10-Q 1 poc10qa.txt PYRAMID OIL COMPANY FORM 10Q MARCH 31, 2009 1 UNITED STATES 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 March 31, 2009 OR / / 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 0-5525 PYRAMID OIL COMPANY (Exact name of registrant as specified in its charter) CALIFORNIA 94-0787340 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2008 - 21ST. STREET, BAKERSFIELD, CALIFORNIA 93301 (Address of principal executive offices) (Zip Code) (661) 325-1000 (Registrant's telephone number, including area code) 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 [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. (Class) (Outstanding at March 31,2009) COMMON STOCK WITHOUT PAR VALUE 4,677,728 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements PYRAMID OIL COMPANY BALANCE SHEETS ASSETS
March 31, December 31, 2009 2008 (Unaudited) (Audited) ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 959,369 $ 1,793,563 Short-term investments 3,309,269 2,789,099 Trade accounts receivable 299,417 213,588 Income taxes receivable 25,555 -- Crude oil inventory 69,831 82,025 Deferred income taxes 112,000 108,000 Prepaid expenses and other assets 158,164 186,353 ------------ ------------ TOTAL CURRENT ASSETS 4,933,605 5,172,628 ------------ ------------ PROPERTY AND EQUIPMENT, at cost Oil and gas properties and equipment (successful efforts method) 15,845,056 15,755,472 Capitalized asset retirement costs 382,550 382,550 Drilling and operating equipment 2,109,993 2,109,993 Land, buildings and improvements 1,065,371 1,065,371 Automotive, office and other property and equipment 1,162,324 1,162,324 ------------ ------------ 20,565,294 20,475,710 Less: accumulated depletion, depreciation, amortization and valuation allowance (16,305,471) (16,147,157) ------------ ------------ 4,259,823 4,328,553 ------------ ------------ OTHER ASSETS Deposits 250,000 250,000 Deferred income taxes 402,245 509,245 Other assets 17,013 17,013 ------------ ------------ $9,862,686 $10,277,439 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
3 PYRAMID OIL COMPANY BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31, 2009 2008 (Unaudited) (Audited) ------------ ------------ CURRENT LIABILITIES: Accounts payable $ 67,282 $ 40,820 Accrued professional fees 101,519 130,261 Accrued taxes, other than income taxes 81,067 76,222 Accrued payroll and related costs 69,185 50,451 Accrued royalties payable 144,088 132,472 Accrued insurance 40,480 59,096 Accrued income taxes -- 239,815 Current maturities of long-term debt 24,135 23,901 ------------ ------------ TOTAL CURRENT LIABILITIES 527,756 753,038 ------------ ------------ LONG-TERM DEBT, net of current maturities 14,518 20,640 ------------ ------------ LIABILITY FOR ASSET RETIREMENT OBLIGATION 1,157,572 1,151,706 ------------ ------------ COMMITMENTS (note 5) STOCKHOLDERS' EQUITY: Preferred stock - no par value; 10,000,000 authorized shares; no shares issued or outstanding -- -- Common stock - no par value; 50,000,000 authorized shares; 4,677,728 shares issued and outstanding 1,306,010 1,306,010 Retained earnings 6,856,830 7,046,045 ------------ ------------ 8,162,840 8,352,055 ------------ ------------ $9,862,686 $10,277,439 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
4 PYRAMID OIL COMPANY STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended March 31,
--------------------------- 2009 2008 ------------ ------------ REVENUES $594,045 $1,589,896 ------------ ------------ COSTS AND EXPENSES: Operating expenses 351,350 422,806 Exploration costs -- (28,812) General and administrative 225,304 232,512 Taxes, other than income and payroll taxes 48,298 35,510 Provision for depletion, depreciation and amortization 158,314 162,820 Accretion expense 5,866 5,810 Other costs and expenses 24,171 19,552 ------------ ------------ 813,303 850,198 ------------ ------------ OPERATING INCOME (LOSS) (219,258) 739,698 ------------ ------------ OTHER INCOME (EXPENSE): Interest income 26,475 22,077 Other income 3,600 9,662 Interest expense (415) (641) ------------ ------------ 29,660 31,098 ------------ ------------ INCOME BEFORE INCOME TAX PROVISION (BENEFIT) (189,598) 770,796 Income taxes Current (103,383) 91,625 Deferred 103,000 (155,100) ----------- ------------ ( 383) ( 63,475) ------------ ------------ NET INCOME (LOSS) $(189,215) $834,271 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
5 PYRAMID OIL COMPANY STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended March 31,
--------------------------- 2009 2008 ------------ ------------ EARNINGS PER COMMON SHARE Basic Income (Loss) Per Common Share $(0.04) $ 0.18 ============ ============ Diluted Income (Loss) Per Common Share $(0.04) $ 0.18 ============ ============ Weighted average number of common shares outstanding 4,677,728 4,677,728 ============ ============ Diluted average number of common shares outstanding 4,677,728 4,677,728 ============ ============ The Accompanying Notes are an Integral Part of These Financial Statements.
6 PYRAMID OIL COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended March 31, 2009 2008 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(189,215) $ 834,271 Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Provision for depletion, depreciation and amortization 158,314 162,820 Accretion expense 5,866 5,810 Exploration costs -- (28,812) Severance award agreement -- (1,600) Deferred taxes 103,000 (155,100) Changes in assets and liabilities: Increase in trade accounts, interest and income taxes receivable (111,384) (241,855) Decrease (increase) in crude oil inventories 12,194 ( 9,487) Decrease in prepaid expenses 28,489 31,189 (Decrease) increase in accounts payable and accrued liabilities (225,516) 363,594 --------- --------- Net cash (used in) provided by operating activities (218,252) 960,830 --------- --------- The Accompanying Notes are an Integral Part of These Financial Statements.
7 PYRAMID OIL COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended March 31, 2009 2008 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures $( 89,584) $ (720,987) Purchase of short-term investments (500,000) -- Increase in short-term investments (20,170) (13,289) ---------- ---------- Net cash used in investing activities (609,754) (734,276) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt ( 5,888) ( 6,957) Loans to employees ( 500) ( 1,500) Principal payments from loans to employees 200 300 ---------- --------- Net cash used in financing activities (6,188) ( 8,157) ---------- --------- Net (decrease) increase in cash (834,194) 218,397 Cash at beginning of period 1,793,563 618,448 ---------- ---------- Cash at end of period $ 959,369 $ 836,845 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the three months for interest $ 415 $ 641 ========= ========== Cash paid during the three months for income taxes $ 161,987 $ 144,687 ========= ========== The Accompanying Notes are an Integral Part of These Financial Statements.
8 PYRAMID OIL COMPANY NOTES TO FINANCIAL STATEMENTS MARCH 31, 2009 (UNAUDITED) 1. Summary of Significant Accounting Policies The financial statements include the accounts of Pyramid Oil Company (the Company). Such financial statements included herein have been prepared by the Company, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. A summary of the Company's significant accounting policies is contained in its December 31, 2008 Form 10-K which is incorporated herein by reference. The financial data presented herein should be read in conjunction with the Company's December 31, 2008 financial statements and notes thereto, contained in the Company's Form 10-K. In the opinion of the Company, the unaudited financial statements, contained herein, include all adjustments necessary to present fairly the Company's financial position as of March 31, 2009 and the results of its operations and its cash flows for the three month periods ended March 31, 2009 and 2008. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year. Income taxes: When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. 9 2. Impact of Recent Accounting Pronouncements In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles to be used in the preparation of financial statements of non- governmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. This Statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company currently adheres to the hierarchy of GAAP as presented in SFAS No. 162, and does not expect its adoption will have a material impact on its results of operations and financial condition. In December 2007, the FASB issued SFAS No. 141(R) (Revised 2007), Business Combinations. The objective of SFAS No. 141(R) is to improve reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable and relevant information for investors and other users of financial statements. SFAS No. 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141(R) includes both core principles and pertinent application guidance, eliminating the need for numerous Emerging Issues Task Force (EITF) issues and other interpretative guidance, thereby reducing the complexity of existing United States GAAP. SFAS No. 141(R) is effective as of the start of fiscal years beginning after December 15, 2008. Early adoption is not allowed. The Company has adopted SFAS no. 141(R) but the impact will not be known until there is a business acquisition. In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements. SFAS No. 160 improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report non-controlling (minority) interests in subsidiaries in the same way as equity in the consolidated financial statements. Moreover, SFAS No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. SFAS No. 160 is effective as of the start of fiscal years beginning after December 15, 2008. Early adoption is not allowed. The Company has adopted SFAS No. 160 and does not expect its adoption will have a material impact on its results of operations and financial condition. 3. Dividends No cash dividends were paid during the three months ended March 31, 2009 and 2008. 10 4. Income Taxes The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result of the implementation of FIN 48, the company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48. As a result of the implementation of Interpretation 48, the Company recognized no material adjustments to liabilities or stockholders equity. The Company files income tax returns in the U.S. federal jurisdiction, California and New York states. With few exceptions, the Company is no longer subject to U.S. federal tax examination for the years before 2005. State jurisdictions that remain subject to examination range from 2004 to 2008. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the quarter. 5. Commitments In February 2002, the Company entered into an employment agreement with John H. Alexander pursuant to which Mr. Alexander agreed to serve as the Company's Vice President. On June 3, 2004, Mr. Alexander was appointed as the Company's President and Chief Executive Officer. The employment agreement is for an initial term of six years, which term automatically renews annually if written notice is not tendered. Pursuant to the employment agreement, the Company may terminate Mr. Alexander's employment with or without cause at any time before its term expires upon providing written notice. In the event the Company terminates Mr. Alexander's employment without cause, Mr. Alexander would be entitled to receive a severance amount equal to his annual base salary and benefits for the balance of the term of his employment agreement. In the event of termination by reason of Mr. Alexander's death or permanent disability, his legal representative will be entitled to receive his annual salary and benefits for the remaining term of his employment agreement. In the event of, or termination following, a change in control of the Company, as defined in the agreement, Mr. Alexander would be entitled to receive his annual salary and benefits for the remainder of the term of his agreement. In the event that Mr. Alexander is terminated the Company would incur approximately $600,000 in costs. 11 6. Income Tax Provision The Company recognized a net income tax benefit of $383 for the first quarter of 2009 compared to income tax benefit of $63,475 for the same period in 2008. Income tax benefits were realized by the Company in the first quarter of 2009, due primarily to net operating loss carrybacks. Income tax benefits were realized by the Company in the first quarter of 2008, due to the utilization of statutory depletion allowance carryovers that became available to the Company as a result of significant market increases in the price of oil. Income tax benefits were realized as a result of adjustments to the Company's deferred tax asset valuation allowance account. Net income tax benefit for the first quarter of 2009 was calculated as follows: Federal State Total -------- --------- -------- Current tax benefit $( 89,000) $ (14,383) $(103,383) Deferred tax provision 88,000 15,000 103,000 ------- ------- ------- $( 1,000) $ 617 $( 383) ======= ====== ======= Deferred income taxes are recognized using the asset and liability method by applying income tax rates to cumulative temporary differences based on when and how they are expected to affect the tax returns. Deferred tax assets and liabilities are adjusted for income tax rate changes. Deferred income tax assets have been offset by a valuation allowance of $1,762,000 as of March 31, 2009. Management reviews deferred income taxes regularly throughout the year, and accordingly makes any necessary adjustments to properly reflect the valuation allowance based upon current financial trends and projected results. 7. Severance Award Agreements On January 9, 2007, the Company and John Alexander entered into a Severance Award Agreement pursuant to which the Company awarded Mr. Alexander a supplemental payment in connection with his future severance of employment with the Company and recorded a liability for share-based compensation of $65,400. Mr. Alexander serves as the Company's Chief Executive Officer. Pursuant to the Severance Award Agreement and following the termination of Mr. Alexander's employment, he will be entitled to receive (at the Company's option) 25,000 shares of the Company's common stock or the then-fair market value of the shares. The Company intends to deliver the Company's common shares for the Severance Award; therefore, in accordance with SFAS 123(R), management has classified the liability for share-based compensation to stockholders' equity during the year ended December 31, 2008. On December 30, 2008, the Company and John Alexander entered into a Severance Award Agreement pursuant to which the Company awarded Mr. Alexander a supplemental payment in connection with his future severance of employment with the Company and recorded an increase to stockholders' equity of $100,000. 12 Pursuant to the Severance Award Agreement and following the termination of Mr. Alexander's employment, he will be entitled to receive (at the Company's option) 25,000 shares of the Company's common stock or the then-fair market value of the shares. As of December 31, 2008, the Company intends to deliver the Company's common shares for the Severance Award; therefore, in accordance with SFAS 123(R), management has classified the share-based compensation as stockholders' equity at December 31, 2008. 8. Incentive and Retention Plan On January 9, 2007, the Company's Board of Directors adopted an Incentive and Retention Plan pursuant to which the Company's officers and other employees selected by the Company's Compensation Committee are entitled to receive payments if they are employed by the Company as of the date of a 'Corporate Transaction,' as defined in the Incentive and Retention Plan. A 'Corporate Transaction' includes certain mergers involving the Company, sales of Company assets, and other changes in the control of the Company, as specified in the Incentive and Retention Plan. In general, the amount that is payable to each plan participant will equal the number of plan units that have been granted to him or her, multiplied by the increase in the value of the Company between January 9, 2007 and the date of a Corporate Transaction. There has been no Corporate Transaction since the adoption of the Incentive and Retention Plan. 9. Related-party Transaction Effective January 1, 1990, John H. Alexander, an officer and director of the Company participated with a group of investors that acquired the mineral and fee interest on one of the Company's oil and gas leases (Santa Fe Energy lease) in the Carneros Creek field after the Company declined to participate. The thirty-three percent interest owned by Mr. Alexander represents a minority interest in the investor group. Royalties on oil and gas production from this property paid to the investor group approximated $36,000 during the first quarter of 2009. 10. Investor Relations Consultants On March 12, 2008, the Company entered into an agreement with Pfeiffer High Investor Relations, Inc. (PHIR) pursuant to which PHIR will serve as an investor relations consultant to the Company. PHIR will receive a monthly fee of $5,000 and will be reimbursed for approved out-of-pocket expenses. The agreement also provides for the payment of a 1.5% finder's fee to PHIR upon the closing of a specified transaction, such as a merger, a sale of assets or a sale of equity securities, if PHIR is responsible for initiating the transaction. The Company and PHIR mutually decided to extend the agreement after its initial six-month term, the Company granted to PHIR's two principals, fully vested warrants to purchase a total of 25,000 shares of the Company's common stock at an exercise price of $3.20 per share. The warrants will have a 13 two-year term, will be assignable and will have piggyback registration rights and cashless exercise provisions. See Note 11. The Company and PHIR verbally agreed to extend the arrangement on a month-to-month basis. Effective April 1, 2009, the Company and PHIR verbally agreed to reduce the monthly fee from $5,000 to $2,500. 11. Warrants Issued Effective, November 13, 2008, the Company's Board of Directors approved the issuance of warrants to Pfeiffer High Investor Relations, Inc. (PHIR). The Company approved the issuance of 25,000 shares of common stock at an exercise price of $3.20 per share. The warrants will have a two-year term, will be assignable and will have piggyback registration rights and cashless exercise provisions. The Company valued the warrants using the Black-Scholes model using inputs of a 2 year expected life, 135% volatility and a 1.19% risk free interest rate. The Company recorded stock based compensation of $69,000 for the period ended December 31, 2008. The Company has adopted SFAS 123(R) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, directors and consultants based on estimated fair values. SFAS 123(R) requires companies to estimate the fair value of the award that is ultimately expected to vest to be recognized as expense. SFAS 123(R) require companies to estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model. The value of the award that is ultimately expected to vest is recognized as expense over the requisite service periods. The Company's determination of fair value of share-based payment awards on the date of grant uses the Black-Scholes model, which is affected by the Company's stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the expected term of the awards, and actual and projected option exercise behaviors. The Company estimated expected volatility using historical data. The fair value of each warrant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: Risk-free interest rate 1.19% Expected term (years) 2.0 Volatility 135% Expected annual dividends - Stock price at November 13, 2008 $3.96 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations IMPACT OF CHANGING PRICES The Company's revenue is affected by crude oil prices paid by the major oil companies. Average crude oil prices for the first quarter of 2009 decreased by approximately 51% ($52.76 per equivalent barrel) when compared with the same period for 2008. During the first quarter of 2009, the Company experienced 60 separate price changes compared with 59 price changes during the same period for 2008. The Company cannot predict the future course of crude oil prices. LIQUIDITY AND CAPITAL RESOURCES Cash decreased by $834,194 for the three months ended March 31, 2009. During the first quarter of 2009, operating activities used cash of $218,252. Additional cash was used for the purchase of short-term investments of $500,000, capital spending of $89,584 and payments on long-term debt of $20,170. See the Statements of Cash Flows for additional detailed information. The Company had available a line of credit of $500,000 and short-term investments of $3,309,269 that provided additional liquidity during the first quarter of 2009. FORWARD LOOKING INFORMATION Looking forward into the balance of fiscal 2009, crude oil prices have increased by $21.30 per barrel. Pyramid remains well positioned to endure the price volatility in the energy markets, as well as uncertainty in the broader economy. At March 31, 2009, the Company had $4.3 million in cash reserves and a negligible level of long- term debt. In light of the declines in oil and gas prices as compared with recent all- time highs, management is continuing to evaluate opportunities to acquire oil and gas assets at more attractive valuations than have been available in recent years. In the Company's Texas natural gas joint venture, the re-entry depth objectives on a previously abandoned well have been reached. The original re- entry program was modified in April 2009 due to well conditions, and a drilling rig was brought in to sidetrack the last 800 feet. The depth objective was reached on May 8, 2009, and casing was subsequently run and cemented. Management believes that within two to three weeks, the well will be perforated, tested and put on production. The Company will issue a news release once this well is on production. PAGE <15> The Company remains focused on operations at its core Carneros Creek field in Kern County, California, and will continue to evaluate the possibility of drilling a previously postponed development well there sometime during the second half of 2009. Management continues to seek and evaluate opportunities within the energy sector to enhance the value of the Company. Pyramid's growth during the balance of 2009 will be highly dependant on the level of success the Company has in its operations and capital investments, including the outcome of wells that have not yet been drilled. The Company's capital investment program may be modified during the year due to exploration and development successes or failures, market conditions and other variables. The production and sales of oil and gas involves many complex processes that are subject to numerous uncertainties, including reservoir risk, mechanical failures, human error and market conditions. The Company has positioned itself, over the past several years, to withstand various types of economic uncertainties, with a program of consolidating operations on certain producing properties and concentrating on properties that provide the major revenue sources. The drilling of a new well and several limited work-overs of certain wells have allowed the Company to maintain its crude oil reserves for the last three years. The Company expects to maintain its reserve base in 2009 by drilling new wells and routine maintenance of its existing wells. The Company may be subject to future costs necessary for compliance with the new implementation of air and water environmental quality requirements of the various state and federal governmental agencies. The requirements and costs are unknown at this time, but management believes that costs could be significant in some cases. As the scope of the requirements become more clearly defined, management may be better equipped to determine the true costs to the Company. The Company continues to absorb the costs for various state and local fees and permits under new environmental programs, the sum of which were not material during 2008. The Company retains outside consultants to assist the Company in maintaining compliance with these regulations. The Company is actively pursuing an ongoing policy of upgrading and restoring older properties to comply with current and proposed environmental regulations. The costs of upgrading and restoring older properties to comply with environmental regulations have not been determined. Management believes that these costs will not have a material adverse effect upon its financial position or results of operations. Portions of the Quarterly Report, including Management's Discussion and Analysis, contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results and performance in future periods to be materially different from any future results or performance suggested in forward-looking statements in this release. Such forward-looking statements speak only as of the date of this PAGE <16> report and the Company expressly disclaims any obligation to update or revise any forward-looking statements found herein to reflect any changes in Company expectations or results or any change in events. Factors that could cause results to differ materially include, but are not limited to: the timing and extent of changes in commodity prices of oil, gas and electricity, environmental risk, drilling and operational costs, uncertainties about estimates of reserves and government regulations. ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2009 COMPARED TO THE QUARTER ENDED MARCH 31, 2008 REVENUES The decrease in revenues of $995,851 is due primarily to lower average prices for the first quarter of 2009. Oil and gas revenues decreased by 63% for the three months ended March 31, 2009 when compared with the same period for 2008. Oil and gas revenues decreased by 51% due to substantially lower average crude oil prices for the first quarter of 2009. The average price of the Company's oil and gas for the first quarter of 2009 decreased by approximately $52.76 per equivalent barrel when compared to the same period of 2008. Revenues also decreased by approximately 12% due to lower crude oil production/sales. The Company's net revenue share of crude oil production decreased by approximately 2,000 barrels for the first three months of 2009. The decrease in crude oil production is primarily the result of the decline in production on the Company's Anderson lease. OPERATING EXPENSES Operating expenses decreased by $71,456 for the first quarter of 2009. Operating expenses decreased by 17% for the first quarter of 2009. The cost to produce an equivalent barrel of crude oil during the first quarter of 2009 was approximately $23.00 per barrel, a decrease of approximately $1.40 per barrel when compared with production costs for the first quarter of 2008. The decrease in lease operating expenses is caused by many factors. These include lower costs for parts and supplies, equipment fuel, pump repairs and production equipment repair and maintenance. Parts and supplies as a component of total operating expenses decreased by approximately 7% due to a reduction in maintenance activities. The Company reduced its maintenance activities as a result of the lower crude oil sales prices. Equipment fuel as a component of total operating expenses was lower by approximately 4% due to lower overall maintenance activities and lower prices for gasoline and diesel during the first quarter of 2009. Pump repairs as a component of total operating expenses were lower by approximately 4% due to the decline in maintenance work in the first quarter of 2009 and the replacement of down-hole pumps in prior years with more expensive pumps that are more efficient and have better longevity. Production equipment repair and 17 maintenance as a component of total operating expenses decreased by approximately 4% due to a reduction in maintenance activities. EXPLORATION COSTS In the first quarter of 2008, the Company received a payment, from it's joint venture partner, in the amount of $28,812 for its share of certain tangible completion equipment on an exploratory well that had been abandoned in 2006. GENERAL AND ADMINISTRATIVE General and administrative expenses decreased by $7,208. General and administrative expenses decreased by approximately 3% for the first three months of 2008 when compared with the same period for 2007. Professional fees as a component of total general and administrative expenses decreased by approximately 5% for the three months ended March 31, 2009, due primarily to a decrease in fees billed. PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION The provision for depletion, depreciation and amortization decreased by $4,506. The provision for depletion, depreciation and amortization decreased by approximately 3% for the first quarter of 2009, when compared with the same period for 2008. The decrease is due primarily to a decrease in depletion of the Companies oil and gas properties. The decrease in depletion is due primarily to a decrease in crude oil production for the first quarter of 2009. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Applicable Item 4. Controls and Procedures Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 18 PART II - OTHER INFORMATION Item 1. - Legal Proceedings None Item 1A. - Risk Factors See the risk factors that are included in the Company's Annual Report on Form 10K for the fiscal year ended December 31, 2008. Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds None Item 3. - Defaults Upon Senior Securities None Item 4. - Submission of Matters to a Vote of Security Holders None Item 5. - Other Information None Item 6. - Exhibits a. Exhibits 31.1 Certification of the Registrant's Principal Executive Officer under Exchange Act Rules 13a-14(a) and 15-d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Registrant's Principal Financial Officer under Exchange Act Rules 13a-14(a) and 15-d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Registrant's Principal Executive Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Registrant's Principal Financial Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 19 SIGNATURES 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. PYRAMID OIL COMPANY (registrant) Dated: May 14, 2009 JOHN H. ALEXANDER --------------------- John H. Alexander President Dated: May 14, 2009 LEE G. CHRISTIANSON --------------------- Lee G. Christianson Chief Financial Officer