-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IrW9Ken2bauqkP8rt8aDv9uUaZBRlo5RSDA6so/T/5HIdQuRjV2AKNCgJraKVrL+ 2gLO9If9RuQnRanrz4ozgQ== 0000950134-97-001024.txt : 19970222 0000950134-97-001024.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950134-97-001024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 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: 97532782 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 FOR QUARTER ENDED DECEMBER 31, 1996 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 December 31, 1996 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. I, 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 February 12, 1997 ----- -------------------------------- Common Stock, $.10 par value 5,315,566
2 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets
December 31, March 31, ASSETS 1996 1996 ------ ------------ ----------- Current Assets: Cash $ 183,277 325,568 Receivables 1,288,091 541,319 Contract drilling in progress 211,908 234,527 Prepaid expenses 224,533 48,016 ------------ ----------- Total current assets 1,907,809 1,149,430 ------------ ----------- Property and equipment 10,761,237 11,110,070 Accumulated depreciation, depletion and amortization 7,483,056 8,001,254 ------------ ----------- Net property and equipment 3,278,181 3,108,816 ------------ ----------- Investment in notes receivable 25,456 27,404 ------------ ----------- Total assets 5,211,446 4,285,650 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Short-term debt - 200,000 Current installments, long-term debt 301,825 467,416 Accounts payable 1,502,253 1,255,505 Prepaid drilling contracts 132,900 99,000 Accrued expenses 200,814 232,337 ------------ ----------- Total current liabilities 2,137,792 2,254,258 Long term debt 1,393,159 553,916 Minority interest - - ------------ ----------- Total liabilities 3,530,951 2,808,174 ------------ ----------- Shareholders' equity: Preferred stock, noncumulative, $1.00 par value. Authorized 1,000,000 shares; issued and out- standing 235,000 shares at December 31, and March 31, 1996. 235,000 235,000 Common stock, $0.10 par value. Authorized 15,000,000 shares; issued and out- standing 5,655,333 at December 31 and 5,601,000 at March 31, 1996. 565,533 560,100 Additional paid-in capital 15,914,169 15,899,227 Retained earnings (deficit) (14,897,302) (15,086,946) ------------ ----------- 1,817,400 1,607,381 Less Treasury stock, at cost, 339,767 shares 136,905 129,905 ------------ ----------- Total shareholders' equity 1,680,495 1,477,476 ------------ ----------- Total Liabilities and shareholders equity $ 5,211,446 4,285,650 ============ ===========
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 Nine Months Ended December 31, December 31, ------------------------- -------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Contract Drilling 1,911,088 1,847,471 5,917,026 5,190,226 Oil and gas 109,098 109,928 308,291 367,980 Management fees and other 36,394 (701) 108,697 27,761 --------- --------- --------- --------- Total operating revenues 2,056,580 1,956,698 6,334,014 5,585,967 Costs and expenses: Contract drilling 1,615,406 1,429,620 5,000,614 4,488,045 Oil and gas 49,643 48,039 132,404 125,477 . Depreciation, depletion and amortization 160,481 146,658 464,212 436,649 General and administrative 132,404 117,739 408,737 387,362 Doubtful accounts 25,250 - 25,250 - --------- --------- --------- --------- Total operating costs and expenses 1,983,184 1,742,056 6,031,217 5,437,533 --------- --------- --------- --------- Earnings from operations 73,396 214,642 302,797 148,434 --------- --------- --------- --------- Other income (expense): Interest expense (44,934) (29,666) (131,253) (82,920) Interest income 5,149 1,448 11,237 3,473 Gain on sale of assets - 141,423 6,862 165,406 Minority interest in earnings of partnership - (15,408) - 16,592 --------- --------- --------- --------- Total other income (expense) (39,785) 97,797 (113,154) 102,551 --------- --------- --------- --------- Earnings before income taxes 33,611 312,439 189,643 250,985 Income taxes - - - - --------- --------- --------- --------- Net earnings 33,611 312,439 189,643 250,985 ========= ========= ========= ========= Net earnings per common and common equivalent share 0.01 0.05 0.03 0.04 ========= ========= ========= ========= Weighted average number of shares 5,469,284 5,534,333 5,472,861 5,441,693 ========= ========= ========= =========
NOTE: At December 31, 1996 the Company has a remaining net operating loss carryforward of approximately $15,820,000 and investment credit carryforward of approximately $671,000. See accompanying notes to condensed consolidated financial statements 3 4 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended December 31, ------------------------ 1996 1995 ---- ---- Cash flows from operating activities: Net earnings $ 189,643 250,985 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation, depletion, amortization 464,212 436,649 Provision for doubtful accounts 25,250 - Stock issued to directors as compensation - 13,340 Gain on sale of assets (6,862) (165,407) Minority interest in equity of partnership - (16,591) Changes in current assets and liabilities: Accounts and note receivable (770,073) (994,785) Contract drilling in progress 22,619 437,563 Prepaid expenses (176,517) 29,737 Accounts payable 246,748 518,382 Prepaid drilling contracts 33,900 113,700 Accrued expenses (31,523) (77,751) ------------ ---------- Net cash provided (used) by operations (2,603) 545,822 ------------ ---------- Cash flows from financing activities: Payments of debt (1,110,071) (1,171,229) Proceeds from notes payable 1,603,724 1,621,644 Purchase of treasury stock (7,000) - Proceeds from exercise of warrants and options 375 47,300 ------------ ---------- Net cash provided by financing activities 487,028 497,715 ------------ ---------- Cash flows from investing activities: Purchase of property and equipment (634,698) (1,063,494) Proceeds from sale of equipment 7,982 42,837 ------------ ---------- Net cash (used) in investing activities (626,716) (1,020,657) ------------ ---------- Net increase (decrease) in cash (142,291) 22,880 Beginning cash and cash equivalents 325,568 221,816 ------------ ---------- Ending cash and cash equivalents $ 183,277 244,696 ============ ========== Supplementary Disclosure: Accrued officer's compensation paid through the issuance of 53,333 shares of common stock $20,000 -
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. At April 1, 1996, the Company had investment tax credit carryforwards for Federal income tax purposes of approximately $671,000 (expiring 1996 through 2007) which are available to reduce future Federal income taxes. In addition, the Company had net operating loss carryforwards of approximately $15,820,000 (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 December 31, 1996, were $183,277 compared to $325,568 at March 31, 1996. The current ratio at December 31, 1996 was 0.89:1 compared to 0.51:1 at March 31, 1996. Working capital increased to ($229,983) at December 31, 1996 from ($1,104,828) at March 31, 1996. One of the main elements in this improvement in the Company's working capital position was a restructuring of its debt which took place in the first quarter of fiscal 1997. Accounts receivable increased to $1,288,091 at December 31, 1996 from $541,319 at March 31, 1996. This increase was the result of increased drilling activity and the completion of contracts near the end of the current period. Included in accounts receivable at both December 31 and March 31, 1996 is an account for which a reserve for doubtful accounts was established in March, 1996 for one-half of the account balance. A court hearing on the account is scheduled for April, 1997. Contract drilling in progress decreased to $211,908 at December 31, 1996 from $234,527 at March 31, 1996. Prepaid expenses increased to $224,533 at December 31, 1996 from $48,016 at March 31, 1996. This increase was the result of the purchase of drilling supplies which will be used in future periods and the fees associated with the debt refinancing which are being amortized over the term of the financing. Since March 31, 1996, property and equipment costs decreased by $348,833. This decrease was the result of a write off of $954,926 in fully depreciated drilling equipment, a reduction of $32,104 resulting from the trade in of transportation equipment, a reduction of $3,108 resulting from the salvage of oil and gas equipment and the expenditure of $641,305 for additional property and equipment. Of this amount, $599,333 was spent on drilling equipment, $34,099 was spent on transportation equipment, $4,364 was spent on building improvements, 5 6 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS $2,700 was spent on investment in oil and gas properties and $809 was spent on furniture and fixtures. The primary element in the increase in drilling equipment was the expenditure of $330,879 for the acquisition of drill pipe. Debt obligations in the form of notes payable, both short term and long term, increased by $673,652 from March 31, 1996 to December 31, 1996. The primary element of this increase was a restructuring of the Company's credit facility. Through the restructuring, the Company acquired a $500,000 revolving line of credit secured by the Company's accounts receivable and a $1,250,000 term loan which was used to pay off most of the Company's debt on drilling equipment, provide capital for additional equipment purchases and reduce the Company's accounts payable. The term loan is secured by the Company's drilling equipment, transportation equipment, furniture and fixtures and the yard facility in Kenedy, Texas. The revolving line of credit carries an interest rate of prime (8.25% at December 31, 1996) plus 2.75% with interest payable monthly. The term loan carries an interest rate of prime plus 3.0% with monthly payments based on a seven year amortization. Through the restructuring, the Company was able to reduce its working capital deficit and to increase its current ratio. Accounts payable at December 31, 1996 were $1,502,253, an increase of $246,748 from $1,255,505 at March 31, 1996. One reason for this increase is the effect on cash flow of the uncollected account receivable discussed above. Accrued expenses decreased to $200,814 at December 31, 1996 from $232,337 at March 31, 1996. Results of Operations Contract drilling revenue for the quarter ended December 31, 1996 was $1,911,088 compared to $1,847,471 in the same quarter a year earlier. Oil and gas revenue decreased to $109,098 in the current quarter from $109,928 in the same quarter of the prior year. Earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) was $233,877 in the current quarter compared to $361,300 in the same quarter a year earlier and $767,009 for nine months ended December 31, 1996 compared to $585,083 for nine months ended December 31, 1995. The increase in drilling revenue was due to increased drilling activity, 296 days in the current quarter compared to 285 drilling days in the same quarter a year earlier. Rig utilization increased to 80% in the current quarter from 63% in the same quarter in fiscal 1996. During the current quarter, the Company operated four drilling rigs, while in fiscal 1996, the Company operated five rigs. The slight decrease in oil and gas revenue in the current quarter was due to lower production of both oil and gas. In the current quarter, production was the equivalent of 5,176 barrels of oil, while in the same quarter a year earlier production was the equivalent of 6,339 barrels of oil. However, an increase in the average prices of both oil and gas helped reduce the effect of the lower production. In the current quarter, the average prices received by the Company were $23.97 per barrel of oil and $3.02 per mcf of gas. In the same quarter in fiscal 1996, the Company received $17.10 per barrel of oil and $1.85 per mcf of gas. Total operating costs and expenses for the quarter ended December 31, 1996 were $1,983,184, up $241,128, from operating costs and expenses of $1,742,056 in the same quarter a year earlier. When compared with the same quarter a year earlier, contract drilling costs increased $185,786 in the quarter ended December 31, 1996. The Company's average daily drilling margin (drilling revenue less drilling costs) decreased to $999 per day in the current quarter from $1,466 per day in the same quarter in fiscal 1996. The average daily drilling margin decreased in the current quarter due to increased drilling costs and higher contract move costs. Oil and gas costs and expenses were $49,643 in the quarter ended December 31, 1996 compared with $48,039 in the same quarter 6 7 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS a year earlier. Depreciation, depletion and amortization costs increased to $160,481 in the quarter ended December 31, 1996 from $146,658 in the quarter ended December 31, 1995. The reason for this increase was an increase in depreciation expense resulting from the addition of equipment since December 31, 1995. General and administrative expenses increased to $132,404 in the current quarter from $117,739 in the same quarter a year earlier. Other income and expense decreased to ($39,785) in the current quarter from $97,797 in the same quarter a year earlier. The primary reason for this decrease was the sale of a one-half interest in a drilling rig which occurred in fiscal 1996 while there was no such activity in fiscal 1997. In addition, in fiscal 1997 the minority interest in the losses of a partnership was eliminated. The partnership, a drilling partnership, was in operation in fiscal 1996. However, operations were terminated in December, 1995, and the partnership was dissolved in January, 1996. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 8, 1996, the Judge of the United States District Court for the Western District of Texas, San Antonio Division, entered his decision in Civil Action No. SA-95-CA-0736, Empire Fire and Marine Insurance Co. vs. South Texas Drilling & Exploration, Inc. et al. This action was brought against the Company by its automobile liability insurance carrier who denied coverage in a personal injury case. The judge held that the injured party was not an employee of the Company and thus the insurance company had a contractual duty under the policy to indemnify its insured, the Company. Under this decision, the Company would have no further obligation to pay the injured party the remaining $125,000 awarded him and the Company would recoup the $75,000 already paid to the injured party. On September 9, 1996, the Empire Fire and Marine Insurance Company filed an appeal with the United States Court of Appeals for the Fifth Circuit. On September 20, 1996, the Company filed a cross- appeal in the case. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) Reports on Form 8-K. None. 7 8 SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: February 12, 1997 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 Board February 12, 1997 - ------------------------------- Robert R. Marmor /s/Wm Stacy Locke President and Chief February 12, 1997 - ------------------------------- Executive Officer Wm. Stacy Locke /s/Chris F. Parma Vice President and Chief February 12, 1997 - -------------------------------- Financial Officer Chris F. Parma
8 9 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 - Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 0000320575 SOUTH TEXAS DRILLING AND EXPLORATION, INC. 9-MOS MAR-31-1997 APR-1-1996 DEC-31-1996 183,277 0 1,499,999 0 0 1,907,809 10,761,237 7,483,056 5,211,446 2,137,792 0 0 235,000 565,533 879,962 5,211,446 308,291 6,334,014 132,404 6,031,217 113,154 0 0 189,643 0 0 0 0 0 189,643 .03 .03
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