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, 1996.
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 31, 1996
Common Stock 4,060,714 shares
(par value $.01 per share)
(12 pages total, with exhibits)
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(September 30, 1996 and December 31, 1995)
Consolidated Statements of Operations 4
(Three months ended September 30, 1996 and 1995
and nine months ended September 30, 1996 and 1995)
Consolidated Statements of Cash Flows 5
(Nine months ended September 30, 1996 and 1995)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
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,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 391,357 $ 392,078
Trade receivables, net 528,732 590,330
Inventories 297,436 285,018
Prepaid expenses 29,952 17,460
Investments 60,872 10,119
Total current assets 1,308,349 1,295,005
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being depleted 15,538,536 15,272,170
Properties not being depleted 57,433 88,759
Leonardite plant and equipment 3,216,597 3,199,797
Other 688,517 672,546
19,501,083 19,233,272
Less accumulated depreciation,
depletion and valuation allowance (14,536,535) (14,045,602)
Net property, plant and
equipment 4,964,548 5,187,670
OTHER ASSETS:
Mortgage loans receivable, related party 103,321 103,321
Other 116,850 104,289
220,171 207,610
$6,493,068 $6,690,285
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 451,736 $ 856,823
Current maturities of long-term debt 342,304 511,594
Accrued expenses 11,841 98,537
Income taxes payable 80,000 --
Total current liabilities 885,881 1,466,954
LONG-TERM DEBT, less current maturities 743,897 958,330
DEFERRED INCOME TAXES 65,000 151,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued
and outstanding, 4,060,714 and
4,035,714 shares, respectively 40,607 40,357
Additional paid-in capital 829,757 803,807
Retained earnings 3,927,926 3,269,837
Total stockholders' equity 4,798,290 4,114,001
$6,493,068 $6,690,285
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,
1996 1995 1996 1995
OPERATING REVENUES:
Oil and gas sales $ 761,548 $ 508,352 $2,228,869 $1,584,965
Leonardite sales 207,451 171,898 601,724 517,386
968,999 680,250 2,830,593 2,102,351
OPERATING COSTS AND EXPENSES:
Oil and gas production 274,657 234,927 766,773 668,890
Cost of leonardite sold 134,971 101,147 456,220 397,900
Depreciation and depletion 168,024 134,231 503,293 396,607
Selling, general
and administrative 74,519 68,063 315,161 235,464
652,171 538,368 2,041,447 1,698,861
Operating income 316,828 141,882 789,146 403,490
OTHER INCOME (EXPENSE):
Interest expense (27,356) (34,645) (90,787) (96,054)
Interest income 4,359 2,414 12,105 8,127
Other income and losses, net (27,323) (1,167) (58,375) 2,380
(50,320) (33,398) (137,057) (85,547)
Income before income
taxes 266,508 108,484 652,089 317,943
Income tax (expense) benefit 24,000 (16,000) 6,000 (16,000)
Net income $ 290,508 $ 92,484 $ 658,089 $ 301,943
EARNINGS PER SHARE:
Net income per
common share $ .07 $ .02 $ .16 $ .07
Weighted average number of shares
outstanding 4,060,714 4,035,714 4,054,783 4,032,417
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 658,089 $ 301,943
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 503,293 396,607
Deferred income taxes (86,000) 16,000
Other 27,844 19,500
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables 61,598 31,899
Inventories (12,418) (58,362)
Prepaid expenses and other (63,245) 17,269
Increase (decrease) in:
Accounts payable (432,855) (129,904)
Accrued expenses (86,696) (28,534)
Income taxes payable 80,000 --
Net cash provided by
operating activities 649,610 566,418
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (252,403) (724,090)
Other (11,269) (27,371)
Net cash used in investing activities (263,672) (751,461)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 415,000
Principal payments on long-term debt (383,723) (239,469)
Debt issue costs (2,936) --
Net cash provided by (used in)
financing activities (386,659) 175,531
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (721) (9,512)
CASH AND EQUIVALENTS, beginning of period 392,078 222,677
CASH AND EQUIVALENTS, end of period $ 391,357 $ 213,165
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 90,787 $ 96,054
Income taxes 2,151 --
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the management of GeoResources, Inc. (the "Company"),
the accompanying unaudited financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position of the Company as of September 30, 1996, and the
results of operations and cash flows for the three and nine months ended
September 30, 1996 and 1995.
The results of operations for the periods ended September 30, 1996, 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 the
Company's Annual Report on Form 10-K for the Year Ended December 31, 1995.
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the financial
statements and notes contained in the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1995.
Results of Operations
Information concerning the Company's oil and gas operations for the
three and nine months ended September 30, 1996, and the respective percent
increase (decrease) from the same period in the prior year, is set forth in
the table below:
Oil and Gas Operations
Three Months % Change Nine Months % Change
Ended From 1995 Ended From 1995
Sept. 30, 1996 Period Sept. 30, 1996 Period
Oil and gas production
sold (BOE) 41,321 14% 127,838 16%
Average price per BOE $ 18.43 31% $ 17.44 21%
Oil and gas revenue $ 761,548 50% $2,228,869 41%
Production costs $ 274,657 17% $ 766,773 15%
Average production cost
per BOE $ 6.65 2% $ 6.00 (1%)
Oil and gas production sold, expressed in barrels of oil equivalent
(BOE), increased 14% and 16% for the three and nine month periods ended
September 30, 1996, compared to the same periods in 1995. The increases in
oil and gas production sold during both periods were due to production
contributed from the Company's Oscar Fossum H2 horizontal well (.67 net) that
was put on production in mid-December 1995.
Oil and gas revenue increased 50% during the third quarter of 1996
compared to the same quarter in 1995. This increase resulted from the 14%
production increase previously discussed and a 31% higher average oil price
in third quarter 1996 compared to third quarter 1995. Oil and gas revenue for
the nine months ended September 30, 1996, was 41% more than the same period in
1995. This increase resulted from the 16% production increase discussed above
combined with a 21% higher average oil price for the nine months ended
September 30, 1996, compared to the same period in 1995.
Oil and gas production costs increased 17% and 15% for the three and
nine month periods, respectively, when compared to the same periods in 1995.
These increases in production costs were the result of higher production taxes
from higher oil production levels in the first three quarters of 1996, higher
winter-related production costs in the first quarter of 1996 and costs of a
workover program completed in the third quarter 1996. Production costs
expressed on a per barrel of oil equivalent basis, however, were essentially
stable for both the three and nine month periods when compared to the same
periods in 1995. Per barrel production costs were higher in both the 1995 and
1996 three month periods compared to other quarters due to workover costs which
are typically incurred in the third quarter.
On October 31, 1996, the Company spudded its Oscar Fossum H3 well in
the Wayne Field of Bottineau County, North Dakota. The Company owns a 67%
working interest in the Oscar Fossum lease and is the operator. The H3 well
is planned for a horizontal lateral length of more than 5000 feet if it is
successful.
Information concerning the Company's leonardite operations for the
three and nine months ended September 30, 1996, and the respective percent
increase (decrease) from the same period in the prior year, is set forth in
the table below:
Leonardite Operations
Three Months % Change Nine Months % Change
Ended From 1995 Ended From 1995
Sept. 30, 1996 Period Sept. 30, 1996 Period
Leonardite production
sold (tons) 2,194 15% 6,245 13%
Average revenue per ton $ 94.55 5% $ 96.35 3%
Leonardite revenue $ 207,451 21% $ 601,724 16%
Cost of leonardite sold $ 134,971 33% $ 456,220 15%
Average production cost
per ton $ 61.52 16% $ 73.05 2%
Leonardite production increased 15% and 13%, respectively, for the
three and nine month periods ended September 30, 1996, compared to the
equivalent periods in 1995. Management believes these higher production levels
are the result of moderate increases in domestic oil and gas drilling activity
which in turn increased demand for the Company's leonardite products.
Leonardite revenue increased $36,000 or 21% and $84,000 or 16%,
respectively, for the three and nine month periods ended September 30, 1996,
compared to the same periods in 1995 due to the higher production discussed
above. Fluctuations in average revenue per ton for the three and nine month
periods are due to normal variations in the ratio of basic products to
specialty products, the latter having higher processing costs and selling
prices.
Cost of leonardite sold increased $34,000 or 33% and $58,000 or 15%,
respectively, for the three and nine month periods ended September 30, 1996,
compared to the same periods in 1995. These increases were due to increased
processing costs resulting from increased production as discussed above.
Consolidated Analysis
Total operating revenues increased $289,000 or 42% and $728,000 or 35%,
respectively, for the three and nine month periods ended September 30, 1996,
compared to the same periods in 1995. These increases were due to the
increased oil production, higher oil prices and increased leonardite production
previously discussed. Total operating expenses increased $114,000 or 21% and
$343,000 or 20% for the three and nine month periods of 1996, respectively,
compared to the same periods in 1995. These increases were due to the higher
oil and gas and leonardite costs previously discussed; higher depreciation and
depletion due to increased oil production; and an increase in selling, general
and administrative (SG&A) expenses. The higher SG&A expenses resulted from a
combination of increases including costs for corporate publicity, shareholder
communications and a general increase in selling and administrative costs
related to increased product sales and office activities. Although total
operating expenses increased materially in the nine month period, they were
significantly less than the revenues increase, resulting in an operating income
increase of $386,000 or 96% for the nine month period ended September 30, 1996,
compared to the same period in 1995.
Nonoperating expenses for both the three and nine month periods ended
September 30, 1996, were higher due to increased expenses related to oil price
hedging activities. At September 30, 1996, the Company had a 45,000 barrel
hedge position against future oil production with the last position expiring
in the second quarter 1997.
The income tax benefit, recognized for the three and nine month
periods ended September 30, 1996, reflects the amount of income taxes estimated
to be currently payable net of the decrease of the deferred tax liability.
After income taxes, consolidated operations yielded a net income of
$290,508 or $.07 per share for the third quarter of 1996 compared to $92,484 or
$.02 per share for the third quarter of 1995. Net income for the nine months
ended September 30, 1996, was $658,089 or $.16 per share compared to $301,943
or $.07 per share in the same period of 1995.
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of $422,000
compared to negative working capital of $172,000 at December 31, 1995. The
Company's current ratio was 1.48 to 1 at September 30, 1996, compared to .88
to 1 at year end 1995. The $594,000 change in working capital was primarily
due to the Company reducing payables with cash flow provided by the Oscar
Fossum H2 "flush" oil production accompanied by the 21% higher oil prices.
Net cash provided by operating activities was $650,000 for the nine
months ended September 30, 1996, compared to $566,000 for the same period in
1995. The increase in 1996 operating cash flows was primarily due to higher
oil prices and the 16% increase in oil production. Cash was utilized to make
payments of $252,000 for additions to property, plant and equipment, primarily
for the drilling and completion of the Oscar Fossum H2 well, and $384,000 for
payments on long-term debt.
The Company made minor proved property acquisitions during the nine
month period of 1996. Management believes that proved property acquisitions
will not significantly affect the Company's capital requirements, as Management
intends to continue to pursue horizontal development drilling.
Management also believes the Company's future cash needs can be met by
cash flows from operations, its ability, if necessary, to borrow on its
existing line-of-credit or other means of capital funding.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 12, 1989, the Company 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 the
Company into modifying the contract. However, the Company was not able to
predict the amount of damages which might be awarded. The defendants answered
the complaint on June 1, 1989. Afterwards, no further materials were filed
with the court, but the Company believed that the case remained pending.
Earlier this year, the Company contacted the attorney who filed the action to
assess the status and request further prosecution of the case as might have
been warranted. After several months of inaction regarding the case, the
Company contacted the court in September 1996 and was informed by the clerk
that the case had been dismissed in 1991. The Company is presently taking
steps to review and assess any potential claims which it may be able to assert
and what further action may be warranted with respect to this matter. However,
the prospects are uncertain as to whether a suit against the foregoing
defendants can be filed.
Other than legal proceedings which could potentially arise in
connection with the foregoing matter, the Company is not a party, nor is any
of its property subject to, any pending material legal proceedings. The
Company knows of no legal proceedings contemplated or threatened against it.
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. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
September 30, 1996.
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 12, 1996
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer