SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001 or
[ ] 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 0-5704
------
MAYNARD OIL COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1362284
- ------------------------------------------------- ---------------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8080 N. Central Expressway, Suite 660, Dallas, TX 75206
- ------------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214)891-8880
----------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.10 Par Value
- --------------------------------------------------------------------------------
(Title of class)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
While it is difficult to determine the number of shares owned by non-affiliates
(within the meaning of the term under the applicable regulations of the
Securities and Exchange Commission), the Registrant estimates that the aggregate
market value of its Common Stock held by non-affiliates on March 18, 2002 was
$41,090,752 (based upon an estimate that 43.4% of the shares are so owned by
non-affiliates and upon the closing price for the Common Stock as reported by
NASDAQ (NMS)).
The number of shares outstanding of the Registrant's $.10 par value common stock
as of March 18, 2002 was 4,880,368 shares.
The following documents are incorporated into this Form 10-K by reference: Proxy
Statement for Annual Meeting of Stockholders - Part III of Form 10K.
-1-
PART I.
ITEM 1. BUSINESS
THE COMPANY
Maynard Oil Company is a Delaware corporation which was organized in
1971 to continue the oil and gas operations conducted on an individual basis by
its founders, including Mr. James G. Maynard, its Chairman of the Board and
Chief Executive Officer. The Company's principal executive office is located at
8080 N. Central, Ste. 660, Dallas, Texas 75206, and its telephone number is
(214) 891-8880. Unless the context requires otherwise, as used herein, the term
"Company" refers to Maynard Oil Company and its wholly-owned subsidiary.
The Company's principal line of business is the production and sale of,
and exploration and development of crude oil and natural gas. The Company's oil
and gas operations are conducted exclusively in the United States, primarily in
the states of Texas, Oklahoma, Louisiana, New Mexico and Arkansas.
POSSIBLE SALE OF THE COMPANY
In July 2001, the Board of Directors announced that it was exploring
strategic alternatives, including a potential merger or sale of the Company. It
retained William Blair & Company as its financial advisor and McDermott, Will &
Emery as its legal counsel to assist in the evaluation of strategic
alternatives.
The Company contacted potential acquirors in the oil and gas industry
and provided information to parties expressing interest in a business
combination transaction. In December 2001, the Board of Directors announced that
it had received expressions of interest from a number of strategic buyers
regarding the possible acquisition of the Company. While the Board found the
valuations disappointing, the Board authorized continued exploration of a
possible sale or merger of the Company.
As of March 31, 2002, the Company was engaged in discussions concerning
a possible merger of the Company, although the proposals by potential acquirors
involve a price to the Company's stockholders below the recent trading range for
the Company's stock.
The Company's Board of Directors cautions that there can be no
guarantee that the Company would enter into a transaction to sell Maynard Oil or
any other transaction.
RECENT ACQUISITION ACTIVITIES
Since January 1, 2001, the Company has spent approximately $12.9
million increasing its working interest position in the Tex-Mex field
-2-
located in Gaines County, Texas. The Company estimates that approximately
1,056,000 barrels of oil and 1.5 bcf of gas were added to its hydrocarbon
reserve base through these transactions.
OIL AND GAS OPERATIONS
The Company is an independent oil and gas company, engaged primarily in
the production and exploration phases of the oil and gas business. Company
operations include acquiring, exploring, developing, and operating crude oil and
natural gas properties.
The Company seeks to accomplish its overall goal of increasing
hydrocarbon reserves and cash flow by selectively acquiring and exploiting
producing oil and gas properties. When possible, the Company acquires producing
properties on which it can act as operator, and thus, supervise production and
development activities.
A total of forty-nine wells were drilled in 2001, one of which was an
exploratory well operated by Maynard, which failed to find commercial quantities
of hydrocarbons. Another eight wells were completed as injection wells on
waterflood projects operated by other companies. Additionally, the Company
participated in drilling forty productive development wells, seven completed as
gas producers and thirty-three as successful oil wells. Maynard served as
operator on fourteen of these forty wells.
Prices realized from the sale of oil and gas from the Company's wells
depend on numerous factors beyond the control of the Company, including the
amount of domestic production, the importation of oil, the proximity of the
Company's property to natural gas pipelines and the capacity of such pipelines,
the market for other competitive fuels, fluctuations in seasonal demand, and
governmental regulations relative to hydrocarbon production and pricing. The
production of oil and gas is also subject to the laws of supply and demand, and
therefore, is subject to purchaser cutbacks and price reductions during periods
of oversupply. At December 31, 2001, approximately 68% of the Company's
estimated proved reserves and 64% of the 2001 production, were attributable to
crude oil and condensate on a net equivalent barrel basis (net equivalent barrel
"NEB" uses a conversion ratio of six thousand cubic feet of gas (MCF) to one net
equivalent barrel of oil) and consequently, the Company is primarily impacted by
oil markets.
As described above, the Company was successful in adding to its
hydrocarbon reserve base, the underlying asset for an oil and gas company,
through current year producing property acquisitions and development drilling on
existing Company properties. Because of these acquisitions and drilling
activities, oil production volumes rose approximately 6% and gas production
increased almost 26% over the prior year. Average gas prices experienced a
modest increase from $3.90 per mcf in 2000 to $4.00 per mcf in 2001. However,
oil prices fell an average of $4.10 per barrel (from an average of $27.36 per
barrel received in 2000 to an average of $23.26 per barrel in 2001), once again
-3-
illustrating the challenges and volatility experienced by the domestic oil and
gas business and how it is affected by conditions beyond the control of the
Company.
During the year ended December 31, 2001, two purchasers accounted for
approximately 17% and 13%, respectively, of consolidated revenues. The Company
does not believe it would be adversely affected by the loss of its oil or gas
purchasers due to large numbers of available purchasers.
The market price for natural gas has also fluctuated significantly from
month to month and year to year for the past several years. Like the oil market,
the Company cannot predict gas price movements with any certainty.
Except for curtailed exploration and production activity occasionally
experienced in severe weather and normal curtailments of gas sales in summer
months, the Company does not consider its business to be seasonal and does not
carry significant amounts of inventory.
GENERAL
The oil and gas business involves intense competition in all of its
phases and, because of its size, the Company is not a significant competitive
factor in the industry. In its efforts to acquire property rights, the Company
competes with many companies having access to substantially greater financial
resources and larger technical staffs.
The Company's oil and gas exploration efforts often involve exploratory
drilling on unproven acreage involving high risks. There is no assurance that
any oil or gas production will be obtained, or that such production, if
obtained, will be profitable. The cost of drilling, completing and operating
wells is often uncertain. Drilling may be curtailed or delayed as a result of
many factors, including title problems, weather conditions, and shortages of
pipe and equipment.
The Company's operations are subject to potential hazards inherent in
the exploration for and production of hydrocarbons, including blowouts and
fires. These and other events can cause a suspension of drilling operations,
severe damage to equipment or surrounding property, personal injury, and perhaps
even a loss of life. The Company may be subject to liability for pollution and
other damages and is subject to statutes and regulations relating to
environmental and other matters. While the Company maintains insurance against
certain of these risks, there are certain risks against which it cannot insure,
or which it may elect not to insure due to premium costs or for other reasons.
Substantial uninsured liabilities to third parties may arise.
The oil and gas operations of the Company are subject to local, state
and federal environmental regulations. To date, compliance with these
regulations by the Company has had no material effect on the Company's capital
expenditures. Although the Company is unable to
-4-
assess or predict at this time the impact that compliance with such
environmental regulations may have on its future capital expenditures, earnings
and financial position, it does not anticipate making any material capital
expenditures for environmental control facilities during 2002.
Many facets of the Company's operations are subject to governmental
regulations. All of the Company's oil and gas properties are located in states
in which oil and gas production is regulated by state production and
conservation laws and regulations. These laws and regulations in many instances
also require permits for the drilling of wells, the spacing of wells, prevention
of waste, conservation of oil and natural gas and various other requirements.
The Company's activities are subject to taxation at numerous levels of
government, including taxes on income, severance of minerals, and payroll. Laws
governing taxation, protection of the environment, crude oil and natural gas
operations and production, and other crucial areas are all subject to
modification at any time.
At March 18, 2002 the Company employed 40 persons, including one
geologist and five petroleum engineers.
ITEM 2. PROPERTIES
The Company's executive offices are presently located at 8080 N.
Central, Ste. 660, Dallas, Texas occupying approximately 14,300 square
feet of space under a lease agreement which expires in April, 2005.
The Company's principal property holdings consist of leasehold
interests in oil and gas properties located solely in the United States,
primarily in Oklahoma, Texas, New Mexico, Louisiana and Arkansas. The leaseholds
remain in force so long as production from lands under lease is maintained. The
Company believes that it has satisfactory title to its oil and gas properties.
Such properties are subject to customary royalty interests, liens incident to
operating agreements, liens for current taxes, and other burdens and minor
encumbrances, easements, and restrictions. The Company believes such burdens do
not materially detract from the value of the properties or materially interfere
with their use in the operation of the Company's business. The Company has
pledged certain of its oil and gas properties to secure its term loan.
ESTIMATED PROVED RESERVES,
FUTURE NET REVENUES AND PRESENT VALUE
Reflected below are the estimated quantities of proved developed and
undeveloped reserves of crude oil and natural gas owned by the Company as of
December 31, 2001, 2000, and 1999. Such reserve information has been prepared by
the Company's staff of petroleum engineers and audited by the independent
petroleum consulting firm of Netherland, Sewell, and Associates, Inc. No reserve
reports with respect to the Company's proved net oil or gas reserves were filed
with
-5-
any federal authority or agency during the fiscal year ended December 31, 2001.
December 31
----------------------------------------------------------------------
2001 2000 1999
---------------------- ----------------------- ---------------------
Oil (MB) Gas (MMCF) Oil (MB) Gas (MMCF) Oil (MB) Gas (MMCF)
Proved Developed 9,423.2 27,524.7 11,085.4 29,362.1 10,072.7 28,917.2
Proved Undeveloped 1,577.1 3,294.7 2,524.9 2,715.6 1,447.3 3,009.7
-------- -------- -------- -------- -------- --------
Total Proved Reserves 11,000.3 30,819.4 13,610.3 32,077.7 11,520.0 31,926.9
======== ======== ======== ======== ======== ========
The following table summarizes the future net revenues, using current
prices and costs as of the dates indicated, as well as the present value,
discounted at 10%, of such future net revenues from estimated production of
proved reserves of crude oil and natural gas as of December 31, 2001, 2000, and
1999. Oil and gas prices used in the tabulation of the amounts below are based
on the price received for each lease at December 31 of the appropriate year. The
weighted average prices at December 31, 2001, 2000, and 1999, respectively, used
in the estimates were $17.62, $25.27, and $23.69 per barrel of oil and $2.49,
$9.72, and $2.04 per mcf of natural gas. Lease and well operating costs are
based upon actual operating expense records.
December 31
--------------------------------------------------------------------------
2001 2000 1999
------------------- --------------------- --------------------
Future Present Future Present Future Present
Net Value Net Value Net Value
Expressed in 000's Revenue @ 10% Revenue @ 10% Revenue @ 10%
------- ------- ------- ------- ------- -------
Proved Developed $117,355 $78,822 $383,769 $245,567 $171,425 $112,842
Proved Undeveloped 12,595 4,919 53,015 24,945 20,593 9,851
-------- ------- -------- -------- -------- --------
Total Proved Reserves $129,950 $83,741 $436,784 $270,512 $192,018 $122,693
======== ======= ======== ======== ======== ========
Amounts presented in the tables above are before the effects of income taxes.
-6-
PRODUCTION, SALES PRICES AND COSTS
The following table sets forth the Company's net oil and gas production,
average sales prices and production costs for the three years ended December 31,
2001.
December 31
--------------------------------
2001 2000 1999
---- ---- ----
Production:
Oil (MB) 1,446.4 1,369.5 990.9
Gas (MMCF) 4,931.8 3,915.3 2,289.6
Average Sales Prices:
Oil (per BBL) $23.26 $27.36 $17.64
Gas (per MCF) $ 4.00 $ 3.90 $ 2.58
Average Production Costs:
Per net equivalent barrel of oil (1)(2) $ 7.91 $ 7.01 $ 5.71
(1) Six MCF of gas equals one net equivalent barrel ("NEB").
(2) Production costs are comprised of severance and advalorem taxes, if
applicable, and lease operating expenses, which include workover
costs.
PRODUCTIVE WELLS AND ACREAGE
As of December 31, 2001, the Company owned an interest in approximately
1,309 gross (525.3 net) wells, of which 1,211 gross (485.3 net) are oil wells
and 98 gross (40.0 net) are gas wells, located on approximately 51,871 gross
(24,255 net) producing acres.
UNDEVELOPED ACREAGE
The following table sets forth the Company's gross and net undeveloped
acreage as of December 31, 2001.
Undeveloped Acreage
-------------------
Gross Net
----- ---
Arkansas............................................... 420 88
Colorado............................................... 80 10
Louisiana.............................................. 436 136
Mississippi............................................ 160 6
Montana................................................ 7,291 160
New Mexico............................................. 1,280 47
North Dakota........................................... 62 4
Oklahoma............................................... 249 60
Texas.................................................. 19,322 3,121
Wyoming................................................ 5,253 843
------ ------
Total 34,553 4,475
======= ======
-7-
DRILLING ACTIVITY
The following table sets forth the results of the Company's drilling
activity during the three years ended December 31, 2001.
Exploratory Development Total
----------- ----------- -----
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
December 31, 2001
Productive 0 .000 40 14.199 40 14.199
Dry 1 .504 0 .000 1 .504
--- ----- --- ------ --- ------
Total 1 .504 40 14.199 41 14.703
=== ===== === ====== === ======
December 31, 2000
Productive 1 .400 22 8.096 23 8.496
Dry 0 .000 0 .000 0 .000
--- ----- --- ------ --- ------
Total 1 .400 22 8.096 23 8.496
=== ===== === ====== === ======
December 31, 1999
Productive 0 .000 5 1.888 5 1.888
Dry 2 .650 0 .000 2 .650
--- ----- --- ------ --- ------
Total 2 .650 5 1.888 7 2.538
=== ===== === ====== === ======
At December 31, 2001, the Company had two development wells being
drilled which have both been successfully completed during 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in minor lawsuits that have arisen in the
ordinary course of business. The Company does not expect any of these lawsuits
or other items to have a material adverse effect on the Company's consolidated
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's executive officers as of
March 18, 2002, is set forth in the table below.
Name Position Age Since
---- -------- --- -----
James G. Maynard Chairman of the Board, 75 1971
Chief Executive Officer
and Treasurer
Glenn R. Moore President and Chief 64 1982
Operating Officer
-8-
L. Brent Carruth Executive Vice President 68 1984
of Operations
Kenneth W. Hatcher Executive Vice President 58 1983
of Finance
Linda K. Burgess Vice President of 53 1984
Accounting and
Corporate Secretary
Cassondra Foster Vice President of Land 59 1999
Jerry G. Keen Vice President of Engineering 53 1999
Mr. Maynard has been a director since 1971 and engaged in oil and gas
exploration as an independent operator and private investor for the past 40
years.
Mr. Moore has over 35 years experience in domestic and foreign oil and
gas exploration and production. Prior to joining the Company in November, 1982,
Mr. Moore served as President of Shannon Oil and Gas, Inc. and Hanover Petroleum
Corporation.
Mr. Carruth has over 35 years of petroleum engineering experience.
Prior to joining the Company in January, 1984, he served for one year as Vice
President of Operations of Cordova Resources. Preceding that, Mr. Carruth was a
petroleum consultant for three years and served as Manager of Engineering of
Texas Pacific Oil Company for eight years.
Mr. Hatcher has over 35 years of finance and accounting experience in
the oil and gas industry and is a Certified Public Accountant. Prior to joining
the Company in February, 1983, Mr. Hatcher served as Controller and Vice
President of Finance of Shannon Oil and Gas, Inc. for three years and as
Controller and Vice President of Hanover Petroleum Corporation for four years.
Ms. Burgess has in excess of 30 years of oil and gas accounting
experience. Prior to joining the Company in May, 1984, Ms. Burgess served as
Controller for Trans-Western Exploration Inc. for four years and as Controller
for Energy Resources Oil and Gas for three years.
Ms. Foster has over 30 years of petroleum land management experience,
joining Maynard Oil Company's Land Department in 1974. Prior to that Ms. Foster
was a Title Analyst for Texas Oil & Gas.
Mr. Keen has over 30 years of petroleum engineering experience and has
been employed by Maynard Oil Company since 1984.
Each officer's term of office expires on the date of the next annual
meeting of the Board of Directors, or until his earlier resignation or removal.
There are no family relationships among the executive officers listed, and there
are no arrangements or understandings pursuant to which any of them were elected
or appointed as officers.
-9-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market,
NASDAQ trading symbol "MOIL". The high and low sales prices for each quarterly
period during the two years ended December 31, 2001, were as follows:
2001 High Low 2000 High Low
---- ---- --- ---- ---- ---
First Quarter $19.000 $15.875 First Quarter $26.125 $ 9.875
Second Quarter 21.500 15.250 Second Quarter 19.187 10.125
Third Quarter 25.070 18.750 Third Quarter 22.875 14.750
Fourth Quarter 24.000 17.400 Fourth Quarter 23.125 15.250
As of March 18, 2002, the Company had approximately 723 shareholders of
record.
The Company has not paid any dividends on its Common Stock in the past,
nor does it plan to pay dividends in the foreseeable future. The Company's
ability to pay dividends is currently restricted under its Loan Agreement with
Bank One, Texas.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data to
highlight significant trends in the Company's financial condition and operating
results for the periods indicated. The selected financial information presented
should be read in conjunction with the consolidated financial statements and
related notes appearing elsewhere in this Report and the Management's Discussion
and Analysis of Financial Condition and Results of Operations set forth under
Item 7 below. All amounts are expressed in thousands, except per share
information.
December 31
--------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Oil and gas sales
and royalties 53,363 $52,739 $23,392 $16,166 $26,477
Income (loss) before
income taxes (1) 12,457 22,273 7,148 (11,897) 6,613
Net income (loss) (1) 7,954 14,103 4,355 (7,816) 4,455
Per share income
(loss) (1)(2) 1.63 2.89 .89 (1.60) .91
Total assets 07,234 107,858 94,708 60,363 78,286
Long-term debt 17,213 24,863 32,513 6,250 11,250
Shareholders' equity 72,039 64,087 49,991 45,647 53,509
Net working capital 8,080 14,151 8,321 16,448 17,503
Net cash provided by
operating activities 26,370 26,795 9,661 5,025 11,250
-10-
(1) Includes effect of 2001 and 1998 impairment of oil and gas properties
amounting to $3,382,741 and $8,754,846 respectively.
(2) Basic and diluted earnings (loss) per share were the same for all years
presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000
- ----------------------------------------------------------
OVERVIEW
- --------
The Company continued its strategy for growth through the acquisition
of producing properties in calendar 2001. A total of $12.9 million was spent on
acquisitions this year. All of these funds were expended for additional
interests in the Tex-Mex Field located in Gaines County, Texas. In addition to
these acquisition dollars, the Company incurred capital expenditures which
totaled an additional $12.9 million, which was spent on the 49 new wells drilled
this year, as well as recompleting and installing equipment on other wells.
Once again, the Company, like others in the oil and gas industry, dealt
with the roller coaster effect from the crude oil markets. The West Texas
Intermediate posting for crude began the year averaging approximately $26.40 per
barrel, hovered at $23.35 to $24.49 per barrel for much of the year before
declining to $16.28 during the last two months of 2001. Obviously, these price
reductions negatively impacted the Company's 2001 revenues and cash flow by
approximately $5.6 million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents totaled $14.3 million and $21.2 million at
December 31, 2001 and December 31, 2000, respectively, decreasing approximately
$6.9 million during 2001.
Cash flow from operations approximated $26.4 million and was utilized
as follows:
Property acquisitions $12.9 million
Drilling of 49 wells and other
capitalized workover activities 12.9 million
Repayment of debt 7.6 million
Proceeds from sale of property,
net of miscellaneous expenditures (.1) million
Cash decrease (6.9) million
----
Total $26.4 million
=====
Company management plans on utilizing cash generated from operations
and additional bank debt, if necessary, to fund future oil and gas activities.
Any future product price reductions could dictate reductions in planned capital
expenditures. Since the Company serves as operator on 46% of its wells, it can
exercise judgment about which projects are performed.
-11-
As discussed in Note 3 to the 2001 Consolidated Financial Statements,
the Company has entered into contracts with its employees which provide
incentive payments of approximately $5.1 million to be paid within a year should
a merger agreement be signed. Additionally, the Company is committed to making
cash payments on two other types of contracts, note agreements and leases.
Maynard Oil has no off-balance sheet financing arrangements or any other such
unrecorded obligations, and the Company has not guaranteed the debt of any other
party.
Presently, the Company anticipates the following transactions for 2002:
Oil and gas revenues, net of
lease operating expenses $23.6 million
Capital expenditure
commitment (6.5) million
Repayment of debt (7.7) million
Lease payments (.4) million
----
Available cash $ 9.0 million
=====
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000
- ----------------------------------------------------------
During 2001, the Company earned $1.63 per share, or $7,953,823 compared
to 2000 earnings of $2.89 per share, or $14,103,093.
REVENUES
Oil and gas revenue remained almost constant between 2001 and 2000
increasing approximately 1% over the prior year. Higher sales volumes made up
for the loss of crude oil revenues during the current year. The table below
reflects the differentials by product:
Avg. Avg.
Oil Price Gas Price
Bbls Bbl MCF MCF
---- ----- --- -----
Twelve months 2001 1,446,375 $23.26 4,931,751 $4.00
Twelve months 2000 1,369,456 27.36 3,915,325 3.90
Interest income declined approximately $442,000 due to lower investable
cash balances and due to lower rates paid in the investment markets.
Additionally, the disposition of assets yielded a minor gain for the current
year while prior year dispositions reflected a minor loss.
COSTS AND EXPENSES
On a net equivalent barrel basis (NEB), lease operating expenses rose
ninety cents per NEB from $7.01 per NEB in 2000 to $7.91 per NEB in 2001.
Expense workovers represented 36% of the cost increases, all other lease
operating items such as labor, saltwater disposal, and
-12-
plugging charges accounted for an additional 79% of the cost increases while
regulatory costs, which include severance taxes and advalorem taxes, declined
for the year and reduced this category by 15%.
Exploration, dry holes, and abandonments fell $192,591 due to
reductions in acreage impairments over the prior year. One exploratory well was
drilled and included in this category during the current year.
The general and administrative (G&A) expense category reflects a
nominal increase of $128,967. However, the prior year G&A expense was abnormally
high, having been adjusted upward $1,020,023 to account for the phantom stock
activity last year. During 2001, the remaining 11,000 phantom stock units were
exercised and G&A was charged an additional $93,500. In July, 2001, the Company
announced that it was pursuing strategic alternatives and has spent
approximately $586,000 pursuant to sale or merger strategies. Additionally,
other G&A items have risen during 2001 to accommodate the growth of the Company
from $60.3 million in assets at September 30, 1999 (prior to the Questar
acquisition) to $107.2 million in assets currently.
On a net equivalent barrel basis, the current depreciation and
amortization rate increased approximately 24% from $5.01 per NEB in 2000 to
$6.21 per NEB during 2001. Under the successful efforts method of accounting,
costs of oil and gas properties are amortized on a unit of production method
based upon estimated proved reserves. These estimates of proved reserves can
fluctuate from one accounting period to the next because of product pricing and
its effect on the recoverability of these hydrocarbon reserves. During 2001,
there were downward revisions in estimated volumes of oil reserves of
approximately 2.5 million barrels which resulted in increased depreciation and
amortization expense.
Maynard Oil also recognized non-cash impairment charges of $3,382,741
to the carrying value of its oil and gas properties. Although the reduction in
oil pricing impacted this evaluation, the specific properties involved in the
writedown had minimal hydrocarbons attached and little chance of recovery from
future price increases.
Interest expense decreased $1,189,473 between 2000 and 2001 because of
reductions in the outstanding bank loan due to scheduled loan repayments and
lower interest rates. Offsetting this decreased interest expense in the current
year was a bad debt allowance of $259,949 attributable to the downturn in the
oil and gas industry. Not only were Maynard's oil and gas revenues negatively
impacted by price reductions, its joint interest partners' revenues were also
negatively affected by price which resulted in slower pay on the Company's
accounts receivable.
Income tax expense for 2001 reflects an effective tax rate of 36.1%
which differs from the corporate rate of 34% for Maynard Oil's pre-tax income
level. The primary reason for this difference relates to income taxes assessed
at the state level.
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999
- ----------------------------------------------------------
During 2000, the Company earned $2.89 per share compared to 1999
earnings of $.89 per share.
-13-
REVENUES
Oil and gas revenue more than doubled during 2000, rising from $23.3
million a year ago to $52.7 million during 2000. Higher sales volumes accounted
for 57% of the revenue increase and pricing differentials the remaining 43%. The
table below reflects these differences by product:
Avg. Avg.
Oil Price Gas Price
Bbls Bbl MCF MCF
---- --- --- ---
Twelve months 2000 1,369,456 $27.36 3,915,325 $3.90
Twelve months 1999 990,877 17.64 2,289,563 2.58
Interest income rose approximately $347,000 between 1999 and 2000 due
to increased average cash balances. Additionally, the disposition of assets
reflects a loss for the current year while the prior year dispositions yielded a
gain to the Company.
COSTS AND EXPENSES
On a net equivalent barrel (NEB) basis, lease operating expenses
increased $1.30 per NEB from $5.71 per NEB to $7.01 per NEB. Approximately 46%
of this increase was due to higher severance taxes, which are directly
proportional to sales values; 18% of the lease operating expense increase was a
result of expense workovers; 12% was attributable to greater advalorem taxes,
which are also functions of pricing; and 25% was attributable to all other lease
operating items such as labor and salt water disposal.
The exploration, dry holes, and abandonments category decreased $84,520
during 2000 because no unsuccessful exploratory wells were drilled, while two
such dry holes were drilled and expensed in 1999. A substantial portion of this
expense category for 2000 is represented by the impairment of acreage for which
the Company abandoned future drilling plans. The one successful exploratory well
drilled in 2000 was capitalized as oil and gas property.
The general and administrative (G&A) expense category reflects an
increase of $1,604,659 between 1999 and 2000, primarily the result of phantom
stock adjustments which occur because of stock price fluctuations. Since the
phantom stock units were originally awarded in 1989, the Company's G&A expense
has experienced a great deal of volatility as the stock price has risen and
fallen and the related charges and credits for phantom stock have been recorded.
At December 31, 1999, the closing stock price was $9.75, and the Company had
accrued a liability of $449,625 for this phantom stock obligation on its balance
sheet with $214,875 of this amount recorded in 1999 G&A expense. On September
28, 2000 the Company's Board of Directors approved an amendment to the employee
incentive plan which originally awarded these phantom stock units. On this date,
the Company's stock price had risen to $20.81 per share, so the Company accrued
an additional $934,773 to 2000 G&A expense for the 84,500 phantom stock units
that were exercised under the plan amendment. At December 31, 2000, the Company
also had a
-14-
remaining liability of approximately $136,000 attributable to the remaining
11,000 stock participation units, $85,250 of which is also reflected in 2000 G&A
expense. The remainder of 2000 G&A expense increase represents costs to manage
the growth of the Company from approximately $60.3 million in assets at
September 30, 1999-prior to the Questar acquisition-to $107.8 million in assets
at December 31, 2000.
On a net equivalent barrel basis, the depreciation and amortization
rate increased approximately 18% from $4.26 per NEB during 1999 to $5.01 per NEB
during 2000. Under the successful efforts method of accounting, costs of oil and
gas properties are amortized on a unit of production method based upon estimated
proved reserves. The Company calculates and applies this rate on a property by
property basis. Fluctuations in depreciation and amortization expense can be
caused by variations in the performance of the oil and gas property, the amount
invested in the property and the hydrocarbon reserves ultimately recoverable
from the property. As the oil and gas properties and their associated reserves
age within a company, these rates become more predictable and have less
variance.
Interest expense increased over 200% due to a full annual period having
lapsed under the term loan agreement put in place in November, 1999 in
connection with the Questar acquisition.
Income tax expense for 2000 reflects an effective tax rate of 36.7%
which differs from the corporate rate of 35% for Maynard Oil's pre-tax income
level. The primary reason for this difference relates to income taxes assessed
at the state level.
CRITICAL ACCOUNTING MATTERS
- ---------------------------
The Company follows the "successful efforts" method of accounting for
its oil and gas properties. Under this method of accounting, the capitalized
costs of unproven leases are periodically assessed to determine whether their
value has been impaired below the capitalized cost, and if such impairment is
indicated, a loss is recognized in exploration, dry holes, and abandonment
expense. The Company makes these assessments based on estimates of future oil
and gas prices and considers such other factors as future drilling plans and any
lease expiration terms.
The Company's financial position and results of operations are
materially effected by changes in oil and gas prices. The Company makes
estimates of future oil and gas prices to determine the need for an impairment
of capitalized costs of proved oil and gas properties under Statement of
Accounting Standards No.121(SFAS 121).
Under SFAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of", the Company assesses the need for an
impairment of capitalized costs of proved oil and gas properties on a field by
field basis. Applying SFAS 121, the Company recognized a non-cash property
impairment of $3,382,741 in December 2001 to account for those properties whose
investment would not be recoverable under current pricing assumptions. Fair
value of the
-15-
property is estimated by the Company using the present value of future cash
flows discounted at 10%.
At December 31, 2001, the average oil and gas prices used for
assessment purposes were $21.92 per barrel and $3.16 per mcf, respectively.
Accordingly, a significant reduction in oil and gas prices used to estimate
future oil and gas revenues for impairment purposes could materially impact
impairment expense.
The Company uses estimates of oil and gas reserve quantities to
estimate depreciation and amortization expense using the unit of production
method of accounting. The estimates of proved oil and gas reserve quantities are
also effected by estimates of future oil and gas prices along with other
reservoir engineering estimates. Accordingly, a significant reduction in oil and
gas reserve quantities could materially impact depreciation and amortization
expense.
The Company periodically enters into hedging arrangements with respect
to portions of its oil and gas production to achieve a more predictable cash
flow and to reduce exposure to price fluctuations. Net income and cash flow can
be significantly effected by the Company's hedging activities if oil and gas
prices change significantly during the hedging period.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement No. 141 (SFAS 141), "Business Combinations", and also
Statement No. 142 (SFAS 142), "Goodwill and Other Intangible Assets."
SFAS 141 requires all business combinations, as defined by the
standard, initiated after June 30, 2001 to be accounted for using the purchase
method. Companies may no longer use the pooling method to account for future
combinations.
SFAS 142 is effective for fiscal years beginning after December 15,
2001 and will be adopted by the Company as of January 1, 2002. SFAS 142 requires
that goodwill no longer be amortized over an estimated useful life as previously
required. Instead, goodwill amounts will be subject to a fair-value-based annual
impairment assessment. The standard also requires acquired intangible assets to
be recognized separately and amortized as appropriate. The Company expects that
the adoption of SFAS 142 will not have a significant impact on the Company's
future financial statements.
In July 2001, the FASB issued SFAS 143 "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets". SFAS 143 is effective for
fiscal years beginning after June 15, 2002, and early adoption is permitted. The
Company is currently assessing the new standard and has not determined the
impact on its consolidated results of operations, cash flows or financial
position.
-16-
In August, 2001, the FASB issued SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001, and early adoption is permitted.
The Company expects that the adoption of SFAS No. 144 will not have a
significant impact on the Company's future financial statements.
CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS
- ---------------------------------------------------
Certain information contained in this report, as well as written and
oral statements made or incorporated by reference from time to time by the
Company and its representatives in other reports, filings with the Securities
and Exchange Commission, press releases, conferences, teleconferences or
otherwise, may be deemed to be 'forward-looking statements' within the meaning
of Section 21E of the Securities Exchange Act of 1934 and are subject to the
'Safe Harbor' provisions of that section. Forward-looking statements include
statements concerning the Company's and management's plans, objectives, goals,
strategies and future operations and performance and the assumptions underlying
such forward-looking statements. When used in this document, the words
"anticipates," "estimates," "expects," "believes," "intends," "plans" and
similar expressions are intended to identify such forward-looking statements.
Actual results and developments could differ materially from those expressed in
or implied by such statements due to these and other factors.
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY RISK
- --------------
The Company's primary commodity market risk exposure is to changes in
the pricing applicable to its oil production, which is normally priced with
reference to a defined benchmark, such as light, sweet crude oil (WTI) traded on
the New York Mercantile Exchange (NYMEX). Actual prices received vary from the
benchmark depending on quality and location differentials. The markets for crude
oil historically have been volatile and are likely to continue to be volatile in
the future.
From time to time, the Company enters into financial market
transactions, including collars, with creditworthy counterparties, primarily to
reduce the risk associated with the pricing of a portion of the oil and natural
gas that it sells. The policy is structured to underpin the Company's planned
revenues and results of operations and the ultimate cash flow realized by the
Company.
During 2001, the Company entered into a derivative financial instrument
whereby the Company hedged 2,000 barrels of daily production from March 1, 2001
through February 28, 2002 with a ceiling price of $28.18/bbl and a floor price
of $24.00/bbl. The Company exercised its right to terminate this contract during
March, 2001 via payment of $803,000 which reduced oil and gas revenue for the
first quarter of 2001.
The Company is not currently a party to any derivative instrument.
-17-
INTEREST RATE RISK
- ------------------
While the Company does have interest rate risk associated with its
outstanding borrowing as of December 31, 2001, we do not consider the risk to
have a material impact on the Company's operations. As such, the Company does
not hedge against interest rate risk exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is included on pages 22 through 42
of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
PART III
The information required by Part III (Items 10 through 13) is set forth
in the Company's Proxy Statement for the annual meeting of stockholders and is
incorporated herein by reference. Information with respect to the Company's
executive officers as of March 18, 2002, is set forth commencing on pages 8 and
9 thereof under the caption "Executive Officers of the Registrant".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
FINANCIAL STATEMENTS AND SCHEDULES
See Index to Consolidated Financial Statements and Schedule on page 22
of this Report.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of 2001.
EXHIBITS
3.1 (a) Certificate of Incorporation, as amended, filed as
Exhibit 3.1 to the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 1980 (the
"1980 Form 10-K"), and incorporated herein by
reference.
(b) Certificate of Amendment of Certificate of
Incorporation dated May 19, 1981, filed as Exhibit
3.1(b) to the Company's Annual Report on Form 10-K
for its fiscal year ended December 31, 1981 (the
"1981 form 10-K"), and incorporated herein by
reference.
-18-
(c) Certificate of Amendment of Certificate of
Incorporation dated May 22, 1987, filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1987, and incorporated
herein by reference.
(d) Certificate of Amendment of Certificate of
Incorporation dated June 3, 1993, filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1993, and incorporated
herein by reference.
3.2 (a) By-Laws, as amended, filed as Exhibit 3.2(b) to the
1981 Form 10-K and incorporated herein by reference.
(b) Amendment to the By-Laws, filed as Exhibit 3.2(b) to
the 1981 Form 10-K and incorporated herein by
reference.
(c) Amendment to the By-Laws, filed as Exhibit 3.2(c) to
the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 1984, and incorporated
herein by reference.
(d) Amendment to the By-Laws, filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1987, and incorporated herein
by reference.
(e) Amendment to the By-Laws, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 1993 and incorporated herein
by reference.
(f) By-Laws, as amended, filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1999, and incorporated
herein by reference.
4.1 (a) Second Restated Loan Agreement, dated November 12,
1999 between Maynard Oil Company and Bank One, Texas,
N.A., filed as Exhibit 4.1 to the Company's Annual
Report on Form 10-K for its fiscal year ended
December 31, 1999 (the "1999 Form 10-K") and
incorporated herein by reference.
(b) First Amendment to Second Restated Loan Agreement
dated May 15, 2000 between Maynard Oil Company and
Bank One, Texas, N.A., filed as Exhibit 4.1 to the
Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 2000 (the "2000 Form 10-K")
and incorporated herein by reference.
10.1 1989 Stock Participation Plan, filed as Exhibit 10.1
to the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 1995 and incorporated
herein by reference.
-19-
10.2 Form of Retention Incentive Letter filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 2001 and
incorporated herein by reference.
10.3 Form of Management Retention Agreement filed as
Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 2001 and
incorporated herein by reference.
10.4 Form of Director Indemnification Agreement, between
the Company and each of its directors, filed
herewith.
21.1 List of subsidiaries of the Company as of December
31, 2001, filed herewith.
-20-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MAYNARD OIL COMPANY
By \s\ James G. Maynard
------------------------
James G. Maynard
Chairman of the Board
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the date indicated in multiple counterparts with the same force and effect as
if each person executing a separate counterpart has joined in execution of the
same counterpart.
/s/ James G. Maynard Chairman of the Board, April 1, 2002
- ------------------------ Chief Executive Officer
James G. Maynard & Treasurer
/s/ Glenn R. Moore President and Chief April 1, 2002
- ------------------------ Operating Officer
Glenn R. Moore
/s/ Kenneth W. Hatcher Executive Vice President April 1, 2002
- ------------------------ of Finance(Principal
Kenneth W. Hatcher Financial and
Accounting Officer)
/s/ Robert B. McDermott Director April 1, 2002
- ------------------------
Robert B. McDermott
/s/ Ralph E. Graham Director April 1, 2002
- ------------------------
Ralph E. Graham
/s/ Fred L. Oliver Director April 1, 2002
- ------------------------
Fred L. Oliver
-21-
MAYNARD OIL COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements and Schedule
Page
----
Financial Statements:
Report of Independent Accountants 23
Consolidated Balance Sheets - December 31, 2001 and 2000
24
Consolidated Statements of Operations - Three years ended
December 31, 2001
25
Consolidated Statements of Changes in Shareholders'
Equity - Three years ended December 31, 2001 26
Consolidated Statements of Cash Flows - Three years
ended December 31, 2001 27
Notes to Consolidated Financial Statements 28
II - Valuation and Qualifying Accounts 42
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or Notes thereto.
-22-
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
Maynard Oil Company
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Maynard Oil Company and its subsidiary at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
Dallas, TX
March 27, 2002
-23-
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31,
-----------------------------
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14,277,119 $ 21,228,040
Accounts receivable, trade 6,457,897 8,773,669
Income taxes receivable 1,769,928 1,437,587
Other current assets 448,194 441,027
------------ -----------
Total current assets 22,953,138 31,880,323
------------ -----------
Property and equipment, at cost:
Oil and gas properties, successful
efforts method 188,246,168 162,572,339
Other property and equipment 491,699 450,885
------------ -----------
188,737,867 163,023,224
Less accumulated depreciation and
amortization (104,457,017) (87,045,360)
------------ -----------
Net property and equipment 84,280,850 75,977,864
------------ -----------
$ 107,233,988 $107,858,187
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $ 7,650,000 $ 7,650,000
Accounts payable 5,962,824 8,350,643
Accrued expenses 746,806 927,828
Income taxes payable 513,352 800,799
------------ -----------
Total current liabilities 14,872,982 17,729,270
------------ -----------
Deferred income taxes 3,110,000 1,179,000
Long-term debt 17,212,500 24,862,500
Shareholders' equity:
Preferred stock of $.50 par value.
Authorized 1,000,000 shares; none
issued -- --
Common stock of $.10 par value.
Authorized 20,000,000 shares;
4,880,368 and 4,880,516 shares
issued and outstanding 488,037 488,051
Additional paid-in capital 18,831,138 18,831,138
Retained earnings 52,719,331 44,768,228
------------ -----------
Total shareholders' equity 72,038,506 64,087,417
------------ -----------
Contingencies and commitments (note 10)
$ 107,233,988 $107,858,187
============ ===========
See accompanying Notes to Consolidated Financial Statements.
-24-
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31,
-------------------------------------------
2001 2000 1999
---- ---- ----
Revenues:
Oil and gas sales and royalties $ 53,363,128 $ 52,738,994 $ 23,392,231
Interest and other 699,471 1,141,333 794,478
Gain (loss) on disposition of assets 96,027 (38,070) 312,746
------------ ------------ ------------
54,158,626 53,842,257 24,499,455
------------ ------------ ------------
Costs and expenses:
Operating expenses 17,953,047 14,168,808 7,839,205
Exploration, dry holes and
abandonments 256,497 449,088 533,608
General and administrative, net 3,970,886 3,841,919 2,237,260
Depreciation and amortization 14,079,545 10,120,721 5,848,272
Impairment of proved oil and gas
properties 3,382,741 -- --
Interest and other 2,059,087 2,988,628 893,475
------------ ------------ ------------
41,701,803 31,569,164 17,351,820
------------ ------------ ------------
Income before income taxes 12,456,823 22,273,093 7,147,635
Income tax expense 4,503,000 8,170,000 2,793,000
------------ ------------ ------------
Net income $ 7,953,823 $ 14,103,093 $ 4,354,635
============ ============ ============
Weighted average number of common
shares outstanding 4,880,401 4,880,749 4,883,536
============ ============ ============
Net income per common share
(basic and diluted) $ 1.63 $ 2.89 $ .89
============ ============ ============
See accompanying Notes to Consolidated Financial Statements.
-25-
MAYNARD OIL COMPANY
Consolidated Statements of Changes in Shareholders Equity
Three Years Ended December 31, 2001
Accumulated
Other Additional Common
Comprehensive Retained Comprehensiv Paid-in Common Stock
Total Income Earnings Income Capital Stock Shares
----- ------ -------- ------ ------- ----- ------
Balance at December 31, 1998 $45,646,943 $26,327,345 $18,831,138 $488,460 4,884,597
Net income 4,354,635 4,354,635 -- -- --
Purchase and retirement
of common stock (10,873) (10,502) -- (371) (3,710)
---------- ---------- ---------- ------- ---------
Balance at December 31, 1999 49,990,705 30,671,478 18,831,138 488,089 4,880,887
Net income 14,103,093 14,103,093 -- -- --
Purchase and retirement
of common stock (6,381) (6,343) -- (38) (371)
---------- ---------- ---------- ------- ---------
Balance at December 31, 2000 64,087,417 44,768,228 18,831,138 488,051 4,880,516
Comprehensive Income
Net Income 7,953,823 $7,953,823 7,953,823
Cumulative effect of adopting
SFAS 133 86,757 86,757 $86,757
Reclassification adjustments
for contract settlements (86,757) (86,757) (86,757)
---------
Comprehensive Income $7,953,823
=========
Purchase and retirement of
common Stock (2,734) (2,720) -- (14) (148)
---------- ---------- --------- ---------- ------- ---------
Balance at December 31, 2001 $72,038,506 $52,719,331 -- $18,831,138 $488,037 4,880,368
========== ========== ========= ========== ======= =========
See accompanying Notes to Consolidated Financial Statements.
-26-
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $ 7,953,823 $ 14,103,093 $ 4,354,635
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 14,079,545 10,120,721 5,848,272
Impairment of proved oil and gas
properties 3,382,741 -- --
Allowance for doubtful accounts 259,949 -- --
Deferred income tax expense 1,931,000 1,527,000 333,000
Exploration, dry holes and
abandonments 212,720 429,424 451,688
Current year costs of dry holes and
abandonments (213,599) 1,031 (424,077)
(Gain) loss on disposition of assets (96,027) 38,070 (312,746)
(Increase) decrease in current assets:
Accounts receivable 2,055,823 (2,744,481) (3,460,381)
Income taxes receivable (332,341) (687,587) 227,587
Other current assets (7,167) 395,527 (357,874)
Increase (decrease) in current liabilities:
Accounts payable (2,387,819) 4,100,919 1,666,367
Accrued expenses (181,022) (329,790) 415,250
Income taxes payable (287,447) (159,413) 919,413
------------ ------------ ------------
Net cash provided by operating
activities 26,370,179 26,794,514 9,661,134
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of assets 103,496 780,447 555,022
Additions to property and equipment (25,771,862) (13,513,361) (45,184,704)
------------ ------------ ------------
Net cash used by
investing activities (25,668,366) (12,732,914) (44,629,682)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- -- 32,000,000
Principal payments on long-term debt (7,650,000) (5,737,500) (5,000,000)
Purchase of common stock (2,734) (6,381) (10,873)
------------ ------------ ------------
Net cash provided (used) by
financing activities (7,652,734) (5,743,881) 26,989,127
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents (6,950,921) 8,317,719 (7,979,421)
Cash and cash equivalents at beginning
of year 21,228,040 12,910,321 20,889,742
------------ ------------ ------------
Cash and cash equivalents at end of year $ 14,277,119 $ 21,228,040 $ 12,910,321
============ ============ ============
See accompanying Notes to Consolidated Financial Statements
-27-
MAYNARD OIL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
Business Activity
-----------------
Maynard Oil Company (the Company) is engaged in the acquisition,
exploration, development, production and sale of crude oil and natural
gas in the Continental United States, primarily in the states of
Texas, Oklahoma, Louisiana, New Mexico and Arkansas.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Maynard
Oil Company and its wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Cash Equivalents
----------------
Cash equivalents are highly liquid investments purchased with an
original maturity of three months or less.
Property and Equipment
----------------------
The Company follows the successful efforts method of accounting for
its oil and gas properties. Intangible drilling and development costs
related to development wells and successful exploratory wells are
capitalized, whereas the costs of exploratory wells which do not yield
economic proved reserves are expensed. All geological and geophysical
costs not reimbursed are expensed as incurred. Costs of acquiring
unproved leases are evaluated for impairment until such time as the
leases are proved or abandoned. In addition, unamortized costs at a
field level are reduced to discounted fair value if the net book value
exceeds the sum of expected undiscounted future cash flows.
Depreciation and amortization of producing properties is computed
using the unit of production method based upon estimated proved
reserves. Depreciation of other property and equipment is calculated
using the straight-line method based upon estimated useful lives
ranging from two to ten years.
Maintenance and repairs are charged to expense as incurred. Renewals
and betterments are capitalized. When assets are sold, retired or
otherwise disposed of, the applicable costs and accumulated
depreciation and amortization are removed from the accounts, and the
resulting gain or loss is recognized.
-28-
Revenue Recognition
-------------------
The Company accounts for oil and gas sales from its interests in
producing wells under the sales method. Under the sales method, the
Company recognizes revenues based on the amount of natural gas sold to
purchasers, which may be different from the Company's entitled
production based on its interest in the properties. Gas balance
obligations as of December 31, 2001, 2000 and 1999 were not
significant.
Overhead Reimbursement Fees
---------------------------
The Company reduces general and administrative expenses by only the
amounts actually due from outside working interest owners for overhead
charges.
Deferred Income Taxes
---------------------
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
tax and financial reporting bases of the Company's assets and
liabilities by applying enacted tax rates. A valuation allowance is
established to reduce deferred tax assets if it is more likely than
not that the related tax benefits will not be realized.
Derivative Financial Instruments
--------------------------------
The Company periodically enters into commodity hedge contracts,
including caps and floors which may require payments to (or receipts
from) counterparties based on the differential between a fixed price
and a variable price for a fixed quantity of crude oil or natural gas
without the exchange of underlying volumes. The notional amounts of
these derivative financial instruments are based on expected
production from existing wells. The Company uses these derivative
financial instruments to manage cash flow risks resulting from
fluctuations in commodity prices. The derivative financial instruments
held by the Company are not leveraged and are held for purposes other
than trading.
Correlation of the hedge contracts is determined by evaluating whether
hedge contract gains and losses will substantially offset the effects
of price changes on the underlying crude oil and natural gas sales
volumes. To the extent that correlation exists between the hedge
contracts and the underlying crude oil and natural gas sales volumes,
realized gains or losses and related cash flows arising from the hedge
contracts are recognized as a component of oil and natural gas sales
in the same period as the sale of the underlying volumes. To the
extent that correlation does not exist between the hedge contracts and
the underlying crude oil and the natural gas sales volumes, realized
gains or losses and related cash flows arising from the hedge
contracts are recognized in the period as a component of other income.
The fair market value of any hedge contract that does not meet the
correlation test outlined above is recorded as a deferred gain or loss
on the balance sheet and is
-29-
adjusted to current market value at each balance sheet date with any
deferred gains or losses recognized as a component of other income.
In the event that management decides to terminate a hedge contract,
generally accepted accounting principles require that any gains or
losses upon termination be carried forward and recognized as a
component of oil and natural gas sales in the period in which the
underlying volumes are sold.
The Company is not currently a party to any derivative instrument.
Income per Common Share
-----------------------
The Company does not have a complex capital structure, and
consequently, net income per common share is computed using the
weighted average number of common shares outstanding during each year.
Basic and diluted earnings per share were the same for 2001, 2000 and
1999 as the Company has no potentially dilutive securities.
Segment Information
-------------------
All of the Company's oil and gas properties and related operations are
located in the United States and management has determined that the
Company has one reportable segment.
The Use of Estimates in Preparing Financial Statements
------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, disclosures of gain and loss contingencies at the date of
the financial statements and reported amounts of revenues and expenses
during the reporting period. Since estimates are made based on all
information available at the time, it is reasonably possible in the
near term a change in an estimate may occur or actual amounts may
differ from estimated amounts.
Reclassifications
-----------------
Certain reclassifications of prior period statements have been made to
conform with the 2001 presentation.
Recent Accounting Pronouncements
--------------------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 (SFAS 141), "Business Combinations", and also
Statement No. 142 (SFAS 142), "Goodwill and Other Intangible
Assets."
SFAS 141 requires all business combinations, as defined by the
standard, initiated after June 30, 2001 to be accounted for using the
purchase method. Companies may no longer use the pooling method to
account for future combinations.
-30-
SFAS 142 is effective for fiscal years beginning after December 15,
2001 and will be adopted by the Company as of January 1, 2002. SFAS
142 requires that goodwill no longer be amortized over an estimated
useful life as previously required. Instead, goodwill amounts will be
subject to a fair-value-based annual impairment assessment. The
standard also requires acquired intangible assets to be recognized
separately and amortized as appropriate. The Company expects that the
adoption of SFAS 142 will not have a significant impact on the
Company's future financial statements.
In July 2001, the FASB issued SFAS 143 "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets". SFAS 143 is
effective for fiscal years beginning after June 15, 2002, and early
adoption is permitted. The Company is currently assessing the new
standard and has not determined the impact on its consolidated results
of operations, cash flows or financial position.
In August, 2001, the FASB issued SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and
early adoption is permitted. The Company expects that the adoption of
SFAS No. 144 will not have a significant impact on the Company's
future financial statements.
(2) Fair Value of Financial Instruments, Risk Management, and
---------------------------------------------------------
Concentrations of Credit Risk
-----------------------------
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, and accounts payable approximate fair value because of the
short maturity of these instruments. The carrying amount of long-term
debt, including the current portion, approximates fair value because
the interest rate on this instrument changes with market interest
rates.
Risk Management
---------------
Effective March 1, 2001, the Company entered into a derivative
financial instrument whereby 2,000 barrels of daily production was
hedged with a ceiling price of $28.18 per barrel and a floor price of
$24.00 per barrel. This hedging arrangement was due to expire on
February 28, 2002. However, the Company exercised its ability to
terminate the contract during March, 2001 via payment of $803,000,
which reduced oil and gas revenues for the first quarter of 2001.
During 2000, the Company entered into a derivative financial
instrument whereby the Company hedged 1,000 barrels of daily
production from September 1, 2000 through February 28, 2001 with a
ceiling price of $36.50/bbl and a floor price of $24.00/bbl. The
contract called for a monthly settlement such that if the average WTI
for the month was greater than $36.50/bbl, Maynard would remit to the
counterparty the excess multiplied by the number of barrels hedged
during the month. Conversely, if the average WTI for the
-31-
month was less than $24.00/bbl, the counterparty would pay Maynard for
the difference multiplied by the number of barrels hedged during the
month. If the average WTI for the month fell between $24.00/bbl and
$36.50/bbl, no settlement would be made. As a result of this
arrangement, no monies were exchanged.
A second derivative instrument was entered into effective October 1,
2000 through March 31, 2001 which mirrored the first except the
ceiling and floor amounts were $37.20 and $25.00 per barrel,
respectively. Over the life of this contract, average WTI fell between
$25.00 per barrel and $37.20 per barrel, so no cash was exchanged.
The Company adopted Statement of Financial Accounting Standard No. 133
(SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities", on January 1, 2001 and recorded a cumulative effect
adjustment of approximately $87,000 to earnings to recognize the fair
market value of all derivative instruments as a result of adopting
SFAS 133. The hedging related components of other comprehensive income
have been recorded net of income tax effects using the effective
income tax rate for 2001.
Concentration of Credit Risks
-----------------------------
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash
equivalents and accounts receivable. The Company places its cash and
cash equivalents with high credit quality institutions. With respect
to accounts receivable, these financial instruments primarily pertain
to oil and gas sales and joint interest billings. These accounts
receivable are due from small to mid-size companies engaged
principally in oil and gas activities. The Company performs ongoing
credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. Payment terms
are on a short-term basis and in accordance with industry standards.
During 2001, the Company recorded a bad dept allowance of $259,949 to
recognize potentially uncollectible accounts receivable.
During the year ended December 31, 2001, oil and gas sales to two
purchasers amounting to approximately $9,041,000 and $6,867,000 each
accounted for more than 10% of total consolidated revenues.
During the year ended December 31, 1999, oil and gas sales to three
customers, amounting to approximately $4,143,000, $2,868,000, and
$2,457,000 respectively, each accounted for more than 10% of total
consolidated revenues. During the year ended December 31, 2000, no
single purchaser accounted for 10% of consolidated revenues.
(3) Strategic Alternatives
----------------------
On July 23, 2001, the Company announced that it was exploring
strategic alternatives including the possible sale or merger of the
Company. In December, 2001, the Company reported that it had received
expressions of interest from a number of potential buyers,
-32-
but that the valuations were disappointing. Management was instructed
by the Board to continue discussions with potentional acquirers.
In connection with these transactions, the Company entered into
contracts with its personnel which provide incentive bonuses and
retention arrangements that total approximately $5,100,000 to be paid
out within one year after a merger agreement is signed.
(4) Impairment of Long-Lived Assets
-------------------------------
Oil prices fell from an average of $27.36 per barrel for 2000 to an
average of $23.26 per barrel for 2001, while gas prices averaged $4.00
per thousand cubic feet (mcf) for 2001 compared with $3.90 per mcf for
2000. Because the Company is significantly impacted by the crude oil
markets, the Company performed an impairment evaluation of its oil and
gas properties and recognized a non-cash impairment of $3,382,741 in
December 2001 to account for those properties whose investment would
not be recoverable under current pricing assumptions, as defined by
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of ("SFAS 121"). Although the reduction in oil pricing
impacted this evaluation, the specific properties involved in the
writedown had minimal volumes of hydrocarbons and little chance of
recovery from any future price increases. Because no event occurred in
2000 or 1999 which would trigger an impairment evaluation, no such
evaluation was performed for those years.
-33-
(5) Cash Flow Data
--------------
Supplemental cash flow information for the three years ended December
31, 2001 is summarized as follows:
2001 2000 1999
---- ---- ----
Cash paid for
Interest net of $65,314,
$28,448 and $7,954
capitalized $2,034,152 $3,015,276 $ 758,695
========= ========= =========
Income taxes $3,191,788 $7,490,000 $1,279,111
========= ========= =========
(6) Long-term Debt
--------------
Long-term debt at December 31, 2001 and 2000 is summarized as follows:
2001 2000
---- ----
Term note due in 20 equal quarterly
installments of $1,912,500 commencing
April 1, 2000. Interest paid quarterly
at varying rates. Certain oil and gas
properties are pledged as collateral. $24,862,500 $32,512,500
Less current installments 7,650,000 7,650,000
---------- ----------
Long-term debt $17,212,500 $24,862,500
========== ==========
The term note permits the Company to choose between three interest
rate options and to specify what portion of the loan is covered by a
specific interest rate option and the applicable funding period to
which the interest rate option is to apply. The interest rate options
are as follows:
(1) Bank's prime lending rate
(2) Bank's certificate of deposit rate
(3) London interbank eurodollar rate (Eurodollar)
At December 31, 2001 and 2000, interest on the bank term loan
approximated 3.67% and 8.05%, respectively.
The credit agreement contains various financial covenants related to
working capital, net worth, and cash flow, and places certain
limitations on the incurrence of additional debt and prohibits the
payment of dividends.
-34-
(7) Employee Incentive Plans
------------------------
During 2000, the Company's Board of Directors approved an amendment to
an employee incentive plan in which officers and key employees had
been awarded stock participation units in 1989 and 1993 that entitled
them to a cash payment equal to the excess of the fair market value of
one share of the Company's common stock over a specified share price
at the grant date times the number of vested shares. Under the
original terms of this plan, no units could be exercised until the
employee terminated his employment with the Company. Pursuant to terms
of the amended plan, each employee holding stock participation units
was given the opportunity to cash out all, or a portion, of the units
held. At the time of the plan amendment, there were a total of 95,500
stock participation units outstanding with option prices of $4.50 and
$5.625 per share. For 2000, general and administrative expense
includes $1,020,023 for the 95,500 stock participation units. A total
of 84,500 units were exercised under the amended plan at $20.81 per
share. As a result of the exercise of these units, the Company made a
cash payment of $1,332,835 to those electing employees. Additionally,
at December 31, 2000, the Company had a liability of approximately
$136,000 attributable to the remaining 11,000 stock participation
units.
In anticipation of a potential merger or sale of the Company, the
remaining 11,000 stock participation units were exercised at $26.00
per share with the Company making a cash payment of $230,313. For
2001, general and administrative expense includes $93,500 for these
remaining stock participation units and there is no remaining
financial liability in connection with this plan.
(8) Income Taxes
------------
Income tax expense consists of the following:
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Federal
Current $2,100,000 $5,898,000 $2,227,000
Deferred 1,931,000 1,527,000 333,000
State 472,000 745,000 233,000
--------- --------- ---------
$4,503,000 $8,170,000 $2,793,000
========= ========= =========
-35-
Income tax expense for the three years ended December 31, 2001 differs
from the amount computed by applying the applicable U.S. corporate
income tax rate of 34% in 2001 and 1999 and 35% in 2000 to income
before income taxes. The reasons for this difference are as follows:
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Income tax expense at
U.S. statutory rate $4,235,320 $7,795,583 $2,430,196
State income taxes net
of Federal income
tax effects 297,000 484,250 153,780
Allowable depletion in
excess of cost depletion (32,109) (8,750) (135,215)
Items not related to current
year earnings -0- (109,484) 305,751
All other items 2,789 8,401 38,488
-------- --------- ---------
Income tax expense $4,503,000 $8,170,000 $2,793,000
========= ========= =========
The components of the net deferred tax liability were as follows:
December 31,
2001 2000
---- ----
Oil and gas property assets $3,110,000 $1,227,000
Employee incentive plan -0- (48,000)
--------- ---------
Net deferred tax liability $3,110,000 $1,179,000
========= =========
(9) Employee Benefit Plans
----------------------
The Company adopted a noncontributory defined contribution retirement
plan for all full-time employees age 21 or older who have completed
one year of service. The plan provides for a minimum annual
contribution by the Company equal to 3% of an employee's base salary
plus overtime compensation. At its discretion, the Company may also
make supplemental contributions to the plan. For calendar 1999, 2000
and 2001, the Company elected to contribute 5% for each employee
covered by this plan. Under this plan, amounts equal to retirement
plan expense are funded annually, which amounted to $129,551,
$108,406, and $106,462, and respectively, for 2001, 2000 and 1999.
The Company also has a profit sharing plan pursuant to Section 401 of
the Internal Revenue Code, whereby participants may contribute a
percentage of their compensation up to 15%. The Plan provides for a
matching contribution by the Company equal to one-half of the
employee's percentage contribution up to 10% of the employee's
compensation. During 2001, 2000 and 1999, the Company's matching
portion amounted to $113,281, $97,228 and $93,823 respectively.
-36-
(10) Contingencies and Commitments
-----------------------------
The Company is a defendant in certain non-environmental litigation
arising from operations in the normal course of business. While it is
not feasible to determine the outcome of these actions, it is the
Company's opinion that the ultimate outcome of the litigation will not
have a material adverse effect on the financial position or results of
operations of the Company.
All of the Company's operations are generally subject to Federal,
state and local environmental regulations. To the best of management's
knowledge, the Company is in substantial compliance with such laws and
regulations.
The Company leases office space and certain equipment under various
operating leases which expire over the next four years. All leases
require the payment of taxes and insurance, and the office lease
requires the Company to pay its pro rata share of increases in
maintenance expense above that prevailing in base years. Management
expects that, in the normal course of business, leases will be renewed
or replaced by other leases. Rent expense for the three years ended
December 31, 2001 was $561,272, $453,440 and $362,443, respectively.
Minimum payments for operating leases having initial or noncancellable
terms in excess of one year are as follows:
2002 $ 386,968
2003 367,510
2004 342,435
2005 264,365
---------
Total minimum payments $1,361,278
=========
-37-
(11) Quarterly Financial Data (Unaudited)
-----------------------------------
Summarized quarterly financial data for the years ended December 31,
2001 and 2000 as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Year Ended December 31, 2001
Revenues $17,520,111 $14,190,988 $12,848,953 $ 9,598,574
Operating Income (a) 8,926,226 4,657,499 3,193,878 (2,961,164)
Net Income 5,673,213 2,803,627 2,004,257 (2,527,274)
Net Income per common share 1.16 .57 .41 (.51)
Year Ended December 31, 2000
Revenues $11,020,146 $11,566,965 $15,205,773 $16,049,373
Operating Income (a) 4,224,089 4,347,088 7,413,165 8,136,046
Net Income 2,475,864 2,601,185 4,623,290 4,402,754
Net Income per common share .51 .53 .95 .90
(a) Operating income excludes interest income and expense from pre-tax income.
(12) Supplemental Oil and Gas Disclosures (Unaudited)
------------------------------------------------
Capitalized Costs
-----------------
A summary of the Company's aggregate capitalized property and equipment
costs relating to oil and gas exploration and development activities
follows:
December 31,
-------------------
2001 2000
---- ----
Proved undeveloped leaseholds $ 3,960,520 $ 1,945,518
Producing properties 184,285,648 160,626,821
----------- -----------
188,246,168 162,572,339
Accumulated depreciation and
amortization 104,165,363 86,828,540
----------- -----------
Net capitalized costs $ 84,080,805 $ 75,743,799
=========== ===========
Costs Incurred
--------------
A summary of costs incurred in oil and gas acquisition, exploration and
development activities follows:
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Acquisition of properties
Proved undeveloped $ 2,015,003 $ 243,885 $ 2,691,308
Proved 11,108,791 7,531,915 40,589,276
Exploration costs 257,394 531,192 1,091,521
Development costs 12,469,097 5,058,262 1,010,969
---------- ---------- ---------
$25,850,285 $13,365,254 $45,383,074
========== ========== ==========
-38-
(12) Supplemental Oil and Gas Disclosures (Unaudited) continued
----------------------------------------------------------
Results of Operations
---------------------
The results of operations from oil and gas producing activities
are as follows:
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Sales $53,363,128 $52,738,994 $23,392,231
Production costs (a) (17,953,047) (14,168,808) (7,839,205)
Exploration expenses (2,434,535) (2,228,067) (1,668,191)
Depreciation and
amortization (13,998,648) (10,053,256) (5,780,413)
Impairment of proved
oil and gas
properties (3,382,741) -- --
---------- ---------- ----------
15,594,157 26,288,863 8,104,422
Income tax expense (5,302,013) (9,201,101) (2,744,385)
---------- ---------- ----------
Results of operations
from oil and gas
producing activities $10,292,144 $17,087,762 $ 5,360,037
========== ========== ==========
(a) Includes lifting costs, severance taxes and advalorem taxes.
Oil and Gas Reserve Quantities
------------------------------
The following unaudited tables represent the Company's estimates of its
proved oil and gas reserves. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, the estimates are expected to change as future
information becomes available. The estimates were evaluated by the
Company's staff of petroleum engineers and audited by independent
petroleum engineers. It is their opinions that the reserve quantity and
present value information in the following tables complies with the
applicable rules and regulations of the SEC. All of the Company's
reserves are located within the United States.
-39-
(12) Supplemental Oil and Gas Disclosures (Unaudited) continued
----------------------------------------------------------
Proved Developed and Oil Gas
Undeveloped Reserves (Barrels) (MCF)
- -------------------- --------- -----
Total as of December 31, 1998 5,019,452 12,904,100
Revisions of previous estimates 1,874,514 559,013
Purchases of reserves 4,706,560 18,008,548
Extensions and discoveries 930,732 2,928,373
Production (990,877) (2,289,564)
Sales of reserves in place (20,351) (183,610)
---------- ----------
Total as of December 31, 1999 11,520,030 31,926,860
Revisions of previous estimates 1,549,760 1,146,955
Purchases of reserves 760,874 1,498,830
Extensions and discoveries 1,230,077 2,196,522
Production (1,369,456) (3,915,325)
Sales of reserves in place (80,935) (776,122)
---------- ----------
Total as of December 31, 2000 13,610,350 32,077,720
Revisions of previous estimates (2,469,412) 1,478,240
Purchases of reserves 1,037,087 1,345,844
Extensions and discoveries 268,690 849,327
Production (1,446,375) (4,931,751)
---------- ----------
Total as of December 31, 2001 11,000,340 30,819,380
========== ==========
Proved Developed Reserves
- -------------------------
December 31, 1999 10,072,772 28,917,190
December 31, 2000 11,085,442 29,362,127
December 31, 2001 9,423,192 27,524,641
Standardized Measure
- --------------------
The standardized measure of discounted future cash flows from proved oil
and gas reserves determined in accordance with rules prescribed by the Financial
Accounting Standards Board is summarized as follows:
Years ended December 31,
------------------------
2001 2000 1999
(000's) (000's) (000's)
------- ------- -------
Future cash inflows $ 270,608 $ 655,640 $ 338,098
Future production costs (125,842) (201,244) (134,474)
Future development costs (14,816) (17,611) (11,605)
--------- --------- ---------
129,950 436,785 192,019
Future income tax (expense) (19,177) (127,452) (39,884)
--------- --------- ---------
Future net cash flows 110,773 309,333 152,135
10% annual discount for estimated
timing of cash flows (39,390) (117,755) (54,926)
--------- --------- ---------
Standardized measure of discounted
future net cash flows $ 71,383 $ 191,578 $ 97,209
========= ========= =========
-40-
(12) Supplemental Oil and Gas Disclosures (Unaudited) continued
----------------------------------------------------------
The average prices for oil and gas used to calculate future cash inflows at
December 31, 2001 were $17.62 per barrel and $2.49 per mcf, respectively.
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows.
Years ended December 31,
------------------------
2001 2000 1999
(000's) (000's) (000's)
------- ------- -------
Standardized measure - beginning of year $ 191,578 $ 97,209 $ 24,490
Sales of oil and gas produced,
net of production costs (35,410) (38,570) (15,553)
Net changes in prices and production
costs (164,336) 115,134 35,657
Extensions, discoveries, and improved
recovery, less related costs 1,709 20,979 9,151
Changes in future development costs (9,968) (3,336) (228)
Development costs incurred 4,097 2,137 60
Revisions of previous quantity estimates (14,200) 26,108 15,202
Accretion of discount 27,051 9,721 2,416
Purchase of proved reserves 4,645 16,399 52,739
Sale of proved reserves -0- (799) (394)
Net change in income taxes 66,577 (53,449) (25,817)
Other (360) 45 (514)
--------- --------- ---------
Standardized measure - end of year $ 71,383 $ 191,578 $ 97,209
========= ========= =========
-41-
Schedule II
-----------
MAYNARD OIL COMPANY AND SUBSIDIARY
Valuation and Qualifying Accounts
Three Years Ended December 31, 2001
Charged to
Beginning Cost and Ending
Description Balance Expenses Deductions Balance
- ----------- --------- ---------- ---------- --------
Allowance for Doubtful Accounts - (a)
- -------------------------------------
December 31, 1999 $ 53,000 -- -- $ 53,000
======== ========= ===== ========
December 31, 2000 $ 53,000 -- -- $ 53,000
======== ========= ===== ========
December 31, 2001 $ 53,000 $ 259,949 $-- $312,949
======== ========= ===== ========
(a) Valuation account deducted in the balance sheet from trade accounts
receivable.
-42-
MAYNARD OIL COMPANY AND SUBSIDIARIES
Index to Exhibits
Sequentially
Exhibit Numbered
Number Page
- ------- ------------
21.1 List of subsidiaries of the Company as
of December 31, 2001 44
-43-