U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-Q
/X/ Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2001
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 May 8, 2001 was: Common Stock, $0.10 par value, 3,886,511 shares.
Index to Form 10-Q
March 31, 2001
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2001 and
December 31, 2000
3 - 4
Consolidated Statements of Operations for the three months
ended March 31, 2001 and 2000
5
Consolidated Statement of Stockholders' Equity for the
three months ended March 31, 2001
6
Consolidated Statements of Cash Flows for the three months
7
Notes to Consolidated Financial Statements
8 - 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
16 - 19
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
19
Part II - Other Information
Item 1. Legal Proceedings
20
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits And Reports On Form 8-K
Signatures
21
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
March 31,
2001
(Unaudited)
December 31
2000
(Audited)
ASSETS
Current assets:
Cash and cash equivalents
$
1,348,000
684,000
Restricted cash and cash equivalents (Note 2)
1,143,000
1,128,000
Accounts Receivable (Note 3)
6,002,000
5,663,000
Due from related parties (Note 9)
4,698,000
4,346,000
Other current assets
127,000
112,000
Prepaid Expenses
63,000
134,000
Deferred income taxes (Note 1)
155,000
Total current assets
13,536,000
12,222,000
Property and equipment, at cost (Notes 1 and 4):
Oil and gas properties (successful efforts method):
Proved
57,973,000
57,439,000
Unproved
164,000
159,000
Furniture, fixtures and equipment
including leasehold improvements
7,708,000
7,433,000
65,845,000
65,031,000
Accumulated depreciation and depletion
(43,503,000)
(42,361,000)
Net property and equipment
22,342,000
22,670,000
Other assets
205,000
202,000
Total assets
36,083,000
35,094,000
See accompanying notes to the consolidated financial statements.
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable
6,536,000
6,828,000
Current portion of other long-term
obligations (Notes 6 and 7)
854,000
Accrued liabilities:
Payroll, benefits and related items
1,179,000
934,000
Taxes
632,000
455,000
Interest and other
844,000
1,058,000
Due to related parties (Note 9)
1,152,000
1,265,000
Total current liabilities
11,197,000
11,394,000
Long-term bank debt (Note 5)
17,085,000
17,200,000
Other long-term obligations (Notes 6 and 7)
933,000
1,013,000
511,000
Total liabilities
29,726,000
30,118,000
Stockholders' equity:
Preferred stock, $.10 par value,
authorized 5,000,000 shares, none issued
Common stock, $.10 par value, authorized
10,000,000 shares; issued 7,607,970
in 2001 and 2000
761,000
Paid in capital
10,902,000
Retained earnings
5,511,000
2,506,000
17,174,000
14,169,000
Treasury stock, at cost, 3,721,459 common shares
in 2001 and 3,488,942 common shares in 2000
(10,817,000)
(9,193,000)
Total stockholders' equity
6,357,000
4,976,000
Total liabilities and equity
Consolidated Statements of Operations
Three Months Ended March 31, 2001 and 2000
Revenue:
Oil and gas sales
7,655,000
4,181,000
District operating income
4,100,000
3,000,000
Administrative revenue (Note 9)
384,000
375,000
Reporting and management fees (Note 9)
78,000
79,000
Interest and other income
95,000
77,000
Total revenue
12,312,000
7,712,000
Costs and expenses:
Lease operating expense
2,600,000
1,894,000
District operating expense
3,222,000
2,466,000
Depreciation and depletion of oil and gas properties
1,063,000
1,074,000
General and administrative expense
1,100,000
1,187,000
Exploration costs
278,000
122,000
Interest expense (Note 5)
293,000
378,000
Total costs and expenses
8,556,000
7,121,000
Income from operations
3,756,000
591,000
Gain (loss) on sale and exchange of assets
--
(2,000)
Net income before income taxes
589,000
Provision for income taxes
751,000
71,000
Net income
3,005,000
518,000
Basic income per common share (Notes 1 and 10)
$0.76
$0.12
Diluted income per common share (Notes 1 and 10)
$0.64
$0.10
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 2001
Common Stock
Paid In
Retained
Treasury
Shares
Amount
Capital
Earnings
Stock
Total
Balance at December 31, 2000
7,607,970
$761,000
$10,902,000
$2,506,000
($9,193,000)
$4,976,000
Purchased 232,517 shares of
common stock
(1,624,000)
Balance at March 31, 2001
$5,511,000
($10,817,000)
$6,357,000
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation, depletion and amortization
1,305,000
1,334,000
Dry hole and abandonment costs
275,000
121,000
Gain on sale of properties
2,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(339,000)
222,000
(Increase) decrease in due from related parties
(352,000)
(345,000)
(Increase) decrease in other assets
53,000
46,000
Increase (decrease) in accounts payable
(307,000)
(1,575,000)
Increase (decrease) in accrued liabilities
340,000
332,000
Increase (decrease) in due to related parties
(113,000)
65,000
Net cash provided by operating activities:
3,867,000
720,000
Cash flows from investing activities:
Capital expenditures, including dry hole costs
(1,384,000)
(1,564,000)
Proceeds from sale of property and equipment
10,000
Net cash used in investing activities
Cash flows from financing activities:
Purchase of treasury stock
(30,000)
Increase in long-term bank debt and
other long-term obligations
7,610,000
7,915,000
Repayment of long-term bank debt and
(7,805,000)
(8,316,000)
Net cash used in financing activities
(1,819,000)
(431,000)
Net increase (decrease) in cash and cash equivalents
664,000
(1,265,000)
Cash and cash equivalents at the beginning of the period
1,771,000
Cash and cash equivalents at the end of the period
506,000
1) Description of Operations and Significant Accounting Policies:
Nature of Operations-
PrimeEnergy Corporation ("PEC"), a Delaware corporation, was organized in March 1973. PrimeEnergy Management Corporation ("PEMC"), a wholly-owned subsidiary, acts as the managing general partner, providing administration, accounting and tax preparation services for 47 private and publicly-held limited partnerships and 2 trusts (collectively, the "Partnerships"). PEC owns Eastern Oil Well Service Company ("EOWSC") and Southwest Oilfield Construction Company ("SOCC"), both of which perform oil and gas field servicing. PEC also owns Prime Operating Company ("POC"), which serves as operator for most of the producing oil and gas properties owned by the Company and affiliated entities. PrimeEnergy Corporation and its wholly-owned subsidiaries are herein referred to as the "Company".
The Company is engaged in the development, acquisition and production of oil and natural gas properties. The Company owns leasehold, mineral and royalty interests in producing and non-producing oil and gas properties across the continental United States, including Colorado, Kansas, Louisiana, Mississippi, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Texas, Utah, West Virginia and Wyoming. The Company operates approximately 1,600 wells and owns non-operating interests in over 800 additional wells. Additionally, the Company provides well-servicing support operations, site-preparation and construction services for oil and gas drilling and re-working operations, both in connection with the Company's activities and providing contract services for third parties. The Company is publicly traded on the NASDAQ under the symbol "PNRG."
The markets for the Company's products and services are highly competitive, as oil and gas are commodity products and prices depend upon numerous factors beyond the control of the Company, such as economic, political and regulatory developments and competition from alternative energy sources.
Principles of Consolidation-
The consolidated financial statements include the accounts of PrimeEnergy Corporation and its wholly-owned subsidiaries. All material inter-company accounts and transactions between these entities have been eliminated. Oil and gas properties include ownership interests in the Partnerships. The statement of operations includes the Company's proportionate share of revenue and expenses related to oil and gas interests owned by the Partnerships.
Use of Estimates-
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Estimates of oil and gas reserves, as determined by independent petroleum engineers, are continually subject to revision based on price, production history and other factors. Depletion expense, which is computed based on the units of production method, could be significantly impacted by changes in such estimates. Additionally, SFAS No. 121 requires that, if the expected future cash flow from an asset is less than its carrying cost, that asset must be written down to its fair market value. As the fair market value of a property is generally substantially less than the total future cash flow expected from the asset, small changes in the estimated future net revenue from an asset could lead to the necessity of recording a significant impairment of that asset.
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, including development dry holes and related production facilities, are capitalized. Costs incurred by the Company related to the acquisition of producing oil and gas properties on behalf of the Partnerships or joint ventures are deferred and charged to the related entity upon the completion of the acquisition. To the extent that the Company acquires an interest in the property, an appropriate allocation of internal costs are capitalized as part of the depletable base of the property.
All other property and equipment are carried at cost. 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. The cost of assets and related accumulated depreciation is removed from the accounts when such assets are disposed of, and any related gains or losses are reflected in current earnings.
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 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.
General and Administrative Expenses-
General and administrative expenses represent costs and expenses associated with the operation of the Company. Certain of the Partnerships and joint ventures sponsored by the Company reimburse general and administrative expenses incurred on their behalf.
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 in accordance with SFAS No. 128, "Earnings per Share".
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.
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. The Company's oil and gas production purchasers consist primarily of independent marketers and major gas pipeline companies.
Hedging-
From time to time, the Company may enter into futures contracts in order to reduce its exposure related to changes in oil and gas prices. In accordance with Statement of Financial Accounting Standards No. 133, any gain or loss on such contracts is treated as an adjustment to oil and gas revenue. Cash activity related to hedging transactions is treated as operating activity on the Statements of Cash Flows.
Recently Issued Accounting Standards-
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities". The statement requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the planned use of the derivative and the resulting designation. The adoption of SFAS No. 133 in 2000 did not have a significant impact on the Company's financial position, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No.101, Revenue Recognition in Financial Statements ("SAB No. 101"). SAB No. 101 provides guidance for revenue recognition under certain circumstances. The adoption of SAB 101 in 2000 has not had a significant impact on the Company's financial position, results of operations or cash flows.
(2) Restricted Cash and Cash Equivalents:
Restricted cash and cash equivalents includes $1,143,000 and $1,128,000 at March 31, 2001 and December 31, 2000, respectively, of cash primarily pertaining to undistributed royalty payments. There were corresponding accounts payable recorded at March 31, 2001 and December 31, 2000 for these liabilities.
(3) Accounts Receivable:
Accounts receivable at March 31, 2001 and December 31, 2000 consisted of the following:
December 31,
Joint Interest Billing
1,196,000
1,352,000
Trade Receivables
1,435,000
967,000
Oil and Gas Sales
3,437,000
3,310,000
Other
80,000
180,000
6,148,000
Less, Allowance for doubtful
accounts
(146,000)
(4) Property and equipment:
Property and equipment at March 31, 2001 and December 31, 2000 consisted of the following:
Proved oil and gas properties at cost
Unproved oil and gas properties at cost
Less, accumulated depletion
and depreciation
(38,748,000)
(37,686,000)
19,389,000
19,912,000
Less, accumulated depreciation
(4,755,000)
(4,675,000)
2,953,000
2,758,000
Total net property and equipment
5) Long-Term Bank Debt:
The Company has been party to a series of credit agreements with its primary lender or its predecessors since 1983. The current agreement, entered into in April 1995, provides for borrowings under a Master Note. Advances under the agreement, as amended, are limited to the borrowing base as defined in the agreement. The borrowing base is re-determined by the lender on a semi-annual basis. Since the beginning of 1999, the borrowing base has ranged from $20 million to $23.7 million. The credit agreement provides for interest on outstanding borrowings at the bank's base rate, as defined, payable monthly, or at rates ranging from 1.5% to 2% over the London Inter-Bank Offered Rate (LIBO rate) depending upon the Company's utilization of the available line of credit, payable at the end of the applicable interest period.
The combined average interest rates paid on outstanding borrowings subject to interest at the bank's base rate and on outstanding borrowings bearing interest based upon the LIBO rate were 7.91% during the first quarter of 2001 as compared to 8.08% during the same period of 2000. As of March 31, 2001 and December 31, 2000, respectively, the total outstanding borrowings were $17.1 million and $17.2 million with an additional $6.6 million and $1.75 million available, and $11 million and $13.5 million of the amounts outstanding accruing interest at the LIBO rate option.
The Company's oil and gas properties as well as certain receivables and equipment are pledged as security under the loan agreement. The agreement requires the Company to maintain, as defined, a minimum current ratio, tangible net worth, debt coverage ratio and interest coverage ratio, and restrictions are placed on the payment of dividends and the amount of treasury stock the Company may purchase.
(6) Other Long-Term Obligations:
Other long-term obligations at March 31, 2001 and December 31, 2000 consisted of the following:
Due under oil and gas property
purchase (Note 7)
1,850,000
Capital lease obligations
16,000
17,000
Less, current portion
(854,000)
(7) Contingent Liabilities:
In connection with the purchase of oil and gas properties located in various counties in Oklahoma in November of 1999, the Company is committed to pay contingent consideration to the seller based upon the performance of the properties purchased. As of March 31, 2001 and December 31, 2000, the total estimated contingent consideration to be paid under this agreement was $1,771,000 and $1,850,000, respectively, of which $921,000 and $1,000,000, respectively, are included in 'Other long-term obligations' and $850,000 is included in 'Current portion of other long-term obligations'.
PEMC, as managing general partner of the affiliated Partnerships 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 and 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' interests in certain of its managed Partnerships at various annual intervals. Under the terms of a partnership agreement, PEMC is not obligated to purchase an amount greater than 10% of the total partnership interest outstanding. In addition, PEMC will be obligated to purchase interests tendered by the limited partners only to the extent of one hundred 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 $500,000.
The Company is subject to environmental laws and regulations. Management believes that future expenses, before recoveries from third parties, if any, will not have a material effect on the Company's financial condition. This opinion is based on expenses incurred to date for remediation and compliance with laws and regulations which have not been material to the Company's results of operations.
(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. At March 31, 2001 and 2000, options on 767,500 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, 2000 and 1999, options on 87,000 were exercisable at $1.50 per share and no additional shares were available for granting.
PEMC has a marketing agreement with its current President to provide assistance and advice to PEMC in connection with the organization and marketing of oil and gas partnerships and joint ventures and other investment vehicles of which PEMC is to serve as general or managing partner. The Company had a similar agreement with its former Chairman. Although that agreement has expired, the former Chairman is still entitled to receive certain payments relating to partnerships formed during the time the agreement was in effect. The President is entitled to a percentage of the Company's carried interest depending on total capital raised and annual performance of the Partnerships and joint ventures.
(9) Related Party Transactions:
PEMC is a general partner in several oil and gas Partnerships in which certain directors have limited and general partnership interests. 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 provided to the Partnerships as well as reimbursement for property acquisition and development costs incurred on behalf of the Partnerships and general and administrative overhead, which is reported in the statements of operations as administrative revenue.
Due to related parties at March 31, 2001 and December 31, 2000 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 acquisitions, development and related costs.
In the first quarter of 2001, the Company purchased, in a number of separate transactions, 159,598 shares of treasury stock from related parties for total consideration of $1,117,186.
(10) Income per share:
Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock. The following reconciles amounts reported in the financial statements:
Three Months Ended
March 31, 2000
Net
Income
Number of
Per Share
Net income per common
share
3,971,739
0.76
4,338,759
0.12
Effect of dilutive
securities:
Options
709,568
660,257
Diluted net income
Per common share
4,681,307
0.64
4,999,016
0.10
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
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's goal is to generate increased cash flows by increasing its reserve base through continued acquisition, exploration and development. By increasing its reserve base, the Company's borrowing ability is increased due to additional properties available as collateral. Capital expenditures during 2001were financed by internally generated funds coupled with cash balances available at the prior year-end.
The Company spent approximately $818,000 on the acquisition, exploration and development of oil and gas properties in the first three months of 2001, including $5,000 spent to repurchase limited partner interests from investors in the oil and gas partnerships.
The Company also spent approximately $421,000 on field service equipment and $16,000 on computer hardware and software.
The Company spent $1,624,000 in the first three months of 2001 to acquire treasury stock.
Most of the Company's capital spending is discretionary and the ultimate level of spending will be dependent on the Company's assessment of the oil and gas business, the availability of capital, the number of oil and gas prospects, and oil and gas business opportunities in general.
RESULTS OF OPERATIONS
The Company had net income of $3,005,000 in the three months ended March 31, 2001 as compared to $518,000 in the same period in 2000. The increased profitability is attributable to increased oil and gas production, sharply higher gas prices, and a substantial increase in field services income.
Oil and gas sales increased 83% in the three month period ending March 31, 2001 as compared to the same period in 2000, due to increased production, and a sharp increase in the average gas price received. The table below summarizes revenue in the periods under discussion.
March 31
Increase /
(Decrease)
Barrels of Oil Produced
71,916
70,399
1,517
Average Price Received
$26.4197
$26.8860
$(0.4663)
Oil Revenue
$1,900,000
$1,893,000
$7,000
Mcf of Gas Produced
902,872
839,951
62,921
$6.3741
$2.7242
$3.6499
Gas Revenue
$5,755,000
$2,288,000
$3,467,000
Total Oil & Gas Revenue
$7,655,000
$4,181,000
$3,474,000
The production increases in the first quarter of 2001 are primarily attributable to production from the following properties which were developed or purchased during 2000, none of which had any production in the first quarter of 2000:
District operating income increased by $1,100,000, or 37%, between the first three months of 2001 and the first three months of 2000. This increase reflects the Company's efforts to increase the amount of field service work it performs on wells not operated by the Company, particularly through the expansion of its operations in the Midland, Texas area.
Administrative revenue for the first three months of 2001 was $384,000 as compared to $375,000 in 2000, an increase of 2%. Amounts received in both periods 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 the amounts allocated to the Partnerships.
Lease operating expense for the first three months of 2001 increased by 37% or $706,000 compared to the first three months of 2000. $257,000 of this increase is attributable to the major properties developed or purchased during 2000, which are discussed above. Higher severance taxes, which are based on a percentage of revenue from an oil and gas property, also contributed to the increase.
The Company receives reimbursement for costs incurred related to the evaluation, acquisition and development of properties in which interests are owned by its joint venture partners, related partnerships, and trusts. To the extent that these costs are expended at the district level, the reimbursements reduce total district operating expenses. To the extent such expenses are incurred by PEMC, such reimbursements reduce total general and administrative expenses. Such reimbursement totaled approximately $125,000 in the three months ended March 31, 2001, as compared to $200,000 in the same period of the prior year.
District operating expense increased by $756,000, or 31%, in the first quarter of 2001 as compared to the first quarter of 2000. This increase reflects the labor and fuel costs associated with the increase in District operating income discussed above.
General and administrative expenses declined by 7% to $1,100,000 from $1,187,000 in the three months ended March 31, 2001 as compared to the same period last year. In the first quarter of 2000, the Company incurred significant nonrecurring compensation and employee benefit costs related to the resignation of a company employee. This change was offset by the reduction in reimbursements noted above.
Exploration costs were $278,000 in the first three months of 2001 as compared to $122,000 during the same period in 2000. The 2001 costs consist primarily of the cost of a dry hole drilled in Calhoun County, Texas.
Interest expense during the first three months of 2001 decreased approximately 22% to $293,000 due primarily to lower average balances.
Tax expense increased to $751,000 in the first three months ended March 31, 2001, as compared to $71,000 in the same period in the previous year. In 2000, the Company utilized significant net operating loss carryforwards which had previously been fully reserved against, thereby lowering its effective tax rate.
This Report contains forward-looking statements that are based on management's current expectations, estimates and projections. Words such as "expects," "anticipates," "intends," "plans," " believes," "projects" and "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and are subject to the safe harbors created thereby. These statements are not guarantees of future performance and involve risks and uncertainties and are based on a number of assumptions that could ultimately prove inaccurate and, therefore, there can be no assurance that they will prove to be accurate. Actual results and outcomes may vary materially from what is expressed or forecast in such statements due to various risks and uncertainties. These risks and uncertainties include, among other things, the possibility of drilling cost overruns and technical difficulties, volatility of oil and gas prices, competition, risks inherent in the Company's oil and gas operations, the inexact nature of interpretation of seismic and other geological and geophysical data, imprecision of reserve estimates, and the Company's ability to replace and expand oil and gas reserves. Accordingly, stockholders and potential investors are cautioned that certain events or circumstances could cause actual results to differ materially from those projected.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk sensitive instrument at March 31, 2001 is a revolving line of credit from a bank. The interest rate on this debt is sensitive to market fluctuations; however, we do not believe that significant fluctuations in the market rate of interest have a material effect on our consolidated financial position, results of operations, or cash flow from operations.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the period covered by this report
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8K
No reports on form 8K were filed by the Company during the three months ended March 31, 2001.
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.
(Registrant)
May 9, 2001
/s/ Charles E. Drimal,Jr.
(Date)
------------------------------
Charles E. Drimal, Jr.
President
Principal Executive Officer
/s/ Beverly A. Cummings
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Beverly A. Cummings
Executive Vice President
Principal Financial and Accounting Officer