SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the Quarter ended September 30, 2000.
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from______ to______.
Commission File Number - 0-8041
GeoResources, Inc.
(Exact name of Registrant as specified in its charter)
Colorado 84-0505444
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1407 West Dakota Parkway, Suite 1-B, Williston, North Dakota 58801
(Address of Principal executive offices) (Zip Code)
(Registrant's telephone number including area code) (701) 572-2020
________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes__X__ No_____.
________________________________________
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 30, 2000
Common Stock 3,937,702 shares
(par value $.01 per share)
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(September 30, 2000 and December 31, 1999)
Consolidated Statements of Operations 4
(Three months ended September 30, 2000 and 1999
and nine months ended September 30, 2000 and 1999)
Consolidated Statements of Cash Flows 5
(Nine months ended September 30, 2000 and 1999)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure about Market Risks 11
PART II. OTHER INFORMATION 11
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2000 1999
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 341,505 $ 423,361
Trade receivables, net 1,074,604 991,153
Inventories 289,015 297,029
Prepaid expenses 24,832 17,257
Investments 106 106
Total current assets 1,730,062 1,728,906
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 20,239,290 19,664,222
Properties not subject to amortization 80,565 143,413
Leonardite plant and equipment 3,242,105 3,206,217
Other 734,879 709,443
24,296,839 23,723,295
Less accumulated depreciation, depletion,
amortization and impairment (18,775,173) (18,271,169)
Net property, plant and equipment 5,521,666 5,452,126
OTHER ASSETS:
Mortgage loan receivable, related party 103,321 103,321
Other 42,791 44,487
Total other assets 146,112 147,808
TOTAL ASSETS $ 7,397,840 $ 7,328,840
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 515,467 $ 747,557
Current maturities of long-term debt 168,750 175,000
Accrued expenses 208,636 167,800
Total current liabilities 892,853 1,090,357
LONG-TERM DEBT, less current maturities 731,250 1,610,008
DEFERRED INCOME TAXES 251,000 166,000
Total liabilities 1,875,103 2,866,365
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares;
issued and outstanding, 3,937,702
and 4,005,2352 shares, respectively 39,377 40,054
Additional paid-in capital 672,665 776,259
Retained earnings 4,810,695 3,646,162
Total stockholders' equity 5,522,737 4,462,475
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,397,840 $ 7,328,840
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
OPERATING REVENUES:
Oil and gas sales $ 1,247,542 $ 796,768 $ 3,372,872 $ 1,730,371
Leonardite sales 162,350 207,639 480,995 461,660
1,409,892 1,004,407 3,853,867 2,192,031
OPERATING COSTS AND EXPENSES:
Oil and gas production 437,549 315,960 1,257,716 793,329
Cost of leonardite sold 138,259 138,810 418,522 380,297
Depreciation and depletion 185,640 166,932 504,004 454,857
Selling, general
and administrative 88,820 54,771 304,062 204,830
850,268 676,473 2,484,304 1,833,313
Operating income 559,624 327,934 1,369,563 358,718
OTHER INCOME (EXPENSE):
Interest expense (37,955) (41,829) (122,343) (124,233)
Interest income 6,502 3,459 19,138 11,028
Other income, net 5,325 6,305 15,175 20,971
(26,128) (32,065) (88,030) (92,234)
Income before
income taxes 533,496 295,869 1,281,533 266,484
Income tax expense 49,000 25,000 117,000 25,000
Net income $ 484,496 $ 270,869 $ 1,164,533 $ 241,484
EARNINGS PER SHARE:
Net income, basic
and diluted $ .12 $ .07 $ .29 $ .06
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,164,533 $ 241,484
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 504,004 454,857
Deferred income taxes 85,000 25,000
Other 1,696 1,694
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables (83,451) (254,243)
Inventories 8,014 105,445
Prepaid expenses and other (7,575) (3,598)
Investments -- (24,256)
Increase (decrease) in:
Accounts payable (334,074) 122,165
Accrued expenses 40,836 (4,294)
Net cash provided by
operating activities 1,378,983 664,254
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (471,560) (189,228)
Net cash used in investing activities (471,560) (189,228)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 160,000
Principal payments on long-term debt (885,008) (272,247)
Purchase of stock for retirement (104,271) (62,647)
Net cash used in financing activities (989,279) (174,894)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (81,856) 300,132
CASH AND EQUIVALENTS, beginning of period 423,361 40,673
CASH AND EQUIVALENTS, end of period $ 341,505 $ 340,805
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 122,343 $ 124,233
Income taxes 1,320 1,395
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In our opinion, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly our financial position as of September 30,
2000, and the results of operations and cash flows for the three
months and nine months ended September 30, 2000, and 1999.
The results of operations for the periods ended September 30, 2000,
are not necessarily indicative of the results to be expected for the
full fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, it is
suggested that these financial statements be read in connection with
the audited consolidated financial statements and the notes included
in our Annual Report on Form 10-K for the year ended December 31,
1999.
2. Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation
in the current-year financial statements.
3. We assess performance and allocate resources based upon our products
and the nature of our production processes which consist principally of oil
and gas exploration and production and the mining and processing of
leonardite. There are no sales or other transactions between these two
operating segments, and all operations are conducted within the United
States. Certain corporate costs, assets and capital expenditures that are
considered to benefit the entire organization are not allocated to our
operating segments. Interest income, interest expense and income taxes are
also not allocated to operating segments. There are no significant
accounting differences between internal segment reporting and consolidated
external reporting.
Presented below are our identifiable net assets as of September 30, 2000,
and December 31, 1999:
2000 1999
Oil and gas $ 5,092,533 $ 4,894,495
Leonardite 1,358,528 1,417,100
General corporate activities 946,779 1,017,245
$ 7,397,840 $ 7,328,840
Presented below is information concerning our operating segments for
the three- and nine-month periods ended September 30, 2000, and 1999:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenue:
Oil and gas $ 1,247,542 $ 796,768 $ 3,372,872 $ 1,730,371
Leonardite 162,350 207,639 480,995 461,660
$ 1,409,892 $ 1,004,407 $ 3,853,867 $ 2,192,031
Income (loss) before income taxes:
Oil and gas $ 655,233 $ 343,041 $ 1,701,752 $ 569,708
Leonardite (5,983) 36,225 (29,103) (11,212)
General corporate
activities (89,626) (51,332) (303,086) (199,778)
Other income and expenses (26,128) (32,065) (88,030) (92,234)
$ 533,496 $ 295,869 $ 1,281,533 $ 266,484
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion and analysis of financial condition and results of
operations, and other sections of this report, contain forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995, that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the oil, natural gas and
leonardite industry, the economy and about us. Words such as "may,"
"will," "expect," "anticipate," "estimate" or "continue," or comparable
words are intended to identify forward-looking statements. These
statements are not guarantees of future performance and involve risks,
uncertainties and assumptions that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, our actual
results and outcomes may materially differ from what may be expressed or
forecasted in our forward-looking statements. Furthermore, we undertake no
obligation to update, amend or clarify forward-looking statements, whether
as a result of new information, future events or otherwise.
The following discussion should be read in conjunction with our
consolidated financial statements and related notes included elsewhere
herein. Important factors that could cause actual results to differ
materially from the forward-looking statements include, but are not limited
to, changes in production volumes; worldwide supply and demand which
affects commodity prices for oil; the timing and extent of our success in
discovering, acquiring, developing and producing oil, natural gas and
leonardite reserves; risks inherent in the drilling and operation of oil
and natural gas wells and the mining and processing of leonardite products;
future production and development costs; the effect of existing and future
laws, governmental regulations and the political and economic climate of
the United States; and conditions in the capital markets.
We caution the reader that a number of important factors discussed
herein, and in other reports filed with the Securities and Exchange
Commission, particularly our Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1999, could affect our actual results and cause actual
results to differ materially from those discussed in forward-looking
statements.
Results of Operations - Three Months and Nine Months Ended September 30,
2000, compared to Three Months and Nine Months Ended September 30, 1999.
Information concerning our oil and gas operations for the three
months and nine months ended September 30, 2000, is set forth in the table
below:
Oil and Gas Operations
% Increase % Increase
Three Months (Decrease) Nine Months (Decrease)
Ended From 1999 Ended From 1999
Sept. 30, 2000 Period Sept. 30, 2000 Period
Oil and gas production
sold (BOE) 44,967 (5%) 128,757 (5%)
Average price per BOE $ 27.74 64% $ 26.20 105%
Oil and gas revenue $ 1,247,542 57% $ 3,372,872 95%
Production costs $ 437,549 38% $ 1,257,716 59%
Average production cost
per BOE $ 9.73 45% $ 9.77 67%
Oil and gas production sold, expressed in barrels of oil equivalent
(BOE), declined 2,136 BOE or 5% and 6,889 BOE, also 5%, for the three- and
nine-month periods ended September 30, 2000, compared to the same periods
in 1999. These relatively consistent changes in the two periods between
1999 and 2000 reflect the higher sales of the second quarter of 1999 now
being absorbed and compared with more quarters in 2000 that we believe more
closely follow the normal declines of our wells. As we said in the second
quarter 2000, we believe these moderately reduced production levels are a
reasonable expectation for the balance of 2000. Production increases have
not been a major focus or goal in 2000 as we have concentrated on making
substantial improvements to our balance sheet by paying down debt. The
average oil price for the third quarter advanced to $27.74, increasing
$10.82 or 64% above the same period in 1999. The nine-month period price
increased to $26.20, a gain of $13.44 or a 105% increase, which reflects
the much lower prices that still existed in first quarter 1999.
Oil and gas revenue increases for the three- and nine-month periods
ended September 30, 2000, followed closely the substantial oil price
increases and small production declines discussed above, leading the
Company to the highest quarterly and nine months oil and gas revenues it
has ever had in its 30 year history as a public company.
Oil and gas production costs increased $122,000 or 38% and $464,000
or 59% for the three- and nine-month periods of 2000, respectively, when
compared to the same periods in 1999. The increase in the three-month
period was primarily due to substantially higher state production taxes
that are a fixed percentage of oil and gas revenue, coupled with higher
repair maintenance and workover costs as we aggressively endeavor to
maintain production of existing wells. The increase in the year 2000 nine-
month period was also impacted by these same costs, but to even a greater
percentage, due to the inclusion of first quarter 1999 that had
substantially lower costs, mitigating those for that year. Production
costs expressed on a per equivalent barrel basis were 45% higher for the
three-month period and 67% higher for the nine-month period of 2000 when
compared to the same periods in 1999. These increases basically reflect
the same higher costs discussed above.
Information concerning our leonardite operations for the three
months and nine months ended September 30, 2000, is set forth in the table
below:
Leonardite Operations
% Increase % Increase
Three Months (Decrease) Nine Months (Decrease)
Ended From 1999 Ended From 1999
Sept. 30, 2000 Period Sept. 30, 2000 Period
Leonardite production
sold (tons) 1,823 (26%) 5,503 1%
Average revenue per ton $ 89.06 5% $ 87.41 3%
Leonardite revenue $ 162,350 (22%) $ 480,995 4%
Cost of leonardite sold $ 138,259 (1%) $ 418,522 10%
Average production cost
per ton $ 75.84 34% $ 76.05 9%
Leonardite production sold decreased 632 tons or 26% and increased
76 tons or 1%, respectively, for the three- and nine-month periods ended
September 30, 2000, compared to the equivalent periods in 1999. During the
2000 third quarter, a merger of one of our customers reduced its purchases
for a time but it has since resumed its normal level of leonardite
purchases. We believe the demand for the product remains the same;
however, railcar shortages in the 2000 third quarter also delayed our
ability to ship all of the orders placed during that quarter. That
situation has improved since the end of the quarter, too.
Leonardite revenue decreased $45,000 or 22% and increased $19,000
or 4%, respectively, for the three- and nine-month periods ended September
30, 2000, compared to the same period in 1999. The change in revenue in
the three-month period was primarily due to the reasons set forth above.
Average revenue per ton for the three months ended September 30, 2000, was
up 5% and up 3% for the nine-month period. This was due to the slight
increase in special product sales during the third quarter, where we enjoy
a larger profit margin. Our basic product has lower processing costs and
selling prices, and the profit margin is lower in order to remain
competitive.
Cost of leonardite sold was lower for the three-month period ended
September 30, 2000, and increased for the nine-month period compared to the
same periods in 1999. Average per ton production costs increased 34% and
9%, respectively, for the three- and nine-month periods ended September 30,
2000, compared to the same periods in 1999. The nine-month increase is
related primarily to the increase in costs and the three-month increase to
the lower volume sold and shipped as discussed above.
Consolidated Analysis
Total operating revenues increased $405,000 or 40% and $1,662,000
or 76%, respectively, for the three- and nine-month periods ended September
30, 2000, compared to the same periods in 1999. These increases were due
to the higher oil prices previously discussed. Total operating expenses
increased $174,000 or 26% and $651,000 or 36% for the three- and nine-month
periods of 2000, respectively, compared to the same periods in 1999. These
increases were primarily due to increased oil and gas expenses discussed
above. Operating income increased to $560,000 and $1,370,000, respectively,
for the three- and nine-month periods ended September 30, 2000, compared to
an operating income of $328,000 and $359,000 for the same periods in 1999.
After provisions for the non-operating expenses and income taxes,
the result of consolidated operations yielded a net income of $484,000 or
$.12 per share and $1,165,000 or $.29 per share for the three- and nine-
month periods ended September 30, 2000, compared to a net income of
$271,000 or $.07 per share and $241,000 or $.06 per share for the same
periods in 1999.
Liquidity and Capital Resources
At September 30, 2000, we had working capital of $837,000 compared
to working capital of $639,000 at December 31, 1999. Our current ratio was
1.94 to 1 at September 30, 2000, compared to 1.59 to 1 at year-end 1999.
Net cash provided by operating activities was $1,379,000 for the
nine months ended September 30, 2000, compared to $664,000 for the same
period in 1999. Cash was utilized to make payments of $472,000 for
additions to property, plant and equipment, $885,000 for payments on long-
term debt and $104,000 for stock repurchases. The $885,000 payment for
debt reduction consisted of regularly scheduled payments of $87,000, a
prepayment of $263,000 to pay off our 1995 Oil and Gas Loan and $535,000 of
prepayments on our existing line-of-credit. Our existing line-of-credit
expires at year-end 2000, but we have had discussions with our bank and
expect to replace it with another line-of-credit with similar terms.
During the remainder of 2000, we may make additional debt prepayments on
our existing line-of-credit before it matures into a term loan.
We believe our cash requirements can be met by cash flows from
operations and, if necessary, borrowings on our existing line-of-credit.
Future cash requirements might also be provided by possible forward sales
of oil reserves or additional debt or equity financing.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risks
Because we qualify as a small business issuer, disclosure regarding
this item is not required.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 12, 1989, we filed an action in Burleigh County District
Court, North Dakota, against MDU Resources Group, Inc., a Delaware
corporation, and Williston Basin Interstate Pipeline Company, a Delaware
corporation. The Complaint related to, among other things, breaches of a
take or pay natural gas contract and attempts by the defendants to coerce
us into modifying the contract. The defendants answered the Complaint on
June 1, 1989. Afterward, no further materials were filed with the court,
but we believed that the case remained pending. We contacted the attorney
who filed the action to assess the status and request further prosecution
of the case. After several months of inaction regarding the case, we
contacted the court in September 1996 and were informed by the court that
the case had been dismissed in 1991. On January 15, 1997, we refiled our
action against MDU Resources Group, Inc. We cannot predict the outcome of
this action, although we intend to pursue available remedies.
Other than the foregoing legal proceeding, we are not a party, nor
is any of our property subject to, any pending material legal proceedings.
We know of no legal proceedings contemplated or threatened against us.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Securities Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) For a list of our exhibits, see Item 14(c) of our Annual Report on
Form 10K for the fiscal year ended December 31, 1999, which is specifically
incorporated herein by reference. A financial data schedule (Exhibit 27)
is attached hereto. All other required exhibits are inapplicable or
information required thereby is readily apparent in the Form 10-Q.
(b) No reports on Form 8-K were filed by us during the fiscal quarter
ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GEORESOURCES, INC.
November 13, 2000
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer