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, 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 October 31, 1997
Common Stock 4,097,214 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, 1997 and December 31, 1996)
Consolidated Statements of Operations 4
(Three months ended September 30, 1997 and 1996
and nine months ended September 30, 1997 and 1996)
Consolidated Statements of Cash Flows 5
(Nine months ended September 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 11
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 287,519 $ 754,888
Trade receivables, net 691,345 936,045
Inventories 281,138 251,499
Prepaid expenses 36,133 18,201
Investments 35,649 57,771
Total current assets 1,331,784 2,018,404
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 18,089,302 16,450,061
Properties not subject to amortization 116,863 93,640
Leonardite plant and equipment 3,211,825 3,216,597
Other 703,568 693,641
22,121,558 20,453,939
Less accumulated depreciation, depletion,
amortization and impairment (15,317,133) (14,708,047)
Net property, plant and
equipment 6,804,425 5,745,892
OTHER ASSETS:
Mortgage loan receivable, related party 103,321 103,321
Other 40,791 42,348
Total other assets 144,112 145,669
TOTAL ASSETS $ 8,280,321 $ 7,909,965
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 884,388 $ 1,343,677
Current maturities of long-term debt 283,200 283,200
Accrued expenses 104,111 186,064
Total current liabilities 1,271,699 1,812,941
LONG-TERM DEBT, less current maturities 1,210,697 998,097
DEFERRED INCOME TAXES 281,000 225,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued
and outstanding, 4,089,714 and
4,060,714 shares, respectively 40,897 40,607
Additional paid-in capital 872,247 829,757
Retained earnings 4,603,781 4,003,563
Total stockholders' equity 5,516,925 4,873,927
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,280,321 $ 7,909,965
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,
1997 1996 1997 1996
OPERATING REVENUES:
Oil and gas sales $ 880,062 $ 728,805 $2,491,252 $2,145,970
Leonardite sales 268,308 207,451 580,720 601,724
1,148,370 936,256 3,071,972 2,747,694
OPERATING COSTS AND EXPENSES:
Oil and gas production 284,886 274,657 915,223 766,773
Cost of leonardite sold 149,678 134,971 442,464 456,220
Depreciation and depletion 247,816 168,024 657,355 503,293
Selling, general and
administrative 79,524 74,519 340,578 315,161
761,904 652,171 2,355,620 2,041,447
Operating income 386,466 284,085 716,352 706,247
OTHER INCOME (EXPENSE):
Interest expense (34,269) (27,356) (89,307) (90,787)
Interest income 7,685 4,359 20,007 12,105
Other income and
losses, net 6,225 5,420 16,675 24,524
(20,359) (17,577) (52,625) (54,158)
Income before income
taxes 366,107 266,508 663,727 652,089
Income tax (expense) benefit (20,331) 24,000 (63,509) 6,000
Net income $ 345,776 $ 290,508 $ 600,218 $ 658,089
EARNINGS PER SHARE:
Net income per
common share $ .08 $ .07 $ .15 $ .16
Weighted average number of
shares outstanding 4,085,333 4,060,714 4,069,010 4,054,783
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 600,218 $ 658,089
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 657,355 503,293
Deferred income taxes 56,000 (86,000)
Issuance of common stock as compensation 30,600 26,200
Other 1,644 1,644
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables 244,700 61,598
Inventories (29,639) (12,418)
Prepaid expenses and other (17,932) (12,492)
Investments 22,122 (50,753)
Increase (decrease) in:
Accounts payable (356,233) (432,855)
Accrued expenses (81,953) (86,696)
Income taxes payable -- 80,000
Net cash provided by
operating activities 1,126,882 649,610
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,818,944) (252,403)
Other (87) (11,269)
Net cash used in
investing activities (1,819,031) (263,672)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 425,000 --
Principal payments on long-term debt (212,400) (383,723)
Issuance of common stock 12,180 --
Debt issue costs -- (2,936)
Net cash provided by (used in)
financing activities 224,780 (386,659)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (467,369) (721)
CASH AND EQUIVALENTS, beginning of period 754,888 392,078
CASH AND EQUIVALENTS, end of period $ 287,519 $ 391,357
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 89,307 $ 90,787
Income taxes 7,509 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, 1997, and the
results of operations and cash flows for the three months and nine months
ended September 30, 1997 and 1996.
The results of operations for the periods ended September 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 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 Nine Months Ended September 30, 1997
compared to Three Months and Nine Months Ended
September 30, 1996
Information concerning the Company's oil and gas operations for the
three months and nine months ended September 30, 1997, is set forth in the
table below:
Oil and Gas Operations
Three Months % Change Nine Months % Change
Ended From 1996 Ended From 1996
Sept. 30, 1997 Period Sept. 30, 1997 Period
Oil and gas production
sold (BOE) 56,569 37% 152,334 19%
Average price per BOE $ 15.56 (12%) $ 16.35 (3%)
Oil and gas revenue $ 880,062 21% $2,491,252 16%
Production costs $ 284,886 4% $ 915,223 19%
Average production cost
per BOE $ 5.04 (24%) $ 6.01 --%
Oil and gas production sold, expressed in barrels of oil equivalent
(BOE), increased 15,200 BOE or 37% and 24,500 BOE or 19% for the three- and
nine-month periods ended September 30, 1997, compared to the same periods in
1996. The increases in oil and gas production sold during both periods were
due in varying degrees to three primary factors: 1.) New production
contributed by the Company's Oscar Fossum H3 horizontal well (.67 net) that
began producing in December 1996, 2.) New production contributed by the
Company's Ballantyne-State/Steinhaus H1 horizontal well (1.00 net) that began
producing in August 1997 and, 3.) Production increases from existing vertical
wells resulting from an ongoing 1997 workover program.
Oil and gas revenue increased $151,000 or 21% during the third quarter
of 1997 compared to the same quarter in 1996. This increase resulted from the
37% production increase previously discussed and a 12% lower average oil price
in third quarter 1997 compared to third quarter 1996. Oil and gas revenue for
the nine months ended September 30, 1997, was up $345,000 or 16% more than the
same period in 1996. This increase resulted from the 19% production increase
discussed above combined with a 3% lower average oil price for the nine months
ended September 30, 1997, compared to the same period in 1996.
Oil and gas production costs increased $10,200 or 4% and $148,500 or
19% for the three- and nine-month periods, respectively, when compared to the
same periods in 1996. These increases in production costs were the result of
higher production taxes from higher oil production levels in the first three
quarters of 1997, higher winter-related production costs in the first quarter
of 1997 and costs of the ongoing workover program in 1997. Production costs
expressed on a per barrel of oil equivalent basis, however, were lower for the
three month period and essentially flat for the nine month period when compared
to the same periods in 1996. Per barrel production costs were lower in the
1997 three-month period because production costs were only 4% higher while
production sold advanced 37% which spread costs over substantially more
barrels.
Information concerning the Company's leonardite operations for the
three months and nine months ended September 30, 1997, is set forth in the
table below:
Leonardite Operations
Three Months % Change Nine Months % Change
Ended From 1996 Ended From 1996
Sept. 30, 1997 Period Sept. 30, 1997 Period
Leonardite production
sold (tons) 2,871 31% 6,544 5%
Average revenue per ton $ 93.45 (1%) $ 88.74 (8%)
Leonardite revenue $ 268,308 29% $ 580,720 (3%)
Cost of leonardite sold $ 149,678 11% $ 442,464 (3%)
Average production cost
per ton $ 52.13 (15%) $ 67.61 (7%)
Leonardite production sold increased 677 tons or 31% and 299 tons or
5%, respectively, for the three- and nine-month periods ended September 30,
1997, compared to the equivalent periods in 1996. Management believes these
higher production levels result from continued moderate increases in domestic
oil and gas drilling activity, which in turn increased demand for the Company's
leonardite products. Leonardite product shipments also benefited from some
recent improvements in railcar availability compared to the second quarter of
1997; however, railroad transportation in general has always been fraught with
difficulties and the Company expects railroad transportation will continue to
be troublesome from time to time in the future.
Leonardite revenue increased $60,900 or 29% and decreased $21,000 or
3%, respectively, for the three- and nine-month periods ended September 30,
1997, compared to the same periods in 1996. The higher revenue in the three-
month period was due to the higher product sales discussed above. The slightly
lower revenue in the nine-month period occurred because the higher revenue in
the three months ended September 30, 1997 did not fully make up for the
substantially lower revenue that occurred in the second quarter of 1997.
Average revenue per ton for the three months ended September 30, 1997 was
essentially stable but the nine-month period was still lower due to a larger
percentage of basic product sales that occurred in the first quarter of 1997.
The Company's basic product has lower processing costs and selling prices.
This caused revenue per ton to be 8% lower for the nine-month period compared
to the same period in 1996.
Cost of leonardite sold increased $14,700 or 11% and decreased $13,800
or 3%, respectively, for the three- and nine-month periods ended September 30,
1997, compared to the same periods in 1996. The increase in the three-month
period was due to increased production as discussed above; however, costs did
not increase proportionately with production due to efficiencies gained by
reaching higher production levels. Average per ton production costs decreased
15% and 7%, respectively, for the three- and nine-month periods ended September
30, 1997, compared to the same periods in 1996. These declines were also due
to operating efficiencies gained by higher production levels.
Consolidated Analysis
Total operating revenues increased $212,000 or 23% and $324,000 or 12%,
respectively, for the three- and nine-month periods ended September 30, 1997,
compared to the same periods in 1996. These increases were due to the higher
oil and leonardite sales previously discussed. Total operating expenses
increased $110,000 or 17% and $314,000 or 15% for the three- and nine-month
periods of 1997, respectively, compared to the same periods in 1996. These
increases were primarily due to the higher oil and gas production costs
discussed above coupled with higher depreciation and depletion expense.
Depletion expense increased because it is calculated using a units of
production method so that as oil production increases so does depletion. As a
result of higher operating revenues and expenses, operating income increased
$102,000 or 36% and $10,000 or 1%, respectively, for the three- and nine-month
periods ended September 30, 1997, compared to the same periods in 1996.
Nonoperating expenses for both the three- and nine-month periods ended
September 30, 1997, were relatively unchanged when compared with the prior
year's periods. As a result, before tax income rose $99,600 or 37% and $11,600
or 2%, respectively, for the three- and nine-month periods ended September 30,
1997, compared to the same periods in 1996.
Income tax expense was $20,300 and $63,500 for the 1997 three- and
nine-month periods, respectively, compared to a tax benefit of $24,000 and
$6,000, respectively, for the same two periods in 1996. Income taxes for each
period primarily consist of the effect of the net changes in the Company's
deferred tax assets and liabilities and therefore bear little relationship to
income. Of the total tax amounts expensed in the 1997 periods, $14,000 and
$56,000 of those taxes, respectively, were deferred income taxes for the
three- and nine-month periods
After income taxes, consolidated operations yielded a net income of
$345,800 or $.08 per share for the third quarter of 1997 compared to $290,500
or $.07 per share for the third quarter of 1996. Net income for the nine
months ended September 30, 1997, was $600,200 or $.15 per share compared to
$658,000 or $.16 per share in the same period of 1996.
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of $60,100
compared to working capital of $205,500 at December 31, 1996. The Company's
current ratio was 1.05 to 1 at September 30, 1997, compared to 1.11 to 1 at
year-end 1996. The $145,400 change in working capital was primarily due to
the Company borrowing $212,600 more than it paid down on its existing line of
credit to partially fund the drilling and completion of its third and fourth
horizontal wells.
Net cash provided by operating activities was $1,127,000 for the nine
months ended September 30, 1997, compared to $650,000 for the same period in
1996. The increase in 1997 operating cash flows was primarily due to the 16%
increase in oil revenue. Cash was utilized to make payments of $1,819,000 for
additions to property, plant and equipment, primarily for the drilling and
completion of the Oscar Fossum H3 and Ballantyne-State/Steinhaus H1 wells, and
$212,400 for payments on long-term debt.
Management believes the Company's future cash requirements can be met
by cash flows from operations or cash flows coupled with other potential means
of capital funding. Future cash requirements might 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 l, 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.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) For a list of exhibits of the Company, see Item 14(c) of its Annual
Report on Form 10K for the fiscal year ended December 31, 1996, which is
specifically incorporated herein by reference. A financial date 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 during the fiscal quarter ended
September 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.
November 11, 1997
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer