1 WASHINGTON, D. C. 20549
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FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1995 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the transition period from to
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COMMISSION FILE NUMBER 0-13305
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PARALLEL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1971716
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Marienfeld Place, Suite 465,
Midland, Texas 79701
(Address of principal executive offices) (Zip Code)
(915) 684-3727
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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
At June 30, 1995 14,854,108 shares of common stock, par value $.01,
were outstanding.
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2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Reference is made to the succeeding pages for the following financial
statements:
- Balance Sheets as of December 31, 1994 and June 30, 1995
- Statements of Operations for the three months ended June 30,
1994 and 1995 and six months ended June 30, 1994 and 1995
- Statements of Cash Flows for the six months ended June 30,
1994 and June 30, 1995
- Notes to Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
/a/ Exhibits
10.1 Restated Loan Agreement, dated July 31, 1995, between
Parallel Petroleum Corporation and NationsBank of Texas, N.A.
27. Financial Data Schedule
/b/ Reports on Form 8-K
No reports were filed on Form 8-K during the quarterly period
ended June 30, 1995.
3 PARALLEL PETROLEUM CORPORATION
BALANCE SHEETS
December 31, June 30, 1995
1994* (Unaudited)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 598,465 $ 525,343
Accounts receivable:
Oil & Gas 470,000 608,000
Other, net of allowance for doubtful
accounts of $28,094 in 1995
and 1994 242,886 136,416
Affiliate 2,349 6,622
----------- -----------
715,235 751,038
Prepaid expenses and other 12,581 58,124
Undeveloped leases held for sale 463,922 60,414
----------- -----------
Total current assets 1,790,203 1,394,919
----------- -----------
Property and equipment, at cost:
Oil and gas properties, full cost method 27,657,884 28,550,114
Other 298,040 301,582
----------- ----------- 27,955,924 28,851,696
Less accumulated depreciation and depletion 7,232,197 7,961,055
----------- -----------
Net property and equipment 20,723,727 20,890,641
----------- -----------
Other assets net of accumulated amortization of
$51,375 in 1995 and $20,000 in 1994 246,799 76,442
----------- -----------
$22,760,729 $22,362,002
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities:
Trade $ 1,696,338 $ 558,443
Affiliate 327,325 66,524
----------- -----------
Total current liabilities 2,023,663 624,967
----------- -----------
Long-term debt 11,000,000 10,439,625
Deferred revenue 49,632 49,632
Deferred income taxes 358,528 426,428
Stockholders' equity:
Preferred stock - par value of $.10 per share,
authorized 40,000,000 shares, none issued -- --
Common stock - par value of $.01 per share,
authorized 100,000,000 shares, issued and
outstanding 14,854,108 in 1995 and
14,174,888 in 1994 141,749 148,541
Additional paid-in surplus 10,300,261 11,650,639
Accumulated deficit (1,113,104) (977,830)
----------- -----------
Total stockholders' equity 9,328,906 10,821,350
----------- -----------
$22,760,729 $22,362,002
=========== ===========
*The balance sheet as of December 31, 1994 has been derived from the Company's
audited financial statements.The accompanying notes are an integral part
of these financial statements.
4
PARALLEL PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended June 30, 1994 and 1995
Six Months Ended June 30, 1994 and 1995
(Unaudited)
Three Months Six Months
1994 1995 1994 1995
---------- ---------- ---------- ----------
Oil and gas revenues $1,255,740 $1,148,799 $2,429,138 $2,316,078
---------- ---------- ---------- ----------
Cost and expenses:
Lease operating expense 333,518 368,937 667,129 705,435
General and administrative 49,973 56,841 86,585 94,230
Public reporting, auditing and legal 60,553 46,141 103,805 89,191
Depreciation, depletion and
amortization 359,303 363,554 704,129 728,858
----------- ---------- ---------- ----------
803,347 835,473 1,561,648 1,617,714
----------- ---------- ---------- ----------
Operating income 452,393 313,326 867,490 698,364
----------- ---------- ---------- ----------
Other income (expense), net:
Interest income -- -- 322 --
Other income 29,443 12,515 59,443 24,259
Interest expense (161,359) (257,928) (270,608) (518,280)
Other expense (2,645) (1,056) (3,147) (1,169)
---------- ---------- ---------- ----------
Total other expense, net (134,561) (246,469) (213,990) (495,190)
---------- ---------- ---------- ----------
Income before income taxes 317,832 66,857 653,500 203,174
Income tax expense - deferred 108,000 21,900 222,000 67,900
---------- ---------- ---------- ----------
Net income $ 209,832 $ 44,957 $ 431,500 $ 135,274
========== ========== ========== ==========
Net income per common share $ .014 $ .003 $ .029 $ .009
========== ========== ========== ==========
Weighted average common shares and common
stock equivalents outstanding 14,840,403 15,358,478 14,822,252 15,264,671
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements
5
PARALLEL PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1994 and 1995
(Unaudited)
1994 1995
----------- -----------
Cash flows from operating activities:
Net income $ 431,500 $ 135,274
Adjustments to reconcile net income to net cash
provided (used in) by operating activities:
Depreciation, depletion and amortization 704,129 728,858
Incomes taxes 222,000 67,900
Other, net (21,420) 170,357
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 186,165 (35,803)
Increase in prepaid expenses and other (52,335) (45,543)
Decrease in accounts payable and accrued
liabilities (741,309) (1,398,696)
---------- ----------
Net cash provided (used in) by
operating activities 728,730 (377,653)
---------- ----------
Cash flows from investing activities:
Additions of property and equipment (3,510,497) (1,646,920)
Proceeds from disposition of property and equipment -- 1,200,671
Acquisition of undeveloped leases
held for sale (4,919) (46,015) ---------- ----------
Net cash used in investing activities (3,515,416) (492,264)
---------- ----------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 2,855,000 1,050,000
Payment of long-term debt -- (1,610,375)
Proceeds from exercise of options 17,187 36,694
Stock Offering costs -- (289,899)
Proceeds from common stock issuance -- 1,610,375
Recoupment of deferred income (3,347) --
---------- ----------
Net cash provided by financing activities 2,868,840 796,795
---------- ----------
Net increase (decrease) in cash
and cash equivalents 82,154 (73,122)
Beginning cash and cash equivalents 123,293 598,465
---------- ----------
Ending cash and cash equivalents $ 205,447 $ 525,343
========== ==========
6
PARALLEL PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. OPINION OF MANAGEMENT
The financial information included herein is unaudited; however, such
information includes all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results of operations for
the interim periods.
NOTE 2. LONG TERM DEBT
The Company's Loan Agreement with its bank lender provides for a two
year revolving credit facility, converting to a four year term loan on
June 1, 1997. The loan agreement requires interest to be paid on the
outstanding principal balance of the revolving facility on the last day
of each month through and including May 31, 1997. The revolving loan
automatically converts to a four - year term loan on June 1, 1997,
payable in 48 equal installments of principal plus accrued and unpaid
interest, with the final payment being due and payable on May 31, 2001.
The aggregate principal amount of the Company's borrowings outstanding
at any one time are limited to the lesser of $25,000,000 or the
borrowing base then in effect. At June 30, 1995, the borrowing base
was $11,250,000 and the aggregate principal amount outstanding at the
same date was approximately $10,440,000. Commitment fees of .5% per
annum on the difference between the commitment and the average daily
amount of the loan are payable quarterly. The borrowing base is
redetermined by the Bank semi-annually on or about May 1, and
November 1 of each year. The note bears interest at the bank's prime
rate plus 3/4% and is secured by substantially all of the Company's
oil and gas properties. The loan agreement contains various restrictive
covenants and compliance requirements, which include maintenance of
certain financial ratios, limiting the incurrence of additional
indebtedness and prohibiting payment of dividends.
NOTE 3. COMMON STOCK OFFERING
On February 7, 1995, the Company completed a private placement of its
common stock. The Company sold 644,150 shares of its common stock at
$2.50 per share, of which 50,000 shares were purchased by certain
Directors (or their affiliates) of the Company. Proceeds received,
net of related expenses, were approximately $1,320,500. Such
proceeds were applied to the partial repayment of the Company's
bank debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(1) MATERIAL CHANGES IN FINANCIAL CONDITION
LIQUIDITY
Working Capital increased $1,003,412 as of June 30, 1995 compared to
December 31, 1994. Current assets exceed current liabilities by
$769,952 at June 30, 1995 compared to a deficit of $233,460 at December
31, 1994. Current assets decreased primarily due to a decrease of
$403,508 in undeveloped leases held for sale. Current liabilities
decreased $1,398,696 due to the payment of trade payables accrued as
of December 31, 1994.
CAPITAL RESOURCES
The Company incurred net costs of $492,264 in its oil and gas property
acquisition, development, and enhancement activities for the six months
ended June 30, 1995. Such costs were financed by the utilization of the
Company's cash position, funds provided from its line of credit, and
proceeds from disposition of certain undeveloped leases held for resale.
7
Historically, the Company concentrated most of its drilling activities
onshore in Texas in exploratory prospects. However, starting in 1988
the Company followed a policy of deemphasizing exploratory drilling
and committing most of its available funds to the acquisition and
enhancement of producing oil and gas properties and development
drilling. Beginning in 1992, the Company expanded its acquisition
and enhancement efforts through the use of three-dimensional seismic
technology. Based on the Company's projected oil and gas revenues
and related expenses, Management believes that its internally
generated cash flow, coupled with proceeds from borrowings under the
Company's lending facility, will be sufficient to fund its current
operations. In addition, the Company continually reviews and
considers alternative methods of financing.
TREND AND PRICES
During the first quarter of 1994 oil prices dropped to a five year
low of approximately $12.50 per barrel; however, oil prices have
recently increased to $17.50 per barrel. Conversely, during the
winter of 1993 and early first quarter of 1994, natural gas spot
market prices increased to a five year high of approximately $2.25
to $2.50 per Mcf, but have since declined to approximately $1.50 per
Mcf.
The Company has no way of accurately predicting domestic or worldwide
political events or the effects of such events on the prices received
by the Company for its oil and natural gas.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS
Because of the Company's ever-changing reserve base and sources of
production, year to year or quarter to quarter comparisons of the
Company's results of operations can be difficult. This situation is
further complicated by significant changes in product mix (oil vs. gas
volumes) and related price fluctuations for both oil and gas. For
these reasons, the following compares the results of operations on an
EBO (equivalent barrel of oil) basis for the period indicated.
Three Months Ended Three Months Ended
12-31-94 3-31-95 6-30-95 6-30-94 6-30-95
-------- -------- -------- -------- --------
Production and Prices:
Oil (Bbl) 24,894 43,216 36,172 46,151 36,172
Natural Gas (Mcf) 354,635 321,947 346,356 326,972 346,356
Equivalent Barrels of
Oil (EBO) 84,000 96,874 93,898 100,646 93,898
Oil Price (per Bbl) $18.78 $16.55 $17.78 $14.96 $17.78
Gas Price (per Mcf) $ 1.53 $ 1.40 $ 1.42 $ 1.72 $ 1.42
Price per EBO $12.04 $12.05 $12.23 $12.48 $12.23
8
Results of Operations per EBO (Equivalent Barrel of Oil)
Three Months Ended Three Months Ended
12-31-94 3-31-95 6-30-95 6-30-94 6-30-95
-------- -------- -------- -------- --------
Oil and gas revenues $12.04 $12.05 $12.23 $12.48 $12.23
Costs and expenses:
Lease operating expense 5.48 3.47 3.93 3.31 3.93
General and administrative .62 .39 .61 .50 .61
Public reporting, auditing
and legal .18 .44 .49 .60 .49
Depreciation and depletion 5.98 3.77 3.87 3.57 3.87
------ ------ ------ ------ ------
12.26 8.07 8.90 7.98 8.90
------ ------ ------ ------ ------
Operating income (.22) 3.98 3.33 4.50 3.33
Other income (expense):
Interest expense (2.88) (2.69) (2.75) (1.60) (2.75)
Other income (expense) .37 .12 .12 .27 .12
------- ------ ------ ------ ------
Income before income taxes $(2.73) $ 1.41 $ .70 $ 3.17 $ .70
====== ====== ====== ====== ======
Net cash flow before working
capital adjustments $ 3.25 $ 5.18 $ 4.57 $ 6.74 $ 4.57
====== ====== ====== ====== ======
THREE MONTHS ENDED JUNE 30, 1995 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1994:
During the three months ended June 30, 1995, the following operational
items changed relative to the corresponding three month period ended
June 30, 1994:
Income before taxes decreased $250,975 (79%) to $66,857 primarily due to
a $106,941 decrease in oil and gas revenues and a $96,569 increase in
interest expense.
Net cash flow from operations, before working capital adjustments,
decreased $246,724 (36%) to $430,411. Oil and gas revenues decreased
$106,941 (9%) to $1,148,799 in 1995 compared to $1,255,740 in 1994.
The EBO (equivalent barrels of oil) sold in 1995 decreased by 6,748
(7%) to 93,898 compared to 100,646 in 1994.
Costs and expenses increased $32,126 (4%) to $835,473 due to the
following:
1. Lease operating expense increased $35,419 (11%) to $368,937
primarily due to the aforementioned decrease in EBO sold. The
operating expense per EBO increased 19% to $3.93 compared to $3.31
in 1994.
2. General and administrative expense increased $6,868 (14%) to
$56,841 in 1995. Such increase represents $.61 per EBO sold in 1995
compared to $.50 per EBO sold in 1994.
3. Public reporting, auditing and legal expense decreased $14,412
(24%) to $46,141 in 1995.
4. Depreciation, depletion and amortization expense (DD&A) increased
$4,251 (1%) to $363,554. The DD&A rate per EBO in 1995 is $3.87
compared to $3.57 in 1994.
9
Interest expense increased $96,569 (60%) to $257,928 because of the
Company's increased borrowings to finance its oil and gas property
acquisitions, enhancements, development drilling and three dimensional
seismic technology activities.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1994:
During the six months ended June 30, 1995, the following operational items
changed relative to the corresponding six month period ended June 30, 1994.
Income before taxes decreased $450,326 (69%) to $203,174 primarily due to
a $113,060 decrease in oil and gas revenues and a $247,672 increase in
interest expense.
Net cash flow from operations, before working capital adjustments,
decreased $233,820 (17%) to $1,102,389. Oil and gas revenues decreased
$113,060 (5%) to $2,316,078 in 1995 compared to $2,429,138 in 1994. The
EBO (equivalent barrels of oil) sold in 1995 decreased by 7,336 (4%) to
190,772 compared to 198,108 in 1994. The sales price per EBO decreased 1%
to $12.14 in 1995 compared to $12.26 in 1994.
Costs and expenses increased $56,066 (4%) to $1,617,714 due to the
following:
1. Lease operating expense increased $38,306 (6%) to $705,435 primarily
due to the aforementioned 4% decrease in EBO sold in 1995. The operating
cost per EBO increased 9% to $3.69 in 1995 compared to $3.37 in 1994. The
lease operating expense per EBO increased as production decreased
disproportionately to lease operating expense on certain of the Company's
properties.
2. General and administrative expense increased $7,645 (9%) to $94,230
in 1995, such increase represents $.49 per EBO sold in 1995 compared to
$.44 per EBO in 1994. General and administrative expenses have remained
fairly stable with no real increases or decreases noted in any particular
category.
3. Public reporting, auditing and legal expense decreased $14,614 (14%)
to $89,191 primarily due to decreases in postage expense related to
shareholder communication and legal fees.
4. Depreciation, depletion and amortization expense (DD&A) increased
$24,729 (4%) to $728,858 in 1995. The DD&A rate per EBO in 1995 is $3.82
compared to $3.55 in 1994.
Interest expense increased $247,672 (92%) to $518,280 because of the
Company's increased borrowings to finance its producing property
acquisition, enhancement and development drilling activities. Interest
expense increased 98% per EBO sold in 1995 to $2.71 compared to $1.37 per
EBO sold in 1994.
10
PARALLEL PETROLEUM CORPORATION
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of stockholders was held on May 31, 1995.
At the meeting, the following persons were elected to serve as Directors
of the Company for a term of one year expiring in 1995 and until their
respective successors are duly qualified and elected: (1) Thomas R.
Cambridge, (2) Danny H. Conklin, (3) Ernest R. Duke, (4) Myrle Greathouse,
(5) Larry C. Oldham and (6) Charles R. Pannill.
Set forth below is a tabulation of votes with respect to each nominee for
Director:
NAME VOTES CAST FOR VOTES WITHHELD BROKER NON-VOTE
Thomas R. Cambridge 11,531,955 106,185 --
Danny H. Conklin 11,532,177 105,963 --
Ernest R. Duke 11,531,927 106,213 --
Myrle Greathouse 11,532,177 105,963 --
Larry C. Oldham 11,531,977 106,163 --
Charles R. Pannill 11,531,977 106,163 --
In addition to electing Directors, the stockholders of the Company also
voted upon and ratified the appointment of KPMG Peat Marwick LLP to serve
as the Company's independent public accountants for 1995.
Set forth below is a tabulation of votes with respect to the proposal to
ratify the appointment of the Company's independent public accountants:
VOTES CAST FOR VOTES CAST AGAINST ABSTENTIONS BROKER NON-VOTE
11,568,540 52,955 15,870 --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Restated Loan Agreement, dated July 31, 1995, between Parallel
Petroleum Corporation and NationsBank of Texas, N.A.
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended June 30,
1995.
11
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PARALLEL PETROLEUM CORPORATION
Date: August 8, 1995 /s/ THOMAS R. CAMBRIDGE
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THOMAS R. CAMBRIDGE,
CHIEF EXECUTIVE OFFICER
Date: August 8, 1995 /s/ LARRY C. OLDHAM
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LARRY C. OLDHAM,
PRESIDENT
12
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
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*10.1 Restated Loan Agreement, dated July 31,
1995, between Parallel Petroleum
Corporation and NationsBank of Texas,
N.A.
*27 Financial Data Schedule
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* Filed herewith