U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________ FORM 10-QSB /X/ Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 1995 or / / Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From __________ to ___________ ______________________ Commission File Number 0-7406 ______________________ PrimeEnergy Corporation (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 84-0637348 (IRS employer identification number) One Landmark Square, Stamford, Connecticut 06901 (Address of principal executive offices) (203) 358-5700 (Registrant's telephone number, including area code) (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 Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The number of shares outstanding of each class of the Registrant's Common Stock as of November 13, 1995 was: Common Stock, $0.10 par value, 5,262,136 shares. PrimeEnergy Corporation Index to Form 10-QSB September 30, 1995 Part I - Financial Information Consolidated Balance Sheets - September 30, 1995 and December 31, 1994 3-4 Consolidated Statements of Operations for the nine months ended September 30, 1995 and 1994 5 Consolidated Statements of Operations for the three months ended September 30, 1995 and 1994 6 Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 1995 7 Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1994 8 Notes to Consolidated Financial Statements 9-16 Management's Discussion and Analysis of Financial Condition and Results of Operations 17-20 Part II - Other Information 21 Signatures 22 PrimeEnergy Corporation Consolidated Balance Sheets September 30, 1995 and December 31, 1994 September 30, December 31, 1995 1994 (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 530,000 $ 2,361,000 Restricted cash and cash equivalents (Note 2) 727,000 1,257,000 Accounts receivable (Note 3) 2,051,000 2,093,000 Due from related parties (Note 9) 5,206,000 2,420,000 Other current assets 172,000 201,000 Prepaid expenses 191,000 109,000 Deferred income taxes 144,000 144,000 ---------- ---------- Total current assets 9,021,000 8,585,000 ---------- ---------- Property and equipment, at cost(Notes 1 and 4): Oil and gas properties (successful efforts method) - developed 25,177,000 24,282,000 Furniture, fixtures and equipment including leasehold improvements 4,819,000 4,507,000 ---------- ---------- 29,996,000 28,789,000 Accumulated depreciation and depletion (17,996,000) (16,134,000) ---------- ---------- Net property and equipment 12,000,000 12,655,000 ---------- ---------- Other assets 461,000 462,000 Due from affiliates 325,000 325,000 ---------- ---------- Total assets $ 21,807,000 $22,027,000 ========== ========== See accompanying notes to the consolidated financial statements. PrimeEnergy Corporation Consolidated Balance Sheets September 30, 1995 and December 31, 1994 September 30, December 31, 1995 1994 (Unaudited) (Audited) Current liabilities: Current portion of other long-term obligations (Note 6) $ 207,000 $ 224,000 Accounts payable 1,908,000 3,941,000 Accrued liabilities: Taxes (Note 1) 19,000 24,000 Interest and other 1,340,000 793,000 Due to related parties (Note 9) 2,163,000 895,000 ---------- ---------- Total current liabilities 5,637,000 5,877,000 ---------- ---------- Long-term bank debt (Note 5) 8,097,000 7,742,000 Other long-term obligations (Note 6) 536,000 546,000 Deferred income taxes (Note 1) 265,000 265,000 Stockholder's equity: Preferred stock, $.10 par, authorized 10,000 shares; none issued -- -- Common stock, $.10 par value, authorized 15,000,000 shares; issued 7,597,970 in 1995 and 1994 760,000 760,000 Paid in capital 10,888,000 10,888,000 Accumulated deficit (1,048,000) (1,519,000) ---------- ---------- 10,600,000 10,129,000 Treasury stock, at cost, 2,257,188 common shares in 1995 and 1,919,038 common shares in 1994 (3,328,000) (2,532,000) ---------- ---------- Total stockholders' equity 7,272,000 7,597,000 ---------- ---------- Total liabilities and equity $ 21,807,000 $22,027,000 ========== ========== See accompanying notes to the consolidated financial statements PrimeEnergy Corporation Consolidated Statements of Operations Nine Months Ended September 30, 1995 and 1994 (Unaudited) 1995 1994 Revenue: Oil and gas sales $ 4,392,000 $ 4,006,000 District operating income 7,234,000 6,848,000 Administrative revenue (Note 9) 1,243,000 1,399,000 Reporting and management fees (Note 9) 275,000 290,000 Interest and other income 102,000 113,000 ---------- ---------- Total revenue 13,246,000 12,656,000 ---------- ---------- Costs and expenses: Lease operating expense 3,031,000 2,667,000 District operating expense 5,324,000 4,818,000 Depreciation and depletion of oil and gas properties 1,576,000 1,557,000 Exploration Costs 26,000 2,000 General and administrative expense 2,294,000 2,727,000 Interest expense (Notes 5 and 6) 511,000 374,000 ---------- ---------- Total costs and expenses 12,762,000 12,145,000 ---------- ---------- Income from operations 484,000 511,000 Gain on sale and exchange of assets 39,000 40,000 ---------- ---------- Net income before income taxes 523,000 551,000 Provision for income taxes 52,000 50,000 ---------- ---------- Net income $ 471,000 $ 501,000 ========== ========== Primary income per common share (Note 10) $0.08 $0.08 ==== ==== Fully diluted income per common share (Note 10) $0.08 $0.08 ==== ==== See accompanying notes to consolidated financial statements PrimeEnergy Corporation Consolidated Statements of Operations Three Months Ended September 30, 1995 and 1994 (Unaudited) 1995 1994 Revenue: Oil and gas sales $ 1,352,000 $ 1,420,000 District operating income 2,446,000 2,480,000 Administrative revenue (Note 9) 436,000 461,000 Reporting and management fees (Note 9) 99,000 106,000 Interest and other income 24,000 40,000 ---------- ---------- Total revenue 4,357,000 4,507,000 ---------- ---------- Costs and expenses: Lease operating expense 1,006,000 992,000 District operating expense 1,770,000 1,697,000 Depreciation and depletion of oil and gas properties 568,000 584,000 Exploration costs 26,000 2,000 General and administrative expense 712,000 959,000 Interest expense (Notes 5 and 6) 188,000 147,000 ---------- ---------- Total costs and expenses 4,270,000 4,381,000 ---------- ---------- Income from operations 87,000 126,000 Gain (loss) on sale and exchange of assets 5,000 12,000 ---------- ---------- Net income before income taxes 92,000 138,000 Provision for income taxes 9,000 8,000 ---------- ---------- Net income $ 83,000 $ 130,000 ========== ========== Primary income per common share (Note 10) $0.01 $0.02 ==== ==== Fully diluted income per common share (Note 10) $0.01 $0.02 ==== ==== See accompanying notes to consolidated financial statements PrimeEnergy Corporation Consolidated Statement of Stockholder's Equity Nine Months Ended September 30, 1995 <TABLE> <CAPTION> Add'l Common Stock Paid-In Accumulated Treasury Shares Amount Capital Deficit Stock Total -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> Balance @ December 31, 1994 7,597,970 $760,000 $10,880,000 ($1,519,000) ($2,532,000) $7,597,000 Purchased 338,150 shares of -- -- -- -- -- common stock (796,000) (796,000) Net income -- -- -- 471,000 -- 471,000 --------- --------- ------------- ------------ ---------- ----------- - --- Balance at September 30, 1995 7,597,970 $760,000 $10,888,000 ($1,048,000) ($3,328,000) $7,272,000 ========== ========= ============ ============ ============ =========== </TABLE> See accompanying notes to consolidated financial statements PrimeEnergy Corporation Consolidated Statements of Cash Flows Nine Months Ended September 30, 1995 and 1994 (Unaudited) 1995 1994 Net cash provided by operating activities $ 81,000 $ 2,071,000 ---------- ---------- Cash flows from investing activities: Additions to property and equipment (1,533,000) (2,882,000) Proceeds from sale of property and equipment 89,000 87,000 ---------- ---------- Net cash used in investing activities (1,444,000) (2,795,000) ---------- ---------- Cash flows from financing activities: Distributions paid to related parties -- (3,415,000) Purchase of treasury stock (796,000) (235,000) Increase in long-term bank debt and other long-term obligations 9,834,000 1,775,000 Repayment of long-term bank debt and other long-term obligations (9,506,000) (618,000) ---------- ---------- Net cash used in financing activities (468,000) (2,493,000) ---------- ---------- Net increase (decrease) in cash and cash equivalents (1,831,000) (3,217,000) Cash and cash equivalents at the beginning of the period 2,361,000 4,789,000 ---------- ---------- Cash and cash equivalents at the end of the period $ 530,000 $ 1,572,000 ========== ========== See accompanying notes to consolidated financial statements PrimeEnergy Corporation Notes to Consolidated Financial Statements September 30, 1995 (1) Summary of Significant Accounting Policies: (a) Company operations- PrimeEnergy Corporation ("PEC"), a Delaware corporation, was organized in March 1973, and in September 1989 acquired PrimeEnergy Management Corporation ("PEMC") as a wholly-owned subsidiary. In September 1990, PEC acquired field service equipment from the Eastern Service Joint Venture and established Eastern Oil Well Service Company ("EOWSC") as a wholly-owned subsidiary. During 1992, Prime Operating Company ("POC") was formed as a wholly-owned subsidiary of PEC to act as operator for the majority of the producing oil and gas properties owned by the Company and affiliated entities. Also during 1992, PEC acquired additional field service equipment and formed Southwest Oilfield Construction Company ("SOCC") as a wholly-owned subsidiary. The Consolidated Financial Statements include the accounts of PrimeEnergy Corporation and its subsidiaries (collectively, the "Company"). In the opinion of the Company, the accompanying unaudited consolidated financial statements reflect all necessary adjustments and elimination of all significant intercompany transactions and balances to present fairly the financial position as of September 30, 1995 and December 31, 1994, and the results of operations and cash flows for the periods ended September 30, 1995 and 1994. All such adjustments are of a normal recurring nature. The results of operations for the above periods are not necessarily indicative of the results to be expected for the full year. (b) Property and equipment- The Company follows the "successful efforts" method of accounting for its oil and gas properties. Under the successful efforts method, costs of acquiring undeveloped oil and gas leasehold acreage, including lease bonuses, brokers' fees and other related costs are capitalized. Provisions for impairment of undeveloped oil and gas leases are based on periodic evaluations. Annual lease rentals and exploration expenses, including geological and geophysical expenses and exploratory dry hole costs, are charged against income as incurred. Costs of drilling and equipping productive wells and related production facilities are capitalized. Depreciation and depletion of oil and gas production equipment and properties are determined under the unit-of-production method based on estimated proved recoverable oil and gas reserves. Depreciation of all other equipment is determined under the straight-line method using various rates based on useful lives. (c) Income taxes- The Company records income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach to accounting for income taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in the rates expected to be in effect when the temporary differences reverse. A valuation allowance is established for any deferred tax asset for which realization is not likely. (d) General and administrative expenses- General and administrative expenses represent costs and expenses associated with the operation of the Company. Certain partnerships and trusts sponsored by the Company reimburse general and administrative expenses incurred on their behalf. (e) Income per share- Income per share of common stock has been computed based on the weighted average number of common shares and common stock equivalents outstanding during the respective periods. (f) Statements of cash flows- For purposes of the consolidated statements of cash flows, the Company considers short-term, highly liquid investments with original maturities of less than ninety days to be cash equivalents. (g) Concentration of Credit Risk- The Company maintains significant banking relationships with financial institutions in the State of Texas. The Company limits its risk by periodically evaluating the relative credit standing of these financial institutions. (h) Reclassifications- Certain reclassifications were made to the prior year's financial statements to conform to the current year presentation. (2) Restricted Cash and Cash Equivalents: Restricted cash and cash equivalents includes $435,000 and $412,000 at September 30, 1995 and December 31, 1994, respectively, of cash primarily pertaining to unclaimed royalty and revenue interest payments. There were corresponding accounts payable recorded at September 30, 1995 and December 31, 1994 for these liabilities. Restricted cash also includes $292,000 and $844,000 at September 30, 1995 and December 31, 1994, respectively, relating to the 1994-I Development Program. These funds are committed for the use on the Development Program; however, they are available to satisfy any working capital needs of the Company. (3) Accounts Receivable Accounts receivable at September 30, 1995 and December 31, 1994 consisted of the following: September 30, December 31, 1995 1994 Joint Interest Billing $ 750,000 $ 912,000 Trade Receivables 111,000 115,000 Oil and Gas Sales 1,185,000 794,000 Other 53,000 372,000 --------- --------- 2,099,000 2,193,000 Less, Allowance for doubtful accounts (48,000) (100,000) --------- --------- $ 2,051,000 $ 2,093,000 ========= ========= (4) Property and equipment Property and equipment at September 30, 1995 and December 31, 1994 consisted of the following: September 30, December 31, 1995 1994 Oil and gas properties at cost $25,177,000 $24,282,000 Less, accumulated depletion and depreciation (15,134,000) (13,745,000) ---------- ---------- 10,043,000 10,537,000 ---------- ---------- Furniture, fixtures and and equipment 4,819,000 4,507,000 Less, accum. depreciation (2,862,000) (2,389,000) ---------- ---------- 1,957,000 2,118,000 ---------- ---------- Total net property and equipment $12,000,000 $12,655,000 ========== ========== (5) Long-Term Bank Debt At December 31, 1994, the Company was party to a line of credit agreement with a bank, with a borrowing base of $7.878 million. On April 26, 1995, the Company entered into a new credit agreement with the same bank, extending the borrowing base to a non-reducing $12.5 million and syndicating 25% of the borrowing to a second bank. The new agreement provides for interest at 1/2% over the bank's base rate as defined and payable monthly, or 2-3/4% over the London Inter-Bank Offered Rate (LIBOR) for the interest period requested, payable at the end of the interest period. Advances pursuant to the agreement are limited to the borrowing base as defined in the agreement. Most of the Company's oil and gas properties as well as certain receivables and equipment were pledged as security under this agreement. Under the Company's credit agreement, the Company is required to maintain, as defined, a minimum current ratio, tangible net worth, debt coverage ratio and interest coverage ratio. (6) Other Long-Term Obligations: Other long-term obligations at September 30, 1995 and December 31, 1994 consisted of the following: September 30, December 31, 1995 1994 Subordinated debentures due December 31, 1996 $225,000 $225,000 Installment notes payable 322,000 310,000 Capital lease obligations 196,000 235,000 --------- --------- 743,000 770,000 Less, current portion (207,000) (224,000) --------- --------- $536,000 $546,000 ========= ========= The secured subordinated debentures are held by affiliated Partnerships in which PEMC is a general partner. Interest was payable at 10% through 1994 and 9.25% thereafter. The installment notes bear interest ranging from 5% to 10%. (7) Contingent Liabilities: PEMC is a managing general partner or managing trustee in several limited partnerships and trusts (the "Partnerships"). As such, PEMC is responsible for all Partnership activities, including the review and analysis of oil and gas properties for acquisition, the drilling of development wells and the production and sale of oil and gas from productive wells. PEMC also provides the administration, accounting and tax preparation work for the Partnerships. PEMC is liable for all debts and liabilities of the affiliated Partnerships, to the extent that the assets of a given limited Partnership are not sufficient to satisfy its obligations. As a general partner, PEMC is committed to offer to purchase the limited partners' interest in certain of its managed Partnerships at various annual intervals. Under the terms of a partnership or trust agreement, PEMC is not obligated to purchase an amount greater than 10% of the total interest outstanding. In addition, PEMC will be obligated to purchase interests tendered by the limited partners only to the extent of one-hundred and fifty (150) percent of the revenues received by it from such Partnership in the previous year. Purchase prices are based upon annual reserve reports of independent petroleum engineering firms discounted by a risk factor. Based upon historical production rates and prices, management estimates that if all such offers were to be accepted, the maximum annual future purchase commitment would be approximately $450,000. (8) Stock Options and Other Compensation: In May 1989, non-statutory stock options were granted by the Company to four key executive officers for the purchase of shares of common stock. In each case such options are for a term of ten years ending May 15, 1999, and are exercisable, on a cumulative basis, as to twenty percent of the shares subject to option in each year, beginning one year after the granting of the option. At September 30, 1995, options on 802,500 shares were outstanding and exercisable at prices ranging from $1.00 to $1.25. On January 27, 1983, the Company adopted the 1983 Incentive Stock Option Plan. At September 30, 1995, options on 134,000 shares were exercisable at $1.50 per share and no additional shares were available for granting. (9) Related Party Transactions: PEMC is a general partner or trustee in several oil and gas partnerships and trusts in which certain directors have limited and general partnership or trustee interests. Substantially all of the assets and revenues of PEMC are derived from its sponsorship of the Partnerships and the interests of PEMC in the oil and gas properties acquired by the Partnerships. As the managing general partner in each of the Partnerships, PEMC receives approximately 5% to 12% of the net revenues of each Partnership as a carried interest in the Partnerships' properties. The Partnership agreements allow PEMC to receive management fees for various services to the Partnerships as well as reimbursement for property acquisition and development costs and general and administrative overhead incurred on behalf of the Partnerships. In 1991, the Company loaned approximately $325,000 at 12% interest to a real estate limited partnership of which a Company Officer and Director is a general partner. This loan is secured by a second mortgage on the underlying real estate in the partnership and the Company received a 23% equity participation in the partnership. The loan agreement provides for interest payments on a quarterly basis provided the cash flow from operations of the limited partnership are sufficient to pay interest for the quarter. If cash flows are not sufficient, then the accrued interest is added to the principal. This loan is included in other non-current assets on the balance sheet. Due to related parties at September 30, 1995 and December 31, 1994 primarily represent receipts collected by the Company, as agent, from oil and gas sales net of expenses. Receivables from affiliates consist of reimbursable general and administrative costs, lease operating expenses and reimbursements for property acquisition and development costs. 10) Income per share: The weighted average number of common shares and common stock equivalents outstanding used in the income per share calculation are as follows: Nine Months Ended Three Months Ended September 30, September 30, 1995 1994 1995 1994 Primary 6,080,871 6,402,541 5,955,344 6,298,280 ========= ========= ========= ========= Fully diluted 6,070,150 6,435,328 5,959,526 6,382,519 ========= ========= ========= ========= PART I Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the financial statements of the Company and notes thereto. The Company's subsidiaries are defined in Note 1 of the financial statements. PEMC is the managing general partner or managing trustee in several Limited Partnerships and Trusts (collectively, the "Partnerships"). LIQUIDITY AND CAPITAL RESOURCES In April, the Company entered into a revised credit agreement with Bank One, Texas, NA providing for a $12.5 million revolving line of credit on a $50 million master promissory note. This new agreement introduces Den Norske Bank AS as a 25% syndication partner in the line, once the Company reaches borrowings of $12.5 million for over one month. The agreement also provides for a lower floating rate compared to previous agreements as well as the ability to borrow based upon the London Inter-Bank Offered Rate (LIBO). The borrowing base will be non-reducing and will be revised every six months by the banks. Most of the Company's oil and gas properties as well as certain receivables and equipment are pledged as security under the new agreement. The Company is required to maintain, as defined, a minimum current ratio, tangible net worth, and debt and interest coverage ratios. The line of credit now bears interest at 1/2% over the bank's base rate, as defined, payable monthly, or 2-3/4% over the published LIBO rate, payable at the end of the applicable interest period. As of October 6, 1995, the loan agreement was amended to allow the company to purchase up to $1,250,000 in treasury stock in any fiscal year. The Company's primary source of working capital during the first nine months of 1995 was cash balances at the end of the prior year, coupled with internally generated funds and bank borrowings. Net cash provided by operations was used primarily for the development of the company's oil and gas properties, as well as the purchase of treasury stock. The Company continues to focus on the acquisition of producing oil and gas properties, with an increased emphasis on those with potential for future development drilling. It also continues to attempt to expand its service and operating functions, both by taking over operations of wells in which it has purchased an interest, and by providing more services to third parties. During the first nine months, the Company spent approximately $553,000 acquiring properties for development or developing properties already owned. The Company also spent $428,000 on the repurchase of limited partnership interests in the Partnerships. Also during the first nine months, the Company spent approximately $311,000 on trucks and automobiles used in connection with field service operations. An additional $92,000 was spent on computers and related equipment and software, and $19,000 was spent on furniture and fixtures. The expansion of the Company's operating and servicing subsidiaries through property and equipment acquisitions during 1995 is expected to show a positive impact on earnings in the future. Additionally, the Company receives cash flows through PEMC from the management of existing limited partnerships and trusts. The Company feels that it has the ability to generate sufficient amounts of cash to meet long-term liquidity needs, as well as debt service. The Company expects to generate increased cash flows by increasing its reserve base through continued acquisitions and the development of existing properties. By increasing its reserve base, the Company's borrowing ability is increased due to additional properties available as collateral. RESULTS OF OPERATIONS Oil and gas sales of $4.39 million for the first nine months of 1995 increased approximately 10% compared to the first nine months of 1994. Both of these increases are primarily due to increased overall oil and gas production resulting from acquisitions made in May and December of 1994. Average prices received for directly owned oil production increased substantially from approximately $15.19 per barrel in 1994 to $16.65 per barrel in the first nine months of 1995. Average gas prices decreased substantially from $2.56 per Mcf received in the first nine months of 1994 to $1.79 per Mcf received during the comparable period in 1995. Oil and gas sales for the third quarter decreased 4.8% compared to the third quarter of 1994. The average price received for directly owned oil production declined from $17.15 in the third quarter of 1994 to $16.06 for the comparable period in 1995, and the average price received for directly owned gas production declined from $2.16 per Mcf in the third quarter of 1994 to 1.91 during the comparable period in 1995. The effect of these price declines more than offset the production from the Walker acquisition made in December of 1994. Oil and gas sales related to PEMC's carried interest in the Partnerships and other ventures was fairly consistent with 1994. Approximately 20% of the companies gas production during the first nine months of 1995 was sold under a fixed price gas contract at prices substantially in excess of current spot prices. This contract, which covers production from the San Pedro Ranch property, expires at the end of March, 1996. Management is currently examining various means of reducing costs on the property in order to offset, to the extent possible, the anticipated decline in gross revenue. District operating income increased $385,703 or 6% compared to the first nine months of 1994. This increase is fueled largely by the overall expansion of operating activities and acquisitions made by the Company and the Partnerships during 1994. Administrative revenue for the first nine months of 1995 decreased 11% compared to the first nine months of 1994. Amounts received in both years from certain Partnerships are substantially less than the amounts allocable to those Partnerships under the Partnership agreements. The lower amounts reflect PEMC's efforts to limit costs incurred and those allocated to the Partnerships. Lease operating expenses for the first nine months of 1995 increased 14% compared to the first nine months of 1994, and for the third quarter increased 1% compared to the third quarter of 1994. Expenses on directly owned properties increased primarily due to the addition of the Excelco and Walker acquisitions late in 1994. Average lifting costs per equivalent unit on directly owned properties, however, decreased from $10.56 during the first nine months of 1994 to $9.27 in 1995. Expenses on properties in which the Company has a carried interest were consistent with the first nine months of 1994. Depreciation and depletion of oil and gas properties for the first nine months decreased remained consistent with the first nine months of 1994 as the depletion expense on properties acquired during the latter part of 1994 was offset by lower depletable cost basis on existing properties. The Company receives reimbursement for costs incurred related to the evaluation, acquisition and development of properties on behalf of its related partnerships, trusts, and other joint venture partners. To the extent that these costs are expended at the district level, the reimbursements reduce total district operating expenses. Alternatively, if the expenses are incurred by PEMC, such reimbursements reduce total general and administrative expenses. Property acquisition cost reimbursement amounted to approximately $1,125,000 for the first nine months of both 1995 and 1994. District operating expense increased $506,000 or 10% for the first nine months compared to the same period in 1994, and $73,000 or 4% for the quarter ended September 30, 1995 as compared to the same period in 1994. The overall increases are primarily due to the expansion of district operations and higher depreciation costs due to depreciation of assets acquired in 1994 and 1995, in addition to a decrease in the reimburesement of acquisition costs at the district level. During the third quarter of 1995 the company shifted responsibility for the accounting and administrative work formerly performed in its Midland, Texas office to its office in Houston, Texas. This change resulted in staff reductions and other cost efficiencies and will eventually lead to the closing of the Midland office. While no material reduction in costs were achieved in the third quarter due to severance payments and other one time costs related to this change, it is expected that the change will result in a reduction of district operating expense in the future. General and administrative expenses decreased $433,000, or 16% compared to the first nine months of 1994. The large decrease is primarily due to a decrease in the amount spent on acquisition analysis and property development, combined with an increase in reimbursement at the PEMC level. Interest expense during the first nine months increased substantially due to higher debt levels resulting from 1994 oil and gas property acquisitions and development costs, and treasury stock purchases, coupled with higher interest rates. OTHER In March, 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 No. 121) which is effective for fiscal years beginning after December 15, 1995. This statement establishes accounting standards for the impairment of long-lived assets, requiring such assets to be reported at the lower of carrying amount or fair value, less selling costs. The statement amends SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies" by adding an impairment test for proved properties in accordance with SFAS No. 121. The Company currently performs a "ceiling test" by comparing the total carrying value of oil and gas properties to the total future net cash flows from the estimated production of proved oil and gas properties. The effect of SFAS No. 121, which would change the way this test is performed, is not known at this time. PART II - OTHER MATTERS Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of the Registrant was held on June 14, 1995. The only matter submitted to the stockholders was the election of fourteen Directors (named below), nominated by management, all of whom were currently serving as Directors. Proxies were solicited pursuant to Regulation 14A under the Securities Act of 1934, definitive copies of which were filed with he Commission. There was no solicitation in opposition to management's nominees, and all of the Directors nominated for re-election were elected. The number of shares of persons nominated and elected as Directors and the number of shares voting for or withheld for each, is shown below. There were no abstentions or broker non-votes. For Withheld Samuel R. Campbell 4,142,346 22,337 Beverly A. Cummings 4,142,346 22,337 Charles E. Drimal, Jr. 4,139,846 24,837 Charles E. Drimal, Sr. 4,139,846 24,837 Matthias Eckenstein 4,142,146 22,537 H. Gifford Fong 4,142,346 22,337 Thomas S. T. Gimbel 4,142,346 22,337 Clint Hurt 4,142,346 22,337 Robert de Rothschild 4,142,346 22,337 Jarvis J. Slade 4,142,046 22,637 Jan K. Smeets 4,142,146 22,537 Bennie H. Wallace, Jr. 4,142,146 22,537 Gaines Wehrle 4,142,096 22,587 Michael H. Wehrle 4,142,096 22,587 Item 6. EXHIBITS AND REPORTS ON FORM 8-K A report on Form 8-K was filed for events that occurred on April 26, 1995 whereby the Company entered into a revolving credit agreement with a borrowing base of $12.5 million and a master promissory note of $50 million. Exhibit 27 - Financial Data Schedule is attached to the electronic filing of this report only. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PrimeEnergy Corporation (Registrant) November 13, 1995 /s/ Charles E. Drimal, Jr. (Date) -------------------------- Charles E. Drimal, Jr. President Principal Executive Officer November 13, 1995 /s/ Beverly A. Cummings (Date) -------------------------- Beverly A. Cummings Executive Vice President Principal Financial and Accounting Officer