
1995, operated at a loss during the first quarter, and became profitable during
the second quarter of fiscal 1996.
<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
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Filed in Part I
11. Computation of per share earnings
Filed in Part II
4.47 Fourth Amendment of Revolving Credit and Term Loan
Agreement dated as of March 31, 1996, by and among
Tipperary Corporation, and Tipperary Oil & Gas
Corporation, and Colorado National Bank, successor
in interest to Central Bank National Association.
27. Financial Data Schedule.
(b) Reports on Form 8-K:
None
11
<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: May 14, 1996 By: /s/ David L. Bradshaw
--------------------------------------------
David L. Bradshaw, President, Chief
Executive Officer
Date: May 14, 1996 By: /s/ Paul C. Slevin
--------------------------------------------
Paul C. Slevin, Chief Financial Officer
Date: May 14, 1996 By: /s/ Wayne W. Kahmeyer
--------------------------------------------
Wayne W. Kahmeyer, Controller and Principal
Accounting Officer
12
FOURTH AMENDMENT OF REVOLVING CREDIT AND TERM LOAN AGREEMENT
------------------------------------------------------------
THIS FOURTH AMENDMENT OF REVOLVING CREDIT AND TERM LOAN AGREEMENT
(this"Amendment"), dated as of March 31, 1996, is by and among TIPPERARY
CORPORATION, a Texas corporation ("Tipperary"), and TIPPERARY OIL & GAS
CORPORATION, a Texas corporation ("TOG"), and COLORADO NATIONAL BANK, successor
in interest to CENTRAL BANK NATIONAL ASSOCIATION, a national banking association
("CNB").
RECITALS
A. Tipperary, TOG and CNB are parties to a Revolving Credit and Term
Loan Agreement dated as of March 30, 1992, as amended (as so amended, the "Loan
Agreement"), setting forth the terms upon which CNB would make loans to
Tipperary and TOG and by which such loans would be governed. Capitalized terms
used herein but not defined herein shall have the same meanings as set forth in
the Loan Agreement.
B. Tipperary, TOG and CNB wish to enter into this Amendment in order
to amend further certain terms and provisions of the Loan Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Loan Agreement. The Loan Agreement shall be, and hereby is,
amended as follows:
(a) In line 7 of the definition of "Conversion Date" in Section
1.1 on page 3 of the Loan Agreement, "April 5, 1997" shall be changed to
"October 5, 1997."
(b) In lines 2 and 3 of the definition of "Revolving Period" in
Section 1.1 on page 11 of the Loan Agreement, "April 4, 1997" shall be changed
to "October 4, 1997."
(c) In line 18 of Section 2.9 on page 15 of the Loan Agreement,
"April 5, 1997" shall be changed to "October 5, 1997."
(d) In line 19 of Section 2.9 on page 15 of the Loan Agreement,
"March 5, 2001" shall be changed to "September 5, 2001."
2. Loan Documents. All references in any document to the Loan
Agreement shall refer to the Loan Agreement, as amended pursuant to this
Amendment.
3. Representations and Warranties. Tipperary and TOG hereby certify
to CNB that as of the date of this Amendment all of Tipperary's and TOG's
representations and warranties contained in the Loan Agreement are true,
accurate and complete in all material respects, no Event of Default has occurred
under the Loan Agreement, and no event has occurred that with the passage of
time or notice, or both, would constitute an Event of Default under the Loan
Agreement.
4. Continuation of the Loan Agreement. Except as specified in this
Amendment, the provisions of the Loan Agreement shall remain in full force and
effect, and if there is a conflict between the terms of this Amendment and those
of the Loan Agreement, the terms of this Amendment shall control.
5. Expenses. Tipperary and TOG shall pay all reasonable expenses
incurred in connection with the transactions contemplated by this Amendment,
including without limitation all reasonable fees and expenses of CNB's attorney.
6. Miscellaneous. This Amendment shall be governed by and construed
under the laws of the State of Colorado and shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns. This
Amendment may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
Executed as of the date first above written.
TIPPERARY CORPORATION
By: /s/ David L. Bradshaw
---------------------------------------------
David L. Bradshaw
President
TIPPERARY OIL & GAS CORPORATION
By: /s/ David L. Bradshaw
---------------------------------------------
David L. Bradshaw
President
COLORADO NATIONAL BANK, successor in
interest to CENTRAL BANK NATIONAL
ASSOCIATION
By: /s/ Paul Jelaco
---------------------------------------------
Paul Jelaco
Vice President
<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 SIX MONTHS ENDED MARCH 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,796
<SECURITIES> 0
<RECEIVABLES> 2,102
<ALLOWANCES> 0
<INVENTORY> 190
<CURRENT-ASSETS> 5,296
<PP&E> 117,125
<DEPRECIATION> 83,513
<TOTAL-ASSETS> 46,421
<CURRENT-LIABILITIES> 1,269
<BONDS> 15,746
0
0
<COMMON> 225
<OTHER-SE> 29,181
<TOTAL-LIABILITY-AND-EQUITY> 46,421
<SALES> 5,317
<TOTAL-REVENUES> 5,317
<CGS> 0
<TOTAL-COSTS> 2,698
<OTHER-EXPENSES> 2,697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 505
<INCOME-PRETAX> (445)
<INCOME-TAX> 4
<INCOME-CONTINUING> (412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
