0000950134-95-001812.txt : 19950810 0000950134-95-001812.hdr.sgml : 19950810 ACCESSION NUMBER: 0000950134-95-001812 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950809 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH TEXAS DRILLING & EXPLORATION INC CENTRAL INDEX KEY: 0000320575 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 742088619 STATE OF INCORPORATION: TX FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-70145 FILM NUMBER: 95560210 BUSINESS ADDRESS: STREET 1: 9310 BROADWAY BLDG I CITY: SAN ANTONIO STATE: TX ZIP: 78217 BUSINESS PHONE: 5128287689 FORMER COMPANY: FORMER CONFORMED NAME: SOUTH TEXAS DRILLING CO DATE OF NAME CHANGE: 19810715 10-Q 1 FORM 10-Q PERIOD END JUNE 30, 1995 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR / / Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from N/A to ------------------- -------------------- Commission File Number 2-70145 SOUTH TEXAS DRILLING & EXPLORATION, INC. (Exact name of registrant as specified in its charter) TEXAS 74-2088619 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 9310 Broadway, Bldg. 1, San Antonio, Texas 78217 (Address of principal executive offices) (Zip Code) 210-828-7689 (Registrant's telephone number, including area code) --------------------------------------------------------------------------- (Former name, address and former fiscal year, if changed since last report) 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 Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. N/A Yes No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 4, 1995 ----- ----------------------------- Common Stock, $.10 par value 5,458,000
2 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets
June 30, March 31, ASSETS 1995 1995 ---- ---- Current Assets: Cash $ 39,382 221,816 Receivables 1,039,104 208,988 Contract drilling in progress 319,414 437,563 Prepaid expenses 76,126 60,006 ------------ ----------- Total current assets 1,474,026 928,373 ------------ ----------- Property and equipment 10,759,900 10,266,040 Accumulated depreciation, depletion and amortization 7,895,535 7,751,704 ------------ ----------- Net property and equipment 2,864,545 2,514,336 ------------ ----------- Note receivable 28,832 30,549 ------------ ----------- Total assets 4,367,403 3,473,258 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments, long-term debt 785,172 624,841 Accounts payable 1,279,290 763,591 Accrued expenses 135,546 198,340 ------------ ----------- Total current liabilities 2,200,008 1,586,772 Long term debt 310,600 87,623 Minority interest 257,434 258,024 ------------ ----------- Total liabilities 2,768,042 1,932,419 ------------ ----------- Shareholders' equity: Preferred stock, noncumulative, $1.00 par value. Authorized 1,000,000 shares; issued and outstanding 235,000 shares at June 30, and March 31, 1995. 235,000 235,000 Common stock, $0.10 par value. Authorized 10,000,000 shares; issued and outstanding 5,408,000 at June 30 and March 31, 1995. 540,800 540,800 Additional paid-in capital 15,854,757 15,854,757 Retained earnings (deficit) (15,031,196) (15,089,718) ------------ ----------- Total shareholders' equity 1,599,361 1,540,839 ------------ ----------- Total Liabilities and shareholders equity $ 4,367,403 3,473,258 ============ ===========
See accompanying notes to condensed consolidated financial statements 2 3 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, --------------------- 1995 1994 ---- ---- Revenues: Contract drilling $2,017,243 1,035,922 Oil & gas 135,366 118,923 Management fees and others 22,569 4,252 ---------- --------- Total operating revenues 2,175,178 1,159,097 ---------- --------- Costs and expenses: Contract drilling 1,804,136 917,850 Oil and gas 35,479 37,157 Depreciation, depletion and amortization 139,702 99,525 General and administrative 121,071 105,876 ---------- --------- Total Operating Costs & Expenses 2,100,388 1,160,408 ---------- --------- Earnings (loss) from operations 74,790 (1,311) ---------- --------- Other income (expense): Interest expense (25,330) (17,325) Interest income 1,389 1,925 Gain on sale of assets 24,000 32,557 Minority interest in earnings of partnership (16,327) - ---------- --------- Total other income (expense) (16,268) 17,157 ---------- --------- Earnings before income taxes and extraordinary item 58,522 15,846 Income taxes - - ---------- --------- Earnings before extraordinary item 58,522 15,846 Extraordinary item - - ---------- --------- Net earnings $ 58,522 15,846 ========== ========= Net earnings per common and common equivalent share: Earnings before extra- ordinary item $ 0.01 0.00 Extraordinary item 0.00 0.00 ---------- --------- Net earnings $ 0.01 0.00 ========== ========= Weighted average number of shares 5,408,000 5,120,667 ========== =========
NOTE: At June 30, 1995 the Company has a remaining net operating loss carryforward of approximately $16,160,000 and investment credit carryforward of approximately $789,000. See accompanying notes to condensed consolidated financial statements 3 4 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months Ended June 30, -------------------- 1995 1994 ---- ---- Cash flows from operating activities: Net earnings $ 58,522 15,846 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation, depletion, amortization 139,702 99,525 Stock issued to directors as compensation - 5,740 Gain on sale of assets (24,000) (32,557) Minority interest in equity of partnership 16,327 - Changes in current assets and liabilities: Accounts and notes receivable (828,398) 261,054 Contract drilling in progress 118,148 (152,846) Prepaid expenses (16,120) (26,105) Accounts payable 515,699 (281,113) Prepaid drilling contracts - - Accrued expenses (62,794) 4,697 --------- -------- Net cash provided (used) by operations (82,914) (105,759) --------- -------- Cash flows from financing activities: Payments of debt (429,416) (216,867) Proceeds from notes payable 812,724 50,000 --------- -------- Net cash provided (used) in financing activities 383,308 (166,867) --------- -------- Cash flows from investing activities: Purchase of property and equipment (506,828) (136,774) Proceeds from sale of equipment 24,000 32,557 --------- -------- Net cash used in investing activities (482,828) (104,217) --------- -------- Net increase (decrease) in cash (182,434) (376,843) Beginning cash and cash equivalents 221,816 788,172 --------- -------- Ending cash and cash equivalents $ 39,382 411,329 ========= ========
See accompanying notes to condensed consolidated financial statements 4 5 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The condensed consolidated financial statements include the accounts of South Texas Drilling & Exploration, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 2. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. 3. The Company uses the asset and liability method of Statement 109 for accounting for income taxes. Pursuant to this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 4. The Company has determined the cumulative effect of the change to Statement 109 in accounting for income taxes is insignificant as the deferred tax liabilities generated by temporary differences are completely offset by deferred tax benefits generated by temporary differences and available net operating loss carryforwards. Additionally, the net deferred tax benefits resulting from the excess of net operating loss carryforwards over the net deferred tax liability will not be recorded due to uncertainties relating to the Company's ability to generate sufficient future taxable income before the expiration of the net operating loss carryforwards. At April 1, 1995, the Company had investment tax credit carryforwards for Federal income tax purposes of approximately $789,000 (expiring 1995 through 2007) which are available to reduce future Federal income taxes. In addition, the Company had net operating loss carryforwards of approximately 5 6 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS $16,160,000 (expiring 1998 through 2006) which are also available to reduce future Federal income taxes. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents at June 30, 1995, were $39,382 compared to $221,816 at March 31, 1995. The current ratio at June 30, 1995 was 0.67:1 compared to 0.59:1 at March 31, 1995. Working capital decreased to ($725,982) at June 30, 1995 from ($658,399) at March 31, 1995. Accounts receivable increased to $1,039,104 at June 30, 1995 from $208,988 at March 31, 1995. This increase was the result of increased utilization of four rigs operated at the beginning of the current quarter and the addition of a fifth rig midway through the quarter. During the same quarter a year earlier, the Company operated three rigs. Contract drilling in progress decreased to $319,414 at June 30, 1995 from $437,563 at March 31, 1995. Since March 31, 1995, property and equipment costs increased by $493,860. Of this amount, $443,640 was spent on drilling equipment, $3,759 was spent on investment in oil and gas properties, $41,590 was spent on transportation equipment, and $4,871 was spent on office furniture and equipment. The increase in drilling equipment was primarily the result of the acquisition of a fifth land drilling rig. The purchase of this rig was accomplished through a cash payment of $45,000 and seller financing of $300,000. Current debt obligations in the form of notes payable increased by $160,331 from March 31, 1995 to June 30, 1995. The elements of this increase were the purchase of the rig for a debt of $300,000, purchase of transportation equipment with related debt of $31,575, conversion of a trade vendor's open account to a short term note in the amount of $94,393, the borrowing of $106,641 for the cost of drilling a well in the last quarter of fiscal 1995 and payments on debt during the quarter. Accounts payable at June 30, 1995 were $1,279,290, an increase of $515,699 from $763,591 at March 31, 1995. This increase in accounts payable resulted from increased drilling activity in the quarter, the granting of extended terms to some drilling customers resulting in slower payment of accounts payable, unusually high repair and maintenance costs on drilling 6 7 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS equipment, and the lingering effects of a $228,000 uncollectible account from one of the Company's drilling customers in fiscal 1995. Accrued expenses decreased to $135,546 at June 30, 1995 from $198,340 at March 31, 1995. RESULTS OF OPERATIONS Contract drilling revenue for the quarter ended June 30, 1995 was $2,017,243 compared to $1,035,922 in the same quarter a year earlier. This increase was due to increased drilling activity, 315 drilling days in the current quarter compared to 177 drilling days in the same quarter in fiscal 1995. During the current quarter, the Company operated five rigs, while in fiscal 1995, the Company operated three rigs. In increasing the number of rigs it operated, the Company increased its utilization rate to 77% in the current quarter from 65% in the same quarter a year earlier. During the current quarter, both contract drilling revenue and the average daily drilling rate increased. In the current quarter, the average daily drilling rate was $6,404.00 compared to $5,853.00 in the corresponding quarter of fiscal 1995. Oil and gas revenue for the quarter ended June 30, 1995 was $135,366, up $16,443 from revenue of $118,923 in the same quarter a year earlier. This increase in revenue was due to higher market prices for oil and lower market prices for gas produced by the Company. In the current quarter, production was the equivalent of 8,066 barrels of oil, while in the same quarter a year earlier production was the equivalent of 6,584 barrels of oil. In the current quarter, the average prices received by the Company were $18.06 per barrel of oil and $1.76 per mcf of gas. In the same quarter in fiscal 1995, the Company received $16.89 per barrel of oil and $1.97 per mcf of gas. Total operating costs and expenses for the quarter ended June 30, 1995 were $2,100,388, up $939,980 or 81%, from operating costs and expenses of $1,160,408 in the same quarter a year earlier. When compared with the same quarter a year earlier, contract drilling costs increased $886,286 in the quarter ended June 30, 1995. This increase was the result of a 78% increase in the number of drilling days. Oil and gas costs and expenses were $35,479 in the quarter ended June 30, 1995 compared with $37,157 in the same quarter a year earlier. Depreciation, depletion and amortization costs increased to $139,702 in the quarter ended June 30, 1995 from $99,525 in the quarter ended June 30, 1994. The reasons for this increase were an increase in depletion expense resulting from a higher estimated depletion cost per unit 7 8 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES in effect for the current quarter when compared with the estimated depletion cost per unit in effect for the same quarter a year earlier and an increase in depreciation expense resulting from the addition of equipment since June 30, 1994. General and administrative expenses increased to $121,071 in the current quarter from $105,876 in the same quarter a year earlier. This increase was the result primarily of increased legal and professional fees incurred in evaluating investment prospects, defending lawsuits and attempting to find alternative sources of financing. Other income and expense decreased to ($16,268) in the current quarter from $17,157 in the same quarter a year earlier. The reasons for this decrease were an increase in interest expense, a decrease in the amount of obsolete and excess equipment sold and the elimination of the minority interest in the earnings of the partnership. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a defendant in several personal injury lawsuits of a type which the Company considers routine for the contract drilling industry. These lawsuits arose out of injuries to personnel under lease from third party employee leasing companies. These lawsuits are being defended either by the Company's general liability insurance carrier under what the Company considers to be adequate coverage, or pursuant to an Indemnity Agreement between the Company and the employee leasing company which employed the Plaintiff. The Company believes that the employee leasing company has adequate insurance coverage to cover those claims. The following lawsuits have been settled as described below since the close of the Company's fiscal year on March 31, 1995: 1. JOSE C. RODRIGUEZ AND MARGARITA RODRIGUEZ VS. EMPLOYER'S SELECT MANAGEMENT, INC. AND SOUTH TEXAS DRILLING & EXPLORATION, INC., Cause No. 93-CI-05512, 150th District Court, Bexar County, Texas. Personal injury by employee of Employer Select Management, Inc. South Texas Drilling was defended by the Company's automobile liability insurer under a reservation of rights letter. This case was tried in May, 1995, under a partial settlement agreement and release between the Plaintiffs and the Company under which the Company's liability was limited by 8 9 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES agreement to $200,000, payable in eleven (11) quarterly payments of $15,000 each and a final quarterly payment totaling $35,000, payments to commence within thirty (30) days of the entry of judgment. Under the terms of the agreement, to the extent the amount of any judgment is collected from the Company's automobile insurer, the $200,000 payable by the Company shall be reduced. Although no final written judgment has been entered, the Court has issued findings of fact and conclusions of law after a non- jury trial which the Company anticipates will result in a judgment in the approximate amount of $380,000. The findings of fact include a finding that the plaintiff was the employee of the company's employee leasing company and merely an invitee of the Company at the time of his injuries. The Company's insurer has taken the position that the plaintiff was an employee of the company at the time the injuries complained occurred and that the insurer is not liable for the amount of the judgment as the result of an employee exclusion in its policy. The Company believes that the facts support the finding of the court with regard to the employee status of the plaintiff and anticipates that the judgment will be payable by the company's automobile liability insurer. The insurer has brought a declaratory judgment action against the company and the Plaintiff in order to establish that the damages found are not covered by the Company's policy with the insurer. Whether or not the insurer prevails, the Company's liability is limited to the above-described payment of $200,000 over a three-year period. 2. JUAN JULIAN PESQUEDA AND YSABEL R. PESQUEDA V. EMPLOYER'S SELECT MANAGEMENT, INC. AND SOUTH TEXAS DRILLING & EXPLORATION, INC., Cause No. 93-CI-12195, 285th District Court, Bexar County, Texas. This case has been settled for $100,000 with the Company contributing approximately $12,000 as the result of a $5,000 deductible and $7,000 payable in lieu of an insolvent Lloyds underwriter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. Exhibit 27 Financial Data Schedule (b) REPORTS ON FORM 8-K. None. 9 10 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES 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. SOUTH TEXAS DRILLING & EXPLORATION, INC. /s/ Robert R. Marmor ---------------------------------------- Robert R. Marmor Chairman of the Board Dated: August 4, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/Robert R. Marmor Chairman of the August 4, 1995 -------------------- Board Robert R. Marmor /s/Wm. Stacy Locke President and Chief August 4, 1995 -------------------- Executive Officer Wm. Stacy Locke /s/Chris F. Parma Controller August 4, 1995 -------------------- Chris F. Parma
10 11 INDEX TO EXHIBITS Exhibit 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 0000320575 SOUTH TEXAS DRILLING & EXPLORATION, INC. 1 U.S. DOLLARS 3-MOS MAR-31-1996 APR-01-1995 JUN-30-1995 1 39,382 0 1,039,104 0 0 1,474,026 10,759,900 7,895,535 4,367,403 2,200,008 0 540,800 0 235,000 0 4,367,403 135,366 2,175,178 35,479 2,100,388 (16,268) 0 0 58,522 0 0 0 0 0 58,522 .01 .01