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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996 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
The number of shares outstanding of each of the issuer's classes of
common stock was 14,854,108 shares of common stock, par value $.01, outstanding
as of May 1, 1996.
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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, 1995 and March 31, 1996
- Statements of Operations for the three months ended March 31, 1995 and
1996
- Statements of Cash Flows for the three months ended March 31, 1995 and
March 31, 1996
- Notes to Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
/a/ Exhibits
27. Financial Data Schedule
/b/ Reports on Form 8-K
No reports were filed on Form 8-K during the quarterly period ended
March 31, 1996.
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PARALLEL PETROLEUM CORPORATION
BALANCE SHEETS
December 31, March 31, 1996
1995* (Unaudited)
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ASSETS
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Current assets:
Cash and cash equivalents $ 558,748 $ 60,629
Accounts receivable:
Oil and Gas 648,000 1,462,000
Other, net of allowance for doubtful accounts
of $28,130 in 1995 and 1996 115,318 126,109
Affiliate 2,932 5,948
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766,250 1,654,686
Prepaid expenses and other 16,293 10,169
Undeveloped leases held for sale 60,413 60,413
Deferred income taxes 114,240 210,460
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Total current assets 1,515,944 1,935,728
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Property and equipment, at cost:
Oil and gas properties, full cost method 30,879,615 34,687,296
Other 315,983 351,439
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31,195,598 35,038,735
Less accumulated depreciation and depletion 8,837,838 9,491,235
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Net property and equipment 22,357,760 25,547,500
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Other assets net of accumulated amortization
of $24,500 in 1995 and $28,688 in 1996 40,994 49,056
------------ ------------
$ 23,914,698 $ 27,532,284
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities:
Trade $ 856,088 $ 780,737
Affiliate 20,557 4,167
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Total current liabilities 876,645 784,904
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Long-term debt 11,674,625 14,429,749
Deferred income taxes 528,015 916,235
Stockholders' equity:
Preferred stock - par value of $.10 per
share, authorized 40,000,000 shares,
none issued -- --
Common stock - par value of $.01 per share,
authorized 100,000,000 shares, issued and
outstanding 14,854,108 in 1995 and 1996 148,540 148,540
Additional paid-in surplus 11,662,897 11,662,897
Accumulated deficit (976,024) (410,041)
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Total stockholders' equity 10,835,413 11,401,396
Contingencies
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$ 23,914,698 $ 27,532,284
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*The balance sheet as of December 31, 1995 has been derived from the Company's
audited financial statements.
The accompanying notes are an integral part of these financial statements.
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PARALLEL PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1996
(Unaudited)
1995 1996
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Oil and gas revenues $ 1,167,278 $ 2,337,924
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Cost and expenses:
Lease operating expense 336,498 452,963
General and administrative 37,389 63,629
Public reporting, auditing and legal 43,050 45,037
Depreciation, depletion and amortization 365,303 653,397
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782,240 1,215,026
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Operating income 385,038 1,122,898
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Other income (expense), net:
Interest income -- 93
Other income 11,744 17,335
Interest expense (260,352) (282,158)
Other expense (113) (185)
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Total other expense, net (248,721) (264,915)
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Income before income taxes 136,317 857,983
Income tax expense - deferred 46,000 292,000
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Net income $ 90,317 $ 565,983
=========== ===========
Net income per common share $ .01 $ .04
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Weighted average common shares and common stock
equivalents outstanding 15,170,977 15,430,648
=========== ===========
The accompanying notes are an integral part of these financial statements
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PARALLEL PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1995 and 1996
(Unaudited)
1995 1996
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Cash flows from operating activities:
Net income $ 90,317 $ 565,983
Adjustments to reconcile net income to
net cash required by operating activities:
Depreciation, depletion and amortization 365,303 653,397
Incomes taxes 46,000 292,000
Other, net 151,552 (8,062)
Changes in assets and liabilities:
Decrease (increase) in trade receivables (670,288) (827,807)
Decrease (increase) in prepaid expenses
and other (29,786) 6,124
Increase (decrease) in accounts payable
and accrued liabilities (918,402) (91,741)
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Net cash required by operating activities (965,304) 589,894
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (799,016) (3,843,137)
Proceeds from disposition of property and equipment 530,171 --
Acquisition of undeveloped leases
held for sale (46,015) --
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Net cash required by investing activities (314,860) (3,843,137)
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Cash flows from financing activities:
Proceeds from the issuance of long-term debt 1,050,000 2,755,124
Payments of long-term debt (1,610,375) --
Stock offering costs (289,899) --
Proceeds from common stock issuance 1,610,375 --
------------ ------------
Net cash provided by financing activities 760,101 2,755,124
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Net decrease in cash and cash equivalents (520,063) (498,119)
Beginning cash and cash equivalents 598,465 558,748
------------ ------------
Ending cash and cash equivalents $ 78,402 $ 60,629
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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
In July, 1995, the Company and its bank lender amended and restated the
Company's revolving credit facility and renewed and extended the Company's
outstanding indebtedness under the facility. Interest only is payable on the
outstanding principal balance of the revolving facility on the last day of each
month through and including May 31, 1997. Under the restated credit facility,
the revolving loan will automatically convert 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 is limited to the lesser of $25,000,000 or the borrowing base then in
effect. At March 31, 1996, the borrowing base was $15,225,000 and the aggregate
principal amount outstanding at the same date was approximately $14,429,749.
Commitment fees of 0.5% per annum on the difference between the loan commitment
amount and the average daily amount of the loan are due 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 and
is secured by substantially all of the Company's oil and gas properties. The
restated loan agreement contains various restrictive covenants and compliance
requirements, including maintenance of certain financial ratios, limitations
on additional indebtedness and restrictions on the payment of dividends.
NOTE 3. COMMON STOCK OFFERING
On February 7, 1995, the Company completed a private placement of 644,150
shares of 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 $1,320,476.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(1) MATERIAL CHANGES IN FINANCIAL CONDITION
LIQUIDITY
Working Capital increased $511,525 as of March 31, 1996 compared to December
31, 1995. Current assets exceeded current liabilities by $1,150,824 at March
31, 1996 compared to $639,299 at December 31, 1995. Current assets increased
primarily due to an increase of $827,807 in accounts receivable offset by a
decrease of $6,124 in prepaid expenses and a decrease in cash of $498,119.
The decrease in cash resulted primarily due to the Company's investments in oil
and gas drilling activities and payment of trade payables accrued as of December
31, 1995. The Company continues to employ 3-D seismic technology in conjunction
with its drilling activities, which are concentrated on certain gas prospects
located in south Texas.
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CAPTIAL RESOURCES
The Company incurred net costs of $3,843,137 in its oil and gas property
acquisition, development, and enhancement activities for the three months ended
March 31, 1996. Such costs were financed by the utilization of the Company's
cash position and funds provided from its line of credit.
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. The Company
continually reviews and considers alternative methods of financing.
TREND AND PRICES
The Company's revenues, cash flows and borrowing capacity are affected by
changes in oil and gas prices. The markets for oil and gas have historically
been, and will continue to be, volatile. Prices for oil and gas typically
fluctuate in response to relatively minor changes in supply and demand, market
uncertainty, seasonal, political and other factors beyond the control of the
Company. The Company is unable to accurately predict domestic or worldwide
political events or the effects of such other factors on the prices received by
the Company for its gas and oil. The Company historically has not entered into
transactions to hedge against changes in oil and gas prices, but may elect to
enter into hedging transactions in the future to protect against fluctuations
in oil and gas prices.
During 1995, the average sales price received by the Company for its oil was
approximately $17.26 per barrel ("Bbl"), as compared to $15.81 in 1994, while
the average sales prices for the Company's gas was approximately $1.50 per
thousand cubic feet ("Mcf") in 1995, as compared to $1.68 per Mcf in 1994. At
March 31, 1996, the price received by the Company for its oil production ranged
from $20.00 to $22.00 per Bbl, while the price received by the Company, at that
same date, for its gas production ranged from $1.60 to $2.50 per Mcf.
(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 table below compares
the Results of Operations on the basis of equivalent barrels of oil ("EBO") for
the period indicated. An EBO means one barrel of oil equivalent using the ratio
of six Mcf of gas to one barrel of oil.
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Three Months Ended
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9-31-95 12-31-95 3-31-96 3-31-95 3-31-96
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Production and Prices:
Oil (Bbls) 22,819 30,372 44,713 43,216 44,713
Natural Gas (Mcf) 469,554 478,248 701,895 321,947 701,895
Equivalent Barrels of Oil (EBO) 101,078 110,080 161,695 96,874 161,695
Oil Price (per Bbl) $17.36 17.54 18.27 $16.55 18.27
Gas Price (per Mcf) $ 1.45 1.59 2.17 $ 1.40 2.17
Price per EBO $10.93 11.75 14.46 $12.05 14.46
Results of Operations per EBO
Oil and gas revenues $10.93 $11.75 $14.46 $12.05 $14.46
Costs and expenses:
Lease operating expense 3.57 3.65 2.80 3.47 2.80
General and administrative .67 .59 .39 .39 .39
Public reporting, auditing
and legal .63 .48 .28 .44 .28
Depreciation and depletion 3.62 4.75 4.04 3.77 4.04
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8.49 9.47 7.51 8.07 7.51
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Operating income 2.44 2.28 6.95 3.98 6.95
Other income (expense):
Interest expense (2.51) (2.39) (1.74) (2.69) (1.74)
Other income (expense) .12 .08 .11 .12 .11
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Income before income taxes $ .05 $ (.03) $ 5.32 $ 1.41 $ 5.32
====== ====== ====== ====== ======
Net cash flow before working
capital adjustments $ 3.67 $ 4.78 $ 9.36 $ 5.18 $ 9.36
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THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1995:
During the three months ended March 31, 1996, the following operational
items changed relative to the corresponding three month period ended March 31,
1995:
Net income after tax increased $475,666 (527%) to $565,983 primarily due to
a $1,170,646 increase in oil and gas revenues.
Net cash flow from operations, before working capital adjustments, increased
$1,009,760 (201%) to $1,511,380. Oil and gas revenues increased $1,170,646
(100%) to $2,337,924 in 1996 compared to $1,167,278 in 1995. The EBO's sold in
1996 increased by 64,821 (67%) to 161,695 compared to 96,874 in 1995.
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Costs and expenses increased $432,786 (55%) to $1,215,026 due to the
following:
1. Lease operating expense increased $116,465 (35%) to $452,963 primarily
due to the aforementioned 67% increase in EBO's sold. The operating expense per
EBO decreased 19% to $2.80 in 1996 compared to $3.47 in 1995 because of
increased production on certain recently completed wells that are flowing.
2. General and administrative expense increased $26,240 (70%) to $63,629 in
1996 primarily due to a doubling in franchise taxes and an increase in general
corporate legal expense. Such increase represents $.39 per EBO sold in 1996
compared to $.39 per EBO sold in 1995. General and administrative costs are
expected to remain fairly stable with no material increases expected in any
particular category.
3. Public reporting, auditing and legal expense increased $1,987 (5%) to
$45,037 with no material increases noted in any particular category.
4. Depreciation, depletion and amortization expense (DD&A) increased
$288,094 (79%) to $653,397 due to the aforementioned 67% increase in EBO's sold.
The DD&A rate per EBO in 1996 is $4.04 compared to $3.77 in 1995.
Interest expense increased $21,806 (8%) to $282,158 because of the Company's
increased borrowings to finance its oil and gas property acquisitions,
enhancements, development drilling and three dimensional seismic technology
activities.
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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: May 14, 1996 BY: /s/ THOMAS R. CAMBRIDGE
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THOMAS R. CAMBRIDGE,
CHIEF EXECUTIVE OFFICER
Date: May 14, 1996 BY: /s/ LARRY C. OLDHAM
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LARRY C. OLDHAM,
PRESIDENT
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INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
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*27 Financial Data Schedule
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* Filed herewith