1
FORM 10K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
MARK ONE
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
TRANSITION REPORT pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM N/A TO N/A
COMMISSION FILE NUMBER: 1-100
CROFF ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF INCORPORATION IRS FEDERAL INDENTICATION NUMBER
UTAH 87-0233535
621 17TH STREET
SUITE 830
DENVER, COLORADO 80293
ADDRESS OF PRINCIPAL ZIP CODE
EXECUTIVE OFFICES
Registrant's telephone number, including area code:303)383-1555
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common-$0.10 Par Value None
Securities registered pursuant to Section 12(g) of the Act: None
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
As of March 1, 2001, the aggregate market value of the common
voting stock held by non-affiliates of the Registrant, computed
by reference to the average of the bid and ask price on such date
was: $301,265.
As of March 1, 2001, the Registrant had outstanding 526,265
shares of common stock ($0.10 par value)
TABLE OF CONTENTS
PART I
Page
ITEM 1 BUSINESS 3
ITEM 2 PROPERTIES 7
ITEM 3 LEGAL PROCEEDINGS... ..13
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS ..13
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY .14
ITEM 6 SELECTED FINANCIAL DATA 16
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..16
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA ..19
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES 19
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .19
ITEM 11 EXECUTIVE COMPENSATION ..20
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ..22
ITEM 13 CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS .23
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND
REPORTS ON FORM 8-K .24
SIGNATURES 25
FINANCIAL STATEMENTS 26
ITEM 1. BUSINESS
Forward-looking statements in this report, including without
limitation, statements relating to the Company's plans,
strategies, objectives, expectations, intentions and adequacy of
resources, are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Investors are
cautioned that such forward-looking statements involve risks and
uncertainties; including without limitation to,the following:
(i)the Company's plans, strategies,objectives,expectations
and intentions are subject to change at any time at the
discretion of the Company; (ii) the Company's plans and results
of operations will be affected by the Company's ability to manage
its growth and inventory(iii) other risks and uncertainties
indicated from time to time in the Company's filings with the
Securities and Exchange Commission. Neither the Securities and
Exchange Commission nor any other regulatory body takes any
position as to the accuracy of forward-looking statements.
(a) Description of Business
Croff Enterprises, Inc. (formerly Croff Oil Company)and
hereafter"Croff" or "the Company, was incorporated in Utah in
1907 as Croff Mining Company. The Company changed its name to
Croff Oil Company in 1952,and in 1996 changed its name to Croff
Enterprises,Inc. The Company, however, continues to operate its
oil and gas properties as Croff Oil Company. The principal
office of the Company is located at 621 17th Street, Suite 830,
Denver,Colorado 80293. The telephone number is (303) 383-1555.
Croff is engaged in the business of oil and gas exploration
and production, primarily through ownership of perpetual mineral
interests and acquisition of producing oil and gas leases. The
Company's principal activity is oil and gas production from non-
operated properties. The Company also acquires, owns,and sells,
producing and non-producing leases and perpetual mineral interests.
Over the past ten years, Croff's primary source of revenue has been
oil and gas production from leases and producing mineral interests.
Croff participates as a working interestowner in approximately
42 wells. Croff holds small royalty interests in over 200 wells.
Croff primarily accumulated cash in the year 2000,but did
invest about $28,000 for a 5% working interest in a test well in
Leflore County, Oklahoma, in January 2001. Croff did not buy any
new production in 1999 as it had made significant purchases in
1998 and was repaying debt incurred to pay for those purchases.
In 1998, Croff purchased working interests in six natural gas
wells in the State of Oklahoma. These wells now provide the
largest source of revenue to Croff from any single operating
company. In 1997, Croff purchased working interests in three gas
wells in Michigan, a gas well in Colorado, and an oil well in
Texas. All of the wells from which Croff receives revenues are
operated by other companies and Croff has no control over the
factors which determine royalty or working interest revenues such
as markets, prices and rates of production.
In 1995, Croff purchased a two percent interest in a
mortgage note secured by an equal interest in an Indiana Coal
Mine. This venture failed when the utility canceled the coal
contract,and after a partial recovery, Croff wrote off the
balance of this investment in 1999. In 1997, the Company leased
several tracts of its perpetual mineral interests in Northeast
Utah as drilling activity increased. Drilling and leasing
activity nearly ceased on the Company's properties in 1998 and
1999 as oil and natural gas prices dropped. In late 2000,the
Company again leased a tract of its' perpetual mineral interests.
Please see Item2, Properties, for charts showing the
Company's sales, production and cost of production of Oil and
Natural Gas.
Croff has one part-time employee, the President, and two
Assistant Secretaries,who work for the Company as part of its
contracted office space arrangement described in Item 13.
(b) Current Activities
In the year 2000, the Company's policy was to accumulate
cash from its existing producing wells in order to repay monies
that had been borrowed from the common stock cash position and
used for the benefit of Preferred B shareholders to purchase
certain gas wells in 1998. Therefore, the Company did not
actively pursue purchasing new properties in the year 2000. The
Company did participate in the work over of several wells, and in
December,2000, after the cash reserves had been restored,the
Company participated as a 5% working interest owner in a new well
drilled by Chesapeake Energy in Leflore County, Oklahoma. This
well was completed,but has not established commercial
production. In 2000, the Company continued to actively search
for acquisitions or a possible merger partner.
In 1999 the Company did not purchase any new properties as
it paid off debt and replenished its cash reserves. In 1998, the
Company purchased six gas wells located in Oklahoma. The Company
spent $208,000, primarily from its cash reserves, to buy these
working interests. While the wells occasionally produce oil or
condensate, these wells are primarily natural gas wells. Because
of the low prices of oil and natural gas through mid-1999, the
effect of this greater production to the Company was offset by
low prices. Currently the Company's natural gas and oil
production is the largest it ever has been, and the Company
produced the highest revenues in its recent history.
In 1996, the shareholders voted to adopt changes in the
capital structure of the Company in order to provide more
liquidity to the shareholders. The purpose of this
recapitalization was to allow the Company to pursue ventures
outside of the oil and gas business while retaining the Company's
core oil and natural gas assets. In order to do this, the
Company created a class of Preferred B stock to which all of the
perpetual mineral interests and other oil and gas assets were
pledged. Thus the Preferred B stock represents the oil and gas
assets of the Company and all other assets are represented by the
common stock. Each common shareholder received an equal number
of Preferred B shares, one for one, at the time of this
restructuring of the capital of the Company.
The Preferred B shares are not publicly traded, but are
bought and sold by shareholders privately. The Company provides,
each year, a clearinghouse to assist shareholders wishing to
trade Preferred B shares. Any shareholder or any outsider is
able to bid and ask for the Preferred B shares of the Company.
This process first took place in January and February of 1997,
again in 1998, and 1999. In 1997, the sale of the Preferred B
shares were closed at prices ranging from $.75 to $.90 per share.
In 1998, the average price was approximately $1.00 per share. In
1997, approximately 13,500 shares were traded, and in 1998
approximately 30,000 were traded. In 1999, the clearinghouse was
postponed until after the 1999 10-K was mailed to shareholders,
but resulted in 7,370 shares traded at $1.05 per share. This
system provides some liquidity to the Preferred B shareholders,
and the Clearinghouse is paid for by the Company without charge
or commission to the shareholders.
The Board has adopted a policy of seeking a reverse merger
partner which would involve merging a larger private company with
Croff. The Board intends to continue to search for a potential
acquisition or possible merger partner.
(c) Major Customers
Customers which accounted for over 10% of revenues were as
follows for the years ended December 31, 1998, 1999 and 2000:
1998 1999 2000
Oil and natural gas:
Coastal Production Company 13.9% 10.0% 11.0%
Burlington Resources Oil and Gas Company 10.4% 13.2% 13.2%
Jenex Petroleum Corp. 21% 26.9% 28.9%
(d) Financial Information About Industry Segments
The Company's operations presently consist of oil and gas
production. During previous years the Company has generated
revenues through the purchase and resale of oil and gas leasehold
interests, however, no significant revenues were generated from
this source for the last five years. Further information
concerning the results of the Company's operations in this one
industry segment can be found in the Financial Statements.
The following chart shows the Company's production of oil
and natural gas by State:
STATE GEOGRAPHIC DISTRIBUTION OF PRODUCTION
Oil Natural Gas
State BBLS Produced MCF Produced
Alabama -- 411
Colorado 170 4087
Michigan 2 7083
Montana 269 --
New Mexico -- 16078
North 744 224
Dakota
Oklahoma 712 31109
Texas 8 2320
Utah 2061 4733
Wyoming 934 5455
(e) Environmental and Employee Matters
The Company's interest in oil and gas operations are
indirectly subject to various laws and governmental regulations
concerning environmental matters, as well as employee safety and
health within the United States. The Company does not believe
that it has any direct responsibility for or control over these
matters, as it does not act as operator of any oil or gas wells.
Oil and gas operations are subject to particular and
extensive environmental concerns, hazards, and regulations.
Among these regulations would be included the Toxic Substance
Control Act; Resources Conservation and Recovery Act; The Clean
Air Act; The Clean Water Act; The Safe Drinking Water Act; and
The Comprehensive Environmental Response, Compensation and
Liability Act (also known as Superfund). Oil and gas operations
are also subject to Occupational Safety and Health Administration
(OSHA) regulations concerning employee safety and health matters.
The United States Environmental Protection Agency (EPA), OSHA,
and other federal agencies have the authority to promulgate
regulations that have an impact on all oil and gas operations.
In addition, various state and local authorities and
agencies also impose and regulate environmental and employee
concerns pertaining to oil and gas production, such as The Texas
Railroad Commission. Often, though not exclusively, compliance
with state environmental and employee regulations constitutes an
exemption or compliance with federal mandates and regulations.
As indicated above, the Company does not have any direct
control over or responsibility for insuring compliance with such
environmental or employee regulations as they primarily pertain
to the operator of oil and gas wells and leases. In no instances
does the Company act as the operator of the oil and gas wells
from which it receives revenues. The effect of a violation by an
Operator of a well in which the Company had a working interest
would be that the Company may incur its pro-rata share of the
cost of the violation.
The Company is not aware of any instance in which it was
found to be in violation of any environmental or employee
regulations or laws, and the Company is not subject to any
present litigation or claims concerning such matters. In some
instances the Company could in the future incur liability even as
a non-operator for potential environmental waste or damages or
employee claims occurring on oil and gas properties or leases in
which the Company has an ownership interest.
ITEM 2. PROPERTIES
Oil and Gas Mineral Interests and Royalties
The Company owns perpetual mineral interests which total
approximately 4,600 net mineral acres, of which approximately
1,100 net acres are producing. The mineral interests are located
in 110,000 gross acres in Duchesne, Utah, Wasatch and Carbon
Counties in Utah, and approximately 40 net mineral acres in La
Plata County, Colorado, and San Juan County, New Mexico.
In 2000, the Company expected an increase in leasing of its
perpetual mineral interests as the price of oil and natural gas
increased. This was not the case. The Company had no new
requests for leasing its minerals until December 2000. In
December 2000 the Company leased approximately 50 acres of its
gross mineral interests in Duchesne County, Utah. There was also
increased production from the Company's perpetual mineral
interests in San Juan County, New Mexico, as in field drilling
continued on the coal bed methane gas. The Company also received
revenues which had been suspensed, from the Company's holdings in
La Plata County, Colorado. These leases were part of a group of
patented mineral rights being challenged by the Colorado Ute
Indian Tribe as being invalid because they were in an Indian
reservation. This lawsuit eventually reached the US Supreme
Court where the Court ruled in favor of the holders of the
mineral interests. Upon this decision, Amoco released suspensed
royalties to numerous companies, among them Croff Oil Company.
The Company expects that its leasing should increase in the year
2001.
In 1998-1999, there was a virtual halt to leasing on the
Company's acreage due to declining petroleum prices. While the
leasing had increased in 1996 and 1997, leasing activity came to
a halt shortly after the first of 1998. Croff participated in
royalties on two wells which were drilled in Duchesne County,
Utah and one well in Wyoming. In addition, three small leases of
15.66 net acres, 6.8 net acres, and 50.69 net acres were drilled
late in 1997, and the early part of 1998. These leases were for
mineral interests in Duchesne County, Utah.
After a period of approximately four years in which there
was minimal leasing, the Company entered into four leases on
acreage in Duchesne County, Utah, in 1997. This generated
several thousand dollars in lease bonus revenue and new
production on some of the acreage.
The Companies revenues from oil and natural gas royalties
increased materially in the year 2000. This increase was due to
the substantial increase in the price of oil and natural gas.
Actual production of natural gas only increased slightly,
primarily in San Juan County, New Mexico. Almost the entire
increase in the oil and gas revenues was due to higher prices and
not increased production. Oil and gas revenues reached over
$3687,000 in the year 2000, compared to $214,000 in 1999 and
$194,000 in 1998.
As of December 31, 1999, the Company was receiving royalties
from approximately 200 producing wells in the Bluebell-Altamont
field in Duchesne and Uintah Counties, Utah. Because of the
drastic drop in oil prices in 1998, there were only three wells
drilled. Royalties also were received from scattered interests
in Wyoming, Colorado, New Mexico, Alabama, and Texas. Natural
gas royalty income increased from 1997, to 1999 with increased
gas sales from royalties on coal bed methane gas in San Juan
County, New Mexico, and La Plata County, Colorado. Royalty
income is contingent upon market demand, prices, producing
capacity, rate of production, and taxes, none of which are in the
control of the Company.
The most important factor to the Company's revenue and
profit, is the price of oil and natural gas. Posted prices of
oil dropped drastically during the period from late 1997 through
mid-1999. Natural Gas prices were only about two-thirds of the
1997 price during 1998 and 1999. Most onshore U.S. production is
uneconomic at these prices, so oil exploration in the continental
U.S. was almost shut down. Drilling Activity is expected to
expand in 2001. Currently Croff's prices are over $25 a barrel
for oil and over $4.00 an MCF for natural gas. Because much of
Croff's natural gas is in the Rocky Mountains and Oklahoma,
Croff's average price for natural gas is not as high as gas
producers in Texas and the Gulf area receive.
Oil and Gas Working Interests
In 2000, the Company received more than half of its total
oil and natural gas revenues from working interests, for the
first time. The Company has sought to increase its production of
oil and natural gas through the purchase of producing leases.
The Company has found, in general, that it is able to purchase
working interests at a more reasonable price than royalty
interests. A working interest requires the owner to pay its
proportionate share of the costs of producing the well, while a
royalty is paid out of the revenues without a deduction for the
operating costs of the well. When oil or natural gas prices
drop, the proportion of the revenues going to pay the expense of
operating the well increases, and when oil and natural gas prices
are rising, expenses decrease as a percentage of total revenues.
The Company did not purchase any material working interest in the
year 2000, except for its participation as a five percent owner
in a well in Leflore County, Oklahoma. The Company purchased
minor interests in existing wells, which did not significantly
increase revenue. The Company intends to purchase working
interests in oil and natural gas wells in the year 2001. The
Companies purchase of working interests are intended to offset
the normal decline of the Companies current oil and natural gas
wells and, hopefully, increase its production over time.
In 1999, the Company realized its largest natural gas
revenues from the working interests in six Oklahoma natural gas
wells it purchased in 1998. These wells are primarily natural
gas, but occasionally produce oil. The Company paid the sum of
$208,000 for minority working interests in the following leases.
Two wells in Woodward County, Oklahoma; a 13% working interest in
the Harper #1 and a 16% working interest in the Miller well. One
well in Caddo County, Oklahoma; a 22% working interest in the
Fannie Brown well. In Kingfisher County, Oklahoma, there were
two wells; a 30% working interest in the Dickerson and a 43%
working interest in the Mueggenborg. The sixth well, in LeFlore
County, Oklahoma, is a 32% working interest in the Duncan well.
These wells were purchased from St. James Oil Company, which
is owned by the brother of the President of Croff. Jenex
Operating Company, which was owned one half by St. James Oil Ltd.
was sold to Jenco Petroleum which is owned by Gerald Jensen, the
President of Croff, in a separate transaction. Jenex Operating
Company is the operator of the wells, and agreed to provide a
credit of $150 per month per well against the operating expenses
of these wells as a condition of purchase. The Dickerson and
Mueggenborg sell natural gas through Conoco, and the Harper and
Miller sell gas through Oneok, Inc. The Fanny Brown sells its
gas to Pan Energy Services, Inc., and the Duncan to AOG. The
Company did not purchase any new working interests in oil and gas
wells in 1999, because of low prices reducing cash flow, and this
large purchase in 1998.
In 1997, the Company purchased an interest in seven wells.
The Company increased its interest in the Rentuer oil and gas
well in Wyoming, by purchasing a portion of Exxon's interest.
The Company purchased an interest in a helium and gas well in
Southeast Colorado. The Company also purchased a working
interest in an oil well in North Dakota. In November of 1997,
the Company purchased an interest in three gas wells in Michigan
for approximately $50,000.
The Company participated as a five percent (5%) working
interest owner in the drilling of a well in Leflore County
Oklahoma, on acreage current held by production from the
Company's Duncan well, in December, 2000.
Except for purchasing a small interest in the drilling of
one well in 1991, one well in 1995, one well in 1997, and one
well in 2000, the Company has not engaged in drilling activity.
The Company has participated, in the last five years, in the
reworking of four existing wells, three in Utah and one in North
Dakota. The Company generally participates in new wells drilled
by other operators as a royalty owner. A royalty owner generally
receives a smaller interest, but does not share in the expense of
drilling or operating the wells.
ESTIMATED PROVED RESERVES,
FUTURE NET REVENUES AND PRESENT VALUES
The Company's interests in proved developed and undeveloped
oil and gas properties have been evaluated by management for the
fiscal years ending December 31, 2000, 1999, and 1998. All of
the Company's reserves are located within the continental United
States. The following table summarizes the Company's estimate of
proved oil and gas reserves at December 31, 2000, 1999, and 1998.
Reserve Category
As Proved Developed Proved Undeveloped Total
of
12/3 Oil Gas Oil Gas Oil Gas
1 (Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf)
1998 36,686 410,651 12,612 13,423 49,298 424,074
1999 30,944 473,728 10,640 11,323 41,584 485,051
2000 31,099 460,124 9,045 9,625 40,144 469,749
The estimated future net reserves (using adjusted December
31 prices and costs for each respective year),and the present
value of future revenues (discounted at 10%); for the company's
proved developed and proved undeveloped oil and gas reserves, for
the years ended December 31, 1998, 1999,and 2000 are summarized
as follows:
Proved Developed Proved Undeveloped Total
Present Present Present
Value Future Value of Value
As Future Future Net Future Future of
of Net Net Revenue Net Net future
12/31 Revenue Revenue Revenue Revenue Net
Revenue
1998 $892,795 $579,423 $147,038 $95,428 $1,039,832 $674,851
1999 $1,170,62 $759,735 $178,508 $115,852 $1,349,133 $875,587
2000 $1,867,09 $1,113,293 $205,698 $127,986 $2,072,789 $1,241,279
"Proved developed" oil and gas reserves are reserves that
can be expected to be recovered from existing wells with existing
equipment and operating methods. "Proved undeveloped" oil and
gas reserves are reserves that are expected to be recovered from
new wells on undrilled acreage, or from existing wells where a
relative major expenditure is required for recompletion.
For additional information concerning oil and gas reserves,
see Supplemental Information - Disclosures about Oil and Gas
Producing Activities - Unaudited, included with the Financial
Statements filed as a part of this report.
Since December 31, 1999, the Company has not filed any
estimates of its oil and gas reserves with, nor were any such
estimates included in any reports to, any state or federal
authority or agency, other than the Securities and Exchange
Commission.
Oil and Gas Acreage
During the last five fiscal years, the Company decreased its
holdings in undeveloped oil and gas leases and generally
increased its holdings in developed oil and gas leases. The
Company increased its acreage position in 1998, but its holdings
have remained relatively static during the fiscal years ending
December 31, 1999, and 2000.
"Developed acreage" consists of lease acreage spaced or
assignable to production on wells having been drilled or
completed to a point that would permit production of commercial
quantities of oil or gas. "Gross acreage" is defined as total
acres in which the Company has any interest; "Net acreage" is the
actual number of mineral acres in which the mineral interest is
owned entirely by the Company. All developed acreage is held by
production.
The acreage is concentrated in Utah, Texas, Oklahoma,
Michigan, and Alabama and is widely dispersed in Colorado,
Montana, New Mexico, North Dakota, and Wyoming.
COMPANY'S INTEREST IN PRODUCTIVE WELLS
(Gross and Net)
The following table shows the Company's interest in
productive wells as of December 31, 2000.
Oil Wells (1) Gas Wells (2)
Gross Net Gross Net
208 1.81 42 2.1
(1) Primarily located in the Bluebell-Altamont field in
Northeastern Utah. These wells include some natural gas
production, but are primarily oil wells.
(2) Primarily located in Rio Blanco and LaPlata Counties,
Colorado, Beaver, Woodward and Kingfisher Counties, Oklahoma, San
Juan County, New Mexico, Otsego County, Michigan, Campbell
County, Wyoming, and Duchesne County, Utah.
HISTORICAL PRODUCTION TO COMPANY
The following table shows approximate net production to the
Company of crude oil and natural gas for the years ended December
31,1998, 1999, and 2000:
Crude Oil Natural Gas
(Barrels) (Thousands of
Cubic Feet)
Year Ended December 31, 1998: 5,278 65,673
Year Ended December 31, 1999: 4,610 74,300
Year Ended December 31, 2000: 4,909 71,487
Croff has no delivery commitments with respect to the above
production of oil and natural gas, since Croff is not the
operator, but allows the operator to contract for delivery. The
Company is unaware of the circumstances of any delivery
commitments on royalty wells.
AVERAGE SALES PRICE AND COSTS BY GEOGRAPHIC AREA
The following table shows the approximate average sales
price per barrel (oil) and Mcf (1000 cubic feet of natural gas),
together with production costs for units of production for the
Company's production revenues for 1998, 1999, and 2000.
1998 1999 2000
Average sales price per bbl of oil $11.74 $16.65 $27.73
Average production cost per bbl $ 5.57 $ 5.82 $ 6.59
Average sales price per Mcf of natural gas $ 1.81 $ 1.95 $ 3.27
Average production cost per Mcf of natural gas$ .61 $ .53 $ .83
The average production cost for oil increased in 2000 due to
higher taxes on oil wells when compared to 1999, because of
higher oil prices.
The average production cost for oil was higher in 1999, when
compared to 1998, $5.82 per barrel in 1999 and $5.57 per barrel
in 1998. Production costs per barrel of oil increased due to an
increase in the price of oil which increased the amount of
production taxes and higher prices for goods and services in the
oilfield.
The average production cost for natural gas increased in
2000 due to higher production taxes because of much higher
natural gas prices. To a lesser extent, the costs of goods and
services in the oilfield also increased.
The average production cost for natural gas dropped in 1999,
due in part to more royalty gas from San Juan County, New Mexico.
The cost of production for natural gas was $.83 in 2000, $ .53 in
1999, and $ .61 in 1998.
The Company's oil and gas operations are conducted by the
Company from its corporate headquarters in Denver, Colorado.
Mining Interests
The Company currently has no mining operations on its perpetual
mineral interests.
Corporate Offices and Employees
The corporate offices are located at 621 17th Street, Suite
830, Denver, Colorado 80293. The Company is not a party to any
lease, but during 2000 paid $1,600 per month to Jenex Petroleum
Corporation, which is owned by the Company's president, for
office space and all office services, including rent, phone,
office supplies, secretarial, land, and accounting. The
Company's expenses for these services were approximately $20,000
per year for the last five years. Beginning in 2001, the fee
increased to $2,000 per month. The Board, with the President
abstaining, voted to continue this arrangement at the higher
price on a month-to-month basis. The Company believes this
arrangement is below true market rate for equivalent facilities
and services.
The Company currently has five (5) directors. The Company
has one part time employee, the President, and two assistant
secretaries on a contract basis employed at the Company's
corporate offices. None of the officers or employees are
represented by a union.
Foreign Operations and Subsidiaries
The Company has no foreign operations, exports, or
subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
There are no legal actions of a material nature in which the
Company is engaged.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 20, 2000, the annual meeting of shareholders was
held. The shareholders authorized an increase in the number of
Preferred B shares authorized from 520,000 shares to 1,000,000
Preferred B shares. The Board authorized the issuance of 60,000
of these Preferred B shares to the Board of Directors to be
issued upon the exercise and payment for the existing stock
warrants on the common shares. These warrants had been issued
originally before the Preferred B shares were authorized and
while it had been intended that the warrants would include the
Preferred B shares, the amount authorized was not sufficient to
do this. Of 60,000 common and Preferred B shares available in
warrants to the Board of Directors, 10,000 have been exercised
and 50,000 remain unexercised. The shareholders also elected the
five board members listed under Item 10, and ratified Causey,
Demgen and Moore as auditors of the Company.
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED
STOCKHOLDER MATTERS
On February 28, 1996, the shareholders approved the issuance
of the Preferred B stock to be issued to each common shareholder
on the basis of one share Preferred B for each share of common
stock. The Company in the fourth quarter of 1996 issued all of
the Preferred Shares and delivered the Preferred B shares to each
of the shareholders for which it had a current address. The
Preferred B shares have an extremely limited market, but are
traded through a clearinghouse held by the Company from December
through February of each year, until 2000 and 2001, when the
clearinghouse was and will, be held in May and June. The Company
established a bid and ask format, whereby any shareholder could
submit a bid or ask price for each Preferred B share. During the
first bid and ask period in 1997, bids of $.75 were received and
asked prices of $.75 and $.90 were received, and 13,365 Preferred
B shares were traded at $.75 or $.90. In 1998, the bid prices
received were $.90-$1.00 and approximately 31,110 shares were
traded at this price. In 1999, only 550 shares were traded. In
2000, the Company traded 7,370 shares at a price of $1.05 per
share. The Company is acting as its own transfer agent, with
respect to these Preferred B shares only. The clearinghouse for
2001 will be held in May and June, after which the Company
intends to establish a bid and ask market full time on the
Internet at www.croff.com.
In November 1991, the Common Stock was reversed split, 1:10,
and a trading range of approximately $1.00 bid to $1.10 was
established and prevailed for approximately four years. A few
transactions were conducted in the pink sheets, but the stock was
not listed on any exchange and did not qualify to be listed on
the NASDAQ small cap exchange. Therefore, there has been almost
no trading in the Company's securities during the last five
years. The Company has purchased common stock on an unsolicited
basis during this period at a price of $.80 to $1.20 per common
share and certain limited transactions known to the Company were
traded within this same range. The chart below shows the limited
trading of which the Company is aware during the last three
years.
The trading range for 2000 is shown for Preferred shares and
common shares as a guide to the shareholders as to what
transactions have either taken place or of which the Company is
aware of the bid or ask price. One of the principal reasons for
issuance of the Preferred B shares, was to attempt to use the
common shares of the Company to grow the Company to a size
whereby an active trading market will develop.
COMMON SHARES - 526,315 SHARES OUTSTANDING
(The following data is generated solely from private
transactions or internal purchases by the Company)
BID RANGE
Calendar Quarter Bid Asked
1998: First Quarter $.65 $.75
Second Quarter $.65 $.75
Third Quarter $.65 $.75
Fourth Quarter $.75 $.85
1999: First Quarter $.75 $.85
Second Quarter $.95 $1.00
Third Quarter $.75 $.90
Fourth Quarter $.65 $.80
2000: First Quarter $.90 $1.00
Second Quarter $.90 $1.00
Third Quarter $.90 $1.00
Fourth Quarter $.90 $1.00
Only a few transactions resulting in the transfer of stock took
place in 1998, 1999 or 2000. In 2000, the Company repurchased
less than 1,000 shares at the request of estates or widows at a
price of $1.00.
(1) The restricted Preferred B shares were first issued in 1996,
and trade in a Company sponsored clearinghouse each year. The
1998 and subsequent prices subsequent reflect the common share
price to which the Preferred B price must be added to compare
earlier periods. The last traded price for the Preferred B
shares was $1.05.
As of December 31, 2000, there were approximately 1,100
holders of record of the Company's common stock. The Company has
never paid a dividend and has no present plan to pay any
dividend.
PREFERRED "B" SHARES- 500,659 SHARES OUTSTANDING
BID RANGE
Calendar Quarter Bid Asked
1998: First Quarter $.90 $1.00
Second Quarter No Trading No Trading
Third Quarter NO Trading No Trading
Fourth Quarter $.85 $.90
1999: First Quarter $.85 $.90
Second Quarter No Trading NO Trading
Third Quarter No Trading No Trading
Fourth Quarter No Trading No Trading
2000: First Quarter No Trading No Trading
Second Quarter $1.05 $1.05
Third Quarter $1.05 $1.05
Fourth Quarter $1.05 $1.05
ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year Ended December 31:
1996 1997 1998 1999 2000
REVENUE DATA
Operations
Oil and Gas $216,870 $193.099 $193,971 $214,190 $368,022
Other Revenues $ 27,181 $ 14,790 $ 4,417 $ 4,115 $ 1,347
Expenses $170,258 $220.627 $213,970 $205,857 $237,701
Net Income<loss> $ 73,793 $(12,738) $(15,582)$ 12,430 $131,668
Per Common Share $.14 $ .12) $ (.01) $ * $ .01
Working capital $226,367 $205,339 $ 1,866 $ 90,697 $273,295
Dividends per share NONE NONE NONE NONE NONE
* - Less than .01 per share
BALANCE SHEET
Total assets $515,704 $504,875 $508,847 $498,162 $628,172
Long-term debt** -- -- -- -- --
Stockholders'equity $510,880 $497,892 $458,123 $480,353 $611,966
** - There were no long term obligations from 1996-2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
This Form 10-K includes "forward-looking" statements about
future financial results, future business changes and other
events that haven't yet occurred. For example, statements like
we "expect," we "anticipate" or we "believe" are forward-looking
statements. Investors should be aware that actual results may
differ materially from our expressed expectations because of
risks and uncertainties about the future. We will not
necessarily update the information in this Form 10-K if any
forward-looking statement later turns out to be inaccurate.
Details about risks affecting various aspects of our business are
discussed throughout this Form 10-K. Investors should read all
of these risks carefully.
Results of Operations
Oil and natural gas sales in 2000 were $368,022 compared to
$214,190 in 1999. The major factor in this increase in revenue
was the higher prices for oil and natural gas. The average sale
price of oil in 2000 for the Company was $27.73 compared to
$16.65 in 1999. The average sale price of natural gas in 2000
was $3.27 per MMBTU, compared to $1.95 per MMBTU in 1999. This
material increase in price resulted in the higher revenues and
the higher profits for the Company. Actual production of oil in
2000 was approximately equal to that of 1999 while actual
production of natural gas showed a slight decrease.
Oil and gas sales in 1999 were $214,190 compared to $193,971 in
1998. This increase was due to a full year of natural gas
production from the working interests purchased in Oklahoma in
1998. A second factor resulting in this increase was the higher
prices for oil and natural gas which began in the second quarter
of 1999 and increased through the fourth quarter of 1999. The
average prices in the fourth quarter of 1999 were almost double
the oil prices received in the first quarter of 1999. The
natural gas prices increased moderately by approximately $ 0.50
per MCF during the year. The significant increase in oil and
natural gas sales occurred during the latter half of 1999.
Oil and gas sales in 1998 were aided by a slight increase in
oil production and a 50% increase in natural gas production.
However, total sales barely increased over the 1997 sales figures
due to oil prices dropping nearly in half from late 1997 levels
and natural gas prices dropping around 20%. Oil and gas sales
were $193,971 in 1998, compared to $193,099 in 1997. The
increased production came from purchased working interests with
higher operating costs, so net income from oil and gas production
fell. The share of production revenues from natural gas
increased to about 65% of oil and gas revenues.
Lease operating expenses and production taxes increased
significantly in 2000, to $87,921 compared to $66,532 in 1999.
Most of this increase was due to the increase in production
taxes, which are based upon a percentage of total revenues.
Theses taxes, generally known as severance taxes, increased
proportionally with the revenues. In addition, after the period
of lower oil prices in 1998 and 1999, there were more workovers
and reworks on existing wells in the year 2000 than during the
previous two years.
Lease operating expenses and production taxes decreased
slightly from $68,981 in 1998 to $66,532 in 1999. Because of the
low oil and gas prices there were no significant work-overs in
1999. However, during the latter half of 1999 production taxes
increased significantly as the price of oil approximately doubled
from the first quarter of 1999 to the final quarter of 1999.
Thus, while there was some increase in the average cost of taxes
in 1999, this was more than offset by the shut-in production
during the first part of the year and the lower level of work-
overs and maintenance on wells due to the low prices.
Operating expenses increased significantly in 1998, when
compared to 1997, due principally to two factors. The First was
due to the purchase of six new wells in Oklahoma. Due to these
new wells, depletion and depreciation almost doubled, from
$21,108 in 1997, to $39,577 in 1998. The cost of operating these
wells was also high, with production taxes and operating cost
increases almost $30,000 from the six new wells, which was offset
somewhat by the operating expense rebate on these six wells. The
remaining operating cost increases came from an increase in
workover expenses, which were higher in 1998 than in 1997.
General and administrative expenses increased to $86,745 in
2000 from $68,264 in 1999. This increase was due to the Company
holding an annual meeting in 2000, which it did not do in 1999.
These expenses primarily relate to the cost of the proxy and
annual meeting. In addition the Company expended additional
monies for legal work in order to qualify the Company to go on
the NASDQ bulletin board market. In 2000 the Company also paid
the Company's contribution to the President's retirement account,
which had been deferred in 1999 due to low prices. Other income
increased in 2000 to $6,970 from $1,552 in 1999. This was due to
additional interest earned from the Company's larger accumulated
cash position.
General and administrative expenses decreased in 1999 from
$75,467 in 1998 to $68,264 in 1999. This decrease was due to not
holding an annual meeting in 1999. These expenses increased in
the year 2000 as the annual report and annual meeting were held.
Other income decreased in 1999, due to lower interest income
received in 1999 and no leasing income. Lease bonus income was
flat for both years as leasing activity essentially ceased during
1998 and 1999.
General and administrative expenses decreased slightly from
$79,495 in 1997 to $75,467 in 1998. The Company also incurred
interest expense in 1998 of $5,745 due to the one year borrowing
for the natural gas purchase, versus no interest expense in 1997.
Other income in 1997 included interest from the Company's cash
reserves which were expended for oil and gas purchases and
Preferred B stock repurchases in 1998. The Company's other
income of $7,505 in 1998 included lease bonus income, interest
and dividends income, and gains on stock sales.
Capital Resources and Liquidity
At December 31, 2000, the Company's current assets totaled
$289,501 compared to current liabilities of $16,206. At December
31,1999, the Company's current assets totaled $108,506 compared
to current liabilities of $17,809. This results in the Company
having a current asset to current liabilities ratio of
approximately 18:1. This increase in the Company's working
capital position was due to the Boards decision to accumulate
cash to repay the money in the Company's general account for the
benefit of the common shareholders. These monies were spent in
1998 to purchase oil and gas assets for the benefit of the
Preferred B shareholders. In 2001, the Company intends to resume
purchasing oil and natural gas leases rather than continue to
accumulate cash. However this may be modified if oil and natural
properties are too high priced to be purchased using the
Company's criteria. The Company has no current bank or other
debt.
At December 31, 1999, the Company's current assets totaled
$108,506 compared to current liabilities of $17,809. This
compared to current assets of $52,590 at December 31,1998, and
current liabilities of $50,724. This increase in the Company's
working capital position was due to the paying off of the
Company's note in 1999 and the increased production from the
natural gas wells which were purchased in 1998 using a
significant portion of the Company's cash and a Bank Note. This
cash was utilized to purchase oil and gas assets in 1998 which
were pledged to the preferred B stock.
At December 31, 1998, the Company's current assets totaled
$52,590 and its current liabilities totaled $50,724 for a working
capital position of $1,866. This drastic decrease in the
Company's working capital position in 1998 was due to the use of
cash to purchase the six natural gas wells, and the short term
borrowing of $90,000. The final payment on this debt was made in
March 1999. The drop in oil and natural gas prices resulted in
the Company depleting its cash resources to a greater extent than
anticipated by management.
Because the Company's revenues are based primarily on the
commodity price of oil and natural gas, and, because the Company
does not have significant operating expenses, inflation,
generally, is favorable to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to financial statements, financial statement
schedules, and supplemental information, beginning with Page 24
(F-1) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors, Officer and Significant Employees.
The Croff Board consists of Gerald L. Jensen, Dilworth A.
Nebeker, Richard H. Mandel, Edwin W. Peiker, and Julian D.
Jensen. Each director will serve until the next annual meeting
of shareholders, or until his successor is duly elected and
qualified. The following is provided with respect to each
officer and director of the Company as of March 1, 2001.
GERALD L. JENSEN, 61, PRESIDENT AND DIRECTOR
President of Croff Oil Company since October 1985. Mr. Jensen
has been an officer and director of Jenex Petroleum Corporation,
a private oil and gas company for over ten years, and an officer
and director of other Jenex companies. In 2000, Mr. Jensen
became Chairman of Provisor Capital Inc., a private finance
company. Mr. Jensen was a director of Pyro Energy Corp., a
public company (N.Y.S.E.) engaged in coal production and oil and
gas, from 1978 until the Company was sold in 1989. Mr. Jensen is
also an owner of private real estate development, and oil and gas
companies.
RICHARD H. MANDEL, JR., 71, DIRECTOR
Mr. Mandel has been a director of Croff Enterprises, Inc. since
1986.
Since 1982, Mr. Mandel has been President and a Board Member of
American Western Group, Inc., an oil and gas producing company in
Denver, Colorado. From 1977 to 1984, he was President of
Universal Drilling Co., Denver, Colorado.
DILWORTH A. NEBEKER, 60, DIRECTOR
Mr. Nebeker served as President of Croff from September 2, 1983
to June 24, 1985, and has been a director of Croff since December
1981. He has been a lawyer in private practice for the past ten
years. Prior thereto, he was a lawyer employed by Tosco
Corporation, a public corporation, from 1973 to 1978. He was a
lawyer with the Securities and Exchange Commission from 1967 to
1973.
EDWIN W. PEIKER, JR., 69, DIRECTOR AND SECRETARY
Mr. Peiker was President of Royal Gold, Inc., from 1988 through
1991, and continues to be a director. Since 1986, Mr. Peiker has
been a Vice President and Director of Royal Gold, Inc., a public
company engaged in gold exploration and mining activities. Prior
thereto he was involved in private investments in oil and gas
exploration and production. Mr. Peiker was employed in
responsible positions with AMAX, Inc., a public corporation, from
1963 to 1983.
JULIAN D. JENSEN, 53, DIRECTOR
Mr. Jensen is the brother of the Company's president and has
served as legal counsel to the Company for the past eight years.
Mr. Jensen has practiced law, primarily in the areas of corporate
and securities law, in Salt Lake City, Utah, since 1975. Mr.
Jensen is currently associated with the firm of Jensen, Duffin,
Carman, Dibb & Jackson, which acts as legal counsel for the
Company.
The Company has no knowledge of any arrangements or
understandings between directors or any other person pursuant to
which any person was or is to be nominated or elected to the
office of director of the Company.
ITEM 11 EXECUTIVE COMPENSATION
Remuneration
During the fiscal year ended December 31, 1999, there were
no officers, employees or directors whose total cash or other
remuneration exceeded $80,000.
Summary Compensation Table
2000 Compensation Gerald L. Jensen, President. (No other
executive salaries)
Long Term
Compensation
Annual Compensation Awards
Payouts
Name and Prin,. Yr.Salary Bonus Other Restricted Number Long All
Position Annual Stock Shares Term Other
Comp Awards Covered Incet .Cpmp.
by Plan
Option Payout
Grant
Gerald L. 2000 $54,000 $0 $0 $21,000(2) 20,000 $0 1,620(1)
Jensen Pfd. B
President and
Chairman
Gerald L. 1999 $51,000 $0 $0 $0 $0 $0
Jensen
President and
Chairman
Gerald L. 1998 $52,000 $0 $0 $0 $0 $0 $1,620(1)
Jensen
President and
Chairman
(1) Company IRA Contribution
(2) The preferred B warrants were added to existing common
warrants in 1996.
Gerald L. Jensen is employed part time as the President and
C.E.O. of Croff Enterprises, Inc.
Directors, excluding the President, are not paid a set
salary by the Company, but are paid $350 for each half-day board
meeting and $500 for each full-day board meeting.
Proposed Remuneration:
During the current fiscal year, the Company intends to
compensate outside directors at the rate of $350 for a half day
meeting and $500 for a full day meeting.
Based on the proposed remuneration, for the fiscal year
ending December 31, 2001, no officer or director shall receive
total cash remuneration in excess of $60,000.
Options, Warrants or Rights
Directors were authorized and issued stock warrants in 1991,
that essentially provide each director a warrant to purchase
10,000 shares of the Company's stock at $1.00 per share through
1995. The President's warrant is for 20,000 shares. The
warrants to purchase stock were extended for four more years at
the Board of Directors meeting on November 1, 1995. The warrants
were again extended for two years to expire December 31, 2001.
In 1996, the warrants were modified to include an equal number of
Preferred B shares for each common share grantor. During 1999,
warrants to purchase 10,000 shares were exercised. In 2000 no
warrants were exercised.
The chart below sets out the terms and value of the above
warrants to all officers and directors, none of which have been
exercised.
Officers and Directors Warrants and Compensation (2000)
Preferred B share warrants:
Warrant Termination Exercise Current Director
to Value Compensation
Buy Date Price (Estimate)1)(2)
10,000
Directors each shares 12/31/01 $ 0 $ 10,500 (See chart
Excluding below)
President):
President: 20,000 12/31/01 $ 0 $ 21,000 (See chart
Shares below)
(1)Director's Preferred B share cost of $1 per common share
includes a Preferred B share so this cost is shown under
common share option, as is Director's pay.
Common Share warrants:
Warrant Termination Exercise Current Director
to Date Price Value Compensation
Buy (Estimate)
(1) (2)
Directors each 10,000 12/31/01 $1.00 $ 0 $ 1,050
(Excluding Shares
President):
President: 20,000 12/31/01 $1.00 $ 0 $ 53,625
Shares
(1)Based on a current share price of $1.05 for Preferred B shares
and $1.00 for common shares for a total estimated value of
$2.05, over option price of $1.00 per share. There is no
market for the warrants and an extremely limited market for
both common and Preferred B shares.
(2)Director compensation based on holding three one half day
meetings per year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(b) Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth the beneficial ownership of
Common stock of the Company as of December 31, 2000, by (a) each
person who owned of record, or beneficially, more than five
percent (5%) of the Company's $.10 par value common stock, its
common voting securities, and (b) each director and nominee and
all directors and officers as a group.
Shares of Percentage of Shares of Percentage
Common Stock Class of Common Perferred B of Class B
Owned Common Stock Owned Perferred
Beneficially Stock Beneficially Stock
Jensen
Development Co. 132,130(1) 22.93% 132,130 23.98%
621 17th Street,
Suite 830
Denver, Co.80293
Gerald L 81,215 (2) 14.09% 100,892 18.31%
Jensen
621 17th Street,
Suite 830
Denver, Co.80293
Edwin W.
Peiker, Jr. 14,000(2) 2.43% 14,000 2.54%
550 Ord Drive
Boulder,Co.80401
Dilworth A.
Nebeker 2,900 .50% 2,900 .53%
201 EastFigueroa St.
Santa Barbara,
California 93101
Richard H.
Mandel, Jr. 10,100 (2) 1.75% 16,202 2.94%
3333E. Florida
#94
Denver, Co.80210
Julian D.Jensen 46,532 (2)(3) 8.07% 46,532 8.45%
311 South State
Street, Suite 380
Salt Lake City,
Utah 84111
Directors as a Group 286,877 49.8% 312,656 56.75%
(1) Jensen Development Company is primarily owned by Gerald L.
Jensen.
(2) Includes a warrant to purchase 10,000 shares of the
Company's common stock at $1.00 per share, expiring December
31, 2001. This warrant also includes the right to 10,000
Preferred B shares, at no additional cost. Mr. Gerald L.
Jensen's warrant is for 20,000 shares. On November 1999, the
warrant of Dan Nebeker, which had been assigned to Gerald L.
Jensen, was exercised.
(3) Includes shares held in Jensen Family Trust (31,532) in which
Julian D. Jensen is the Trustee and approximate 43% beneficial
owner. Mr. Gerald L. Jensen holds an approximate 38%
beneficial interest in these Trusts.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company currently is in an office sharing arrangement
with Jenex Petroleum Corporation, hereafter "Jenex", a company
formerly owned 50% by the President, Gerald L. Jensen, which in
1998 was acquired 100% by Mr. Jensen. Jenex provides offices,
phones, office supplies, computers, photocopier, fax, and all
normal and customary office services. In addition, the Company
shares an accountant and two assistant secretaries who are paid by
Jenex. Jenex also provides assistance from a geologist. Croff
currently reimburses Jenex $2,000 per month for these expenses.
These arrangements were entered into in order to reduce the
Company's overhead. The Company is currently continuing this
arrangement on a month-to-month basis. During 2000, Jenex
provided similar services to Jenex Operating Company, Jenex
Acquisition Company, and Jenex Operating Company of Texas, Inc.
companies in which the President indirectly owns a 50% interest.
In the opinion of management, the amounts paid by Croff to Jenex
for the personnel, office, equipment use, and other services are
below the cost for such items if independently obtained.
The Company retains the legal services of Jensen, Duffin,
Carman, Dibb & Jackson. Julian Jensen, a director, as a
professional corporation, is part of this association. Legal fees
paid to this law firm for the years ending 2000, 1999, and 1998
are, $2,375, $329 and $525, respectively.
Effective April 1, 1998, the Company purchased six working
interests in Oklahoma natural gas wells from St. James Oil Ltd. a
company owned by a brother of the Company's President. The price
of $208,000 was slightly less than an unaffiliated parties offer,
to St. James Oil Ltd. which offer, however, included the third
party taking over operations from Jenex. As part of this
transaction, Gerald Jensen, the Company's President, purchased the
one half ownership of Jenex which he did not already own, and
Jenex then retained operations of these wells, but agreed to
rebate to Croff $150 of the operating fees per well, each month,
or a total of $900 per month as long as Jenex operated the wells
and Croff retained its interest. Croff then agreed to purchase
the wells for $208,000. This acquisition was approved by the
Board of Directors in March 1998, with the President abstaining
from the vote.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements. See index to financial statements,
financial statement schedules, and supplemental information as
referenced in Part II, Item 8, and the financial index on Page F-1
hereof. These reports are attached as Exhibits and are
incorporated herein.
Reports on Form 8-K
None
Exhibit Index
Report of Independent Certified Public Accountants
Note Agreement with Union Bank
Croff Purchase Agreement
Assignment of Oil, Gas, and Mineral Lease
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on behalf by the undersigned, thereunto
duly authorized.
REGISTRANT:
CROFF ENTERPRISES, INC.
Date: March 25, 2001 By: /S/Gerald L.
Jensen
Gerald L. Jensen, President,
Chief Executive Officer
Date: March 25, 2001 By: /S/ Beverly
Licholat
Beverly Licholat,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated.
Date: March 25, 2001 By: /S/Gerald L.
Jensen
Gerald L. Jensen, President
Date: March 25, 2001 By: /S/ Richard H.
Mandel
Richard H. Mandel, Jr.,
Director
Date: March 25, 2001 By: /S/ Edwin Peiker
Edwin Peiker, Jr., Director
Date: March 25, 2001 By: /S/ Dilworth A.
Nebeker
Dilworth A. Nebeker, Director
Date: March 25, 2001 By: /S/ Julian D.
Jensen
Julian D. Jensen, Director
C
CROFF ENTERPRISES, INC.
FINANCIAL STATEMENTS
December 31, 1999 and 2000
WITH
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CROFF ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS, SCHEDULES
AND SUPPLEMENTAL INFORMATION
Page Number
I. Financial Statements
Report of Independent Certified Public Accountants F-2
Balance Sheet - December 31, 1999 and 2000 F-3
Statement of Operations - years ended December 31, 1998,
1999 and 2000 F-5
Statement of Stockholders' Equity - years ended
December 31, 1998, 1999 and 2000 F-6
Statement of Cash Flows - years ended December 31,
1998, 1999 and 2000 F-7
Notes to Financial Statements F-8
II. Supplemental Information - Disclosures about Oil and
Gas Producing Activities - Unaudited F-14
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Croff Enterprises, Inc.
We have audited the balance sheet of Croff Enterprises, Inc. at December 31,
1999 and 2000, and the related statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Croff Enterprises, Inc. as of
December 31, 1999 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with generally accepted accounting principles.
Denver, Colorado
March 17, 2001 CAUSEY DEMGEN & MOORE INC.
CROFF ENTERPRISES, INC.
BALANCE SHEET
December 31, 1999 and 2000
ASSETS
1999 2000
---- ----
Current assets:
Cash and cash equivalents $ 57,716 $191,634
Marketable equity securities 4,375 6,125
Accounts receivable:
Oil and gas purchasers 43,915 88,242
Refundable income taxes 2,500 3,500
-------- --------
Total current assets 108,506 289,501
Oil and gas properties, at cost,
successful efforts method:
Proved properties (Note 3) 628,560 611,960
Unproved properties 97,102 97,102
-------- --------
725,662 709,062
Less accumulated depletion and depreciation (336,006) (370,391)
-------- --------
Net property and equipment 389,656 338,671
-------- --------
$498,162 $628,172
======== ========
See accompanying notes.
F-3
CROFF ENTERPRISES, INC.
BALANCE SHEET
December 31, 1999 and 200
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 2000
Current liabilities:
Accounts payable $ 14,451 $ 10,838
Accrued liabilities (Note 3) 3,358 5,368
-------- --------
Total current liabilities 17,809 16,206
Stockholders' equity (Note 4):
Class A preferred stock, no par value;
5,000,000 shares authorized, none issued - -
Class B preferred stock, no par value;
1,000,000 shares authorized, 500,659 shares
issued and outstanding (1999 and 2000) 350,359 475,359
Common stock, $.10 par value; 20,000,000 shares
authorized, 589,143 shares issued and outstanding
(1999 and 2000) 58,914 58,914
Capital in excess of par value 540,797 415,797
Accumulated deficit (386,821) (255,153)
-------- --------
563,249 694,917
Less treasury common stock at cost, 62,828 shares
(1999) and 62,883 shares (2000) (82,896) (82,951)
------- -------
Total stockholders' equity 480,353 611,966
-------- --------
$498,162 $628,172
======== ========
See accompanying notes.
F-4
CROFF ENTERPRISES, INC.
STATEMENT OF OPERATIONS
For the Years ended December 31, 1998, 1999 and 2000
1998 1999 2000
---- ---- ----
Revenue:
Oil and gas sales (Note 7) $193,971 $214,190 $368,022
Gain (loss) on disposal of oil and gas
properties (3,088) 2,563 (5,623)
Other income 7,505 1,552 6,970
-------- -------- --------
Total revenue 198,388 218,305 369,369
Costs and expenses:
Lease operating expense and production taxes 68,981 66,532 87,921
General and administrative (Note 3) 75,467 68,264 86,745
Rent expense - related party (Note 3) 19,200 19,200 19,200
Depreciation and depletion 39,577 48,665 43,835
Interest 5,745 395 -
Write down of coal investment (Note 2) 5,000 2,819 -
-------- -------- ---------
Total costs and expenses 213,970 205,875 237,701
-------- -------- ---------
Net income (loss) (Note 5) (15,582) 12,430 131,668
Net income (loss) applicable to preferred stock
(Note 4) (10,582) 14,000 125,000
-------- -------- ---------
Net income (loss) applicable to common
shareholders $ (5,000) $ (1,570) $ 6,668
======== ======== =========
Basic and diluted net income (loss) per
common share (Note 6) $ (.01) $ (*) $ .01
======== ======== =========
* - less than $.01 per share
See accompanying notes.
F-5
CROFF ENTERPRISES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years ended December 31, 1998, 1999 and 2000
Capital in
Preferred stock Common stock excess of Treasury Accumulated
Shares Amount Shares Amount par value stock deficit
------ ------ ------ ------ --------- -------- -----------
Balance, December 31, 1997 516,505 $364,328 579,143 $ 57,914 $542,215 $(82,896) $ (383,669)
Purchase and retirement of 25,646
shares of preferred stock (25,646) (24,187) - - - - -
Net loss for the year ended
December 31, 1998 - - - - - - (15,582)
Preferred stock reallocation
(Note 4) - (10,582) - - 10,582 - -
------- -------- ------- -------- -------- -------- --------
Balance, December 31, 1998 490,859 329,559 579,143 57,914 552,797 (82,896) (399,251)
Stock warrants exercised 10,000 7,000 10,000 1,000 2,000
Purchase and retirement of
shares of preferred stock (200) (200) - - - - -
Net loss for the year ended
December 31, 1999 - - - - - - 12,430
Preferred stock reallocation
(Note 4) - 14,000 - - (14,000) - -
------- -------- ------- -------- -------- ------- ---------
Balance, December 31, 1999 500,659 350,359 589,143 58,914 540,797 (82,896) (386,821)
Purchase of 55 shares of
treasury stock - - - - - (55) -
Net income for the year ended
December 31, 2000 - - - - - - 131,668
Preferred stock reallocation
(Note 4) - 125,000 - - (125,000) - -
------- -------- ------- -------- -------- -------- ---------
Balance, December 31, 2000 500,659 $475,359 589,143 $ 58,914 $415,797 $(82,951) $(255,153)
======= ======== ======= ======== ======== ======== =========
See accompanying notes.
F-6
CROFF ENTERPRISES, INC.
STATEMENT OF CASH FLOWS
For the Years ended December 31, 1998, 1999 and 2000
1998 1999 2000
---- ---- ----
Cash flows from operating activities:
Net income (loss) $(15,582) $12,430 $131,668
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and depletion 39,577 48,665 43,835
(Gain) loss on disposal of properties 3,088 (2,563) 5,623
(Gain) loss on marketable equity
securities (2,438) (1,250) (1,750)
Loss on write down of investment 5,000 2,819 -
Other items net - - 1,527
Change in assets and liabilities:
Accounts receivable (5,419) (11,244) (45,327)
Accounts payable 14,912 4,383 (3,613)
Accrued liabilities 5,460 (4,707) 2,010
-------- -------- --------
Total adjustments 60,180 36,103 2,305
-------- -------- --------
Net cash provided by operating activities 44,598 48,533 133,973
Cash flows from investing activities:
Purchase of oil and gas interests (211,369) - -
Proceeds from sale of marketable
equity securities 15,000 - -
Distributions from coal investment - 8,458 -
-------- -------- --------
Net cash provided by (used in)
investing activities (196,369) 8,458 -
Cash flows from financing activities:
Exercise of stock warrant - 10,000 -
Purchase of preferred stock (24,187) (200) -
Purchase of treasury stock - - (55)
Proceeds from note payable 90,000 - -
Repayment of note payable (66,631) (23,369) -
-------- ------- --------
Net cash used in financing activities (818) (13,569) (55)
-------- ------- --------
Increase (decrease) in cash (152,589) 43,422 133,918
Cash and cash equivalents at beginning
of year 166,883 14,294 57,716
-------- -------- --------
Cash and cash equivalents at end of year $ 14,294 $ 57,716 $191,634
======== ======== ========
Supplemental disclosure of cash information:
During the years ended December 31, 1998, 1999 and 2000, the Company paid cash
for interest in the amount of $5,745, $395 and $0, respectively.
See accompanying notes.
F-7
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1999 and 2000
1. Summary of significant accounting policies
Croff Enterprises, Inc. (the Company) is engaged primarily in the business
of oil and gas exploration and production, primarily through ownership of
producing leases and perpetual mineral interests in Oklahoma, Utah,
Colorado and New Mexico, and acquisition of oil and gas leases.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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.
Fair value of financial instruments:
The carrying amount of cash and cash equivalents is assumed to approximate
fair value because of the short maturities of those instruments.
Marketable equity securities:
The Company has adopted Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities,
which provides for reporting certain equity securities at fair value, with
unrealized gains and losses included in earnings. The aggregate cost of
marketable equity securities was $3,810 at December 31, 1999 and 2000,
respectively.
Accounts receivable:
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
Oil and gas property and equipment:
The Company follows the "successful efforts" method of accounting for its
oil and gas properties. Under this method, all property acquisition costs
and costs of exploratory and development wells are capitalized when
incurred, pending determination of whether the well has proven reserves. If
an exploratory well does not result in reserves, the capitalized costs of
drilling the well, net of any salvage, are charged to expense. The costs of
development wells are capitalized, whether the well is productive or
nonproductive.
F-8
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1999 and 2000
1. Summary of significant accounting policies (continued)
The Company annually evaluates the net present value of future cash flows,
by lease, and records a loss if necessary, when net book value exceeds
projected discounted cash flow. The acquisition costs of unproved
properties are assessed periodically to determine whether their value has
been impaired and, if impairment is indicated, the costs are charged to
expense.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties (including delay rentals) are expensed as incurred.
Capitalized costs are amortized on a units-of-production method based on
estimates of proved developed reserves.
Income taxes:
The provision for income taxes is based on earnings reported in the
financial statements. Deferred income taxes are provided using a liability
approach based upon enacted tax laws and rates applicable to the periods in
which the taxes become payable.
Coal investment:
The investment was initially recorded at cost. Revenues and distributions
are recorded using the cost recovery method (see Note 2).
Cash equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents
and trade receivables. The Company places its cash with high quality
financial institutions. At times during the year, the balance at any one
financial institution may exceed FDIC limits.
2. Coal investment
In March 1995, the Company purchased a 2% interest in a limited liability
company (LLC) in exchange for $100,000, $50,000 of which was borrowed by
the Company pursuant to a one year 10.5% bank loan, guaranteed by the
Company' president. The loan was repaid during 1996. The LLC acquired a
mortgage note on a coal mine in Indiana, and the Company had an option to
acquire a 2% interest in the mine for a nominal payment.
F-9
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1999 and 2000
2. Coal investment (continued)
In December 1995, the major purchaser of coal from the mine, a utility,
canceled the contract. In January 1996, creditors of the coal mine filed an
involuntary petition under Chapter 7 of the Bankruptcy Code which, upon
motion of the mining company was converted to a case under Chapter 11 of
the Bankruptcy Code. The operations at the mine have subsequently been shut
down and the assets were being liquidated while the LLC sued the utility.
In July 1997, the trial court ruled against the LLC. As a result, the
Company recorded a write down of $62,000 in 1997, and an additional $5,000
in 1998, to adjust its carrying value of the investment to the estimated
liquidation value of cash, land and equipment remaining. During 1999, the
Company received a final payment of $8,458, and wrote-off the remaining
balance of $2,819.
3. Related party transactions
The Company retains the services of a law firm in which a partner of the
firm is a director of the Company. Legal fees paid to this firm for the
years ended December 31, 1998, 1999 and 2000 amounted to $525, $329 and
$2,375, respectively.
The Company has a month-to-month agreement with an affiliated company to
provide for office services and subleased office space for $1,600 per month
through December 31, 2000 and increasing to $2,000 per month on January 1,
2001. Accrued liabilities at December 31, 1999 and 2000 include $1,600 due
to the affiliated company pursuant to this agreement.
Purchase of proved oil and gas properties:
On April 7, 1998, the Company purchased certain working leasehold interests
in oil and gas wells in Oklahoma, from an affiliated company, for cash in
the amount of $208,000. Another affiliated entity is the operator of these
wells, and has offered to offset the Company's lease operating expenses on
these wells in the amount of $150 per month per well (an aggregate of $900
per month) for as long as the Company owns the wells. In October 1998, this
amount was increased to $180 per month per well (an aggregate of $1,080 per
month). In January 2000, the offset was returned to the original $900 per
month aggregate ($150 per well). During the years ending December 31, 1998,
1999 and 2000, $4,860, $10,720 and $10,800, respectively, has been offset
against lease operating expense, in this manner.
F-10
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1999 and 2000
4. Stockholders' equity
On November 1, 1991, the Company's shareholders approved the issuance of
warrants to purchase 60,000 shares of the Company's common stock at $1.00
per share to members of the Company's Board of Directors. In conjunction
with the issuance of Class B Preferred stock in 1996, the warrants were
modified to provide one share of common and one share of Class B Preferred
at $1.00. During 1999, the warrants were extended and are exercisable at
any time through December 31, 2001. The warrants must be exercised for not
less than 5,000 shares at any time of exercise. As of December 31, 2000,
warrants to purchase 10,000 common shares and 10,000 preferred shares have
been exercised.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for
the warrants. Had compensation costs for the Company's warrants been
determined based on the fair value at the extension date consistent with
the provision of SFAS No. 123, the Company's net earnings and earnings per
share would not be materially different from the amounts recorded on the
accompanying statement of operations for the year ended December 31, 1998
and 2000; however, for 1999, the Company's net earnings would decrease by
$50,000 to a loss of $(37,570) or $(.10) per share. The fair value is
estimated on the date the warrants were extended in 1999 using the
Black-Scholes option pricing model, using an expected life of 2 years, a
risk-free interest rate of 6.29% and expected volatility of 28%.
On February 28, 1996, the shareholders of the Company approved the creation
of 5,000,000 authorized Class A Preferred shares and 520,000 authorized
Class B Preferred shares. In June 2000, the Company approved the increase
in the authorized Class B Preferred stock to 1,000,000 shares.
The Class A Preferred stock was authorized for possible future
capitalization and funding purposes of the Company and has not yet been
designated as voting or non-voting. Presently, there are no plans or
intentions to issue these shares.
The Class B Preferred stock was authorized to protect the existing
perpetual mineral interests and other oil and gas assets of the Company for
the benefit of existing stockholders while the Company pursues other
business ventures. In October 1996, the Company issued to its common
shareholders one share of Class B Preferred stock for every share of common
stock held which totaled 516,505 shares. The Class B Preferred stock has no
par value and limited voting privileges. The Class B Preferred stockholders
are entitled exclusively to all dividends, distributions, and other income
which are based directly or indirectly on the oil and natural gas assets of
the Company. In addition, in the event of liquidation, distribution or sale
of the Company, the Class B Preferred stockholders have an exclusive
preference to the net asset value of the natural gas and oil assets over
all other classes of common and preferred stockholders.
F-11
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1999 and 2000
4. Stockholders' equity (continued)
The value of the Class B Preferred shares was originally based on the book
value of the oil and gas assets at December 31, 1996. Effective December
31, 1997, the Company's board of directors approved an allocation of oil
and gas assets to the preferred shares totaling $364,328. Subsequent to
December 31, 1997, net oil and gas income after operating expenses and
applicable general and administrative expense is allocated to the Class B
Preferred shares.
During 1998, 1999 and 2000, the Company conducted a clearing house where it
brought together certain buyers and sellers of its Class B Preferred stock,
which is not otherwise traded. At the conclusion of the trading period in
1998, one large purchaser was unable to complete its intended purchases,
due to lack of financing. The Board of Directors determined to purchase and
retire 25,646 shares. In 1998, the Company completed the purchase of 25,646
shares of the Class B Preferred stock for the cash in the amount of
$24,187, which reduced the issued and outstanding Class B Preferred shares.
In 1999, the Company acquired 200 shares of the Class B Preferred stock for
cash of $200, and issued 10,000 shares upon exercise of stock warrants,
resulting in a balance of 500,659 shares at December 31, 1999 and 2000.
5. Income taxes
At December 31, 2000, the Company had net operating tax loss carry-forwards
of approximately $69,000, which, if not used, will expire as follows:
Year of expiration Amount
------------------ ------
2001 $23,000
2018 46,000
-------
$69,000
=======
In addition, the Company has a depletion carryover of approximately
$512,000 which has no expiration date.
The Company did not record an income tax provision for the years ended
December 31, 1998, 1999 or 2000 due to the utilization of a tax loss
carryforward. The recognized tax benefit of the utilized carryforward was
approximately $1,000 and $34,000 respectively, for the years ended December
31, 1999 and 2000. The Company has a financial statement loss carryover of
approximately $255,000 remaining at December 31, 2000. The difference in
financial statement and tax return loss carryovers is principally the
difference in the timing of deducting intangible drilling costs.
F-12
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1999 and 2000
5. Income taxes (continued)
As of December 31, 1999 and 2000, total deferred tax assets, liabilities
and valuation allowance are as follows:
1999 2000
---- ----
Deferred tax assets resulting from loss
carryforwards $201,000 $ 95,000
Deferred tax liabilities (56,000) -
Valuation allowance (145,000) (95,000)
-------- --------
$ - $ -
======== ========
6. Basic and diluted income (loss) per common share
Basic income (loss) per common share information is based on the weighted
average number of shares of common stock outstanding during each year,
approximately 517,000 shares in 1998, 518,000 shares in 1999 and 526,000
shares in 2000. Outstanding warrants are not dilutive in any of the periods
presented.
7. Major customers
Customers which accounted for over 10% of revenues were as follows for the
years ended December 31, 1998, 1999 and 2000:
1998 1999 2000
---- ---- ----
Oil and gas:
Customer A 13.9% 10.0% 11.0%
Customer B (related party) 21.0% 26.9% 28.9%
Customer C 10.4% 13.2% 13.2%
F-13
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED
In November, 1982, the Financial Accounting Standards Board issued and the
SEC adopted Statement of Financial Accounting Standards No. 69 (SFAS 69)
"Disclosures about Oil and Gas Producing Activities". SFAS 69 requires that
certain disclosures be made as supplementary information by oil and gas
producers whose financial statements are filed with the SEC. These
disclosures are based upon estimates of proved reserves and related
valuations by the Company. No attempt is made in this presentation to
measure "income" from the changes in reserves and costs.
The standardized measure of discounted future net cash flows relating to
proved reserves as computed under SFAS 69 guidelines may not necessarily
represent the fair value of Croff's oil and gas properties in the market
place. Other factors, such as changing prices and costs and the likelihood
of future recoveries differing from current estimates, may have significant
effects upon the amount of recoverable reserves and their present value.
The standardized measure does not include any "probable" and "possible"
reserves which may exist and may become available through additional
drilling activity.
The standardized measure of discounted future net cash flows is developed
as follows:
1. Estimates are made of quantities of proved reserves and the future periods
during which they are expected to be produced based on year-end economic
conditions.
2. The estimated future production of proved reserves is priced on the basis
of year-end prices except that future prices of gas are increased for fixed
and determinable escalation provisions in contracts (if any).
3. The resulting future gross revenue streams are reduced by estimated future
costs to develop and produce the proved reserves, based on year-end cost
and timing estimates.
4. A provision is made for income taxes based upon year-end statutory rates.
Consideration is made for the tax basis of the property and permanent
differences and tax credits relating to proved reserves. The tax
computation is based upon future net cash inflow of oil and gas production
and does not contemplate a tax effect for interest income and expense or
general and administrative costs.
5. The resulting future net revenue streams are reduced to present value
amounts by applying a 10% discount factor.
F-14
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED
(continued)
Changes in the standardized measure of discounted future net cash flows are
calculated as follows:
1. Acquisition of proved reserves is based upon the standardized measure at
the acquisition date before giving effect to related income taxes.
2. Sales and transfers of oil and gas produced, net of production costs, are
based upon actual sales of products, less associated lifting costs during
the period.
3. Net changes in price and production costs are based upon changes in prices
at the beginning and end of the period and beginning quantities.
4. Extensions and discoveries are calculated based upon the standardized
measure before giving effect to income taxes.
5. Purchase of reserves are calculations based on increases from the Company's
acquisition activities.
6. Revisions of previous quantity estimates are based upon quantity changes
and end of period prices.
7. The accretion of discount represents the anticipated amortization of the
beginning of the period discounted future net cash flows.
8. Net change in income taxes primarily represents the tax effect related to
all other changes described above and tax rate changes during the period.
All of the Company's oil and gas producing activities are in the United
States.
Oil prices
During the year ended December 31, 2000, both crude oil and natural gas
prices increased. The ultimate amount and duration of oil and gas price
fluctuations and their effect on the recoverability of the carrying value
of oil and gas properties and future operations is not determinable by
management at this time.
F-15
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
The results of operations for oil and gas producing activities, excluding
capital expenditures, corporate overhead and interest costs, are as follows for
the years ended December 31, 1998, 1999 and 2000:
1998 1999 2000
---- ---- ----
Revenues $193,971 $214,190 $368,022
-------- -------- --------
Lease operating costs 52,679 42,829 61,202
Production taxes 16,302 23,703 26,719
Depletion and depreciation 39,577 48,665 43,835
-------- -------- --------
108,558 115,197 131,756
Income tax expense - - -
-------- -------- --------
Results of operations from producing
activities (excluding corporate
overhead and interest expense) $ 85,413 $ 98,993 $ 236,266
======== ======== =========
F-16
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES
Year ended December 31,
1998 1999 2000
---- ---- ----
Future cash inflows $1,346,000 $1,777,000 $2,507,000
Future production and development costs (306,000) (428,000) (434,000)
---------- ---------- ----------
1,040,000 1,349,000 2,073,000
Future income tax expense - - -
---------- --------- ---------
Future net cash flows 1,040,000 1,349,000 2,073,000
10% annual discount for estimated timing
of cash flows (365,000) (473,000) (832,000)
---------- --------- ---------
Standardized measure of discounted
future net cash flows $ 675,000 $ 876,000 $1,241,000
========== ========= ==========
The following are the principal sources of change in the standardized measure of
discounted future net cash flows:
Beginning balance $ 759,000 $ 675,000 $ 876,000
Evaluation of proved undeveloped reserves,
net of future production and development
costs (8,000) 9,000 12,000
Purchase of proved reserves 211,000 - -
Sales and transfer of oil and gas produced,
net of production costs (166,000) (214,000) (280,000)
Net increase (decrease) in prices and costs (151,000) 406,000 695,000
Extensions and discoveries 12,000 - 20,000
Revisions of previous quantity estimates 8,000 (10,000) 154,000
Accretion of discount 10,000 10,000 (236,000)
Net change in income taxes - - -
Other - - -
---------- ---------- ----------
Ending balance $ 675,000 $ 876,000 $1,241,000
========== ========== ==========
F-17
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED
PROVED OIL AND GAS RESERVE QUANTITIES
(All within the United States)
Oil reserve Gas reserves
(bbls.) (Mcf.)
Balance, December 31, 1997 51,951 314,766
Revisions of previous estimates - 3,000
Purchase of reserves 1,522 171,981
Extensions, discoveries and other additions 1,103 -
Production (5,278) (65,673)
------ -------
Balance, December 31, 1998 49,298 424,074
Revisions of previous estimates (3,104) 135,277
Production (4,610) (74,300)
------ -------
Balance, December 31, 1999 41,584 485,051
Revisions of previous estimates 2,660 46,000
Extensions, discoveries and other additions 800 10,198
Production (4,900) (71,500)
------ -------
Balance, December 31, 2000 40,144 469,749
====== =======
Proved developed reserves
December 31, 1998 36,686 410,651
December 31, 1999 30,944 473,728
December 31, 2000 31,099 460,124
Costs incurred in oil and gas producing activities for the years ended December
31, 1998, 1999, 2000 are as follows:
1998 1999 2000
---- ---- ----
Property acquisition, exploration and
development costs capitalized $211,369 $ - $ -
Production costs 68,981 66,532 87,921
Depletion and depreciation 39,577 48,665 43,835
F-18