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 September 30, 20092010

Commission File Number 1-7908

ADAMS RESOURCES & ENERGY, INC.
(Exact name of Registrant as specified in its charter)

Delaware 74-1753147
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

4400 Post Oak Pkwy Ste 2700 , Houston, Texas  77027
(Address of principal executive office & Zip Code)

Registrant's telephone number, including area code (713) 881-3600

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  xo     NO  ox

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesYES  o     NoNO  ox


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 126-2 of the Exchange Act.  (Check one)

Large accelerated filer o   Accelerated filer o   Non-accelerated filer x   Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  o   NO  x

A total of 4,217,596 shares of Common Stock were outstanding at November 10, 2009.12, 2010.




 
 
 

PART 1 – FINANCIAL INFORMATION

Item 1.  Financial Statements

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

 Nine Months Ended  Three Months Ended  Nine Months Ended  Three Months Ended 
 
September 30,
  
September 30,
  
September 30,
  
September 30,
 
 
2009
  
2008
  
2009
  
2008
  
2010
  
2009
  
2010
  
2009
 
REVENUES:                        
Marketing $1,391,453  $3,466,429  $562,834  $1,264,609  $1,531,930  $1,391,453  $484,412  $562,834 
Transportation  33,701   53,974   11,471   18,591   43,372   33,701   15,288   11,471 
Oil and gas  6,356   14,259   1,994   5,122   8,079   6,356   2,755   1,994 
  1,431,510   3,534,662   576,299   1,288,322   1,583,381   1,431,510   502,455   576,299 
COSTS AND EXPENSES:                                
Marketing   1,373,305   3,463,202   558,314   1,274,033   1,519,158   1,373,305   479,059   558,314 
Transportation  29,171   47,369   9,216   16,025   34,917   29,171   12,072   9,216 
Oil and gas operations  6,297   7,386   2,834   3,185   4,970   6,297   2,171   2,834 
General and administrative  6,946   7,458   2,252   2,038   6,659   6,946   2,257   2,252 
Depreciation, depletion and amortization  7,517   9,157   2,537   3,085   8,425   7,517   2,875   2,537 
  1,423,236   3,534,572   575,153   1,298,366   1,574,129   1,423,236   498,434   575,153 
                                
Operating earnings  8,274   90   1,146   (10,044)  9,252   8,274   4,021   1,146 
                                
Other income (expense):                                
Interest income  138   879   82   308   110   138   80   82 
Interest expense  (23)  (136)  (15)  (91)  (32)  (23)  (1)  (15)
Earnings before income tax  8,389   833   1,213   (9,827)  9,330   8,389   4,100   1,213 
                                
Income tax provision (benefit)  3,146   73   574   (3,551)
Income tax (provision)  (3,089)  (3,146)  (1,338)  (574)
                                
Net earnings $5,243  $760  $639  $(6,276) $6,241  $5,243  $2,762  $639 
                                
EARNINGS PER SHARE:                                
Basic and diluted net earnings (loss) per common share $1.24  $.18  $.15  $(1.49)
Basic and diluted net earnings per common share $1.48  $1.24  $.66  $.15 
                                
                                
DIVIDENDS PER COMMON SHARE $-  $-  $-  $-  $-  $-  $-  $- 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.




 
1
 

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 September 30,  December 31,  September 30,  December 31, 
 
2009
  
2008
  
2010
  
2009
 
ASSETS            
            
Current assets:            
Cash and cash equivalents $36,728  $18,208  $30,303  $16,806 
Accounts receivable, net of allowance for doubtful                
accounts of $1,263 and $1,251, respectively  137,924   119,401 
Accounts of $1,265 and $1,681, respectively  143,532   155,941 
Inventories  13,655   14,207   14,611   15,260 
Fair value contracts  3,090   8,697   2,152   1,581 
Income tax receivable  -   3,629   1,868   2,171 
Prepayments and other  9,679   5,224   9,768   10,804 
                
Total current assets  201,076   169,366   202,234   202,563 
                
Property and equipment  122,554   118,863   143,815   132,660 
Less – accumulated depreciation,                
Depletion and amortization  (88,563)  (83,277)
depletion and amortization  (98,257)  (90,355)
  33,991   35,586   45,558   42,305 
Other assets:                
Fair value contracts  483   - 
Deferred income tax asset  1,761   2,035   480   1,290 
Cash deposits and other  3,070   3,939   2,628   3,243 
 $240,381  $210,926  $250,900  $249,401 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY                
                
Current liabilities:                
Accounts payable $143,734  $115,183  $149,870  $158,176 
Accounts payable – related party  83   89   87   75 
Fair value contracts  2,766   8,196   1,393   1,331 
Accrued and other liabilities  4,279   3,930   5,767   3,872 
Current deferred income taxes  686   409   1,057   737 
Total current liabilities  151,548   127,807   158,174   164,191 
                
Other liabilities:                
Fair value contracts  457   - 
Asset retirement obligations  1,289   1,260   1,372   1,315 
Other long-term liabilities  83   98 
Deferred taxes and other  1,312   94 
  153,377   129,165   160,858   165,600 
Commitments and contingencies (Note 5)                
                
Shareholders’ equity:                
Preferred stock - $1.00 par value, 960,000 shares                
authorized, none outstanding  -   -   -   - 
Common stock - $.10 par value, 7,500,000 shares                
authorized, 4,217,596 shares outstanding  422   422   422   422 
Contributed capital  11,693   11,693   11,693   11,693 
Retained earnings  74,889   69,646   77,927   71,686 
Total shareholders’ equity  87,004   81,761   90,042   83,801 
 $240,381  $210,926  $250,900  $249,401 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 Nine Months Ended  Nine Months Ended 
 
September 30,
  
September 30,
 
 
2009
  
2008
  
2010
  
2009
 
CASH PROVIDED BY OPERATIONS:            
Net earnings $5,243  $760  $6,241  $5,243 
Adjustments to reconcile net earnings to net cash                
provided by operating activities -        
from operating activities -        
Depreciation, depletion and amortization  7,517   9,157   8,425   7,517 
Loss (gain) on property sales  (93)  383 
Gains on property sales  (129)  (93)
Dry hole costs incurred  365   1,860   418   365 
Impairment on oil and gas properties  2,761   1,293 
Impairment of oil and gas properties  1,817   2,761 
Provision for doubtful accounts  12   858   2   12 
Deferred income taxes  551   (1,793)  2,366   551 
Net change in fair value contracts  151   (55)  (509)  151 
Other, net  296   (37)  (84)  296 
Decrease (increase) in accounts receivable
  (18,535)  25,946   13,190   (18,535)
Decrease (increase) in inventories  552   (1,622)  649   552 
Decrease (increase) in income tax receivable  3,629   (1,299)  303   3,629 
Decrease (increase) in prepayments  (4,455)  (238)  1,036   (4,455)
Increase (decrease) in accounts payable  28,636   (8,901)  (8,606)  28,636 
Increase (decrease) in accrued liabilities  349   2,487   1,375   349 
                
Net cash provided by operating activities  26,979   28,799   26,494   26,979 
                
INVESTING ACTIVITIES:                
Property and equipment additions  (9,505)  (13,780)  (13,085)  (9,505)
Insurance and excise tax refunds  587   290 
Insurance and state collateral (deposits) refunds  (45)  587 
Proceeds from property sales  459   39   133   459 
Redemption of short-term investments  -   10,000 
Investment in short-term investments  -   (10,000)
                
Net cash (used in) investing activities  (8,459)  (13,451)  (12,997)  (8,459)
                
Increase in cash and cash equivalents  18,520   15,348   13,497   18,520 
                
Cash at beginning of period  18,208   23,697 
Cash and cash equivalents at beginning of period  16,806   18,208 
                
C Cash at end of period $36,728  $39,045 
C Cash and cash equivalents at end of period $30,303  $36,728 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
3
 

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited but, in the opinion of the Company's management, include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of its financial position at September 30, 2009,2010, its results of operations for the three and nine-month periods ended September 30, 20092010 and 20082009 and its cash flows for the nine months ended September 30, 20092010 and 2008.2009. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations.  The impact on the accompanying unaudited condensed consolidated financial statements of events occurring after September 30, 20092010 has been evaluated through November 13, 2009.the date these financials were issued.

Although the Company believes the disclosures made are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements, and the notes thereto, included in the Company's latest annual report on Form 10-K. The interim statement of operations is not necessarily indicative of results to be expected for a full year.

Note 2 - Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation

The Company is engaged in the business of crude oil, natural gas and petroleum products marketing, as well as tank truck transportation of liquid chemicals and oil and gas exploration and production.  Its primary area of operation is within a 1,000 mile radius of Houston, Texas.  The accompanying condensed consolidated financial statements include the accounts of Adams Resources & Energy, Inc., a Delaware corporation, and its wholly owned subsidiaries (the "Company") after elimination of all significant intercompany accounts and transactions.

Cash and Cash Equivalents

Cash and cash equivalents include any Treasury bill, commercial paper, money market funds or federal funds with maturity of 90 days or less.  Depending on cash availability and market conditions, investments in municipal bonds may also be made from time to time.  The Company investsmay invest in tax-free municipal securities in order to enhance the after-tax rate of return from short-term investments of cash.  The Company had no investments in municipal bonds at September 30, 20092010 or December 31, 2008.2009.  Cash and cash equivalents are maintained with major financial institutions and such deposits may exceed the amount of federally backed insurance provided.  While the Company regularly monitors the financial stability of such institutions, cash and cash equivalents ultimately remain at risk sub ject to the financial viability of such institutions.

Inventories

Crude oil and petroleum product inventories are carried at the lower of average cost or market price. Petroleum products inventory includes gasoline, lubricating oils and other petroleum products purchased for resale.  Components of inventory are as follows (in thousands):

  September 30,  December 31, 
  
2009
  
2008
 
Crude oil $12,042  $11,710 
Petroleum products  1,613   2,497 
         
  $13,655  $14,207 

 
4
 


  September 30,  December 31, 
  
2010
  
2009
 
Crude oil $12,668  $14,053 
Petroleum products  1,943   1,207 
         
  $14,611  $15,260 

Prepayments

The components of prepayments and other are as follows (in thousands):

 September 30,  December 31,  September 30,  December 31, 
 
2009
  
2008
  
2010
  
2009
 
            
Cash collateral deposits for commodity purchases $5,504  $2,082  $5,150  $7,670 
Insurance premiums  2,670   1,985   2,447   2,478 
Natural gas pipeline imbalances  751   369   1,237   89 
Rents, license and other  754   788   934   567 
                
 $9,679  $5,224  $9,768  $10,804 

Property and Equipment

Expenditures for major renewals and betterments are capitalized, and expenditures for maintenance and repairs are expensed as incurred.  Interest costs incurred in connection with major capital expenditures are capitalized and amortized over the lives of the related assets. When properties are retired or sold, the related cost and accumulated depreciation, depletion and amortization ("DD&A") is removed from the accounts and any gain or loss is reflected in earnings.

Oil and gas exploration and development expenditures are accounted for in accordance with the successful efforts method of accounting.  Direct costs of acquiring developed or undeveloped leasehold acreage, including lease bonus, brokerage and other fees, are capitalized. Exploratory drilling costs are initially capitalized until the properties are evaluated and determined to be either productive or nonproductive.  Such evaluations are made on a quarterly basis.  If an exploratory well is determined to be nonproductive, the costs of drilling the well are charged to expense. Costs incurred to drill and complete development wells, including dry holes, are capitalized. ��As of September 30, 2009,2010, the Company had no unevaluated or suspended exploratory drilling costs.

ProducingDepreciation, depletion and amortization of the cost of proved oil and gas leases,properties is calculated using the unit-of-production method.  The reserve base used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves.  For lease and well equipment, development costs and intangiblesuccessful exploration drilling costs, are depleted or amortized over the estimatedreserve base includes only proved reserves using the units-of-production method.  Otherdeveloped reserves.  All other property and equipment is depreciated using the straight-line method over the estimated average useful lives of three to fifteen years for marketing, three to fifteen years for transportation and ten to twenty years for all others.years.

5

The Company periodically reviews its long-lived assets for impairment whenever there is evidence that the carrying value of such assets may not be recoverable.  Any impairment recognized is permanent and may not be restored.  Producing oil and gas properties are reviewed quarterly for impairment triggers on a field-by-field basis. For properties requiring impairment, the fair value is estimated based on an internal discounted cash-flow model.  Cash flows are developed based on estimated future production and prices and then discounted using an internal rate of return consistent with that used by the Company in evaluating cash flows for other assets of a similar nature.  For the nine-month periods ended September 30, 20092010 and 20082009 there were $517,000$886,000 and zero$517,000 impairment provisions ono n producing oil and gas properties, respectively.  Such provisions also totaled $295,000$880,000 and zero$295,000 for the three-month periods ended September 30, 2010 and 2009, and 2008, respectively.

Fair value measurements for producing oil and gas properties for the nine-month period ended September 30, 2009 summarized as follows (in thousands):

5


  
Producing Properties
Evaluated for Fair
Value Impairment
 
    
Net book value at December 31, 2008 $518 
     
Property additions  43 
Depletion taken  (44)
Impairment valuation loss  (517)
     
Fair value at September 30, 2009 $- 
     


All fair value measurements for producing oil and gas properties are based on Level 3 – Significant Unobservable Inputs (see Fair Value Measurements below).

On a quarterly basis, management also evaluates the carrying value of non-producing oil and gas properties and may deem them impaired for lack of drilling activity. Accordingly, impairment provisions on non-producing properties totaling $2,244,000$931,000 and $1,293,000$2,244,000 were recorded for the nine-month periods ended September 30, 20092010 and 2008,2009, respectively.  Such provisions totaled $1,570,000$148,000 and $421,000$1,570,000 for the three-month periods ended September 30, 20092010 and 2008.2009.  For non-producing properties, impairments are determined based on management’s knowledge of current geological evaluations, drilling results and activity in the area and intent to drill as it relates to the remaining term of the underlying oil and gas leasehold interest.

Cash deposits and other assets

The Company has established certain deposits to support its participation in its liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits.  In addition, the Company has accounts and notes receivable from certain customers that are expected to be collected over a long-term period.  Components of cash deposits and other assets are as follows (in thousands):

 September 30,  December 31,  September 30,  December 31, 
 
2009
  
2008
  
2010
  
2009
 
Insurance collateral deposits $2,189  $2,794  $2,015  $2,648 
State collateral deposits  297   279   166   271 
Accounts and notes receivable  273   503 
Materials and supplies  311   363   447   324 
 $3,070  $3,939  $2,628  $3,243 

Revenue Recognition

Commodity purchase and sale contracts utilized by the Company’s marketing businesses qualify as derivative instruments.  Further, all natural gas, as well as certain specifically identified crude oil purchase and sale contracts, are designated as trading activities.  From the time of contract origination, such trading activity contracts are marked-to-market and recorded on a net revenue basis in the accompanying financial statements.

6

Substantially all crude oil and refined products purchase and sale contracts qualify and are designated as non-trading activities and the Company elects the normal purchases and sales exception methodology for such activity.  For normal purchase and sale activities, the Company’s customers are invoiced monthly based upon contractually agreed upon terms withand revenue is recognized in the month in which the physical product is delivered to the customer.  Such sales are recorded gross in the financial statements because the Company takes title to and has risk of loss for the products, is the primary obligor for the purchase, establishes the sale price independently with a third party, and maintains credit risk associated with the sale of the product.

6

Certain crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations.  These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer.  Such buy/sell arrangements are reflected on a net revenue basis in the accompanying financial statements.

Transportation customers are invoiced, and the related revenue is recognized, as the service is provided.  Oil and gas revenue from the Company’s interests in producing wells is recognized as title and physical possession of the oil and gas passes to the purchaser.

Banking RelationshipsConcentration of Credit Risk

The Company’s largest customers consist of large multinational integrated oil companies and utilities.  In August 2009,addition, the Company entered intotransacts business with independent oil producers, major chemical concerns, crude oil and natural gas trading companies and a variety of commercial energy users.  Within this group of customers the Company generally derives up to 50 percent of its revenues from two to three large crude oil refining concerns.  While the Company has ongoing established relationships with certain domestic refiners of crude oil, alternative markets are readily available since the Company supplies less than one percent of U. S. domestic refiner demand.  As a fungible commodity delivered to major Gulf Coast supply points, the Company’s crude oil sales can be readily delivered to alternative end markets.  Management believes that a loss of any of those customers where the Company currently derives more than 10 percent of its revenues would not have a material adverse effect on the Company’s operations.

Accounts receivable associated with crude oil and natural gas marketing activities comprise approximately 90 percent of the Company’s total receivables and industry practice requires payment for such sales to occur within 25 days of the end of the month following a transaction.  The Company’s customer makeup, credit policies and the relatively short duration of receivables mitigate the uncertainty typically associated with receivables management.

Letter of Credit Facility

The Company maintains a Credit and Security Agreement with Wells Fargo Bank to provide a $40 million stand-by letter of credit facility.  Pursuant to the Wells Fargo agreement, the Company discontinued its previous working capital lines of credit with Bank of America.  The Wells Fargo facility provides for the issuance of up to $40 million of stand-by letters of credit to support the Company’s crude oil and natural gas purchases within the marketing businesses based onsegment.  This facility is collateralized by the eligible accounts receivable within those operations.  LettersStand-by letters of credit outstandingissued totaled $19.9$22.6 million as of September 30, 2009.2010.  The issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due.  The letter of credit facility places certain restrictions on the Company’s Gulfmark Energy, Inc. and Adams Resources Marketing, Ltd. subsidiaries.subsidiari es.  Such restrictions included the maintenance of a combined 1.1 to 1.0 current ratio and the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions.  Management believes the Company is currently in compliance with all such covenants.

Statement of Cash Flows

Interest paid totaled $23,000$32,000 and $136,000$23,000 during the nine-month periods ended September 30, 20092010 and 2008,2009, respectively.  Income taxes paid during these same periods totaled $549,000$275,000 and $2,319,000,$549,000, respectively.  The Company also received a $2,000,000 income tax refund during the first nine months of 2009.  Non-cash investing activities for property and equipment in accounts payable were $439,000$312,000 and $267,000$439,000 as of September 30, 2010 and 2009, respectively; and 2008, respectivelyin addition, such activities were $440,000 and $561,000 as of December 31, 2008.2009 and 2008, respectively.  There were no significant non-cash financing activities in any of the periods reported.

7

Earnings Per Share

Earnings per share are based on the weighted average number of shares of common stock and potentially dilutive common stock shares outstanding during the period. The weighted average number of shares outstanding was 4,217,596 for 20092010 and 2008.2009.  There were no potentially dilutive securities during those periods.

Share-Based Payments

During the periods presented herein, the Company had no stock-based employee compensation plans, nor any other share-based payment arrangements.

7

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Examples of significant estimates used in the accompanying consolidated financial statements include the accountingoil and gas reserve volumes that form the foundation for (1) calculating depreciation, depletion and amortization revenue accruals,and (2) deriving cash flow estimates to assess impairment triggers or estimated values associated with oil and gas property, impairments,revenue accruals, the provision for bad debts, insurance related accruals, incomein come taxes, contingencies and valuation of fair value contracts.

Use of derivative instruments

The Company’s marketing segment is involved in the purchase and sale of crude oil and natural gas.  The Company seeks to make a profit by procuring such commodities as they are produced and then delivering such products to the end usersuse or intermediate use marketplace.  As is typical for the industry, such transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts.  These contracts meet the definition of a derivative instrument and therefore, the Company accounts for such contracts at fair value, unless the normal purchase and sale exception is elected.applicable.  The Company’s objective of entering into commodity contracts is not to manage commodity price risk nor is the objective to trade or speculate on commodity prices.  Rather, such underlyingun derlying contracts are standard for the industry and are the governing document for the Company’s crude oil and natural gas wholesale distribution businesses.  The accounting methodology utilized by the Company for its commodity contracts is further discussed below under the caption “Fair Value Measurements”.

None of the Company’s derivative instruments have been designated as hedging instruments and the estimated fair value of forward month commodity contracts (derivatives) is reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of September 30, 2010 as follows (in thousands):

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Balance Sheet Location and Amount
 
  Current  Other  Current  Other 
  
Assets
  
Assets
  
Liabilities
  
Liabilities
 
Asset Derivatives            
- Fair Value Commodity            
Contracts at Gross Valuation $3,035  $-  $-  $- 
                 
Liability Derivatives                
- Fair Value Commodity                
Contracts at Gross Valuation  -   -   2,276   - 
                 
Less Counterparty Offsets  (883)  -   (883)  - 
                 
As Reported Fair Value Contracts $2,152  $-  $1,393  $- 

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2009 as follows (in thousands):

 
Balance Sheet Location and Amount
  
Balance Sheet Location and Amount
 
 Current  Other  Current  Other  Current  Other  Current  Other 
 
Assets
  
Assets
  
Liabilities
  
Liabilities
  
Assets
  
Assets
  
Liabilities
  
Liabilities
 
Asset Derivatives                        
- Fair Value Commodity            
- Fair Value Forward Hydrocarbon Commodity            
Contracts at Gross Valuation $3,303  $483  $-  $-  $2,035  $-  $-  $- 
                                
Liability Derivatives                                
- Fair Value Commodity                
- Fair Value Forward Hydrocarbon Commodity                
Contracts at Gross Valuation  -   -   2,979   457   -   -   1,785   - 
                                
Less Counterparty Offsets  (213)  -   (213)  -   (454)  -   (454)  - 
                                
As Reported Fair Value Contracts $3,090  $483  $2,766  $457  $1,581  $-  $1,331  $- 

The Company only enters into commodity contracts with credit worthycreditworthy counterparties or obtains collateral support for such activities.  No credit loss provision applies to the Company’s forward commodity contract valuations.  As of September 30, 2010 and December 31, 2009, the Company iswas not holding nor hashad it posted any collateral to support its forward month fair value derivative activity.  The Company is not subject to any credit-risk related trigger events.

8

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Statement of Operations for the nine and three months ended September 30, 20092010 as follows (in thousands):

 Statement of Operations   
 
Location
 
(Loss)
 
     
- Fair value commodity contracts
Revenues – marketing
 $(151) 
 Earnings (Loss)Earnings (Loss)
 Nine Months EndedThree Months Ended
 
September 30,
September 30,
Location
2010
2009
2010
2009
     
Revenues - marketing
$     509
$   (151)
$    667
$         -


The fair value commodity contracts loss represents a non-cash reduction of earnings and is reflected as such under the caption “Net change in fair value contracts” in the accompanying Unaudited Statement of Cash Flows.

9
Commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Statement of Operations for the three months ended September 30, 2009 as follows (in thousands):

Statement of Operations
Location
(Loss)
- Fair value commodity contracts
Revenues - marketing
$-0-

Fair Value Measurements

The carrying amount reported in the Unaudited Condensed Consolidated Balance Sheet for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments.

Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value.  Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and the Company elects, cash flow hedge accounting.  The Company had no contracts designated for hedge accounting during any current reporting periods.

Fair value estimates are based on assumptions that market participants would use when pricing an asset or liability and the Company uses a fair value hierarchy of three levels that prioritizes the information used to develop those assumptions.  Currently, for all items presented herein, the Company utilizes a market approach to valuing its contracts.  On a contract by contract, forward month by forward month basis, the Company obtains observable market data for valuing its contracts.  The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.  The fair value hierarchy is summarized as follows:

 Level 1 – quoted prices in active markets for identical assets or liabilities that may be accessed at the measurement date.  Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  The Company utilizes the New York Mercantile Exchange “NYMEX” for its Level 1 valuations.

 Level 2 – (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical assets or liabilities but in markets that are not actively traded or in which little information is released to the public, (c) observable inputs other than quoted prices and (d) inputs derived from observable market data.  Source data for Level 2 inputs include information provided by the New York Mercantile Exchange “NYMEX”, Intercontinental Exchange “ICE”, published price data and indices, third party price survey data and broker provided forward price statistics.


 Level 3 – Unobservable market data inputs for assets or liabilities.

As of September 30, 2010, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

  
Market Data Inputs
    
  Level 1  Level 2  Level 3    
  
Quoted Prices
  
Observable
  
Unobservable
  
Total
 
Derivatives – Forward Hydrocarbon            
Commodity Contracts            
- Current assets $-  $2,152  $-  $2,152 
- Current liabilities  (400)  (993)  -   (1,393)
Net Value $(400) $1,159  $-  $759 


 
910
 

As of September 30,December 31, 2009, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

 
Market Data Inputs
     
Market Data Inputs
    
 Level 1  Level 2  Level 3     Level 1  Level 2  Level 3    
 
Quoted Prices
  
Observable
  
Unobservable
  
Total
  
Quoted Prices
  
Observable
  
Unobservable
  
Total
 
Derivatives            
Derivatives – Forward Hydrocarbon Commodity Contracts            
- Current assets $554  $2,536  $-  $3,090  $224  $1,357  $-  $1,581 
- Long-term assets  14   469   -   483 
- Current liabilities  -   (2,766)  -   (2,766)  -   (1,331)  -   (1,331)
- Long-term liabilities  -   (457)  -   (457)
Net Value $568  $(218) $-  $350  $224  $26  $-  $250 

When determining fair value measurements, the Company makes credit valuation adjustments to reflect both its own nonperformance risk and its counterparty’s nonperformance risk.  When adjusting the fair value of derivative contracts for the effect of nonperformance risk, the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, and guarantees are considered.  Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by the Company or its counterparties.  As of September 30, 2010 and December 31, 2009, credit valuation adjustments were not significant to the overall valuation of the Company’s fair value contracts.  As a result, applicable fair value assets and liabilities in their entiretyentire ty are classified in Level 2 of the fair value hierarchy.

Certain producing oil and gas property costs with a carrying amount of $3,384,000 were written down to their fair value of $2,504,000, resulting in pretax impairment charges of $880,000 for the nine months ended September 30, 2010.  Significant Level 3 assumptions associated with the calculation of discounted cash flows used in the impairment analysis include the Company’s estimate of future natural gas prices, production costs, development expenditures, anticipated production of proved reserves appropriate risk-adjusted discount rates and other relevant data.

New Accounting Pronouncements

In December 2008,Management believes the Securitiesimpact of recently issued standards and Exchange Commission released Final Rule, Modernization of Oil and Gas Reporting to revise the existing Regulation S-K and Regulation S-X reporting requirements to align with current industry practices and technological advances.  The new disclosure requirements include provisions that permit the use of new technologies to determine proved reserves if those technologiesupdates, which are not yet effective, will not have been demonstrated empirically to lead to reliable conclusions about reserve volumes.  In addition, the new disclosure requirements require a company to (a) disclose its internal control over reserves estimation and report the independence and qualification of its reserves preparer or auditor, (b) file reports when a third party is relied upon to prepare reserves estimates or conducts a reserve audit and (c) report oil and gas reserves using an average price based upon the prior 12-month period rather than period-end prices.  The disclosures required by this ruling will become effective formaterial impact on the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.consolidated financial position, results of operations or cash flows upon adoption.

As of September 30, 2009, the Financial Accounting Standards Board issued the Accounting Standards Codification (ASC) which became effective for the Company.  The ASC is now the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the SEC.  No changes to accounting standards or guidance resulted from the issuance of the ASC.  Any references to accounting guidance in current and future financial statements will be to the applicable ASC sections.
Note 3 – Segment Reporting

The Company is primarily engaged in the business of marketing crude oil, natural gas and petroleum products;products marketing as well as tank truck transportation of liquid chemicals;chemicals and oil and gas exploration and production.  All accounting policies of each segment are consistent with the Company’s accounting policies.  Information concerning the Company’s various business activities is summarized as follows (in thousands):



 
1011
 

- Nine Month Comparison
    Segment  Depreciation  Property and     Segment  Depreciation  Property and 
    Operating  Depletion and  Equipment     Operating  Depletion and  Equipment 
 Revenues  Earnings  Amortization  Additions 
Period Ended September 30, 2010            
Marketing            
- Crude Oil $1,429,146  $8,307  $1,634  $3,199 
- Natural gas  8,410   2,253   43   87 
- Refined products  94,374   153   382   143 
Marketing Total  1,531,930   10,713   2,059   3,429 
Transportation  43,372   5,122   3,333   263 
Oil and gas  8,079   76   3,033   9,393 
 Revenues  Earnings  Amortization  Additions  $1,583,381  $15,911  $8,425  $13,085 
Period Ended September 30, 2009                            
Marketing                            
- Crude Oil $1,304,092  $13,425  $1,527  $724  $1,304,092  $13,425  $1,527  $724 
- Natural gas  10,310   2,197   124   -   10,310   2,197   124   - 
- Refined products  77,051   477   398   177   77,051   477   398   177 
Marketing Total  1,391,453   16,099   2,049   901   1,391,453   16,099   2,049   901 
Transportation  33,701   1,678   2,852   2,593   33,701   1,678   2,852   2,593 
Oil and gas  6,356   (2,557)  2,616   6,011   6,356   (2,557)  2,616   6,011 
 $1,431,510  $15,220  $7,517  $9,505  $1,431,510  $15,220  $7,517  $9,505 
Period Ended September 30, 2008                
Marketing                
- Crude Oil $3,282,421  $224  $1,479  $4,660 
- Natural gas  8,511   1,833   122   12 
- Refined products  175,497   (862)  431   114 
Marketing Total  3,466,429   1,195   2,032   4,786 
Transportation  53,974   3,746   2,859   508 
Oil and gas  14,259   2,607   4,266   8,486 
 $3,534,662  $7,548  $9,157  $13,780 


- Three Month Comparison
    Segment  Depreciation  Property and     Segment  Depreciation  Property and 
    Operating  Depletion and  Equipment     Operating  Depletion and  Equipment 
 
Revenues
  
Earnings
  
Amortization
  
Additions
 
Period Ended September 30, 2010            
Marketing            
- Crude Oil $449,458  $3,861  $578  $1,521 
- Natural gas  2,534   847   1   58 
- Refined products  32,420   (62)  128   - 
Marketing Total  484,412   4,646   707   1,579 
Transportation  15,288   2,108   1,108   180 
Oil and gas  2,755   (476)  1,060   3,301 
 
Revenues
  
Earnings
  
Amortization
  
Additions
  $502,455  $6,278  $2,875  $5,060 
Period Ended September 30, 2009                            
Marketing                            
- Crude Oil $530,981  $3,582  $496  $74  $530,981  $3,582  $496  $74 
- Natural gas  3,112   192   41   -   3,112   192   41   - 
- Refined products  28,741   78   131   -   28,741   78   131   - 
Marketing Total  562,834   3,852   668   74   562,834   3,852   668   74 
Transportation  11,471   1,244   1,011   800   11,471   1,244   1,011   800 
Oil and gas  1,994   (1,698)  858   1,351   1,994   (1,698)  858   1,351 
 $576,299  $3,398  $2,537  $2,225  $576,299  $3,398  $2,537  $2,225 
Period Ended September 30, 2008                
Marketing                
- Crude Oil $1,198,779  $(11,010) $577  $33 
- Natural gas  2,507   551   41   12 
- Refined products  63,323   280   137   35 
Marketing Total  1,264,609   (10,179)  755   80 
Transportation  18,591   1,615   951   111 
Oil and gas  5,122   558   1,379   4,005 
 $1,288,322  $(8,006) $3,085  $4,196 


 
1112
 

Segment operating earnings reflect revenues net of operating costs and depreciation, depletion and amortization.  Segment earnings reconcile to earnings from continuing operations before income taxes as follows (in thousands):
 Nine months ended  Three months ended  Nine Months ended  Three months ended 
 
September 30,
  
September 30,
  
September 30,
  
September 30,
 
 
2009
  
2008
  
2009
  
2008
  
2010
  
2009
  
2010
  
2009
 
Segment operating earnings $15,220  $7,548  $3,398  $(8,006) $15,911  $15,220  $6,278  $3,398 
- General and administrative  (6,946)  (7,458)  (2,252)  (2,038)  (6,659)  (6,946)  (2,257)  (2,252)
Operating earnings (loss)  8,274   90   1,146   (10,044)
Operating earnings  9,252   8,274   4,021   1,146 
- Interest income  138   879   82   308   110   138   80   82 
- Interest expense  (23)  (136)  (15)  (91)  (32)  (23)  (1)  (15)
Earnings (loss) before income taxes $8,389  $833  $1,213  $(9,827)
Earnings before income tax $9,330  $8,389  $4,100  $1,213 

Identifiable assets by industry segment are as follows (in thousands):
 September 30,  December 31,  September 30,  December 31, 
 
2009
  
2008
  
2010
  
2009
 
Marketing            
- Crude oil $124,605  $85,774  $132,952  $130,840 
- Natural gas  26,340   46,599   21,491   40,715 
- Refined products  10,754   13,037   12,608   10,133 
Marketing Total  161,699   145,410   167,051   181,688 
Transportation  13,566   14,915   15,511   16,078 
Oil and gas  21,123   21,904   30,917   26,050 
Other  43,993   28,697   37,421   25,585 
 $240,381  $210,926  $250,900  $249,401 

Intersegment sales are insignificant.  Other identifiable assets are primarily corporate cash, and assets not identified with any specific segment of the Company’s business.  All sales by the Company occurred in the United States.

Note 4 - Transactions with Affiliates

Mr. K. S. Adams, Jr., Chairman and Chief Executive Officer, and certain of his family partnerships and affiliates have participated as working interest owners with the Company’s subsidiary, Adams Resources Exploration Corporation.  Mr. Adams and such affiliates participate on terms similar to those afforded other non-affiliated working interest owners. In recent years, such related party transactions generally result after the Company has first identified oil and gas prospects of interest.  Typically the available dollar commitment to participate in such transactions is greater than the amount management is comfortable putting at risk.  In such event, the Company first determines the percentage of the transaction it wants to obtain, which allows a related party to participate in the investment to theth e extent there is excess available.  In those instances where there was no excess availability there has been no related party participation.  Similarly, related parties are not required to participate, nor is the Company obligated to offer any such participation to a related or other party.  When such related party transactions occur, they are individually reviewed and approved by the Audit Committee comprised of the independent directors on the Company’s Board of Directors.  For the first nine monthsmonth periods of 20092010 and 2008,2009, the Company’s investment commitments totaled approximately $5.3$9.4 million and $5.5$5.3 million, respectively, in those oil and gas projects where a related party was also participating in such investments.  As of September 30, 20092010 and December 31, 2008,2009, the Company owed a combined net total of $83,000$87,000 and $89,000,$75,000, respectively, to these related parties.  In connection with the operation of certain oil and gas properties,proper ties, the Company also charges such related parties for administrative overhead primarily as prescribed by the Council of Petroleum Accountants Society (“COPAS”) Bulletin 5.  Such overhead recoveries totaled $111,000$118,000 and $99,000$111,000 in the nine-month periods ended September 30, 20092010 and 2008,2009, respectively.

 
1213
 

The Company also enters into certain transactions in the normal course of business with other affiliated entities including direct cost reimbursement for shared phone and secretarial services.  For the nine-month period ended September 30, 20092010 and 2008,2009, the affiliated entities charged the Company $53,546$32,000 and $42,000,$54,000, respectively, of expense reimbursement and the Company charged the affiliates $98,000$88,000 and $73,000,$98,000, respectively, for such expense reimbursements.

Note 5 - Commitments and Contingencies

Under certain of the Company’s automobile and workers compensation insurance policies, the Company can either receive a return of premium paid or be assessed for additional premiums up to pre-established limits.  Additionally, under the policies in certain instances the risk of insured losses is shared with a group of similarly situated entities. As of September 30, 2009, management has appropriately recognized estimated expenses and liabilities related to the program.  Estimated loss accruals for potentially unknown losses are developed using actual loss histories and other relevant information.  As of September 30, 2010, management has appropriately recognized estimated expenses and liabilities related to the program.

From time to time as incidental to its operations, the Company becomes involved in various lawsuits and/or disputes.  Primarily as an operator of an extensive trucking fleet, the Company is a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry.  Management of the Company is presently unaware of any claims against the Company that are either outside the scope of insurance coverage, or that may exceed the level of insurance coverage, and could potentially represent a material adverse effect on the Company’s financial position or results of operations.


Item 2.                      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

 -Marketing

Marketing segment revenues, operating earnings and depreciation were as follows (in thousands):

 Nine Months Ended  Three Months Ended  Nine Months Ended  Three Months Ended 
 
September 30,
  
September 30,
  
September 30,
  
September 30,
 
 
2009
  
2008
  
2009
  
2008
  
2010
  
2009
  
2010
  
2009
 
Revenues                        
Crude oil $1,304,092  $3,282,421  $530,981  $1,198,779  $1,429,146  $1,304,092  $449,458  $530,981 
Natural gas  10,310   8,511   3,112   2,507   8,410   10,310   2,534   3,112 
Refined products  77,051   175,497   28,741   63,323   94,374   77,051   32,420   28,741 
Total $1,391,453  $3,466,429  $562,834  $1,264,609  $1,531,930  $1,391,453  $484,412  $562,834 
                                
Operating Earnings (loss)                
Operating Earnings                
Crude oil $13,425  $224  $3,582  $(11,010) $8,307  $13,425  $3,861  $3,582 
Natural gas  2,197   1,833   192   551   2,253   2,197   847   192 
Refined products  477   (862)  78   280   153   477   (62)  78 
Total $16,099  $1,195  $3,852  $(10,179) $10,713  $16,099  $4,646  $3,852 
                                
Depreciation                                
Crude oil $1,527  $1,479  $496  $577  $1,634  $1,527  $578  $496 
Natural gas  124   122   41   41   43   124   1   41 
Refined products  398   431   131   137   382   398   128   131 
Total $2,049  $2,032  $668  $755  $2,059  $2,049  $707  $668 


 
1314
 

Supplemental volume and price information is as follows:

 Nine Months Ended  Three Months Ended  Nine Months Ended  Three Months Ended 
 
September 30,
  
September 30,
  
September 30,
  
September 30,
 
 
2009
  
2008
  
2009
  
2008
  
2010
  
2009
  
2010
  
2009
 
Field Level Purchase Volumes – Per day (1)
                        
Crude oil – barrels  66,200   66,900   64,100   70,900   67,300   66,200   65,700   64,100 
Natural gas – mmbtu’s  383,000   429,000   369,000   395,000   268,600   383,000   268,600   369,000 
                                
Average Purchase Price                                
Crude oil – per barrel $53.14  $115.14  $65.41  $116.88  $75.19  $53.14  $73.71  $65.41 
Natural Gas – per mmbtu’s $3.63  $9.31  $3.12  $9.18  $4.44  $3.63  $4.21  $3.12 
_____________________________

(1) Reflects the volume purchased from third parties at the oil and gas field level.

Crude oil revenues were elevated by 10 percent in the current nine-month period, while they were reduced forby 15 percent in the comparative current three-month period because of significantly lowerrelative to the same periods last year.  In contrast, average crude oil prices were elevated in both the comparative nine-month and three-month periods by 42 percent and 13 percent, respectively, as shown in the table above.  Volumes were relatively consistent between the comparative periods.  This apparent conflicting data is explained by the accounting requirement to reflect certain buy/sell arrangements on a net revenue basis.  As a result, a change in the Company’s customer mix will increase or decrease comparative reported revenues.  During 2010 a larger portion of sales were reported on a net revenue basis, substantially of fsetting the effect of increased average prices.

While comparative overallrevenues are increased for 2010, the total accounts receivable balance of $143,532,000 as of September 30, 2010 is reduced from the total accounts receivable balance of $155,941,000 as of December 31, 2009.  Total accounts receivable, which include the activities of all segments, were reduced in September 2010 relative to December 2009 because natural gas sales volumes were reduced in 2010.  Commodity sales of natural gas are designated as trading activity and are therefore reported on a net revenue basis only.  As a result, reduced natural gas volumes do not noticeably impact gross revenues while they do noticeably impact accounts receivable comparisons.

 The effect of crude oil prices through September 30, 2009 were reduced, the direction of change in prices was generally increasingon operating earnings during the period.  Thenine month period of 2010 was nominal as the average acquisition price of crude oil moved from the $41$74 per barrel level at the beginning of the year to $69$75 per barrel for September 2010. For the September 2009 average purchase price.  This event produced annine-month period of 2010 inventory liquidation gain of $4,912,000 for the first nine months of 2009.  An opposite event occurred in 2008 asgains totaled $47,000.  While overall crude oil prices declinedin the current year were generally flat, during the 2009 period, crude oil prices consistently rose from the $90$41 per barrel range in January 2008 to the $77$69 per barrel range in September 20082009 producing a $3,100,000 inventory liquidation loss.  For the comparative third quarter period in 2008, crude oil prices were falling dramatically with a $11.6 million inventory valuation loss occurring in the three-month period.  This compares to a $849,000$4,912,000 inventory liquidation gain of which $849,000 occurred in the third quarter.

The impact on crude oil operating earnings from inventory liquidation gains is summarized as follows:

  Nine Months Ended  Three Months Ended 
  
September 30,
  
September 30,
 
  
2010
  
2009
  
2010
  
2009
 
As Reported Operating            
Earnings $8,307  $13,425  $3,861  $3,582 
                 
Inventory Liquidation (Gains)  (47)  (4,912)  (1)  (849)
                 
Comparative Operating                
Earnings $8,260  $8,513  $3,860  $2,733 

Excluding the impact of inventory values, comparative crude oil operating earnings were consistent for the three-monthcomparative nine-month periods with improvement reflected in the current quarter relative to last year.  Current period ended September 30, 2009.operating earnings benefited from improved unit margin opportunities and the reversal of $710,000 in previously recorded accrual items following the final accounting true-up of such items.  As of September 30, 20092010 the Company held 172,965168,591 barrels of crude oil inventory at an average price of $69.62$75.14 per barrel.

Natural gas sales are reported net of underlying natural gas purchase costs and thus reflect gross margins.margin.  As shown above, except for the third quarter of 2010 such margins were consistent betweenreduced during 2010 as average field level purchase volumes were off 30 percent for the periods exceptperiod (see table above). Current volumes have declined because the Company’s suppliers have been curtailing drilling activity due to lower natural gas prices.  In addition, development of the nation’s natural gas infrastructure including more diverse areas of production and expanded pipeline and storage capacity have served to reduce purchase opportunities and per unit margins.  In contrast to the general trend, during the third quarter of 2009 when mild weather patterns across the nation served to suppress price volatility and hence margins.

Last year, the refined products segment operating loss occurred because the rate of increase in the crude oil driven supply cost of motor fuel exceeded the rate of increase in the market value of such fuels.  As a result, per unit margins narrowed and did not cover fixed operating expenses. Also, the Company’s supplier of biodiesel fuel failed to deliver scheduled product resulting in a direct loss to2010, the Company of approximately $400,000.  The product was contractedable to the Company at a fixed priceadjust its marketplace strategy and the Company had entered into an offsetting price protection agreement (a swap).  Although the underlying material did not ship as scheduled, the Company honored its swap commitment producing the resulting loss. Subsequently, the Company has revised the termsrecapture some of its biodiesel fuel supply contracts to shift the price risk to the supplier in order to avoid the recurrence of such items.  Also during the third quarter of 2008, refined product prices were decliningmargin opportunities which as typically occurs, improved unit margins  in the 2008 period as the rate of reduction in product supply acquisition costs exceeded the rate of reduction in end-market wholesale prices.bolstered operating earnings.

Historically, prices received for crude oil and natural gas as well as derivative products have been volatile and unpredictable with price volatility expected to continue.

14

-           Transportation

Transportation segment revenues, earnings and depreciation are as follows (in thousands):

 Nine Months Ended     Three Months Ended     Nine Months Ended     Three Months Ended    
 
September 30,
  Increase  
September 30,
  Increase  
September 30,
  Increase  
September 30,
  Increase 
 
2009
  
2008
  
(Decrease)
  
2009
  
2008
  
(Decrease)
  
2010
  
2009
  
(Decrease)
  
2010
  
2009
  
(Decrease)
 
                                    
Revenues $33,701  $53,974   (37.5)% $11,471  $18,591   (38.3)% $43,372  $33,701   28.7% $15,288  $11,471   33.3%
                                                
Operating earnings $1,678  $3,746   (55.2)% $1,244  $1,615   (22.9)% $5,122  $1,678   205.2% $2,108  $1,244   69.4%
                                                
Depreciation $2,852  $2,859   (.2)% $1,011  $951   6.3% $3,333  $2,852   16.8% $1,108  $1,011   9.6%

Revenues and operating results turned downwardimproved for the transportation segment in 20092010 due to reducedincreased customer demand.  The Company’s customers are predominately consist of the domestic United States petrochemical industry and demand for such products is driven primarily by activity within the housing and automotive sectors.  The current national economic recession has severely and adversely impacted this segment of the Company’s business.  Customer demand is down approximately 30% and,recovered to date, has shown only limited signs of recovery.  Typically, assome extent.  As transportation revenues decline,increase or decrease, operating earnings declinewill typically increase or decrease at a faster rate, as measured by percentage, due toan accelerated rate.  This trend results because the fixed cost components of the Company’s operation do not vary with changes in revenues.  As currently configured, operating costs.  In March 2009,earnings project at break-even levels when quarterly revenues average approximately $11.8 million.  Above that level operating earnings will grow and below that level losses result.

Transportation segment depreciation increased in 2010 as the Company institutedbegan replacing older fully depreciated tractor units with new model year vehicles.  An additional 100 replacement units at an estimated cost cutting measures including a reduction in personnel levels in order to better align costs withof $11 million is also planned for the Company’s level of revenues.  As a result, the rate of decline in operating earnings slowed relative to the rate of decline in revenues beginning in the secondfourth quarter of 2009.  In addition during the third quarter of 2009 the Company earned an approximate $467,000 credit against its automobile and workers compensation insurance premiums.  Such premium credits served to reduce operating expenses and were a direct result of reduced activity within the transportation segment.this year.

15

-           Oil and Gas

Oil and gas segment revenues and operating earnings are primarily a function of crude oil and natural gas prices and volumes.  Comparative amounts for revenues, operating earnings and depreciation and depletion are as follows (in thousands):

 Nine Months Ended     Three Months Ended     Nine Months Ended     Three Months Ended    
 
September 30,
  Increase  
September 30,
  Increase  
September 30,
  Increase  
September 30,
  Increase 
 
2009
  
2008
  
(Decrease)
  
2009
  
2008
  
(Decrease)
  
2010
  
2009
  
(Decrease)
  
2010
  
2009
  
(Decrease)
 
Revenues $6,356  $14,259   (55.4)% $1,994  $5,122   (61.1)% $8,079  $6,356   27.1% $2,755  $1,994   38.2%
                                                
Operating earnings (loss) $(2,557) $2,607   (198.1)% $(1,698)  558   (404.3)% $76  $(2,557)  102.9% $(476) $(1,698)  71.9%
                                                
Depreciation and depletion $2,616  $4,266   (38.7)% $858  $1,379   (37.8)% $3,033  $2,616   15.9% $1,060  $858   23.5%


15

The revenue and earnings declineimprovement for the oil and gas segment is attributable to decreased crude oil and natural gas pricesprice increases as shown in the tablestable below.  DepreciationOperating earnings in 2010 also benefited from reduced exploration and depletion expense is reducedimpairment expenses as shown in the current period because a significant decline in hydrocarbon prices at year-end December 31, 2008 caused producing property impairment provisions to be recorded.  Such charges reduced the level of capitalized costs for amortizing in the current period.second table below.

Production volumes and price information is as follows (in thousands):

 Nine Months Ended  Three Months Ended  Nine Months Ended  Three Months Ended 
 
September 30,
  
September 30,
  
September 30,
  
September 30,
 
 
2009
  
2008
  
2009
  
2008
  
2010
  
2009
  
2010
  
2009
 
Crude Oil                        
Volume – barrels  39,148   37,810   11,521   12,100   40,605   39,148   14,602   11,521 
Average price per barrel $54.00  $114.96  $65.14  $120.12  $75.04  $54.00  $72.78  $65.14 
                                
Natural gas                                
Volume – mcf  981,918   913,800   316,002   325,100   967,051   981,918   324,865   316,002 
Average price per mcf $4.32  $10.85  $3.94  $11.26  $5.20  $4.32  $5.21  $3.94 

Comparative exploration costs are summarized in the table below.  As shown, prospectand impairment expense was increased in 2009 as certain adverse drilling results lead to unfavorable capitalized costs valuations.  Exploration cost components were as follows (in thousands):

 Nine Months Ended  Three Months Ended  Nine Months Ended  Three Months Ended 
 
September 30,
  
September 30,
  
September 30,
  
September 30,
 
 
2009
  
2008
  
2009
  
2008
  
2010
  
2009
  
2010
  
2009
 
Dry hole expense $365  $1,860  $60  $1,191  $418  $365  $116  $60 
Prospect impairments  2,761   1,293   1,865   421   1,817   2,761   1,028   1,865 
Seismic and geological  676   653   172   131   54   676   31   172 
                                
Total $3,802  $3,806  $2,097  $1,743  $2,289  $3,802  $1,175  $2,097 

During the first nine months of 2009,2010, the Company participated in the drilling of 2229 successful wells with sevensix dry holes.  Additionally, the Company has an interest in nine23 wells that were in process on September 30, 2009.2010.  Evaluation on the in-process wells is anticipated during the fourth quarter of 2009.2010.  Participation in the drilling of approximately five10 wells is planned for the remainder of 20092010 on the Company’s prospect acreage in Arkansas, Kansas, Louisiana and Texas.

-           Outlook

The Company recently announced its successful participation in four wells in the Haynesville Shale formation of Nacogdoches County, Texas.  These productive wells should boost fourth quarter 2009 natural gas volumes and revenues.  The marketing and transportation segments are also forecast to be stable and profitable during the fourth quarter.  Absent declines in crude oil and natural gas prices, upcoming year-end results should show improvement over the current level of earnings.

 
16
 

-           Outlook

The marketing and transportation segments have been performing at expected levels and business currently looks to be holding firm.  Increased crude oil production in the Company’s South Texas area of marketing operations is also occurring as the Eagle Ford shale play is being developed in the region.  In contrast to the recent strength in the crude oil markets, natural gas prices have been in decline falling below $4 per mcf.  At such prices, the Company’s future oil and gas segment operating earnings will be reduced and reduced drilling activity is planned for 2011.

Liquidity and Capital Resources

The Company’s liquidity primarily derives from net cash provided by operating activities and such amount was $26,494,000 and $26,979,000, and $28,799,000respectively, for each of the nine-month periods ended September 30, 20092010 and 2008, respectively.2009.  As of September 30, 20092010 and December 31, 2008,2009, the Company had no bank debt or other forms of debenture obligations.  Cash and cash equivalents totaled $36,728,000$30,303,000 as of September 30, 2009,2010, and such balances are maintained in order to meet the timing of day-to-day cash needs.  Working capital, the excess of current assets over current liabilities, totaled $44,060,000 as of September 30, 2010.

Capital expenditures during the nine-month period of 2010 included $3,692,000 for marketing and transportation equipment additions and $9,393,000 in property additions associated with oil and gas exploration and production activities.  For the remainder of 2010, the Company anticipates expending an additional approximate $3 million on oil and gas exploration projects to be funded from operating cash flow and available working capital.  In addition, approximately $11 million will be expended during the fourth quarter of 2010 for the purchase of 100 trucks-tractors for the transportation segment and approximately $1.5 million will be expended for the purchase of eight tractors and eight trailers for the marketing segment with funding for such purchase from available cash flow.  The units will serve to incre ase the marketing segment fleet.

From time to time, the Company may also make cash prepayments to certain suppliers of crude oil and natural gas tofor the Company’s marketing operations.  Such prepayments totaled $5,504,000$5,150,000 as of September 30, 20092010 and such amounts will be recouped during the current fourth quarterand advanced from month to month as the suppliers deliver product to the Company.  The Company also requires certain counterparties to post cash collateral with the Company in order to support their purchases from the Company.  Such cash collateral held by the Company totaled $4,754,000$3,100,000 as of September 30, 2009.  Working capital,2010.    The Company also maintains a stand-by letter of credit facility with Wells Fargo Bank to provide for the excessissuance of current assets over current liabilities, totaled $49,528,000 asstand-by letters of credit to the Company’s suppliers of crude oil and natural gas (see Note 1 to Financial Statements).  The issuance of stand-by letters of credit enables the Company to avoid posting cash collateral when procuring crude oil and natural gas supply.  As of September 30, 2009.2010, letters of credit outstanding totaled $22.6 million.  Management believes current cash balances, together with expected cash generated from future operations, will be sufficient to meet short-term and long-term liquidity needs.

The Company utilizes cash from operations to make discretionary investments in its oil and natural gas exploration, marketing and transportation businesses which compriseand this comprises substantially all of the Company’s investing cash outflows for each of the periods in this filing.  The Company does not look to proceeds from property sales to fund its cash flow needs.  Except for a total of $2.3$1.6 million in operating lease payments for transportation equipment and office lease space, the Company’s future commitments and planned investments can be readily curtailed if operating cash flows contract.

Capital expenditures during the first nine months of 2009 included $3,494,000 for marketing and transportation equipment additions and $6,011,000 in property additions associated with oil and gas exploration and production activities.  For 2009, the Company anticipates expending an additional approximate $8 million on oil and gas exploration projects to be funded from operating cash flow and available working capital.  In addition, approximately $960,000 will be expended during the final quarter of 2009 toward the purchase of 48 tractors scheduled to come off lease financing and an additional approximate $4.8 million for the purchase of 44 new tractor replacements with funding for such purchase from available cash flow.

Historically, the Company pays an annual dividend in the fourth quarter of each year, andyear.  In December 2009 the Company has declaredpaid a $.50 per common share or $2,109,000 dividend to shareholders of record as of December 1, 2009.shareholders.  The most significant item affecting future increases or decreases in liquidity is earnings from operations and such earnings are dependent on the success of future operations (see Item 1A Risk Factors in the  Annual ReportCompany’s annual report on Form 10-K for the year ended December 31, 2008)2009).  While the Company has available bank lines of credit (see below), management has no current intention to utilize such lines of credit or issue additional equity.

- Banking Relationships

In August 2009, the Company entered into a Credit and Security Agreement with Wells Fargo Bank to provide a $40 million letter of credit facility.  Pursuant to the Wells Fargo agreement, the Company discontinued its previous working capital lines of credit with Bank of America.  The Wells Fargo facility provides for the issuance of up to $40 million of letters of credit to support the Company’s crude oil and natural gas marketing businesses based on the eligible accounts receivable within those operations.  Letters of credit outstanding totaled $19.9 million as of September 30, 2009.  The letter of credit facility places certain restrictions on the Company’s Gulfmark Energy, Inc. and Adams Resources Marketing, Ltd. subsidiaries.  Such restrictions included the maintenance of a combined 1.1 to 1.0 current ratio and the maintenance of positive net earnings as defined among other restrictions.  Management believes the Company is currently in compliance with all such covenants.

 
17
 


Critical Accounting Policies and Use of Estimates

There has been no material changes to the Company’s “Critical Accounting Policies and Use of Estimates” disclosures that have occurred since the disclosures provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.2009.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

There has been no material changes to the Company’s “Quantitative and Qualitative Disclosures about Market Risk” that have occurred since the disclosures provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.2009.

Forward-Looking Statements –Safe Harbor Provisions

This quarterly report for the period ended September 30, 20092010 contains certain forward-looking statements covered by the safe harbors provided under Federal securities law and regulations.  To the extent such statements are not recitations of historical fact, forward-looking statements involve risks and uncertainties.  In particular, statements included herein and/or in the Company’s latest annual report on Form 10-K under the captions (a) Production and Reserve Information, (b) Regulatory Status and Potential Environmental Liability, (c) Management’s Discussion and Analysis of Financial Condition and Results of Operations, (d) Critical Accounting Policies and Use of Estimates, (e) Quantitative and Qualitative Disclosures about Market Risk, (f) Income Taxes, (g) Concentration of Credit Risk, (h) Price RiskR isk Management Activities, and (i) Commitments and Contingencies, among others, contain forward-looking statements.  Where the Company expresses an expectation or belief regarding future results of events, such expression is made in good faith and believed to have a reasonable basis in fact.  However, there can be no assurance that such expectation or belief will actually result or be achieved.

With the uncertainties of forward looking statements in mind, the reader should consider the risks discussed elsewhere in this report and other documents filed with the Securities and Exchange Commission from time to time and the important factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008,2009, under “Item 1A Risk Factor”Factors” that could cause actual results to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company.

Item 4.  Disclosure Controls and Procedures

 The Company maintains “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’sSecurities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.  As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of September 30, 2009.the end of the period covered by this report are effective to ensure that information required to be disclosed in the Company’s Exchange Act filings is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms.

18


Changes in Internal Control over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 20092010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 
1819
 


PART II.  OTHER INFORMATION


Item 1.


From time to time as incident to its operations, the Company becomes involved in various lawsuits and/or disputes.  Primarily as an operator of an extensive trucking fleet, the Company may be a party to motor vehicle accidents, worker compensation claims or other items of general liability as would be typical for the industry.  Management of the Company is presently unaware of any claims against the Company that are either outside the scope of insurance coverage, or that may exceed the level of insurance coverage, or that may exceed the level of insurance coverage, and could potentially represent a material adverse effect on the Company’s financial position or results of operations.

Item 1A Item 1A.  - There are no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.2009.

Item 2 Item 2.  - None

Item 3.     -  None

Item 4.     -  None
Item 4.     -  Removed and reserved

 Item 5.Item 5.     -  None

Item 6.  Exhibits

4(b)  - Credit and Security Agreement between Gulfmark Energy, Inc, Adams Resources Marketing, Ltd and Wells Fargo Bank, National Association dated August 27, 2009

31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
31.2Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
32.1Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
32.2Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  


 
1920
 

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.


 ADAMS RESOURCES & ENERGY, INC
 (Registrant)
  
  
  
Date:  November 13, 200912, 2010
By  /s/K. S. Adams, Jr.
 K. S. Adams, Jr.
 Chief Executive Officer
  
  
 
By /s/Frank T. Webster
 Frank T. Webster
 President & Chief Operating Officer
  
  
 
By /s/Richard B. Abshire
 Richard B. Abshire
 Chief Financial Officer


 
2021
 

EXHIBIT INDEX


Exhibit 
NumberDescription
4(b)
Credit and Security Agreement between Gulfmark Energy, Inc, Adams Resources Marketing, Ltd and Wells Fargo Bank, National Association dated August 27, 2009
  
31.1Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
31.2Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
32.1Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
32.2Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 
2122