10QSB 1 d83969e10qsb.txt FORM 10QSB FOR QUARTER ENDING DECEMBER 31, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended December 31, 2000 ------------------------------------------------------ ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------ ------------ Commission File Number 0-9116 --------------------------------------------------------- PANHANDLE ROYALTY COMPANY -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 73-1055775 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Grand Centre Suite 210, 5400 N Grand Blvd., Oklahoma City, Oklahoma 73112 -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number including area code (405) 948-1560 ------------------------------ 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. x Yes No --- --- Outstanding shares of Class A Common stock (voting) at January 31, 2001: 2,060,060 --------- 2 INDEX
Page Part I. Financial Information Item 1. Consolidated Financial Statements Condensed Consolidated Balance Sheets - December 31, 2000 (unaudited) and September 30, 2000........................................................ 1 Condensed Consolidated Statements of Income - Three months ended December 31, 2000 AND 1999 (unaudited)............................................................... 2 Condensed Consolidated Statements of Cash Flows - Three months ended December 31, 2000 and 1999 (unaudited)............................................................... 3 Notes to Condensed Consolidated Financial Statements (unaudited).................................................... 4 Item 2. Management's discussion and analysis of financial condition and results of operations....................................... 5 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................................ 6
3 PART I. FINANCIAL INFORMATION PANHANDLE ROYALTY COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Information at December 31, 2000 is unaudited)
December 31, September 30, 2000 2000 ------------ ------------- Assets Current assets: Cash and cash equivalents $ 1,084,220 $ 815,912 Oil and gas sales and other receivables 2,371,104 1,955,590 Prepaid expenses 19,006 3,817 ----------- ----------- Total current assets 3,474,330 2,775,319 Properties and equipment, at cost, based on successful efforts accounting Producing oil and gas properties 29,019,548 27,282,697 Non producing oil and gas properties 6,388,310 6,154,159 Other 280,877 280,877 ----------- ----------- 35,688,735 33,717,733 Less accumulated depreciation, depletion and amortization 20,854,078 20,390,441 ----------- ----------- Net properties and equipment 14,834,657 13,327,292 Other assets 107,716 107,716 ----------- ----------- $18,416,703 $16,210,327 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable, accrued liabilities and gas imbalance liability $ 1,417,767 $ 759,444 Dividends payable 296,150 7,742 Income taxes payable 269,143 249,327 Deferred income taxes 34,000 46,000 ----------- ----------- Total current liabilities 2,017,060 1,062,513 Deferred income taxes 2,094,000 1,794,000 Stockholders' equity Class A voting Common Stock, $.0333 par value; 6,000,000 shares authorized, 2,060,060 issued and outstanding at December 31,2000 and 2,060,206 at September 30, 2000 68,669 68,673 Capital in excess of par value 606,425 608,280 Retained earnings 13,630,549 12,676,861 ----------- ----------- Total stockholders' equity 14,305,643 13,353,814 ----------- ----------- $18,416,703 $16,210,327 =========== ===========
(1) 4 PANHANDLE ROYALTY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended December 31, 2000 1999 ----------- ----------- Revenues: Oil and gas sales $3,420,056 $1,627,739 Lease bonuses and rentals 2,685 440 Interest 12,805 1,413 Other 38,675 21,369 ---------- ---------- 3,474,221 1,650,961 Costs and expenses: Lease operating expenses and production taxes 415,145 271,658 Exploration costs 216,123 85,751 Depreciation, depletion, amortization and impairment 463,637 479,877 General and administrative 467,006 407,417 ---------- ---------- 1,561,911 1,244,703 ---------- ---------- Income before provision for income taxes 1,912,310 406,258 Provision for income taxes 526,000 42,000 ---------- ---------- Net income $1,386,310 $ 364,258 ========== ========== Basic earnings per share (Note 4) $ .67 $ .18 ========== ========== Diluted earnings per share (Note 4) $ .67 $ .18 ========== ========== Dividends declared and paid in the quarter ended December 31, $ .07 $ .07 ========== ========== Dividends declared for and to be paid in the quarter ended March 31 (Note 6) $ .14 $ .07 ========== ==========
(2) 5 PANHANDLE ROYALTY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended December 31, 2000 1999 ------------- ----------- Cash flows from operating activities: Net income $ 1,386,310 $ 364,258 Adjustments to reconcile net income to net cash provided by operating activities: depreciation, depletion and amortization 463,637 479,877 Exploration costs 216,123 85,751 Provision for deferred income taxes 288,000 -- Cash provided (used) by changes in assets and liabilities: oil and gas sales and other receivables (415,514) 14,371 Prepaid expenses and other assets (15,189) (15,713) Income taxes payable 19,816 17,249 Accounts payable, accrued liabilities, gas imbalance liability and dividends payable 658,323 (147,509) ----------- ----------- Total adjustments 1,215,196 434,026 ----------- ----------- Net cash provided by operating activities 2,601,506 798,284 Cash flows from investing activities: Purchase of and development of properties and equipment (2,187,125) (829,829) ----------- ----------- Net cash used in investing activities (2,187,125) (829,829) Cash flows from financing activities: Borrowings under line of credit -- 200,000 Acquisition of company's common shares (1,859) -- Payment of dividends (144,214) (144,409) ----------- ----------- Net cash provided (used) by financing activities (146,073) 55,591 ----------- ----------- Increase (decrease) in cash and cash equivalents 268,308 24,046 Cash and cash equivalents at beginning of period 815,912 213,207 ----------- ----------- Cash and cash equivalents at end of period $ 1,084,220 $ 237,253 =========== =========== Supplemental disclosure of cash flow information: Interest paid $ -- $ 1,583 Income taxes paid 218,184 24,751 ----------- ----------- $ 218,184 $ 26,334 =========== ===========
(See accompanying notes) (3) 6 PANHANDLE ROYALTY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The consolidated results presented for the three-month periods ended December 31, 2000 and 1999 are unaudited, but management of Panhandle Royalty Company believes that all adjustments necessary for a fair presentation of the consolidated results of operations for the periods have been included. All such adjustments are of a normal recurring nature. The consolidated results are not necessarily indicative of those to be expected for the full year. 2. The Company utilizes tight gas sands production tax credits to reduce its federal income tax liability, if any. These credits are scheduled to be available through the year 2002. The Company's provision for income taxes is also reflective of excess percentage depletion, reducing the Company's effective tax rate from the federal statutory rate. 3. The Company's diluted earnings per share calculation takes into account certain shares that may be issued under the Non-Employee Director's Deferred Compensation Plan. The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended December 31, 2000 1999 ----------- ----------- Numerator for primary and diluted earnings per share: Net income $1,386,310 $ 364,258 ========== ---------- Denominator: For basic earnings per share Weighted average shares 2,060,168 2,056,986 Effect of potential diluted shares: Directors deferred Compensation shares 22,787 17,771 ---------- ---------- Denominator for diluted earnings per share - adjusted weighted average shares and potential shares 2,082,955 2,074,757 ========== ========== Basic earnings per share $ .67 $ .18 ========== ========== Diluted earnings per share $ .67 $ .18 ========== ==========
4. The Company has a $5,000,000 line of credit with BancFirst in Oklahoma City, OK. This facility matures on December 31, 2002. At December 31, 2000, the Company had no balance outstanding under the BancFirst facility. 5. Approximately 75% of the Company's share of gas produced from the Potato Hills Field is currently being sold under a fixed price contract by the operator of the wells. A contract price of $2.68 per MMBtu was fixed until October 31, 2000. Effective November 1, 2000, several different contracts are in place through march 2001, which have a floor price of approximately $3.69 and a ceiling price of approximately $5.89 per MMBtu. for the three month period ended December 31, 2000, these contracts did not have a significant effect on oil and gas revenues. 6. On December 13, 2000, the Company's Board of Directors approved payment of a $.14 per share dividend. The dividend is to be paid on March 9, 2001, to shareholders of record on February 7, 2001. (4) 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS AND RISK FACTORS Forward-Looking Statements for 2001 and later periods are made in this document. Such statements represent estimates of management based on the Company's historical operating trends, its proved oil and gas reserves and other information currently available to management. The Company cautions that the forward-looking statements provided herein are subject to all the risks and uncertainties incident to the acquisition, development and marketing of, and exploration for oil and gas reserves. These risks include, but are not limited to, oil and natural gas price risk, environmental risks, drilling risk, reserve quantity risk and operations and production risk. For all the above reasons, actual results may vary materially from the forward-looking statements and there is no assurance that the assumptions used are necessarily the most likely to occur. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2001, the Company had positive working capital of $1,457,270, as compared to $1,712,806 at September 30, 2000. The decrease in working capital is the result of increased accounts payable related to well drilling costs and accrued dividends to be paid in March 2001. Cash flow from operating activities increased 226% to $2,601,506 for the first quarter of fiscal 2001 as compared to the first quarter of fiscal 2000. This increase was primarily a result of increased oil and gas sales revenues during the fiscal 2001 quarter, which is discussed in detail in "Results of Operations". Capital expenditures for oil and gas activities for the 2001 quarter amounted to $2,187,125 as compared to $829,829 for the 2000 quarter. This increased level of expenditures was the result of increased market prices for natural gas and crude oil stimulating new wells to be drilled. The Company relies on third parties to operate these wells and simply pays its proportionate share of drilling costs when the wells are drilled. At December 31, 2000, the Company had remaining projected costs on wells proposed or actually drilling of approximately $3,750,000. The Company has historically funded drilling and other capital expenditures, overhead costs and dividend payments from operating cash flow. Management expects there will be sufficient funds available from projected cash flow and the line-of-credit, if needed, to meet all expected costs and capital obligations for the remainder of fiscal 2001. The Company has equity available should a large acquisition of oil and gas properties, or a company purchase, increase capital expenditures to a level above available cash flow and bank financing. RESULTS OF OPERATIONS Revenues increased significantly for the quarter ended December 31, 2000, as compared to the same quarter ended December 31, 1999. Oil and gas sales revenue increased $1,792,317 or 110% as compared to last year's quarter. This increase is a function of substantially increased sales prices for both crude oil and natural gas, and to a lessor extent, increased sales volume of both crude oil and natural gas. The chart below outlines the Company's production and average sales prices of crude oil and natural gas for the three month periods ended December 31, 2000 and 1999.
BARRELS AVERAGE MCF AVERAGE SOLD PRICE SOLD PRICE ------- -------- ------- ------- Three months ended 12/31/00 19,715 $ 31.91 553,787 $ 5.04 Three months ended 12/31/99 15,321 $ 23.87 525,400 $ 2.40
The increased sales volume of natural gas was due to continuing excellent production from the Potato Hills Field in eastern Oklahoma and new wells coming on line in western Oklahoma. Management currently expects gas production to remain relatively steady to slightly increasing for the remainder of fiscal 2001, compared to last fiscal year, and for natural gas prices to remain firm. Oil sales volume increased 29% in the 2001 quarter as new oil production in Oklahoma and New Mexico came on line. Management expects oil prices to remain in the mid to upper $20 range for the remainder of fiscal 2001 and oil sales volume to increase, somewhat, over last year's numbers. (5) 8 Costs and expenses increased 25% for the 2001 quarter as compared to the 2000 quarter. The main reason for the increase of $317,208 was an increase of $143,487 in lease operating expenses and production taxes (LOE) and an increase of $130,372 in exploration costs. LOE increased due to payment of production taxes on the increased oil and gas sales revenues and additional workover expense. Gross production taxes increased to $211,467 in 2001 (6.2% of oil and gas sales) from $117,149 in 2000 (7.2% of oil and gas sales). Increased exploration costs were dry hole costs associated with the drilling of non-productive exploratory wells. This increase was consistent with the increase in the Company's capital expenditures during 2001 over the comparable period in 2000. There is no way to predict these costs from quarter to quarter. As the Company has increased its drilling activity, the risk and incurrance of future dry hole costs will continue. The Company's provision for income taxes increased substantially in the 2001 quarter due to an increase in income before taxes. The provision for income taxes differs from the statutory rate due to benefits from tight gas sands production tax credits and percentage depletion. Earnings benefited from the increase in oil and gas sales revenues, explained above. It currently appears earnings for the remainder of fiscal 2001, will benefit from continuing escalated market prices for natural gas and crude oil. However, should additional exploratory drilling projects result in non-productive wells, thus increasing exploration costs, or the market price of natural gas and or oil decline, expected earnings would be negatively impacted. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORT ON FORM 8-K (a) EXHIBITS - None (b) FORM 8-K - There were no reports on FORM 8-K filed for the three months ended December 31, 2000. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PANHANDLE ROYALTY COMPANY February 6, 2001 /s/ H W PEACE II --------------------- ---------------------------- Date H W Peace II, President and Chief Executive Officer February 6, 2001 /s/ MICHAEL C. COFFMAN --------------------- ---------------------------- Date Michael C. Coffman, Vice President, Chief Financial Officer and Secretary and Treasurer (6)