1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 0-18836
MIDLAND RESOURCES, INC.
(Exact name of small business issuer as specified in its charter)
Texas 75-2286814
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
16701 Greenspoint Park Drive, Suite 200, Houston, Texas 77060
(Address of principal executive offices)
(713) 873-4828
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock, $.001 par value: 4,397,031 shares outstanding at June 30, 1996
2
MIDLAND RESOURCES, INC.
Table of Contents
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of June 30, 1996 (Unaudited)
and December 31, 1995 3
Unaudited Consolidated Statements of Operations for the three and six
month periods ended June 30, 1996 and June 30, 1995 5
Unaudited Consolidated Statements of Cash Flows for the three and six
month periods ended June 30, 1996 and June 30, 1995 7
Note to Unaudited Financial Statements 9
Management's Discussion and Analysis of Financial Condition
and Results of Operation 10
PART II. OTHER INFORMATION
Notes Concerning Other Information 15
SIGNATURES 16
Page 2
3
PART I - FINANCIAL INFORMATION
MIDLAND RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
------------ ------------
Unaudited
ASSETS
Current assets:
Cash $ 44,738 $ 514,610
Accounts receivable:
Oil and gas sales, net of allowance of $29,674 641,096 545,910
Related parties 64,321 97,681
Other 216,139 178,804
Marketable equitable securities held for sale 334,610 --
Property held for sale 255,073 255,073
Other current assets 91,905 106,865
Deferred tax asset 339,509 339,509
------------ ------------
Total current assets 1,987,391 2,038,452
------------ ------------
Property and equipment, at cost, partially pledged:
Oil and gas properties and equipment,
using successful efforts method 22,900,465 21,505,685
Transportation equipment 270,215 264,565
Computer equipment and software 229,155 214,809
Office furniture and equipment 92,153 90,465
Land, building and leasehold improvements 101,983 100,612
Less accumulated depreciation, depletion
and amortization (11,856,157) (11,816,754)
------------ ------------
Property and equipment, net 11,737,814 10,359,382
------------ ------------
Other assets:
Deferred tax asset 299,526 262,554
Goodwill, net of amortization 760,617 773,961
Contracts and leases, net of amortization 265,246 287,690
Note receivable 324,961 331,857
Other 149,633 69,456
Total assets $ 15,525,188 $ 14,123,352
============ ============
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
Page 3
4
MIDLAND RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
------------ ------------
Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 16,176 $ 1,224,401
Accounts payable and accrued expenses:
Trade 1,003,100 726,302
Related parties 10,634 --
------------ ------------
Total current liabilities 1,029,910 1,950,703
------------ ------------
Long-term debt, net of discount 6,875,051 4,524,617
------------ ------------
Stockholders' equity:
Preferred stock, par value $0.01 per share; 20,000,000
shares authorized; none issued -- --
Common stock, par value $0.001 per share;
80,000,000 shares authorized; 4,393,531 and
4,397,031 shares issued at December 31, 1995
and June 30, 1996, respectively 4,397 4,394
Additional paid in capital 7,888,704 7,859,794
Treasury stock, at cost, 7,300 shares at
December 31, 1995 -- (15,053)
Note receivable from officer/director (453,641) (453,641)
Retained earnings 180,767 252,538
------------ ------------
Total stockholders' equity 7,620,227 7,648,032
------------ ------------
Total liabilities and stockholders' equity $ 15,525,188 $ 14,123,352
============ ============
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
Page 4
5
MIDLAND RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30,
------------------------------
1996 1995
----------- -----------
Unaudited Unaudited
Operating revenue:
Oil and gas sales $ 1,612,185 $ 1,285,341
Management fees 15,000 25,500
Property operator fees 21,491 21,177
Other 1,477 10,902
----------- -----------
Total operating revenue 1,650,153 1,342,920
----------- -----------
Operating costs and expenses:
Oil and gas production 740,504 695,041
Exploration costs 342,122 --
Abandonment loss -- 3,199
Depreciation, depletion and amortization 239,059 296,869
General and administrative 320,982 274,539
----------- -----------
Total operating costs and expenses 1,642,667 1,269,648
----------- -----------
7,486 73,272
Other income and (expenses):
Gain on sale of property 32,566 --
Interest and other income 16,240 4,611
Interest expense (160,375) (146,773)
----------- -----------
Total other income and expenses (111,569) (142,162)
----------- -----------
Loss before income taxes (104,083) (68,890)
Current state income tax expense -- 4,384
Deferred federal income tax benefit (35,389) (21,614)
----------- -----------
Net loss $ (68,694) $ (51,660)
----------- -----------
Net loss per common share $ (0.016) $ (0.015)
----------- -----------
Average shares outstanding 4,394,001 3,367,002
=========== ===========
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
Page 5
6
MIDLAND RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30,
------------------------------
1996 1995
----------- -----------
Unaudited Unaudited
Operating revenue:
Oil and gas sales $ 3,105,326 $ 2,605,248
Management fees 30,000 51,000
Property operator fees 43,589 39,815
Other 2,630 27,869
----------- -----------
Total operating revenue 3,181,545 2,723,932
----------- -----------
Operating costs and expenses:
Oil and gas production 1,422,289 1,303,561
Exploration costs 518,778 --
Abandonment loss -- 4,466
Depreciation, depletion and amortization 473,161 596,075
General and administrative 626,828 573,687
----------- -----------
Total operating costs and expenses 3,041,056 2,477,789
----------- -----------
140,489 246,143
Other income and (expenses):
Gain (loss) on sale of property 30,677 (203)
Interest and other income 32,674 9,388
Interest expense (312,582) (293,472)
----------- -----------
Total other income and expenses (249,231) (284,287)
----------- -----------
Loss before income taxes (108,742) (38,144)
Current state income tax expense -- 9,419
Deferred federal income tax benefit (36,971) (12,969)
----------- -----------
Net loss $ (71,771) $ (34,594)
=========== ===========
Net loss per common share $ (0.016) $ (0.010)
=========== ===========
Average shares outstanding 4,390,116 3,364,625
=========== ===========
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
Page 6
7
MIDLAND RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended June 30,
------------------------------
1996 1995
----------- -----------
Unaudited Unaudited
Cash flows from operating activities:
Net loss $ (68,694) $ (49,851)
Deferred federal income tax benefit (35,389) (23,423)
Depreciation, depletion and amortization 239,059 296,869
Gain on sale of property and equipment (32,566) --
(Increase) decrease in accrued oil and gas sales 106,683 (6,159)
Decrease in receivable from related parties 115,414 2,158
Increase (decrease) in due to related parties (2,494) 3,992
Increase (decrease) in accounts payable relating
to operations 129,410 (18,340)
Increase in other current assets (85,609) (58,398)
Decrease in note receivable 3,490 --
Other (91,959) (60,897)
----------- -----------
Net cash provided by operating activities 277,345 85,951
----------- -----------
Cash flows from investing activities:
Proceeds from sale of marketable equity securities 9,847 --
Proceeds from sales of property and equipment 33,000 9,000
Additions to property and equipment (1,351,888) (530,177)
Investment in marketable equity securities (32,617) --
----------- -----------
Net cash used in investing activities (1,341,658) (521,177)
----------- -----------
Cash flows from financing activities:
Exercise of warrants and options 8,271 --
Short-term borrowing from bank -- 5,000
Long-term borrowing 1,220,000 669,500
Principal payments on short-term debt (70,000) --
Principal payments on long-term debt (107,731) (308,602)
----------- -----------
Net cash provided by financing activities 1,050,540 365,898
----------- -----------
Net decrease in cash (13,773) (69,328)
Cash, beginning of the period 58,511 117,185
----------- -----------
Cash, end of period $ 44,738 $ 47,857
=========== ===========
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
Page 7
8
MIDLAND RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
------------------------------
1996 1995
----------- -----------
Unaudited Unaudited
Cash flows from operating activities:
Net loss $ (71,771) $ (34,594)
Deferred federal income tax benefit (36,972) (12,969)
Depreciation, depletion and amortization 473,161 596,075
(Gain) loss on sale of property and equipment (30,677) 203
(Increase) decrease in accrued oil and gas sales (95,186) 81,826
(Increase) decrease in receivable from related parties 33,360 (2,269)
Increase in due to related parties 10,634 9,271
Increase in accounts payable relating
to operations 276,780 65,549
Increase in other current assets (22,375) (59,371)
Decrease in note receivable 6,896 --
Other (38,179) (14,528)
----------- -----------
Net cash provided by operating activities 505,671 629,193
----------- -----------
Cash flows from investing activities:
Proceeds from sale of marketable equity securities 9,847 --
Proceeds from sales of property and equipment 34,000 9,250
Additions to property and equipment (1,818,719) (762,585)
Investment in marketable equity securities (344,866) --
----------- -----------
Net cash used in investing activities (2,119,738) (753,335)
----------- -----------
Cash flows from financing activities:
Exercise of warrants and options 17,503 --
Short-term borrowing from bank 70,000 --
Long-term borrowing 1,820,000 669,500
Principal payments on short-term debt (70,000) --
Principal payments on long-term debt (693,308) (824,456)
----------- -----------
Net cash provided by (used in) financing activities 1,144,195 (154,956)
----------- -----------
Net decrease in cash (469,872) (279,098)
Cash, beginning of the period 514,610 326,955
----------- -----------
Cash, end of period $ 44,738 $ 47,857
=========== ===========
THE ACCOMPANYING NOTE IS AN INTEGRAL PART
OF THE FINANCIAL STATEMENTS.
Page 8
9
MIDLAND RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
Note A. Organization and Significant Accounting Policies
Organization and Basis of Presentation
In July 1990, the Company acquired the interests of the seven Morgan
Energy Oil and Gas Income Programs ("Partnerships") pursuant to the
Partnerships' Consolidated Plan of Reorganization. This transaction was
accounted for under a method similar to the pooling of interest method.
On December 31, 1993, the Company acquired Midland Resources Operating
Company, Inc. (formerly Miresco, Inc.). The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary. Upon
consolidation, all intercompany accounts, transactions and profits are
eliminated.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company and its wholly owned subsidiary as of June 30,
1996, the results of operations for the three and six month periods ended June
30, 1996 and 1995 and cash flows for the three and six month periods ended June
30, 1996 and 1995. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for a full year. The
accounting policies followed by the Company are set forth in more detail in Note
A of the "Notes to Financial Statements" in the Company's annual report on Form
10-KSB filed with the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in this Form 10-QSB pursuant to the rules and regulations of the
Securities and Exchange Commission. However, the disclosures herein are adequate
to make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Form 10-KSB.
Page 9
10
MIDLAND RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Capital Resources and Liquidity.
Midland Resources, Inc., (the "Company") a Texas corporation, is an
independent oil and gas company engaged primarily in the acquisition, operation,
production, exploration and development of domestic oil and natural gas. The
Company's initial capitalization was through the acquisition of the interests of
seven public oil and gas income limited partnerships in exchange for common
stock and warrants of the Company. There were 2,264,522 shares of common stock
issued and, for each share of common stock issued, two warrants were issued
entitling the holder to purchase one share of common stock at $2.50 and one
share at $4.00 during the period November 1990 to November 2002. The warrants
were redeemable by the Company, at its option, if the average market price (as
determined in the warrant agreement) of common stock exceeds the warrant
exercise price by 50 percent for a period of 90 consecutive calendar days. On
October 6, 1995, this requirement was met for the $2.50 warrant and the Company
called the $2.50 warrants. In June, 1996, the Company waived its right to call
the $4.00 warrants under the warrant agreement. As of June 30, 1996, none of the
$4.00 warrants had been exercised.
On December 31, 1993, the Company acquired all of the issued and
outstanding common stock of Midland Resources Operating Company, Inc. ("MRO"),
an affiliate, through an agreement of acquisition under which the Company issued
1,110,000 shares of common stock to Deas H. Warley III and Sal J. Pagano, the
former shareholders of MRO. The acquisition of MRO created the opportunity for
the Company to expand its revenue base through property operations.
On July 17, 1996, the Company agreed to acquire all of the outstanding
shares of Summit Petroleum Corporation ("Summit"), an affiliated Colorado
corporation, for $0.70 per share in cash. The total value of the transaction is
approximately $2.4 million, including assumed debt. The Company's present credit
facility is expected to provide the funds needed to complete this acquisition.
Summit has been a participant with the Company in several major projects,
including the three dimensional ("3D") seismic exploration projects in West
Texas and the Texas Gulf Coast. The acquisition of Summit will increase the
Company's ownership position in those key projects and expand its operations to
the DJ Basin of Colorado.
The Company emphasizes the application of advanced technology to explore
for, develop and produce natural gas and oil. The Company's historical growth
has been primarily through the acquisition and subsequent development of oil and
gas properties. In 1995, the Company added 3D seismic exploration activities.
The Company also emphasizes reducing operating costs per equivalent barrel and
selling marginal properties to increase its profit margins. In early 1995, the
Company began a joint project with the federal government's Los Alamos National
Laboratory to develop a computerized 3D reservoir simulation model of the Cope
Waterflood Unit operated by the Company. The simulation model, currently under
active development, will be utilized to improve reservoir management and enhance
oil production by locating bypassed oil, determining new infill drilling
locations and designing optimum waterflood injection patterns for increased oil
recovery. Management believes the Company is one of the few its size to possess
this capability.
The Company acquired a 100 percent working interest with an 87.5 percent
net revenue interest in certain oil and gas properties in Ward County, Texas
from Conoco, Inc. on October 15, 1993 effective September 1, 1993. The purchase
price of $925,000 was adjusted for revenues and expenses from September 1, 1993
through the closing date of October 15, 1993. Effective January 1, 1994, the
Company sold a 10 percent working interest in the Conoco acquisition discussed
above to Summit for $85,696 which was 10 percent of $856,960, the Company's cost
adjusted for revenues and expenses through December 31, 1993. The successful
drilling of three additional Cherry Canyon wells during the fourth quarter of
1995 at a cost to the Company of approximately $924,000, brings the total number
of wells operated by the Company in this field to ten. The three new wells were
completed with combined initial producing rates of 255 barrels of oil per day
("BOPD") and 540 thousand cubic feet of gas per day ("MCFD"). The Company
expects combined average production rates of approximately 100 BOPD and 265
MCFD, subject to normal declines.
Page 10
11
Effective August 1, 1994, the Company acquired working interests in oil
and gas properties in Coke and Howard Counties, Texas, from Ricky W. Patterson,
E. W. Patterson and James A. Walton for the purchase price of $1,950,000 which
was adjusted for revenues and expenses from August 1, 1994 through the closing
date of August 15, 1994. The Company transferred ten percent of its interest in
these properties to Summit for ten percent of the purchase price adjusted for
revenues and expenses and ten percent of the transaction costs.
The Company operated Jameson (Strawn) Field is located in the southwest
end of the Jameson feature in Coke and Sterling Counties approximately 80 miles
east of Midland, Texas. At the time the Company acquired the Jameson properties,
there were 21 gross wells which were shut-in for various reasons by the former
operator. Over a three year period the Company has returned 15 of these wells to
production and converted nearly 40 percent of the 54 currently producing wells
to a less expensive plunger lift method of artificial lift. The Jameson
properties also provide opportunities for reentries, infill drilling, and field
extension development drilling. In April, 1996 the Company completed a field
extension development well at a cost of approximately $319,000 and additional
wells are contemplated for the future. The new well was completed with initial
producing rates of 36 BOPD and 118 MCFD. The Company expects average production
rates of approximately 30 BOPD and 100 MCFD, subject to normal declines.
Effective June 1, 1996, the Company acquired various additional royalty
interests from John Gordon McGill in properties in the Jameson Field for
approximately $500,000. On July 12, 1996, drilling commenced on an additional
field extension well. The well encountered the Jameson (Strawn) formation as
expected, and completion efforts are in progress. The Company's cost of the well
is expected to be approximately $300,000.
In May, 1995, the Company acquired a 50 percent working interest and
operations in three state tracts in Redfish Bay Field, Nueces County, Texas. At
the time of the acquisition there was marginal production from these tracts.
Under the acquisition agreement, the Company is required to expend certain funds
in the development of these tracts. The Company's performance is secured by an
$850,000 letter of credit issued by its bank in favor of the seller. The Company
began a rework program immediately and established a gas well at a cost to the
Company of approximately $41,000, which produced at initial rates of 1,550 MCFD
of gas and 16 barrels of condensate per day. After six months of production, the
zone was depleted, and, in the first quarter of 1996, the Company recompleted
this wellbore to another zone at a cost to the Company of approximately $53,000
with initial rates of 240 BOPD and 100 MCFD and expected average production
rates of approximately 150 BOPD and 60 MCFD, subject to normal declines.
Remaining development obligations under this agreement were approximately
$378,000 as of June 30, 1996. The Company's present credit facility is expected
to provide the funds needed.
In December, 1995, a replacement well was drilled in the Company owned and
operated Ackerly (Dean) Field in Dawson County, Texas, at a cost to the Company
of approximately $402,000. This new well, which was upstructure from an
advancing adjacent waterflood operated by a major oil company has initial
producing rates of 152 BOPD and 106 MCFD. The Company expects average production
rates of approximately 70 BOPD and 70 MCFD, subject to normal declines.
In 1995, the Company acquired three 3D seismic exploration projects in the
Permian Basin Northwestern Shelf located in Terry and Hockley Counties, Texas.
The Company has a 50 percent working interest in two of the projects and a 25
percent working interest in one. Summit participates with the Company for a 5
percent working interest in all three projects. MRO operates the projects. On
May 8, 1996, the first of at least six exploration wells to be drilled was
spudded. The well encountered hydrocarbons in the Clearfork reservoir, but drill
stem tests, logs and seismic date indicated the zone to be too far removed from
the Clearfork structure to support a commercial completion attempt. The Abo
zone, which was the primary target in the well, was water-bearing, and the well
was plugged and abandoned. The cost to the Company as of June 30, 1996 for all
three prospects was approximately $758,000, of which $549,000 was incurred for
seismic and leasehold acquisition costs and $209,000 was incurred to drill the
well. The Company is committed to future additional capital costs of
approximately $765,000 in all three prospects which will be incurred to complete
seismic interpretation, drill a second test well on the first project and drill
a test well on each of the other two projects. Application to drill the second
well was made in July, 1996 and it is anticipated that the well will be spudded
before the end of the third quarter. The Company's present credit facility is
expected to provide the funds needed.
Page 11
12
Effective May 1, 1996, the company acquired an additional 5.75 percent
working interest from Headington Minerals, Inc. in the Company operated Cope
Unit in Sterling County, Texas for approximately $79,000, and now owns
approximately 77 percent of the working interest in this property. The Cope Unit
produces from the Spraberry formation. In June, 1996, the Company drilled a
replacement well, No. 4-11, for one of the 15 producing wells in the unit which
was producing mostly water. Unit oil production was maintained at approximately
135 barrels of oil per day and unit produced water was reduced substantially.
Cost to the Company was approximately $169,000.
On June 16, 1996, an exploration well near the Cope Unit No. 4-11 was
drilled to test the San Andres formation at 2,100 feet, which had been
encountered while drilling the 4-11 well to the deeper Spraberry formation. The
new well encountered the same San Andres formation, and efforts are underway to
complete the well as a producer. The Company owns 100 percent of the working
interest in this property. The cost of the new well is expected to be
approximately $200,000.
Effective June 1, 1996, the Company acquired an additional 5 percent
working interest from Dobbs Oil & Gas, Inc. in the Company operated Copano Bay
property in Aransas County, Texas for approximately $177,000, and now owns
approximately 63 percent of the working interest in this property.
In July, 1996, a joint 3D seismic acquisition program was undertaken with
Texland Petroleum, Inc. of Fort Worth, Texas, at the junction of Sterling, Tom
Green, and Reagan Counties, Texas for the purpose of evaluating deep
(approximately 10,000 feet) potential for oil indicated by production from
nearby properties and by geological evidence. Evaluation is expected to be
complete in the early part of the fourth quarter of 1996, and a possible deep
well could be spudded before the end of 1996. The Company owns 100 percent of
the working interest in this project. Geological, geophysical and the leasehold
acquisition costs incurred by the Company in this project as of June 30, 1996
are approximately $120,000.
The Company's financing was obtained from First Union National Bank of
North Carolina ("First Union") under a $20,000,000 credit facility. Effective
June 1, 1995, this note was amended to provide 25 percent of the borrowing base
as working capital and to lower the interest rate from prime rate plus 1.5
percent to prime rate plus .75 percent. In exchange the bank received 150,000
warrants to purchase common stock at $4.00 per share. Amounts outstanding under
this loan agreement bear interest of nine percent at June 30, 1996 (prime rate
plus .75 percent). Interest is payable monthly as it accrues. Principal on this
note was payable in monthly payments of $100,000 with the final maturity in
October, 1997. In May, 1996 First Union reduced the monthly principal payment to
zero. The principal balance outstanding on this loan was $6,800,000 at June 30,
1996. This note is secured by the majority of the Company's oil and gas
properties. Cash flow from operations will be used to retire this debt.
In the first six months of 1996, cash flow from operations was $505,671,
as compared to $629,193 for the same period of 1995. The increase in accounts
receivable from oil and gas sales accounts for the majority of this difference.
The net loss was $71,771 in 1996 and $34,594 in 1995. Included in net loss is
depletion, depreciation and amortization of $473,161 and $596,075 for 1996 and
1995, respectively. In 1996, the net loss also included exploration costs of
$518,778 related to the three 3D seismic exploration projects in Terry and
Hockley Counties, Texas. These costs consist of geological and geophysical costs
and abandonment costs of the unsuccessful exploratory well, all of which must be
charged to expense under the Company's method of accounting. The Company
incurred no exploration costs in 1995 until the fourth quarter.
The Company's investing activities used cash flow of $2,119,738 in 1996 as
compared to $753,335 in 1995. The Company's investing activities in 1996 are
primarily related to the acquisition of producing property interests, the
drilling, completion and recompletion of development wells and open market
purchases of readily marketable equity securities of approximately $345,000. The
Company has initiated activities to pursue potential acquisitions of other oil
and gas related companies and in connection with such activities may acquire
securities of such companies and engage advisors for that purpose. The Company
has capitalized approximately $78,200 as of June 30, 1996 in connection with the
possible acquisition of such companies.
Net cash provided by financing activities was $1,144,195 in 1996 as
compared to cash used of $154,956 in 1995, an increase of $989,239, primarily a
result of increased borrowings.
Page 12
13
As of December 31, 1995, the Company had working capital of approximately
$88,000. As of June 30, 1996, the Company had working capital of approximately
$957,000. The increase is attributable to the elimination of the current
maturities on long-term debt as discussed above. The Company believes cash flow
from operations will be sufficient to fund its existing operating needs. In
addition, the Company has under its present credit facility the ability to fund
its capital needs.
As of June 30, 1996, the Company had total assets of approximately
$15,525,000 with approximately $1,030,000 in current liabilities and long-term
debt of approximately $6,875,000. This compares to December 31, 1995 when the
Company had total assets of approximately $14,123,000 with approximately
$1,951,000 in current liabilities and long-term debt of approximately
$4,525,000. Current assets were approximately 13 and 14 percent of total assets
at June 30, 1996 and December 31, 1995, respectively.
The prices of crude oil have fluctuated significantly in recent years as
well as in recent months. As of January 1, 1996, the posted price was $18.00 per
barrel for West Texas Intermediate crude. As of July 1, 1996, the posted price
was $20.00 per bbl. These fluctuations have a significant impact on the
Company's financial condition and liquidity. However, management believes it can
maintain adequate liquidity for future needs.
Results of Operations - Three Months Ended June 30, 1996 and 1995
Net loss increased from $51,660 for the three months ended June 30, 1995
to $68,694 for the same period in 1996, an increase in loss of $17,034. Included
in net loss for 1996 was exploration costs of $342,122 for which there was no
similar item in 1995. Individual categories of income and expense are discussed
below.
Oil and gas sales increased from $1,285,341 in the second quarter of 1995
to $1,612,185 in the same period of 1996. This increase of $326,844 or 25
percent resulted from increased oil and gas prices and oil production offset in
part by decreased gas production due to normal production declines on Copano
Bay. Oil and gas sales included a $8,062 loss in 1995 from gas swap contracts.
Oil and gas production quantities were 40,339 bbls and 301,575 mcf in 1995 and
50,908 bbls and 231,028 mcf in 1996, an increase of 10,569 bbls or 26 percent
and a decrease of 70,547 mcf or 23 percent. Average gas prices increased from
$1.86 per mcf in 1995 to $2.33 per mcf in 1996, while average oil prices
increased from $18.13 per bbl in 1995 to $21.07 per bbl in 1996.
Production costs increased from $695,041 in the second quarter of 1995 to
$740,504 for the same period of 1996, an increase of $45,463 or 7 percent. This
increase was primarily attributable to property acquisitions during 1995 and
1996.
General and administrative expenses ("G&A") increased from $274,539 for
the second quarter of 1995 to $320,982 for the same period of 1996, an increase
of $46,443 or 17 percent. This increase was primarily attributable to a higher
level of salaries and fringe benefits.
Depreciation, depletion and amortization ("DD&A") based on production and
other methods decreased from $296,869 in the second quarter of 1995 to $239,059
in the same period of 1996, a decrease of $57,810 or 19 percent, due primarily
to increased reserve quantities.
Interest expense increased from $146,773 for the second quarter of 1995 to
$160,375 for the same period of 1996, an increase of $13,602 or 9 percent due to
increased long-term borrowings offset in part by lower interest rates.
Results of Operations - Six months Ended June 30, 1996 and 1995
Net loss increased from $34,594 for the six months ended June 30, 1995 to
$71,771 for the same period in 1996, an increase in loss of $37,177. Included in
net loss for 1996 was exploration costs of $518,778 for which there was no
similar item in 1995. Individual categories of income and expense are discussed
below.
Page 13
14
Oil and gas sales increased from $2,605,248 in the first six months of
1995 to $3,105,326 in the same period of 1996. This increase of $500,078 or 19
percent resulted from increased oil and gas prices and oil production offset in
part by decreased gas production due to normal production declines on Copano
Bay. Oil and gas sales included a $3,353 loss in 1995 and a $25,860 loss in 1996
from gas swap contracts. Oil and gas production quantities were 84,475 bbls and
607,344 mcf in 1995 and 103,784 bbls and 481,261 mcf in 1996, an increase of
19,309 bbls or 23 percent and a decrease of 126,083 mcf or 21 percent. Average
gas prices increased from $1.83 per mcf in 1995 to $2.24 per mcf in 1996, while
average oil prices increased from $17.68 per bbl in 1995 to $19.75 per bbl in
1996.
Production costs increased from $1,303,561 in the first six months of 1995
to $1,422,289 for the same period of 1996, an increase of $118,728 or 9 percent.
This increase was primarily attributable to property acquisitions in 1995 and
1996.
G&A increased from $573,687 in the first six months of 1995 to $626,828 in
the same period of 1996, an increase of $53,141 or 9 percent. This increase was
primarily attributable to a higher level of salaries and fringe benefits.
DD&A based on production and other methods decreased from $596,075 in the
first six months of 1995 to $473,161 in the same period of 1996, a decrease of
$122,914 or 21 percent, due primarily to increased reserve quantities.
Interest expense increased from $293,472 for the first six months of 1995
to $312,582 for the same period of 1996, an increase of $19,110 or 7 percent due
to increased long-term borrowings offset in part by lower interest rates.
Page 14
15
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None.
Item 2. Changes in securities
None.
Item 3. Defaults upon senior securities
None.
Item 4. Submission of matters to a vote of security holders
The annual stockholders meeting was held on May 31, 1996. Deas H.
Warley III was elected director with an affirmative vote of 3,487,657
with 33,141 votes withheld. Robert R. Donnelly was elected director
with an affirmative vote of 3,483,056 and 37,742 votes withheld.
Darrell M. Dillard was elected director with an affirmative vote of
3,486,765 with 34,033 votes withheld. Sam R. Brock was elected
director with an affirmative vote of 3,487,658 with 33,140 votes
withheld. Wayne M. Whitaker was elected director with an affirmative
vote of 3,481,689 with 39,734 votes withheld. The 1996 Midland
Resources, Inc. Long-Term Incentive Plan was approved by an
affirmative vote of 3,167,689 with 310,775 votes against and 42,334
votes abstaining. Ernst & Young LLP was appointed as independent
auditors for the ensuing fiscal year by an affirmative vote of
3,378,858 with 114,415 votes against and 27,525 votes abstaining.
Item 5. Other Information
None.
Item 6. Exhibits and reports on Form 8-K
a. Exhibits:
27 Article 5 Financial Data Schedule for first quarter 10-QSB
(only filed electronically)
b. Reports on Form 8-K - A report on Form 8-K under item 5 other
events dated June 27, 1996 was filed.
Page 15
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
MIDLAND RESOURCES, INC.
(Registrant)
Date: August 14, 1996 By: /s/ Deas H. Warley III
------------------------------------------
Deas H. Warley III, President
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following person on behalf of the
Registrant and in the capacity and on the date indicated.
Date: August 14, 1996 By: /s/ Darrell M. Dillard
------------------------------------------
Darrell M. Dillard, Chief Financial Officer
Page 16
17
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule