UNITED STATES
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-610
EQUITY OIL COMPANY
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(Exact name of registrant as specified in its charter)
COLORADO 87-0129795
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 806, #10 West Third South, Salt Lake City, Utah 84101
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(Address of principal executive offices)
(Zip Code)
(801) 521-3515
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Registrant's telephone number, including area code
(Former name, former 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 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
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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.
Yes No
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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: 12,679,147
1
ITEM I: Financial Statements
EQUITY OIL COMPANY
Statement of Operations
For the three months ended March 31, 2001 and 2000
(Unaudited)
2001 2000
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REVENUES
Oil and gas sales ................... $7,058,260 $5,388,023
Other ............................... 109,698 750,908
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7,167,958 6,138,931
EXPENSES
Operating costs ..................... 1,775,036 1,642,923
Depreciation, depletion and
amortization ...................... 950,000 1,025,000
3D Seismic .......................... -- 191,678
Exploration ......................... 493,682 437,452
General and administrative .......... 773,692 514,682
Interest ............................ 166,254 339,446
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4,158,664 4,151,181
Income before income taxes ................... 3,009,294 1,987,750
Provision for income taxes ................... 1,098,436 735,000
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NET INCOME ................................... $1,910,858 $1,252,750
========== ==========
Net income per share
Basic $.15 $ .10
Diluted $.15 $ .10
Weighted average shares outstanding
Basic 12,661,977 12,643,440
Diluted 13,019,494 12,966,440
The accompanying notes are an integral part of these statements.
2
EQUITY OIL COMPANY
Balance Sheet
as of March 31, 2001 and December 31, 2000
March 31, December 31,
ASSETS 2001 2000
------ --------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents .............. $ 2,726,978 $ 2,190,548
Accounts and advances receivable ....... 4,812,523 5,471,937
Income taxes receivable ................ 112,109 107,490
Deferred income taxes .................. 79,896 79,896
Other current assets ................... 44,000 58,667
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7,775,506 7,908,538
Property and equipment ................... 107,492,087 106,031,805
Less accumulated depreciation,
depletion and amortization .............. 67,458,445 66,509,569
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40,033,642 39,522,236
Other assets ............................. 347,152 366,937
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TOTAL ASSETS ............................. $ 48,156,300 $ 47,797,711
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................... $ 1,795,958 $ 2,303,102
Accrued liabilities .................... 130,846 189,912
Income taxes payable ................... 1,109,428 632,435
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3,036,232 3,125,449
Revolving credit facility ................ 7,000,000 8,500,000
Deferred income taxes .................... 3,588,575 3,588,575
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10,588,575 12,088,575
Stockholders' Equity:
Common stock ........................... 12,843,747 12,819,212
Paid in capital ........................ 3,732,278 3,719,865
Less cost of treasury stock ............ (528,302) (528,302)
Retained earnings ...................... 18,483,770 16,572,912
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34,531,493 32,583,687
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $ 48,156,300 $ 47,797,711
============= =============
The accompanying notes are an integral part of these statements.
3
EQUITY OIL COMPANY
Statement of Cash Flows
For the three months ended March 31, 2001 and 2000
(Unaudited)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................. $ 1,910,858 $ 1,252,750
Adjustments
Depreciation, depletion and
amortization .......................... 950,000 1,025,000
(Gain) loss on property sales ....... 245 (505,789)
Change in other assets .............. 19,785 33,217
Equity loss in
Symskaya Exploration .............. 23,521 42,363
Change in deferred income taxes ......... -- 585,000
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2,904,409 2,432,541
Increase (decrease) from changes in:
Accounts and advances receivable ....... 659,414 (211,562)
Other current assets ................... 14,667 (83,538)
Accounts payable and accrued
liabilities ......................... (566,210) (22,442)
Income taxes receivable/payable ........ 501,322 (152,206)
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Net cash provided
by operating activities ................. 3,513,602 1,962,793
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................... (1,461,651) (426,535)
Proceeds from property sales ............... -- 513,298
Change in other assets ..................... -- (50,000)
Advances to Symskaya Exploration ........... (23,521) (42,363)
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Net cash used in investing activities ...... (1,485,172) (5,600)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Stock Option Proceeds ...................... 8,000 --
Payment of credit facility fee ............. -- (26,136)
Payments on credit facility ................ (1,500,000) (1,000,000)
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Net cash used in
financing activities ............... (1,492,000) (1,026,136)
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NET INCREASE IN CASH ......................... 536,430 931,057
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ..................... 2,190,548 1,006,602
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD ........................... $ 2,726,978 $ 1,937,659
=========== ===========
The accompanying notes are an integral part of these statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of the Company's management, the financial statements
reflect the necessary adjustments, all of which are of a normal and recurring
nature, to present fairly the financial position of the Company as of March 31,
2001, and the results of its operations and its cash flows for the three month
periods ended March 31, 2001 and 2000.
The financial statements and the accompanying notes to financial statements
have been prepared according to rules and regulations of the Securities and
Exchange Commission. Accordingly, certain notes and other information have been
condensed or omitted from the interim financial statements presented in this
Quarterly Report on Form 10-Q. These financial statements should be read in
conjunction with the Company's 2000 Annual Report on Form 10-K.
The results for the three month period ended March 31, 2001 are not
necessarily indicative of future results.
NOTE 2. NET INCOME PER SHARE
Basic net income per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net income per share is
computed using the weighted average number of common and, if dilutive, common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon the exercise of stock
options (using the treasury stock method).
Options to purchase approximately 1,755,000 shares of common stock at
prices of $1.06 to $5.50 per share were outstanding during the first three
months of 2001, 357,517 of which were included in the computation of diluted net
income per share for the period. Options to purchase approximately 1,589,000
shares of common stock at prices of $1.06 to $5.50 per share were outstanding
during the first three months of 2000, 323,000 of which were included in the
computation of net income per share at March 31, 2000.
5
PART I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Higher gas prices company-wide, particularly in California, and continued
strong oil prices resulted in a 31% increase in oil and gas sales for the first
quarter of 2001. Total revenues for the period were $7,167,958, compared to
$6,138,931 during the first quarter of 2000. The Company recorded net income for
the 2001 first quarter of $1,910,858, or $.15 per share. This compares to net
income for the first quarter of 2000 of $1,252,750, or $.10 per share.
Oil production in the 2001 first quarter was 162,000 barrels, compared to
170,000 in the same period last year. The decrease was attributable to normal
production declines as properties mature. Gas production decreased to 412
million cubic feet in 2001 from 450 million cubic feet in 2000. The reduction
was due primarily to the Company's reduced drilling program in California during
1999 and 2000.
As of January 1, 2001, the Company had no volumes of oil or gas subject to
hedging agreements.
The average crude prices received in the first quarter this year were
$24.89 per barrel, compared to $25.40 per barrel received during the same period
of 2000. Gas prices increased significantly in the first quarter of 2001,
averaging $7.95 per Mcf, compared to $2.37 per Mcf received during the first
quarter of 2000. Gas prices remain strong but have recently moderated slightly
as the California supply and demand problems are becoming more stable and the
cold winter temperatures are moderating.
Higher operating expenses, and administrative costs were offset by lower
interest cost and no 3-D seismic charges during the first quarter of 2001.
Operating costs rose from $1,642,923 in 2000 to $1,775,036 in 2001 an 8%
increase. This increase is a function of higher value-based production taxes due
to the increased revenues, and reduced portion of revenues coming from gas
production which historically has had lower operating costs.
General and administrative expenses increased from 2000 first quarter
levels. The increase was due to higher compensation and other administrative
expenses.
6
Lower interest costs in 2001 reflect the reduced balance of the debt
outstanding under the Company's credit facility and lower interest rates applied
to this amount.
CAPITAL RESOURCES AND LIQUIDITY
Improved financial results have led to a continued strengthening of the
Company's financial position at March 31, 2001. The Company's cash balances
increased by 24% from December 31, 2000. Cash flow from operating activities in
the first quarter of 2001 increased by more than 79% from $1,962,793 at March
31, 2000 to $3,513,602 at March 31, 2001.
Investment in property and equipment for the first three months of 2001
totaled $1,461,651, a 243% increase from the amount recorded during the
corresponding three months of 2000. Approximately $576,000 of this amount was
for the purchase of producing properties adjacent to the Company's Ashley Valley
field in Utah. Higher cash flows in 2001 will allow the Company to continue to
expand its exploration and exploitation activities. The bulk of the Company's
drilling should occur during the third and fourth quarters of the year.
Higher cash flows during the quarter enabled the Company to make further
reductions in its long-term debt. Debt outstanding at March 31, 2001 was $7
million, down $1.5 million from year-end 2000 amounts, reflecting the Company's
plan of using excess cash flow to aggressively manage its balance sheet. The
Company's commitment under its credit facility is subject to a redetermination
as of May 1 and November 1 of each year, with estimated future oil and gas
prices used in the evaluation determined by the Company's lender. The Company's
current commitment under its credit facility is $17 million. Accordingly, as of
March 31, 2001, the Company had $10 million of remaining availability on the
facility. The Company is in compliance with all its facility covenants.
The Company believes that existing cash balances, cash flow from operating
activities, and funds available under the Company's credit facility will provide
adequate resources to meet its capital and exploration spending objectives for
2001.
7
OTHER ITEMS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133, as amended, establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. The Company
adopted SFAS No. 133 on January 1, 2001, and the adoption of this pronouncement
did not have a material impact on the Company's financial position and results
of operations. The Company has reviewed all other recently issued, but not yet
adopted, accounting standards in order to determine their effects, if any, on
the results of operations or financial position of the Company. Based on that
review, the Company believes that none of these pronouncements will have a
significant effect on current or future earnings or operations.
FORWARD LOOKING STATEMENTS
The preceding discussion and analysis should be read in conjunction with
the consolidated financial statements, including the notes thereto, appearing in
the Company's annual report on Form 10-K. Except for the historical information
contained herein, the matters discussed in this report contain forward- looking
statements within the meaning of Section 27a of the Securities Act of 1933, as
amended, and Section 2le of the Securities Exchange Act of 1934, as amended,
that are based on management's beliefs and assumptions, current expectations,
estimates, and projections. Statements that are not historical facts, including
without limitation statements which are preceded by, followed by or include the
words "believes", "anticipates", "plans", "expects", "may", "should" or similar
expressions are forward-looking statements. Many of the factors that will
determine the Company's future results are beyond the ability of the Company to
control or predict. These statements are subject to risks and uncertainties and,
therefore, actual results may differ materially. All subsequent written and oral
forward- looking statements attributable to the Company, or persons acting on
its behalf, are expressly qualified in their entirety by these cautionary
statements. The Company disclaims any obligation to update any forward-looking
statements whether as a result of new information, future events or otherwise.
Important factors that may effect future results include, but are not
limited to: drilling success, the availability of equipment and contract
services, environmental risks and impediments, geologic hazards, the risk of a
significant natural disaster, the inability of the Company to insure against
certain risks, fluctuations in commodity prices, the inherent limitations in the
ability to estimate oil and gas reserves, changing government regulations, as
well as general market conditions, competition and pricing, and other risks
detailed from time to time in the Company's SEC reports, copies of which are
available upon request from the Company's investor relations department.
8
PART II
OTHER INFORMATION
The answers to items listed under Part II are inapplicable or negative.
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 there unto duly authorized.
EQUITY OIL COMPANY
(Registrant)
DATE: May 11, 2000 By /s/ Paul M. Dougan
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Paul M. Dougan, President
DATE: May 11, 2000 By /s/ Russell V. Florence
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Russell V. Florence, Treasurer
9