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 June 30, 1997.
_____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 July 31, 1997
Common Stock 4,089,714 shares
(par value $.01 per share)
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(June 30, 1997 and December 31, 1996)
Consolidated Statements of Operations 4
(Three months ended June 30, 1997 and 1996
and six months ended June 30, 1997 and 1996)
Consolidated Statements of Cash Flows 5
(Six months ended June 30, 1997 and 1996)
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 10
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 933,263 $ 754,888
Trade receivables, net 491,186 936,045
Inventories 239,665 251,499
Prepaid expenses 28,768 18,201
Investments 36,730 57,771
Total current assets 1,729,612 2,018,404
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 17,224,897 16,450,061
Properties not subject to amortization 101,708 93,640
Leonardite plant and equipment 3,211,825 3,216,597
Other 699,920 693,641
21,238,350 20,453,939
Less accumulated depreciation, depletion
amortization and impairment (15,069,317) (14,708,047)
Net property, plant and
equipment 6,169,033 5,745,892
OTHER ASSETS:
Mortgage loan receivable, related party 103,321 103,321
Other 41,116 42,348
Total other assets 144,437 145,669
TOTAL ASSETS $8,043,082 $7,909,965
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 962,634 $1,343,677
Current maturities of long-term debt 283,200 283,200
Accrued expenses 120,382 186,064
Total current liabilities 1,366,216 1,812,941
LONG-TERM DEBT, less current maturities 1,281,497 998,097
DEFERRED INCOME TAXES 267,000 225,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued and
outstanding, 4,060,714 shares 40,607 40,607
Additional paid-in capital 829,757 829,757
Retained earnings 4,258,005 4,003,563
Total stockholders' equity 5,128,369 4,873,927
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,043,082 $7,909,965
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
OPERATING REVENUES:
Oil and gas sales $ 784,809 $ 733,856 $1,611,190 $1,417,165
Leonardite sales 119,438 210,096 312,412 394,273
904,247 943,952 1,923,602 1,811,438
OPERATING COSTS AND EXPENSES:
Oil and gas production 285,663 235,471 630,337 492,116
Cost of leonardite sold 120,901 154,170 292,786 321,249
Depreciation and depletion 239,172 166,277 409,539 335,269
Selling, general and
administrative 145,246 116,559 261,054 240,642
790,982 672,477 1,593,716 1,389,276
Operating income 113,265 271,475 329,886 422,162
OTHER INCOME (EXPENSE):
Interest expense (28,310) (30,423) (55,038) (63,431)
Interest income 5,652 3,888 12,322 7,746
Other income, net 6,025 15,625 10,450 19,104
(16,633) (10,910) (32,266) (36,581)
Income before
income taxes 96,632 260,565 297,620 385,581
Income tax expense 25,678 7,000 43,178 18,000
Net income $ 70,954 $ 253,565 $ 254,442 $ 367,581
EARNINGS PER SHARE:
Net income per
common share $ .02 $ .06 $ .06 $ .09
Weighted average number of
shares outstanding 4,060,714 4,060,714 4,060,714 4,051,785
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 254,442 $ 367,581
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 409,539 335,269
Deferred income taxes 42,000 18,000
Issuance of common stock as compensation -- 26,200
Other 1,096 1,096
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables 444,859 135,544
Inventories 11,834 16,244
Prepaid expenses and other (10,567) 3,929
Investments 21,041 (21,046)
Increase (decrease) in:
Accounts payable (873,421) (482,120)
Accrued expenses (65,682) (44,682)
Net cash provided by
operating activities 235,141 356,015
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (340,302) (196,565)
Other 136 (6,823)
Net cash used in investing activities (340,166) (203,388)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 425,000 --
Principal payments on long-term debt (141,600) (255,794)
Debt issue costs -- (2,936)
Net cash provided by (used in)
financing activities 283,400 (258,730)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 178,375 (106,103)
CASH AND EQUIVALENTS, beginning of period 754,888 392,078
CASH AND EQUIVALENTS, end of period $ 933,263 $ 285,975
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 55,038 $ 63,431
Income taxes 1,178 1,946
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 June 30, 1997, and the results
of operations and cash flows for the three months and six months ended
June 30, 1997 and 1996.
The results of operations for the periods ended June 30, 1997, 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 SEC Form 10-K for the year ended December 31,
1996.
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.
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 SEC Form 10-K
for the year ended December 31, 1996.
Results of Operations - Three Months and Six Months Ended June 30, 1997
compared to Three Months and Six Months Ended June 30,
1996
Information concerning the Company's oil and gas operations for the
three months and six months ended June 30, 1997, is set forth in the table
below:
Oil and Gas Operations
Three Months % Change Six Months % Change
Ended From 1996 Ended From 1996
June 30, 1997 Period June 30, 1997 Period
Oil and gas production
sold (BOE) 50,674 20% 95,765 11%
Average price per BOE $ 15.49 (11%) $ 16.82 3%
Oil and gas revenue $ 784,809 7% $1,611,190 14%
Production costs $ 285,663 21% $ 630,337 28%
Average production cost
per BOE $ 5.64 1% $ 6.58 16%
Oil and gas production sold for the three months ended June 30, 1997,
increased 8,400 barrels or 20% compared to the same period in 1996. Production
sold for the six months ended June 30, 1997, increased 9,200 barrels or 11%
compared to the same period in 1996. Both of these increases were primarily
due to new production from the Company's Oscar Fossum H3 horizontal well
(.67 net) that was completed and put on production in December 1996.
Oil and gas revenue increased $51,000 or 7% for the three months ended
June 30, 1997, compared to the same period in 1996. This increase was due to
the 20% higher sales volume which was partially offset by an 11% lower average
price per BOE in the second quarter of 1997 compared to the second quarter
1996. Oil and gas revenue for the six months ended June 30, 1997, increased
$194,000 or 14% compared to the same period in 1996. This increase was due
to the 11% higher sales volume coupled with a 3% higher average price per BOE
that existed in the first half of 1997 compared to 1996. The fluctuation in
oil prices for the three- and six-month periods ended June 30, 1997, resulted
from shifting world oil markets during the first half of 1997.
Production costs for the three months ended June 30, 1997, increased
$50,000 or 21% compared to the same period in 1996 due to increased workover
activities in the second quarter, 1997 together with a general increase in
production related good and services. Production costs for the 1997 six-month
period increased $138,000 or 28% over the same period in 1996 due to the higher
second quarter, 1997 production costs discussed above and to higher winter-
related production costs in the first quarter of 1997. Production costs
expressed on a per equivalent barrel basis were essentially stable in the
three-month period ended June 30, 1997 but were still 16% higher in the first
half of 1997 again, due to the higher winter-related production costs in the
first quarter, 1997.
Information concerning the Company's leonardite operations for the
three months and six months ended June 30, 1997, is set forth in the table
below:
Leonardite Operations
Three Months % Change Six Months % Change
Ended From 1996 Ended From 1996
June 30, 1997 Period June 30, 1997 Period
Leonardite production
sold (tons) 1,283 (43%) 3,673 (9%)
Average revenue per ton $ 93.09 -- $ 85.06 (13%)
Leonardite revenue $ 119,438 (43%) $ 312,412 (21%)
Cost of leonardite sold $ 120,901 (22%) $ 292,786 (9%)
Average production cost
per ton $ 94.23 38% $ 79.71 1%
Leonardite production sold decreased 978 tons or 43% and 378 tons or
9%, respectively, for the three- and six-month periods ended June 30, 1997,
compared to the equivalent periods in 1996. Management believes these lower
sales levels which were all in the second quarter, 1997, resulted primarily
from the inability of the Company to secure railroad cars in order to maintain
adequate inventory in the Company's contracted Gulf Coast warehouse. Due to
this, the Company lost sales to some of its customers because it could not
have product available in the warehouse for customers who normally buy less
than rail car quantities. The Company has always been subject to rail car
availability in order to ship product to the warehouse but the situation
degraded in the second quarter, 1997, after the merger of the Burlington
Northern and Santa Fe railroads. Since June 30, 1997, it appears the rail
car situation is improving.
Leonardite revenue decreased $91,000 or 43% and $82,000 or 21%,
respectively, for the three- and six-month periods ended June 30, 1997. These
decreases are due to lower sales discussed above. Revenue per ton for the
three months ended June 30, 1997, was essentially stable but the six-month
period was still lower due to a larger percentage of basic product sales that
occurred in the first quarter, 1997. The Company's basic product has lower
processing costs and selling prices. This caused revenue per ton to be 13%
lower for the six-month period compared to the same period in 1996.
Cost of leonardite sold decreased $33,000 or 22% and $28,000 or 9% for
the three- and six-month periods, respectively. These decreases were
primarily due to the lower sales levels previously discussed. Average
production costs for the three months ended June 30, 1997, increased $26 per
ton or 38% due to the decline in sales which spread fixed costs over
substantially fewer tons sold.
Consolidated Analysis
Total operating revenues decreased $40,000 or (4%) and increased
$112,000 or 6%, respectively, for the three- and six-month periods ended June
30, 1997, compared to the same periods in 1996. The three-month decrease was
entirely due to lower leonardite sales. The six-month increase was due to the
increased oil production. Total operating expenses increased $119,000 or 18%
and $204,000 or 15% for the three- and six-month periods of 1997, respectively,
compared to the same periods in 1996. These increases were primarily due to
increases in oil and gas production costs and depreciation and depletion.
Operating income decreased in both the three- and six-month periods because
operating costs increased more than revenue as discussed above.
After a provision for income taxes, the result of consolidated
operations yielded net income of $71,000 or $.02 per share for the second
quarter of 1997 compared to $254,000 or $.06 per share for the second quarter
1996. Net income for the first half of 1997 was $254,000 or $.06 per share
compared to $368,000 or $.09 per share for the first half of 1996.
Liquidity and Capital Resources
At June 30, 1997, the Company had working capital of $363,000 compared
to working capital of $205,000, at December 31, 1996. The Company's current
ratio was 1.27 to 1 at June 30, 1997, compared to 1.11 to 1 at year end 1996.
The $158,000 increase in working capital in the first half of 1997 was
primarily due to the Company borrowing $283,000 more than it paid down on its
existing line of credit to partially fund the drilling and completion of its
fourth horizontal well coupled with the reduction of payables in the first
quarter related to the Company's third horizontal well.
Net cash provided by operating activities was $235,000 for the six
months ended June 30, 1997, compared to $356,000 for the same period in 1996.
The decrease in 1997 operating cash flows was primarily because of the decrease
in net income as discussed in the results of operations section. Cash was also
utilized to make payments of $340,000 for additions to property, plant and
equipment and $142,000 for payments on long-term debt.
Management believes its future cash requirements can be met by cash
flows from operations. Future cash requirements might also be provided by
possible forward sales of oil reserves or additional debt or equity financing.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Part I, Item 3 of the Company's Annual Report on
SEC Form 10-K for the fiscal year ended December 31, 1996, concerning legal
proceedings for discussion on the matter of GeoResources, Inc., vs. MDU
Resources Group, Inc., et al. That discussion is specifically incorporated
herein by reference. Other than the foregoing legal 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.
The Annual Meeting of the Registrant was held on June 12, 1997.
Directors elected were Paul Krile, Dennis Hoffelt, J. P. Vickers, Cathy
Kruse, and Joseph Montalban.
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 quarter ended June
30, 1997.
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.
August 13, 1997
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer