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 March 31, 1998.
___ 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
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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 _____.
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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 April 30, 1998
Common Stock 4,072,414 shares
(par value $.01 per share)
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(March 31, 1998 and December 31, 1997)
Consolidated Statements of Operations 4
(Three months ended March 31, 1998 and 1997)
Consolidated Statements of Cash Flows 5
(Three months ended March 31, 1998 and 1997)
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)
March 31, December 31,
1998 1997
ASSETS
CURRENT ASSETS
Cash and equivalents $ 185,328 $ 490,385
Trade receivables, net 564,163 521,934
Inventories 333,136 288,264
Prepaid expenses 27,796 31,422
Investments 4,342 25,966
Total current assets 1,114,765 1,357,971
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 18,611,543 17,997,596
Properties not subject to amortization 129,556 124,672
Leonardite plant and equipment 3,211,825 3,211,825
Other 704,357 702,068
22,657,281 22,036,161
Less accumulated depreciation, depletion
amortization and impairment (15,686,204) (15,510,109)
Net property, plant and equipment 6,971,077 6,526,052
OTHER ASSETS:
Mortgage loans receivable, related party 103,321 103,321
Other 51,924 44,984
Total other assets 155,245 148,305
TOTAL ASSETS $ 8,241,087 $ 8,032,328
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 948,540 $ 770,204
Current maturities of long-term debt 434,297 457,097
Accrued expenses 99,993 112,430
Total current liabilities 1,482,830 1,339,731
LONG-TERM DEBT, less current maturities 874,251 666,000
DEFERRED INCOME TAXES 325,000 335,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued
4,097,714 shares; outstanding 4,072,414
shares and 4,097,714 shares, respectively 40,972 40,972
Additional paid-in capital 880,797 880,797
Retained earnings 4,687,429 4,769,828
Less cost of 25,300 shares
acquired for treasury (50,192) --
Total stockholders' equity 5,559,006 5,691,597
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,241,087 $ 8,032,328
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1998 1997
OPERATING REVENUES:
Oil and gas sales $ 430,923 $ 826,381
Leonardite sales 182,189 192,974
613,112 1,019,355
OPERATING COSTS AND EXPENSES:
Oil and gas production 238,333 344,674
Cost of leonardite sold 164,824 171,885
Depreciation and depletion 176,095 170,367
Selling, general and administrative 111,864 115,808
691,116 802,734
Operating income (loss) (78,004) 216,621
OTHER INCOME (EXPENSE):
Interest expense (25,943) (26,728)
Interest income 6,192 6,670
Other income, net 5,356 4,425
(14,395) (15,633)
Income (loss) before income taxes (92,399) 200,988
Income tax (expense) benefit 10,000 (17,500)
Net income (loss) $ (82,399) $ 183,488
EARNINGS PER SHARE:
Net income (loss), basic and diluted $ (.02) $ .05
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (82,399) $ 183,488
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and depletion 176,095 170,367
Deferred income taxes (10,000) 9,600
Other 560 548
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables (42,229) 301,542
Inventories (44,872) 11,408
Prepaid expenses and other 3,626 5,067
Investments 21,624 50,450
Increase (decrease) in:
Accounts payable (61,621) 43,670
Accrued expenses (12,437) (20,089)
Net cash provided by (used in)
operating activities (51,653) 756,051
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (381,163) (1,030,252)
Other -- 118
Net cash used in investing
activities (381,163) (1,030,134)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 300,000 --
Principal payments on long-term debt (114,549) (70,800)
Debt issue costs (7,500) --
Purchase of treasury stock (50,192) --
Net cash used in financing
activities 127,759 (70,800)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (305,057) (344,883)
CASH AND EQUIVALENTS, beginning of period 490,385 754,888
CASH AND EQUIVALENTS, end of period $ 185,328 $ 410,005
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 25,943 $ 26,728
Income taxes 50 50
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 March 31, 1998, and
the results of operations and cash flows for the three month periods
ended March 31, 1998 and 1997.
The results of operations for the three month period ended March 31,
1998 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,
1997.
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
Information contained in the following discussion of results of
operations and financial condition of the Company contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of words such as "may," "will,"
"expect," "anticipate," "estimate," or "continue," or variations thereon or
comparable terminology. In addition, all statements other than statements of
historical facts that address activities, events or developments that the
Company expects, believes or anticipates, will or may occur in the future, and
other such matters, are forward-looking statements.
The following discussion should be read in conjunction with the
Company's consolidated financial statements and related notes included
elsewhere herein. The Company's future operating results may be affected by
various trends and factors which are beyond the Company's control. These
include, among other factors, the competitive environment in which the Company
operates, prices for oil, both domestically and internationally, demand for
leonardite in the drilling industry, dependence upon key management personnel,
the speculative nature of the oil and gas business in general, availability of
drilling equipment and other uncertain business conditions that may affect the
Company's business.
The Company cautions the reader that a number of important factors
discussed herein, and in other reports filed with the Securities and Exchange
Commission, particularly the Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1997, could affect the Company's actual results and cause
actual results to differ materially from those discussed in forward-looking
statements.
Results of Operations - Three Months Ended March 31, 1998, compared to Three
Months Ended March 31, 1997
Information concerning the Company's oil and gas operations for the
three months ended March 31, 1998, is set forth in the table below:
Oil and Gas Operations
Percent Increase
Three Months Ended (Decrease) from
March 31, 1998 1997 Period
Oil and gas production sold (BOE) 42,051 (7%)
Average price per BOE $ 10.25 (44%)
Oil and gas revenue $ 430,923 (48%)
Production costs $ 238,333 (31%)
Average production cost per BOE $ 5.67 (26%)
Oil and gas production sold declined by 3,040 barrels of oil
equivalent (BOE) or 7% compared to the quarter ended March 31, 1997. This
decrease in the volume of oil sold was due to several factors, all of which
were related to the substantially lower oil prices that existed in the first
quarter 1998 compared to the first quarter 1997. In 1998, the Company started
holding some of its oil production in lease tanks as inventory with the
objective of selling the oil later at a higher price. As a result, at March
31, 1998, oil held in inventory was 6,800 barrels higher than it was at
December 31, 1997. When the inventory barrels are considered, the Company
actually produced 3,760 BOE more in the first quarter 1998 than the same
quarter in 1997. Most of this production inventory is associated with low
volume wells that can take several months to fill the lease tanks. As these
tanks become full, the Company must determine whether to sell the oil at the
prevailing price or to stop producing ("shut-in") certain of its wells. By
March 31, 1998, the Company had shut-in five marginal ("stripper") wells to
lower production costs.
Oil and gas revenue declined $395,000 or 48%. The revenue decrease
was due primarily to a 44% lower average oil price of $10.25 in the first
quarter 1998 compared to $18.33 in the first quarter 1997 combined with the
lower volume of oil sold. Oil and gas production costs decreased $106,000 or
31%, due in part to the lower oil revenue which decreased production taxes,
lower winter-related production costs compared to first quarter 1997, and
efforts to reduce production costs. Production costs on a per-equivalent-
barrel basis declined 26% to $5.67 compared to $7.64 for the first quarter
1997, due to the efforts to reduce production costs.
Information concerning the Company's leonardite operations for the
three months ended March 31, 1998, is set forth in the table below:
Leonardite Operations
Percent Increase
Three Months Ended (Decrease) from
March 31, 1998 1997 Period
Leonardite production sold (tons) 1,686 (29%)
Average revenue per ton $ 108.06 34%
Leonardite revenue $ 182,189 (6%)
Cost of leonardite sold $ 164,824 (4%)
Average production cost per ton $ 97.76 36%
Leonardite revenues declined 6%, due to a 29% decrease in the number
of tons sold and a 34% increase in average revenue per ton. Management
believes the reason for the lower number of tons sold is due to reduced demand
caused by low oil prices. The 34% increase in average revenue per ton was due
to a much larger percentage of specialty product sales that have higher
selling prices. The 4% increase in cost of leonardite sold resulted from the
29% decrease in production coupled with the 36% higher per ton average
production costs. Average production costs increased, due again to the larger
percentage of specialty product sales, which also have higher processing
costs.
Consolidated Analysis
Total operating revenue decreased $406,000 or 40%, primarily due
to the substantially lower oil prices previously discussed. Total
operating expenses decreased $112,000 or 14%, primarily due to the lower
oil and gas production costs previously discussed. As a result of lower
revenues, and to a lesser extent lower expenses, the Company incurred an
operating loss of $78,000 compared to operating income of $217,000 for the
same period in 1997. After provisions for non-operating expenses and
income taxes, the Company incurred a net loss for the first quarter 1998 of
$82,000 or $.02 per share compared to the first quarter 1997 net income of
$183,000 or $.05 per share.
Liquidity and Capital Resources
At March 31, 1998, the Company had negative working capital of
$368,000 compared to working capital of $18,000 at December 31, 1997. The
$350,000 decrease in working capital was primarily due to the impact of
payables related to the Company's drilling and completion of the Oscar Fossum
H4 horizontal well that started producing in February 1998 as well as lower
cash flow due to lower oil prices. The Company's current ratio was .75 to 1
at March 31, 1998, compared to 1.01 to 1 at year-end 1997. This current ratio
was not in compliance with the Company's loan agreement with its bank;
however, the Company received from its bank a waiver of the covenant through
the second quarter of 1998. Management believes the Company should be in
compliance with this covenant by the end of the second quarter.
Net cash used in operating activities was $52,000 for the quarter
ended March 31, 1998, compared to cash provided by operating activities of
$756,000 for the same period in 1997. The substantial decrease in 1998
operating cash flows was primarily due to lower oil prices. Cash was also
utilized to make payments of $381,000 for additions to property, plant and
equipment and $115,000 for payments on long-term debt.
The continuation of relatively low oil prices will adversely affect
the Company's ability to achieve net income. Management cannot predict the
prices of oil, but will attempt to keep costs as low as possible during
periods of low oil prices, as discussed above. Management believes the
Company's future cash requirements can be met by cash flows from operations
and, if necessary, borrowings on the Company's existing line-of-credit.
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.
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. 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. The Company 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,
the Company contacted the court in September 1996 and was informed by the
court that the case had been dismissed in 1991. On January 15, 1997, the
Company refiled its action against MDU Resources Group, Inc. Management
cannot predict the outcome of this action, although the Company intends to
pursue its available remedies.
Other than the foregoing legal proceeding, 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 quarter ended
March 31, 1998.
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.
May 14, 1998
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer