0000002178-17-000038.txt : 20170509 0000002178-17-000038.hdr.sgml : 20170509 20170509161248 ACCESSION NUMBER: 0000002178-17-000038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 45 CONFORMED PERIOD OF REPORT: 20170331 FILED AS OF DATE: 20170509 DATE AS OF CHANGE: 20170509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAMS RESOURCES & ENERGY, INC. CENTRAL INDEX KEY: 0000002178 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 741753147 STATE OF INCORPORATION: DE FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07908 FILM NUMBER: 17826555 BUSINESS ADDRESS: STREET 1: 17 S. BRIAR HOLLOW LN. CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7138813600 MAIL ADDRESS: STREET 1: P O BOX 844 CITY: HOUSTON STATE: TX ZIP: 77001 FORMER COMPANY: FORMER CONFORMED NAME: ADAMS RESOURCES & ENERGY INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ADA RESOURCES INC DATE OF NAME CHANGE: 19790620 10-Q 1 form10_q.htm 1ST QT 2017 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10‑Q

Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2017
Commission File Number 1-07908

ADAMS RESOURCES & ENERGY, INC.
(Exact name of Registrant as specified in its charter)

Delaware
 
74-1753147
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

17 South Briar Hollow Lane Suite 100, Houston, Texas  77027
(Address of principal executive office & Zip Code)

Registrant's telephone number, including area code (713) 881‑3600

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    NO 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of ‟large accelerated filer”, ‟accelerated filer” and ‟smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer                                                                                         
Accelerated filer                                                                                  
Non-accelerated filer                                                                                           
Smaller Reporting Company                                                             
(Do not check if a smaller reporting company)
 
Emerging growth company                                                                                 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES     NO 

A total of 4,217,596 shares of Common Stock were outstanding at May 1, 2017.


PART 1 – FINANCIAL INFORMATION

Item 1.  Financial Statements

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
REVENUES:
           
Marketing
 
$
288,615
   
$
236,394
 
Transportation
   
13,455
     
13,347
 
Oil and natural gas
   
1,017
     
790
 
     
303,087
     
250,531
 
COSTS AND EXPENSES:
               
Marketing          
   
285,153
     
229,057
 
Transportation
   
12,162
     
11,189
 
Oil and natural gas operations
   
750
     
631
 
General and administrative
   
2,637
     
2,200
 
Depreciation, depletion and amortization
   
3,969
     
5,115
 
     
304,671
     
248,192
 
                 
Operating (loss) earnings
   
(1,584
)
   
2,339
 
                 
Other income (expense):
               
Interest income
   
159
     
103
 
Interest expense
   
(1
)
   
-
 
                 
(Loss) earnings before income taxes and equity investments
   
(1,426
)
   
2,442
 
                 
Income tax benefit (provision)
   
566
     
(888
)
                 
(Loss) earnings before equity investments
   
(860
)
   
1,554
 
(Loss) from equity investments, net of tax benefit of zero
               
and $67, respectively
   
-
     
(124
)
Net (loss) earnings
 
$
(860
)
 
$
1,430
 
                 
(LOSS) EARNINGS PER SHARE:
               
Basic and diluted net (loss) earnings per common share
 
$
(.20
)
 
$
.34
 
                 
                 
DIVIDENDS PER COMMON SHARE
 
$
.22
   
$
.22
 


The accompanying notes are an integral part of these financial statements.
2

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

   
March 31,
   
December 31,
 
   
2017
   
2016
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
98,073
   
$
87,342
 
Accounts receivable, net of allowance for doubtful
               
accounts of $233 and $225, respectively
   
89,122
     
87,162
 
Inventory
   
20,627
     
13,070
 
Fair value contracts
   
468
     
112
 
Income tax receivable
   
3,471
     
2,735
 
Prepayments
   
1,353
     
2,097
 
                 
Total current assets
   
213,114
     
192,518
 
                 
Property and Equipment
               
Marketing
   
56,511
     
56,907
 
Transportation
   
70,767
     
70,849
 
Oil and gas (successful efforts method)
   
64,063
     
62,784
 
Other
   
107
     
108
 
     
191,448
     
190,648
 
                 
Less – Accumulated depreciation, depletion and amortization
   
(147,639
)
   
(144,323
)
     
43,809
     
46,325
 
Other Assets:
               
Investments
   
2,500
     
2,500
 
Cash deposits and other
   
4,740
     
5,529
 
   
$
264,163
   
$
246,872
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts payable
 
$
97,978
   
$
79,897
 
Accounts payable – related party
   
56
     
53
 
Fair value contracts
   
-
     
64
 
Accrued and other liabilities
   
7,303
     
6,060
 
                 
Total current liabilities
   
105,337
     
86,074
 
                 
Other Liabilities:
               
Asset retirement obligations
   
2,090
     
2,329
 
Deferred taxes and other liabilities
   
7,212
     
7,157
 
     
114,639
     
95,560
 
Commitments and Contingencies (Note 5)
               
                 
Shareholders’ Equity:
               
Preferred stock - $1.00 par value, 960,000 shares
               
authorized, none outstanding
   
-
     
-
 
Common stock - $.10 par value, 7,500,000 shares
               
authorized, 4,217,596 shares outstanding
   
422
     
422
 
Contributed capital
   
11,693
     
11,693
 
Retained earnings
   
137,409
     
139,197
 
Total shareholders’ equity
   
149,524
     
151,312
 
   
$
264,163
   
$
246,872
 

The accompanying notes are an integral part of these financial statements.
3

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
CASH PROVIDED BY OPERATIONS:
           
Net (loss) earnings
 
$
(860
)
 
$
1,430
 
Adjustments to reconcile net earnings to net cash
               
from operating activities -
               
Depreciation, depletion and amortization
   
3,969
     
5,115
 
Property sales loss (gains)
   
7
     
(120
)
Impairment of oil and natural gas properties
   
3
     
29
 
Deferred income taxes
   
60
     
(1,352
)
Net change in fair value contracts
   
(420
)
   
158
 
Equity investment losses
   
-
     
191
 
(Increase) in accounts receivable
   
(1,968
)
   
(1,224
)
(Increase) in inventories
   
(7,557
)
   
(5,707
)
Decrease (increase) in income tax receivable
   
(736
)
   
1,958
 
Decrease in prepayments
   
744
     
338
 
Increase (decrease) in accounts payable
   
17,746
     
(3,614
)
Increase in accrued liabilities
   
1,084
     
393
 
Other changes, net
   
78
     
47
 
                 
Net cash provided by (used in) operating activities
   
12,150
     
(2,358
)
                 
INVESTING ACTIVITIES:
               
Property and equipment additions
   
(1,006
)
   
(4,210
)
Proceeds from property sales
   
39
     
920
 
Investments
   
-
     
(2,200
)
Insurance and state collateral (deposits) refunds
   
476
     
(2
)
                 
Net cash used in investing activities
   
(491
)
   
(5,492
)
                 
FINANCING ACTIVITIES
               
Dividend payments
   
(928
)
   
(928
)
                 
Net cash used in financing activities
   
(928
)
   
(928
)
                 
Increase (decrease) in cash and cash equivalents
   
10,731
     
(8,778
)
                 
Cash and cash equivalents at beginning of period
   
87,342
     
91,877
 
                 
Cash and cash equivalents at end of period
 
$
98,073
   
$
83,099
 


The accompanying notes are an integral part of these financial statements
4

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, in the opinion of  Adams Resources & Energy, Inc., a Delaware corporation, and its wholly owned subsidiaries (collectively, the “Company”) management, include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of its financial position at March 31, 2017, its results of operations for the three months ended March 31, 2017 and 2016 and its cash flows for the three months ended March 31, 2017 and 2016. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles (‟GAAP”) have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations.

Although the Company believes the disclosures made are adequate to make the information presented not misleading, it is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements, and the notes thereto, included in the Company's latest Annual Report on Form 10-K. The interim statement of operations is not necessarily indicative of results to be expected for a full year.

Note 2 - Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation

The Company is engaged in the business of crude oil marketing, tank truck transportation of liquid chemicals and dry bulk, and oil and gas exploration and production.  The accompanying unaudited condensed consolidated financial statements include the accounts of the Company after elimination of all intercompany accounts and transactions.

Cash and Cash Equivalents

Cash and cash equivalents include any Treasury bill, commercial paper, money market fund or federal funds with maturity of 90 days or less.  Cash and cash equivalents are maintained with major financial institutions and such deposits may exceed the amount of federally backed insurance provided.  While the Company regularly monitors the financial stability of such institutions, cash and cash equivalents ultimately remain at risk subject to the financial viability of such institutions.

Inventory

Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of the Company’s crude oil marketing operations.  Crude oil inventory is carried at the lower of average cost or “net realizable value”.

5

Prepayments

The components of prepayments are as follows (in thousands):

   
March 31,
   
December 31,
 
   
2017
   
2016
 
             
Insurance premiums
 
$
767
   
$
1,403
 
Rents, license and other
   
586
     
694
 
   
$
1,353
   
$
2,097
 

Property and Equipment

Expenditures for major renewals and betterments are capitalized, and expenditures for maintenance and repairs are expensed as incurred.  Interest costs incurred in connection with major capital expenditures are capitalized and amortized over the lives of the related assets. When properties are retired or sold, the related cost and accumulated depreciation, depletion and amortization is removed from the accounts and any gain or loss is reflected in earnings.

Oil and gas exploration and development expenditures are accounted for in accordance with the successful efforts method of accounting.  Direct costs of acquiring developed or undeveloped leasehold acreage, including lease bonus, brokerage and other fees, are capitalized. Exploratory drilling costs are initially capitalized until the properties are evaluated and determined to be either productive or nonproductive.  Such evaluations are made on a quarterly basis.  If an exploratory well is determined to be nonproductive, the costs of drilling the well are charged to expense. Costs incurred to drill and complete development wells, including dry holes, are capitalized.  As of March 31, 2017, the Company had no unevaluated or suspended exploratory drilling costs.

Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method.  The reserve base or denominator used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves.  For lease and well equipment, development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves.  The numerator for such calculations is actual production volumes for the period.  All other property and equipment is depreciated using the straight-line method over the estimated average useful lives of three to twenty years.

The Company reviews its long-lived assets for impairment whenever there is evidence that the carrying value of such assets may not be recoverable.  Any impairment recognized is permanent and may not be restored.  Producing oil and gas properties are reviewed on a field-by-field basis. Fields with carrying values in excess of their estimated undiscounted future net cash flows are deemed impaired.  For properties requiring impairment, the fair value is estimated based on an internal discounted cash flow model.  Cash flows are developed based on estimated future production and prices are then discounted using a market based rate of return consistent with that used by the Company in evaluating cash flows for other assets of a similar nature.

On a quarterly basis, management evaluates the carrying value of non-producing oil and gas leasehold properties and may deem them impaired based on remaining lease term, area drilling activity and the Company’s plans for the property.  This fair value measure depends highly on management’s assessment of the likelihood of continued exploration efforts in a given area.  Therefore, such data inputs are categorized as ‟unobservable” or ‟Level 3” inputs.  (See ‟Fair Value Measurements” below).  Importantly, this fair value measure only applies to the write-down of capitalized costs and will never result in an increase to reported earnings.
6


Impairment provisions are included in oil and gas segment operating losses and were as follows (in thousands):

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
Producing property impairments
 
$
-
   
$
1
 
Non-producing property impairments
   
3
     
28
 
Total
 
$
3
   
$
29
 

Since the Company is no longer the operator of its oil and gas property interests, it does not maintain the underlying detail acreage data and the Company is dependent on the operator when determining which specific acreage will ultimately be drilled.  However, the capitalized cost detail on a property-by-property basis is reviewed by management, and deemed impaired if development is not anticipated prior to lease expiration.  Onshore leasehold periods are normally three years and may contain renewal options.

Investments

In December 2015 the Company formed a new wholly owned subsidiary, Adams Resources Medical Management, Inc. (ARMM), and in January 2016 ARMM acquired a 30% member interest in Bencap LLC (Bencap) for a $2.2 million cash payment.  Bencap provides medical insurance brokerage and medical claims auditing services to employers utilizing ERISA governed employee benefit plans.  The Company has accounted for this investment under the equity method of accounting.

During the third quarter of 2016, the Company completed a review of its equity method investment in Bencap and determined there was an other than temporary impairment.  Underlying this was the terms of the investment agreement where Bencap had the option to request borrowings up to $1.5 million (on or after December 5, 2016 but before October 31, 2018) that the Company must provide or forfeit its 30% member interest.  During the third quarter of 2016, management of the Company determined that it was unlikely to provide additional funding due to Bencap’s lower than projected revenue growth and operating losses since investment inception.  As a result, the Company recognized a net loss of $1.4 million from its investment in Bencap as of September 30, 2016.  This loss included a pre-tax impairment charge of $1.7 million and pre-tax losses from the equity method investment of $0.5 million. In February 2017, Bencap requested additional funding of approximately $0.5 million and the Company declined the additional funding request and forfeited its 30% member interest in BenCap.

In April 2016 the Company, through its ARMM subsidiary, acquired an approximate 15% equity interest (less than 3% voting interest) in VestaCare, Inc., a California corporation (“VestaCare”), for a $2.5 million cash payment.  VestaCare provides an array of software as a service (“SaaS”) electronic payment technologies to medical providers, payers and patients including VestaCare’s most recent product offering, VestaPay™.  VestaPay™ allows medical care providers to structure fully automated and dynamically updating electronic payment plans for their patients.  The Company has accounted for this investment under the cost method of accounting for investments.  The Company does not currently have any plans to pursue additional medical-related investments.
7


The Company’s remaining investment in VestaCare, Inc. is considered a long-lived asset and will be reviewed for impairment whenever there is evidence that the carrying value of such asset may not be recoverable.  These fair value measures depend highly on management’s assessment of the financial status of the underlying operation.  Such data inputs are “unobservable” or “Level 3” inputs.

Cash Deposits and Other Assets

The Company has established certain deposits to support participation in its liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits.  Insurance collateral deposits are invested at the discretion of the Company’s insurance carrier and such investments primarily consist of intermediate term federal government bonds and bonds backed by federal agencies.  This fair value measure relies on inputs from quoted prices for similar assets and is thus categorized as a ‟Level 2” valuation in the fair value hierarchy.  Components of cash deposits and other assets are as follows (in thousands):

   
March 31,
   
December 31,
 
   
2017
   
2016
 
Insurance collateral deposits
 
$
4,222
   
$
5,032
 
State collateral deposits
   
141
     
143
 
Materials and supplies
   
377
     
354
 
   
$
4,740
   
$
5,529
 

Revenue Recognition

Certain commodity purchase and sale contracts utilized by the Company’s marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activity.  From the time of contract origination, such trading activity contracts are marked-to-market and recorded on a net revenue basis in the accompanying financial statements.

Most crude oil purchase contracts and sale contracts qualify and are designated as non-trading activities and the Company considers such contracts as normal purchases and sales activity.  For normal purchases and sales, the Company’s customers are invoiced monthly based upon contractually agreed upon terms with revenue recognized in the month in which the physical product is delivered to the customer.  Such sales are recorded gross in the financial statements because the Company takes title, has risk of loss for the products, is the primary obligor for the purchase, establishes the sale price independently with a third party and maintains credit risk associated with the sale of the product.

Certain crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations.  These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer.  Such buy/sell arrangements are reflected on a net revenue basis in the accompanying unaudited condensed consolidated financial statements.  Reporting such crude oil contracts on a gross revenue basis would increase the Company’s reported revenues as follows (in thousands):

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
             
Revenue gross-up
 
$
57,565
   
$
75,927
 

Transportation segment customers are invoiced, and the related revenue is recognized, as the service is provided. Oil and gas revenue from the Company’s interests in producing wells is recognized as title and physical possession of the oil and gas passes to the purchaser.
8


Sales of Long-lived assets

Gains and losses from the sale or disposal of long-lived assets that do not meet the criteria for presentation as a discontinued operation are presented in the accompanying financial statements as a component of operating earnings.

Concentration of Credit Risk

The Company’s largest customers consist of large multinational integrated oil companies and independent refiners of crude oil.  In addition, the Company transacts business with independent oil producers, major chemical concerns, crude oil trading companies and a variety of commercial energy users.  Within this group of customers the Company generally derives approximately 50 percent of its revenues from three to five crude oil refining concerns.  While the Company has ongoing established relationships with certain domestic refiners of crude oil, alternative markets are readily available since the Company supplies less than one percent of U.S. domestic refiner demand.  As a fungible commodity delivered to various supply points, the Company’s crude oil sales can be readily delivered to alternative end markets.  Management believes that a loss of any of those customers where the Company currently derives more than 10 percent of its revenues would not have a material adverse effect on the Company’s operations.

Accounts receivable associated with crude oil activities comprise approximately 90 percent of the Company’s total receivables and industry practice requires payment for such sales to occur within 20 days of the end of the month following a transaction.  The Company’s customer makeup, credit policies and the relatively short duration of receivables mitigate the uncertainty typically associated with receivables management.

Letter of Credit Facility

The Company maintains a Credit and Security Agreement with Wells Fargo Bank to provide up to a $60 million stand-by letter of credit facility used to support crude oil purchases within the marketing segment.  This facility is collateralized by the eligible accounts receivable within the segment and outstanding amounts were as follows (in thousands):

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
             
Stand-by letters of credit
 
$
-
   
$
1,000
 

The issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due.  The letter of credit facility places certain restrictions on Gulfmark Energy, Inc. the Company’s wholly owned subsidiary.  Such restrictions include the maintenance of a combined 1.1 to 1.0 current ratio and the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions.  The Company is currently in compliance with all such financial covenants.
9


Statement of Cash Flows

There were no significant non-cash financing activities in any of the periods reported.  Statements of cash flow disclosure items include the following (in thousands):

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
             
Federal and state tax paid
 
$
14
   
$
105
 

Capitalized amounts included in property and equipment that were not included in amounts reported for cash additions in the Statements of Cash Flows for the applicable report dates were as follows (in thousands):

   
March 31,
 
   
2017
   
2016
 
             
Property and equipment additions
 
$
836
   
$
350
 

Earnings Per Share

Earnings per share are based on the weighted average number of shares of common stock and potentially dilutive common stock shares outstanding during the period presented herein. The weighted average number of shares outstanding was 4,217,596 for 2017 and 2016.  There were no potentially dilutive securities during those periods.

Share-Based Payments

During the periods presented herein, the Company had neither stock-based employee compensation plans nor any other share-based payment arrangements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of 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. Examples of significant estimates used in the accompanying consolidated financial statements include oil and gas reserve volumes forming the foundation for calculating depreciation, depletion and amortization and for estimating cash flows when assessing impairment triggers and when estimating values associated with oil and gas properties.  Other examples include revenue accruals, the provision for bad debts, insurance related accruals, income tax permanent and timing differences, contingencies and valuation of fair value contracts.

Income Taxes

Income taxes are accounted for using the asset and liability method.  Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis.
10


Use of Derivative Instruments

The Company’s marketing segment is involved in the purchase and sale of crude oil.  The Company seeks to profit by procuring the commodity as it is produced and then delivering the material to the end users or the intermediate use marketplace.  As typical for the industry, such transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts.  Some of these contracts meet the definition of a derivative instrument, and therefore, the Company accounts for such contracts at fair value, unless the normal purchase and sale exception is applicable.  Such underlying contracts are standard for the industry and are the governing document for the Company’s crude oil marketing segment.  None of the Company’s derivative instruments have been designated as hedging instruments.  The accounting methodology utilized by the Company for its commodity contracts is further discussed below under the caption ‟Fair Value Measurements”.

The estimated fair value of forward month commodity contracts (derivatives) is reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of March 31, 2017 as follows (in thousands):

   
Balance Sheet Location and Amount
 
   
Current
   
Other
   
Current
   
Other
 
   
Assets
   
Assets
   
Liabilities
   
Liabilities
 
Asset Derivatives
                       
- Fair Value Forward Hydrocarbon Commodity
                       
Contracts at Gross Valuation
 
$
750
   
$
-
   
$
-
   
$
-
 
Liability Derivatives
                               
- Fair Value Forward Hydrocarbon Commodity
                               
Contracts at Gross Valuation
   
-
     
-
     
282
     
-
 
Less Counterparty Offsets
   
(282
)
   
-
     
(282
)
   
-
 
                                 
As Reported Fair Value Contracts
 
$
468
   
$
-
   
$
-
   
$
-
 

As of March 31, 2017, four commodity purchase and sale contracts comprise the Company’s derivative valuations.  These contracts encompass 145,000 barrels of crude oil during April 2017 through May 2017.

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2016 as follows (in thousands):

   
Balance Sheet Location and Amount
 
   
Current
   
Other
   
Current
   
Other
 
   
Assets
   
Assets
   
Liabilities
   
Liabilities
 
Asset Derivatives
                       
- Fair Value Forward Hydrocarbon Commodity
                       
Contracts at Gross Valuation
 
$
378
   
$
-
   
$
-
   
$
-
 
Liability Derivatives
                               
- Fair Value Forward Hydrocarbon Commodity
                               
Contracts at Gross Valuation
   
-
     
-
     
330
     
-
 
Less Counterparty Offsets
   
(266
)
   
-
     
(266
)
   
-
 
                                 
As Reported Fair Value Contracts
 
$
112
   
$
-
   
$
64
   
$
-
 

As of December 31, 2016, two contracts comprised the Company’s derivative valuations.  These contracts encompass approximately 65 barrels per day of diesel fuel during January through March 2017 and 145,000 barrels of crude oil during January 2017 through April 2017.
11

The Company only enters into commodity contracts with creditworthy counterparties and evaluates its exposure to significant counterparties on an ongoing basis.  As of March 31, 2017 and December 31, 2016, the Company was not holding nor has it posted any collateral to support its forward month fair value derivative activity. The Company is not subject to any credit-risk related trigger events.  The Company has no other financial investment arrangements that would serve to offset its derivative contracts.

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2017 and 2016 as follows (in thousands):

   
Earnings (Loss)
 
   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
Revenues – Marketing
 
$
420
   
$
158
 

Fair Value Measurements

The carrying amount reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments.  Marketable securities are recorded at fair value based on market quotations from actively traded liquid markets.

Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value.  Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and the Company elects, cash flow hedge accounting.  The Company had no contracts designated for hedge accounting during any current reporting periods.

Fair value estimates are based on assumptions that market participants would use when pricing an asset or liability and the Company uses a fair value hierarchy of three levels that prioritizes the information used to develop those assumptions.  Currently, for all items presented herein, the Company utilizes a market approach to valuing its contracts.  On a contract by contract, forward month by forward month basis, the Company obtains observable market data for valuing its contracts.  The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.  The fair value hierarchy is summarized as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities that may be accessed at the measurement date.  Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  For Level 1 valuation of marketable securities, the Company utilizes market quotations provided by its primary financial institution and for the valuation of derivative financial instruments the Company utilizes the New York Mercantile Exchange (‟NYMEX”) for such valuations.

Level 2 – (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical assets or liabilities but in markets that are not actively traded or in which little information is released to the public, (c) observable inputs other than quoted prices and (d) inputs derived from observable market data.  Source data for Level 2 inputs include information provided by the NYMEX, published price data and indices, third party price survey data and broker provided forward price statistics.

Level 3 – unobservable market data inputs for assets or liabilities.
12


As of March 31, 2017, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

   
Market Data Inputs
             
   
Gross Level 1
   
Gross Level 2
   
Gross Level 3
   
Counterparty
       
   
Quoted Prices
   
Observable
   
Unobservable
   
Offsets
   
Total
 
Derivatives
                             
- Current assets
 
$
-
   
$
750
   
$
-
   
$
(282
)
 
$
468
 
- Current liabilities
   
-
     
(282
)
   
-
     
282
     
-
 
Net Value
 
$
-
   
$
468
   
$
-
   
$
-
   
$
468
 

As of December 31, 2016, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

   
Market Data Inputs
             
   
Gross Level 1
   
Gross Level 2
   
Gross Level 3
   
Counterparty
       
   
Quoted Prices
   
Observable
   
Unobservable
   
Offsets
   
Total
 
Derivatives
                             
- Current assets
 
$
-
   
$
378
   
$
-
   
$
(266
)
 
$
112
 
- Current liabilities
   
-
     
(330
)
   
-
     
266
     
(64
)
Net Value
 
$
-
   
$
48
   
$
-
   
$
-
   
$
48
 

When determining fair value measurements, the Company makes credit valuation adjustments to reflect both its own nonperformance risk and its counterparty’s nonperformance risk.  When adjusting the fair value of derivative contracts for the effect of nonperformance risk, the impact of netting and any applicable credit enhancements, considered.  Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by the Company or its counterparties.  As of March 31, 2017 and December 31, 2016, credit valuation adjustments were not significant to the overall valuation of the Company’s fair value contracts.  As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” Topic 606 is based on the core principle that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Topic 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
13


Topic 606 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted in 2017; however we do not plan to adopt the standard early. Entities will have the option to apply the standard using a full retrospective or modified retrospective adoption method. The Company has not yet selected a transition method.  The Company has a team in place to analyze the impact of Update 2014-09, and the related ASU's, across all revenue streams to evaluate the impact of the new standard on revenue contracts.   This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. Our evaluation of the impact on our Consolidated Financial Statements and related disclosures is ongoing and not complete.  The Company is continuing our review of contracts relative to the provisions of Topic 606.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This standard requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company expects to adopt this standard in the first quarter of 2019 and is currently evaluating the impact of this standard on our Consolidated Financial Statements and related disclosures. In connection with our assessment work, The Company has a team in place to analyze the impact of ASU 2016-02 and is continuing a review of our contracts relative to the provisions of the lease standard.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This standard is intended to reduce existing diversity in practice in how certain transactions are presented on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. The guidance requires application using a retrospective transition method. The Company adopted ASU No. 2016-15 in the first quarter of 2017 and has determined the amendment does not have a material impact on our Consolidated Financial Statements and related disclosures.

Management believes the impact of other recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows upon adoption.

Note 3 – Segment Reporting

The Company’s three reporting segments are crude oil marketing, tank truck transportation of liquid chemicals and dry bulk, and oil and gas exploration and production.  Information concerning the Company's various business activities is summarized as follows (in thousands):
14


- Three Month Comparison

         
Segment
   
Depreciation
   
Property and
 
         
Operating (Loss)
   
Depletion and
   
Equipment
 
   
Revenues
   
Earnings
   
Amortization
   
Additions
 
Period Ended March 31, 2017
                       
Marketing
 
$
288,615
   
$
1,393
   
$
2,069
   
$
82
 
Transportation
   
13,455
     
(298
)
   
1,591
     
102
 
Oil and gas
   
1,017
     
(42
)
   
309
     
822
 
   
$
303,087
   
$
1,053
   
$
3,969
   
$
1,006
 
Period Ended March 31, 2016
                               
Marketing
 
$
236,394
   
$
4,648
   
$
2,689
   
$
263
 
Transportation
   
13,347
     
173
     
1,985
     
3,817
 
Oil and gas
   
790
     
(282
)
   
441
     
130
 
   
$
250,531
   
$
4,539
   
$
5,115
   
$
4,210
 

Segment operating earnings reflect revenues net of operating costs and depreciation, depletion and amortization and are reconciled to earnings from continuing operations before income taxes, as follows (in thousands):

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
Segment operating earnings
 
$
1,053
   
$
4,539
 
- General and administrative
   
(2,637
)
   
(2,200
)
Operating (loss) earnings
   
(1,584
)
   
2,339
 
- Interest income
   
159
     
103
 
- Interest expense
   
(1
)
   
-
 
(Loss) Earnings before income tax
 
$
(1,426
)
 
$
2,442
 

Identifiable assets by industry segment are as follows (in thousands):

   
March 31,
   
December 31,
 
   
2017
   
2016
 
Marketing
 
$
114,526
   
$
107,257
 
Transportation
   
32,231
     
32,120
 
Oil and gas
   
8,167
     
7,279
 
Other
   
109,239
     
100,216
 
   
$
264,163
   
$
246,872
 

Intersegment sales are insignificant and all sales occurred in the United States.  Other identifiable assets are primarily corporate cash, corporate accounts receivable, investments and properties not identified with any specific segment of the Company’s business.  Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.
15


Note 4 - Transactions with Affiliates

The late Mr. K. S. Adams, Jr., former Chairman of the Board of the Company, and certain of his family partnerships and affiliates have participated as working interest owners with the Company’s wholly owned subsidiary, Adams Resources Exploration Corporation (‟AREC”)  Mr. Adams and the affiliates participated on terms similar to those afforded other non-affiliated working interest owners.  While the affiliates have generally maintained their existing property interest, they have not participated in any such transactions originating after the death of Mr. Adams in October 2013.  In connection with the operation of certain oil and gas properties, the Company also charges such related parties for administrative overhead primarily as prescribed by the Council of Petroleum Accountants Society Bulletin 5. The Company also enters into certain transactions in the normal course of business with other affiliated entities including direct cost reimbursement for shared phone and administrative services.  In addition, the Company leases office space from an affiliated entity based on a lease rental rate determined by an independent appraisal.

The Company utilizes its former affiliate, Bencap, to administer certain of its employee medical benefit programs including a detail audit of individual medical claims.  See Note (1) to the accompanying financials under the caption “Investments” for further discussion.  Bencap earns a fee from the Company for providing such services at a discounted amount from its standard charge to non-affiliates.  In February 2017, Bencap requested additional funding of approximately $0.5 million and the Company declined the additional funding request, resulting in forfeiture of the investment.

Activities with affiliates were as follows (in thousands):

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
Overhead recoveries
 
$
-
   
$
21
 
                 
Affiliate billings to company
 
$
12
   
$
11
 
                 
Company billings to affiliates
 
$
1
   
$
1
 
                 
Rentals paid to affiliate
 
$
167
   
$
163
 
                 
Fees paid to Bencap
 
$
108
   
$
36
 

Note 5 - Commitments and Contingencies

Under the Company’s automobile and workers’ compensation insurance policies, the Company can either receive a return of premium paid or be assessed for additional premiums up to pre-established limits. Additionally, in certain instances the risk of insured losses is shared with a group of similarly situated entities.  The Company has appropriately recognized estimated expenses and liabilities related to these policies for losses incurred but not reported to the Company or its insurance carrier as follows (in thousands):

   
March 31,
   
December 31,
 
   
2017
   
2016
 
Estimated expenses and liabilities
 
$
2,504
   
$
2,657
 

The Company maintains a self-insurance program for managing employee medical claims.  A liability for expected claims incurred but not reported is established on a monthly basis.  As claims are paid, the liability is relieved.  The Company also maintains third party insurance stop-loss coverage for aggregate medical claims exceeding $4.5 million.  Medical accrual amounts are as follows (in thousands):
16



   
March 31,
   
December 31,
 
   
2017
   
2016
 
Accrued medical claims
 
$
1,923
   
$
1,411
 

Adams Resources Exploration Corporation (“AREC”) is named as a defendant in a number of Louisiana lawsuits involving alleged environmental contamination from prior drilling operations.  Such suits typically allege improper disposal of oilfield wastes in earthen pits, with one matter involving allegations that drilling operations in 1986 contributed to the formation of a sinkhole in 2012 (the “Sinkhole Cases”).  The Sinkhole Cases, while arising from a singular event, include a number of different lawsuits brought in Louisiana State Court and one consolidated action in the United States District Court for the Eastern District of Louisiana.  In addition to the Sinkhole Cases, AREC is currently involved in two other such suits.  These suits are styled LePetit Chateau Deluxe v. Adams Resources Exploration Corporation dated March 2004, and Henning Management, LLC v. Adams Resources Exploration Corporation dated November 2013.  Each suit involves multiple industry defendants with substantially larger proportional interest in the properties.  In addition, the Sinkhole Cases involve a number of defendants in the solution mining industry, in which AREC has never participated.  In the LePetit Chateau Deluxe matter, all the larger defendants have settled the case.  The plaintiffs in each of these matters are seeking unspecified compensatory and punitive damages.  While management does not believe that a material adverse effect on the Company will result from the claims, significant attorney fees may be incurred by AREC to address claims related to these suits.  As of March 31, 2017 and December 31, 2016, the Company has accrued $0.5 million of future legal/or settlement costs for these matters.

From time to time as incidental to its operations, the Company may become involved in various lawsuits and/or disputes.  Primarily as an operator of an extensive trucking fleet, the Company is a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. Management of the Company is presently unaware of any claims against the Company that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on the Company’s financial position or results of operations.

Note 6 – Subsequent Event

On April 21, 2017 AREC, a wholly owned subsidiary of the Company, filed a petition under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the District of Delaware, Case Number 17-10866(KG).  AREC will continue to operate its business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provision of the Bankruptcy Code and orders of the Bankruptcy Court. As of March 31, 2017, the estimated net realizable value of the oil and gas assets is anticipated to be greater than the net book value.  The Company will continue to evaluate the estimated net realizable value until the sale process has concluded. Adams Resources & Energy, Inc. is the primary creditor in the Chapter 11 process. 

On May 3, 2017, AREC filed a Motion with the Bankruptcy Court for approval of an auction process and engagement of Oil & Gas Asset Clearinghouse to conduct the auction.  Over the past few years, the Company has de-emphasized its upstream operations and does not expect this Chapter 11 filing by its subsidiary to have a material adverse impact on any of its core businesses.
17

Item 2.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

-
Marketing

Marketing segment revenues, operating earnings, depreciation and certain costs were as follows (in thousands):
   
Three Months Ended
       
   
March 31,
       
   
2017
   
2016
   
Change(1)
 
                   
Revenues
 
$
288,615
   
$
236,394
     
22.1
%
                         
Operating earnings
 
$
1,393
   
$
4,648
     
(70.0
)%
                         
Depreciation
 
$
2,069
   
$
2,689
     
(23.1
)%
                         
Driver commissions
 
$
3,062
   
$
4,508
     
(32.1
)%
                         
Insurance
 
$
1,239
   
$
2,171
     
(42.9
)%
                         
Fuel
 
$
1,354
   
$
1,672
     
(19.0
)%
_________________________________
(1)
Represents the percentage increase (decrease) from the prior year.

Crude oil marketing revenues increased in the first quarter of 2017 as a result of an increase in the market price for crude oil. The increase in crude oil prices offset the decline in marketing volumes.  Operating earnings were adversely affected by the volume declines, inventory valuation changes as well as a narrowing of margins during the first quarter of 2017.  Toward the end of the first quarter of 2017 we began to see an uplift in volumes as activity in our marketing areas has increased in recent months.  Driver commissions are reduced due to the decline in volumes.  Insurance costs are lower as a result of favorable safety performance.  Fuel costs are lower consistent with reduced marketing volumes as compared to the first quarter of 2016.

Supplemental volume and price information is as follows:

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
Field Level Purchase Volumes – Per day(1)
           
Crude oil – barrels
   
66,374
     
88,183
 
                 
Average Purchase Price
               
Crude oil – per barrel
 
$
49.02
   
$
29.21
 
_____________________________
(1)  Reflects the volume purchased from third parties at the oil and natural gas field level and pipeline pooling points.

Crude Oil – Field Level Operating Earnings (Non GAAP-Measure)(1)

Two significant factors affecting comparative crude oil marketing segment operating earnings are inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations.  As a purchaser and shipper of crude oil, the Company holds inventory in storage tanks and third-party pipelines.  During periods of increasing crude oil prices, the Company recognizes inventory liquidation gains while during periods of falling prices, the Company recognizes inventory valuation losses.
18

Crude oil marketing operating earnings are also affected by the valuations of the Company’s forward month commodity contracts (derivative instruments) as of the various report dates.  Such non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date.  The Company generally enters into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level).  Only those contracts qualifying as derivative instruments are accorded fair value treatment while the companion contracts to purchase crude oil at the wellhead (field level) are not accorded fair value treatment.  The valuation of derivative instruments at period end requires the recognition of ‟mark-to-market” gains and losses.

The impact on crude oil segment operating earnings of inventory liquidations and derivative valuations is summarized as follows in reconciling from the GAAP to non-GAAP financial measures (in thousands):

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
As reported segment operating earnings
 
$
1,393
   
$
4,648
 
Add (less) -
               
Inventory valuation (gains) losses
   
658
     
(2,202
)
Derivative valuation (gains) losses
   
(420
)
   
158
 
                 
Field level operating earnings(1)
 
$
1,631
   
$
2,604
 
____________________________________
(1)
Such designation is (a) unique to the Company, (b) not a substitute for GAAP and (c) not comparable to any similar measures developed by industry participants.  The Company utilizes such data to evaluate the profitability of its operations.

The Company held crude oil inventory at a weighted average commodity price in barrels as follows:

   
March 31, 2017
   
December 31, 2016
 
         
Average
         
Average
 
   
Barrels
   
Price
   
Barrels
   
Price
 
Crude oil inventory
   
413,527
   
$
49.88
     
255,146
   
$
51.22
 

Field level operating earnings and field level purchase volumes (see earlier table) depict the Company’s day-to-day operation of acquiring crude oil at the wellhead, transporting the material, and delivery to market at the sales point.  Comparative field level operating earnings decreased during the first quarter of 2017 relative to the first quarter of 2016 due to reduced purchase volumes and reduced unit margins.  Competition has remained strong, but we are beginning to see an uplift in volumes as activity in our marketing areas has increased in recent months.

Historically, prices received for crude oil have been volatile and unpredictable with price volatility expected to continue.  See “Part I, Item 1A, Risk Factors” in the Company’s Annual Report for the year ended December 31, 2016.
19


-          Transportation

Transportation segment revenues, earnings and depreciation are as follows (in thousands):

   
Three Months Ended
       
   
March 31,
       
   
2017
   
2016
   
Change(1)
 
                   
Revenues
 
$
13,455
   
$
13,347
     
0.8
%
                         
Operating (loss) earnings
 
$
(298
)
 
$
173
     
(272.3
)%
                         
Depreciation
 
$
1,591
   
$
1,985
     
(19.8
)%
                         
Driver commissions
 
$
2,836
   
$
2,881
     
(1.6
)%
                         
Insurance
 
$
1,381
   
$
1,481
     
(6.8
)%
                         
Diesel fuel
 
$
1,632
   
$
1,311
     
24.5
%
                         
Maintenance expense
 
$
1,638
   
$
1,327
     
23.4
%
                         
Mileage
   
5,618
     
5,668
     
(0.9
)%
__________________________
(1)  Represents the percentage increase (decrease) from the prior year.

The Company’s revenue rate structure includes a component for fuel costs such that fuel cost fluctuations are largely passed through to the customer over time.  To illustrate, a calculation of revenues net of fuel cost is presented below (in thousands):

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
Total transportation revenue
 
$
13,455
   
$
13,347
 
Diesel fuel cost
   
(1,632
)
   
(1,311
)
Revenues net of fuel(1)
 
$
11,823
   
$
12,036
 
__________________________
(1) Revenues net of fuel is a non-GAAP measure and utilized for internal analysis.

Revenues net of fuel are reduced in the first quarter of 2017 because of competition within the transportation segment.  The Company began to see an uptick in activity toward the end of the first quarter of 2017 and continues to work on its strategy of streamlining operations and diversifying offerings in the transportation segment.

-          Oil and Gas

Oil and gas segment revenues and operating earnings (loss) are primarily a function of crude oil and natural gas prices and volumes.  Comparative amounts for revenues, operating earnings and depreciation and depletion are as follows (in thousands):
20


   
Three Months Ended
       
   
March 31,
       
   
2017
   
2016
   
Change(1)
 
Revenues
 
$
1,017
   
$
790
     
28.7
%
                         
Operating loss
 
$
(42
)
 
$
(282
)
   
(85.1
)%
                         
Depreciation and depletion
 
$
309
   
$
441
     
(29.9
)%
                         
Dry hole expense
 
$
-
   
$
-
     
-
%
                         
Producing property impairments
 
$
-
   
$
1
     
(100.0
)%
                         
Prospect impairments
 
$
3
   
$
28
     
(89.3
)%
________________________________
(1)
Represents the percentage increase (decrease) from the prior year.

Oil and gas revenues and operating earnings increased in the comparative first quarter of 2017 as commodity price increases offset production declines.  Volumes declined consistent with reduced drilling activity.  Depreciation and depletion expense is calculated on a units of production basis and is lower primarily due to a reduction in production volumes.

Production volumes and price information is as follows:

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
Crude Oil
           
Volume – barrels
   
8,474
     
10,071
 
Average price per barrel
 
$
48.78
   
$
29.17
 
                 
Natural gas
               
Volume – mcf
   
140,707
     
197,433
 
Average price per mcf
 
$
2.99
   
$
1.95
 
                 
Natural gas liquids
               
Volume – barrels
   
7,293
     
11,476
 
Average price per barrel
 
$
25.00
   
$
9.68
 

-
General and administrative

General and administrative expenses increased from $2.2 million during the first quarter of 2016 to $2.6 million during the first quarter of 2017 due to utilization of outside consultants as the Company conducted its review of strategic alternatives for the oil and gas exploration and production subsidiary.

-
Investments

In December 2015 the Company formed a new wholly owned subsidiary, Adams Resources Medical Management, Inc. (ARMM), and in January 2016 ARMM acquired a 30% member interest in Bencap LLC (Bencap) for a $2.2 million cash payment.  Bencap provides medical insurance brokerage and medical claims auditing services to employers utilizing ERISA governed employee benefit plans.  The Company has accounted for this investment under the equity method of accounting.
21


During the third quarter of 2016, the Company completed a review of its equity method investment in Bencap and determined there was an other than temporary impairment.  Underlying this decision are the terms of the investment agreement where Bencap has the option to request borrowings up to $1.5 million (on or after December 5, 2016 but before October 31, 2018) that the Company must provide or forfeit its 30% member interest.  During the third quarter of 2016, management of the Company determined that it was unlikely to provide additional funding due to Bencap’s lower than projected revenue growth and operating losses since investment inception.  As a result, the Company recognized a net loss of $1.4 million from its investment in Bencap as of September 30, 2016.  This loss included a pre-tax impairment charge of $1.7 million and pre-tax losses from the equity method investment of $0.5 million. In February 2017, Bencap requested additional funding of approximately $0.5 million and the Company declined the additional funding request and forfeited its 30% member interest in BenCap.

In April 2016 the Company, through its ARMM subsidiary, acquired an approximate 15% equity interest (less than 3% voting interest) in VestaCare, Inc., a California corporation (“VestaCare”), for a $2.5 million cash payment.  VestaCare provides an array of software as a service (“SaaS”) electronic payment technologies to medical providers, payers and patients including VestaCare’s most recent product offering, VestaPay™.  VestaPay™ allows medical care providers to structure fully automated and dynamically updating electronic payment plans for their patients.  The Company has accounted for this investment under the cost method of accounting for investments.  The Company does not currently have any plans to pursue additional medical-related investments.

Outlook

The Company plans to operate its segments with internally generated cash flows during 2017, but plans to remain flexible as the focus will be on business development opportunities.  During 2017, the Company plans to leverage its investment in the transportation segment’s Houston terminal with the continued efforts to diversify service offerings, grow in new or existing areas with its marketing segment and complete the exit of the upstream oil and gas business.

Liquidity and Capital Resources

The Company’s liquidity derives from net cash provided by operating activities and is therefore dependent on the success of future operations.  The most significant source of liquidity is the cash yield from net earnings factoring in the non-cash book expense items for depreciation, depletion, amortization and impairments.  The Company has no debt and funds all of its projects from this stream of cash.  In most periods, cash inflows equal or exceed capital spending outflows.  Should cash inflow subside or turn negative, the Company will curtail its capital spending accordingly.

As of March 31, 2017 and December 31, 2016, the Company had no bank debt or other forms of debenture obligations.  Cash balances are maintained in order to meet the timing of day-to-day cash needs and such amounts and working capital, the excess of current assets over current liabilities, were as follows (in thousands):

   
March 31,
   
December 31,
 
   
2017
   
2016
 
Cash
 
$
98,073
   
$
87,342
 
                 
Working capital
 
$
107,777
   
$
106,444
 
                 

22


Cash provided from operating activities was as follows (in thousands):

   
Three Months Ended
 
   
March 31,
 
   
2017
   
2016
 
Net cash provided by (used in) operating activities
 
$
12,150
   
$
(2,358
)
                 
At various times each month, the Company makes cash prepayments and/or early payments in advance of the normal due date to certain suppliers of crude oil within the marketing operations.  Crude oil supply prepayments are recouped and advanced from month to month as the suppliers deliver product to the Company.  In addition, in order to secure crude oil supply, the Company may also ‟early pay” its suppliers in advance of the normal payment due date of the twentieth of the month following the month of production.  Such ‟early payments” reduce cash and accounts payable as of the balance sheet date.  The Company also requires certain customers to make similar early payments or to post cash collateral with the Company in order to support their purchases from the Company.  Early payments and cash collateral received from customers increases cash and reduces accounts receivable as of the balance sheet date.

The Company relies heavily on its ability to obtain open-line trade credit from its suppliers especially with respect to its crude oil marketing operation.  During the fourth quarter of 2016, the Company elected to make several early payments in its crude oil marketing.  The Company’s cash balance increased by approximately $12 million as of March 31, 2017 relative to the year ended December 31, 2016 as the year end 2016 balance was slightly lower than normal as a result of early payments made during the fourth quarter of 2016.

The Company maintains a stand-by letter of credit facility with Wells Fargo Bank to provide for the issuance of up to $60 million in stand-by letters of credit for the benefit of suppliers of crude oil.  Stand-by letters of credit are issued as needed and are cancelled as the underlying purchase obligations are satisfied by cash payment when due.  The issuance of stand-by letters of credit enables the Company to avoid posting cash collateral when procuring crude oil supply.

Early payments, collateral and letters of credit amounts were as follows (in thousands):

   
March 31,
   
December 31,
 
   
2017
   
2016
 
Early payments received
 
$
14,347
   
$
15,032
 
Cash collateral received
 
$
-
   
$
-
 
Prepayments to suppliers
 
$
-
   
$
-
 
Early payments to suppliers
 
$
2,743
   
$
14,382
 
Letters of credit outstanding
 
$
-
   
$
-
 

Management believes current cash balances, together with expected cash generated from future operations, and the ease of financing truck and trailer additions through leasing arrangements (should the need arise) will be sufficient to meet short-term and long-term liquidity needs.

The Company utilizes cash from operations to make discretionary investments in its marketing, transportation and exploration businesses.  With the exception of commitments totaling approximately $7.2 million associated with barge affreightment contracts, storage tank terminal arrangements and office lease space, the Company’s future commitments and planned investments can be readily curtailed if operating cash flows contract.
23


Capital project spending through the first three months of 2017 is as follows (in thousands):

   
Expended through
 
   
March 31, 2017
 
       
Crude oil marketing
 
$
82
 
Truck transportation
   
102
 
Oil and gas exploration
   
822
 
   
$
1,006
 

A quarterly dividend of $0.22 per common share or $928,000 was paid during each of the first quarters of 2017 and 2016.  The most significant item affecting future increases or decreases in liquidity is earnings from operations and such earnings are dependent on the success of future operations.  See Part I, Item 1A Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Critical Accounting Policies and Use of Estimates

There have been no material changes to the Company’s Critical Accounting Policies and Use of Estimates” disclosures that have occurred since the disclosures provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the Company’s ‟Quantitative and Qualitative Disclosures about Market Risk” that have occurred since the disclosures provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Forward-Looking Statements – Safe Harbor Provisions

This quarterly report for the period ended March 31, 2017 contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  To the extent such statements are not recitations of historical fact, forward-looking statements involve risks and uncertainties.  In particular, statements included herein and/or in the Company’s latest Annual Report on Form 10-K under the captions (a) Production and Reserve Information, (b) Regulatory Status and Potential Environmental Liability, (c) Management’s Discussion and Analysis of Financial Condition and Results of Operations, (d) Critical Accounting Policies and Use of Estimates, (e) Quantitative and Qualitative Disclosures about Market Risk, (f) Income Taxes, (g) Concentration of Credit Risk, (h) Fair Value Contract Activities, and (i) Commitments and Contingencies, among others, contain forward-looking statements.  Where the Company expresses an expectation or belief regarding future results of events, such expression is made in good faith and believed to have a reasonable basis in fact.  However, there can be no assurance that such expectation or belief will actually result or be achieved.
24


All forward-looking statements speak only as of the date of this Quarterly Report. You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements.

With the uncertainties of forward looking statements in mind, the reader should consider the risks discussed elsewhere in this report and other documents filed with the Securities and Exchange Commission from time to time and the important factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, under ‟Item 1A Risk Factors” that could cause actual results to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company.

Item 4.  Disclosure Controls and Procedures

The Company maintains ‟disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the ‟Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.  Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s disclosure control objectives.

As of the end of the period covered by this Quarterly Report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded the Company’s disclosure controls and procedures were not effective because of the material weakness in our internal control over financial reporting, as described in Management’s Report on Internal Control over Financial Reporting in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016, continues to exist as of March 31, 2017.

25

Remediation of Material Weakness in Internal Control over Financial Reporting

We have taken and are continuing to take actions to improve our internal controls over financial reporting, including advancing previously identified initiatives to address our material weakness.  The actions we have taken and are continuing to take are subject to ongoing senior management review.  These remediation actions include:

·
Performing a review to ensure that no personnel signs off as the reviewer and subsequently posts the journal entry to the general ledger.
·
Considering repositioning the personnel in the financial close group to allow for more segregation of duties within the group.
·
Addressing the control gap relating to the segregation of duties by requiring review of the manual journal entry to occur after the journal entry is independently posted.  Review after posting restricts the ability to edit the journal entry.

While the remediation actions are in process, the action will take time to be fully integrated and confirmed as effective and sustainable.  Until the remediation steps are fully implemented and tested, the material weakness described above will continue to exist.

Changes in Internal Control over Financial Reporting

Other than what is stated above, there have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

26


PART II.  OTHER INFORMATION


Item 1.  Legal Proceedings

AREC is named as a defendant in a number of Louisiana lawsuits involving alleged environmental contamination from prior drilling operations.  Such suits typically allege improper disposal of oilfield wastes in earthen pits, with one matter involving allegations that drilling operations in 1986 contributed to the formation of a sinkhole in 2012 (the “Sinkhole Cases”).  The Sinkhole Cases, while arising from a singular event, include a number of different lawsuits brought in Louisiana State Court and one consolidated action in the United States District Court for the Eastern District of Louisiana.  In addition to the Sinkhole Cases, AREC is currently involved in two other such suits.  These suits are styled LePetit Chateau Deluxe v. Adams Resources Exploration Corporation dated March 2004, and Henning Management, LLC v. Adams Resources Exploration Corporation dated November 2013.  Each suit involves multiple industry defendants with substantially larger proportional interest in the properties.  In addition, the Sinkhole Cases involve a number of defendants in the solution mining industry, in which AREC has never participated.  In the LePetit Chateau Deluxe matter, all the larger defendants have settled the case.  The plaintiffs in each of these matters are seeking unspecified compensatory and punitive damages.  While management does not believe that a material adverse effect on the Company will result from the claims, significant attorney fees may be incurred by AREC to address claims related to these suits.  As of March 31, 2017 and December 31, 2016, the Company has accrued $0.5 million of future legal/or settlement costs for these matters.

From time to time as incidental to its operations, the Company may become involved in various lawsuits and/or disputes.  Primarily as an operator of an extensive trucking fleet, the Company is a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. Management of the Company is presently unaware of any claims against the Company that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on the Company’s financial position or results of operations.

Item 1A.
Risk Factors – In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading "Item 1A. Risk Factors" included in our Annual Report and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our businesses, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There are no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report for the year ended December 31, 2016 or our other SEC filings.
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds – None
   
Item 3.
Defaults Upon Senior Securities – None
   
Item 4.
Mine Safety Disclosures – Not Applicable
   
Item 5.
Other Information – None
   
Item 6.
Exhibits

The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.

27


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.


 
ADAMS RESOURCES & ENERGY, INC
 
(Registrant)
   
   
   
Date:  May 9, 2017
By /s/Thomas S. Smith
 
Thomas S. Smith
 
President, Chief Executive Officer
 
(Principal Executive Officer)
   
   
 
By /s/Josh C. Anders
 
Josh C. Anders
 
Chief Financial Officer
 
(Principal Financial Officer and Principal
 
Accounting Officer)
   
   
   

28

EXHIBIT INDEX



Exhibit
 
Number
Description
   
3(a)
Certificate of Incorporation of the Company, as amended.  (Incorporated by reference to Exhibit 3(a) filed with the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1987).
 
 
3(b)
 
Bylaws of the Company, as amended.  (Incorporated by reference to Exhibit 3(b) filed with the Annual Report on Form 10-K for the year ended December 31, 2012 (-File No. 1-7908).
 
*          31.1
Certificate of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
*          31.2
Certificate of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
*          32.1
Certificate of Chief Executive Officer pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
*          32.2
Certificate of Chief Financial Officer pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*    **101.INS-
XBRL Instance Document
   
*    **101.SCH -
XBRL Taxonomy Extension Schema Document
   
*    **101.CAL -
XBRL Taxonomy Extension Calculation Linkbase Document
   
*    **101.DEF   -
XBRL Taxonomy Extension Definition Linkbase Document
   
*    **101.LAB -
XBLR Taxonomy Extension Label Linkbase Document
 
*    **101.PRE -
XBRL Taxonomy Extension Presentation Linkbase Document
 

*
Exhibits filed herewith

**
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income – Three Months Ended March 31, 2017 and 2016, (ii) the Consolidated Balance Sheets – March 31, 2017 and December 31, 2016, (iii) the Consolidated Statements of Cash Flows – Three Months Ended March 31, 2017 and 2016 and (iv) Notes to Consolidated Financial Statements.
29
EX-31.1 2 exhibit31-1.htm EXHIBIT 31.1 CERTIFICATION
Exhibit 31.1

ADAMS RESOURCES & ENERGY, INC.
CERTIFICATION PURSUANT TO
17 CFR 240.13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas S. Smith certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Adams Resources & Energy, Inc. (‟the registrant”);

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 9, 2017
/s/ Thomas S. Smith
Thomas S. Smith
Chief Executive Officer

EX-31.2 3 exhibit31-2.htm EXHIBIT 31.2 CERTIFICATION

Exhibit 31.2

ADAMS RESOURCES & ENERGY, INC.
CERTIFICATION PURSUANT TO
17 CFR 240.13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Josh C. Anders, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Adams Resources & Energy, Inc. (‟the registrant”);

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 9, 2017
/s/ Josh C. Anders
Josh C. Anders
Chief Financial Officer


EX-32.1 4 exhibit32-1.htm EXHIBIT 32.1 CERTIFICATION

Exhibit 32.1


ADAMS RESOURCES & ENERGY, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Adams Resources & Energy, Inc. (the ‟Company”) on Form 10-Q for the period ending March 31, 2017, as filed with the Securities and Exchange Commission (the “Report”), I, Thomas S. Smith, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) that to the best of my knowledge:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Thomas S. Smith
Thomas S. Smith
Chief Executive Officer

Date:  May 9, 2017










This Certification is being furnished solely to accompany the Report pursuant to 18 U.S.C.§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EX-32.2 5 exhibit32-2.htm EXHIBIT 32.2 CERTIFICATION

Exhibit 32.2


ADAMS RESOURCES & ENERGY, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Quarterly Report of Adams Resources & Energy, Inc. (the ‟Company”) on Form 10-Q for the period ending March 31, 2017, as filed with the Securities and Exchange Commission (the “Report”), I, Josh C. Anders, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to the best of my knowledge:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended ; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Josh C. Anders
Josh C. Anders
Chief Financial Officer

Date:  May 9, 2017










This Certification is being furnished solely to accompany the Report pursuant to 18 U.S.C.§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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font-size: 10pt;"><div style="font-size: 10pt; font-family: 'Times New Roman'; font-style: italic; text-align: justify; margin-right: 0.7pt; text-indent: 22.5pt;">Recent Accounting Pronouncements</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">In May 2014, the FASB issued ASU No. 2014-09, &#8220;Revenue from Contracts with Customers (Topic 606),&#8221; which supersedes the revenue recognition requirements in &#8220;Revenue Recognition (Topic 605).&#8221; Topic 606 is based on the core principle that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Topic 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">Topic 606 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted in 2017; however we do not plan to adopt the standard early. Entities will have the option to apply the standard using a full retrospective or modified retrospective adoption method. The Company has not yet selected a transition method.&#160; The Company has a team in place to analyze the impact of Update 2014-09, and the related ASU's, across all revenue streams to evaluate the impact of the new standard on revenue contracts. &#160; This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. Our evaluation of the impact on our Consolidated Financial Statements and related disclosures is ongoing and not complete.&#160; The Company is continuing our review of contracts relative to the provisions of Topic 606.</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">In February 2016, the FASB issued ASU 2016-02, &#8220;Leases (Topic 842).&#8221; This standard requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee&#8217;s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee&#8217;s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company expects to adopt this standard in the first quarter of 2019 and is currently evaluating the impact of this standard on our Consolidated Financial Statements and related disclosures. In connection with our assessment work, <font style="font-size: 10pt; font-family: 'Times New Roman';">The Company has a team in place to analyze the impact of ASU 2016-02</font> and is continuing a review of our contracts relative to the provisions of the lease standard.</div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">&#160;</div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">In August 2016, the FASB issued ASU No. 2016-15, &#8220;Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.&#8221; This standard is intended to reduce existing diversity in practice in how certain transactions are presented on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. The guidance requires application using a retrospective transition method. The Company&#160;adopted ASU No. 2016-15 in the first quarter of 2017 and has determined the amendment&#160;does not have a material impact on our Consolidated Financial Statements and related disclosures.</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; margin-right: 0.7pt; text-indent: 36pt;">Management believes the impact of other recently issued standards and updates, which are not yet effective, will not have a material impact on the Company&#8217;s consolidated financial position, results of operations, or cash flows upon adoption.</div></div> 3 145000 145000 1017000 790000 65 631000 750000 62784000 64063000 -1584000 2339000 <div style="font-family: 'Times New Roman'; font-size: 10pt;"><div style="font-size: 10pt; font-family: 'Times New Roman'; font-weight: bold; text-align: justify;">Note 1 - Basis of Presentation</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">The accompanying unaudited condensed consolidated financial statements, in the opinion of&#160;Adams Resources &amp; Energy, Inc., a Delaware corporation, and its wholly owned subsidiaries&#160;(collectively, the &#8223;Company&#8221;) management, include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of its financial position at March 31, 2017, its results of operations for the three months ended March 31, 2017 and 2016 and its cash flows for the three months ended March 31, 2017 and 2016. 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font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">When determining fair value measurements, the Company makes credit valuation adjustments to reflect both its own nonperformance risk and its counterparty&#8217;s nonperformance risk.&#160; When adjusting the fair value of derivative contracts for the effect of nonperformance risk, the impact of netting and any applicable credit enhancements, considered.&#160; Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by the Company or its counterparties.&#160; As of March 31, 2017 and December 31, 2016, credit valuation adjustments were not significant to the overall valuation of the Company&#8217;s fair value contracts.&#160; As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; font-style: italic; text-align: justify; 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Document and Entity Information - shares
3 Months Ended
Mar. 31, 2017
May 01, 2017
Document and Entity Information [Abstract]    
Entity Registrant Name ADAMS RESOURCES & ENERGY, INC.  
Entity Central Index Key 0000002178  
Current Fiscal Year End Date --12-31  
Entity Well-known Seasoned Issuer No  
Entity Voluntary Filers No  
Entity Current Reporting Status Yes  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   4,217,596
Document Fiscal Year Focus 2017  
Document Fiscal Period Focus Q1  
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2017  
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
REVENUES:    
Marketing $ 288,615 $ 236,394
Transportation 13,455 13,347
Oil and natural gas operations 1,017 790
Total revenues 303,087 250,531
COSTS AND EXPENSES:    
Marketing 285,153 229,057
Transportation 12,162 11,189
Oil and natural gas operations 750 631
General and administrative 2,637 2,200
Depreciation, depletion and amortization 3,969 5,115
Total cost and expenses 304,671 248,192
Operating (loss) earnings (1,584) 2,339
Other income (expense):    
Interest income 159 103
Interest expense (1) 0
Loss (earnings) before income taxes and equity investments (1,426) 2,442
Income tax benefit (provision) 566 (888)
(Loss) earnings before equity investments (860) 1,554
(Loss) from equity investments, net of tax benefit of zero and $67, respectively 0 (124)
Net (loss) earnings $ (860) $ 1,430
(LOSS) EARNINGS PER SHARE:    
Basic and diluted net (loss) earnings per common share (in dollars per share) $ (0.20) $ 0.34
DIVIDENDS PER COMMON SHARE (in dollars per share) $ 0.22 $ 0.22
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]    
Tax benefit from equity investment $ 0 $ 67
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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Current assets:    
Cash and cash equivalents $ 98,073 $ 87,342
Accounts receivable, net of allowance for doubtful accounts of $233 and $225, respectively 89,122 87,162
Inventory 20,627 13,070
Fair value contracts 468 112
Income tax receivable 3,471 2,735
Prepayments 1,353 2,097
Total current assets 213,114 192,518
Property and Equipment    
Marketing 56,511 56,907
Transportation 70,767 70,849
Oil and gas (successful efforts method) 64,063 62,784
Other 107 108
Property and equipment 191,448 190,648
Less - Accumulated depreciation, depletion and amortization (147,639) (144,323)
Net property and equipment 43,809 46,325
Other Assets:    
Investments 2,500 2,500
Cash deposits and other 4,740 5,529
Total assets 264,163 246,872
Current Liabilities:    
Accounts payable 97,978 79,897
Accounts payable - related party 56 53
Fair value contracts 0 64
Accrued and other liabilities 7,303 6,060
Total current liabilities 105,337 86,074
Other Liabilities:    
Asset retirement obligations 2,090 2,329
Deferred taxes and other liabilities 7,212 7,157
Total liabilities 114,639 95,560
Commitments and Contingencies (Note 5)
Shareholders' Equity:    
Preferred stock - $1.00 par value, 960,000 shares authorized, none outstanding 0 0
Common stock - $.10 par value, 7,500,000 shares authorized, 4,217,596 shares outstanding 422 422
Contributed capital 11,693 11,693
Retained earnings 137,409 139,197
Total shareholders' equity 149,524 151,312
Liabilities and shareholders' equity $ 264,163 $ 246,872
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.7.0.1
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Current assets:    
Allowance for doubtful accounts $ 233 $ 225
Shareholders' Equity:    
Preferred stock - par value (in dollars per share) $ 1.00 $ 1.00
Preferred stock - shares authorized (in shares) 960,000 960,000
Preferred stock - shares outstanding (in shares) 0 0
Common stock - par value (in dollars per share) $ 0.10 $ 0.10
Common stock - shares authorized (in shares) 7,500,000 7,500,000
Common stock - shares outstanding (in shares) 4,217,596 4,217,596
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.7.0.1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
CASH PROVIDED BY OPERATIONS:    
Net (loss) earnings $ (860) $ 1,430
Adjustments to reconcile net earnings to net cash from operating activities -    
Depreciation, depletion and amortization 3,969 5,115
Property sales loss (gains) 7 (120)
Impairment of oil and natural gas properties 3 29
Deferred income taxes 60 (1,352)
Net change in fair value contracts (420) 158
Equity investment losses 0 191
(Increase) in accounts receivable (1,968) (1,224)
(Increase) in inventories (7,557) (5,707)
Decrease (increase) in income tax receivable (736) 1,958
Decrease in prepayments 744 338
Increase (decrease) in accounts payable 17,746 (3,614)
Increase in accrued liabilities 1,084 393
Other changes, net 78 47
Net cash provided by (used in) operating activities 12,150 (2,358)
INVESTING ACTIVITIES:    
Property and equipment additions (1,006) (4,210)
Proceeds from property sales 39 920
Investments 0 (2,200)
Insurance and state collateral (deposits) refunds 476 (2)
Net cash used in investing activities (491) (5,492)
FINANCING ACTIVITIES    
Dividend payments (928) (928)
Net cash used in financing activities (928) (928)
Increase (decrease) in cash and cash equivalents 10,731 (8,778)
Cash and cash equivalents at beginning of period 87,342 91,877
Cash and cash equivalents at end of period $ 98,073 $ 83,099
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.7.0.1
Basis of Presentation
3 Months Ended
Mar. 31, 2017
Basis of Presentation [Abstract]  
Basis of Presentation
Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, in the opinion of Adams Resources & Energy, Inc., a Delaware corporation, and its wholly owned subsidiaries (collectively, the ‟Company”) management, include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of its financial position at March 31, 2017, its results of operations for the three months ended March 31, 2017 and 2016 and its cash flows for the three months ended March 31, 2017 and 2016. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles (‟GAAP”) have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations.

Although the Company believes the disclosures made are adequate to make the information presented not misleading, it is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements, and the notes thereto, included in the Company's latest Annual Report on Form 10-K. The interim statement of operations is not necessarily indicative of results to be expected for a full year.
XML 19 R8.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2017
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Note 2 - Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation

The Company is engaged in the business of crude oil marketing, tank truck transportation of liquid chemicals and dry bulk, and oil and gas exploration and production.  The accompanying unaudited condensed consolidated financial statements include the accounts of the Company after elimination of all intercompany accounts and transactions.

Cash and Cash Equivalents

Cash and cash equivalents include any Treasury bill, commercial paper, money market fund or federal funds with maturity of 90 days or less.  Cash and cash equivalents are maintained with major financial institutions and such deposits may exceed the amount of federally backed insurance provided.  While the Company regularly monitors the financial stability of such institutions, cash and cash equivalents ultimately remain at risk subject to the financial viability of such institutions.

Inventory

Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of the Company’s crude oil marketing operations.  Crude oil inventory is carried at the lower of average cost or “net realizable value”.

Prepayments

The components of prepayments are as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
       
Insurance premiums
 
$
767
  
$
1,403
 
Rents, license and other
  
586
   
694
 
  
$
1,353
  
$
2,097
 

Property and Equipment

Expenditures for major renewals and betterments are capitalized, and expenditures for maintenance and repairs are expensed as incurred.  Interest costs incurred in connection with major capital expenditures are capitalized and amortized over the lives of the related assets. When properties are retired or sold, the related cost and accumulated depreciation, depletion and amortization is removed from the accounts and any gain or loss is reflected in earnings.

Oil and gas exploration and development expenditures are accounted for in accordance with the successful efforts method of accounting.  Direct costs of acquiring developed or undeveloped leasehold acreage, including lease bonus, brokerage and other fees, are capitalized. Exploratory drilling costs are initially capitalized until the properties are evaluated and determined to be either productive or nonproductive.  Such evaluations are made on a quarterly basis.  If an exploratory well is determined to be nonproductive, the costs of drilling the well are charged to expense. Costs incurred to drill and complete development wells, including dry holes, are capitalized.  As of March 31, 2017, the Company had no unevaluated or suspended exploratory drilling costs.

Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method.  The reserve base or denominator used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves.  For lease and well equipment, development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves.  The numerator for such calculations is actual production volumes for the period.  All other property and equipment is depreciated using the straight-line method over the estimated average useful lives of three to twenty years.

The Company reviews its long-lived assets for impairment whenever there is evidence that the carrying value of such assets may not be recoverable.  Any impairment recognized is permanent and may not be restored.  Producing oil and gas properties are reviewed on a field-by-field basis. Fields with carrying values in excess of their estimated undiscounted future net cash flows are deemed impaired.  For properties requiring impairment, the fair value is estimated based on an internal discounted cash flow model.  Cash flows are developed based on estimated future production and prices are then discounted using a market based rate of return consistent with that used by the Company in evaluating cash flows for other assets of a similar nature.

On a quarterly basis, management evaluates the carrying value of non-producing oil and gas leasehold properties and may deem them impaired based on remaining lease term, area drilling activity and the Company’s plans for the property.  This fair value measure depends highly on management’s assessment of the likelihood of continued exploration efforts in a given area.  Therefore, such data inputs are categorized as ‟unobservable” or ‟Level 3” inputs.  (See ‟Fair Value Measurements” below).  Importantly, this fair value measure only applies to the write-down of capitalized costs and will never result in an increase to reported earnings.

Impairment provisions are included in oil and gas segment operating losses and were as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Producing property impairments
 
$
-
  
$
1
 
Non-producing property impairments
  
3
   
28
 
Total
 
$
3
  
$
29
 

Since the Company is no longer the operator of its oil and gas property interests, it does not maintain the underlying detail acreage data and the Company is dependent on the operator when determining which specific acreage will ultimately be drilled.  However, the capitalized cost detail on a property-by-property basis is reviewed by management, and deemed impaired if development is not anticipated prior to lease expiration.  Onshore leasehold periods are normally three years and may contain renewal options.

Investments

In December 2015 the Company formed a new wholly owned subsidiary, Adams Resources Medical Management, Inc. (ARMM), and in January 2016 ARMM acquired a 30% member interest in Bencap LLC (Bencap) for a $2.2 million cash payment.  Bencap provides medical insurance brokerage and medical claims auditing services to employers utilizing ERISA governed employee benefit plans.  The Company has accounted for this investment under the equity method of accounting.

During the third quarter of 2016, the Company completed a review of its equity method investment in Bencap and determined there was an other than temporary impairment.  Underlying this was the terms of the investment agreement where Bencap had the option to request borrowings up to $1.5 million (on or after December 5, 2016 but before October 31, 2018) that the Company must provide or forfeit its 30% member interest.  During the third quarter of 2016, management of the Company determined that it was unlikely to provide additional funding due to Bencap’s lower than projected revenue growth and operating losses since investment inception.  As a result, the Company recognized a net loss of $1.4 million from its investment in Bencap as of September 30, 2016.  This loss included a pre-tax impairment charge of $1.7 million and pre-tax losses from the equity method investment of $0.5 million. In February 2017, Bencap requested additional funding of approximately $0.5 million and the Company declined the additional funding request and forfeited its 30% member interest in BenCap.

In April 2016 the Company, through its ARMM subsidiary, acquired an approximate 15% equity interest (less than 3% voting interest) in VestaCare, Inc., a California corporation (“VestaCare”), for a $2.5 million cash payment.  VestaCare provides an array of software as a service (“SaaS”) electronic payment technologies to medical providers, payers and patients including VestaCare’s most recent product offering, VestaPay™.  VestaPay™ allows medical care providers to structure fully automated and dynamically updating electronic payment plans for their patients.  The Company has accounted for this investment under the cost method of accounting for investments.  The Company does not currently have any plans to pursue additional medical-related investments.

The Company’s remaining investment in VestaCare, Inc. is considered a long-lived asset and will be reviewed for impairment whenever there is evidence that the carrying value of such asset may not be recoverable.  These fair value measures depend highly on management’s assessment of the financial status of the underlying operation.  Such data inputs are “unobservable” or “Level 3” inputs.

Cash Deposits and Other Assets

The Company has established certain deposits to support participation in its liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits.  Insurance collateral deposits are invested at the discretion of the Company’s insurance carrier and such investments primarily consist of intermediate term federal government bonds and bonds backed by federal agencies.  This fair value measure relies on inputs from quoted prices for similar assets and is thus categorized as a ‟Level 2” valuation in the fair value hierarchy.  Components of cash deposits and other assets are as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
Insurance collateral deposits
 
$
4,222
  
$
5,032
 
State collateral deposits
  
141
   
143
 
Materials and supplies
  
377
   
354
 
  
$
4,740
  
$
5,529
 

Revenue Recognition

Certain commodity purchase and sale contracts utilized by the Company’s marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activity.  From the time of contract origination, such trading activity contracts are marked-to-market and recorded on a net revenue basis in the accompanying financial statements.

Most crude oil purchase contracts and sale contracts qualify and are designated as non-trading activities and the Company considers such contracts as normal purchases and sales activity.  For normal purchases and sales, the Company’s customers are invoiced monthly based upon contractually agreed upon terms with revenue recognized in the month in which the physical product is delivered to the customer.  Such sales are recorded gross in the financial statements because the Company takes title, has risk of loss for the products, is the primary obligor for the purchase, establishes the sale price independently with a third party and maintains credit risk associated with the sale of the product.

Certain crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations.  These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer.  Such buy/sell arrangements are reflected on a net revenue basis in the accompanying unaudited condensed consolidated financial statements.  Reporting such crude oil contracts on a gross revenue basis would increase the Company’s reported revenues as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
       
Revenue gross-up
 
$
57,565
  
$
75,927
 

Transportation segment customers are invoiced, and the related revenue is recognized, as the service is provided. Oil and gas revenue from the Company’s interests in producing wells is recognized as title and physical possession of the oil and gas passes to the purchaser.

Sales of Long-lived assets

Gains and losses from the sale or disposal of long-lived assets that do not meet the criteria for presentation as a discontinued operation are presented in the accompanying financial statements as a component of operating earnings.

Concentration of Credit Risk

The Company’s largest customers consist of large multinational integrated oil companies and independent refiners of crude oil.  In addition, the Company transacts business with independent oil producers, major chemical concerns, crude oil trading companies and a variety of commercial energy users.  Within this group of customers the Company generally derives approximately 50 percent of its revenues from three to five crude oil refining concerns.  While the Company has ongoing established relationships with certain domestic refiners of crude oil, alternative markets are readily available since the Company supplies less than one percent of U.S. domestic refiner demand.  As a fungible commodity delivered to various supply points, the Company’s crude oil sales can be readily delivered to alternative end markets.  Management believes that a loss of any of those customers where the Company currently derives more than 10 percent of its revenues would not have a material adverse effect on the Company’s operations.

Accounts receivable associated with crude oil activities comprise approximately 90 percent of the Company’s total receivables and industry practice requires payment for such sales to occur within 20 days of the end of the month following a transaction.  The Company’s customer makeup, credit policies and the relatively short duration of receivables mitigate the uncertainty typically associated with receivables management.

Letter of Credit Facility

The Company maintains a Credit and Security Agreement with Wells Fargo Bank to provide up to a $60 million stand-by letter of credit facility used to support crude oil purchases within the marketing segment.  This facility is collateralized by the eligible accounts receivable within the segment and outstanding amounts were as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
       
Stand-by letters of credit
 
$
-
  
$
1,000
 

The issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due.  The letter of credit facility places certain restrictions on Gulfmark Energy, Inc. the Company’s wholly owned subsidiary.  Such restrictions include the maintenance of a combined 1.1 to 1.0 current ratio and the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions.  The Company is currently in compliance with all such financial covenants.

Statement of Cash Flows

There were no significant non-cash financing activities in any of the periods reported.  Statements of cash flow disclosure items include the following (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
       
Federal and state tax paid
 
$
14
  
$
105
 

Capitalized amounts included in property and equipment that were not included in amounts reported for cash additions in the Statements of Cash Flows for the applicable report dates were as follows (in thousands):

  
March 31,
 
  
2017
  
2016
 
       
Property and equipment additions
 
$
836
  
$
350
 

Earnings Per Share

Earnings per share are based on the weighted average number of shares of common stock and potentially dilutive common stock shares outstanding during the period presented herein. The weighted average number of shares outstanding was 4,217,596 for 2017 and 2016.  There were no potentially dilutive securities during those periods.

Share-Based Payments

During the periods presented herein, the Company had neither stock-based employee compensation plans nor any other share-based payment arrangements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of 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. Examples of significant estimates used in the accompanying consolidated financial statements include oil and gas reserve volumes forming the foundation for calculating depreciation, depletion and amortization and for estimating cash flows when assessing impairment triggers and when estimating values associated with oil and gas properties.  Other examples include revenue accruals, the provision for bad debts, insurance related accruals, income tax permanent and timing differences, contingencies and valuation of fair value contracts.

Income Taxes

Income taxes are accounted for using the asset and liability method.  Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis.

Use of Derivative Instruments

The Company’s marketing segment is involved in the purchase and sale of crude oil.  The Company seeks to profit by procuring the commodity as it is produced and then delivering the material to the end users or the intermediate use marketplace.  As typical for the industry, such transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts.  Some of these contracts meet the definition of a derivative instrument, and therefore, the Company accounts for such contracts at fair value, unless the normal purchase and sale exception is applicable.  Such underlying contracts are standard for the industry and are the governing document for the Company’s crude oil marketing segment.  None of the Company’s derivative instruments have been designated as hedging instruments.  The accounting methodology utilized by the Company for its commodity contracts is further discussed below under the caption ‟Fair Value Measurements”.

The estimated fair value of forward month commodity contracts (derivatives) is reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of March 31, 2017 as follows (in thousands):

  
Balance Sheet Location and Amount
 
  
Current
  
Other
  
Current
  
Other
 
  
Assets
  
Assets
  
Liabilities
  
Liabilities
 
Asset Derivatives
            
- Fair Value Forward Hydrocarbon Commodity
            
Contracts at Gross Valuation
 
$
750
  
$
-
  
$
-
  
$
-
 
Liability Derivatives
                
- Fair Value Forward Hydrocarbon Commodity
                
Contracts at Gross Valuation
  
-
   
-
   
282
   
-
 
Less Counterparty Offsets
  
(282
)
  
-
   
(282
)
  
-
 
                 
As Reported Fair Value Contracts
 
$
468
  
$
-
  
$
-
  
$
-
 

As of March 31, 2017, four commodity purchase and sale contracts comprise the Company’s derivative valuations.  These contracts encompass 145,000 barrels of crude oil during April 2017 through May 2017.

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2016 as follows (in thousands):

  
Balance Sheet Location and Amount
 
  
Current
  
Other
  
Current
  
Other
 
  
Assets
  
Assets
  
Liabilities
  
Liabilities
 
Asset Derivatives
            
- Fair Value Forward Hydrocarbon Commodity
            
Contracts at Gross Valuation
 
$
378
  
$
-
  
$
-
  
$
-
 
Liability Derivatives
                
- Fair Value Forward Hydrocarbon Commodity
                
Contracts at Gross Valuation
  
-
   
-
   
330
   
-
 
Less Counterparty Offsets
  
(266
)
  
-
   
(266
)
  
-
 
                 
As Reported Fair Value Contracts
 
$
112
  
$
-
  
$
64
  
$
-
 

As of December 31, 2016, two contracts comprised the Company’s derivative valuations.  These contracts encompass approximately 65 barrels per day of diesel fuel during January through March 2017 and 145,000 barrels of crude oil during January 2017 through April 2017.
The Company only enters into commodity contracts with creditworthy counterparties and evaluates its exposure to significant counterparties on an ongoing basis.  As of March 31, 2017 and December 31, 2016, the Company was not holding nor has it posted any collateral to support its forward month fair value derivative activity. The Company is not subject to any credit-risk related trigger events.  The Company has no other financial investment arrangements that would serve to offset its derivative contracts.

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2017 and 2016 as follows (in thousands):

  
Earnings (Loss)
 
  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Revenues – Marketing
 
$
420
  
$
158
 

Fair Value Measurements

The carrying amount reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments.  Marketable securities are recorded at fair value based on market quotations from actively traded liquid markets.

Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value.  Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and the Company elects, cash flow hedge accounting.  The Company had no contracts designated for hedge accounting during any current reporting periods.

Fair value estimates are based on assumptions that market participants would use when pricing an asset or liability and the Company uses a fair value hierarchy of three levels that prioritizes the information used to develop those assumptions.  Currently, for all items presented herein, the Company utilizes a market approach to valuing its contracts.  On a contract by contract, forward month by forward month basis, the Company obtains observable market data for valuing its contracts.  The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.  The fair value hierarchy is summarized as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities that may be accessed at the measurement date.  Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  For Level 1 valuation of marketable securities, the Company utilizes market quotations provided by its primary financial institution and for the valuation of derivative financial instruments the Company utilizes the New York Mercantile Exchange (‟NYMEX”) for such valuations.

Level 2 – (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical assets or liabilities but in markets that are not actively traded or in which little information is released to the public, (c) observable inputs other than quoted prices and (d) inputs derived from observable market data.  Source data for Level 2 inputs include information provided by the NYMEX, published price data and indices, third party price survey data and broker provided forward price statistics.

Level 3 – unobservable market data inputs for assets or liabilities.

As of March 31, 2017, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

  
Market Data Inputs
       
  
Gross Level 1
  
Gross Level 2
  
Gross Level 3
  
Counterparty
    
  
Quoted Prices
  
Observable
  
Unobservable
  
Offsets
  
Total
 
Derivatives
               
- Current assets
 
$
-
  
$
750
  
$
-
  
$
(282
)
 
$
468
 
- Current liabilities
  
-
   
(282
)
  
-
   
282
   
-
 
Net Value
 
$
-
  
$
468
  
$
-
  
$
-
  
$
468
 

As of December 31, 2016, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

  
Market Data Inputs
       
  
Gross Level 1
  
Gross Level 2
  
Gross Level 3
  
Counterparty
    
  
Quoted Prices
  
Observable
  
Unobservable
  
Offsets
  
Total
 
Derivatives
               
- Current assets
 
$
-
  
$
378
  
$
-
  
$
(266
)
 
$
112
 
- Current liabilities
  
-
   
(330
)
  
-
   
266
   
(64
)
Net Value
 
$
-
  
$
48
  
$
-
  
$
-
  
$
48
 

When determining fair value measurements, the Company makes credit valuation adjustments to reflect both its own nonperformance risk and its counterparty’s nonperformance risk.  When adjusting the fair value of derivative contracts for the effect of nonperformance risk, the impact of netting and any applicable credit enhancements, considered.  Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by the Company or its counterparties.  As of March 31, 2017 and December 31, 2016, credit valuation adjustments were not significant to the overall valuation of the Company’s fair value contracts.  As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” Topic 606 is based on the core principle that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Topic 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

Topic 606 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted in 2017; however we do not plan to adopt the standard early. Entities will have the option to apply the standard using a full retrospective or modified retrospective adoption method. The Company has not yet selected a transition method.  The Company has a team in place to analyze the impact of Update 2014-09, and the related ASU's, across all revenue streams to evaluate the impact of the new standard on revenue contracts.   This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. Our evaluation of the impact on our Consolidated Financial Statements and related disclosures is ongoing and not complete.  The Company is continuing our review of contracts relative to the provisions of Topic 606.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This standard requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company expects to adopt this standard in the first quarter of 2019 and is currently evaluating the impact of this standard on our Consolidated Financial Statements and related disclosures. In connection with our assessment work, The Company has a team in place to analyze the impact of ASU 2016-02 and is continuing a review of our contracts relative to the provisions of the lease standard.
 
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This standard is intended to reduce existing diversity in practice in how certain transactions are presented on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. The guidance requires application using a retrospective transition method. The Company adopted ASU No. 2016-15 in the first quarter of 2017 and has determined the amendment does not have a material impact on our Consolidated Financial Statements and related disclosures.

Management believes the impact of other recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows upon adoption.
XML 20 R9.htm IDEA: XBRL DOCUMENT v3.7.0.1
Segment Reporting
3 Months Ended
Mar. 31, 2017
Segment Reporting [Abstract]  
Segment Reporting
Note 3 – Segment Reporting

The Company’s three reporting segments are crude oil marketing, tank truck transportation of liquid chemicals and dry bulk, and oil and gas exploration and production.  Information concerning the Company's various business activities is summarized as follows (in thousands):

- Three Month Comparison

     
Segment
  
Depreciation
  
Property and
 
     
Operating (Loss)
  
Depletion and
  
Equipment
 
  
Revenues
  
Earnings
  
Amortization
  
Additions
 
Period Ended March 31, 2017
            
Marketing
 
$
288,615
  
$
1,393
  
$
2,069
  
$
82
 
Transportation
  
13,455
   
(298
)
  
1,591
   
102
 
Oil and gas
  
1,017
   
(42
)
  
309
   
822
 
  
$
303,087
  
$
1,053
  
$
3,969
  
$
1,006
 
Period Ended March 31, 2016
                
Marketing
 
$
236,394
  
$
4,648
  
$
2,689
  
$
263
 
Transportation
  
13,347
   
173
   
1,985
   
3,817
 
Oil and gas
  
790
   
(282
)
  
441
   
130
 
  
$
250,531
  
$
4,539
  
$
5,115
  
$
4,210
 

Segment operating earnings reflect revenues net of operating costs and depreciation, depletion and amortization and are reconciled to earnings from continuing operations before income taxes, as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Segment operating earnings
 
$
1,053
  
$
4,539
 
- General and administrative
  
(2,637
)
  
(2,200
)
Operating (loss) earnings
  
(1,584
)
  
2,339
 
- Interest income
  
159
   
103
 
- Interest expense
  
(1
)
  
-
 
(Loss) Earnings before income tax
 
$
(1,426
)
 
$
2,442
 

Identifiable assets by industry segment are as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
Marketing
 
$
114,526
  
$
107,257
 
Transportation
  
32,231
   
32,120
 
Oil and gas
  
8,167
   
7,279
 
Other
  
109,239
   
100,216
 
  
$
264,163
  
$
246,872
 

Intersegment sales are insignificant and all sales occurred in the United States.  Other identifiable assets are primarily corporate cash, corporate accounts receivable, investments and properties not identified with any specific segment of the Company’s business.  Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.
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Transactions with Affiliates
3 Months Ended
Mar. 31, 2017
Transactions with Affiliates [Abstract]  
Transactions with Affiliates
Note 4 - Transactions with Affiliates

The late Mr. K. S. Adams, Jr., former Chairman of the Board of the Company, and certain of his family partnerships and affiliates have participated as working interest owners with the Company’s wholly owned subsidiary, Adams Resources Exploration Corporation (‟AREC”)  Mr. Adams and the affiliates participated on terms similar to those afforded other non-affiliated working interest owners.  While the affiliates have generally maintained their existing property interest, they have not participated in any such transactions originating after the death of Mr. Adams in October 2013.  In connection with the operation of certain oil and gas properties, the Company also charges such related parties for administrative overhead primarily as prescribed by the Council of Petroleum Accountants Society Bulletin 5. The Company also enters into certain transactions in the normal course of business with other affiliated entities including direct cost reimbursement for shared phone and administrative services.  In addition, the Company leases office space from an affiliated entity based on a lease rental rate determined by an independent appraisal.

The Company utilizes its former affiliate, Bencap, to administer certain of its employee medical benefit programs including a detail audit of individual medical claims.  See Note (1) to the accompanying financials under the caption “Investments” for further discussion.  Bencap earns a fee from the Company for providing such services at a discounted amount from its standard charge to non-affiliates.  In February 2017, Bencap requested additional funding of approximately $0.5 million and the Company declined the additional funding request, resulting in forfeiture of the investment.

Activities with affiliates were as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Overhead recoveries
 
$
-
  
$
21
 
         
Affiliate billings to company
 
$
12
  
$
11
 
         
Company billings to affiliates
 
$
1
  
$
1
 
         
Rentals paid to affiliate
 
$
167
  
$
163
 
         
Fees paid to Bencap
 
$
108
  
$
36
 
XML 22 R11.htm IDEA: XBRL DOCUMENT v3.7.0.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2017
Commitments and Contingencies [Abstract]  
Commitments and Contingencies
Note 5 - Commitments and Contingencies

Under the Company’s automobile and workers’ compensation insurance policies, the Company can either receive a return of premium paid or be assessed for additional premiums up to pre-established limits. Additionally, in certain instances the risk of insured losses is shared with a group of similarly situated entities.  The Company has appropriately recognized estimated expenses and liabilities related to these policies for losses incurred but not reported to the Company or its insurance carrier as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
Estimated expenses and liabilities
 
$
2,504
  
$
2,657
 

The Company maintains a self-insurance program for managing employee medical claims.  A liability for expected claims incurred but not reported is established on a monthly basis.  As claims are paid, the liability is relieved.  The Company also maintains third party insurance stop-loss coverage for aggregate medical claims exceeding $4.5 million.  Medical accrual amounts are as follows (in thousands):


  
March 31,
  
December 31,
 
  
2017
  
2016
 
Accrued medical claims
 
$
1,923
  
$
1,411
 

Adams Resources Exploration Corporation (“AREC”) is named as a defendant in a number of Louisiana lawsuits involving alleged environmental contamination from prior drilling operations.  Such suits typically allege improper disposal of oilfield wastes in earthen pits, with one matter involving allegations that drilling operations in 1986 contributed to the formation of a sinkhole in 2012 (the “Sinkhole Cases”).  The Sinkhole Cases, while arising from a singular event, include a number of different lawsuits brought in Louisiana State Court and one consolidated action in the United States District Court for the Eastern District of Louisiana.  In addition to the Sinkhole Cases, AREC is currently involved in two other such suits.  These suits are styled LePetit Chateau Deluxe v. Adams Resources Exploration Corporation dated March 2004, and Henning Management, LLC v. Adams Resources Exploration Corporation dated November 2013.  Each suit involves multiple industry defendants with substantially larger proportional interest in the properties.  In addition, the Sinkhole Cases involve a number of defendants in the solution mining industry, in which AREC has never participated.  In the LePetit Chateau Deluxe matter, all the larger defendants have settled the case.  The plaintiffs in each of these matters are seeking unspecified compensatory and punitive damages.  While management does not believe that a material adverse effect on the Company will result from the claims, significant attorney fees may be incurred by AREC to address claims related to these suits.  As of March 31, 2017 and December 31, 2016, the Company has accrued $0.5 million of future legal/or settlement costs for these matters.

From time to time as incidental to its operations, the Company may become involved in various lawsuits and/or disputes.  Primarily as an operator of an extensive trucking fleet, the Company is a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. Management of the Company is presently unaware of any claims against the Company that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on the Company’s financial position or results of operations.
XML 23 R12.htm IDEA: XBRL DOCUMENT v3.7.0.1
Subsequent Event
3 Months Ended
Mar. 31, 2017
Subsequent Event [Abstract]  
Subsequent Event
Note 6 – Subsequent Event

On April 21, 2017, AREC, a wholly owned subsidiary of the Company, filed a petition under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the District of Delaware, Case Number 17-10866(KG).  AREC will continue to operate its business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provision of the Bankruptcy Code and orders of the Bankruptcy Court. As of March 31, 2017, the estimated net realizable value of the oil and gas assets is anticipated to be greater than the net book value.  The Company will continue to evaluate the estimated net realizable value until the sale process has concluded. Adams Resources & Energy, Inc. is the primary creditor in the Chapter 11 process. 

On May 3, 2017, AREC filed a Motion with the Bankruptcy Court for approval of an auction process and engagement of Oil & Gas Asset Clearinghouse to conduct the auction.  Over the past few years, the Company has de-emphasized its upstream operations and does not expect this Chapter 11 filing by its subsidiary to have a material adverse impact on any of its core businesses.
XML 24 R13.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2017
Summary of Significant Accounting Policies [Abstract]  
Nature of Operations and Principles of Consolidation
Nature of Operations and Principles of Consolidation

The Company is engaged in the business of crude oil marketing, tank truck transportation of liquid chemicals and dry bulk, and oil and gas exploration and production.  The accompanying unaudited condensed consolidated financial statements include the accounts of the Company after elimination of all intercompany accounts and transactions.
Cash and Cash Equivalents
Cash and Cash Equivalents

Cash and cash equivalents include any Treasury bill, commercial paper, money market fund or federal funds with maturity of 90 days or less.  Cash and cash equivalents are maintained with major financial institutions and such deposits may exceed the amount of federally backed insurance provided.  While the Company regularly monitors the financial stability of such institutions, cash and cash equivalents ultimately remain at risk subject to the financial viability of such institutions.
Inventory
Inventory

Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of the Company’s crude oil marketing operations.  Crude oil inventory is carried at the lower of average cost or “net realizable value”.
Prepayments
Prepayments

The components of prepayments are as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
       
Insurance premiums
 
$
767
  
$
1,403
 
Rents, license and other
  
586
   
694
 
  
$
1,353
  
$
2,097
 
Property and Equipment
Property and Equipment

Expenditures for major renewals and betterments are capitalized, and expenditures for maintenance and repairs are expensed as incurred.  Interest costs incurred in connection with major capital expenditures are capitalized and amortized over the lives of the related assets. When properties are retired or sold, the related cost and accumulated depreciation, depletion and amortization is removed from the accounts and any gain or loss is reflected in earnings.

Oil and gas exploration and development expenditures are accounted for in accordance with the successful efforts method of accounting.  Direct costs of acquiring developed or undeveloped leasehold acreage, including lease bonus, brokerage and other fees, are capitalized. Exploratory drilling costs are initially capitalized until the properties are evaluated and determined to be either productive or nonproductive.  Such evaluations are made on a quarterly basis.  If an exploratory well is determined to be nonproductive, the costs of drilling the well are charged to expense. Costs incurred to drill and complete development wells, including dry holes, are capitalized.  As of March 31, 2017, the Company had no unevaluated or suspended exploratory drilling costs.

Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method.  The reserve base or denominator used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves.  For lease and well equipment, development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves.  The numerator for such calculations is actual production volumes for the period.  All other property and equipment is depreciated using the straight-line method over the estimated average useful lives of three to twenty years.

The Company reviews its long-lived assets for impairment whenever there is evidence that the carrying value of such assets may not be recoverable.  Any impairment recognized is permanent and may not be restored.  Producing oil and gas properties are reviewed on a field-by-field basis. Fields with carrying values in excess of their estimated undiscounted future net cash flows are deemed impaired.  For properties requiring impairment, the fair value is estimated based on an internal discounted cash flow model.  Cash flows are developed based on estimated future production and prices are then discounted using a market based rate of return consistent with that used by the Company in evaluating cash flows for other assets of a similar nature.

On a quarterly basis, management evaluates the carrying value of non-producing oil and gas leasehold properties and may deem them impaired based on remaining lease term, area drilling activity and the Company’s plans for the property.  This fair value measure depends highly on management’s assessment of the likelihood of continued exploration efforts in a given area.  Therefore, such data inputs are categorized as ‟unobservable” or ‟Level 3” inputs.  (See ‟Fair Value Measurements” below).  Importantly, this fair value measure only applies to the write-down of capitalized costs and will never result in an increase to reported earnings.

Impairment provisions are included in oil and gas segment operating losses and were as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Producing property impairments
 
$
-
  
$
1
 
Non-producing property impairments
  
3
   
28
 
Total
 
$
3
  
$
29
 

Since the Company is no longer the operator of its oil and gas property interests, it does not maintain the underlying detail acreage data and the Company is dependent on the operator when determining which specific acreage will ultimately be drilled.  However, the capitalized cost detail on a property-by-property basis is reviewed by management, and deemed impaired if development is not anticipated prior to lease expiration.  Onshore leasehold periods are normally three years and may contain renewal options.
Investments
Investments

In December 2015 the Company formed a new wholly owned subsidiary, Adams Resources Medical Management, Inc. (ARMM), and in January 2016 ARMM acquired a 30% member interest in Bencap LLC (Bencap) for a $2.2 million cash payment.  Bencap provides medical insurance brokerage and medical claims auditing services to employers utilizing ERISA governed employee benefit plans.  The Company has accounted for this investment under the equity method of accounting.

During the third quarter of 2016, the Company completed a review of its equity method investment in Bencap and determined there was an other than temporary impairment.  Underlying this was the terms of the investment agreement where Bencap had the option to request borrowings up to $1.5 million (on or after December 5, 2016 but before October 31, 2018) that the Company must provide or forfeit its 30% member interest.  During the third quarter of 2016, management of the Company determined that it was unlikely to provide additional funding due to Bencap’s lower than projected revenue growth and operating losses since investment inception.  As a result, the Company recognized a net loss of $1.4 million from its investment in Bencap as of September 30, 2016.  This loss included a pre-tax impairment charge of $1.7 million and pre-tax losses from the equity method investment of $0.5 million. In February 2017, Bencap requested additional funding of approximately $0.5 million and the Company declined the additional funding request and forfeited its 30% member interest in BenCap.

In April 2016 the Company, through its ARMM subsidiary, acquired an approximate 15% equity interest (less than 3% voting interest) in VestaCare, Inc., a California corporation (“VestaCare”), for a $2.5 million cash payment.  VestaCare provides an array of software as a service (“SaaS”) electronic payment technologies to medical providers, payers and patients including VestaCare’s most recent product offering, VestaPay™.  VestaPay™ allows medical care providers to structure fully automated and dynamically updating electronic payment plans for their patients.  The Company has accounted for this investment under the cost method of accounting for investments.  The Company does not currently have any plans to pursue additional medical-related investments.

The Company’s remaining investment in VestaCare, Inc. is considered a long-lived asset and will be reviewed for impairment whenever there is evidence that the carrying value of such asset may not be recoverable.  These fair value measures depend highly on management’s assessment of the financial status of the underlying operation.  Such data inputs are “unobservable” or “Level 3” inputs.
Cash Deposits and Other Assets
Cash Deposits and Other Assets

The Company has established certain deposits to support participation in its liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits.  Insurance collateral deposits are invested at the discretion of the Company’s insurance carrier and such investments primarily consist of intermediate term federal government bonds and bonds backed by federal agencies.  This fair value measure relies on inputs from quoted prices for similar assets and is thus categorized as a ‟Level 2” valuation in the fair value hierarchy.  Components of cash deposits and other assets are as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
Insurance collateral deposits
 
$
4,222
  
$
5,032
 
State collateral deposits
  
141
   
143
 
Materials and supplies
  
377
   
354
 
  
$
4,740
  
$
5,529
 
Revenue Recognition
Revenue Recognition

Certain commodity purchase and sale contracts utilized by the Company’s marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activity.  From the time of contract origination, such trading activity contracts are marked-to-market and recorded on a net revenue basis in the accompanying financial statements.

Most crude oil purchase contracts and sale contracts qualify and are designated as non-trading activities and the Company considers such contracts as normal purchases and sales activity.  For normal purchases and sales, the Company’s customers are invoiced monthly based upon contractually agreed upon terms with revenue recognized in the month in which the physical product is delivered to the customer.  Such sales are recorded gross in the financial statements because the Company takes title, has risk of loss for the products, is the primary obligor for the purchase, establishes the sale price independently with a third party and maintains credit risk associated with the sale of the product.

Certain crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations.  These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer.  Such buy/sell arrangements are reflected on a net revenue basis in the accompanying unaudited condensed consolidated financial statements.  Reporting such crude oil contracts on a gross revenue basis would increase the Company’s reported revenues as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
       
Revenue gross-up
 
$
57,565
  
$
75,927
 

Transportation segment customers are invoiced, and the related revenue is recognized, as the service is provided. Oil and gas revenue from the Company’s interests in producing wells is recognized as title and physical possession of the oil and gas passes to the purchaser.
Sales of Long-lived Assets
Sales of Long-lived assets

Gains and losses from the sale or disposal of long-lived assets that do not meet the criteria for presentation as a discontinued operation are presented in the accompanying financial statements as a component of operating earnings.
Concentration of Credit Risk
Concentration of Credit Risk

The Company’s largest customers consist of large multinational integrated oil companies and independent refiners of crude oil.  In addition, the Company transacts business with independent oil producers, major chemical concerns, crude oil trading companies and a variety of commercial energy users.  Within this group of customers the Company generally derives approximately 50 percent of its revenues from three to five crude oil refining concerns.  While the Company has ongoing established relationships with certain domestic refiners of crude oil, alternative markets are readily available since the Company supplies less than one percent of U.S. domestic refiner demand.  As a fungible commodity delivered to various supply points, the Company’s crude oil sales can be readily delivered to alternative end markets.  Management believes that a loss of any of those customers where the Company currently derives more than 10 percent of its revenues would not have a material adverse effect on the Company’s operations.

Accounts receivable associated with crude oil activities comprise approximately 90 percent of the Company’s total receivables and industry practice requires payment for such sales to occur within 20 days of the end of the month following a transaction.  The Company’s customer makeup, credit policies and the relatively short duration of receivables mitigate the uncertainty typically associated with receivables management.
Letter of Credit Facility
Letter of Credit Facility

The Company maintains a Credit and Security Agreement with Wells Fargo Bank to provide up to a $60 million stand-by letter of credit facility used to support crude oil purchases within the marketing segment.  This facility is collateralized by the eligible accounts receivable within the segment and outstanding amounts were as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
       
Stand-by letters of credit
 
$
-
  
$
1,000
 

The issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due.  The letter of credit facility places certain restrictions on Gulfmark Energy, Inc. the Company’s wholly owned subsidiary.  Such restrictions include the maintenance of a combined 1.1 to 1.0 current ratio and the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions.  The Company is currently in compliance with all such financial covenants.
Statement of Cash Flows
Statement of Cash Flows

There were no significant non-cash financing activities in any of the periods reported.  Statements of cash flow disclosure items include the following (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
       
Federal and state tax paid
 
$
14
  
$
105
 

Capitalized amounts included in property and equipment that were not included in amounts reported for cash additions in the Statements of Cash Flows for the applicable report dates were as follows (in thousands):

  
March 31,
 
  
2017
  
2016
 
       
Property and equipment additions
 
$
836
  
$
350
 
Earnings Per Share
Earnings Per Share

Earnings per share are based on the weighted average number of shares of common stock and potentially dilutive common stock shares outstanding during the period presented herein. The weighted average number of shares outstanding was 4,217,596 for 2017 and 2016.  There were no potentially dilutive securities during those periods.
Share-Based Payments
Share-Based Payments

During the periods presented herein, the Company had neither stock-based employee compensation plans nor any other share-based payment arrangements.
Use of Estimates
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of 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. Examples of significant estimates used in the accompanying consolidated financial statements include oil and gas reserve volumes forming the foundation for calculating depreciation, depletion and amortization and for estimating cash flows when assessing impairment triggers and when estimating values associated with oil and gas properties.  Other examples include revenue accruals, the provision for bad debts, insurance related accruals, income tax permanent and timing differences, contingencies and valuation of fair value contracts.
Income Taxes
Income Taxes

Income taxes are accounted for using the asset and liability method.  Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis.
Use of Derivative Instruments
Use of Derivative Instruments

The Company’s marketing segment is involved in the purchase and sale of crude oil.  The Company seeks to profit by procuring the commodity as it is produced and then delivering the material to the end users or the intermediate use marketplace.  As typical for the industry, such transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts.  Some of these contracts meet the definition of a derivative instrument, and therefore, the Company accounts for such contracts at fair value, unless the normal purchase and sale exception is applicable.  Such underlying contracts are standard for the industry and are the governing document for the Company’s crude oil marketing segment.  None of the Company’s derivative instruments have been designated as hedging instruments.  The accounting methodology utilized by the Company for its commodity contracts is further discussed below under the caption ‟Fair Value Measurements”.

The estimated fair value of forward month commodity contracts (derivatives) is reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of March 31, 2017 as follows (in thousands):

  
Balance Sheet Location and Amount
 
  
Current
  
Other
  
Current
  
Other
 
  
Assets
  
Assets
  
Liabilities
  
Liabilities
 
Asset Derivatives
            
- Fair Value Forward Hydrocarbon Commodity
            
Contracts at Gross Valuation
 
$
750
  
$
-
  
$
-
  
$
-
 
Liability Derivatives
                
- Fair Value Forward Hydrocarbon Commodity
                
Contracts at Gross Valuation
  
-
   
-
   
282
   
-
 
Less Counterparty Offsets
  
(282
)
  
-
   
(282
)
  
-
 
                 
As Reported Fair Value Contracts
 
$
468
  
$
-
  
$
-
  
$
-
 

As of March 31, 2017, four commodity purchase and sale contracts comprise the Company’s derivative valuations.  These contracts encompass 145,000 barrels of crude oil during April 2017 through May 2017.

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2016 as follows (in thousands):

  
Balance Sheet Location and Amount
 
  
Current
  
Other
  
Current
  
Other
 
  
Assets
  
Assets
  
Liabilities
  
Liabilities
 
Asset Derivatives
            
- Fair Value Forward Hydrocarbon Commodity
            
Contracts at Gross Valuation
 
$
378
  
$
-
  
$
-
  
$
-
 
Liability Derivatives
                
- Fair Value Forward Hydrocarbon Commodity
                
Contracts at Gross Valuation
  
-
   
-
   
330
   
-
 
Less Counterparty Offsets
  
(266
)
  
-
   
(266
)
  
-
 
                 
As Reported Fair Value Contracts
 
$
112
  
$
-
  
$
64
  
$
-
 

As of December 31, 2016, two contracts comprised the Company’s derivative valuations.  These contracts encompass approximately 65 barrels per day of diesel fuel during January through March 2017 and 145,000 barrels of crude oil during January 2017 through April 2017.
The Company only enters into commodity contracts with creditworthy counterparties and evaluates its exposure to significant counterparties on an ongoing basis.  As of March 31, 2017 and December 31, 2016, the Company was not holding nor has it posted any collateral to support its forward month fair value derivative activity. The Company is not subject to any credit-risk related trigger events.  The Company has no other financial investment arrangements that would serve to offset its derivative contracts.

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2017 and 2016 as follows (in thousands):

  
Earnings (Loss)
 
  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Revenues – Marketing
 
$
420
  
$
158
 
Fair Value Measurements
Fair Value Measurements

The carrying amount reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments.  Marketable securities are recorded at fair value based on market quotations from actively traded liquid markets.

Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value.  Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and the Company elects, cash flow hedge accounting.  The Company had no contracts designated for hedge accounting during any current reporting periods.

Fair value estimates are based on assumptions that market participants would use when pricing an asset or liability and the Company uses a fair value hierarchy of three levels that prioritizes the information used to develop those assumptions.  Currently, for all items presented herein, the Company utilizes a market approach to valuing its contracts.  On a contract by contract, forward month by forward month basis, the Company obtains observable market data for valuing its contracts.  The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.  The fair value hierarchy is summarized as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities that may be accessed at the measurement date.  Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  For Level 1 valuation of marketable securities, the Company utilizes market quotations provided by its primary financial institution and for the valuation of derivative financial instruments the Company utilizes the New York Mercantile Exchange (‟NYMEX”) for such valuations.

Level 2 – (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical assets or liabilities but in markets that are not actively traded or in which little information is released to the public, (c) observable inputs other than quoted prices and (d) inputs derived from observable market data.  Source data for Level 2 inputs include information provided by the NYMEX, published price data and indices, third party price survey data and broker provided forward price statistics.

Level 3 – unobservable market data inputs for assets or liabilities.

As of March 31, 2017, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

  
Market Data Inputs
       
  
Gross Level 1
  
Gross Level 2
  
Gross Level 3
  
Counterparty
    
  
Quoted Prices
  
Observable
  
Unobservable
  
Offsets
  
Total
 
Derivatives
               
- Current assets
 
$
-
  
$
750
  
$
-
  
$
(282
)
 
$
468
 
- Current liabilities
  
-
   
(282
)
  
-
   
282
   
-
 
Net Value
 
$
-
  
$
468
  
$
-
  
$
-
  
$
468
 

As of December 31, 2016, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

  
Market Data Inputs
       
  
Gross Level 1
  
Gross Level 2
  
Gross Level 3
  
Counterparty
    
  
Quoted Prices
  
Observable
  
Unobservable
  
Offsets
  
Total
 
Derivatives
               
- Current assets
 
$
-
  
$
378
  
$
-
  
$
(266
)
 
$
112
 
- Current liabilities
  
-
   
(330
)
  
-
   
266
   
(64
)
Net Value
 
$
-
  
$
48
  
$
-
  
$
-
  
$
48
 

When determining fair value measurements, the Company makes credit valuation adjustments to reflect both its own nonperformance risk and its counterparty’s nonperformance risk.  When adjusting the fair value of derivative contracts for the effect of nonperformance risk, the impact of netting and any applicable credit enhancements, considered.  Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by the Company or its counterparties.  As of March 31, 2017 and December 31, 2016, credit valuation adjustments were not significant to the overall valuation of the Company’s fair value contracts.  As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.
Recent Accounting Pronouncements
Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” Topic 606 is based on the core principle that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Topic 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

Topic 606 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted in 2017; however we do not plan to adopt the standard early. Entities will have the option to apply the standard using a full retrospective or modified retrospective adoption method. The Company has not yet selected a transition method.  The Company has a team in place to analyze the impact of Update 2014-09, and the related ASU's, across all revenue streams to evaluate the impact of the new standard on revenue contracts.   This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. Our evaluation of the impact on our Consolidated Financial Statements and related disclosures is ongoing and not complete.  The Company is continuing our review of contracts relative to the provisions of Topic 606.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This standard requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company expects to adopt this standard in the first quarter of 2019 and is currently evaluating the impact of this standard on our Consolidated Financial Statements and related disclosures. In connection with our assessment work, The Company has a team in place to analyze the impact of ASU 2016-02 and is continuing a review of our contracts relative to the provisions of the lease standard.
 
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This standard is intended to reduce existing diversity in practice in how certain transactions are presented on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. The guidance requires application using a retrospective transition method. The Company adopted ASU No. 2016-15 in the first quarter of 2017 and has determined the amendment does not have a material impact on our Consolidated Financial Statements and related disclosures.

Management believes the impact of other recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows upon adoption.
XML 25 R14.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2017
Summary of Significant Accounting Policies [Abstract]  
Components of prepayments
The components of prepayments are as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
       
Insurance premiums
 
$
767
  
$
1,403
 
Rents, license and other
  
586
   
694
 
  
$
1,353
  
$
2,097
 
Fair value of impairment of provisions
Impairment provisions are included in oil and gas segment operating losses and were as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Producing property impairments
 
$
-
  
$
1
 
Non-producing property impairments
  
3
   
28
 
Total
 
$
3
  
$
29
 
Components of cash deposits and other assets
Components of cash deposits and other assets are as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
Insurance collateral deposits
 
$
4,222
  
$
5,032
 
State collateral deposits
  
141
   
143
 
Materials and supplies
  
377
   
354
 
  
$
4,740
  
$
5,529
 
Reporting revenue of crude oil contracts on a gross revenue basis
Reporting such crude oil contracts on a gross revenue basis would increase the Company’s reported revenues as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
       
Revenue gross-up
 
$
57,565
  
$
75,927
 
Collateralized by eligible accounts receivable and outstanding
This facility is collateralized by the eligible accounts receivable within the segment and outstanding amounts were as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
       
Stand-by letters of credit
 
$
-
  
$
1,000
 
Non-cash financing activities
There were no significant non-cash financing activities in any of the periods reported.  Statements of cash flow disclosure items include the following (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
       
Federal and state tax paid
 
$
14
  
$
105
 
Capitalized costs included in property plant and equipment
Capitalized amounts included in property and equipment that were not included in amounts reported for cash additions in the Statements of Cash Flows for the applicable report dates were as follows (in thousands):

  
March 31,
 
  
2017
  
2016
 
       
Property and equipment additions
 
$
836
  
$
350
 
Derivatives reflected in the consolidated balance sheet
The estimated fair value of forward month commodity contracts (derivatives) is reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of March 31, 2017 as follows (in thousands):

  
Balance Sheet Location and Amount
 
  
Current
  
Other
  
Current
  
Other
 
  
Assets
  
Assets
  
Liabilities
  
Liabilities
 
Asset Derivatives
            
- Fair Value Forward Hydrocarbon Commodity
            
Contracts at Gross Valuation
 
$
750
  
$
-
  
$
-
  
$
-
 
Liability Derivatives
                
- Fair Value Forward Hydrocarbon Commodity
                
Contracts at Gross Valuation
  
-
   
-
   
282
   
-
 
Less Counterparty Offsets
  
(282
)
  
-
   
(282
)
  
-
 
                 
As Reported Fair Value Contracts
 
$
468
  
$
-
  
$
-
  
$
-
 

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2016 as follows (in thousands):

  
Balance Sheet Location and Amount
 
  
Current
  
Other
  
Current
  
Other
 
  
Assets
  
Assets
  
Liabilities
  
Liabilities
 
Asset Derivatives
            
- Fair Value Forward Hydrocarbon Commodity
            
Contracts at Gross Valuation
 
$
378
  
$
-
  
$
-
  
$
-
 
Liability Derivatives
                
- Fair Value Forward Hydrocarbon Commodity
                
Contracts at Gross Valuation
  
-
   
-
   
330
   
-
 
Less Counterparty Offsets
  
(266
)
  
-
   
(266
)
  
-
 
                 
As Reported Fair Value Contracts
 
$
112
  
$
-
  
$
64
  
$
-
 
Derivatives reflected in the consolidated statement of operations
Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2017 and 2016 as follows (in thousands):

  
Earnings (Loss)
 
  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Revenues – Marketing
 
$
420
  
$
158
 
Fair value assets and liabilities
As of March 31, 2017, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

  
Market Data Inputs
       
  
Gross Level 1
  
Gross Level 2
  
Gross Level 3
  
Counterparty
    
  
Quoted Prices
  
Observable
  
Unobservable
  
Offsets
  
Total
 
Derivatives
               
- Current assets
 
$
-
  
$
750
  
$
-
  
$
(282
)
 
$
468
 
- Current liabilities
  
-
   
(282
)
  
-
   
282
   
-
 
Net Value
 
$
-
  
$
468
  
$
-
  
$
-
  
$
468
 

As of December 31, 2016, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

  
Market Data Inputs
       
  
Gross Level 1
  
Gross Level 2
  
Gross Level 3
  
Counterparty
    
  
Quoted Prices
  
Observable
  
Unobservable
  
Offsets
  
Total
 
Derivatives
               
- Current assets
 
$
-
  
$
378
  
$
-
  
$
(266
)
 
$
112
 
- Current liabilities
  
-
   
(330
)
  
-
   
266
   
(64
)
Net Value
 
$
-
  
$
48
  
$
-
  
$
-
  
$
48
 
XML 26 R15.htm IDEA: XBRL DOCUMENT v3.7.0.1
Segment Reporting (Tables)
3 Months Ended
Mar. 31, 2017
Segment Reporting [Abstract]  
Information concerning business activities
The Company’s three reporting segments are crude oil marketing, tank truck transportation of liquid chemicals and dry bulk, and oil and gas exploration and production.  Information concerning the Company's various business activities is summarized as follows (in thousands):

- Three Month Comparison

     
Segment
  
Depreciation
  
Property and
 
     
Operating (Loss)
  
Depletion and
  
Equipment
 
  
Revenues
  
Earnings
  
Amortization
  
Additions
 
Period Ended March 31, 2017
            
Marketing
 
$
288,615
  
$
1,393
  
$
2,069
  
$
82
 
Transportation
  
13,455
   
(298
)
  
1,591
   
102
 
Oil and gas
  
1,017
   
(42
)
  
309
   
822
 
  
$
303,087
  
$
1,053
  
$
3,969
  
$
1,006
 
Period Ended March 31, 2016
                
Marketing
 
$
236,394
  
$
4,648
  
$
2,689
  
$
263
 
Transportation
  
13,347
   
173
   
1,985
   
3,817
 
Oil and gas
  
790
   
(282
)
  
441
   
130
 
  
$
250,531
  
$
4,539
  
$
5,115
  
$
4,210
 
Reconciliation of segment earnings to earnings before income taxes
Segment operating earnings reflect revenues net of operating costs and depreciation, depletion and amortization and are reconciled to earnings from continuing operations before income taxes, as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Segment operating earnings
 
$
1,053
  
$
4,539
 
- General and administrative
  
(2,637
)
  
(2,200
)
Operating (loss) earnings
  
(1,584
)
  
2,339
 
- Interest income
  
159
   
103
 
- Interest expense
  
(1
)
  
-
 
(Loss) Earnings before income tax
 
$
(1,426
)
 
$
2,442
 
Identifiable assets by industry segment
Identifiable assets by industry segment are as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
Marketing
 
$
114,526
  
$
107,257
 
Transportation
  
32,231
   
32,120
 
Oil and gas
  
8,167
   
7,279
 
Other
  
109,239
   
100,216
 
  
$
264,163
  
$
246,872
 
XML 27 R16.htm IDEA: XBRL DOCUMENT v3.7.0.1
Transactions with Affiliates (Tables)
3 Months Ended
Mar. 31, 2017
Transactions with Affiliates [Abstract]  
Activities with affiliates
Activities with affiliates were as follows (in thousands):

  
Three Months Ended
 
  
March 31,
 
  
2017
  
2016
 
Overhead recoveries
 
$
-
  
$
21
 
         
Affiliate billings to company
 
$
12
  
$
11
 
         
Company billings to affiliates
 
$
1
  
$
1
 
         
Rentals paid to affiliate
 
$
167
  
$
163
 
         
Fees paid to Bencap
 
$
108
  
$
36
 
XML 28 R17.htm IDEA: XBRL DOCUMENT v3.7.0.1
Commitments and Contingencies (Tables)
3 Months Ended
Mar. 31, 2017
Commitments and Contingencies [Abstract]  
Expenses and losses incurred but not reported
The Company has appropriately recognized estimated expenses and liabilities related to these policies for losses incurred but not reported to the Company or its insurance carrier as follows (in thousands):

  
March 31,
  
December 31,
 
  
2017
  
2016
 
Estimated expenses and liabilities
 
$
2,504
  
$
2,657
 
Accrued medical claims
Medical accrual amounts are as follows (in thousands):


  
March 31,
  
December 31,
 
  
2017
  
2016
 
Accrued medical claims
 
$
1,923
  
$
1,411
 
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies, Prepayments (Details) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Components of Prepayments [Abstract]    
Insurance premiums $ 767 $ 1,403
Rents, license and other 586 694
Prepayments $ 1,353 $ 2,097
XML 30 R19.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies, Property and Equipment (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Property and Equipment [Abstract]    
Oil and gas property impairment $ 3 $ 29
Minimum [Member]    
Property and Equipment [Abstract]    
Property and equipment, useful life 3 years  
Maximum [Member]    
Property and Equipment [Abstract]    
Property and equipment, useful life 20 years  
Producing Property Impairments [Member]    
Property and Equipment [Abstract]    
Oil and gas property impairment $ 0 1
Non-Producing Property Impairments [Member]    
Property and Equipment [Abstract]    
Oil and gas property impairment $ 3 $ 28
Onshore Leasehold [Member]    
Property and Equipment [Abstract]    
Onshore normal leasehold period 3 years  
XML 31 R20.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies, Investments (Details) - USD ($)
$ in Thousands
1 Months Ended 3 Months Ended
Apr. 30, 2016
Feb. 28, 2017
Jan. 31, 2016
Mar. 31, 2017
Sep. 30, 2016
Mar. 31, 2016
Investments [Abstract]            
Recognized net loss from investment       $ 0   $ (124)
Pre-tax losses from equity method investment       $ 0   $ (191)
Bencap LLC [Member]            
Investments [Abstract]            
Percentage of equity method investment     30.00%      
Cash payment for acquisition     $ 2,200      
Recognized net loss from investment         $ (1,400)  
Pre-tax impairment charge         1,700  
Pre-tax losses from equity method investment         (500)  
Additional funding request   $ 500        
Percentage of member interest forfeited   30.00%        
Bencap LLC [Member] | December 5, 2016 to October 31, 2018 [Member]            
Investments [Abstract]            
Maximum borrowing amount         $ 1,500  
VestaCare, Inc. [Member]            
Investments [Abstract]            
Percentage of equity method investment 15.00%          
Voting interest 3.00%          
Cash payment for acquisition $ 2,500          
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies, Cash Deposits and Other Assets Through Concentration of Credit Risk (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2017
USD ($)
Customer
Mar. 31, 2016
USD ($)
Dec. 31, 2016
USD ($)
Cash Deposits and Other Assets [Abstract]      
Insurance collateral deposits $ 4,222   $ 5,032
State collateral deposits 141   143
Materials and supplies 377   354
Cash deposits and other assets 4,740   $ 5,529
Revenue Recognition [Abstract]      
Revenue gross-up $ 57,565 $ 75,927  
Concentration of Credit Risk [Abstract]      
Maximum percentage of US demand supplied by company 1.00%    
Customer Concentration Risk [Member] | Minimum [Member]      
Concentration of Credit Risk [Abstract]      
Number of customers | Customer 3    
Customer Concentration Risk [Member] | Maximum [Member]      
Concentration of Credit Risk [Abstract]      
Number of customers | Customer 5    
Revenue [Member]      
Concentration of Credit Risk [Abstract]      
Percentage of revenues from one customer which loss would not have material effect 10.00%    
Revenue [Member] | Customer Concentration Risk [Member]      
Concentration of Credit Risk [Abstract]      
Concentration risk, percentage 50.00%    
Accounts Receivable [Member]      
Concentration of Credit Risk [Abstract]      
Industry practice payment of receivables 20 days    
Accounts Receivable [Member] | Product Concentration Risk [Member]      
Concentration of Credit Risk [Abstract]      
Concentration risk, percentage 90.00%    
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies, Letters of Credit Facility, Statement of Cash Flows and Earnings Per Share (Details)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2017
USD ($)
shares
Mar. 31, 2016
USD ($)
Dec. 31, 2016
shares
Statement of Cash Flows [Abstract]      
Federal and state tax paid $ 14 $ 105  
Property and equipment additions $ 836 350  
Earnings Per Share [Abstract]      
Weighted average number of shares outstanding (in shares) | shares 4,217,596   4,217,596
Potentially dilutive securities (in shares) | shares 0   0
Wells Fargo Bank [Member] | Standby Letter of Credit [Member]      
Letter of Credit Facility [Abstract]      
Line of credit facility, maximum borrowing capacity $ 60,000    
Stand-by letters of credit $ 0 $ 1,000  
Current ratio 1.1    
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies, Use of Derivative Instruments (Details)
$ in Thousands
12 Months Ended
Dec. 31, 2016
USD ($)
BarrelsofOilPerDay
Contract
bbl
Mar. 31, 2017
USD ($)
Contract
bbl
Fair Value Forward Hydrocarbon Commodity Contracts at Gross Valuation [Abstract]    
As Reported Fair Value Contracts $ 112 $ 468
As Reported Fair Value Contracts $ 64 $ 0
April 2017 Through May 2017 [Member]    
Fair Value Forward Hydrocarbon Commodity Contracts at Gross Valuation [Abstract]    
Total volume committed under commodity purchase and sale contract (in barrels or mmbtu) | bbl   145,000
January 2017 Through April 2017 [Member]    
Fair Value Forward Hydrocarbon Commodity Contracts at Gross Valuation [Abstract]    
Total volume committed under commodity purchase and sale contract (in barrels or mmbtu) | bbl 145,000  
Commodity Contract [Member]    
Fair Value Forward Hydrocarbon Commodity Contracts at Gross Valuation [Abstract]    
Number of contracts held | Contract 2 4
Commodity Contract [Member] | January 2017 Through March 2017 [Member]    
Fair Value Forward Hydrocarbon Commodity Contracts at Gross Valuation [Abstract]    
Volume committed per day under commodity purchase and sale contract (in barrels or mmbtu) | BarrelsofOilPerDay 65  
Commodity Contract [Member] | Not Designated as Hedging Instrument [Member] | Current Assets [Member]    
Fair Value Forward Hydrocarbon Commodity Contracts at Gross Valuation [Abstract]    
Asset Derivatives $ 378 $ 750
Liability Derivatives 0 0
Less Counterparty Offsets (266) (282)
As Reported Fair Value Contracts 112 468
Commodity Contract [Member] | Not Designated as Hedging Instrument [Member] | Other Assets [Member]    
Fair Value Forward Hydrocarbon Commodity Contracts at Gross Valuation [Abstract]    
Asset Derivatives 0 0
Liability Derivatives 0 0
Less Counterparty Offsets 0 0
As Reported Fair Value Contracts 0 0
Commodity Contract [Member] | Not Designated as Hedging Instrument [Member] | Current Liabilities [Member]    
Fair Value Forward Hydrocarbon Commodity Contracts at Gross Valuation [Abstract]    
Asset Derivatives 0 0
Liability Derivatives 330 282
Less Counterparty Offsets (266) (282)
As Reported Fair Value Contracts 64 0
Commodity Contract [Member] | Not Designated as Hedging Instrument [Member] | Other Liabilities [Member]    
Fair Value Forward Hydrocarbon Commodity Contracts at Gross Valuation [Abstract]    
Asset Derivatives 0 0
Liability Derivatives 0 0
Less Counterparty Offsets 0 0
As Reported Fair Value Contracts $ 0 $ 0
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies, Derivatives by Hedging Relationship and Fair Value Measurements (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Fair Value, Measurements, Recurring [Member]      
Fair Value Assets (Liabilities), Net [Abstract]      
Derivatives (fair value contracts) - Current assets $ 468   $ 112
Derivatives (fair value contracts) - Current liabilities 0   (64)
Net Value 468   48
Fair Value, Measurements, Recurring [Member] | Counterparty Offsets [Member]      
Fair Value Assets (Liabilities), Net [Abstract]      
Derivatives (fair value contracts) - Current assets (282)   (266)
Derivatives (fair value contracts) - Current liabilities 282   266
Net Value 0   0
Fair Value, Measurements, Recurring [Member] | Level 1 Quoted Prices [Member]      
Fair Value Assets (Liabilities), Net [Abstract]      
Derivatives (fair value contracts) - Current assets 0   0
Derivatives (fair value contracts) - Current liabilities 0   0
Net Value 0   0
Fair Value, Measurements, Recurring [Member] | Level 2 Observable [Member]      
Fair Value Assets (Liabilities), Net [Abstract]      
Derivatives (fair value contracts) - Current assets 750   378
Derivatives (fair value contracts) - Current liabilities (282)   (330)
Net Value 468   48
Fair Value, Measurements, Recurring [Member] | Level 3 Unobservable [Member]      
Fair Value Assets (Liabilities), Net [Abstract]      
Derivatives (fair value contracts) - Current assets 0   0
Derivatives (fair value contracts) - Current liabilities 0   0
Net Value 0   $ 0
Commodity Contract [Member] | Revenues - Marketing [Member] | Not Designated as Hedging Instrument [Member]      
Earnings (Loss) Recognized in Income [Abstract]      
Earnings (loss) $ 420 $ 158  
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.7.0.1
Segment Reporting, Information Concerning Business Activities (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2017
USD ($)
Segment
Mar. 31, 2016
USD ($)
Segment Reporting [Abstract]    
Number of reporting segments | Segment 3  
Revenues $ 303,087 $ 250,531
Depreciation, depletion and amortization 3,969 5,115
Reportable Segments [Member]    
Segment Reporting [Abstract]    
Revenues 303,087 250,531
Segment operating (loss) earnings 1,053 4,539
Depreciation, depletion and amortization 3,969 5,115
Property and equipment additions 1,006 4,210
Reportable Segments [Member] | Marketing [Member]    
Segment Reporting [Abstract]    
Revenues 288,615 236,394
Segment operating (loss) earnings 1,393 4,648
Depreciation, depletion and amortization 2,069 2,689
Property and equipment additions 82 263
Reportable Segments [Member] | Transportation [Member]    
Segment Reporting [Abstract]    
Revenues 13,455 13,347
Segment operating (loss) earnings (298) 173
Depreciation, depletion and amortization 1,591 1,985
Property and equipment additions 102 3,817
Reportable Segments [Member] | Oil and Gas [Member]    
Segment Reporting [Abstract]    
Revenues 1,017 790
Segment operating (loss) earnings (42) (282)
Depreciation, depletion and amortization 309 441
Property and equipment additions $ 822 $ 130
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.7.0.1
Segment Reporting, Reconciliation of Segment Earnings to Earnings Before Income Taxes (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Reconciliation of Segment Earnings [Abstract]    
General and administrative $ (2,637) $ (2,200)
Operating (loss) earnings (1,584) 2,339
Interest income 159 103
Interest expense (1) 0
Loss (earnings) before income taxes and equity investments (1,426) 2,442
Reportable Segments [Member]    
Reconciliation of Segment Earnings [Abstract]    
Segment operating earnings 1,053 4,539
Segment Reconciling Item [Member]    
Reconciliation of Segment Earnings [Abstract]    
General and administrative (2,637) (2,200)
Interest income 159 103
Interest expense $ (1) $ 0
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.7.0.1
Segment Reporting, Identifiable Assets by Industry Segment (Details) - USD ($)
$ in Thousands
Mar. 31, 2017
Dec. 31, 2016
Identifiable Assets By Industry Segment [Abstract]    
Assets $ 264,163 $ 246,872
Reportable Segments [Member]    
Identifiable Assets By Industry Segment [Abstract]    
Assets 264,163 246,872
Reportable Segments [Member] | Marketing [Member]    
Identifiable Assets By Industry Segment [Abstract]    
Assets 114,526 107,257
Reportable Segments [Member] | Transportation [Member]    
Identifiable Assets By Industry Segment [Abstract]    
Assets 32,231 32,120
Reportable Segments [Member] | Oil and Gas [Member]    
Identifiable Assets By Industry Segment [Abstract]    
Assets 8,167 7,279
Reportable Segments [Member] | Other [Member]    
Identifiable Assets By Industry Segment [Abstract]    
Assets $ 109,239 $ 100,216
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.7.0.1
Transactions with Affiliates (Details) - USD ($)
$ in Thousands
1 Months Ended 3 Months Ended
Feb. 28, 2017
Mar. 31, 2017
Mar. 31, 2016
Bencap LLC [Member]      
Transactions with Affiliates [Abstract]      
Additional funding request $ 500    
Affiliated Entities [Member]      
Transactions with Affiliates [Abstract]      
Overhead recoveries   $ 0 $ 21
Affiliate billings to company   12 11
Company billings to affiliates   1 1
Rentals paid to affiliate   167 163
Fees paid to Bencap   $ 108 $ 36
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.7.0.1
Commitments and Contingencies (Details)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2017
USD ($)
Lawsuit
Dec. 31, 2016
USD ($)
Estimated Expenses and Liabilities [Abstract]    
Estimated expenses and liabilities $ 2,504 $ 2,657
Medical Accrual [Abstract]    
Accrued medical claims $ 1,923 1,411
Total number of law suits | Lawsuit 2  
Future legal cost accrued $ 500 $ 500
Minimum [Member]    
Medical Accrual [Abstract]    
Aggregate medical claims for umbrella insurance coverage per calendar year $ 4,500  
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